Delivering good
outcomes for
our customers
Annual Report and Accounts
2023
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
D
Appendices
What we do
OSB Group is a leading specialist
mortgage lender, primarily focused
on carefully selected sub-segments
of the UK mortgage market.
Our continued success
is driven by strong
relationships with all
our stakeholders.
For more information see pages 12-17
Our Purpose is to
help our customers,
colleagues and
communities
prosper
Our Values
are what our
colleagues
stand by, and
support us in
achieving our
Purpose
OSB GROUP PLC | Annual Report and Accounts 2023
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
01
01
What’s inside…
Overview
02 Highlights
04 Our culture
05 Why invest?
Governance
106 Board of Directors
108 Group Executive Committee
110 Corporate Governance
Report
Strategic Report
07 Chair of the Board’s statement
131 Group Nomination and
Governance Committee
Report
Appendices
260 Independent Assurance
Statement
262 Independent Limited
Assurance Report
265 Alternative Performance
Measures
268 Glossary
136 Group Audit Committee
269 Company Information
Report
143 Group Risk Committee
Report
146 Other Committees
147 Directors’ Remuneration
Report
178 Statement of Directors’
Responsibilities
179 Directors’ Report
Financial Statements
183
Independent Auditor’s Report
193 Consolidated Statement
of Comprehensive Income
194 Consolidated Statement
of Financial Position
195 Consolidated Statement
of Changes in Equity
196 Consolidated Statement
of Cash Flows
197 Notes to the Consolidated
Financial Statements
251 Company Statement
of Financial Position
252 Company Statement
of Changes in Equity
253 Company Statement
of Cash Flows
254 Notes to the Company
Financial Statements
09 Market review
12 Our business model
18 Chief Executive Officer’s
statement
22 Strategic framework
24 Strategy in action
25 Segments review
33 Key performance indicators
36 EIR adjustment overview
39
Financial review
45 Risk review
53 Principal risks and
uncertainties
67 Viability statement
69 Sustainability report
94
TCFD
103 Non-financial information
statement
For the latest investor relations /
www.osb.co.uk/investors
The Group delivered 9% net
loan book growth despite
subdued demand in the
wider mortgage market...
Andy Golding Chief Executive Officer
See my statement on page 18
02
02
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Highlights
Throughout the Strategic report,
the Key performance indicators
(KPIs) are presented on a statutory
and an underlying basis.
Management believes that the underlying
KPIs provide a more consistent basis for
comparing the Group’s performance between
financial periods.
Underlying KPIs exclude integration costs
and other acquisition-related items. For a
reconciliation of statutory to underlying KPIs,
see the Appendix.
For more information see pages 33-35
Financial KPIs
Gross new lendingΔ
-20%
2023
2022
Net interest marginΔ
-47bps
Cost to incomeΔ
+9ppt
£4.7bn
£5.8bn
2023
2022
231bps
278bps
2023
2022
36%
27%
-52bps
+8ppt
2023
2022
251bps
303bps
2023
2022
33%
25%
Net loan book
+9%
2023
2022
+9%
2023
2022
Loan loss ratioΔ
+7bps
Profit before tax
-30%
£25.8bn
£23.6bn
2023
2022
20bps
13bps
2023
2022
£374.3m
£531.5m
+6bps
-28%
£25.7bn
£23.5bn
2023
2022
20bps
14bps
2023
2022
£426.0m
£591.1m
Key:
Statutory
2023
Statutory
2022
Underlying
2023
Underlying
2022
Group
2023
Group
2022
02
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Highlights continued
Financial KPIs continued
Non-financial KPIs
Basic EPSΔ (pence per share)
Women in senior management1
Return on equityΔ
-7ppt
-27%
2023
2022
14%
21%
2023
2022
66.1p
90.8p
-8ppt
-25%
2023
2022
16%
24%
2023
2022
75.0p
99.6p
Common Equity Tier 1 (CET1) ratio
-220bps
2023
2022
16.1%
18.3%
Ordinary dividendΔ
+5%
2023
2022
32.0p
30.5p
Δ The Group’s external auditor performed an independent
reasonable assurance review of certain KPIs as marked with the
symbol Δ – see the Appendix for the auditor’s assurance report.
+2ppt
2023
2022
33%
31%
Reduction in energy consumption per sq.m2
11%
2023
2022
191.87 kWh/sq.m
216.32kWh/sq.m
Savings customer satisfaction –
Net Promoter Score3
+7
B
S
O
2023
2022
+1
S 2023
F
C
C
2022
+71
+64
+62
+61
1. Employees at grades A (Executive Director) to
grade E (including function heads with senior
direct reports or employees at specialist roles of
a senior nature).
3. Prior to Q4 2022 the CCFS NPS was measured
using its legacy engagement programme,
thereafter measurement was aligned to the OSB
Group programme.
2. Energy consumption is a measure of the
total kWh used (electricity, gas and gasoil)
in buildings under the Group’s operational
control, divided by the total square meterage
of those buildings.
The 2022 OSB NPS included email surveys in
November and December. The 2023 OSB NPS
included interactive voice recognition surveys,
which were not considered for CCFS scores.
04
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04
Our culture
Together we prosper
At OSB Group we are working hard to create a positive, collaborative and supportive environment.
Our Purpose
To help our customers, colleagues and communities prosper.
By that we mean more than just helping them to be more financially well off. We want them to flourish,
thrive and succeed in their personal and professional goals.
Our Vision
To be recognised as the UK’s
number one choice of specialist bank,
through our commitment to exceptional
service, strong relationships and
competitive propositions.
By working Stronger together, Taking ownership,
Aiming high and Respecting others, we will more
powerfully achieve our own goals, as well as those of
our stakeholders’.
But we are not just focused on lending and savings
(though that is what we do and what we are great
at); we are a business that cares about leaving things
better than we found them. We are passionate about
Stewardship, which encourages us to give back to our
communities, supporting those who are vulnerable or
less fortunate, embracing diversity and finding new
ways to protect our environment.
It does not matter where we are working from: a
branch, on the road, in the office or from home. It does
not even matter that we are not all in the same country.
We are clear about what we want to achieve, we
know how we want to achieve it and we are absolutely
determined to build upon the foundations we have
created so our customers, shareholders, communities
and colleagues can prosper.
Our Values
Our Values are the principles
that support our Purpose.
Stronger together
We collaborate to create a culture in which we all share
goals and values. We aim to build trust, respect and
openness across the Group.
Aim high
We set the bar high for ourselves and our customers. They
are the ones who know when we are going above and
beyond and remember the promises we keep.
Stewardship
We act with conscience and take social, environmental and
ethical factors into consideration when making decisions.
Take ownership
We take ownership of what needs to be done as well as
our personal and professional development, helping to
achieve the collective goals of the business.
Respect others
We treat others fairly and communicate in a way that
respects an inclusive and diverse culture, listening to all
voices and ensuring opinions are offered and heard.
We will support achieving our
goals by working Stronger
together, Taking ownership,
Aiming high and Respecting
others...
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
05
Why invest?
OSB Group is a leading specialist mortgage lender; what makes
us different is our unique business model and our consistent returns.
Leader in specialist
sub-segments
OSB Group is a leading
mortgage lender in
professional Buy-to-Let and
specialist Residential market
sub-segments.
The Private Rented Sector
has experienced an
expansion in the last 20
years boosted by a lack of
affordable housing in the
UK and the Group’s share of
new Buy-to-Let business was
c.9% in 2023. The Group’s
net loan book grew by 9%
in 2023.
Highly capital-
generative
The Group is strongly
capitalised with a proven
track record of capital
generation through
profitability. This allows it
to support strong growth
as well as distributions
to shareholders.
The Board has recommended
a final dividend of 21.8 pence
per share and a £50m share
repurchase programme over
the next six months.
Consistent returns
Since its IPO, the Group
has consistently generated
a market-leading return
on equity (RoE), driven
by attractive margins,
significant growth in its
specialist market sub-
segments and sound
risk management.
In 2023 the underlying and
statutory RoEs remained
strong at 16% and 14%,
respectively, after the total
net adverse EIR adjustment
of £181.6m and £210.7m
on an underlying and
statutory basis.
Our competitive
advantage
The Group focuses on
market sub-segments where
its specialist approach to
underwriting offers a key
source of differentiation.
The Group offers a unique
breadth of complementary
yet differentiated lending
propositions to its customers,
ranging from speedy
decisions for ‘off the peg’
solutions from its Precise
Mortgages brand, through
to structuring unique
‘bespoke’ solutions through
its InterBay brand.
Experienced
leadership team
The Group is managed by
an experienced and well-
respected leadership team
and governed by a Board
with a broad range of skills
and expertise. The leadership
team has a long track record
in operational management
and in delivery of sustainable
returns for shareholders.
Focus on
sustainability
The Group progressed its
commitment to net zero1
and the Net Zero Banking
Alliance by publishing
interim science-based
targets for 2030. In 2023
we laid the foundations for
achieving these targets be
developing our inaugural
Climate Transition Plan,
available on our website.
We strive to make the Group
a more diverse and inclusive
organisation and, in the
year, we achieved our 33%
target of women in senior
management roles in the UK.
For more information
see pages 25- 32
For more information
see page 14
For more information
see pages 106-109
For more information
see pages 69- 93
Underlying net
loan book
£25.7bn
2022: £23.5bn
Ordinary dividend
per share
32.0p
2022: 30.5p
Underlying return
on equity
16%
2022: 24%
1. Net zero is defined as a reduction
in Scope 1, 2, and 3 emissions to
zero or to a residual level that is
consistent with reaching net zero
emissions at the global or sector
level in 1.5°C aligned pathways.
06
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Strategic
Report
07
Chair of the Board’s statement
09 Market review
12
18
22
24
25
33
36
39
45
53
67
Our business model
Chief Executive Officer’s statement
Strategic framework
Strategy in action
Segments review
Key performance indicators
EIR adjustment overview
Financial review
Risk review
Principal risks and uncertainties
Viability statement
69
94
Sustainability report
Task Force on Climate-Related
Financial Disclosures
103 Non-financial information statement
Strategic Report
Chair of the Board’s statement
Chair of the Board’s statement
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
07
Chair of the Board’s statement
2023 was characterised by continuing
macroeconomic uncertainty and geopolitical
stress. For the Group, the combined impact of
rapid Bank of England rate rises and volatility in
yield curves was significant. Nonetheless our well
regarded customer propositions underpinned
strong underlying growth in our net loan book
and the consistent delivery of good outcomes for
our customers.
Total ordinary dividend
pence per share
32.0
2022: 30.5
Share repurchase -
next six months
£50m
2022: £150m
The story of strong growth was overshadowed
in July as the Group announced an adverse
effective interest rate (EIR) adjustment. This
had a significant impact on its share price,
and I share the disappointment amongst our
shareholders from this event. I am pleased
that the change in customer behaviour as
interest rates rose rapidly in the first half of
the year has, as reported in our Q3 trading
update, been broadly stable since the
adverse EIR adjustment was announced,
providing some assurance to investors.
The Board and I take confidence that the
management team dealt with the issue
appropriately and lessons learnt from this
experience have been addressed.
The Group continued to formalise its
approach to sustainability and was
confirmed as a UN Global Compact
signatory in December. We have also
published our first Climate Transition Plan
and interim emission targets for 2030, as
we progress on the path to achieving our
long-term goal of net zero greenhouse gas
emissions by 2050.
April Talintyre our long-serving Chief
Financial Officer (CFO) and Executive
Director has advised the Board that she will
not be seeking re-election and will retire at
the Group Annual General Meeting on 9
May 2024. I and the Board of OSB Group
would like to thank April for her exceptional
contribution and commitment to the business
since she joined in 2012, and I wish her all
the best for her retirement. The process to
appoint a permanent replacement for April
is progressing well and Victoria Hyde, the
Deputy Chief Financial Officer will become
the acting CFO, subject to regulatory
approval, whilst the process is completed.
The Group remains well-capitalised, and
successfully issued £250m of Tier 2 debt
and £300m of MREL qualifying senior notes
in 2023 which strengthened our reputation
in debt capital markets. The Group met its
interim MREL requirement of 22.5% of risk
weighted assets, including regulatory buffers,
in January 2024 following a further £400m
issuance of senior debt.
The Board is committed to returning excess
capital to shareholders and I am pleased
to announce that following the successful
completion of the £150m share repurchase
during 2023, a further £50m share
repurchase programme over the next six
months will commence on 15 March 2024. In
addition, the Board has recommended a final
dividend of 21.8 pence per share for 2023,
which together with the interim dividend
of 10.2 pence per share, represents a total
ordinary dividend for the year of 32.0 pence
per share (2022: 30.5 pence).
08
08
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0808
Chair of the Board’s statement continued
The Group met its interim MREL
requirement, including regulatory
buffers, in January 2024 following a
further £400m issuance of senior debt…
Overall, and notwithstanding continued
economic and political uncertainty, the
Board is confident that our focused strategy
will continue to deliver strong net loan book
growth, good capital generation supporting
further capital returns to our owners, and a
progressive dividend per share.
We are continuing to invest in people, our
technology infrastructure and enhancements
to our increasingly digital customer
propositions. These are all vital to ensure
the long-term sustainability of the business.
Along with our Board, our Executives and
most importantly the 2,500 colleagues in our
teams, I am looking forward to the future with
renewed confidence and enthusiasm.
David Weymouth
Chair of the Board
14 March 2024
COMPANIES ACT 2006
SECTION 172 COMPLIANCE
STATEMENT
The Directors are bound by their
duties under section 172(1)(a) to (f)
of the Companies Act 2006 and the
manner in which these have been
discharged; in particular their duty
to act in the way they consider, in
good faith, promotes the success of
the Company for the benefit of its
shareholders as a whole.
Pages 119-125 in the Corporate
Governance Report demonstrate
how the Board has engaged with the
Group’s key stakeholders (customers,
intermediaries, colleagues,
shareholders, suppliers, regulators
and the local communities in which
we are located). Examples of strategic
decisions which have impacted the
Group’s key stakeholders are set out
on page 118.
Contents Generation – PageContents Generation – Sub PageContents Generation - Section Market review
Market review
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
09
Market review
Meeting market demand
Activity reduced in the housing and mortgage markets in 2023,
with rising interest rates and cost of living pressures impacting
buyer affordability.
The UK housing and
mortgage market
Housing market activity was constrained
during 2023, primarily by affordability
pressures generated through the higher cost
of living and borrowing. As a result, property
transactions and mortgage completions
fell. However product transfers increased,
as borrowers reaching the end of their
initial term sought to lock in their monthly
repayments to protect against further
interest rate rises.
Inflationary pressures which began in 2022
carried on into 2023 with prices rising by
10.1% in the 12 months to January 2023.1
This prompted the Bank of England (BoE)
to implement five successive increases in
the base rate in 2023, with the objective of
reducing inflation towards its 2.0% target. The
base rate rose to 5.25% by August 2023 an
increase of 1.75% from the start of the year.2
The BoE’s response contributed to an easing
of CPI inflation which fell steadily throughout
2023, leading the Monetary Policy
Committee to vote to hold rates steady at the
final three meetings of the year in September,
November and December, with CPI of 4.0% at
the end of the year.1
Mortgage interest rates increased
significantly following the Government’s
mini-budget in September 2022 and higher
rates persisted throughout 2023 with some
moderation through the early part of the
year. The average rate on a new two-year
fixed rate residential mortgage at 75% loan
to value fell from 5.14% in January 2023
to 4.60% in April according to the Bank of
England, before rising again during a period
of volatile interest rate swap pricing, hitting
a peak of 6.22% in July. Mortgage rates
then eased to the end of the year, with the
average two-year fixed rate product offered
at 5.03% in December.3
House prices also continued to increase in
the first half of the year, despite weakening
demand, before turning negative from July
onwards. UK house prices fell by 1.4% in the
12 months to December 2023.4
The combination of these factors greatly
suppressed overall activity in the housing
and mortgage markets, with the number
of residential property transactions in
the UK falling by 19% to 1.02m in 2023
(2022: 1.26m)5, the number of approvals
for new mortgages falling by 30% to 1.02m
(2022: 1.46m)6 and total UK gross mortgage
lending falling by 29% to £224bn in 2023
(2022: £313bn).7
UK Buy-to-Let gross advances
£29bn
2023
2022
2021
£29bn
£57bn
£48bn
Source: UK Finance, Feb 2024.
UK average house price inflation
-1.4%
2023
-1.4%
2022
2021
Source: ONS, Feb 2024.
+7.7%
+8.1%
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Market review continued
The UK savings market
Savings balances in the UK reduced by 0.9%
in 2023 to close the year at £2,182.2bn,
compared to growth of 3.1% a year earlier,
as cost of living pressures weighed on
households’ disposable income.8
Consumer preference pivoted in favour of
term savings accounts over instant access and
current accounts, with term deposits and cash
ISA balances increasing by 36.3% and 16.3%
respectively during the year. This performance
is a marked shift to the declining balances
reported in these product types in 2022, as
higher interest rates motivated consumers to
lock into term savings in 2023.9
Pricing on one-year fixed term accounts
increased from a peak of 3.64% in 2022 to
a peak of 5.45% in 2023, reflecting a higher
SONIA yield curve and signs of increasing
competition in the second half of the year.10
At the end of December 2023, 1,918 savings
products were promoted in the market,
which represented a step-up from the 1,690
accounts advertised a year earlier.11
The Bank of England base rate increased
by 175bps during the year. The majority of
this benefit was passed through to savers
with interest rates on instant access savings
products increasing by an average of 161bps
in 2023.10 In August 2023, NS&I made an
aggressive step, moving to the top of the best
buy tables and banks and building societies
were compelled to follow suit.
The Group’s lending segments
Buy-to-Let
Buy-to-Let gross advances totalled £29.0bn
in 2023, a 49% decrease from £57.2bn in
2022, reflecting affordability concerns,
with rising borrowing costs and pressures
stemming from higher energy prices and
increasing maintenance costs.12
The regulatory landscape also continued
to shift, with speculation regarding two
pending pieces of legislation contributing
to landlords’ uncertainty:
• The Renters (Reform) Bill was introduced
to Parliament in May and proposed a
wide-ranging set of measures that seek
to improve standards in the private rented
sector. This includes the abolition of ‘no
fault’ evictions via a Section 21 notice,
the strengthening of landlords’ grounds
for repossession and the application of
a Decent Homes Standard to the private
rented sector for the first time.
...professional, multi-property
landlords that form the Group’s
customer base will play an
increasing role in the sector’s
future...
• A consultation on Improving the Energy
Performance of Privately Rented Homes
in England and Wales closed in January
2021. The outcome was widely expected
to introduce a minimum requirement for
all rental properties to achieve an EPC
(Energy Performance Certificate) rating of
C or higher from 2028, however the Prime
Minister announced that this plan had
been withdrawn in September.
UK Buy-to-Let mortgage balances
outstanding fell by 0.2% to £301bn during the
year, and it is evident that a limited number
of landlords chose to exit the market.12
However, it is likely that this activity was more
concentrated towards amateur landlords
with single properties or small portfolios.
Research conducted by BVA BDRC on
behalf of the Group showed that single
property landlords were the least likely to
make a profit, the least likely to acquire
new properties and the most likely to exit
the private rented sector in the next 12
months. The research also showed that of
all landlords who planned to purchase new
properties in the next 12 months, the majority
(63%) planned to do so within a limited
company structure. This correlates with the
Group’s own Landlord Leaders research. This
illustrates that professional, multi-property
landlords that form the Group’s customer
base will play an increasing role in the
sector’s future.13
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Market review continued
Data collected by RICS showed that the
Private Rented Sector had a critical role to
play in the provision of housing in the UK.
RICS members reported increasing tenant
demand in every survey since mid-2020,
with supply remaining weak. This was
also the case in 2023, as evidenced by a
decline in landlord instructions coming to
market, further magnifying supply and
demand imbalance14.
This imbalance exerted growing pressure on
rents during 2023. The ONS reported that
rents on the existing rental stock increased by
6.2% in the 12 months to December 202315,
while Rightmove reported that asking rents
for newly let properties increased by 9.2%
in the fourth quarter of 2023 compared to
a year earlier16. Research conducted by
BVA BDRC suggested that over half (51%) of
landlords planned to increase rents in the
next six months, with most suggesting an
increase is necessary to cover the running
costs of the property.13
Residential
Total residential loans to homeowners
reached £186bn in 2023 according to UK
Finance, a 26% decrease from £250bn in
2022. Within this total, purchase activity
declined by 28% to £121bn (2022: £168bn)
while refinancing fared slightly better, down
21% to £65bn (2022: £82bn).17
Refinancing volumes during the year were
likely dampened by the growing popularity
of product transfers within an existing lender
which are not included in gross lending
totals. This trend was in part driven by the
Mortgage Charter, under which signatory
lenders agreed to allow customers who are
approaching the end of their fixed rate term
the opportunity to lock in a new fixed rate
product up to six months in advance.
Product transfers totalled £240bn in 2023, a
21% year-on-year increase (2022: £198bn), and
represented 78% of all regulated refinancing
activity during the year (2022: 69%).18
Commercial
There was a sense of confidence in
commercial property during the first half
of 2023, supported by stable or slightly
increasing capital and rental values. This
positive momentum reversed in some
segments during the second half of the year,
with declines becoming more pronounced
in the fourth quarter. Data for ‘all property’
showed capital values fell by 3.9% in 2023,
with varying degrees of impact across
commercial property sub-categories.19
UK office investment remained at low levels
throughout 2023 and the traditional end-
of-year surge in activity did not materialise.
According to CoStar Research, annual
office investment stood at £8.8bn, a 14- year
low and less than half the ten-year annual
average of £23.7bn. The reduction in trading
was most pronounced for higher-value
properties. Prices fell as a result of weak
investor sentiment, higher borrowing costs
and rising vacancies as hybrid working
continued. In response to this, cash-rich
investors have been entering the market
seeking high quality offices in desirable
locations or, in some cases, seeing an
opportunity to capitalise on the increasing
occupier preference for energy efficient
offices by retrofitting older buildings.20
Investor sentiment towards the retail sector
has generally deteriorated in recent years
amid multiple lockdowns and a wave of store
closures and company administrations.
There were however, some pockets in good
high street locations in affluent commuter
towns and established market towns that
were bucking this trend. Average yields
increased at the end of 2023, with retail
property trading at a big discount to
industrial properties in a complete reversal
from a decade earlier. Rising interest rates,
inflationary pressures and faltering retail
sales made retail property appear less
attractive and financing more difficult to
secure, with the last two quarters of the year
representing the weakest time for investment
in the last three years. Overall, retail leasing
demand continued to decline in the second
half of 2023.
The strong levels of occupier and investor
demand for industrial property, witnessed
through the height of the pandemic, faded in
2023, amid higher inflation and interest rates.
However, the sector continued to benefit
from structural factors such as e-commerce,
supply chain reconfiguration and the push
towards net zero carbon emissions. Although
occupiers scaled back growth plans which
weighed on take up, vacancies remained
relatively low at 4.1% nationally.21 Industrial
properties with the highest energy-efficiency
ratings posted stronger rental growth than
their lower rated or unrated counterparts.
Sector-wide rental growth rates eased from
record levels as vacancies increased and
occupiers faced growing cost pressures.
Residential development
A lower level of activity in the residential
development sector reflected the subdued
wider housing market as developers
reduced the number and scale of projects
in response to the higher cost of financing
and lower demand from homebuyers.
New build completions were 9% lower in
the third quarter of 2023 than in the third
quarter of 2022, whilst new build starts were
down 47%.22
Demand for new properties remained
relatively resilient for housing that was
affordable to local populations, in contrast to
the broader market. However, as mortgage
pricing began to fall towards the end of
the year there was anecdotal evidence of
increased activity in the new build sector.
1. ONS, Consumer price inflation, UK: Dec 2023.
2 BoE, Interest rates and Bank Rate, Dec 2023.
3. BoE, 2 year (75% LTV) fixed rate mortgage to
households (IUMBV34), Dec 2023.
4. ONS, UK House Price Index, Dec 2023.
5. HMRC, Monthly property transactions, Jan 2024.
6. UK New mortgage approvals, Jan 2024.
7. BoE, UK Gross mortgage lending, Jan 2024.
8. BoE, Sterling retail deposits (VRJX), Jan 2024 .
9. Building Societies Association, Household savings,
Jan 2024.
10. Building Societies Association, Savings interest rates,
Jan 2024.
11. Moneyfacts, Treasury Reports, Dec 2022–Dec 2023.
12. UK Finance, BTL mortgages outstanding and new
lending, Feb 2024.
13. BVA BDRC, Landlords Panel Research, Q4 2023.
14. RICS, UK Residential Market Survey, Jan 2024.
15. ONS, Index of Private Housing Rental Prices, Jan 2024.
16. Rightmove, Rental Prices Tracker, Q4 2023.
17. UK Finance, Residential new mortgages and
remortgages, Feb 2024.
18. UK Finance, Lending and affordability for new
refinancing and releveraging mortgages, Feb 2024.
19. CBRE, UK Monthly Index Snapshot, Jan 2024.
20. CoStar Research, Office national report, Jan 2024.
21. CoStar Research, Industrial national report, Jan 2024.
22. ONS, UK House building: permanent dwellings started
and completed, Jan 2024.
Contents Generation – PageContents Generation – Sub PageContents Generation – Section 12
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
12
Our business model
We are a leading specialist mortgage lender, supported by diversified and stable
funding platforms and operating through a unique and cost-efficient operating model.
Sophisticated funding platforms
Our lending is predominantly funded by retail deposits sourced through our Kent
Reliance (KR) and Charter Savings Bank (CSB) franchises. The Group’s issuance of
high-quality residential mortgage-backed securities, access to Bank of England’s
funding schemes and issuance of MREL qualifying debt provide funding diversification.
Specialist mortgage lending
The Group’s complementary underwriting platforms support OSB’s bespoke
and experience-based manual approach and CCFS’s automated approach
to loan assessment, offering attractive solutions for each of our borrowers.
Group’s funding channels as at
31 December 2023
Retail 82%
Bank of England 13%
Wholesale 3%
Debt 2%
Statutory retail
deposits
£22.1bn
2022: £19.8bn
23
securitisations since
2013 worth
£11.4bn
2022: 22 securitisations
worth £11.1bn
Gross loans
20%
Residential
4% Commercial
3% Other
Residential
development 1%
Second charge 1%
Bridging 1%
CCFS
Resi
12%
OSB
Resi
8%
CCFS
BTL
31%
OSB
BTL
42%
Statutory loans to
customers
£25.8bn
2022: £23.6bn
Gross new lending
£4.7bn
2022: £5.8bn
73% Buy-to-Let
Value we
create
Competitive advantages
Brands and heritage
Both KR and CSB are award-winning
franchises. KR has over 160 years of
heritage and nine branches
Capital markets expertise
Our strategy is to be dynamic and
nimble with issuance plans providing
cost efficient term funding
Competitive advantages
Relationships with intermediaries
We invest time to develop strong
relationships with mortgage brokers who
distribute our products to customers
Breath of propositions
Our diverse brands allow us to tailor
our lending proposition to better
meet the needs of our borrowers
Read more on pages 15-16
Read more on page 14
Unique operating model
The Group operates customer service functions in multiple
locations, including our wholly-owned subsidiary OSB India.
The Group also has expertise in credit assessment, case
management, in-house real estate expertise and collections.
Read more on page 17
OSB savings
customer NPS
CSB savings
customer NPS
+71
+62
Statutory cost
to income ratio
36%
Competitive advantages
Outstanding customer service
OSB India puts customer service
at the heart of everything it does,
demonstrated by the excellent
customer Net Promoter Scores
Deep credit expertise
Our deep credit expertise and
strong data analytical capabilities
offer valuable insights and
learning from the performance of
mortgage products
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
13
Our business model continued
Value we create
For shareholders
Our proven business strategy and capital
generation capability support consistent
capital returns including a progressive
dividend per share.
For savers
We offer fair and transparent products that
meet our customers’ needs and recognise
loyalty with special rates for existing savers.
Our commitment to excellent customer
service is reflected in our strong NPS scores.
For intermediaries
Our Sales teams have strong relationships with
intermediaries, helping them to understand our
products. We structure bespoke solutions for
our borrowers, delivering clear, accurate and
efficient decisions that are recognised for their
quality, fairness and consistency.
Statutory
basic EPS
66.1p
2022: 90.8p
Ordinary dividend
per share
32.0p
2022: 30.5p
OSB customer
retention1
91%
2022: 94%
CCFS customer
retention1
85%
2022: 88%
OSB and CCFS
broker NPS2
+57
2022: OSB +37, CCFS +39
For employees
We strive to create a positive,
collaborative and inclusive environment
for all colleagues. We invest in training,
development and employee engagement
activities and offer competitive
remuneration and attractive benefits.
For the environment
We are committed to environmental
stewardship, reducing our impact on the
environment, supporting the transition to a
low carbon economy and achieving net zero
across our value chain.
For our communities
We support our national and local
community partnerships through
a variety of volunteering initiatives,
fundraising events and sponsorships.
Women in
senior management
roles3
Number of Group
employees promoted
in 2023
Reduction in
energy consumption
per sq.m4
Electricity purchased
in the UK from
renewable tariffs
33%
2022: 31%
183
2022: 318
11%
99%
2022: 100%
Group
sponsorships
and donations:
over
£288k
2022: over £220k
1. Retention is defined as average maturing fixed contractual retail deposits that remain with the Group on their maturity date.
2. OSB broker NPS relates to Kent Reliance brokers and CCFS broker NPS relates to Precise Mortgages brokers.
3. Employees at grades A (Executive Director) to grade E (including function heads with senior direct reports or employees at
specialist roles of a senior nature).
4. Energy consumption is a measure of the total kWh used (electricity, gas and gasoil) in buildings under the Group’s operational
control, divided by the total square meterage of those buildings. In 2023, 191.87kWh/sq.m was used and 216.32 kWh/sq.m in 2022.
14
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
14
Our business model explained
Specialist mortgage lending
The complementary strengths and enhanced customer propositions
from the Group’s diverse brands make us a leading specialist
lender in the UK. The Group reports its lending business under two
segments: OneSavings Bank and Charter Court Financial Services.
Complementary brand propositions
‘Off the peg’
OneSavings Bank
segment
Through our brands we tailor our lending
proposition to the specific needs of our
borrowers. Under our Kent Reliance and
InterBay brands all of our loans are
underwritten by experienced and skilled
underwriters, supported by technology
to reduce the administrative burden on
underwriters and mortgage intermediaries.
We refer to scorecards and bureau data
to support our skilled underwriter loan
assessments. We consider each loan on its
own merits, responding quickly and flexibly
to offer an attractive solution for each of
our customers. No case is too complex
for us, and for those borrowers with more
tailored or larger borrowing requirements,
our Transactional Credit Committee meets
three times each week, demonstrating our
responsiveness to customer needs.
Charter Court Financial
Services segment
Our Precise Mortgages brand uses an
automated underwriting platform to
manage mortgage applications and to
deliver a rapid decision in principle, based
on rigorous lending policy rules and credit
scores. The platform is underpinned by
extensive underwriting expertise, enabling
identification of new niches and determining
appropriate lending parameters.
It allows for consistent underwriting within
the Group’s risk appetite. Quick response
times help the Group to compete for the
‘first look’ at credit opportunities, while a
robust manual verification process further
strengthens the disciplined approach to
credit risk.
‘Tailored’
‘Bespoke’
If the case fits the policy then we will
issue a speedy agreement in principle
Buy-to-Let
Residential
Bridging
Experience-based manual underwriting
allows us to assess more complex and
larger mortgage requirements
Buy-to-Let
Residential
Unique to each customer, we structure the
deal to the specifics of an application
Commercial
Semi-commercial
Complex
Buy-to-Let
Funding lines
Asset finance
Residential developmental
finance
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
15
Our business model explained continued
Sophisticated funding platforms
The Group’s lending business is supported by diversified and
stable funding platforms. This enables cost of funds optimisation,
while prudently managing funding and liquidity risks.
Retail savings
The Group is predominantly funded by retail
savings deposits sourced through two brands:
Kent Reliance and Charter Savings Bank (CSB).
Kent Reliance’s proposition for savers is
simple: to offer consistently good-value
savings products that meet customer needs
for cash savings with loyalty rates for
existing customers.
Kent Reliance is an award-winning retail
savings franchise with over 160 years of
heritage and nine branches in the South East
of England. It also takes deposits via telephone
and online, while CSB, a multi- award-winning
retail savings bank, offers its products online.
Both Banks have a wide range of savings
products, including easy access, fixed term
bonds, cash ISAs and business savings
accounts. CSB and Kent Reliance have
diversified their retail funding sources through
pooled funding platforms with a range of
products offered, including easy access,
longer-term bonds and non-retail deposits.
In 2023, our savings products received
industry recognition: Charter Savings Bank
won Best Overall Savings Provider for the sixth
year running from Personal Finance Awards
and ISA Provider of the Year from Moneyfacts
Consumer Awards. Moneynet Personal
Finance Awards named Kent Reliance as Best
Fixed Rate Savings Provider.
CSB’s philosophy is to maintain and develop
its award-winning business, offering
competitively priced savings products.
Operating with an agile, nimble approach,
CSB can respond quickly to the funding
requirements of the business.
Securitisation platforms
The Group accesses the securitisation
market to provide attractive long-term
wholesale funding to complement its retail
deposit franchise and to optimise its funding
mix. Securitisations also provide efficient
access to commercial and central bank
repo facilities.
The Group’s strategy is to be fleet-of-foot and
dynamic rather than deterministic with its
securitisation issuance plans. This enables it to
maximise opportunities with repeat issuances
during periods of buoyant market activity
and to use other funding when the market is
less favourable.
The Group is a programmatic issuer of high-
quality prime residential mortgage-backed
securities through the Precise Mortgage
Funding (PMF), Charter Mortgage Funding
(CMF) and Canterbury Finance securitisation
programmes. OSB has also issued three deals
of owner-occupied and Buy-to-Let acquired
mortgages via Rochester Financing since 2013.
In 2023, the Group issued its second Simple,
Transparent and Standardised securitisation,
CMF 2023-1, a publicly marketed transaction
that securitised c.£330m of mortgage loans,
and issued c.£300m of AAA rated senior bonds.
In total, the Group has completed 23
securitisations worth more than £11.4bn
since 2013.
The Group also uses a secured warehouse
facility which provides access to funding on
a contingent basis secured on a portfolio of
residential mortgages. £250m of this facility
was drawn at the year end.
Statutory retail deposits
£22.1bn
2022: £19.8bn
Securitisations
23
securitisations since 2013, across
OSB and CCFS, worth
£11.4bn
2022: 22 securitisations
worth £11.1bn
16
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
16
Our business model explained continued
Other funding
Bank of England Schemes
The Group takes advantage of the Bank of
England’s funding schemes. Drawings under
the Term Funding Scheme for SMEs (TFSME)
reduced to £3.3bn as at 31 December 2023
as the Group repaid £900m during the
year (31 December 2022: £4.2bn). TFSME
borrowings provide four-year funding
at a cost of base rate and are due for
repayment by October 2025. Drawings
under Index Long-Term Repo were £10.1m
as at 31 December 2023 (31 December
2022: £300.9m).
Debt issuance
The Group was active in unsecured debt
issuance markets in 2023, as it continued
to optimise its capital composition. In April
2023, the Group issued £250m of Tier 2
notes carrying an initial coupon of 9.993%
with a maturity date in 2033 and optional
redemption in 2028. The Group returned
to the markets in September with a £300m
issuance of senior preferred notes at an initial
coupon of 9.5% with a maturity date in 2028
and optional redemption in 2027. The Group
met its interim MREL requirement, including
regulatory buffers, in January 2024 following
a further £400m issuance of senior debt.
The trades were well received by the primary
issuance market and the Group significantly
expanded its debt investor base as a result.
Both instruments are MREL qualifying and
are actively traded in the secondary market.
The Group significantly
expanded its debt investor base.
Jens Bech, Group Commercial Director
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
17
Our business model explained continued
Unique operating model
The lending and savings businesses operate through the
Group’s unique and cost-efficient operating model.
Customer service
The Group operates customer service
functions in multiple locations across the
UK including Chatham, Wolverhampton,
Fareham, London and Fleet. These, together
with our wholly-owned subsidiary OSB
India, help us deliver on our aim of putting
customers first.
The Group has proven collections capabilities
and expertise in case management and
supporting customers in financial difficulty.
This offers valuable insights into, as well
as the opportunity to learn from, the
performance of mortgage loan products.
We have deep credit expertise through strong
data analytical capabilities.
We deliver cost efficiencies through excellent
process design and management. We have
strong IT security and continue to invest in
enhancing our digital offering as customer
demand changes.
OSB India
OSB India (OSBI) is a wholly-owned
subsidiary based in Bangalore and
Hyderabad, India.
OSBI puts customer service at the heart
of everything it does and we reward our
colleagues based on the quality of service
they provide to customers, demonstrated by
our excellent customer Net Promoter Score.
At OSBI, we employ highly talented and
motivated colleagues at a competitive
cost. We benchmark our processes against
industry best practice, challenging what
we do and eliminating customer pain points
as they arise. We continue to invest in
developing skills that enable highly efficient
service management, matching those to
business needs both in India and the UK.
Various functions are also supported by
OSBI, including Support Services, Operations,
IT, Finance and Human Resources. We
have a one team approach between the
UK and India. The employee turnover in
India improved significantly in the year
with the regretted attrition rate of 12%1 for
2023 demonstrating strong culture and the
Group’s compelling employee proposition.
OSBI operates a fully paperless office –
all data and processing are in the UK.
ESG
We operate in a sustainable way with
relevant Environmental, Social and
Governance matters at the heart of
everything we do.
As a specialist lender, we have been long
aware of our responsibilities and the positive
impact we can make in society through
our activities.
We will be publishing our Climate Transition
Plan with the annual report, where we laid
the foundations for progressing towards net
zero2 by the 2050 target.
The Group strives to create a more diverse
and inclusive workplace, and in the year we
reached our target of having 33% women
in senior management roles in the UK and
made enhancements to maternity and family
benefits. We also donated over £288k to
charitable causes in the year.
1. Employees electing to leave the Group by way of
resignation, excluding those retiring or resigning due
to formal performance or absence process.
2. Net zero is defined as a reduction in Scope 1, 2,
and 3 emissions to zero or to a residual level that is
consistent with reaching net zero emissions at the
global or sector level in 1.5°C aligned pathways.
3. Employees at grades A (Executive Director) to grade E
(including function heads with senior direct reports or
employees at specialist roles of a senior nature).
4. Energy consumption is a measure of the total kWh
used (electricity, gas and gasoil) in buildings under
the Group’s operational control, divided by the total
square meterage of those buildings.
Colleagues employed at OSB India
928
2022: 663
OSBI regretted attrition rate1
12%
2022: 24%
Group colleagues
2,459
2022: 2,021
Women in senior management roles3
33%
2022: 31%
Reduction in energy consumption
per sq.m4
11%
2023: 191.87 kWh/sq.m
2022: 216.32 kWh/sq.m
Electricity purchased in the UK
from renewable tariffs
99%
2022: 100%
18
OSB GROUP PLC | Annual Report and Accounts 2023
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Strategic Report
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Financial Statements
Appendices
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Chief Executive Officer’s statement
The Group reported strong performance in its
core lending and savings franchises during 2023,
with robust demand for its specialist mortgages
delivering 9% net loan book growth, despite
a challenging interest rate environment that
subdued demand in the wider mortgage market.
We grew market share in our core Buy-to-Let sub-segment
and I am proud that we remain a trusted partner for
professional multi-property landlords who provide homes in
the Private Rented Sector.
Underlying and statutory
net loan book growth
9%
2022: 12%
Underlying and statutory
retail deposits growth
12%
2022: 13%
Our fair and attractively priced savings
products were popular, and we grew our
retail deposits book by 12% in the year. Our
debt issuance programme was well-received
by investors, and following the January
issuance of £400m of MREL qualifying
debt securities, we met the interim MREL
requirement, including regulatory buffers
As reported at the half-year, the Group’s
2023 results were significantly impacted by
the total net adverse effective interest rate
(EIR) adjustment of £181.6m on an underlying
basis. This related to the reduction in
expected time spent on reversion rates for
Precise Mortgages customers in response to
rapid base rate rises and fluctuating interest
rate expectations during the first half of the
year. I am pleased that since then, there
has been no material change in borrowers’
behaviour and we continue to observe a
trend consistent with our EIR assumption
of c.5 months on the reversion rate for
Precise customers.
The credit quality of the book remained
robust, and our strong origination, capital
and liquidity positions allow us to announce
further capital distributions. The Board has
recommended a final dividend of 21.8 pence
per share, which together with the interim
dividend of 10.2 pence per share, results
in a total ordinary dividend for the year of
32.0 pence per share. In addition we have
announced a new £50m share repurchase
over the next six months.
April Talintyre, our long-serving CFO will
retire at the Group Annual General Meeting
on 9 May 2024. She has been instrumental
in shaping and delivering OSB’s strategy
over the last 11 years, helping steward OSB
through private equity ownership into a
successful FTSE 250 listed business, as
well as playing a key role in the Group’s
combination with Charter Court Financial
Services in 2019. She has been an excellent
and trusted support to me through the
years, helping to build one of the UK’s
leading specialist lenders. I wish her well for
her retirement.
I am pleased that the Board has
recommended a final dividend per share
of 21.8 pence to deliver a progressive full
year dividend per share of 32.0 pence,
representing a payout ratio of 29%
of underlying earnings, excluding the
impact of the EIR adjustment.
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
19
Chief Executive Officer’s statement continued
Financial performance
The Group delivered an underlying pre-
tax profit of £426.0m in 2023, down 28%
from £591.1m in 2022, primarily due to the
adverse EIR adjustment. The underlying
basic earnings per share was 75.0 pence
(2022: 99.6 pence). The underlying pre-tax
profit would have increased to £607.6m
and the underlying basic earnings per
share would have improved to 106.7 pence,
excluding the adverse EIR adjustment.
On a statutory basis, profit before tax
decreased to £374.3m and basic earnings
per share was 66.1 pence (2022: £531.5m and
90.8 pence, respectively).
The underlying and statutory net interest
margins reduced to 251bps and 231bps
respectively (2022: 303bps and 278bps),
largely due to the adverse EIR adjustment
and as the benefit of the lower cost of retail
funding was offset by the impact of some
lower margin lending due primarily to delays
in mortgage pricing reflecting the rate rises
and higher swap costs. The underlying net
interest margin would have been 314bps,
excluding the adverse EIR adjustment. The
table below presents Key Performance
Indicators (KPIs) on a statutory and
underlying basis, including and excluding
the adverse EIR adjustment of £210.7m and
£181.6m, respectively.
The Group maintained its focus on cost
discipline and efficiency during the year with
the underlying and statutory management
expense ratios remaining broadly
unchanged at 81bps and 82bps respectively
KPIs on a statutory and underlying basis including and excluding the
adverse EIR adjustment
Statutory
Underlying
FY 2023
as reported
excl. EIR
difference
as reported
excl. EIR
difference
Net loan book growth
9%
9%
–
9%
10%
(1)ppt
NIM
231bps
303bps
(72)bps
251bps
314bps
(63)bps
Cost to income ratio
36%
27%
(9)ppt
33%
26%
(7)ppt
Manex ratio
Pre-tax profit
EPS
RoE
CET1 ratio
82bps
81bps
(1)bp
81bps
81bps
–
£374.3m £585.0m £(210.7)m
£426.0m £607.6m £(181.6)m
66.1p
102.8p
(36.7)p
75.0p
106.7p
(31.7)p
14%
16.1%
22%
(8)ppt
17.3%
(1.2)ppt
16%
–
22%
(6)ppt
–
–
(2022: 80bps and 81bps, respectively).
The anticipated impact of balance sheet
growth, inflation and planned investment
in people and digital solutions to enhance
our customer propositions were reflected in
a 14% increase in underlying administrative
expenses to £232.9m. The underlying and
statutory cost to income ratios of 33% and
36% respectively, were impacted by the
reduction in income due to the adverse
EIR adjustment and a loss on the Group’s
hedging activities compared to a gain in the
prior year (2022: 25% and 27%, respectively).
Underlying cost to income would have been
26% excluding the adverse EIR adjustment.
The Group delivered an underlying return
on equity of 16% for 2023 (2022: 24%)
and 14% on a statutory basis (2022: 21%),
which reflected the impact of the adverse
EIR adjustment on the profit for the year.
Underlying return on equity would have been
22% excluding the adverse EIR adjustment.
Our lending franchises
Strong demand for the Group’s lending
products delivered underlying and statutory
net loan book growth of 9% in the year
to £25.7bn and £25.8bn, respectively (31
December 2022: £23.5bn and £23.6bn).
Organic originations were £4.7bn in the year
(2022: £5.8bn), despite difficult mortgage
market conditions and subdued purchase
activity, demonstrating the strength of
our relationships with intermediaries, the
continued professionalisation of Buy-to-Let
landlords and our long-term positioning in
specialist mortgage market sub-sectors. I
am particularly pleased that our renewed
focus on lending on smaller commercial
properties through the InterBay brand led
to originations of £406m, a 46% increase
from 2022.
20
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Financial Statements
Appendices
20
Chief Executive Officer’s statement continued
The rising costs of living and borrowing were
reflected in subdued purchase activity across
all mortgage market sectors and I am proud
that the Group’s relationship managers and
underwriters continued to work hand in hand
with their broker partners, fully utilising our
bespoke capabilities to find solutions for
our borrowers. Refinancing was particularly
strong in the year as borrowers sought to
lock in lower monthly repayments to avoid
further base rate rises, and as a result the
proportion of Buy-to-Let completions due to
refinancing was 62% for Kent Reliance and
48% for Precise Mortgages. There was also
an improvement in retention as we continued
to engage proactively with our borrowers
offering new products, with 78% of Kent
Reliance and 66% of Precise Mortgages
customers choosing to refinance with the
Group within three months of their fixed rate
product ending.
The Group’s mortgage propositions
continued to win industry awards and in
2023 Kent Reliance for Intermediaries won
Best Specialist Lender from L&G Mortgage
Club Awards, Precise Mortgages was
awarded Best Specialist Lender from TMA
Club and the Group was recognised as the
Best Specialist Bank at the Bridging and
Commercial Awards. During the year we
became signatories to the Government’s
Mortgage Charter, underlining our
commitment to provide support to
residential customers.
We continued to demonstrate our leadership
and commitment to the Buy-to-Let sector
through our Landlord Leaders initiative.
In 2023, we set up the Landlord Leaders
Community with 31 founding members,
and in December we published the second
research report that looked at tenants’
experiences and most frequent challenges.
Credit and risk management
The high quality of the Group’s loan book
was demonstrated by a strong credit
performance, with balances over three
months in arrears at 1.4% of the loan book
at the end of December (31 December 2022:
1.1%). The increase in arrears was largely due
to the impact of the rising costs of living and
borrowing on a small group of borrowers,
and we continue to work closely with those
needing assistance.
The Group recorded an impairment charge
of £48.5m on an underlying basis, which
represented an underlying loan loss ratio
of 20bps for the year (2022: £30.7m and
14bps, respectively). The impairment charge
principally reflected changes in the risk
profile of borrowers as they transitioned
through modelled IFRS 9 impairment stages
and an increase in provisions for accounts
with arrears of three months or more. The
statutory impairment charge was £48.8m,
equivalent to a loan loss ratio of 20bps
(2022: £29.8m and 13bps, respectively).
The weighted average loan to value (LTV)
of the Group’s loan book increased to 64%
as at 31 December 2023, from 60% at the
end of 2022, largely due to negative house
price inflation in the year. The weighted
average LTV of new business written by the
Group reduced to 68% from 71% in 2022,
and interest coverage ratios remained
strong at 176% for OSB and 154% for CCFS,
despite higher mortgage rates, reflecting the
long-term income improvement enjoyed by
professional landlords.
Multi-channel funding model
Retail deposits remained the primary source
of funding for the Group and the deposit
book grew by 12% to £22.1bn by the end of
2023 (31 December 2022: £19.8bn), as we
continued to offer fair and attractively priced
savings products to our customers.
We opened more than 210,000 new savings
accounts in the year, and retention rates
remained very high at 91% for customers with
maturing fixed rate bonds and ISAs at Kent
Reliance and 85% for Charter Savings Bank.
To supplement our savings propositions,
we maintained a strong focus on customer
service, which was reflected in Net Promoter
Scores for the year of +71 for Kent Reliance
and +62 for Charter Savings Bank.
We complement retail deposits funding with
our expertise in the wholesale markets and in
June we completed a £330m securitisation
of owner-occupied prime mortgages,
originated by Precise Mortgages under the
CMF programme. In February 2024, we
completed another transaction, securitising
£509m of Buy-to-Let mortgages under the
PMF programme. We saw an exceptional
level of demand from our growing investor
base and this allowed us to achieve very
attractive pricing. We will continue to access
the wholesale markets when conditions are
favourable, to benefit from diversification of
funding and support a smooth transition as
we repay drawings under the Term Funding
Scheme for SMEs (TFSME). In the year, we
repaid £900m of TFSME funding with the
remainder due to be repaid by October
2025. As at 31 December 2023, the Group’s
drawings under this Bank of England
facility reduced to £3.3bn (31 December
2022: £4.2bn). We have repaid a further
£600m so far in 2024.
Capital management
The Group’s capital position, which reflects
the £150m share repurchase programme
announced in March 2023 and the post-
tax impact of the adverse EIR adjustment,
remained strong with a CET1 ratio of 16.1%
as at 31 December 2023 (31 December 2022:
18.3%). We expect to continue to operate
above our 14% CET1 target as we wait for
clarity on the final Basel 3.1 rules, which
are expected to be published in the second
quarter of 2024.
Following the January issuance of £400m of
MREL qualifying debt securities, we met the
interim MREL requirement, plus regulatory
buffers, of 22.5% of risk weighted assets,
under the current standardised rules.
We saw an
exceptional level
of demand for our
securitisations and
the growing investor
base allowed us
to achieve very
attractive pricing...
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
21
Chief Executive Officer’s statement continued
OSB Group has strengthened its compliance
with the IRB requirements and has reflected
upon the PRAs feedback to the industry.
The Group continues to engage with
the regulator ahead of commencing the
formal application process. Underlying IRB
capabilities and disciplines have become
progressively more integrated into the
Group’s business planning, risk, capital,
IT and data management disciplines. In
particular, enhanced IRB capabilities have
played a vital role in informing and shaping
the Group’s response to the rising costs of
living and borrowing.
The Board has recommended a final dividend
per share of 21.8 pence (2022: 21.8 pence),
which together with the interim dividend per
share of 10.2 pence (2022: 8.7 pence), results
in a total ordinary dividend per share for the
year of 32.0 pence (2022: 30.5 pence), in line
with our stated desire to deliver a progressive
dividend per share.
The Board remains committed to returning
excess capital to shareholders and has
today announced a new £50m share
repurchase programme over the next six
months. When combined with the ordinary
dividend, the announced share repurchase
represents a total return to shareholders
of £177m and demonstrates the Board’s
intention to use multiple levers to deliver
shareholder returns. The Board will consider
the potential for additional capital returns
later in the year, subject to further MREL
issuance to support growth opportunities and
meet the final Basel 3.1 requirements once
published, subject to regulatory approval.
Investing in our future
The Group is recognised for its efficiency and
excellent customer service, and throughout
2023 we continued to invest to remain agile
and nimble. We made progress on our
digitalisation journey, which will enable us
to meet the future needs of our customers,
brokers and wider stakeholders, whilst
delivering further operational efficiencies.
This investment will be a key focus going
forward as we deliver digital solutions to
enhance our customer propositions.
Our success is dependent on our 2,459
employees across the UK and India, and we
took further actions in the year to become a
more diverse and inclusive organisation. By
the end of the year, we reached our target to
have 33% of women in senior management
roles in the UK and we set a new target of
40% by the end of 2026. We also made major
upgrades to all policies relating to maternity
and family benefits in the UK to support our
employees who are parents and carers.
I am pleased that in 2023, we also laid solid
foundations for achieving our 2050 net zero
emissions target in our inaugural Climate
Transition Plan that will be published with the
annual report. It outlines actionable steps in
reducing our operational emissions as well as
those from the housing stock we finance.
Looking forward
Our specialist market sub-segments
continue to perform well, despite the
subdued mortgage market. The Group’s
target professional landlords demonstrate
resilience and provide much needed homes
with exceptional support to the Private
Rented Sector, and our specialist residential
and commercial brands have good levels of
demand as customer confidence improves.
Our savers remain loyal to the Group, as
we offer them good value, with improving
customer NPS results. We are confident this
will continue as proposition enhancing digital
solutions are delivered.
Based on current application volumes
and against the backdrop of the subdued
mortgage market, the Group expects to
deliver underlying net loan book growth of
c.5% for 2024.
The underlying net interest margin is
expected to be broadly flat to the 2023
underlying NIM of 251bps, reflecting the
impact of a higher cost of funds and the full
year impact of some lower margin lending in
2023, due primarily to delays in mortgage
pricing reflecting the rate rises and higher
swap costs. The cost of funding is expected
to increase in 2024, primarily due to the
normalisation of retail deposit spreads, the
impact of planned TFSME repayment, and
the cost of MREL qualifying debt issuance.
We will maintain our cost discipline and
efficiency however the underlying cost
to income ratio is expected to be broadly
flat to the 2023 underlying ratio of 33%,
commensurate with the NIM guidance.
The Group remains well capitalised, with
strong liquidity and a high-quality secured
loan book. We have demonstrated the
strength of our customer franchises and
intermediary relationships and continue
to focus on delivering good outcomes for
our stakeholders and strong returns for
our shareholders.
Andy Golding
Chief Executive Officer
22
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
22
Strategic framework
Our Vision is to be
recognised as the UK’s
number one choice of
specialist bank, through
our commitment to
exceptional service,
strong relationships and
competitive propositions.
Specialist mortgage lending
Be a leading specialist lender in our
chosen market sub-segments
Focus on automated and experience-based
manual underwriting
Our goals
Originate loans at attractive margins in our chosen market
sub-segments
• Target market sub-segments which offer attractive returns
on a risk-adjusted basis
•
•
Invest in a highly responsive, customer-focused culture
Innovate to secure sustainable segment leadership
2023
• Organic originations were £4.7bn (2022: £5.8bn) in a
subdued market with £406m of new business in our
InterBay commercial sub-segment
• Proportion of completions due to refinance remained
high at 62% under Kent Reliance and 48% under Precise
Mortgages as purchase activity fell
Looking forward
• Maintain our strong credit and return requirements and
assess the attractive growth opportunities in our current
market sub-segments
• Deploy scale and resources on organic lending
opportunities
Our goals
High-quality decisions protecting the business
• Use deep credit expertise to deliver high-quality lending
decisions
• Provide a differentiated underwriting approach based on
the needs and characteristics of our customers; offering
both an automated approach and a skilled experience-
based manual underwriting capability and in-house real
estate expertise
• Deliver clear, accurate and efficient decisions recognised
by intermediaries for their quality and fairness
2023
• The OSB Transactional Credit Committee met three
times a week to assist with more complex and larger new
mortgage applications and larger portfolio relationships
Looking forward
•
Increase underwriting efficiency to better serve borrower
needs across complementary brands
•
Invest in digital solutions to support deep underwriting
expertise enabling faster decision making and processing
•
Identify new market sub-segments with high returns on a
risk-adjusted basis
Key risks
• Changing regulations for underwriting
Key risks
• Political and economic uncertainty affecting demand
for specialist mortgages and appetite from professional
landlords to grow their portfolios
• Potential regulatory changes including legislative focus on
Buy-to-Let and environmental regulation
• New specialist lenders entering the market
• More complex underwriting requirements
• Difficulty in recruiting experienced colleagues
•
Increasing intermediary demands
KPIs
Organic originations
£4.7bn
2022: £5.8bn
KPIs
Statutory loan loss ratio
20bps
2022: 13bps
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
23
Strategic framework continued
Specialist mortgage lending
Sophisticated funding platforms
Unique operating model
Further deepen relationships and reputation
for delivery with intermediaries
Maintain stable, high-quality, diversified
funding platforms
Leverage our unique and cost-efficient
operating model
Our goals
Increase partner engagement in response to demand
• Access to specialist products developed by listening to
intermediary partners
• Offer complementary propositions for lending brands
across the Group
• Deliver bespoke solutions to meet intermediary and
customer needs
2023
• Widened access to the Group’s specialist products as we
leveraged our complementary brand propositions
• Launched Landlord Leaders Community to drive positive
change in the Buy-to-Let sector
Looking forward
• Continue to build direct relationships with intermediaries
• Enhance the digital application process for brokers
and customers
• Continue Landlord Leaders programme, providing market
leading guidance and support to landlords
Key risks
• More complex underwriting requirements slowing
the process
Our goals
Expertise in funding options
• Maintain resilient and diversified funding platforms
to support future growth and ensure that liquidity
requirements are met through the economic cycle and cost
of funds is optimised
• Be primarily funded through attracting and retaining loyal
retail savings customers, whilst maintaining a sophisticated
securitisation funding programme and balance sheet
management capability
Our goals
Best-in-class customer service
• Have customer service at the heart of everything we do
• Maintain centres of excellence across existing locations in
Chatham, Wolverhampton and in India
• Extend activity in OSB India (OSBI) to develop high-quality
areas of excellence
• Deliver cost efficiencies through excellent process design
and management
2023
• Opened over 210k new savings accounts across both
savings brands in 2023 (2022: 191k)
• Achieved 91% customer retention for Kent Reliance and
85% for Charter Savings Bank
• Completed a £330m securitisation of residential
mortgages under the CMF programme
• The Group met its interim MREL requirement, including
regulatory buffers, in January 2024 following a further
£400m issuance of senior debt
Looking forward
•
Increase investment in digitalisation to further enhance
customer experience and servicing capabilities
2023
• Maintained strong savings customer NPS of +71 for Kent
Reliance and +62 for Charter Savings Bank due to our
focus on customer service and transparent and fair
savings products
•
Continued to develop deep credit know-how through
strong data analytical capabilities
Looking forward
•
Invest in digital solutions to deliver operational efficiencies
and enhance our customer propositions
• Deliver cost efficiencies and operational enhancements by
leveraging OSBI’s lending, savings and support operations
and capabilities
Key risks
• Need to achieve continuous service improvement as the
Group grows
•
Increasing complexity from compliance with changing
regulation
• Maintaining operational resilience as the Group grows
• Speed of investment in technology solutions to ensure that
the Group can keep pace with market demands
• Benefit from the ability to execute structured balance sheet
management transactions across the Group’s balance sheet
• Competitive pressures and changing macroeconomic
conditions leading to peaks and troughs, affecting
service levels
Key risks
• Competition in wholesale and retail markets as banks
repay their TFSME drawings
•
Increased expectation for technology-based accounts
• Volatility of capital markets on demand and price
KPIs
KPIs
OSB broker NPS
CCFS broker NPS
57
2022: +37
57
2022: +39
Savings accounts opened
over 210,000
2022: over 191,000
KPIs
Statutory cost to income ratio
36%
2022: 27%
24
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
24
Strategy in action
The Group is recognised for its
efficiency and excellent customer
service and through 2023 we
continued to invest to remain
agile and nimble.
Our digitalisation
journey
We made progress on the digitalisation journey which
will enable us to meet the future needs of our customers,
brokers and wider stakeholders whilst delivering further
operational efficiencies.
Recently we have delivered an advanced digital front end
to our Precise Mortgages brand and a new online broker
registration process, a one-stop window into the Group’s
brand portfolio. We have trialled successfully our new digital
savings platform and look forward to bringing that to market.
OSB Group has always been a market leader in cost-efficient
delivery and our investment in technology will allow us to
maintain this reputation whilst also removing friction from
our customers experience and enabling a deeper more
personal relationship to be built through our focus on their
specialist needs.
Contents Generation – Section
Segments review
Segments review
OSB GROUP PLC | Annual Report and Accounts 2023
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
25
Segments review
The Group reports its lending
business under two segments:
OneSavings Bank and Charter
Court Financial Services.
OneSavings Bank
(OSB) segment
The OSB segment comprises two sub-segments:
BTL/SME:
Buy-to-Let mortgages secured on residential property held for
investment purposes by experienced and professional landlords,
commercial mortgages secured on commercial and semi-commercial
properties held for investment purposes or for owner occupation,
residential development finance to small and medium-sized
developers, secured funding lines to other lenders and asset finance.
Residential:
First charge mortgages to owner-occupiers, secured against a
residential home and under shared ownership schemes.
The following tables present OSB’s contribution to profit and loans and advances to customers
on a statutory basis:
Contribution to profit
For year ended 31 December 2023
Net interest income
Other expense
Total income
Impairment of financial assets
Contribution to profit
For year ended 31 December 2022
Net interest income
Other income
Total income
Impairment of financial assets
Contribution to profit
BTL/SME
£m
394.4
(2.5)
391.9
(36.9)
355.0
383.1
7.1
390.2
(23.5)
366.7
Residential
£m
79.4
(0.6)
78.8
(4.7)
74.1
77.6
1.8
79.4
1.2
80.6
Total
£m
473.8
(3.1)
470.7
(41.6)
429.1
460.7
8.9
469.6
(22.3)
447.3
Loans and advances to customers
As at 31 December 2023
BTL/SME
£m
Residential
£m
Total
£m
Gross loans and advances to customers
12,175.1
2,334.2
14,509.3
Expected credit losses
(102.4)
(8.7)
(111.1)
Net loans and advances to customers
12,072.7
2,325.5
14,398.2
Risk-weighted assets
6,117.9
1,068.4
7,186.3
As at 31 December 2022
Gross loans and advances to customers
10,920.0
2,324.7
13,244.7
Expected credit losses
Net loans and advances to customers
Risk-weighted assets
(95.2)
(8.0)
(103.2)
10,824.8
5,258.8
2,316.7
1,033.7
13,141.5
6,292.5
26
OSB GROUP PLC | Annual Report and Accounts 2023
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Strategic Report
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Financial Statements
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Segments review continued
OSB segment continued
Buy-to-Let/SME sub-segment
Loans and advances to customers
Buy-to-Let
Commercial
Residential development
Funding lines
Gross loans and advances to customers
Expected credit losses
Net loans and advances to customers
Gross loan book
£12,175m
2022: £10,920m
+11%
Net interest income
£394m
2022: £383m
+3%
Contribution to profit
£355m
2022: £367m
-3%
31-Dec-2023
£m
31-Dec-2022
£m
10,764.5
9,755.0
1,095.7
280.8
34.1
881.3
184.5
99.2
12,175.1
10,920.0
(102.4)
(95.2)
12,072.7
10,824.8
The Buy-to-Let/SME net loan book increased
by 12% to £12,072.7m at the end of 2023,
supported by strong retention and organic
originations of £2,163.7m, which reduced by
5% from £2,283.8m in 2022 in a subdued
mortgage market.
Net interest income in this sub-segment
increased by 3% to £394.4m (2022: £383.1m),
largely reflecting growth in the loan book
and an adverse effective interest rate (EIR)
adjustment of £0.1m was recognised for the
year (2022: £20.0m gain).
Other expenses were £2.5m and related to
losses from the Group’s hedging activities
(2022: £7.1m gain). The impairment
charge increased to £36.9m (2022:
£23.5m) primarily due to changes in the
macroeconomic outlook, model and post-
model enhancements, modelled IFRS 9 stage
migration and increased arrears. Overall,
the Buy-to-Let/SME sub-segment made a
contribution to profit of £355.0m, a decrease
of 3% compared with £366.7m in 2022.
The Group remained highly focused on
the risk assessment of new lending, as
demonstrated by the average loan to value
(LTV) for Buy-to-Let/SME originations of 70%
(2022: 73%).1 The average book LTV in the
Buy-to-Let/SME sub-segment increased to
67% (31 December 2022: 63%)1 as a result
of negative house price inflation in the year.
Only 4.0% of loans in this sub-segment
exceeded 90% LTV (31 December 2022: 3.2%).
Buy-to-Let
The Buy-to-Let gross loan book increased by
10% to £10,764.5m at the end of December
2023 (31 December 2022: £9,755.0m)
benefitting from an increase in refinance
activity, as borrowers sought to lock in lower
monthly repayments in expectation of further
base rate rises. During the year, the Group’s
originations decreased by 13% in the Buy-to-
Let sub-segment to £1,575.4m from £1,804.6m
at the end of 2022 as overall market segment
volumes reduced significantly.
The proportion of Kent Reliance Buy-to-
Let completions represented by refinance
increased to 62% from 61% in 2022 as
purchase activity fell. In addition, there was
also an upward trend in product transfers,
with 78% of existing borrowers choosing a
new product, under the Choices retention
programme, within three months of their
initial rate mortgage coming to an end
(2022: 72%).
The Group’s borrowers continued to
favour five-year fixed rate mortgages,
which represented 74% of Kent Reliance
completions in 2023 (2022: 83%), however an
increasing proportion of customers elected to
take shorter-term mortgages in anticipation
of falling interest rates.
Landlords continued to optimise their
businesses from a tax perspective, with 87%
of Kent Reliance mortgage applications for
purchases coming from landlords borrowing
via a limited company (2022: 78%), and
overall professional, multi-property landlords
represented 91% of completions by value for
the Kent Reliance brand in 2023 (2022: 86%).
Research conducted by BVA BDRC on
behalf of the Group, showed that the
proportion of landlords planning to purchase
properties was low relative to historical
averages, reflecting wider macroeconomic
conditions, although this increased modestly
year-on-year to 11% in the fourth quarter
(Q4 2022: 9%). There was positivity in
the Group’s Landlord Leaders research
which found that 42% are optimistic about
operating as a landlord in the future while
24% have a neutral outlook. The research
also found that 65% of landlords are
considering or have already transitioned
to become incorporated entities, reflecting
ongoing landlord professionalisation.
The weighted average LTV of the Buy-to-Let
book as at 31 December 2023 was 66% with
an average loan size of £255k (31 December
2022: 62% and £255k). The weighted
average interest coverage ratio for Buy-
to-Let originations during 2023 were 176%
(2022: 207%).
1. Buy-to-Let/SME sub-segment average weighted LTVs
include Kent Reliance and InterBay Buy-to-Let, semi-
commercial and commercial lending.
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Overview
Strategic Report
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Financial Statements
Appendices
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Segments review continued
OSB segment continued
Commercial
Through its InterBay brand, the Group lends
to borrowers investing in commercial and
semi-commercial property, reported in the
Commercial total, and more complex Buy-to-
Let properties and portfolios, reported in the
Buy-to-Let total.
The Group experienced an increased
level of business following the launch of
new products in February and March.
The refreshed range of InterBay products
included the reintroduction of two-year
fixed rate mortgages, lower LTV mortgages
and a reduced minimum loan size. Organic
originations increased by 46% to £405.6m
in 2023 (2022: £278.7m) supporting a 24%
increase in the gross loan book to £1,095.7m
as at 31 December 2023 (2022: £881.3m).
The Group also expanded its bridging
finance range offered by the InterBay brand
in July, relaunching products to support
landlords seeking to purchase or renovate
commercial and semi-commercial properties.
The weighted average LTV of the commercial
book increased to 73%, largely due to a
reduction in commercial property values.
The average loan size was £410k in 2023
(2022: 69% and £375k).
InterBay Asset Finance, which predominantly
targets UK SMEs and small corporates
financing business critical assets, continued
to grow adding to its high-quality portfolio
with the gross carrying amount under
finance leases increasing by 36% to £222.7m
as at 31 December 2023 (31 December
2022: £163.2m).
Residential development
Our Heritable residential development
business provides development finance to
small and medium-sized residential property
developers. The preference is to fund house
builders which operate outside of central
London and provide relatively affordable
family housing, as opposed to complex
city centre schemes where affordability
and construction cost control can be more
challenging. New applications represented
repeat business from the team’s extensive
existing relationships and Heritable continued
to take an exacting approach to approving
funding for new customers.
The residential development finance
gross loan book at the end of 2023 was
£280.8m, with a further £120.9m committed
(31 December 2022: £184.5m and £162.2m,
respectively). Total approved limits were
£566.8m, exceeding drawn and committed
funds due to the revolving nature of the
facility, where construction is phased and
facilities are redrawn as sales on the initially
developed properties occur (31 December
2022: £502.6m).
At the end of 2023, Heritable had
commitments to finance the development of
2,709 residential units, the majority of which
are houses located outside of central London
or other major cities in England.
Funding lines
OSB continued to provide secured funding
lines to non-bank lenders which operate
in certain high-yielding, specialist sub-
segments, primarily secured against
property-related mortgages. Total credit
approved limits as at the end of 2023 were
£197.1m with total gross loans outstanding
of £34.1m (31 December 2022: £274.0m and
£99.2m, respectively). During the year, the
Group maintained a cautious risk approach
focusing on servicing existing customers.
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Strategic Report
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Segments review continued
OSB segment continued
Residential sub-segment
Loans and advances to customers
First charge
Second charge
Gross loans and advances to customers
Expected credit losses
Net loans and advances to customers
31-Dec-2023
£m
31-Dec-2022
£m
2,199.1
135.1
2,152.9
171.8
2,334.2
2,324.7
(8.7)
(8.0)
2,325.5
2,316.7
Gross loan book
£2,334m
2022: £2,325m
Net interest income
£79m
2022: £78m
+2%
Contribution to profit
£74m
2022: £81m
-8%
The Residential sub-segment net loan book
was £2,325.5m as at 31 December 2023,
broadly flat compared with £2,316.7m in the
prior year and organic originations reduced
to £342.2m in the year (2022: £575.9m)
reflecting reduced customer demand in a
subdued market.
Net interest income in the Residential sub-
segment increased by 2% to £79.4m (2022:
£77.6m) and this sub-segment recognised a
favourable EIR adjustment of £1.0m based
on updated customer behavioural trends
(2022: £1.6m loss). Other expenses of £0.6m
(2022: £1.8m other income) related to losses
from the Group’s hedging activities and the
impairment charge was £4.7m (2022: £1.2m
credit). The impairment charge was largely
due to modelled IFRS 9 stage migration and
increased arrears. Overall, contribution to
profit from this sub-segment reduced by 8%
to £74.1m for the year compared with £80.6m
in 2022.
The average book LTV increased to 48% (31
December 2022: 45%)1 as a result of negative
house price inflation, with only 2.2% of loans
with LTVs exceeding 90% (31 December 2022:
0.8%). The average LTV of new residential
origination during 2023 decreased to 62%
(2022: 64%)1 as a result of an increase in
lower LTV owner-occupied originations.
First charge
First charge mortgages are provided under
the Kent Reliance brand, which largely serves
prime credit quality borrowers with more
complex circumstances. This includes high
net worth individuals with multiple income
sources and self-employed borrowers, as well
as those buying a property in conjunction
with a housing association under shared
ownership schemes.
The first charge gross loan book increased
2% in the year to £2,199.1m from £2,152.9m at
the end of 2022.
The Residential
sub-segment net
interest income
increased 2% in
the year to £79m...
Second charge
The OSB second charge mortgage book is in
run-off and managed by Precise Mortgages.
Total gross loans were £135.1m at the end of
2023 (31 December 2022: £171.8m).
1. Residential sub-segment average weighted LTVs
include first and second charge lending.
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OSB GROUP PLC | Annual Report and Accounts 2023
OSB GROUP PLC | Annual Report and Accounts 2023
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Strategic Report
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Financial Statements
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29
Segments review continued
Charter Court
Financial Services
(CCFS) segment
The CCFS segment comprises four sub-segments:
Buy-to-Let mortgages secured on residential property held for
investment purposes by both non-professional and professional
landlords, residential mortgages to owner-occupiers secured
against residential properties including those unsupported by the
high street banks, short-term bridging secured against residential
property in both the regulated and unregulated sectors and the second
charge loan book which is in run-off.
Net interest
income
Other
(expense)/
income
The following tables present CCFS’ contribution to profit and loans and advances to
customers on an underlying basis, excluding acquisition-related items and a reconciliation
to the statutory results.
Contribution to profit
For year ended
31 December 2023
Buy-
to-Let
£m
Residential
£m
Bridging
£m
Second
charge
£m
Other1
£m
Total
underlying
£m
Acquisition-
related
items2
£m
Total
statutory
£m
127.4
75.2
8.8
4.8
24.7
240.9
(56.1)
184.8
Total income
127.4
75.2
–
–
–
8.8
–
(3.8)
(3.8)
6.4
(2.6)
4.8
20.9
237.1
(49.7)
187.4
Impairment
of financial
assets
Contribution
to profit
(5.0)
(1.2)
(0.7)
–
–
(6.9)
(0.3)
(7.2)
122.4
74.0
8.1
4.8
20.9
230.2
(50.0)
180.2
For year ended
31 December 2022
Net interest
income
Buy-to-
Let
£m
206.0
Other income
–
Total income
206.0
Residential
Bridging
£m
£m
Second
charge
£m
Other1
£m
Total
underlying
£m
Acquisition-
related
items2
£m
Total
statutory
£m
96.0
–
96.0
5.0
–
5.0
5.9
–
5.9
(4.5)
308.4
(59.2)
249.2
46.2
41.7
46.2
354.6
10.4
56.6
(48.8) 305.8
Impairment
of financial
assets
Contribution
to profit
(9.5)
1.2
(0.2)
0.1
–
(8.4)
0.9
(7.5)
196.5
97.2
4.8
6.0
41.7
346.2
(47.9)
298.3
1. Other relates to net interest income from acquired loan portfolios as well as gains on structured asset sales,
fee income from third party mortgage servicing and gains or losses on the Group’s hedging activities.
2. For more details on acquisition-related adjustments, see Reconciliation of statutory to underlying results in the
Financial review.
30
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
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Appendices
30
Segments review continued
CCFS segment continued
Loans and advances to customers
As at 31 December 2023
Gross loans and
advances to customers
Expected credit losses
Net loans and advances
to customers
Buy-
to-Let
£m
Residential
£m
Bridging
£m
Second
charge
£m
Other1
£m
Total
underlying
£m
Acquisition-
related
items2
£m
Total
statutory
£m
7,921.5
3,026.0
333.1
83.0
13.6
11,377.2
24.3
11,401.5
(29.0)
(5.4)
(1.2)
(0.2)
–
(35.8)
1.1
(34.7)
7,892.5
3,020.6
331.9
82.8
13.6
11,341.4
25.4 11,366.8
Risk-weighted assets
3,138.9
1,263.0
167.5
35.8
5.4
4,610.6
48.7
4,659.3
Buy-
to-Let
£m
Residential
Bridging
£m
£m
Second
charge
£m
Other1
£m
Total
underlying
£m
related
items2
£m
Total
statutory
£m
Acquisition-
As at 31 December 2022
Gross loans and
advances to customers
Expected credit losses
(23.5)
(3.8)
(0.5)
7,468.8
2,671.3
149.7
111.9
(0.2)
14.6
10,416.3
81.7
10,498.0
–
(28.0)
1.2
(26.8)
Net loans and advances
to customers
7,445.3
2,667.5
149.2
111.7
14.6
10,388.3
82.9
10,471.2
Risk-weighted assets
2,927.1
1,107.3
70.9
45.4
5.5
4,156.2
46.0
4,202.2
1. Other relates to acquired loan portfolio.
2. For more details on acquisition-related adjustments, see Reconciliation of statutory to underlying results in the Financial review.
Contents Generation – PageContents Generation – Sub PageContents Generation - Section OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
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Financial Statements
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31
Segments review continued
Charter Court Financial Services
(CCFS) segment
Underlying loans and advances to customers
Buy-to-Let
Residential
Bridging
Second charge
Other1
Gross loans and advances to customers
Expected credit losses
Net loans and advances to customers
1. Other relates to acquired loan portfolios.
31-Dec-2023
£m
31-Dec-2022
£m
7,921.5
3,026.0
333.1
83.0
13.6
11,377.2
(35.8)
11,341.4
7,468.8
2,671.3
149.7
111.9
14.6
10,416.3
(28.0)
10,388.3
Gross loan book2
£11,377m
2022: £10,416m
+9%
Net interest income2
£241m
2022: £308m
-22%
Contribution to profit2
£230m
2022: £346m
-34%
2. Underlying.
The CCFS underlying net loan book grew
by 9% to £11,341.4m at the end of 2023 (31
December 2022: £10,388.3m) supported by
strong retention and organic originations of
£2,186.8m, which decreased by 26% from
£2,969.4m of new business written in 2022
reflecting a subdued mortgage market.
CCFS Buy-to-Let sub-segment
Organic originations in the Buy-to-Let sub-
segment through the Precise Mortgages
brand decreased in 2023 to £1,006.0m
(2022: £1,998.7m) reflecting the impact
of the higher interest rate environment on
smaller portfolio and individual landlords.
The underlying gross Buy-to-Let loan book
grew by 6% in the year to £7,921.5m from
£7,468.8m at the end of 2022 supported by
strong refinance activity.
Underlying net interest income in this sub-
segment reduced to £127.4m compared with
£206.0m in the prior year, as the benefit
of loan book growth was more than offset
by the underlying adverse EIR adjustment
of £139.5m (2022: £37.5m loss). The EIR
adjustment related to the expectation that
Precise Mortgages customers would spend
less time on the higher reversion rate before
refinancing, based on observed customer
behavioural trends.
This sub-segment recognised an impairment
charge of £5.0m (2022: £9.5m) largely due
to changes in the macroeconomic outlook,
modelled IFRS 9 stage migration and
increased arrears. On an underlying basis,
Buy-to-Let made a contribution to profit
of £122.4m, compared with £196.5m in the
prior year, with the decline largely due to the
impact of the adverse EIR adjustment.
On a statutory basis, the Buy-to-Let sub-
segment made a contribution to profit of
£82.1m (2022: £154.8m).
Refinance activity continued to represent
nearly half of Precise Mortgages completions,
at 48%, as landlords sought to lock in lower
monthly repayments in expectation of further
base rate rises (2022: 50%). Under the Precise
Mortgages retention programme, 66% of
existing borrowers chose a new product within
three months of their initial rate mortgage
coming to an end in the year (2022: 35%).
Five-year fixed rate products accounted
for 67% of Precise Mortgages completions,
down from 74% in 2022, as an increasing
proportion of customers elected to take
shorter-term mortgages in anticipation
of falling interest rates. Borrowing via a
limited company made up 68% of Buy-to-
Let completions in 2023 (2022: 65%) and
the proportion of completions for loans for
specialist property types, including houses of
multiple occupation and multi-unit properties
remained at 21%.
Research conducted by BVA BDRC in the
fourth quarter of 2023 on behalf of the
Group found that over six in ten landlords
that intended to acquire new properties
planned to do so within a limited company
structure, in line with an upward trend
that has been observed over a number
of years, reflecting ongoing landlord
professionalisation.
The weighted average LTV of the loan book
in this segment increased to 68% due to
negative house price inflation in 2023
(2022: 66%). The new lending average LTV
was 71% with an average loan size of £190k
(2022: 73% and £191k, respectively). The
weighted average interest coverage ratio
for Buy-to-Let origination was 154% in 2023
(2022: 191%).
CCFS Residential sub-segment
The underlying gross loan book in CCFS’
Residential sub-segment reached £3,026.0m
by 31 December 2023, an increase of 13%
from £2,671.3m as at 31 December 2022,
supported by organic originations of £743.6m
(2022: £749.4m). The Group continued to
benefit from CCFS’ expertise, with a strong
focus on self-employed individuals and those
with minor adverse credit records.
Underlying net interest income reduced
to £75.2m (2022: £96.0m) as the benefit
of loan book growth was more than offset
by the underlying adverse EIR adjustment
of £43.0m (2022: £4.0m loss). The EIR
adjustment related to the expectation that
Precise Mortgages borrowers would spend
less time on the higher reversion rate before
Contents Generation – PageContents Generation – Sub PageContents Generation – Section 32
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
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Appendices
32
Underlying net interest income increased
by 76% to £8.8m (2022: £5.0m), and the
impairment charge was £0.7m (2022: £0.2m)
largely due to balance sheet growth. The
bridging sub-segment made a contribution to
profit of £8.1m in 2023 on an underlying basis
compared with £4.8m in 2022 and £6.9m on
a statutory basis (2022: £4.2m).
CCFS Second charge sub-segment
The second charge gross loan book reduced
to £83.0m compared with £111.9m as at
31 December 2022, as the Group no longer
offers second charge products under the
Precise Mortgages brand and the book is in
run-off.
Segments review continued
CCFS segment continued
refinancing, based on observed customer
behavioural trends. The Residential sub-
segment recorded an impairment charge
of £1.2m (2022: £1.2m credit) largely due
to changes in the macroeconomic outlook,
modelled IFRS 9 stage migration and
increased arrears. Overall, on an underlying
basis, the Residential sub-segment made a
contribution to profit of £74.0m, compared
with £97.2m in 2022 and £59.5m on a
statutory basis (2022: £81.9m).
The average loan size in this sub-segment
was £160k (31 December 2022: £147k) with an
average LTV for new lending of 63% (2022:
66%) and an increase in book LTV to 59% as
a result of negative house price inflation in
the year (31 December 2022: 57%).
CCFS Bridging sub-segment
The Group’s short term lending offering saw
continued success in 2023 as borrowers
made use of its regulated and non-regulated
products to assist with chain-break
finance, refurbishment works and property
conversions, while the Group’s refurbishment
Buy-to-Let proposition also remained popular.
The sub-segment saw originations of £437.2m,
double the amount of £217.5m recorded in
2022,and a growth in the underlying gross
loan book to £333.1m as at 31 December 2023
(31 December 2022: £149.7m).
Contents Generation – PageContents Generation – Sub PageContents Generation - Section OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
33
Key performance indicators
Throughout the Strategic report, the results and
the Key performance indicators (KPIs) are
presented on a statutory and an underlying basis.
Management believes that the underlying
results and KPIs provide a more consistent
basis for comparing the Group’s
performance between financial periods.
Underlying results and KPIs for 2023
and 2022 exclude integration costs and
other acquisition-related items. For a
reconciliation of statutory results to
underlying results, see page 44.
The Group’s external auditor performed an
independent reasonable assurance review
of certain KPIs as marked with the symbol
Δ – see the Appendix for the auditor’s
assurance report.
Gross new lendingΔ
Net interest margin (NIM)Δ
Cost to income ratioΔ
-20%
-47bps
+9ppt
2023
2022
£4.7bn
£5.8bn
2023
2022
231bps
278bps
2023
2022
36%
27%
Definition
Gross new lending is defined as gross new
organic lending before redemptions.
2023 performance
Gross new lending decreased in the year
reflecting subdued mortgage market due to
rising interest rates and affordability pressures.
Key:
Statutory
2023
Statutory
2022
Underlying
2023
Underlying
2022
-52bps
+8ppt
2023
2022
251bps
303bps
2023
2022
33%
25%
Definition
NIM is defined as net interest income as a
percentage of a 13-point average of interest
earning assets (cash, investment securities,
loans and advances to customers and credit
institutions). It represents the margin earned
on loans and advances and liquid assets after
swap expense/income and cost of funds.
2023 performance
Statutory and underlying NIM reduced in 2023
largely due to the adverse EIR adjustment
and as the benefit of the lower cost of retail
funding was offset by the impact of some
lower margin lending due primarily to delays
in mortgage pricing reflecting the rate rises
and higher swap costs.
Definition
Cost to income ratio is defined as
administrative expenses as a percentage
of total income. It is a measure of
operational efficiency.
2023 performance
Statutory and underlying cost to income ratios
increased in 2023 primarily as a result of lower
income due to the adverse EIR adjustment and
a net fair value loss on financial instruments
compared with a gain in the prior year.
34
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
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Appendices
34
Key performance indicators continued
Management expense ratioΔ
Loan loss ratioΔ
Basic EPSΔ (pence per share)
Ordinary dividend per shareΔ
(pence per share)
+1bp
2023
2022
+1bp
2023
2022
+7bps
-27%
+5%
82bps
81bps
2023
2022
20bps
13bps
2023
2022
66.1p
90.8p
2023
2022
32.0p
30.5p
+6bps
-25%
2022 Special dividend of 11.7p
81bps
80bps
2023
2022
20bps
14bps
2023
2022
75.0p
99.6p
Definition
Management expense ratio is defined as
administrative expenses as a percentage
of a 13-point average of total assets. It is a
measure of operational efficiency.
Definition
Loan loss ratio is defined as expected credit
losses as a percentage of a 13-point average
of gross loans and advances. It is a measure
of the credit performance of the loan book.
2023 performance
Statutory and underlying management
expense ratios remained broadly flat in the
year demonstrating the Group’s focus on
cost discipline and efficiency.
2023 performance
Statutory and underlying loan loss ratios
increased in the year largely due to updated
macroeconomic scenarios, changes in the
risk profile of borrowers as they transitioned
through modelled IFRS 9 impairment stages,
loan book growth and an increase in
balances in arrears of three months or more.
Definition
Basic EPS is defined as profit attributable
to ordinary shareholders, which is profit
after tax and after deducting coupons
on AT1 securities, gross of tax, divided by
the weighted average number of ordinary
shares in issue.
2023 performance
Statutory and underlying basic EPS
decreased largely due to lower profit after
tax as a result of the adverse EIR adjustment.
Definition
Dividend per share is defined as the sum of
the recommended final dividend per share
and any interim dividend per share for
the year.
2023 performance
The Board has recommended a final dividend
for 2023 of 21.8 pence per share, which
together with the 2023 interim dividend
of 10.2 pence represents a total ordinary
dividend of 32.0 pence per share.
For calculation of the final dividend,
see the Appendix.
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
35
Key performance indicators continued
Return on equityΔ
CRD IV Common Equity –
Tier 1 capital ratio
Savings customer satisfaction
– Net Promoter Score1
-7ppt
-220bps
2023
2022
14%
21%
2023
2022
16.1%
18.3%
+7
B
S
O
2023
2022
+1
S
F
C
C
2023
2022
+71
+64
+62
+61
Definition
It is defined as Common Equity Tier 1 (CET1)
capital as a percentage of risk-weighted
assets (calculated on a standardised basis
for credit risk and operational risk) and is a
measure of the capital strength of the Group
(for more information, see note 52 to the
Consolidated Financial Statements).
2023 performance
The CET1 ratio remained strong, although
reduced due to lower profitability in the year
as a result of the adverse EIR adjustment,
loan book growth, foreseeable and paid
dividends and the impact of the £150m share
repurchase programme completed in 2023.
Definition
The NPS measures customers’ satisfaction
with services and products. It is based
on customer responses to the question of
whether they would recommend us to a
friend. The response scale is 0 for absolutely
not to 10 for definitely yes. Based on the
score, a customer is a detractor between
0 and 6, a passive between 7 and 8 and a
promoter between 9 and 10. Subtracting the
percentage of detractors from promoters
gives an NPS of between -100 and +100.
2023 performance
Savings customer NPS increased due to
fair savings products offering and excellent
customer service.
1. Prior to Q4 2022 the CCFS NPS was measured
using its legacy engagement programme,
thereafter measurement was aligned to the OSB
Group programme.
The 2022 OSB NPS included email surveys in
November and December. The 2023 OSB NPS
included interactive voice recognition surveys,
which were not considered for CCFS score.
-8ppt
2023
2022
16%
24%
Definition
Return on equity is defined as profit
attributable to ordinary shareholders,
which is profit after tax and after deducting
coupons on AT1 securities, gross of tax,
as a percentage of a 13-point average of
shareholders’ equity (excluding £150m of
AT1 securities).
2023 performance
The lower statutory and underlying return on
equity reflected the reduction in profitability
primarily due to the adverse EIR adjustment.
36
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
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Financial Statements
Appendices
36
Effective interest rate adjustment overview
2023 results included a total net adverse
effective interest rate (EIR) adjustment of
£210.7m on a statutory basis and £181.6m
on an underlying basis which was included
in Net Interest Income. This adjustment was
equivalent to 72bps of statutory net interest
margin (NIM) and 63bps of underlying NIM.
Interest rates and volatile outlook
The Bank of England raised the UK’s Bank
Base Rate (BBR) 13 times from the start of
2022 through to 31 December 2023, as
summarised in Table 1. The interest rate
outlook was also volatile across the same
period and Table 2 shows the futures implied
BBR peak since 30 June 2021 by quarter.
Table 1
Date changed
December 2021
February 2022
March 2022
May 2022
June 2022
August 2022
September 2022
November 2022
December 2022
February 2023
March 2023
May 2023
June 2023
August 2023
BBR %
0.25
0.50
0.75
1.00
1.25
1.75
2.25
3.00
3.50
4.00
4.25
4.50
5.00
5.25
Table 2
Date
30 June 2021
30 September 2021
31 December 2021
31 March 2022
30 June 2022
30 September 2022
31 December 2022
31 March 2023
30 June 2023
30 September 2023
31 December 2023
1. Bloomberg, implied peak interest rate futures pricing at
the applicable date.
Impact on customer behaviour
These rapid BBR rises and fluctuating interest
rate expectations led to customer behavioural
changes. Precise Mortgages (Precise) fixed
rate products were designed to revert to a
rate which was similar to the initial fixed rate
and open market rates. This encouraged
borrowers to spend significant time on the
variable reversion rate before choosing a
new fixed rate product or refinancing with
another lender.
Over the course of the first half of 2023,
the Group observed a step change in how
long these customers were spending on the
reversion rate, in particular the attrition rate
of borrowers who historically stayed on the
reversion rate for several months.
Implied BBR
peak1 %
Precise customers generally contractually
revert to a margin over BBR at the end of
their fixed rate term.
Table 3
Five-year fixed Buy-to-Let
step up in reversion
Precise
ppt
Kent Reliance
ppt
0.1
(0.1)
0.4
1.1
2.1
3.7
4.7
5.6
6.3
6.8
1.3
1.7
2.2
3.0
3.6
4.5
5.7
6.4
7.3
7.4
2020
2021
2022 Q1
2022 Q2
2022 Q3
2022 Q4
2023 Q1
2023 Q2
2023 Q3
2023 Q4
The step-change in customer behavioural
trends, observed over the course of the
first half of 2023, led to a decrease in
the weighted average number of months
that Precise Mortgages borrowers who
reach the end of their fixed term were
expected to spend on the reversion rate
before refinancing from c.17 months to c.5
months. The weighted average number
of c.5 months remained unchanged as at
31 December 2023.
Kent Reliance borrowers, who reach the end
of their fixed term were expected to spend on
average 1-2 months on the reversion rate as
at 31 December 2023.
0.70
0.99
1.37
2.52
3.09
5.88
4.74
4.65
6.29
5.45
5.28
As BBR continued to rise, customers saw
steep increases in the BBR linked reversion
rate, and as the Group continued to develop
its Precise retention programme, customers
chose to refinance earlier and spent less time
on the higher reversion rate compared to
previously observed behavioural trends.
In contrast, the Kent Reliance brand has
historically had a higher reversion rate, its
managed standard variable rate (SVR),
resulting in a significant rate step-up in
reversion versus both the fixed rate and
open market rates. Due to this step up, Kent
Reliance has a long and well-established
broker led retention programme, Choices,
to encourage borrowers to switch to a new
product quickly. Kent Reliance customers
have therefore spent less time on reversion
historically than Precise customers and
their behaviour is therefore less sensitive to
increasing interest rates.
Table 3 illustrates the different way in
which Precise and Kent Reliance mortgages
have reverted since 2020, by showing the
difference between the average fixed and
reversion rates for five-year fixed Buy-to-Let
products when they reached the end of their
initial fixed rate term.
The table shows that the Precise Buy-to-Let
five-year fixed rate products on average
reverted to a variable rate broadly consistent
with the fixed rate prior to the rapid rise in
BBR. Conversely, the Kent Reliance five-year
fixed rate products have consistently had
a higher step-up in reversion providing an
incentive to refinance quickly.
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
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Financial Statements
Appendices
37
Effective interest rate adjustment overview continued
Impact of the step-change
in behaviour in reversion for
Precise customers
The reduction in the expected time spent on
reversion by Precise customers from c.17 to
c.5 months, resulted in an adverse underlying
EIR adjustment to the carrying value of Loans
and Advances to Customers through Net
Interest Income of £182.5m in 2023, of which
£178.0m was recognised in the first half.
Table 4
This moved the Precise EIR asset to an EIR
liability. Other Group EIR adjustments
totalled £0.9m as at 31 December 2023.
Table 4 details Precise Mortgages’ underlying
EIR assets and liabilities, with the movement
in the balance sheet recognised in Net
Interest Income in each year:
Precise Mortgages EIR
As at 31 December 2019
Recognition of interest income
Behavioural adjustment
As at 31 December 2020
Recognition of interest income
Behavioural adjustment
As at 31 December 2021
Recognition of interest income
Behavioural adjustment
As at 31 December 2022
Recognition of interest income
Behavioural adjustment1
As at 31 December 2023
Movement
recognised
through Net
Interest Income
£m
16.8
(2.0)
12.6
(14.7)
70.6
(41.7)
106.9
(182.5)
Underlying EIR
asset/(liability)
£m
Net
£m
5.6
14.8
20.4
(2.1)
18.3
28.9
47.3
75.6
(28.4)
1.
Includes £4.5m of other behavioural adjustments in the second half.
Precise has historically had an EIR asset,
primarily reflecting the expected time spent in
reversion and early repayment charges (ERC)
income which moved to a liability of £28.4m
as at 31 December 2023 following the adverse
EIR adjustment. This liability will unwind over
the remaining life of the mortgages.
Kent Reliance had a net EIR liability of £2.6m
as at 31 December 2023 (31 December 2022:
£17.2m liability) due to the deferral of net fee
income outweighing the impact of expected
ERC income and time spent in reversion.
The Group’s commercial brand, InterBay,
had an EIR asset of £5.7m as at 31 December
2023 (31 December 2022: £8.8m asset) in
relation to expected ERC income and time
spent in reversion. InterBay products did
not change in reversion versus the initial
fixed rate until 2022 when BBR and LIBOR
replacement first exceeded the interest
rate floors used in the reversion periods for
these products.
Behavioural sensitivities
A three months’ movement in the weighted
average time spent in the reversion period
for Precise is considered to be a reasonably
possible change in assumption in a sustained
high interest rate environment and an
uncertain macroeconomic outlook. Applying
a +/- 3 months movement in the time spent
on reversion would lead to a +/- c.£77m
impact on the underlying Net Interest Income
and +/- c.£82m impact on the statutory Net
Interest Income.
This sensitivity will increase/decrease as BBR
rises/falls.
Sensitivity to changes in base rate
As the BBR increased throughout 2022
and 2023, using the effective interest rate
approach resulted in additional monthly
net interest income as the benefit of time
spent on a reversion rate became greater.
If BBR decreases this will lead to a decrease
in monthly net interest income. If BBR
were to reduce by 50bps it is estimated
that this will decrease monthly net interest
income by £1.2m across Precise and Kent
Reliance Mortgages.
The full year
adverse EIR
adjustment
remained broadly
unchanged from
the half year...
38
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
38
Effective interest rate adjustment overview continued
EIR accounting overview
In accordance with IFRS 9, the Group
recognises interest income from mortgages
using the effective interest method, which
aims to recognise interest income at a
consistent effective interest rate (EIR) over the
expected life of the mortgages.
The effective interest method requires that
an EIR% is calculated at origination that
considers all contractual and behavioural
cash flows associated with the mortgage
including fees, early redemption charges
(ERCs) and the average time the customer
spends on the reversion rate after the initial
fixed rate period. This has the effect of
bringing forward expected income from the
reversion period. An EIR asset is built up over
time from origination in respect of expected
ERC income and reversion income. An EIR
liability is recognised at origination in respect
of deferred net fee income.
The Group uses the latest observable trends
to predict future behaviour in reversion and
assumes current interest rates for reversion
cash flows when calculating the EIR.
For Precise Mortgages products the reversion
rate is generally linked to BBR and if this
remains static, there is no change to the EIR%
calculated at origination. If BBR increases,
the EIR methodology prescribes that the EIR%
is recalculated immediately to reflect the
higher anticipated income in the reversion
period, which leads to higher revenue
recognition over the expected remaining life
of the mortgage.
A change in customer behaviour, which
emerges over time, for example customers
spending less time on the reversion rate
before refinancing, can also lead to a change
in expected cash flows and the revenue to
be recognised. Generally, such a change
would cause a reduction in the anticipated
total amount of interest received from the
customer over the revised expected life of
the mortgage. Similarly, an expectation of
a longer period spent on the reversion rate
would lead to an increase in the anticipated
total amount of interest received over the
revised, longer life of a mortgage.
The EIR% for a loan is not adjusted for
behavioural changes where a trend in
customer behaviour is observed. Instead
IFRS 9 requires an immediate adjustment to
the carrying value of Loans and Advances
to Customers, with a corresponding gain
or loss recognised in the income statement.
This maintains the EIR% for the loan over its
remaining behavioural life.
In a rapidly rising rate environment, changes
in BBR are observable immediately and
are reflected in revisions to the EIR, applied
prospectively, whereas trends in customer
behaviour take more time to emerge. This
leads to use of an EIR% calculated based
on cash flows in reversion that are no longer
expected, resulting in a dynamic where
a behavioural-driven adjustment, due to
customers spending less time on the reversion
rate, can create an EIR liability. This liability
unwinds over the remaining expected life of
the mortgages to adjust interest accruals to
actual cash receipts.
The Group’s retention programmes
Kent Reliance has a long and well-established
broker led retention programme, Choices,
to encourage borrowers to switch to a
new product quickly rather than refinance
away from the Group after a period on the
higher reversion rate. This programme has
been successful in retaining borrowers by
engaging with them before the end of their
fixed rate term and offering preferential
terms compared to new customer offers to
reflect the Group’s lower processing costs. In
2023, 78% (2022: 72%) of existing borrowers
chose a new KR product within 3 months of
their initial rate mortgage coming to an end.
The Group introduced a similar proactive
retention programme for Precise borrowers
in October 2022 in reaction to the BBR
increases and the resulting step-up in
rates on reversion. There was a steady
improvement in retention with 66% (2022:
35%) of existing Precise borrowers choosing
a new product within 3 months of their initial
rate mortgage coming to an end in 2023.
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
39
Financial review
Review of the Group’s performance
presented on a statutory basis for
2023 and 2022
Key ratios
Common equity tier 1 ratio
Total capital ratio
Leverage ratio
16.1%
19.5%
7.5%
18.3%
19.7%
8.4%
Summary Profit or Loss
Net interest income
Net fair value (loss)/gain on financial instruments
Other operating income
Administrative expenses
Provisions
Impairment of financial assets
Integration costs
Profit before tax
Profit after tax
Key ratios ∆
Net interest margin
Cost to income ratio
Management expense ratio
Loan loss ratio
Return on equity
Basic earnings per share, pence
Ordinary dividend per share, pence
Special dividend per share, pence
Extracts from the Statement of Financial Position
Loans and advances to customers
Retail deposits
Total assets
Group
31-Dec-2023
£m
Group
31-Dec-2022
£m
658.6
(4.4)
3.9
709.9
58.9
6.6
(234.6)
(207.8)
(0.4)
(48.8)
-
374.3
282.6
1.6
(29.8)
(7.9)
531.5
410.0
231bps
278bps
36%
82bps
20bps
14%
66.1
32.0
-
£m
27%
81bps
13bps
21%
90.8
30.5
11.7
£m
25,765.0
23,612.7
22,126.6
19,755.8
29,589.8
27,566.7
For definitions of key ratios, see Key performance indicators on pages 33-35, for more detail on the calculation
of key ratios, see the Appendix see pages 265-267.
The Group’s external auditor performed an independent reasonable assurance review of certain alternative
performance measures as highlighted with the symbol Δ – see the Appendix for the auditor’s statement.
Statutory profit
The Group’s statutory profit before tax
decreased by 30% to £374.3m (2022:
£531.5m) after acquisition-related items of
£51.7m1 (2022: £59.6m). The benefit of net
loan book growth was more than offset by
the total net adverse statutory effective
interest rate (EIR) adjustment of £210.7m.
The decrease in statutory profit before tax
was also due to a net fair value loss on
financial instruments compared with a gain
in the prior year, higher administration costs
and a higher impairment charge.
Statutory profit after tax was £282.6m in
2023, a decrease of 31% from £410.0m in the
prior year and included acquisition-related
items of £37.1m1 (2022: £38.7m). The Group’s
effective tax rate increased to 24.6%2 due to
higher corporation tax rates, partially offset
by a lower proportion of the profits being
subject to the bank surcharge (2022: 24.0%).
Statutory return on equity for 2023 reduced
to 14% (2022: 21%) reflecting the reduction in
profitability in the year.
Statutory basic earnings per share decreased
to 66.1 pence (2022: 90.8 pence), in line with
the decrease in profit after tax.
Statutory profit before tax
£374.3m
2022: £531.5m
Common Equity Tier 1 ratio
16.1%
2022: 18.3%
40
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
40
Financial review continued
Net interest income
Statutory net interest income decreased
by 7% in 2023 to £658.6m (2022: £709.9m),
as the benefit of net loan book growth was
more than offset by the total net adverse EIR
adjustment of £210.7m on a statutory basis.
The adverse EIR adjustment primarily related
to the expectation that Precise Mortgages
borrowers would spend less time on the higher
reversion rate before refinancing based on
observed customer behavioural trends.
Statutory net interest margin (NIM) was
231bps compared with 278bps in the prior
year, down 47bps, largely due to the adverse
EIR adjustment and as the benefit of the lower
cost of retail funding was offset by the impact
of some lower margin lending due primarily to
delays in mortgage pricing reflecting the rate
rises and higher swap costs.
The total net adverse EIR adjustment
accounted for 72bps of statutory NIM for the
year ended 31 December 2023.
Net fair value loss on financial
instruments
Statutory net fair value loss on financial
instruments of £4.4m in 2023 (2022: £58.9m
gain) included a £11.1m net loss on unmatched
swaps (2022: £57.1m gain) following a
reduction in swap prices in the fourth quarter
and a gain of £2.0m (2022: £8.1m loss) in
respect of the ineffective portion of hedges.
The Group also recorded a £6.4m net gain
(2022: £10.2m gain) from the unwind of
acquisition-related inception adjustments,
a 4.3m loss (2022: £1.2m gain) from the
amortisation of hedge accounting inception
adjustments and a net gain of £2.6m from
other items (2022: £1.5m loss).
The net loss on unmatched swaps related
primarily to fair value movements on
mortgage pipeline swaps prior to them being
matched against completed mortgages, and
was caused by a reduction in the interest
rate outlook on the SONIA forward curve
in the fourth quarter. Conversely, the net
gain recognised in the prior year reflected
a step up in interest rate outlook on the
SONIA yield curve largely in response to the
actions announced in the September 2022
mini budget.
The Group economically hedges its
committed pipeline of mortgages and this
unrealised movement unwinds over the life
of the swaps through hedge accounting
inception adjustments.
Other operating income
Statutory other operating income of £3.9m
(2022: £6.6m) mainly comprised CCFS’
commissions and servicing fees, including
those from servicing securitised loans that
have been derecognised from the Group’s
balance sheet.
Administrative expenses
Statutory administrative expenses increased
by 13% to £234.6m in 2023 (2022: £207.8m)
largely due to balance sheet growth and
the anticipated impact of inflation and
planned investment in people and operations,
including digital solutions enhancing our
customer propositions.
The statutory management expense ratio
was broadly flat at 82bps in 2023 (2022:
81bps) reflecting the Group’s focus on cost
discipline and efficiency.
The Group’s statutory cost to income ratio
increased to 36% (2022: 27%) primarily as a
result of lower income following the adverse
EIR adjustment and a net fair value loss on
financial instruments compared with a gain
in the prior year.
Impairment of financial assets
The Group recorded a statutory impairment
charge of £48.8m in 2023 (2022: £29.8m)
representing a statutory loan loss ratio of
20bps (2022: 13bps).
The updated forward-looking macroeconomic
scenarios used in the Group’s IFRS 9 models
accounted for a £6.4m charge, while
enhancements to models and post model
adjustments resulted in a net release of £1.0m.
Changes in the risk profile of borrowers as
they transitioned through modelled IFRS 9
impairment stages and loan book growth
amounted to a charge of £21.9m and an
increase in provisions relating to accounts
with arrears of three months or more
amounted to a charge of £14.1m. The increase
in individually assessed provisions and other
items amounted to a charge of £7.4m.
As at 31 December 2023, the Group’s balance
sheet provisions were further reduced by
write-offs of £33.6m, where loans were written
off against the related provision when the
underlying security was sold. This amount
did not form part of the year end impairment
charge as it was expensed to the profit and
loss when the provisions were raised.
In the prior year, the impairment charge
was largely due to the Group’s adoption of
more severe forward-looking macroeconomic
scenarios in its IFRS 9 models and post model
adjustments to account for the rising cost of
living and borrowing concerns.
Integration costs
The Group ceased recognising expenses as
integration costs on the third anniversary of
combination with CCFS in October 2022.
In the prior year, £7.9m of integration
costs largely related to redundancy
costs and advice on the Group’s future
operating structure.
Dividend
The Board has recommended a final dividend
of 21.8 pence per share for 2023, which
together with the interim dividend of 10.2
pence per share, represents a total ordinary
dividend of 32.0 pence per share. See the
Appendix for the calculation of the 2023
final dividend.
The recommended final dividend is subject
to approval at the AGM on 9 May 2024. The
final dividend will be paid on 14 May 2024,
with an ex-dividend date of 4 April 2024 and
a record date of 5 April 2024.
Balance sheet growth
On a statutory basis, net loans and advances
to customers grew by 9% to £25,765.0m
in 2023 (31 December 2022: £23,612.7m),
supported by originations of £4.7bn in
the year and strong retention.
Total assets grew by 7% to £29,589.8m
(31 December 2022: £27,566.7m) largely due to
the growth in loans and advances to customers.
On a statutory basis, retail deposits
increased by 12% to £22,126.6m as at 31
December 2023 from £19,755.8m in the prior
year, as savers continued to choose the
Group’s consistently fair and attractively
priced products.
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
41
Financial review continued
The Group complemented its retail deposits
funding with drawings under the Bank of
England’s schemes. Drawings under the Term
Funding Scheme for SMEs reduced to £3.3bn
as at 31 December 2023 from £4.2bn in the
prior year as the Group repaid £900m of the
funding using retail deposits and wholesale
funding in the second half of the year.
Drawings under Indexed Long-Term Repo
were £10.1m (31 December 2022: £300.9m).
Liquidity
OSB and CCFS operate under the Prudential
Regulation Authority’s liquidity regime and
are managed separately for liquidity risk.
Each Bank holds its own significant liquidity
buffer of liquidity coverage ratio (LCR)
eligible high-quality liquid assets (HQLA).
Each Bank operates within a target liquidity
runway in excess of the minimum LCR
regulatory requirement, which is based on
internal stress testing. Each Bank has a range
of contingent liquidity and funding options
available for possible stress periods.
As at 31 December 2023, OSB had £1,155.7m
and CCFS had £1,514.0m of HQLA (31
December 2022: £1,494.1m and £1,522.8m,
respectively).
The Group also held portfolios of
unencumbered prepositioned Bank of
England level B and C eligible collateral in the
Bank of England Single Collateral Pool.
As at 31 December 2023, OSB had an LCR
of 208% and CCFS 139% (31 December
2022: 229% and 148%, respectively) and
the Group LCR was 168% (31 December
2022: 185%), all significantly in excess of the
regulatory minimum of 100% plus Individual
Liquidity Guidance.
Capital
The Group’s capital position remained
strong, with a CET1 ratio of 16.1% and a
total capital ratio of 19.5% as at the end
of 2023 (31 December 2022: 18.3% and
19.7%, respectively). Both ratios reflected
the impact of lower profitability in the year
due to the adverse EIR adjustment, which
reduced the CET1 ratio by 1.2%, loan book
growth, foreseeable and paid dividends and
the impact of the £150m share repurchase
programme completed in 2023.
The Group had a leverage ratio of 7.5%
as at 31 December 2023 (31 December
2022: 8.4%). The combined Group had
a Pillar 2a requirement of 1.27% (2022:
1.27%) of risk-weighted assets (excluding a
static integration add-on of £19.5m) as at
31 December 2023.
Cash flow statement
The Group’s cash and cash equivalents
decreased by £530.1m during the year to
£2,514.0m as at 31 December 2023.
In 2023, loans and advances to customers
increased by £2,200.5m, primarily funded by
£2,370.8m of deposits from retail customers.
The Group repaid £336.9m of cash collateral
received on derivative exposures and received
£38.8m of initial margin, reflecting a reduction
in swap pricing in the fourth quarter. Cash
used in financing activities of £654.1m included
financing repaid: TFSME scheme repayments
of £900m and repayments of the ILTR
scheme of £290.8m. It also included interest
on financing of £205.4m and distributions to
shareholders of £185.0m of dividend payments
and £152.4m of share repurchase which
were partially offset by funding through
securitisations, senior notes and subordinated
liability issuances raising £1,138.7m. Cash used
in investing activities was £301.2m.
Summary Consolidated Statement of Cash Flows
Profit before tax
Net cash generated/(used in):
Operating activities
Investing activities
Financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Group
31-Dec-2023
£m
Group
31-Dec-2022
£m
374.3
531.5
425.2
(301.2)
(654.1)
(530.1)
3,044.1
2,514.0
428.5
63.2
(184.3)
307.4
2,736.7
3,044.1
In 2022, loans and advances to customers
increased by £2,563.1m, primarily funded by
£2,229.4m of deposits from retail customers.
The Group received £434.3m of cash collateral
on derivative exposures and paid £137.5m of
initial margin, reflecting new derivatives during
the year. Cash used from financing activities
of £184.3m included £300.9m drawings
under the ILTR scheme offset by £193.6m
repayment of debt securities, £102.0m share
repurchases, £133.1m dividend payments and
£45.3m interest on financing liabilities. Total
drawings under the Bank of England’s TFSME
scheme remained unchanged at £4.2bn.
Cash generated from investing activities
was £63.2m.
1. See the reconciliation of statutory to underlying
results on page 44.
2. See note 11 to the Consolidated Financial Statements.
42
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
42
Financial review continued
Review of the Group’s performance
presented on an underlying basis for
2023 and 2022
Summary Profit or Loss
Net interest income
Net fair value (loss)/gain on financial instruments
Other operating income
Administrative expenses
Provisions
Impairment of financial assets
Profit before tax
Profit after tax
Key ratios ∆
Net interest margin
Cost to income ratio
Management expense ratio
Loan loss ratio
Return on equity
Basic earnings per share, pence
Extracts from the Statement of Financial Position
Loans and advances to customers
Retail deposits
Total assets
Group
31-Dec-2023
£m
Group
31-Dec-2022
£m
714.7
(10.8)
3.9
769.1
48.5
6.6
(232.9)
(204.0)
(0.4)
(48.5)
426.0
319.7
1.6
(30.7)
591.1
448.7
251bps
303bps
33%
81bps
20bps
16%
75.0
25%
80bps
14bps
24%
99.6
£m
£m
25,739.6
23,529.8
22,126.6
19,755.2
29,565.6
27,487.6
The Group’s external auditor performed an independent reasonable assurance review of certain
alternative performance measures as highlighted with the symbol Δ – see the Appendix for the
auditor’s assurance report
Underlying profit
The Group’s underlying profit before tax
decreased by 28% to £426.0m from £591.1m
in 2022. The benefit of net loan book growth
was more than offset by the total net
adverse underlying effective interest rate
(EIR) adjustment of £181.6m. The decrease in
underlying profit before tax was also due to
a net fair value loss on financial instruments
compared to a gain in the prior year,
higher administration costs and a higher
impairment charge.
Underlying profit after tax was £319.7m, down
29% (2022: £448.7m), broadly in line with the
decrease in profit before tax. The Group’s
effective tax rate on an underlying basis
increased to 25.0% for the year due to higher
corporation tax rates, partially offset by a
lower proportion of the profits being subject
to the bank surcharge (2022: 24.3%).
On an underlying basis, return on equity for
2023 reduced to 16% (2022: 24%), reflecting
the reduction in profitability in the year.
The underlying basic earnings per share
decreased to 75.0 pence (2022: 99.6 pence),
in line with the decrease in profit after tax.
Net interest income
Underlying net interest income decreased
by 7% to £714.7m in 2023 (2022: £769.1m),
as the benefit of net loan book growth was
more than offset by the total net adverse
EIR adjustment of £181.6m on an underlying
basis. The adverse EIR adjustment primarily
related to the expectation that Precise
Mortgages borrowers would spend less
time on the higher reversion rate before
refinancing based on observed customer
behavioural trends.
Alternative performance
measures
The Group presents alternative
performance measures (APMs) in
this Strategic report as Management
believes they provide a more consistent
basis for comparing the Group’s
performance between financial periods.
Underlying results and KPIs for 2023
and 2022 exclude integration costs and
other acquisition-related items.
APMs reflect an important aspect of
the way in which operating targets are
defined and performance is monitored
by the Board. However, any APMs in
this document are not a substitute for
IFRS measures and readers should
consider the IFRS measures as well.
For more information on APMs and the
reconciliation between APMs and the
statutory equivalents, see the Appendix
on pages 265-267
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
43
Financial review continued
The underlying net interest margin was
251bps compared with 303bps in the prior
year, down 52bps, largely due to the adverse
EIR adjustment and as the benefit of the lower
cost of retail funding was offset by the impact
of some lower margin lending due primarily to
delays in mortgage pricing reflecting the rate
rises and higher swap costs.
The total net adverse EIR adjustment
accounted for 63bps of underlying NIM for
the year ended 31 December 2023.
Net fair value loss on financial
instruments
Underlying net fair value loss on financial
instruments was £10.8m in 2023 (2022:
£48.5m gain) and included a loss on
unmatched swaps of £11.1m (2022: £57.1m
gain) following a fall in swap prices in the
fourth quarter and a gain of £2.0m (2022:
£8.1m loss) in respect of the ineffective
portion of hedges.
The Group also recorded a £4.3m loss (2022:
£1.2m gain) from the amortisation of hedge
accounting inception adjustments and a gain
of £2.6m (2022: £1.7m loss) from other items.
The net loss on unmatched swaps related
primarily to fair value movements on
mortgage pipeline swaps prior to them being
matched against completed mortgages, and
was caused by a reduction in the interest
rate outlook on the SONIA forward curve
in the fourth quarter. Conversely the net
gain recognised in the prior year reflected
a step up in interest rate outlook on the
SONIA yield curve largely in response to the
actions announced in the September 2022
mini budget.
Balance sheet growth
On an underlying basis, net loans and
advances to customers were £25,739.6m (31
December 2022: £23,529.8m) an increase
of 9%, supported by gross originations of
£4.7bn in the year.
Total underlying assets grew by 8% to
£29,565.6m (31 December 2022: £27,487.6m),
largely due to the growth in loans and
advances to customers.
On an underlying basis, retail deposits
increased by 12% to £22,126.6m (31
December 2022: £19,755.2m) as savers
continued to choose the Group’s consistently
fair and attractively priced products.
The Group economically hedges its
committed pipeline of mortgages and this
unrealised movement unwinds over the life
of the swaps through hedge accounting
inception adjustments.
Impairment of financial assets
The Group recorded an underlying
impairment charge of £48.5m in 2023
(2022: £30.7m) representing an underlying
loan loss ratio of 20bps (2022: 14bps).
Other operating income
On an underlying basis, other operating
income was £3.9m in 2023 (2022: £6.6m) and
mainly comprised CCFS’ commissions and
servicing fees, including those from servicing
securitised loans that have been derecognised
from the Group’s balance sheet.
Administrative expenses
Underlying administrative expenses increased
by 14% to £232.9m in 2023 (2022: £204.0m),
largely due to balance sheet growth and
the anticipated impact of inflation and
planned investment in people and operations,
including digital solutions enhancing our
customer propositions.
The underlying management expense ratio
remained broadly flat at 81bps in 2023
(2022: 80bps) reflecting the Group’s focus on
cost discipline and efficiency.
The Group’s underlying cost to income ratio
increased to 33% (2022: 25%) primarily as a
result of lower income following the adverse
EIR adjustment and a net fair value loss on
financial instruments compared with a gain
in the prior year.
The updated forward-looking macroeconomic
scenarios used in the Group’s IFRS 9 models
accounted for a £6.4m charge, while
enhancements to models and post model
adjustments resulted in a net release of £1.0m.
Changes in the risk profile of borrowers as
they transitioned through modelled IFRS 9
impairment stages and loan book growth
amounted to a charge of £21.9m and an
increase in provisions relating to accounts
with arrears of three months or more
amounted to a charge of £14.1m. The increase
in individually assessed provisions and other
items amounted to a charge of £7.1m.
As at 31 December 2023, the Group’s balance
sheet provisions were further reduced by
£33.6m, where loans were written off against
the related provision when the underlying
security was sold. This amount did not form
part of the year end impairment charge as it
was expensed to the profit and loss when the
provisions were raised.
In the prior year, the impairment charge
was largely due to the Group’s adoption of
more severe forward-looking macroeconomic
scenarios in its IFRS 9 models and post model
adjustments to account for the rising cost of
living and borrowing concerns.
44
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
44
Financial review continued
Reconciliation of statutory to underlying results
Net interest income
Net fair value (loss)/gain on financial instruments
Other operating income
Total income
Administrative expenses
Provisions
Impairment of financial assets
Integration costs
Profit before tax
Profit after tax
Summary Balance Sheet
FY 2023
Reverse
acquisition-
related items
£m
Underlying
results
£m
Statutory
results
£m
FY 2022
Reverse
integration costs
and acquisition-
related items
£m
56.11
(6.4)2
–
49.7
1.73
–
0.34
–
51.7
37.1
714.7
(10.8)
3.9
707.8
(232.9)
(0.4)
(48.5)
–
426.0
319.7
709.9
58.9
6.6
775.4
(207.8)
1.6
(29.8)
(7.9)
531.5
410.0
59.2
(10.4)
–
48.8
3.8
–
(0.9)
7.95
59.6
38.7
Statutory
results
£m
658.6
(4.4)
3.9
658.1
(234.6)
(0.4)
(48.8)
–
374.3
282.6
Underlying
results
£m
769.1
48.5
6.6
824.2
(204.0)
1.6
(30.7)
–
591.1
448.7
Loans and advances to customers
25,765.0
(25.4)6
25,739.6
23,612.7
(82.9)
23,529.8
Other financial assets
Other non-financial assets
Total assets
Amounts owed to retail depositors
Other financial liabilities
Other non-financial liabilities
Total liabilities
3,722.8
102.0
1.37
(0.1)8
3,724.1
3,878.1
101.9
75.9
29,589.8
(24.2)
29,565.6
27,566.7
9.1
(5.3)
(79.1)
3,887.2
70.6
27,487.6
22,126.6
5,272.0
–
–
5,272.0
5,548.5
22,126.6
19,755.8
(0.6)9
19,755.2
46.7
(6.3)11
40.4
61.4
27,445.3
(6.3)
27,439.0
25,365.7
0.810
(30.2)
(30.0)
5,549.3
31.2
25,335.7
Net assets
2,144.5
(17.9)
2,126.6
2,201.0
(49.1)
2,151.9
1. Amortisation of the net fair value uplift to CCFS’
mortgage loans and retail deposits on Combination.
2.
Inception adjustment on CCFS’ derivative assets and
liabilities on Combination.
3. Amortisation of intangible assets recognised on
Combination.
4. Adjustment to expected credit losses on CCFS loans
on Combination.
5. Reversal of integration costs related to the
Combination.
6. Recognition of a fair value uplift to CCFS’ loan book
less accumulated amortisation of the fair value uplift
and a movement on credit provisions.
7. Fair value adjustment to hedged assets.
8. Adjustment to deferred tax asset and recognition of
acquired intangibles on Combination.
9. Fair value adjustment to CCFS’ retail deposits less
accumulated amortisation.
10. Fair value adjustment to hedged liabilities.
11. Adjustment to deferred tax liability and other
acquisition-related adjustments.
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
45
Risk review
The risk management framework
continues to be effective in managing
the Group’s risk profile during a period
of market volatility and uncertainty.
Executive summary
The Group’s primary focus during 2023 has
been to navigate the uncertainties and risks
arising from macroeconomic headwinds,
geopolitical uncertainties, continued
cost of living and borrowing challenges
and changing customer and competitor
behaviours. Despite the heightened levels
of uncertainty and change, the Group has
broadly maintained its risk profile within the
confines of the Board approved risk appetite.
The Group’s financial performance was
impacted by the adverse EIR adjustment
which related to the expectation that Precise
Mortgages borrowers would spend less
time on the higher reversionary rate before
refinancing based on observed customer
behavioural trends. Over the course of the
first half of 2023, the Group observed a
step change in how long these customers
were spending on the reversion rate, in
particular the attrition rate of borrowers who
historically stayed on the reversion rate for
several months. Precise customers generally
contractually revert to a margin over BBR
at the end of their fixed rate term. As BBR
continued to rise, customers saw steep
increases in the BBR linked reversion rate,
and as the Group continued to develop its
Precise retention programme, customers were
choosing to refinance earlier and spent less
time on the higher reversion rate compared
to previously observed behavioural trends.
The Group has significantly enhanced its
approach to modelling and monitoring
customer repayment behaviours.
During 2023, the Group observed an increase
in arrears levels driven by rising costs of
borrowing and living, whilst the timelines for
repossessing and selling properties continued
to be elongated due to ongoing delays
in the court hearing process, which also
contributed to elevated levels of late-stage
arrears balances. The Group observed lower
levels of Buy-to-Let balances greater than
three months in arrears, versus UK Finance
trends, with year-on-year growth marginally
lower than the UK Finance trend observed
during the year. Residential mortgage arrears
trends remained higher than UK Finance
data, driven by a higher portfolio mix of near
prime customers.
The Group continued to focus on supporting
customers who experienced financial
difficulties, as evidenced by the observed
year-on-year increase in forbearance
measures granted. The LTV profile of
the existing loan book and accounts in
arrears remains appropriate, providing
loss protection if required. Arrears levels
remain below expectations and prudent
IFRS9 provision coverage levels have
been maintained to cover for forecasted
future losses.
The Group has established a robust
framework of assessing the nature and
drivers of its credit risk profile which
are captured within its Expected Credit
Loss (ECL) methodology. The Group
has maintained a prudent level of credit
provisions which are driven by forward
looking macroeconomic forecasts. PMAs
are primarily designed to capture the risk
arising from the heightened cost of living
and borrowing by moving some accounts
to into Stage 2 even when the account
is performing.
The Group remains cognisant of the impact
of the cost of living and borrowing challenges
on customers experiencing financial
distress and customers with vulnerabilities.
The Group have undertaken an extensive
review and enhanced activities to further
improve its approach to early assessment
and management of customers subject to
financial distress or vulnerabilities to ensure
good outcomes. These enhancements
are being made against the backdrop of
Consumer Duty disciplines.
The Group’s wider Enterprise Risk
Management Framework (ERMF) ensures
that principal risks are subject to common
good practice standards across all phases
of the risk life cycle, including identification,
assessment, management, monitoring and
reporting. The ERMF continuously evolves to
reflect the Group’s underlying risk profile.
An example of this is the introduction of a
focused approach to risk disciplines in the
area of model and end-user computing, data
and change risk management. The ERMF and
its sub-components are subject to continuous
review and independent assurance, as well
as being leveraged to demonstrate effective
compliance with prudential and conduct
regulatory requirements.
Given the challenging and uncertain
operating environment, the Group’s
performance against its Board approved risk
appetite was subject to close scrutiny by
the Board and management. In particular,
the Group remains very focused on ensuring
that underlying risk trends were actively
monitored and that timely actions were taken
to minimise risk and ensure that a sufficient
level of financial contingency and buffers
are held. This approach has ensured that
the Group has maintained prudent levels of
provisions, funding and capital buffers.
The Group made good progress against
several important regulatory initiatives,
including compliance with the Resolvability
Assessment Framework (including meeting
interim MREL requirements) and Consumer
Duty. This has been achieved through
collaborative engagement with its supervisory
authorities, key functional areas and the
Board. The Group successfully issued its first
£300m of MREL qualifying debt securities plus
£250m Tier 2 debt securities in 2023 followed
by a further £400m of MREL qualifying debt
securities in January 2024, following which,
the Group met its interim MREL requirement,
including regulatory buffers. These issuances
were supported by a credit rating upgrade
during the course of the year.
46
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
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Financial Statements
Appendices
46
Risk review continued
The Group is required to comply with
Bank of England policy with respect to the
Resolvability Assessment Framework (RAF)
which aims to ensure qualifying firms can
be resolved in an orderly fashion. During
2023 the Group made continued progress
in embedding and enhancing existing
resolution capabilities.
The Group has undertaken an extensive
review of Basel 3.1 consultation documents
and assessed its impact whilst being
cognisant that it is not yet finalised for UK
adoption. Based on various permutations
of how the new regulation will be adopted
in the UK, the Group endeavoured to reflect
its impact within its business and capital
planning processes, including within its MREL
issuance plans.
The Group continues to enhance its
approach to compliance with Internal
Ratings-Based (IRB) disciplines underpinned
by ongoing self-assessment reviews
against regulatory standards and emerging
guidelines. The Group has strengthened its
compliance with the IRB requirements and
has reflected upon the PRAs feedback to the
industry. The Group continues to engage
with the regulator ahead of commencing the
formal application process. Underlying IRB
capabilities and disciplines have become
progressively integrated into the Group’s
business planning, risk, capital, IT and
data management disciplines. In particular,
enhanced IRB capabilities have played
a vital role in informing and shaping the
Group’s response to the rising costs of living
and borrowing.
As the Group has embarked on an extensive
programme of digitalisation for its systems
architecture and underlying business
processes, the Group has leveraged its
risk and governance framework to ensure
the programme of activities are subject
to active identification, monitoring and
escalation of risks. Active engagement with
key stakeholders based on defined outcomes,
plans and deliverables is central to the risk
and governance disciplines. In particular, the
Group is assessing the risks in the context
of various change programmes, impact on
business-as-usual activities and transition
from development into production.
The Group continued to embed its approach
to managing climate risk through the further
development of its climate risk management
framework. A dedicated ESG Technical
Committee ensures that enhancements are
delivered as required.
Priority areas for 2024
A heightened level of uncertainty remains around the UK economic outlook and the
operating environment for 2024 and beyond. Therefore, continued close monitoring of
the Group’s risk profile and operating effectiveness remains a key priority for the Risk
and Compliance function. Other priorities include:
• Continue to leverage the Group’s Enterprise Risk Management Framework and
existing capabilities to actively identify, assess and manage risks in line with approved
risk appetite
• Leverage enhancements made across the Group’s portfolio analytical capabilities,
including utilising the Group’s new stress testing capability and wider analytical tools
to improve risk-based pricing, balance sheet management, capital planning and
stress testing
• Continue to embed the operational risk framework across the Group and further
enhance controls testing and assurance activity
• Continue to enhance and embed Resolvability Assessment Framework capabilities and
carry out a fire drill to test those capabilities
• Provide assurance to ensure the FCA’s Consumer Duty rules and requirements are
further embedded as planned
• Provide oversight across the embedding of the Group’s project to enhance the Group’s
arrears management processes
• Maintain oversight of capital management including the impact of MREL and Basel 3.1,
including the implications for capital planning and asset pricing decisions
• Further embed IRB capabilities and disciplines within wider risk management processes
• Continue to provide second line oversight of the funding strategy and drive
enhancements to sensitivity analysis around key liquidity drivers
• Continue to provide second line oversight of the Group’s key change programmes,
including the digitalisation of the Group.
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
47
Risk review continued
Key risk performance indicators
Risk appetite is aligned to a select range of key performance indicators, which
are used to assess performance against strategic, business, operational and
regulatory objectives.
Actual performance against these indicators is continually assessed and reported.
Loan loss ratio∆
Liquidity coverage ratio
3+ months in arrears
Capital ratios
y
r
o
t
u
t
a
t
S
i
g
n
y
l
r
e
d
n
U
2023
2022
2023
2022
13bps
14bps
20bps
20bps
B
S
O
2023
2022
S
F
C
C
2023
2022
208%
229%
B
S
O
2023
2022
139%
148%
S
F
C
C
2023
2022
1.2%
1.2%
0.9%
1.6%
CET1 ratio
2023 performance
Statutory and underlying loan loss ratios
increased in the year largely due to updated
macroeconomic scenarios, changes in the
risk profile of borrowers as they transitioned
through modelled IFRS 9 impairment stages,
loan book growth and an increase in
balances in arrears of three months or more.
2023 performance
Liquidity ratios reduced during 2023, but
remained well above internal and regulatory
requirements. The reduction was driven by
a reduction in High Quality Liquid Assets
following managed reductions of Bank of
England funding during the year.
2023 performance
The Group’s ratio of balances which are
greater than three months in arrears
increased to 1.4% (2022: 1.1%) largely driven
by the elevated cost of living and cost of
borrowing. Across the OSB bank entity,
arrears increased to 1.6% from 1.2% at the
end of 2022 while for CCFS arrears increased
to 1.2% from 0.9% at the end of 2022.
2023
2022
Total capital ratio
2023
2022
16.1%
18.3%
19.5%
19.7%
2023 performance
The Group’s capital position remained
strong with a CET1 ratio of 16.1% and a
total capital ratio of 19.5% as at the end of
2023 (31 December 2022: 18.3% and 19.7%,
respectively). The capital ratios reduced
due to lower profitability as a result of the
adverse EIR adjustment, loan book growth,
foreseeable and paid dividends and the
impact of the £150m share repurchase
programme completed in 2023.
48
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48
Risk review continued
Enterprise Risk Management Framework
The Enterprise Risk Management Framework
(ERMF) sets out the principles and approach
with respect to the management of the
Group’s risk profile in order to successfully
fulfil its business strategy and objectives,
including compliance with all conduct and
prudential regulatory objectives.
The ERMF is the overarching framework that
enables the Board and senior management
to actively manage and optimise the risk
profile within the constraints of its risk
appetite. The ERMF also facilitates informed
risk-based decisions to be taken in a timely
manner, ensuring that the interests and
expectations of key stakeholders can be met.
The ERMF provides a structured mechanism
to align critical components of an effective
approach to risk management, linking
overarching risk principles to day-to-day risk
identification, assessment, mitigation, and
monitoring activities.
The modular construct of the ERMF provides
an agile approach keeping pace with
the evolving nature of the risk profile and
underlying drivers. The ERMF and its core
modular components are subject to periodic
review and approval by the Board and its
relevant Committees. The key components of
the ERMF structure are as follows:
1 Risk principles and culture
The Group established a set of risk
management and oversight principles
that inform and guide all underlying risk
management and assessment activities.
These principles are informed by the Group’s
Purpose, Vision and Values.
2 Risk strategy and appetite
The Group established a clear business
vision and strategy which is supported by
an articulated risk vision and underlying
principles. The Board is accountable for
ensuring that the Group’s ERMF is structured
against the strategic vision and is delivered
within agreed risk appetite thresholds.
3 Risk assessment and control
The Group is committed to building a safe
and secure banking operation through an
integrated and effective ERMF.
4 Risk analytics
The Group uses quantitative analysis and
statistical modelling to help improve its
business decisions.
5 Stress testing and scenario
development
Stress testing is an important risk
management tool, which is used to evaluate
the potential effects of a specific event
and/or movement in a set of variables to
understand the impact on the Group’s
financial and operating performance. The
Group has a stress testing framework which
sets out the Group’s approach.
6 Risk data and information technology
The maintenance of high-quality risk
information, along with the Group’s data
enrichment and aggregation capabilities,
are central to the Risk function’s objectives
being achieved.
7 Risk Management Framework’s
policies and procedures
Risk frameworks, policies and supporting
documentation outline the process by which
risk is effectively managed and governed
within the Group.
8 Risk management information
and reporting
The Group established a comprehensive suite
of risk Management Information (MI) and
reports covering all principal risk types.
9 Risk governance and function
organisation
Risk governance refers to the processes and
structures established by the Board to ensure
that risks are assumed and managed within
the Board-approved risk appetite, with clear
delineation between risk taking, oversight
and assurance responsibilities. The Group’s
risk governance framework is structured to
adhere to the ‘three lines of defence’ model.
10 Use and embedding
Dissemination of key framework
components across the Group to ensure
that business activities and decision-
making are undertaken in line with the
Board expectations.
Enterprise Risk Management Framework (ERMF)
Key elements
Risk principles
and culture
Risk strategy
and appetite
Risk governance and
function organisation
Risk assessment
and control
Principal risks
Financial risks
Credit risk
Liquidity and
funding risk
Market risk
Solvency risk
Strategic and
business risk
Reputational risk
Non-financial risks
Operational risk
Conduct risk
Financial
crime risk
Compliance/
regulatory risk
Capabilities
Risk framework
and policies
Risk data
and IT
Risk
analytics
Risk management
information
Stress
testing
Risk regulatory submissions
ICAAP
ILAAP
Recovery plan/Z-templates
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
49
Risk review continued
Group organisational structure
The Board has ultimate responsibility for the
oversight of the Group’s risk profile and risk
management framework and, where it deems
it appropriate, it delegates its authority to
relevant Committees. The Board and its
Committees are provided with appropriate
and timely information relating to the nature
and level of the risks to which the Group is
exposed and the adequacy of risk controls
and mitigants.
The Internal Audit function provides
independent assurance to the Board and
its Committees as to the effectiveness of
the systems and controls and the level of
adherence to internal policies and regulatory
requirements. The Board also commissions
third party subject matter expert reviews
and reports in relation to issues and areas
requiring deeper technical assessment
and guidance.
Risk appetite
The Group aligns its strategic and business
objectives with its risk appetite, which
defines the level of risk that the Group is
willing to accept, enabling the Board and
senior management to monitor the risk
profile relative to its strategic and business
performance objectives. Risk appetite is
a critical mechanism through which the
Board and senior management are able
to identify adverse trends and respond to
unexpected developments in a timely and
considered manner.
The risk appetite is calibrated to reflect
the Group’s strategic objectives, business
operating plans, as well as external
economic, business and regulatory
constraints. In particular, the risk appetite
is calibrated to ensure that the Group
continues to deliver against its strategic
objectives and operates with sufficient
financial buffers even when subjected to
plausible but extreme stress scenarios.
The objective of the Board’s risk appetite
is to ensure that the strategy and business
operating model is sufficiently resilient.
The Group’s risk appetite is calibrated using
statistical analysis and stress testing to
inform the process for setting management
triggers and limits against key risk indicators.
The calibration process is designed to
ensure that timely and appropriate actions
are taken to maintain the risk profile within
approved thresholds. The Board and senior
management actively monitor actual
performance against approved management
triggers and limits. Currently, there are two
regulated banking entities within the Group.
Risk appetite metrics and thresholds are set
at both individual entity and Group levels.
The Group’s risk appetite is subject to a
full refresh annually across all principal
risk types and a mid-year review where
any metrics can be assessed and updated
as appropriate.
Risk appetite is a critical
mechanism through which the
Board and senior management
identify adverse trends
and respond to unexpected
developments in a timely and
considered manner.
Hasan Kazmi, Group Chief Risk Officer
50
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Financial Statements
Appendices
50
Risk review continued
Structure of the Group
d
r
a
o
B
s
e
e
t
t
i
m
m
o
C
t
n
e
m
e
g
a
n
a
M
s
e
e
t
t
i
m
m
o
C
d
n
a
s
s
e
n
i
s
u
B
s
n
o
i
t
c
n
u
F
l
o
r
t
n
o
C
s
e
v
i
t
u
c
e
x
E
Board of Directors
Board Capital and
Funding Committee
Group Remuneration and
People Committee
Group Nomination
and Governance
Committee
Group Audit
Committee
Group Risk
Committee
Group Models and
Ratings Committee
CCFSL
Board
Group Executive Committee
Group Credit
Committee
Operations
Committee
Models and Ratings
Management
Committee
Group Risk
Management
Committee
Group Executive
Disclosure Committee
Regulatory
Governance
Committee
Group Assets and
Liabilities Committee
(ALCO)
Transactional
Credit Committee
(TCC)
Heritable
Transactional
Credit Committee
(HTCC)
Portfolio
Management
Committee
Conduct Risk
Management
Committee
Operational Risk
Management
Committee
ESG Technical
Committee
Sub-Committee
Interest Rate Risk in
the Banking Book
Working Group
Solvency
Working Group
Savings Pricing
Group
Liquidity
Working Group
First Line of Defence
Second Line of Defence
Third Line of Defence
Ensures that risks are identified, measured, monitored
and reported in line with policy in an effective manner.
Key Brands
Finance and HR
Operations
IT and Change
Commercial
Sales and Marketing
Legal and Regulation
Credit Strategy
Chief Executive Officer
Provides an independent review and challenge
to the business and control functions to ensure
that all aspects of the risk profile are managed
in adherence to risk appetite and risk policies.
Risk and Compliance
Provides independent assurance on the effectiveness
of the ERMF, compliance with regulations, adherence
to policies and effectiveness of controls.
Internal Audit
Chief Financial
Officer
Deputy Chief
Financial Officer
Group Chief
Operating Officer
Group Chief
Information Officer
Group General Counsel
& Company Secretary
Group Commercial
Director
Group Managing Director,
Mortgages and Savings
Brand-Level Senior
Management
Group Chief Risk Officer
Group Chief Credit & Compliance Officer
Group Chief Internal Auditor
OSB GROUP PLC | Annual Report and Accounts 2023
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Strategic Report
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Financial Statements
Appendices
51
Risk review continued
Management of climate change risk
There was further embedding of the
Group’s approach to climate risk during
2023, with the Climate Risk Management
Framework and ESG governance structures
now established.
The Group is exposed to the following climate
related risks:
• Physical risk – relates to climate
or weather-related events such as
heatwaves, droughts, floods, storms, rising
sea levels, coastal erosion and subsidence.
These risks could result in financial losses
with respect to the Group’s own real
estate and customer loan portfolios.
• Transition risk – arising from the effect
of adjusting to a low-carbon economy
and changes to appetite, strategy, policy
or technology. These changes could
result in a reassessment of property
prices and increased credit exposures for
banks and other lenders as the costs and
opportunities arising from climate change
become apparent. Reputational risk arises
from a failure to meet changing and
more demanding societal, investor and
regulatory expectations.
Approach to analysing climate risk
on the loan book
As part of the Internal Capital Adequacy
Assessment Process (ICAAP), the Risk
function engaged with a third party
to provide detailed climate change
assessments at a collateral level for the
Group’s loan portfolios. The data was in turn
utilised to conduct profiling and financial
risk assessments.
a) Climate scenarios considered
The standard metric for assessing climate
change risk is the global greenhouse gas
concentration as measured by Representative
Concentration Pathway (RCP) levels. The
four levels adopted by the Intergovernmental
Panel for Climate Change for its fifth
assessment report (AR5) in 2014 are:
Emissions scenario
Scenario
RCP 2.6
RCP 4.5
RCP 6.0
RCP 8.5
Change in temperature
(°C) by 2100
1.6 (0.9–2.3)
2.4 (1.7–3.2)
2.8 (2.0–3.7)
4.3 (3.2–5.4)
Note: figures within the brackets above detail the range in
temperatures. Single figures outside the brackets indicate
the averages.
b) Climate risk perils considered
The following three physical perils of climate
change were assessed:
• Flood – wetter winters and more
concentrated rainfall events will
increase flooding.
• Subsidence – drier summers will
increase subsidence through the shrink
or swell of clay.
• Coastal erosion – increased storm
surge and rising sea levels will increase
the rate of erosion.
For each of the physical perils and climate
scenarios detailed above, a decade by
decade prediction, from the current year to
2100, on the likelihood of each was provided.
For flood and subsidence, the likelihood
took the form of a probability that a flood or
subsidence event would occur over the next
10 years. For coastal erosion the distance of
the property to the coastline is provided by
scenario and decade.
All peril impacts are calculated at property
level to a one-metre accuracy. This resolution
is essential because flood and subsidence
risk factors can vary considerably between
neighbouring properties.
In addition to the physical perils, the current
Energy Performance Certificate (EPC) of
each property was considered to allow for
an assessment of transitional risk due to
policy change. EPC ratings are based on a
Standard Assessment Procedure calculation
which uses a government methodology
to determine the energy performance of
properties by considering factors such as
construction materials, heating systems,
insulation and air leakage.
Both the OSB and CCFS portfolios were
profiled against each of the perils detailed
under the least severe (RCP 2.6) and most
severe (RCP 8.5) climate scenarios.
• Flood risk
By the 2030s, at the Group level, the
percentage of properties predicted to
experience a flood is expected to increase
from 0.51% in the least severe scenario to
0.55% in the most severe scenario. Both
scenarios represent a low proportion of
the Group’s loan portfolios.
• Subsidence
In the 2030s, at the Group level, the
percentage of properties predicted to
experience subsidence is expected to
increase from 0.42% in the least severe
scenario to 0.46% in the most severe
scenario. The outcome of both scenarios
represents a low proportion of the Group’s
loan portfolios.
• Coastal erosion
There are two elements to coastal erosion
risk. The first relates to the proximity of
the property to the coast. The second
depends on whether the area in which the
property is located is likely to experience
coastal erosion in the future.
Both Banks have over 92% of their
portfolios more than 1,000 metres from
the coastline, indicating a low coastal
erosion risk across the Group.
The OSB bank entity and CCFS bank
each have 31 properties within 100 metres
of a coastline likely to experience erosion
in the future.
c) Energy Performance Certificate profile
The EPC profile of both Bank entities follows
a similar trend to the national average. At the
Group level 0.2% of properties have an EPC of
A, 14.2% have an EPC of B, 26.4% have an EPC
of C, 45.7% have an EPC of D, 12.1% with an
EPC of E and negligible percentages in F or G
ratings. Over 95% of the properties supporting
the Group’s loan portfolios have the potential
to have at least an EPC rating of C.
52
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52
Risk review continued
Value at Risk assessment
The Value at Risk to each Bank, measured
through change to Expected Credit Loss
(ECL) and Standardised and IRB Risk
Weighted Assets (RWAs), is assessed through
the application of stress to collateral
valuations as per the methodology outlined
below. Impacts are assessed against the
latest year end position.
Climate change scenarios
To get the full range of impacts, the most and
least severe climate change stress scenarios
were considered.
The most severe, RCP 8.5, assumes there
will be no concerted effort at a global level
to reduce greenhouse gas emissions. Under
this scenario, the predicted increase in global
temperature is 3.2–5.4°C by 2100.
The least severe scenario, RCP 2.6,
assumes early action is taken to limit future
greenhouse gas emissions. Under this
scenario, the predicted increase in global
temperature is 0.9–2.3°C by 2100.
Methodology – physical risks
For the physical risks, updated valuations
are produced to reflect the impact of a flood,
subsidence and coastal erosion risk.
Methodology – transitional risks
The Group’s expectation is that, under
the early action scenario (RCP 2.6), the
government will require all properties to
achieve a minimum EPC grade of C where
possible. We considered this risk for Buy-to-
Let accounts only.
d) Analysis outcome
The physical risks currently present an
immaterial ECL or capital risk to the Group.
The sensitivity to transitional risk is larger than
that of physical risk, although still very small.
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Principal risks and uncertainties
Key:
Risk increased
Risk decreased
Risk unchanged
The Board carried out an assessment of the principal risks
and uncertainties which may threaten the Group’s operating
model, strategic objectives, financial performance and
regulatory compliance commitments.
The outcome of that assessment is summarised in the heat map below, with
further details provided in each principal risk section.
1 Strategic and business risk
The risk to the Group’s earnings and profitability
arising from its strategic decisions, change in business
conditions, improper implementation of decisions or lack
of responsiveness to industry and regulatory changes.
Risk appetite statement
The Group’s strategic and business risk appetite states
that the Group does not intend to undertake any
medium- to long-term strategic actions that would put
at risk its vision of being a leading specialist lender,
backed by strong and dependable savings franchises.
The Group adopts a long-term sustainable business
model which, while focused on specialist sub-sectors of
the mortgage market, can adapt to growth objectives
and external developments.
1.1 Performance against targets
Performance against strategic and business targets does not meet stakeholder expectations. This has the
potential to damage the Group’s franchise value and reputation.
Mitigation
Direction
The ongoing macroeconomic uncertainty and its
potential impact on net interest income, affordability
levels, house prices and expected credit losses continue
to present risk to the Group’s performance in 2024.
Regular monitoring by the Board and the Group
Executive Committee of business and financial
performance against the strategic agenda and risk
appetite. The financial plan is subject to regular
reforecasts. The Balanced Business Scorecard is the
primary mechanism to support how the Board assesses
management performance against key targets. Use of
stress testing to flex core business planning assumptions
to assess potential performance under stressed
operating conditions.
1.2 Economic environment
The economic environment in the UK is an important factor impacting the strategic and business risk profile.
A macroeconomic downturn may impact the credit quality of the Group’s existing loan portfolios and may
influence future business strategy as the Group’s new business proposition becomes less attractive due to
lower returns.
Mitigation
Direction
The Group’s business model as a secured lender
helps limit potential credit risk losses and supports
performance through the economic cycle. The Group
continues to utilise and enhance its stress testing
capabilities to assess and minimise potential areas of
macroeconomic vulnerability.
Macroeconomic uncertainty will continue into 2024
with an ongoing risk to the Group’s credit risk profile,
including the possibility of further falls in house
prices, and an ongoing risk that changes to the
macroeconomic environment result in changes to
customer behaviours.
1 Strategic and business risk
2 Reputational risk
3 Credit risk
4 Market risk
5 Liquidity and funding risk
6 Solvency risk
7 Operational risk
8 Conduct risk
9 Compliance/regulatory risk
10 Financial crime risk
Current assessment of principal risks
h
g
H
i
d
o
o
h
i
l
e
k
i
L
1
3
7
8
10
6 5
9
4
Impact
High
2
w
o
L
Low
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Principal risks and uncertainties continued
Key:
Risk increased
Risk decreased
Risk unchanged
1.3 Competition risk
The risk that new bank entrants and existing peer banks shift focus to the Group’s market sub-segments,
increasing the level of competition.
Mitigation
Direction
3 Credit risk
Potential for loss due to the failure of a counterparty
to meet its contractual obligation to repay a debt in
accordance with the agreed terms.
The Group continues to develop products and services
that meet the requirements of the markets in which it
operates. The Group has a diversified suite of products
and capabilities to utilise, together with significant
financial resources, to support a response to changes
in competition.
2 Reputational risk
The potential risk of the Group’s reputation being
affected due to factors such as unethical practices,
adverse regulatory actions, customer or broker
dissatisfaction and complaints or negative/adverse
publicity. Reputational risk can arise from a variety of
sources and is a second order risk – the crystallisation of
any principal risk can lead to a reputational risk impact.
The current economic outlook may limit the number
of competitors shifting their focus to the Group’s key
market sub-segments.
Risk appetite statement
The Group has a very low appetite for reputational
risks. The Group will not conduct its business or
engage with stakeholders in a manner that could
materially adversely impact its reputation or franchise
value. The Group recognises that reputational risk
is a consequence of other risks materialising and in
turn seeks to actively manage all risks within Board-
approved risk appetite levels. The Group strives to
protect and enhance its reputation at all times.
2.1 Deterioration of reputation
Potential loss of trust and confidence that our stakeholders place in us as a responsible and fair provider of
financial services.
Mitigation
Direction
Culture and commitment to treating customers fairly
and being open and transparent in communication
with key stakeholders. Established processes in place
to proactively identify and manage potential sources
of reputational risk. Review of relevant Management
Information including complaint volumes, Net Promoter
Scores, customer satisfaction results, social media and
Trustpilot feedback.
The challenging macroeconomic environment in
2023 resulted in shifts within both the UK’s lending
and savings markets. This has brought about the
need for all banks to become increasingly agile with
products offered in order to ensure that all core targets
continued to be met. Operational scalability and
efficiency challenges continue to influence the Group’s
reputational risk profile.
Compliance and conduct risks remain elevated due to
the requirements in continuing to meet Consumer Duty
regulation and forecasted changes in interest rates
resulting in increased numbers of customer requests.
Risk appetite statement
The Group seeks to maintain a high-quality lending
portfolio that generates adequate returns under
normal and stressed conditions. The portfolio is
actively managed to operate within set criteria
and limits based on profit volatility focusing on key
sectors, recoverable values and affordability and
exposure levels.
The Group aims to continue to generate sufficient
income and control credit losses to a level such that
it remains profitable even when subjected to a credit
portfolio stress of a 1 in 20 intensity stress scenario.
3.1 Individual borrower defaults
Borrowers may encounter idiosyncratic problems in repaying their loans, for example loss of a job or execution
problems with a development project. While in most cases of default the Group’s lending is secured, some
borrowers may fail to maintain the value of the security, which may result in a loss being incurred.
Mitigation
Direction
The drivers of borrower default risk have shifted with
higher inflation and higher interest rates impacting
affordability for accounts and increasing the risk of
borrower default.
Across both OSB and CCFS, a robust underwriting
assessment is undertaken to ensure that a customer
has the ability and propensity to repay and sufficient
security is available to support the new loan requested.
At CCFS, an automated scorecard approach is taken,
whilst OSB utilises a bespoke manual underwriting
approach, supplemented by bespoke application
scorecards to inform the lending decision.
Should there be problems with a loan, the Financial
Support function works with customers who are unable
to meet their loan service obligations to reach a
satisfactory conclusion while adhering to the principle
of treating customers fairly.
Our strategic focus on lending to professional landlords
means that properties are likely to be well-managed,
with income from a diversified portfolio mitigating the
impact of rental voids or maintenance costs. Lending
to owner-occupiers is subject to a detailed affordability
assessment, including the borrower’s ability to continue
payments if interest rates increase. Lending on
commercial property is based more on security and
is scrutinised by the Group’s independent Real Estate
team as well as by external valuers.
Development finance lending is extended only after a
deep investigation of the borrower’s track record and
stress testing the economics of the specific project.
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Principal risks and uncertainties continued
Key:
Risk increased
Risk decreased
Risk unchanged
3.2 Macroeconomic downturn
A broad deterioration in the UK economy would adversely impact both the ability of borrowers to repay loans
and the value of the Group’s security. Credit losses would impact the Group’s lending portfolios, even if
individual impacts were to be small, the aggregate impact on the Group could be significant.
Mitigation
Direction
The Group works within portfolio limits on LTV,
affordability, name, sector and geographic
concentration that are approved by the Group Risk
Committee and the Board. These are reviewed on
a semi-annual basis. In addition, stress testing is
performed to ensure that the Group maintains sufficient
capital to absorb losses in an economic downturn and
continues to meet its regulatory requirements.
3.3 Wholesale credit risk
The uncertain economic outlook and the ongoing
geopolitical risk due to the conflict in Ukraine
resulted in high inflation and increases in interest
rates could drive higher levels of customer defaults,
rising impairment levels and falling residential and
commercial collateral values.
The Group has wholesale exposures both through call accounts used for transactional and liquidity purposes
and through derivative exposures used for hedging.
Mitigation
Direction
The Group transacts only with high-quality wholesale
counterparties. Derivative exposures include collateral
agreements to mitigate credit exposures.
The Group’s wholesale credit risk exposure remains
limited to high-quality counterparties, overnight
exposures to clearing banks and swap counterparties.
4 Market risk
Potential loss due to changes in market prices or values. Risk appetite statement
The Group actively manages market risk arising from
structural interest rate positions. The Group does
not seek to take a significant interest rate position
or a directional view on interest rates and it limits its
mismatched and basis risk exposures.
4.1 Interest rate risk
The risk of loss from adverse movement in the overall level of interest rates. It arises from mismatches in
the timing of repricing of assets and liabilities, both on and off balance sheet. It includes the risks arising
from imperfect hedging of exposures and the risk of customer behaviour driven by interest rates, e.g.
early redemption.
Mitigation
Direction
The Group’s Treasury function actively hedges to match
the timing of cash flows from assets and liabilities.
Interest rate risk in 2023 was influenced by the
backdrop of rapidly rising interest rates and the
potential for changing customer behaviour. The
macroeconomic outlook remains uncertain.
A continued area of focus relates to the risks arising
from downward movements in interest rates. Falling
interest rates may create a risk to net interest income
based on timing mismatches between issuance of long
term mortgages versus shorter term savings products.
In addition, this could result in early repayment charge
income not offsetting early swap breakage costs.
4.2 Basis risk
The risk of loss from an adverse divergence in interest rates. It arises where assets and liabilities reprice from
different variable rate indices. These indices may be market, administered, other discretionary variable rates,
or that received on call accounts with other banks.
Mitigation
Direction
The Group did not require active management of basis
risk in 2023 due to its balance sheet structure.
Basis risk exposures were unchanged in 2023 as the
Group’s exposures are broadly SONIA linked assets
funded by Bank of England Base Rate liabilities.
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Principal risks and uncertainties continued
Key:
Risk increased
Risk decreased
Risk unchanged
5.2 Wholesale funding stress
A market-wide stress could close securitisation markets or make issuance costs unattractive for the Group.
Mitigation
Direction
The Group continuously monitors wholesale funding
markets and is experienced in taking proactive
management actions where required.
The Group completed one securitisation deal and two
capital issuances in 2023 and has a range of wholesale
funding options, including Bank of England facilities, for
which collateral has been prepositioned.
5.3 Refinancing of TFSME
The Group’s range of wholesale funding options
available, including repo or sale of retained
notes or collateral upgrade trades remained
broadly unchanged.
Term Funding Scheme for Small and Medium-sized Enterprises (TFSME) borrowing by the Group reduced to
£3.3bn at the end of 2023 from £4.2bn in 2022, with £900m of funding repaid during the year. The Group has a
refinancing concentration scheduled for October 2025.
Mitigation
Direction
The Group has other wholesale options available to it,
including securitisation programmes and repo or sale of
held notes, as well as retail funding through its strong
franchises, to replace the TFSME borrowing gradually
over the next 18 months ahead of the maturity of
this funding.
TFSME borrowing decreased during the year; however,
the current funding plan to refinance TFSME requires
securitisation issuance which is dependant on the
ongoing operation of capital markets. These markets
have remained open during 2023 despite volatility
seen in 2022; however, additional refinancing options
are being considered.
5 Liquidity and funding risk
The risk that the Group, although solvent, does not have
sufficient financial resources to enable it to meet its
obligations as they fall due.
Risk appetite statement
The Group will maintain sufficient liquidity to meet
its liabilities as they fall due under normal and
stressed business conditions; this will be achieved by
maintaining strong retail savings franchises, supported
by high-quality liquid asset portfolios comprised of
cash and readily-monetisable assets, and through
access to pre-arranged secured funding facilities.
The Board requirement to maintain balance sheet
resources sufficient to survive a range of severe but
plausible stress scenarios is interpreted in terms of
the liquidity coverage ratio and the Internal Liquidity
Adequacy Assessment Process (ILAAP) stress scenarios.
5.1 Retail funding stress
As the Group is primarily funded by retail deposits, a retail run could put it in a position where it could not meet
its financial obligations. Increased competition for retail savings driving up funding costs, adversely impacting
retention levels and profitability.
Mitigation
Direction
The Group’s funding levels and mix remained strong
throughout the year.
In 2023, OSB and CCFS were able to attract
significant flows of new deposits and depositors,
despite the volatile interest rate environment and a
competitive savings market. Both banks were able
to proactively manage retail flows around peak
maturity periods without any reliance on unplanned
wholesale actions.
The Group’s funding strategy is focused on a highly
stable retail deposit franchise. The Group’s large
number of depositors provides diversification, where a
high proportion of balances are covered by the FSCS
protection scheme, largely mitigating the risk of a
retail run.
In addition, the Group performs in-depth liquidity
stress testing and maintains a liquid asset portfolio
sufficient to meet obligations under stress. The Group
holds prudential liquidity buffers to manage funding
requirements under normal and stressed conditions.
The Group has further diversified its retail channels by
the use of deposit aggregators.
The Group proactively manages its savings proposition
through both the Liquidity Working Group and the
Group Assets and Liabilities Committee. Finally, the
Group has prepositioned mortgage collateral and
securitised notes with the Bank of England, which allows
it to consider alternative funding sources to ensure
that it is not solely reliant on retail savings. The Group
also has a mature Retail Mortgage Backed Security
(RMBS) programme.
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Principal risks and uncertainties continued
Key:
Risk increased
Risk decreased
Risk unchanged
6 Solvency risk
The potential inability of the Group to ensure that
it maintains sufficient capital levels for its business
strategy and risk profile under both the base and stress
case financial forecasts.
Risk appetite statement
The Group seeks to ensure that it is able to meet
its Board-level capital buffer requirements under a
severe but plausible stress scenario. The solvency
risk appetite is informed by the Group’s prudential
requirements and strategic and financial objectives.
The Group manages its capital resources in a manner
which avoids excessive leverage and allows flexibility in
raising capital.
6.1 Deterioration of capital ratios
Key risks to solvency arise from balance sheet growth and unexpected losses which can result in the Group’s
capital requirements increasing, or capital resources being depleted, such that it no longer meets the solvency
ratios as mandated by the PRA and Board risk appetite.
The Group is required to meet its interim MREL requirement from July 2024 which ensures the Group must
consider its total loss absorbing capacity requirement in addition to its existing capital requirements.
The regulatory capital regime is subject to change and could lead to increases in the level and quality of
capital that the Group needs to hold to meet regulatory requirements. In particular, we await confirmation of
the final rules in relation to the implementation of Basel 3.1 standards.
Mitigation
Direction
The Group operates from a strong capital position and
has a consistent record of strong profitability.
The stable credit profile and ongoing profitability mean
that the Group’s capital resources remain strong.
Risks remain around adverse credit profile performance
resulting from higher inflation and higher interest rates.
The Group actively monitors its capital requirements
and resources against financial forecasts, including
MREL requirements, and undertakes stress testing
analysis to subject its solvency ratios to extreme but
plausible scenarios.
The Group also holds prudent levels of capital buffers
based on CRD IV requirements and expected balance
sheet growth.
The Group engages actively with regulators, industry
bodies and advisers to keep abreast of potential
changes and provides feedback through the
consultation process.
Following the issuance of £400m of MREL qualifying
debt securities in January 2024, the Group met its
interim MREL requirement including regulatory buffers.
7 Operational risk
The risk of loss or a negative impact on the Group
resulting from inadequate or failed internal processes,
people or systems, or from external events.
Risk appetite statement
The Group’s operational processes, systems and
controls are designed to minimise disruption to
customers, damage to the Group’s reputation and
any detrimental impact on financial performance.
The Group actively promotes the continuous evolution
of its operating environment through the identification,
evaluation and mitigation of risks, whilst recognising
that the complete elimination of operational risk is
not possible.
7.1 IT security (including cyber risk)
The risks resulting from a failure to protect the Group’s systems and the data within them. This includes both
internal and external threats.
Mitigation
Direction
The Group operates with a suite of detective controls to
ensure services between the business and its customers
operate securely with potential threats identified and
mitigated as part of its IT risk and control assessment.
This is further supported by documented and tested
procedures intended to ensure the effective response to
a security breach.
The Group programme of IT and cyber improvements
continued with the aim of enhancing its protection
against IT security threats, deploying a series of
tools designed to identify and prevent network/
system intrusions.
The Group has processes in place to allow it to operate
effectively when employees work from home and
manage the cyber risks related to working remotely.
Whilst IT security risks continue to evolve, work
continues to enhance the level of maturity of the
Group’s controls and defences, supported by
dedicated IT security experts.
The Group has an ongoing programme of penetration
testing in place to drive enhancements by identifying
potential areas of risk.
7.2 Data quality
The risks resulting from data of a poor quality being captured or data not being maintained to a
good standard.
Mitigation
Direction
The Group has a suite of data governance policies
and procedures along with dedicated resources
to ensure the quality of data is maintained at an
appropriate standard.
Progress was made in 2023 to embed Group-wide
governance frameworks with further work planned for
2024 to move closer to the Group’s target end state,
including further enhancements to the Group’s risk
appetite metrics and key risk indicators.
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Principal risks and uncertainties continued
Key:
Risk increased
Risk decreased
Risk unchanged
7.3 Change management
The risks resulting from unsuccessful change management implementations, including the failure to respond
effectively to release-related incidents.
Mitigation
Direction
The Group recognises that implementing change
introduces significant operational risk and has therefore
implemented a series of control gateways designed to
ensure that each stage of the change management
process has the necessary level of oversight.
The Group continued to adopt an ambitious change
agenda, which was monitored and managed well
in 2023.
The Group made progress on its digitalisation
journey, which will enable it to meet the future needs
of customers, brokers and wider stakeholders, whilst
delivering further operational efficiencies.
8 Conduct risk
The risk that the Group’s culture, organisation,
behaviours and actions result in poor outcomes and
detriment for customers and/or damage to consumer
trust and integrity of the markets in which it operates.
7.4 IT failure
The risks resulting from a major IT application or infrastructure failure impacting access to the
Group’s IT systems.
Mitigation
Direction
8.1 Conduct risk
Risk appetite statement
The Group has a very low appetite to assume risks
which may result in either poor or unfair customer
outcomes and/or cause disruptions in the market
segments in which it operates. The Group aims to
avoid causing detriment or harm to its customers and
operates to the highest standards of conduct. The
Group will treat its customers, third-party partners,
investors and regulators with respect, fairness and
transparency. The Group will proactively look to
identify where its products and services could lead to
poor outcomes or harm to its customers and will take
appropriate action to mitigate this. Where customer
harm occurs, the Group will ensure that effective
solutions are implemented to address the root cause
and a fair outcome is achieved.
The Group continues to invest in improving the resilience
of its core infrastructure. It has identified its prioritised
business services and the infrastructure that is required
to support them. Tests are performed regularly to
validate the Group’s ability to recover from an incident.
The Group has established a site in Hyderabad to
ensure that, in the event of an operational incident in
Bangalore, services can be maintained.
Whilst progress was made in reducing both the
likelihood and impact of an IT failure, the risks remain,
in particular due to the hybrid working arrangement.
The risk that the Group fails to meet its expectations with respect to conduct risk.
Mitigation
Direction
The Group’s culture is clearly defined and
monitored through its Purpose, Vision and Values
driven behaviours.
The Group has a strategic commitment to provide
simple, customer-centric products. In addition, a
Product Governance framework is established to
oversee that products are designed and maintained
to deliver good customer outcomes throughout the
product lifecycle.
The Group has an embedded Conduct Risk
Management Framework which clearly defines roles
and responsibilities for conduct risk management and
oversight across the Group’s three lines of defence.
During 2023, as a result of the cost of living and
cost of borrowing crisis and changing customer
and competitor behaviours, the Group’s operations
experienced high volumes of customer contact.
Throughout 2023, the Group continued to review
and evolve its approach to supporting customers,
particularly those that are vulnerable and experiencing
financial difficulty, to ensure they continue to receive
the level of tailored support needed to deliver good
customer outcomes.
Conduct losses have remained stable with no breaches
of risk appetite reported during the last 12 months.
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Principal risks and uncertainties continued
Key:
Risk increased
Risk decreased
Risk unchanged
9 Regulatory risk
The risk of failure to effectively identify, interpret,
implement and adhere to all regulatory or legislative
requirements that impact the Group.
Risk appetite statement
The Group views ongoing conformance with regulatory
rules and standards across all the jurisdictions in
which it operates as a critical facet of its risk culture.
The Group has a very low appetite to assume
regulatory risk, which could result in poor customer
outcomes, customer detriment, regulatory sanctions,
financial loss or damage to its reputation. The Group
will proactively monitor for and will not tolerate
any systemic failure to comply with applicable
laws, regulations or codes of conduct relevant to
its business.
The Group acknowledges that regulatory rules and
standards are subject to interpretation and subsequent
translation into internal policies and procedures. The
Group interprets requirements to ensure adherence
with the intended purpose and spirit of the regulation
whilst being cognisant of commercial considerations
and good customer outcomes. To minimise regulatory
risk, the Group proactively engages with its regulators
in a transparent manner, participates in industry
forums and seeks external advice to validate its
interpretations, where appropriate.
9.1 Prudential regulatory changes
The Group continues to see a high volume of key compliance regulatory changes that impact its
business activities. These include consumer duty requirements and increased Resolvability Assessment
Framework requirements.
Mitigation
Direction
The Group has an effective horizon scanning process to
identify regulatory change.
All significant regulatory initiatives are managed
by structured programmes overseen by the Project
Management team and sponsored at Executive level.
The Group has proactively sought external expert
opinions to support interpretation of the requirements
and validation of its response, where required.
The Group continued to have a high level of interaction
with UK regulators and continues to identify and
respond effectively to all regulatory changes.
9.2 Conduct regulation
Regulatory changes focused on the conduct of business could force changes in the way the Group carries out
business and impose substantial compliance costs.
This includes the risk that product design, pricing, underwriting, arrears and forbearance and vulnerable
customer policies are misaligned to regulatory expectations which result in customer harm, particularly those
experiencing financial hardship or vulnerable customers, with the potential for reputational damage, redress
and other regulatory actions.
Mitigation
Direction
The Group has a programme of regulatory horizon
scanning linking into a formal regulatory change
management programme. In addition, the focus
on simple products and customer-oriented culture
means that current practice may not have to change
significantly to meet any new conduct regulations.
The Group implemented the FCA’s Consumer Duty
requirements within the required timelines.
The retail banking sector continues to be subject to
heightened levels of regulatory focus and change,
particularly in relation to conduct and customer
outcomes. The Group actively assesses its approach
and exposure to meeting current and emerging
regulatory frameworks and remains cognisant of the
potential risk of legacy decisions being subject to
future supervisory focus and attention.
All Group entities utilise underwriting, arrears and
forbearance and vulnerable customer policies, which
are designed to comply with regulatory principles, rules
and expectations. These policies articulate the Group’s
commitment to ensuring that all customers, including
those who are vulnerable or experiencing financial
hardship, are treated fairly, consistently and in a way
that considers their individual needs and circumstances.
The Group does not tolerate any systematic failure to
deliver fair customer outcomes. On an isolated basis,
incidents can result in customer harm due to human
and/or operational failures. Where such incidents occur,
they are thoroughly investigated, and the appropriate
remedial actions are taken to address any customer
harm and prevent recurrence.
The Group continues to proactively interact with
regulatory bodies to take part in thematic reviews and
information requests, as required.
Identifying, monitoring and supporting vulnerable
customers continues to be a key area of focus.
The Group continues to review its approach to
supporting customers experiencing financial difficulty
to ensure they continue to receive the level of tailored
support needed to deliver good customer outcomes.
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Principal risks and uncertainties continued
Key:
Risk increased
Risk decreased
Risk unchanged
10 Financial crime risk
The risk of financial or reputational loss resulting from
inadequate systems and controls to mitigate the risks
from financial crime.
10.2 Fraud risk
Risk appetite statement
To minimise financial crime risk, the Group will design
and maintain robust systems and controls to identify,
assess, manage and report any activity (internal
or external in nature) which exposes the Group to
financial crime risk in the form of money laundering,
human trafficking, terrorist financing, sanctions
breaches, bribery, corruption and fraud. The Group
recognises the need to continuously review its systems
and controls to ensure that they are aligned to the
nature and scale of financial crime risk it is exposed to
on a current and forward-looking basis.
The risk of financial loss resulting from fraudulent action by a person either internal or external.
Mitigation
Direction
The Group continues to invest in a range of systems
and controls that are deployed across its product range
to detect and prevent exposure to fraud throughout
the customer lifecycle. At the point of origination, all
new applications are subject to a range of controls
to identify and mitigate the risk of fraud. Customer
behavioural and transactional activity is closely
monitored to identify potential suspicious behaviours or
trends that may be indicative of fraud.
The Group remains cognisant of the external fraud
environment in which it operates and, in particular,
the rise in the number of customers falling victims
to elaborate scams. Whilst the Group’s product
functionality restricts the level of direct exposure to
these types of events, the Group continues to look
at options where it can educate and support its
customers and help prevent them from becoming
victims of this growing threat.
All controls are supported by documented fraud
related policies and procedures that are managed
by experienced employees in a dedicated Financial
Crime function.
The Group continually monitors its detection capability
with periodic reviews of the rules and parameters within
its systems and control framework to ensure that these
remain fit for purpose and aligned to mitigate any
emerging risks.
10.1 Financial crime risk
The risk of financial or reputational loss resulting from a failure to implement systems and controls to manage
the risk from money laundering, terrorist financing, sanctions, bribery, corruption and cyber-crime.
Mitigation
Direction
The Group continues to focus primarily on the UK
market with accounts serviced from UK bank accounts.
IT security risks continue to evolve and the level
of maturity of the Group’s controls and defences
continues to be enhanced whilst being supported by
dedicated IT security experts.
The Group operates in a low-risk environment providing
relatively simple products to UK domiciled customers
serviced through UK registered bank accounts. The
Group has an established screening programme
that is deployed at the point of origination and on a
regular basis throughout the customer lifecycle. Where
applicable, enhanced due diligence is applied to ensure
that any increase in risk is appropriately managed and
any activity remains within risk appetite.
The Group has a horizon scanning programme that
identifies changes to money laundering regulations and
any other financial crime related legislation to ensure
that we comply with all regulatory obligations.
The Group screens its customers on a regular basis
against sanctions listings acting swiftly to react to any
updates released in relation to the financial sanctions
regime. Given the Group’s customer target market,
it has negligible exposure to any of the affected
jurisdictions and no exposure to any specific individual
or entity contained within revised sanctions listings.
The Group’s programme of cyber improvements
continued with the aim of enhancing its protection
against IT security threats, deploying a series of
tools designed to identify and prevent network/
system intrusions.
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Principal risks and uncertainties continued
Key:
Risk increased
Risk decreased
Risk unchanged
Emerging risks
The Group proactively scans for emerging risks which may have an impact on its ongoing
operations and strategy and considers its top emerging risks to be:
Political and macro-economic uncertainty
Description
Mitigation
Model risk
Description
The Group’s lending activity is predominantly focused in
the United Kingdom (with a legacy book of mortgages
in the Channel Islands) and, as such, will be impacted
by any risks emerging from changes in the UK’s
macroeconomic environment. Higher inflation and
changing interest rates pose risks to the Group’s loan
portfolio performance.
The Group has mature and robust monitoring
processes and through various stress testing activities
(i.e. ad hoc, risk appetite and ICAAP) understands how
the Group performs over a variety of macroeconomic
stress scenarios and has developed a suite of early
warning indicators, which are closely monitored
to identify changes in the economic environment.
The Board and management review detailed portfolio
reports to identify any changes in the Group’s
risk profile.
The risk of financial loss, adverse regulatory outcomes,
reputational damage or customer detriment resulting
from deficiencies in the development, application or
ongoing operation of models and ratings systems.
The Group also notes changes in industry best practice
with respect to model risk management including the
PRA’s Supervisory Statement, ‘Model risk management
principles for banks’, containing proposed expectations
regarding banks’ management of model risk.
Climate change
Description
Mitigation
Regulatory expectations and industry best practices
continue to evolve and further work is required to
enhance the Group’s approach to managing climate
risk. Climate change risks include:
During 2023, the Group further embedded its
approach to climate risk management, which included
enhancing its Task Force on Climate-Related Financial
Disclosures (TCFD).
The Group’s Chief Risk Officer has designated senior
management responsibility for the management of
climate change risk.
• Physical risks which relate to specific weather
events, such as storms and flooding, or to longer-
term shifts in the climate, such as rising sea levels.
These risks could include adverse movements in
the value of certain properties that are in coastal
and low-lying areas or located in areas prone to
increased subsidence and heave.
• Transitional risks may arise from the adjustment
towards a low-carbon economy, such as tightening
energy efficiency standards for domestic and
commercial buildings. These risks could include
a potential adverse movement in the value of
properties requiring substantial updates to meet
future energy performance requirements.
• Reputational risk arising from a failure to meet
changing societal, investor or regulatory demands.
Regulatory change
Description
The Group remains subject to high levels of regulatory
oversight and an extensive and broad ranging
regulatory change agenda, including meeting the
requirements of Basel 3.1 regulation. The Group
is therefore required to respond to prudential and
conduct-related regulatory changes, taking part in
thematic reviews, as required.
There is also residual uncertainty in relation to the
regulatory landscape post the United Kingdom’s exit
from the European Union.
Mitigation
The Group has IRB compliant model risk management
capabilities in place. The Group conducted an initial
self-assessment against the new rules and has plans
in place to ensure alignment even though compliance
is not compulsory. The Group has extended model
risk management disciplines across End User
Developed Applications.
The Group has well-established model risk governance
arrangements in place, with Board and Executive
Committees in place to ensure robust oversight of the
Group’s model risk profile.
Mitigation
The Group has established horizon scanning
capabilities, coupled with dedicated prudential and
conduct regulatory experts in place to ensure the
Group manages future regulatory changes effectively.
The Group also has strong relationships with
regulatory bodies and, through membership
of UK Finance, inputs into upcoming
regulatory consultations.
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Risk review continued
Risk profile performance overview
Credit risk
During 2023 the Bank of England continued to
increase interest rates to moderate the ongoing
elevated levels of inflation experienced across
the United Kingdom, which in turn adversely
impacted borrower and underlying tenant
affordability levels. Increased borrowing costs
resulted in subdued property purchase activity
and consequent loan demand. Unemployment
levels were also adversely impacted but
remained at low levels. The Group’s prudent
risk appetite and disciplined approach to
credit risk management supported robust
credit profile performance during the year.
The Group observed strong demand for
its loan products and delivered organic
originations of £4.7bn during the year (2022:
£5.8bn), despite subdued demand in the wider
mortgage market. Strong levels of lending were
observed across the Group’s core Buy-to-Let
and residential first charge products, with
the Group’s renewed focus on bridging and
semi commercial and commercial mortgage
lending resulting in higher origination
levels versus 2022.
The Group actively manages three key
credit risk pillars including; i) the customer’s
propensity to repay and (ii) the customer or
tenant’s ability to maintain payments and (iii)
the underlying collateral or security provided
to support the requested lending and its
ability to absorb adverse movements in values,
providing loss protection should a repayment
default event occur.
The credit score profile of new lending
remained broadly stable throughout the
year, indicating that onboarded customers
had strong ability and propensity to make
payments in the future.
Buy-to-Let interest coverage ratios for new
lending were impacted by the rising cost of
borrowing during the year but remained strong
at 176% for OSB and 154% for CCFS (2022:
207% OSB and 191% CCFS), demonstrating
a healthy surplus in rental income versus the
required monthly repayment amount.
Strong origination and customer retention
performance resulted in underlying and
statutory net loan book growth of 9% in the
year to £25.7bn and £25.8bn respectively
(31 December 2022: £23.5bn and £23.6bn),
with the portfolio mix of lending broadly
comparable year-on-year.
Credit scoring metrics for existing loan
balances remained robust, with modest
increases in future probability of default
and affordability scores observed as
more customers migrated into arrears and
customers’ credit profiles were adversely
impacted by the increasing costs of living
and borrowing.
The Group remains a fully secured lender
with prudent lending policies and criteria
coupled with property value appreciation in
prior periods, ensuring that existing lending
was well positioned to absorb observed
reductions in property values during 2023.
Weighted average LTV levels increased to
63% OSB and 65% CCFS respectively as of
31 December 2023 (31 December 2022: OSB
58% and CCFS 63%). The weighted average
LTV profile remained prudent for the Group at
64%, an increase from 60% at the end of 2022.
The Group maintains a low level of high LTV
accounts with the percentage of loans above
90% LTV at 4% for OSB Buy-to-Let and at 2%
for OSB residential (31 December 2022: 3% for
Buy-to-Let and 1% for residential).
During 2023 the Group observed an increase
in arrears levels with balances over three
months in arrears increasing to 1.4% of the loan
book as at 31 December 2023 (31 December
2022: 1.1%). For OSB bank, arrears increased
to 1.6% from 1.2% at the end of 2022 while for
CCFS arrears increased to 1.2% from 0.9% at
the end of 2022. The increased arrears were
largely driven by the rising cost of living and
cost of borrowing, as accounts reverted onto
higher product interest rates and customers
absorbed the rising costs of day-to-day living.
At the Group level Buy-to-Let arrears levels
remained lower than UK Finance Buy-to-Let
arrears trends, with year-on-year growth
broadly inline. The growth in greater than
three months in arrears residential mortgage
balances remained higher than UK Finance,
with arrears growth marginally higher than
UK Finance trends, reflecting the higher
proportion of near prime lending versus the
predominantly prime residential mortgage
lending captured within the UK Finance data.
The timelines for repossessing and selling
properties continued to be impacted by
ongoing delays in the court hearing process.
The Group actively monitors performance
against a set of internal risk appetite and
early warning indicators together with wider
benchmarked external data provided by third
parties, including UK Finance. During 2023 the
Group’s arrears performance operated inside
of forecasted estimates, and prudent IFRS 9
provision coverage levels continued to be held
to cover for forecasted future losses.
During 2023 the Group observed a marked
increase in the number of forbearance
measures requested by customers
experiencing financial difficulty, with 1,552
requests supported during 2023 versus 854
in the prior year. Again, this was driven by
the rising costs of living and borrowing. The
balance of these forbearance measures
granted as of 31 December 2023 totalled
£235m versus £88m as of 31 December 2022.
The most common solutions provided were
payment deferral, interest only switch, interest
rate reduction and term extension. The largest
provision of forbearance was to residential first
charge mortgage holders.
Expected Credit Losses (ECL)
Balance sheet expected credit losses
increased from £130.0m to £145.8m as at
31 December 2023. The full year statutory
impairment charge of £48.8m represented
a loan loss ratio of 20bps (2022: £29.8m
charge, 13bps loan loss ratio, respectively).
A summary of the key impairment charge
drivers for 2023 included:
a. Macroeconomic outlook – the Group
regularly updates the collateral values of
properties which act as security against
the loans extended to customers and, in
2023, the Group observed a reduction in
property values. The Group continued to
receive regular macroeconomic scenario
updates from its advisers, which were
reviewed and discussed by management
and the Board, along with the probability
weightings applied to each scenario. As a
result, the cumulative impact of updated
collateral values and revised scenarios
was a charge of £6.4m.
b. Model and staging enhancements –
enhancements were made to the Group’s
models to ensure that estimates continued
to reflect actual credit performance. Prior
to each reporting period the Group’s
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Risk review continued
Coverage ratios table
As at 31 December 2023
Stage 1
Stage 2
Stage 3 (+ POCI)
Total
As at 31 December 2022
Stage 1
Stage 2
Stage 3 (+ POCI)
Total
Gross carrying
amount
£m
Expected
credit losses
£m
20,576.8
4,537.9
782.4
22.4
54.3
69.1
25,897.1
145.8
Gross carrying
amount
£m
Expected
credit losses
£m
18,722.3
4,417.1
588.7
7.2
50.9
71.9
23,728.1
130.0
Coverage
ratio
%
0.11%
1.20%
8.83%
0.56%
Coverage
ratio
%
0.04%
1.15%
12.21%
0.55%
Significant Increase in Credit Risk (SICR)
logic which determines whether accounts
not in arrears should be moved to stage
2 is reviewed. These model adjustments
made to reflect recent behaviour had a
cumulative charge of £2.1m.
c. Post model adjustments – the Group
continued to utilise post model adjustments
(PMAs) to ensure risks not captured by
the Group’s models were assessed and
appropriate provisions continued to
be held. PMAs are primarily designed
to capture the risk arising from the
heightened cost of living and borrowing
by moving some accounts to into Stage 2
even when the account is performing. PMA
adjustments made within the reporting
period resulted in an impairment release of
£3.1m driven by updated views on the cost
of living and borrowing as inflation levels
continued to decrease and interest rates
were forecast to have peaked.
d. Arrears flow – growth in stage 3 balances
resulted in a charge of £14.1m which in
part was driven by (i) accounts waiting
to clear the twelve-month probation
period (ii) cross contingent defaults,
where a borrower has multiple facilities
and, once a minimum proportion of
exposure in default has been exceeded,
all accounts are brought into default and
(iii) late stage arrears levels continuing to
be elevated due to ongoing challenges
with the process of repossessing and
selling properties.
e. Changes in risk profile – as the Group’s
loan book continued to grow, provisions
were raised against the incremental stage
1 balances resulting in a £7.8m impairment
charge. Other changes to the Group’s
credit profile, including new accounts
entering stage 2, resulted in a further
charge of £14.1m.
f. Individually assessed provisions – the
Group’s specialist real estate management
and financial support teams maintain
watchlists of loans where objective
evidence of impairment exists over a
given exposure. For these specific loans, a
detailed assessment of the collateral and
circumstances of the arrears are assessed.
When required, an individual impairment
provision will be raised using this updated
information which replaces any modelled
provisions held. During 2023, the Group
raised a number of additional individual
provisions against a small number of
counterparties which in aggregate
resulted in an impairment charge of £7.4m.
g. Write off and recoveries – write-offs were
elevated in 2023 due to the write-off of
the funding line receivable associated
with the 2020 fraud case, following the
successful sale of the remaining security
in line with our write-off policy. Write-
offs did not form part of the impairment
charge for the year, as they were
expensed to the profit and loss in the
periods when the provisions were raised.
Impairment coverage levels were broadly
flat compared to 31 December 2022, with
cost of living and cost of borrowing further
embedded within the Group’s framework and
models. The reduction in stage 3 coverage
ratios was driven by the write off of previously
reported fraudulent activity cases which were
fully provisioned.
The Group’s Risk function conducted top-
down analysis, assessing portfolio-specific
risks, which confirmed the appropriateness of
provision levels after taking into account the
post model adjustments.
Macroeconomic scenarios
The measurement of ECL under the IFRS 9
approach is complex and requires a high level
of judgement. The approach includes the
estimation of probability of default (PD), loss
given default (LGD) and likely exposure at
default (EAD). An assessment of the maximum
contractual period over which the Group
is exposed to the credit risk of the asset is
also undertaken.
IFRS 9 requires firms to calculate ECL
provisions simulating the effect of a range of
possible economic outcomes, calculated on a
probability-weighted basis. This requires firms
to formulate forward-looking macroeconomic
forecasts and incorporate them into their
ECL calculations.
I. How macroeconomic variables
and scenarios are selected
As part of the IFRS 9 modelling process, the
relationship between macroeconomic drivers
and arrears, default rates and collateral
values is established. The Group adopted an
approach which utilises four macroeconomic
scenarios. These scenarios are provided by an
industry-leading economics advisory firm, that
advises management and the Board.
A base case forecast is provided, together with
a plausible upside scenario. Two downside
scenarios are also provided (downside and a
severe downside).
ii. How macroeconomic scenarios
are utilised within ECL calculations
Probability of default estimates are
either scaled up or down based on the
macroeconomic scenarios utilised.
Loss given default estimates are principally
impacted by property price forecasts, which
are utilised within loss estimates should an
account be possessed and sold.
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Risk review continued
Details relating to the scenarios utilised to set the 31 December 2023
IFRS 9 provision levels are provided in the table below.
Forecast macroeconomic variables over a five-year period
Scenario %
Scenario
Probability
weighting
(%)
Economic measure
Year end
Year end
Year end
2023
2024
2025
Year end
2026
Year end
2027
Base case
40
GDP
Unemployment
House price growth
CPI
Bank Base Rate
Upside
30
GDP
Unemployment
0.4
4.4
-2.5
4.6
5.3
0.4
4.4
House price growth
-2.5
CPI
Bank Base Rate
Downside
20
GDP
Unemployment
4.6
5.3
0.4
4.4
0.4
4.6
-7.0
2.1
4.9
3.1
4.2
-4.7
3.4
6.0
-3.2
6.3
1.5
4.2
-0.8
1.6
3.8
2.5
3.9
1.3
2.2
5.1
0.6
7.0
House price growth
-2.5
-12.3
-5.6
CPI
Bank Base Rate
Severe
downside
10
GDP
Unemployment
4.6
5.3
0.4
4.4
0.5
3.6
-6.3
6.7
House price growth
-2.5
-16.4
CPI
Bank Base Rate
4.6
5.3
-0.1
2.6
0.9
2.6
-0.3
7.5
-9.9
0.5
1.5
2.3
3.9
5.7
1.2
2.8
2.9
3.8
7.1
1.2
4.1
1.9
7.0
3.4
1.1
1.6
1.4
7.6
1.1
1.3
1.5
3.8
7.0
1.8
1.8
1.6
3.7
6.8
1.7
3.1
1.6
6.7
7.3
1.7
1.3
1.6
7.3
7.7
1.2
0.5
0.5
Exposure at default estimates are not impacted
by the macroeconomic scenarios utilised.
Each of the above components are
then directly utilised within the ECL
calculation process.
iii. Macroeconomic scenario governance
The Group has a robust governance process
to oversee macroeconomic scenarios
and probability weightings used within
ECL calculations.
On a periodic basis, the Group’s Risk function
and economic adviser provide the Group
Risk and Audit Committees with an overview
of recent economic performance, together
with updated base, upside and two downside
scenarios. The Risk function conducts a
review of the scenarios comparing them to
other economic forecasts, which results in
a proposed course of action which, once
approved, is implemented.
iv. Changes made during 2023
Throughout 2023, the scenario suite was
monitored and updated as UK political and
geopolitical developments occurred.
The Group’s Risk and Audit Committees
focused on assessing whether specific risks
had been captured within externally provided
forward-looking forecasts. Of particular
focus were the risks relating to rising costs of
living and the subsequent rising interest rates
used to control inflation levels. The Group
undertook a detailed analysis to assess the
portfolio risks and consider whether these were
adequately accounted for in the IFRS 9 models
and frameworks and identified a number of
areas requiring post model adjustments, most
notably to account for the increased credit
risk from the heightened cost of living and
cost of borrowing resulting in elevated levels of
accounts in stage 2.
The Board reflected on the ongoing
appropriateness of probabilities attached
to the suite of IFRS 9 scenarios as the
macroeconomic outlook evolved throughout
the year. Scenarios remain symmetrical, where
the upside and downside scenarios carry
equal weightings, and the base case has the
highest probability.
Forbearance
Where a borrower experiences financial
difficulty which impacts their ability to
service their financial commitments under the
loan agreement, forbearance may be used
to achieve an outcome which is mutually
beneficial for both the borrower and the Group.
Borrowers who are experiencing financial
difficulties, either pre-arrears or in arrears,
enter a consultative process to ascertain the
underlying reasons and to establish the best
course of action to enable the borrower to
develop credible repayment plans to see them
through the period of financial stress.
The specific tools available to assist customers
vary by product and the customers’
circumstances. The various options considered
for customers are as follows:
•
•
temporary switch to interest only: a
temporary account change to assist
customers through periods of financial
difficulty where the contractual monthly
payment is reduced to the amount of
interest owed in the month for the duration
of the account change. Any arrears
existing at the commencement of the
arrangement are retained
interest rate reduction: the Group may,
in certain circumstances, where the
borrower meets the required eligibility
criteria, transfer the mortgage to a lower
contractual rate. Where this is a formal
contractual change, the borrower will be
requested to obtain independent financial
advice as part of the process
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Risk review continued
•
loan term extension: a permanent account
change for customers in financial distress
where the overall term of the mortgage is
extended, resulting in a lower contractual
monthly payment
• Arrangement to pay: where an
arrangement is made with the borrower to
repay an amount above the contractual
monthly payment, which will repay
arrears over a period of time
• payment holiday: a temporary account
change to assist customers through
periods of financial difficulty where
capital and interest accruals during the
payment holiday period are repaid from
the end of the payment holiday over the
remaining term. Any arrears existing at
the commencement of the arrangement
are retained
• voluntary-assisted sale: a period of time
is given to allow borrowers to sell the
property and arrears accrue based on the
contractual monthly payment
•
reduced monthly payments: a temporary
arrangement for customers in financial
distress. For example, a short-term
arrangement to pay less than the
contractual monthly payment. Arrears
continue to accrue based on the
contractual monthly payment
• capitalisation of interest: arrears are
•
added to the loan balance and are repaid
over the remaining term of the facility or
at maturity for interest only products. A
new payment is calculated, which will be
higher than the previous payment
full or partial debt forgiveness: where
appropriate, the Group will consider
writing-off part of the debt. This may
occur where the borrower has an agreed
sale and there is a shortfall in the amount
required to redeem the Group’s charge,
in which case repayment of the shortfall
may be agreed over a period of time,
subject to an affordability assessment; or
where possession has been taken by the
Group, and on the subsequent sale there
has been a shortfall loss
• Promise to pay: where an arrangement is
made with the borrower to defer payment
or pay a lump sum at a later date
• Bridging loans which are more than 30
days past their maturity date. Repayment
is rescheduled to receive a balloon or
bullet payment at the end of the term
extension, where the institution can duly
demonstrate future cash-flow availability
The Group aims to proactively identify and
manage forborne accounts, utilising external
credit reference bureau information to
analyse probability of default and customer
indebtedness trends over time, feeding pre-
arrears watch-list reports. Watch-list cases
are in turn carefully monitored and managed
as appropriate.
Fair value of collateral
methodology
The Group ensures that security valuations
are reviewed on an ongoing basis for accuracy
and appropriateness. Commercial properties
are subject to quarterly indexing using
Commercial Real Estate data. Residential
properties are indexed at least quarterly, using
House Price Index data.
Solvency risk
The Group maintains an appropriate level
and quality of capital to support its prudential
requirements with sufficient contingency
to withstand a severe but plausible stress
scenario. The solvency risk appetite is based
on a stacking approach, whereby the various
capital requirements (Pillar 1, Pillar 2A, CRD IV
buffers, Board and management buffers) are
incrementally aggregated as a percentage of
available capital (CET1 and total capital).
The Group’s interim MREL requirements will
apply from July 2024 and total loss absorbing
capacity will be subject to a Board approved
risk appetite. All solvency planning and
reporting will consider this new loss absorbing
capacity requirement along with the Group’s
existing capital requirements.
Solvency risk is a function of balance sheet
growth, profitability, access to capital markets
and regulatory changes. The Group actively
monitors all key drivers of solvency risk and
takes prompt action to maintain its solvency
ratios at acceptable levels. The Board and
management also assess solvency when
reviewing the Group’s business plans and
inorganic growth opportunities. The Group’s
CET1 and total capital ratios reduced to 16.1%
and 19.5%, respectively as at 31 December
2023 (31 December 2022: 18.3% and 19.7%,
respectively) but remained significantly above
risk appetite. The Group’s leverage ratio was
7.5% as at 31 December 2023 (31 December
2022: 8.4%).
Liquidity and funding risk
The Group has a prudent approach to
liquidity management through maintaining
sufficient liquidity resources to cover cash-flow
imbalances and fluctuations in funding, under
both normal and stressed conditions, arising
from market-wide and bank-specific events.
OSB’s and CCFS’ liquidity risk appetites have
been calibrated to ensure that both Banks
always operate above the minimum prudential
requirements with sufficient contingency for
unexpected stresses, whilst actively minimising
the risk of holding excessive liquidity, which
would adversely impact the financial efficiency
of the business model.
The Group continues to attract new retail
savers and has high retention levels with
existing customers. In addition, the Group
is able to access a wide range of wholesale
funding options, including securitisation
issuances and the use of retained notes from
both Banks as collateral for Bank of England
facilities and repurchase agreements with
third parties.
In 2023, both Banks actively managed their
respective liquidity and funding profiles within
the confines of their risk appetites as set out in
the Group’s ILAAP.
Retail funding rates increased throughout the
year due to further increases in the Bank of
England base rate. There were delays in the
market passing base rate rises on to savers
in full and the cost of new retail funding also
benefitted from widening swap spreads in
the first half, although retail savings spreads
normalised in the second half.
Swap rate increases in 2023 also led to the
Group receiving a high level of variation
margin collateral on the Group’s interest rate
swaps during the year. The Group increased
internal buffers to ensure that sufficient funds
were held at the Bank of England to meet
any swap margin calls that may arise if swap
rates reduce. By the end of 2023, a significant
proportion of the swap collateral movement
had reversed.
Each Bank’s risk appetite is based on internal
stress tests that cover a range of scenarios and
time periods and therefore are a more severe
measure of resilience to a liquidity event than
the standalone liquidity coverage ratio (LCR).
As at 31 December 2023, OSB had a liquidity
coverage ratio of 208% (2022: 229%) and
CCFS 139% (2022: 148%), and the Group LCR
was 168% (2022: 185%), all significantly above
regulatory requirements.
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Risk review continued
Market risk
The Group is exposed to adverse movements
in interest rates, foreign exchange rates
and counterparty exposures. The Group
accepts interest rate risk and basis risk as
a consequence of structural mismatches
between fixed rate mortgage lending, sight
and fixed-term savings and the maintenance
of a portfolio of high-quality liquid assets.
Interest rate exposure is mitigated on
a continuous basis through portfolio
diversification, reserve allocation and the use
of financial derivatives, within limits set by the
Group ALCO and approved by the Board.
The Group’s balance sheet is predominantly
GBP denominated. The Group has some minor
foreign exchange risk from funding its OSBI
subsidiary. This is minimised by pre-funding a
number of months in advance and regularly
monitoring GBP/INR rates. Wholesale
counterparty risk is measured on a daily basis
and constrained by counterparty risk limits.
Operational risk
The operational risk management framework
has been designed to ensure a robust
approach to the identification, measurement
and mitigation of operational risks, utilising
a combination of both qualitative and
quantitative evaluations. The Group’s
operational processes, systems and controls
are designed to minimise disruption to
customers, damage to the Group’s reputation
and any detrimental impact on financial
performance. Where risks continue to exist,
there are established processes to provide
the appropriate levels of governance and
oversight, together with an alignment to the
level of risk appetite stated by the Board.
A strong culture of transparency and
escalation has been cultivated throughout
the organisation, with the Operational
Risk function having a Group-wide remit,
ensuring a risk management model that is
well-embedded and consistently applied. In
addition, a community of Risk Champions
representing each business line and location
has been identified, together with dedicated
first line risk and controls teams in some key
areas of the business. Both the dedicated
first line risk and control teams and the Risk
Champions ensure that operational risk
identification and assessment processes
are established across the Group in a
consistent manner.
A hybrid working model has been adopted
across the Group, with the exception being
front-line customer-facing colleagues. With
a high number of employees working and
accessing systems from home, the risk of
a cyber-attack has heightened. Whilst
IT security risks continue to evolve, work
continues to enhance the level of maturity of
the Group’s controls and defences, supported
by dedicated IT security experts. The Group’s
ongoing penetration testing continues to drive
enhancements by identifying potential areas
of risk.
Regulatory and compliance risk
The Group is committed to the highest
standards of regulatory conduct and aims
to minimise breaches, financial costs and
reputational damage associated with
non-compliance.
The Group has an established Compliance
function which actively identifies, assesses and
monitors adherence with current regulation
and the impact of emerging regulation.
In order to minimise regulatory risk, the Group
maintains a proactive relationship with key
regulators, engages with industry bodies
such as UK Finance and seeks external expert
advice. The Group also assesses the impact
of forthcoming regulation on itself and the
markets in which it operates and undertakes
robust assurance assessments from within the
Risk and Compliance functions.
Conduct risk
The Group considers its culture and behaviour
in ensuring the fair treatment of customers
and in maintaining the integrity of the market
sub-segments in which it operates to be a
fundamental part of its strategy and a key
driver to sustainable profitability and growth.
The Group does not tolerate any systemic
failure to deliver good customer outcomes.
On an isolated basis, incidents can result in
customer harm due to human or operational
failures. Where such incidents occur, they are
thoroughly investigated and the appropriate
remedial actions are taken to address any
customer harm and to prevent recurrence.
The Group considers effective conduct risk
management to be a product of the positive
behaviour of all employees, influenced
by a customer-centric culture throughout
the organisation and therefore continues
to promote a strong sense of awareness
and accountability.
Throughout 2023, the Group continued to
review and evolve its approach to supporting
customers, particularly those that are
vulnerable and experiencing financial
difficulty, to ensure they continue to receive
the level of tailored support needed to
deliver good customer outcomes. The Group
implemented the FCA’s Consumer Duty
requirements within the required timelines.
Conduct losses have remained stable with no
breaches of risk appetite reported during the
last 12 months.
Financial crime risk
The Group provides relatively simple products
to UK domiciled customers serviced through a
UK-registered bank account. The Group has
an established screening programme that
is deployed at the point of origination and
on a regular basis throughout the customer
lifecycle. The Group continues to invest in
a range of systems and controls that are
deployed across its product range in order
to detect and prevent the exposure to fraud
through the customer lifecycle. All new-to-
business applications are subject to a range
of controls to identify and mitigate fraud.
Customer activity is monitored in order to
detect suspicious activity or behaviour that
may be indicative of fraud.
Strategic and business risk
The Board has clearly articulated the Group’s
strategic vision and business objectives
supported by performance targets. The Group
does not intend to undertake any medium- to
long-term strategic actions, which would put
the Group’s strategic or financial objectives
at risk.
To deliver against its strategic objectives
and business plan, the Group has adopted
a sustainable business model based on a
focused approach to core niche market sub-
segments where its experience and capabilities
give it a clear competitive advantage.
The Group remains focused on delivering
against its core strategic and financial
objectives, against a highly competitive and
uncertain backdrop.
Reputational risk
Reputational risk can arise from a variety
of sources and is a second order risk. The
crystallisation of another principal risk can
lead to a reputational risk impact. The Group
monitors reputational risk through tracking
media coverage, customer satisfaction
scores, the Group’s share price and Net
Promoter Scores.
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Viability statement
This statement is made to comply with
Provision 31 of the 2018 UK Corporate
Governance Code which requires the
Board to assess the viability of the
Group over a stated time horizon.
The Group’s long-term direction is informed
by business and strategic plans which are
set on an annual basis and are reviewed
and refreshed quarterly. The operating
and financial plans consider, among
other matters, the Board’s risk appetite,
the macroeconomic outlook, market
opportunity, the competitive landscape, and
sensitivity of the financial plans to volumes,
margin pressures and any changes in
capital requirements.
In making the assessment, the Board has
considered all principal and emerging risks,
including climate risk where the risk is likely
to emerge outside of the viability assessment
horizon. The impacts of climate risk have
been assessed as part of the Internal Capital
Adequacy Assessment Process (ICAAP), which
concluded that at present the associated
financial risks are not material for the Group.
The Group prepares financial forecasts over
a five-year time horizon, with the Board and
management focusing on the projections
over the first three years. Key events which
will impact the Group’s capital adequacy
such as the introduction of Basel 3.1, the
impact of the implementation of the Group’s
Minimum Requirements for Own Funds and
Eligible Liabilities (MREL) and the impact
of the peak stress point of macroeconomic
forecasts all fall within a three-year time
horizon. Post consideration of these factors,
the Board considers a viability assessment
horizon of three years to remain appropriate.
The Banks within the Group are authorised
by the PRA and regulated by the FCA and the
PRA. The Group has a robust set of policies,
procedures and systems to undertake a
comprehensive assessment of all the principal
risks and uncertainties to which it is exposed
on a current and forward-looking basis.
The Group identifies, assesses, manages
and monitors its risk profile based on
the disciplines outlined within the Group
Enterprise Risk Management Framework,
in particular through leveraging its risk
appetite framework (as described in the
Risk review). Potential changes in the
aggregated risk profile are assessed across
the business planning horizon by subjecting
the operating and financial plans to
severe but plausible macroeconomic and
idiosyncratic stress scenarios.
The viability of the Group is assessed at both
the Group and the underlying regulated
bank levels, through leveraging the risk
management frameworks and stress testing
capabilities of both regulated banks.
Stress testing is an integral risk
management discipline, used to assess the
financial and operational resilience of the
Group. The Group has developed bespoke
stress testing capabilities to assess the
impact of extreme but plausible scenarios in
the context of its principal risks impacting the
primary strategic, financial and regulatory
objectives. Stress test scenarios are identified
in the context of the Group’s operating
model, identified risks, and the business
and economic outlook. The Group actively
engages external experts to inform the
process by which it develops business and
economic stress scenarios.
A broad range of stress scenarios are
analysed considering the potential impacts
to changes in HPI, unemployment, inflation
and interest rates over a range of severities.
Stresses are applied to lending volumes,
capital requirements, liquidity and funding
mix, interest margins and credit and
operational losses. Stress testing also supports
key regulatory submissions such as the ICAAP,
ILAAP and the Group Recovery Plan. ICAAP
stress testing assesses capital resources and
requirements over a five-year period.
The Group has identified a broad suite of
credible management actions, which can
be implemented to manage and mitigate
the impact of stress scenarios. These
management actions are assessed under a
range of scenarios varying in severity and
duration. Management actions are evaluated
based on speed of implementation, second
order consequences and dependency on
market conditions and counterparties.
Management actions are used to inform
capital, liquidity and recovery planning
under stress conditions.
In assessing the Group’s long term viability, the
Directors have assumed that the Group will be
able to issue MREL-eligible debt instruments
to meet its MREL requirements. The Board
assessed the uncertainty around the quantum
and phasing of MREL issuance resulting from
the ongoing Basel 3.1 consultation.
The Group successfully issued its first
£300m of MREL qualifying debt securities
plus £250m Tier 2 debt securities in 2023
followed by a further issuance of £400m of
MREL qualifying debt securities in January
2024, following which, the Group met
its interim MREL requirement, including
regulatory buffers.
In addition, the Group identifies a range of
catastrophic scenarios, which could result
in the failure of its current business model.
Business model failure scenarios (Reverse
Stress Tests or RSTs) are primarily used to
inform the Board of the outer limits of the
Group’s risk profile. RSTs play an important
role in helping the Board and Executives
to assess the available recovery options to
revive a failing business model.
The Group has established a comprehensive
operational resilience framework to actively
assess the vulnerabilities and recoverability
of its critical services. The Group also
conducts regular business continuity and
disaster recovery exercises.
The ongoing monitoring of all principal risks
and uncertainties that could impact the
operating and financial plan, together with the
use of stress testing to ensure that the Group
could survive a severe but plausible stress,
enables the Board to assess the viability of the
business model over a three-year period.
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The Group has progressively enhanced its
approach to assessing the viability of its
strategy and business operating model,
in particular the Group has enhanced its
capabilities by:
• creating a new Group-wide stress testing
tool which simulates the performance of
the loan book through macroeconomic
stresses including impacts on balances,
income, losses and RWAs
•
increasing the diversification of its funding
profile, supported by an enhanced
assessment of funding and liquidity
risk profiles
• enhancing the assessment of operational
resilience through the ongoing
review of priority business functions,
including supporting infrastructure
and dependencies through a simulated
business continuity exercise.
The current financial forecasts, risk profile
characteristics and stress test analysis, the
Group’s capital, funding and operational
capabilities support the Directors’
assessment that they have a reasonable
expectation that the Group will remain viable
over the three-year horizon and will be able
to continue to operate and meet its liabilities
as they fall due over this period.
Viability Statement continued
The Group has maintained strong capital
and funding profiles with a view to ensuring
continued financial resilience. However,
the Group remains fully cognisant of the
uncertain macroeconomic environment and
ensures that stress testing activities consider
a range of potential scenarios.
The Board has also considered the potential
implications of the current macroeconomic
uncertainty in its assessment of the
financial and operational viability of the
Group and has a reasonable belief that the
Group retains adequate levels of financial
resources (capital and liquidity) and
operational contingency.
In line with prior years, in the viability
assessment process the Board considered
the latest macroeconomic forward-looking
scenarios utilised for business planning
and the Group’s IFRS 9 calculations which
consider macroeconomic risks such as
rising levels of unemployment, inflation,
interest rate rises and movements in
house prices. Utilising analysis which
identifies scenarios which would result in
the Group becoming unviable, the Board
considered the plausibility of these scenarios
materialising. Forecasts and capital stress
tests considered the impact of IFRS 9
transitional arrangements unwinding, the
Group’s go-forward MREL phasing in, whilst
incorporating the Group’s simulation of the
impact of Basel 3.1 implementation.
The potential impact of the macroeconomic
environment on the Group’s operations is
subject to continuous monitoring through the
Group’s management committees, capital
and liquidity, operational resilience and
business continuity planning working groups,
with appropriate escalation to the Board and
supervisory authorities.
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Sustainability report
Sustainability report
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Sustainability report
Doing the right thing for
our customers, colleagues,
communities and the planet.
70
71
Introduction
ESG Strategic Pillars
Just Transition
We are committed to environmental
stewardship, supporting the transition to
a low carbon economy, and achieving net
zero across our value chain by 20501.
People
We are committed to having a
positive human and social impact
on the lives of the customers,
colleagues and communities we
work with and affect.
Stewardship
We are committed to operating
responsibly, ethically and
transparently, delivering sustainable
value to all our stakeholders.
72-78 Strategic Pillar – Just Transition
79-87 Strategic Pillar – People
88-93 Strategic Pillar – Stewardship
73
75
76
77
Transition plan, targets, and performance
Environmental policy
Greenhouse gas (GHG) emissions
Greenhouse gas (GHG) emissions table
79
81
86
Supporting our customers
Supporting our colleagues
Supporting our communities
1. Ambition includes Scope 1 and 2 emissions,
relevant Scope 3 categories including category
15 - investments.
88
89
90
92
ESG Governance
Delivering positive customer
outcomes
Ethical practices and policies
Tax contribution, resilience and
data protection
93
Cyber security
Introduction
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Sustainability
Introduction
2023 marked a year of progress,
embedding our ESG principles and
embracing our commitment to building
a sustainable future for our customers,
colleagues and communities.
Throughout the year, we have focused
on how we can begin reducing the
environmental impact of our own operational
footprint and how we can support the
decarbonisation of the UK housing stock
we finance, whilst developing our first
Climate Transition Plan (https://www.osb.
co.uk/sustainability/our-environment).
The plan outlines actionable steps that
we can take to mitigate our environmental
impact and support a transition to a low
carbon economy.
We published interim (2030) emissions
reduction targets for mortgage lending and
operations, aiming to reduce the emissions
intensity of our mortgage lending by 25%
in accordance with the Net Zero Banking
Alliance (NZBA) guidelines, and reducing
Scope 1 and Scope 2 emissions to net
zero. We launched our Landlord Leaders
Community to unite those with influence to
help drive positive change, deliver collective
progress and a fair and equitable transition
to Net Zero.
In 2023, progress was made in delivering
our social impact with both our colleagues
and local communities through extending
our volunteering programme, strengthening
our ties with our key charity partners, and
doubling our CSR commitment within our
Indian operation.
Following the appointment of a Diversity,
Equity and Inclusion (DE&I) specialist, we
created our first DE&I Strategy and launched
initiatives including employee engagement
networks and leadership pathways, with the
networks enabling us to enhance our ESG
Governance structure.
Enhancing our approach to stewardship,
we implemented Consumer Duty across
the Group, became a signatory of the UN
Global Compact and continued to link ESG
performance to Executive compensation.
The following sections offer a detailed
account of our strategic sustainability
commitments, progress and plans for
building upon our success.
41%
EPC rating of C or better
11%
reduction in energy
consumption per m2
99%
of electricity from
renewable sources
33%
women in senior
management
60th
of top 100 companies in
Best Companies Survey
4,998
volunteering
hours undertaken
46%
of UK employees engaged
in community activities
88%
increase in donations to
Children’s Hospice through
our dedicated savings account
7th
consecutive year OSB India
confirmed as a Great Place
to Work
Greenhouse gas emissions1
Scope 1
171.44tCO2e
2022: 153.87
Scope 2
1.39tCO2e
2022: 0.00
Scope 3 Financed emissions –
mortgages
314,413tCO2e
2022: 363,680
1. For further definition and details see Just Transition section on pages 72-78.
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Sustainability continued
ESG Strategic Pillars
We continued
identifying and
evaluating non-
financial risks and
opportunities through
our annual materiality
assessment and ESG
lifecycle review.
Our approach enables us to prioritise
significant areas where stakeholder
value can be generated and where
we can support the United Nations
Sustainable Development Goals (SDGs),
thereby advancing our Purpose and ESG
commitments through the following
strategic pillars:
G
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Just Transition
People
Stewardship
A fair and equitable
transition to a low
carbon economy
Delivering on the needs
of people now and into
the future
Acting responsibly
to deliver sustainable
value
Customers: The Group’s approach will ensure
that the social mobility of our customers is not
compromised through our product decisions.
Provide thought leadership, education,
awareness and products that enable, incentivise
and reward our customers to embrace the
transition to a low carbon housing economy.
Communities: A strategic and coordinated
programme will be defined and delivered,
supporting our communities and wider social
economic environment, through collaboration,
partnerships and volunteering, with focus on
the UK and Indian housing projects.
Colleagues: We will retain, recruit and train the
best talent, enabling all employees to maximise
their potential and seek to embed a diverse and
inclusive culture that the Group is proud of.
Net zero Commitment: The Group’s
environmental ambitions and transition plan aligns
to the Paris Accord on climate change, achieving
carbon net zero across our operational emissions
by 2030 and our total emissions by 2050.
Technology: The Group seeks to use technology
solutions that align to our net zero ambitions.
Supply and Value Chain: We will encourage
and support our supply and value chain with
their transition to an ESG strategy that aligns
with the Group’s ambitions.
Operating Framework Governance: The Group
will embrace and operate within the ESG Operating
Framework to ensure that our ESG Strategy is
embedded within the Group.
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Strategic Pillar – Just Transition
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Sustainability continued
Strategic Pillar – Just Transition
As we advance towards a net zero future,
the concept of a just transition stands as the
cornerstone of our approach.
We also started the process to reduce, or
facilitate the reduction of, our own Scope 1
and Scope 2 emissions by:
•
•
•
removing gas boilers from our office
location in Chatham, moving heating to
an electric source
further improving our Building
Management Systems controls and
settings including the installation of sub-
metering to our main office locations in
Chatham and Wolverhampton, and
including the Group’s net zero
commitment and transition away from gas
in the design requirements of the newly
acquired office location in Wolverhampton
Our efforts have focused on ensuring an
inclusive transition, aiming to minimise
disruptions whilst promoting the adoption of
environmentally conscious practices.
We recognise that we can’t do this on our
own but we will continue to focus on what we
can do, which includes further developing
the data analytics that supports product
development, launching new products that
will contribute to a transition of UK housing
stock, and collaborating with industry leaders
through our representation at UK Finance,
the Net Zero Banking Alliance (NZBA)
and Partnership for Carbon Accounting
Financials (PCAF).
A just transition is one that is fair and
inclusive for all as the economy becomes
increasingly green, creating opportunities
that leave no one behind.
Recognising the interconnectedness of
ESG considerations, we believe it is crucial
to deliver a fair and equitable transition
that addresses and balances stakeholders’
diverse needs within the residential property
and private rented sectors. Homeowners,
tenants, property investors, and the broader
community are integral to this transition.
Over the past year, we made steady progress
towards our commitment to a net zero future,
closely engaging with the residential property
market and the private rented sector by:
•
•
initiating and delivering transition
products that result in an energy
efficiency improvement for our customers’
mortgaged property. Our refurbishment
Buy to Let products offer reduced rates
where works include improving energy
efficiency or achieving an EPC C or better
laying the groundwork for a sustainable
transition, through our Landlord
Leaders thought leadership programme
(see across)
• collaborating and partnering with Sero,
piloting property specific pathway to zero
reports with a sample set of 30 landlord
customers, and
• collaborating with industry partners to
help support this transition, connecting
our customers to the retrofit services they
need and reducing emissions
Landlord Leaders
When we set our ESG Strategy, we were
clear that thought leadership would be
a critical action to help drive the positive
change we aspire to.
As a leading Buy-to-Let lender, we
started by considering the changing
shape of the Private Rented Sector.
At the end of 2022, we published
our seminal Landlord Leaders
thought leadership research, which
demonstrated a continued advance
towards professionalisation of the
sector. That professionalisation heralds
much to be applauded: tenant-centric
business models, greater investment
in sustainable housing upgrades, and
setting a standard for what comes
next. In fact, the research shows
that many professional landlords
are already investing in a future that
policymakers are only considering.
We found that the move to
professionalisation presented
challenges to landlords with smaller
property portfolios. For this group
a world of increased red tape,
unfavourable tax treatment, increased
interest rates and inflation, and an
uncertain political environment has led
to many doubting whether it is viable to
continue. We believe we have a role to
play for both groups.
Acting on the research, we launched
a package of measures including
investigating product innovation,
creating more educative support around
tax in particular and bringing the
industry together to help drive change
beyond that which we alone can deliver.
We launched the Landlord Leaders
Community in June 2023, convening
a founding group of over 30 members
and leaders across industry, policy and
finance together with small landlords,
creating a shared mission for change.
Agreeing action is needed around four
key pillars: Education and Training,
Communication, Collaboration, and
Positive Industry Perception – we have
started to devise a plan for what is
needed to support a thriving Private
Rented Sector.
Find out more on our website /
www.landlordleaders.osb.co.uk
We came together again later in the
year to discuss the tenant experience,
learning together through our latest
thought leadership research: ‘A Future
Tenant Standard’. It finds that for
tenants, the positives of location and
quality of housing are strong, but
that many still yearn to own their own
home. It also shows that the need for
professionalisation within the industry
is critical to its future success, with
many tenants experiencing lapses in
appropriate care and support either
from their landlord or their agent.
Overall, it concluded that relationship
is key – with the most positive
experiences reported by tenants who
know and trust their landlord.
The Community which meets in
person has met twice and will now
meet quarterly.
Neil Richardson
Chief Sustainability Officer
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Sustainability continued
Strategic Pillar – Just Transition
Transition plan
To support building a sustainable future, we
developed our initial Climate Transition Plan
(https://www.osb.co.uk/sustainability/
our-environment) setting out our
assessment and response to climate change
in the context of our business model and
activities, our impact on the environment and
our ability to control or influence change.
The plan also sets out the dependencies
upon which we are reliant, including
customer awareness and sentiment, cost and
availability of technology, innovation and,
perhaps most importantly, clear, bold and
supportive government policy.
There are five pillars to our plan that
create a responsible and proportionate
strategy, contributing to real economy
decarbonisation as well as reducing
our footprint, with clear synergies
between the transition on climate and
the professionalisation of the private
rented sector that has been a focus of our
Landlord Leaders Community (https://
landlordleaders.osb.co.uk) initiative:
1. Thought leadership, education
and awareness
2. Connecting our customers to services that
support their transition
3. Providing access to energy
improvement products through our
lending proposition
4. Greening our offices and branches
5. Embedding climate thinking into
our business
Stakeholder expectations in relation to
transition planning are developing and
we expect to iterate our Transition Plan
regularly to respond to evolving needs
and expectations, alongside our own
maturing processes.
It is important to support our ambitions
and targets with authentic and transparent
disclosure of the actions we are planning
to take and the impact we believe they
may have. We recognise that our first
Transition Plan is published in advance of the
Group aligning its disclosures to emerging
frameworks and guidance such as those from
the Transition Plan Taskforce or International
Sustainability Standards Board. Our next
iteration will seek to align with the forthcoming
sector-specific banking guidance published
by the Transition Plan Taskforce.
Environmental target setting
The Group is a member of the Net Zero
Banking Alliance. During 2023, we established
and disclosed our interim reduction targets for
financed emissions (https://www.osb.co.uk/
sustainability/our-environment). Our
ambition is to reduce the emissions intensity of
our mortgage lending 25% by 2030.
We are committed to setting science-based
targets in line with our NZBA and Science
Based Targets Initiative (SBTi) commitments
and will validate our emissions reduction
targets with the SBTi. We await the release
of the SBTi Financial Institutions Net Zero
standard for clarification on requirements and
interoperability alongside our NZBA targets.
We estimate that 97% of our total emissions1
inventory is from the indirect emissions related
to the services we provide to our customers in
the form of lending (see emissions on pages 77-
78). The impact of those emissions contributes
towards climate change, and reducing our
impact and transitioning our business activities
towards a low-carbon economy is at the heart
of our environmental strategy.
Our direct emissions are far smaller and within
our direct control, and form the basis of our
ambitious 2030 net zero target for scope 1
emissions2. More detailed information can be
found in our Climate Transition Plan (https://
www.osb.co.uk/sustainability/our-
environment)
Financed emissions
As a sub-sector specialist lender, over
97% of the Group’s 2023 lending account
balances were in the form of mortgages
secured against owner occupier, Buy-to-
Let residential, and semi-commercial and
commercial property, where our initial
targets have been established.
Our attributed financed emissions (see page
78) from the lending portfolio are calculated
using the Partnership for Carbon Accounting
Financials (PCAF) methodology, allowing us
to monitor and report progress. PCAF average
data quality score was 3.1
Financed emissions intensity per m2 (kgsCO2e
per m2 ) is the metric used to measure
and report progress against our 2030
interim target.
(2022: 3.2).
2023 saw a 13% reduction in financed
emissions (tCO2e) and a 17% reduction in
emissions intensity (kgCO2e/m2). This is
predominantly due to improved data quality
and the exclusion of erroneous data extracted
from the EPC public register.
Financed emissions estimates rely on externally
sourced data. The emissions of the buildings
were sourced, where available, from Energy
Performance Certificates (EPCs) which estimate
the carbon emissions of a property. In 2023
83% of properties were matched to a valid
EPC, 17% were modelled or estimated based
on postcode or national averages, and the
remaining less than 1% allocated a D rating.
There are inherent limitations in using EPCs to
calculate financed emissions, such as the time
lag for external data sources to be updated,
the age of certificates and the methodology
failing to prioritise carbon neutral over fossil-
fuel-based technologies.
Mortgages – Financed emissions
Physical intensity (kgCO2e/m²)
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
2
2
0
2
3
2
0
2
4
2
0
2
5
2
0
2
6
2
0
2
7
2
0
2
8
2
0
2
9
2
0
2
0
3
0
2
1
3
0
2
2
3
0
2
3
3
0
2
4
3
0
2
5
3
0
2
6
3
0
2
7
3
0
2
8
3
0
2
9
3
0
2
0
4
0
2
CCC BNZP – pathway
Performance 2023
Baseline physical intensity 29.93kgCO2e/m²
Interim target 22.38kgCO2e/m²
1. Based on the Group’s 2022 emissions estimates for Scope 1, Scope 2, Scope 3 category 1, 2, 3, 5, 6, 7, 8 and 15
2. Scope 1 & 2 (Scope 2 market-based methodology)
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Strategic Pillar – Just Transition
Scope 1 and Scope 2 emissions
Our Energy Policy is aligned to our net-zero
commitment and target, and sets out how
we will consider emissions reduction, energy
efficiency and the responsible consumption
of energy in our decision making
and behaviours.
It outlines our commitment to comply with
statutory legislation in respect of energy
efficiency, and to establish commitments to
responsible procurement and consumption.
It provides a framework for setting objectives
and targets to continually measure and
improve energy performance and prevent
energy waste. Regular meetings between
Property Services and the Sustainability
functions seek ways to reduce energy use
and maximise efficiency.
We recognise that the path to net-zero for
our office buildings and branches will not be
linear. Some enabling actions such as the
acquisition of a new building may, in the
short-term, increase energy consumption
and emissions, as was the case in 2023.
Electricity and gas
The Group’s Scope 2 emissions1 using the
market-based methodology were 1.39 tCO2e
for 2023 reflecting that 99% of the electricity
purchased was from renewable tariffs. 16,958
kWh of energy consumned was from non-
renewable tariffs, as contracts were migrated
following the purchase of new buildings.
Scope 2 emissions are those associated with
the purchase of electricity.
Using the location-based methodology,
reflecting the average emissions intensity
of grids on which electricity consumption
occurs, use increased 15% from 2022. This
was predominantly due to the acquisition of
a new office building in Wolverhampton.
Consumption of natural gas increased by
116,008 kWh (+16%) from 2022. As above this
was mainly due to the new office location
that used 188,167 kWh of gas, 22% of total
gas use. Without the inclusion of the new
location gas consumption reduced by 11%
(80,485kWh) versus 2022.
Both absolute and intensity metrics are used
to measure and report progress against
our 2030 target for Scope 1 and Scope
2 emissions (tCO2e per m2 and per full
time equivalent).
Additional Scope 3 emissions
Our emissions hot spot analysis identified
that category 15 - investments are the most
significant source of emissions for the Group,
with the remaining scope 3 categories
identified as relevant1 contributing only c.3%.
Given the breadth and depth of other indirect
emissions (categories 1-14 of Scope 3), we
continue to take a structured approach to
how we understand, measure and take action.
It is our intention to disclose categories 1
and 2 in the future as data and calculation
processes mature.
Although these emissions are not significant,
they contribute to our emissions footprint
and will need to be addressed. We expect
that in time and as our strategy evolves, it
will include targets and initiatives to reduce
these emissions.
We are committed
to delivering net zero
Scope 1 and Scope 2
GHG emissions³ by
2030 from a 2022
base year.
We have set an
interim target
for financed
emissions, aiming
to reduce the
emissions intensity2
of our mortgage
lending by 25%
by 2030.
1. Conducted in 2022 – Scope 3 categories 1, 2, 3, 5, 6, 7 and 8 based on size, influence, risk,
stakeholder interest and outsourcing.
2. kgCO2/m2.
3. Target is calculated using a market
based methodology.
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Sustainability continued
Strategic Pillar – Just Transition
Environmental policy
Our Environmental policy embodies the
Group’s commitment to meeting or exceeding
all relevant environmental obligations,
reducing our impact and achieving our
ambition of net zero greenhouse gas emissions
(GHG) no later than 2050.
The policy is supported by our Environmental
Management System (EMS) which is
certified to ISO14001:2015 and covers
our UK corporate real estate and, in
2023, extended to the Kent Reliance
branch network.
The EMS ensures the Group knows where it
impacts the environment and that effective
controls are in place to manage risk and
drive improvement, covering topics such as
legislation, energy use, waste management
and water use.
Water
Water is used for sanitation purposes only
and is used responsibly. In 2023 7,180m3
were used.
Waste
The Group is responsible for waste contracts
in some of our office locations. Contracts are
in place to divert waste from landfill following
the waste hierarchy, with non-recyclable
materials being sent to an energy from waste
facility. In 2023, 280 tonnes of waste were
generated. Recycling and waste segregation
stations are provided in all offices and
branch locations.
Carbon mitigation
We continue to use verified carbon mitigation
schemes from the voluntary carbon market
to offset the emissions directly related to our
business activities1. A responsible offsetting
strategy was developed that uses the Oxford
Principles for Net Zero Aligned Carbon
Offsetting as a foundation.
Nature
With the introduction of the voluntary
Taskforce on Nature-related Financial
Disclosures (TNFD) framework, the Group is
at the early stages of understanding the UK
Government’s approach towards TNFD and
evaluating how the systems will evolve further
to consider the extent to which our activities
impact nature and biodiversity.
Electricity (MWh)
Gas (MWh)
Water (m3)
Waste (tonnes)
17
1,900
914
861
745
10,486
7,180
1,612
1,666
3,376
2021
2022
2023
2021
2022
2023
2021
2022
2023
Renewables
Non-Renewables
Consumption data is based on
estimates taken from invoices
63
2021
198
280
2022
2023
1. Offsetting covers Scope 1, Scope 2 (market-based) and UK Scope 3 (business travel, waste from operations, energy related activities not reported in Scope 1 and 2 and OSBI
operations (purchased electricity – market-based), gas oil, fugitive emissions, employee commuting and upstream leased assets for the year ended 31 December 2023.
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Sustainability continued
Strategic Pillar – Just Transition
Greenhouse gas emissions
The Group applies the Greenhouse Gas
Protocol: A Corporate Accounting and
Reporting Standard for all GHG accounting
across Scopes 1, 2 and 3.
Verification and assurance
Deloitte LLP provided independent limited
assurance over the following metrics and
ESG information for the year ending
31 December 2023
1:
We believe that gaining a complete view
of our Greenhouse Gas emissions (GHG)
inventory is the best way to control or
influence emissions. In addition to the
emissions sources disclosed in 2022,
additional scope 3 categories (7 and 8) are
included in this year’s report evidencing our
ongoing commitment to increasing the scope
and accuracy of emissions measurement.
We have reported on all of the emissions
sources required under The Companies
Act 2006 (Strategic Report and Directors’
Report) Regulations 2013 and the Companies
(Directors’ Report) and Limited Liability
Partnerships (Energy and Carbon Report)
Regulations 2018 – commonly referred to as
Streamlined Energy and Carbon Reporting.
Under the Streamlined Energy and Carbon
Reporting regulations, we report annually
on greenhouse gas emissions from Scope 1
and 2 Electricity, Gas and Transport, with
all greenhouse gases reported in tonnes of
carbon dioxide equivalent (CO2e).
When converting consumption data to carbon
emissions, factors from the UK Government
Emissions Conversion Factors for Company
Reporting from the Department for Energy
Security and Net Zero and Department for
Business, Energy & Industrial Strategy are used.
The Group’s 2023 Greenhouse gas emissions
basis for reporting is publicly available on our
corporate website: https://www.osb.co.uk/
sustainability/our-environment/
Greenhouse Gas (GHG) emissions
• Total direct (Scope 1) - tCO2e
• Total indirect (Scope 2) emissions –
Market-based - tCO2e
• Total indirect (Scope 2) emissions –
Location-based - tCO2e
• Total Scope 3 Category 15
Investment emissions
GHG intensity
• Scope 1 and 2 metric tonnes of CO2e per
full-time employee (FTE)
• Scope 1 and 2 metric tonnes of CO2e per
£m turnover
• Scope 3 - Financed emissions kgsCO2e/m2
The Graph below shows a breakdown of
emissions currently measured, excluding
financed emissions, and the impact of
purchasing electricity from renewable energy
tariffs in relation to both Scope 2 emissions,
and total emissions.
PCAF data quality score
TCFD
• The description of activities undertaken to
meet the recommendations of the TCFD
Deloitte’s assurance statement can be found
on page 262.
1. Under the International Standard on Assurance
Engagements 3000 (Revised) Assurance
Engagements Other than Audits or Reviews of
Historical Financial Information (ISAE 3000 (Revised))
and the International Standard on Assurance
Engagements 3410 Assurance Engagements on
Greenhouse Gas Statements (ISAE 3410).
Scope 3 emissions for categories: 3, 5, 6,
7 and 8 were verified by Interface NRM,
an independent UKAS and ASI accredited
Certification Body, operating in accordance
with ISO 14064-3:2019. Validation was
conducted in accordance with ISO 14064-1:
2018 - Specification with guidance at the
organisational level for quantification and
reporting of greenhouse gas emissions
and removals.
2023 Operational emissions breakdown (tCO2e)
2,021.06
3,065.24
2,669.68
396.95
(395.56)
171.44
155.95
7.22
256.67
55.95
Scope 1
Scope 2
Location-based
Reduction from
renewable
energy tariffs
Scope 3
C3 T&D
Scope 3 C5
Water and Waste
Scope 3 C6
Business Travel
Scope 3 C7
Employee
Commuting
Scope 3 C8
Leased assets
Total Market-
based emissions
Total Location-
based emissions
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Sustainability continued
Greenhouse gas emissions continued
Greenhouse gas (GHG)emissions
Direct and indirect GHG emissions
(Scopes 1, 2 and 3)
Further description
Specific fuels where applicable
2021
2022
2023
Amounts in metric tonnes CO2 equivalent
Scope 1
Stationary combustion
Combustion of fuel on site
Natural gas, diesel for generators
167.39
138.22
157.10
Fugitive emissions
Leaks and other irregular releases of gases or
vapours from a pressurised containment: air-
conditioning units
Total Scope 1 direct emissions
Scope 2
Purchased electricity
Total Scope 2 location-based
Total Scope 2 market-based
Scope 3
Business travel
Rail, bus, taxi, hotel stays, air travel
Employee commuting
Rail, bus, taxi
Fuel and energy-related activities
(not included in Scope 1 or 2)
Well-to-tank (WTT) emissions for fuel use,
upstream emissions for non-renewable electricity
generation, and transmission and distribution
losses in the electricity network
Water
Waste
Leased assets
Water use
Waste from operations
Combustion of fuel on site, fugitive emissions,
electricity – market-based
Total indirect Scope 3 emissions
(Category 3, 5, 6, 7 and 8)
Total operational emissions
(location-based)
Total operational emissions
(market-based)
1. 2023 is the first year of calculating emissions from employee commuting.
2. 2023 is the first year of calculating emissions from leased assets.
Electricity
Electricity
Unknown vehicle fuel
Unknown vehicle fuel
0.00
167.39
342.23
0.00
78.87
–1
31.20
0.50
1.35
–2
15.65
153.87
322.13
0.00
14.34
171.44
396.95
1.39
193.00
–1
256.67
2,021.06
136.71
0.78
4.20
–2
155.95
1.27
5.95
55.95
Unknown, vehicle fuel, water, waste energy
related activities
111.91
334.69
2,496.85
621.53
810.69
3,065.24
279.30
488.56
2,669.68
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Sustainability continued
Greenhouse gas emissions continued
Direct and indirect GHG emissions
(Scopes 1, 2 and 3)
Total indirect Scope 3 – Financed
emissions (Category 15)
Total GHG emissions
(location-based)
GHG intensity
Further description
Specific fuels where applicable
2021
2022
2023
Category 15 Investments (financed emissions).
Calculated by multiplying an attribution factor
(outstanding amount of loan divided by the
property value at origination) by the emissions
associated with the property taken from the EPC.
Calculated for Buy-to-Let and residential lending
All measured emissions for the year
Gas and electricity for heating, hot water
and lighting only
278,854.00
363,680.00
314,413.00
279,475.53
364,490.69
317,479.24
GHG intensity ratio
Description
2021
2022
2023
Full Time Equivalent (FTE)
employees (UK)
FTE is a unit of measurement equal to one full-time
employee
Annual turnover
£m
Metric tonnes of CO2 equivalent per FTE
Metric tonnes of CO2 equivalent per £m total
income
kgs of CO2 equivalent per square metre1
Scope 1 and Scope 2
location-based
Scope 1 and Scope 2
location-based
Scope 3 Financed emissions –
physical emissions intensity
Energy consumption
Energy usage kWh
Electricity
Gas
Total kWh
1,164
629.0
0.44
0.81
24.81
1,237
775.4
0.38
0.61
29.9
1,427
658.1
0.40
0.86
24.9
2021
2022
2023
1,611,783.00
1,665,812.80
1,916,950.94
913,890.00
744,504.18
860,512.00
Electricity, natural gas
2,525,673.00
2,410,316.98
2,777,462.94
1. Financed emissions physical intensity ratio is calculated by multiplying the total estimated attributable financed emissions in tCO2e for 2023 (314,413 tCO2e) by 1,000 to give kgC02e (314,413,000 kgC02e). This is divided by the total floor area
in m2 of the properties taken from the Energy Performance Certificate (12,630,301m2). Estimated absolute financed emissions were 504,476 tCO2e for 2023. Financed emissions estimates are for the mortgage portfolio as the largest asset class.
It does not cover non-modelled book or securitised loans.
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Strategic Pillar – People
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79
Sustainability continued
Strategic Pillar – People
Customers
The Group’s lending products seek to
have a positive social impact, helping
support the UK mortgage market for
those customers underserved by the
High Street lenders.
We will achieve this by supporting
property landlords to ensure
there is a functioning and
professionalised private rented
sector, offering affordable lending
products for Shared Ownership
and near prime customers, helping
bridge the home-ownership gap,
and supporting small independent
commercial property occupiers
that serve local communities and
neighbourhoods.
The Group, through its Heritable
Development Finance residential lending
business also offers small and medium-sized
residential property developers products
that support house-builders that provide
affordable family housing outside central
London, as well as helping the UK meet its
housing demands.
The Group’s strategy to be the number one
specialist for our customers means that we
offer valued products, tools and services
that support them achieving their saving
and borrowing aspirations. We achieve this
through the provision of online and telephone
channels for our savings customers, in
addition to our nine Kent Reliance branches
in the South East of England. Our mortgage
products are distributed by intermediaries,
(other than the Heritable brand which is
direct to developer) across England, Wales
and Scotland, with whom we maintain
strong relationships.
The Group places a particular importance
on meeting the specialist needs of the
customer which means a focus on
efficient and supported onboarding
for new customers alongside retaining
balances and maintaining long term,
customer relationships.
In 2023, as base rates continued to rise,
we offered our savers attractively priced
products and opened more than 210,000
new accounts. The retention rates amongst
our savers remained high with 91% (2022:
94%) of customers with maturing fixed rate
bonds and ISAs with Kent Reliance and 85%
(2022: 88%) with Charter Savings Bank
choosing to take another product with the
same brand.
Posh Pads
Posh Pads provides high-end
residential student accommodation
in Southampton and Portsmouth.
The business enjoys a prominent
brand profile based on decades of
experience and innovation with an
ethos of providing students with
the most desirable, comfortable
and stylish accommodation
complemented by a rapid-response
maintenance service.
Posh Pads refinanced its property
portfolio with OSB Group during
the latter part of 2023, in a time of
inflationary pressures and significant
increases in borrowing costs.
Established in 1993, Posh Pads is a
long-term investor and interest rate
fluctuations over time are accepted as
a recurring factor of its operation.
In response to the recent higher cost
of finance, the business has increased
its focus on cash generation and
ensuring maximum efficiency when
investing in the portfolio. A planned
increase in rental yield in the next 12
months will help to mitigate increased
loan costs, while investment in the
portfolio has become more targeted
and the schedule of larger-scale
projects modestly reduced.
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Sustainability continued
Strategic Pillar – People
Customers continued
Our savers are keen advocates of the Group’s
products and service, which was reflected
in strong Net Promoter Scores (NPS), at +71
for Kent Reliance (2022: +64) and +62 for
Charter Savings Bank (2022: +61).
Our savings products also received industry
recognition: Charter Savings Bank won Best
Overall Savings Provider for the sixth year
running from Personal Finance Awards, and
ISA Provider of the Year from Moneyfacts
Consumer Awards. Moneynet Personal
Finance Awards named Kent Reliance as Best
Fixed Rate Savings Provider.
The rapidly rising base rate, that was
reflected in mortgage pricing, represented
a potential headwind for our borrowers
approaching the end of their fixed rate
mortgage term. Whilst higher rates upon
renewal exerted pressure on Buy-to-Let
landlords’ profitability, this was somewhat
offset by the benefit of strong growth in
rental income of 17% over the preceding
five years (to December 2023, ONS) and
19% house price appreciation over the
same period (to November 2023, ONS). The
Group supported its borrowers through the
transition to higher rates by introducing a
wider range of product options for new and
existing borrowers and providing confidence
to intermediaries that product rates would be
secured once an application was received.
The Group measures customer experience
through near-real-time transaction surveys
across all stages of the customer journey.
In 2023, 3,385 survey responses from
intermediaries, almost 12,575 responses from
borrowers, and over 66,985 responses from
savers were analysed to inform us about
customer service issues and were used in
creating and implementing solutions to
enhance our customers’ experience.
Analysis of survey responses identified two
key areas for improvement:
•
there was a strong correlation between
NPS and operational pressures due to
demand peaks, and
• Precise borrowers and intermediaries
wanted better communication and
product options when initial rates matured
In response, we undertook activities that
included bolstering operational support and
proactively managing product withdrawals
differently to smooth demand curves.
As a result of the survey, we offer Precise
borrowers product options when their initial
rate ends, providing both intermediary and
borrower with improved confidence and a
more proactive and engaging experience.
In addition, further improvements
throughout the year were made to the
underwriting process, our intermediary
management structure, our websites and
customer communications, all of which have
contributed to the overall improvement in the
2023 NPS score.
Our intermediary management teams worked
closely with the broker community, discussing
cases and helping to deliver rapid and reliable
decisions for our borrowers.
In 2023, the Group’s representatives
participated in over 250 physical and virtual
events with brokers to understand their
evolving requirements and to keep up to date
with industry developments. We used this
understanding to continue to improve our
customer propositions and the Group’s efforts
were recognised in the improved broker NPS
of +57 for both OSB and CCFS in 2023 (2022:
OSB +37 and CCFS +39).
The Group’s mortgage proposition continued
to win industry awards with Kent Reliance for
Intermediaries winning Best Specialist Lender
from L&G Mortgage Club Awards, Precise
Mortgages awarded Best Specialist Lender
from TMA Club and the Group recognised
as Best Specialist Bank at the Bridging and
Commercial Awards.
Our efforts to create a fairer and more
sustainable Private Rented Sector through
our independent Landlord Leaders initiative
gathered pace as we launched the Landlord
Leaders Community. In December, we
published the second Landlord Leaders
research report, providing insight into the
world of private tenants: their demographics,
motivations and renting experiences.
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Sustainability continued
Strategic Pillar – People continued
Colleagues
The skills, expertise and commitment of our
colleagues are fundamental to the
achievement of our strategic goals.
In 2023, we continued to invest in training, development and employee
engagement activities to ensure that we provide a compelling and attractive
proposition both for our existing employees and for candidates considering
joining the Group.
Employee engagement and culture
In November 2023, it was confirmed that the
Group achieved 60th place in the 2023 Best
Companies survey on the Top 100 list of large
companies (between 200 and 1,999 people),
as well as 10th place on the financial services
sector list.
The 2024 Best Companies to Work For survey
was undertaken in December 2023 and saw
an impressive 86.4% of UK employees submit
responses. Our overall 2024 survey result was
0.3% higher than the previous year and saw
the Group retain an overall ‘2 Star’ rating,
with Best Companies defining this as an
outstanding level of employee engagement.
The Group additionally achieved 30th place
on Glassdoor’s 2024 Best Places to Work
list in the UK with a 4.4 rating based on
reviews submitted by current and former
UK employees.
OSB India participated in a separate
employee engagement survey in December,
run by the Great Place to Work Institute.
It was officially certified as a ‘Great Place
to Work’ for the seventh consecutive year,
reflecting the strong brand and culture that
exists throughout our teams in Bangalore
and Hyderabad.
Throughout the Group, our values (Stronger
Together, Take Ownership, Aim High,
Respect Others and Stewardship) and the
related behavioural expectations provide an
opportunity for line managers to assess and
provide behavioural feedback within appraisal
processes and consider related learning
development activities. The values are also
aligned to established award programmes and
a range of ongoing communications.
2023 saw the creation of the Group’s People
and Culture Strategy, which was published
internally and communicated through a
series of briefing sessions attended by over
500 UK and OSB India employees. The
Strategy detailed approaches and initiatives
to be progressed over the longer term to
support the wider achievement of business
strategy, the transition to a digitalised
working environment and the achievement
of our People Vision of becoming recognised
as an employer of choice. To further support
the implementation of the approaches and
initiatives detailed within the Strategy, the
Group recruited a Group Head of People
Transformation.
The Group’s Workforce Advisory Forum (Our
Voice) continued to meet regularly in 2023,
including employee representatives from all
geographical locations, including OSB India.
The aim of the forum is to further enhance
the level of engagement that the Group
Executive Committee and the Board have
with the wider workforce. To achieve this, in
addition to employee representatives, the
forum is attended by Non-Executive Directors
and Group Executive Committee members to
ensure that they can hear directly from the
employees and share feedback (positive or
negative) on important matters.
Remuneration and benefits
We believe in rewarding our employees fairly
and transparently, enabling them to share
in the success of the business. Details of the
Group’s remuneration policies can be found in
the Remuneration Report on pages 147 - 177.
Group vacancies filled by the
Talent Acquisition team
1,068
2022: over 908
Employee promotions across
UK and India
295
2022: 318
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We are also committed to supporting
employees undertaking professional
development and in 2023 61 UK employees
received financial support to pursue
professional qualifications.
Employee recognition and awards
The Group recognised the significant tenure
of 198 UK employees who reached a 5, 10, 15
or 20 year milestone of employment through
our Long Service Award programme, with
there now being 8 current UK employees who
have over 20 years’ continuous service.
Within OSB India, 60 employees reached a
5 or 10 year service anniversary in 2023 and
are one of over 150 OSB India employees with
5 or more years’ service, or over 40 with over
10 years.
Each quarter, all employees within the Group,
are invited to nominate their colleagues
as part of our Galaxy Award Scheme.
Nominations are sought for five separate
categories, linking directly to each of our
Values with individual winners and runners-
up for each category determined by a
detailed process. Over 250 nominations were
submitted, with the details of all nominees
published on the Group’s intranet along with
details of the quarterly award winners and
their nomination rationale.
Additionally, our ‘Thank You’ facility
provided an opportunity for employees to
publicly recognise the contributions of their
colleagues with approaching 2,800 thank
you messages posted on the intranet.
Sustainability continued
Strategic Pillar – People continued
Colleagues continued
As an accredited Living Wage employer, we
ensure that all UK employees and regularly
contracted third party staff earn at least
the published Real Living Wage. In 2023, the
Group provided support to all UK employees
beneath the senior management level
through cost of living payments totalling
£1,200, with these payments not being pro-
rated to reflect either tenure or contractual
working hours.
We continue to encourage our employees
to hold shares in the Group for the long
term through our Sharesave Scheme, which
is offered annually to all UK employees.
The Sharesave Scheme allows employees
to save a fixed amount of between £5 and
£500 per month over a three-year period
and to use these savings at the end of the
qualifying period to buy shares at a fixed
option price. Over 650 employees joined the
2023 Sharesave scheme and, considering
the schemes launched in previous years, over
800 UK employees were Sharesave Scheme
members as at the end of 2023.
2023 saw the Group further enhance its
benefit offering through the introduction of
fully funded access to our BUPA Menopause
Plan, providing personalised treatment and
support for all UK employees going through
the menopause, regardless of age.
In addition, a comprehensive review of all
family and health related benefits was
undertaken with enhancements to paid
Maternity and Adoption Leave, Paternity
Leave, Emergency and Dependent Leave,
Miscarriage Leave and Fertility Leave being
communicated to UK employees along with
new policies and support relating to paid
Neonatal Leave and Carer Leave.
Training and development
The People Development team, based in both
the UK and India, concentrates on providing
learning and development opportunities for
all employees, using a mix of internal and
externally sourced content, delivered through
a range of media, including workshop and
digital formats.
1,370 separate internal workshops were
delivered by the People Development team
and the recorded number of training hours
averaged almost 4,750 hours per month,
significantly exceeding the amount of
internal training delivered during the previous
year and representing over 10 workshop
training hours per UK employee and over 50
hours per OSB India employee.
Continued focus was applied to our Fit to
Practice Scheme, requiring line managers to
undertake regular activities in terms of one
to one meetings, performance observations
and quality assessments. The scheme also
required managers to play a proactive role in
identifying development needs and providing
developmental feedback to continually
progress the competence levels of their direct
reports. The average activity completion
rate exceeded 95% for over 2,000
in-scope employees.
Monthly mandatory regulatory training
requirements were completed and we
launched an additional mandatory
e-learning module relating to Consumer
Duty, with a supporting workshop on this
topic being attended by over 870 employees.
Additional focus on enhancing customer
experience was demonstrated by way of
bespoke Vulnerable Customer training
delivered to almost 500 customer facing and
support staff. It was further supported by the
recruitment of 2 dedicated communications
coaches within OSB India.
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Overview
Strategic Report
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Financial Statements
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Sustainability continued
Strategic Pillar – People continued
Colleagues continued
Retention and progression
We have a genuine desire to retain, support
and develop our employees. Over 175 UK
employees were promoted to a more senior
grade (2022: 240), along with 120 employees
within OSB India (2022: 75).
We advertise vacancies internally to provide
career development opportunities for existing
employees with 28% of UK vacancies filled
by way of internal appointments and over
5% of vacancies at OSB India being filled by
existing employees.
At 9%, the UK regretted attrition rate1
was far lower than the 2022 rate of 13%
with the OSB India regretted attrition rate
reducing significantly from 24% in 2022
to 12%, comparing favourably with rates
within the local sector and demonstrating
both a strong culture and a compelling
employee proposition.
2023 saw a continued focus on leadership
development and our People Development
team delivered three bespoke programmes.
We saw 39 employees join our Future
Supervisors and Managers Programme, 61
current managers commence the Essential
Managers Programme and, among our more
senior managers, six individuals joined our
Stellar Leadership Programme.
1. Employees electing to leave the Group by way of
resignation, excluding those retiring or resigning
due to formal performance or absence process.
We continued our journey to become a truly
diverse and inclusive organisation, committed
to providing equal opportunities through
recruitment, training and development for
all employees.
We continued to support mental health and
well-being through the provision of advice
and workshops for employees and line
managers. We are pleased to have increased
our network of trained UK Mental Health First
Aiders to 48 as well as introducing a network
of 28 trained Mental Health First Aiders within
OSB India.
The Group published its Gender Pay Gap
Report in line with legislation that applies
to all UK companies with more than 250
employees. The full publication is available
on the Group’s website (https://www.osb.
co.uk/sustainability/our-colleagues)
and shows that OSB Group’s mean gender
pay gap as at the snapshot date of 5 April
2023 was 36.1%, reducing from the 2022
reported figure of 38.1%. Fundamentally, the
gaps relate to the structure of our workforce
and reflect the fact that we have more men
than women in senior roles and more female
employees undertaking clerical roles.
Whilst it is pleasing to see continued progress
across the Group, we are committed to
reducing these gaps further.
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Sustainability continued
Strategic Pillar – People continued
Colleagues continued
We recognise the need to improve our gender
balance and we made strong progress
against our published commitment that
we made as a signatory of HM Treasury’s
Women in Finance Charter. Our target
of 33% of senior management positions1
within the UK to be undertaken by female
employees was achieved by the end of 2023,
in line with our published commitment and
noting that there were periods during 2023
when 33% was exceeded. Enhancing gender
diversity will remain an area of ongoing
focus, through a renewed Women in Finance
Charter commitment of 40% of UK senior
management positions1 to be undertaken by
female employees by the end of 2026.
To support the ongoing progression of our
female employees, our People Development
function, in partnership with an external
provider, created our Women in Leadership
Programme with a group of 24 employees
and a further 7 senior female managers
joining a separate and more senior version of
the programme.
2023 saw an increased level of focus applied
to enhancing ethnicity diversity, particularly
in respect of the senior management
population. The Group increased its end
of 2022 position of just over 10% of senior
managers not identifying as white to 14%
at the end of 2023. Moving forward, and
in line with the Parker Review requirement
for all FTSE 350 companies, focus will also
be applied to the narrower population of
Executive Committee members and senior
managers who report directly to Executive
Committee members and to increasing the
ethnicity diversity of this population from an
end of 2023 figure of just over 12.5% to an
end of 2027 position of 14%.
Diversity and inclusion
We recognise the benefits that diversity
brings to the business. 2023 saw a significant
uplift in diversity, equity and inclusion (DE&I)
activity across the Group, with an increased
level of employee communications and
events enhancing awareness and celebrating
our differences. These events were often
aligned with the dates of national events
such as Pride, Black History Month, National
Inclusion Week and International Women’s
Day, with related activities being coordinated
by the internal Our Diversity Network made
up of passionate volunteers.
Additionally, an Inclusivity Survey was
completed by over 800 employees and the
Group partnered with Inclusive Employers
in order to undertake a comprehensive
external foundation assessment of our
approach to DE&I. These initiatives assisted
in the identification of areas where further
improvements can be made. A similar
external assessment was undertaken in OSB
India through Avtar, which also enabled the
identification of key actions to be progressed
moving forwards.
Anti-discrimination training was delivered
through an e-learning module in November,
with this being a mandatory requirement for
all line managers. All other colleagues were
provided with access to the module with
approaching 1,200 additional employees
taking the opportunity to complete this.
We continued to capture diversity data about
our UK colleagues within the Group’s HR
system and c.80% of colleagues submitted
some or all of their data across the broad
range of diversity categories, enabling us
to build an increasingly clear picture of the
diverse nature of our UK workforce and areas
which are under-represented.
Just over 9% of our UK employees work
under a formal flexible working arrangement
relating to part-time hours and over 100
additional employees compress their full-time
working hours.
At the end of 2023, around 56% of our
UK workforce was female as were 47% of
employees who joined during the year. In
OSB India, females constituted just over 40%
of all employees, with around 45% of starters
being female. In addition, 27% of our Group
Executive Committee were female.
The Group achieved all required targets in
respect of Board Diversity given that as of
31st December 2023, 50% of the OSB Board
members were female, of which two females
hold the senior Board positions of CFO and
Senior Independent Director. Additionally,
two members of the Board are from a
minority ethnic background.
For the CEO and CFO, gender and ethnicity
data is collated within the Group’s HR system,
in a manner consistent with all UK employees.
Both Board members who confirmed their
ethnically diverse status have self-reported
this to the Group HR Director within responses
required by the Parker Review (FTSE 350
Ethnic Diversity Submission for 2023).
1. Employees at grades A (Executive Director) to grade E
(including function heads with senior direct reports or
employees at specialist roles of a senior nature).
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Sustainability continued
Strategic Pillar – People continued
Colleagues continued
Number of Board Directors
(OSB Group)
Number of Directors of
subsidiaries
Number of senior
managers (not Directors)1
All other employees1
Male
Female
4
12
4
1
156
1,070
77
1,141
1.
Includes OSB, OSB India and CCFS. Senior managers
are employees within the Grade A to E population
Board Diversity
Gender
Men
Women
Number
Minority Ethnic
Background
4
4
1
1
Recruitment
Our Talent Acquisition teams ensure that
across all locations, internal recruitment
specialists provide bespoke support in
attracting high quality candidates for vacant
positions and, through robust and inclusive
interview and selection processes, assist in
making strong recruitment decisions.
During 2023, our Talent Acquisition teams
filled 1,068 employed vacancies, which
resulted in the Group welcoming almost
340 new UK colleagues and over 400 new
employees in India, with 160 roles filled
by internal candidates and the remainder
working their notice periods prior to joining
us. The Group had 2,459 employees at
the end of 2023, a 22% increase from the
previous year.
A key focus for our Talent Acquisition team
was again placed on proactively identifying
potential candidates directly and through
improved use of our website and external
job boards. One third of UK vacancies were
filled on a direct recruitment basis, delivering
a saving in excess of £1.4m on agency
recruitment fees. Within OSB India, almost
half of all the vacancies filled were because
of direct recruitment activity.
OSB India
OSB India, which is a wholly owned
subsidiary of the Group, is based in
Bangalore and Hyderabad and at the end of
2023 had 928 employees. OSB India supports
the Group across various functions including
Support Services, Operations, IT, Finance
and Human Resources, and is a holder of ISO
27001: 2013 certification, demonstrating high
standards of information security.
OSB India’s business continuity site in
Hyderabad was converted to a fully-fledged
operational site in late 2021. By the end of
2023, it had grown from 140 colleagues at
the end of 2022 to a population of 234.
In compliance with the Modern Slavery
Act, OSB India does not support excessive
overtime and all employees in India are
encouraged to work in accordance with
local legislation. Colleagues are provided
with a range of benefits which include 22
days of annual leave, 12 days’ sick leave and
cafeteria services.
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Sustainability continued
Strategic Pillar – People
Communities
An employee-led activation of our
Community Impact Strategy.
Over 46% of UK colleagues engaged in community-focused activities
through volunteering and fundraising.
Charity partners
In 2023, we worked closely with two key
charities, leveraging our strong relationships
to align our colleague and community plans
to amplify our impact for two key themes:
youth wellbeing and homelessness.
Depaul, our Corporate Charity partner, helps
young people live fulfilling, independent lives
away from the dangers of homelessness.
Demelza, our longer-term charity partner,
supported in part by our dedicated Demelza
Children’s Savings Account, provides end-of-life
care to children and support for their families.
Depaul benefitted by:
£82,985
Demelza benefitted by:
£74,628
Total benefit to all
charities/organisations:
over £288k
2022: over £220k
OSB India
OSB India operates to India’s mandated
requirements in terms of Corporate
Social Responsibility.
Whilst the legislation requires companies
to spend 2% of their net profit on social
development, OSB India has doubled that and
delivered support to vulnerable people and
causes in their local communities in 2023.
Our OSB India teams have helped
provide education to orphanages and
government schools, and healthcare
equipment to hospitals in economically
disadvantaged communities.
Sponsorship
We use sponsorship, delivered through our
Kent Reliance and Charter Savings Bank
brands, to connect with local communities,
and support those who are underserved,
underprivileged and overlooked in society.
We think of these sponsorships as
partnerships where we work together to
bring the most value to our communities,
our colleagues who volunteer their time,
and to our customers, who recognise
the value in saving or borrowing with an
ethical company.
The Blisters of Mercy team receiving their winners’ medals from Depaul’s Chrissie Reed
Depaul Nightstop Step Challenge
To officially kick off our partnership with
Depaul, we announced the launch of our
Nightstop Step Challenge.
Depaul’s core mission is to end
homelessness; they do this by providing
a variety of important services to
young people who are experiencing
homelessness, or at risk of becoming
homeless. One such service is Nightstop.
With over 30 locations across the UK,
Nightstop volunteers open their homes to
young homeless people facing a night on
the street or sleeping in an unsafe space.
It is a unique project that relies on
community hosts to provide safe,
welcoming places for young people
in crisis.
We called on colleagues to join us on
a virtual walking tour across the UK.
Starting in Ynys Mon, and ending
in Aberdeen, we went on a 1,300
mile journey of discovery, via key
Nightstop locations.
Over four weeks, 61 teams competed to
see who could take the most steps and
reach the furthest Nightstop. By the end,
over 76 million steps had been taken
equating to 37,977 miles walked.
And importantly, over £4,000 (including
our fund-matching donation) was raised
by our teams and donated to help
Depaul continue their important work.
The Nightstop Step Challenge
has been a hugely successful
initiative that has benefited
both our employees and
charity partner, Depaul UK.
I thoroughly enjoyed seeing
the progress updates and acts
of team engagement (and
competitiveness) throughout
the challenge all of which
raised a significant sum
of money.
Neil Richardson,
Chief Sustainability Officer
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87
Sustainability continued
Strategic Pillar – People
Communities continued
Volunteering
In 2023, we doubled the amount of volunteering
hours available to our employees, which was
utilised by a large section of the Group.
Good Causes Fund
Our Good Causes Fund welcomes applications
from our employees for a charity, a cause, or
local community initiative to receive a donation
of up to £500.
Match funding
We match all money raised by our employees
on a pound for pound basis (up to a maximum
of £1,000) for events that support Depaul, our
corporate charity partner, and match up to
£250 per event per individual that raises funds
for other UK charities and good causes.
Total Volunteer Hours:
4,998
129% increase on 2022
Good Causes Fund payout:
£40,250
target exceeded by 70%
Total match funding:
£41,079
Jon Hall (Group Managing Director, Mortgages & Savings) and Christina Fasoli (Branch Manager)
at the end of their 183 mile cycle ride from Paris to Sittingbourne in Kent
Cycling duo raise £10,000 for
Demelza Children’s Hospice
To show their support and raise valuable
funds for the Demelza Children’s Hospice,
two of our colleagues completed a gruelling
3 day, 183 mile challenge of cycling from the
Eiffel Tower in Paris to the Demelza hospice in
Sittingbourne, Kent.
The pair raised over £6,000 by the time they
arrived in Kent which, with Demelza being a
key partner, the Group topped up to reach
their £10,000 target.
OSB does so much for Demelza, we are
incredibly lucky to have their support.
The staff get involved at all levels –
volunteering to help at events, getting
us tickets for days out for Demelza
families and so much more.
Jon and Christina have taken on this
epic challenge to raise money for us
and we could not be more grateful. We
cherish the relationship that we have
with OSB and their staff.
Louise Earl, Corporate Partnerships
Account Manager at Demelza
Having spent time helping at the
hospice in Sittingbourne and seeing the
amazing work the Demelza team do, I
was keen to do more to help, and my
experience there helped me throughout
the cycling challenge! The support
has been amazing and updates on
donations really helped us push on.
Christina Fasoli,
Canterbury Branch Manager
This has been a huge challenge for us
both and crossing the finishing line along
with the other cyclists was really moving.
Powered by a great deal of adrenaline,
news of the donations coming in and
some extra help from energy gels, we’ve
completed 183 miles for this amazing
charity who do wonderful work across
the southeast of England. Thanks
to everyone who has donated and
supported us on this journey!
Jon Hall, Group Managing Director,
Mortgages & Savings
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Sustainability continued
Strategic Pillar – Stewardship
Three Lines of Defence (ESG)
ESG Governance
At OSB Group, we have a strong approach
to stewardship, with a commitment to
operating responsibly, ethically,
transparently, and delivering sustainable
value for all of our stakeholders.
ESG Governance is crucial in the context of
stewardship, helping support the integration
of ESG into strategic decision making and
ensuring that our operation aligns with
sustainable practices, social responsibility
and ethical conduct.
The Board recognises its responsibility for
providing oversight of the ESG Strategy (see
Three Lines of Defence table) and for setting
the vision on how we conduct business,
enhance stakeholder value and fulfil our
regulatory obligations.
A Board-approved ESG Strategy continues
to support the proportionate management
of ESG risk and delivery of our strategic
opportunities and initiatives targeted to
positively impact our stakeholders.
The Board oversaw the development, review
and approval of the following key areas of
governance in 2023:
• ESG Operating Framework
• Materiality assessment
• ESG risk and opportunity analysis
(non-financial)
• ESG balanced scorecard measuring
performance against internal ESG targets
• ESG performance linked to Executive and
senior management remuneration (see
Remuneration Report on pages 147 -177)
• Climate Risk Management Framework
• ESG metrics policy
• Net-zero Banking Alliance intermediate
targets for financed emissions
• Diversity, equality and inclusion strategy,
community impact strategy, and people
and culture strategy.
The Group supplemented its existing ESG
governance structures by establishing
the following:
ESG Action Group
This supports the delivery of the ESG strategy
and ensures that the Group is prepared
to meet all relevant legal and regulatory
requirements pertaining to ESG and reports
into the ESG Technical Committee.
Three Employee Engagement
Networks: Our Planet, Our Diversity
and Our Community
These networks aim to promote awareness
and engagement, provide platforms for
shared experience, and encourage Group-
wide communications and initiatives.
Third line
of defence
Second
line
of defence
Internal Audit
Group Board
Group Audit
Committee
Group Risk
Committee
Group Nominations and Governance Committee
Group Executive Committee
Risk and Compliance Committee
ESG Technical Committee
m
a
e
T
G
S
E
ESG Action Group
First line
of defence
All business
functions
Escalation
by the ESG
Team based
on defined
ESG strategy,
risk appetite
and metrics.
Employee engagement networks
(Our Planet, Our Diversity and Our Community)
Key:
Reporting, first line risk management and coordination
Governance and oversight
Execution
Contents Generation - Section
Delivering positive customer outcomes
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
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Sustainability continued
Strategic Pillar – Stewardship
Customers
Consumer Duty
In 2023, the Group implemented the FCA’s
Consumer Duty regulation to enhance
consumer protection by promoting fair
treatment, transparency and accountability.
We seek to prioritise consumer interest,
providing clear and understandable
information, offering suitable products
and services and addressing customers’
needs fairly and promptly.
Group Complaint Handling policy
The Group Complaint Handling policy aligns
with regulatory expectations, emphasising a
customer-centric approach. We investigate
complaints diligently and impartially,
supported by adequately trained employees.
The process ensures accessibility for all
customers, including those in vulnerable
circumstances, offering a tailored service
and equal opportunities to raise concerns.
The main policies which govern how we
transact with customers are detailed in the
following sections.
Lending policy
The Lending policy establishes responsible
lending parameters aligned with our credit
risk appetite and set criteria. Approval for
policy changes rests with the Group Credit
Committee, escalating material changes to
the Group Risk Committee. Credit Quality
Assurance acts as a second line of defence,
monitoring policy adherence through risk-
based sampling.
Control mechanisms, including system
parameters and underwriting processes,
prevent breaches of lending parameters.
Our affordability approach reflects recent
cost of living changes, ensuring an updated
assessment of a customer’s creditworthiness.
Complaint performance data is integrated
into management information for
Management Committees and the Board,
supporting informed decision-making.
Group Customer
Vulnerability policy
Our Group Customer Vulnerability policy
establishes standards and an approach
for identifying and supporting vulnerable
customers, ensuring consistently fair
outcomes throughout the Group.
Regular reviews by the Vulnerable Customer
Review Committee involve case studies,
monitoring best practices across diverse
customer journeys and sharing insights
with various customer-facing and second
line functions.
Group Arrears Management
and Forbearance policy
The Group Arrears Management and
Forbearance policy prioritises fair treatment
of customers facing financial difficulties,
proactively engaging with those showing
signs of potential distress.
Monitoring arrears rates occurs monthly
through the Group Credit Committee,
ensuring senior management oversight of
trends and mitigating credit risk associated
with potential losses from ineffective
customer account management. Reviewing
the forbearance and collection toolkit
ensures adequate support for customers
facing financial strain due to increased
mortgage payments.
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Group Vendor Management
and Outsourcing policy
Our Group Vendor Management and
Outsourcing policy establishes essential
requirements, enabling efficient management
of third-party relationships whilst ensuring
compliance with regulatory obligations.
It provides a framework for diligent
engagement and due diligence in overseeing
potential and contracted third parties.
The monthly Vendor Management Committee
ensures compliance with the policy and
assesses the performance of key third
parties. Regular reporting to the Group
Risk Committee and annual updates to the
Board provide assurance. Recognising the
significance of robust relationships with
third parties and potential reputational
risks, we actively monitor their adherence
to our standards to fulfil our obligations
to stakeholders.
The Vendor Management Team engage with
vendors identified as carrying an increased
inherent ESG risk through surveys.
The surveys seek to determine awareness
of ESG issues and the controls in place to
manage them.
Sustainability continued
Strategic Pillar – Stewardship
Ethical practices
In 2023, the Group became a signatory
of the UN Global Compact to further
demonstrate our commitment to
sustainability and to uphold the principles
related to human rights, labour, environment
and anti-corruption.
The Vendor Management team identified
a core number of suppliers who we believe
carry an elevated level of inherent risk. The
team engaged with them to understand how
they manage key areas such as the risk of
modern slavery, human rights and human
resource management, health and safety, as
well as environmental management.
The main policies which support our
approach to stewardship are as follows:
Modern Slavery Statement
and Code of Ethics
Our Modern Slavery Statement and Vendor
Code of Conduct and Ethics articulate
our actions to combat modern slavery and
human trafficking risks within our operations
and supply chains.
The UK Vendor Code of Conduct and Ethics
(UK VCCE) is distributed at new vendor
engagements and annually to existing
vendors, encompassing provisions on our
values, diversity and inclusion, human rights
and breach reporting procedures.
To address the highest modern slavery risks
in our supply chain, Indian operations,
and employment processes, our Vendor
Management team rigorously tests key
controls within the Vendor Management Risk
Assessment Matrix.
Robust breach reporting procedures are in
place, with no reportable incidents in this
financial year.
Group Whistleblowing policy
Our Group Whistleblowing policy aims to
foster an environment where all employees
and concerned parties feel encouraged to
report any serious wrongdoing promptly.
Whistleblowing cases are handled with
fairness and consistency, prioritising the
protection of individual whistleblowers.
Regular Whistleblowing Reports are
presented to the Group Audit Committee,
and an Annual Whistleblowing Report
is provided to the Board. There is a
designated Non-Executive Director
whistleblowing champion.
Group Anti-Bribery
and Corruption policy
Our Anti-Bribery and Corruption policy
dictates our commitment to conducting
business honestly and ethically, maintaining
a zero-tolerance stance against bribery
and corruption. It serves as a guideline for
employees, contractors, and third-party
service providers to ensure ethical conduct
in compliance with local laws across our
operational jurisdictions.
This policy is an integral part of our
Group Financial Crime Risk Management
Framework, subject to an annual review and
approval by the Group Audit Committee.
Mandatory anti-bribery and corruption
training is part of the broader financial
crime training for all employees, whilst its
requirements are integrated into our Vendor
management and outsourcing policy.
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An accountable Executive oversees the Health
and Safety policy, annually reviewed by
an external adviser before Board approval.
Monthly dashboards shared with the Board,
along with an annual health and safety
report, present pertinent statistics.
Risk assessments across the Group are
completed annually, complemented by
mandatory health and safety training for
all employees. Continuous updates on the
Group intranet aim to bolster health and
safety awareness, mitigating potential
injury risks to employees and customers in
the workplace.
Sustainability continued
Strategic Pillar – Stewardship
Conflicts of Interest policy
Our Conflicts of Interest policy prioritises
identifying and managing conflicts whilst
striving to prevent them where feasible. It
undergoes an annual review by the Group
Executive Committee and is integrated into
mandatory financial crime training for all
employees, and is woven into our Vendor
Management and Outsourcing Policy,
ensuring a comprehensive approach.
Group Compliance function oversees
the conflicts of interest register, reviewed
quarterly by the Group Conduct Risk
Management Committee and annually by
the Group Nomination and Governance
Committee for Executives and Directors.
No material issues or breaches of this policy
occurred in 2023.
Fraud policy
Our Fraud policy ensures compliance with
legal requirements, establishing controls to
mitigate fraud risk. It fosters a zero-tolerance
approach to fraud whilst acknowledging its
possibility in business operations.
Mandatory fraud awareness training is
part of our annual financial crime training
for employees.
A dedicated Group financial crime team
investigates potential fraud incidents and
takes recovery actions, when necessary, with
various committees regularly monitoring and
reviewing fraud reporting.
Anti-money Laundering
and Counter Terrorist
and Financing policy
The Group’s Anti-money Laundering and
Counter Terrorist Financing policy outlines
the responsibilities of senior management,
the Money Laundering and Reporting
Officer (MLRO) and all colleagues. It
mandates integrity from every individual,
with zero tolerance for breaches of anti-
money laundering or counter terrorist
financing legislation.
Mandatory anti-money laundering and
counter terrorist financing training for all
employees aligns with our broader financial
crime risk management approach.
Acknowledging inherent risk exposure
as a financial services provider, senior
management reviews key risk and
performance indicators, providing
management information for visibility
into our exposure to financial crime.
Group Health and Safety policy
Our Group Health and Safety policy
delineates our approach and statutory
responsibilities, ensuring compliance
with legislation to safeguard employees,
customers and all impacted by our
operations. It prioritises providing a secure
environment for everyone involved.
We uphold a stringent stance on compliance,
regularly testing a range of controls to ensure
their efficiency, all subject to independent
oversight. The health and safety working
group convenes biannually to review policy
objectives, reporting any pertinent issues to
operational risk.
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Sustainability continued
Strategic Pillar – Stewardship
Tax
We recognise that our tax contributions make an important social
and economic impact, benefiting the communities we operate in by
delivering valuable public services and building infrastructure that
allows communities to thrive.
The Group is proud to make a significant UK tax contribution each year and in 2023,
the Group contributed £170.3m (2022: 204.6m).
Taxes paid
Corporation Tax
Bank surcharge
Irrecoverable VAT
Employer’s NIC
Other
Total taxes paid
Taxes collected
Income tax
Employee’s NIC
VAT
Total taxes collected
Total tax contribution
2023
£m
92.6
10.2
22.1
10.8
2.3
23.2
5.3
3.8
£m
138.0
32.3
170.3
2022
£m
111.9
30.2
16.7
9.5
2.2
25.0
6.0
3.1
£m
170.5
34.1
204.6
The Group is open and honest in all dealings
with tax authorities in both the UK and
India. In the UK, we have signed up to the
Banking Code of Conduct and follow both
the spirit and the letter of tax law. Our tax
strategy can be found at www.osb.co.uk/
sustainability/tax-strategy.
Group Data Protection policy
Our Group Data Protection policy establishes
adequate policies and procedures for
compliance with the UK General Data
Protection Regulation (GDPR) and the Data
Protection Act 2018. It delineates necessary
steps for processing personal data.
All of our subsidiaries (including those
incorporated in Guernsey and Jersey) are tax
resident in the UK, with the exception of OSB
India Private Limited which is tax resident in
India and pays all appropriate taxes in India.
Respecting and safeguarding the privacy
and security of personal information is
fundamental, and we consider robust privacy
practices integral to corporate governance
and accountability.
The Group Data Protection Officer
reports biannually to the Group Executive
Committee and the Board, ensuring
compliance with legal requirements and
the Data protection policy.
We do not use tax havens for tax avoidance
or any other purposes.
Group Operational
Resilience policy
Our Group Operational Resilience policy
outlines the approach and expectations of
the Group in establishing and enhancing
resilience levels, recognising operational
resilience as a focal point.
The policy details the Group’s adherence to
relevant UK regulatory requirements (e.g.
the Financial Conduct Authority (FCA) and
Prudential Regulation Authority (PRA)) and
alignment with industry standards. This
includes the March 2021 published FCA
and PRA policies on operational resilience,
mandating firms to adopt a proactive
approach to preventing service disruption
and ensuring robust planning and testing for
effective response to disruptive incidents.
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OSB Group cyber security strategic objectives
OSB Group Information Security has adopted a centralised security model to support the Group with targeted investments that deliver the
necessary security services, operating model, policies and standards to align with the Group’s risk appetite.
Strategic capabilities
Key objectives
1
Security engineering
and operations
• Provide informed and reliable project support and security administration
• Ensure sustainable risk reduction through effective security capabilities
• Deliver information security initiatives
O
S
I
C
2
Cyber readiness
• Proactively identify and assess relevant cyber threats to protect the Group and its brands
• Enable the Group to protect its assets and securely deliver its services through proactive
monitoring and incident response plans to minimise business disruptions
3
Information Security
governance
and compliance
• Enable proactive identification, assessment, monitoring, reporting and mitigation of IT risks
• Monitor and manage IT controls to ensure effectiveness
• Align the Group with regulatory requirements
Sustainability continued
Strategic Pillar – Stewardship
Cyber security
Cyber risk is one of our top
considerations.
The Group’s cyber resilience programme is
delivered and governed through a joint effort
between the traditional three lines of defence
with reporting to governance committees
as well as at the Group Board. A dedicated
Chief Information Security Officer (CISO)
function and supporting teams ensures
the Group has the necessary subject
matter expertise and remit to drive cyber
improvements and risk reduction.
The OSB Group cyber programme is based
on established cyber risk and controls
frameworks (National Institute of Standards
and Technology, Microsoft cloud security
benchmark, Center for Internet Security)
and managed through a continuous
improvement schedule of activities to provide
effective counter-measures, monitoring
and incident response against current
and emerging threats.
This is further supported by membership
within the FS-ISAC industry (https://www.
fsisac.com/) consortium to provide critical
cyber intelligence and a cyber insurance
policy from leading insurers following their
assessment of the Group’s cyber security.
The Group also undertakes periodic
security testing and independent reviews
by specialised and CBEST-accredited third
parties to assess the effectiveness of its
cyber resilience operational and technical
capabilities required for regulated financial
services organisations.
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Task Force on Climate-Related Financial Disclosures
Listing Rule 9.8.6R (8) requires that the
Group provides climate-related financial
disclosures consistent with the
recommendations set out by the Task
Force on Climate-related Financial
Disclosures (TCFD).
The Board confirms that it has disclosed sufficient information to comply
with TCFD and Companies Act 2006 requirements as amended by the
Companies (Strategic Report) (Climate-related Financial Disclosure)
Regulations 2022. The Group will continue to enhance these disclosures
over time in line with regulatory expectations and emerging best practice.
The Group remains committed to playing a
leading role in addressing climate change
and achieving our ambition of net zero
emissions across our broader business
activities by 2050.
The Board is conscious that regulatory
expectations and industry best practices
continue to evolve and further work is
required to enhance our climate risk
operating model.
Through the Group’s membership and
involvement in several initiatives including
the Net Zero Banking Alliance (NZBA), we
continued to support the wider efforts of the
financial services industry to minimise the
impact it has on climate change.
Throughout the year, the Group focused
on planning how we can reduce the
environmental impact of our own operational
footprint and how we can support the
decarbonisation of the UK housing stock we
finance, whilst developing our first Climate
Transition Plan.
The disclosures below were drafted to be
consistent with TCFD recommendations and
provide transparent reporting to assist our
stakeholders in understanding the impact of
climate change on the Group. The current
assessment indicates a low climate risk impact
to the business, however we remain cognisant
that climate risks may evolve over time.
In the table below, we describe the progress
made against each TCFD pillar during 2023
and the actions planned for 2024.
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Task Force on Climate-Related Financial Disclosures continued
Governance
Achievements
Opportunities for 2024
Further details
1) Board oversight of climate-related risks and opportunities:
• All Committee and Board papers continued to provide an environmental impact assessment to allow the Directors to consider any
climate-related risk impacts or implications to the Group’s stated climate ambitions. Climate risk and Environmental, Social and
Governance (ESG) matters are key considerations to the Group’s strategy for which the Board assumes responsibility.
• Deliver further enhancements to the Group’s climate-related
internal expertise to ensure effective oversight of climate-
related risks.
• In addition to its direct oversight, the Board delegates responsibility for the Group’s climate-related risk appetite, risk monitoring,
• Further develop the Group’s climate risk strategy and
provisioning and capital and liquidity management to the Group Risk Committee. The setting of climate risk appetite limits is a key tool
utilised to ensure that the Group’s risk profile continues to be managed to an acceptable level, whilst the Group’s climate risk Internal
Capital Adequacy Assessment Process (ICAAP) ensures that the Group continues to hold sufficient capital to address climate specific
risks to which it may be exposed.
• During 2023, the Group Audit Committee continued to monitor the Group’s compliance with TCFD requirements and the commitments
made as a member of the NZBA.
monitor its adherence by setting and monitoring climate-
related risk performance targets.
• Deliver further enhancements to the Group’s climate
financial risk appetite framework, which will result in
enhanced monitoring of the Group’s climate risk profile.
• Provide training as part of the Group’s Climate
• During 2023 Kal Atwal (Non-Executive Director) assumed responsibility for overseeing ESG matters on behalf of the Board, taking over the
Transition Plan.
role previously held by Sarah Hedger (Non-Executive Director).
See Corporate Governance
Report pages 105-135 and
the Sustainability Report
page 88.
• The Board considers and approves emission reduction goals and targets in line with the Group’s net zero by 2050 commitment.
• The Group Remuneration and People Committee integrated greenhouse gas (GHG) emission reduction targets into the Balanced
Business Scorecard (BBS) with performance against these targets presented to the Board on a regular basis (see metrics and targets for
further details).
• During 2023 the Group Executive Committee met on monthly basis, receiving emissions performance information and ad hoc papers
from the ESG Technical Committee on a periodic basis as required.
2) Management’s role in assessing and managing climate-related risks and opportunities:
• The ESG Technical Committee is a Management Committee who report into the Group Executive Committee. During 2023 the Committee
met on at least a bi-monthly basis, ensuring effective identification and management of climate-related risks and goals. The Committee’s
output is summarised and shared annually with the Board for consideration.
• Further embed climate risk considerations within the
Group’s other sub-risk management frameworks,
where required.
None.
• During 2023 the Group established a Climate Transition Working Group, to act as the forum that oversees the implementation of the
• Progress towards reducing the Group’s direct
Group’s Climate Transition Plan and production of required disclosures, whilst providing regular updates to the ESG Technical Committee
on progress against planned objectives.
• Climate risk continues to be recognised as an enterprise risk and forms part of the Group’s overarching Enterprise Risk Management
Framework (ERMF), with a dedicated Group Climate Risk Management Framework which articulates how the Group identifies, monitors,
and manages climate risks. This framework was enhanced and further embedded during 2023.
• The Chief Sustainability Officer is responsible for ensuring the Group’s strategy is aligned and consistent with the various climate-related
initiatives across the Group as well as ensuring that the Group is well positioned to meet its ESG reporting objectives.
• Annual GHG intensity reduction targets (Scope 1 and Scope 2) continue to be included in the personal objectives of the CEO and CFO
as well as the BBS. Integrating targets into remuneration is expected to reduce the Group’s emissions over time aligned to the Group’s net
zero commitment.
• A review of existing risk management frameworks across principal risk areas was conducted to ensure that climate risk is appropriately
embedded and monitored.
emissions targets.
• Continue to monitor and manage performance against
established emission reduction targets for financed
(mortgages) and operational emissions.
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Achievements
Opportunities for 2024
Further details
Strategy
See analysis on pages 51
and 102.
3) Climate-related risks and opportunities identified over the short, medium, and long-term:
The Group determined the following as relevant and/or material risks to be reviewed annually:
• Further expand the Group’s scenario analysis to a wider
range of transition risks.
• Launch further climate-friendly products, utilising the full
range of the Group’s brands, whilst being cognisant of any
conduct risks.
• Consider the Group’s climate financial risks within the
Group’s planning processes.
Time periods considered are defined as short term 0-5 years, medium term 5-10 years and long term greater than 10 years. The short-term
time horizon aligns to the Group’s planning and ICAAP stress testing assessment periods. The long-term time horizon has been utilised
within scenario analysis to assess climate risks which may occur over a longer time frame. The medium-term horizon therefore, relates to
risks and opportunities which are inside our long-term assessment horizon, but sit outside of our short-term assessment period.
The Group’s lending is to individuals and small and medium enterprises in the UK, where the specific climate risks and opportunities are
assessed. The Group’s operational sites in both the UK and India (OSBI) are exposed to similar climate risks. Currently, the Group does not
deem it necessary to describe risks and opportunities by geography. The Group provides lending in the UK primarily against residential
and commercial properties, with low exposure to non-property collateral backed funding lines or asset finance lending which is typically
secured against hard assets, and therefore does not have significant credit exposure to carbon related assets.
Risks
Lending
Physical risk (long term)
Changes in precipitation patterns and extreme variability in weather patterns, rising mean temperatures and rising sea levels
The Group primarily lends on residential assets, either for owner occupation or for investment by professional landlords. The Group
undertook the annual scenario analysis of its portfolio using best-case and worse-case scenarios to determine the level of exposure to
climate-related risks. The key physical risks used for scenario analysis are flooding, subsidence and coastal erosion in the long-term (> 10
years), which considers the behavioural and contractual life of the Group’s primary lending types.
Transition risk (short term)
Policy and legal – mandates on and regulation of existing products and services
Energy Performance Certificate (EPC) rating requirements are considered a key transitional risk in the short term (0-5 years). The Group’s
current exposure to transition risk as a proportion of the total lending is relatively small.
Uncertainty in market proposition
Commissioned research indicated varying levels of awareness amongst borrowers around climate change, mitigation, support available
and understanding of EPC ratings. There is a potential risk that landlords might be leaving or not entering the market if climate risks make
investment less attractive.
Policy and legal – exposure to litigation.
Reputational – increased concern or negative feedback from the Group’s stakeholders.
Operations
Physical risk (long term)
Increased severity of extreme weather events such as cyclones and floods. The Group’s operations in the UK and OSBI could be impacted
by an increased number or severity of extreme weather events. Increased costs may be incurred during the period in which operational
processes are recovered.
Transition risk (long term)
Increased pricing of GHG emissions, enhanced emissions-reporting obligations
The Group offsets its Scope 1, Scope 2 and some Scope 3 categories (seen note below) on an annual basis, whilst it aims to reduce total
emissions. It is expected that the cost of offsets from the voluntary carbon market will increase significantly towards 2030. In addition, it is
reasonable to anticipate that the government may introduce policy mechanisms to penalise fossil fuel use in support of the government’s net
zero ambitions.
Note: offsetting covers Scope1, Scope 2 (market-based) and UK Scope 3 (business travel, waste from operations, energy related activities
not reported in Scope 1 and 2 and OSBi operations (purchased electricity – market based), gas oil, fugitive emissions, employee community
and upstream leased assets) for the year ended 31 December 2023.
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Opportunities for 2024
Further details
3) Climate-related risks and opportunities identified over the short, medium, and long-term: continued
Opportunities
Lending
Products and services (short term)
• increased revenue through demand for lower emissions products and services.
• improved competitive position to reflect shifting consumer preferences, resulting in increased revenues.
• Expand the Group’s scenario analysis to a wider range of
None.
transition risks.
• Identify climate-friendly products, using the full range of the
Group’s brands, whilst being cognisant of any conduct risks.
• Provide further thought leadership and broker/borrower
• green financing and lending products have the ability to finance retrofit new build projects that increase carbon efficiency or reduce the
education and awareness.
carbon footprint of investments contributing to real economy decarbonisation, and the Group’s ambitions and commitments.
• Consider the Group’s climate financial risks within the
• The Group undertook and commissioned research in the mortgage market in late 2022 to fully understand broker and customer
Group’s planning processes.
perceptions, attitudes and knowledge in this area, and will regularly refresh the research to identify solutions that allow the market
to meet the government’s climate change commitments. The research was utilised in 2023 to support development of the Group’s
transition plan.
Resilience (short term)
Increased revenue through new products and services
Transition planning is a significant focus for regulators and continues to gain the attention of shareholders. Suitable planning supports the
ongoing resilience of the Group as a specialist lender.
Operations
Resource efficiency (short term)
Reduced operating costs (e.g. through efficiency gains and cost reduction)
Increasing the Group’s energy efficiency is an opportunity that will reduce the ongoing operating costs of electricity and natural gas,
which are the key drivers of Scope 1 and Scope 2 emissions. Increased efficiency also provides a level of protection against the current
uncertainty of energy security and pricing.
Energy source (short term)
Use of lower-emission sources of energy, use of supportive policy incentives
The use of low or zero carbon technologies is likely to reduce operating costs associated with carbon intense energy sources over the
medium to long-term and the need to fund offsetting. The Group will also be afforded a level of protection from fossil fuel price increases.
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Task Force on Climate-Related Financial Disclosures continued
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Achievements
Opportunities for 2024
Further details
4) Impact of climate-related risks and opportunities on the Group’s businesses, strategy, and financial planning:
• Climate-related risks and opportunities are part of a wider ESG risk and opportunity analysis. The impact and importance of risks and
opportunities are determined based upon a quantitative assessment where data is available, or a qualitative assessment of the potential
for growth or cost management and the degree of importance to stakeholders.
• Enhance the Group’s approach to defining the impact of
climate-related risks and opportunities beyond current
scenario analysis of physical and transitional risks.
• During 2023, further progress was made in managing risks and developing potential areas of opportunity with respect to products and
services, the supply/value chain mitigation activities and operations. The Group’s current strategy and simple business model mean that
risks and opportunities relating to investment in research and development, acquisitions and access to capital are deemed non-material
and therefore were not areas of focus for 2023.
• Identify and develop further opportunities in relation to
products and services, the Group’s supply chain where
further improvements in the Group’s climate risk profile can
be delivered.
• The Group developed its first Climate Transition Plan which sets out the roadmap and steps the firm intends to take in progressing
towards its committed emission reduction targets.
• In 2023, the Group re-measured its Scope 3 financed emissions using the Partnership for Carbon Accounting Financials (PCAF)
methodology. The PCAF calculation covers the mortgage portfolio as the largest asset class. It does not cover non-mortgaged portfolios
or securitised loans.
• The Group’s financial plans are set on an annual basis and are reviewed and refreshed quarterly. They consider, among other matters,
the Board’s risk appetite, macroeconomic outlook, market opportunity, the competitive landscape and sensitivity of the financial plans to
volumes, margin pressures and any changes in capital requirements. For the 2023 financial plans, the Board considered all principal and
emerging risks including climate risk, where the risk is likely to emerge, outside of the viability assessment horizon.
• Continue to monitor and manage Scope 3 financed
emissions against agreed targets.
• Consider opportunities such as green funding, green
savings, securitisation, climate risk underwriting criteria and
ESG awareness campaigns to pursue the most impactful
opportunities and support customers in their transition.
• Formalise and include climate-related inputs into the
financial planning process.
See Climate Transition Plan
on the Group’s website.
See Sustainability Report
pages 69-80 for further
details.
See Risk review on page
51 for further detail on the
impact of the climate risk on
the business.
5) Resilience of the Group’s strategy taking into consideration climate-related scenario analysis:
• The Group’s ICAAP considers the resilience of its strategy and loan portfolios to climate risks such as floods, coastal erosion, subsidence,
and minimum EPC ratings. The latest ICAAP assessment indicated that the Group has a low risk to climate change, and its strategy and
business model performs resiliently across a number of climate scenarios. See Scenario Analysis section for more information.
• Further leverage the results of the Group’s ICAAP climate
risk assessment and risk appetite analysis to inform go
forward climate risk management strategy.
See Risk review on page
51 for further detail on
the Group’s approach to
analysing climate risk.
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Further details
Risk Management
6) Processes for identifying and assessing climate-related risks:
• Climate-related horizon scanning is in place to monitor regulatory or legislative changes which could impact the Group which feeds into
• Further engagement to ensure customers are being
the assessment of transition risks.
supported in reducing their carbon footprint.
• The Group’s risk function continues to assess climate risks against its key principle (traditional banking) risks and considers credit risk as
• Further enhance climate risk management information with
the key risk which could be adversely impacted by future climate change.
• Climate risk is also a consideration of the Group’s wider assessment of ESG risks and opportunities which uses the outputs of scenario
analysis to support the assessment of material ESG risks and opportunities, which further informs the ESG strategy. Within the context
of ESG risk and opportunities, potential impact on growth or cost management and the degree of importance to stakeholder groups
are assessed. Climate related topics are identified and considered from a wide range of global issues, industry, and sector specific
considerations, such as regulatory and disclosure requirements and Group specific inputs such as our Purpose, Vision and Values and
ESG Operating Framework and Strategy. The Group used the approaches and processes set out in the ERMF to identify and assess all
risks including climate risk.
• The enterprise risk register process allows the Group to consistently size, scope and reassess the relative significance of all risks including
climate risk, considering the likelihood and potential impact of the risk emerging to provide an inherent risk rating. Risk mitigants are
documented and constantly assessed and enhanced to ensure climate related risks are managed appropriately.
• Scenario analysis is used as a valuable tool to understand and inform the potential impact of climate change on the Group’s loan
portfolios. It consisted of climate change portfolio analysis (covering both physical and transitional risks), including an assessment of
EPC ratings in the UK.
ongoing trend and scenario analysis
• Embed climate risk into the Risk and Control Self-
Assessment (RCSA) process, which will enable the
identification of climate-related risks in a proactive manner
and embed the right climate risk behaviours across
the Group.
• Provide further Board training to assist with the ongoing
identification of climate-related risks.
See Risk review on page
51 and the Sustainability
Report on pages 72-78 for
more information.
7) Processes for managing climate-related risks:
• The existing lending policies and criteria help to manage climate risk across the Group’s loan portfolios i.e., setting out the EPC
• Continue to monitor the EPC profile of new originations
None.
requirements for Buy-to-Let lending. Flood, subsidence, and coastal erosion risks are in part mitigated by independent property
valuation, which forms part of the underwriting process.
and existing lending stock versus risk appetite and actively
manage the profile as required.
• Climate risk appetite statements and limits remain in place helping to inform the Group’s strategy and facilitate monitoring of the
Group’s climate risk profile.
• Climate-related horizon scanning is in place to monitor regulatory or legislative changes which could impact the Group and feeds into
the assessment of transition risks.
• Business continuity plans and disaster recovery plans were updated to reflect risks from extreme weather and establish appropriate plans
to mitigate the associated risks. Threat risk assessments are conducted on both UK and Indian sites annually to support the robustness of
business continuity plans.
• On an annual basis, the Group conducts a complete review of its loan book from a climate perspective. This enables the Group to
determine the potential impact of climate-related risks.
• The Group enhanced its risk and opportunity analysis for ESG matters in 2023 which included climate risk, physical and transitional
considerations, with the physical transition remaining a key focus.
• The Group aligned its scenario analysis processes with UKCP18 climate change predictions for the UK that were issued by the Met Office
in collaboration with other agencies.
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Achievements
Opportunities for 2024
Further details
8) Integrating climate-related risk processes into overall risk management:
• Climate risk was further embedded into the Group-wide ERMF via the operation of the Climate Risk Management Framework. During
• Create and implement a climate (and wider ESG) training
None.
2023 climate risk was further embedded within several wider sub-risk frameworks.
• The Group’s three lines of defence model continued to work effectively with a focused internal audit of the Group’s climate risk
management arrangements, which were reported as being fit for purpose.
plan to ensure that all relevant employees receive
appropriate training.
• Identify key roles where further or expanded knowledge or
competence is required to deliver on the Group’s ambitions
and commitments.
Metrics and Targets
Achievements
Opportunities for 2024
Further details
9) Metrics used to assess climate-related risks and opportunities:
The Group uses a variety of metrics to assess climate-related risks and opportunities and has considered all cross-industry metrics and has
determined the below to be the most important (further information of historical performance is detailed within the Sustainability section).
• Consider additional metrics and targets as the Group
continues its ESG journey and transition planning
Physical risk
• Properties within 1,000m of the coastline should the maximum emission scenario prevail, i.e. no climate action is taken and the worst-case
scenario prevails.
• Properties exposed to flood alert zones.
• Properties with a 0.5% exposure to subsidence risk within a 10-year term in the maximum emission scenario.
• Continue to manage the Group’s climate risk profile (both
physical and transition risks) in accordance with risk
appetite thresholds and limits.
• The Group will consider carbon pricing during the
implementation of the Transition Plan.
See Sustainability Report on
pages 72-78 for more detail
on historic performance and
future targets.
For portfolio metrics see
insights from our scenario
analysis page 102.
Transition risk
• Portfolio EPC distribution at levels F and G.
• GHG emissions are calculated using the GHG Protocol Corporate Standard and the Group’s criteria for reporting.
• Scope 3 financed emissions tonnes of carbon equivalent (tCO2e)/m2 using PCAF methodology.
• Scope 1 and 2 (location-based and market-based) absolute emissions in tCO2e by emissions source.
• Scope 3 categories 1-8 in tCO2e.
• Scope 1 and Scope 2 (location based) tCO2e as a proportion of full-time equivalent employees (FTE) per m2 of corporate real estate
under operational control.
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Task Force on Climate-Related Financial Disclosures continued
Achievements
10) Scope 1, 2 and 3 GHG emissions and the related risks:
Metrics and Targets continued
Opportunities for 2024
Further details
• Scope 1, 2 and 3 emissions have been disclosed (where relevant and available for Scope 3), emissions are calculated in line with the GHG
• Assess the risks and opportunities associated with
Protocol Corporate Standard. Criteria for reporting GHG emissions can be found on the Group’s website.
• Intensity ratios were established and reported on:
the Group’s Scope 1, 2 and 3 emissions in 2024 and
manage accordingly.
See Sustainability Report
on pages 72-78 for further
information.
• Scope 1 and Scope 2 (location based) tCO2e per FTE and per corporate real estate under operational control.
• Scope 1 and Scope 2 (location based) tCO2e per £m total income.
• Scope 3 – financed emissions only –kgCO2e per m2.
11) Targets used to manage climate-related risks and opportunities:
• In 2022, the Group committed to achieve net zero GHG emissions by 2050 in line with the 2015 Paris Climate Accord.
• Track performance against the agreed Climate Transition
• An interim target for financed emissions was set in 2022. The Group’s ambition is to reduce the intensity of emissions from mortgage
lending by 25% versus the Group’s 2022 baseline by 2030.
• The Group’s ambition is to reduce Scope 1 and 2 emissions (market based) to zero by 2030.
• For further details on how climate-related risks and opportunities are linked to Executives and senior managers’ remuneration,
see Director’s Remuneration Report on page 147.
Plan, taking management actions if required.
• Include GHG Scope 1 and 2 emissions reduction targets
in the Executive and senior managers’ long term
incentive plans.
• Consider further enhancing metrics and targets as risk
management and transition planning matures.
See Climate Transition Plan
on the Group’s website.
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EPC rating of the
Group’s portfolio
A 14.2%
B 26.4%
C 45.7%
D 12.1%
E 1.4%
F or G 0.2%
Task Force on Climate-Related Financial Disclosures continued
Insights from our scenario analysis:
impact on the Group
Physical risk
The Group’s physical risk profile remained
broadly stable during 2023, when compared
to 2022.
The physical impact of climate change on
our real estate portfolio across the UK is
expected to be limited.
Sensitivity analysis completed using RCP
scenarios on increases in global temperatures
by 2100, compared the least severe scenario
(RCP 2.6 – increase of 0.9ºC to 2.3ºC) to the
most severe (RCP 8.5 – increase of 3.2ºC to
5.4ºC).
At a Group level, the analysis shows that
the exposure to the probability of flood over
the next decade increases by 0.04% from
the best-case scenario to the worst-case
scenario, only 0.46% of the Group’s portfolio
is in an area with a flood risk greater than
20%. For subsidence, the increase from
best-case to worst-case increase is 0.05%,
with the portfolio risk of subsidence being
less than 0.5%. For coastal erosion, across
the Group over 92.6% of the portfolio is more
than 1,000 metres from the coastline. Of the
properties within 1,000 meters, only 121 are in
areas likely to experience coastal erosion.
Insights from our scenario analysis:
key drivers
OSB Group plc is a leading mortgage lender
predominantly in the professional Buy-
to-Let and specialist Residential market
sub-segments secured against residential
property. The Group also provides loans to
limited companies and individuals secured
against commercial and semi-commercial
properties, residential development financing,
funding lines to non-bank finance companies
and asset finance lending.
At present the Group has identified the
physical risks relating to flooding, subsidence
and coastal erosion reducing the value of
properties as well as the ability of borrowers
to afford or refinance their mortgages, as
the most material physical climate risks to
be assessed and managed. The Group has
also identified the transitional risks relating
to changes in regulatory policy resulting in
material levels of investment being required
to ensure minimum EPC requirements are
met. This spend for example, may be required
to ensure Buy-to-Let properties are eligible
to let, loan to value levels are not adversely
impacted, void periods and defaults do not
materialise which would result in loan losses
and higher capital requirements. As such
the Group considers the above risks as the
most material and therefore focuses on their
assessment, monitoring and management.
The climate risks relating to the Group’s
operational premises are considered less
material than the physical and transitional
risks to the properties which underpin the
Group’s loan portfolios.
Transitional risk
The Group observed marginal improvements
in EPC ratings for existing stock assessed
in both 2023 and 2022. In addition,
enhancements in the climate data processes
improved insight into the transitional
risk profile.
At a Group level, c.41% of properties (2022:
40%) have an EPC rating of C or better,
c.46% (2022: 45%) have an EPC rating of D,
c.12% (2022: 13%) an EPC rating of E and
c.1% (2022: 2%) have an EPC rating of F or G.
Of the properties with an EPC rating of D or
worse, c.92% (2022: 91%) have the potential
to reach at least an EPC rating of C.
Adverse movements in the EPC rating
distribution of the Group’s loan portfolios
and any potential change in government
policy have the potential to result in larger
future financial impact for the Group. To
mitigate this risk, the Group actively monitors
and assesses the possible financial risks
associated with the EPC rating distribution
of the Group’s loan portfolios and horizon
scans for any changes in regulatory or
governmental policy.
During 2023, the Group ensured consistency
between internal analysis covering the
setting of climate risk appetite, ICAAP and
other ad hoc analysis with data, scenarios
and assumptions used to support the
Group’s financial disclosures. The Group’s
current risk appetite, ICAAP and IFRS9
climate risk assessments have all indicated
that the Group is currently exposed to a
low climate related financial risk, using the
materiality assessment scale which supports
other financial disclosures within the Group’s
Annual Report and Accounts.
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
103
Non-financial and sustainability information statement
The requirements of sections 414CA and 414CB of the Companies Act 2006 relating
to non-financial reporting are referenced in the table below and are cross
referenced to relevant sections within the Annual Report to better understand the
impact and stakeholder outcomes across our range of policies and guidance.
Reporting
requirement
Policies, guidance and standards
Further information
to understand impact
and outcomes
Reporting
requirement
Policies, guidance and standards
Further information
to understand impact
and outcomes
Environmental policy
See page 75
Group Whistleblowing policy
See page 90
TCFD – Climate-related disclosures
See pages 94 - 102
Group Anti-Bribery Policy and Corruption policy
See page 90
Anti-Bribery and
Corruption
Conflicts of Interest policy
Fraud policy
Anti-Money Laundering and Counter Terrorist and
Financing policy
Group Operational Resilience policy
Cyber Security
See page 91
See page 91
See page 91
See page 92
See page 93
Environmental
Energy Policy
ESG Operating Framework
ESG Metrics policy
Group Flexible Working policy
Employees
Group DE&I Inclusion policy
Group Health and Safety policy
Group Data Protection policy
Tax
Lending policy
Social Matters
Group Complaint Handling policy
Group Customer Vulnerability policy
See page 74
See page 71 and 88
See page 88
See page 84
See page 84
See page 91
See page 92
See page 92
See page 89
See page 89
See page 89
Group Arrears Management and Forbearance policy
See page 89
Consumer Duty
See page 89
Human Rights
Modern Slavery Statement and Vendor Code of Ethics See page 90
Group Vendor Management and Outsourcing policy
See page 90
104
OSB GROUP PLC | Annual Report and Accounts 2023
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Strategic Report
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Financial Statements
Appendices
104
Non-financial and sustainability information statement continued
Reporting requirement
Description of the business model and strategy
Policy embedding, due diligence and outcomes
Description of the principal risks and impact of business activity
Description of the non-financial key performance indicators
Climate-related financial disclosures
Further information
to understand impact
and outcomes
See pages 12-17
See pages 70-103
See pages 53-61
See pages 3 and 35
Governance arrangements in relation to assessing and managing climate-related risks
and opportunities
See pages 88 and 95
Risk management processes for identifying, assessing and managing climate-related risks See pages 51-52 and 99-100
Climate-related risks and opportunities
Potential impacts on the business model and strategy
Targets used to manage climate-related risks and opportunities and performance against
those targets
See pages 96-97
See page 61
See pages 73-78
Key performance indicators used to assess progress against targets
See pages 73-87
OSB GrOup plc | Annual Report and Accounts 2023
Overview
Strategic Report
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Financial Statements
Appendices
105
Governance
corporate
Governance
report
106
Board of Directors
108 Group Executive Committee
110 Corporate Governance Report
131 Group Nomination and Governance
Committee Report
136 Group Audit Committee Report
143 Group Risk Committee Report
146 Other Committees
147 Directors’ Remuneration Report
178
Statement of Directors’ Responsibilities
179 Directors’ Report: other information
106
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Financial Statements
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106
Our Board of Directors
N
C
Re
C
M
C
David Weymouth
Chair of the Board
Tenure
6 years 4 months
Andy Golding
Chief Executive Officer
Tenure
12 years 0 months
April Talintyre
Chief Financial Officer
Tenure
11 years 7 months
Skills, experience and qualifications
David was appointed as Chair of OSB in
September 2017. He has over 40 years’
experience across many sectors in financial
services including serving as Global Chief
Information Officer for Barclays Bank plc
and Chief Operations Officer and Chief
Risk Officer for RSA PLC. David has served
as a non-executive director on a number of
boards in the UK and US, this has included
Chair of Fidelity Investments, Chair of Mizuho
International PLC and senior independent
director and Chair of Risk Committee at
Royal London Mutual Insurance Society.
David has a wealth of experience in
operations, technology, risk management
and board level leadership.
Current external appointments
David is Chair of Pension Insurance
Corporation PLC, Chair of Board Risk
Committee at Marsh UK Limited and Chair
of Remuneration Committee at Mizuho
International PLC.
Skills, experience and qualifications
Andy was appointed Chief Executive Officer
of OSB in December 2011. Prior to that
he was Chief Executive Officer of Saffron
Building Society for five years, and held
senior positions at National Westminster Bank
plc, John Charcol Limited and Bradford &
Bingley plc. Andy served as a non-executive
director for Kreditech Holding SSL GmbH
and Northamptonshire Healthcare NHS
Foundation Trust. He served as a member of
the Building Societies Association’s Council
and the Financial Conduct Authority’s
Smaller Business Practitioner Panel. Andy
is a highly regarded leader with a deep
understanding of banking and over 30 years’
experience in financial services.
Current external appointments
Andy is a director of the Building Societies
Trust Limited.
Skills, experience and qualifications
April was appointed as Chief Financial
Officer and to the OSB Board in 2012. She
was previously an Executive Director in the
Rothesay Life pensions insurance business
of Goldman Sachs Group and worked for
Goldman Sachs International for over 16
years, including as an Executive Director
in the Controllers Division in London and
New York. April began her career at KPMG
LLP in a general audit department. April
has broad financial services experience
and has been a member of the Institute
of Chartered Accountants in England and
Wales since 1992.
Current external appointments
None held.
Committee membership:
Chair of
Committee
N
Group Nomination and
Governance Committee
Re Group Remuneration
and People Committee
C Board Capital and
Funding Committee
M
Group Models and
Ratings Committee
A
Group Audit
Committee
Ri
Group Risk
Committee
Director tenures are as at 31 December 2023
N
A
Re
Ri
Noël Harwerth
Senior Independent Director
Tenure
6 years 7 months
Skills, experience and qualifications
Noël was appointed to the Group Board and
the position of Senior Independent Director
in October 2019. She was appointed to the
Board of CCFS in June 2017, assuming the
role of Senior Independent Director from
August 2017. She held several non-executive
board roles with Sirius Minerals plc, Standard
Life Aberdeen plc, RSA Insurance Group
plc, GE Capital Bank Limited, Sumitomo
Mitsui Banking Corporation Europe Limited,
Avocet Mining plc, Alent plc, Corus Group
plc, Logica plc, The London Metal Exchange,
Standard Life Assurance Limited and
Scotiabank Europe Limited. Noël also held
a variety of senior positions with Citicorp
for 15 years, latterly serving as the Chief
Operating Officer of Citibank International
plc. Noël has extensive experience in both
the public sector with government bodies
and the private sector with global banking
companies, which brings valuable insight to
the boardroom debate.
Current external appointments
Noël is a non-executive director of CAB
Payment Holdings plc and Crown Agents
Bank Limited and a member of the UK Export
Finance Board.
106
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Our Board of Directors continued
Re
N
A
Re
A
M
C
Re
Ri
M
A
C
Ri
Kal Atwal
Independent Non-Executive Director and
ESG Champion
Sarah Hedger
Independent Non-Executive Director and
People Champion
Rajan Kapoor
Independent Non-Executive Director and
Whistleblowing Champion
Simon Walker
Independent Non-Executive Director and
Consumer Duty Champion
Tenure
0 years 11 months
Tenure
4 years 11 months
Tenure
7 years 4 months
Tenure
2 years 0 months
Skills, experience and qualifications
Kal was appointed to the Group Board
on 7 February 2023. Kal has significant
experience as a non-executive director across
FTSE 100, FTSE 250 and mutual businesses
and was previously a non-executive director
of Admiral Financial Services Limited and
WH Smith PLC. At BGL Group, Kal was
Managing Director and became the founding
managing director of comparethemarket.
com, a division of BGL. Following promotion
to Group Director of BGL Limited, Kal was
responsible for brand-led businesses, group
strategy and corporate communications.
Kal is an experienced strategy leader with
international experience in start-up, scale-
up, fintech and digital businesses.
Current external appointments
Kal is a non-executive director of Royal
London Mutual Insurance Society Limited,
Whitbread Plc and Chair of FunkyPigeon.
com Limited, a subsidiary of WH Smith PLC.
Skills, experience and qualifications
Sarah was appointed to the OSB Board in
February 2019 and previously held leadership
positions at General Electric Company
for 12 years in its Corporate, Aviation and
Capital business development teams, leaving
General Electric Company as Leader of
Business Development and M&A for its global
GE Capital division. Prior to General Electric
Company, Sarah worked at Lazard & Co.
Limited for 11 years, leaving as Director,
Corporate Finance and also spent five years
as an auditor at PricewaterhouseCoopers
LLP (PwC). She served as an Independent
non-executive director of Balta Group NV,
a Belgian company listed on Euronext,
until December 2021 and as non-executive
director of GE Money Bank AB for 3 years
during her time at GEC. Sarah has significant
capital management and merger and
acquisitions experience in financial services.
Sarah qualified as a chartered accountant.
Current external appointments
None held.
Skills, experience and qualifications
Rajan was appointed to the Group Board
in February 2020 and the OSB and CCFS
subsidiaries in October 2019 and September
2016 respectively. He was Financial
Controller of NatWest Group (formerly
Royal Bank of Scotland Group) and held a
number of senior finance positions during
a 28-year career with NatWest. Rajan
has extensive experience of financial and
regulatory reporting in the UK and US with
a strong background in internal financial
controls, governance and compliance. Rajan
is a Fellow of the Institute of Chartered
Accountants and of the Chartered Institute of
Bankers in Scotland.
Current external appointments
Rajan is a non-executive director of Allica
Bank and Revolut Newco UK Ltd.
Skills, experience and qualifications
Simon was appointed to the Group Board
in January 2022. He joined KPMG in 1980
and was made a partner of the firm in
1992, going on to lead the firm’s National
Building Societies and Mortgage Practice
and subsequently became banking partner
in Financial Risk Management. Simon
graduated in Law from University College
London and is a qualified chartered
accountant. Simon was previously a
non-executive director of IWP (Holdings)
Limited and Leeds Theatre Trust Limited.
Simon has significant experience in financial
services and mortgages, SME lending, risk
management and regulation within the
banking sector.
Current external appointments
Simon is a non-executive director of H&T
Group plc and The Bureau of Investigative
Journalism.
108
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Our Group Executive Committee
Meet our strong leadership responsible for delivering the Group’s strategy
Jens Bech
Group Commercial Director
Jason Elphick
Group General Counsel
and Company Secretary
Jon Hall
Group Managing Director,
Mortgages and Savings
Peter Hindle
Group Chief Information Officer
Victoria Hyde
Deputy Chief Financial Officer
Experience and qualifications
Jens joined OSB as Chief Risk Officer
in 2012, before becoming Group
Commercial Director in 2014.
Jens joined from the Asset Protection
Agency, an executive arm of HM
Treasury, where he held the position
of Chief Risk Officer. Prior to joining
the Asset Protection Agency,
Jens spent nearly a decade at
management consultancy Oliver
Wyman Limited where he advised a
global portfolio of financial services
firms and supervisors on strategy
and risk management. Jens led Oliver
Wyman Limited’s support of Iceland
during the financial crisis.
Experience and qualifications
Jason joined OSB in June 2016. He
has over 25 years of legal private
practice and in-house financial
services experience. Jason’s private
practice experience was primarily in
Australia with King & Wood Mallesons
and in New York with Sidley Austin
LLP. He has been admitted to
practice in Australia, New York and
England and Wales.
Jason’s previous in-house financial
services experience includes serving
as Director and Head of Bank Legal
at Santander UK Group. He also held
various roles at National Australia
Bank Limited, including General
Counsel Capital and Funding, Head
of Governance, Company Secretary
and General Counsel Product,
Regulation and Resolution.
Experience and qualifications
Jon joined OSB in November 2021.
Jon has significant experience
within the financial services
sector and joined the Group from
Aspinall Financial Services, a pre-
authorisation bank start-up, having
previously led Masthaven Bank from
2016 to early 2021 as their Chief
Commercial Officer and Deputy
Chief Executive Officer (CEO). Jon
started his career with PwC, before
joining Aviva plc and subsequently
became CEO of Saffron Building
Society. Jon is a Fellow of the
Institute of Chartered Accountants
in England and Wales.
Experience and qualifications
Peter joined OSB in 2017 and has
been responsible for driving the IT
change programme. In 2019, he
was appointed to lead the post-
Combination integration of OSB
and CCFS. He was appointed as
Group Chief Information Officer in
April 2022. Peter has over 30 years’
experience working in IT and Change
across a range of market sectors.
Having worked in an IT advisory
capacity with Accenture and PwC,
Peter worked extensively as an
interim IT and Change leader and
consultant serving financial services
clients including Barclays, NatWest
and Deutsche Bank. He previously
held IT leadership positions in a
range of organisations including
Bradford & Bingley, Adidas, Merlin
Entertainments, FirstAssist and John
Charcol Limited.
Experience and qualifications
Victoria joined OSB in September
2022. Prior to joining OSB, Victoria
worked at Barclays for 21 years, most
recently as Finance Director of the
Consumer, Cards and Payments
segment. Victoria is a qualified
Chartered Management Accountant
and has over 25 years’ experience in
finance. She has supported Retail,
Corporate and Investment Banking
business lines across a range of
Finance roles including Product
Control, Treasury Finance, Costs
and Business Planning and Analysis.
108
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Our Group Executive Committee continued
Lisa Odendaal
Group Chief Internal Auditor
Hasan Kazmi
Group Chief Risk Officer
Richard Wilson
Group Chief Credit and
Compliance Officer
Clive Kornitzer
Group Chief Operating Officer
Experience and qualifications
Lisa joined OSB in April 2016. Prior
to joining OSB, she worked for Grant
Thornton LLP where she was an
Associate Director responsible for
leading several outsourced audit
functions within its Business Risk
Services division. Lisa is a qualified
Chartered Internal Auditor and
has over 25 years of internal audit
and operational experience gained
in the UK, UAE and Switzerland,
having worked at several financial
institutions, including PwC, Morgan
Stanley Group, HSBC and Man
Group plc.
Experience and qualifications
Hasan joined OSB in September 2015
as Chief Risk Officer. He became
Group Chief Risk Officer in 2021.
Hasan has over 25 years of risk
experience having worked at several
financial institutions, including
Barclays Capital, Royal Bank of
Canada and Standard Chartered
Bank. Prior to joining OSB, he was a
Senior Director at Deloitte LLP within
the Risk and Regulatory practice with
responsibility for leading the firm’s
enterprise risk, capital, liquidity,
recovery and resolution practice.
Hasan graduated from the London
School of Economics with a MSc in
Systems Design and Analysis and
a BSc in Management.
Experience and qualifications
Richard joined OSB in 2013. In
addition to his Group Chief Credit
and Compliance responsibilities,
Richard became Group Money
Laundering Reporting Officer in
June 2023. Prior to joining OSB,
Richard was responsible for Credit
and Collections strategy for Morgan
Stanley’s origination businesses in the
UK, Russia and Italy. Between 1988
and 2006, Richard held various roles
at the Yorkshire Building Society.
Experience and qualifications
Clive joined OSB in 2013. Clive has
over 25 years of financial services
experience, having worked at several
financial organisations including
Yorkshire Building Society, John
Charcol Limited and Bradford and
Bingley plc. Prior to joining OSB, Clive
spent six years at Santander Group
where he was the Chief Operating
Officer for the intermediary
mortgage business. He has also held
positions at the European Financial
Management Association and has
been the Chair of the FS Forums
Retail Banking Sub-Committee. Clive
is a Fellow of the Chartered Institute
of Bankers and recently completed
an advanced Leadership Program
at INSEAD, as well as the FT Non-
Executive Directors Diploma.
110
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Overview
Strategic Report
Strategic Report
Governance
Governance
Financial Statements
Financial Statements
Appendices
Appendices
110
Contents Generation – Sub Page
Corporate Governance Report
Dear Shareholder,
The Group’s Corporate Governance Report for the year ended
31 December 2023 sets out our governance arrangements
and compliance with the 2018 UK Corporate Governance
Code (the Code) throughout the year.
Corporate Governance and
Strategy at OSB Group
This report sets out the operation of the
Board and its Committees during the year,
giving insight to our corporate governance
practices and decision-making aimed
to achieve the best outcomes for our
stakeholders and facilitating the Group’s
strategy. The Board continues to give due
regard for stewardship, ESG, Diversity, Equity
and Inclusion by ensuring these principles are
refreshed and embedded within our culture,
Vision and Purpose to help customers,
colleagues and communities prosper. The
Board appointed champions in Consumer
Duty, ESG, whistleblowing and people, to
ensure that the voice of our stakeholders
is heard and continues to form part of our
decision-making.
2023 was a year of market volatility. The
Board continued to navigate the challenging
macroeconomic environment by refocusing
the Group’s strategy as appropriate and
within risk appetite, to deliver the best
outcome for our stakeholders. Our key areas
of focus have been the Group’s digitalisation
programme, achieving sustainable profits,
return of capital to shareholders, debt
management, the adverse Effective Interest
Rate (EIR) adjustment and considering
lessons learned as well as ensuring good
outcomes for our customers and other
stakeholders from an ESG perspective.
Consumer Duty
Our main objective is to create opportunities
for customers to flourish, thrive and succeed
in their personal goals. The Board has placed
great emphasis on the business and its
commitment to deliver good outcomes for
all customers, whilst also protecting those
who are vulnerable. During the year, we
assessed our products, services, fair value
assessment frameworks and communication
channels so that customers understood and
could make informed decisions in relation
to our available products and services. Our
approach led to a more customer centric
culture throughout the organisation’s
strategic plans, risk management and
governance. These areas are under constant
review by the Board through a customer lens,
where we challenge the effectiveness of our
customers’ experience and the data used to
generate Board customer metrics. Customer
outcomes and experience was a key Board
consideration during our oversight of the
digitalisation programme. Looking ahead to
2024, the Board will oversee the embedding
of Consumer Duty and monitor products
and services to ensure they comply with the
regulatory regime.
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Overview
Strategic Report
Governance
Financial Statements
Appendices
111
Corporate Governance Report continued
Board effectiveness
During the year, the Board and its
Committees undertook self-evaluations
with the assistance of Independent Audit1,
details of which are set out in the report
on pages 129-130. As reported in the
2022 self-evaluation results, the Board
and its Committees continued to operate
effectively. Recommended areas of focus
will be addressed by the Board, which will
set the scene for the formal external board
evaluation exercise to be conducted in 2024.
Board changes and composition
In November 2023, we announced April
Talintyre’s retirement as Chief Financial
Officer (CFO). She will not be standing for
re-election at the 2024 Annual General
Meeting (AGM) when she will step down from
the Board. I would like to thank April for her
significant contribution to the Group over the
past 11 years.
As Chair of the Board, I remain committed to
ensuring the Group continues to be led by a
diversely skilled Board which is appropriately
equipped to carry out its duties to the highest
governance standards. Through the Group
Nomination and Governance Committee, I
have been overseeing the search for April’s
successor. On 14 March 2024 we announced
that Victoria Hyde, Deputy CFO will
become acting CFO, subject to regulatory
approval whilst the ongoing process to
appoint a permanent replacement for April
is completed.
The Group Nomination and Governance
Committee regularly assesses Board and
Executive succession plans, ensuring we
maintain the appropriate skills, knowledge
and expertise and also consider diversity,
1.
Independent Audit has no other connection
with the Company or individual Directors.
equity and inclusion principles which provide
for richer deliberation and better decision-
making. Our Board Diversity is set out on
pages 113, 134 and 135.
Kal Atwal was elected as a Non-Executive
Director (NED) at the 2023 AGM following her
Board approved appointment in February
2023. She has recently assumed the role of
Board champion for ESG and I look forward
to her observations and support to the wider
business during 2024.
Engaging with stakeholders
The Board is committed to maintaining
effective engagement and active dialogue
with its stakeholders. Full details can be
found on pages 117-126. We leverage the
work of our Board champions to ensure that
employees, consumers, ESG and diversity
are prioritised as part of boardroom debate.
We continue to focus on transparency with
our regulators in relation to our strategy and
risk management. The Board continues to
maintain an open and transparent dialogue
with shareholders. With support of the
Investor Relations team, Group Executives
and certain Board members undertake
roadshows for investors and analysts, so
they have a clear understanding of our
business proposition and prospects. All of
our shareholders have an opportunity to
further engage with us at the AGM which will
be held at our offices at 90 Whitfield Street,
Fitzrovia, London W1T 4EZ on 9 May 2024 at
11am. Further details are set out in the Notice
of AGM.
David Weymouth
Chair of the Board
14 March 2024
The Board has placed
great emphasis on
the business and its
commitment to deliver
good outcomes for all
customers.
David Weymouth
Chair of the Board
14 March 2024
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OSB GROUP PLC | Annual Report and Accounts 2023
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
112
Corporate Governance Report continued
Board Leadership and
Company Purpose
106-126
A Board effectiveness and activities
110-115
B Purpose, culture and values
C Risk management and controls
D Stakeholder engagement
115-116
116
117-126
E Workforce policies and practices
126
Division of Responsibilities
127-128
F Board roles
G Independence
H Time commitment and conflicts
of interest
I Board resources
Composition, Succession
and Evaluation
J Appointments and
succession plans
K Board composition
L Board performance review
Audit, Risk and Internal
Control
M Auditor independence
and effectiveness
N Review of Annual Report
O Risk management and
internal control
Remuneration
127-128
127-128
128
129
131-135
132-133
113, 133
129-133
136-146
140
138
140-146
147-177
P Annual Report on Remuneration
147-177
Q Determining the Remuneration
Policy
R 2023 performance outcomes
147-177
169-177
Corporate Governance
Statement
UK Corporate Governance
Code 2018 (the Code)
Compliance Statement
During 2023, the Group
applied all the principles
and complied with all the
provisions of the Code. The
Corporate Governance
Report illustrates how we
applied the Code principles
and complied with the
provisions and the table on
this page signposts where
further details can be found.
The Code is available at
www.frc.org.uk
The Board recognises that
stewardship and strong
corporate governance
is fundamental to the
sustainable execution of
the Group’s strategy.
David Weymouth, Chair of the Board
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OSB GROUP PLC | Annual Report and Accounts 2023
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Financial Statements
Appendices
113
Corporate Governance Report continued
2023 Board Governance at a glance (31 December 2023)
Ethnicity
Board Composition and Tenure
FCA Listing Rule target
• At least one ethnic
minority director to
serve on the Board
(excluding white
ethnic groups)
Board composition
Non-Executive Board tenure
Total Board
Directors
8
Independent NEDs 6
(Including the Chair
of the Board and
SID)
Executive Directors 2
(CEO and CFO)
First tenure (0-3
years) 2
Kat Atwal
Simon Walker
Second tenure (3-6
years) 1
Sarah Hedger
Third tenure (6-9
years) 3
David Weymouth
Noel Harwerth
Rajan Kapoor
White 6
Asian/Black or other
ethnic minority 2
The biographies of the Directors can be
found on pages 106 and 107
Refer to the Group Nomination and Governance
Committee Report for more information about Board
succession
Gender ratio
Balance of Board Expertise
Senior Board Positions
• The SID and Group
Remuneration and
People Committee Chair
are women
• Chairs of the Board,
Group Audit, Group
Nomination and
Governance and
Group Risk Committees
are men
• 2 women and 2 men
have been appointed as
Board Champions
Experience and Knowledge
Accounting and Finance
Banking
Fintech
Governance and Compliance
Insurance
Corporate Restructures
Operations
Public Sector
Digital and Technology
Risk
Retail
3
2
2
2
2
2
2
1
1
Female 50%
Male 50%
4
6
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Overview
Overview
Strategic Report
Strategic Report
Governance
Governance
Financial Statements
Financial Statements
Appendices
Appendices
114
Corporate Governance Report continued
2023 Board Governance at a glance continued
Board and Committee Meeting attendance1, 2
As at 31 December 2023
Current Directors
David Weymouth (Chair)
Kal Atwal3
Andy Golding
Noël Harwerth
Sarah Hedger
Rajan Kapoor
April Talintyre
Simon Walker
Former Directors
Graham Allat3
Mary McNamara3
Board
Group Audit
Committee
Group
Remuneration and
People Committee
Group Nomination
and Governance
Committee
Group Risk
Committee
9/9
8/9
9/9
9/9
9/9
9/9
9/9
9/9
3/3
3/3
n/a
n/a
n/a
8/8
8/8
8/8
n/a
8/8
2/3
n/a
6/7
5/6
n/a
7/7
7/7
7/7
n/a
n/a
n/a
3/3
6/6
n/a
n/a
6/6
4/4
n/a
n/a
n/a
n/a
2/2
n/a
n/a
n/a
6/7
n/a
7/7
n/a
7/7
3/3
n/a
The Board met nine times during the year. The
Board has a formal meeting schedule with
ad hoc meetings called when circumstances
require. There is an annual calendar of agenda
items to ensure that all matters are given due
consideration and are reviewed at the appropriate
point in the regulatory and financial cycle. The
table also shows each Director’s attendance at
Board and Committee meetings in accordance
with their membership. Directors may be invited
to attend meetings of Committees where they are
not a member, if it is considered appropriate.
All Directors are expected to attend all meetings
of the Board, any Committees of which they are
members and to devote sufficient time to the Group’s
affairs to fulfil their duties as Directors. Where
Directors are unable to attend a meeting, they are
encouraged to submit any comments on the meeting
materials in advance to the Chair of the Board to
ensure that their views are recorded and taken into
account during the meeting. The Chair of the Board,
Noël Harwerth and Kal Atwal provided comments
in advance for the meetings they were unable to
attend. During 2023, the Board and Group Executive
Committee conducted the majority of their meetings
in person across Chatham and London sites.
1
The Deputy CFO, Group Chief Risk Officer and other Group Executives are invited to attend as appropriate.
2 Attendance at meetings of the Board Capital and Funding Committee were not included due to its transactional nature.
3 Kal Atwal was appointed in February 2023. Kal missed one Board meeting in 2023 due to an engagement created prior
to her appointment. Graham Allat and Mary McNamara resigned as Directors of the Group on 11 May 2023.
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Corporate Governance Report continued
Board structure
The governance structure below illustrates
the established Board Committees all of
which have delegated authority from the
Board to oversee certain activity on its behalf,
such as remuneration, governance, financial
and risk matters. This enables the Board to
focus on the key strategic matters, including
but not limited to business plans, customers
and culture.
Terms of reference of the Board and its
Committees can be found on our website
at www.osb.co.uk.
The role of the Board
The Board is responsible for the long-term
success of the Company for the benefit of
its shareholders. Through its leadership and
effective corporate governance, the Board
focuses on setting the strategy of the Group
generating value for shareholders and
maintaining a sustainable and profitable
business, underpinned by a robust risk
management framework.
The Board retains specific powers in relation
to the approval of the Group’s strategic
aims, policies and other matters, which must
be approved by it in line with legislation
or the Articles. These powers are set out in
the Board’s written terms of reference and
Matters Reserved to the Board, which are
reviewed at least annually.
The activities undertaken by the Board
during the year are set out below. The
Board’s Committees (illustrated on page 50)
operated under Board delegated authority
as prescribed in their individual terms of
reference, which are also reviewed at least
annually. The activities of each Committee
during 2023 are on pages 131-177.
A summary of the matters reserved for
decision by the Board is set out below.
Strategy and management
• Overall strategy of the Group
• Approval of long-term objectives
• Approval of annual operating and capital
expenditure budgets
Remuneration
• Determining the Remuneration Policy for the
Executive Directors and senior management
(including Material Risk Takers)
• Overseeing the introduction of new share
incentive plans or material changes to
existing plans
Corporate governance
• Review of the Group’s overall
governance structure
• Determining the independence
of Directors
Board members
• Changes to the structure, size and
composition of the Board
• Review of performance against strategy
• Appointment or removal of the Chair of
and objectives
Structure and capital
• Changes to the Group’s capital or
corporate structure
• Changes to the Group’s management and
the Board, Chief Executive Officer (CEO),
Senior Independent Director (SID) and
Company Secretary
Other
• The making of political donations
control structure
• Reviewing the overall levels of insurance
Risk management
• Overall risk appetite of the Group
• Approval of the Enterprise Risk
Management Framework (ERMF)
Financial reporting and controls
• Approval of financial statements
• Approval of dividend policy
• Approval of significant changes in
accounting policies
• Ensuring maintenance of a sound system
of internal control and risk management
for the Group
Key Board activities during the year included:
• Execution of the 2023 Strategy and the
Group’s Financial Plan and plans for 2024
• ESG strategy, including climate
change developments, charitable and
community initiatives
• Monitoring and assessing culture
• Approval of a £150m share
repurchase programme
• Dividend policy, declarations,
and payments
• Capital and funding
• Effective Interest Rate (EIR) adjustment
•
Implementation of the
digitalisation programme
• Material outsourcing contracts
• Risk monitoring and review, in particular
risk appetite and operational resilience
• Regulatory landscape and macro-
economic environment
• Consumer Duty compliance, customer
outcome monitoring
• Governance and compliance
• Board and Executive succession planning
• External financial and regulatory
reporting and disclosures
• Policy reviews and updates
•
Investment proposals
• Customer/brand/product reviews
Purpose, Vision, Values and Culture
The Board sets the tone from the top in
relation to conduct and culture whilst acting
with integrity and fully supports the Group’s
Purpose, Vision and Values.
The Board assesses and monitors culture
to ensure that it is aligned with the Group’s
Purpose, Vision, Values and strategy. With
the support of the Group Remuneration
and People Committee, the Board monitors
culture through regular updates from
management, interactions with employees
(informally and through the Workforce
Advisory Forum (Our Voice) and mentoring),
reviewing the diversity, equity and inclusion
metrics, the employee engagement
strategy and the results of employee
engagement surveys.
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and inclusive talent pipeline below Board
level. The role of the Diversity, Equity and
Inclusion Specialist is to progress the Group’s
ambitions in diversity and inclusion. Further
information relating to Diversity can be found
on pages 84-85 and 179-180.
Full details of how the Board engages with
the Group’s key stakeholders are included on
pages 117-126.
Corporate Governance Report continued
The Board and Group Executive Committee
monitor completion rates for the Group’s
conduct training modules to ensure
employees successfully meet the required
behaviours that support the Group’s Values
and to identify any key themes and systemic
issues relating to culture. The Board is
satisfied that culture aligns with the Purpose,
Vision, Values and strategy of the Group
but recognises that this continues to be a
developing area. Further details regarding
the Group’s Values and culture are provided
on pages 4 and 81-85.
During 2023, the Board received regular
updates from management in respect of
the workforce and the levels of engagement
of employees, as well as insights from
the NED designated as People Champion
about sentiments of colleagues. The Board
oversees charitable and community activities
undertaken by employees. Further details of
the Board’s engagement with its stakeholders
and the community is included on pages
117-126.
Risk management and
internal control
The Board approves the Group’s risk
appetite and through the robust and regular
monitoring of the Group Risk Committee
ensures that there is an effective ERMF to
maintain risk thresholds that have been
set, whilst also ensuring the embedding of
risk culture throughout the organisation.
The Board regularly reviews its procedures
for identifying, evaluating and managing
risk, acknowledging that a sound system
of internal control should be designed to
mitigate risk exposures to ensure business
objectives are met.
The Board carried out a robust assessment
of the principal risks facing the business
including those that could threaten its
business model, future performance,
solvency or liquidity.
Further details are contained in the Viability
Statement on pages 67-68.
The Group Risk Committee also oversees
the Group’s risk appetite, risk monitoring
and capital management, and the Group
Risk Committee Chair regularly updates
and advises the Board on potential financial
and non-financial risk exposures and
risk strategy.
The Group operates to a ‘three lines of
defence’ model to ensure at least three
stages of oversight to protect the customer
and the Group from undue influence,
conflicts of interest and inadequate controls.
The Board is committed to the consistent
application of appropriate ethical standards
and the Conduct Risk Framework sets out
the basic principles to be followed to ensure
ethical considerations are embedded in all
business processes and decision-making
forums. The Group also maintains detailed
policies and procedures in relation to the
prevention of bribery and corruption, as well
as a Whistleblowing Policy.
Further details of the Group’s risk
management approach, structure and
principal risks are set out in the Group Risk
Committee Report on pages 143-146 and in
the Strategic Report on pages 45-66.
The Group Audit Committee reviews the
effectiveness of the Group’s internal control
systems including oversight of financial
reporting processes.
The Group Audit Committee is supported
by the Internal Audit function in discharging
this responsibility and receives regular
reports from the Group Chief Internal Auditor
regarding the overall effectiveness of the
internal control system within the Group. The
Group Audit Committee also receives reports
from the external auditor on control matters.
Details of the review of the effectiveness of
the Group’s internal control systems are set
out in the Group Audit Committee Report on
pages 136-142.
Stakeholder engagement
The Board is committed to maintaining
effective engagement and active dialogue
with its stakeholders and ensuring that
stakeholder views and interests are a key
consideration in the Board’s decision-
making. The Board engages with colleagues
directly through attending Our Voice
meetings. During the year members of the
Board attended four Our Voice sessions
which focused on employee pay, benefits
and culture.
The Board and its Committees covered a
broad range of sustainability considerations,
receiving regular updates on ESG and
its impact on the organisation’s strategy.
The Board has also prioritised open and
transparent engagement with its regulators
(particularly the Prudential Regulation
Authority (PRA) and Financial Conduct
Authority (FCA)).
The Board and Group Nomination and
Governance Committee have continued to
monitor diversity, equity and inclusion, both
as part of ongoing Board and Executive
succession planning and in relation to
activities aimed at developing a diverse
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Corporate Governance Report continued
Helping our stakeholders prosper
Our Purpose is to
help our customers,
colleagues and
communities prosper
Maintaining strong relationships
with our stakeholders through
regular engagement and open
dialogue is fundamental to
achieving the Group’s strategy
which has been embedded within
our culture and the Board’s
responsibilities.
We outline below how the OSB Group and its
Directors engaged with key stakeholders and,
in doing so, discharged their duties under
section 172 of the Companies Act 2006.
For more information on the activities of the
Board and its Committees, see pages 110-177
in the Corporate Governance Report.
The following matters, which
were identified as affecting our
stakeholders, were of particular interest
to the Board in 2023:
•
increased volatility in global
markets, alongside interest rate
rises, the rising cost of living and
cost of borrowing, and their impact
on our customers’ behaviours,
including those customers who need
additional support
• embedding of the Consumer Duty
requirements across the Group
•
•
•
the Group’s response to the adverse
EIR adjustment made in the first half
of the year
the impact of the rising cost of living
on our employees
the Group’s environmental
ambitions and initiatives
• execution of digitalisation
•
final dividend amount
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Corporate Governance Report continued
The Board’s key strategic decisions
Decision-making
Considering our stakeholders in key business
decisions is fundamental to our ability to
deliver the Group’s strategy in line with our
long-term values and operating the business
in a sustainable way. Balancing the needs
and expectations of our key stakeholders
is essential to achieving our purpose of
helping our customers, colleagues and
communities prosper.
Capital management and
distributions
The Board recognises the importance
of delivering against the Group’s stated
intention to provide attractive and
sustainable returns to its shareholders.
In 2023, the Board approved a £150m share
repurchase programme. During the year,
over 38m ordinary shares were repurchased
and cancelled in accordance with the terms
of the programme which completed on 21
November 2023.
The Board ensures the Group operates to
a robust capital management strategy,
enabling the return of excess capital
to shareholders whilst also generating
sustainable profits and long-term value for
wider stakeholders. Following successful
completion of the £150m share repurchase
programme, the Board has announced
that a further £50m share repurchase
programme over the next six months,
commencing on 15 March 2024.
During the year the Group made good
progress in optimising its capital composition
following the Board’s approval of £250m
Tier 2 securities and £300m of Minimum
Requirement for own funds and Eligible
Liabilities (MREL) qualifying debt securities.
The Board has taken into consideration the
interests of shareholders, other stakeholders
(including its regulators) and the financial
position of the Company, given the adverse
EIR adjustment and has declared a final
dividend of 21.8 pence per share amounting
to a total dividend for the year of 32.0 pence
per share.
People and Culture Strategy
The Board approved the Group’s People and
Culture Strategy, setting out the Group’s
ambition to be a number one employer of
choice. The strategy includes a range of
initiatives to be progressed over the next
three years and aims to develop a culture
of embracing change and new ways of
working.
Employees are able to engage directly with
the CEO through the ‘Ask Andy’ online portal
and a key theme this year was improving
the employee family benefits package.
Following consideration of employee views,
the Group Executive Committee approved
enhancements to the UK employee family
benefits, offering which received positive
feedback from colleagues. More details on
the enhanced benefits can be found on
pages 81-82.
Effective Interest Rate (EIR)
adjustment
The Board approved the trading update
released in July 2023 relating to the
adverse EIR adjustment and, following
the announcement, investors were keen to
understand the circumstances that led to
the adjustment. The CFO held a number
of meetings with investors to explain the
Precise Mortgages product design, impact
on customer behaviour and the IFRS 9
accounting treatment. The Chair of the
Board also met with a small number of
investors to hear their feedback directly.
Further details around the adverse EIR
adjustment can be found on pages 36-38.
Customer experience and
Consumer Duty
During the year, the Board oversaw
the embedding of the Consumer Duty
programme across the Group . The Group
Risk Committee Chair was appointed as
Consumer Duty Champion to support the
Board’s oversight in relation to delivering
good outcomes for and the fair treatment of
customers, particularly, those who require
additional support.
As part of the embedding process a number
of enhancements were made across the
Group including all-employee training and
Consumer Duty roadshows.
The Board continued to monitor the evolution
of customer reporting and enhancements
were made to the management information
presented to the Board to ensure it has the
appropriate information in order to assess
performance against the Consumer Duty
principles, as well as the ongoing monitoring
of good customer outcomes.
Digitalisation programme
The Board received regular updates in
relation to the Group’s digitalisation journey
and enhancing digital solutions to enable
us to meet the needs of our customers,
brokers and wider stakeholders, whilst
delivering further operational efficiencies.
Enhancing the customer proposition through
digitalisation will be a key focus for the
Board in the coming years.
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Corporate Governance Report continued
Helping our stakeholders prosper continued
Colleagues
Our colleagues are our key asset and our successes to date
have been driven by the 2,459 talented individuals we employ.
We have always favoured interactive communication between management
and our colleagues through regular town hall meetings, informal sessions with
management and opportunities to ask questions anonymously directly to the
CEO, with the questions and responses available on the intranet. These methods
of communication proved popular with employees and contributed to many
initiatives that were undertaken by the business during the year, including
enhancements to the UK family benefits package.
Our Voice is a valuable forum which
provides an open two way communication
between the Board and the workforce.
Sarah Hedger People Champion
UK Best Companies Survey
‘Outstanding’
Company to
Work For
in 2023
‘Great Place to Work’ 2023
Win
7th year in a row by OSB India
Outcomes following engagement
• Completed an extensive review of the
UK family benefits package including
significant enhancements to the
Maternity, adoption and parental leave
policies
• The Board approved the new People and
Culture Strategy setting out a range of
initiatives to be progressed over the next
three years
• The Board explored opportunities to
receive a more diverse range of metrics
around employee engagement
• Approved a higher salary increase for
over 80% of employees in 2023 in light
of the high rate of inflation. This was
focused towards less senior employees
Board engagement with colleagues
The Group has adopted a combination
of methods to engage with its workforce,
including the establishment of a formal
Workforce Advisory Forum (Our Voice)
and appointment of a designated NED for
the People. In May 2023, Sarah Hedger
replaced Mary McNamara as the Chair
of the Group Remuneration and People
Committee and the Board appointed People
Champion, responsible for representing the
workforce at Board and Committee level.
Sarah is a permanent member of Our Voice
where she engages directly with employee
representatives and gains an insight into
employee concerns, morale and culture.
Our Voice is represented by a broad range of
employees. Their views support the Board’s
decision-making and provides additional
points of reflection when determining
metrics around strategic performance and
Executive Director remuneration, culture
and governance. The areas of discussion
at Our Voice meetings in 2023 focused on
employee end of year ratings and policies,
UK employee benefits, employee share
schemes, employee morale and updates from
the OSB India team.
Employees are encouraged to be open and
honest in their feedback at each meeting.
The Board also reviewed the results of the
annual Best Companies to Work For survey.
86.4% of UK employees responded to the
survey in 2023 demonstrating a high level
of engagement.
Following the results of the survey, the Group
retained a 2 star accreditation which means
that it was recognised as an ‘Outstanding’
Company to Work For. The Board and
Group Executive Committee reviewed the
results, considered the key themes that had
emerged from the responses and discussed
what steps could be taken to capitalise
on the positive themes and also address
areas for improvement. The Board is also
exploring opportunities for receiving more
diverse metrics in relation to employee
engagement surveys.
OSB India participates in a separate
engagement survey and was officially
certified a ‘Great Place to Work’ for a
seventh consecutive year in 2023.
For more detail on employee initiatives in the year,
see the Colleagues section on pages 81-85
The Board and its Committees also received
regular updates on matters impacting
employees from senior management and the
Group’s HR function. The Group Nomination
and Governance Committee oversees the
Group’s talent management initiatives and
senior management succession planning.
Further information on OurVoice can be found in
the Directors’ Report on pages 179-180
Finally, the Board, through the Group Audit
Committee, has oversight of the Group’s
whistleblowing activity and the Group
Remuneration and People Committee reviews
and approves the Group’s gender pay gap
reporting and its commitment to the Women
in Finance Charter.
The Board monitors the effectiveness of its
methods of engaging with colleagues and
adapts them where necessary.
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Corporate Governance Report continued
Helping our stakeholders prosper continued
Customers
We pride ourselves on building strong, long-term
relationships with our customers. Our continued
commitment to providing excellent service to
borrowers and savers and delivering good outcomes
for our customers remained a priority in 2023.
Outcomes following engagement
with customers
• The Group Executive Committee
established a Customer and Product
Committee to ensure customer
outcomes remain at the heart of the
Group’s product proposition
• Simon Walker, Group Risk Committee
Chair, was appointed as the Board’s
Consumer Duty Champion
• We conducted all-employee training
and Consumer Duty roadshows to
support with embedding the Group’s
Consumer Duty programme
Board monthly reporting packs, ensuring
the visibility of our customers’ experiences.
Customer satisfaction scores and customer
outcomes are also used as part of the
Executive remuneration assessment,
and form the basis of new initiatives
and actions which continually improve
customer experience.
During 2023, the Board held an annual
focused session on the customer experience
focusing on customer performance,
vulnerable customers and customer
complaints.
A key focus for the Board was ensuring that
the new FCA Consumer Duty requirements
were embedded across the Group. Simon
Walker as our Consumer Duty Champion
and the Board received regular updates and
assurance around the implementation of
the Consumer Duty Programme throughout
2023, the embedding of which will continue
in 2024.
Customers and intermediaries may be
consulted when the business is considering
the launch of a new product to ensure that it
meets their needs, and any concerns raised
are addressed.
Further information about our customers can be
found in the Customer section on pages 79-80
We offered our savers an opportunity to let
us know how we are doing whenever they
call or interact with the Group by listening to
their views and acting upon what they tell us.
Customer feedback is collected throughout
the year and satisfaction scores produced as
a result. During 2023, there was an increase
in the savings and broker Net Promoter
Scores (NPS) compared to 2022.
Board engagement with customers
The Board’s engagement with customers is
indirect and Directors are kept informed of
customer-related matters through regular
reports, feedback and research. Satisfaction
scores and retention rates, together with
the number of complaints and resolution
times form part of the management and
Savings NPS for Kent Reliance
+71
2022: +64
Savings NPS for Charter Savings Bank
+62
2022: +61
OSB and CCFS broker NPS
+57
2022: OSB +37; CCFS +39
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Helping our stakeholders prosper continued
Intermediaries
Our lending products, with the exception of funding
lines and residential development loans, are distributed
via mortgage brokers. Mortgage brokers are vital to our
success; it is important for us to understand the challenges
they face and what they are trying to achieve in terms of
serving their customers, so we can adapt how we support
them and provide an even better service.
Board engagement with
intermediaries
The Board’s engagement with intermediaries
is indirect and Directors are kept informed
of intermediary-related matters through
regular updates at Board meetings. Broker
and borrower satisfaction scores are tracked
on a regular basis, along with details of all
complaints, and are reviewed by the Board
and management monthly.
We pride ourselves in providing unique
and consistent lending propositions across
all lending brands, which fulfil our goal of
making it easier for intermediaries to serve
their customers, our borrowers. Regular
engagement with the broker community
extends beyond our propositions and enables
us to continuously enhance the service we
provide, with our business development
managers working closely with intermediaries
to discuss cases and help to obtain swift and
reliable decisions.
The Group’s Sales team participated in 259
physical and virtual intermediary events
during 2023 and 44 hospitality events. The
events were an opportunity for the Sales
team to interact with brokers, discuss their
requirements and keep up to date with
industry developments.
The Group’s Sales teams
attended
259
intermediary events
2022: 330
Outcomes following
engagement
with intermediaries
• The Board reviewed the trends in
NPS scores for intermediary brokers
• Early exposure to the development
of our digitalisation platform
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Helping our stakeholders prosper continued
Shareholders
Our approach to investor engagement is straightforward as
we favour an open dialogue. Active engagement with our
shareholders occurred throughout the year with the Investor
Relations team meeting 206 individual investors via virtual
one-to-one meetings, industry conferences and roadshows.
Board engagement with
shareholders
The Board ensures that all shareholders
have equal access to information through
regulatory announcements, general meetings
and publications on our website. The Board’s
primary engagement with investors comes
through the Group’s CEO and CFO, who
meet with investors and sell-side analysts
and present the Group’s results to the
market. The Board receives regular updates
from the Investor Relations function,
which include investor feedback, analysts’
recommendations and market views. The
Board also receives investor feedback from
the Group’s brokers and financial advisers.
Outcomes following
engagement
with shareholders
• Engaged with shareholder
prior to finalising the Group’s
Remuneration Policy
• The Group successfully
completed its £150m share
repurchase programme during
2023 and has announced a
further £50m share repurchase
programme over the next
six months
Engagement with
shareholders
206
individual investors met
2022: 116
The most frequent theme raised by investors
in 2023 related to the adverse EIR adjustment
announced in July. In subsequent meetings
hosted by the CEO and CFO investors were
keen to understand the circumstances that
led to the adjustment including the details of
the Precise Mortgages product design, the
relationship between customer behaviour
and interest rate dynamics as well as the
accounting treatment required under IFRS 9.
Sentiment from the meetings was relayed to
the Board and the Chair of the Board met
with a small number of large shareholders to
hear and respond to their feedback.
Investors focused on the outlook for capital
distribution and its relationship with the
expected Basel 3.1 requirements and MREL
qualifying debt securities programme.
The Board welcomed the engagement
from shareholders and considered their
feedback during its deliberations on
shareholder returns.
The Group Remuneration and People
Committee Chair engaged with shareholders
in relation to the new Remuneration Policy
which will be submitted for shareholder
approval at the 2024 AGM.
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Helping our stakeholders prosper continued
Suppliers
Our business is supported by a large number of
suppliers, allowing us to provide a high standard
of service to our customers.
Board engagement with suppliers
The Board does not interact directly with
the Group’s suppliers; however, during the
year the Board maintained oversight of key
supplier relationships including engagement
between the Group Audit Committee and the
external auditor. The Board also considered
the risks associated with suppliers and the
framework for assurance and oversight of key
supplier relationships.
The Group’s Modern Slavery and Human
Trafficking Statements are reviewed and
approved on an annual basis by the
Board and can be found on our website
at www.osb.co.uk.
The Group is committed to complying
with the law and best practice in respect
of Modern Slavery, workforce rights and
the environment. We expect suppliers
to share our commitment by complying
with our Vendor Code of Conduct and
Ethics. The Group has taken steps towards
understanding suppliers’ attitudes towards
ESG to ensure that their values and
aspirations are aligned to the Group’s.
Supplier payments
97%
of all invoices paid within
30 days
2022: 95%
Outcomes following
engagement with suppliers
• The Group engaged with
suppliers to understand their
aspirations and approach
towards ESG and to ensure that
they are aligned with the Group’s
ESG Strategy
During 2023, the Group’s suppliers and
business partners were asked to complete a
questionnaire giving us insight to how they
addressed topics such as climate change,
diversity, equality and inclusion and modern
slavery, and to identify areas of focus in the
future. We understand that organisations
will be at various stages of their own ESG
and sustainability journey and we continue
to encourage and support our suppliers with
their transition to an ESG strategy that aligns
to the Group’s ambitions.
Supplier payment practice reports are
published on a six-monthly basis and
approved and signed by the CFO and Group
Chief Operating Officer on behalf of the
main operating entities. The Group enters
into standard terms with suppliers, which
include terms requiring payment within 30
days of the invoice date following receipt of
a valid invoice. Over 97% of all invoices are
paid within 30 days in line with the standard
payment period for qualifying contracts. The
average time taken to pay invoices ranges
from five to nine days across the Group.
The maximum contractual payment period
agreed varies between 30 to 45 days. There
were no changes to the standard payment
terms in the reporting period.
Any complaints received in respect of invoice
payments are considered as part of the
dispute resolution process. During the year,
the Group did not deduct any sums from
payments under qualifying contracts as a
charge for remaining on a supplier list.
The Group also engages with key suppliers
as part of the Group’s Recovery Plan which is
reviewed by the Board.
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Helping our stakeholders prosper continued
Regulators
The Board recognises the importance of having
an open and continuous dialogue with all of our
regulators, as well as other government bodies,
trade associations and UK Finance.
Board engagement with regulators
The Board and Group Executive Committee
maintains a proactive dialogue with the
PRA and FCA. Engagement typically takes
the form of regular and ad hoc meetings
attended by both members of the Board and
Group Executives, as well as subject matter
experts. The Chair of the Board and Group
Executives work with the PRA and FCA to
agree the regulatory agenda. The Group
Chief Risk Officer (CRO) and Group Chief
Credit and Compliance Officer in particular
are key to ensuring that expectations are
appropriately managed.
The Board and its Committees receive
regular updates in respect of the broader
regulatory developments and compliance
considerations. The PRA was invited to
and attended one Board meeting during
2023, presenting their Periodic Summary
for the year. The regulator is also given the
opportunity to discuss thematic areas with
the Board including operational resilience
and integration of IT related matters in the
overall risk management framework.
The Group regularly interacts with the Bank
of England and His Majesty’s Revenue &
Customs (HMRC), amongst others, helping
the Group’s alignment with the relevant
regulatory frameworks and developments in
the financial services industry.
Outcomes following
engagement
• Meetings held with regulators
during the year covered,
amongst other topics, operational
resilience, integration of IT
related matters in the overall risk
management framework and the
Group’s strategic plans. These
are all areas that have been
considered by the Board in its
meetings
• Agreed the Group’s approach
to future engagement with
the regulator
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Helping our stakeholders prosper continued
Communities
Sustainability
We partner with national and local charities, which offers
employees the chance to make a difference both nationwide
and closer to home.
Board engagement with communities
The Board and management actively encourage and fully support engagement
with our local communities to make a positive impact. Giving something back
to our community is important to all of us, whether it is through volunteering,
fundraising or efforts that help protect our environment, and aligns with the
Group’s Values. Our nominated charity partners are chosen by employees with
the aim of making a meaningful impact to these charities and to the lives of those
that the charities help.
Sustainability remains an important topic for the Board and
management. We operate under the highest governance and
ethical standards and we are committed to reducing our
impact on the environment.
The Board and management are mindful of the impact of social and environmental
change on our business and stakeholders and regularly promote awareness of such
issues among our employees, as well as adhering to our plan to become a greener
organisation and comply with enhanced regulation and disclosures.
The Board is responsible for approving the Group’s ESG Strategy and ESG Operating
Framework which sets out how the Group will monitor ESG matters material to the
Group’s Purpose, Vision, Values and stakeholder expectations. The Board oversees an
environmentally friendly culture and ensures that the business is ready to respond
to the growing impact of climate change on the Group’s activities in line with its
Stewardship value. Further details can be found in the Sustainability report on
pages 88-93.
Outcomes following
engagement
with communities
• Charities, organisations
and good causes
benefitted by over £288k
from donations, employee
fundraising, and the
annual donation linked
to the Demelza Children’s
Savings Account offered
under the Kent Reliance
brand. Further details can
be found on pages 86-87
Group’s sponsorships
and donations
over
£288k
2022: £220k
Electricity purchased
in the UK from
renewable tariffs
99%
2022: 100%
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Relations with shareholders
Dialogue with shareholders
The Group has a dedicated Investor Relations
function which maintains regular, open
and transparent dialogue with institutional
investors and sell-side analysts. The team
has access to the CEO and CFO who are
available for meetings with shareholders and
frequently attend industry conferences. Twice
each year, post year-end and half-year
results, the CEO and the CFO participate
in scheduled meetings with larger investors
and remain available outside of this cycle to
discuss areas of topical interest. The Board
is updated on shareholder expectations
following these meetings to ensure that the
strategy is aligned with those expectations.
In 2023, the Investor Relations team
responded to a range of enquiries and points
of feedback raised by shareholders, including
in relation to the adverse EIR adjustment and
capital management planning.
The Board’s primary contact with institutional
shareholders and sell-side analysts is
through the CEO and CFO. The Board is
also regularly presented with shareholders’
feedback, analysts’ recommendations
and market views via Investor Relations
updates, topics which are frequently on the
Board agenda.
The Chairs of each Board Committee are
available to engage with shareholders on any
significant matters that relate to their areas
of responsibility.
Further details can be found on pages 117-126.
Annual General Meeting
Our AGM will be held at our offices at 90
Whitfield Street, Fitzrovia, London W1T 4EZ
on 9 May 2024 at 11am. The Annual Report
and Accounts and Notice of the AGM will be
sent to shareholders at least 20 working days
prior to the date of the meeting.
Shareholders are encouraged to participate
in the AGM process and all resolutions will
be proposed and voted on at the meeting on
an individual basis by shareholders or their
proxies. Voting results will be announced
and made available on the Company’s
website, www.osb.co.uk. At the 2023 AGM, all
resolutions were passed with at least 80% of
votes in favour.
Workforce policies and practices
The Board is supported by its Committees to
ensure that workforce policies and practices
are consistent with the Company’s core
values and support its long-term success.
The Board monitors and assesses culture
to ensure that it is aligned to the Group’s
continued commitment to treating customers
fairly, carrying out business with integrity
and preventing bribery, corruption, fraud or
the facilitation of tax evasion and modern
slavery. The Board, with the support of its
Committees, approves key policies and
practices which impact the workforce and
drive their behaviours. Training is provided
to employees to ensure that the policies are
embedded within the culture. Further details
of workforce policies and practices are
included on pages 88-93.
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Division of responsibilities
Roles of the Chair of the Board
and Chief Executive Officer
The roles of Chair of the Board and CEO are
distinct and held by David Weymouth and
Andy Golding respectively. There is a clear
division of responsibilities, which has been
agreed by the Board and formalised in a
schedule of responsibilities for each. The SID
and NED roles and responsibilities have also
been clearly established.
The Chair of the Board, who was
independent on appointment, leads
the Board’s overall effectiveness and
direction of the Group by ensuring the
appropriate balance of skills, experience and
development so that it can focus on the key
issues affecting the business. He also leads
the Board to ensure that it acts effectively.
Under delegated authority from the Board,
Andy Golding, as CEO, is responsible for
the day to day running of the Group and
implementing the strategy, achieving
this with the support of the Group
Executive Committee.
A summary of the key areas of responsibility of the Chair of the Board and CEO and how these have been discharged during the year, are set
out below and on the following page.
Chair responsibilities
Activities carried out in 2023
Chairing the Board and general meetings of
the Company
David chaired all Board meetings held during 2023, including the AGM
Setting the Board agenda and ensuring that
adequate time is available for discussion of all
agenda items
The Chair of the Baord sets the annual calendar of Board business and the agenda for
each meeting is agreed in advance of each meeting by the Chair of the Board, CEO and
Company Secretary
Promoting the highest standards of integrity,
probity and corporate governance throughout
the Company
The Board received regular updates from its Committees and on changes in corporate
governance and its application to the Group. The annual Board Effectiveness review also
checks that this is working appropriately
Ensuring that the Board receives accurate, timely
and clear information in advance of meetings
The Chair of the Board, in liaison with the Company Secretary and the CEO, agreed the
information to be distributed to the Board in advance of each meeting
Promoting a culture of openness and debate by
facilitating the effective contribution of all NEDs.
Ensuring constructive relations between Executives
and NEDs and the CEO in particular
The Chair of the Board ran meetings in an open and constructive way, encouraging
contributions from all Directors and regularly met with NEDs without management present
so that any concerns could be expressed
Regularly considering succession planning and
the composition of the Board
The Board received regular updates from the Group Nomination and Governance
Committee on succession planning activities, details of which are set out on pages 132-133
Ensuring training and development needs of
all Directors are met and that all new Directors
receive a full induction
Ensuring effective communication with
shareholders and stakeholders
The Chair of the Board, in liaison with the Company Secretary, reviewed the Directors’
training requirements. Details of training held during the year are given on page 129
The Chair of the Board, along with other members of the Board, is available should any
shareholders or other key stakeholders wish to speak to him. During the year, a small
number of our larger shareholders requested meetings with the Chair of the Board
following the adverse EIR adjustment trading update in July. The Chair of the Board also
attended private meetings with the regulators during 2023
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Chief Executive Officer’s
responsibilities
Andy Golding ensures that the Group
operates effectively at strategic, operational
and administrative levels. He is responsible
for all the Group’s activities; he provides
leadership and direction to encourage others
to effect strategies agreed by the Board;
channels expertise, energy and enthusiasm;
builds individual capabilities within the
team; develops and encourages talent
within the business; identifies commercial
and business opportunities for the Group,
building strengths in key areas; and is
responsible for all commercial activities of
the Group, liaising with regulatory authorities
where appropriate. He is responsible for
the quality and financial well-being of the
Group, represents the Group to external
organisations and builds awareness of the
Group externally.
An experienced Group Executive Committee,
comprising specialists in finance, banking,
risk, operations, internal audit, legal and
IT matters, assist the CEO in carrying out
his responsibilities. The biographies for the
Group Executive Committee are set out on
pages 108-109.
Senior Independent Director
Noël Harwerth assumes the role of the SID.
The SID’s role is to act as a sounding board
for the Chair of the Board, another point of
contact for other NEDs and an alternative
route of communication to shareholders
when other channels of engagement have
not been successful. She also leads the
annual appraisal on Chair performance.
Group Executive Committee
The CEO chairs the Group Executive
Committee, whose members also include the
CFO, Deputy CFO, Group Chief Operating
Officer, Group Chief Risk Officer (CRO),
Group General Counsel and Company
Secretary, Group Commercial Director,
Group Chief Information Officer, Group
Chief Credit and Compliance Officer,
Group Managing Director for Mortgages
and Savings and the Group Chief Internal
Auditor. The Group Executive Committee
is supported by a number of Management
Committees. The purpose of the Group
Executive Committee is to assist the CEO in
the performance of his duties, including:
• The development and implementation
of the strategic plan as approved by
the Board
• The development, implementation and
oversight of a strong operating model that
supports the strategic plan
• The development and implementation
of systems and controls to support the
strategic plan
• To review and oversee operational and
financial performance
• To prioritise and allocate the Group’s
resources in accordance with the
strategic plan
• To oversee the development of a high-
performing senior management team
• To oversee the customer proposition
and experience to ensure consistency
with the Group’s obligation to treat
customers fairly
• To oversee the appropriate protection and
control of private and confidential data
• To review and oversee the key and
strategic business risks
• To oversee how the Group’s Purpose,
Vision and Values are being embedded
• To oversee the Risk and Compliance
functions, with a view to ensuring the
effective management of risks across OSB
and CCFS as individual entities and on an
aggregated basis.
• To oversee and lead the embedding of the
ESG Strategy and Operating Framework
The areas of focus for the Group Executive
Committee during the year included:
• Consumer Duty
• Digitalisation
• Capital and funding
• Human resources and succession planning
• Governance, control and risk environment
– current and forward-looking
• Monitoring target operating model progress
• Culture – Purpose, Vision and Values
• ESG matters, including climate change
• Operational and customer service
•
IT security and cyber risk
Company Secretary
The Company Secretary, Jason Elphick,
plays a key role within the Group, advising
on good governance and assisting the Board
to discharge its responsibilities, acting with
integrity and independence to protect the
interests of the Company, its shareholders
and employees of the Group. Jason advises
the Board on statutory and regulatory
compliance matters and works closely with
the Chair of the Board, Committee Chairs
and the CEO to ensure the highest standards
of board governance are upheld. Jason
also provides the Directors with advice and
support, including facilitating induction
programmes and training in conjunction with
the Chair of the Board.
Non-Executive Directors’ terms of
appointment and time commitment
NEDs are appointed for terms of three
years, subject to annual re-election
by shareholders. The initial term may
be renewed up to a maximum of three
terms (a total of nine years). The terms of
appointment of NEDs specify the amount
of time they are expected to devote to the
business, which is a minimum of two and a
half days per month, calculated based on
the time required to prepare for and attend
Board and Committee meetings, the AGM,
meetings with shareholders and training.
NEDs are also committed to working
additional hours as may be required in
exceptional circumstances. NEDs are required
to confirm annually that they continue to
have sufficient time to devote to the role.
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Board resources
Induction, training and development
The Chair of the Board ensures that all
Directors receive a tailored induction on
joining the Board, with the aim of providing
a new Director with the information required
to allow him or her to contribute to the
running of the Group as soon as possible.
The induction programme is facilitated
and monitored by the Company Secretary
to ensure that all information provided is
fully understood by a new Director and
that any queries are dealt with. Typically,
the induction programme will include a
combination of key documents and face-
to-face sessions covering the governance,
regulatory and other arrangements of
the Group.
As senior managers, under the Senior
Managers Regime operated by the PRA and
FCA, all Directors are required to maintain
skills, knowledge and a certain level of
expertise in order to meet the demands of
their positions of ‘significant influence’ within
the Group. As part of the annual fitness and
propriety assessment, Directors are required
to complete a self-certification that they
have undertaken sufficient training during
the year to maintain their skills, knowledge
and expertise and to make declarations as
to their fitness and propriety. The Company
Secretary supports the Directors to identify
relevant internal and external courses to
ensure that Directors are kept up to date with
key regulatory changes, their responsibilities
as senior managers and other matters
impacting the business.
Information and support
The Company Secretary and the Chair of the
Board agree an annual calendar of matters
to be discussed at each Board meeting to
ensure that all key Board responsibilities are
discharged over the year. Board agendas are
then distributed with accompanying detailed
papers to Directors in advance of each Board
and Committee meeting. These include
reports from Executive Directors and other
members of senior management. All Directors
have direct access to senior management
should they require additional information on
any of the items to be discussed. The Board
and Group Audit Committee also receive
regular and specific reports to allow the
monitoring of the adequacy of the Group’s
systems and controls.
The information supplied to the Board and
its Committees is kept under review and
formally assessed on an annual basis as part
of the Board evaluation exercise to ensure
that it is fit for purpose and that it enables
sound decision-making. As an initiative to
support boardroom dynamics, the Company
Secretary’s office proactively initiated plans
during the fourth quarter of 2023 to improve
the communication flows between the Board
and management and a simplification review
of Board governance arrangements will
be undertaken during 2024. This supports
the sentiments of respondents from the
2023 Board Evaluation exercise. Please see
pages 129-130.
There is a formal procedure through
which Directors may obtain independent
professional advice at the Group’s expense.
The Directors also have access to the services
of the Company Secretary as described on
page 128.
Directors’ indemnities
The Articles provide, subject to the provisions
of UK legislation, an indemnity for Directors
and Officers of the Group in respect of
liabilities they may incur in the discharge
of their duties or in the exercise of their
powers, including any liabilities relating to
the defence of any proceedings brought
against them, which relate to anything done
or omitted, or alleged to have been done or
omitted, by them as Officers or employees of
the Group.
Directors’ and Officers’ Liability Insurance
cover is in place for all Directors and Officers.
Directors’ powers
As set out in the Articles, the business of the
Company is managed by the Board, which
may exercise all the powers of the Company.
In particular, save as otherwise provided in
company law or in the Articles, the Directors
may allot (with or without conferring a right
of renunciation), grant options over, offer, or
otherwise deal with or dispose of shares in
the Company to such persons at such times
and generally on such terms and conditions
as they may determine. The Directors may
at any time after the allotment of any share
but before any person has been entered
in the Register as the holder, recognise a
renunciation thereof by the allottee in favour
of some other person and may accord to
any allottee of a share, a right to effect such
renunciation upon and subject to such terms
and conditions as the Directors may think
fit to impose. Subject to the provisions of
company law, the Company may purchase
any of its own shares (including any
redeemable shares).
Despite this activity the Board remains
satisfied that its current composition allows
it to operate effectively and that all Directors
are able to bring specific insights and make
valuable contributions to the Board, due to
their varied commercial backgrounds. The
NEDs constructively challenge the Executive
Directors and the Chair of the Board ensures
that the views of all Directors are taken into
consideration in the Board’s deliberations.
The Directors’ biographies can be found on
pages 106-107.
Board evaluation
The Board undertakes an external
effectiveness review once every three
years, with the next scheduled in 2024. This
year, an internal effectiveness review was
conducted for the Board and its Committees.
Independent Audit was commissioned to
facilitate the 2023 Board Evaluation, which
included the production and dissemination of
questionnaires to members of the Board, its
Committees, and certain Group Executives.
Responses from the questionnaires were
analysed by Independent Audit and formed
the basis of the internal self-assessment
report, which was presented to the Board and
its Committees who discussed the findings.
The 2023 Board Evaluation concluded
that the Board continued to work well
together, fostering balanced and thorough
Board deliberations. There were regular
considerations of stakeholder impacts.
The relationship between the Board
and management remains positive and
respondents were confident of the work and
value added by the Committees.
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Corporate Governance Report continued
Board evaluation continued
Suggested areas for development are set out below:
Following a review, the Board was satisfied that the actions arising from the 2022 Board
Evaluation were satisfactorily closed. The outcomes are summarised below:
Proposed actions to address development areas:
Progress against actions from the 2022 Evaluation
Outcomes
Continue to focus on the long-term strategy
of the Group
Time was allocated to discuss the Group’s
long-term strategy at Board meetings in 2023
Develop deeper understanding of the role
of technology in the Group’s strategy, in
particular the ability of IT systems to support
the strategy, as well as managing cyber risk
Oversee the development of a broader
People strategy, with particular reference to
culture and engagement
Continue to oversee the development of
the ESG strategy in terms of how it is being
embedded throughout the Group and with
focus on thought leadership in relation to the
private rented sector
Members of the Board participated in cyber
risk war game training in September 2023, in
addition to general cyber risk training. During
2023, the Board received regular updates
on its digitalisation programme and the
implications from an IT and data perspective.
Management reported several planned
activities around the decommissioning of the
legacy IT infrastructure, as well as progress of
migrating to cloud based IT platforms
The Board also attended optional workshops
focused on technology issues
The Group People and Culture Strategy
was presented to, and approved by, the
Board which focused on the culture, skills,
characteristics and diversity needed to
underpin the Group’s overall strategy
The Board discussed and approved its ESG
strategy in 2023. In addition, it has been
reviewing regular ESG updates. The Board had
an ESG Champion throughout 2023
People and Culture:
•
Increase the diversity of metrics used to
measure culture and behaviours
• Greater linkage of people and culture to
the Group’s overall strategy
• Overseeing the appointment of a new
Chief People Officer
Board Oversight
•
Improved understanding of the
business through training and
development programmes
• Facilitate further strategic oversight by
dedicating sufficient time on the agenda
to shaping strategic direction and
monitoring progress on delivery
• Board deep dives to refine the
governance approach for oversight of
material projects
Board Reporting
• Continue to improve the quality of
information to the Board
• More discussion time on strategic delivery
• This continues to be developed by the
Board. The Group Remuneration and
People Committee has spent time refining
the reference metrics to be used for ESG
performance measurement
• A Group People and Culture strategy
was approved by the Board in 2023 and
implementation has commenced
• Facilitation of inductions and board training
to assist with the development of Board
members’ knowledge and capabilities to
enhance their effectiveness, whilst leveraging
business insights from the Board Champions
to ensure they are discussed and considered
as part of strategic deliberations
• The Board attended a series of optional
deep dive topics during 2023 to improve
their understanding of the business
• The Company Secretary has been supporting
more strategic agenda setting for Board
meetings to facilitate strategic oversight
In 2023 the Board conducted a dedicated
session on oversight of material projects
•
• Continued support of the information
flow between the Board and senior
management. Work is underway to improve
the type of information, as well as tools
to facilitate improved board reporting. As
part of plans to enhance the corporate
governance framework, terms of reference
will be reviewed, clarifying matters
reserved for the Board and where overall
responsibility for decision making lies,
including committee contribution in line
with recommendations from the Financial
Reporting Council (FRC) to support the
Board’s effectiveness in decision-making
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Group Nomination and Governance Committee Report
Dear Shareholder,
This report is presented to you in my capacity as Chair
of the Group Nomination and Governance Committee.
Committee members and
meeting attendance
David Weymouth
(Chair)
Sarah Hedger4
Noël Harwerth
Former Director
Mary McNamara
6/6
4/4
6/6
2/2
1 Korn Ferry also act as Remuneration Consultant to
the Group Remuneration and People Committee,
Korn Ferry has no other connection with the
Company or any individual Director.
2. Per Ardua Associates has no other connection
with the Company or any individual Director.
3. Odger Berndston has no other connection
with the Company or any individual Director.
4. Sarah Hedger was appointed to the Committee
on 11 May 2023.
The Group Nomination and Governance
Committee is responsible for leading the
process for the appointment of new members
of the Board and provides oversight and
guidance to the Board on all Corporate
Governance matters in relation to the Group.
Board and Executive Director succession are
key priorities for the Committee, as we prepare
for potential Board changes in the coming
years. From a non-executive perspective, we
are monitoring succession activity for the
SID, Chair of the Group Audit Committee
and Board Chair positions, all of whom are
serving their third appointment terms as
independent directors. The Committee is
cognisant of the importance of these roles in
terms of leadership, and strategic oversight of
the organisation, and will leverage the support
of Per Aruda Associates2 to search for viable
candidates that will not only complement
the existing dynamics, diversity, skills and
experience, but also meet the future strategic
requirements of the Group.
As reported in my last report, the Committee
recommended Kal Atwal to the Board. She
was appointed on 7 February and stood for
election at the 2023 AGM. More information
on her appointment and induction is detailed
throughout this report.
We recently announced that our CFO, April
Talintyre, would be retiring from the Board
and will not stand for re-election at the 2024
AGM. In consultation with the CEO, the
Committee has taken this opportunity to
reassess the scope of this role, by reallocating
the responsibility of the Human Resources
function to a stand-alone and newly created
Chief People Officer position. Our meetings
at the end of 2023 have focused on both
roles. Korn Ferry1 will support the succession
of the CFO. Odger Berndston3 has been
commissioned to assist the CEO in his pursuit
of a candidate to join his executive leadership
team as Chief People Officer.
In addition to succession, the Committee
regularly monitored the Board’s skills,
experience and diversity. This also extended
to our key subsidiary undertakings. In my last
report, I mentioned our subscription to the
Women in Finance Charter and achieving the
recommended representation of females in
senior roles across the Group. In March 2023
and earlier than anticipated, we achieved
our published commitment that by the end of
2023, 33% of senior roles would be undertaken
by female employees. Whilst the end of 2023
figure had dropped slightly to 32.9%, we have
set an enhanced target of achieving 40% by
the end of 2026. We will continue to improve
on broader diversity metrics and have already
exceeded Parker Review and Hampton-
Alexander guidelines with two board directors
from an ethnic minority and 50% female
representation on the Board. See pages
134-135 for more information on diversity and
inclusion within the Group.
The Group adheres to best practice in
relation to corporate governance which is in
line with the Code and the requirements of
the PRA and FCA. The Board, its Committees
and the boards of the subsidiary companies
operate effectively and have an appropriate
balance of diversity, skills, experience,
availability, independence and knowledge of
the Group to enable them to discharge their
respective responsibilities effectively.
David Weymouth
Chair of the Group Nomination and
Governance Committee and Chair of
the Board
14 March 2024
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Group Nomination and Governance Committee Report continued
Board and Committee composition and
succession planning has been a main
focus throughout the year.
David Weymouth Chair of the Group Nomination and Governance Committee
Attendance, membership
and meetings
The Committee met a total of six times
during 2023. The members of the Committee
are Noël Harwerth, Sarah Hedger and
David Weymouth (Chair of the Board), the
biographies of whom can be found on pages
106-107. Mary McNamara ceased to be a
member of the Committee on 11 May 2023
upon her retirement. The CEO is regularly
invited to attend, as appropriate.
Responsibilities
The Committee is responsible for the
oversight and monitoring of corporate
governance matters across the organisation,
including the composition of the Board
and its Committees, Board evaluations
and succession, as well as the plans for
key leadership positions and making
recommendations to the Board as
appropriate. The Committee also oversees
Board Director conflicts of interest. The
specific responsibilities and duties of
the Committee are set out in its terms of
reference which are available on our website,
www.osb.co.uk.
Following an annual review of the terms
of reference and on consideration of the
activities conducted during the year,
the Committee is satisfied that they
have appropriately discharged their
responsibilities. The Board commissioned
Independent Audit in 2023 to assist
with targeted survey questions on the
effectiveness of the Board. The results of
these survey questions were discussed
and areas for continual improvement
were noted. The 2023 Board Evaluation
concluded that the Committee continued
to operate effectively and the membership
remained appropriate.
Balance and independence
The Board comprises five NEDs, the Chair
of the Board and two Executive Directors.
All of the NEDs, including the Chair of
the Board, have been determined by the
Board to be independent in character and
judgement and free from relationships or
circumstances which may affect, or could
appear to affect, the relevant individual’s
judgement. The independence of the NEDs
is reviewed continuously, including a formal
annual review. Any NED who does not meet
the independence criteria will not stand for
election or re-election at the AGM.
Conflicts of interest
The Company’s Articles set out the policy for
dealing with Directors’ conflicts of interest
and are in line with the Companies Act 2006.
The Articles permit the Board to authorise
conflicts and potential conflicts, as long
as the potentially conflicted Director is not
counted in the quorum and does not vote on
the resolution to authorise the conflict.
Directors complete their annual confirmation
(fitness and propriety questionnaires),
which requires them to declare any external
interests and potential conflicts. They are
required to declare their interests in the
business to be discussed at each Board and
Committee meeting. The interests of new
Directors are reviewed during the recruitment
process and authorised, if appropriate, by
the Board at the time of their appointment.
The Group Nomination and Governance
Committee reviews conflicts of interest
relating to Directors at least annually;
periodic reviews are also undertaken as
required. The Group has adopted a Conflicts
of Interest Policy, which includes a procedure
for identifying potential conflicts of interest
within the Group.
No Director had a material interest in any
contract of significance in relation to the
Group’s business at any time during the year
or at the date of this report.
Board appointments and
succession plans
On the recommendation of the Committee,
the Board considers all Director
appointments, which is supported by
following a transparent, formal recruitment
process that is overseen by the Committee.
Priorities for 2024 will be:
• Board and Executive succession
planning, ensuring that there is
a strong talent pipeline within
senior management
• Enhancing the Group’s
Corporate Governance
Framework
• Continue to monitor and oversee
the Board’s commitments to
drive its diversity, equity and
inclusion initiatives and targets
• Overseeing the 2024 External
Board Performance Review
• Overseeing compliance with the
UK Corporate Governance Code
2024, effective 1 January 2025
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Group Nomination and Governance Committee Report continued
The Committee makes recommendations to
the Board regarding Director appointments,
either to fill a vacancy or as an addition to
the existing Board. Succession plans are
also considered by the Group Nomination
and Governance Committee. Appointments
and succession plans are based on merit
and objective criteria and, within this
context, promote diversity of gender, social
and ethnic backgrounds, cognitive and
personal strengths.
All Directors, with the exception of April
Talintyre, will stand for re-election at the
forthcoming AGM. In addition to any power
of removal conferred by the Companies Act,
any Director may be removed by special
resolution, before the expiration of their
period of office and, subject to the Articles,
another person who is willing to act as a
Director may be appointed by ordinary
resolution in their place.
During the year, both Board and Executive
Director level succession planning were
considered by the Board, including ways
in which existing skills could be developed
further and identified additional skills
which would complement the Board and
its Committees. Korn Ferry was appointed
to assist with CFO succession planning
and provided independent advice to the
Committee during 2023. Per Ardua is the
appointed Board succession planning adviser
and assisted with the search for new NEDs.
All members of the Board were invited
to participate in succession planning
discussions during the year.
Board composition
The skills and composition of the Board
and its Committees is kept under review by
the Group Nomination and Governance
Committee, ensuring that an appropriate
balance of knowledge, experience and
diverse representation.
The Board commissioned external Executive
Search agency, Per Ardua, for the Non-
Executive Director candidates. After an
extensive search and rigorous interview
process, the decision was made to appoint
Kal Atwal as a NED with effect from
7 February 2023. The Board composition
and succession plans remain under regular
review, as three NEDs (namely the Chair of
the Board, Group Audit Committee Chair
and SID) are in their third appointment term,
along with the CFO’s intended retirement.
The Group Nomination and Governance
Committee focused on effective and robust
succession plans for both NEDs and Executive
Directors in order to fill any potential skills
gaps and to continue to develop broader
diversity within the Board. As well as
advising on CFO succession, Korn Ferry
has acted as the independent remuneration
consultant to the Group Remuneration and
People Committee. Korn Ferry has no other
connection with the Company.
Board and Committee
effectiveness
The Committee oversees the annual
effectiveness review of the Board and
its Committees. In 2023 the review was
completed internally and focused on
holistic effectiveness of the Board and
Board Committees. The performance of
individual directors was not assessed. The
process included the completion of various
questionnaires, covering the Board and Board
Committees issued by Independent Audit.
Overall the review concluded that the Board
and all Committees continue to operate
effectively. Some areas were also identified
as opportunities for improvement.
Composition of the Board
and its Committees
The Committee conducted a review of the
composition of the Group Audit, Group
Remuneration and People and Group
Risk Committees and its own composition
during 2023, carefully considering the skills
of existing members and looking at any
skills gaps applicable to each Committee.
In relation to the effectiveness of this
Committee, it was found that members
were unanimous in their decisions following
detailed discussion; the meetings are chaired
well and supported by internal functions of
the Group. The focus of the Committee was
strong in all aspects of its key responsibilities,
particularly in relation to diversity, equity
and inclusion and overseeing Executive
Director succession planning.
Induction
All Directors newly appointed to the Board
undergo a thorough induction plan. During
2023, Kal Atwal had one-to-one meetings
with the Chair of the Board, existing NED,
CEO, CFO, Group General Counsel and
Company Secretary, members of the
Group Executive Committee and other
senior managers. She also had access to
various corporate documents and product
guides and received a briefing on Directors’
responsibilities and obligations. All Board
members are provided with the opportunity
to visit all Group’s offices.
Environmental, Social
and Governance
ESG continues to be a key area for the
Board and its Committees and is expected
to remain a focus in the coming years.
During 2023 the Board hosted a joint event
with the Board of Arup in order to share
and learn from ESG strategies employed
by each organisation.
Following Sarah Hedger’s appointment as
Chair of the Group Remuneration and People
Committee, Kal Atwal was recommended
and appointed as the ESG Champion in her
stead to facilitate Board engagement on
ESG matters.
Further details on the Group’s ESG initiatives
is included on pages 69-93
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Group Nomination and Governance Committee Report continued
Diversity and inclusion
The Board recognises and embraces
the benefits that diverse and inclusive
representation can bring to its Board
and sees it as an essential element for
maintaining competitive advantage. The
Board has agreed to a set of Commitments
(contained within Group’s Diversity, Equity
and Inclusion Policy, approved in March
2023 and available on the website at www.
osb.co.uk) to address behavioural, gender
and ethnic bias and basing appointments
on merit and objective criteria and, within
this context, promoting diversity of gender,
social and ethnic backgrounds, cognitive and
personal strengths. The Board’s adherence to
the FCA Listing Rule requirement demonstrate
the desire to achieve both a diverse Board
and workforce. These commitments are
considered by the Committee alongside the
Group Remuneration and People Committee
which considers the wider workforce
perspective. Both Committees continue
to drive the ambition of ensuring that the
Board and workforce is representative of the
communities in which the Group operates.
The Committee considers the benefits of
all aspects of diversity, including but not
limited to, the balance of skills necessary
for the Board to effectively discharge its
responsibilities and additional training or
development required for existing or newly
appointed Board Directors. These differences
are considered in determining the optimum
composition of the Board and, where
possible, will be balanced appropriately.
All Board appointments are made on merit,
in the context of the skills, experience,
independence and knowledge which the
Board as a whole requires to be effective.
Looking ahead, and following the publication
of the PRA consultation paper on ‘Diversity
and Inclusion in PRA-regulated firms’
(CP18/23), the Committee, together with the
Group Remuneration and People Committee,
will supervise the analysis of, and response
to, the consultation.
The Group asks employees to complete
diversity questionnaires to confirm their
gender and ethnicity as part of the
onboarding process, on a voluntary self-
reporting basis. Data relating to senior
management gender and ethnicity was
sourced from this existing data. Data relating
to the gender and ethnicity of the Board was
collected by way of a year end questionnaire,
on a voluntary self-reporting basis.
As at 31 December 2023 the Company
therefore met the following targets specified
by the Listing Rules of the FCA:
The tables below and on page 135
set out the required information as at
31 December 2023.
• At least 40% of the Directors were women
• At least one of the senior positions on the
Board was held by a woman
• At least one individual on the Board was
from an ethnic minority
As at 31 December 2023, we are pleased
report the following:
• 50% female representation on the Board
(2022: 40%)
• Two Senior Board positions held
by females
• Two members of the Board were from an
ethnic minority background.
• 27.3% of the Executive Management was
female (2022: 25%)
• 32.9% of our senior management across
the Group were female (comprising of
the Group Executive Committee and their
direct reports) (2022: 31.4%)
• No changes in Board composition have
occurred between year end and the date
of approval of this Annual Report and
Accounts which would affect the Group’s
ability to meet those targets
Jason Elphick is the appointed Diversity
and Inclusion Champion. His role is to
promote diversity initiatives such as our
commitment to those with a disability, mental
health in the workplace and unconscious
bias training. The Employee Engagement
Network, Our Diversity, consists of volunteer
representatives from across the Group who
are interested in elevating the conversation
in relation to Diversity, Equity and Inclusion
(DE&I) in line with the Respect Others value.
The DE&I calendar for 2023 has enabled
the network to create and host a range of
activities aimed at raising awareness and
providing resources to support conversations
relating to gender, ethnicity, faith/religion,
disability, sexual orientation, identity, socio-
economic background, and health and
wellbeing. The Our Diversity network reports
to the ESG Technical Committee, which in
turn provides updates to the Committee and
the Board on all matters relating to DE&I.
Further details relating to diversity, equity and
inclusion are set out on pages 84 and 179-180
Men
Women
Other
Not specified/prefer not to say
Number of Board members
Percentage of the Board
Number of senior positions on the Board
(CEO, CFO, SID and Chair of the Board)
Number in Executive Management1
Percentage of Executive Management1
2022
2023
5
4
0
0
4
4
0
0
2022
56%
44%
0%
0%
2023
50%
50%
0%
0%
2022
2023
2022
2023
2
2
0
0
2
2
0
0
9
3
0
0
8
3
0
0
2022
75%
25%
0%
0%
2023
72.7%
27.3%
0%
0%
1.
In accordance with the requirements of the FCA Listing Rules and for the purposes of this table only ‘Executive Management’ comprises the Group Executive Committee, which includes the Company Secretary.
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Group Nomination and Governance Committee Report continued
Table for reporting on ethnic background
White British or other White (including minority-white groups)
Mixed/Multiple Ethnic Groups
Asian/Asian British
Black/African/Caribbean/Black British
Other ethnic group, including Arab
Not specified/ prefer not to say
Number of
Board members
Percentage of
the Board
Number of senior
positions on the Board
(CEO, CFO, SID and Chair
of the Baord)
Number in Executive
Management1
Percentage of
Executive Management1
6
0
2
0
0
0
75%
0%
25%
0%
0%
0%
4
0
0
0
0
0
10
0
1
0
0
0
92%
0%
8%
0%
0%
0%
1.
In accordance with the requirements of the FCA Listing Rules and for the purposes of this table only ‘Executive Management’ comprises the Group Executive Committee, which includes the Company Secretary.
Key Activities during 2023
In last year’s report, the Committee identified three key priorities. A summary of actions taken and outcomes are set out in the table below.
Objective
Action taken
Board and Group Executive Committee succession
plans and invite all NEDs to attend such meetings of
the Committee
• Oversaw the search and recommended Kal Atwal’s appointment as a non-executive Board director, including as member of the
Group Remuneration and People Committee. The Committee also assessed the skills and competencies of Sarah Hedger and Simon
Walker, recommending them as successor Chairs of the Group Remuneration and People and Group Risk Committees respectively
Oversee the development of a structured workforce
engagement plan to build upon the engagement provided
by employee forums, including face-to-face engagement
and informal visits
Review of NED experience and time commitment and Board
Directors’ conflicts
• Focused on the succession plans for those non-executives directors who were either approaching or in their third appointment
term. Whilst all roles were considered priority, the Committee agreed to expedite the successor for the Group Audit Committee
Chair with the roles of the SID and the Chair of the Board to follow
• Monitored the succession of key executive positions including the talent and diversity pipeline beneath this population
•
Invited the full Board to attend key discussions regarding succession planning
• Clarified the roles of the Board appointed Champions for Consumer Duty, ESG, Whistleblowing and People
• Discussed the skills and experience on the Board, identifying where particular skills are required. From a potential overboarding
perspective, the Committee reviewed the time commitments of its non-executive population, focusing on Noël Harwerth, Kal
Atwal and the Chair of the Board. The review concluded that non-executives complied with regulatory requirements and have
sufficient time to commit to the role
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Group Audit Committee Report
Dear Shareholder,
The Group Audit Committee report for 2023 sets out
how the Committee has discharged its responsibilities
and the areas of focus for the Committee during the
year ended 31 December 2023.
Committee members and
meeting attendance1
Rajan Kapoor2
(Chair)
Noël Harwerth
Sarah Hedger2
Simon Walker2
Former Directors
Graham Allatt3
8/8
8/8
8/8
8/8
2/3
1.
In addition to the eight scheduled meetings, four ad-hoc
Group Audit Committee meetings were held during
the year.
2. Rajan Kapoor, Sarah Hedger and Simon Walker are
qualified chartered accountants and all have recent and
relevant financial experience having held senior positions
within the banking and financial services sectors.
3. Graham Allatt stepped down from the Board and the
Committee on 11 May 2023.
The Committee has continued to support the
Board in overseeing the systems of internal
control and ensuring the integrity of the
Group’s financial statements.
A key area of focus for the Committee was
challenging management’s accounting
judgements and estimates following an
observed change in the behaviour of Precise
Mortgages customers in a rising interest rate
environment. The Committee considered the
requirement of financial reporting standards
to adjust the carrying value of the loan book
through net interest income once a change
in customer behavioural trend became
apparent and challenged management
on the significant judgements required in
estimating how long customers would spend
on the higher reversion rate in the future. The
Committee also challenged when the change
in behavioural trend became observable
and was satisfied that this was through the
course of the first half of 2024.
After detailed consideration of the
accounting rules, analysis of the emerging
data and input from the external auditor,
the Committee supported management’s
conclusion that the reduction in the
expected time spent on the reversion rate
by Precise Mortgages customers resulted
in an adverse EIR adjustment of £178.0m
on an underlying basis (£205.7m on a
statutory basis) in the first half of 2023. The
Committee has continued to closely monitor
the impact of EIR accounting on the Group’s
financial results and the planned delivery
of enhancements to the Group’s modelling
processes, and second line oversight.
In addition to EIR accounting, the Committee,
in conjunction with the Group Risk
Committee, also challenged management
on the calculation of expected credit losses
(ECL) in accordance with IFRS 9.
The Committee focused on model
enhancements and analysis, with
management judgements applied on
historical data trends to factor in the impact
of the macroeconomic outlook, including
inflation and interest rate movements, as well
as the longer term climate factors.
The Committee reviewed the steps
taken by management to enhance the
Group’s internal control environment
and monitored regulatory and corporate
governance developments.
Throughout 2023, maintaining audit quality
remained a priority. The Committee monitored
the performance of the external auditor and
assessed the independence and effectiveness
of the external audit process. More details can
be found on pages 140-141. The Committee
also reviewed the independence and
objectivity of the Chief Internal Auditor in
line with the requirements of the Internal
Audit Financial Services Code of Practice,
given her tenure exceeds seven years. The
Committee concluded that the Chief Internal
Auditor remained independent and objective
and the quality, experience and expertise
of the internal audit function is appropriate
for the business. The on-going adherence to
professional standards by the internal audit
team was confirmed by a quality assurance
review conducted by an external firm.
The Committee closely tracked and
responded on the corporate governance
reform proposals during the year and
we note the new Code and reporting
requirements from 2025, which reflect the
feedback received from various stakeholders.
The Committee also fully complies with
the Financial Reporting Council’s (FRC)
Minimum Standards for Audit Committees
and its terms of reference have been
updated accordingly.
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Group Audit Committee Report continued
The Committee’s performance and
effectiveness were also reviewed as part of
the Board Evaluation undertaken during the
year and further details can be found on
pages 129-130.
Membership and meetings
The Committee had eight scheduled
meetings during the year and four additional
ad-hoc meetings focusing on the adverse
EIR adjustments.
In addition to my role as Chair of
this Committee, I act as the Group’s
Whistleblowers’ Champion and have overall
responsibility for the integrity, effectiveness
and independence of the Group’s
whistleblowing policies and procedures.
I would like to thank all Committee members
for their diligent contribution during 2023.
Rajan Kapoor
Chair of the Group Audit Committee
14 March 2024
The current members of the Committee are
Rajan Kapoor (Chair), Noël Harwerth, Sarah
Hedger and Simon Walker. Full details of their
experience can be found on pages 106-107.
All members of the Committee are
independent NEDs who have significant
senior management and Board-level
experience in the banking and financial
services sectors. Rajan Kapoor is a fellow of
the Institute of Chartered Accountants and
a fellow of the Chartered Institute of Bankers
in Scotland. Simon Walker and Sarah Hedger
are both qualified chartered accountants.
As such, the Committee has an appropriate
balance of skills and competence relevant to
the sector in which the Group operates.
Standing invitations to Committee meetings
are extended to the Board Chair, Executive
Directors, the Group CRO, the Group Chief
Internal Auditor and the external audit
partner, all of whom attend meetings as
a matter of practice. Other non-members
may be invited to attend all or part of any
meeting, as and when appropriate.
Responsibilities
The specific responsibilities and duties of
the Committee are set out in its terms of
reference which are available on our website,
www.osb.co.uk.
Group Audit Committee –
key responsibilities
Internal control and risk management
• Review systems of internal control over financial reporting to identify,
assess and monitor financial risks and other internal control and risk
management systems
• Review and approve systems and controls for the prevention of
bribery and procedures for detecting fraud including conduct risk
and related activities
• Review the adequacy and effectiveness of anti-money laundering
systems and controls
• Review the adequacy of the Group’s whistleblowing arrangements
and procedures
Financial and non-financial reporting
• Review and recommend to the Board, the long-term viability
statement and the adoption of the going concern basis for the
preparation of the year-end and interim financial statements
• Monitor the integrity of the financial statements, including annual
and interim reports, trading updates, Pillar 3 disclosures and any
other formal announcements relating to financial performance
• Provide challenge and oversight on the consistency, quality and
appropriateness of significant accounting policies and judgements and
on the methods used to account for significant or unusual transactions
• Ensure compliance with all appropriate accounting standards and
regulatory reporting requirements
• Consider and recommend changes to accounting policies to
the Board
• Review and challenge, where appropriate, all material information
included in the Annual Report and the financial statements, such
as the business review and the corporate governance statements
relating to the audit and to risk management
• Advise the Board whether the Annual Report and Accounts is fair,
balanced and understandable.
Internal and External Audit
• Review and monitor the effectiveness of the Group’s internal and
external audit arrangements
138
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Group Audit Committee Report continued
Activities during 2023
The principal activities undertaken by
the Committee during the year are
described below.
Viability and going concern
The Committee reviewed the current position
of the Group, along with principal and
emerging risks, and assessed the prospects
of the Group before recommending the
Group’s long-term viability statement for
approval by the Board. The Committee also
undertook a review, before recommending
to the Board, that the going concern basis
should be adopted in preparing the annual
and interim financial statements. Further
details are set out on pages 67-68 and 181.
Alternative performance measures
The Committee provided oversight and
challenge in relation to the use of alternative
performance measures (APMs) in the interim
financial statements and Annual Report and
Accounts to ensure that these were applied
consistently and remained relevant. The
Group presents APMs on an underlying basis,
alongside the statutory basis, which helps
demonstrate the performance of the Group
on a consistent basis and enables meaningful
comparisons to prior years. See pages 42
and 265-267 for further details.
As APMs are important measures of how the
Group performed, the Committee asked
the external auditor, Deloitte, to provide
assurance on their computation. Deloitte was
selected as the Committee considered that
they could perform the work efficiently and
economically. The Committee was satisfied
that this assignment did not affect Deloitte’s
independence as external auditor. A copy of
Deloitte’s independent assurance statement
can be found on pages 183-192.
Financial reporting and regulatory
disclosures
During the year the Committee reviewed
and, recommended for Board approval, the
Annual Report and Accounts, the Interim
Results, quarterly trading updates, EIR
Trading Update and analysts’ presentations.
The Committee also approved the Group’s
Pillar 3 regulatory disclosures for publication
on the Group’s website.
As part of its review, the Committee assessed
management’s application of key accounting
policies, significant accounting judgements
and compliance with disclosure requirements.
The Committee carefully considered the
presentation of results on a statutory and
underlying basis to ensure transparency and
consistency throughout.
Significant areas of judgement
and estimates considered by
the Committee
The Committee considered management’s
significant accounting judgements and use of
accounting policies in relation to the interim
and full-year results of the Group. In its
assessment, the Committee received reports
from management and provided challenge in
relation to each area of significant judgement
and management’s recommended approach.
The Committee also sought the views of
the external auditor on the accounting
treatment and judgements underpinning the
financial statements.
Details of the significant areas of judgement
and estimates can be found on page 139.
Fair, balanced and understandable
The Committee considered, on behalf of the
Board, whether the 2023 Annual Report and
Accounts taken as a whole are fair, balanced
and understandable.
The Committee considered regulatory and
governance reporting requirements, the
going concern and longer-term viability
statements and reports from management
on significant accounting judgements
and estimates.
Following its review, the Committee was
satisfied that the 2023 Annual Report and
Accounts taken as a whole are fair, balanced
and understandable and accurately reflect
the information necessary for shareholders
and stakeholders to assess the Group’s
position and performance, business
model and strategy in line with section 172
requirements as outlined on pages 8 and
117-126. The Committee was also satisfied
that the non-financial information within the
Annual Report is consistent with the financial
statements and with the use of APMs and
associated disclosures.
The Committee’s primary
objective is to assist the Board
in overseeing the systems of
internal control and external
financial and narrative reporting
across the Group.
Rajan Kapoor Chair of the Group Audit Committee
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Group Audit Committee Report continued
Significant issues considered How these were addressed by the Committee
Effective interest
rate
A number of assumptions are made when calculating the EIR for newly-originated loan assets. These include their expected redemption profiles, product switching
activity and the anticipated level of any early redemption charges (ERCs). Certain mortgage products offered by the Group include significant directly attributable
fee income; in particular, certain Buy-to-Let products and/or those that transfer to a higher revert rate after an initial discount or fixed period. Judgement is used in
assessing the expected rate of prepayment during the discounted or fixed period and during the period post rate reversion. The Group uses historical experience of
customer behaviour in its assessment along with the economic outlook and market conditions.
The Committee reviewed and challenged management’s assessment of the drivers of recent prepayment behaviour, in both the fixed and reversionary periods, and
whether these were expected to be temporary or longer-term in nature. The assessment in relation to the Precise segment considered higher than expected early
repayments during the fixed period, which increased ERC income and accelerated the recognition of net fee income, and concluded that this was temporary in
nature as customers looked to lock in their cost of borrowing in a period of extreme interest rate volatility. The assessment also included refinancing behaviour in the
reversionary period, which had accelerated during the first half of the year as customers looked to lock in their cost of borrowing, and concluded that this was likely to
continue in a higher base rate environment, due to the significant step up in rates in the reversionary period, and the Group’s active retention programmes offering more
favourable rates.
The Committee received and reviewed sensitivities illustrating the impact of extending or shortening the expected weighted average lives of organically originated
loan portfolios, which influence the expectation of income earned at higher reversionary rates; the period over which fees are recognised; and the expectations of
early repayment income. The Committee noted that the portfolios were most sensitive to the assumption of time spent on the higher reversion rates and reviewed and
challenged management’s proposed sensitivity disclosures. Having considered all of the evidence, the Committee is satisfied that the approach taken and judgements
and estimates made were reasonable.
Further details of the above significant areas of judgement and estimation can be found in note 2 to the financial statements.
Loan book expected
credit losses (ECL)
The Committee, in conjunction with the Group Risk Committee, received reports from management and challenged the approach to provisioning for loan book ECLs.
The Committee provided oversight of the IFRS 9 framework including the Group’s enhancements to models and application of post model adjustments, which account for
movements in interest rate and inflation.
The Committee consulted the Group’s economic advisers who provided their view and insight into macroeconomic scenarios and proposed probability weightings. The
Committee focused on management’s proposals on the probabilities attached to the economic scenarios and approved the final weightings utilised within the Group’s
impairment calculations.
The Group continued to utilise four scenarios; an upside, base case and two downside scenarios. The Group undertakes regular industry benchmarking of the economic
scenarios, weightings and the resulting overall coverage. These benchmarks, in addition to insight from the Group’s economic advisers, support management in the
selection and weighting of economic scenarios.
The Committee reviewed the key assumptions and judgements to ensure that these appropriately reflect the economic environment. The Group has ensured that the
identification of Significant Increases in Credit Risk remains appropriate, in addition to making post model adjustments for model limitations, including the impacts of
cost of living and cost of borrowing.
The Committee reviewed management’s assessment of indications of impairment of the Group’s tangible, intangible assets and investments in subsidiaries at the
Company level. The Committee noted the reduced balances for merger related intangibles (following the Combination with CCFS in October 2019) and was satisfied that
there was no impairment in tangibles, intangibles or investments in subsidiaries at the Company level.
Tangibles,
intangibles and
investments in
subsidiaries
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Group Audit Committee Report continued
Systems of internal control
and risk management
The Committee reviewed and approved
the Compliance Risk Assessment and
Assurance Plan and received regular reports
from the Group’s Compliance function.
The Committee used the Internal Audit
and Compliance Reports to support its
assessment of the effectiveness of the
Group’s system of internal controls and
risk management. The Committee also
received a report on the effectiveness of the
Group’s system of controls from the CEO,
which was based on a self-assessment
process completed by senior managers and
Executives. The Committee continues to
review operational incidents and ensures that
appropriate follow up action is taken.
The Committee received and reviewed reports
from management on key controls over the
accuracy and completeness of the financial
statements, the status of the substantiation
of balance sheet general ledger accounts
at the reporting date and judgements made
in the calculation of regulatory capital
disclosures including the interpretation of
regulatory requirements and the supporting
external professional advice. In addition, the
Committee requested and reviewed reports
from management on the Group’s Finance
function. The Committee also received and
reviewed reports on planned enhancements
to internal IT access controls to address
control deficiencies identified by internal and
external audit. The systems of internal control
and risk management have been in place
throughout the year under review and up to
the date of approval of the Annual Report
and Accounts.
The Committee reviewed and approved a
number of policies following their annual
update, including; anti-bribery and corruption,
data protection, data retention and record
management, fraud, sanctions, loan
impairment provisioning, whistleblowing,
anti-money laundering and prevention of
terrorist financing. The Committee received
reports on fraud prevention arrangements,
fraud incidents, whistleblowing, financial crime
systems and controls and received an annual
report from the Money Laundering Reporting
Officers for the two Banks during the year.
Whistleblowing
The Committee is responsible for monitoring
the Group’s Whistleblowing Policy and
arrangements. Where concerns have been
raised, a detailed report is provided on the
investigation, actions taken, lessons learnt
and changes made as a result.
The Committee Chair has overall responsibility
for whistleblowing arrangements with
oversight from the Board. Training and periodic
updates are provided to all employees who
are encouraged to use the multiple channels
available to raise any concerns they may have.
Training is also provided to line managers and
those involved in any investigations to ensure
that they comply with relevant regulations. No
concerns were raised that required a report to
be made either to the Board or the regulators.
Taxation
The Committee received an update on the
Group’s tax position and discussed matters
such as the relationship with HMRC and tax
compliance status. The Committee approved
the Group’s UK tax strategy, which is
available on our website, www.osb.co.uk.
External auditor
The Committee is responsible for overseeing
the Group’s relationship with its external
auditor, Deloitte. This includes the ongoing
assessment of the auditor’s independence
and the effectiveness of the external audit
process, the results of which inform the
Committee’s recommendation to the Board
relating to the auditor’s appointment (subject
to shareholder approval) or otherwise. The
Committee holds regular private sessions
with the external auditor.
External auditor independence,
objectivity and effectiveness
The Committee assesses the effectiveness
of the external audit function on an annual
basis. This year the review was facilitated by
a questionnaire completed by members of
the Committee, the Executive Directors and
other key employees who had significant
interaction with the external audit team
during the year.
The questionnaire focused on the
effectiveness of the lead partner and audit
team, the audit approach and execution,
the role of management in the audit process,
communication, reporting and support to
the Committee as well as the independence,
scepticism and objectivity of the external
auditor. The assessment concluded that the
external audit process was effective and
objective, and some areas for improvement
were suggested.
As part of the evaluation, the auditor was
requested to explain the risks to audit quality
and how these have been addressed and to
detail any findings from internal and external
inspections of their audit.
The Committee also considered whether
the external auditor had met the agreed
audit plan and whether the management
letter was based on a good understanding
of the business. As part of the review, the
Committee took into account the non-audit
services provided during the year and
confirmations given by Deloitte as to its
continued independence.
Following this review, the Committee
is satisfied that the external auditor’s
independence, objectivity and effectiveness
has been maintained.
External auditor appointment
and tenure
The Group’s external audit contract was put
out for tender for the 2019 financial year and
the next external audit tender is expected to
be in 2028 for the financial year 2029.
Rob Topley has been the statutory auditor
since 2019, and in compliance with mandatory
lead partner rotation standards will rotate off
the audit at the conclusion of the 2023 audit.
In anticipation of this change, the Committee
met with a number of potential successors
and considered that Ben Jackson has the
experience and knowledge to take on this role.
The Committee confirms that the Group
has complied with the Statutory Audit
Services for Large Companies Market
Investigation (mandatory use of competitive
tender processes and Audit Committee
Responsibilities) Order 2014, which requires
FTSE 350 companies to put their statutory
audit services out to tender no less frequently
than every 10 years. There are no restrictive
contractual provisions or third parties limiting
the Company’s choice of auditor and a
resolution to re-appoint Deloitte as external
auditor will be presented at the AGM.
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Group Audit Committee Report continued
External audit plan and reports
The Committee reviewed the plan for
the 2023 audit and was satisfied that
appropriate audit effort was being directed
at all significant areas. The auditors attended
all meetings of the Committee and presented
their detailed reports for their half-year
review and the year end audit on the audit-
related work and conclusions. This included
Deloitte’s view on accounting judgements
made by management, compliance with
IFRSs and observations on controls. The
Committee also received helpful benchmark
data from Deloitte during the year.
Non-audit services
The Committee reviewed and approved the
policy governing the use of the external
auditor for non-audit services, which is
designed to ensure that any provision of
non-audit services to the Group by
the external auditor does not impact
its independence and objectivity. The
Committee closely monitors and receives
regular reports on non-audit services.
The Group maintains active relationships
with several other large firms and any
decision to appoint the external auditor for
non-audit services is taken in the context
of its understanding of the Group, which
can place it in a better position than other
firms to undertake the work, and includes
an assessment of the cost-effectiveness and
practicality of using an alternative firm.
The EU statutory audit market reform
legislation adopted in the UK applies a
cap on permissible non-audit services of
70% of the preceding three-year average
of audit fees for UK incorporated Public
Interest Entities (PIEs). The Revised Ethical
Standard issued by the FRC in December
2019 contained a ‘whitelist’ of permitted non-
audit services, distinguishing between those
which fall under the cap, including extended
assurance work, and those not subject to the
cap, being services required by a competent
authority or regulator by law. The cap is
applicable for financial periods commencing
on or after 17 June 2019. As a result of the
Combination with CCFS and insertion of
a holding company in 2020, the Group
contains multiple PIEs and the application of
the rules are considered carefully for each
PIE. The rules on capping non-audit services
is applicable to the Company for the first
time in 2023 (based on the average audit
fees for 2020, 2021 and 2022), to OSB for the
first time in 2022 (based on the average audit
fees for 2019, 2020 and 2021) and applied to
CCFS for the first time in 2020 (based on the
average audit fees for 2017, 2018 and 2019).
Notwithstanding the above effective dates,
the Committee maintained a cap for
non-audit services in 2023 of 50% of audit
services. The Committee pre-approved a
number of non-audit services including in
respect of proposed Tier 2 and Senior Holdco
debt issuances, compliance tools in India,
interim profit verifications, the half-year
review, assurance review of Alternative
Performance Measures in the Annual Report
and Accounts, Taskforce for Climate-related
Financial Disclosures (TCFD), and reporting
on the Inline Extensible Business Reporting
Language (iXBRL) tagging of Financial
Statements. The Committee also agreed
mandates for the CFO and Committee
Chair to approve additional permitted
engagements, subject to agreed thresholds.
The fees paid to the external auditor in
respect of non-audit services during 2023
totalled £895,000, representing 23% of
2023 Group audit fee of £3,869,000 (2022:
£546,000, representing 16% of 2022 Group
audit fee of £3,415,000) and are summarised
in the table below. All non-audit services
provided by Deloitte were assurance-related
in nature and consistent with the role of the
external auditor. No advisory or consulting
services were provided.
Audit-related assurance services include
the interim review and profit verifications
for regulatory purposes. Other assurance
services in 2023 include an assurance
review of APMs, iXBRL and ESG disclosures
and certain ESG metrics (2022: assurance
review of APMs, iXBRL, ESG disclosures and
ESG metrics). Other non-audit services
primarily comprise work related to reporting
accountant work and the Euro Medium-Term
Note comfort letter (2022: work related to
reporting accountant work and the Euro
Medium-Term Note comfort letter where we
did not issue due to market volatility).
Fees payable to the Company’s auditor for the audit of the
Company’s annual accounts
Fees payable to the Company’s auditor for the audit of the
accounts of subsidiaries
Total audit fees
Audit-related assurance services
Other assurance services
Other non-audit services
Total non-audit fees
Group
2023
£’000
Group
2022
£’000
81
75
3,788
3,869
487
366
42
895
3,340
3,415
254
259
33
546
Total fees payable to the Group’s auditor
4,764
3,961
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Group Audit Committee Report continued
Internal Audit
The Committee is responsible for approving
the remit of Group Internal Audit, together
with the annual Internal Audit plan and
ensuring that it has adequate resources and
appropriate access to information to enable
it to perform its function effectively and in
accordance with the relevant professional
standards. The Committee approved the
Group Internal Audit Charter in October
2023, which formally defines Internal Audit’s
purpose, authority and responsibility and
can be found on our website, www.osb.co.uk.
The Internal Audit function is resourced with
an in-house team supported by a panel
of third party independent accountancy
and consultancy firms that provide expert
resource (on a co-source basis) for specific
technical/specialist audits which included a
review of progress in relation to digitisation.
The Group Internal Audit team has grown
in size, developed its methodology and
matured its assurance to support the growth
ambitions of the Group.
The Committee holds private sessions with
the Group Chief Internal Auditor and ensures
that the Internal Audit function has adequate
standing and is free from management,
or other restrictions, which may impair
its independence and objectivity. On an
annual basis, the Committee assesses the
effectiveness of the Internal Audit function.
In 2023, this was facilitated by a survey
completed by Committee members, the
Group Executive Committee (excluding
the Group Chief Internal Auditor) and
the external auditor, who maintains a
close relationship with the Internal Audit
function. The Committee also reviewed the
independence and objectivity of the Chief
Internal Auditor in line with the requirements
of the Internal Audit Financial Services Code
of Practice, given her tenure exceeds seven
years. As part of the review, the Committee
considered the continued exercising of
professional scepticism; ethical conduct;
compliance with relevant regulations, and
the effectiveness of her leadership. Regular
performance reviews were conducted and
the on-going adherence to professional
standards by the internal audit team were
confirmed by an external consultancy review.
The Committee concluded that she remained
independent and objective and the quality,
experience and expertise of the internal audit
function is appropriate for the business.
The Committee received regular updates
from the Group Chief Internal Auditor
on progress against the 2023 Internal
Audit Plan and noted the results of audit
assignments, significant findings and
themes, and any outstanding audit action
points. This is a dynamic plan, which is
updated on a quarterly basis to capture any
emerging risks that required assurance. In
addition, the Committee, together with the
Group Executive Committee and external
auditor, received written reports following
the conclusion of each Internal Audit
engagement. Management actions on all
Internal Audit recommendations were tracked
and reported to the Committee. As well as
monitoring progress with the 2023 Internal
Audit Plan, the Committee also considered
and approved the 2024 Plan, which is based
on an assessment of the key risks faced by
the Group.
Committee effectiveness
The Committee formally evaluates its
performance on an annual basis. This year,
the assessment was facilitated using a survey
completed by members of the Committee
and other attendees, including the external
auditor. The review concluded that the
Committee operated effectively throughout
2023 with no significant improvements
required. An internally facilitated Board and
Committee effectiveness review was also
undertaken, which included the Committee
and further details can be found on
pages 129-130.
The Committee undertook training during
the year, including making extensive use
of training programmes run by the major
accountancy firms and other external
advisers. In addition, Committee members
attended a number of in-house workshops on
specific areas and completed all mandatory
training. Some members of the Committee
also interacted with key employees during
the year to increase their knowledge and
understanding of the business.
Common membership across the
Group’s Committees facilitates effective
communication lines between the
Committees regarding finance, risk and
remuneration matters, and ensures that
agendas are aligned and duplication of
responsibilities is avoided.
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Group Risk Committee Report
Dear Shareholder,
The Committee has continued to discharge its risk
oversight, review and challenge responsibilities effectively
during a period of continuing uncertainty and change.
Committee members and
meeting attendance
Simon Walker
(Chair)
Noël Harwerth1
Rajan Kapoor
Former Director
Graham Allatt2
7/7
6/7
7/7
3/3
1. Noël Harwerth was unable to attend one meeting due to
personal circumstances.
2. Simon Walker assumed the role of Chair of the Risk
Committee when Graham Allatt stepped down from the
Board and Chair of the Committee on 11 May 2023.
The Committee remains focused on the
risks to the Group’s strategic, business and
regulatory agenda based on the Board-
approved risk appetite. Throughout the year,
the Committee has ensured that appropriate
and timely decisions have been taken in order
to manage the Group’s risk profile during a
period of heightened economic uncertainty
and change. The Committee has focused
on navigating the uncertainties and risks
arising from the increasing cost of living and
cost of borrowing, changing customer and
competitor behaviours.
Continued volatility in global markets,
alongside the collapse of some banks in the
US with potential for contagion to UK banks,
coupled with ongoing conflict in Ukraine,
continuing interest rate rises, the rising cost
of living and cost of borrowing in the UK, has
been a challenging backdrop against which
the Committee has discharged its duties. The
Committee has responded positively to these
challenges while remaining mindful of the
increasing regulatory and supervisory focus
as a result of the Group’s growth. The Group
has also needed to respond to a significant
uplift in its regulatory obligations impacting
both financial resources (Resolvability
Assessment Framework (RAF)) and desired
customer outcomes (Consumer Duty).
The Committee has overseen and further
guided the Group’s development of its risk
management frameworks, risk appetite
and key regulatory submissions such as
the Internal Capital Adequacy Assessment
Process (ICAAP), Internal Liquidity Adequacy
Assessment Process (ILAAP) and Recovery
Plan, as well as ensuring that appropriate
levels of risk governance and oversight
have been maintained over the individually
regulated entities. The Committee, together
with other NEDs have attended workshops in
the year including a Risk Appetite Workshop
organised by management and the
Committee has received updates on some
important enhancements that have been
made this year to the Group’s approaches
and methodologies, as well as tools and
capabilities, to enhance the ILAAP analysis
and to strengthen its analytical rigour.
A number of key regulatory projects have
been subject to review, discussion and
challenge by the Committee including the
Internal Ratings-Based Approach (IRB),
RAF Operational Continuity in Resolution
(OCIR), Treasury Management System
(TMS) and Asset and Liability Management
(ALM) projects.
The Committee, jointly with the Group
Audit Committee, has provided a significant
level of review and challenge to IFRS 9
based methodologies, judgements and
estimates, economic scenario calibrations
and weightings, including the adequacy of
individually assessed provisions. It has also
ensured that the total level of expected credit
loss provisions at the Group and its regulated
entities are commensurate with the wider risks
and uncertainties. Assessment of risk-based
capital and funding requirements, including
supporting methodologies and assumptions,
have been subject to Committee review and
recommendation for Board approval as part
of the Group and regulated entities’ ICAAP,
ILAAP and Recovery Plan.
The Committee has closely scrutinised the
Group and its regulated entities’ risk profiles
against the Board-approved risk appetites,
requesting focused reviews and deep dives
to better understand emerging trends
and incidents.
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Group Risk Committee Report continued
IRB is an important strategic initiative that
is intended to enhance risk management
capabilities. Regular updates are presented
at each Committee meeting on progress
against plan, use and integration of IRB
outputs within credit underwriting, credit
risk management, capital planning and
stress testing processes. The Committee has
exercised oversight and approval of IRB and
IFRS 9 based models and policies through
its sub-committee, the Group Models and
Ratings Committee.
The Committee has overseen efforts
to enhance the Group’s operational
resilience capabilities in line with industry
good practice and emerging regulatory
requirements, as well as continuing to
oversee the alignment and enhancement of
the Group’s approach to risk and controls
assessment based on a single system
platform and common standards. The
Committee has reviewed the enhancements
made to the Operational Risk Framework and
Risk and Control Self-Assessments (RCSA)
process to ensure consistency and alignment.
Simon Walker
Chair of the Group Risk Committee
14 March 2024
• Review reports on risk appetite thresholds, identify where
a risk of a material breach of risk limits exists and ensure
proposed actions are adequate
• Provide challenge and oversight to the Recovery Plan
framework
• Monitor risks arising from Climate Change
Internal Controls and Risk Management
• The Group is organised along the ‘three lines of defence’
model to ensure at least three stages of independent
oversight to protect the customer and the Group from
undue influence, conflict of interest and poor controls
• The first line of defence is provided by the operational
business functions which identify, measure, assess and
control risks through the day-to-day activities of the
business within the frameworks set by the second line of
defence. The second line of defence is provided by the Risk,
Compliance and governance functions which include the
Board and Group Executive Committee
• The third line of defence is the Internal Audit function
Group Chief Risk Officer (CRO) and
risk governance structure
• Consider and approve the remit of the Risk function
• Recommend to the Board the appointment and removal of
the Group CRO
• Review all reports from the Group CRO and monitor
management’s responsiveness to the Group CRO’s findings
• Receive summary reports from senior risk management
committees
Group Risk Committee –
key responsibilities
• Set a clear tone from the top in relation to a risk-based
culture to foster individual and collective accountability for
risk management
• Ensure the Group organises and resources its risk
management and oversight functions across the first and
second line effectively
• Provide oversight to key regulatory initiatives
Risk appetite and assessment
• Actively assess performance against risk appetite and
challenge management to ensure that the Board’s
strategic, business and regulatory objectives are not put at
unacceptable levels of risk
• Advise the Board on overall risk appetite, tolerance and
strategy
• Review risk assessment processes that inform the Board’s
decision-making
• Consider the Group’s capability to identify and manage
new risks
• Advise the Board on proposed strategic transactions,
including acquisitions or disposals, ensuring risk aspects
and implications for risk appetite and tolerance are
considered
Risk monitoring and framework
• Review credit risk, interest rate risk, liquidity risk, market
risk, compliance and regulatory risks, solvency risk,
conduct risk, reputational risk, financial crime risk and
operational risk exposures by reference to risk appetite
• Continuously review, challenge and recommend
enhancements to the Group’s ERMF
• Challenge and oversee the ICAAP and ILAAP frameworks
• Monitor actual and forecast risk and regulatory capital
positions
• Recommend changes to capital utilisation
• Monitor the actual and forecast liquidity position
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Group Risk Committee Report continued
Membership and meetings
The Committee met seven times during the
year. The current members are Simon Walker
as Chair, Noël Harwerth and Rajan Kapoor.
Simon Walker succeeded Graham Allat as
Chair of the Group Risk Committee after the
Annual General Meeting on 11 May 2023.
In addition to the members of the Committee,
the Chairman of the Board has a standing
invitation to the Committee, along with the
CEO, CFO, Group Chief Internal Auditor,
Chairman of CCFSL, Group CRO and Group
Chief Credit and Compliance Officer, unless
the Chair of the Committee informs any of
them that they should not attend a particular
meeting or discussion.
Committee objectives and
responsibilities
The primary objective of the Committee
is to provide oversight, advice and
recommendations to the Board on current
risk exposures and future risk strategy
and, to assist the Board to promote a
culture within the Group that emphasises
and demonstrates the benefits of a risk-
based approach to internal control and
management of the Group.
The specific responsibilities and duties of
the Committee are set out in its terms of
reference, which are available on our website,
www.osb.co.uk.
Activities during 2023
The key areas of the Committee’s focus during
2023 are outlined in the following pages.
Risk appetite
The Committee played an active role in
shaping and assessing the design of the
Group’s risk appetite in the context of
the economic and business outlook and
uncertainties, the strategic growth agenda
of the Group and regulatory developments.
The Committee reviewed and recommended
to the Board for approval, the Group’s risk
appetite metrics and thresholds, noting
the need for the Group to tighten its
appetite across a number of risk types to
reflect heightened levels of external and
internal risks, ensuring that they remained
appropriate and aligned to the Group’s
strategic agenda, business plans and
stress testing capabilities. Members of the
Committee attended dedicated workshops
run by management, which focused on the
risk appetite methodologies and details of
how the supporting analysis was conducted.
Risk appetites are set at both Group and
solo banking entity levels. The Committee
reviewed the Group’s position against
risk appetite across all principal risks
and escalated issues to the Board, where
appropriate, and endorsed the risk
appetite statements, metrics and limits for
Board approval for the Group’s strategic
digitalisation programme.
Internal Ratings-Based Programme
The Committee oversees the performance
and regulatory compliance of the Group’s IRB
rating systems through regular updates from
management at each Committee’s meeting
regarding the Group IRB programme,
including progress made against key
milestones in model development, model
governance and technical enhancements.
The Committee has an established sub-
committee (Group Models and Ratings
Committee) to ensure effective governance
of all the IRB related models. The Committee
is well positioned to provide oversight and
approval of relevant supervisory submissions
relating to the IRB approval process.
potential impacts on the Group’s assets
and liquidity. The Committee reviewed the
updates to market and liquidity risks in the
ILAAP as well as updates relating to the RAF
and the Group’s response to the volatile
macroeconomic environment.
Credit risk
The Committee has monitored the
performance of the Group’s loan book
on both aggregated and asset class
sub-segment bases by assessing the
key indicators of credit quality, security
coverage, affordability and borrower risk
profile. The Committee also assessed
forward-looking credit risk indicators in the
form of bureau data on customer credit
scores, mover alerts and indebtedness,
business and economic early warning
indicators and climate change.
The Committee challenged and approved
updates to policies including the Group
Lending Policy and reviewed the proposal
to tighten credit risk appetite as part of the
annual risk appetite review.
During 2023, the Committee (jointly with the
Group Audit Committee) provided oversight
of the Group’s IFRS 9 methodologies focusing
on key assumptions and the appropriateness
of judgements made and assessed and
approved the Group’s provision adequacy
levels, supported by analysis provided by the
Risk function.
Market risk and liquidity risk
Market risk and liquidity risk are continually
monitored by the Group Assets and
Liabilities Committee (ALCO), which provides
reports to the Committee. The Committee
reviewed ALCO’s regular assessments of
the UK macroeconomic environment and
The Committee also reviewed and
recommended the market and liquidity risk
appetite to the Board for approval. The
Committee oversaw the Group’s liquidity
management plans during the year in order
to ensure that liquidity positions remained
appropriate against the uncertain economic
backdrop arising from the Russian invasion
of Ukraine, and the political disruptions in
the UK and historically high levels of inflation
feeding through into a pronounced change
in Bank of England monetary policy (base
rate increases) resulting in a rapid economic
slowdown coupled with cost of living and cost
of borrowing challenges in the UK.
Solvency risk and ICAAP
The Committee reviewed the Group ICAAP,
which demonstrates how the Group
would manage its capital resources and
requirements during a plausible but severe
period of stress. The Committee also reviewed
the bespoke macroeconomic stress scenarios
produced by an independent third party
engaged by the Group to support ICAAP
Pillar 2B stress testing activity.
The Committee also reviewed and challenged
the Group Capital Plan and monitored total
capital and Common Equity Tier 1 (CET1)
forecasts throughout the year, ensuring
that risks were understood and managed
appropriately. The solvency risk appetite was
reviewed and recommended to the Board
for approval.
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The Committee is chaired by the Group Risk
Committee Chair, Simon Walker. The other
members of the Committee are Rajan Kapoor
and April Talintyre. Simon Walker succeeded
Graham Allatt as Committee Chair after the
AGM on 11 May 2023.
Board Capital and Funding Committee
The Board Capital and Funding Committee
is a Committee of the Board. Its primary
objective is to approve capital, funding and
equity activities of the Group consistent with
Board approved plans.
The Committee met two times during the
year. The current members are David
Weymouth as Chair, Simon Walker, Rajan
Kapoor, Andy Golding and April Talintyre.
Graham Allatt ceased to be a member on
11 May 2023.
Group Risk Committee Report continued
Operational risk
The Committee received reports on
operational risks at each of its meetings.
The reports covered risk incidents that had
arisen to allow the Committee to assess
management’s response and remedial action
proposed. The reports also covered key risk
indicators (KRIs), which can be quantitative
or qualitative and provided insights regarding
changes in the Group’s operational risk
profile. The Committee also reviewed and
recommended the operational risk appetite
to the Board for approval.
The Committee also provided oversight and
guidance in relation to the programme of
activities focused on enhancing the Group’s
systems and procedures for the assessment
of operational risks and controls as well as
the management of operational risk events.
Conduct, regulatory and financial
crime risks
The Committee received reports covering
conduct, regulatory and financial crime
KRIs on a quantitative and qualitative basis,
which provided insight into changes in the
Group’s conduct, regulatory and financial
crime risk profiles. The Committee also
assessed enhancements to the conduct,
regulatory and financial crime risk appetites
before recommending them for approval
by the Board. The Committee reviewed the
implementation of the programme of work
undertaken during the year to ensure that
the Group successfully met the deadline for
the first phase of the delivery of Consumer
Duty. The Committee has provided
continuous oversight of progress ensuring
alignment with regulatory expectation
and the Group’s commitment to ensuring
that customers receive good outcomes.
The Committee has continued to progress
its oversight responsibilities over some
key strategic programmes of the Group
including the digitalisation programme,
IRB, Consumer Duty and General Data
Protection Regulation.
Enterprise Risk Management
Framework
The Committee has reviewed the ERMF in
line with its annual review cycle to ensure
it remains fit for purpose in the context of
the Group’s strategic objectives, business
model, risk profile and industry practice. An
independent review of the Group’s ERMF
and accompanying sub-frameworks was
conducted in 2022 and undertaken by an
external firm to ensure that the ERMF remains
aligned to industry practice. The Committee
monitored the closure of all actions
recommended by the external firm to ensure
that they were tracking in line with agreed
timetables and the Committee has endorsed
the updated ERMF in the last quarter of 2023
for Board approval. The Committee continues
to monitor the integration of Climate Risk into
the ERMF and the Climate Risk Management
Framework which sets out how the Group
identifies, assesses, monitors and manages
the climate risk to which it is exposed to
ensure that the Group’s approach to climate
risk is in line with the regulator’s expectations.
Committee effectiveness
The Committee undertakes an external
effectiveness review once every three years,
with the next scheduled in 2024. This year a
self-evaluation was undertaken and, similar
to the 2022 self-evaluation, concluded
that the Committee continues to operate
effectively. Recommended areas of focus
will be addressed by the Committee during
2024, which will set the scene for the formal
external evaluation exercise to be conducted
this year. More information can found in the
Corporate Governance Report on pages
129-130.
Other risk types
The Committee reviewed the Group profiles
of credit risk, climate change risk and
business and strategic risk against their
respective risk appetites. Further details on
climate-related risks are set out in the TCFD
report on pages 94-102.
Other Committees
Group Models and Ratings Committee
The Group Models and Ratings Committee
is a sub-committee of the Group Risk
Committee and met six times during the year
including one ad hoc meeting.
The primary purpose of the Committee is
to act as the designated Committee for the
purpose of material aspects of the rating
and estimation processes (as articulated in
Article 189 of the EU Capital Requirements
Regulation) and provide assurance of
the Group’s models and ratings systems,
including IRB, IFRS 9 and other risk-based
models. The Committee also exercises
oversight over credit risk models and provides
an appropriate level of challenge in relation
to model construction and validation to
ensure that the models are appropriate,
robust and fit for the purpose for which
they are intended. The Committee has also
directed management on how to monitor
model performance.
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Directors’ Remuneration Report
Annual Statement by the Chair of the Group Remuneration and People Committee
Dear Shareholder,
As Chair of the Group Remuneration and People Committee,
I am pleased to present the 2023 Directors’ Remuneration
Report. This report is set out in three sections:
1. This Annual Statement in which I set out the background and rationale to
the key decisions on remuneration;
2. The Directors’ Remuneration Policy (the Policy) which provides the
framework under which remuneration is structured which will be presented
to shareholders for a binding vote at the 2024 AGM; and
3. The Annual Report on Remuneration, which together with the Annual
Statement will be presented to shareholders for an advisory vote at the
2024 AGM. This report provides details of how Directors were paid during
2023 and how we intend to operate the Policy over the 2024 financial year.
Committee members and
meeting attendance
Sarah Hedger1
(Chair)
Noël Harwerth
Rajan Kapoor
7/7
7/7
7/7
David Weymouth2
Kal Atwal3
6/7
5/6
Overview of 2023 performance and
incentive outcomes
2023 has seen strong operational performance,
set against financial performance negatively
impacted by the significant adverse EIR
adjustment discussed on pages 36-37. As a
result, the payout under the Balanced Business
Scorecard (Scorecard) and the 2021 Awards
under the Performance Share Plan (PSP) are
much reduced.
Whilst there has been solid performance in
the customer, quality and ESG segments of
the Scorecard, the threshold financial targets
have not been met, other than in relation
to net loan book growth where the stretch
target was exceeded. As a result, 7.5% out of
the 50% allocated to the Financial segment
was earned.
Our customers are key stakeholders and the
Scorecard incorporates key measures of how
we treat them, including customer NPS and
the level of complaints. Our customer scores
continue to be sector leading and above
target NPS scores were achieved for Lending,
Savings and Brokers. This resulted in 12.35%
out of the 15% allocated to the Customer
segment being earned.
The achievements in the Quality segment
resulted in 11.93% out of the 15% allocated
being earned, which reflected the strength
of our controls environment with the levels
of Arrears being well managed within the
risk framework and a low number of High
Severity Incidents.
The ESG segment is based on environmental
and employee metrics. There continues to
be good progress on ethnicity and gender
diversity targets in senior leadership, and
employee engagement scores have been
pleasing. However, the targeted reductions
in emissions were not achieved and, as a
result, 5.5% of the 10% allocated to the ESG
segment was earned.
As an underpin, the Committee also considers
whether the Scorecard’s formulaic outcome
reflects the Group’s risk appetite and profile
and considers current and potential future risks.
The bonus payout under the Scorecard
metrics is 37.33% out of the 90% of the
2023 Executive Directors’ Bonus Scheme
attributable to the Scorecard.
The remaining 10% of the Executive Directors’
Bonus Scheme is based on the achievement
of stretching personal objectives.
Performance against personal objectives was
considered by the Board and Committee to
be strong. This resulted in a payout of 7.0%
and 5.5% out of the maximum 10% of bonus
payout for the CEO and CFO respectively.
Total payouts under the 2023 Executive
Directors’ Bonus Scheme are therefore
44.33% and 42.83% of maximum for the
CEO and CFO respectively. The bonus is
paid half in cash and half in shares, with the
shares held for a minimum of three years and
up to seven years for a portion, in line with
regulatory requirements.
Former Director and Chair
Mary McNamara4
1. Sarah Hedger assumed the role of the Chair of the Group Remuneration and People Committee 11 May 2023.
2. David Weymouth was unable to attend one meeting due to personal circumstances.
3/3
3. Kal Atwal was appointed to the Board on 7 February 2023 and missed one meeting due to prior engagements.
4. Mary McNamara stepped down from the Board and as Chair of the Committee on 11 May 2023.
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Directors’ Remuneration Report continued
Annual Statement by the Chair of the Group Remuneration and People Committee continued
Full details of the performance conditions
and bonus payments are provided on page
158 of this report. The targets for each
measure were set at the start of the year and
assessed by the Committee following the end
of the financial year, liaising as necessary
with the Group Audit Committee and Group
Risk Committee Chairs.
Overview of 2023 performance and
incentive outcomes continued
The underlying operational performance of
the business in 2023 was strong, with loan
book growth exceeding the stretch target.
The Committee carefully considered the
impact of the adverse EIR adjustment on the
wider stakeholder experience and concluded
it was appropriately captured by the reduced
payout under the Financial segment of the
Scorecard. As a result, discretion was not
used to adjust the formulaic outcome.
The 2021 Awards under the PSP were
based on performance over the three-year
period which ended on 31 December 2023.
Performance was based 35% on Earnings
Per Share (EPS) growth; 35% on Total
Shareholder Return (TSR) versus companies
in the FTSE 250 Index (excluding Investment
Trusts); and 15% each on Return on Equity
(RoE) and an assessment of the Group’s
overall risk performance.
Performance against the EPS target range
exceeded the threshold so 40.56% of the
EPS part of the Award was earned. The
TSR of 21.1% growth over the performance
period reflects the impact of the adverse EIR
adjustment and placed the Group just below
the upper quartile of the FTSE 250 peer
group and therefore 95.1% of the TSR part of
the Award was earned. The average RoE over
the performance period was 21.1% resulting
in 76.7% of the RoE part of the Award being
earned. As prescribed by the performance
condition, the Committee undertook a
qualitative assessment of the Group’s risk
performance over the period using an overall
assessment prepared by the Group CRO
and endorsed by the Chair of the Group Risk
Committee. The Committee concluded that
80% of maximum had been achieved. Full
details of the PSP assessment are included
on page 159.
In total, 70.96% of the maximum PSP
Awards have been earned. The Committee
is comfortable there has been a clear and
strong link between reward, performance and
the broader stakeholder experience over the
three-year performance period (including the
experience of customers) and discretion was
not used to adjust the incentive outcome.
These PSP Awards will vest in five equal
tranches between 2024 and 2028, with
the shares being subject to a further
one-year holding period and malus and
clawback provisions.
Review of the Directors’
Remuneration Policy
The Policy was last approved by shareholders
at the 2021 AGM and therefore has been
reviewed by the Committee ahead of its
triennial renewal at the 2024 AGM. The
Committee is comfortable the existing
Policy has operated well during the recent
period of economic and market challenges
and has delivered a strong link between
pay and performance. The Committee is
therefore proposing only a few changes to
ensure the structure of the Policy remains
appropriate to retain and motivate existing
management as well as support senior
management succession.
The main changes to the Policy are as follows:
Annual bonus metrics: Currently, the
Policy sets the proportion of the Bonus
linked to individual performance to be
10%. The new Policy provides additional
flexibility to base up to 20% of the Bonus on
individual performance, with an appropriate
percentage of between zero and 20% used
for each individual. The balance of Bonus
outcome would continue to be assessed
using collective performance against
the Scorecard.
Higher percentages for individual objectives
will be used where it is important to drive
strategic initiatives. They will be tailored
appropriately for each Executive Director
and performance will be subject to detailed
scrutiny. For 2024, it is intended that 5% of
the CEO’s and 15% of the CFO’s total bonus
opportunity will be based on individual
strategic performance objectives.
Recruitment Policy: The individual
maximum limits for the Bonus and PSP for
Executive Directors are currently 110% of
annual salary. The Committee proposes
to increase both of these limits to 135% of
annual salary for newly appointed Executive
Directors to provide additional flexibility
in the design of the package. The Policy
requires that the current Executive Directors
(Andy Golding and April Talintyre) continue
with an individual limit of 110%.
The Committee considers that this
commercial flexibility is important and has
also noted that the regulatory cap limiting
variable pay to two times fixed pay for
Executive Directors and employees within
the banking sector was removed by the
PRA at the end of 2023. The Committee will
nevertheless ensure that the 135% limits for
new executives are used responsibly, to offer
competitive packages in the context of senior
management succession and the skillsets
of those new executives, with the possibility
of a reshaped package offering lower fixed
pay and higher variable pay. The Committee
would continue to ensure that appropriately
challenging performance targets are set
for higher variable pay and would ensure
the overall packages were appropriately
positioned versus the market.
Executive Directors’ remuneration
is aligned with performance, risk
and pay policies throughout the
organisation.
Sarah Hedger Chair of the Group Remuneration
and People Committee
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Directors’ Remuneration Report continued
Annual Statement by the Chair of the Group Remuneration and People Committee continued
Implementation of the Policy
in 2024
The new Policy will be implemented
as follows:
• Salary: The salary for the CEO will
be increased by 3.0%, lower than the
workforce average of 4.7% (excluding
additional Real Living Wage adjustments
to be made for a number of junior
employees in April 2024). The salary for
the CFO will be unchanged in light of her
impending retirement.
• Pension: The pension contribution remains
at 8% of salary, which is aligned to the
rate for the majority of the workforce.
• Annual Bonus: The Committee has
reviewed the metrics and concluded that
the ESG segment (previously weighted as
10% of the Scorecard) should be moved
to the PSP, as it is more appropriate to
measure performance over the longer
term now more robust methodologies,
baselines and prior year data are in
place, and to incentivise fundamental
operational changes. The performance
measures remain largely unchanged,
with the weightings of the Financial and
Customer segments increased to 65%
and 20% respectively, with the Quality
segment remaining at 15%. There will
continue to be an underpin, so the
Committee can consider whether the
formulaic outcome reflects the Group’s
risk appetite and profile, and considers
current and potential future risks. Full
details of the metrics and weightings are
provided on page 156.
The Committee has determined that the
percentage of the CEO’s bonus based
on individual performance should reduce
from 10% to 5% for FY24, with his personal
objectives set to support the digitalisation
of the Group. The percentage of the CFO’s
bonus based on individual performance
(which will be earned for the proportion
of the year that she is actively employed
and exclude any period of garden leave)
will increase from 10% to 15% for FY24. Her
personal objectives have been set to ensure:
a smooth hand-over to her successor,
delivery against the Board approved
Capital Strategy and Plan, and to support
for the digitalisation of the Group.
The remaining percentage outcome
for the CEO and CFO (95% and 85%,
respectively) will be based on the outcome
from the FY24 Scorecard (whose structure
is summarised above).
Half of any bonus will be paid in shares,
which may not be sold for at least
three years.
• PSP Awards: A PSP award of 110% of
annual salary will be made to the CEO. A
discount will be applied to the share price
used to calculate the number of shares
granted to reflect the expected dividend
yield on the shares over the performance
period (see page 166 for more details),
an approach which is typical of Financial
Services firms. Performance will be
measured over the three-year period to
31 December 2026. The current CFO will
not receive a PSP award given she will be
retiring from the Company in 2024.
As noted above, an ESG segment will
now be included in the PSP with a 10%
weighting to incentivise delivery of the
ESG strategy over the longer term. The
PSP performance metrics and weightings
are therefore: EPS in 2026 (30%
weighting), relative TSR versus the FTSE
250 Index (excluding Investment Trusts)
(30% weighting), RoE (15% weighting),
Non-financial/Risk (15% weighting) and
ESG (10% weighting).
The targets for each measure are set
out on page 158 of this report together
with their supporting rationale and the
Committee is satisfied that these provide
the appropriate amount of stretch,
taking into account the business plan,
external operating environment and
market expectations. Furthermore, when
assessing the performance outcome,
the Committee may adjust the formulaic
vesting outcome to ensure that it is
aligned with underlying performance,
risk appetite and individual conduct over
the period.
CFO succession
On 2 November 2023, we announced that
April Talintyre, our CFO, would be retiring
after more than 11 years with the Group.
Her remuneration arrangements are in
accordance with the Policy and she has
been treated as a ‘good leaver’ in relation
to her incentive arrangements. We provide
full details of these arrangements on pages
151-152 of this report and will set out further
details of the amounts payable for this year
in next year’s report.
Review of Chair of the Board’s fees
During the year, the Committee reviewed
the Chair’s fee and determined that the fee
should increase by 3% from £346,500 to
£356,895. Further details on the changes to
NED fees are on page 154.
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Directors’ Remuneration Report continued
Annual Statement by the Chair of the Group Remuneration and People Committee continued
Consideration of shareholder views
As part of the Policy review process we
engaged with our top 20 shareholders
(representing over 50% by value) as well
as the main shareholder advisory bodies.
Shareholders were generally supportive of
the proposed changes to the Policy, with
feedback that there should be effective,
transparent disclosure and a strong rationale
for the implementation of the Policy, which
the Committee committed to provide. The
Committee also received feedback from
certain shareholders in relation to Resolution
2 at the 2023 AGM approving the Directors’
Remuneration Report. This received a
larger than expected number of shares
voting against (although still receiving in
excess of 80% support). The Committee
understands that this vote against was
primarily as a result of a perceived windfall
gain on the vesting of the 2020 PSP Awards.
The Committee sought to provide these
shareholders with comfort that a robust
assessment had been undertaken and the
rationale for the Committee’s decisions. The
Committee believes that these shareholders
were comfortable with the explanations
provided and will keep this feedback in mind
when considering the operation of the PSP in
the future.
Consideration of employee policies
and views
As the NED responsible for representing the
workforce on the Board, I regularly meet with
employees, individually and through forums
such as Our Voice, to understand their views,
including those on remuneration, and report
these views to the Board. During 2023, the
Policy was discussed with Our Voice, setting
out how Executive Directors’ remuneration is
governed and how the Policy is aligned with
the wider workforce’s remuneration polices.
Views were sought on the approach to senior
management remuneration. Our Voice
was supportive of the balanced approach
to measuring performance through the
Scorecard, individual performance objectives
and the PSP. Further details on the activities
of Our Voice can be found on page 189.
Concluding remarks
Having been a member of the Committee
since 2020, I assumed the role of Committee
Chair following Mary McNamara’s retirement
from the Board at the 2023 AGM. I have
been grateful for the input of the Committee
members over the past year and am confident
that the proposed changes to the Policy and
its implementation will continue to support the
Group’s strategy through the coming years.
The Policy and the Annual Report on
Remuneration will both be presented to
shareholders for approval at the 2024 AGM
and I look forward to your support at such time.
Sarah Hedger
Chair of the Group Remuneration
and People Committee
14 March 2024
1. Designated senior managers
include all members of the
Group Executive Committee and
any other senior employees in
independent control functions.
Key responsibilities
• Review and recommend for Board approval the Group
Remuneration Policy
• Review the ongoing appropriateness and alignment
of the Group Remuneration Policy to the Group’s
strategy (including ESG) and its alignment with key
stakeholder expectations
• Review workforce remuneration and related implementation
policies and note, annually, the remuneration trends across
the Group
• Review and recommend for Board approval, the
Remuneration Policy for the Executive Directors, including
pension rights and any compensation payments
• Review and approve the Remuneration Policy for senior
management and the Company Secretary and all
employees who are identified as Material Risk Takers
for the purposes of the PRA’s Remuneration Code (the
Remuneration Code) including pension rights and any
compensation payments
• Review and approve the total individual remuneration
package of the Chair of the Board, each Executive Director,
the Company Secretary and other designated senior
managers1 including bonuses, any other incentive payments
and share-based awards
• Ensure that workforce remuneration practices and culture
are taken into account when determining individual
remuneration packages
• Approve the appointment of remuneration consultants
• Approve the design of, and determine targets for, any
performance-related pay schemes operated by the Group
and approve the total annual payments made under
such schemes
• Provide oversight of people matters within the Group (in
conjunction with the Group Nomination and Governance
Committee), including targets set by the Women in Finance
Charter, Gender Pay Gap reporting, Culture, updates from
Our Voice and outputs from surveys relating to employee
engagement
• Review and approve the Group’s Diversity, Equity and
Inclusion Policy
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Directors’ Remuneration Report continued
Directors’ Remuneration at a glance
An overview of the Directors’ Remuneration Policy and its implementation in FY23.
Salary
Pension/Benefits
Executive Director Bonus Scheme
Feature
To reward for the role and duties
required, recognising experience,
responsibility and performance
Alignment with Workforce policies
Executive Directors salary increases are
normally in line with or lower than the
average of the workforce
Performance Metrics (weighting)
N/A
How we implemented the Policy in FY23
CEO (A Golding)
£889,980 (+5%)
CFO (A Talintyre)
£556,920 (+5%)
How we intend to implement the Policy in FY24
CEO (A Golding)
£916,679 (+3.0%)
CFO (A Talintyre)
£556,920 (0.0%)
Feature
Contributes to retirement
planning and market competitive
benefits to ensure the well-being
of employees
Alignment with Workforce policies
Pension contribution rates for Executive
Directors are the same as for most of the
workforce
The benefits are generally in line with those
available to the wider workforce
Performance Metrics (weighting)
N/A
How we implemented the Policy in FY23 and
how we intend to implement the Policy in FY24
Pension:
8%
of salary
Benefits:
Standard benefits provided to
both Executive Directors
Feature
To incentivise and reward the achievement of pre-defined annual
financial, operational and individual objectives which are closely
linked to the corporate strategy
Maximum opportunity = 110% of salary1
Deferral of 50% of value earned into
shares aligns payout with shareholders’
interests over the longer term
Alignment with Workforce policies
The majority of our workforce participate
in an annual bonus plan, with
performance metrics aligned to business
performance and individual KPIs
Senior employees are required to defer a
portion of their bonus into shares
Performance Metrics
Financial
Customer
Quality
ESG
Individual - CEO
Individual - CFO
% weighting
FY23
FY241
50
15
15
10
10
10
65
20
15
0
5
15
How we implemented the Policy in FY23
CEO:
CFO:
44.33%
42.83%
of maximum
of maximum
50% of bonus deferred into shares for
at least three years
Performance assessment set out on page 159
How we intend to implement the Policy
in FY24
Maximum opportunity
110%²
of salary
ESG segment removed from the
Scorecard and transferred to the PSP,
resulting in Financial and Customer
segment increasing to 65% and 20%,
respectively. CEO and CFO personal
objectives represent 5% and 15% of a
maximum potential, respectively
Targets disclosed retrospectively together
with performance assessment
1. The Financial, Customer and Quality metrics sum to 100% for fY24 because the individual element can now
vary between 0% and 20%.
2. The incoming CFO could have a PSP maximum of 135% for the relevant period of 2024.
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Directors’ Remuneration Report continued
Directors’ Remuneration at a glance continued
Performance Share Plan
Shareholding requirements
Feature
To incentivise and recognise execution of the business
strategy over the longer term
Payable in shares, three-year
performance period, with vesting
in five annual tranches
Maximum opportunity =
110% of salary1
Alignment with
Workforce policies
Only the most senior individuals
participate in the PSP
In FY23, around 98 employees
participated in the scheme
thereby promoting longer-term
performance and aligning them
to shareholders’ interests
Performance Metrics (weighting)
2021 Award vesting:
Relative TSR (35%)
EPS (35%)
ROE (15%)
Non-financial – Risk (15%)
2023 Award granted:
In line with 2021 Award
How we implemented the Policy
in FY23
2021 Award:
70.96%
of the maximum award vested
based on performance over the
three years to FY23
Performance assessment set out
on page 159
FY23 Award:
Awards granted at
110%
of salary
Targets set out on page 158
How we intend to implement the
Policy in FY24
FY24 Awards expected to be
made over a maximum of 110%
of salary for the CEO. No award
will be made to the current CFO
as she will be retiring in 2024
In line with the 2021 Award,
other than EPS and TSR
segments reduced to 30% each
and an ESG segment added
at 10%
1. The incoming CFO could have a PSP maximum of 135% for the relevant period of 2024.
Feature
To increase alignment
between Executive
Directors and shareholders
during employment and
following cessation
Alignment with Workforce policies
Shareholding requirements are
only in place for the most senior
employees to strengthen the
alignment of their interests with
those of our shareholders
Performance Metrics (weighting)
Executive Directors are required
to build up and maintain a
shareholding worth at least 250%
of salary for the CEO and 200% of
salary for the CFO
How we implemented the Policy in
FY23
Value of direct shareholding
CEO:
£3.54m
(398% of salary)
CFO:
£1.54m
(276% of salary)
(based on the share price on 31
December 2023 of £4.6460)
How we intend to implement the
Policy in FY24
No change
The link between pay and the Group’s
performance, strategy, culture and
ESG commitments
Financial
Quality
Strong
governance
and quality of
the business
underpins our
operations
Sustainable
financial growth
of the business
through attractive
margins and
exceptional
returns, measured
across a range of
financial indicators
Strategy
& Culture
Tailored
individual
objectives
in line with
our strategic
priorities and
values
Purpose
ESG
Helping our
customers
prosper in
line with our
Purpose
To support our
Purpose to help
our customers,
colleagues and
communities
prosper
Executive Director Bonus Scheme FY23
110% of salary opportunity with at least 50% deferred into
shares for 3 years
Financial -
50% of bonus
opportunity
Quality - 15%
of bonus
opportunity
Individual -
10% of bonus
opportunity
Customer -
15% of bonus
opportunity
ESG - 10%
of bonus
opportunity
• Underlying PBT1
• All-in RoE1
• Cost to income
ratio1
• Net loan book
growth
• Overdue
management
actions
• Arrears
• High-severity
incidents
• Varies by
Executive
• Customer
satisfaction1
• Broker
satisfaction
• Complaints
• Gender
diversity1
• Ethnicity
diversity
• Environment
(Carbon
emissions)
• Employee
engagement
Performance Share Plan FY23
110% of salary opportunity, with performance assessed over 3 years
and any shares delivered over extended time-horizons
Financial -
50% of PSP
opportunity
Risk - 15%
of PSP
opportunity
Total
Shareholder
Return - 35%
of PSP
• EPS1 (35%
weighting)
• ROE1 (15%
weighting)
• Non-financial/
• Total
Risk
(15%
weighting)
Shareholder
Return vs
FTSE 250
(35%
weighting)
1. Key performance indicators (see pages 2 to 3 and 33 to 35).
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Directors’ Remuneration Report continued
Introduction
This section outlines details of the
remuneration received by Executive Directors
and NEDs in respect of the financial year
ended 31 December 2023. This Annual
Report on Remuneration (the Report) will,
in conjunction with the Annual Statement
of the Committee Chair on pages 147 to
151, be proposed for an advisory vote by
shareholders at the forthcoming AGM to be
held on 9 May 2024.
Where required data provided has been
audited by Deloitte, as indicated throughout
the Report.
Membership and meetings
The Committee met seven times during 2023.
The members of the Committee are Sarah
Hedger (Chair), Kal Atwal (from 7 February
2024), Noël Harwerth, Rajan Kapoor and
David Weymouth. Mary McNamara was
Chair of the Committee until 11 May 2023
when she stood down from the Board with
Sarah Hedger being appointed Chair of
the Committee on the same date. The
attendance of individual Committee
members is set out in the Corporate
Governance Report.
The Board considers each of the members
of the Committee to be independent
in accordance with the UK Corporate
Governance Code.
Responsibilities
The Committee’s responsibilities are set out
in its terms of reference, which are available
on the Group’s website. In summary, the
responsibilities of the Committee include:
• Pay for employees under the
Committee’s scope:
– Setting the Remuneration Policy
– Determining total individual
remuneration (including salary
increases, bonus opportunities and
outcomes and long-term incentive plan
(LTIP) awards)
– Ensuring that contractual terms on
termination, and any payments made,
are fair to the individual and the
Company, that failure is not rewarded
and that the duty to mitigate loss is
fully recognised
• Approving the design of, and determining
targets for, any performance-related pay
schemes operated by the Company and
approving total payments made under
such schemes
Key matters considered by the
Committee in 2023
Key issues reviewed and discussed by the
Committee during the year included:
• Review of the Directors Remuneration
Policy for presentation to shareholders at
the 2024 AGM
• Review and approval of 2023
salary increases
• Review of 2022 bonus awards
• Determining the 2023 grants under
the PSP
• Consideration of remuneration
arrangements for the CEO and CFO
for 2024
• Updates on the performance of the 2023
bonus Scorecard and in-flight PSP awards
• Regular shareholder updates, as well as
the approach and strategy in respect of
shareholder engagement
• Review of pay arrangements across
the Group
• Leaving arrangements for
• Provide oversight of people matters
senior employees including the CFO
within the Group (in conjunction with
the Group Nomination and Governance
Committee) including targets set by the
Women in Finance Charter, Gender Pay
Gap reporting, Culture, updates from Our
Voice and outputs from surveys relating to
employee engagement
Employees under the Committee’s scope
include Executive Directors, the Chair of
the Board, the Company Secretary and all
employees who are identified as Material Risk
Takers for the purposes of the PRA and FCA’s
Dual-regulated firms Remuneration Code.
• Considering and recommending the
Directors’ Remuneration Report to the
Board for approval
• Approval of the 2023 personal
objectives for the CEO, CFO and Group
Executive Committee
• Annual review of the costs and
performance of the external
remuneration consultant
• Considering and recommending the
People and Culture Strategy; and the
Diversity, Equity and Inclusion Strategy
• Other business as usual matters for
employees under the Committee’s scope
Advisers to the Committee
Korn Ferry provided independent advice to
the Committee during 2023, having been
appointed following a competitive tender
process in 2017. The total fees paid to Korn
Ferry in 2023 were £216,360 and were
charged on a time and materials basis.
Korn Ferry has no other connection with
the Company or any individual Director.
Korn Ferry is a member of the Remuneration
Consultants’ Group and abides by the
voluntary code of conduct of that body,
which is designed to ensure that objective
and independent advice is given to
remuneration committees. The Committee is
satisfied that Korn Ferry provides objective
and independent advice.
The Committee consults with the CEO (as
appropriate) and seeks input from the Chair
of the Group Risk Committee to ensure that
any remuneration or pay scheme reflects
the Company’s risk appetite and profile and
considers current and potential future risks.
The Committee also receives input on senior
management remuneration from the CEO,
CFO and Group HR Director. The Group
General Counsel and Company Secretary
(or their nominee) acts as Secretary to
the Committee and advises on regulatory
and technical matters, ensuring that the
Committee fulfils its duties under its terms
of reference.
No individual is present in discussions directly
relating to their own pay.
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Directors’ pay outcomes for 2023
Remuneration and fees payable for 2023 – (audited)
The table below sets out a single figure for the total remuneration received by each Executive Director and NED for the years ending 31 December 2023 and 31 December 2022.
Executive Directors
Andy Golding
April Talintyre
Year
2023
2022
2023
2022
Basic
salary
£’000
879
839
550
525
Taxable
benefits1
£’000
Pension2
£’000
Annual bonus
paid3
£’000
Amount bonus
deferred3
£’000
22
22
16
16
70
67
44
42
217
395
130
247
217
395
130
247
LTIP4,5
£’000
465
1,424
291
969
Total
fixed pay
£’000
Total
variable pay
£’000
971
928
610
583
899
2,214
551
1,463
Total
£’000
1,870
3,142
1,161
2,046
1. Taxable benefits received include car allowance (CEO: £20,000; CFO: £15,000) and private medical cover.
2. Executive Directors currently receive pension contributions (or cash in lieu thereof) of 8% of salary, which is in line with the majority of the workforce.
3. 50% of bonus is payable in cash and 50% in shares deferred for three years in line with regulatory requirements.
4. The LTIP figure for the year ended 31 December 2022 has been restated based on the share price on vesting of £4.91572 for the 2020 PSP.
5. The LTIP figure for the year ended 31 December 2023 has been valued using the fourth quarter share price of £3.61. The value will be restated in next year’s report based on the actual share price on vesting for the 2021 PSP.
Total fees £’000
Chair
David Weymouth
Non-Executive Directors
Graham Allatt1
Kal Atwal2
Noël Harwerth3
Sarah Hedger4
Rajan Kapoor5
Mary McNamara1
Simon Walker2
Total6
2023
2022
346.5
330
49.2
87.7
133.9
122.1
136.5
44.4
129.1
127.5
n/a
127.7
102.5
130
115
105
1,049.4
1,037.5
NEDs cannot participate in any of the Company’s share schemes and are not eligible to join the Company pension scheme.
1. Graham Allatt and Mary McNamara resigned as directors of the Company on 11 May 2023. Graham Allat received £627.80 (2022: £0) for taxable travel expenses; total payments received £49,886 (2022: £127,500).
2. Kal Atwal was appointed on 7 February 2023 and became ESG Champion on 11 May 2023. Kat Atwal received £787.97 for taxable travel expenses; total payments received £88,523. Simon Walker became Chair of the Group Risk Committee on 11
May 2023. Simon’s fee includes £5,250 in relation to his services as Chair of CCFS Risk Committee.
3. Noël Harwerth received £961.76 (2022: £255) for taxable travel expenses; total payments received £134,834 (2022: £127,755).
4. Sarah Hedger received £365.94 (2022: £479) for taxable travel expenses; total payments received £122,489 (2022: £102,979). Sarah became Chair of the Group Remuneration and People Committee and relinquished her role as ESG Champion
on 11 May 2023.
5. Rajan Kapoor received £523.80 (2022: £0) for taxable travel expenses; total payments received £137,024 (2022: £130,000).
6. Total fees shown relate to payments made during 2023 and include certain retrospective payments made in February and March 2024 for services undertaken during 2023.
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Directors’ Remuneration Report continued
Executive Director bonus scheme
2023 has seen strong operational
performance, set against financial
performance negatively impacted by the
adverse EIR adjustment discussed on pages
36-38. As a result, the payout under the
Scorecard and the 2021 Awards under the
PSP are reduced.
Whilst there has been solid performance in
the customer, quality, and ESG quadrants
of the Scorecard, the threshold financial
targets have not been met, other than for
net loan book growth where the stretch
target was exceeded. As a result, 7.5% out of
the 50% allocated to the Financial segment
was earned.
Our customers are key stakeholders and the
Scorecard includes important measures of
how we treat them, including customer NPS
and the levels of complaints. Our customer
scores continue to be sector leading and
above target NPS scores were achieved
for Lending, Savings and Brokers. This
resulted in 12.35% out of the 15% allocated
to the Customer segment of the Scorecard
being earned.
The achievements in the Quality segment
resulted in 11.93% out of the 15% being
earned. This reflected the strength of our
controls environment with the levels of
arrears being well managed within the
risk framework and a low number of High
Severity Incidents.
The ESG segment is based on environmental
and employee metrics. There continues to
be good progress on ethnicity and gender
diversity targets in senior leadership, and
employee engagement scores have been
pleasing. However, the targeted reductions in
emissions were not achieved and, as a result,
5.55% out of the 10% allocated to the ESG
segment was earned.
As an underpin, the Committee also
considered whether the Scorecard’s formulaic
outcome reflected the Group’s risk appetite
and profile and considered the current and
potential future risks.
The bonus payout is therefore 37.33% out of
the 90% of the 2023 Executive Bonus Scheme
attributable to the Scorecard under the
Scorecard metrics.
The remaining 10% of the Executive
Directors’ Bonus Scheme is based on
the achievement of stretching personal
objectives. Performance against personal
objectives was considered by the Board and
Committee to be strong. This resulted in a
payout of 7.0% and 5.5% out of the maximum
10% of bonus opportunity for the CEO and
CFO respectively.
Total payouts under the 2023 Executive
Directors’ Bonus Scheme are therefore
44.33% and 42.83% of maximum for the
CEO and CFO respectively. The bonus is
paid half in cash and half in shares, with the
shares held for a minimum of three years and
up to seven years for a portion, in line with
regulatory requirements.
Full details of the performance conditions
and bonus payments are provided on pages
158-159 of this report. The targets for each
measure were set at the start of the year and
assessed by the Committee following the end
of the financial year, liaising as necessary
with the Group Audit Committee and Group
Risk Committee Chairs.
The underlying operational performance of
the business in 2023 was strong, with loan
book growth exceeding the stretch target.
The Committee carefully considered the
impact of the adverse EIR adjustment on the
wider stakeholder experience and concluded
it was appropriately captured by the reduced
payout under the Financial segment of the
Scorecard. As a result, discretion was not
used to adjust the formulaic outcome.
The 2021 Awards under the PSP were
based on performance over the three-year
period which ended on 31 December 2023.
Performance was based 35% on Earnings
Per Share (EPS) growth; 35% on Total
Shareholder Return (TSR) versus companies
in the FTSE 250 Index (excluding Investment
Trusts); and 15% each on Return on Equity
(RoE) and an assessment of the Group’s
overall risk performance.
Performance against the EPS target range
exceeded the threshold so 40.5% of the EPS
part of the Award was earned. The TSR of
21.1% over the performance period reflects
the impact of the adverse EIR adjustment
and placed the Group just below the upper
quartile of the FTSE 250 peer group and
therefore 95.1% of the TSR part of the Award
was earned. The average RoE over the
performance period was 21.1% resulting in
76.67% of the RoE part of the Award being
earned. As prescribed by the performance
condition, the Committee undertook a
qualitative assessment of the Group’s risk
performance over the period using an overall
assessment prepared by the Group CRO
and endorsed by the Chair of the Group Risk
Committee. The Committee concluded that
80% of maximum had been achieved. Full
details of the PSP assessment are included
on page 159.
In total, 70.96% of the maximum PSP Awards
have been achieved. The Committee is
comfortable there has been a clear and
strong link between reward, performance and
the broader stakeholder experience over the
three-year performance period (including the
experience of customers) and discretion was
not used to adjust the incentive outcome.
These PSP Awards will vest in five equal
tranches between 2024 and 2028, with
the shares being subject to a further
one-year holding period and malus and
clawback provisions.
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Directors’ Remuneration Report continued
The performance against the measures for 2023 is set out below.
Category
Key performance indicator
Financial (50%)
Underlying PBT (£m)
All-in RoE (%)
Underlying Cost to income ratio (%)
Net loan book growth (%)
Customer (15%)
Customer satisfaction – Lending
Customer satisfaction – Saving
Broker satisfaction
Complaints (%)
Quality (15%)
Overdue actions (#)
Arrears (%)
High-severity incidents (#)
ESG (10%)
Gender diversity (%)2
Ethnic diversity (%)2
Environment3
Employee engagement4
Personal (10%)
Varies by Executive
Total
Targets1
Weighting
Threshold
(25%)
Budget
(50%)
Maximum
(100%)
Actual result Outcome CEO Outcome CFO
25%
10%
7.5%
7.5%
3%
3%
4%
5%
5%
5%
5%
2%
2%
3%
3%
556m
19.7%
30.6%
4.1%
40
60
30
585m
20.7%
29.1%
4.9%
45
65
35
614m
21.7%
27.6%
5.7%
50
70
40
426m
16.1%
32.9%
9.4%
45.1
69.7
53.5
0.14%
0.13%
0.12%
0.1243%
5
2.7%
3
32.0%
11.0%
(2)%
696.5
3
2.2%
2
33%
12.0%
(4)%
717.3
2
1.8%
1
34%
13.0%
3.92
1.67%
0
32.9%
14.3%
(6.8)%
(12.0)%
738
732.5
10%
See section below
0%
0%
0%
7.5%
1.53%
2.91%
0%
0%
0%
7.5%
1.53%
2.91%
4.00%
4.00%
3.91%
1.93%
5%
5%
3.91%
1.93%
5%
5%
0.95%
0.95%
2.0%
0.0%
2.6%
7%
2.0%
0.0%
2.6%
5.5%
44.33%
42.83%
1. Targets – based on a sliding scale between threshold, target and maximum.
2. Gender diversity – based on the Group’s commitment to the Women in Finance Charter and the gender diversity of employees in senior roles.
3. Environment based on reduction in Scope 1 and 2 emissions.
4. Employee engagement – Best Companies to Work For survey score.
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Directors’ Remuneration Report continued
2023 personal performance
The Executive Directors could earn up to a maximum of 10% of their bonus based on their performance against agreed personal objectives.
The objectives for 2023 were built around strategic priorities (as identified in our 2022 Annual Report) and cultural indicators. Performance against these objectives for both Executive Directors
was considered to be strong, with the delivery of key objectives in a challenging and uncertain year.
The objectives set at the start of the year and the Committee’s assessment of performance against them are set out below:
Objectives
Key achievements
CEO
Deliver the 2023 strategic objectives in line with the Board-approved
operating plan and as underpinned by a medium-term goal to
position the Group for future growth and development
People, Purpose, Culture – Support the implementation of a
refreshed People and Culture strategy
Deliver external ESG thought leadership in relation to energy efficient
funding in the private rental sector
Customer – Contribute towards the enhancement and embedding
of the Group’s approach to identification, assessment and
management of customer vulnerabilities (including Consumer Duty
requirements) in accordance with the Group’s values and culture,
emerging industry practice and regulatory guidelines
CFO
Deliver the 2023 strategic objectives in line with the Board-approved
operating plan and as underpinned by a medium-term goal to
position the Group for future growth and development
People, Purpose, Culture – Support the implementation of a
refreshed People and Culture strategy
Deliver external ESG thought leadership in relation to energy efficient
funding in the private rental sector
Capital Management – Deliver against Board approved Capital
Strategy and Plan
The Group delivered strong operational performance, set against financial performance negatively impacted
by the adverse EIR adjustment discussed on pages 36-38
The Board approved a People and Culture Strategy during 2023 for deployment in 2024
Continued to enhance governance around the Group’s ESG Strategy. The Group published articles on the
private rental sector regarding Energy Performance Certificate ratings in industry publications. Created a
Landlords Leadership forum
Successful implementations of Consumer Duty by the regulatory deadline for live products at the end of July.
The Group enhanced its processes around identification and treatment of vulnerable customers
The Group delivered strong operational performance, set against financial performance negatively impacted
by the adverse EIR adjustment discussed on pages 36-38
The Board approved a People and Culture Strategy during 2023 for deployment in 2024
Continued to support governance enhancements around the Group’s ESG Strategy. The Group published
articles on the private rental sector regarding Energy Performance Certificate ratings in industry publications.
Created a Landlords Leadership forum
Delivered clarity to the market on our capital management framework at the 2022 preliminary result
Lead the Group’s lobbying effort on the Basel 3.1 consultation paper. Successful issuance of Tier 2 and MREL
capital instruments to support meeting our interim MREL requirement
Successfully completed a £150m share buyback
Based on this performance, the Committee determined that 7% and 5.5% of a possible 10% for the individual element of the bonus should be paid to the CEO and CFO respectively.
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Directors’ Remuneration Report continued
2023 bonus scheme payout
Based on performance against the Scorecard
and individual objectives, the CEO and CFO
earned 44.33% and 42.83%, respectively
of their maximum bonus. The Committee
believes that this payout is appropriate,
reflecting the underlying performance of
the Group after the adverse EIR adjustment
and the wider stakeholder experience, and
discretion was therefore not used to adjust
the outturn.
In line with regulatory requirements, half
of the bonus will be paid in cash with the
remainder deferred into shares with the
majority released after three years and the
remainder vesting in equal tranches over
three to seven years.
Long-term incentive plan (audited)
The 2021 PSP Award was granted on 15 April
2021 and measured performance over the
three financial years to 31 December 2023.
Based on performance against EPS, TSR, RoE
and risk measures, 70.96% of the maximum
award has been achieved as set out below.
In relation to the 15% Risk element, there
was a robust process for the Committee’s
assessment of this measure. Papers were
prepared each year by the Risk function,
which were considered by the Group
Risk Committee, together with an overall
assessment for the three-year performance
period prepared by the Group CRO and
endorsed by the Chair of the Group
Risk Committee.
The Committee assessed the Group’s risk
performance under six categories: Culture,
Credit, Solvency and Liquidity, Conduct and
Compliance, Operational and Reputational
risk. It noted that the Group had been
effective in operating within appetite in a
volatile environment. Successful areas were
around management of Board risk appetite
tolerances, credit risk, the resolvability
assessment framework and maintaining a
strong balance sheet. It noted that where
limits to risk tolerance had been approached,
effective actions had been taken. However,
there has been challenges around
compliance and conduct risk and work
was required to improve the management
of regulatory relationships. The adverse
EIR adjustment also had an impact on the
reputation of the Group.
The Committee therefore concluded that
a reduction in the Risk element of the PSP
from 15% to 10% was appropriate for 2023.
Together with the 13% given to the risk
elements of the PSPs in 2021 and 2022, this
led to an overall rating of 12% for the three
years to 31 December 2023.
EPS growth
Relative TSR
Average RoE
Non-financial/Risk
Weighting
35%
35%
15%
15%
Threshold
(25% vesting)
7% CAGR
71.2p
Stretch
(100% vesting)
16% CAGR
90.7p
Median
Upper quartile
Actual
Vesting of portion
8.9% CAGR
75.0p
Above Median
(42 out of 153)
14.18% out of 35%
33.28% out of 35%
17%
23%
21.1%
11.50% out of 15%
Assessment by the Committee4
12.00% out of 15%
1. EPS targets were set in 2021 based on a ‘Threshold’ target of 7% CAGR and a ‘Stretch’ target of 16% CAGR measured from the 2020 pro-forma Group EPS for the base year.
2. Relative TSR is based on achieving at least Median performance (Threshold) and Upper Quartile performance (stretch) against the TSR of the FTSE 250 excluding Investment Trusts.
3. RoE targets were set in 2021 based on achieving an average RoE for the three years to 31 December 2023. The RoE portion is subject to an underpin requiring that the CET1 ratio is not below the Board-approved minimum requirement, which has
been met.
4. The assessment by the Committee based on reports prepared by the Group CRO, and endorsed by the Chair of the Risk Committee.
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Directors’ Remuneration Report continued
Discretionary assessment
The Committee is comfortable that the level of vesting is in line with underlying performance and reflects the impact of the adverse EIR adjustment, risk appetite, individual conduct and
shareholder experience over the performance period and that there had not been a windfall gain in relation to the 2021 Awards. As such, the 2021 Awards will vest in five equal tranches between
2024 and 2028, with the shares delivered being subject to a further one-year holding period in each case.
The 2021 PSP awards will therefore vest as follows:
Executive Directors
Andy Golding
April Talintyre
Number of
shares granted
Number of
shares due to
vest
Number of
shares lapsed
Value from share
price increase/
decrease1
Total value
vesting2
181,404
128,724
52,680
(£171,460)
£464,695
113,517
80,551
32,965
(£107,294)
£290,792
1. Value of share price increased/(decreased) based on a £4.9420 share price at the time of grant of the award compared to the three-month average share price of £3.61 to 31 December 2023. The Committee is comfortable that discretion is not
required to scale back awards as a result of share price appreciation.
2. Value of shares based on a three-month average share price of £3.61 to 31 December 2023. The 2021 Awards will vest in equal tranches from 2024 to 2028, with each tranche of shares subject to a further one-year holding period.
Dividend equivalents were not paid under the 2021 Performance Share Plan during the vesting period.
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Directors’ Remuneration Report continued
Executive pay outcomes in context
Percentage change in the remuneration of the Directors
The table below sets out the percentage change in base salary, value of taxable benefits and bonus for all the Directors compared with the average percentage change for employees.
For these purposes, UK employees who have been employed for over a year (and therefore eligible for a salary increase) have been used as a comparator group as they are the analogous
population (based on service and location). The percentage change for Executive Directors and NEDs is calculated based on the remuneration disclosed in the single figure tables on page 154.
The percentage is not included for NEDs who joined the Board in the year as the disclosure would not be meaningful.
The changes to salary/fees between 2019 and 2020 are as a result of changes made to pay arrangements following the Combination of OSB with CCFS, which is also the reason for the increase
in salary for the CEO between 2020 and 2021 when the second stage of his phased increase was implemented. There have been no material changes to the benefits between 2019 and 2020 or
between 2020 and 2021. The reduction in bonus for Executive Directors and employees between 2019 and 2020 is as a result of the pandemic impacting the 2020 Scorecard performance and
the Executive Directors waiving the cash portion of their bonus. The increase in annual bonus between 2020 and 2021 is as a result of strong performance across the Scorecard in 2021, whereas
the payout in 2020 was lower due to the pandemic impacting performance. The increases to NED fees in 2022 and 2023 compared to 2021 were based on a market assessment of fee levels.
Salary/NED fees
Taxable Benefits
Annual Bonus
2019/20
2020/21
2021/22
2022/23
2019/20
2020/21
2021/22
2022/23
2019/20
2020/21
2021/22
2022/23
UK employees
CEO
CFO
Kal Atwal4
Noël Harwerth1
Sarah Hedger2
Rajan Kapoor1
Simon Walker3
5.5%
42.4%
44.1%
n/a
n/a
n/a
n/a
n/a
David Weymouth
16.7%
5.1%
10.9%
1.6%
n/a
0.9%
(1.2%)
(1.7%)
n/a
2.7%
11.4%
3.0%
3.5%
n/a
15.9%
23.5%
10.2%
n/a
10.0%
9%
5%
5%
n/a
4.6%
19.1%
4.8%
23.0%
5%
0%
0%
0%
n/a
n/a
n/a
n/a
n/a
0%
21.87%6
0.6%
0%
n/a
285%
n/a
n/a
n/a
n/a
0%
0%
0%
n/a
(168)%
198%
n/a
n/a
n/a
0%
0%
0%
n/a5
277%7
(23.6)%8
n/a9
n/a
n/a
(27.5)%
34%
(71.9)%
366.1%
(71.5)%
330.1%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
24.8%
1.54%
1.23%
n/a
n/a
n/a
n/a
n/a
n/a
(13.0)%
(45.0)%
(47.5)%
n/a
n/a
n/a
n/a
n/a
n/a
1. Noël Harwerth and Rajan Kapoor joined the Board in October 2019.
2. Sarah Hedger joined the Board in February 2019.
3. Simon Walker joined the Board in January 2022.
4. Kal Atwal joined the Board in February 2023.
5. This relates to taxable travel expenses of £787.97 (2022: n/a).
6. Relates to the broader provision of our medical cash plan and the revision of car allowances following the harmonisation of benefits post Combination.
7. This relates to taxable travel expenses of £961.76 (2022: £255).
8. This relates to taxable travel expenses of £365.95 (2022: £479).
9. This relates to taxable travel expenses of £523.80 (2022: n/a).
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Directors’ Remuneration Report continued
Comparison of Company performance and CEO remuneration
The following table summarises the CEO single figure for total remuneration, annual bonus and LTIP payout as a percentage of maximum opportunity for the period between 2014 and 2023.
Annual bonus
(% of maximum opportunity)
92.63%
93.00%
88.75%
85.00%
91.75%
75.89%
20.60%
86.83%
84.67%
44.33%
2014
2015
2016
2017
2018
2019
2020¹
2021
2022
2023
LTIP vesting
(% of maximum opportunity)
CEO single figure of remuneration
(£’000)
–
–
–
100.00%
50.00%
75.1%
62.74%
87.16%
92.56%
70.98%
777
848
910
1,614
1,602
1,382
1,510
2,587
3,058
1,870
1. The cash portion of the 2020 bonus was waived by the Executive Directors before they became entitled to it. As such, only the share portion of the 2020 bonus was payable (i.e. half of the bonus of 41.2% of maximum).
Total shareholder return
The chart below shows the TSR performance of the Group over the period from listing to 31 December 2023 compared to the performance of the FTSE All Share Index. This index is considered to
be the most appropriate index against which to measure performance as the Group has been a member of this index since Admission of OneSavings Bank plc to the London Stock Exchange.
Total shareholder return
450
400
350
300
250
200
150
100
50
)
d
e
s
a
b
e
R
(
)
£
(
e
u
a
V
l
5 June
2014
31 December
2014
31 December
2015
31 December
2016
31 December
2017
31 December
2018
31 December
2019
31 December
2020
31 December
2021
31 December
2022
31 December
2023
OSB GROUP PLC
FTSE All Share Index
This graph shows the value, at 31 December 2023, of £100 invested in OneSavings Bank plc on Admission (5 June 2014), and following the insertion of a new holding company in November 2020,
the shares of OSB GROUP PLC, compared with the value of £100 invested in the FTSE All Share Index on the same date. The other points plotted are the values at intervening financial year ends.
Source: Datastream (Refinitiv).
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Directors’ Remuneration Report continued
CEO pay ratios
The ratio of the CEO’s single figure of total
pay to median UK employee pay is set
out in the table below. The ratio has been
calculated in accordance with methodology
B as it is the same pay data for employees
as is used for the gender pay gap analysis
and is based on pay and benefits as at 5
April each year. Full-time equivalent pay for
individuals that do not work full time has
been calculated by increasing their pay
pro-rata to that of a full-time individual.
No further estimates or adjustments have
been made. The employees identified are
considered to be representative of the
quartile positions as their total pay is in line
with expected positioning and the proportion
of fixed pay to variable pay is also in line with
other individuals at those levels.
The median ratio decreased in the period
between 2017 and 2019 as a result of a
combination of factors which resulted in the
total pay for the median individual within
the workforce increasing, including positive
changes to the Group’s pay policy and
changes in the employee population between
2018 and 2019. The decrease in the ratio
between 2018 and 2019 was also due to the
decrease in total pay for the CEO.
staged salary increase upon Combination
with CCFS; and due to higher incentive
payouts than 2020, which were adversely
impacted by COVID-19. The increase in ratio
between 2021 and 2022 is primarily due to
the increase in CEO pay caused by higher
incentive payments and, in particular, the
PSP award which benefitted from strong
share price growth, reflecting the excellent
recent performance of the business.
The median ratio increased between 2019
and 2020 largely as a result of the decrease
in the total pay for the median employee.
This was primarily as a result of OSB’s
Combination with CCFS in October 2019.
The increase in the ratio between 2020 and
2021 is primarily due to changes in the CEO
pay, which was increased as a result of the
There has been no change to the Group’s
employment models during this period and
the median ratio is consistent with the pay,
reward and progression policies within the
Group. The Executive Directors pay is set
by the Committee with reference to both
the internal relativities across the Group
and external market benchmarks. As such,
the pay ratio is considered appropriate and
is not considered excessive, particularly
when compared to other listed financial
services companies.
The reduction to the ratios in 2023 over 2022
relates to a reduction to the level of CEO pay
caused by a lower FY23 annual bonus and
lower value PSP award.
CEO pay ratio
Method
CEO single figure
Upper quartile
Median
Lower quartile
2023
CEO
Lower quartile – Employee A
Median – Employee B
Upper quartile – Employee C
2017
B
1,614
24.8
46.1
62.1
2018
B
1,602
22.3
40.1
59.5
2019
B
1,382
22.5
32.0
54.6
2020
B
1,510
28.1
42.1
51.6
2021
B
2,571
35.9
56.1
82.2
2022
B
3,058
45.1
70.1
86.3
Basic salary
(£’000)
879
29
41
58
2023
B
1,870
26.4
39.05
57.9
Total pay
(£’000)
1,870
32
47
70
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Directors’ Remuneration Report continued
Relative importance of the spend on employee pay (audited)
The table below shows the Group’s total employee remuneration (including the Directors) compared to distributions to shareholders and underlying profit before tax for 2023 and 2022.
In addition to the required disclosures showing total employee costs and distributions to shareholders, the table also shows PBT and headcount to provide a fuller picture.
Total employee costs
Distributions to shareholders1
Distributions to shareholders – special dividend1
Underlying profit before tax (PBT)
Total employee costs vs PBT
Average headcount
Average underlying PBT per employee
2023
2022
£122.2m
£109.3m
£185.0m
£133.1m
£0.0m
£50.3m
£426.0m
£591.1m
28.7%
2,272
18.5%
1,896
£187,500
£311,762
1. See note 13 to the financial statements. In addition to dividends, the Company repurchased 38,243,031 ordinary shares as part of its £150m share repurchase programme announced to the market on 16 March 2023 (2022: £100m).
Other disclosures relating to 2023 Executive remuneration
Scheme interests awarded during the financial year (audited)
The table below shows the conditional share awards made to Executive Directors on 22 March 2023 under the PSP and the performance conditions attached to these awards. The Committee
has discretion to adjust the vesting level to ensure that the reward level reflects underlying performance, risk and individual conduct. There will be full disclosure of the Committee’s deliberations
on these matters in the 2025 Directors’ Remuneration Report. The Awards will vest 20% each year between three and seven years after grant, with each vested tranche subject to a one-year
holding period.
Executive
Andy Golding
April Talintyre
Face value
of award
(percentage of
salary)
Face value of
award
Number of
shares1
Percentage of
awards released
for achieving
threshold
targets
End of
performance period
Performance conditions2
(weighting)
110%
£978,982
196,634
25%
31 December 2025
110%
£612,614
123,047
25%
31 December 2025
EPS (35%)
TSR (35%)
RoE (15%)
Non-financial/Risk (15%)
1. The number of shares awarded was calculated using a share price of £4.9787 (the average closing price over the three Dealing Days prior to the date of grant).
2. Performance conditions are: (i) 35% TSR versus the FTSE 250 (25% vesting for median performance increasing to maximum vesting for upper quartile performance); (ii) 35% EPS (25% vesting for FY25 EPS of 92.0p increasing to maximum vesting
for 105.0p); (iii) 15% RoE (25% vesting for average RoE of 15% increasing to maximum vesting for an average of 21%); and (iv) 15% non-financial/risk Scorecard.
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Directors’ Remuneration Report continued
All-employee share plans (audited)
Executive
Andy Golding
April Talintyre
April Talintyre
Date of grant
Exercise price
Market price 31
December 2023
Exercisable from
Exercisable to
28 October 2020
£2.29013
£4.646
1 December 2023
1 June 2024
28 October 2020
£2.29013
£4.646
1 December 2023
1 June 2024
29 September 2023
£2.715733
£4.646
1 December 2026
1 June 2027
Number
of options
granted
7,859
7,859
6,819
Number of options as at
31 December 2023
7,859
7,859
6,819
Statement of Directors’ shareholdings and share interests (audited)
Total shares owned by Directors and connected persons and share ownership guidelines
The CEO and the CFO are required to accumulate and maintain a holding of ordinary shares in the Company equivalent to no less than 250% of salary and 200% of salary, respectively. This is
calculated using the value of beneficially owned shares plus the net of tax value of deferred bonus shares or any other unvested share awards which are not subject to performance conditions.
Half of any vested share awards must be retained until the guideline is achieved. Based on the current share price, the CEO and CFO hold shares in excess of these levels. The guidelines also
apply for two years following cessation of employment.
Executive Directors
Andy Golding4
April Talintyre
Non-Executive Directors
Kal Atwal
Noël Harwerth
Sarah Hedger
Rajan Kapoor
Simon Walker
David Weymouth
Interest in shares
Interest in share awards1
Shareholding requirements
Beneficially
owned at
1 January
2023
Beneficially
owned at
31 December
2023
Without
performance
conditions at
31 December
20232
Subject to
performance
conditions as at
31 December
2023
Shareholding
requirement
(percentage
of basic salary)
Current
shareholding
(percentage
of basic salary)3
644,908
761,291
302,158
545,029
250% 398% (Met)
269,260
330,854
232,116
341,061
200% 276% (Met)
–
–
–
-
-
-
19,970
19,970
–
25,000
18,678
22,414
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1. Vested shares are held in a corporate nominee account and are subject to the relevant retention periods. This account is also used to monitor current and post-employment shareholding guidelines. The details of share options relating to the
Executive Directors are set out above. The Executive Directors hold vested but unexercised share options and no share options have been exercised during 2023.
2.
Includes DSBP awards granted on 22 March 2023 at a price of £4.9787 (CEO: 59,051 shares and CFO: 36,952 shares).
3. Shareholding based on the closing share price on 31 December 2023 of £4.646 and year-end salaries.
4.
Includes 518,184 shares that are owned by spouse.
The Company operates an anti-hedging policy under which individuals are not permitted to use any personal hedging strategies in relation to shares subject to a vesting and/or retention period.
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Directors’ Remuneration Report continued
External appointments
Andy Golding is a Director/Trustee of the
Building Societies Trust Limited. He receives
no remuneration for this position.
Payments to departing Directors
(audited)
Mary McNamara and Graham Allat received
their salaries until 11 May 2023, when they
retired from the Board following the 2023
AGM. There were no payments for loss of
office during 2023.
How we will implement the
Remuneration Policy for Directors
in 2024
Subject to the approval of the refreshed
Policy at the 2024 AGM, the proposed
operation is summarised below.
Salary
Following careful consideration by the
Committee of the impact of salary increases
on total remuneration and market positioning,
Balanced Business Scorecard
the salary for the CEO will be increased by
3.0% to £916,679 on 1 April 2024 which is
below the average workforce percentage
increase of c.4.5%. The CFO’s salary will not
increase in view of her impending retirement.
Annual Bonus
The 2024 annual bonus will be subject to
a maximum limit of 110% of salary. April
Talintyre is retiring from the Group during
2024 and her annual bonus will be pro-rated
based on the proportion of the year for which
she remains actively employed by the Group
(with no participation whilst she goes on
garden leave). She will receive any entitlement
in line with the normal payment process.
As part of the Policy review, the Committee
concluded that there should be flexibility with
respect to the weighting placed on individual
performance with the ability to allocate
between 0% and 20% of the bonus against
individual strategic performance objectives.
The Committee believes the Scorecard
effectively captures the overall performance
of the CEO so, for 2024, the individual
portion of the CEO’s bonus will be reduced
from 10% to 5%, and be primarily assessed
against the Group’s key strategic focus of
digitalisation. Given she will retire during
2024, the individual portion of the CFO’s
bonus has been increased from 10% to 15%,
with performance assessed on objectives
relating to the capital plan, digitisation and
the effective handover of her responsibilities
to a successor.
The remainder of the Executive Directors’
bonus will be based on performance against
the Scorecard. The Committee has reviewed
the metrics to be used for the 2024 annual
bonus and concluded that the ESG segment
(currently a 10% weighting) should be
moved to the PSP as it is more appropriate
to measure performance over the longer
term now more robust methodologies,
baselines and prior year data are in place
to incentivise fundamental operational
changes. The remainder of the performance
measures remain largely unchanged,
with the weightings of the Financial and
Customer segments increased to 65% and
20% respectively.
The customer complaints metric has been
changed from an absolute level of complaints
to the proportion of Financial Ombudsman
Service complaints upheld. This is a more
robust measure of customer performance,
and more independent of customer numbers
and market conditions. The absolute number
of complaints will continue to be monitored
by the Board.
The Scorecard, which will determine 95% of
the CEO’s 2024 bonus and 85% of the CFO’s
2024 bonus is based on Financial, Customer
and Quality segments to provide a balanced
assessment of performance for the year,
as set out below.
Financial
Customer
Quality
Sustainable financial growth of the business through attractive
margins and exceptional returns, measured across a range of
financial indicators
Helping our customers and communities to prosper in line with
our Purpose
Strong governance and quality of the business underpins
our operations
65% of the Scorecard
Underlying PBT
All-in RoE1
Cost to income ratio1
Net loan book growth
1. Key performance indicators (see pages 2-3 and 33-35).
20% of the Scorecard
15% of bonus opportunity
Customer satisfaction (separate for lending and savings)1
Overdue management actions
Broker satisfaction
Complaints
Arrears
High-severity incidents
Performance targets are commercially sensitive so will not be published in advance. There will be full disclosure of the targets set and the extent of their achievement in the FY24 Annual Report on
Remuneration. The Committee may apply discretion to adjust the resultant bonus if the result fails to reflect broader performance and the wider shareholder experience.
At least half of any bonus will be delivered in shares and cannot be sold for at least three years.
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Directors’ Remuneration Report continued
Performance Share Plan
A PSP award of 110% of salary will be made to
the CEO with performance being measured
over the three-year period to 31 December
2026. The CFO will not receive an award given
she will be retiring from the Company in 2024.
The number of shares will be determined
based on the average closing price over
the three Dealing Days prior to the date of
grant, with the share price derived being
discounted for the expected dividend yield
over the performance period. The PRA
prohibits dividend equivalents from being
paid on unvested shares and this adjustment
is in line with normal practice at other
listed banks where dividend equivalents
are also not permitted. The Committee will
use an expected dividend yield of 4.45% to
adjust the share price used to calculate the
number of shares granted. This will result in
a discount of 20% to the undiscounted grant
price, with both the expected dividend yield
and discount derived broadly comparable to
those of other UK banks. There will be further
disclosure in the next year’s report. The fall
in the grant price from 498 pence per share
for the 2023 awards to an estimated grant
price of around 462 pence per share (being
the latest available share price) would be
around 7.8%. The Committee does not believe
this fall is likely to give rise to windfall gain
on vesting, but has discretion to scale back if
this proves to be the case.
Awards will vest 20% each year between
three and seven years after grant, with
each vested tranche subject to a one-year
holding period.
The performance metrics and weightings in
2026 are EPS (30% weighting), relative TSR
versus the FTSE 250 (excluding Investment
Trusts) (30% weighting), RoE (15% weighting),
Non-financial/Risk (15% weighting) and ESG
(10% weighting). The metrics and weightings
provide a balanced assessment of corporate
performance over the three-year period
taking into account financial, share price
and non-financial metrics. A discretionary
assessment at the time of vesting ensures
that awards are granted in line with
underlying performance, risk appetite and
individual conduct over the period.
The target ranges for EPS and RoE have
been carefully set by the Committee taking
into account a number of factors, including
those set out below, which will influence
the outlook for business performance over
the three years to 31 December 2026. The
Committee is therefore satisfied that these
are appropriately stretching:
– The 2023 EPS was negatively impacted by
the adverse EIR adjustment which made
setting growth rate targets inappropriate
as these would measure growth off a
base year which was impacted by this
adjustment. An absolute measure will
therefore be used based on the 2026 EPS.
– The Business Plan to 31 December 2026
is impacted by the anticipated changes
in the Group’s funding mix. The cost of
these issuances will reduce the Group’s
EPS and RoE outlook. A key change being
the requirement for the Group to meet an
interim MREL requirement of 18% of Risk
Weighted Assets by July 2024, with full
bail-in MREL of 2x Pillar 1 and Pillar 2a
from July 2026. The Group is also required
to repay the relatively lower-cost £3.3bn
of borrowings under the Bank of England’s
Term Funding Scheme with additional
incentives for Small and Medium-sized
Enterprises (TFSME) by October 2025
and replace this funding with alternative
sources.
– The RoE range required is based on
an average over the three years to 31
December 2026. It represents a sector
leading performance, with the stretch
target continuing to represent significant
outperformance of expectations.
Overall, the Committee is comfortable that
these targets provide a strong link between
reward and performance delivered and are
at least as stretching as target ranges in
prior years.
Metrics
EPS in 20261
Relative TSR versus FTSE 250
Average RoE1
ESG
Non-financial/Risk
Weighting
Threshold
(25% of maximum)
Stretch
(100% of maximum)
Rationale
30%
30%
15%
10%
15%
92p
Median
107p
Measures the sustainable profitability of the business
Upper quartile
Measures the success of the Company versus other
listed companies
15%
19%
Measures the sustainable financial performance and financial
efficiency of the business
See below
See below
Measures the progress against the ESG strategy
Strong governance around risk and quality underpins our
business operations
1. Key performance indicators (see pages 2-3 and 33-35). No vesting below threshold and pro-rata vesting between threshold and stretch.
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Directors’ Remuneration Report continued
Performance Share Plan continued
ESG metric (10% weighting):
The ESG performance will be determined based on the Committee’s assessment of progress against the ESG strategy which will be informed by performance against key employee and
environmental metrics. The metrics and the 2026 targets are summarised below.
ESG metric
Scope 1 & 2 emissions
Scope 3 Financed emissions
Gender Diversity
Ethnicity Diversity
Employee engagement score
2026 target
43% reduction from the Group’s 2022 baseline, in line with our 2030 external emissions reduction target
8% reduction in Scope 3 Category 15 carbon intensity (tCO2e/M2) from the mortgage loan book versus the Group’s 2022 baseline,
in line with our 2030 external emissions reduction target
40% of senior roles who identify as female
13.5% of senior roles who identify as minority ethnic
696.5 score in our annual ‘Best Companies Survey’ for UK employees (equivalent to an ‘Outstanding’ rating) and an 83 score
in our annual ‘Great Place to Work’ Survey Score for employees of OSB India
Non-financial/Risk metric (15% weighting):
For the risk-based measure, the Committee will assess the risk management performance with regard to all relevant risks including, but not limited to: Conduct, Credit, Solvency and Liquidity,
Conduct and Compliance, Operational and Reputational risks. There will be full retrospective disclosure of the Committee’s assessment.
Chair and Non-Executive Director fees
The fees for the Chair and NEDs were reviewed and the rates from 1 April 2024 are set out below. The fee payable to the Chair was reviewed by the Committee and it agreed that the fee would be
increased by 3.0% from £346,500 to £356,896. The fees payable to the NEDs were also reviewed by the Board (minus the NEDs) and will be increased by 3.0% from 1 April 2024.
Base fees
Chair1
Non-Executive Director
Senior Independent Director
ESG Champion
Additional Board Committee fees
Group Nomination and Governance Committee
Group Audit Committee
Group Remuneration and People Committee
Group Risk Committee
Group Models and Ratings Committee
1. The Chair’s fee is inclusive of all duties; no additional Chair or Member fees are paid in relation to Board Committees.
£’000
356.8
86.5
21.6
8.1
Chair
Member
32.45
32.45
32.45
10.8
5.4
8.1
8.1
8.1
5.4
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Directors’ Remuneration Report continued
Statement of voting at the Annual General Meeting
Shareholders were asked to approve the 2022 Annual Report on Remuneration at the 2023 AGM and the Directors’ Remuneration Policy at the 2021 AGM. The votes received are set out below:
Resolution
Votes for
% of votes cast
Votes against
% of votes cast
Total votes cast
Votes withheld
To approve the 2023 Remuneration Report (2023 AGM)
To approve the Remuneration Policy (2021 AGM)
300,592,875
380,816,449
80.19%
99.98%
74,244,358
65,570
19.81%
0.02%
374,837,233
380,882,019
6,244
1,025,114
The Committee recognises that whilst a strong majority of shareholders voted in support of the 2023 Remuneration Report, a larger than normal minority of shareholders voted against. The
Committee engaged with the main shareholders and proxy advisors that voted, or recommended, a vote against to fully understand their rationale. The Committee believes the main concern
related to the assessment of windfall gains on the 2020 PSP award. The Committee sought to provide these shareholders with comfort that a robust assessment had been undertaken and the
rationale for the decisions taken. The Committee will keep this feedback under review when considering the operation of the PSP in the future.
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Directors’ Remuneration Report continued
Remuneration Policy
This section describes the Directors’
Remuneration Policy (the Policy) for which
shareholder approval will be sought at the
AGM on 9 May 2024 and which, if approved
will formally come into effect from that date.
It is intended that this Policy will last for three
years from the 2024 AGM date.
The Committee is comfortable the Policy
approved at the 2021 AGM coped well with
the challenges presented by the last three
years and remains fit for purpose. As a result,
the new Policy retains the current Policy
structure which includes an annual bonus
(Bonus) and PSP opportunity based on a
percentage of annual salary.
The limited changes proposed provide
additional flexibility for succession and
strategic priorities, with the key changes
summarised below. Certain minor technical
changes have also been made to reflect
evolving market practice.
Change
Rationale
Policy overview
This Policy has been prepared in accordance
with the Large and Medium-sized Companies
and Groups (Accounts and Reports)
Regulations 2008, as subsequently amended.
The Remuneration Policy has been developed
taking into account a number of regulatory
and governance principles, including:
• The 2018 UK Corporate Governance Code
(the Code)
• The regulatory framework applying to
the Financial Services Sector (including
the Dual-regulated firms Remuneration
Code and provisions of the EU Capital
Requirements Directive)
• The Executive remuneration guidelines of
the main institutional investors and their
representative bodies
Approach to designing the Policy
The Committee is responsible for the
development, implementation and review of
the Policy. In addressing this responsibility,
the Committee works with management and
external advisers to develop proposals and
recommendations. The Committee considers
the source of information presented to it,
takes care to understand the detail and
ensures that independent judgement is
exercised when making decisions. The Group
Risk Committee considers whether the Policy
and practices are in line with the Group’s risk
appetite and the Group Audit Committee
confirms incentive plan performance results,
where appropriate.
The Code sets out principles against which
the Committee should determine the Policy
for Executive Directors. These are shown
in the first column of the table on page 171
together with the Committee’s approach, in
the second column.
Bonus and PSP –
individual opportunity
limits
Bonus – individual
performance percentage
The Committee proposes to increase the individual Bonus and PSP limits to 135% of annual salary to provide
additional flexibility in the design of the remuneration package for newly appointed Executive Directors (with the
possibility that the reshaped package offers lower fixed and higher variable pay).The current Executive Directors
will continue to be eligible for a Bonus and PSP award based on 110% of annual salary. Overall packages will be
appropriately positioned versus peers and challenging performance targets will be set to ensure higher payouts
reflect superior performance
The Committee proposes additional flexibility to base up to 20% of the Bonus on personal/strategic performance,
rather than the 10% fixed percentage in the current Policy. An appropriate percentage of between zero and 20%
will be agreed for each individual. The Committee will not use 20% as a matter of default, but will use the range
judiciously. The Scorecard will continue to drive at least 80% of an individual’s Bonus outcome, with the majority
of the Scorecard outcome based on financial metrics. Higher individual performance percentages will be used
where it is important to drive strategic initiatives such as digitalisation, the capital plan and regulatory priorities.
The percentages will be tailored for each executive and receive detailed scrutiny
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Directors’ Remuneration Report continued
Remuneration Policy continued
Principle
Committee approach
Principle
Committee approach
Clarity – remuneration
arrangements should be
transparent and promote
effective engagement
with shareholders and the
workforce
Simplicity – remuneration
structures should avoid
complexity and their
rationale and operation
should be easy to
understand
Risk – remuneration
arrangements should
ensure reputational and
other risks arising from
excessive rewards and
behavioural risks that
can arise from target-
based incentive plans are
identified and mitigated
Predictability – the
range of possible values
of rewards to individual
Directors and any other
limits or discretions should
be identified and explained
at the time of approving
the Remuneration Policy
• We aim to set out our approach to remuneration in this report
as transparently as possible
• We engage with our top shareholders and shareholders’ proxy
agencies when making changes to the Policy and their views
are taken into account
• We engage with Our Voice annually to explain the alignment
of the Policy with that of the workforce; and to encourage
workforce feedback on the Policy
• Within the required regulatory framework and in line with
investor guidance, we have structured the Policy to be as
simple as possible
• We have a simple policy offering a pension at the same rate
as employees, an annual bonus plan which cascades to most
employees and, for senior employees, performance shares
to provide alignment with longer-term performance and
stakeholder experience
• There is, however, a degree of complexity required for
Executive Director packages to ensure a robust link to
performance, to avoid reward for failure and to comply with
investor and Code requirements
• We have mitigated these risks through careful policy design,
including long-term performance measurement, the use
of specific risk-based measures, deferral and shareholding
requirements (including post-cessation of employment) and
discretion and clawback provisions if incentive payment levels
are inappropriate
• We look carefully each year at the range of likely
performance outcomes for incentive plans when setting
performance target ranges for threshold, target and
maximum payouts and would use discretion where this leads
to an inappropriate pay outcome
Proportionality – the link
between individual awards,
the delivery of strategy and
the long-term performance
of the Company should be
clear. Outcomes should not
reward poor performance
•
Incentive plans are determined based on a proportion of base
salary, with a balance between fixed pay and performance-
linked elements
• There are provisions to override the formula-driven outcome to
ensure that poor performance is not rewarded or if incentive
payments are too high for the performance delivered, in the
view of the Committee
Alignment to culture –
incentive schemes should
drive behaviours consistent
with Company purpose,
values and strategy
• As illustrated by the chart showing our TSR performance and
historical CEO remuneration on page 161, we believe there
has been a strong link between Executive Directors’ pay and
performance
• The Scorecard used for the Bonus will be based on a wide
range of measures linked to financial, customer and quality
performance, to ensure that payments are aligned to
Company culture and values
• Bonus plans designed for sales teams operate widely
throughout the Company and are approved by the
Committee to ensure consistency with Company purpose,
values and strategy
How the views of employees and shareholders are taken into account
The Committee Chair is the designated NED in relation to employee matters; she regularly
meets with employees, including through Our Voice. The Committee Chair attends Our
Voice annually to provide an overview of Executive Directors’ pay and governance within the
Group and to provide the opportunity for employees to give feedback on the Policy, with
this feedback communicated to the Committee and the Board. The Committee also receives
updates on the remuneration structure throughout the Group, with salary and bonus reviews
each year. As set out in the Policy table above, in setting remuneration for the Executive
Directors, the Committee takes note of the overall approach to rewards for employees in the
Group and salary increases will ordinarily be in line with or lower than those of the wider
workforce (in percentage of salary terms). Thus, the Committee is satisfied that the decisions
made in relation to Executive Directors’ pay are made with an appropriate understanding of
the outcomes for the wider workforce.
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The Committee undertook extensive engagement with shareholders during the review of the Policy in late 2023 and early 2024 to understand the views of shareholders. The top 20 shareholders,
representing over half or the shareholder register, were contacted in November 2023. Three shareholder representative bodies and proxy advisory firms were also contacted. The Committee
believes the consultation confirms that shareholders and the main shareholder representative bodies and proxy advisory firms are supportive of the Committees proposals, although the
Committee notes they will carefully scrutinise the use of the higher variable pay incentives in the context of the overall package for new Executive Directors, the personal objectives used to
support higher individual bonus percentages should be robust and appropriate disclosures are required to support the rationale for remuneration decisions.
The Committee will seek to engage with major shareholders and the main shareholder representative bodies and proxy advisory firms when it is proposed that any material changes are to be
made to the Policy or its implementation. In addition, we will consider any shareholder feedback received on the Policy at each AGM.
The table below and the accompanying notes describe the Policy for Executive Directors.
Element
Salary
Purpose and link to strategy
Operation and performance conditions
Maximum
To reward Executive
Directors for their role and
duties required
Recognises an individual’s
experience, responsibility
and performance
Paid monthly
Base salaries are usually reviewed annually, with any changes usually effective from 1 April
No performance conditions apply to the payment of salary. However, when setting salaries,
account is taken of an individual’s specific role, duties, experience and contribution to
the Company
As part of the salary review process, the Committee takes account of individual and corporate
performance, increases provided to the wider workforce and the external market for UK listed
companies both in the financial services sector and across all sectors
Increases will generally be broadly in
line with or below the average of the UK
workforce (as a percentage of salary).
Higher increases may be awarded in
exceptional circumstances such as a
material increase in the scope of the
role, following the appointment of a new
Executive Director (which could also
include internal promotions), to bring an
initially below-market package in line with
the market over time or in response to
market factors
There is no maximum cap on benefits, as the
cost of benefits may vary according to the
external market
Benefits
To provide market
competitive benefits to
ensure the well-being
of employees
The Company currently provides:
• car allowance
•
•
life assurance
income protection
• private medical insurance
• other benefits as appropriate for the role
Pension
To provide a contribution to
retirement planning
Executive Directors may participate in a defined contribution plan or, if they are in excess of the
HMRC annual or lifetime allowances for contributions, may elect to receive cash in lieu of all or
some of such benefit
In line with the rate received by the majority
of the workforce, which is currently 8%
of salary
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Element
Bonus
Purpose and link to strategy
Operation and performance conditions
Maximum
To incentivise and
reward individuals for
the achievement of
pre-defined, Committee-
approved, annual financial,
operational and individual
objectives which are closely
linked to the corporate
strategy
Between 80-100% of the Bonus outcome is based on performance measured in line with an
agreed Scorecard, with at least 50% of the bonus based on financial performance. The remaining
0-20% of the Bonus outcome is based on personal/strategic performance targets
The maximum Bonus opportunity for
incumbent Executive Directors in any
financial year will remain at 110% of salary
The objectives in the Scorecard, and the weightings on each element, will be set annually and
may be flexed according to individual roles. Each element will be assessed independently, but
with Committee discretion to vary the payout (including to zero) to ensure there is a strong link
between payout and performance
Under the new Policy, the maximum bonus
opportunity for new Executive Directors (i.e.
not Andy Golding or April Talintyre) may be
up to 135% of salary
The Bonus outcome also has a risk underpin if the Committee believes an adjustment of the
outcome is appropriate. There is also a general discretion to adjust the outcome to reflect other
exceptional factors at the discretion of the Committee
The threshold level for payment is 25% of
maximum for any quantitative measure
Normally at least 50% of any bonus earned will be delivered in shares, subject to a three year
holding period
In circumstances of a high Bonus payout there may be a regulatory requirement to defer a
proportion of the Bonus payout, with vesting staggered over three to seven years, in line with the
deferral arrangements for the PSP described below
Malus and clawback provisions apply, as described in note 1 on page 173
Performance
Share Plan
To incentivise and recognise
execution of the business
strategy over the longer-
term
Rewards strong financial,
share, risk and ESG
performance over a
sustained period
PSP awards will typically be made annually at the discretion of the Committee, usually following
the announcement of full-year results
Usually, awards will be based on a mixture of internal financial performance targets, risk-based
measures, ESG measures and relative TSR. At least 50% of the total PSP award will ordinarily be
based on financial and relative TSR metrics
The performance targets will usually be measured over three years
Any vesting will be subject to an underpin, whereby the Committee must be satisfied that:
(i) the vesting reflects the underlying performance of the Company
(ii) the business has operated within the Board’s risk appetite framework
(iii) individual conduct has been satisfactory
There is also a general discretion to adjust the outcome to reflect other exceptional factors at the
discretion of the Committee
Awards vest in line with regulatory requirements. Awards granted since 1 January 2020 vest
in five equal tranches of 20%, following the Committee’s determination of the extent to which
performance conditions have been met. At the time each tranche vests, a one year holding
period will apply
Malus and clawback provisions apply as described in note 1 on page 173
The maximum PSP opportunity for
incumbent Executive Directors will remain
at 110% of salary in respect of grants in any
financial year
Under the new Policy, the maximum PSP
opportunity for new Executive Directors (i.e.
not Andy Golding or April Talintyre) may be
up to 135% of salary in respect of grants in
any financial year
The threshold level for payment is 25% of
maximum for any quantitative measure
Where relevant regulations do not permit
dividend equivalent payments until after
vesting, the number of shares granted
may be uplifted to reflect the absence of
dividends or dividend equivalents during the
vesting period (e.g. to broadly reflect the
expected dividend yield on the shares)
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Element
Purpose and link to strategy
Operation and performance conditions
Maximum
All-employee
share plan
(e.g. Sharesave
Plan)
All employees, including
Executive Directors, are
encouraged to become
shareholders through an
all-employee share plan
Share
ownership
guidelines
To increase alignment
between Executive Directors
and shareholders
A tax-favoured plan under which regular monthly savings may be made over a three year period.
These savings can then be used to fund the exercise of an option at the end of the three year
period, where the exercise price is discounted by up to 20%
Maximum permitted savings based on
HMRC limits
Executive Directors may also participate in other all-employee HMRC approved share plans
should they be introduced by OSB Group in the future
Executive Directors are expected to build and maintain a minimum holding of OSB Group shares
Executive Directors must retain at least 50% of the shares acquired on vesting of any share
awards (net of tax) until the required holding is attained
On cessation of employment, Executive Directors must retain the lower of the in-service
shareholding requirement, or the Executive Directors’ actual shareholding, for two years
At least 250% of salary for the CEO and
at least 200% of salary for the CFO, or
such higher level as the Committee may
determine from time to time
The net of tax value of any unvested
deferred awards (which are not subject
to any future performance condition)
may count towards the definition of a
shareholding for this purpose
1. Malus and clawback provisions apply to both the annual bonus, including amounts deferred into shares, and PSP awards. These provide for the recovery of incentive payments within seven years in the event of: (i) a material misstatement of
results; (ii) an error; (iii) a significant failure of risk management; (iv) regulatory censure; (v) in instances of individual gross misconduct; (vi) corporate failure; (vii) reputational damage; or (viii) any other exceptional circumstance as determined
by the Board. A further three years may be applied following such a discovery in order to allow for the investigation of any such event. In order to affect any such clawback, the Committee may use a variety of methods: withhold deferred bonus
shares, future PSP awards or cash bonuses, or seek to recoup cash or shares already paid.
Choice of performance measures
for Executive Directors’ awards
The Group uses a Scorecard to support
its annual Bonus which incorporates both
financial and non-financial business
drivers across the Group. The combination
of performance measures ties the Bonus
outcome to the balanced delivery of
corporate targets, risk measures and
personal/strategic objectives. The Committee
sets the threshold, target and stretch limits
and reviews the measures used in the
Scorecard annually, to ensure they continue
to be relevant and remain anchored to the
corporate plan.
The PSP incorporates measures of
shareholder, financial and non-financial
performance, in line with our key objectives
of sustained growth in earnings leading to
the creation of shareholder value over the
long-term with appropriate consideration
of risk and ESG performance. Relative TSR
provides close alignment between the relative
returns experienced by our shareholders and
the rewards to Executive Directors.
There is an underpin for the PSP to ensure
payouts are aligned with underlying
performance, financial and non-financial risk
and individual conduct.
Bonus and PSP targets are set taking into
account the business plan, shareholders’
expectations, the external market and
regulatory requirements.
In line with HMRC regulations for such
schemes, the Sharesave Plan does not
operate performance conditions.
How the Group Remuneration and
People Committee operates the
variable pay policy
The Committee operates the share plans
in accordance with their respective rules,
the Listing Rules and HMRC requirements,
where relevant. The Committee, consistent
with market practice, retains discretion
over a number of areas relating to the
operation and administration of certain
plans, including:
• Who participates in the plans
• The form of the award (for example,
conditional share award or nil cost option)
• When to make awards and payments;
how to determine the size of an award; a
payment; and when and how much of an
award should vest
• Whether share awards will be eligible
to receive dividend equivalents and the
method of calculation. Where relevant
regulations do not permit dividend
equivalents until after vesting, the number
of shares granted may be uplifted to
reflect the absence of dividends or
dividend equivalents during the vesting
period (e.g. to broadly reflect the expected
dividend yield on the shares)
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Directors’ Remuneration Report continued
Remuneration Policy continued
• The testing of a performance condition
over a shortened performance period
• How to deal with a change of control or
restructuring of the Group
• Whether a participant is a ‘good’ or
‘bad’ leaver for incentive plan purposes;
what proportion of an award vests at the
original vesting date, or whether and what
proportion of an award may vest at the
time of leaving
• How and whether an award may be
adjusted in certain circumstances (e.g. for
a rights issue, a corporate restructuring or
for special dividends)
• What the weighting, measures and
targets should be for the Bonus and PSP
each year
The Committee also retains the discretion to
adjust existing targets and/or set different
measures for the Bonus. For the PSP, if
events happen that cause the Committee
to determine the targets are no longer
appropriate, an amendment could be made
so the PSP can achieve its original purpose,
with the new targets not materially less or
more difficult to satisfy.
Any use of the above discretions would,
where relevant, be explained in the Annual
Report and may, as appropriate, be the
subject of consultation with the Company’s
major shareholders.
The Group operates in a heavily regulated
sector, the rules of which are subject to
frequent amendment. The Committee
therefore retains the discretion to make
adjustments to payments under this Policy as
required by financial services regulations.
Conflicts of interest
The Committee ensures that no Executive
Director is present when their remuneration
is being discussed and considers any
potential conflicts prior to meeting materials
being distributed and at the beginning of
each meeting.
Awards granted prior to the
effective date
Any commitments entered into with Executive
Directors prior to the effective date of this
Policy will be honoured. Details of any such
payments will be set out in the Annual Report
as they arise.
Remuneration Policy for other
employees
The Committee has regard to pay structures
across the Group when setting the Policy
for Executive Directors and ensures that
policies at and below the Executive Director
level are coherent. There are no significant
differences in the overall remuneration
philosophy, although pay is generally more
variable and linked more to the long-term for
those at more senior levels. The Committee’s
primary reference point for the salary reviews
for the Executive Directors is the average
salary increase for the UK workforce, with
the expectation that increases for Executive
Directors will, other than in exceptional
circumstances, be at or below the increase
for the UK workforce (as a percentage
of salary).
A Scorecard is used to assess Bonus
outcomes throughout the Group, with
measures weighted according to role,
where relevant.
Overall, the Policy for the Executive
Directors is more heavily weighted towards
performance-related pay than for other
employees. In particular, performance-
related long-term incentives are not provided
outside the most senior management
population as they are reserved for those
considered to have the greatest potential to
influence overall performance.
Although PSPs are awarded only to the most
senior managers in the Group, the Group is
committed to widespread equity ownership
and a Sharesave Plan is available to all
employees in the UK. Executive Directors are
eligible to participate in this plan on the same
basis as other employees.
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Directors’ Remuneration Report continued
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Illustration of application of Remuneration Policy
The chart below illustrates how the composition of the Executive Directors’ remuneration packages would vary under various performance scenarios, based on the intended implementation in 2024.
£3,500k
£3,000k
£2,500k
£2,000k
£1,500k
£1,000k
£500k
0
£1,012k
100%
Minimum
£1,768k
14.3%
28.5%
57.2%
Target
£3,029k
33.3%
33.3%
£3,533k
42.8%
28.5%
33.4%
28.7%
Maximum
CEO
Share price
growth
£617k
100%
Minimum
£1,077k
14.2%
28.5%
57.3%
Target
CFO
£1,843k
33.2%
33.2%
33.6%
Maximum
£2,149k
42.8%
28.5%
28.7%
Share price
growth
Fixed Pay
Annual Bonus
LTIPs
1. Minimum performance assumes no award is earned under the Bonus and no vesting is achieved under the PSP – only fixed pay (salary, benefits and pension are payable).
2. At on-target, half of the Bonus is earned (i.e. 55% of salary) and 25% of maximum is achieved under the PSP (i.e. 27.5% of salary).
3. At maximum, full vesting is achieved under both the Bonus and PSP (i.e. 110% of salary under the Bonus and PSP for current Executive Directors).
4. At maximum, but illustrating the effect of a 50% increase in the share price on PSP awards.
Other than as noted in the chart above, share price growth and all-employee share plan participation are not considered in these scenarios.
The terms and provisions that relate to remuneration in the Executive Directors’ service agreements are set out below. Service contracts are available for inspection at the Company’s registered office.
Provision
Notice period
Termination payments
Remuneration
Post-termination
Contract date
Unexpired term
Policy
12 months on either side
A payment in lieu of notice may be made on termination to the value of the Executive Director’s basic salary at the time of termination. Such payments may
be made in instalments and in such circumstances can be reduced to the extent that the Executive Director mitigates their loss. Rights to Deferred Share Bonus
Plan and PSP awards on termination are shown below. The employment of each Executive Director is terminable with immediate effect without notice in certain
circumstances, including gross misconduct, fraud or financial dishonesty, bankruptcy or material breach of obligations under their service agreements
Salary, pension and core benefits are specified in the agreements. There is no contractual right to participate in the Bonus or to receive long-term incentive awards
These include six months’ post-termination restrictive covenants against competing with the Group; nine months’ restrictive covenants against dealing with
clients or suppliers of the Group; and nine months’ restrictive covenants against soliciting clients, suppliers and key employees
Andy Golding, 12 February 2020; April Talintyre, 12 February 2020
Rolling contracts
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Payments for loss of office
On termination, other than for gross
misconduct, the Executive Directors are
contractually entitled to salary, pension
and contractual benefits (car allowance,
private medical cover, life assurance and
income protection) over their notice period.
The Group may make a payment in lieu
of notice equivalent to the salary for the
remaining notice period. Payments in lieu of
notice would normally be phased and subject
to mitigation, by offsetting the payments
against earnings elsewhere.
The Group may also pay reasonable
legal costs in respect of any
compromise settlement.
Annual bonus on termination
There is no automatic/contractual right to
bonus payments and the default position is
that the individual will not receive a payment.
The Committee may determine that an
individual is a ‘good leaver’ and may elect
to pay a pro-rated bonus for the period of
employment at its discretion and based on
full-year performance.
Deferred share bonus awards
on termination
Shares which are subject to a holding
period will ordinarily be released at the
normal time. Where a portion of the Bonus
is deferred, subject to vesting conditions,
beyond termination (e.g. to comply with FCA
regulations), awards will be treated in line
with the relevant plan rules and vest at the
normal time.
Performance Share Plan awards
on termination
Awards normally lapse on termination of
employment. However, in certain ‘good
leaver’ situations, awards may vest on
the normal vesting date to the extent that
the performance conditions are met. The
Committee is, however, permitted under
the PSP rules and FCA regulations to allow
early vesting of the award to the extent it
considers appropriate, taking into account
performance to date. Unless the Committee
determines otherwise, awards vesting in
‘good leaver’ situations will be pro-rated for
the time employed during the performance
period. Shares which are subject to a post-
vesting holding period will ordinarily be
released at the normal time.
The Committee will normally apply its
discretion to allow PSP awards to vest at
the normal time if an employee leaves for
reason of resignation after the performance
period has ended and performance has been
tested, subject to the individual not joining
a competing firm in a relevant role. Awards
will lapse in full for participants that leave for
reason of resignation before the performance
has been tested. Where awards are retained
after termination, vesting is still subject
to malus and clawback provisions, as per
normal operation of the awards.
Approach to recruitment
and promotions
The remuneration package for a new
Executive Director would be set in accordance
with the terms of the Group approved Policy.
For an internal appointment, including the
situation where an Executive Director is
appointed following corporate activity, any
variable pay earnt whilst in their prior role
would pay out according to its terms.
Should an individual be appointed to a role
(Executive or Non-Executive) on an interim
basis, the Company may provide additional
remuneration, in line with the Policy, for the
specific role for the duration the individual
holds the interim role.
For the appointment of a new Chair or NED,
the fee arrangement would be in accordance
with the approved Policy in force at that time.
External appointments
Executive Directors may accept one
directorship at another company with the
consent of the Board, which will consider the
time commitment required. The Executive
Director would normally retain any fees from
such an appointment.
On recruitment, the salary may (but need not
necessarily) be set lower than the relevant
current Executive Director, with phased
increases (which may be above the average
increase for the wider employee population)
as the new Executive Director gains
experience. The salary would in all cases be
set to reflect the individual’s experience and
skills and the scope of the role.
Bonus and PSP awards may each be up to
135% of salary for new Executive Directors,
(as set out in the Policy table) to allow the
Committee the flexibility to increase the
weighting for variable pay should it be
considered appropriate. The Committee
will, in agreeing such a package consider
the incoming Executive Director’s skills and
experience, the departing Executive Director’s
remuneration package, the remuneration
package at their former employer and
relevant market practice for similar roles.
The Group may take into account and
compensate for remuneration foregone upon
leaving a previous employer using cash
awards, the Group’s share plans, or awards
under Listing Rule 9.4.2. This would include
taking into account: the quantum foregone;
the extent to which performance conditions
apply; the form of award; and the time left to
vesting. These would be structured in line with
any regulatory requirements (such as the
PRA Rulebook).
For all appointments, the Committee may
agree that the Group will meet certain
appropriate relocation costs.
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Directors’ Remuneration Report continued
Remuneration Policy continued
The Remuneration Policy for the Chair and Non-Executive Directors
Element
Fees
Purpose and link to strategy
Operation and performance conditions
To attract and retain a
high-calibre Chair and
NEDs by offering a market
competitive fee
The Chair and NEDs are entitled to an annual fee, with supplementary fees payable for additional
responsibilities including for being the Chair or member of the Group Audit, Group Nomination and
Governance, Group Remuneration and People, and Group Risk Committees and for acting as the SID
Fees are reviewed periodically and there are no performance conditions
The Chair and NEDs are entitled to reimbursement of travel and other reasonable expenses incurred in the
performance of their duties
Maximum opportunity
There is no prescribed maximum
annual increase. The Committee
is guided by the general increase
in the non-executive market
but on occasion may need to
recognise, for example, change
in responsibility and/or time
commitments
Letters of appointment
Letters of appointment set out the duties and responsibilities of NEDs. The key terms are:
Provision
Policy
Period of appointment
Initial three-year term, subject to annual re-election by shareholders. On expiry of the initial term and subject to the needs of the Board, NEDs may be invited
to serve a further three years. Beyond nine years, NEDs will be appointed at the discretion of the Group Nomination and Governance Committee
Notice periods
Three months on either side. Terminable with immediate effect and without compensation or payment in lieu of notice if the Chair or NEDs are not elected or
re-elected to their position as a Director of the Company by shareholders
Payment in lieu of notice
The Company is entitled to make a payment in lieu of notice on termination
Letters of appointment are available for inspection at the Company’s registered office. The effective dates of the current NEDs’ appointments are shown in the table below.
Non-Executive Director
Date of appointment
Kal Atwal
Noël Harwerth
Sarah Hedger
Rajan Kapoor
Simon Walker
David Weymouth
7 February 2023
4 October 2019 (appointed to the CCFS Board in June 2017)1
1 February 20191
4 October 2019 (appointed to the CCFS Board in September 2016)1
4 January 2022
1 September 20171
1. These dates reflect the date that each NED joined OneSavings Bank plc (prior to the insertion of OSB GROUP PLC as the holding company and listed entity).
Approval
This report was approved by the Board of Directors (on the recommendation of the Group Remuneration and People Committee) and signed on its behalf by:
Sarah Hedger
Chair of the Group Remuneration and People Committee
14 March 2024
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Statement of Directors’ Responsibilities
in respect of the Annual Report and the financial statements
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the parent
Company’s transactions and disclose
with reasonable accuracy at any time the
financial position of the parent Company
and the Group enabling them to ensure that
the financial statements comply with the
Companies Act 2006. They are responsible
for such internal control as they determine
is necessary to enable the preparation of
financial statements that are free from
material misstatement, whether due to fraud
or error, and have general responsibility
for taking such steps as are reasonably
open to them to safeguard the assets of the
Group and to prevent and detect fraud and
other irregularities.
Under applicable law and regulations, the
Directors are also responsible for preparing a
Strategic Report, Directors’ Report, Directors’
Remuneration Report and Corporate
Governance Statement that complies with
that law and those regulations.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
Company’s website. Legislation in the UK
governing the preparation and dissemination
of financial statements may differ from
legislation in other jurisdictions.
The Directors are responsible for preparing
the Annual Report and the Group and parent
Company financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to
prepare Group and parent Company
financial statements for each financial
year. Under that law, they are required to
prepare the Group financial statements in
accordance with UK-adopted International
Financial Reporting Standards (IFRS) and
applicable law and have elected to prepare
the parent Company financial statements on
the same basis.
Under company law, the Directors must not
approve the financial statements unless they
are satisfied that they give a true and fair
view of the state of affairs of the Group and
parent Company and of their profit or loss
for the year. In preparing each of the Group
and parent Company financial statements,
the Directors are required to:
• select suitable accounting policies and
then apply them consistently;
• make judgements and estimates that are
reasonable, relevant and reliable;
• state whether they have been prepared
in accordance with IFRSs as adopted by
the UK;
• assess the Group and parent Company’s
ability to continue as a going concern,
disclosing, as applicable, matters related
to going concern; and
• use the going concern basis of accounting
unless they either intend to liquidate the
Group or the parent Company or to cease
operations, or have no realistic alternative
but to do so.
Responsibility statement of the
Directors in respect of the annual
financial report
Each of the persons who is a Director at the
date of approval of this report confirms, to
the best of their knowledge, that:
•
•
the financial statements, prepared in
accordance with the applicable set of
accounting standards, give a true and
fair view of the assets, liabilities, financial
position and profit or loss of the Company
and the undertakings included in the
consolidation taken as a whole; and
the Strategic Report/Directors’ Report
includes a fair review of the development
and performance of the business and
the position of the Company and the
undertakings included in the consolidation
taken as a whole, together with a
description of the principal risks and
uncertainties that they face.
Each of the persons who is a Director 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 the
Company’s auditor is unaware; and
•
they have taken all the steps they ought
to have taken as a Director in order to
make themselves aware of any relevant
audit information and to establish that
the Company’s auditors are aware of
that information.
Approved by the Board and signed on its
behalf by:
Jason Elphick
Group General Counsel and
Company Secretary
14 March 2024
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Directors’ Report: other information
Share capital and rights attaching
to shares
The Company had 393,187,681 ordinary
shares of £0.01 each in issue as at
31 December 2023.
Employee share schemes
The details of the Company’s employee
share schemes are set out on pages 172-173
in the Directors’ Remuneration Report and in
the Employee engagement section below.
Further details relating to share capital can
be found in note 40.
Without prejudice to any special rights
previously conferred on the holders of any
existing shares or class of shares, any share
in the Company may be issued with such
rights (including preferred, deferred or other
special rights) or such restrictions, whether in
regard to dividend, voting, return of capital
or otherwise as the Company may from time
to time by ordinary resolution determine (or,
in the absence of any such determination, as
the Directors may determine).
Authorities to allot and pre-emption
rights
On 11 May 2023, shareholders re-established
the general authority for the Directors to
allot up to £1,434,146.62 of the nominal
value of ordinary shares of £0.01 each. In
addition, shareholders gave authority for the
Directors to grant rights to subscribe for, or to
convert any security into, regulatory capital
convertible instruments up to £516,292.50
of the nominal value of ordinary shares
equivalent to 12% of issued share capital.
Repurchase of shares
The Company has an unexpired authority to
repurchase ordinary shares up to a maximum
of 43,024,375 ordinary shares. During the
year, the Company repurchased 38,243,031
ordinary shares as part of its £150m share
repurchase programme announced to the
market on 16 March 2023 (2022: £100m).
Results, dividends and
dividend waiver
The results for the year are set out in the
Statement of Comprehensive Income on page
193. Our dividend policy for 2023 remains a
payout ratio of at least 25% of underlying
profit after taxation to ordinary shareholders.
The Directors recommend the payment of
a final dividend of 21.8 pence per share for
2023 (2022: 21.8 pence), making a total
ordinary dividend of 32.0 pence per share
(2022: 30.5 pence). The recommended final
dividend is subject to approval at the AGM on
9 May 2024 and, if approved, will be paid on
14 May 2024, with an ex-dividend date of 4
April 2024 and a record date of 5 April 2024.
The OSB GROUP PLC Employee Benefit Trust,
which holds 188,106 shares in the Company
in connection with the operation of the
Group’s share plans, has lodged standing
instructions to waive dividends on shares
held by it that have not been allocated to
employees. The total amount of dividends
waived during 2023 was £261,596.94.
Directors and Directors’ interests
The names of the Directors who served during
the year can be found in the attendance
chart on page 114.
Directors’ interests in the shares of the
Company are set out on page 164 in the
Directors’ Remuneration Report. None of
the Directors had interests in shares of
the Company greater than 0.19% of the
ordinary shares in issue. There have been no
changes to Directors’ interests in shares since
31 December 2023.
Equal opportunities
The Group is committed to applying its
Group Diversity, Equity and Inclusion Policy
at all stages of recruitment and selection.
Short-listing, interviewing and selection
will always be conducted without regard
to gender, gender reassignment, sexual
orientation, marital or civil partnership
status, colour, race, nationality, ethnic
or national origins, religion or belief, age,
pregnancy or maternity leave or trade union
membership. Any candidate with a disability
will not be excluded unless it is clear that
the candidate is unable to perform a duty
that is intrinsic to the role, having taken into
account reasonable adjustments. Reasonable
adjustments to the recruitment process
will be made to ensure that no applicant is
disadvantaged because of disability. Line
Managers conducting recruitment interviews
will ensure that the questions they ask job
applicants are not in any way discriminatory
or unnecessarily intrusive. This commitment
also applies to existing employees, with the
necessary adjustments made, where there is
a change in circumstances.
Employee engagement
Employees are kept informed of
developments within the business and
in respect of their employment through
a variety of means, such as employee
meetings, briefings and the intranet.
Employee involvement is encouraged and
views and suggestions are taken into account
when planning new products and projects.
The Sharesave ‘save as you earn’ Scheme
is an all-employee share option scheme
which is open to all UK-based employees.
The Sharesave Scheme allows employees to
purchase options by saving a fixed amount
of between £10 and £500 per month over a
period of three years, at the end of which
the options, subject to leaver provisions, are
usually exercisable (options granted prior
to 2021 have a lower limit of £5 and only
three-year schemes will be offered from 2021
onwards). The Sharesave Scheme has been
in operation since June 2014 and options are
granted annually, with the exercise price set
at a 20% discount of the share price on the
date of grant.
Our Voice is in place to gather the views
of the workforce to enable the Board and
Group Executive Committee to consider a
broadly representative range of stakeholder
perspectives to guide strategic decisions for
the future of the Group. Our Voice consists of
volunteer representatives (of which there are
33 in total) from each of the various business
areas and locations, as well as permanent
members including a designated NED, Sarah
Hedger (with effect from 11 May 2023); a
member of the Group Executive Committee,
Jason Elphick; and a representative from
HR Management. Other NEDs and members
of the Group Executive Committee are
invited to attend meetings throughout the
year and do so on a regular basis. Mary
McNamara was the previous designated NED
with responsibility for Our Voice until her
retirement from the Board on 11 May 2023.
Members of the Board are keen to engage
with employees across all locations and find
the experience of visiting our branches and
offices within the UK and India valuable.
Further information in relation to the Board’s
engagement with the Group’s stakeholders
including customers, intermediaries,
shareholders, suppliers, regulators and
communities, can be found on pages 117-126.
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Directors’ Report: other information continued
Four Our Voice meetings were held during
2023, with employee representatives
encouraged to engage with colleagues within
their nominated business areas and across
all Group locations in advance of each
meeting in order to identify topics impacting
the workforce and which it is felt should be
brought to the attention of the Board and
Group Executive Committee. A number of
items were considered and discussed by
Our Voice, including the 2023 Bonus and
Salary increase, 2023 Best Companies
survey results and the governance of pay
within the Group. Updates on the employee
engagement networks were also considered
including ESG and DE&I initiatives. The
permanent members of Our Voice were
particularly interested in feedback from the
workforce in respect of employee morale and
employee engagement.
The Group is committed to creating a great
place to work, by fostering a truly inclusive
culture where everyone can bring their
true selves to work. Our DE&I Specialist has
developed the Group’s Diversity and Inclusion
Strategy in line with the Respect Others value
in 2023. Our Employee Engagement Network,
Our Diversity, brings together a broad mix
of colleagues from the UK and India, with a
passion for driving our DE&I agenda.
The 2023 DE&I calendar has enabled the
network to create and host a range of
activities, aimed at raising awareness and
providing resources, to support conversations
relating to gender, ethnicity, faith/religion,
disability, sexual orientation, identity,
socio-economic background, and health
and wellbeing. This year has seen a range
of activity delivered with Group-wide
contribution and engagement, such as
colleague storytelling, Q&A panel discussions,
face to face/online interactive sessions,
external speaker and e-learning modules,
that elevate the conversation around DE&I
across the Group.
Further details can be found on pages 84-85.
Greenhouse gas emissions
Information relating to greenhouse gas
emissions, energy consumption and actions
towards energy efficiency can be found on
pages 70 and 76-78
Political donations
Shareholder authority to make aggregate
political donations not exceeding £50,000
was obtained at the AGM on 11 May
2023. Neither the Company nor any of its
subsidiaries made any political donations
during the year.
Notifiable interests in share capital
As at 31 December 2023, the Company
had received the following notifications of
major holdings of voting rights pursuant to
the requirements of Rule 5 of the Disclosure
Guidance and Transparency Rules:
No. of
ordinary
shares
% of issued
share capital
abrdn plc
24,874,897
GLG Partners
LP1
Jupiter Fund
Management
PLC2
20,127,566
21,407,948
Norges Bank
17,386,770
5.79
4.99
4.98
4.05
1.
Includes 0.5% of financial instruments.
2.
Includes up to 0.03% of financial instruments.
No further notifications have been received
since 31 December 2023.
Annual General Meeting
Accompanying this report is the Notice of
the AGM which sets out the resolutions to
be proposed to the meeting, together with
an explanation of each. This year’s AGM will
be held at our offices at 90 Whitfield Street,
Fitzrovia, London W1T 4EZ on 9 May 2024
at 11 am.
Shareholders may require the Directors to
call a general meeting other than an AGM
as provided by the Companies Act 2006.
Requests to call a general meeting may be
made by members representing at least
5% of the paid-up capital of the Company
as carries the right of voting at general
meetings of the Company (excluding any
paid-up capital held as treasury shares).
A request must state the general nature of
the business to be dealt with at the meeting
and may include the text of a resolution that
may properly be moved and is intended to
be moved at the meeting. A request may
be in hard copy form or in electronic form
and must be authenticated by the person or
persons making it. A request may be made
in writing to the Company Secretary to the
registered office or by sending an email to
company.secretariat@osb.co.uk. At any
general meeting convened on such request,
no business shall be transacted, except that
stated by the requisition or proposed by
the Board.
Other information
Corporate sustainability
The Board has considered climate-related
matters including the risks of climate change
when preparing this Annual Report. 100%
of the carbon dioxide equivalent emissions
and energy consumption figures within this
Annual Report relate to emissions in the UK
and details can be found on pages 76-78.
UK Listing Authority Listing Rules (LR) –
compliance with LR 9.8.4.02
The disclosures required under LR 9.8.4 are
not applicable to the Group.
Likely future developments in the Group
are contained in the Strategic Report on
pages 21-23.
Information on financial instruments
including financial risk management
objectives and policies including the policy
for hedging the exposure of the Group to
price risk, credit risk, liquidity risk and cash
flow risk can be found in the Risk review on
pages 45-66.
Details on how the Company has complied
with section 172 can be found throughout
the Strategic and Directors’ Reports and on
pages 8 and 117-126.
Details relating to post-balance sheet events
are set out in note 53.
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Approved by the Board and signed on its
behalf by:
Jason Elphick
Group General Counsel and Company
Secretary OSB GROUP PLC
Registered number: 11976839
14 March 2024
Directors’ Report: other information continued
Going concern statement
The Board undertakes regular rigorous
assessments of whether the Group remains
a going concern considering current and
potential future economic conditions and
all available information about future risks
and uncertainties.
In assessing whether the going concern basis
is appropriate, projections for the Group
have been prepared, covering its future
performance, capital and liquidity levels for
a period in excess of 12 months from the date
of approval of these Financial Statements.
These forecasts have been subject to
sensitivity tests utilising a range of stress
scenarios, which have been compared to the
latest economic scenarios provided by the
Group’s external economic advisors, as well
as reverse stress tests.
The assessments include the following:
• Financial and capital forecasts were
prepared utilising the latest economic
forecasts provided by the Group’s external
economic advisors. Reverse stress tests
were run to identify combinations of
adverse movements in house prices
and unemployment levels which
would result in the Group breaching
its minimum regulatory and total lose
absorbing capital requirements. The
reverse stress testing also considered
what macroeconomic scenarios would
be required for the Group to breach its
interim 18% MREL requirement in July
2024. The Directors assessed the likelihood
of those reverse stress scenarios occurring
within the next 12 months and concluded
that the likelihood is remote
• The latest liquidity and contingent liquidity
positions and forecasts were assessed
against the ILAAP stress scenarios
• The Group continues to assess the
resilience of its business operating
model and supporting infrastructure in
the context of the emerging economic,
business and regulatory environment.
The key areas of focus continue to be
the provision of the Group’s Important
Business Services, minimising the impact
of any service disruptions on the Group’s
customers or the wider financial services
industry. The Group recognises the need
to continually invest in the resilience of its
services, with specific focus in 2023 on
ensuring that the third parties on which
it depends have the appropriate levels of
resilience and in further automating those
processes that are sensitive to increases
in volume. The Group produced its 2023
self-assessment report, which confirmed
compliance with regulatory expectations,
and that there were no items identified that
could threaten the Group’s viability over
the going concern assessment time horizon
The Group’s financial projections
demonstrate that the Group has sufficient
capital and liquidity to continue to meet its
regulatory capital requirements as set out by
the PRA.
The Board has therefore concluded that the
Group has sufficient financial resources and
expected operational resilience for a period
in excess of 12 months and as a result, it
is appropriate to prepare these Financial
Statements on a going concern basis.
Key information in respect of the Group’s
ERMF and objectives and processes for
mitigating risks, including liquidity risk, are
set out in detail on pages 45-66.
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Financial
Statements
183
Independent Auditor’s Report
193 Consolidated Statement of Comprehensive Income
194 Consolidated Statement of Financial Position
195 Consolidated Statement of Changes in Equity
196 Consolidated Statement of Cash Flows
197
Notes to the Consolidated Financial Statements
251 Company Statement of Financial Position
252 Company Statement of Changes in Equity
253 Company Statement of Cash Flows
254 Notes to the Company Financial Statements
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Independent Auditor’s Report
to the members of OSB Group plc
Report on the audit of the financial statements
1. Opinion
In our opinion:
•
•
•
•
the financial statements of OSB GROUP PLC (the ‘parent company’) and its subsidiaries
(the ‘Group’) give a true and fair view of the state of the Group’s and of the parent
company’s affairs as at 31 December 2023 and of the Group’s profit for the year
then ended;
the Group financial statements have been properly prepared in accordance with
United Kingdom adopted international accounting standards;
the parent company financial statements have been properly prepared in accordance
with United Kingdom adopted international accounting standards and as applied in
accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of
the Companies Act 2006.
We have audited the financial statements which comprise:
the consolidated statement of comprehensive income;
•
•
•
•
•
•
the consolidated and parent company statements of financial position;
the consolidated and parent company statements of changes in equity;
the consolidated and parent company statements of cash flow;
the related notes 1 to 53 of the consolidated financial statements; and
the related notes 1 to 11 of the parent company financial statements.
The financial reporting framework that has been applied in their preparation is applicable
law and United Kingdom adopted international accounting standards and, as regards the
parent company financial statements, as applied in accordance with the provisions of the
Companies Act 2006.
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs
(UK)) and applicable law. Our responsibilities under those standards are further described in
the auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the Group and the parent company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the UK, including
the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public
interest entities, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. The non-audit services provided to the Group and parent company for the year are
disclosed in note 7 to the financial statements. We confirm that we have not provided any non-
audit services prohibited by the FRC’s Ethical Standard to the Group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
3. Summary of our audit approach
Key audit
matters
The key audit matters that we identified in the current year were:
loan impairment provisions; and
•
• effective interest rate income recognition.
Within this report, key audit matters are identified as follows:
Newly identified Increased level of risk Similar level of risk
Decreased level of risk
Materiality The materiality that we used for the Group financial statements was £20.3m
which was determined by reference to profit before tax and net assets.
Scoping
Our Group audit scope focused primarily on three subsidiaries subject to a full
scope audit. The subsidiaries selected for a full scope audit were OneSavings
Bank plc, Charter Court Financial Services Limited and Interbay ML Ltd. These
three subsidiaries account for 98% of the Group’s interest receivable and
similar income, 95% of the Group’s profit before tax, 97% of the Group’s total
assets and 99% of the Group’s total liabilities. All audit work was performed by
the Group engagement team.
Significant
changes
in our
approach
In the prior year, our key audit matter in respect of effective interest rate (EIR)
income recognition included estimating EIRs in respect of the Kent Reliance
portfolios. The Group’s income recognition on these portfolios is less sensitive to
changes in customer prepayment behaviour relative to our audit materiality. This
area no longer features in our EIR income recognition key audit matter which
focuses on the Charter Court Financial Services Limited Precise portfolios.
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Based on the work we have performed, we have not identified any material uncertainties
relating to events or conditions that, individually or collectively, may cast significant doubt on
the Group’s and parent company’s ability to continue as a going concern for a period of at
least twelve months from when the financial statements are authorised for issue.
In relation to the reporting on how the Group has applied the UK Corporate Governance Code,
we have nothing material to add or draw attention to in relation to the directors’ statement in
the financial statements about whether the directors considered it appropriate to adopt the
going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are
described in the relevant sections of this report.
Independent Auditor’s Report continued
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going
concern basis of accounting in the preparation of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the Group’s and parent company’s ability to
continue to adopt the going concern basis of accounting included:
• We obtained and read management’s going concern assessment, which included
consideration of the Group’s operational resilience, in order to understand, challenge
and evidence the key judgements made by management;
• We obtained an understanding of relevant controls around management’s going
concern assessment;
• We obtained management’s income statement, balance sheet and capital and liquidity
forecasts and assessed key assumptions, including climate risk considerations, for
reasonableness and their projected impact on capital and liquidity ratios, particularly
with respect to loan book growth and potential credit losses;
• Supported by our in-house prudential risk specialists, we read the most recent ICAAP and
ILAAP submissions, assessed management’s capital and liquidity projections, assessed
the results of management’s capital reverse stress testing, evaluated key assumptions
and methods used in the capital reverse stress testing model and tested the mechanical
accuracy of the capital reverse stress testing model;
• We read correspondence with regulators to understand the capital and liquidity
requirements imposed by the Group’s regulators, and evidence any changes to those
requirements;
• We met with the Group’s lead regulator, the Prudential Regulation Authority, and discussed
their views on existing and emerging risks to the Group and considered whether these were
reflected appropriately in management’s forecasts and stress tests;
• We assessed the historical accuracy of forecasts prepared by management;
• We assessed the impact of the ongoing economic uncertainty, including how further rises
in living and borrowing costs may impact potential credit losses; and
• We evaluated the Group’s disclosures on going concern against the requirements of IFRS
and in view of the FRC guidance.
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Independent Auditor’s Report continued
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy; the allocation
of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
5.1. Loan impairment provisions
Refer to the judgements in applying accounting policies and critical accounting estimates on page 206 and Note 20 on page 219.
Key audit matter
description
IFRS 9 requires loan impairment provisions to be recognised on an expected credit loss (ECL) basis. The estimation of ECL provisions in the Group’s loan portfolios is
inherently uncertain and requires significant judgements and estimates. We therefore consider this to be a key audit matter due to the risk of fraud or error in respect of
the Group’s ECL provisions. ECL provisions as at 31 December 2023 were £145.8m (2022: £130.0m), which represented 0.56% (2022: 0.54%) of loans and advances to
customers. ECL provisions are calculated both for individually assessed loans and collectively on a portfolio basis which require the use of statistical models incorporating
forward looking macroeconomic scenarios, probabilities of default (PD), exposures at default and assumptions on the recoverability of customers’ outstanding balances.
The uncertain economic environment continues to increase the complexity in estimating ECL, particularly with regards to determining appropriate forward looking
macroeconomic scenarios and identifying customers who have experienced significant increases in credit risk. Additionally, higher costs of living, rising borrowing costs
and increasing arrears have increased the degree of subjectivity in estimating PDs.
We identified four specific areas in relation to ECL that require significant judgement or relate to assumptions to which the overall ECL provision is particularly sensitive.
• Significant increase in credit risk (SICR): The assessment of whether there has been a significant increase in credit risk between the date of initial recognition of the
exposure and 31 December 2023. There is a risk that the Group’s staging criteria does not capture SICR or are applied incorrectly.
• Macroeconomic scenarios: As set out on page 207, the Group sources economic forecasts from a third-party economics expert and then applies judgement to
determine which scenarios to select and the probability weightings to assign. The Group considered four probability weighted scenarios, including base, upside,
downside, and severe downside scenarios. The key economic variables used within the macroeconomics model were determined to be the house price index (HPI) and
unemployment rate. The estimation of these variables involves a high degree of subjectivity and estimation uncertainty.
• Post model adjustment (PMA): As set out on page 219, the Group has assessed how costs of living and rising interest rates may impact customers’ behaviour in the
future and has continued to recognise a cost of living and cost of borrowing PMA to reflect the impact on the customers’ affordability. The calculation of this PMA is
inherently judgemental as it requires assessment of the extent of risks not captured in the expected credit loss provision models.
• Propensity to go into possession following default (PPD) and forced sale discount (FSD) assumptions: PPD measures the likelihood that a defaulted loan will progress
into repossession. FSD measures the difference in sale proceeds between a sale under normal conditions and sale at auction. The loss given default (LGD) by loan
assumed in the ECL provision calculation is highly sensitive to the PPD and FSD assumptions.
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Independent Auditor’s Report continued
How the scope
of our audit
responded to the
key audit matter
We obtained an understanding of the relevant financial controls over the ECL provision with particular focus on controls over significant assumptions and judgements
used in the ECL determination.
To challenge the Group’s SICR criteria, we:
• Evaluated the Group’s SICR policy and assessed whether it complies with IFRS 9;
• Assessed the quantitative and qualitative thresholds used in the SICR assessment by reference to standard validation metrics including the proportion of transfers
to stage two driven solely by being 30 days past due, the volatility of loans in stage two and the proportion of loans that spend little or no time in stage two before
moving to stage three;
• On a sample basis, tested the completeness and accuracy of the data used in applying the quantitative and qualitative criteria in the SICR assessment to assess
whether loans were assigned to the correct stage;
• Supported by our credit risk specialists, performed a review of changes to the computer codes used to perform the SICR assessment compared to the prior year;
• As part of our testing of the application of the SICR criteria within the ECL model and with support from our credit risk specialists, we independently reperformed the
Group’s staging assessment across all three stages using our in-house analytics tool; and
• Performed an independent assessment for a sample of loan accounts which exited forbearance, to determine whether they had been appropriately allocated to the correct stage.
To challenge the Group’s macroeconomic scenarios and the probability weightings applied, we:
• Agreed the macroeconomics scenarios used in the ECL model to reports prepared by the third-party economics expert;
• Assessed the competence, capability and objectivity of the third-party economics expert;
• Supported by our economic specialists, assessed and challenged the scenarios considered and the probability weightings assigned to them in light of the economic
environment as at 31 December 2023;
• With the involvement of our economic specialists challenged the Group’s economic outlook by reference to other available economic outlook data;
• Compared the appropriateness of selected macroeconomic variables (HPI and unemployment) and the four probability weightings used in the macroeconomics model
to those used by peer lenders;
• Supported by our credit risk specialists, assessed the model methodology and performed a review of changes to the computer code used in the macroeconomics
model which applies the scenarios to the relevant ECL components compared to the prior year; and
• Supported by our credit risk specialists, assessed the performance of the macroeconomic model to confirm whether the economic variables previously selected were
still appropriate through considering the modelled macroeconomic results relative to those observed in historical recessions.
To challenge the Group’s cost of living and cost of borrowing PMA, we:
• Supported by our credit risk specialists, assessed whether the risks were already captured within the ECL models and determined the extent of risks to be captured by the PMA;
• Evaluated the methodology, including key assumptions and assessed the computer codes used to determine the PMA; and
• Tested the completeness, accuracy and relevance of the data used on a sample basis.
To challenge the Group’s PPD and FSD assumptions, we:
• Supported by our credit risk specialists, performed a review of changes to the computer codes in the LGD models compared to the prior year;
• Recalculated the PPD rates observed on defaulted loans and compared them to the rates used by the Group in the ECL models;
• Recalculated the FSD observed on recent property sales on defaulted loans and compared them to the rates used by the Group in the ECL models;
• Considered the findings raised in the Group’s model monitoring and validation exercise and assessed the impact on the year-end provision; and
• Performed a stand back test to consider potential contradictory evidence and assessed the appropriateness of PPD and FSD assumptions by comparison to industry peers.
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Independent Auditor’s Report continued
Key observations We are satisfied that the SICR criteria and PPD and FSD assumptions in determining the ECL provision were reasonable. We observed that the macroeconomic scenarios
selected by the directors and the probability weightings applied generate an appropriate portfolio loss distribution. We determined that the methodology assumptions
used in determining the Group’s cost of living and cost of borrowing PMA were reasonable.
Overall, we determined that the loan impairment provisions were appropriately stated as at 31 December 2023.
5.2. Effective interest rate income recognition
Refer to the judgements in applying accounting policies and critical accounting estimates on page 207, the accounting policy on pages 200 and 201 and Notes 3 and 4 on pages 208 and 209.
Key audit matter
description
In accordance with the requirements of IFRS 9, directly attributable fees, discounts, incentives and commissions on a constant yield basis (effective interest rate, EIR) are
required to be spread over the expected life of the loan assets. EIR is complex and the Group’s approach to determining the EIR involves the use of models and significant
estimation in determining the behavioural life of loan assets. Given the complexity and judgement involved in accounting for EIR and given that revenue recognition is an
area susceptible to fraud, there is an opportunity for management to manipulate the amount of interest income reported in the financial statements.
The Group’s net interest income for the year ended 31 December 2023 was £658.6m (2022: £709.9m).
EIR adjustments arise from revisions to estimated cash receipts or payments for loan assets that occur for reasons other than a movement in market interest rates or
credit losses. They result in an adjustment to the carrying amount of the loan asset, with the adjustment recognised in the income statement in interest receivable and
similar income. As the EIR adjustments reflect changes to the timing and volume of forecast customer redemptions, they are inherently judgemental.
The level of judgement exercised is increased where there is limited availability of historical repayment information. For the Precise loan portfolios, the EIR adjustments are
sensitive to changes in the behavioural life curves. As set out on page 208, changes in the modelled behavioural life of these portfolios during the year resulted in an interest
income loss of £182.5m (2022: £41.7m loss). The EIR adjustments have increased as a result of the rising interest rate environment in 2023 which accelerated customer
prepayments of Precise loans compared to those originally modelled. The current economic environment continues to increase uncertainty with regards to forecasting
expected behavioural lives and prepayment rates. We therefore considered there to be an increased level of risk in respect of this key audit matter in the current year.
How the scope
of our audit
responded to the
key audit matter
We obtained an understanding of the relevant controls over EIR, focusing on the calculation and review of EIR adjustments and the determination of prepayment curves.
For the Precise portfolio, where the EIR adjustments were most significant and sensitive to changes in behavioural life, with the involvement of our analytics and modelling
specialists, we ran the loan data for all products through our own independent EIR model, using the behavioural life curves derived by the Group. We compared our
calculation of the EIR adjustment required to the amount recorded by the Group.
A number of key assumptions are made to estimate the expected future behaviour of customers including consideration of recently observed behaviour. For these
assumptions, we independently challenged the appropriateness of the assumptions considering the rising rate environment that has been experienced in the UK over the
last year, economic forecasts of future interest rates and trends in customer behaviour observed in recent months. With the involvement of our analytics and modelling
specialists, we independently derived a behavioural life curve using the Group’s actual loan data over recent years, incorporating those assumptions that we considered
reasonable. We used these curves in our own independent EIR model to calculate the EIR adjustments. We compared this output to the amounts recorded by the Group.
We also tested the completeness and accuracy of a sample of inputs into the EIR model for originated loans.
Key observations We determined that the EIR models and assumptions used were appropriate and that net interest income for the period is appropriately stated.
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6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes
it probable that the economic decisions of a reasonably knowledgeable person would be
changed or influenced. We use materiality both in planning the scope of our audit work and in
evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements
as a whole as follows:
Group financial
statements
Parent company
financial statements
Materiality
£20.3m (2022: £21.6m)
£17.9m (2022: £15.8m)
Basis for determining
materiality
Rationale for the
benchmark applied
We determined materiality for
the Group to be approximately
1% of net assets of £2,144.5m
which equates to 5.4% of
statutory profit before tax
of £374.3m. The basis of
materiality is consistent with
prior year.
Consistent with the prior year,
we considered both net assets
and a profit before tax based
measure as benchmarks for
determining materiality.
We determined net assets
to be the most relevant and
stable benchmark to determine
materiality.
We determined materiality
for the parent company by
reference to 1% of net assets.
This is consistent with prior year.
The parent company is
principally a holding company
and we have therefore
determined net assets to be the
most relevant benchmark to
determine materiality.
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability
that, in aggregate, uncorrected and undetected misstatements exceed the materiality for the
financial statements as a whole.
Group financial
statements
Parent company
financial statements
Performance
materiality
60% (2022: 60%) of Group
materiality
60% (2022: 60%) of parent
company materiality
Basis and rationale
for determining
performance
materiality
Group performance materiality was set at 60% of Group
materiality (2022: 60%). In determining performance materiality,
we considered a number of factors, including: our understanding
of the control environment; our understanding of the business;
and the low number of uncorrected misstatements identified in the
prior year.
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences
in excess of £1.0m (2022: £1.1m), as well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure
matters that we identified when assessing the overall presentation of the financial statements.
7. An overview of the scope of our audit
7.1. Identification and scoping of components
Our Group audit was scoped by obtaining an understanding of the Group and its environment,
including Group-wide controls and assessing the risks of material misstatement at the Group level.
Our Group audit scope focused primarily on three subsidiaries: the two main banking entities
OneSavings Bank plc and Charter Court Financial Services Limited, as well as Interbay ML Ltd,
another significant lending subsidiary. These three subsidiaries were significant components
and subject to a full scope audit (2022: three significant components subject to a full scope
audit). They represent 98% (2022: 97%) of the Group’s interest receivable and similar income,
95% (2022: 94%) of profit before tax, 97% (2022: 98%) of total assets and 99% (2022: 99%) of
total liabilities. The subsidiaries were selected to provide an appropriate basis of undertaking
audit work to address the risks of material misstatement including those identified as key audit
matters above. Our audits of each of the subsidiaries were performed using lower levels of
materiality based on their size relative to the Group. The materialities used for each subsidiary
audit ranged from £3.8m to £17.9m (2022: £6.6m to £17.9m).
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We tested the Group’s consolidation process and carried out analytical procedures to confirm
that there were no significant risks of material misstatement in the aggregated financial
information of the remaining subsidiaries not subject to a full scope audit or specified audit
procedures.
Interest receivable and
similar income
Profit before tax
Full audit scope
Review at group level
98%
2%
Full audit scope
Review at group level
95%
5%
Total assets
Total liabilities
Full audit scope
Review at group level
97%
3%
Full audit scope
Review at group level
99%
1%
7.2. Our consideration of the control environment
We identified the key IT systems relevant to the audit to be those used in financial reporting,
lending and savings areas. For these systems, with the involvement of our IT specialists, we
obtained an understanding of relevant general IT controls.
Where deficiencies were identified in the control environment, including deficiencies in IT
controls, our risk assessment procedures included an assessment of those deficiencies to
determine the impact on our audit plan. Where we were unable to identify or test mitigating
controls, we adopted a non-controls reliance approach and performed additional substantive
procedures. As a result of deficiencies identified in internal IT access controls across the Group,
we amended our planned audit procedures to adopt a non-controls reliance approach over
lending and related interest income, and deposit balances and related interest expense.
7.3. Our consideration of climate-related risks
In planning our audit, we have considered the impact of climate change on the Group’s
operations and impact on its financial statements. The Group has set out its commitments,
aligned with the goals of the Paris Climate Accord, to be a net zero bank by 2050. Further
information is provided in the Group’s Strategic Report and Task Force on Climate-Related
Financial Disclosures (“TCFD”) on pages 94-102. The Group sets out its assessment of the
potential impact of climate change on ECL on page 62 of the Risk Management section of the
Annual Report and the potential impact on the financial statements in note 20 on page 219.
In conjunction with our climate risk specialists, we have held discussions with the Group to
understand:
•
the process for identifying affected operations, including the governance and controls over
this process, and the subsequent effect on the financial reporting for the Group; and
•
the long-term strategy to respond to climate change risks as they evolve.
Our audit work has involved:
• challenging the completeness of the physical and transition risks identified and considered
in the Group’s climate risk assessment and the conclusion that there is no material impact
of climate change risk on current year financial reporting;
• with the involvement of our credit risk specialists, assessing management’s approach to the
incorporation and quantification of climate change risks within a PMA in the ECL provision,
which included:
• assessing management’s selected climate pathway used in order to quantify the potential
impact of physical risks on the Group’s loan book and in particular how the underlying
property may be impacted as a result; and
• assessing the relevance of the data used in the assessment.
Assessing disclosures in the Annual Report, and challenging the consistency between the
financial statements and the remainder of the Annual Report.
We have been engaged to provide limited assurance on the description of activities undertaken to
meet the Recommendations of the Task Force on Climate-Related Financial Disclosures (“TCFD”)
and selected Environmental, Social and Governance metrics (“Selected ESG Metrics”) (together
the “Assured ESG Information”) in the Annual Report for the year ended 31 December 2023. Please
refer to page 262 for our separate assurance report.
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8. Other information
The other information comprises the information included in the annual report, other than the
financial statements and our auditor’s report thereon. The directors are responsible for the
other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to
the extent otherwise explicitly stated in our report, we do not express any form of assurance
conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained
in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are
required to determine whether this gives rise to a material misstatement in the financial
statements themselves. If, based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible
for the preparation of the financial statements and for being satisfied that they give a true and
fair view, and for such internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s
and the parent company’s ability to continue as a going concern, disclosing as applicable,
matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the parent company or to cease operations, or
have no realistic alternative but to do so.
10. Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect
a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located
on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of
our auditor’s report.
11. Extent to which the audit was considered capable of detecting irregularities,
including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations.
We design procedures in line with our responsibilities, outlined above, to detect material
misstatements in respect of irregularities, including fraud. The extent to which our procedures
are capable of detecting irregularities, including fraud is detailed below.
11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including
fraud and non-compliance with laws and regulations, we considered the following:
•
•
•
the nature of the industry and sector, control environment and business performance
including the design of the Group’s remuneration policies, key drivers for directors’
remuneration, bonus levels and performance targets;
the Group’s own assessment of the risks that irregularities may occur either as a result of
fraud or error that was approved by the board;
results of our enquiries of management, internal audit, the directors and the audit
committee about their own identification and assessment of the risks of irregularities,
including those that are specific to the Group’s sector;
• any matters we identified having obtained and reviewed the Group’s documentation of their
policies and procedures relating to:
– identifying, evaluating and complying with laws and regulations and whether they were
aware of any instances of non-compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any
actual, suspected or alleged fraud;
– the internal controls established to mitigate risks of fraud or non-compliance with laws
and regulations;
•
the matters discussed among the audit engagement team and relevant internal specialists,
including tax, valuations, real estate, IT, climate risk, prudential risk, economics, financial
instruments, share based payments, credit risk and analytics and modelling specialists
regarding how and where fraud might occur in the financial statements and any potential
indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist
within the organisation for fraud and identified the greatest potential for fraud in the following
areas: loan impairment provisions and effective interest rate income recognition. In common
with all audits under ISAs (UK), we are also required to perform specific procedures to respond
to the risk of management override.
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We also obtained an understanding of the legal and regulatory frameworks that the Group
operates in, focusing on provisions of those laws and regulations that had a direct effect on
the determination of material amounts and disclosures in the financial statements. The key
laws and regulations we considered in this context included the UK Companies Act, Listing
Rules and tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct
effect on the financial statements but compliance with which may be fundamental to the
Group’s ability to operate or to avoid a material penalty. These included the Group’s prudential
regulatory requirements and capital, liquidity and conduct requirements.
11.2. Audit response to risks identified
As a result of performing the above, we identified loan impairment provisions and effective
interest rate income recognition as key audit matters related to the potential risk of fraud. The
key audit matters section of our report explains the matters in more detail and also describes
the specific procedures we performed in response to those key audit matters.
In addition to the above, our procedures to respond to risks identified included the following:
•
reviewing the financial statement disclosures and testing to supporting documentation to
assess compliance with provisions of relevant laws and regulations described as having a
direct effect on the financial statements;
• enquiring of management, the audit committee and in-house and external legal counsel
concerning actual and potential litigation and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that
may indicate risks of material misstatement due to fraud;
•
•
reading minutes of meetings of those charged with governance, reviewing internal audit
reports and reviewing correspondence with the Prudential Regulation Authority, the
Financial Conduct Authority and HMRC; and
in addressing the risk of fraud through management override of controls, testing the
appropriateness of journal entries and other adjustments; assessing whether the
judgements made in making accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions that are unusual or outside
the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks
to all engagement team members including internal specialists and significant component
audit teams, and remained alert to any indications of fraud or non-compliance with laws and
regulations throughout the audit.
Report on other legal and regulatory requirements
12. Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly
prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
•
•
the information given in the strategic report and the directors’ report for the financial
year for which the financial statements are prepared is consistent with the financial
statements; and
the strategic report and the directors’ report have been prepared in accordance with
applicable legal requirements.
In the light of the knowledge and understanding of the Group and the parent company
and their environment obtained in the course of the audit, we have not identified any
material misstatements in the strategic report or the directors’ report.
13. Corporate Governance Statement
The Listing Rules require us to review the directors’ statement in relation to going concern,
longer-term viability and that part of the Corporate Governance Statement relating to the
Group’s compliance with the provisions of the UK Corporate Governance Code specified for
our review.
Based on the work undertaken as part of our audit, we have concluded that each of the
following elements of the Corporate Governance Statement is materially consistent with
the financial statements and our knowledge obtained during the audit:
•
•
•
•
•
•
the directors’ statement with regards to the appropriateness of adopting the going
concern basis of accounting and any material uncertainties identified set out on
page 181;
the directors’ explanation as to its assessment of the Group’s prospects, the period this
assessment covers and why the period is appropriate set out on pages 67 and 68;
the directors’ statement on fair, balanced and understandable set out on page 138;
the board’s confirmation that it has carried out a robust assessment of the emerging
and principal risks set out on page 116;
the section of the annual report that describes the review of effectiveness of risk
management and internal control systems set out on page 116; and
the section describing the work of the audit committee set out on page 136 to 142.
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17. Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter
3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might
state to the company’s members those matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company and the company’s members as a
body, for our audit work, for this report, or for the opinions we have formed.
As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency
Rule (DTR) 4.1.14R, these financial statements will form part of the European Single Electronic
Format (ESEF) prepared Annual Financial Report filed on the National Storage Mechanism of the
UK FCA in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditor’s
report provides no assurance over whether the annual financial report has been prepared
using the single electronic format specified in the ESEF RTS. We have been engaged to provide
assurance on whether the annual financial report has been prepared using the single electronic
format specified in the ESEF RTS and will report separately to the members on this.
Robert Topley FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
14 March 2024
Independent Auditor’s Report continued
14. Opinion on other matter prescribed by the Capital Requirements (Country-by-
Country Reporting) Regulations 2013
In our opinion the information given in note 48 to the financial statements for the financial year
ended 31 December 2023 has been properly prepared, in all material respects, in accordance
with the Capital Requirements (Country-by Country Reporting) Regulations 2013.
15. Matters on which we are required to report by exception
15.1. Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the parent company, or returns
adequate for our audit have not been received from branches not visited by us; or
•
the parent company financial statements are not in agreement with the accounting
records and returns.
We have nothing to report in respect of these matters.
15.2. Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain
disclosures of directors’ remuneration have not been made or the part of the directors’
remuneration report to be audited is not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
16. Other matters which we are required to address
16.1. Auditor tenure
Following the recommendation of the Audit Committee, we were appointed by the shareholders
of the OSB GROUP plc on 17 November 2020 to audit the Group financial statements for
the year ending 31 December 2020 and subsequent financial periods. The period of total
uninterrupted engagement including previous renewals and reappointments of the firm is three
years, covering the years ending 31 December 2020 to 31 December 2023.
Prior to our appointment to audit the parent company, we were auditor of the Group headed
by OneSavings Bank plc, since 9 May 2019. The period of total uninterrupted engagement
for OneSavings Bank plc, including previous renewals and reappointments of the firm, is four
years, covering the year ended 31 December 2019 to 31 December 2023.
16.2. Consistency of the audit report with the additional report to the Audit Committee
Our audit opinion is consistent with the additional report to the Audit Committee we are
required to provide in accordance with ISAs (UK).
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Consolidated Statement of Comprehensive Income
For the year ended 31 December 2023
Note
3
4
5
6
7
34
21
10
11
16
Interest receivable and similar income
Interest payable and similar charges
Net interest income
Fair value (losses)/gains on financial instruments
Other operating income
Total income
Administrative expenses
Provisions
Impairment of financial assets
Integration costs
Profit before taxation
Taxation
Profit for the year
Other comprehensive expense
Items which may be reclassified to profit or loss:
Fair value changes on financial instruments measured at
fair value through other comprehensive income (FVOCI):
Arising in the year
Amounts reclassified to profit or loss for
investment securities at FVOCI
Tax on items in other comprehensive expense
Revaluation of foreign operations
Other comprehensive expense
2023
£m
1,767.0
(1,108.4)
658.6
(4.4)
3.9
658.1
(234.6)
(0.4)
(48.8)
–
374.3
(91.7)
282.6
(0.2)
–
0.1
(0.8)
(0.9)
2022
£m
1,069.3
Dividend, pence per share
(359.4)
Earnings per share, pence per share
709.9
Basic
Diluted
Note
13
12
12
2023
£m
32.0
66.1
65.0
2022
£m
42.2
90.8
89.8
The above results are derived wholly from continuing operations.
The notes on page 197 to 250 form part of these accounts.
The financial statements on page 193 to 250 were approved by the Board of Directors on
14 March 2024.
58.9
6.6
775.4
(207.8)
1.6
(29.8)
(7.9)
531.5
(121.5)
410.0
0.3
(0.7)
0.1
(0.2)
(0.5)
Total comprehensive income for the year
281.7
409.5
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Consolidated Statement of Financial Position
As at 31 December 2023
Assets
Cash in hand
Loans and advances to credit institutions
Investment securities
Loans and advances to customers
Fair value adjustments on hedged assets
Derivative assets
Other assets
Current taxation asset
Deferred taxation asset
Property, plant and equipment
Intangible assets
Total assets
Liabilities
Amounts owed to credit institutions
Amounts owed to retail depositors
Fair value adjustments on hedged liabilities
Amounts owed to other customers
Debt securities in issue
Derivative liabilities
Lease liabilities
Other liabilities
Provisions
Deferred taxation liability
Senior notes
Subordinated liabilities
Perpetual Subordinated Bonds
Note
15
16
17
23
22
24
25
26
27
28
29
23
30
31
22
32
33
34
35
36
37
38
Note
40
40
41
2023
£m
3.9
3.8
150.0
3,330.2
42
(1,343.4)
2,144.5
2022
£m
4.3
2.4
150.0
3,389.4
(1,345.1)
2,201.0
29,589.8
27,566.7
2023
£m
0.4
2022
£m
Equity
0.4
Share capital
2,813.6
3,365.7
Share premium
621.7
412.9
Other equity instruments
25,765.0
23,612.7
Retained earnings
(789.0)
Other reserves
Shareholders’ funds
Total equity and liabilities
(243.5)
530.6
27.6
0.6
3.9
43.8
26.1
888.1
15.0
1.7
6.3
40.9
12.0
The notes on page 197 to 250 form part of these accounts. The financial statements on
page 193 to 250 were approved by the Board of Directors on 14 March 2024 and signed on
its behalf by
29,589.8
27,566.7
3,575.0
5,092.9
22,126.6
19,755.8
Andy Golding
Chief Executive Officer
Company number: 11976839
April Talintyre
Chief Financial Officer
21.9
63.3
818.5
199.9
11.2
39.6
0.8
6.3
307.5
259.5
15.2
(55.1)
113.1
265.9
106.6
9.9
38.7
0.4
22.3
–
–
15.2
27,445.3
25,365.7
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Consolidated Statement of Changes in Equity
For the year ended 31 December 2023
At 1 January 2022
Profit for the year
Other comprehensive expense
Tax on items in other comprehensive expense
Total comprehensive (expense)/income
Coupon paid on Additional Tier 1 (AT1) securities
Dividends paid
Share-based payments
Own shares2
Share repurchase
At 31 December 2022
Profit for the year
Other comprehensive expense
Tax on items in other comprehensive expense
Total comprehensive (expense)/income
Coupon paid on AT1 securities
Dividends paid
Share-based payments
Own shares2
Share repurchase
Tax recognised in equity
At 31 December 2023
Share
capital
£m
4.5
Share
premium
£m
Capital
redemption and
transfer reserve1
£m
0.7
(1,355.3)
Own
shares2
£m
(3.5)
–
–
–
–
–
–
–
–
(0.2)
4.3
–
–
–
–
–
–
–
–
(0.4)
–
3.9
–
–
–
–
–
–
1.7
–
–
2.4
–
–
–
–
–
–
1.4
–
–
–
–
–
–
–
–
–
–
–
0.2
(1,355.1)
–
–
–
–
–
–
–
–
0.4
–
3.8
(1,354.7)
–
–
–
–
–
–
–
1.3
–
(2.2)
–
–
–
–
–
–
–
1.2
–
–
(1.0)
Foreign
exchange
reserve
£m
(1.1)
–
(0.2)
–
(0.2)
–
–
–
–
–
(1.3)
–
(0.8)
–
(0.8)
–
–
–
–
–
–
FVOCI
reserve
£m
0.6
–
(0.4)
0.1
(0.3)
–
–
–
–
–
0.3
–
(0.2)
0.1
(0.1)
–
–
–
–
–
–
Share-based
payment
reserve
£m
Retained
earnings
£m
Other equity
instruments
£m
Total
£m
13.4
3,215.1
150.0
2,024.4
–
–
–
–
–
–
(0.2)
–
–
410.0
–
–
410.0
(9.0)
(133.1)
8.4
(1.3)
(100.7)
–
–
–
–
–
–
–
–
–
410.0
(0.6)
0.1
409.5
(9.0)
(133.1)
9.9
–
(100.7)
13.2
3,389.4
150.0
2,201.0
–
–
–
–
–
–
0.6
–
–
0.4
282.6
–
–
282.6
(9.0)
(185.0)
5.0
(1.2)
(151.6)
–
–
–
–
–
–
–
–
–
–
–
282.6
(1.0)
0.1
281.7
(9.0)
(185.0)
7.0
–
(151.6)
0.4
(2.1)
0.2
14.2
3,330.2
150.0
2,144.5
1. Comprises Capital redemption reserve of £0.6m (2022: £0.2m) and Transfer reserve of £(1,355.3)m (2022: £(1,355.3)m).
2. The Group has adopted look-through accounting (see note 1 c) and recognised the Employee Benefit Trust (EBT) within OSBG.
Share capital and premium is disclosed in note 40 and the reserves are further analysed in note 42.
196
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Consolidated Statement of Cash Flows
For the year ended 31 December 2023
Cash flows from operating activities
Profit before taxation
Adjustments for non-cash and other items
Changes in operating assets and liabilities
Cash generated from operating activities
Net tax paid
Net cash generated from operating activities
Cash flows from investing activities
Maturity and sales of investment securities
Purchases of investment securities
Interest received on investment securities
Purchases of property, plant and
equipment and intangible assets
Net cash from investing activities
Cash flows from financing activities
Financing received
Financing repaid
Interest paid on financing
Share repurchase1
Coupon paid on AT1 securities
Dividends paid
Note
49
49
26,27
39
39
39
13
2023
£m
2022
£m
374.3
294.0
(139.5)
528.8
(103.6)
425.2
366.3
(664.3)
22.6
(25.8)
(301.2)
1,328.6
(1,430.3)
(205.4)
(152.4)
(9.0)
(185.0)
531.5
63.7
(24.2)
571.0
(142.5)
428.5
663.7
(596.5)
7.7
(11.7)
63.2
429.5
(324.2)
(45.3)
(102.0)
(9.0)
(133.1)
Proceeds from issuance of shares under employee
Save As You Earn (SAYE) schemes
Repayments of principal portion of lease liabilities
Net cash from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning
of the year
Cash and cash equivalents at the end of the year
Movement in cash and cash equivalents
Note
14
14
2023
£m
1.4
(2.0)
(654.1)
(530.1)
3,044.1
2,514.0
(530.1)
2022
£m
1.7
(1.9)
(184.3)
307.4
2,736.7
3,044.1
307.4
1.
Includes £150.0m (2022: £100.0m) for shares repurchased, £0.8m (2022: £0.7m) transaction costs and £1.6m
(2022: £1.3m) incentive fee.
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Notes to the Consolidated Financial Statements
1. Accounting policies
a) Basis of preparation
The financial statements have been prepared in accordance with International Financial
Reporting Standards (IFRS) as adopted by the United Kingdom (UK) and interpretations issued
by the IFRS Interpretations Committee (IFRS IC).
The financial statements have been prepared on a historical cost basis, as modified by the
revaluation of investment securities held at FVOCI and derivative contracts and other financial
assets held at fair value through profit or loss (FVTPL) (see note 1 n) vi.).
The financial statements are presented in pounds sterling. All amounts in the financial
statements have been rounded to the nearest £0.1m (£m). Foreign operations are included in
accordance with the policies set out in this note.
b) Going concern
The Board undertakes regular rigorous assessments of whether the Group remains a going
concern considering current and potential future economic conditions and all available
information about future risks and uncertainties.
In assessing whether the going concern basis is appropriate, projections for the Group have
been prepared, covering its future performance, capital, and liquidity levels for a period in
excess of 12 months from the date of approval of these Financial Statements. These forecasts
have been subject to sensitivity tests utilising a range of stress scenarios, which have been
compared to the latest economic scenarios provided by the Group’s external economic
advisors, as well as reverse stress tests.
The assessments include the following:
• Financial and capital forecasts were prepared utilising the latest economic forecasts
provided by the Group’s external economic advisers. Reverse stress tests were run to identify
combinations of adverse movements in house prices and unemployment levels which would
result in the Group breaching its minimum regulatory and total loss absorbing capital
requirements. The reverse stress testing also considered what macroeconomic scenarios
would be required for the Group to breach its interim 18% MREL requirement in July 2024.
The Directors assessed the likelihood of those reverse stress scenarios occurring within the
next 12 months and concluded that the likelihood is remote.
• The latest liquidity and contingent liquidity positions and forecasts were assessed against
the Internal Liquidity Adequacy Assessment Process (ILAAP) stress scenarios.
• The Group continues to assess the resilience of its business operating model and
supporting infrastructure in the context of the emerging economic, business and regulatory
environment. The key areas of focus continue to be the provision of the Group’s Important
Business Services, minimising the impact of any service disruptions on the firm’s customers
or the wider financial services industry. The Group recognises the need to continually invest
in the resilience of its services, with specific focus in 2023 on ensuring that the third parties
on which it depends have the appropriate levels of resilience and in further automating
those processes that are sensitive to increases in volume. The Group produced it’s 2023
self-assessment report, which confirmed compliance with regulatory expectations, and
that there were no items identified that could threaten the Group’s viability over the going
concern assessment time horizon.
The Group’s financial projections demonstrate that the Group has sufficient capital and
liquidity to continue to meet its regulatory capital requirements as set out by the Prudential
Regulation Authority (PRA).
The Board has therefore concluded that the Group has sufficient financial resources and
expected operational resilience for a period in excess of 12 months and as a result, it is
appropriate to prepare these financial statements on a going concern basis.
c) Basis of consolidation
The Group accounts include the results of the Company and all its subsidiary undertakings.
Subsidiaries are those entities, including structured entities, over which the Group has control.
The Group controls an entity when it is exposed, or has rights, to variable returns from its
involvement with the entity and has the ability to affect those returns through its power over
the investee.
Judgement is applied in assessing the relevant factors and conditions in totality when
determining whether the Group controls an entity. Specifically, judgement is applied in
assessing whether the Group has substantive decision-making rights over the relevant
activities and whether it is exercising power as a principal or an agent.
The Group is not deemed to control an entity when it exercises power over an entity in an
agency capacity. In determining whether the Group is acting as an agent, the Directors
consider the overall relationship between the Group, the investee and other parties to the
arrangement with respect to the following factors: (i) the scope of the Group’s decision-making
power; (ii) the rights held by other parties; (iii) the remuneration to which the Group is entitled;
and (iv) the Group’s exposure to variability of returns. The determination of control is based on
the current facts and circumstances and is continuously assessed.
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1. Accounting policies continued
c) Basis of consolidation continued
Where the Group does not retain a direct ownership interest in a securitisation entity, but
the Directors have determined that the Group controls those entities, they are treated as
subsidiaries and are consolidated. Control is determined to exist if the Group has the power to
direct the activities of each entity (for example, managing the performance of the underlying
mortgage assets and raising debt on those mortgage assets which is used to fund the Group)
and, in addition to this, the Group is exposed to a variable return (for example, retaining the
residual risk on the mortgage assets). Securitisation structures that do not meet these criteria
are not treated as subsidiaries and are excluded from the consolidated accounts. The Group
applies the net approach in accounting for securitisation structures where it retains an interest
in the securitisation, netting the loan notes held against the deemed loan balance.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group
and are deconsolidated from the date that control ceases. Upon consolidation, intercompany
transactions, balances and unrealised gains on transactions are eliminated. Unrealised
losses are also eliminated unless the transaction provides evidence of impairment of the asset
transferred. Accounting policies of subsidiaries have been changed where necessary to ensure
consistency, so far as is possible, with the policies adopted by the Group.
The Group’s EBT is controlled and recognised by the Company using the look-through
approach, i.e. as if the EBT is included within the accounts of the Company.
In the Company’s financial statements, investments in subsidiary undertakings are stated
at cost less impairment. A full list of the Company’s subsidiaries which are included in the
Group’s consolidated financial statements can be found in note 2 to the Company’s financial
statements on page 254 and 255.
d) Foreign currency translation
The financial statements of each of the Company’s subsidiaries are measured using the
currency of the primary economic environment in which the subsidiary operates (the functional
currency). Foreign currency transactions are translated into the functional currencies using
the exchange rates prevailing at the date of the transactions. Monetary items denominated in
foreign currencies are retranslated at the rate prevailing at the period end.
e) Segmental reporting
IFRS 8 requires operating segments to be identified on the basis of internal reports and
components of the Group which are regularly reviewed by the chief operating decision maker
to allocate resources to segments and to assess their performance. For this purpose, the chief
operating decision maker of the Group is the Board of Directors.
The Group provides loans and asset finance within the UK and the Channel Islands only.
The Group segments its lending business and operates under two segments:
• OneSavings Bank (OSB)
• Charter Court Financial Services (CCFS)
The Group has disclosed relevant risk management tables in note 44 at a sub-segment level to
provide detailed analysis of the Group’s core lending business.
Interest income and expense
f)
Interest income and interest expense for all interest-bearing financial instruments measured at
amortised cost and FVOCI are recognised in profit or loss using the effective interest rate (EIR)
method. The EIR is the rate which discounts the expected future cash flows, over the expected
life of the financial instrument, to the net carrying value of the financial asset or liability.
Interest income on financial assets categorised as stage 1 or 2 are recognised on a gross basis,
with interest income on stage 3 assets recognised net of expected credit losses (ECL).
For purchased or credit-impaired assets (see note 1 n) vii.), interest income is calculated
by applying the credit-adjusted EIR to the amortised cost of the asset. The calculation of
interest income does not revert to a gross basis even if the credit risk of the asset improves.
See note 1 n) ii. for further information on IFRS 9 stage classifications.
When calculating the EIR, the Group estimates cash flows considering all contractual terms of
the instrument and behavioural aspects (for example, prepayment options) but not considering
future credit losses. The calculation of the EIR includes transaction costs and fees paid or
received that are an integral part of the interest rate, together with the discounts or premiums
arising on the acquisition of loan portfolios. Transaction costs include incremental costs that
are directly attributable to the acquisition or issue of a financial instrument.
The Group monitors the actual cash flows for each portfolio and resets cash flows on a
monthly basis, discounted at the EIR to derive a new carrying value, with changes taken to
profit or loss as interest income.
The EIR is adjusted where there is a movement in the reference interest rate (SONIA, synthetic
LIBOR or base rate) affecting portfolios with a variable interest rate which will impact future
cash flows. The revised EIR is the rate which exactly discounts the revised cash flows to the net
carrying value of the loan portfolio.
Interest income on investment securities is included in interest receivable and similar income.
Interest on derivatives is included in interest receivable and similar income or interest expense
and similar charges following the underlying instrument it is hedging.
Coupons paid on AT1 securities are recognised directly in equity in the period in which they
are paid.
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Notes to the Consolidated Financial Statements continued
1. Accounting policies continued
g) Fees and commissions
Fees and commissions which are an integral part of the EIR of a financial instrument are
recognised as an adjustment to the EIR and recorded in interest income. The Group includes
early redemption charges within the EIR.
Fees received on mortgage administration services and mortgage origination activities, which
are not an integral part of the EIR, are recorded in other operating income and accounted for
in accordance with IFRS 15 Revenue from Contracts with Customers, with income recognised
when the services are delivered and the benefits are transferred to clients and customers.
Other fees and commissions are recognised on the accrual basis as services are provided or on
the performance of a significant act, net of VAT and similar taxes.
Integration costs
h)
Integration costs are items of income or expense arising from the merger of OSB and CCFS
(the Combination) that do not relate to the Group’s core operating activities, are not expected
to recur and are material in the context of the Group’s performance. These costs are disclosed
separately within the Consolidated Statement of Comprehensive Income and the Notes to the
Consolidated Financial Statements.
k) Cash and cash equivalents
For the purposes of the Consolidated Statement of Cash Flows, cash and cash equivalents
comprise cash, non-restricted balances with credit institutions and highly liquid financial
assets with maturities of less than three months from date of acquisition, subject to an
insignificant risk of changes in their fair value and are used by the Group in the management
of its short-term commitments.
Intangible assets
l)
Purchased software and costs directly associated with the development of computer software
are capitalised as intangible assets where the software is a unique and identifiable asset
controlled by the Group and will generate future economic benefits. Costs to establish
technological feasibility or to maintain existing levels of performance are recognised as an
expense. The Group only recognises internally generated intangible assets if all of the following
conditions are met:
• an asset is being created that can be identified after establishing the technical and
commercial feasibility of the resulting product;
•
•
it is probable that the asset created will generate future economic benefits; and
the development cost of the asset can be measured reliably.
i) Taxation
Income tax comprises current and deferred tax. It is recognised in profit or loss, other
comprehensive income (OCI) or directly in equity, consistent with the recognition of items it
relates to. The Group recognises tax on coupons paid on AT1 securities directly in profit or loss.
Subsequent expenditure on an internally generated intangible asset, after its purchase
or completion, is recognised as an expense in the period in which it is incurred. Where
no internally generated intangible asset can be recognised, development expenditure is
recognised as an expense in the period in which it is incurred.
Deferred tax assets are recognised only to the extent that it is probable that future taxable
profits will be available to utilise the asset. The recognition of deferred tax asset is mainly
dependent on the projections of future taxable profits and future reversals of temporary
differences. The current projections of future taxable income indicate that the Group will be
able to utilise its deferred tax asset within the foreseeable future.
Deferred tax liabilities are recognised for all taxable temporary differences.
The Company and its tax-paying UK subsidiaries are in a group payment arrangement for
corporation tax and show a net corporation tax liability and deferred tax liability accordingly.
The Company and its UK subsidiaries are in the same VAT group.
j) Dividends
Dividends are recognised in equity in the period in which they are paid or, if earlier, approved
by shareholders.
An intangible asset is only recognised if:
• The Group has the contractual right to take possession of the software during the hosting
period without significant penalty; and
•
It is feasible for the Group to run the software on its own hardware or contract with a party
unrelated to the supplier to host the software.
The costs of configuring or customising supplier application software in a Software-as-a-
service (SaaS) arrangement that is determined to be a service contract is recognised as an
expense or prepayment. SaaS is an arrangement that provides the Group with the right to
receive access to the supplier’s application software in the future which is treated as a service
contract, rather than a software lease or the acquisition of a software intangible asset. Where
the configuration and customisation services are not distinct from the right to receive access to
the software, then the costs are recognised as an expense over the term of the arrangement.
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Intangible assets continued
1. Accounting policies continued
l)
Intangible assets are reviewed for impairment at least semi-annually, and if they are considered
to be impaired, are written down immediately to their recoverable amounts. Impairment losses
previously recognised for intangible assets, other than goodwill, are reversed when there has
been a change in the estimates used to determine the asset’s recoverable amount. An impairment
loss reversal is recognised in the Consolidated Statement of Comprehensive Income and the
carrying amount of the asset is increased to its recoverable amount.
Intangible assets are amortised in profit or loss over their estimated useful lives as follows:
Software licence
Brand
Broker relationships
Bank licence
3–5 year straight line
4 year straight line
5 year profile
3 year straight line
For development costs of assets that are under construction, no amortisation is applied until
the asset is available for use and is calculated using a full month when available for use.
The Group reviews the amortisation period on an annual basis. If the expected useful life of an
asset is different from previous assessments, the amortisation period is changed accordingly.
m) Property, plant and equipment
Property, plant and equipment comprise freehold land and buildings, major alterations
to office premises, computer equipment and fixtures measured at cost less accumulated
depreciation. These assets are reviewed for impairment annually, and if they are considered to
be impaired, are written down immediately to their recoverable amounts.
Items of property, plant and equipment are depreciated on a straight-line basis over their
estimated useful economic lives as follows:
Buildings
Fixtures & fittings, computer hardware and vehicles
Leasehold improvements
50 years
5 years
Shorter of useful life or lease term
Land, deemed to be 25% of purchase price of buildings, is not depreciated.
n) Financial instruments
i. Recognition
The Group initially recognises loans and advances, deposits, debt securities issued and
subordinated liabilities on the date on which they are originated or acquired. All other financial
instruments are accounted for on the trade date which is when the Group becomes a party to
the contractual provisions of the instrument.
For financial instruments classified as amortised cost or FVOCI, the Group initially recognises
financial assets and financial liabilities at fair value plus transaction income or costs that are
directly attributable to its origination, acquisition or issue. Financial instruments classified as
amortised cost are subsequently measured using the EIR method.
Transaction costs directly attributable to the acquisition or issue of a financial instrument at
FVTPL are recognised in profit or loss as incurred.
ii. Classification
The Group classifies financial instruments based on the business model and the contractual
cash flow characteristics of the financial instruments. In accordance with IFRS 9, the Group
classifies financial assets into one of three measurement categories:
• Amortised cost – assets in a business model to hold financial assets in order to collect
contractual cash flows, where the contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of principal and interest (SPPI) on the
principal amount outstanding.
• FVOCI – assets held in a business model which collects contractual cash flows and sells
financial assets, where the contractual terms of the financial assets give rise on specified
dates to cash flows that are SPPI on the principal amount outstanding.
• FVTPL – assets not measured at amortised cost or FVOCI. The Group measures derivatives,
an acquired mortgage portfolio and an investment security under this category.
The Group reassesses its business models each reporting period.
The Group classifies non-derivative financial liabilities as measured at amortised cost.
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Notes to the Consolidated Financial Statements continued
1. Accounting policies continued
n) Financial instruments continued
The Group classifies certain financial instruments as equity where they meet the following
conditions:
•
•
•
the financial instrument includes no contractual obligation to deliver cash or another
financial asset on potentially unfavourable conditions;
the financial instrument is a non-derivative that includes no contractual obligation for the
issuer to deliver a variable number of its own equity instruments; or
the financial instrument is a derivative that will be settled only by the issuer exchanging a fixed
amount of cash or another financial asset for a fixed number of its own equity instruments.
The Group’s sources of debt funding are deposits from retail customers and credit institutions,
including collateralised loan advances from the Bank of England (BoE) under the Term Funding
Scheme with additional incentives for SMEs (TFSME), asset-backed loan notes issued through
the Group’s securitisation programmes, subordinated liabilities and senior notes. Cash
received under the TFSME is recorded in amounts owed to credit institutions. Financial liabilities
including the Sterling Perpetual Subordinated Bonds (PSBs) and Tier 2 instruments where the
terms allow no absolute discretion over the payment of interest.
During the year equity financial instruments comprised own shares and AT1 securities. AT1
securities are designated as equity instruments and recognised at fair value on the date of
issuance in equity along with incremental costs directly attributable to the issuance of equity
instruments. Accordingly, the coupons paid on AT1 securities are recognised directly in retained
earnings when paid.
iii. Derecognition
The Group offers refinancing options to customers which have been assessed within the
principles of IFRS 9 and relevant guidance. The assessment concludes the original mortgage
asset is derecognised at the refinancing point with a new financial asset recognised.
The forbearance measures offered by the Group are considered a modification event as
the contractual cash flows are renegotiated or otherwise modified. The Group considers the
renegotiated or modified cash flows are not a substantial modification from the contractual
cash flows and does not consider that forbearance measures give rise to a derecognition event.
Financial liabilities are derecognised only when the obligation is discharged, cancelled or
has expired.
iv. Offsetting
The Group’s derivatives are covered by industry standard master netting agreements. Master
netting agreements create a right of set-off that becomes enforceable only following a
specified event of default or in other circumstances not expected to arise in the normal course
of business. These arrangements do not qualify for offsetting and as such the Group reports
derivatives on a gross basis.
Collateral in respect of derivatives is subject to the standard industry terms of International
Swaps and Derivatives Association (ISDA) Credit Support Annex. This means that the cash
received or given as collateral can be pledged or used during the term of the transaction but
must be returned on maturity of the transaction. The terms also give each counterparty the
right to terminate the related transactions upon the counterparty’s failure to post collateral.
Collateral paid or received does not qualify for offsetting and is recognised in loans and
advances to credit institutions and amounts owed to credit institutions, respectively.
v. Amortised cost measurement
The amortised cost of a financial asset or financial liability is the amount at which the financial
asset or financial liability is measured at initial recognition, less principal payments or receipts,
plus or minus the cumulative amortisation using the EIR method of any difference between the
initial amount recognised and the maturity amount, minus any reduction for impairment of
assets.
vi. Fair value measurement
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 in the principal or,
in its absence, the most advantageous market to which the Group has access at that date.
When available, the Group measures the fair value of an instrument using the quoted price
in an active market for that instrument. A market is regarded as active if transactions for the
asset or liability take place with sufficient frequency and volume to provide pricing information
on an ongoing basis. The Group measures its investment securities and PSBs at fair value using
quoted market prices where available.
If there is no quoted price in an active market, then the Group uses valuation techniques that
maximise the use of relevant observable inputs and minimise the use of unobservable inputs.
The Group uses SONIA curves to value its derivatives. The fair value of the Group’s derivative
financial instruments incorporates credit valuation adjustments (CVA) and debit valuation
adjustments (DVA). The DVA and CVA take into account the respective credit ratings of the
Group’s two banking entities and counterparty and whether the derivative is collateralised or
not. Derivatives are valued using discounted cash flow models and observable market data
and are sensitive to benchmark interest and basis rate curves.
The fair value of investment securities held at FVTPL is measured using a discounted cash
flow model.
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1. Accounting policies continued
n) Financial instruments continued
vii. Identification and measurement of impairment of financial assets
The Group assesses all financial assets for impairment.
Loans and advances to customers
The Group uses the IFRS 9 three-stage ECL approach for measuring impairment. The three
impairment stages are as follows:
• Stage 1 – a 12 month ECL allowance is recognised where there is no significant increase in
credit risk (SICR) since initial recognition.
• Stage 2 – a lifetime ECL allowance is recognised for assets where a SICR is identified since
initial recognition. The assessment of whether credit risk has increased significantly since
initial recognition is performed for each reporting period for the life of the loan.
• Stage 3 – requires objective evidence that an asset is credit impaired, at which point a
lifetime ECL allowance is recognised.
The Group measures impairment through the use of individual and modelled assessments.
Individual assessment
The Group’s provisioning process requires individual assessment for high exposure or higher
risk loans, where Law of Property Act (LPA) receivers have been appointed, the property is
taken into possession or there are other events that suggest a high probability of credit loss.
The individual assessments are carried out for all the loans associated with one counterparty.
The Group estimates cash flows from these loans, including expected interest and principal
payments, rental or sale proceeds, selling and other costs.
For all individually assessed loans, should the present value of estimated future cash flows
discounted at the original EIR be less than the carrying value of the loan, a provision is
recognised for the difference with such loans being classified as impaired. However, should
the present value of the estimated future cash flows exceed the carrying value, no provision is
recognised. For all remaining individually assessed loans, should a full loss be expected, the
provision is set to the carrying value.
The Group applies a modelled assessment to all loans with no individually assessed provision.
IFRS 9 modelled impairment
Measurement of ECL
The assessment of credit risk and the estimation of ECL are unbiased and probability weighted.
The ECL calculation is a product of an individual loan’s probability of default (PD), exposure at
default (EAD) and loss given default (LGD) discounted at the EIR. The ECL drivers of PD, EAD
and LGD are modelled at an account level. The assessment of whether a SICR has occurred is
based on quantitative relative and absolute PD thresholds and a suite of qualitative triggers.
Significant increase in credit risk (movement to stage 2)
The Group’s transfer criteria determine what constitutes a SICR, which results in an exposure
being moved from stage 1 to stage 2.
At the point of initial recognition, a loan is assigned a PD estimate. For each monthly reporting
date thereafter, an updated PD estimate is computed. The Group’s transfer criteria analyse
relative and absolute changes in PD versus the PD assigned at the point of origination,
together with qualitative triggers using both internal indicators, such as forbearance, and
external information, such as changes in income and adverse credit information to assess
for SICR. In the event that given early warning triggers have not already identified SICR, an
account more than 30 days past due is considered to have experienced a SICR.
A borrower will move back into stage 1 only if the SICR definition is no longer triggered.
Definition of default (movement to stage 3)
The Group uses a number of quantitative and qualitative criteria to determine whether an account
meets the definition of default and therefore moves to stage 3. The criteria currently include:
•
If an account is more than 90 days past due.
• Accounts that have moved into an unlikely to pay position, which includes some
forbearance, bankruptcy, repossession and interest-only term expiry.
A borrower will move out of stage 3 when its credit risk improves such that it no longer meets
the 90 days past due and unlikely to pay criteria and following this has completed an
internally approved probation period. The borrower will move to stage 1 or stage 2 dependent
on whether the SICR applies.
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Notes to the Consolidated Financial Statements continued
1. Accounting policies continued
n) Financial instruments continued
Forward-looking macroeconomic scenarios
The risk of default and ECL assessments take into consideration expectations of economic
changes that are deemed to be reasonably possible.
The Group conducts analysis to determine the most significant factors which may influence
the likelihood of an exposure defaulting in the future. The macroeconomic factors relate to the
House Price Index (HPI), unemployment rate (UR), Consumer Price Index (CPI), Gross Domestic
Product (GDP), Commercial Real Estate Index (CRE) and the Bank of England Base Rate (BBR).
The Group has developed an approach for factoring probability-weighted macroeconomic
forecasts into ECL calculations, adjusting PD and LGD estimates. The macroeconomic
scenarios feed directly into the ECL calculation, as the adjusted PD, lifetime PD and LGD
estimates are used within the individual account ECL allowance calculations.
The Group sources economic forecast information from an appropriately qualified third party
when determining scenarios. The Group considers four probability-weighted scenarios, base,
upside, downside and severe downside scenarios. The expected scenarios, management
actions and results are discussed and approved by the Board.
The base case is also utilised within the Group’s impairment forecasting process which in turn
feeds the wider business planning processes. The ECL models are also used to set the Group’s
credit risk appetite thresholds and limits.
Period over which ECL is measured
ECL is measured from the initial recognition of the asset which is the date at which the loan
is originated or the date a loan is purchased and at each balance sheet date thereafter. The
maximum period considered when measuring ECL (either 12 months or lifetime ECL) is the
maximum contractual period over which the Group is exposed to the credit risk of the asset.
For modelling purposes, the Group considers the contractual maturity of the loan product and
then considers the behavioural trends of the asset.
Purchased or originated credit impaired (POCI)
Acquired loans that meet the Group’s definition of default (90 days past due or an unlikely to
pay position) at acquisition are treated as POCI assets. These assets attract a lifetime ECL
allowance over the full term of the loan, even when these loans no longer meet the definition of
default post-acquisition. The Group does not originate credit-impaired loans.
Write-off
Loans are written off against the related provision when the underlying security is sold and
there is a shortfall amount remaining. Subsequent recoveries of amounts previously written off
are taken through profit and loss. Accounts that are derecognised for accounting purposes
will continue to be serviced and corresponding collection procedures are only discontinued
following approval from the Group Chief Credit Officer.
Intercompany loans
Intercompany receivables in the Company financial statements are assessed for ECL based on
an assessment of the PD and LGD, discounted to a net present value.
Other financial assets
Other financial assets comprise cash balances with the BoE and other credit institutions and
high grade investment securities. The Group deems the likelihood of default across these
counterparties as low and does not recognise a provision against the carrying balances.
Share repurchase
Upon Board authorisation of a share repurchase programme and signing an irrevocable
agreement, a share repurchase liability is recognised in other liabilities with the offset in
retained earnings. Each share repurchase reduces the provision. Upon share cancellation,
share capital is debited with a credit to the capital redemption reserve equal to the nominal
value of £0.01 for each share cancelled.
o) Loans and advances to customers
Loans and advances to customers are predominantly mortgage loans and advances to
customers with fixed or determinable payments that are not quoted in an active market and
that the Group does not intend to sell in the near term. They are initially recorded at fair value
plus any directly attributable transaction costs and are subsequently measured at amortised
cost using the EIR method, less impairment losses. Where exposures are hedged by derivatives,
designated and qualifying as fair value hedges, the fair value adjustment for the hedged risk
to the carrying value of the hedged loans and advances is reported in fair value adjustments
for hedged assets.
Loans and the related provision are written off when there is a shortfall remaining after the
underlying security is sold. Subsequent recoveries of amounts previously written off are taken
through profit or loss.
Loans and advances to customers over which the Group transfers its rights to the collateral
thereon to the BoE under the TFSME and ILTR schemes are not derecognised from the
Consolidated Statement of Financial Position, as the Group retains substantially all the risks
and rewards of ownership, including all cash flows arising from the loans and advances and
exposure to credit risk. The Group classifies TFSME and ILTR as amortised cost under IFRS 9
Financial Instruments.
Loans and advances to customers include a small acquired mortgage portfolio where the
contractual cash flows include payments that are not SPPI and as such are measured at FVTPL.
Loans and advances to customers include the Group’s asset finance lease lending. Finance
leases are initially measured at an amount equal to the net investment in the lease, using the
interest rate implicit in the finance lease. Direct costs are included in the initial measurement
of the net investment in the lease and reduce the amount of income recognised over the
lease term. Finance income is recognised over the lease term, based on a pattern reflecting a
constant periodic rate of return on the net investment in the lease.
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204
Investment securities
1. Accounting policies continued
p)
Investment securities include securities held for liquidity purposes (UK treasury bills, UK Gilts
and Residential Mortgage-Backed Securities (RMBS)). These assets are non-derivatives that are
classified on an individual basis as amortised cost, FVOCI or FVTPL.
q) Sale and repurchase agreements
Financial assets sold subject to repurchase agreements (repo) continue to be recognised in
the financial statements if they fail the derecognition criteria of IFRS 9 described in paragraph
n) iii. above. The financial assets that are retained in the financial statements are reflected
as loans and advances to customers or investment securities and the counterparty liability is
included in amounts owed to credit institutions or other customers. Financial assets purchased
under agreements to resell at a predetermined price where the transaction is financing in
nature (reverse repo) are accounted for as loans and advances to credit institutions. The
difference between the sale and repurchase price is treated as interest and accrued over the
life of the agreement using the EIR method.
r) Derivative financial instruments
The Group uses derivative financial instruments (interest rate swaps) to manage its exposure
to interest rate risk. The Group does not hold or issue derivative financial instruments for
proprietary trading.
The Group also uses derivatives to hedge the interest rate risk inherent in irrevocable offers
to lend. This exposes the Group to movements in the fair value of derivatives until the loan is
drawn. The changes to fair value are recognised in profit or loss in the period.
s) Hedge accounting
The Group has chosen to continue to apply the hedge accounting requirements of IAS 39
instead of the requirements in Chapter 6 of IFRS 9. The Group uses fair value hedge accounting
for a portfolio hedge of interest rate risk.
The hedging strategy of the Group is divided into portfolio hedges, where the hedged item is a
homogenous portfolio of assets (mortgage lending) or liabilities (savings products), and micro
hedges, where the hedged item is a distinctly identifiable asset or liability (debt issuance). The
Group applies fair value hedge accounting for both its portfolio and micro hedges.
i. Portfolio hedges
Portfolio hedge accounting allows for hedge effectiveness testing and accounting over an
entire portfolio of financial assets or liabilities. The Group applies fair value portfolio hedge
accounting to its fixed rate portfolio of mortgages and saving accounts. The hedged portfolio
is analysed into repricing time periods based on expected repricing dates, utilising the Group
Assets and Liabilities Committee (ALCO) approved prepayment curve. Interest rate swaps are
designated against the repricing time periods to establish the hedge relationship.
ii. Micro hedges
The Group’s micro hedging strategy entails hedge accounting on an individual instrument-
by-instrument basis, which in some instances may be implemented through partial term fair
value hedging where the instrument may be exercised early. The Group applies fair value micro
hedge accounting to manage its exposure to the interest rate risk arising from some of its fixed
rate debt issuances. Interest rate swaps are assigned to specific issuances of fixed rate notes
with terms that closely align with the hedged item.
iii. Hedge effectiveness
Hedge effectiveness is calculated as a percentage of the fair value movement of the interest
rate swap against the fair value movement of the hedged item over the period tested.
The Group considers the following as key sources of hedge ineffectiveness:
•
•
the mismatch in maturity date of the swap and hedged item, as swaps with a given
maturity date cover a portfolio of hedged items which may mature throughout the month;
the actual behaviour of the hedged item differing from expectations, such as early
repayments or withdrawals and arrears;
• minimal movements in the yield curve leading to ineffectiveness where hedge relationships
are sensitive to small value changes; and
•
the mismatch in the swap interest rate and rate used to value the hedged item where the
swap rate is higher than the contractual rate of the hedged item.
Where there is an effective hedge relationship for fair value hedges, the Group recognises the
change in fair value of each hedged item in profit or loss with the cumulative movement in their
value being shown separately in the Consolidated Statement of Financial Position as fair value
adjustments on hedged assets and liabilities. The fair value changes of both the derivative and
the hedge substantially offset each other to reduce profit volatility.
The Group discontinues hedge accounting when the derivative ceases through expiry, when
the derivative is cancelled or the underlying hedged item matures, is sold or is repaid.
If a derivative no longer meets the criteria for hedge accounting or is cancelled whilst still
effective, including LIBOR-linked derivatives cancelled as a result of IBOR reforms, the fair
value adjustment relating to the hedged assets or liabilities within the hedge relationship
prior to the derivative becoming ineffective or being cancelled remains on the Consolidated
Statement of Financial Position and is amortised over the remaining life of the hedged assets
or liabilities. The rate of amortisation over the remaining life is in line with expected income or
cost generated from the hedged assets or liabilities. Each reporting period, the expectation is
compared to actual with an accelerated run-off applied where the two diverge by more than
set parameters.
Notes to the Consolidated Financial Statements continuedContents Generation – PageContents Generation – PageContents Generation – Sub PageContents Generation – Sub PageContents Generation - Section OSB GROUP PLC | Annual Report and Accounts 2023
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Notes to the Consolidated Financial Statements continued
1. Accounting policies continued
t) Debit and credit valuation adjustments
The DVA and CVA are included in the fair value of derivative financial instruments. The DVA is
based on the expected loss a counterparty faces due to the risk of the Group’s two banking
entities defaulting. The CVA reflects the Group’s risk of the counterparty’s default.
The amount recognised as an expense for non-market conditions and related service
conditions is adjusted each reporting period to reflect the actual number of awards expected
to be met. The amount recognised as an expense for awards subject to market conditions is
based on the proportion that is expected to meet the condition as assessed at the grant date.
No adjustment is made to the fair value of each award calculated at grant date.
The methodology is based on a standard calculation, taking into account the credit rating of the
swap counterparty, time to maturity, the fair value of the swap and any collateral arrangements.
u) Provisions and contingent liabilities
A provision is recognised when there is a present obligation as a result of a past event, it is
probable that the obligation will be settled and the amount can be estimated reliably.
Provisions include ECLs on the Group’s undrawn loan commitments.
Contingent liabilities are possible obligations arising from past events, whose existence will
be confirmed only by uncertain future events, or present obligations arising from past events
which are either not probable or the amount of the obligation cannot be reliably measured.
Contingent liabilities are not recognised but disclosed unless they are not material or their
probability is remote.
v) Employee benefits – defined contribution scheme
The Group contributes to defined contribution personal pension plans or defined contribution
retirement benefit schemes for all qualifying employees who subscribe to the terms and
conditions of the schemes’ policies.
Obligations for contributions to defined contribution pension arrangements are recognised as
an expense in profit or loss as incurred.
w) Share-based payments
Equity-settled share-based payments to employees providing services are measured at the
fair value of the equity instruments at the grant date in accordance with IFRS 2. The fair value
excludes the effect of non-market-based vesting conditions.
The cost of the awards is charged on a straight-line basis to profit or loss (with a corresponding
increase in the share-based payment reserve within equity) over the vesting period in which the
employees become unconditionally entitled to the awards. The increase within the share-based
payment reserve is reclassified to retained earnings upon exercise.
Share-based payments that are not subject to further vesting conditions (i.e. the Deferred
Share Bonus Plan (DSBP) for senior managers) are expensed in the year services are received
with a corresponding increase in equity.
Where the allowable cost of share-based options or awards for tax purposes is greater than
the cost determined in accordance with IFRS 2, the tax effect of the excess is taken to the
share-based payment reserve within equity. The tax effect is reclassified to retained earnings
upon vesting.
Employer’s national insurance is charged to profit or loss at the share price at the reporting
date on the same service or vesting schedules as the underlying options and awards.
Own shares are recorded at cost and deducted from equity and represent shares of OSBG
that are held by the EBT.
x) Leases
The Group’s leases are predominantly for offices and Kent Reliance branches where the Group
is a lessee. At lease commencement date, the Group recognises the right-of-use asset and
lease liability on the statement of financial position, except for leases of low-value assets and
short-term leases of 12 month or less are recognised directly in profit or loss on a straight-line
basis over the lease term.
Lease liability payments are recognised within financing activities in the Consolidated
Statement of Cash Flows.
The Group assesses the likely impact of early terminations in recognising the right-of-use asset
and lease liability where an option to terminate early exists.
For modifications that increase the length of a lease; the modified lease term is determined
and the lease liability remeasured by discounting the revised lease payments using a revised
discount rate, at the effective date of the lease modification; a corresponding adjustment is
made to the right-of-use asset. Where modifications decrease the length of a lease, the lease
liability and right-of-use asset are reduced in proportion to the reduction in the lease term,
with any gain or loss recognised in profit or loss.
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1. Accounting policies continued
y) Adoption of new standards
International financial reporting standards issued and adopted for the first time in the
year ended 31 December 2023
The 2023 financial statements incorporate the guidance set out in Disclosure of Accounting
Policies (Amendments to IAS 1) which requires entities to disclose ‘material’ rather than
‘significant’ accounting policies. Accordingly, Note 1 has been amended to remove general IFRS
guidance so that disclosures focus on entity-specific accounting, areas of significant judgement
or assumptions and material transactions where the accounting required is complex.
The Group has applied the temporary exception issued by the International Accounting
Standards Board (IASB) in May 2023 from the accounting requirements for deferred taxes in
IAS 12 ‘Income Taxes’. Accordingly, the Group neither recognises nor discloses information
about deferred tax assets and liabilities related to Pillar 2 income taxes. There were a number
of other minor amendments to financial reporting standards that are effective for the current
year. There has been no material impact on the financial statements of the Group from the
adoption of these financial reporting standard amendments and interpretations.
International financial reporting standards issued but not yet effective which are
applicable to the Group
Certain amendments to accounting standards and interpretations that were not effective
on 31 December 2023 have not been early adopted by the Group. The adoption of these
amendments is not expected to have a material impact on the financial statements of the
Group in future periods.
2.
Judgements in applying accounting policies and critical accounting
estimates
In preparing these financial statements, the Group has made judgements, estimates and
assumptions which affect the reported amounts within the current and future financial years.
Actual results may differ from these estimates.
As set out in Strategic report on page 94, climate change is a global challenge and an
emerging risk to businesses, people and the environment. Therefore, in preparing the financial
statements, the Group has considered the impact of climate-related risks on its financial
position and performance, including the impact on ECL and redemption profiles included
in EIR. While the effects of climate change represent a source of uncertainty, the Group
does not consider there to be a material impact on its judgements and estimates from the
physical or transition risks in the short term. As part of the Group’s recognition of climate risk
and overall ESG agenda, the Group considers the physical risks of climate change with the
removal of the transitional risk to reflect Government’s decision to postpone the EPC Climate
Bill. The transitional risk was the most significant component of the PMA that considered
properties with lower energy efficiency likely to require investment to reach minimum energy
efficiency standards, and has such resulted in the reduction in the PMA where the Group held
£0.5m (2022: £4.4m).
Estimates and judgements are regularly reviewed based on past experience, expectations of
future events and other factors.
Judgements
The Group has made the following key judgements in applying the accounting policies:
(i) Loan book impairments
Significant increase in credit risk for classification in stage 2
The Group’s SICR rules considers changes in default risk, internal impairment measures,
changes in customer credit bureau files, or whether forbearance measures had been applied.
(ii) IFRS 9 classification
Application of the ‘business model’ requirements under IFRS 9 requires the Group to conclude
on the business models that it operates and is a fundamental aspect in determining the
classification of the Group’s financial assets.
Management assessed the intention for holding financial assets and the contractual terms of
those assets, concluding that the Group’s business model is a ‘held to collect’ business model.
This conclusion was reached on the basis that the Group originates and purchases loans and
advances with the intention to collect contractual cash flows over the life of the originated or
purchased financial instrument.
The Group considers whether the contractual terms of a financial asset give rise on specified
dates to cash flows that are SPPI on the principal amount outstanding when applying the
classification criteria of IFRS 9. The majority of the Group’s assets being loans and advances
to customers which have been accounted for under amortised cost with the exception of one
acquired mortgage book of £13.7m (2022: £14.6m) that is recognised at FVTPL.
Estimates
The Group has made the following estimates in the application of the accounting policies that
have a significant risk of material adjustment to the carrying amount of assets and liabilities
within the next financial year:
(i) Loan book impairments
Set out below are details of the critical accounting estimates which underpin loan impairment
calculations. Less significant estimates are not discussed as they do not have a material effect.
The Group has recognised total impairments of £145.8m (2022: £130.0m) at the reporting date
as disclosed in note 20.
Modelled impairment
Modelled provision assessments are also subject to estimation uncertainty, underpinned by
a number of estimates being made by management which are utilised within impairment
calculations. Key areas of estimation within modelled provisioning calculations include those
regarding the LGD and forward-looking macroeconomic scenarios.
Notes to the Consolidated Financial Statements continuedContents Generation – PageContents Generation – PageContents Generation – Sub PageContents Generation – Sub PageContents Generation - Section OSB GROUP PLC | Annual Report and Accounts 2023
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207
Notes to the Consolidated Financial Statements continued
2.
Judgements in applying accounting policies and critical accounting
estimates continued
Estimates continued
Loss given default model
The Group has a number of LGD models, which include estimates regarding propensity to go
to possession given default (PPD), forced sale discount, time to sale and sale costs. The LGD
is sensitive to the application of the HPI, with an 8% haircut (2022: a 10% haircut) seen to be
a reasonable percentage change when reviewing historical and expected 12 month outcomes.
The table below shows the resulting incremental provision required in an 8% house price haircut
(2022: a 10% house price haircut) being directly applied to all exposures which not only adjust
the sale discount but the propensity to go to possession.
OSB
CCFS
Group
2023
£m
25.6
11.6
37.2
2022
£m
28.0
10.7
38.7
The Group’s forecasts of HPI movements used in the impairment models are disclosed in the
Risk profile performance review on page 62.
Forward-looking macroeconomic scenarios
The forward-looking macroeconomic scenarios affect all model components of the ECL
thus the calculation remains sensitive to both the scenarios utilised and their associated
probability weightings.
The Group has adopted an approach which utilises four macroeconomic scenarios. These
scenarios are provided by a reputable economics advisory firm, providing management
and the Board with advice on which scenarios to utilise and the probability weightings to
attach to each scenario. A base case forecast is provided, together with a plausible upside
scenario. Two downside scenarios are also provided (downside and a severe downside). The
Group’s macroeconomic scenarios can be found in the Credit Risk section of the Risk profile
performance overview on page 62.
The following tables detail the ECL scenario sensitivity analysis with each scenario weighted at
100% probability. The sensitivity analysis is performed without considering the staging shifts driven
by relative or absolute PD thresholds. The purpose of using multiple economic scenarios is to model
the non-linear impact of assumptions surrounding macroeconomic factors and ECL calculated:
As at 31 December 2023
Weighted
(see note
20)
100%
Base case
scenario
100%
Upside
scenario
100%
Downside
scenario
100%
Severe
downside
scenario
Total loans before provisions, £m
25,897.1 25,897.1 25,897.1 25,897.1 25,897.1
Modelled ECL, £m
Individually assessed provisions ECL, £m
Post Model Adjustments ECL, £m
Total ECL, £m
ECL coverage, %
As at 31 December 2022
97.2
25.1
23.5
76.8
25.1
18.3
145.8
120.2
0.56
0.46
60.5
25.1
12.9
98.5
0.38
138.1
206.8
25.1
34.4
25.1
55.0
197.6
286.9
0.76
1.11
Total loans before provisions, £m
23,728.1 23,728.1 23,728.1 23,728.1 23,728.1
Modelled ECL, £m
Individually assessed provisions ECL1, £m
Post Model Adjustments ECL1, £m
Total ECL, £m
ECL coverage, %
54.4
45.8
29.8
130.0
0.55
41.7
45.8
20.9
108.4
0.46
32.8
45.8
15.5
94.1
0.40
79.3
45.8
46.4
171.5
0.72
120.0
45.8
75.2
241.0
1.02
1.
Individually assessed provisions and post model adjustments are split out in the current year with the related
sensitivity reflected for the post model adjustments under each scenario. In the prior year, this was included
collectively as ‘Non-modelled ECL’.
(ii) Effective interest rate on lending
Estimates are made when calculating the EIR for newly-originated loan assets. These include the
likely customer redemption profiles. Mortgage products offered by the Group include directly
attributable net fee income and a period on reversion rates after the fixed/ discount period.
Products revert to the standard variable rate (SVR) or Base rate plus a margin for the Kent Reliance
brand, a SONIA/Base rate plus a margin for the Precise brand and a LIBOR replacement rate/
Base rate for the Interbay brand. Subsequent to origination, changes in actual and expected
customer prepayment rates are reflected as increases or decreases in the carrying value of loan
assets with a corresponding increase or decrease in interest income. The Group uses historical
customer behaviours, expected take-up rate of retention products and macroeconomic forecasts
in its assessment of expected prepayment rates. Customer prepayments in a fixed rate or
incentive period can give rise to Early Repayment Charge (ERC) income.
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2.
Judgements in applying accounting policies and critical accounting
estimates continued
Estimates continued
Judgement is used in estimating the expected average life of a mortgage, to determine the
quantum and timing of prepayments that incur ERCs, the period over which net fee income is
recognised and the time customers spend on reversion. Estimates are reviewed regularly, and
over the first half of 2023 the Group observed a step change in how long Precise customers
were spending on the reversion rate. As the Bank of England base rate (BBR) continued to rise,
customers saw steep increases in the BBR-linked reversion rate. As the Group has continued to
develop its Precise retention programme, customers chose to refinance earlier and spend less
time on the higher reversion rate, compared to previously observed behavioural trends. There
was no further material change in behaviour observed in the second half of 2023 and the total
adverse Group statutory adjustment for 2023 was £210.7m (2022: £31.6m adverse) decreasing
net interest income and loans and advances to customers.
A three months’ movement in the weighted average time spent in the reversion period for
Precise is considered to be a reasonably possible change in assumption in a sustained high
interest rate environment and an uncertain macroeconomic outlook. The impact of a -/+ 3
months movement in time spent on reversion by Precise Mortgages customers is -/+ c.£82m.
As the BBR increased during 2023, the additional monthly net interest income arising from
following the effective interest rate approach increased as the impact of time spent on a reversion
rate became greater. If BBR decreases, this will lead to a decrease in monthly net interest income.
Based on the loans and advances to customers balance as at 31 December 2023, if BBR were to
reduce by 50bps, it is estimated that this would decrease monthly net interest income by £1.2m
across Precise and Kent Reliance Mortgages.
3. Interest receivable and similar income
At amortised cost:
On OSB mortgages1
On CCFS mortgages2
On finance leases
On investment securities
On other liquid assets
Amortisation of fair value adjustments on
CCFS loan book at Combination
Amortisation of fair value adjustments on hedged assets3
At FVTPL:
Net income on derivative financial instruments
– lending activities
At FVOCI:
On investment securities
2023
£m
2022
£m
757.6
431.1
12.3
12.5
159.6
(57.4)
(2.6)
1,313.1
591.6
411.2
9.4
4.7
39.3
(61.5)
(34.1)
960.6
442.8
106.6
11.1
2.1
1,767.0
1,069.3
1.
Includes EIR behavioural related reset gains of £1.0m (2022: £18.5m gains).
2.
Includes EIR behavioural related reset losses of £182.5m (2022: £41.7m losses).
3.
The amortisation relates to hedged assets where the hedges were terminated before maturity and were effective at
the point of termination.
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Notes to the Consolidated Financial Statements continued
4. Interest payable and similar charges
5. Fair value (losses)/gains on financial instruments
At amortised cost:
On retail deposits
On BoE borrowings
On wholesale borrowings
On debt securities in issue
On subordinated liabilities
On senior notes
On PSBs
On lease liabilities
Amortisation of fair value adjustments on CCFS customer
deposits at Combination
Amortisation of fair value adjustments on hedged liabilities1
At FVTPL:
Net expense on derivative financial instruments
– savings activities
Net expense on derivative financial instruments
– subordinated liabilities and senior notes
2023
£m
2022
£m
762.3
196.5
29.9
21.5
17.1
9.1
0.7
0.2
(0.5)
(0.6)
Fair value changes in hedged assets
Hedging of assets
Fair value changes in hedged liabilities
Hedging of liabilities
Ineffective portion of hedges
Net (losses)/gains on unmatched swaps
257.7
64.8
3.9
7.7
1.1
–
Amortisation of inception adjustments1
0.7
0.2
(1.0)
(0.8)
Amortisation of acquisition-related inception adjustments2
Amortisation of de-designated hedge relationships3
Fair value movements on mortgages at FVTPL
Fair value movements on loans and advances to
credit institutions at FVTPL
1,036.2
334.3
Debit and credit valuation adjustment
2023
£m
580.3
(590.2)
(82.7)
94.6
2.0
(11.1)
(4.3)
6.4
–
0.6
0.5
1.5
(4.4)
2022
£m
(620.6)
621.9
33.0
(42.4)
(8.1)
57.1
1.2
10.2
(0.1)
(0.9)
–
(0.5)
58.9
71.5
0.7
1,108.4
25.1
–
359.4
1.
2.
The amortisation of inception adjustment relates to the amortisation of the hedging adjustments arising when hedge
accounting commences, primarily on derivative instruments previously taken out against the mortgage pipeline and
on derivative instruments previously taken out against new retail deposits.
Relates to hedge accounting assets and liabilities recognised on the Combination. The inception adjustments are
being amortised over the life of the derivative instruments acquired on Combination subsequently designated in
hedging relationships.
3. Relates to the amortisation of hedged items where hedge accounting has been discontinued due to ineffectiveness.
1.
The amortisation relates to hedged liabilities where the hedges were terminated before maturity and were effective at
the point of termination.
6. Other operating income
Interest received on mortgages held at FVTPL
Fees and commissions receivable
2023
£m
0.9
3.0
3.9
2022
£m
0.6
6.0
6.6
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7. Administrative expenses
Staff costs comprise the following:
Staff costs
Facilities costs
Marketing costs
Support costs
Professional fees
Other costs
Depreciation (see note 26)
Amortisation (see note 27)
2023
£m
122.2
7.9
5.8
43.0
32.9
10.9
6.2
5.7
2022
£m
109.3
6.4
4.5
31.2
30.2
12.8
5.2
8.2
234.6
207.8
Included in professional fees are amounts paid to the Company’s auditor as follows:
UK
India
Fees payable to the Company’s auditor for
the audit of the Company’s annual accounts
Fees payable to the Company’s auditor for
the audit of the accounts of subsidiaries
Total audit fees
Audit-related assurance services1
Other assurance services2
Other non-audit services3
Total non-audit fees
2023
£’000
81
3,788
3,869
487
366
42
895
2022
£’000
75
3,340
3,415
254
259
33
546
Total fees payable to the Company’s auditor
4,764
3,961
1.
Includes review of interim financial information and profit verifications.
2.
Costs comprise assurance reviews of Alternative Performance Measures (APMs), Environmental, social and
governance (ESG) and European Single Electronic Format (ESEF) tagging (2022: assurance reviews of APMs,
ESG and ESEF tagging).
3. Costs in 2023 and 2022 primarily comprise work related to the Euro Medium Term Note (EMTN) programme.
Salaries, incentive pay and other benefits
Share-based payments
Social security costs
Other pension costs
2023
£m
101.2
5.6
10.5
4.9
2022
£m
87.3
8.1
9.5
4.4
122.2
109.3
The average number of people employed by the Group (including Executive Directors) during
the year is analysed below.
2023
1,461
811
2,272
2023
£’000
3,207
114
1,421
4,742
2022
1,274
622
1,896
2022
£’000
3,213
109
2,291
5,613
8. Directors’ emoluments and transactions
Short-term employee benefits1
Post-employment benefits
Share-based payments2
1.
Short-term employee benefits comprise Directors’ salary costs, Non-Executive Directors’ fees and other short-term
incentive benefits, which are disclosed in the Annual Report on Remuneration.
2. Share-based payments represent the amounts received by Directors for schemes that vested during the year.
In addition to the total Directors’ emoluments above, the Executive Directors were granted
deferred bonuses of £642k (2022: £642k) in the form of shares.
The Executive Directors received a further share award under the Performance Share Plan
(PSP) with a grant date fair value of £1,592k (2022: £1,516k) using a share price of £4.98
(2022: £5.58) (the mid-market quotation on the day preceding the date of grant). These shares
vest annually from year three in tranches of 20 per cent, subject to performance conditions
discussed in note 9 and the Annual Report on Remuneration.
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Notes to the Consolidated Financial Statements continued
8. Directors’ emoluments and transactions continued
The Directors of the Company are employed and compensated by OneSavings Bank plc.
No compensation was paid for loss of office during 2023 and 2022.
There were no outstanding loans granted in the ordinary course of business to Directors and
their connected persons as at 31 December 2023 and 2022.
The Annual Report on Remuneration and note 9 Share-based payments provide further details
on Directors’ emoluments.
9. Share-based payments
The share-based expense for the year includes a charge in respect of the Sharesave
Scheme, DSBP and PSP. All charges are included in employee expenses within note 7
Administrative expenses.
A summary of the share-based schemes operated by the Group is set out below.
Sharesave Scheme
Sharesave Scheme is a share option scheme which is available to all UK-based employees. The
Sharesave Scheme allows employees to purchase options by saving a fixed amount of between
£10 and £500 per month over a period of three years at the end of which the options, subject
to leaver provisions, are usually exercisable. If not exercised, the amount saved is returned to
the employee. The Sharesave Scheme has been in operation since 2014 and an invitation to
join the scheme is usually extended annually, with the option price calculated using the mid-
market price of an OSBG ordinary share over the three dealing days prior to the Invitation Date
and applying a discount of 20%.
Deferred Share Bonus Plan
DSBP awards are granted to Executive Directors and certain senior managers to allow a portion
of their performance bonuses to be deferred in shares for up to three to seven years for Executive
Directors and typically one year for senior managers. There are no further performance
or vesting conditions attached to deferred awards for senior managers, which also applies
to Executive Directors for awards granted from April 2021. The share awards are subject to
clawback provisions. The DSBP awards are expensed in the year services are received with a
corresponding increase in equity. Awards granted to Executive Directors in March 2020 and prior,
are subject to vesting conditions and are expensed over the vesting period.
DSBP awards for senior managers carry entitlements to dividend equivalents, which are paid
when the awards vest. DSBP awards granted from April 2021 to Executive Directors are entitled
to dividend equivalents. Awards granted in prior years were not entitled to dividend equivalents.
Performance Share Plan
PSP awards are typically made annually at the discretion of the Group Remuneration and
People Committee with Executive Directors and certain senior managers being eligible for
awards. The vesting of PSP awards is determined based on a mixture of internal financial
performance targets, risk based measures, and relative total shareholder returns (TSR) with
awards vesting in tranches up to three to seven years.
The performance conditions that apply to PSP awards from 2020 are based on a combination
of weighting earnings per share (EPS) at 35%, TSR at 35%, risk-based at 15% and return on
equity (ROE) at 15%. Prior to 2020, PSP awards were based on a combination weighting of EPS
at 40%, TSR at 40% and ROE at 20%. The PSP conditions are assessed independently. The EPS
element assesses the EPS growth rate over the performance period. For the TSR element, the
performance of the Company’s ordinary shares is measured against the constituents of the
FTSE 250 (excluding investment trusts). The risk-based measure is assessed against the risk
management performance with regard to all relevant risks. For the ROE element, performance
is assessed based on the Group’s underlying profit after taxation as a percentage of average
shareholders’ equity.
The share-based payment expense during the year comprised the following:
Sharesave Scheme
Deferred Share Bonus Plan
Performance Share Plan
2023
£m
0.9
3.0
1.7
5.6
2022
£m
0.6
4.2
3.3
8.1
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9. Share-based payments continued
Movements in the number of share awards and their weighted average exercise prices are set
out below:
The range of exercise prices and weighted average remaining contractual life of outstanding
awards are as follows:
Sharesave Scheme
Number
Weighted average
exercise price, £
At 1 January 2023
Granted
Exercised/Vested
Forfeited
2,147,972
1,851,510
(729,619)
(468,276)
At 31 December 2023
2,801,587
Exercisable at:
31 December 2023
200,676
At 1 January 2022
Granted
Exercised/Vested
Forfeited
At 31 December 2022
Exercisable at:
31 December 2022
2,421,260
596,692
(624,664)
(245,316)
2,147,972
35,015
3.08
2.72
2.31
3.90
2.91
2.31
2.65
4.29
2.67
2.82
3.08
2.85
Deferred Share
Bonus Plan
Performance
Share Plan
Number
Number
763,390
5,391,269
652,227
2,381,500
(518,524)
(568,782)
Exercise price
Number
2023
2022
Weighted
average
remaining
contractual life
(years)
Weighted
average
remaining
contractual life
(years)
Number
Sharesave Scheme
229 – 429 pence
(2022: 229 – 429 pence)
2,801,587
2.3
2,147,972
(1,931)
(456,719)
Deferred Share Bonus Plan
895,162
6,747,268
Nil
895,162
1.1
763,390
Performance Share Plan
–
–
Nil
797,116
5,225,080
478,901
1,761,174
Sharesave Scheme
6,747,268
10,444,017
2.5
2.3
5,391,269
8,302,631
(511,034)
(1,181,949)
(1,593)
(413,036)
763,390
5,391,269
2023
2022
2021
2020
2019
2018
2017
Contractual life, years
3
3
3
3
5
3
5
5
5
Share price at issue, £
3.40
5.36
5.13
2.86
2.86
3.32
3.32
4.19
3.93
Exercise price, £
2.72
4.29
3.96
2.29
2.29
2.65
2.65
–
–
Expected volatility, % 46.5
31.4
37.9
57.6
57.6
31.9
31.9
1.8
0.9
2.7
2.3
3.35
16.5
1.4
4.4
3.15
17.3
1.2
4.1
For the share-based awards granted during the year, the weighted average grant date fair
value was 275 pence (2022: 396 pence).
Risk-free rate, %
Dividend yield, %
4.8
9.9
5.3
7.3
1.3
4.5
0.1
3.3
0.2
3.3
0.8
4.8
0.8
4.8
Grant date fair value, £ 0.85
0.68
1.46
1.22
1.34
0.90
0.91
0.43
0.70
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Notes to the Consolidated Financial Statements continued
9. Share-based payments continued
The Sharesave Schemes are not entitled to dividends between the option and exercise date. A
Black Scholes model is used to determine the grant date fair value with two inputs:
• Expected volatility – from 2019, the expected volatility is based on the Company’s share
price. Prior to this the Group used the FTSE 350 diversified financials volatility as insufficient
history was available for the Company’s share price.
• Risk-free rate – based on long-term Government bonds.
• Dividend yield – based on the average dividend yield across external analyst reports for
the quarter prior to scheme grant date.
Deferred Share Bonus Plan
Contractual life, years
Mid-market share price, £
Attrition rate, %
Dividend yield, %
Grant date fair value, £
2020
3
2.58
–
5.6
2.21
2019
3
3.96
8.4
4.7
3.47
2017
5
4.04
11.8
4.0
3.37
For awards granted from 2021, there are no further performance or vesting conditions
attached to deferred awards, for further details see DSBP above.
For DSBP awards where conditions exist, these schemes carry no rights to dividend equivalents
and a Black Scholes model is used to determine the grant date fair value with a dividend yield
input applied – based on the average dividend yield across external analyst reports for the
quarter prior to scheme grant date.
Performance Share Plan
Non-market performance conditions also exist for the scheme, notably that a participant is
employed by the Company at the vesting date with good leaver exceptions, and an attrition
rate is applied as an estimate of the actual number of awards that will meet the related
conditions at the vesting date.
The awards are not entitled to a dividend equivalent between grant date and vesting and a
Black Scholes model is used to determine the grant date fair value with a dividend yield input
applied – based on the average dividend yield across external analyst reports for the quarter
prior to the scheme grant date.
The fair value of the portion of awards that is subject to market conditions (i.e. the relative TSR
element of the PSP) is determined at the grant date using a Monte Carlo model.
The inputs into the models are as follows:
Contractual life, years
Mid-market share price, £
Attrition rate, %
Expected volatility, %
Dividend yield, %
Vesting rate – TSR %
Grant date fair value, £
10. Integration costs
Consultant fees
Staff costs
2023
3–7
5.01
6
35.4
8.7
62.7
3.08
2022
3–7
5.58
6.9
37.4
4.7
32.3
4.64
2021
3–7
4.94
12.8
59.5
3.8
40.8
4.26
2020
3–7
2.58
7.3
43.9
5.6
27.8
2.06
2023
£m
–
–
–
2019
3
3.96
8.4
26.8
4.7
44.9
3.47
2022
£m
4.9
3.0
7.9
At Combination in October 2019, the Group announced a quantified financial benefits
statement for meaningful cost synergies to be achieved by the third anniversary of the
Combination. Following the third anniversary in October 2022, the Group ceased recognising
expenses as integration related.
The 2022 consultant fees related to advice on the Group’s future operating structure and staff
costs related to personnel who had left the Group through the transition of operations to the
new operating model.
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11. Taxation
The Group publishes its tax strategy on its corporate website. The table below shows the
components of the Group’s tax charge for the year:
Corporation tax
Corporation taxation - prior year adjustments
Total current tax
Deferred tax
Deferred taxation
Deferred taxation – prior year adjustments
Release of deferred tax on CCFS Combination1
Total deferred tax
Total tax charge
2023
£m
105.7
(0.4)
105.3
0.7
–
(14.3)
(13.6)
91.7
2022
£m
141.4
(0.9)
140.5
(1.2)
(0.3)
(17.5)
(19.0)
121.5
1.
Release of deferred tax on CCFS Combination relates to the unwind of the deferred tax liabilities recognised on
the fair value adjustments of the CCFS assets and liabilities at the acquisition date £(14.3)m (2022: £(17.5)m which
included £(4.7)m from the bank surcharge decrease).
The charge for taxation on the Group’s profit before taxation differs from the charge based on
the weighted average standard rate of UK Corporation Tax of 23.5% (2022: 19%) as follows:
Profit before taxation
Profit multiplied by the standard rate
of UK Corporation Tax 23.5% (2022: 19%)
Bank surcharge1
Taxation effects of:
Expenses not deductible for taxation purposes
Securitisation profits not taxable2
Timing differences on capital items
Utilisation of brought forward tax losses
2023
£m
374.3
88.0
8.4
0.3
(2.5)
(0.8)
(0.3)
2022
£m
531.5
101.0
30.2
0.5
(2.2)
(0.4)
(0.3)
Tax adjustments in respect of share based payments
Fair value adjustments on acquisition amounts3
Adjustments in respect of earlier years
Tax on coupon paid on AT1 securities4
Total current tax charge
Movements in deferred taxes
Deferred taxation – prior year adjustments
Release of deferred taxation on CCFS Combination3
Impact of deferred tax rate change
Total tax charge
2023
£m
0.4
14.3
(0.4)
(2.1)
2022
£m
0.3
14.0
(0.9)
(1.7)
105.3
140.5
0.7
–
(14.3)
–
91.7
(0.8)
(0.3)
(12.8)
(5.1)
121.5
1.
2.
3.
Tax charge for the two banking entities of £9.6m (2022: £34.3m) offset by the tax impact of unwinding CCFS
Combination items of £2.2m (2022: £4.1m).
Securitisation companies are taxed in accordance with the Taxation of Securitisation Companies Regulation 2006,
such that they are subject to tax on their retained profits rather than their tax adjusted profit before tax.
The unwinding of the fair value adjustments of the CCFS assets and liabilities acquired as part of the CCFS
combination are not deductible for tax purposes. A deferred tax liability has been recognised in relation to these
amounts which is released as they unwind.
4.
The Group has issued AT1 capital instruments that are classified as Hybrid Capital Instruments (‘HCI’) for tax
purposes. The coupons paid under HCI are deductible under UK tax legislation despite being charged to equity.
Factors affecting tax charge for the year
From 1 April 2023, the corporation tax rate in the UK increased from 19% to 25%, the bank
surcharge rate decreased from 8% to 3% and the bank surcharge allowance (the level of
taxable profits above which are subject to the surcharge) increased from £25m to £100m.
Therefore, for year ended 31 December 2023 the main rate of corporation tax is 23.5%, the
bank surcharge rate is 4.25% and the bank surcharge allowance is £81.3m.
The effective tax rate for the year ended 31 December 2023, excluding the impact of adjustments
in respect of earlier years and the deferred tax rate change, was 24.6% (2022: 24.0%). This is
higher than the standard rate of UK corporation tax, principally due to the impact of the bank
surcharge payable by the two banking entities, offset by the impact of swap movements in
securitisation companies that are not subject to tax, and deductions available for the coupon
paid on AT1 instruments that are charged to equity.
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Notes to the Consolidated Financial Statements continued
11. Taxation continued
Factors that may affect future tax charges
During 2022, the UK Government confirmed its intention to implement the OECD Inclusive
Framework Pillar 2 rules in the UK, including a Qualified Domestic Minimum Top-Up Tax rule.
This legislation, which was enacted in 2023, will seek to ensure that UK headed multinational
groups pay a minimum tax rate of 15 per cent on UK and overseas profits arising after
31 December 2023. Given the headline tax rates in the countries that the Group operates
in, and the nature of the Group’s business in those countries, these rules are not currently
expected to have any impact on the Group.
12. Earnings per share
EPS is based on the profit for the year and the weighted average number of ordinary shares
in issue. Basic EPS are calculated by dividing profit attributable to ordinary shareholders by
the weighted average number of ordinary shares in issue during the year. Diluted EPS take into
account share options and awards which can be converted to ordinary shares.
For the purpose of calculating EPS, profit attributable to ordinary shareholders is arrived at by
adjusting profit for the year for the coupon on securities classified as equity:
Statutory profit after tax
Less: Coupon on AT1 securities classified as equity
Statutory profit attributable to ordinary shareholders
Weighted average number of shares, millions
Basic
Dilutive impact of share-based payment schemes
Diluted
Earnings per share, pence per share
Basic
Diluted
2023
£m
282.6
(9.0)
273.6
2022
£m
410.0
(9.0)
401.0
2023
2022
414.2
7.0
421.2
66.1
65.0
441.5
5.1
446.6
90.8
89.8
13. Dividends
Final dividend for the prior year
Special dividend for the prior year
Interim dividend for the current year
2023
2022
Pence per
share
21.8
11.7
10.2
£m
93.8
50.3
40.9
185.0
Pence per
share
21.1
–
8.7
£m
94.8
–
38.3
133.1
The Directors recommend a final dividend of £85.7m, 21.8 pence per share (2022: £93.7m,
21.8 pence per share) payable on 14 May 2024 with an ex-dividend date of 4 April 2024 and a
record date of 5 April 2024. This dividend is not reflected in these financial statements as it is
subject to approval by shareholders at the AGM on 9 May 2024.
No special dividend has been announced (2022: £50.3m, 11.7 pence per share).
If the final dividend is approved this will make up the total dividend for 2023 of £126.6m,
32.0 pence per share (2022: £182.0m, 42.2 pence per share).
A summary of the Company’s distributable reserves is shown below:
Retained earnings
Own shares1
Distributable reserves
2023
£m
2022
£m
1,358.6
1,359.3
(1.0)
1,357.6
(2.2)
1,357.1
1.
Own Shares comprises own shares held in the Group’s EBT of £1.0m (2022: £2.2m) which are recognised within OSBG
under look-through accounting.
Further additional distributable reserves can be realised over time from dividend receipts from
profits generated from the subsidiaries including two regulated banks within the Group.
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14. Cash and cash equivalents
The following table analyses the cash and cash equivalents disclosed in the Consolidated
Statement of Cash Flows:
16. Investment securities
Cash in hand
Unencumbered loans and advances to credit institutions
Investment securities
15. Loans and advances to credit institutions
Unencumbered:
BoE call account
Call accounts
Cash held in special purpose vehicles (SPVs)1
Term deposits
Encumbered:
BoE cash ratio deposit
Cash held in SPVs1
Cash margin given
2023
£m
0.4
2,513.6
–
2,514.0
2022
£m
0.4
2,953.7
90.0
3,044.1
2023
£m
2022
£m
Held at amortised cost:
RMBS loan notes
Less: Expected credit losses
Held at FVOCI:
UK Sovereign debt1
Held at FVTPL:
RMBS loan notes
2023
£m
2022
£m
325.4
–
325.4
262.6
–
262.6
296.0
149.8
0.3
621.7
0.5
412.9
2,256.3
2,806.5
1.
In 2022, includes £90.0m of UK Treasury bills which had a maturity of less than three months from date of acquisition.
92.2
147.8
17.3
69.6
31.8
73.2
63.8
10.2
62.8
111.8
198.6
237.4
2,813.6
3,365.7
At 31 December 2023, the Group had no RMBS held at FVOCI or FVTPL or at amortised cost
(2022: £11.5m held at amortised cost) sold under repos.
The Directors consider that the primary purpose of holding investment securities is prudential.
These securities are held as liquid assets with the intention of use on a continuing basis in the
Group’s activities and are classified as amortised cost, FVOCI and FVTPL in accordance with
the Group’s business model for each security.
The credit risk on investment securities held at amortised cost has not significantly increased
since initial recognition and are categorised as stage 1. At 31 December 2023, the Group had
no ECL (2022: less than £0.1m).
1.
Cash held in SPVs is ring-fenced for use in managing the Group’s securitised debt facilities under the terms of
securitisation agreements. Cash held in SPVs is treated as unencumbered in proportion to the retained interest in the
SPV, based on the nominal value of the bonds held by the Group to total bonds in the securitisation, and is included
in cash and cash equivalents. Cash retained in SPVs designated as cash reserve credit enhancement is treated as
encumbered in proportion to the external holdings in the SPV and excluded from cash and cash equivalents.
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Notes to the Consolidated Financial Statements continued
16. Investment securities continued
Movements during the year in investment securities held by the Group are analysed as follows:
18. Loans and advances
At 1 January
Additions1
Disposals and maturities2
Movement in accrued interest
Changes in fair value
At 31 December
2023
£m
412.9
664.3
(456.3)
1.0
(0.2)
621.7
2022
£m
491.4
686.5
(764.4)
(0.9)
0.3
412.9
1.
2.
In 2023 there were additions of £233.9m of UK Treasury bills which had a maturity of less than three months from
date of acquisition (2022: £90.0m).
Disposals and maturities includes £323.9m of UK Treasury bills which had a maturity of less than three months from
date of acquisition (2022: £100.0m).
2023
CCFS
£m
OSB
£m
Total
£m
OSB
£m
2022
CCFS
£m
Total
£m
Gross carrying amount
Stage 1
Stage 2
Stage 3
11,048.7
9,313.8 20,362.5
10,188.4
8,375.5
18,563.9
2,712.6
1,819.3
4,531.9
2,508.9
1,907.4
4,416.3
491.9
217.2
709.1
345.7
156.0
501.7
83.0
Stage 3 (POCI)
33.4
37.5
70.9
38.5
44.5
14,286.6
11,387.8 25,674.4
13,081.5
10,483.4 23,564.9
The mortgage loan balances pledged as collateral for liabilities are:
At 31 December 2023, investment securities included investments in unconsolidated structured
entities (see note 44) of £100.7m notes in PMF 2020-1B (2022: £100.7m notes in PMF 2020-1B).
The investments represent the maximum exposure to loss from unconsolidated structured entities.
BoE under TFSME and ILTR
Securitisation
17. Loans and advances to customers
Held at amortised cost:
Loans and advances (see note 18)
Finance leases (see note 19)
Less: Expected credit losses (see note 20)
Held at FVTPL:
Residential mortgages
2023
£m
2022
£m
The Group’s securitisation programmes and use of TFSME and ILTR result in certain assets being
encumbered as collateral against such funding. As at 31 December 2023, the percentage of the
Group’s gross loans and advances to customers that are encumbered was 27% (2022: 28%).
25,674.4
23,564.9
222.7
163.2
25,897.1
23,728.1
(145.8)
(130.0)
25,751.3
23,598.1
13.7
14.6
25,765.0
23,612.7
2023
£m
6,092.4
841.7
6,934.1
2022
£m
6,439.7
265.4
6,705.1
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18. Loans and advances continued
The table below show the movement in loans and advances to customers by IFRS 9 stage
during the year:
Stage 1
£m
18,078.9
5,829.6
Stage 2
£m
2,412.1
–
Stage 3
£m
Stage 3 (POCI)
£m
Total
£m
459.5
–
97.4
21,047.9
–
5,829.6
(2,855.3)
(353.6)
(89.3)
(14.4)
(3,312.6)
As at 31 December 2023 £126.7m of loans and advances (2022: £110.0m) are in a probation
period before they can move out of Stage 3, see note 1 n) for further details.
Where a borrower has multiple facilities, all facilities are considered in default when a minimum
threshold of the borrower’s exposure has been classified as defaulted. As at 31 December 2023
£55.7m of loans and advances are in this category of default (2022: £32.1m).
19. Finance leases
The Group provides asset finance lending through InterBay Asset Finance Limited.
Gross investment in finance leases, receivable
2023
£m
2022
£m
At 1 January 2022
Originations1
Repayments
and write-offs2
Transfers:
– To Stage 1
– To Stage 2
– To Stage 3
Originations1
Acquisitions3
Repayments
and write-offs2
Transfers:
– To Stage 1
– To Stage 2
– To Stage 3
At 31 December 2022
18,563.9
4,416.3
1,121.6
(1,098.0)
(3,524.0)
3,574.6
(86.9)
(118.8)
4,561.7
175.8
–
–
(23.6)
(50.6)
205.7
501.7
–
–
–
–
–
–
–
–
Less than one year
Between one and two years
Between two and three years
83.0
23,564.9
Between three and four years
–
–
4,561.7
175.8
Between four and five years
More than five years
(2,041.6)
(447.2)
(127.1)
(12.1)
(2,628.0)
Unearned finance income
1,534.7
(1,520.4)
(2,299.0)
2,347.5
(133.0)
(264.3)
(14.3)
(48.5)
397.3
709.1
–
–
–
–
–
–
Net investment in finance leases
Net investment in finance leases, receivable
Less than one year
Between one and two years
70.9
25,674.4
Between two and three years
At 31 December 2023
20,362.5
4,531.9
1. Originations include further advances and drawdowns on existing commitments.
2. Repayments and write-offs include customer redemptions and £33.6m (2022: £2.1m) of write-offs during the year.
Between three and four years
Between four and five years
3.
The Group repurchased £175.8m of own originated UK residential and buy to let mortgages from deconsolidated
SPVs at par.
More than five years
83.6
68.6
51.7
31.4
12.0
2.3
249.6
(26.9)
222.7
71.7
60.4
47.1
29.7
11.6
2.2
60.7
49.5
36.0
23.4
9.9
1.3
180.8
(17.6)
163.2
52.4
44.4
33.2
22.3
9.6
1.3
The contractual amount outstanding on loans and advances that were written off during
the reporting period and are still subject to collections and recovery activity is £0.3m at
31 December 2023 (2022: £0.8m).
The Group has recognised £3.0m of ECLs on finance leases as at 31 December 2023
(2022: £4.8m).
222.7
163.2
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Notes to the Consolidated Financial Statements continued
20. Expected credit losses
The ECL has been calculated based on various scenarios as set out below:
2023
2022
ECL
provision
£m
Weighting
%
Weighted
ECL
provision
£m
ECL
provision
£m
Weighting
%
Weighted
ECL
provision
£m
Scenarios
Upside
Base case
Downside scenario
60.5
76.8
138.1
Severe downside scenario
206.8
Total weighted provisions
Other Provisions:
Individually assessed
provisions
Post model adjustments
Total provision
30
40
20
10
18.2
30.7
27.6
20.7
97.2
25.1
23.5
145.8
32.8
41.7
79.3
120.0
30
40
20
10
9.8
16.7
15.9
12.0
54.4
45.8
29.8
130.0
The Group continued to observe an elongated time to sale, which was in excess of modelled
expectations and observations prior to the pandemic which accounted for £10.0m (2022: £8.7m)
as a PMA. Whilst the Group expects the process delays to reduce in time, a PMA is held against
all accounts to reflect an extended time to sale in line with most recent observations whilst
considering the Land Registry’s strategic plan to increase automation in 2024/2025 to remove
the backlog.
As part of the Group’s recognition of climate risk and overall ESG agenda, the Group
considers the physical risks of climate change with the removal of the transitional risk to reflect
Government’s decision to postpone the EPC Climate Bill. The transitional risk was the most
significant component of the PMA that considered properties with lower energy efficiency likely
to require investment to reach minimum energy efficiency standards, and has such resulted in
the reduction in the PMA where the Group held £0.5m (2022: £4.4m).
To reflect the ongoing cladding concerns, the Group identified a valuation risk to a small
number of properties and accounted for a further sale discount for these properties by
recognising a PMA of £1.1m (2022: £0.7m).
In addition to the above PMAs, the Group has identified accounts within the OSB second
charge portfolio whereby the arrears balances, fees and other charges will be written off.
An ECL of £2.5m (2022: nil) has been recognised for the expected losses.
The Group’s ECL by segment and IFRS 9 stage is shown below:
The Group continued to recognise the increases in credit risk due to the cost of living and cost
of borrowing stresses caused by high inflation and increases in interest rates. As a result, the
Group held £9.4m (2022: £16.0m) of ECL in PMA for risks not sufficiently accounted for in the IFRS
9 framework. The approach to quantify the PMA for the cost of living estimated an increase in
PD by analysing the effect of the increases in living costs, such as household bills and groceries,
on affordability, which is used to increase the default risk to all customers, with those on lower
income more impacted. The cost of living PMA has reduced since 31 December 2022, reflecting
the inflation peak has been observed and forecasts are for decreases in inflation.
Stage 1
Stage 2
Stage 3
Stage 3 (POCI)
The cost of borrowing PMA specifically identified those that are more at risk of default due
to coming to the end of an initial interest rate in the near future, causing a payment increase
through either a new product or reverting onto a variable rate, and becoming a higher
affordability risk. This is used to apply an additional stress on the PD which in some cases
results in a stage 2 criteria trigger. The PMA has reduced since 31 December 2022, reflecting
that both the inflation and interest rate peaks are considered to have been observed and
forecasts are for decreases.
2023
2022
OSB
£m
15.8
39.2
55.1
1.0
111.1
CCFS
£m
6.6
15.1
11.6
1.4
Total
£m
22.4
54.3
66.7
2.4
OSB
£m
5.9
35.3
60.5
1.5
CCFS
£m
1.3
15.6
7.8
2.1
Total
£m
7.2
50.9
68.3
3.6
34.7
145.8
103.2
26.8
130.0
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20. Expected credit losses continued
The tables below show the movement in the ECL by IFRS 9 stage during the year. ECLs on
originations and acquisitions reflect the IFRS 9 stage of loans originated or acquired during
the year as at 31 December and not the date of origination. Re-measurement of loss allowance
relates to existing loans which did not redeem during the year and includes the impact of loans
moving between IFRS 9 stages.
At 1 January 2022
Originations
Repayments and write-offs
Re-measurement of loss allowance
Transfers:
– To Stage 1
– To Stage 2
– To Stage 3
Changes in assumptions
and model parameters
At 31 December 2022
Originations
Acquisitions
Repayments and write-offs
Re-measurement of loss allowance
Transfers:
– To Stage 1
– To Stage 2
– To Stage 3
Changes in assumptions
and model parameters
At 31 December 2023
Stage 1
Stage 2
£m
12.1
6.9
(1.3)
(15.1)
10.0
(2.0)
(0.1)
(3.3)
7.2
10.2
1.2
(0.6)
(9.7)
13.0
(0.8)
(0.2)
2.1
22.4
£m
25.0
–
(3.0)
26.4
(9.2)
3.9
(2.1)
9.9
50.9
–
–
(4.1)
30.1
(12.4)
2.2
(6.7)
(5.7)
54.3
Stage 3
£m
60.4
–
(6.9)
17.5
(0.8)
(1.9)
2.2
(2.2)
68.3
–
–
(39.7)
29.9
(0.6)
(1.4)
6.9
3.3
66.7
Stage 3
(POCI)
£m
4.0
–
(0.3)
(0.7)
–
–
–
0.6
3.6
–
–
(0.7)
0.2
–
–
–
6.9
(11.5)
28.1
–
–
–
5.0
130.0
10.2
1.2
(45.1)
50.5
–
–
–
(0.7)
2.4
(1.0)
145.8
The table below shows the stage 2 ECL balances by transfer criteria:
Criteria:
Total
£m
Relative/absolute
PD movement
101.5
Qualitative measures
30 days past due backstop
Total
2023
2022
Carrying
value
£m
ECL
£m
Coverage
%
Carrying
value
£m
ECL
£m
Coverage
%
4,343.5
53.2
1.22
3,090.2
139.3
55.1
0.8
0.3
4,537.9
54.3
0.57
0.54
1.20
1,277.6
49.3
4,417.1
42.9
7.5
0.5
50.9
1.39
0.59
1.01
1.15
The Group has a number of qualitative measures to determine whether a SICR has taken place.
These triggers utilise both internal performance information, to analyse whether an account is in
distress but not yet in arrears, and external credit bureau information, to determine whether the
customer is experiencing financial difficulty with an external credit obligation.
21. Impairment of financial assets
The charge for impairment of financial assets in the Consolidated Statement of Comprehensive
Income comprises:
Write-offs in year
Increase in ECL provision
2023
£m
33.6
15.2
48.8
2022
£m
2.1
27.7
29.8
The charge for provisions of £48.8m (2022: £29.8m) shown in the Consolidated Statement of
Comprehensive Income also includes a £4.6m credit (2022: nil) in respect of insurance recoveries.
Notes to the Consolidated Financial Statements continuedContents Generation – PageContents Generation – PageContents Generation – Sub PageContents Generation – Sub PageContents Generation - Section
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Notes to the Consolidated Financial Statements continued
22. Derivatives
The table below reconciles the gross amount of derivative contracts to the carrying balance
shown in the Consolidated Statement of Financial Position:
Net amount of
financial assets
/ (liabilities)
presented
in the
Consolidated
Statement
of Financial
Position
£m
Contracts
subject to
master netting
agreements not
offset in the
Consolidated
Statement
of Financial
Position
£m
Cash collateral
paid /
(received) not
offset in the
Consolidated
Statement
of Financial
Position
£m
Gross amount
of recognised
financial assets
/ (liabilities)
£m
Net amount
£m
At 31 December 2023
Derivative assets:
Interest rate risk hedging
530.6
530.6
(45.7)
(212.8)
272.1
Derivative liabilities:
Interest rate risk hedging
(199.9)
(199.9)
45.7
216.1
61.9
At 31 December 2022
Derivative assets:
Interest rate risk hedging
888.1
888.1
(104.9)
(545.7)
237.5
Derivative liabilities:
Interest rate risk hedging
(106.6)
(106.6)
104.9
206.9
205.2
Derivative assets and liabilities include an initial margin of £198.4m with swap
counterparties (2022: £198.6m). Margin is posted daily in respect of derivatives
transacted with swap counterparties.
Included within the Group’s derivative assets is £112.0m (2022: £203.4m) relating to
derivative contracts not covered by master netting agreements on which no cash collateral
has been paid.
The table below profiles the maturity of nominal amounts for interest rate risk hedging
derivatives based on contractual maturity:
Total
nominal
£m
Less than
3 months
£m
3 – 12
months
£m
1 – 5
years
£m
More than
5 years
£m
At 31 December 2023
Derivative assets
17,568.6
812.3
8,181.3
8,560.0
Derivative liabilities
8,913.6
1,148.0
2,300.0
5,108.6
26,482.2
1,960.3
10,481.3
13,668.6
At 31 December 2022
Derivative assets
Derivative liabilities
15,662.6
9,518.0
25,180.6
464.8
1,503.0
1,967.8
3,400.3
6,001.0
11,590.5
1,789.0
9,401.3
13,379.5
15.0
357.0
372.0
207.0
225.0
432.0
The Group has 944 (2022: 916) derivative contracts with an average fixed rate of 2.70%
(2022: 1.34%).
23. Hedge accounting
Hedged assets
Current hedge relationships
Swap inception adjustment
Cancelled hedge relationships
Fair value adjustments on hedged assets
Hedged liabilities
Current hedge relationships
Swap inception adjustment
Cancelled hedge relationships
Fair value adjustments on hedged liabilities
2023
£m
2022
£m
(253.1)
40.4
(30.8)
(243.5)
(22.2)
0.3
–
(21.9)
(827.9)
44.1
(5.2)
(789.0)
58.0
(2.3)
(0.6)
55.1
The swap inception adjustment relates to hedge accounting adjustments arising when hedge
accounting commences, primarily on derivative instruments previously taken out against the
mortgage pipeline and on derivative instruments previously taken out against new retail deposits.
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23. Hedge accounting continued
De-designated hedge relationships relate to hedge accounting adjustments on failed hedge
accounting relationships. These adjustments are amortised over the remaining lives of the
original hedged items.
Cancelled hedge relationships predominantly represent the unamortised fair value adjustment
for interest rate risk hedges that have been cancelled and replaced due to IBOR transition,
securitisation activities and legacy long-term fixed rate mortgages (c. 25 years at origination).
The tables below analyse the Group’s portfolio hedge accounting for fixed rate loans and
advances to customers:
Loans and advances to customers
Carrying amount of hedged item/nominal
value of hedging instrument
Cumulative fair value adjustments of hedged
item/fair value of hedging instrument
Changes in the fair value adjustment of hedged
item/hedging instrument used for recognising
the hedge ineffectiveness for the period
Cumulative fair value on cancelled hedge
relationships
2023
2022
Hedged
item
£m
Hedging
instrument
£m
Hedged
item
£m
Hedging
instrument
£m
15,390.4
15,425.6
14,493.8
14,667.7
(253.1)
312.7
(827.9)
833.2
580.3
(590.5)
(620.6)
621.9
The tables below analyse the Group’s portfolio hedge accounting for fixed rate amounts owed
to retail depositors:
Customer deposits
Carrying amount of hedged item/nominal
value of hedging instrument
Cumulative fair value adjustments of hedged
item/fair value of hedging instrument
Changes in the fair value adjustment of hedged
item/hedging instrument used for recognising
the hedge ineffectiveness for the period
2023
2022
Hedged
item
£m
Hedging
instrument
£m
Hedged
item
£m
Hedging
instrument
£m
8,955.5
8.947.0
9,167.3
9,180.0
(6.7)
16.9
58.0
(67.9)
(67.2)
78.8
33.0
(42.4)
In the Consolidated Statement of Financial Position, £40.3m (2022: £2.4m) of hedging
instruments were recognised within derivative assets; and £23.4m (2022: £70.3m) within
derivative liabilities.
The table below analyses the Group’s ‘micro’ hedge accounting for fixed rate senior notes and
subordinated liabilities:
(30.8)
–
(5.2)
–
Senior notes and subordinated liabilities
2023
2022
Hedged
item
£m
Hedging
instrument
£m
Hedged
item
£m
Hedging
instrument
£m
In the Consolidated Statement of Financial Position, £469.9m (2022: £854.3m) of hedging
instruments were recognised within derivative assets; and £157.2m (2022: £21.1m) within
derivative liabilities.
The movement in cancelled hedge relationships is as follows:
Hedged assets
At 1 January
New cancellations1
Amortisation
At 31 December
2023
£m
(5.2)
(23.0)
(2.6)
(30.8)
2022
£m
78.2
(49.3)
(34.1)
(5.2)
1.
The new cancellations are predominately from securitisation of mortgages during the year where, the Group cancels
swaps which were effective prior to the event, replacing with new swaps within SPV structures, with the designated
hedge moved to cancelled hedge relationships to be amortised over the original life of the swap.
Carrying amount of hedged item/nominal
value of hedging instrument
365.0
365.0
Cumulative fair value adjustments of hedged
item/fair value of hedging instrument
(15.5)
15.6
Changes in the fair value adjustment of hedged
item/hedging instrument used for recognising
the hedge ineffectiveness for the period
(15.5)
15.8
–
–
–
–
–
–
The Group has elected to partially hedge the senior notes up to the optional redemption
date which reflects management’s expectations about the exercise of the call option. In the
Consolidated Statement of Financial Position, £15.6m (2022: nil) of hedging instruments were
recognised within derivative assets.
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Notes to the Consolidated Financial Statements continued
24. Other assets
Falling due within one year:
Prepayments
Other assets
Falling due more than one year:
Prepayments
25. Deferred taxation asset
At 1 January 2022
Profit or loss (charge)/credit2
Tax taken directly to OCI
Tax taken directly to equity
At 31 December 2022
Profit or loss (charge)/credit
Transferred from deferred
tax liability3
Tax taken directly to OCI
Tax taken directly to equity
Losses
carried
forward
£m
0.5
–
–
–
0.5
(0.2)
–
–
–
2023
£m
9.9
11.9
5.8
27.6
Accelerated
depreciation
£m
Share-
based
payments
£m
IFRS 9
transitional
adjustments
£m
Others1
£m
0.5
(0.5)
–
–
–
(0.6)
–
–
–
5.0
0.5
–
(0.9)
4.6
0.2
–
–
(0.1)
4.7
0.7
(0.1)
–
–
0.6
(0.1)
–
–
–
0.5
(1.1)
1.6
0.1
–
0.6
–
(1.7)
0.1
–
(1.0)
2022
£m
7.8
1.8
5.4
15.0
Total
£m
5.6
1.5
0.1
(0.9)
6.3
(0.7)
(1.7)
0.1
(0.1)
3.9
At 31 December 2023
0.3
(0.6)
1.
Others includes deferred taxation assets recognised on financial assets classified as FVOCI, derivatives and short-
term timing differences.
2.
In 2023 there was no prior year deferred tax (2022 £0.3m).
3.
£1.7m relating to other deferred tax assets, and previously shown within the Deferred tax liability (see Note 35) has
been transferred to the Deferred tax asset.
In 2022, the profit or loss credit for deferred tax includes a credit of £0.2m from the corporation
tax rate change.
As at 31 December 2023, the Group had £3.5m (2022: £3.5m) of losses for which a deferred
tax asset has not been recognised as the Group does not expect sufficient future profits to be
available to utilise the losses.
As at 31 December 2023 deferred tax assets of £2.0m (2022: £2.3m) are expected to be utilised
within 12 months and £1.8m (2022: £4.0m) utilised after 12 months.
26. Property, plant and equipment
Right of use assets
Leasehold
improvements
£m
Equipment
and fixtures
£m
Property
leases
£m
Other
leases
£m
Cost
At 1 January 2022
Additions1
Disposals and write-offs2
Foreign exchange difference
At 31 December 2022
Additions1
Disposals and write-offs2
Foreign exchange
difference
Freehold
land and
buildings
£m
16.5
3.5
–
–
20.0
0.3
–
–
2.9
0.1
–
–
3.0
–
–
–
At 31 December 2023
20.3
3.0
Depreciation
At 1 January 2022
Charged in year
Disposals and write-offs2
At 31 December 2022
Charged in year
Disposals and write-offs2
At 31 December 2023
Net book value
At 31 December 2023
At 31 December 2022
1.5
0.2
–
1.7
0.3
–
2.0
18.3
18.3
1.0
0.2
–
1.2
0.3
–
1.5
1.5
1.8
Total
£m
49.0
10.9
(2.1)
0.1
57.9
9.2
1.2
3.5
(0.1)
–
4.6
1.2
(0.1)
(3.4)
–
5.7
0.2
0.2
(0.1)
0.3
0.2
(0.1)
0.4
5.3
4.3
(0.1)
63.6
13.9
5.2
(2.1)
17.0
6.2
(3.4)
19.8
43.8
40.9
15.2
2.9
(1.7)
0.1
16.5
5.7
(3.3)
(0.1)
18.8
7.6
3.0
(1.7)
8.9
3.5
(3.3)
9.1
9.7
7.6
13.2
0.9
(0.3)
–
13.8
2.0
–
–
15.8
3.6
1.6
(0.3)
4.9
1.9
–
6.8
9.0
8.9
1.
Additions include property leases modifications of £0.5m (2022: £0.5m) and other leases modifications of £1.5m
(2022: nil) of right of use assets.
2. During the year the Group derecognised fully depreciated assets.
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27. Intangible assets
28. Amounts owed to credit institutions
Cost
At 1 January 2022
Additions
Disposals and write-offs3
At 31 December 2022
Additions
Transfer during the year
Disposals and write-offs3
At 31 December 2023
Amortisation
At 1 January 2022
Charged in year
Disposals and write-offs3
At 31 December 2022
Charged in year
Disposals and write-offs3
At 31 December 2023
Net book value
At 31 December 2023
At 31 December 2022
Development
costs1
£m
Computer
software and
licences
£m
Assets arising on
Combination2
£m
3.7
0.1
–
3.8
19.1
(2.2)
–
20.7
0.6
0.7
–
1.3
0.7
–
2.0
18.7
2.5
16.0
1.7
(3.6)
14.1
0.7
2.2
(3.4)
13.6
8.8
3.2
(3.6)
8.4
2.8
(3.4)
7.8
5.8
5.7
23.4
–
(1.9)
21.5
–
–
(0.1)
21.4
15.3
4.3
(1.9)
17.7
2.2
(0.1)
19.8
1.6
3.8
Total
£m
43.1
1.8
(5.5)
39.4
19.8
–
(3.5)
55.7
24.7
8.2
(5.5)
27.4
5.7
(3.5)
29.6
26.1
12.0
1.
Increase in development costs is largely due to the modernisation project.
2.
Assets arising on Combination include broker relationships of £0.7m (2022: £2.0m), technology of nil (2022: £0.4m),
brand names of nil (2022: £0.3m) and £0.4m development costs relating to IRB costs.
3. During the year the Group derecognised fully amortised assets.
The Directors have considered the carrying value of intangible assets and determined that
there are no indications of impairment at the year end.
BoE TFSME
BoE ILTR
Commercial repo
Loans from credit institutions
Cash collateral and margin received
2023
£m
3,352.0
10.1
0.1
–
3,362.2
212.8
3,575.0
2022
£m
4,232.0
300.9
10.2
0.1
4,543.2
549.7
5,092.9
29. Amounts owed to retail depositors
2023
CCFS
£m
OSB
£m
Total
£m
OSB
£m
2022
CCFS
£m
Total
£m
Fixed rate deposits
8,846.6
7,493.9
16,340.5
8,085.9
5,899.6
13,985.5
Variable rate deposits
3,399.9
2,386.2
5,786.1
3,046.3
2,724.0
5,770.3
12,246.5
9,880.1
22,126.6
11,132.2
8,623.6
19,755.8
30. Amounts owed to other customers
Fixed rate deposits
Variable rate deposits
2023
£m
58.8
4.5
63.3
2022
£m
100.9
12.2
113.1
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225
Notes to the Consolidated Financial Statements continued
31. Debt securities in issue
32. Lease liabilities
Asset-backed loan notes at amortised cost
Amount due for settlement within 12 months
Amount due for settlement after 12 months
2023
£m
818.5
109.5
709.0
818.5
2022
£m
265.9
At 1 January
–
265.9
265.9
New leases
Lease repayments
Interest accruals
At 31 December
2023
£m
9.9
3.3
(2.2)
0.2
11.2
2022
£m
10.7
0.9
(1.9)
0.2
9.9
The asset-backed loan notes are secured on fixed and variable rate mortgages and are
redeemable in part from time to time, but such redemptions are mainly from the net principal
received from borrowers in respect of underlying mortgage assets. The maturity date of the
funds matches the contractual maturity date of the underlying mortgage assets. The Group
expects that a large proportion of the underlying mortgage assets, and therefore these notes,
will be repaid within five years.
Where the Group own the call rights for a transaction, they may repurchase the asset-backed
loan notes on any interest payment date on or after the call dates, or on any interest payment
date when the current balance of the mortgages outstanding is less than or equal to 10% of
the principal amount outstanding on the loan notes on the date they were issued.
Interest is payable at fixed margins above SONIA.
As at 31 December 2023, notes were issued through the following funding vehicles:
During the year, the Group incurred expenses of £0.1m (2022: £0.3m) in relation to short-
term leases.
33. Other liabilities
Falling due within one year:
Accruals
Deferred income
Other creditors
2023
£m
2022
£m
26.5
0.4
12.7
39.6
28.0
0.6
10.1
38.7
Canterbury Finance No.3 plc
Canterbury Finance No.4 plc
CMF 2020-1 plc
CMF 2023-1 plc
Keys Warehouse No.1 Limited
2023
£m
–
167.5
109.5
291.3
250.2
818.5
2022
£m
21.0
103.1
141.8
–
–
265.9
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34. Provisions and contingent liabilities
The Financial Services Compensation Scheme (FSCS) provides protection of deposits for the
customers of authorised financial services firms, should a firm collapse. FSCS protects retail
deposits of up to £85k for single account holders and £170k for joint holders. As OSB and CCFS
both hold banking licences, the full FSCS protection is available to customers of each Bank.
35. Deferred taxation liability
The deferred tax liability recognised on the Combination relates to the timing differences
of the recognition of assets and liabilities at fair value, where the fair values will unwind in
future periods in line with the underlying asset or liability. The deferred tax liability has been
measured using the relevant rates for the expected periods of utilisation.
The compensation paid out to consumers is initially funded through loans from the BoE and
HM Treasury. In order to repay the loans and cover its costs, the FSCS charges levies on firms
regulated by the PRA and the Financial Conduct Authority (FCA). The Group is among those
firms and pays the FSCS a levy based on its share of total UK deposits.
The Group released its £1.5m provision for conduct related exposures in 2022 following
completion of an internal review.
An analysis of the Group’s FSCS and other provisions is presented below:
2023
Other
regulatory
provisions
£m
FSCS
£m
ECL on
undrawn
loan
facilities
£m
At 1 January
Charge/(credit)
At 31 December
–
–
–
–
–
–
0.4
0.4
0.8
2022
Other
regulatory
provisions
£m
ECL on
undrawn
loan
facilities
£m
1.5
(1.5)
–
0.4
–
0.4
Total
£m
2.0
(1.6)
0.4
Total
£m
0.4
0.4
0.8
FSCS
£m
0.1
(0.1)
–
In January 2020, the Group was contacted by the FCA in connection with a multi-firm
thematic review into forbearance measures adopted by lenders in respect of a portion of
the mortgage market. The Group has responded to information requests from the FCA.
In addition, the Group has reviewed and is enhancing its collections processes and how
mortgage customers in arrears are managed and undertaking a retrospective review of the
Group’s application of forbearance measures and associated outcomes for certain cohorts
of customers. It is not possible to reliably predict or estimate the outcome of the retrospective
review and therefore its financial effect, if any, on the Group.
At 1 January 2022
Profit or loss credit1
At 31 December 2022
Profit or loss credit
Transfer to Deferred tax asset2
At 31 December 2023
CCFS Combination
£m
39.8
(17.5)
22.3
(14.3)
(1.7)
6.3
1.
In 2022, the profit or loss credit includes £4.7m impact of the corporation tax rate changes.
2.
£1.7m relating to other deferred tax assets, and previously shown within the Deferred tax liability has been
transferred to the Deferred tax asset (see Note 25).
As at 31 December 2023 deferred tax liabilities of £3.8m (2022: £5.6m) are expected to be due
within 12 months and £2.5m (2022: £16.7m) due after 12 months.
36. Senior notes
During the current financial year, the Group issued senior notes amounting to £300m under
the planned MREL qualifying debt issuance as follows:
Fixed rate:
Senior notes 2028 (9.5%)
2023
£m
307.5
2022
£m
–
The senior notes comprise fixed rate notes denominated in pounds sterling and are listed on
the official list of the FCA and admitted to trading on the main market of the London Stock
Exchange plc.
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Notes to the Consolidated Financial Statements continued
36. Senior notes continued
The principal terms of the senior notes are as follows:
•
Interest: Interest on the senior notes is fixed at an initial rate until the reset date
(7 September 2027). If the senior notes are not redeemed prior to the reset date, the interest
rate will be reset and fixed based on a benchmark gilt rate plus a spread of 4.985%.
• Redemption: The Issuer may redeem the senior notes in whole (but not in part) in its sole
discretion on 7 September 2027. Optional redemption may also take place for certain
regulatory or tax reasons. Any optional redemption requires the prior consent of the PRA.
• Ranking: The senior notes constitute direct, unsubordinated and unsecured obligations of
OSBG and rank at least pari passu, without any preference, among themselves as senior
notes. The notes rank behind the claims of depositors, but in priority to holders of Tier 1 and
Tier 2 capital as well as equity holders of OSBG.
The table below shows a reconciliation of the Group’s senior notes during the year.
The principal terms of the subordinated debt liabilities are as follows:
•
Interest: Interest on the notes is fixed at an initial rate until the reset date (27 July 2028).
If the notes are not redeemed prior to the reset date, the interest rate will be reset and fixed
based on a benchmark gilt rate plus a spread of 6.296%.
• Redemption: The Issuer may redeem the Tier 2 notes in whole (but not in part) in its sole
discretion on any day from (and including) 27 April 2028 to (and including) 27 July 2028
(the reset date) as specified in the terms of the agreement. Optional redemption may also
take place for certain regulatory or tax reasons. Any optional redemption requires the prior
consent of the PRA.
• Ranking: The notes constitute direct, unsecured and subordinated obligations of OSBG
and rank at least pari passu, without any preference, among themselves as Tier 2 capital.
The notes rank behind the claims of depositors and other unsecured and unsubordinated
creditors, but rank in priority to holders of Tier 1 capital and of equity of OSBG.
The table below shows a reconciliation of the Group’s subordinated liabilities during the year:
At 1 January
Addition1
Movement in accrued interest
At 31 December
2023
£m
–
298.4
9.1
307.5
2022
£m
–
–
–
–
1. Addition includes £1.6m towards transaction costs which has been amortised through the EIR of the loan notes.
37. Subordinated liabilities
The Group’s outstanding subordinated liabilities are summarised below:
At 1 January
Addition1
Movement in accrued interest
Repayment of debt
At 31 December
2023
£m
–
248.7
10.8
–
259.5
2022
£m
10.3
–
–
(10.3)
–
1. Addition includes £1.3m towards transaction costs which has been amortised through the EIR of the loan notes.
Fixed rate:
2023
£m
2022
£m
In 2022 the fixed rate subordinated liabilities were fully repaid at a premium of £0.7m, which
was recognised in interest payable and similar charges.
The LIBOR linked subordinated liabilities were redeemed in September 2022.
Subordinated liabilities 2033 (9.993%)
259.5
–
All subordinated liabilities are denominated in pounds sterling and are listed on the official list
of the FCA and admitted to trading on the main market of the London Stock Exchange plc.
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38. Perpetual Subordinated Bonds
Sterling PSBs (4.6007%)
The bonds are listed on the London Stock Exchange.
2023
£m
15.2
2022
£m
15.2
40. Share capital
Ordinary shares
At 1 January 2022
Number of shares
issued and
fully paid
448,627,855
Nominal
value
£m
4.5
(0.2)
–
4.3
(0.4)
–
3.9
Premium
£m
0.7
–
1.7
2.4
–
1.4
3.8
Shares cancelled under repurchase programme
(20,671,224)
Shares issued under OSBG employee share plans
1,911,994
At 31 December 2022
429,868,625
Shares cancelled under repurchase programme
(38,243,031)
Shares issued under OSBG employee share plans
1,562,087
At 31 December 2023
393,187,681
The Group’s share repurchase programme commenced on 17 March 2023 (2022: 18 March 2022),
and allowed the Group to repurchase a maximum of 43,024,375 shares (2022: 44,799,505
shares), restricted by a total cost of £150.0m (2022: £100.0m). The programme completed during
the year and 38,243,031 shares (2022: 20,671,224), representing 8.9% (2022: 4.6%) of the issued
share capital, have been repurchased and cancelled at an average price of £3.92 (2022: £4.84)
per share and a total cost of £150.0m (2022: £100.0m) excluding transaction costs.
The holders of ordinary shares are entitled to receive dividends as declared from time to time,
and are entitled to one vote per share at meetings of the Company. All ordinary shares rank
equally with regard to the Company’s residual assets.
All ordinary shares issued in the current and prior year were fully paid.
The 4.6007% bonds were issued with no discretion over the payment of interest and may
not be settled in the Group’s own equity. They are therefore classified as financial liabilities.
The coupon rate is 4.6007% until the next reset date on 27 August 2024.
39. Reconciliation of cash flows from financing activities
The tables below show a reconciliation of the Group’s liabilities classified as financing activities
within the Consolidated Statement of Cash Flows:
Amounts owed to
credit institutions
(see note 28)
£m
Debt
securities in
issue (see
note 31)
£m
Senior notes
(see note
36)
£m
Subordinated
liabilities (see
note 37)
£m
PSBs (see
note 38)
£m
Total
£m
At 1 January 2022
4,204.2
460.3
Cash movements:
Principal drawdowns
429.5
–
Principal repayments
(120.5)
(193.6)
Interest paid
(34.8)
(8.5)
Non-cash movements:
Interest charged
64.8
7.7
At 31 December 2022
4,543.2
265.9
Cash movements:
–
–
–
–
–
–
10.3
15.2
4,690.0
–
(10.1)
(1.3)
–
–
429.5
(324.2)
(0.7)
(45.3)
1.1
–
0.7
74.3
15.2
4,824.3
Principal drawdowns
189.9
591.6
298.4
248.7
–
1,328.6
Principal repayments
(1,390.2)
(40.1)
Interest paid
(178.0)
(20.4)
–
–
–
– (1,430.3)
(6.3)
(0.7)
(205.4)
Non-cash movements:
Interest charged
197.3
21.5
9.1
17.1
0.7
245.7
At 31 December 2023
3,362.2
818.5
307.5
259.5
15.2 4,762.9
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Notes to the Consolidated Financial Statements continued
41. Other equity instruments
The Group’s other equity instruments are as follows:
Additional Tier 1 securities
6% Perpetual subordinated contingent convertible securities
2023
£m
150.0
2022
£m
150.0
AT1 Securities
On 5 October 2021, OSBG issued AT1 securities. AT1 securities comprise £150.0m of Fixed Rate
Resetting Perpetual Subordinated Contingent Convertible Securities that qualify as AT1 capital
under CRD IV. The securities will be subject to full conversion into ordinary shares of OSBG in the
event that the Group’s Common Equity Tier 1 (CET1) capital ratio falls below 7%. The securities
will pay interest at a rate of 6% per annum until the first reset date of 7 April 2027, with the reset
interest rate equal to 539.3 basis points over the 5-year Gilt Rate (benchmark gilt) for such a
period. Interest is paid semi-annually in April and October.
OSBG may, at any time, cancel any interest payment at its full discretion and must cancel
interest payments in certain circumstances specified in the terms and conditions of the securities.
The securities are perpetual with no fixed redemption date. OSBG may, in its discretion and
subject to satisfying certain conditions, redeem all (but not some) of the AT1 securities at the
principal amount outstanding plus any accrued but unpaid interest from the first reset date and
on any interest payment date thereafter. AT1 securities which were previously presented within
‘other reserves’ have been re-presented as ‘other equity instruments’.
42. Other reserves
The Group’s other reserves are as follows:
Capital redemption and transfer reserve
The capital redemption reserve represents the shares cancelled through the Group’s share
repurchase programme.
On 27 November 2020, a new ultimate parent company was inserted into the Group, being
OSBG. The share capital generated from issuing 447,304,198 nominal shares at £3.04 per
share, replacing the nominal shares of £0.01 in OSB previously recognised in share capital at
the consolidation level, created a transfer reserve of £1,355.3m.
Own shares
The Company has adopted the look-through approach for the EBT, including the EBT within
the Company. As at 31 December 2023, the EBT held 188,106 OSBG shares (2022: 442,568
OSBG shares). The Group and Company show these shares as a deduction from equity,
being the cost at which the shares were acquired of £1.0m (2022: £2.2m).
FVOCI reserve
The FVOCI reserve represents the cumulative net change in the fair value of investment
securities measured at FVOCI.
Foreign exchange reserve
The foreign exchange reserve relates to the revaluation of the Group’s Indian subsidiary,
OSB India Private Limited.
43. Financial commitments and guarantees
a)
The Group had £0.1m of contracted capital expenditure commitments not provided for as
at 31 December 2023 (2022: nil).
b)
The Group’s minimum lease commitments under leases for low-value assets and short-term
leases of 12 months or less are summarised in the table below:
Share-based payment
Capital redemption & transfer
Own shares
FVOCI
Foreign exchange
2023
£m
14.2
2022
£m
13.2
(1,354.7)
(1,355.1)
Land and buildings: due within:
(1.0)
0.2
(2.1)
(2.2)
0.3
(1.3)
(1,343.4)
(1,345.1)
One year
Two to five years
2023
£m
0.2
0.2
0.4
2022
£m
0.3
0.3
0.6
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230
c) Undrawn loan facilities:
OSB mortgages
CCFS mortgages
Asset finance
2023
£m
580.2
391.8
27.4
999.4
2022
£m
741.6
455.1
15.5
1,212.2
Undrawn loan facilities are approved loan applications which have not yet been exercised.
They are payable on demand and are usually drawn down or expire within three months.
d) The Group did not have any issued financial guarantees as at 31 December 2023 (2022: nil).
44. Risk management
Overview
Financial instruments form the vast majority of the Group’s assets and liabilities. The Group
manages risk on a consolidated basis and risk disclosures that follow are provided on this basis.
Types of financial instruments
Financial instruments are a broad definition which includes financial assets, financial liabilities
and equity instruments. The main financial assets of the Group are loans to customers and
liquid assets, which in turn consist of cash in the BoE call accounts, call accounts with other
credit institutions, RMBS and UK sovereign debt. These are funded by a combination of
financial liabilities and equity instruments. Financial liability funding comes predominantly
from retail deposits and drawdowns under the BoE TFSME and ILTR, supported by debt
securities, subordinated debts, wholesale and other funding. Equity instruments include own
shares and AT1 securities meeting the equity classification criteria. The Group’s main activity
is mortgage lending; it raises funds or invests in particular types of financial assets to meet
customer demand and manage the risks arising from its operations. The Group does not trade
in financial instruments for speculative purposes.
The Group uses derivative instruments to manage its financial risks. Derivatives are used by the
Group solely to reduce (hedge) the risk of loss arising from changes in market rates. The Group
only uses interest rate swaps. Derivatives are not used for speculative purposes.
Types of derivatives and uses
The derivative instruments used by the Group in managing its risk exposures are interest
rate swaps. Interest rate swaps convert fixed interest rates to floating or vice versa. As with
other derivatives, the underlying product is not sold and payments are based on notional
principal amounts.
Unhedged fixed rate liabilities create the risk of paying above-the-market rate if interest rates
subsequently decrease. Unhedged fixed rate mortgages and liquid assets bear the opposite
risk of income below-the-market rate when rates go up. While fixed rate assets and liabilities
naturally hedge each other to a certain extent, this hedge is usually never perfect because of
maturity mismatches and principal amounts.
The Group uses swaps to convert its instruments, such as mortgages, deposits and liquid
assets, from fixed or base rate-linked rates to reference linked variable rates. This ensures a
guaranteed margin between the interest income and interest expense, regardless of changes in
the market rates.
Types of risk
The principal financial risks to which the Group is exposed are credit, liquidity and market risks,
the latter comprising interest and exchange rate risk. In addition to financial risks, the Group is
exposed to various other risks, most notably operational, conduct and compliance/regulatory,
which are covered in the Risk review on page 45 to 66.
Credit risk
Credit risk is the risk that losses may arise as a result of the Group’s borrowers or market
counterparties failing to meet their obligations to repay.
The Group has adopted the Standardised Approach for assessment of credit risk regulatory
capital requirements. This approach considers risk weightings as defined under Basel II and
Basel III principles.
The classes of financial instruments to which the Group is most exposed are loans and advances
to customers, loans and advances to credit institutions, cash in the BoE call account, call and
current accounts with other credit institutions and investment securities. The maximum credit
risk exposure equals the total carrying amount of the above categories plus off-balance sheet
undrawn committed mortgage facilities.
The change, during the period and cumulatively, in the fair value of investments in debt
securities and loans and advances to customers at FVOCI and FVTPL that is attributable to
changes in credit risk is not material.
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Notes to the Consolidated Financial Statements continued
44. Risk management continued
Credit risk – loans and advances to customers
Credit risk associated with mortgage lending is largely driven by the housing market and
level of unemployment. A recession and/or high interest rates could cause pressure within the
market, resulting in rising levels of arrears and repossessions.
All loan applications are assessed with reference to the Group’s Lending Policy. Changes to
the policy are approved by the Group Risk Committee, with mandates set for the approval
of loan applications.
The Group Credit Committee and ALCO regularly monitor lending activity, taking appropriate
actions to reprice products and adjust lending criteria in order to control risk and manage
exposure. Where necessary and appropriate, changes to the Lending Policy are recommended
to the Group Risk Committee.
The following tables show the Group’s maximum exposure to credit risk and the impact of
collateral held as security, capped at the gross exposure amount, by impairment stage.
Capped collateral excludes the impact of forced sale discounts and costs to sell. The collateral
value is determined by indexing against House Price Index data.
OSB
2022
CCFS
Total
Gross
carrying
amount
£m
Capped
collateral
held
£m
Gross
carrying
amount
£m
Capped
collateral
held
£m
Gross
carrying
amount
£m
Capped
collateral
held
£m
10,346.8
10,320.4
8,375.5
8,374.4
18,722.3
18,694.8
2,509.7
2,508.5
1,907.4
1,907.1
349.7
38.5
319.2
37.5
156.0
44.5
156.0
44.4
4,417.1
505.7
83.0
4,415.6
475.2
81.9
13,244.7
13,185.6
10,483.4
10,481.9
23,728.1
23,667.5
Stage 1
Stage 2
Stage 3
Stage 3 (POCI)
The Group’s main form of collateral held is property, based in the UK and the Channel Islands.
The Group uses indexed loan to value (LTV) ratios to assess the quality of the uncapped
collateral held. Property values are updated to reflect changes in the HPI. A breakdown of
loans and advances to customers by indexed LTV is as follows:
OSB
2023
CCFS
Total
Gross
carrying
amount
£m
Capped
collateral
held
£m
Gross
carrying
amount
£m
Capped
collateral
held
£m
Gross
carrying
amount
£m
Capped
collateral
held
£m
Band
2023
CCFS
£m
Total
£m
OSB
£m
11,263.0
11,228.7
9,313.8
9,313.8
20,576.8 20,542.5
2,718.6
2,717.0
1,819.3
1,818.6
4,537.9
4,535.6
0% – 50%
2,454.7
1,105.5 3,560.2
50% – 60%
2,275.8 1,454.5 3,730.3
%
14
14
2022
CCFS
£m
OSB
£m
Total
£m
%
2,768.8
914.7
3,683.5
2,770.7
1,361.1
4,131.8
Stage 3 (POCI)
33.4
33.0
494.3
488.8
217.2
37.5
217.2
37.4
711.5
70.9
706.0
70.4
60% – 70%
4,414.4 3,244.0 7,658.4 30
4,647.5
3,561.7
8,209.2
70% – 80%
3,822.1 5,000.9 8,823.0
34
2,150.7
4,277.3
6,428.0
14,509.3
14,467.5
11,387.8
11,387.0
25,897.1 25,854.5
80% – 90%
1,045.7
573.2
1,618.9
222.0
274.6
8.8
0.9
230.8
275.5
6
1
1
548.3
365.5
181.3
177.4
2.5
0.6
913.8
183.8
178.0
Stage 1
Stage 2
Stage 3
16
17
35
26
4
1
1
90% – 100%
>100%
Total loans
before
provisions
14,509.3 11,387.8 25,897.1
100
13,244.7 10,483.4 23,728.1
100
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232
The table below shows the LTV banding for the OSB segments’ two major lending streams:
2023
2022
BTL/SME
£m
Residential
£m
Total
£m
%
BTL/SME
£m
Residential
£m
Total
£m
%
OSB
Band
0% – 50%
1,078.1
1,376.6 2,454.7
50% – 60%
2,027.5
248.3 2,275.8
4,181.4
233.0 4,414.4
3,616.9
205.2 3,822.1
826.3
219.4 1,045.7
174.8
270.1
47.2
222.0
4.5
274.6
17
16
30
26
7
2
2
1,301.4
1,467.4
2,768.8
2,497.2
273.5
2,770.7
4,386.0
261.5
4,647.5
1,977.1
173.6
2,150.7
418.1
167.3
172.9
130.2
548.3
14.0
4.5
181.3
177.4
21
21
36
16
4
1
1
Buy-to-Let
£m
Commercial
£m
2022
Residential
development
£m
Funding
lines
£m
Total
£m
1,137.6
2,324.1
4,111.4
1,741.5
232.8
77.1
130.5
114.7
112.8
164.4
235.6
151.6
63.8
38.4
881.3
16.1
57.2
110.2
–
–
–
1.0
184.5
33.0
1,301.4
3.1
2,497.2
–
–
4,386.0
1,977.1
33.7
26.4
3.0
418.1
167.3
172.9
99.2
10,920.0
12,175.1 2,334.2 14,509.3 100
10,920.0
2,324.7
13,244.7
100
The tables below show the LTV analysis of the OSB Residential sub-segment:
Total loans before provisions
9,755.0
The tables below show the LTV analysis of the OSB BTL/SME sub-segment:
Buy-to-Let
£m
Commercial
£m
2023
Residential
development
£m
Funding
lines
£m
Total
£m
8.4
2.5
0.9
1,078.1
2,027.5
4,181.4
968.1
1,857.3
3,800.3
3,271.4
596.0
68.7
202.7
93.4
106.6
169.7
323.6
230.3
106.1
66.0
8.2
61.1
210.5
–
–
–
21.9
3,616.9
90% – 100%
–
–
826.3
174.8
270.1
>100%
Total loans before
provisions
1.0
0.4
Total loans before provisions
10,764.5
1,095.7
280.8
34.1
12,175.1
First
charge
£m
2023
Second
charge
£m
Total
£m
First
charge
£m
2022
Second
charge
£m
Total
£m
1,292.6
219.9
218.3
199.5
218.1
46.8
3.9
84.0
28.4
14.7
5.7
1.3
0.4
0.6
1,376.6
1,357.6
109.8
1,467.4
248.3
233.0
205.2
219.4
47.2
4.5
238.1
242.9
168.3
128.8
13.4
3.8
35.4
18.6
5.3
1.4
0.6
0.7
273.5
261.5
173.6
130.2
14.0
4.5
2,199.1
135.1
2,334.2
2,152.9
171.8
2,324.7
60% – 70%
70% – 80%
80% – 90%
90% – 100%
>100%
Total loans
before
provisions
OSB
Band
0% – 50%
50% – 60%
60% – 70%
70% – 80%
80% – 90%
90% – 100%
>100%
OSB
Band
0% – 50%
50% – 60%
60% – 70%
70% – 80%
80% – 90%
90% – 100%
>100%
OSB
Band
0% – 50%
50% – 60%
60% – 70%
70% – 80%
80% – 90%
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233
Notes to the Consolidated Financial Statements continued
44. Risk management continued
The table below shows the LTV analysis of the four CCFS sub-segment:
2023
CCFS
Band
0% – 50%
50% – 60%
60% – 70%
70% – 80%
80% – 90%
90% – 100%
>100%
Buy-to-Let
£m
Residential
£m
Bridging
£m
360.3
838.1
2,365.6
4,098.0
271.7
3.5
–
573.9
527.7
782.7
849.2
296.0
3.3
0.3
138.1
66.8
79.9
43.4
2.3
2.0
0.6
Second
charge
lending
£m
Total
£m
33.2
1,105.5
21.9
15.8
10.3
3.2
–
–
1,454.5
3,244.0
5,000.9
573.2
8.8
0.9
%
10
13
28
44
5
–
–
Total loans
before provisions
7,937.2
3,033.1
333.1
84.4
11,387.8
100
2022
Buy–to–Let
£m
Residential
£m
Bridging
£m
308.6
799.5
2,587.6
3,613.8
215.1
0.2
–
498.3
501.8
924.2
622.9
146.8
0.8
0.1
62.9
29.9
25.6
26.9
2.4
1.5
0.5
Second
charge
lending
£m
44.9
29.9
24.3
13.7
1.2
–
–
Total
£m
914.7
1,361.1
3,561.7
4,277.3
365.5
2.5
0.6
CCFS
Band
0% – 50%
50% – 60%
60% – 70%
70% – 80%
80% – 90%
90% – 100%
>100%
Total loans
before provisions
7,524.8
2,694.9
149.7
114.0
10,483.4
100
Forbearance type
Interest-only switch
Interest rate reduction
Term extension
Payment deferral
Voluntary-assisted sale
Payment concession
(reduced monthly payments)
Capitalisation of interest
Full or partial debt forgiveness
Total
%
Loan type
First charge owner-occupier
Second charge owner-occupier
Buy-to-Let
Commercial
Total
9
13
34
41
3
–
–
Forbearance measures undertaken
The Group has a range of options available where borrowers experience financial difficulties
that impact their ability to service their financial commitments under the loan agreement.
These options are explained in the Risk review on page 45 to 66.
A summary of the forbearance measures undertaken during the year is shown below.
The balances disclosed reflect the year-end balance of the accounts where a forbearance
measure was undertaken during the year.
Number of
accounts
2023
At 31 December
2023
£m
Number of
accounts
2022
At 31 December
2022
£m
384
290
164
459
–
112
17
126
62.9
36.5
15.6
89.9
–
22.9
2.4
4.5
1,552
234.7
880
252
279
141
116.5
6.9
79.2
32.1
1,552
234.7
70
91
53
194
5
55
27
359
854
217
460
107
70
854
12.2
7.5
2.9
34.0
1.2
12.0
9.0
9.6
88.4
27.8
8.9
37.1
14.6
88.4
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234
Geographical analysis by region
An analysis of loans, excluding asset finance leases, by region is provided below:
• Satisfactory quality – where the assets demonstrate a moderate default risk.
• Lower quality – where the assets require closer monitoring and the risk of default is of
Region
2023
CCFS
£m
Total
£m
OSB
£m
East Anglia
480.1
1,236.2
1,716.3
East Midlands
723.4
774.7
1,498.1
2022
CCFS
£m
Total
£m
OSB
£m
453.5
1,136.4
1,589.9
609.9
691.6
1,301.5
%
7
6
%
7
6
Greater London
6,185.6
3,416.4 9,602.0
37
5,559.3
3,293.0
8,852.3
38
Guernsey
Jersey
North East
North West
18.2
67.8
–
–
18.2
67.8
195.7
299.6
495.3
983.4
1,031.0 2,014.4
Northern Ireland
Scotland
9.4
61.1
–
9.4
298.1
359.2
–
–
2
8
–
1
21.5
75.6
–
–
21.5
75.6
169.8
274.5
444.3
906.6
921.8
1,828.4
10.0
36.9
–
10.0
261.3
298.2
–
–
2
7
–
1
South East
2,907.8 1,834.0 4,741.8
18
2,802.8
1,681.5
4,484.3
19
South West
Wales
959.4
327.4
751.2
1,710.6
315.0
642.4
West Midlands
992.6
851.0 1,843.6
374.7
580.6
955.3
7
3
7
4
893.7
297.5
908.9
659.6
1,553.3
284.7
582.2
761.3
1,670.2
335.5
517.7
853.2
7
2
7
4
Yorks and
Humberside
Total loans
before
provisions
Approach to measurement of credit quality
The Group categorises the credit quality of loans and advances to customers into internal
risk grades based on the 12 month PD calculated at the reporting date. The PDs include a
combination of internal behavioural and credit bureau characteristics and are aligned with
Capital models to generate the risk grades which are then further grouped into the following
credit quality segments:
• Excellent quality – where there is a very high likelihood the asset will be recovered in full
with a negligible or very low risk of default.
• Good quality – where there is a high likelihood the asset will be recovered in full with a low
risk of default.
greater concern.
The following tables disclose the credit risk quality ratings of loans and advances to customers
by IFRS 9 stage. The assessment of whether credit risk has increased significantly since
initial recognition is performed for each reporting period for the life of the loan. Loans and
advances to customers initially booked on very low PDs and graded as excellent quality loans
can experience a SICR and therefore be moved to Stage 2. Such loans may still be graded as
excellent quality, if they meet the overall criteria.
Stage 1
£m
Stage 2
£m
Stage 3
£m
Stage 3
(POCI)
£m
Total
£m
PD lower
range
%
PD upper
range
%
2023
OSB
Excellent
Good
4,609.0
257.1
6,062.0
1,397.6
Satisfactory
543.1
505.9
Lower
Impaired
POCI
CCFS
48.9
558.0
–
–
–
–
Excellent
6,204.6
633.1
Good
2,934.3
653.7
Satisfactory
168.2
213.5
–
–
–
–
494.3
–
–
–
–
–
217.2
–
–
–
–
–
4,866.1
7,459.6
1,049.0
606.9
–
0.3
2.0
7.4
0.3
2.0
7.4
100.0
494.3
100.0
100.0
33.4
33.4
100.0
100.0
–
6,837.7
– 3,588.0
381.7
325.7
–
–
–
–
0.3
2.0
7.4
0.3
2.0
7.4
100.0
Impaired
POCI
–
–
–
–
217.2
100.0
100.0
–
37.5
37.5
100.0
100.0
20,576.8
4,537.9
711.5
70.9 25,897.1
14,286.6 11,387.8 25,674.4 100
13,081.5 10,483.4 23,564.9 100
Lower
6.7
319.0
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235
Notes to the Consolidated Financial Statements continued
Stage 1
£m
Stage 2
£m
Stage 3
£m
Stage 3
(POCI)
£m
Total
£m
PD lower
range
%
PD upper
range
%
44. Risk management continued
Geographical analysis by region continued
2022
OSB
Excellent
Good
4,136.6
470.6
5,848.5
1,248.4
Satisfactory
331.8
374.2
Lower
Impaired
POCI
CCFS
Excellent
Good
Satisfactory
Lower
Impaired
POCI
29.9
416.5
–
–
–
–
5,800.2
910.1
2,394.2
668.2
151.4
29.7
143.9
185.2
–
–
–
–
–
–
–
–
349.7
–
–
–
–
–
156.0
–
–
–
–
–
4,607.2
7,096.9
706.0
446.4
–
0.3
2.0
7.4
0.3
2.0
7.4
100.0
349.7
100.0
100.0
38.5
38.5
100.0
100.0
–
6,710.3
– 3,062.4
295.3
214.9
–
–
–
–
0.3
2.0
7.4
0.3
2.0
7.4
100.0
156.0
100.0
100.0
–
44.5
44.5
100.0
100.0
18,722.3
4,417.1
505.7
83.0 23,728.1
The tables below show the Group’s other financial assets and derivatives by credit risk rating
grade. The credit grade is based on the external credit rating of the counterparty; AAA to AA-
are rated Excellent; A+ to A- are rated Good; and BBB+ to BBB- are rated Satisfactory.
2023
Investment securities
Excellent
£m
621.7
Loans and advances to credit institutions
2,446.7
Derivative assets
2022
Investment securities
Loans and advances to credit institutions
Derivative assets
239.7
3,308.1
Excellent
£m
412.9
2,923.2
400.1
3,736.2
Good
£m
Satisfactory
£m
Total
£m
–
357.7
290.9
648.6
–
621.7
9.2
2,813.6
–
530.6
9.2
3,965.9
Good
£m
Satisfactory
£m
–
435.4
488.0
923.4
–
7.1
–
7.1
Total
£m
412.9
3,365.7
888.1
4,666.7
Credit risk – loans and advances to credit institutions and investment securities
The Group holds treasury instruments in order to meet liquidity requirements and for general
business purposes. The credit risk arising from these investments is closely monitored and
managed by the Group’s Treasury function. In managing these assets, Group Treasury operates
within guidelines laid down in the Group Market and Liquidity Risk Policy approved by ALCO
and performance is monitored and reported to ALCO monthly, including through the use of an
internally developed rating model based on counterparty credit default swap spreads.
The Group has limited exposure to emerging markets (Indian operations) and non-investment
grade debt. ALCO is responsible for approving treasury counterparties.
During the year, the average balance of cash in hand, loans and advances to credit institutions
and investment securities on a monthly basis was £3,848.3m (2022: £3,496.9m).
Contents Generation – PageContents Generation – Sub PageContents Generation – Section
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236
Credit risk – loans and advances to credit institutions and investment securities
continued
The tables below show the industry sector of the Group’s loans and advances to credit
institutions and investment securities:
BoE1
Other banks
Central government
Securitisation
Total
2023
£m
2,325.9
487.7
296.0
325.7
%
68
14
9
9
2022
£m
2,869.3
496.4
149.8
263.1
%
76
13
4
7
3,435.3
100
3,778.6
100
1. Balances with the BoE include £69.6m (2022: £62.8m) held in the cash ratio deposit.
The tables below show the geographical exposure of the Group’s loans and advances to credit
institutions and investment securities:
United Kingdom
India
Total
2023
£m
3,418.0
17.3
3,435.3
%
99
1
100
2022
£m
3,765.7
12.9
3,778.6
%
100
–
100
The Group monitors exposure concentrations against a variety of criteria, including asset
class, sector and geography. To avoid refinancing risks associated with any one counterparty,
sector or geographical region, the Board has set appropriate limits.
For further information on Credit risk please refer to page 62.
Liquidity risk
Liquidity risk is the risk of having insufficient liquid assets to fulfil obligations as they become
due or the cost of raising liquid funds becoming too expensive.
The Group’s approach to managing liquidity risk is to maintain sufficient liquid resources to
cover cash flow imbalances and fluctuations in funding in order to retain full public confidence
in the solvency of the Group and to enable the Group to meet its financial obligations as they
fall due. This is achieved through maintaining a prudent level of liquid assets and control of the
growth of the business. The Group has established call accounts with the BoE and has access
to its contingent liquidity facilities.
The Board has delegated the responsibility for liquidity management to the Chief Executive
Officer, assisted by ALCO, with day-to-day management delegated to Treasury as detailed in
the Group Market and Liquidity Risk Policy. The Board is responsible for setting risk appetite
limits over the level and maturity profile of funding and for monitoring the composition of the
Group financial position.
The Group also monitors a range of triggers, defined in the recovery plan, which are
designed to capture liquidity stresses in advance in order to allow sufficient time for
management action to take effect. These are monitored daily by the Risk team, with
breaches immediately reported to the Group Chief Risk Officer, Chief Executive Officer,
Chief Financial Officer and the Group Treasurer.
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237
Notes to the Consolidated Financial Statements continued
44. Risk management continued
Liquidity risk continued
The tables below show the maturity profile for the Group’s financial assets and liabilities
based on contractual maturities at the reporting date:
2022
Financial liability by type
Carrying
amount
£m
On demand
£m
Less than
3 months
£m
3 – 12
months
£m
1 – 5
years
£m
More than
5 years
£m
2023
Financial liability by type
Carrying
amount
£m
On demand
£m
Less than
3 months
£m
3 – 12
months
£m
1 – 5
years
£m
More than
5 years
£m
Amounts owed to
retail depositors
Amounts owed to
credit institutions
Amounts owed to
other customers
Derivative liabilities
Debt securities in issue
Lease liabilities
Senior notes
Subordinated liabilities
PSBs
22,126.6
4,220.7
6,119.6
9,110.9
2,675.4
3,575.0
63.3
199.9
818.5
11.2
307.5
259.5
15.2
–
–
–
–
–
–
–
–
106.4
10.0
3,458.6
45.1
6.0
–
0.4
9.0
10.7
18.2
18.9
–
1.7
–
–
–
164.9
818.5
7.9
298.5
248.8
–
15.2
–
–
–
–
10.1
–
1.2
–
–
–
Total liabilities
27,376.7
4,220.7
6,297.2
9,174.9
7,672.6
11.3
Financial asset by type
Cash in hand
0.4
0.4
–
Loans and advances
to credit institutions
2,813.6
2,623.7
19.7
–
–
101.2
301.7
Investment securities
621.7
Loans and advances
to customers
Derivative assets
25,765.0
530.6
–
–
–
249.6
469.1
1,383.1 23,663.2
6.6
79.4
444.6
–
–
–
128.8
218.8
41.4
–
Total assets
29,731.3
2,624.1
377.1
850.2
2,175.3 23,704.6
Cumulative liquidity gap
(1,596.6)
(7,516.7) (15,841.4) (21,338.7) 2,354.6
Amounts owed to
retail depositors
Amounts owed to
credit institutions
Amounts owed to
other customers
Derivative liabilities
Debt securities in issue
Lease liabilities
Subordinated liabilities
PSBs
19,755.8
6,770.7
2,632.4
7,807.7
2,545.0
–
5,092.9
113.1
106.6
265.9
9.9
–
15.2
–
–
–
–
–
–
–
191.4
310.3
4,218.9
372.3
29.7
7.5
0.3
–
–
–
76.5
46.3
–
–
–
–
6.9
43.8
265.6
0.9
–
15.2
–
9.0
–
9.0
–
–
Total liabilities
25,359.4
6,770.7
2,861.3
8,240.8
7,096.3
390.3
Financial asset by type
Cash in hand
0.4
0.4
–
Loans and advances
to credit institutions
3,365.7
3,104.0
Investment securities
412.9
0.5
Loans and advances
to customers
Derivative assets
23,612.7
888.1
2.3
–
71.4
144.8
223.8
2.7
Total assets
28,279.8
3,107.2
442.7
–
–
–
–
22.1
245.5
–
190.3
–
421.8
55.5
499.4
1,341.6
21,623.2
828.2
1.7
2,415.3
21,815.2
Cumulative liquidity gap
(3,663.5)
(6,082.1)
(13,823.5)
(18,504.5)
2,920.4
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Liquidity risk – undiscounted contractual cash flows
The following tables provide an analysis of the Group’s gross contractual undiscounted
cash flows, derived using interest rates and contractual maturities at the reporting date and
excluding impacts of early payments or non-payments:
Carrying
amount
£m
Gross
inflow/
outflow
£m
Up to
3 months
£m
3 – 12
months
£m
1 – 5
years
£m
More than
5 years
£m
2023
Financial liability by type
Amounts owed to
retail depositors
Amounts owed to
credit institutions
Amounts owed to
other customers
Derivative liabilities
22,126.6 22,453.2 10,385.4
9,313.9
2,753.9
3,575.0
3,888.6
106.4
122.1
3,660.1
63.3
199.9
63.3
195.7
45.1
2.3
18.2
4.7
Debt securities in issue
818.5
1,048.4
151.5
103.4
Lease liabilities
Senior notes
Subordinated liabilities
PSBs
11.2
307.5
259.5
15.2
12.6
414.1
368.7
15.6
0.4
14.3
12.5
0.3
1.7
14.3
12.5
15.3
–
186.1
793.5
8.3
385.5
343.7
–
Total liabilities
27,376.7 28,460.2 10,718.2
9,606.1
8,131.1
4.8
Off-balance sheet
loan commitments
Financial asset by type
999.4
999.4
999.4
Cash in hand
0.4
0.4
0.4
Loans and advances
to credit institutions
2,813.6
2,813.6
2,643.4
–
–
–
Investment securities
621.7
678.9
106.4
320.0
–
–
–
–
128.8
252.5
41.4
–
–
–
–
2.6
–
2.2
–
–
–
Carrying
amount
£m
Gross
inflow/
outflow
£m
Up to
3 months
£m
3 – 12
months
£m
1 – 5 years
£m
More than
5 years
£m
2022
Financial liability by type
Amounts owed to
retail depositors
Amounts owed to
credit institutions
Amounts owed to
other customers
Derivative liabilities
Debt securities in issue
Lease liabilities
Subordinated liabilities
PSBs
19,755.8 20,083.0
9,566.2
7,911.0
2,605.8
–
5,092.9
5,459.8
227.1
410.9
4,449.5
372.3
113.1
106.6
265.9
9.9
–
15.2
113.1
103.9
277.3
11.4
–
16.1
29.7
16.2
34.4
0.5
–
0.3
76.5
39.1
64.5
1.5
–
0.3
6.9
46.7
178.4
8.8
–
15.5
–
1.9
–
0.6
–
–
Total liabilities
25,359.4 26,064.6
9,874.4
8,503.8
7,311.6
374.8
Off-balance sheet
loan commitments
Financial asset by type
1,212.2
1,212.2
1,212.2
Cash in hand
0.4
0.4
0.4
Loans and advances
to credit institutions
3,365.7
3,365.7
3,175.4
–
–
–
–
–
–
Investment securities
412.9
444.3
148.2
30.2
265.9
–
–
190.3
–
Loans and advances
to customers
23,612.7
57,940.1
430.7
1,657.2
8,028.9
47,823.3
Derivative assets
888.1
820.5
76.9
259.4
484.6
(0.4)
Total assets
28,279.8
62,571.0
3,831.6
1,946.8
8,779.4
48,013.2
Loans and advances
to customers
25,765.0 66,593.7
561.8
1,931.8
9,532.1 54,568.0
The actual repayment profile of retail deposits may differ from the analysis above due to the
option of early withdrawal with a penalty.
Derivative assets
530.6
540.7
99.1
247.5
193.6
0.5
Cash flows on PSBs are disclosed up to the next interest rate reset date.
Total assets
29,731.3 70,627.3
3,411.1
2,499.3
10,107.0 54,609.9
The actual repayment profile of loans and advances to customers may differ from the analysis
above since many mortgage loans are repaid prior to the contractual end date.
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Notes to the Consolidated Financial Statements continued
44. Risk management continued
Liquidity risk – asset encumbrance
Asset encumbrance levels are monitored by ALCO. The following tables provide an analysis of
the Group’s encumbered and unencumbered assets:
Liquidity risk – liquidity reserves
The tables below analyse the Group’s liquidity reserves, where carrying value is considered to
be equal to fair value:
2023
2023
£m
2022
£m
Encumbered
Unencumbered
Unencumbered balances with central banks
2,256.3
2,806.5
Cash in hand
Loans and advances
to credit institutions
Investment securities
Loans and advances
to customers2
Derivative assets
Non-financial assets
Cash in hand
Loans and advances
to credit institutions
Investment securities
Loans and advances
to customers2
Derivative assets
Non-financial assets
Pledged as
collateral
£m
Other1
£m
Available as
collateral
£m
–
–
0.4
Other
£m
–
Total
£m
0.4
Unencumbered cash and balances with other banks
Other cash and cash equivalents
Unencumbered investment securities
257.3
0.4
594.6
147.2
0.4
366.5
3,108.6
3,320.6
198.6
27.1
6,934.1
–
–
101.4
2,256.3
257.3
2,813.6
–
–
–
–
594.6
–
621.7
17,808.8
1,022.1 25,765.0
–
–
530.6
530.6
(141.5)
(141.5)
Market risk
Market risk is the risk of an adverse change in the Group’s income or the Group’s net worth
arising from movement in interest rates, exchange rates or other market prices. Market risk
exists, to some extent, in all the Group’s businesses. The Group recognises that the effective
management of market risk is essential to the maintenance of stable earnings and preservation
of shareholder value.
7,159.8
101.4
20,660.1
1,668.5 29,589.8
Encumbered
Unencumbered
2022
Pledged as
collateral
£m
–
237.4
46.4
6,705.1
–
–
Other1
£m
–
Available as
collateral
£m
0.4
Other
£m
–
Total
£m
0.4
174.6
2,806.5
147.2
3,365.7
–
–
–
–
366.5
–
412.9
16,424.5
–
–
483.1
888.1
(713.1)
23,612.7
888.1
(713.1)
6,988.9
174.6
19,597.9
805.3
27,566.7
Interest rate risk
The primary market risk faced by the Group is interest rate risk. Interest rate risk is the risk
of loss from adverse movement in the overall level of interest rates. It arises from mismatches
in the timing of repricing of assets and liabilities, both on and off-balance sheet. The Group
does not run a trading book or take speculative interest rate positions and therefore all interest
rate risk resides in the banking book (interest rate risk in the banking book (IRRBB)). IRRBB is
most prevalent in mortgage lending and in fixed rate retail deposits. Exposure is mitigated on
a continuous basis through the use of natural offsets between mortgages and savings with a
similar tenure, interest rate derivatives and reserve allocations.
Currently interest rate risk is managed separately for OSB and CCFS due to the use of
different treasury management and asset and liability management (ALM) systems. However,
the methodology applied to the setting of risk appetites was aligned across the Group in 2020.
Both Banks apply an economic value at risk approach as well as an earnings at risk approach
for interest rate risk and basis risk. The interest rate sensitivity is impacted by behavioural
assumptions used by the Group; the most significant of which are prepayments and pipeline
take up. Expected prepayments are monitored and modelled on a regular basis based upon
historical analysis. The reserve allocation strategy is approved by ALCO and set to reflect
the current balance sheet and future plans. The earnings at risk excludes the EIR accounting
impact of lower base rates in reversion that is shown as a separate sensitivity in note 2:
Judgements in applying accounting policies and critical accounting estimates.
1.
2.
Represents assets that are not pledged but that the Group believes it is restricted from using to secure funding for
legal or other reasons.
Unencumbered loans and advances to customers classified as other are restricted for use as collateral as they are;
registered outside of UK (Jersey and Guernsey), not secured by immovable property or are non-performing.
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Economic value at risk is measured using the impact of six different internally derived interest
rate scenarios. The internal scenarios are defined by ALCO and are based on three ‘shapes’
of curve movement (shift, twist and flex). Historical data is used to calibrate the severity of the
scenarios to the Group’s risk appetite. The Board has set limits on interest rate risk exposure of
2.25% and 1% of CET1 for OSB and CCFS, respectively. The table below shows the maximum
decreases to net interest income under these scenarios after taking into account the derivatives:
OSB
CCFS
2023
£m
2.3
1.8
4.1
2022
£m
13.5
1.9
15.4
Exposure for earnings at risk as at 31 December 2023 is measured by the impact of a +/-
100bps parallel shift in interest rates on the expected profitability of the Group in the next 12
months. The risk appetite limit is 4% of full year net interest income. The table below shows the
maximum decreases after taking into account the derivatives:
OSB
CCFS
The Group is also exposed to basis risk. Basis risk is the risk of loss from an adverse
divergence in interest rates. It arises where assets and liabilities reprice from different
variable rate indices. These indices may be market rates (e.g. bank base rate or SONIA) or
administered (e.g. the Group’s SVR, other discretionary variable rates, or that received on
call accounts with other banks).
The Group measures basis risk using the impact of four scenarios on net interest income over a
one-year period including movements such as diverging base, overnight and term SONIA rates.
Historical data is used to calibrate the severity of the scenarios to the Group’s risk appetite. The
Board has set a limit on basis risk exposure of 2.5% of full year net interest income. The table
below shows the maximum decreases to net interest income at 31 December 2023 and 2022:
2023
£m
7.7
4.8
12.5
2022
£m
5.8
4.5
10.3
OSB
CCFS
2023
£m
6.5
9.2
15.7
2022
£m
7.5
8.8
16.3
Exposure for earnings at risk measured by the impact of a +/-100bps parallel shift in interest
rates on the expected profitability of the Group in the next 3 years. The risk appetite limit is 4%
of full year net interest income.
OSB
CCFS
2023
£m
24.6
25.6
50.2
2022
£m
26.2
24.1
50.3
Foreign exchange rate risk
The Group has limited exposure to foreign exchange risk in respect of its Indian operations. A
5% increase in exchange rates would result in a £0.9m (2022: £0.7m) effect in profit or loss and
£0.6m (2022: £0.5m) in equity.
Structured entities
The structured entities consolidated within the Group at 31 December 2023 were Canterbury
Finance No.2 plc, Canterbury Finance No.3 plc, Canterbury Finance No.4 plc, Canterbury
Finance No.5 plc, CMF 2020-1 plc, CMF 2023-1 plc and Keys Warehouse No.1 Limited. These
entities hold legal title to a pool of mortgages which are used as a security for issued debt. The
transfer of mortgages fails derecognition criteria because the Group retained the subordinated
notes and residual certificates issued and as such did not transfer substantially the risks and
rewards of ownership of the securitised mortgages. Therefore, the Group is exposed to credit,
interest rate and other risks on the securitised mortgages.
Cash flows generated from the structured entities are ring-fenced and are used to pay interest
and principal of the issued debt securities in a waterfall order according to the seniority
of the bonds. The structured entities are self-funded and the Group is not contractually or
constructively obliged to provide further liquidity or financial support.
The structured entities consolidated within the Group at 31 December 2022 were Canterbury
Finance No.2 plc, Canterbury Finance No.3 plc, Canterbury Finance No.4 plc, Canterbury
Finance No.5 plc and CMF 2020-1 plc.
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Notes to the Consolidated Financial Statements continued
44. Risk management continued
Unconsolidated structured entities
Structured entities, which were sponsored by the Group include Precise Mortgage Funding
2017-1B plc, Charter Mortgage Funding 2017-1 plc, Precise Mortgage Funding 2018-1B plc,
Charter Mortgage Funding 2018-1 plc, Precise Mortgage Funding 2019-1B plc, Canterbury
Finance No.1 plc and Precise Mortgage Funding 2020-1B plc.
These structured entities are not consolidated by the Group, as the Group does not control
the entities and is not exposed to the risks and rewards of ownership from the securitised
mortgages. The Group has no contractual arrangements with the unconsolidated structured
entities other than the investments disclosed in note 16 and servicing the structured entities’
mortgage portfolios.
The Group has not provided any support to the unconsolidated structured entities listed and
has no obligation or intention to do so.
During 2023 the Group received £5.3m interest income (2022: £2.6m) and £2.6m servicing
income (2022: £4.3m) from unconsolidated structured entities.
45. Financial instruments and fair values
i.
Financial assets and financial liabilities
The following table sets out the classification of financial instruments in the Consolidated
Statement of Financial Position:
Liabilities
Amounts owed to
retail depositors
Amounts owed to
credit institutions
Amounts owed to
other customers
Debt securities in issue
Derivative liabilities
Other liabilities2
Senior notes
Subordinated liabilities
PSBs
2023
Designated
FVTPL
£m
Mandatorily
FVTPL
£m
Note
FVOCI
£m
Amortised
cost
£m
Total
carrying
amount
£m
1. Balance excludes prepayments.
2. Balance excludes deferred income.
Assets
Cash in hand
Loans and advances
to credit institutions
Investment securities
Loans and advances
to customers
Derivative assets
Other assets1
–
10.7
0.3
13.7
–
–
–
–
–
–
530.6
–
–
0.4
0.4
– 2,802.9 2,813.6
296.0
325.4
621.7
– 25,751.3 25,765.0
–
–
–
530.6
11.9
11.9
24.7
530.6
296.0 28,891.9 29,743.2
15
16
17
22
24
2023
Designated
FVTPL
£m
Mandatorily
FVTPL
£m
Note
FVOCI
£m
Amortised
cost
£m
Total
carrying
amount
£m
29
28
30
31
22
33
36
37
38
–
–
–
–
–
–
–
–
–
–
–
–
–
–
199.9
–
–
–
–
– 22,126.6 22,126.6
– 3,575.0 3,575.0
–
–
–
–
–
–
–
63.3
63.3
818.5
818.5
–
199.9
39.2
39.2
307.5
307.5
259.5
259.5
15.2
15.2
199.9
– 27,204.8 27,404.7
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2022
Designated
FVTPL
£m
Mandatorily
FVTPL
£m
Note
FVOCI
£m
Amortised
cost
£m
Total
carrying
amount
£m
ii. Fair values
The following tables summarise the carrying value and estimated fair value of financial
instruments not measured at fair value in the Consolidated Statement of Financial Position:
15.1
888.1
149.8 27,228.6 28,281.6
Other assets1
11.9
11.9
1.8
1.8
28,891.9
28,040.4
27,228.6
26,374.4
Assets
Cash in hand
Loans and advances
to credit institutions
Investment securities
Loans and advances
to customers
Derivative assets
Other assets1
Liabilities
Amounts owed to
retail depositors
Amounts owed to
credit institutions
Amounts owed to
other customers
Debt securities in issue
Derivative liabilities
Other liabilities2
Subordinated liabilities
PSBs
15
16
17
22
24
29
28
30
31
22
33
37
38
–
–
0.5
14.6
–
–
–
–
–
–
888.1
–
–
0.4
0.4
–
3,365.7
3,365.7
149.8
262.6
412.9
– 23,598.1 23,612.7
–
–
–
1.8
888.1
1.8
Assets
Cash in hand
Loans and advances
to credit institutions
Investment securities
Loans and advances
to customers
–
–
–
–
–
–
–
–
–
–
–
–
–
106.6
–
–
–
–
19,755.8 19,755.8
– 5,092.9
5,092.9
–
–
–
–
–
–
113.1
265.9
–
38.1
–
15.2
113.1
265.9
106.6
38.1
–
15.2
Liabilities
Amounts owed to
retail depositors
Amounts owed to
credit institutions
Amounts owed to
other customers
Debt securities in issue
Other liabilities2
Senior notes
Subordinated liabilities
106.6
– 25,281.0 25,387.6
PSBs
1. Balance excludes prepayments.
2. Balance excludes deferred income.
The Group has no non-derivative financial assets or financial liabilities classified as held
for trading.
2023
Carrying
value
£m
Estimated
fair value
£m
2022
Carrying
value
£m
Estimated
fair value
£m
0.4
0.4
0.4
0.4
2,802.9
2,802.9
325.4
325.2
3,365.7
262.6
3,365.7
260.5
25,751.3
24,900.0
23,598.1
22,746.0
22,126.6
22,125.4
19,755.8
19,693.0
3,575.0
3,575.0
5,092.9
5,092.9
63.3
818.5
39.2
307.5
259.5
15.2
63.3
818.5
39.2
309.1
246.0
14.4
113.1
265.9
38.1
–
–
15.2
113.1
265.9
38.1
–
–
14.0
27,204.8
27,190.9
25,281.0
25,217.0
1. Balance excludes prepayments.
2. Balance excludes deferred income.
The fair values in these tables are estimated using the valuation techniques below. The estimated
fair value is stated as at 31 December and may be significantly different from the amounts which
will actually be paid on the maturity or settlement dates of each financial instrument.
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Notes to the Consolidated Financial Statements continued
45. Financial instruments and fair values continued
ii. Fair values continued
Cash in hand
This represents physical cash across the Group’s branch network where fair value is considered
to be equal to carrying value.
Debt securities in issue
While the Group’s debt securities in issue are listed, the quoted prices for an individual note
may not be indicative of the fair value of the issue as a whole, due to the specialised nature
of the market in such instruments and the limited number of investors participating in it. Fair
value is not considered to be materially different to carrying value.
Loans and advances to credit institutions
This mainly represents the Group’s working capital current accounts and call accounts with
central governments and other banks with an original maturity of less than three months. Fair
value is not considered to be materially different to carrying value.
Investment securities
Investment securities’ fair values are provided by a third party and are based on the market
values of similar financial instruments. The fair value of investment securities held at FVTPL is
measured using a discounted cash flow model.
Loans and advances to customers
This mainly represents secured mortgage lending to customers. The fair value of fixed rate
mortgages has been estimated by discounting future cash flows at current market rates
of interest. Future cash flows include the impact of ECL. The interest rate on variable rate
mortgages is considered to be equal to current market product rates and as such fair value is
estimated to be equal to carrying value.
Other assets
Other assets disclosed in the table above exclude prepayments and the fair value is considered
to be equal to carrying value.
Amounts owed to retail depositors
The fair value of fixed rate retail deposits has been estimated by discounting future cash flows
at current market rates of interest. Retail deposits at variable rates and deposits payable on
demand are considered to be at current market rates and as such fair value is estimated to be
equal to carrying value.
Amounts owed to credit institutions
This mainly represents amounts drawn down under the BoE TFSME, ILTR and commercial repos.
Fair value is considered to be equal to carrying value.
Amounts owed to other customers
This represents saving products to corporations and local authorities. The fair value of fixed
rate deposits is estimated by discounting future cash flows at current market rates of interest.
Deposits at variable rates are considered to be at current market rates and the fair value is
estimated to be equal to carrying value.
Other liabilities
Other liabilities disclosed in the table above exclude deferred income and the fair value is
considered to be equal to carrying value.
Senior notes, Subordinated liabilities and PSBs
The senior notes, subordinated liabilities and PSBs are listed on the London Stock Exchange
with fair value being the quoted market price at the reporting date.
iii. Fair value classification
The Group classifies fair value measurements using a fair value hierarchy that reflects the
significance of the inputs used in making the measurements. The following tables provide an
analysis of financial assets and financial liabilities measured at fair value in the Consolidated
Statement of Financial Position grouped into Levels 1 to 3 based on the degree to which the fair
value is observable:
2023
Financial assets
Loans and advances
to credit institutions
Carrying
amount
£m
Principal
amount
£m
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
10.7
10.1
–
10.7
–
10.7
Investment securities
296.3
300.3
296.0
13.7
16.3
530.6 17,568.6
–
–
–
–
0.3
296.3
13.7
13.7
530.6
–
530.6
851.3 17,895.3
296.0
541.3
14.0
851.3
Loans and advances
to customers
Derivative assets
Financial liabilities
Derivative liabilities
199.9
8,913.6
–
199.9
–
199.9
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2022
Financial assets
Carrying
amount
£m
Principal
amount
£m
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
The following tables provide an analysis of financial assets and financial liabilities not
measured at fair value in the Consolidated Statement of Financial Position grouped into Levels
1 to 3 based on the degree to which the fair value is observable:
Investment securities
150.3
150.5
149.8
Loans and advances
to customers
Derivative assets
Financial liabilities
14.6
17.7
888.1
15,662.6
–
–
1,053.0 15,830.8
149.8
–
–
888.1
888.1
0.5
150.3
14.6
14.6
–
888.1
15.1
1,053.0
2023
Financial assets
Cash in hand
Loans and advances
to credit institutions
Carrying
amount
£m
Principal
amount
£m
Estimated fair value
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
0.4
0.4
–
0.4
–
0.4
Derivative liabilities
106.6
9,518.0
–
106.6
–
106.6
Level 1: Fair values that are based entirely on quoted market prices (unadjusted) in an actively
traded market for identical assets and liabilities that the Group has the ability to access.
Valuation adjustments and block discounts are not applied to Level 1 instruments. Since
valuations are based on readily available observable market prices, this makes them most
reliable, reduces the need for management judgement and estimation and also reduces the
uncertainty associated with determining fair values.
Level 2: Fair values that are based on one or more quoted prices in markets that are not active
or for which all significant inputs are taken from directly or indirectly observable market data.
These include valuation models used to calculate the present value of expected future cash
flows and may be employed either when no active market exists or when there are no quoted
prices available for similar instruments in active markets.
Level 3: Fair values for which any one or more significant input is not based on observable
market data and the unobservable inputs have a significant effect on the instrument’s fair
value. Valuation models that employ significant unobservable inputs require a higher degree of
management judgement and estimation in determining the fair value. Management judgement
and estimation are usually required for the selection of the appropriate valuation model to be
used, determination of expected future cash flows on the financial instruments being valued,
determination of the probability of counterparty default and prepayments, determination of
expected volatilities and correlations and the selection of appropriate discount rates.
2,802.9
2,785.8
– 2,802.9
325.2
– 2,802.9
–
325.2
Investment securities
325.4
323.7
Loans and advances
to customers
25,751.3 25,928.2
Other assets1
11.9
11.9
–
–
–
2,112.9 22,787.1 24,900.0
11.9
–
11.9
28,891.9 29,050.0
– 5,253.3 22,787.1 28,040.4
22,126.6 21,766.3
– 5,786.2 16,339.2 22,125.4
3,575.0
3,524.8
– 3,575.0
– 3,575.0
Financial liabilities
Amounts owed to
retail depositors
Amounts owed to
credit institutions
Amounts owed to
other customers
63.3
61.6
Debt securities in issue
818.5
818.2
Other liabilities2
Senior notes
Subordinated liabilities
PSBs3
39.2
307.5
259.5
15.2
39.2
300.0
250.0
15.0
–
–
–
–
–
–
–
63.3
818.5
39.2
309.1
246.0
14.4
–
–
–
–
–
63.3
818.5
39.2
309.1
246.0
14.4
27,204.8 26,775.1
– 10,788.4 16,402.5 27,190.9
1. Balance excludes prepayments.
2. Balance excludes deferred income.
3.
The Group has reviewed the trading frequency of the PSBs and determined there is insufficient frequency and volume
to provide pricing information on an ongoing basis in the market and have therefore categorised as level 2 fair value
(2022: level 1).
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Notes to the Consolidated Financial Statements continued
45. Financial instruments and fair values continued
iii. Fair value classification continued
Carrying
amount
£m
Principal
amount
£m
Estimated fair value
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
0.4
3,365.7
260.5
0.4
3,365.7
260.5
–
–
–
0.4
0.4
3,365.7
3,360.9
23,598.1 23,646.2
1.8
1.8
27,228.6
27,271.4
–
–
–
–
–
–
Investment securities
262.6
262.1
OSB
£m
CCFS
£m
Combination
£m
Total
£m
2,515.0
20,231.0 22,746.0
1.8
–
1.8
2023
Balances at the reporting date
Gross loans and advances
to customers
6,143.4
20,231.0
26,374.4
Expected credit losses
Loans and advances to customers
14,398.2
11,341.4
47. Operating segments
The Group segments its lending business and operates under two segments in line with internal
reporting to the Board:
• OSB
• CCFS
The Group separately discloses the impact of Combination accounting but does not consider
this a business segment.
The financial position and results of operations of the above segments are summarised below:
Capital expenditure
19,755.8
19,620.8
–
5,770.3
13,922.7
19,693.0
Depreciation and amortisation
Profit or loss for the year
5,092.9
5,057.8
–
5,092.9
–
5,092.9
Net interest income/(expense)
113.1
265.9
38.1
–
15.2
112.1
265.4
38.1
–
15.0
25,281.0
25,109.2
–
–
–
–
14.0
14.0
–
113.1
265.9
38.1
–
–
–
–
–
–
113.1
265.9
38.1
–
14.0
Other (expense)/income
Total income/(expense)
Impairment of financial assets
Contribution to profit
Administrative expenses
Provisions
11,167.2
14,035.8
25,217.0
Profit/(loss) before taxation
14,509.3
11,377.2
(111.1)
(35.8)
25.6
6.9
473.8
(3.1)
470.7
(41.6)
429.1
(132.5)
(0.3)
296.3
(75.6)
220.7
0.2
3.3
240.9
(3.8)
237.1
(6.9)
230.2
(100.4)
(0.1)
129.7
(30.7)
99.0
24.3
1.1
25.4
–
1.7
(56.1)
6.4
(49.7)
(0.3)
(50.0)
(1.7)
–
(51.7)
14.6
(37.1)
25,910.8
(145.8)
25,765.0
25.8
11.9
658.6
(0.5)
658.1
(48.8)
609.3
(234.6)
(0.4)
374.3
(91.7)
282.6
2022
Financial assets
Cash in hand
Loans and advances
to credit institutions
Loans and advances
to customers
Other assets1
Financial liabilities
Amounts owed to
retail depositors
Amounts owed to
credit institutions
Amounts owed to
other customers
Debt securities in issue
Other liabilities2
Subordinated liabilities
PSBs
1. Balance excludes prepayments.
2. Balance excludes deferred income.
Taxation1
Profit/(loss) for the year
46. Pension scheme
Defined contribution scheme
The amount charged to profit or loss in respect of contributions to the Group’s defined
contribution and stakeholder pension arrangements is the contribution payable in the period.
The total pension cost in the year amounted to £4.9m (2022: £4.4m).
1.
The taxation on Combination credit includes release of deferred taxation on CCFS Combination relating to the
unwind of the deferred tax liabilities recognised on the fair value adjustments of the CCFS assets and liabilities at the
acquisition date of £14.3m and the release of other deferred tax assets on Combination adjustments of £0.3m.
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OSB
£m
CCFS
£m
Combination
£m
Total
£m
48. Country by country reporting (CBCR)
CBCR was introduced through Article 89 of CRD IV, aimed at the banking and capital markets
industry. The name, nature of activities and geographic location of the Group’s companies are
presented below:
23,742.7
Jurisdiction Country
Name
Activities
(130.0)
UK1
England
OSB GROUP PLC
Holding company
2022
Balances at the reporting date
Gross loans and advances
to customers
13,244.7
10,416.3
Expected credit losses
(103.2)
(28.0)
Loans and advances to customers
13,141.5
10,388.3
Capital expenditure
Depreciation and amortisation
Profit or loss for the year
Net interest income/(expense)
Other income
Total income/(expense)
Impairment of financial assets
Contribution to profit
Administrative expenses
Provisions
Integration costs
Profit/(loss) before taxation
Taxation1
Profit/(loss) for the year
7.6
6.2
460.7
8.9
469.6
(22.3)
447.3
(130.9)
1.6
(6.8)
311.2
(70.1)
241.1
0.7
3.4
308.4
46.2
354.6
(8.4)
346.2
(73.1)
–
(1.1)
272.0
(70.2)
201.8
81.7
1.2
82.9
–
3.8
(59.2)
10.4
(48.8)
0.9
(47.9)
(3.8)
–
–
(51.7)
18.8
(32.9)
23,612.7
8.3
13.4
709.9
65.5
775.4
(29.8)
745.6
(207.8)
1.6
(7.9)
531.5
(121.5)
410.0
1.
The taxation on Combination credit includes release of deferred taxation on CCFS Combination relating to the
unwind of the deferred tax liabilities recognised on the fair value adjustments of the CCFS assets and liabilities at
the acquisition date of £17.5m and the release of other deferred tax assets on Combination adjustments of £1.3m.
OneSavings Bank plc
Mortgage lending and deposit
taking
5D Finance Limited
Mortgage servicer and provider
Broadlands Finance Limited
Mortgage administration services
Charter Court Financial
Services Group Plc
Charter Court Financial
Services Limited
Charter Mortgages Limited
Intermediate holding company
Mortgage lending and deposit
taking
Mortgage administration and
analytical services
Easioption Limited
Intermediate holding company
Exact Mortgage Experts Limited
Group service company
Guernsey Home Loans Limited
Mortgage provider
Heritable Development
Finance Limited
Mortgage originator and servicer
Inter Bay Financial I Limited
Intermediate holding company
InterBay Asset Finance Limited
Asset finance and mortgage
provider
Interbay Funding, Ltd
Mortgage servicer
Interbay ML, Ltd
Mortgage provider
Jersey Home Loans Limited
Mortgage provider
Prestige Finance Limited
Mortgage originator and servicer
Reliance Property Loans Limited
Mortgage provider
Rochester Mortgages Limited
Mortgage provider
Guernsey Guernsey Home Loans Limited
Mortgage provider
Jersey
Jersey Home Loans Limited
Mortgage provider
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Notes to the Consolidated Financial Statements continued
48. Country by country reporting (CBCR) continued
The tables below reconcile tax charged and tax paid during the year.
Jurisdiction Country
Name
Activities
UK
England
Canterbury Finance No. 2 plc
Canterbury Finance No. 3 plc
Canterbury Finance No. 4 plc
Canterbury Finance No. 5 plc
Special purpose vehicle
CMF 2020-1 plc
CMF 2023-1 plc
Keys Warehouse No.1 Limited
UK
England
WSE Bourton Road Limited
Land lease investment
India
India
OSB India Private Limited
Back office processing
I.
Guernsey Home Loans Limited (Guernsey) and Jersey Home Loans Limited (Jersey) are incorporated in Guernsey
and Jersey respectively, but are considered to be located in the UK as they are managed and controlled in the UK
with no permanent establishments in Guernsey or Jersey.
Other disclosures required by the CBCR directive are provided below:
2023
UK
India Consolidation2
Average number of employees
Turnover1, £m
Profit/(loss) before tax, £m
Corporation tax paid, £m
2022
Average number of employees
Turnover1, £m
Profit/(loss) before tax, £m
Corporation tax paid, £m
1,461
657.3
373.5
102.8
UK
1,274
775.1
531.2
142.0
811
18.7
3.1
0.8
–
(17.9)
(2.3)
–
India
Consolidation2
622
13.6
2.2
0.5
–
(13.3)
(1.9)
–
Total
2,272
658.1
374.3
103.6
Total
1,896
775.4
531.5
142.5
1.
Turnover represents total income before impairment of financial and intangible assets, regulatory provisions and
operating costs, but after net interest income, gains and losses on financial instruments and other operating income.
2. Relates to a management fee to Indian subsidiaries from OneSavings Bank plc for providing back office processing.
2023
Tax charge
Effects of:
Other timing differences
Tax outside of profit or loss
Prior year tax included within tax charge
Tax in relation to future periods prepaid
Tax paid
2022
Tax charge
Effects of:
Other timing differences
Tax outside of profit or loss
Prior year tax paid during the year
Prior year tax included within tax charge
Tax in relation to future periods prepaid
UK
£m
90.9
13.6
(0.5)
0.4
(1.6)
India
£m
0.8
–
–
–
–
Total
£m
91.7
13.6
(0.5)
0.4
(1.6)
102.8
0.8
103.6
UK
£m
121.0
19.0
(0.9)
1.0
0.9
1.0
India
£m
0.5
–
–
–
–
–
Total
£m
121.5
19.0
(0.9)
1.0
0.9
1.0
Tax paid
142.0
0.5
142.5
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49. Adjustments for non-cash items and changes in operating assets
and liabilities
Adjustments for non-cash and other items:
Depreciation and amortisation
Interest on investment securities
Interest on subordinated liabilities
Interest on PSBs
Interest on securitised debt
Interest on senior notes
Interest on financing debt
Impairment charge on loans
Administrative expenses
Provisions
Interest on lease liabilities
Fair value losses/(gains) on financial instruments
Share-based payments
2023
£m
11.9
(23.6)
17.1
0.7
21.5
9.1
197.3
48.8
0.8
0.4
–
4.4
5.6
Total adjustments for non-cash and other items
294.0
Changes in operating assets and liabilities:
Decrease/(increase) in loans and advances to credit institutions
112.5
Increase in loans and advances to customers
Increase in amounts owed to retail depositors
(Decrease)/increase in cash collateral and margin received
Net increase in other assets
Net (decrease)/increase in derivatives and hedged items
Net (decrease)/increase in amounts owed to other customers
Net increase in other liabilities
Exchange differences on working capital
(2,200.5)
2,370.8
(336.9)
(12.6)
(23.2)
(49.8)
0.9
(0.7)
2022
£m
13.4
(6.8)
1.1
0.7
7.7
–
68.7
29.8
1.3
(1.6)
0.2
(58.9)
8.1
63.7
(204.6)
(2,563.1)
2,229.4
434.3
(4.7)
59.1
16.6
9.1
(0.3)
Total changes in operating assets and liabilities
(139.5)
(24.2)
50. Controlling party
As at 31 December 2023 there was no controlling party of the ultimate parent company of the
Group, OSB GROUP PLC.
51. Transactions with key management personnel
All related party transactions were made on terms equivalent to those that prevail in arm’s
length transactions. During the year, there were no related party transactions between the key
management personnel and the Group other than as described below.
The Directors and Group Executive team are considered to be key management personnel.
Directors’ remuneration is disclosed in note 8 and in the Directors’ Remuneration Report on
page 147. The Group Executive team are all employees of OSB, the table below shows their
aggregate remuneration:
Short-term employee benefits
Post-employment benefits
Share-based payments
2023
£’000
4,451
62
1,291
5,804
2022
£’000
4,000
62
2,667
6,729
Key management personnel and connected persons held deposits with the Group of £2.3m
(2022: £2.1m).
52. Capital management
The Group’s capital management approach is to provide a sufficient capital base to cover
business risks and support future business development. The Group remained, throughout
the year, compliant with its capital requirements as set out by the PRA, the Group’s primary
prudential supervisor.
The Group manages and reports its capital at a number of levels including Group level and
for the two regulated banking entities within the Group, on an individual consolidation and
on an individual basis. The capital position of the two regulated banking entities are not
separately disclosed.
The Group’s capital management is based on the three ‘pillars’ of Basel III.
Under Pillar 1, the Group calculates its minimum capital requirements based on 8% of risk-
weighted assets.
Under Pillar 2, the Group, and its regulated entities, complete an annual self-assessment of
risks known as the ICAAP. The PRA applies additional requirements to this assessment amount
to cover risks under Pillar 2 to generate a Total Capital Requirement and also sets capital
buffers for the Group.
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Notes to the Consolidated Financial Statements continued
52. Capital management continued
Pillar 3 requires firms to publish a set of disclosures which allow market participants to assess
information on the Group’s capital, risk exposures and risk assessment process. The Group’s
Pillar 3 disclosures can be found on the Group’s website.
On 30 November 2022, the PRA issued a consultation paper on the implementing Basel 3.1 in
the UK. The Group has taken account of this in planning for future capital requirements.
The ultimate responsibility for capital adequacy rests with the Board of Directors. The Group’s
ALCO is responsible for the management of the capital process within the risk appetite defined
by the Board, including approving policy, overseeing internal controls and setting internal
limits over capital ratios.
The Group actively manages its capital position and reports this on a regular basis to the
Board and senior management via the ALCO and other governance committees. Capital
requirements are included within budgets, forecasts and strategic plans with initiatives being
executed against this plan.
The Group’s Pillar 1 capital information is presented below:
AT1 capital
AT1 securities
Total Tier 1 capital
Tier 2 capital
Tier 2 securities
Total Tier 2 capital
Total regulatory capital
Risk-weighted assets (unaudited)
(Unaudited)
2023
£m
(Unaudited)
2022
£m
150.0
2,055.7
150.0
2,070.7
250.0
250.0
2,305.7
11,845.6
–
–
2,070.7
10,494.7
1.
2022 includes special dividend of £50.3m (£50.0m announced by the Board rounded up on a pence per share basis
totals £50.3m).
2. The IFRS 9 transitional arrangements expired at 31 December 2022.
CET1 capital
Called up share capital
Share premium, capital contribution
and share-based payment reserve
Retained earnings
Transfer reserve
Other reserves
Total equity attributable to ordinary shareholders
Foreseeable dividends1
IFRS 9 transitional adjustment2
COVID-19 ECL transitional adjustment3
Deductions from CET1 capital
Prudent valuation adjustment4
Intangible assets
Deferred tax asset
CET1 capital
(Unaudited)
2023
£m
(Unaudited)
2022
£m
3.
4.
The COVID-19 ECL transitional adjustment relates to 50% of the Group’s increase in stage 1 and stage 2 ECL
following the impacts of COVID-19 and for which transitional rules were adopted for regulatory capital purposes.
The Group has adopted the simplified approach under the Prudent Valuation rules, recognising a deduction equal to
sum of absolute value equal to 0.1% of relevant fair value assets and liabilities.
3.9
18.0
3,330.2
(1,354.7)
(2.9)
1,994.5
(85.7)
–
23.8
(0.5)
(26.1)
(0.3)
4.3
15.6
3,389.4
(1,355.1)
(3.2)
2,051.0
(144.0)
1.4
25.9
(1.0)
(12.0)
(0.6)
1,905.7
1,920.7
The movement in CET1 during the year was as follows:
At 1 January
Movement in retained earnings
Share premium from Sharesave Scheme vesting
Movement in other reserves
Movement in foreseeable dividends
IFRS 9 transitional adjustment
COVID-19 ECL transitional adjustment
Movement in prudent valuation adjustment
Net (increase)/decrease in intangible assets
Movement in deferred tax asset for carried forward losses
(Unaudited)
2023
£m
1,920.7
(59.2)
1.4
1.3
58.3
(1.4)
(2.1)
0.5
(14.1)
0.3
(Unaudited)
2022
£m
1,781.7
174.3
1.7
0.6
(49.3)
(1.5)
6.9
–
6.4
(0.1)
At 31 December
1,905.7
1,920.7
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The Group’s minimum requirements for own funds and eligible liabilities (MREL) information is
presented below:
Total regulatory capital
Eligible liabilities
Total own funds and eligible liabilities
(Unaudited)
2023
£m
(Unaudited)
2022
£m
2,305.7
2,070.7
300.0
–
2,605.7
2,070.7
On 7 September 2023, the Group issued £300 million of senior unsecured callable notes
through OSB Group PLC which, while not included in total regulatory capital, is eligible to
meet MREL.
The Group has been granted a preferred resolution strategy of a single point of entry bail-in at
the holding company level by the PRA and was initially given an interim MREL requirement of
18% of RWAs plus regulatory buffers, and an end-state MREL of the higher of:
(i) two times the sum of Pillar 1 and Pillar 2A plus regulatory buffers; or
(ii) if subject to a leverage ratio, two times the applicable requirement plus regulatory buffers.
The interim and end-state deadlines for the requirements are July 2024 and July 2026 respectively.
53. Events after the reporting date
On 16 January 2024 the Group issued senior notes amounting to £400m under the £3bn
EMTN programme of OSBG. The EMTN programme is used as part of the Group’s capital
management and funding activities.
The Board has authorised a share repurchase of up to £50.0m of shares in the market from
15 March 2024. Any purchases made under this programme will be announced to the market
each day in line with regulatory requirements.
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Company Statement of Financial Position
As at 31 December 2023
Assets
Investments in subsidiaries and intercompany loans
Current taxation asset
Total assets
Liabilities
Intercompany loans
Senior notes
Subordinated liabilities
Equity
Share capital
Share premium
Other equity instruments
Retained earnings
Other reserves
Shareholders’ funds
Total equity and liabilities
Note
2023
£m
2022
£m
2
2
3
4
6
6
7
8
2,160.1
1,590.7
0.1
–
2,160.2
1,590.7
–
307.5
259.5
567.0
3.9
3.8
150.0
1,358.6
76.9
1,593.2
2,160.2
0.8
–
–
0.8
4.3
2.4
150.0
1,359.3
73.9
1,589.9
1,590.7
The profit after tax for the year ended 31 December 2023 of OSBG was £343.0m
(2022: £240.8m). As permitted by section 408 of the Companies Act 2006, no separate
Statement of Comprehensive Income is presented in respect of the Company.
The notes on page 254 to 258 form an integral part of the Company financial statements.
The financial statements were approved by the Board of Directors on 14 March 2024 and
were signed on its behalf by:
Andy Golding
Chief Executive Officer
Company number: 11976839
April Talintyre
Chief Financial Officer
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Company Statement of Changes in Equity
For the year ended 31 December 2023
Share capital
£m
Share premium
£m
Capital
redemption and
transfer reserve1
£m
Own shares2
£m
Share-based
payment reserve
£m
Other equity
instruments
£m
Retained
earnings
£m
Total
£m
65.7
(3.5)
150.0
1,358.4
1,582.1
At 1 January 2022
Profit for the year
Dividend paid
Share-based payments
Own shares2
Coupon paid on AT1 securities
Share repurchase
At 31 December 2022
Profit for the year
Dividend paid
Share-based payments
Own shares2
Coupon paid on AT1 securities
Share repurchase
At 31 December 2023
4.5
–
–
–
–
–
(0.2)
4.3
–
–
–
–
–
(0.4)
3.9
0.7
–
–
1.7
–
–
–
2.4
–
–
1.4
–
–
–
3.8
–
–
–
–
–
0.2
65.9
–
–
–
–
–
0.4
66.3
–
–
–
1.3
–
–
–
–
–
1.2
–
–
(1.0)
1.
Includes Capital redemption reserve of £0.6m (2022: £0.2m) and Transfer reserve of £65.7m (2022: £65.7m).
2. The Company has adopted look-through accounting (see note 1 to the Group’s consolidated financial statements) and recognised the EBT within OSBG.
(2.2)
10.2
150.0
6.3
–
–
3.9
–
–
–
–
–
–
–
–
–
–
–
1.4
–
–
–
–
–
–
–
–
–
240.8
(133.1)
4.2
(1.3)
(9.0)
(100.7)
1,359.3
343.0
(185.0)
3.1
(1.2)
(9.0)
240.8
(133.1)
9.8
–
(9.0)
(100.7)
1,589.9
343.0
(185.0)
5.9
–
(9.0)
(151.6)
(151.6)
11.6
150.0
1,358.6
1,593.2
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Company Statement
of Cash Flows
Company Statement of Cash Flows
OSB GROUP PLC | Annual Report and Accounts 2023
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Strategic Report
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Financial Statements
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253
Company Statement of Cash Flows
For the year ended 31 December 2023
Cash flows from operating activities
Profit before taxation
Adjustments for non-cash and other items:
Interest on subordinated liabilities
Interest on senior notes
Administrative expenses
Changes in operating assets and liabilities:
Net decrease in other liabilities
Change in intercompany loans1
Cash (used)/generated in operating activities
Cash flows from investing activities
Change in investments in subsidiaries
Net cash from investing activities
Cash flows from financing activities
Issuance of subordinated liabilities
Issuance of senior notes
Interest paid on financing
Share repurchase2
Dividend paid
Coupon paid on AT1 securities
Proceeds from issuance of shares
under employee SAYE scheme
Net cash from financing activities
Net increase in cash and cash equivalents
Note
2023
£m
2022
£m
Note
342.9
240.8
Cash and cash equivalents at the
beginning of the year
Cash and cash equivalents at the end of the year3
Movement in cash and cash equivalents
Cash flows from operating activities include:
2023
£m
–
–
–
2022
£m
–
–
–
Dividends received from subsidiary4
335.0
233.1
1.
Includes less than £0.1m (2022: £0.3m) of current taxation asset surrendered to OSB.
2.
Includes £150.0m (2022: £100.0m) for shares repurchased, £0.8m (2022: £0.7m) transaction costs and £1.6m
(2022: £1.3m) success fee.
3. The Company’s bank balance is swept to OneSavings Bank plc daily resulting in a nil balance.
4.
The Company’s principal activity is to hold the investment in its wholly-owned subsidiary, OneSavings Bank plc.
Dividends received are treated as operating income.
17.1
9.1
0.8
–
(565.7)
(195.8)
–
–
248.7
298.4
(6.3)
(152.4)
(185.0)
(9.0)
1.4
195.8
–
–
–
1.3
(0.2)
0.5
242.4
–
–
–
–
–
(102.0)
(133.1)
(9.0)
1.7
(242.4)
–
5
5
5
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254
Notes to the Company Financial Statements
For the year ended 31 December 2023
1. Basis of preparation
The separate financial statements of the Company are presented as required by the
Companies Act 2006. As permitted by that Act, the separate financial statements have been
prepared in accordance with IFRS as adopted by the UK, and are presented in pounds sterling.
The financial statements have been prepared on the historical cost basis. The financial
statements are presented in pounds sterling. All amounts in the financial statements have been
rounded to the nearest £0.1m (£m). The functional currency of the Company is pounds sterling,
which is the currency of the primary economic environment in which the Company operates.
The principal accounting policies adopted are the same as those set out in note 1 to the
Group’s consolidated financial statements, aside from accounting policy 1 w), Share-based
payments. For the Company, the cost of the awards are recognised on a straight-line basis to
investment in subsidiaries (with a corresponding increase in the share-based payment reserve
within equity) over the vesting period in which the employees become unconditionally entitled
to the awards.
There are no critical judgements and estimates that apply to the Company.
2. Investments in subsidiaries and intercompany loans
The Company holds an investment in ordinary shares of £1,445.0m (2022: £1,440.7m) and in
AT1 securities of £90.0m (2022: £90.0m) in its direct subsidiary, OneSavings Bank plc (OSB).
The Company also holds an investment in AT1 securities of £60.0m (2022: £60.0m) in an
indirect subsidiary, Charter Court Financial Services Limited. The investment in shares and AT1
securities are carried at cost.
The transactions with subsidiaries comprise a subordinated liabilities issuance of £250m, a
senior notes issuance of £300m, £19.6m of accrued interest movement on subordinated liabilities
and senior notes and £1.7m of cash received from issuing shares under SAYE. Repayments
include £2.4m of share repurchase costs, issuance cost of £1.6m and £1.3m on senior notes and
subordinated liabilities respectively funded by OSB (2022: £2.1m of additions in relation to costs
on shares repurchased funded by OSB and repayments of £1.9m comprised £1.6m cash received
from issuing shares under SAYE and £0.3m of tax losses surrendered to OSB).
Investments in AT1 securities are financial assets and intercompany loans are financial
liabilities. Intercompany loans payable are payable on demand and no interest is charged on
these loans. Intercompany loans receivable includes subordinated liabilities and senior notes
issued by subsidiaries. The rates and other terms and conditions are same as the Company’s
external issued senior notes and subordinated liabilities. For details refer note 3 and note 4.
A list of the Company’s direct and indirect subsidiaries as at 31 December 2023 is shown below:
Direct investments
Activity
Registered office
Ownership
OneSavings Bank plc
Mortgage lending
and deposit taking
Reliance House
100%
Indirect investments
Activity
Registered office
Ownership
5D Finance Limited
Mortgage servicer and provider Reliance House
100%
Broadlands Finance Limited
Mortgage administration services Charter Court
100%
At 1 January 2022
Additions1
Repayments
At 31 December 2022
Additions1
Repayments
At 31 December 2023
Investment in
subsidiaries
£m
1,582.6
8.1
–
1,590.7
4.3
–
1,595.0
1.
Additions in investment in subsidiaries include £4.3m relating to share-based payments (2022: includes £8.1m relating
to share-based payments).
Intercompany
loans (payable)/
receivable
£m
Canterbury Finance No.2 plc
Special purpose vehicle
Churchill Place
Canterbury Finance No.3 plc
Special purpose vehicle
Churchill Place
Canterbury Finance No.4 plc
Special purpose vehicle
Churchill Place
(0.6)
(2.1)
1.9
(0.8)
571.3
(5.4)
565.1
Canterbury Finance No.5 plc
Special purpose vehicle
Churchill Place
Keys Warehouse No.1 Limited
Special purpose vehicle
Churchill Place
Charter Court Financial
Services Group Plc
Holding company
Charter Court
100%
Charter Court Financial
Services Limited
Mortgage lending
and deposit taking
Charter Court
100%
Charter Mortgages Limited
Mortgage administration
and analytical services
Charter Court
100%
CMF 2020-1 plc
CMF 2023-1 plc
Special purpose vehicle
Churchill Place
Special purpose vehicle
Churchill Place
–
–
–
–
–
–
–
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Notes to the Company Financial Statements continued
2. Investments in subsidiaries and intercompany loans continued
A list of the Company’s direct and indirect subsidiaries as at 31 December 2022 is shown
below:
Indirect investments
Activity
Registered office
Ownership
Easioption Limited
Holding company
Reliance House
100%
Exact Mortgage Experts
Limited
Guernsey Home Loans
Limited
Guernsey Home Loans
Limited (Guernsey)
Heritable Development
Finance Limited
Group service company
Charter Court
100%
Mortgage provider
Reliance House
100%
Mortgage provider
Guernsey
100%
Mortgage originator
and servicer
Reliance House
100%
Direct investments
Activity
Registered office
Ownership
OneSavings Bank plc
Mortgage lending
and deposit taking
Reliance House
100%
Indirect investments
Activity
Registered office
Ownership
5D Finance Limited
Mortgage servicer
Reliance House
100%
Broadlands Finance Limited
Mortgage administration
services
Charter Court
100%
Canterbury Finance No.2 plc
Special purpose vehicle
Churchill Place
Inter Bay Financial I Limited
Holding company
Reliance House
100%
Canterbury Finance No.3 plc
Special purpose vehicle
Churchill Place
InterBay Asset Finance
Limited
Asset finance and
mortgage provider
Reliance House
100%
Canterbury Finance No.4 plc
Special purpose vehicle
Churchill Place
Canterbury Finance No.5 plc
Special purpose vehicle
Churchill Place
Interbay Funding, Ltd
Mortgage servicer
Reliance House
100%
Interbay ML, Ltd
Mortgage provider
Reliance House
100%
Charter Court Financial
Services Group Plc
Holding company
Charter Court
100%
Jersey Home Loans Limited
Mortgage provider
Reliance House
100%
Jersey Home Loans Limited
(Jersey)
Mortgage provider
Jersey
OSB India Private Limited
Back office processing
India
100%
100%
Prestige Finance Limited
Mortgage originator
and servicer
Reliance House
100%
Charter Court Financial
Services Limited
Mortgage lending
and deposit taking
Charter Court
100%
Charter Mortgages Limited
Mortgage administration
and analytical services
Charter Court
100%
CMF 2020-1 plc
Special purpose vehicle
Churchill Place
–
Easioption Limited
Holding company
Reliance House
100%
Reliance Property Loans
Limited
Mortgage provider
Reliance House
100%
Exact Mortgage Experts
Limited
Group service company
Charter Court
100%
Rochester Mortgages Limited Mortgage provider
Reliance House
100%
Guernsey Home Loans Limited Mortgage provider
Reliance House
100%
WSE Bourton Road Limited
Land lease investment
OSB House
100%
Guernsey Home Loans Limited
(Guernsey)
Mortgage provider
Guernsey
100%
Heritable Development
Finance Limited
Mortgage originator
and servicer
Reliance House
100%
Inter Bay Financial I Limited
Holding company
Reliance House
100%
Inter Bay Financial II Limited
Holding company
Reliance House
100%
InterBay Asset Finance Limited Asset finance and
mortgage provider
Reliance House
100%
–
–
–
–
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256
Notes to the Company Financial Statements continued
2. Investments in subsidiaries and intercompany loans continued
The following are the registered offices of the subsidiaries:
Indirect investments
Activity
Registered office
Ownership
Interbay Funding, Ltd
Mortgage servicer
Reliance House
100%
Interbay Group Holdings
Limited
Holding company
Reliance House
100%
Interbay Holdings Ltd
Holding company
Reliance House
100%
Interbay ML, Ltd
Mortgage provider
Reliance House
100%
Jersey Home Loans Limited
Mortgage provider
Reliance House
100%
Jersey Home Loans Limited
(Jersey)
Mortgage provider
Jersey
OSB India Private Limited
Back office processing
India
100%
100%
Charter Court – 2 Charter Court, Broadlands, Wolverhampton, WV10 6TD
Churchill Place – 5 Churchill Place, 10th Floor, London, E14 5HU
Guernsey – 1st Floor, Tudor House, Le Bordage, St Peter Port, Guernsey, GY1 1DB
India – Salarpuria Magnificia No. 78, 9th & 10th floor, Old Madras Road, Bangalore, India, 560016
Jersey – 26 New Street, St Helier, Jersey, JE2 3RA
OSB House – Quayside, Chatham Maritime, Chatham, England, ME4 4QZ
Reliance House – Reliance House, Sun Pier, Chatham, Kent, ME4 4ET
3. Senior notes
During the current financial year, the Company issued senior notes amounting to £300m
under the planned MREL qualifying debt issuance as follows
Prestige Finance Limited
Mortgage originator
and servicer
Reliance House
100%
Fixed rate:
Mortgage provider
Reliance House
100%
Senior notes 2028 (9.5%)
Reliance Property Loans
Limited
WSE Bourton Road Limited
Land lease investment
OSB House
100%
Rochester Mortgages Limited Mortgage provider
Reliance House
100%
All investments are in the ordinary share capital of each subsidiary.
OSB India Private Limited is owned 70.28% by OneSavings Bank plc, 29.72% by Easioption
Limited and 0.001% by Reliance Property Loans Limited.
SPVs which the Group controls are treated as subsidiaries for accounting purposes.
All of the entities listed above have been consolidated into the Group’s consolidated financial
statements. The location of the entities listed above are disclosed in note 48 to the Group’s
consolidated financial statements.
The investment is reviewed annually for indicators of impairment. If impairment indicators
are identified an impairment review of the investment is conducted which will quantify if
the carrying value is in excess of the recoverable amount or an impairment has occurred.
In determining recoverable amount, the fair value less costs to sell and the value in use are
assessed, with the value in use being an estimate of the present value of future cash flows
generated by the investment.
2023
£m
2022
£m
307.5
–
The senior notes comprise fixed rate notes denominated in pounds sterling and are listed on
the official list of the FCA and admitted to trading on the main market of the London Stock
Exchange plc.
The principal terms of the senior notes are as follows:
•
Interest: Interest on the senior notes is fixed at an initial rate until the reset date (7 September
2027). If the senior notes are not redeemed prior to the reset date, the interest rate will be
reset and fixed based on a benchmark gilt rate plus a spread of 4.985%.
• Redemption: The Issuer may redeem the senior notes in whole (but not in part) in its sole
discretion on 7 September 2027. Optional redemption may also take place for certain
regulatory or tax reasons. Any optional redemption requires the prior consent of the PRA.
• Ranking: The senior notes constitute direct, unsubordinated and unsecured obligations of
OSBG and rank at least pari passu, without any preference, among themselves as senior
notes. The notes rank behind the claims of depositors, but in priority to holders of Tier 1
and Tier 2 capital as well as equity holders of OSBG.
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Financial Statements
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257
Notes to the Company Financial Statements continued
3. Senior notes continued
The table below shows a reconciliation of the Company’s senior notes during the year.
The table below shows a reconciliation of the Company’s subordinated liabilities during the year:
At 1 January
Addition1
Movement in accrued interest
At 31 December
2023
£m
–
298.4
9.1
307.5
2022
£m
–
–
–
–
1. Addition includes £1.6m towards transaction costs which has been amortised through the EIR of the loan notes.
4. Subordinated liabilities
The Company’s outstanding subordinated liabilities are summarised below:
At 1 January
Addition1
Movement in accrued interest
At 31 December
2023
£m
–
248.7
10.8
259.5
2022
£m
–
–
–
–
1. Addition includes £1.3m towards transaction costs which has been amortised through the EIR of the loan notes.
5. Reconciliation of cash flows from financing activities
The tables below show a reconciliation of the Company’s liabilities classified as financing
activities within the Company Statement of Cash Flows:
Fixed rate:
Subordinated liabilities 2033 (9.993%)
259.5
–
At 1 January 2023
2023
£m
2022
£m
All subordinated liabilities are denominated in pounds sterling and are listed on the official list
of the FCA and admitted to trading on the main market of the London Stock Exchange plc.
The principal terms of the subordinated debt liabilities are as follows:
•
Interest: Interest on the notes is fixed at an initial rate until the reset date (27 July 2028).
If the notes are not redeemed prior to the reset date, the interest rate will be reset and fixed
based on a benchmark gilt rate plus a spread of 6.296%.
• Redemption: The Issuer may redeem the Tier 2 notes in whole (but not in part) in its sole
discretion on any day from (and including) 27 April 2028 to (and including) 27 July 2028
(the reset date) as specified in the terms of the agreement. Optional redemption may also
take place for certain regulatory or tax reasons. Any optional redemption requires the prior
consent of the PRA.
• Ranking: The notes constitute direct, unsecured and subordinated obligations of OSBG
and rank at least pari passu, without any preference, among themselves as Tier 2 capital.
The notes rank behind the claims of depositors and other unsecured and unsubordinated
creditors, but rank in priority to holders of Tier 1 capital and of equity of OSBG.
Cash movements:
Principal drawdowns
Interest paid
Non-cash movements:
Interest charged
At 31 December 2023
Senior notes
(see note 3)
£m
–
Subordinated
liabilities
(see note 4)
£m
–
298.4
–
9.1
307.5
248.7
(6.3)
17.1
259.5
Total
£m
–
547.1
(6.3)
26.2
567.0
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258
Notes to the Company Financial Statements continued
6. Share capital
At 1 January 2022
Number of shares
issued and fully
paid
448,627,855
Share cancelled under repurchase programme
(20,671,224)
Shares issued under employee share plans
1,911,994
At 31 December 2022
429,868,625
Share cancelled under repurchase programme
(38,243,031)
Shares issued under employee share plans
1,562,087
At 31 December 2023
393,187,681
Nominal
value
£m
4.5
(0.2)
–
4.3
(0.4)
–
3.9
Premium
£m
0.7
–
1.7
2.4
–
1.4
3.8
8. Other reserves
The Company’s other reserves are as follows:
Share-based payment
Capital redemption and transfer
Own shares
2023
£m
11.6
66.3
(1.0)
76.9
2022
£m
10.2
65.9
(2.2)
73.9
Capital redemption and transfer reserve
The capital redemption reserve represents the shares cancelled through the Group’s share
repurchase programme.
The holders of ordinary shares are entitled to receive dividends as declared from time to time,
and are entitled to one vote per share at meetings of the Company. All ordinary shares rank
equally with regard to the Company’s residual assets.
The transfer reserve represents the difference between the net assets of the Group at the point
of insertion of OSBG as the listed holding company and the fair value of the newly issued
share capital of OSBG.
All ordinary shares issued in the current and prior year were fully paid.
For own shares see note 42 of the Group’s consolidated financial statements.
7. Other equity instruments
The Company’s other equity instruments are as follows:
Additional Tier 1 securities
6% Perpetual subordinated contingent convertible securities
2023
£m
150.0
2022
£m
150.0
For AT1 securities see note 41 of the Group’s consolidated financial statements.
9. Directors and employees
The Company has no employees. OneSavings Bank plc provides the Company with employee
services and bears the costs, along with other subsidiaries in the Group, associated with the
Directors of the Company. These costs are not recharged to the Company.
10. Risk management
The principal financial risks that the Company is exposed to, as a holding company for its
subsidiaries, are those that its subsidiaries are exposed to. These risks are managed at Group
level, through the Group’s risk governance framework reporting to the Group Risk Committee.
For further information see note 44 of the Group’s consolidated financial statements.
11. Controlling party
As at 31 December 2023 there was no controlling party of OSB GROUP PLC.
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Appendices
OSB GROUP PLC | Annual Report and Accounts 2023
Overview
Strategic Report
Governance
Financial Statements
Appendices
259
Appendices
260
Independent Assurance Statement
262
Independent Limited Assurance Report
265 Alternative Performance Measures
268 Glossary
269 Company Information
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260
OSB GROUP PLC | Annual Report and Accounts 2023
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Appendix 1
Independent Assurance Statement by Deloitte LLP to OSB GROUP PLC on selected Alternative Performance Measures
Our assurance conclusion
We have performed an independent reasonable assurance engagement on the Alternative
Performance Measures (collectively, the APMs) set out below for the financial year ended
31 December 2023. The assured APMs are highlighted with the symbol ∆ throughout the OSB
GROUP PLC (OSB Group) 2023 Annual Report and Accounts (ARA). The definition and the
basis of preparation for each of the assured APMs is described in the Appendix to the 2023 ARA
on pages 265 to 267 (OSB Group’s APM Definitions and Basis of Preparation).
Our responsibilities
Our responsibility is to express an opinion on the assured APMs, based on our assurance
work. We performed a reasonable assurance engagement in accordance with International
Standard on Assurance Engagements (ISAE) 3000 (Revised), Assurance Engagements other
than Audits or Reviews of Historical Financial Information, issued by the International Auditing
and Assurance Standards Board (IAASB), in order to state whether the Selected KPIs have been
prepared, in all material respects, in accordance with the applicable criteria.
Statutory basis
• Gross new lending
• Net interest margin
• Cost to income
Underlying basis
• Net interest margin
• Cost to income
• Management expense ratio
• Management expense ratio
• Loan loss ratio
• Loan loss ratio
• Dividend per share
• Basic earnings per share
• Return on equity
• Basic earnings per share
• Return on equity
In our opinion, the assured APMs for the financial year ended 31 December 2023 have been
prepared, in all material respects, in accordance with OSB Group’s APM Definitions and Basis
of Preparation.
Directors’ responsibilities
The Directors are responsible for preparing an Annual Report which complies with the
requirements of the Companies Act 2006 and for being satisfied that the Annual Report, taken
as a whole, is fair, balanced and understandable.
The directors are also responsible for:
• selecting APMs with which to describe the entity’s performance and appropriate criteria (as
set out in the Group’s APM Definitions and Basis of Preparation) to measure them;
• designing, implementing and maintaining internal controls relevant to the preparation and
presentation of the assured APMs that are free from material misstatement, whether due to
fraud or error; and
• preparing, measuring, presenting and reporting the APMs in accordance with the Group’s
APM Definitions and Basis of Preparation.
We are required to plan and perform our procedures in order to obtain reasonable assurance
as to whether the assured APMs have been prepared, in all material respects, in accordance
with OSB Group’s APM Definitions and Basis of Preparation.
The nature, timing and extent of the assurance procedures selected depended on our
judgment, including the assessment of the risks of material misstatement, whether due to
fraud or error, of the assured APMs. In making those risk assessments, we considered internal
controls relevant to the preparation of the assured APMs.
Based on that assessment we carried out testing which included:
• Agreeing amounts used in the calculation of APMs which are derived or extracted from the
audited financial statements of OSB Group for the year ended 31 December 2023 to the
financial statements.
• For amounts used in the calculation of APMs which were not derived or extracted from the
financial statements of OSB Group for the year ended 31 December 2023 testing, on a
sample basis, the underlying data used in determining the assured APMs.
• Checking the mathematical accuracy of the calculations used to prepare the assured APMs
and testing whether they were prepared in accordance with OSB Group’s APM Definitions
and Basis of Preparation;
• Reading the 2023 ARA and assessing whether the assured APMs were presented and
described consistently.
We were not asked to give, and therefore have not given any assurance over (i) any APMs other
than the assured APMs or (ii) other data in the ARA as part of this engagement.
We believe that the evidence obtained is sufficient and appropriate to provide a basis for
our opinion.
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261
Appendix 1 continued
Independent Assurance Statement by Deloitte LLP to OSB GROUP PLC on selected Alternative Performance Measures
Our independence and quality control
We have complied with the independence and other ethical requirements of the FRC’s Ethical
Standard and the ICAEW Code of Ethics. The ICAEW Code is founded on fundamental
principles of integrity, objectivity, professional competence and due care, confidentiality and
professional behaviour.
We applied the International Standard on Quality Management (UK) 1 “ISQM (UK) 1”, issued by
the Financial Reporting Council. Accordingly, we maintain a comprehensive system of quality
control including documented policies and procedures regarding compliance with ethical
requirements, professional standards and applicable legal and regulatory requirements.
Use of our report
This assurance report is made solely to the Directors of OSB GROUP PLC in accordance with
the terms of the engagement letter between us. Our work has been undertaken so that we
might state to the Directors of OSB GROUP PLC those matters we are required to state to
them in an independent reasonable assurance report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone other than
OSB GROUP PLC for our assurance work, for this assurance report or for the conclusions we
have formed.
Deloitte LLP, London
14 March 2024
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Appendices
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Appendix 2
Independent Limited Assurance Report to the Board of Directors of OSB GROUP PLC
Independent limited Assurance Report by Deloitte LLP to the Directors of OSB GROUP PLC
on the description of activities undertaken to meet the Recommendations of the Task Force
on Climate-related Financial Disclosures (“TCFD”) and selected Environmental, Social and
Governance metrics (“Selected ESG Metrics”) (together the “Assured ESG Information”) within
the Annual Report for the reporting year ended 31 December 2023.
Our assurance conclusion
Based on our procedures described in this report, and evidence we have obtained, nothing has
come to our attention that causes us to believe that the Assured ESG Information for the year
ended 31 December 2023, and as listed below and indicated with a
in the Annual Report has
not been prepared, in all material respects, in accordance with the Applicable Criteria defined
by the directors as set out in https://www.osb.co.uk/sustainability/our-environment.
Scope of our work
OSB GROUP PLC has engaged us to perform an independent limited assurance engagement
in accordance with International Standard on Assurance Engagements 3000 (Revised)
Assurance Engagements Other than Audits or Reviews of Historical Financial Information (“ISAE
3000 (Revised)”) and the International Standard on Assurance Engagements 3410 Assurance
Engagements on Greenhouse Gas Statements (“ISAE 3410”), issued by the International
Auditing and Assurance Standards Board (“IAASB”) and our agreed terms of engagement.
The Assured ESG Information in scope of our engagement for the year ended 31 December 2023,
as indicated with a
in the Annual Report, is as follows:
Assured ESG Information
Selected ESG Metrics
Total direct (Scope 1) emissions
Total indirect (Scope 2) emissions – Market-based
Total indirect (Scope 2) emissions – Location-based
Financed (Scope 3 Category 15) emissions
PCAF data quality score
Greenhouse Gas (GHG) Intensity metrics
Reported value
171.44 tCO2e
1.39 tCO2e
396.95 tCO2e
314,413 tCO2e
3.1
• Metric tonnes of CO2e per employee
• Metric tonnes of CO2e per £m turnover
• Scope 3 Financed emissions – physical emissions intensity
0.40
0.86
24.9
TCFD
The description of activities undertaken to meet the Recommendations
of the TCFD included within the 2023 Annual Report.
Page 94 to 102 in
the Annual Report
The Assured ESG Information, as listed in the above table, needs to be read and
understood together with the Applicable Criteria available here: https://www.osb.co.uk/
sustainability/our-environment.
Inherent limitations of the Assured ESG Information
We obtained limited assurance over the preparation of the Assured ESG Information in
accordance with the Applicable Criteria. Inherent limitations exist in all assurance engagements.
Any internal control structure, no matter how effective, cannot eliminate the possibility that
fraud, errors or irregularities may occur and remain undetected and because we use selective
testing in our engagement, we cannot guarantee that errors or irregularities, if present, will
be detected.
The self-defined Applicable Criteria, the nature of the Assured ESG Information, and
absence of consistent external standards allow for different, but acceptable, measurement
methodologies to be adopted which may result in variances between entities. The adopted
measurement methodologies may also impact comparability of the Assured ESG Information
reported by different organisations and from year to year within an organisation as
methodologies develop.
We draw your attention to the specific limitations, due to the nature of the Assured ESG
Information, set out in the “Key procedures performed” section below.
Directors’ responsibilities
The Directors are responsible for preparing an Annual Report which complies with the
requirements of the Companies Act 2006 and for being satisfied that the Annual Report,
taken as a whole, is fair, balanced and understandable.
The Directors are also responsible for:
• Selecting and establishing the Applicable Criteria.
• Preparing, measuring, presenting and reporting the Assured ESG Information in accordance
with the Applicable Criteria.
• Publishing the Applicable Criteria publicly in advance of, or at the same time as, the
publication of the Assured ESG Information.
• Designing, implementing, and maintaining internal processes and controls over information
relevant to the preparation of the Assured ESG Information to ensure that they are free from
material misstatement, including whether due to fraud or error.
• Providing sufficient access and making available all necessary records, correspondence,
information and explanations to allow the successful completion of our limited
assurance engagement.
• Confirming to us through written representations that you have provided us with all
information relevant to our Services of which you are aware, and that the measurement or
evaluation of the underlying subject matter against the Applicable Criteria, including that
all relevant matters, are reflected in the Assured ESG Information.
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Appendix 2 continued
Independent Limited Assurance Report to the Board of Directors of OSB GROUP PLC
Our responsibilities
We are responsible for:
• Planning and performing procedures to obtain sufficient appropriate evidence in order to
express an independent limited assurance conclusion on the Assured ESG Information.
• Communicating matters that may be relevant to the Assured ESG Information to the
appropriate party including identified or suspected non-compliance with laws and
regulations, fraud or suspected fraud, and bias in the preparation of the Assured
ESG Information.
• Reporting our conclusion in the form of an independent limited Assurance Report to
the Directors.
Our independence and competence
In conducting our engagement, we complied with the independence requirements of the FRC’s
Ethical Standard and the ICAEW Code of Ethics. The ICAEW Code is founded on fundamental
principles of integrity, objectivity, professional competence and due care, confidentiality and
professional behaviour.
We applied the International Standard on Quality Management (UK) 1 (“ISQM (UK) 1”) issued by
the Financial Reporting Council. Accordingly, we maintained a comprehensive system of quality
management including documented policies and procedures regarding compliance with ethical
requirements, professional standards and applicable legal and regulatory requirements.
Key procedures performed
We are required to plan and perform our work to address the areas where we have identified
that a material misstatement in respect of the Assured ESG Information is likely to arise. The
procedures we performed were based on our professional judgment. In carrying out our limited
assurance engagement in respect of the Assured ESG Information, we performed the following
procedures:
• Evaluated the suitability of the Applicable Criteria as the basis for preparing the Assured
ESG Information;
• Performed analytical review procedures to understand the underlying subject matter and
identify areas where a material misstatement of the Assured ESG Information is likely
to arise;
• Through inquiries of management, obtained an understanding of the Group, its
environment, processes and information systems relevant to the preparation of the Assured
ESG Information sufficient to identify and assess risks of material misstatement in the
Assured ESG Information, and provide a basis for designing and performing procedures to
respond to assessed risks and to obtain limited assurance to support a conclusion;
• Through inquiries of management, obtained an understanding of internal controls relevant
to the Assured ESG Information, the quantification process and data used in preparing the
Assured ESG Information, the methodology for gathering qualitative information, and the
process for preparing and reporting the Assured ESG Information. We did not evaluate the
design of particular internal control activities, obtain evidence about their implementation
or test their operating effectiveness;
• Through inquiries of management, documented whether an external expert has been
used in the preparation of the Assured ESG Information, then evaluated the competence,
capabilities and objectivity of that expert in the context of the work performed and also the
appropriateness of that work as evidence;
•
Inspected documents relating to the Assured ESG Information, including board
committee minutes and where applicable internal audit outputs to understand the level of
management awareness and oversight of the Assured ESG Information;
• Accumulated misstatements and control deficiencies identified, assessing whether material;
and
• Read the narrative accompanying the Assured ESG Information with regard to the
Applicable Criteria, and for consistency with our findings.
In relation to TCFD only, we:
• Reviewed documentation relating to the governance, strategy and financial planning and
risk management processes;
•
Inquired with those responsible within the organisation to understand:
– the role of the Board in relation to climate-related risk and opportunities and
management’s role in assessing and managing climate-related risks and opportunities;
– the nature of climate-related risk and opportunities identified including time horizons;
the impact of climate-related risks and opportunities on the business, strategy and
financial planning; and the impact of identified and considered climate scenarios on the
strategy; and
– the process for identifying climate-related risks; the process for managing climate-
related risks; and how these processes are integrated into the overall risk management;
and
• Evaluated and reviewed the TCFD disclosure for consistency of knowledge and
understanding obtained during course of our work.
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Appendix 2 continued
Independent Limited Assurance Report to the Board of Directors of OSB GROUP PLC
Use of our report
This report is made solely to the Directors of OSB GROUP PLC in accordance with ISAE 3000
(Revised) and ISAE 3410 and our agreed terms of engagement. Our work has been undertaken
so that we might state to the Directors of OSB GROUP PLC those matters we have agreed to
state to them in this report and for no other purpose.
Without assuming or accepting any responsibility or liability in respect of this report to any
party other than OSB GROUP PLC and the Directors of OSB GROUP PLC, we acknowledge that
the Directors of OSB GROUP PLC may choose to make this report publicly available for others
wishing to have access to it, which does not and will not affect or extend for any purpose or on
any basis our responsibilities. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than OSB GROUP PLC and the Directors of OSB GROUP PLC as a
body, for our work, for this report, or for the conclusions we have formed.
The Applicable Criteria are designed for the Assured ESG Information disclosed by OSB GROUP
PLC and as a result, the Assured ESG Information may not be suitable for another purpose.
Deloitte LLP
Birmingham, UK
14 March 2024
Additionally, in relation to the Selected ESG Metrics only, we:
• Performed enquires and interviews with management to understand how the Applicable
Criteria were applied in the preparation of the Selected ESG Metrics;
• Performed procedures over the Selected ESG Metrics, including recalculation of
relevant formulae used in manual calculations and assessed whether the data has been
appropriately consolidated;
• Performed procedures over underlying data on a statistical sample basis to assess whether
the data has been collected and reported in accordance with the Applicable Criteria,
including verifying to source documentation; and
• Perform procedures over the Selected ESG Metrics including assessing management’s
assumptions and estimates.
We were not engaged to and did not perform the following procedures as part of our
assurance work:
• An assessment as to if the activities undertaken, as described in the TCFD disclosures, fulfil
the requirements to comply in full with TCFD.
• An assessment as to the appropriateness of assumptions made including those made in
preparation and application of climate scenarios and setting of targets.
• Testing of the design, implementation and operating effectiveness of controls over the
underlying data, nor have we sought to obtain an understanding of the systems and
controls beyond those relevant to the Assured ESG Information.
We performed our engagement to obtain limited assurance over the preparation of the
Selected ESG metrics in accordance with the Applicable Criteria. We draw your attention to
the following specific limitations:
• The financed emissions metrics (Scope 3 Category 15) listed above include information
provided by third-party sources. Our procedures did not include obtaining assurance over
the information provided by third parties.
The procedures performed in a limited assurance engagement vary in nature and timing from,
and are less in extent than for, a reasonable assurance engagement. Consequently, the level of
assurance obtained in a limited assurance engagement is substantially lower than the assurance
that would have been obtained had a reasonable assurance engagement been performed.
We performed our engagement to obtain limited assurance over the preparation of the
Assured ESG Information in accordance with the Applicable Criteria. TCFD as applied by
all companies includes information based on climate-related scenarios that are subject to
inherent uncertainty because of incomplete scientific and economic knowledge about the
likelihood, timing, or effect of possible future physical and transitional climate-related impacts.
For the avoidance of doubt, the scope of our engagement and our responsibilities did not
involve us performing work necessary for any assurance on the reliability, proper compilation
or accuracy of the prospective information provided as part of the TCFD scenario analysis.
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Appendix 3
Alternative Performance Measures (APMs)
In this Annual report, the Group used APMs when presenting underlying results in 2023 and
2022 as Management believe they provide a more consistent basis for comparing the Group’s
performance between financial periods. Underlying results exclude integration costs and other
acquisition-related items.
APMs reflect an important aspect of the way in which operating targets are defined and
performance is monitored by the Board. However, APMs in this Annual report are not a
substitute for IFRS measures and readers should consider the IFRS measures as well.
Below we provide definitions and the calculation of APMs used throughout this Annual report
on a statutory basis and underlying basis for 2023 and 2022.
Net interest margin (NIM)
NIM is defined as net interest income as a percentage of a 13 point average1 of interest earning
assets (cash, investment securities, loans and advances to customers and credit institutions).
It represents the margin earned on loans and advances and liquid assets after swap expense/
income and cost of funds.
Net interest income – statutory
Add back: acquisition-related items2
Net interest income – underlying
2023
£m
658.6
56.1
714.7
2022
£m
709.9
59.2
769.1
13 point average of interest earning assets – statutory C
28,549.4
25,518.8
13 point average of interest earning assets – underlying D
28,498.3
25,403.2
NIM statutory equals A/C
NIM underlying equals B/D
2.31%
2.51%
2.78%
3.03%
Cost to income ratio
Cost to income ratio is defined as administrative expenses as a percentage of total income. It is
a measure of operational efficiency.
Administrative expenses – statutory A
Add back: acquisition-related items2
Administrative expenses – underlying B
Total income – statutory C
Add back: acquisition-related items2
Total income underlying D
Cost to income statutory equals A/C
Cost to income underlying equals B/D
2023
£m
234.6
(1.7)
232.9
658.1
49.7
707.8
36%
33%
2022
£m
207.8
(3.8)
204.0
775.4
48.8
824.2
27%
25%
Management expense ratio
Management expense ratio is defined as administrative expenses as a percentage of a 13 point
average1 of total assets. It is a measure of operational efficiency.
Administrative expenses – statutory (as in cost to income ratio
above) A
Administrative expenses – underlying (as in cost to income ratio
above) B
2023
£m
2022
£m
234.6
207.8
232.9
204.0
13 point average of total assets – statutory C
13 point average of total assets – underlying D
28,767.1
25,641.5
28,719.7
25,537.4
Management expense ratio statutory equals A/C on an
annualised basis
Management expense ratio underlying equals B/D on an
annualised basis
0.82%
0.81%
0.81%
0.80%
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Appendix 3 continued
Alternative Performance Measures (APMs)
Loan loss ratio
Loan loss ratio is defined as expected credit losses as a percentage of a 13 point average1 of
gross loans and advances. It is a measure of the credit performance of the loan book.
Basic earnings per share
Basic earnings per share is defined as profit attributable to ordinary shareholders, which is
profit after tax and after deducting coupons on AT1 securities, gross of tax, divided by the
weighted average number of ordinary shares in issue.
Profit attributable to ordinary shareholders – statutory
(as in RoE ratio above) A
Profit attributable to ordinary shareholders – underlying
(as in RoE ratio above) B
Weighted average number of ordinary shares in issue –
statutory C
Weighted average number of ordinary shares in issue –
underlying D
Basic earnings per share statutory equals A/C
Basic earnings per share underlying equals B/D
2023
£m
2022
£m
273.6
401.0
310.7
439.7
414.2
441.5
414.2
441.5
66.1
75.0
90.8
99.6
Impairment of financial assets – statutory A
Add back: acquisition-related items2
Impairment of financial assets – underlying B
2023
£m
48.8
(0.3)
48.5
2022
£m
29.8
0.9
30.7
13 point average of gross loans – statutory C
13 point average of gross loans – underlying D
24,855.0
22,120.4
24,804.9
22,005.4
Loan loss ratio statutory equals A/C on an annualised basis
Loan loss ratio underlying equals B/D on an annualised basis
0.20%
0.20%
0.13%
0.14%
Return on equity (RoE)
RoE is defined as profit attributable to ordinary shareholders, which is profit after tax and after
deducting coupons on AT1 securities, gross of tax, as a percentage of a 13 point average1 of
shareholders’ equity (excluding £150m of AT1 securities).
Profit after tax - statutory
Coupons on AT1 securities
Profit attributable to ordinary shareholders – statutory A
Add back: acquisition related items2
Profit attributable to ordinary shareholders – underlying B
2023
£m
282.6
(9.0)
273.6
37.1
310.7
2022
£m
410.0
(9.0)
401.0
38.7
439.7
13 point average of shareholders’ equity (excluding AT1 securities)
– statutory C
1,964.1
1,943.4
13 point average of shareholders’ equity (excluding AT1 securities)
– underlying D
1,929.9
1,869.9
Return on equity statutory equals A/C on an annualised basis
Return on equity underlying equals B/D on an annualised basis
14%
16%
21%
24%
1.
13 point average is calculated as an average of opening balance and closing balances for 12 months of the financial year.
2. The acquisition-related items are detailed in the reconciliation of statutory to underlying results in the Financial review.
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Appendix 3 continued
Alternative Performance Measures (APMs)
Calculation of final dividend
The table below shows the basis of calculation of the Company’s recommended final dividend:
Statutory profit after tax
Less: coupons on AT1 securities classified as equity
Statutory profit attributable to ordinary shareholders
Add back: Group’s integration costs
Tax on Group’s integration costs
Add back: amortisation of fair value adjustment
Add back: amortisation of inception adjustment
Add back: amortisation of cancelled swaps
Add back: amortisation of intangible assets acquired
Release of deferred taxation on the above amortisation
adjustments
Add back: ECL on Combination
Underlying profit attributable to ordinary shareholders
Total dividend: 41% (2022: 30%) of underlying profit
attributable to ordinary shareholders
Less: interim dividends paid
Recommended final dividend
2023
£m
282.6
(9.0)
273.6
–
–
56.8
(6.4)
(0.7)
1.7
(14.6)
0.3
310.7
126.6
(40.9)
85.7
2022
£m
410.0
(9.0)
401.0
7.9
(2.1)
60.4
(10.4)
(1.2)
3.8
(18.8)
(0.9)
439.7
131.9
(38.3)
93.6
Number of ordinary shares in issue
393,187,681
429,868,625
Recommended final dividend per share (pence)
21.8
21.8
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268
Glossary
Bank of England
Annual General Meeting
Chief Risk Officer
Deferred Share Bonus Plan
Exposure at Default
Expected Credit Loss
Effective Interest Rate
Earnings Per Share
European Union
Financial Conduct Authority
Financial Reporting Council
Financial Services Compensation Scheme
Forced Sale Discount
Financial Times Stock Exchange
AGM
ALCO Group Assets and Liabilities Committee
BoE
CCFS Charter Court Financial Services
Chief Executive Officer
CEO
Common Equity Tier 1
CET1
CFO
Chief Financial Officer
CRD IV Capital Requirements Directive and Regulation
CRO
DSBP
EAD
ECL
EIR
EPS
EU
FCA
FRC
FSCS
FSD
FTSE
HMRC Her Majesty’s Revenue and Customs
HPI
IAS
IBOR
ICAAP
ICR
IFRS
ILAAP
ILTR
IPO
House Price Index
International Accounting Standards
Interbank Offered Rate
Internal Capital Adequacy Assessment Process
Interest Coverage Ratio
International Financial Reporting Standards
Internal Liquidity Adequacy Assessment Process
Indexed Long-Term Repo
Initial Public Offering
IRB
ISA
KRFI
KRPS
LCR
LGD
LIBOR
LTIP
LTV
NIM
NPS
OSB
OSBG OSB GROUP PLC
PD
PPD
PRA
PSBs
PSP
RMBS
RoE
RWA
SAYE
SDLT
SICR
SID
SME
SONIA
SRMF
TFS
TFSME
Internal Ratings-Based approach to credit risk
Individual Savings Account
Kent Reliance for Intermediaries
Kent Reliance Provident Society Limited
Liquidity Coverage Ratio
Loss Given Default
London Interbank Offered Rate
Long-Term Incentive Plan
Loan to value
Net Interest Margin
Net Promoter Score
OneSavings Bank plc
Probability of Default
Propensity to go to Possession Given Default
Prudential Regulation Authority
Perpetual Subordinated Bonds
Performance Share Plan
Residential Mortgage-Backed Securities
Return on equity
Risk weighted assets
Save As You Earn or Sharesave
Stamp Duty Land Tax
Significant Increase in Credit Risk
Senior Independent Director
Small and Medium Enterprises
Sterling Overnight Index Average
Strategic Risk Management Framework
Term Funding Scheme
Term Funding Scheme with additional incentives
for SMEs
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Company Information
Registered office and head office
OSB House
Quayside
Chatham Maritime
Chatham
Kent, ME4 4QZ
United Kingdom
Registered in England no: 11976839
www.osb.co.uk
Registrars
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex
BN99 8LU
United Kingdom
Telephone: 0371 384 2030
International: +44 121 415 7047
Investor relations
Email: osbrelations@osb.co.uk
Telephone: 01634 838973
Private shareholders are welcome to contact the Company Secretary if they have any
questions or concerns they wish to be raised with the Board.
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Notes
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Notes
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Notes
Contents Generation – PageContents Generation – Sub PageContents Generation - Section CBP024033
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OSB GROUP PLC
OSB House
Quayside
Chatham
Kent, ME4 4QZ
T +44 (0) 1634 848944
www.osb.co.uk