Sainsbury's Bank plc
Annual Report and Consolidated Financial Statements
for the year ended 28 February 2023
COMPANY NUMBER: 3279730
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
2
Contents
Strategic Report
3
Strategy
4
Business Model
4
Year in review
6
Delivering value for our shareholders
7
Our approach to Non-Financial Reporting
8
Environmental strategy
11
Social strategy
15
Key performance indicators
17
Financial Review
21
Risk overview
26
Governance
Directors’ report
31
Board of Directors
33
Statement of Directors’ responsibilities
Financial Statements
34
Independent auditors’ report to the members of
Sainsbury’s Bank plc
46
Consolidated Income statement
47
Consolidated Statement of comprehensive
income
48
Consolidated Balance sheet
49
Consolidated Statement of changes in equity
51
Consolidated Cash flow statement
52
Notes to the financial statements
118
Alternative performance measures
120
Glossary
Consolidated SBAFS Financial Headlines
Statutory profit before tax
£44m
(2022: £21m)
Financial Services Underlying profit before
tax
£58m
(2022: £64m)
Net interest margin (underlying)
5.1%
(2022: 4.5%)
Bad debt asset ratio
2.1%
(2022: 1.2%)
Cost : income ratio (underlying)
64%
(2022: 68%)
CET 1 Capital Ratio (transitional)
15.5%
(2022: 15.6%)
Net Stable Funding Ratio
291%
(2022: 121%)
Performance, including reference to the above headlines is explained in the
financial review section on page 17.
The Alternative Performance measures have been defined and reconciled to the
statutory disclosures on page 118.
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
3
The Directors present their strategic report for the year ended 28 February 2023.
The Annual Report and Financial Statements includes the Strategic Report, the Directors’ Report and both the Company and
Consolidated Group Financial Statements and accompanying notes as applicable. Reference to ‘the Bank’ means Sainsbury’s Bank plc
and reference to ‘the Group’ specifies the Bank and its subsidiaries. Further information on investment in group undertakings can be
found in note 21.
The Bank has prepared consolidated financial statements under IFRS 10 for the first time . The prior year comparative figures have
been restated to reflect the consolidated results and have been subject to audit.
The Bank is a wholly owned subsidiary of J Sainsbury plc, however is governed by its own Board and Executive Committee, independent
from J Sainsbury plc (see Risk Overview and Governance sections on pages 21 and 26). These Group results are included in the
consolidated J Sainsbury plc (‘the Sainsbury’s Group’) financial statements which are publicly available.
The Bank is a public company limited by shares, incorporated and registered in England, and domiciled in the United Kingdom. Its
registered office is 33 Holborn, London, EC1N 2HT. Our principal place of business is 3 Lochside Avenue, Edinburgh, EH12 9DJ.
Strategy
The Group is aligned to the Sainsbury’s Group strategic priority to focus on being a brand that delivers whilst
supporting the core food business. We aim to drive value for the Sainsbury’s Group by being an agile, capital
and cost-efficient provider of simple, mobile led financial services for Sainsbury’s and Argos customers.
Our strategic priorities remain consistent - to build momentum across the business while simplifying and
strengthening the organisation.
VISION
To be the provider of Financial Services for loyal Sainsbury’s Group customers
OBJECTIVE
An agile, capital and cost-efficient provider of simple, mobile led financial services
PRIORITIES
Momentum
Strengthen
Simplify
•
Further develop Argos
Financial Services
proposition
•
Financial Services model
with Nectar at the core
•
Improve cards, loans and
insurance momentum
Focus on:
• Customer closeness
• Capability
• Conduct and culture
• Operational resilience
• Capital efficiency
Core competency in:
•
Digital
•
Data and
analytics
•
Credit/
Operational risk
•
Partnerships
•
Review
vendor/supplier
arrangements
•
Right size the
cost base
•
Optimise cross-
Group synergies
Bank by name, Sainsbury’s by nature
Our Sainsbury’s Bank brand proposition is “Bank by name, Sainsburys by nature” with three supporting brand pillars - making it easy,
always offering value and being a trusted ally. Research showed that customers have real trust in the Sainsbury’s brand associating
it with great service, underpinned by offering value in their food and reward proposition, as well as making it easy for customers to
shop every day.
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
4
These same brand pillars underpin our Argos brand, Argos Financial Services, which provides payment solutions that generate high
levels of engagement in the most loyal Argos customer groups. The Argos Card provides a flexible payment option for customers that
drives frequency, value and sales.
Business model
We offer a range of retail banking services and related financial services wholly within the UK. We provide simple, mobile led financial
services for Sainsbury’s and Argos customers.
Saving & Lending products:
•
Funds are raised through savings deposits and wholesale sources. We use these deposits to fund lending to customers or
hold them as liquid assets.
•
Our savings and lending products are sold and serviced online or by telephone and, in the case of Storecards, in store.
Commission based products:
•
Third party Car, Home, Warranty, Life, Travel and Pet Insurance products are offered to customers where we act as a broker
to a number of underwriters. All products are available online or via telephone.
•
Foreign currency is acquired wholesale and sold to customers at a retail rate with margin. We also earn fees on prepaid
cards and money transfer services. Travel Money has a physical presence at the Bureaux in Sainsbury’s supermarkets and
is also available online.
•
Our ATMs have a physical presence in Sainsbury’s and Argos stores.
Year in review
Always offering value and making it easy for our customers
Now more than ever, customers are shopping around to seek the best deals,
with brands they trust at the top of their consideration list. We launched our
new brand campaign for Sainsbury’s Bank this year which could speak to the
current consumer pressures with empathy at every touch point.
Our new brand proposition, Bank by name Sainsbury’s by nature, is resonating
well with customers. Following the launch of the campaign we have seen an
incremental 1 million web visits. Our investment in brand, alongside our direct
digital marketing investment, has contributed to further improving our
direct/aggregator sourced customer mix (a 4% growth YoY) and helps us in reducing our cost to acquire new business.
In Argos Financial Services (AFS), we have enhanced connectivity with Argos throughout the year, with new marketing channels
launching and increased integration of our products across Argos channels and events.
Our Net Promoter Score (NPS) for Sainsburys Bank and Argos Financial Services brands remains strong, supported by continued
developments of customer online journeys.
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
5
Our digital strategy in action
The number of customers using digital channels continues to grow with now over half of our active credit card customers logging into
the credit card app at least once a month - an uplift of 25% since last year. In Argos Financial Services, our customer base is more
digitally engaged than ever with 91% of our active customers now registered for our Mobile app, up 3% from last year, and we saw a
2% increase in the share of payments coming through our digital channels – now up to 79% of total payment value. In Insurances we
have seen a record level of our Car and Home Insurance customers register for online self-service, with 87% of our live book now
registered customers. Our profile of digital customers shows that they spend more, borrow more and save more across our products.
In Credit Cards, we launched Apple Pay in June 2022 with customers already making 4.7m transactions. Further app
functionality was added through the year.
In Loans and Savings, we delivered further enhancements to our new the application journey, offering a more
seamless, fully digital “short apply” experience for existing customers looking for a loan or savings product.
In Insurances, to simplify and automate processes, improving customer experience and increasing efficiency within
our Car and Home insurance business, we introduced robotic process automation.
Reopening of Travel Money Business
Travel Money, after a couple years of disruption, saw turnover more than treble as demand for foreign
travel returned. Our 225 in-store bureaux re-opened, as colleagues returned from supporting Sainsburys
stores, serving over 2 million customers. For the first time the campaign via Nectar360 was promoted to
increase customer awareness in stores. Our Travel Money Card relaunched in November, increasing the
number of currencies you can hold on it to 15.
Response to cost of living
As a trusted ally, we’re here to support customers through the cost-of-living crisis. Our cost-of-living hub launched on 30 Sept 2022,
which houses tools, information and practical support for those in need.
Affordability calculations have been updated to reflect ongoing inflation, including rising energy costs, and we have strengthened our
approach to validating customer income.
Launch of Monthly Payment Plan
Interest bearing Monthly Payment Plans rolled out to all Argos categories (excluding
clothing) during this financial year, giving Argos customers a monthly payment option on
higher price items when purchasing online for instore collection.
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
6
Delivering value for our shareholders
Capital Market Commitments
In order to maximise shareholder value, we announced six targets at our Capital Markets Day in September 2019, summarised below:
1) Stop putting cash into financial services
The Bank has received no further capital from J Sainsbury plc since the
strategy launch.
2) Financial services to become cash generative
The Bank targeted paying dividends to our parent within 5 years. A
dividend of £50m was paid in April 2022.
3) Reduce risk profile to the Group
We continue to operate with sufficient capital and liquidity buffers to
protect against potential future stress scenarios and our mortgage book
continues to run off.
4) Focus on Sainsbury’s customer base
We continue developing our products and services that appeal to more
Sainsbury’s customers, listening to them and what they tell us. We
continue to improve online customer journeys and invest in faster and
smoother digital application processing.
Whilst very much still at the core of our focus and strategy, due to the economic headwinds of recent years we anticipate a delay in
achieving the following targets:
5) Transform the cost base
We were targeting to reduce our cost to income ratio to circa 50% within
5 years, however this is challenging with Covid-19 and economic
headwinds impacting revenue through reduced credit demand and
travel. Our cost income ratio has decreased to 64% (from 68% in FY22)
and is expected to further improve.
6) Improve returns
Our target was to double underlying profits and reach double digit ROCE
within 5 years. While we expect profitability to improve, there is likely to
be a delay in us reaching these levels.
Connectivity
Our number of customers in Sainsbury’s Bank has increased from 1.8 million at February 2022 to 1.9 million at February 2023, largely
driven by increases across Cards and Savings products. Customer numbers in Argos Financial Services remained stable at 2.1 million.
Nectar continues to be an integral part of our strategy to connect with Sainsbury’s customers, with circa 80% of our customers holding
a Nectar card and benefiting from Nectar points and rewards across a range of products. This year we issued 2.8 billion of Nectar points
to our customers.
We continue to support the growth of our Sainsbury’s core food business and general
merchandising, funding over £1.7bn of retail spend on our Credit Cards, Store Cards and Monthly
Payment Plan products across Sainsbury’s, Argos and Habitat.
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
7
OUR APPROACH TO NON-FINANCIAL REPORTING
This page sets out how the Group has complied with various reporting and regulatory and governance requirements.
Non-Financial Reporting Directive
The Group has complied with the non-financial reporting directive requirements contained in sections
414CA and 414CB of the Companies Act 2006. The table below sets out how we have responded to the
requirements, with reference to other sections of the Annual Report where necessary.
Business Model
The Group seeks to provide quality financial services to Sainsbury’s and Argos
customers at an affordable price. The business model is outlined on page 4 of
this Strategic Report
Environmental
Refer to Page 8 of Strategic Report for the Group’s strategy for climate and
pages 9 to 11 for an update on progress made in the year
Social
Details on our interaction with our communities is outlined on page 11
Our customers
Details on our approach to our customers in outlined page 11
Our employees
We aim to make the Group a great place to work for all colleagues. Our
approach to achieve this is outlined on page 11
Gender Pay Gap
Details on gender pay gap is outlined on page 13
Human Rights
and Modern Slavery
Details on our approach to Human Rights and Slavery is outlined on Page 13
Anti-corruption/Anti-
bribery
Details on our approach to Anti-Corruption and Anti-Bribery is outlined on Page
13
Wates Corporate Governance Principles
Sainsbury’s Bank plc applies the Wates Corporate Governance Principles for Large Private Companies
(available on the Financial Reporting Council website). Information demonstrating how we applied the
principles can be found throughout the Strategic Report as outlined below:
Principle 1 – Purpose and Leadership
See our business model (page 4) and strategy (page 3)
sections of the Strategic Report.
Principle 2 – Board Composition
Outlined in the directors’ report on page 31 and the
Strategic Report on page 27.
Principle 3 – Director Responsibilities
See the Strategic Report on page 28.
Principle 4 – Opportunity and Risk
See the Strategic Report on page 29.
Principle 5 - Remuneration
See the Strategic Report on page 29.
Principle 6 – Stakeholder Relationships
and Engagement
Our engagement with stakeholders is outlined in the
Section 172 statement opposite.
Section 172
The Board fully recognises its obligations under the Companies Act 2006, including those set out in
section 172. Its governance framework and regular programme of agenda items ensures it has due
regard to:
•
The likely longer-term consequences of its decisions. For example, the Board approves a rolling
five-year strategic plan on an annual basis and regularly monitors its progress through key
metrics (which form the basis of KPIs outlined on pages 15 to 16) and sub-committees to
provide appropriate review, balanced challenge and transparency on decision making.
•
Maintaining the reputation of the Bank (and the Sainsbury’s Group brands it uses) for high
standards of business conduct. The Board promotes the values of the wider Sainsbury’s Group
across the organisation. These values help colleagues to know how to act at work and we
believe they are right because they are also the way that many of us live outside of work too.
Sainsbury’s Group (including the Bank and its subsidiaries) has always had a strong sense of
social, environmental and economic responsibility and an understanding that our success
depends on society’s success. Further details on our approach to diversity, environmental and
social factors are outlined in the Non-Financial reporting section on pages 8 to 13.
•
The views and interests of its key stakeholders. The Board seeks to understand the views of
key stakeholders in order to inform effective decision-making and to deliver long-term
success. It identifies our core stakeholders as: customers and communities; colleagues;
investors; suppliers; and regulators.
By taking regard of these factors, the Board seeks to ensure that the Directors have acted both
individually and collectively in a way that would, in good faith, be considered likely to promote the
success of the Group while having due regard to all its stakeholders and to the matters set out in
paragraphs a to f of section 172 of the Companies Act 2006.
Further information of our consumer duty can be found on page 21 of the strategic report. Information
on how we have interacted with our stakeholders is located as follows:
Stakeholder
Strategic Report Reference
Colleagues
Page 11
Customers
Page 11
Communities
Page 11
Investors
Page 14
Suppliers
Page 14
Regulators
Page 14
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
8
Environmental, Social and Governance
Our approach to ESG
We know our customers care about wide-ranging, complex issues that impact them and our wider
world. They trust us to be a responsible business, whether that’s by supporting the communities we
serve and source from, managing our environmental impacts or contributing to a healthier, more
inclusive society.
We strive to do the best for our customers and the business, addressing key ESG issues and living up
to our Sainsbury’s values. We are committed to driving improvements across the ESG agenda while
also leveraging Sainsbury’s environmental agenda.
The section below gives more details on our Environmental and Social strategy and along with some of our successes to date. Refer to
page 26 for our section on Governance.
Environmental Strategy
Our ESG strategy specifically includes the commitment to reduce our own Scope 1 and 2 carbon emissions covering our direct and
indirect emissions within our operations, and commit to be net zero by 2035, in line with the wider Sainsbury’s Group target. More
information on the Sainsbury’s Group commitment can be found in the Sainsbury’s Sustainability update found at
https://www.about.sainsburys.co.uk/sustainability/plan-for-better/reports-policies-and-standards/2022
As part of Sainsbury’s, our facilities management approach actively manages, and looks to continuously improve our waste
management and recycling. We frequently use video and telephone conferencing facilities rather than travel to meetings. Colleagues
are encouraged to use public transport and cycle to work. We take time to identify practical ways to reduce the environmental impact
of our leaflets and Point of Sale materials in stores.
Things we have achieved since the launch of our plan for better strategy include:
•
Reduction in paper usage by encouraging customers to go paperless for statements and delivering a number of online apps
which encourage customers to self-serve online and in time will reduce the need for written correspondence
•
Our new credit cards issues are made from 57% recycled plastic
•
Adding symbols to our instore marketing materials so instore colleagues know how to recycle them
•
In our offices we have upgraded to LED lighting and have an active campaign ongoing to reduce consumption of single-use
plastics and paper
•
Updated our Wholesale Credit Risk Policy such that the Group will not directly finance companies or organisations whose
main activities actively contribute to climate change.
Environmental Key Performance Indicators (KPIs)
The following table compares Scope 1 and 2 Greenhouse gas emissions for FY23 (current year) and FY22 (prior year).
Environmental Data
2023
2022
% change
GHG emissions (tCO2e) – Location Based
Scope 1 bs
290.32
345.41
(16)%
Scope 2 emissions
328.00
227.63
44%
618.32
573.04
8%
GHG emissions (tCO2e) – Market Based
Scope 1 emissions
290.32
345.41
(16)%
Scope 2 emissions
-
257.78
(100)%
290.32
603.19
(52)%
The Group’s Scope 1 emissions decrease was predominately driven by lower heating emissions in the offices, due to milder
temperatures. Scope 2 location-based emissions increased this year due to improved data quality in year, removing estimations in the
prior year. Our Science Based Targets Initiative (SBTi) target is based on market-based Scope 2 emissions.
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
9
Note on Scope 1 and Scope 2 emissions
All Scope 1 emissions have been calculated using UK Government’s GHG Conversion Factors for Company Reporting 2022 for all sources.
All Scope 2 Location based emissions have been calculated using UK Government’s GHG Conversion Factors for Company Reporting
2022. Market based Electricity is covered by either a Power Purchase Agreement (PPA), a certified green tariff, or falls within onsite
renewable generation from wind and solar energy.
The Scope 1 and Scope 2 emissions disclosed above relate to electricity and gas used in Group office locations and company car fuel
use associated with Group employee travel. Note it does not currently include a percentage allocation of office locations for centralised
shared services.
Note on scope 3 emissions
The SBTi drives ambitious climate action by enabling companies to set science-based emissions reduction targets. Financial
institutions differ from other economic sectors in that they provide finance to the companies that are responsible for reducing
emissions, rather than exercise direct control over emission reductions. Therefore, financial institutions require an approach within the
SBTi that is tailored to their role. Currently unsecured consumer lending products are out of scope of the SBTi guidance for financial
institutions.
In the absence of a methodology to calculate our scope 3 impact, we are none the less considering actions that will have a positive
impact in this area. Active monitoring and management of our metrics and targets within our risk appetite statements contribute to
this effort.
TCFD Roadmap
We are committed to seeking to better understand climate-related risk in relation to our business and prepare a response in
alignment with the Task Force for Climate-related Financial Disclosure (TCFD). We have been working hard to update our governance
and consider the impacts of climate change throughout our normal business practices. This section of our annual report provides an
update on our progress against the TCFD framework and indicates areas of future focus.
Governance
The Board’s oversight of climate-related risks and opportunities:
Achievements
to Date
• The Bank Board has oversight of the Group’s approach to managing climate change risks. This includes regular updates from
the ESG Forum on plans to meet our climate strategy and progress against our Scope 1 and 2 targets. The Group is aligned
with Sainsbury’s Group governance on ESG matters with the Group’s strategy presented at the Sainsbury’s Group ESG Steerco.
• Executive Risk Committee (ERC) and Board Risk Committee (BRC) have oversight of climate related financial risks.
• The Bank Board is responsible for assessing and approving the climate-related disclosures in the annual report
Future Focus
• To establish and set the Group’s Strategy in relation to scope 3 emission targets and a transition plan to support this.
Management’s role in assessing and managing climate-related risks and opportunities:
Achievements
to Date
• The Chief Risk Officer (CRO) is established as the Senior Manager responsible under the Senior Management and Certification
Regime (SMCR) for managing the financial risks from climate change. The CRO chairs the ESG Forum which manages our
assessment of climate related issues with attendees representing different areas of the business.
• Whilst climate change risk has been assessed in the context of the Group’s current suite of principal risks in line with the risk
management framework, it was decided to establish a standalone ESG Policy which is currently being finalised. This
articulates the types of climate-related risks that the Group is exposed to, definitions of the Group’s risk appetite metrics in
relation to climate, an outline of the minimum standards for the management of climate related risk, and a description of
the Group’s governance structure for the management of climate related risks.
Future Focus
• Board approval of the ESG policy and risk appetite metrics.
• Continue to build knowledge and further embed business processes to support oversight and management of climate
related risks and opportunities within the Group’s business strategy.
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
10
Strategy
The climate-related risks and opportunities we have identified over the short, medium and long-term:
Achievements
to Date
• Risks and opportunities deemed material to our five-year financial planning cycle are viewed as short-term. Aligned with
SBTi’s guidance for financial institutions, long-term has been defined as beyond 15 years. Medium-term is therefore within
the next 5-15 years.
• Our target to reduce emissions from our own direct operations to net zero by 2035, against a 2019 baseline, is expected in the
short to medium term horizon.
Future Focus
• Continue to embed climate-related decision making in business activities.
The impact of climate-related risks and opportunities on our businesses, strategy and financial planning:
Achievements
to Date
• We have embedded policy and procedures within business planning to ensure that key product and process decisions and
the allocation of change resources considers climate related risks and opportunities.
Future Focus
• Further embed climate considerations into our supply chain and procurement processes
The resilience of our strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario:
Achievements
to Date
• Climate stress testing was introduced as part of the Bank’s ICAAP in 2021. The analysis included both a short-term
assessment which considered the financial risks from climate change within the existing business planning horizon and a
longer-term assessment of a range of different climate-related scenarios. At the time both assessments were limited and
as a result highly qualitative in nature.
• This year, the Group’s approach to climate stress testing has evolved to obtain further insights into climate related financial
risks using a more detailed modelled approach based on the three Climate Biennial Exposure Scenarios provided by the
Bank of England, assessed over a 30-year period.
• As part of this approach the Group’s lending portfolios were split out according to sector, region and local area to ascertain
those customers who may be most sensitive to physical and transition type risks under these different stressed economic
scenarios.
• The results of the stress testing exercise noted that the Group is most sensitive to scenarios where there are broader
economic disruptions from the transition to net zero, especially impacting its credit risk profile via changes to
unemployment. This is in line with its previous qualitative assumption given the Bank is a UK based unsecured lender, has
no corporate lending and a mortgage portfolio in run down.
• The outcome from the scenario analysis is being used to assess the overall risk profile and business strategy of the Group
and to help form strategies to adopt the business model over time in light of climate changes.
Future Focus
• Continue to enhance scenario modelling capabilities.
• Ensure we continue to respond to developing regulatory requirements on the approach to climate related risk
Risk Management
The process for identifying and assessing climate-related risks, the process for managing climate-related risks, and how our
processes for identifying, assessing and managing climate-related risks are integrated into overall risk management:
Achievements
to Date
• In line with PRA guidance (SS3/19), we have developed a strategy to identify, assess and manage our exposure across the
key areas of governance, risk management, scenario analysis and disclosure. A framework has been established to ensure
appropriate visibility of the risks arising from climate change and our ICAAP includes an assessment of the impact of
financial risks from climate change, including the impact of extreme weather on our ability to serve our customers.
• We have assessed climate related risk factors across credit, market and operational risk and have also considered
reputational risk. To date none of the assessed risks has resulted in a material financial impact, however we continually
monitor the outlook and amend our responses and risk appetite accordingly.
• See Risk Overview section on page 21 for more details
Future Focus
• Continue to further integrate climate related risk management across business processes.
Metrics and Targets
The metrics used by the organisation to assess climate-related risks and opportunities:
Achievements
to Date
• The Group is included in the Sainsbury’s Group commitment to become a net zero operation by 2035. Further metrics have
been proposed as part of its risk appetite suite of metrics, which requires final Board review and sign off,
Future Focus
• Remuneration targets related to sustainability commitments to be agreed and set.
• Continue to improve data availability and accuracy to monitor and track progress against emissions targets.
• Board approval of risk appetite metrics
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
11
Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (“GHG”) emissions, and the related risks and the targets used by
the organisation to manage climate-related risks and opportunities and performance against targets:
Achievements
to Date
• Location based and Market based GHG emissions (tCO2e) have been disclosed for Scope 1 and Scope 2.
• The Group is included in the Sainsbury’s Group commitment to become a Net Zero operation by 2035 in a bid to limit global
warming to 1.5°C. This target includes our Scope 1 and 2 emissions, which have been approved by the Science Based Targets
initiative (SBTi) at a Group level, covering our direct and indirect emissions within our operations.
Future Focus
• Currently unsecured consumer lending products are out of scope of the SBTi guidance for financial institutions. We expect
to set targets aligned with the SBTi approach as these methodologies develop.
• Continue to monitor our performance against our climate-related targets
Social Strategy
Customers
We have a customer strategy that makes best use of our data and insight to ensure we speak to our customers about relevant topics,
at the right time and through the right channels. We consider not only acquiring new customers, but also how best to retain and
reward those already with us. We also want to make our services as simple as possible for everyone to use, including people who
have a disability. Our website sets out the areas we are working hard to continually improve our online accessibility:
https://www.sainsburysbank.co.uk/onlinesupport/support-online-accessibility
This year we commenced preparation for the forthcoming Consumer Duty regulation to ensure that good customers outcomes are
delivered to all customers, including vulnerable customers. More detail on this programme of work has been included in the s172
statement on page 7.
Customer satisfaction is measured through Net Promoter Score (NPS), capturing online and telephone feedback, and is reported to the
Board. Findings are used to improve our customers’ experience and engagement with knowledge being shared across all our business.
We also have a clear process for responding to customer complaints and any key themes that are identified are reviewed by the Board
and senior management.
Communities
The Sainsbury’s Group Values and Sustainability Plan underpin our approach to what we do, and how. By acting
in the best interests of all our stakeholders, we can make a sustainable and positive contribution to our
community. We also know that playing an active and supportive role in our community is really important to our
colleagues. It makes us all feel good to know we’re doing something for someone else. We actively participate in
national awareness events, such as LGBT+ History Month, Black History Month and Purple Tuesday.
In 2022/23, our colleagues raised over £60,000 for charity, with £55,000 of this for Maggie’s who help to provide
free practical, emotional and social support to people with Cancer. Maggie’s have been our charity partner since 2019 and we have
raised over £150,000 for Maggie’s Centres since then.
Colleagues
We aim to make the Group a great place to work for all colleagues. Our ‘Great Place to
Work Group’ is part of the group-wide approach, enabling colleagues’ voices to be
heard and providing an effective way to communicate what matters to our colleagues
to make a difference in our business.
This financial year, we’ve enhanced our colleague proposition with the introduction of
Smarter Working – a big, ambitious change for our business with a focus on more
efficient meetings and working practices to allow more flexible working for all
colleagues. By empowering our teams to work differently, we can individually and
collectively be more productive, alongside having more time for customer-centric
thinking, innovation, focussed work and personal development. And we unlock better
flexibility, choice, and balance in the way we work. It’s a bold opportunity to make
things better for everyone, boost our productivity and engagement, and deliver
improved outcomes for our customers.
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
12
Listening to our colleagues
How it feels to work at the Group makes us different because our Values guide everything we do. We want our colleagues to feel
connected and engaged and we measure this through our annual colleague engagement survey. The colleague happiness score of 71
for FY23 is up from 66 last year. Feedback on how line management treat, and support colleagues continues to be a real positive, with
colleagues saying they felt supported with their wellbeing, are well communicated to and that their line manager is approachable and
accessible. We also carry out an additional check-in survey to ensure we’re engaging with colleagues regularly on how they’re feeling
and get their input on business activities.
A diverse and inclusive place to work
As part of the Sainsbury’s Group, we support the Sainsbury’s Group’s vision to become the ‘most inclusive’ retailer by embracing our
differences. The activities we’re undertaking to be a more diverse and inclusive organisation are fundamentally about fairness and
equality. We are active in our drive for inclusivity and the progression of our diverse talent. With this diversity comes a variety of ideas
and views that inform decision-making and enable us to understand our customers better.
Being an inclusive organisation with diverse representation at all levels of our business is important to us. We acknowledge we still
have a way to go, and we are committed to driving positive, sustainable change to improve the lived experience and opportunities for
under-represented groups, be they colleagues or customers.
It’s important to highlight that it’s not mandatory for colleagues to share their ethnicity with us, in the way it is for gender. In FY23,
81% of colleagues shared their ethnicity with us (up from 78% last year).
We have workplace adjustments process in place for our colleagues who are living with a disability or long term health condition which
operates through the Government’s Access to Work scheme. Workplace adjustments can be made at any point during a colleague’s
employment with us.
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
13
Gender Pay Gap
Note the statutory gender pay gap disclosure is for colleagues employed by Sainsbury’s
Bank legal entity. Both the Bank and Argos Financial Services are also included within the
Sainsbury’s Group disclosures, which can be found at:
https://about.sainsburys.co.uk/sustainability/better-for-everyone/gender-pay-gap
The mean gender pay gap of 34.3% (as at April 2022) has marginally improved from 35.5% in
April 2021. The gap is, in part, reflective of the number of in-store Travel Money Bureaux
colleagues with around 32% of Sainsbury’s Bank colleagues working in these roles on hourly
rates of pay and over 70% of these roles being held by women. In addition to the Travel Money
colleague composition, Sainsbury’s Bank still has more men than women in the most senior
roles and more women than men in hourly paid positions, further impacting the pay gap.
We continue to see an improvement in female representation at senior levels since signing up
to the Women in Finance Charter (WIF) in 2018. We had a target to achieve 40% female
representation at senior levels by February 2024. We have managed to meet this target a year
early, reaching 41% by February 2023, up from 37% last year.
We actively support our colleagues of all gender identities through our inclusion strategy and
our LGBT+ colleague network, Proud@Sainsbury’s.
Ethnicity Pay Gap
Sainsbury’s Group include voluntary disclosures on the ethnicity pay gap at a group level. This
disclosure
includes
Bank
colleagues
and
can
be
found
at
https://about.sainsburys.co.uk/sustainability/better-for-everyone/gender-pay-gap
Human rights and modern slavery
The Group has a zero tolerance towards modern slavery and human trafficking. We are committed to acting ethically and with integrity
in all of our business relationships. We work closely with our business partners, suppliers, and supply chains to ensure there is no place
for modern slavery and human trafficking in any area of our business. We regularly review our processes and controls to prevent
modern slavery and human trafficking. Our policies and procedures support and encourage colleagues to raise concerns relating to
modern slavery or the presence of it in our supply chain at the earliest opportunity. Our full Modern Slavery statement is published on
the Bank’s website at https://www.sainsburysbank.co.uk/~/media/files/pdf/modern-slavery-statement.pdf.
Anti-Corruption / Anti-Bribery
As a financial services provider, the Group is exposed to the risk of facilitating bribery or aiding corruption through the provision of
financial services. This risk is managed through a clear set of policies, procedures and controls which are communicated to colleagues
through regular mandatory training. The training material is reviewed and updated to reflect changes in legislation or best practice.
The Supply Chain Management team regularly monitors suppliers to ensure that processes and controls are in line with the Group’s
required standards.
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
14
Other Key Stakeholders
Investors
J Sainsbury plc owns 100% of our equity capital and we also have debt investors through our Tier 2 capital issuance. Our Board sets our
risk appetite to support and protect investor value and to ensure we operate within appropriate and agreed levels and types of risks.
Our strategic aim is to be the provider of Financial Services for loyal Sainsbury’s Group customers. The Group’s interests are represented
by an appointed Non-executive Director to ensure effective challenge and collaboration to grow our connected services. Where interests
are not aligned, this is managed through disclosure and activities to minimise potential conflicts.
Suppliers
Our Board understands the importance of our supply chain in delivering our plans and the long-term success of the business. We seek
a strong degree of engagement with 3rd party suppliers across the end-to-end supplier management process, from sourcing to
procurement to relationship management to contract reviews. We recognise that when we outsource a service, we do not outsource
the responsibility. We ensure our suppliers are compliant with regulatory requirements and have the necessary controls in place in line
with risks to make sure we continue to meet a high standard of conduct for our customers. Our Supply chain Oversight Committee
provides performance oversight of our suppliers and reports to senior management and the Board.
Continuous and pro-active collaboration with our suppliers is undertaken on a regular basis. This provides a forum for developing the
business relationship and to ensure we receive an effective service, identify and manage risk appropriately and operate in line with our
values. A key factor in building effective relationships with our suppliers is ensuring our requirements are clear and that they are paid
on time. The Bank’s iSupplier internet portal provides suppliers with access to the purchase orders raised and allows them to allocate
their respective invoices once they have fulfilled the order requirements.
Regulators
We are regulated by the Prudential Regulation Authority for prudential issues and by the Financial Conduct Authority for conduct of
business matters. We engage with regulators on an open and proactive basis, ensuring full compliance with the letter and spirit of the
rules we operate within.
We recognise the trust that customers place in the Sainsbury’s and Argos brands and seek to maintain that by operating in a safe and
sound way. Our Head of Conduct and Compliance provides oversight of any emerging compliance risks and reports any areas of concern
to the Board.
Consumer Duty
During the financial year, the Board and management invested extensive time and effort in understanding and monitoring the
implementation of the FCA’s new Consumer Duty rules. In March 2022 the Board was provided with a high level overview of Consumer
Duty and its potential impact on the Bank and its subsidiaries together with an overview of the preparatory work underway at the time
to meet the requirements of this significant regulatory change. This allowed the Board to understand and query the requirements from
the business between then and July 2023 (when the new regulation comes into effect).
At the outset, the Board agreed that Consumer Duty related decisions may influence the strategic direction of the Group’s products
and services, determine how successfully they met the needs of the Group’s customers and would define to what extent business
profitability would be impacted. A dedicated change project was established, with the Bank’s Chief Customer Officer appointed as
Accountable Executive for its delivery although, given the cross-cutting nature of the changes needed, other holders of Senior Manager
Functions within the Bank were appointed with accountability for delivering different aspects of it.
At its request, regular briefings on progress against the agreed milestones were provided to the Bank Board with extended updates
provided by the Accountable Executive at its meetings in August, September and October 2022 and February 2023.
One of the Bank’s Independent Non-Executive Directors was appointed as Board Champion for Consumer Duty, although all Board
members were fully engaged in the project via the regular briefings. The Board Champion interrogated the detailed plan and worked
with the business to ensure it was robust. The Board then signed off the Consumer Duty implementation plan at its October 2022
meeting in advance of the due date of the 31st October, 2022.
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
15
The Board agreed that adherence to the new Consumer Duty rules did not fall to one individual in the Group but to all colleagues and
that compliance would support both the sustainability of the business and its customer driven culture. The rules would also reinforce
a culture of fairness and reasonableness with the Group’s colleagues.
During the regular briefings, the Board challenged management on whether they were satisfied that the Group was identifying all
vulnerable customers properly. Management confirmed that the project would integrate its existing work on customer vulnerability
into Consumer Duty. ExCo members have been more closely involved in strategic projects, specifically the development of the new
Everyday Credit Card and Essentials Car insurance.
The Board agreed that compliance with the new Consumer Duty rules would ensure a positive impact on the communities the Group
serves and would demonstrate greater levels of care for vulnerable customers in society. The Board was also advised that delivery of
Consumer Duty would encourage greater collaboration and shared values with suppliers to achieve fair value and good outcomes for
customers, whilst achieving mutually beneficial business models.
Overall, the Board was fully engaged with the development of the plans for compliance with the new Consumer Duty rules, devoting
extensive time at its meetings to it, challenging management on progress and signing off the plans and approach as necessary.
Key Performance Indicators (KPIs)
Financial
Deliver the financial plan
Underlying FS uPBT – profit before tax before any royalties paid to Argos and one-off
items that are material and infrequent in nature
Return on capital employed – underlying FS profit after tax
divided by average equity
Net Interest Margin – net interest income as
a percentage of average interest-bearing
assets
Cost Income ratio (underlying) – Underlying
operating expenses as a percentage of total
income
Bad Debt Asset ratio – Impairment losses as a
percentage of the average balance of loans and
advances to customers
58
64
FY23
FY22
5.5%
6.0%
FY23
FY22
5.1%
4.5%
FY23
FY22
64%
68%
FY23
FY22
2.1%
1.2%
FY23
FY22
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
16
Customers
To be the provider of financial services for loyal Sainsbury’s Group
customers, delivered through simple mobile led customer journeys
Safe and Sound
Manage the business within Risk Appetite
Active Customer numbers (million) – the number of customers who hold
an active account (savings / loans / credit card / insurance policy)
Tier 1 Capital Ratio – Tier 1 capital as a percentage of risk-
weighted assets
Net Promoter Score - proportion of customers who have completed a
transaction classed as ‘promoters’ net of ‘detractors’ when considering the
likelihood of recommending the Bank to a friend
Liquidity Coverage Ratio (Spot) - Percentage of the stock of high
liquid assets such as cash to net cash out flow over a 30-day period
Colleagues
Continue to focus on an outstanding and engaged team
Happiness Score - measures how
happy colleagues are working at
Sainsbury’s Bank. Includes AFS.
Females in Senior Roles – includes senior level
colleagues and Board members. Includes AFS.
Ethnically Diverse colleagues in Senior Roles – includes
senior level colleagues and Board members. Includes AFS.
Our performance, including reference to the above KPIs is further outlined in the business review on page 4 and the financial review
on page 17.
1.9
1.8
FY23
FY22
Bank
15.5%
15.6%
FY23
FY22
2.1
2.1
FY23
FY22
AFS
52
52
FY23
FY22
Bank
55
56
FY23
FY22
AFS
291%
190%
FY23
FY22
41%
37%
FY23
FY22
7%
4%
FY23
FY22
71
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
17
Financial review
This year we have made an Underlying Profit in Financial Services
(before royalties paid to Argos) of £58m for the financial year,
compared to £64m in the prior year.
Underlying Income is 18% higher than prior year driven by recovery
of credit demand, improving yields and continued recovery of
commission and fee-based income as foreign travel resumed.
Improving our cost to income ratio continues to be a key priority for
the business. Notwithstanding our continued focus on costs, the improvement this year comes primarily from the recovery in income
post Covid-19 as volumes return with close management of yields and funding.
Higher Impairments reflect the latest economic outlook assumptions, higher unsecured lending balances and an increase in arrears
from the low level of the prior year.
As disclosed in J Sainsbury plc’s preliminary results for FY 21/22, a £50m dividend was paid from Sainsbury’s Bank to J Sainsbury plc for
the first time in April 2022. The Bank remains well capitalised with a Total Capital ratio of 17.9%.
Summary Income Statement and Balance Sheet
The Group's performance for the year ended 28 February 2023 and financial position at the end of that period are presented in the
income statement and balance sheet. A summarised income statement and balance sheet are presented below:
Summary income statement
2023
2022
Change
£m
£m
%
Statutory Income
447
359
25
Add: AFS Income/ Royalties to Argos
9
26
(65)
Underlying FS Income
456
385
18
Statutory Expenses
(298)
(280)
6
Add: items excluded from underlying results*
6
19
(68)
Underlying FS Expenses
(292)
(261)
12
Profit/(Loss) on financial instruments
2
4
(50)
Add: items excluded from underlying results*
(1)
(2)
(50)
Underlying FS Profit before Impairments
165
126
31
Impairment losses on Financial Assets
(107)
(62)
73
Underlying FS uPBT**
58
64
(9)
Less AFS Income in Argos
(11)
(10)
10
Less: Net AFS royalties to Argos
2
(16)
(113)
Underlying Profit before Taxation
49
38
29
Less: items excluded from underlying results
(5)
(17)
(71)
Statutory Profit before Taxation
44
21
110
* Items of an unusual and infrequent nature that do not relate to the Group’s underlying performance are excluded in presenting underlying profit before tax.
Further detail on non-underlying items can be found in Note 8.
** Underlying FS uPBT represents our profit before net royalties paid to Argos
Statutory profit before tax for the year ended 28 February 2023 was £44m compared to £21m in the prior year. This was driven by a
29% increase in underlying profit, reflective of the ongoing recovery from Covid-19 and a 68% decrease in non-underlying operating
expenses as the prior year included one-off costs from the final portfolio transition from Lloyds Banking Group under our New Bank
Programme.
Underlying FS uPBT for the year end 28 February 2023 was £58m compared to £64m in the prior year, with Underlying FS Profit before
Impairments £165m, 31% higher than prior year.
Total underlying FS income increased by 18% to £456m, with net interest income up 15% due to higher unsecured balances, improving
yields and a focus on managing the increased cost of funding. Net fee income, up 59%, has shown recovery post Covid-19 within Travel
Money as demand for foreign travel returns and in Credit Cards due to higher retail spend.
35
24
14
14
9
26
58
64
FY23
FY22
Financial Services uPBT £m
AFS (recognised by Argos)
AFS (recognised by Bank)
Bank
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
18
Underlying FS expenses increased by 12% to £292m largely due to the reopening of the Travel Money business, new business volume
growth and higher depreciation costs following the delivery of strategic projects (see intangible assets comment below).
Impairment losses increased by 73% reflecting the latest economic outlook assumptions on inflation, unemployment and GDP, as well
as higher unsecured lending balances (up 10%) and an increase in arrears from the low levels of the prior year.
Summary balance sheet
2023
£m
2022
£m
Change
%
Unsecured Loans and advances to customers
4,729
4,296
10
Secured loans and advances to customers
564
771
(27)
Cash and cash equivalents
646
508
27
Debt Securities
741
443
67
Intangible assets
179
191
(6)
Tangible assets
9
9
-
Other assets
341
318
7
Total assets
7,209
6,536
10
Customer deposits
4,735
4,235
12
Wholesale funds
1,212
1,024
18
Subordinated debt
122
179
(32)
Other liabilities
274
220
25
Total liabilities
6,343
5,658
12
Net assets
866
878
(1)
In balance sheet terms, our unsecured loans and advances to customers increased by 10%, notably Loans advances increased by 5%
and our Credit Card advances by 20% as demand for unsecured credit started to recover. Mortgage balances have reduced 27% over
the year, with balances ending the year at £564m.
Cash and cash equivalents increased 27% and debt securities by 67% reflecting our investment of excess deposits in additional high
quality liquid assets.
Intangible assets decreased by 6% as our capital investment spend returned to more normal levels. Last year included the addition of
2 major strategic priorities – the new Monthly Payment Plan product in Argos Financial Services and enhancements to our banking
platform to offer fully digital onboarding and servicing experience. Further enhancements to both these continued in 2022/23.
To support our growth in consumer lending, we grew customer deposits by 12% whilst carefully managing customer savings rates, the
average blended rate increasing by 55bps.
Net interest income
Net interest income summary
2023
2022
Change
£m
£m
%
Interest receivable
394
322
22
Interest payable
(74)
(43)
72
Net interest income
320
279
15
Net interest margin
5.1%
4.5%
0.6
Interest income increased to £394m (22%) due to unsecured credit balance growth, yield management and higher Bank of England
(BoE) base rate driving higher income from Treasury Assets. Partially offsetting these gains, mortgage balances reduced by 27% in line
with our plans to run off this portfolio.
Interest payable increased by £31m (72%) with the higher costs of funding being driven by increases in the BoE base rate and SONIA
(Sterling Overnight Index Average).
Consolidated net interest margin increased by 60 basis points to 5.1%, driven by the growth in unsecured lending (up 10%), whilst lower
margin Mortgage balances fell (down 27%), unsecured yield increases and management of funding costs.
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
19
Fee, commission, and other operating income
Fee, commission, and other operating income summary
2023
2022
Change
£m
£m
%
Banking income
72
62
16
Insurance income
36
39
(8)
Other Income
1
2
(56)
Add: Argos Care Warranty Income1
11
10
10
Total fees and commissions receivable
120
113
6
Total fees and commissions payable
(10)
(29)
(66)
Other operating income
28
6
367
Add: Net AFS Royalties to Argos1
(2)
16
(113)
Net fees, commission, and other operating income
136
106
28
1. Note for Statutory reporting Argos Care Warranty Income is deduced from Commission Income (as reflected in Argos results) and the net of Argos Royalty
Payment and Argos Retailer Fees is offset in Fees Payable.
Banking income increased by 16% largely due to higher Credit Card retail spend (14%) driving higher interchange income along with
higher ATM transactions (3%)
Insurance income decreased by 8%, with Car and Home insurance impacted by the new FCA General Insurance Pricing Practices (GIPP)
regulations introduced in January 22. This created significant market volatility and has adversely impacted new business volumes.
The 367% increase in other operating income was driven by our Travel Money business as travel restrictions were lifted, foreign travel
resumed and the full bureaux estate of 225 was re-opened.
Operating expenses and investment
Operating expenses summary
2023
2022
Change
£m
£m
%
Underlying staff costs1
94
85
11
Other underlying operating costs
171
171
-
Depreciation of property, plant and equipment
2
3
(33)
Amortisation of intangible assets
31
21
48
Statutory Expenses
298
280
6
Less: Non-underlying operating expenses
6
19
(68)
Underlying FS Operating Expenses
292
261
12
1. Note that underlying staff costs includes payroll costs only. All other staff related costs (recruitment, training and travel costs) are included in underlying
operating costs.
Underlying FS operating expenses of £292m increased by 12% due to a number of factors, including the re-opening of the full Travel
Money bureaux estate, new business volume growth and colleague pay increases. We also saw amortisation rise following the
delivery of strategic projects, such as enhancements made to our banking platform to offer fully digital onboarding and servicing
experience and the new monthly payment plan product in Argos Financial Services.
Non-underlying operating expenses reduced by 68% to £6m as prior year included costs relating to the migration of the Loans Back
Book, being the final remaining portfolio that sat on our legacy partner’s systems. This year’s cost largely relates to a provision made
for liabilities relating to our historic New Bank Programme transition (£3m) as well as costs relating to Strategic Initiatives (£3m).
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
20
Impairment losses on financial assets
Impairment losses summary
2023
2022
Change
£m
£m
%
Impairment losses on financial assets
107
62
73
Bad debt asset ratio
2.1%
1.2%
9
Higher Impairments reflect both the latest economic outlook assumptions on inflation, unemployment and GDP, as well as higher
unsecured lending balances and the normalisation of low arrears levels in the prior year. Additionally, in line with our strategy of
deepening relationships with Sainsburys Group customers, we have tested a looser credit stance on a limited tranche of personal loans
new business over the period November 2021 to September 2022. In the year ended 28 February 2023 this represented 9% of new
business lending. We are currently monitoring the performance of this cohort to assess overall results as the tranche matures.
Bad debt expense as a percentage of lending increased 90bps year on year to 2.1%, reflecting the above as well as the higher proportion
of unsecured lending balances as the mortgage book runs down.
The Bank remains well capitalised with a CET1 ratio of 15.5%, a slight decrease from 15.6% last year as Risk Weighted Assets (RWA)
have increased in line with higher lending balances. Additionally, the Bank continues to have excess liquidity with a LCR of 291%. This
has risen from the 190% position in February 2022 reflecting investment of our excess deposits in additional high quality liquid assets.
On a profit before impairment basis, the Group has returned to pre Covid-19 levels despite reduced customer lending balances and a
challenging economic environment. Throughout the last few years, we have maintained strong capital and liquidity positions, which
we can now deploy to continue to grow balances and revenues in a safe and controlled manner.
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
21
Risk overview
Introduction
An effective Enterprise-Wide Risk Management Framework (EWRMF) is a core component of our strategy and operations. We adopt a
holistic, end-to-end view of risk, ensuring that the material risks arising from our key processes and activities are effectively identified,
assessed, managed and controlled to make well informed decisions. This is supported and implemented via a three lines of defence
model. This framework covers the Bank and its subsidiaries. The Chief Risk Officer performs a strategic risk management role and is
responsible for managing and enhancing the enterprise-wide risk management framework.
Our approach to EWRMF includes the following key steps:
Sets a clear
understanding of risks
relevant to the Bank
and our approach to
managing them
Sets the level of risk
we are willing to
accept to achieve our
strategic goals
Details the specific
requirements to
support effective risk
management
Identifies key
processes and
ensures operational
effectiveness of
controls
Ensures that risks
are identified,
monitored,
escalated and
treated effectively
Designs, tests and
enhances
resilience to
volatility under
stress scenarios
Risk Strategy and Culture
Our risk strategy and culture are a critical factor within the EWRMF which outlines the shared set of values and behaviours that defines
how all colleagues approach and take ownership for the management of risks within the Bank. This approach is underpinned by the
Senior Managers and Certification Regime introduced by the FCA in 2016. The following key aims and principles define our risk strategy
and culture.
Aims (what)
Insightful
Customer-Focused
Alert
Resilient
Engaged
Principles (how)
We identify and
manage risk
concentrations
Good customer
outcomes are at the
heart of what we do
We anticipate
market trends; we
don’t follow them
We fund before we
lend, and we
control before we
grow
Material risks are
identified, and key
controls are tested
and reported
Risk Appetite
The principal financial and non-financial risks identified within the EWRMF each have qualitative risk appetite statements that informs
our strategy for managing risk. From these statements specific quantitative metrics are established which articulate how much risk
the Group is to take in the pursuit of our strategic objectives. These metrics are reviewed and approved on an annual basis by Board.
The Group’s risk appetite reporting structure includes:
•
A ‘High-Level’ Risk Appetite Statement (RAS) that provides a concise set of key Group-wide targets and limits, with a balance of
current, forward-looking and stress-based metrics for financial and non-financial risks.
•
‘Directional’ RAS limits for each of the Group’s key risk types (e.g. retail credit risk, operational risk). These Directional limits are
designed to give early indications of changes in the internal and external risk environment, providing an outlook on whether
we remain on-track to meet our ‘high-level’ risk appetite targets.
Performance against both the ‘High-level’ and ‘Directional’ RAS measures are monitored and reported to our Executive Risk Committee
(ERC) monthly, and at each Board Risk Committee (BRC). Additionally, escalation processes are clearly embedded in the enterprise-
wide risk management policy framework to notify Senior Executives and Board members of any high-level RAS measure operating
outside of approved thresholds, including recommendations to reduce exposures back within appetite levels.
Risk Strategy
and Culture
Bank Strategy
Informed
Decisions
Risk Appetite
Risk Policies
Evidence of
Control
Risk
Reporting
Resilience &
Stress Testing
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
22
Risk Policies
We have identified a set of principal risk types to which our business model is inherently exposed (see separate section below). Each
risk type has a principal risk owner that actively manages and oversees the risks in the Group in line with associated policy and
supporting policy standards. These policies clearly articulate the objectives and requirements to be met to ensure that that these risks
are managed effectively on a day-to-day basis, in-line with risk appetite.
Evidence of Control
We use Process Risks and Control Assessments (PRCAs) to provide a process-centric approach to identify, measure and control our key
risks, which is underpinned by a robust evidence-based assessment of the control environment. Each material risk is assessed based
on its inherent and residual risk exposure in the prevailing control environment and its target exposure if different from current residual
levels. Where it is identified that controls need to be strengthened, treatment plans are put in place and actioned to mitigate the risk.
This process, whilst in operation, is one which continues to be refined and matured to ensure the organisation’s control environment is
operating within our risk appetite.
Our Business Enterprise Risk Tool (BERT) is used to record and manage our key processes, the controls we have in place, any treatment
plans to improve our control environment and to record our management of risk events. All required colleagues have access to BERT
enabling them to view risk data against their own processes as well as across the organisation.
We continually look to improve our controls in line with industry best practice and the environment in which we operate.
Risk Reporting
Our risk reporting processes are critical to understanding the specific and aggregate levels of risk to which we are exposed and the
effectiveness of our controls to manage these risks. We promote insightful reporting at all levels to encourage debate on what matters
most, and to ensure effective action is being taken at an appropriate level to address any current or emerging areas of concern.
Resilience plans and stress testing
Financial and Operational Resilience are key areas of focus. Our capital and liquidity adequacy are assessed on at least an annual basis
through the Internal Capital Adequacy Assessment process (ICAAP) and the Internal Liquidity Adequacy Assessment process (ILAAP).
Business recovery plans for severe incidents are reviewed on a regular basis, while our Recovery and Resolution Plans review and test
our playbooks and recovery capacity in response to extreme but plausible threats to our viability. The Group also undertakes self-
assessment of its Operational Resilience Framework on an annual basis which is approved by the Board.
Risk Management Structure
We adopt a Three Lines of Defence framework to provide a basis for the identification and management of all risks associated with our
business model and strategy which ensures there is effective oversight and challenge in place.
Our Three Lines of Defence framework is deployed on the following basis:
•
First Line. Primary responsibility for the identification, management, monitoring and control of risks rests with our commercial
and operational teams. The First Line teams, as subject matter experts, own the processes and controls used to manage risks
within risk appetite complying with requirements detailed within risks policies and policy standards.
•
Second Line. The independent Risk Management Division is responsible for setting risk frameworks, policies, guidance and
oversight within which the First Line can manage its risks.
•
Third Line. Our Internal Audit Division provides independent assurance on the effectiveness of risk management and internal
control processes in mitigating and reporting risks.
Emerging Risks
We regularly monitor emerging and evolving changes in the risk environment in order to promote early discussion to understand and
address any threats or opportunities to our business model. We consider specific emerging threats and opportunities under the
following broad themes:
•
Strategic. Reflects both our business model and the markets in which we operate. For example, regular consideration is given
to changes in the competitive market resulting from new entrants or mergers and acquisitions (M&A) activity, and any resultant
impact on margins.
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
23
•
Operational. Reflects changes in technology, the impact of internal processes or emerging external best practices. For example,
we continually review the evolving nature of cyber-crime and its impact on the Group in terms of financial losses and
operational costs to protect our customers.
•
Geo-Political and Economic. Reflects the impact of macroeconomic conditions and government policy on our markets. For
example, we continue to reflect on UK market conditions arising from the Russia/Ukraine conflict and the impact changes in
interest rates, inflation, the employment market or house prices may have on the availability and demand for our products
given the cost-of-living pressures.
•
Regulatory and Conduct. Reflects continued developments within the financial services sector including PRA and FCA
consultations and changes to Basel regulations.
As more information is known about an emerging risk relevant to SBAFS it will be subject to a full risk assessment. Actions will then be
taken to manage and control the risk, unless it is assessed as not relevant or not material to the Group.
Cost of living – Sustained pressures on the cost of living, mostly driven by higher energy and food prices, rising interest rates and
changes to taxes and benefits is straining customer’s household incomes and their ability to spend thereby impacting economic growth
prospects. Customer impacts are closely monitored with support offered as required. The Group also undertakes stress testing
scenarios to ensure it has enough capital and liquidity to operate over a range of economic outcomes including higher inflation.
Russia/Ukraine conflict - The impact of increasing geopolitical risks, via Russia and Ukraine, further exacerbates potential downside
economic risks in energy and commodity shortages, impacting the economic environment.
Cyber Security – The Russia/Ukraine conflict is also raising our inherent Information Security Risk, with heightened monitoring in
place for the detection of ransomware attacks. We also see data protection risks increasing as a function of cyber threats which may
feed through into higher conduct and fraud risk (anti money laundering and sanctions risks) if we were to witness non-compliant use
of data.
Banking Sector volatility – Following the recent bank failures in the US and Europe the Group has been actively tracking
developments and possible impacts to the Group if we were to experience a broader financial crisis, albeit it is noted that the regulatory
response has been strong to date. The Group’s initial focus has been on the risks to the Treasury portfolio, which are held primarily for
liquidity management purposes, consisting of floating rate assets with no exposures or limits to those impacted banks. The credit
quality of the portfolio remains low risk, concentrated in AA-/Aa3 or higher counterparties, suggesting a very low probability of default.
Climate Change potentially exposes the Group to direct and indirect financial risks. In line with PRA guidance (SS3/19), we have
developed a strategy to identify, assess and manage our exposure across the key areas of governance, risk management, scenario
analysis and disclosure. A framework has been established to ensure appropriate visibility of the risks arising from climate change and
our ICAAP includes an assessment of the impact of financial risks from climate change, including the impact of extreme weather on
our ability to serve our customers.
We have assessed climate related risk factors across credit, market and operational risk and have also considered reputational risk. To
date none of the assessed risks has resulted in a material financial impact, however we continually monitor the outlook and amend
our responses and risk appetite accordingly.
Area
Assessment
Impact to date
Outlook
Market risk
Increased sovereign risk could result
in a downgrade to national or local
government’s credit rating, thereby
impacting the value of securities held
on the Group’s balance sheet. Climate
change impacts on carbon-intensive
sectors could also have implications
for a broad range of prices related to
energy and commodities, such as
corporate
bonds,
equities,
and
certain derivatives contracts. These
factors could result in knock-on
impacts to wholesale funding.
The Group’s wholesale funding portfolio has not
been impacted by the financial risks from
climate change to date. The majority of
sovereign assets held by the Group are UK
based, and the UK has been active in
recognising the upcoming risks of climate
change. While a small number of companies to
date have been impacted by price changes and
asset revaluations related to climate change,
this has not impacted any of the assets held as
part of the wholesale funding portfolio.
In April 2021 the Group performed a high-level
review of the wholesale credit portfolio to
assess the potential climate risks each of our
approved counterparties could be exposed to,
Sovereign assets held by the Group are largely
UK exposures, and this is unlikely to change
materially over the next 12 months. Any
changes in valuation to the other investment
assets held as a result of climate change
impacts are likely to be minimal.
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
24
Area
Assessment
Impact to date
Outlook
finding that the majority of our counterparties
are actively assessing the impact of climate
change on their business. The Group continues
to monitor this as part of its wholesale credit
risk review processes.
In June 2021 the Wholesale Credit Risk Policy
was updated to include the statement ‘The
Bank will not directly finance companies or
organisations whose main activities actively
contribute to climate change.’
Credit risk
If damages from physical risks are
not insured, extreme weather events
can create significant losses for
homeowners, reducing their ability to
pay their mortgage and reducing the
value of the property.
This may also have a knock-on
impact on the ability of customers to
repay unsecured lending products.
Increased severe weather conditions
could also start to negatively impact
the
wider
economy
through
sustained
damage
to
national
infrastructure and weakening factors
such as employment, economic
growth and inflation.
The Group does not currently monitor any
changes to the probability of default or loss
given default that arise as a result of physical or
transitional climate risk; this has been deemed
reasonable
given
our
lending
book
is
predominantly unsecured.
As the mortgage book is declining, the potential
increased credit risks as a result of climate
change lie mainly within the unsecured book.
The Group does not expect to be materially
exposed to credit risks as a result of climate
change over the next 5 years. We will however
continue to review our assessments based on
ongoing developments in the banking industry
to ensure any potential increase in climate
related credit risk can be identified if and when
it arises.
Operational
risk
Business continuity is likely to be
impacted by severe weather events,
including
infrastructure,
staff,
processes and offices.
We have seen immaterial impacts to date with
occasional temporary closure of office sites and
Travel Money bureaux as a result of severe
weather events.
Given the infrequent nature of these events it
has been assessed as unlikely that the Group is
at risk from material operational losses as a
result of the operational risks arising from
climate change over the period of our medium-
term financial forecasts, however the impact
will continue to be monitored.
Annual supplier review and onboarding
processes are being updated to ask suppliers to
consider climate risk and environmental
sustainability, however the recent widespread
shift to home working for many workplaces will
reduce the impact of office closures in the
future.
Reputational
risk
The reputation of banks could be
impacted if market sentiment starts
to focus in on the banking sector’s
response to climate risks.
Our response to climate change is outlined in
our environmental strategy on page 8.
Given the increasing regulatory focus coupled
with increasing activity within large UK banks
to set net zero targets and communicate
ambitions to support a green economy, it is
expected that customers will be increasingly
interested in our actions to address climate
risks. The actions of the ESG taskforce will help
to mitigate potential future reputational risks.
Governmental and societal responses to climate change risks are still developing, and are interdependent upon each other, and
consequently financial statements cannot capture all possible future outcomes as these are not yet known.
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
25
Principal Risks
Credit Risk
Operational Risk
Supplier Risk
Financial Crime Risk
What is It?
The risk that a retail customer
fails
to
maintain
their
contractual obligations and
repay their borrowing on time.
Losses or disruption resulting
from inadequate or failed
processes,
people
and
systems or from external
events.
The risk that key services and
processes outsourced to 3rd party
suppliers impair the quality of
internal control within the Group.
Our products are used to facilitate
Financial Crime and/or our processes,
systems
or
controls
are
non-
compliant.
How May it
Arise?
Changes in the economic
conditions in the UK may
impact on the ability of our
customers to repay their loans
leading to an increase in levels
of bad debt.
Inadequate
processes
or
internal controls may result
in poor customer outcomes,
service
disruption,
reputational damage and/or
financial losses.
Inadequate processes or internal
controls
of
the
third-party
supplier may result in poor
customer
outcomes,
service
disruption, reputational damage
and/or financial losses for the
Group. This can also manifest
through lack of appropriate review
and diligence of the third party by
the Group.
Failure to protect our customers may
lead to financial loss, inconvenience to
our customers and result in regulatory
censure and loss of confidence in the
Group.
How Do We
Manage
The Risk?
• We
lend
responsibly,
considering the suitability of
the product to meet our
customers’ needs and their
ability to repay any debt.
• We have policies to support
vulnerable customers and
those
in
financial
difficulties.
• Credit decisioning based on
information from a number
of credit related sources.
• Regular stress testing is
undertaken using a variety
of plausible stress scenarios.
• A process-centric approach
to
risk
&
control
assessment, designed to
focus on what matters
most.
• A clear operating model to
embed
consistency
and
boost capability across the
Group.
• Aggregated reporting and
insight on our risk profile to
ensure the highest priority
items are escalated.
• Monthly review of our Top
Risks with a rolling agenda
of deep-dives.
The management of supplier risk
takes place at two key times,
which are reviewed and approved
by the accountable Executive:
• During the selection of a new
supplier,
with
a
robust
assessment of the high-level
process steps associated with
the service provisions, the key
failure points which could
occur in the process, and an
understanding of the key
controls
and
appropriate
provision of MI that evidences
the effective operation of these
key controls.
• On an ongoing basis as part of
the Group’s operational risk
management framework via
the PRCA process as well as
part of the regular monitoring
of
supplier
performance
(including the use of scorecards
and other governance activity
per
the
supply
chain
framework).
• Prevention and detection processes,
systems and controls in place.
• Proactive engagement with industry,
sharing intelligence.
• Robust horizon scanning to identify,
and impact assess emerging threats.
• Money Laundering Reporting Officer
provides regular reports on financial
crime controls to Executive and
Board committees.
Changes in
2022/23
• Credit tightening due to
economic conditions.
• Investment in collections
and recoveries.
The
Group
has
further
reduced its residual risk
exposure across some of its
top risks by implementing
specific treatment plans over
the course of the year
• Detailed analysis undertaken to
assess the Group's supplier
concentration risk in line with
regulatory
guidance
SS2/21
(outsourcing and third-party risk
management).
• All new contracts now ensure
compliance with SS2/21, and
historic agreements have all
been
remedied,
with
the
exception
of
4
which
are
currently subject to remediation
plans.
Annual review and refresh of key PRCA
controls as well as an update to
associated financial crime related risk
metrics reflecting the current threat
landscape.
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
26
Principal Risks (continued)
Conduct and Compliance Risks
Capital Adequacy Risk
Liquidity, Funding and Market Risks
What is It?
The risk that our culture, behaviour or
actions may lead to a failure to comply with
regulators, or cause harm or detriment to
customers or the markets.
Holding insufficient capital to absorb
losses in normal and stressed conditions
or the ineffective use of capital.
The risk we are unable to meet our
obligations as they fall due or are
adversely hit by market rate or price
movements.
How May it Arise?
Failure to comply with regulation and
legislation and failure to assess and
understand the needs of our customers or
to provide them with the level of product or
service required at all stages of the
customer
journey,
resulting
in
poor
customer outcomes.
Changes in economic conditions or
regulatory requirements may impact on
the level of capital resources required.
Loss of confidence in the Group leading
to a material outflow of deposits and/or
difficulties
in
accessing
wholesale
funding. Sudden changes or volatility in
market values.
How Do We Manage
the Risk?
• Standards communicated through ten
Policy Standards.
• Processes and controls in place with clear
reporting and escalation procedures.
• Independent conduct and compliance
oversight using a robust methodology.
• Horizon scanning of emerging threats or
regulatory changes.
• Regular, open engagement with our
regulators.
• Continuous monitoring of control testing
outcomes through PRCA oversight and
risk based assurance activity.
• Target risk appetite range for level of
capital held.
• Monitoring of capital position, with
triggers in place for escalation.
• Capital adequacy target built into our
planning processes.
• Projected capital position updated for
any strategic or external changes.
• The annual ICAAP determines the
adequacy of the level and type of
capital resources held.
• Risk appetite limits set.
• Daily monitoring and reporting of key
metrics.
• Liquidity and funding targets built into
planning process.
• Liquidity Contingency Plan for action
under stress.
• Hedging strategies used to reduce
exposures to earnings volatility.
• The annual ILAAP determines the
adequacy of liquidity and funding
resources held.
Changes in 2022/23
• Embedding and ongoing enhancements
to Conduct MI reporting and framework.
• Ongoing enhancements to Conduct and
Compliance
policy
statements
to
communicate the standard expected
across the end to end business.
• Participation in several FCA surveys and
multi firm work.
• External assurance of specific elements of
the framework, including Customers With
Vulnerable Characteristics policy and
training materials.
• Extensive planning and activity underway
to implement new Consumer Duty
requirements.
• Updated
Stress
testing
scenario
analysis undertaken in line with BoE
guidelines, assessing the
Group’s
resilience to the effects on capital
adequacy from an economic downturn.
• A review and update of the Group’s key
behavioural assumptions used as part
of the interest rate risk management
process.
• A review and update on the Group’s
liquidity stress testing framework.
Governance
The diagram below shows the Governance structure in place for Sainsbury’s Bank as at 28 February 2023:
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
27
Board-level Governance
The Board is the key governance body, meeting at least nine times a year, holding overall accountability for the decisions made and
outcomes achieved by the Bank, subject to specific reserved matters that require the consent of J Sainsbury plc. Details of the Board
composition may be found below. The Directors of the subsidiary entities hold Board meetings to cover statutory matters however the
key decision making is covered within the Bank Board.
Relationship with J Sainsbury Plc
The Bank is a wholly owned subsidiary of J Sainsbury plc, a listed retailer. J Sainsbury plc currently has one Director on the Bank Board
acting in the capacity of a Non-Executive Director. The J Sainsbury plc appointed director has equal rights and powers as the other
directors. J Sainsbury plc is not involved in the day-to-day management of the Group. However, J Sainsbury plc has certain reserved
powers and decisions which fall within those powers must be referred to them by the Bank Board for their consent before being
confirmed as fully approved. Primarily, these reserved matters relate to significant change in the size and scale of the Group’s
operations, changes in its capital structure including any increases or decreases to capital, significant contracts or legal disputes,
changes to Directors or Officers of the Bank and share schemes.
Board Composition
Chair
The Bank has a separate Chair (an Independent Non-Executive Director) and Chief Executive (an Executive Director) to ensure that the
balance of responsibilities, accountabilities and decision making are effectively maintained. The Chair plays a key role in creating the
conditions for overall Board and individual director effectiveness.
Balance and Diversity
Recruitment on to the Bank Board combines an assessment of both technical capability and competency skills to ensure the optimum
blend of individual and aggregate expertise having regards to the Bank’s long term strategic plan. Such recruitment is subject to the
approval of the Nominations Committee, the Bank Board, J Sainsbury plc (as the decision falls within reserved matters) and the relevant
regulatory bodies (where applicable).
Independent Non-Executive Directors bring their experience to bear from across various sectors, notably Financial Services but also
from across Retail, Digital and E-Commerce. These are key areas of focus for the Bank and aligned to its strategy. Directors update
their skills, knowledge and familiarity with the Bank by meeting senior management, a programme of developmental training (from
both internal and external speakers) and by attending appropriate external seminars. There is an induction programme for all new
Directors which is tailored to their specific needs and which provides access to all parts of the business.
Chief Executive
Officer
Chief
Customer
Officer - Bank
Customer
Divisional Risk
& Conduct
Committee
Chief Risk
Officer
Risk Divisional
Management
Committee
Retail Credit
Risk
Committee
Chief
Financial
Officer
Divisional Risk
Committee
Finance
Committee
Asset &
Liability
Committee
Supply Chain
Oversight
Committee
Chief
Operating
Officer
Divisional Risk
Committee
Director of HR
Divisional Risk
Committee
Conduct &
Compliance
Director
Chief
Customer
Officer - AFS
AFS Conduct
& Commercial
Committee
Internal Audit
Director
Divisional Risk
Committee
Executive
Committee
Executive Risk
Committee
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
28
The Independent Non-Executive Directors are wholly independent in that they have no material business or relationships with the
company that might influence their independence or judgement. In addition, certain governance responsibilities are delegated to
other Board Committees (Audit Committee, Board Risk Committee, Remuneration Committee and Nominations Committee).
Membership of these committees is entirely made up of Non-Executive Directors of the Bank with members of the Bank’s Executive
team and other senior colleagues in attendance. These committees support effective decision making and independent challenge.
Size and Structure
The structure of the Bank Board seeks to ensure the right leadership is in place to become an agile, capital and cost-efficient provider
of simple, mobile-led financial services to Sainsbury’s and Argos customers.
The Bank Board is comprised of an Independent Chair, four other Independent Non-Executive Directors, one Non-Executive Director
nominated by J Sainsbury plc and two Executive Directors – the Bank’s Chief Executive Officer and its Chief Financial Officer. A
biography for each Board Director can be found on the J Sainsbury plc corporate website: www.about.sainsburys.co.uk/about-us/our-
management#sainsburys-bank
The Directors have equal voting rights when making decisions, except the Chair, who has a casting vote at the Bank Board. All Directors
have access to the advice and services of the Company Secretary and may, if they wish, take professional advice at the company’s
expense. Directors’ duties are exercised through the Board and its sub-committees per the Governance structure on Page 26. Each of
these is chaired by one of the Independent Non-Executive Directors.
Director Responsibilities
Accountability
Each Board Director has a clear understanding of their accountability and responsibilities via the Individual Accountability
Regime. Whilst Board oversight is always maintained, key decisions are made by the individuals and committees with the most
appropriate knowledge and experience.
The Board had a programme of nine main meetings in 2022/23. Additional Board meetings were convened to consider certain matters
where it was not felt appropriate to defer until the next full meeting. Governance requirements (including quorum adherence) were
applied as if these additional meetings were full Board meetings. A programme of nine main meetings is planned for 2023/24.
One of the Board meetings is usually set aside each year for strategic planning with the Executive Committee and key stakeholders
from across the Bank, AFS and J Sainsbury plc as appropriate. As part of their annual review, the Bank Chair undertakes a Fit and Proper
Assessment and Attestation with each Board Director. The Senior Independent Non-Executive Director undertakes the same for the
Bank Chair.
Integrity of information
The Board receives regular and timely information at its meeting on all key aspects of the business supported by a range of Key
Performance Indicators (KPIs). The Bank’s various functions prepare and maintain the integrity of this information in accordance with
the Bank’s risk management framework.
Conflicts of Interest
Any potential conflicts of interest are identified and considered as part of the recruitment process for on-boarding new Directors on to
the Bank Board. Where there are any concerns raised, they are considered by the Bank’s Nominations Committee and again at the
Board meeting when the recommendation is brought for approval.
Once in situ, should a Director be offered the opportunity to take up a position (Executive or Non-Executive), whilst retaining their role
on the Bank Board, they are required to inform the Bank Chair and the Board would then be asked to confirm that no conflicts of interest
existed or were perceived to exist before accepting the additional role. Where there are any potential conflicts, appropriate safeguards
would be implemented.
Committees
A number of Board functions are delegated to four key sub-committees. The role and scope of authority for each sub-committee is
fully outlined in a documented Terms of Reference:
•
Audit Committee. The Audit Committee’s key responsibility is to advise the Board on the Bank’s financial statements,
including systems and controls and related policy issues together with relationships with external auditors. The Audit
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
29
Committee also reviews and challenges where necessary management’s response to any major External or Internal Audit
recommendations. The Committee is responsible for reviewing and approving the internal audit plan and budget, and for
ensuring that the function is adequately resourced. The Audit Committee meets at least four times a year. Additionally, the
Audit Committee will meet with the External Auditors and Sainsbury’s Bank Internal Audit Director without Executive
Management being present.
•
Nominations Committee. The Nominations Committee is responsible for reviewing the structure, size and composition of
the Board. The Committee is also responsible for the succession planning of the Board and the Executive Management Team
and for ensuring a formal, rigorous and transparent process for recommending appointments to the Board to the Bank’s
shareholder. The Bank recognises the benefits of achieving a diverse Board and Executive Management Team to reflect the
environment in which it operates. The Nominations Committee will meet as required.
•
Remuneration Committee. The role of the Remuneration Committee (RemCo) is to determine and agree with the Board the
broad policy for remuneration and for compliance with the Remuneration Code (the Code) to the extent that the provisions
apply to the Bank. RemCo is responsible for recommending, monitoring and noting the level and structure of remuneration
for senior management (categorised as 'Code Staff' for the purposes of the Code) and senior risk management and compliance
colleagues and it continually reviews and assesses the impact of remuneration policies on the risk profile of the Bank and
employee behaviour. RemCo also has oversight over appointment and severance terms for relevant employees. The
Remuneration Committee meets at least four times per year.
•
Board Risk Committee. The Board Risk Committee (BRC) provides the Board with a forward-looking view to anticipate future
risks together with the monitoring and oversight over existing risks within the Risk Appetite set by the Board. It is responsible
for reviewing and reporting its conclusions to the Board on the Bank's risk appetite and the Bank's risk management
framework. The Board Risk Committee meets at least five times a year.
Strategy and risk management
The Board is responsible for the overall strategy and performance of the business and its management of risk. It undertakes a deep-
dive review of the Group’s strategy on at least an annual basis, taking due account of changes in the operating environment and
emerging risks and opportunities. This includes a review of long-term strategic opportunities, building upon the Group’s purpose and
advantages from being part of the wider Sainsbury’s Group.
Responsibilities
In line with the provisions of the Senior Manager & Certification Regime (SMCR), the Group has allocated the Senior Manager Functions
and prescribed responsibilities in so far as they apply to Sainsbury’s Bank plc and its AFS subsidiaries. A Management Responsibility
Map (MRM) is in place to provide a description of the Group’s management and governance arrangements including the reporting lines
and details of the individuals who are part of those arrangements and their prescribed responsibilities. The MRM is owned by the Board.
Risks are identified and managed via the process-centric approach described in the Risk Overview on page 21.
Remuneration
Setting Remuneration
The Board-level Remuneration Committee (RemCo) recommends to the Board the remuneration strategy for the Executive Directors,
Chair, Senior Management and Material Risk Takers. Within this framework, its remuneration policy is aligned to the long-term success
of the Group as well as promoting effective risk management and compliance with applicable statutory and regulatory requirements.
RemCo also has oversight over appointment and severance terms for relevant employees.
Policies
A review is carried out annually (with input from external advisors) to ensure that the remuneration policy and practices are industry
competitive and in line with the size and complexity of the business and compliant with all applicable legal and regulatory
requirements. The policy also sets out the approach which ensures that reward decisions are objective, fair and inclusive.
The Directors’ positions and remuneration status are set out in the Directors’ Report (page 31).
Strategic report
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
30
Executive-level Governance
The Board delegates the appropriate responsibility, authority and accountability to the Chief Executive Officer (CEO) to deliver the
Group's strategy through the appropriate governance committees and the Executive Committee. The CEO chairs the Executive
Committee (ExCo) and is supported by a number of other executive-level committees to provide the appropriate checks, balances and
transparency on decision making.
Each committee has a documented Terms of Reference, with delegated authority to the Chair who is the appropriate identified
accountable individual in line with their Statement of Responsibilities under FCA and PRA rules (Senior Manager Regime).
CEO Executive Committee:
•
Executive Committee (ExCo). The role of the Committee is to advise and assist the CEO in overseeing the Group’s activities,
performance and making significant decisions relating to the executive management of the Group. ExCo meets on a monthly
basis.
Chief Risk Officer (CRO) Executive Committees:
•
Executive Risk Committee (ERC). The ERC is responsible for ensuring that the Enterprise Wide Risk Management Framework
(EWRMF) is effective in ensuring that risks are adequately and consistently managed within risk appetite. In doing so the ERC
ensures that appropriate policies and methodologies are in place to manage the Group’s Primary Risk types. The ERC meets
ten times a year.
•
Retail Credit Risk Committee (RCRC). The RCRC is responsible for monitoring the performance of the retail lending book,
ensuring there is an effective credit risk management framework and that the Group is operating within its credit risk
appetite. The RCRC meets on a monthly basis.
CFO Executive Committees:
•
Asset and Liability Committee (ALCo). ALCo is responsible for ensuring the Group’s balance sheet is managed effectively
and within risk appetite. Its main areas of responsibility are market risk, wholesale credit risk, interest rate risk, liquidity &
funding risk and capital adequacy. ALCo meets on a monthly basis.
•
Finance Committee. The role of the committee is to ensure there are effective levels of governance in place across the
Group’s finance function so that significant decisions are fully informed, transparent, recorded and reported and in line with
risk appetite and relevant governance structures. The Finance Committee meets at least 6 times per year.
•
Supply Chain Oversight Committee. The role of the committee is to ensure there is an effective group-wide supply chain
performance and risk management framework that manages outsourcing, oversees delivery and makes decisions to ensure
the Group is able to robustly manage and oversee its suppliers. The Supply Chain Committee meets monthly.
Divisional Risk Committees
Each division across the Group has its own Divisional Risk Committee (DRC) chaired by the relevant ExCo member. The role of the DRC
is to ensure the effectiveness of the EWRMF within the Division, so that risks are effectively and consistently managed within the overall
approved risk appetite. Each DRC provides input on material risks which may affect the Group to the Executive Risk Committee.
Pillar 3 report
Further information on the risks and controls can be found in the Bank’s Pillar 3 Disclosure Report for the year ended 28 February 2023.
This
report
is
published
in
the
investor
relations
section
of
the
J
Sainsbury
plc
corporate
website:
https://about.sainsburys.co.uk/investors/results-reports-and-presentations#2023
By order of the Board
Donald McNaughton
Company Secretary
26 April 2023
Directors’ report
Sainsbury’s Bank plc Annual Report and Financial Statements for the year ended 28 February 2023
31
Directors’ Report
The Directors have the pleasure in submitting their annual report and the financial statements of Sainsbury’s Bank plc (“the Bank”) for
the year ended 28 February 2023.
Board of Directors
The Board comprises two executive Directors and six non-executive Directors. The position of members who served during the year is
described in the following table:
Name
Position
Remunerating entity
Appointment/ resignation
date
Lesley Jones
Chair (Independent Non-Executive)
Sainsbury’s Bank plc
Carole Butler
Senior Independent Non-Executive*
Sainsbury’s Bank plc
Peter Clarke
Senior Independent Non-Executive
Sainsbury’s Bank plc
Resigned 31/08/2022
Michael Ross
Independent Non-Executive
Sainsbury’s Bank plc
Guy Thomas
Independent Non-Executive
Sainsbury’s Bank plc
Rosanne Murison
Independent Non-Executive
Sainsbury’s Bank plc
Appointed 31/08/2022
Clodagh Moriarty
Non-Executive
J Sainsbury plc
James Brown
Chief Executive Officer
Sainsbury’s Bank plc
Michael Larkin
Chief Financial Officer
Sainsbury’s Bank plc
*Carole became a Senior Non-Executive Director on 16/11/2022
Unless otherwise stated above, all of the Directors in office at the date of this report served throughout the period, and up to the date
of approval of these financial statements.
Board selection criteria
We regard succession at Board and senior management level as a key priority. Recruitment into the Board combines an assessment
of both technical, leadership capability and competency skills to ensure the optimum blend of individual and aggregate capability
having regard to our long term strategic plan. Board recruitment is subject to the approval of the Nominations Committee, the Board
and the relevant regulatory bodies (PRA/FCA).
Board diversity
We are committed to promoting a diverse and inclusive workplace at all levels, reflective of the communities in which we do business.
Our diversity and inclusion vision aligns with that of our parent J Sainsbury plc whose aim is to be ‘the most inclusive retailer’. We will
achieve this aspiration by recruiting, retaining and developing diverse and talented people and creating an inclusive environment
where everyone can be the best they can be and where diverse views are welcomed. The Nominations Committee is responsible for
ensuring there is an appropriate balance of skills and experience across the Board.
Directors’ indemnities
The Bank has provided an indemnity for the benefit of all of its current Directors which is a qualifying third party indemnity provision
for the purpose of the Companies Act 2006. This was in force throughout the financial year and at the date of signing of the financial
statements. Directors’ and Officers’ insurance is provided through the J Sainsbury plc Group policy. Neither the indemnities nor the
insurance provides cover in the event that the Director is proved to have acted fraudulently.
Statement of corporate governance arrangements
The Bank applied the main principles and complied with the relevant provisions of the Wates Corporate Governance Principles for Large
Companies (available on the Financial Reporting Council website). Information demonstrating how the Bank applied the principles can
be found throughout the Strategic Report.
Employee engagement
Refer to the S172(1) statement on page 7 of the Strategic report for details on employee engagement.
Business relationships
Refer to the S172(1) statement on page 7 of the Strategic report for details on business relationships.
Directors’ report
Sainsbury’s Bank plc Annual Report and Financial Statements for the year ended 28 February 2023
32
Colleagues
Refer to the S172(1) statement on page 7 for the Group’s policies on colleagues and the employment of disabled persons.
Independent auditors
Ernst & Young LLP have expressed their willingness to continue in office as auditors.
Disclosure of information to auditors
At the date of this report, each of the Directors in office has taken all the steps that they ought to have taken as a director in order to
make themselves aware of any relevant audit information and to establish that the Bank’s auditors are aware of that information. As
far as each Director is aware, there is no relevant audit information of which the Bank’s auditors are unaware.
Financial risk management
Details of the use of financial instruments, together with risk management disclosures, can be found in note 33 and the Risk
Management section in the Strategic report on pages 21 to 26.
Future developments
The development of the Group is set out in the Strategic Report on pages 3 to 6.
Post balance sheet events
There were no events occurring after the reporting date that require disclosure or adjustment within the Financial Statements.
Going concern
The Directors have considered the appropriateness of the going concern basis of preparation of the financial statements taking into
account the Group’s current and projected performance.
The risk management framework as described in the strategic report on page 21 is considered adequate in managing liquidity and
other key risks in the current environment. The Group continues to maintain its strong capital and liquidity position and has also
been subject to review and challenge by the PRA as part of its remit as lead regulator of the Group.
Further information on the key financial risks of the business can be found in note 33.
The Directors are satisfied that the Group has adequate resources to continue in business for the foreseeable future, being at least 12
months from the date of approval of the Financial Statements, taking into account a range of possible operational, economic and
legal scenarios. Consequently, the going concern basis continues to be appropriate in preparing the financial statements.
Dividends
The Bank profit after tax for the year attributable to the shareholders is £23m (2022: £6m), and on a Group basis including the profits
of subsidiaries was £33m (2022 £18m). In April 2022, the Bank paid a special interim dividend payment of £50m (2022: £nil), and the
Directors do not recommend payment of a final dividend (2022: £nil).
By order of the Board and signed on its behalf by
Donald McNaughton
Company Secretary
26 April 2023
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
33
Statement of Directors' responsibilities
The Directors are responsible for preparing the Strategic report, Directors’ report and the financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared
the financial statements in accordance with UK adopted international accounting standards. 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 Sainsbury’s
Bank plc (‘the Company’) and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors
are required to:
•
select suitable accounting policies in accordance with International Accounting Standard 8: Accounting Policies, Changes in
Accounting Estimates and Errors and then apply them consistently;
•
present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
•
provide additional disclosures when compliance with the specific requirements in UK adopted international accounting
standards is insufficient to enable users to understand the impact of particular transactions, other events and conditions on
the financial performance; and
•
state that the Bank has complied with UK adopted international accounting standards, subject to any material departures
explained in the financial statements.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Annual Report and Financial Statements and Pillar 3
disclosures included on the J Sainsbury plc website. Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
By order of the Board and signed on its behalf by
Donald McNaughton
Company Secretary
26 April 2023
Independent auditors’ report to the members of Sainsbury’s Bank plc
Sainsbury’s Bank plc Annual Report and Financial Statements for the year ended 28 February 2023
34
Opinion
In our opinion:
•
Sainsbury’s Bank plc’s group financial statements and parent company financial statements (the “financial statements”) give a
true and fair view of the state of the group’s and of the parent company’s affairs as at 28 February 2023 and of the group’s profit
for the year then ended;
•
the group financial statements have been properly prepared in accordance with UK adopted international accounting standards;
•
the parent company financial statements been properly prepared in accordance with UK adopted international accounting
standards as applied in accordance with section 408 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 of Sainsbury’s Bank plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year
ended 28 February 2023 which comprise:
Group
Parent company
Consolidated income statement
Statement of financial position
Consolidated statement of comprehensive income
Statement of changes in equity
Consolidated statement of financial position
Cash flow statement
Consolidated statement of changes in equity
Related notes 1 to 39 to the financial statements
(except for items within note 34 which are marked as
unaudited), including a summary of significant
accounting policies
Consolidated cash flows statement
Related notes 1 to 39 to the financial statements (except
for items within note 34 which are marked as unaudited),
including a summary of significant accounting policies
The financial reporting framework that has been applied in their preparation is applicable law and UK adopted international
accounting standards and as regards to the parent company financial statements, as applied in accordance with section 408 of the
Companies Act 2006.
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 parent company in accordance with the ethical requirements that are
relevant to our audit of the financial statements in the UK, including 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.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independent auditors’ report to the members of Sainsbury’s Bank plc
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
35
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 and parent company’s
ability to continue to adopt the going concern basis of accounting included:
•
We obtained an understanding of the Group’s financial statement close process, which included how the going concern
assessment for the Group is undertaken. We engaged with Management early to ensure all key factors were considered in
the Group’s going concern assessment;
•
We obtained an understanding of the Directors’ rationale for the use of the going concern basis of accounting through
reviewing their going concern assessment conclusions, which stressed the underlying forecasts and assumptions, and
performed inquiries of Management and those charged with governance;
•
We evaluated the Group’s going concern assessment which included reviewing the evaluation of the Group’s resilience to
financial and operational stress on capital and liquidity requirements. The Group included a number of adverse scenarios in
their forecasts in order to incorporate unexpected changes to their forecasted capital and liquidity levels and we have tested
the clerical accuracy of these forecasts and assessed the assumptions applied within the forecasts;
•
We evaluated the Groups assessment by considering viability and operational resilience under different stress scenarios,
including the impact of strategic plans and the continued impact of the current economic environment. We also challenged
the Group’s considerations of climate change risks in their assessment of going concern and associated disclosures;
•
We have reviewed the stress and reverse stress testing performed in order to identify what factors would lead to all of the
Group’s capital and liquidity eroding during the going concern period and assessed those factors against the likelihood of
occurrence;
•
We reviewed the Group’s going concern disclosures included in the annual report in order to assess whether the disclosures
were appropriate and in conformity with the reporting standards.
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 and parent company’s ability to continue as a going concern for a
period of 12 months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this
report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s
ability to continue as a going concern.
Overview of our audit approach
Audit scope
•
We performed an audit of the complete financial information of the group and parent
company.
•
All audit work performed for the purposes of the Group audit was undertaken by the
primary team.
Key audit matters
•
Expected credit loss provision
•
Effective Interest Rate accounting
•
Valuation of intangible assets
•
Reliance on the processes and controls of third-party service providers
Materiality
•
Overall group materiality of £6.2m which represents 1.5% of gross margin.
Independent auditors’ report to the members of Sainsbury’s Bank plc
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
36
Climate change
Stakeholders are increasingly interested in how climate change will impact Sainsbury’s Bank plc. The Group has determined that the
most significant future impacts from climate change on its operations will be from transitional risks on the wider UK economy. These
are explained in the strategic report on pages 23-24. They have also explained their climate commitments on pages 9 to 11 in the Task
Force for Climate-related Financial Disclosures. All of these disclosures form part of the “Other information,” rather than the audited
financial statements. Our procedures on these unaudited disclosures therefore consisted solely of considering whether they are
materially inconsistent with the financial statements, or our knowledge obtained in the course of the audit or otherwise appear to be
materially misstated, in line with our responsibilities on “Other information”.
In planning and performing our audit we assessed the potential impacts of climate change on the Group’s business and any
consequential material impact on its financial statements.
The Group has explained in note 33 to the financial statements on page 98 its articulation of how climate change has been reflected in
the financial statements and of the significant judgements and estimates made in this regard. These disclosures also explain where
governmental and societal responses to climate change risks are still developing, and where the degree of certainty of these changes
means that they cannot be taken into account when determining asset and liability valuations under the requirements of
International Accounting Standards.
Our audit effort in considering the impact of climate change on the financial statements was focused on evaluating management’s
assessment of the impact of climate risk, physical and transition, their climate commitments, the effects of material climate risks
disclosed on pages 23 and 24 including the significant judgements As part of this evaluation, we performed our own risk assessment
to determine the risks of material misstatement in the financial statements from climate change which needed to be considered in
our audit.
Where considerations of climate change were relevant to our assessment of going concern, these are described above.
Based on our work we have not identified the impact of climate change on the financial statements to be a key audit matter or to
materially impact a key audit matter.
Key audit matters
Key audit matters are those matters that, in our professional judgment, 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 our opinion thereon, and we do not provide a separate opinion on these matters.
Risk
Our response to the risk
Key observations communicated
to the Audit Committee
Expected Credit Loss Provisions
Impairment Provision (2023: £259m,
2022: £221m)
Refer to Accounting policies (page 53);
and Note 13 of the Consolidated
Financial Statements (page 66)
Customer receivables comprise
unsecured personal loans, credit cards,
mortgages and store cards.
Credit provisions represent
Management’s best estimate of
We assessed the design effectiveness of
key controls across the processes relevant
to the impairment provision calculation,
involving specialists to assist us in
performing our procedures where
appropriate.
This included consideration of model
governance, data accuracy and
completeness, multiple economic
scenarios, and the allocation of assets into
We are satisfied provisions for the
impairment of loans and advances
to customers are reasonable and
recognised in accordance with the
applicable reporting framework
based on our procedures
performed.
We reperformed the staging and
noted no material differences. We
also performed sensitivity analysis
on the staging criteria and noted
that substantial changes would be
Independent auditors’ report to the members of Sainsbury’s Bank plc
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
37
Risk
Our response to the risk
Key observations communicated
to the Audit Committee
impairment and significant judgments
and estimates are made in determining
the timing and measurement of
expected credit loss (‘ECL’).
Key matters that could result in material
misstatement in respect of ECLs include
the:
(a) Accounting interpretations and
modelling assumptions used to build the
models that calculate ECL;
(b) Input and assumptions used to
estimate the impact of the multiple
economic scenarios (MES);
(c) Allocation of assets to stage 1, 2 or 3
using criteria in accordance with the
accounting standard;
(d) Completeness and valuation of post
model adjustments (“PMAs”); and
(e) Accuracy and adequacy of the
financial statement disclosures.
We consider the risk related to the ECL
provisions continues to be heightened as
a result of ongoing economic
uncertainty.
The accuracy of underlying data upon
which the ECL is calculated is also key to
the overall estimate.
stage 1, 2 and 3.
We reviewed the minutes of the model and
risk committees where inputs,
assumptions, and adjustments to the ECL
were discussed and approved.
We tested the data used in the ECL
calculation by independently reconciling a
sample of data feeding the models to
source systems and underlying
documentation where applicable.
We considered the assumptions, inputs
and formulas used across the entire
population of ECL models. This included
assessing the appropriateness of model
design and the formulae used, considering
alternative modelling techniques and
recalculating the Probability of Default,
Loss Given Default and Exposure at Default
for a sample of the models.
With the support of our internal modelling
specialists, we performed testing over
models implemented during the year to
validate that they were functioning as
intended.
We tested the assumptions and inputs
used in the ECL models with the support of
our internal modelling and economic
specialists. In particular, we challenged the
correlation and impact of the
macroeconomic factors to the ECL and
independently recalculated critical
components of the ECL. In addition, we
assessed the base and alternative
economic scenarios, including challenging
probability weights and comparing to
other scenarios from a variety of external
sources, as well as EY internally developed
forecasts.
We challenged the criteria used to allocate
an asset to stage 1, 2 and 3 in accordance
with IFRS 9 and substantively reperformed
in full the staging calculation to ensure
that assets in stages 1, 2, and 3 were
allocated to the appropriate stage.
needed to the criteria to result in a
material difference.
We ensured that the Audit
Committee were aware of where we
considered the most significant
judgments to have been made in
respect of the economic scenarios
used, the weightings applied to
scenarios, and the utilisation of
PMAs to capture the risk of factors
such as interest rate risk and
inflation. We communicated that
ultimately the considerations made
by management in these areas
meant that the ECL was reasonably
stated.
Other PMAs recorded by
Management were appropriate and
complete.
Our testing of models and model
assumptions identified no
significant matters.
Independent auditors’ report to the members of Sainsbury’s Bank plc
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
38
Risk
Our response to the risk
Key observations communicated
to the Audit Committee
We challenged PMAs for appropriateness
and completeness using our knowledge
and experience across the industry. We
performed testing over material PMAs
together with our internal modelling
specialists. We undertook analysis and
benchmarking to assess whether sufficient
consideration was given to the uncertainty
arising as a result of inflationary and
interest rate pressures on borrowers, which
may not be captured in modelled outputs
given limitations over historic data.
We performed stand back analysis through
industry benchmarking to peers and other
available sources of information to help
assess the appropriateness of the ECL
provision overall.
We assessed the adequacy and
appropriateness of disclosures for
compliance with the accounting standards
Effective Interest Rate Accounting
EIR Adjustment (2023: £108m, 2022:
£112m)
Refer to notes 2,3 and 13 of the
Consolidated Financial Statements
(pages 59, 60 & 66)
Accounting standards require that
interest income on personal loans, credit
cards and mortgages is recognised at the
effective interest rate (EIR). For products
with introductory rates, such as credit
cards and store cards, where the
reversionary interest rate in future years
is expected to be greater but receipt of
such interest income depends on the
customer remaining with the Bank, there
is significant judgement involved in
forecasting customer behaviour and
estimating the future expected cash
flows. As such, we have identified a fraud
risk related to the timing of revenue
recognition through the Management
override of internal controls.
The risks, as we see them, are that:
We assessed the design effectiveness of
key controls across the processes relevant
to the EIR calculation process.
We considered the completeness and
accuracy of data inputs into the models by:
(i) inspecting reconciliations from the
general ledger to the source systems;
and subsequently from the general
ledger to the enterprise data
warehouse.
(ii) testing the data used in the EIR
calculation by independently
reconciling a sample of data feeding
the model from the source system.
We tested the appropriateness of
Management’s assumptions by:
(i)
Reviewing the methodology to ensure
that all key variables were
appropriately considered and were
being accounted for in accordance
with the applicable accounting
standards.
We are satisfied that the
assumptions used in determining
the EIR asset balance are
reasonable and in accordance with
the applicable accounting
framework.
We are satisfied with the
completeness and accuracy of data
used within the EIR models.
Independent auditors’ report to the members of Sainsbury’s Bank plc
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
39
Risk
Our response to the risk
Key observations communicated
to the Audit Committee
(a) the data used in making the estimate
is not complete and accurate;
(b) the judgements made are not
appropriate; and
(c) the calculation methodology is not
applied correctly.
We consider the risk related to
recognition of revenue using the effective
interest rate method, including the
associated fraud risk, to be consistent
with the prior year.
(ii) Comparing judgements to:(a)
observable recent customer
behaviour, including those which
captures the post Covid-19 behaviour;
and (b) product pricing models.
(iii) Testing for indications of
Management bias through:(a)
Comparison of customer behaviour to
observable market data;(b) review of
judgements made by Management for
consistency with prior periods where
appropriate; (c) performing a
sensitivity analysis over the impact of
alternative behavioural lives and
challenging the current behavioural
lives used; and (d) challenging model
alignment adjustments (“true-ups”)
for appropriateness using our
knowledge and experience across the
industry, including assessing the
appropriateness of the data, scenarios
and calculations used in the
determining the true-up applied.
We tested the application of the
calculation methodology by:
(i) Engaging our internal modelling
specialists to test whether the
variables and assumptions stated in
Management’s methodology
documentation are implemented in
management’s models;
(ii) Engaging our internal modelling
specialists to assess the macros that
are used to input the raw data and
perform the related calculations in the
model files;
(iii) Performing testing on the year-end
calculation of EIR, including the
underlying data integrity, the clerical
accuracy of the calculation, and the
application of relevant assumptions.
Valuation of intangible assets
Intangible Assets – Net Book Value
(2023: £179m, 2022: £ 191m)
We obtained an understanding of the
Bank’s plans and considered the related
risks when designing and executing our
We are satisfied that the valuation
of intangible assets is reasonable
and recognised in accordance with
the applicable reporting framework
Independent auditors’ report to the members of Sainsbury’s Bank plc
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
40
Risk
Our response to the risk
Key observations communicated
to the Audit Committee
Refer to Note 19 of the Consolidated
Financial Statements (page 77)
The Bank has embarked on a number of
initiatives as a result of the strategic
changes announced in September 2019.
Additionally, the Bank continues to
update their forecasts as the wider
macro-economic environment changes.
These changes have the potential to
impact the valuation of existing
intangible asset balances, as well as the
capitalisation of future costs incurred.
The risks, as we see them, are that:
(a) The impact(s) on the financial
statements as a result of
decisions in strategic direction
are not recorded accurately or
in a timely manner; and
(b) The judgements made are not
appropriate, including those
related to future forecasts and
the resulting impairment
assessment.
planned audit procedures over impacted
balances.
We obtained an understanding of the key
controls in place over the intangible asset
process, including capitalisation and the
impairment assessment. We assessed the
design and operating effectiveness of
those key controls identified.
We reviewed and challenged
Management’s forecasts at a product level
to identify risk areas within these.
Additionally, we performed a sensitivity
analysis over the growth in net interest
margin for the key banking products where
significant growth is projected (i.e., loans
and credit cards) to determine how profits
would react to changes in key income
drivers.
We also reviewed historical performance
against budget to conclude on the
accuracy of the Bank’s budgeting process.
We obtained Management’s indicators of
impairment assessment that was prepared
at year-end, and performed a review,
critically assessing whether there had been
either:
(i) Any indicators of impairment that
would require the bank to perform a
full impairment assessment to
determining whether any of its assets
are impaired
(ii) Any indication that the impairment
loss recognised in the prior period
may no longer exist or may have
decreased (i.e., reversal of
impairment)
In instances where indicators of
impairment were identified at a product
level, we obtained and reviewed
Management’s impairment assessment.
We undertook an analysis of the updated
cash flow forecasts to identify key
assumptions in the impairment calculation
and whether these appropriately
considered the impacts of cannibalisation
and the related economic uncertainty. This
included challenging the impacts of
based on our procedures
performed.
We raised several challenges with
management, primarily relating to
the forecasted cashflow for one
specific asset held on the balance
sheet where there were indicators
of impairment. Specifically, we
challenged the forecasted sales
growth, the time period used by
management over which cashflows
are forecasted, the discount rate
used, and judgements made in
respect of how the launch of new
products may impact upon future
cashflows from existing products.
We communicated what we
considered to be reasonable
movements in assumptions and
cashflows and how these could
result in an impairment. However
we communicated that we were
satisfied that Management’s view
was within an acceptable range of
outcomes.
Overall, we are satisfied that
management have appropriately
assessed the required indicators of
impairment. We concur with
management’s assessment that
there is no impairment of
intangible assets, and we consider
the overall intangible balance to be
appropriately stated.
Independent auditors’ report to the members of Sainsbury’s Bank plc
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
41
Risk
Our response to the risk
Key observations communicated
to the Audit Committee
strategic management initiatives on future
forecasted periods.
We assessed the methodology applied by
Management in overhead allocation and in
calculating the headroom available. We
undertook stress testing over the related
key assumptions and then assessed the
impact on the impairment assessment
calculations.
We assessed the useful economic lives
assigned to a sample of intangibles assets
to determine whether the assigned lives
are appropriate based on the asset class
and the impacts of any strategic changes.
We also performed a benchmarking
assessment to identify whether
Sainsbury’s Bank’s useful life policies are in
line with industry standards.
We reviewed the intangible asset register
to confirm that no costs were capitalised
for asset categories that were fully
impaired as a result of previous
impairments recorded in the prior year.
Where asset categories had been partially
impaired we verified that sufficient
headroom existed post-impairment for
further additions.
We performed testing over additions to,
and disposals from the intangible asset
register, as well as additions to WIP to
confirm only spend that meets the
capitalisation criteria is included within the
register.
We reviewed significant contracts and
agreements with material third parties of
the Bank and assessed the need for any
onerous contract provisions to be recorded
as a result any changes in strategic
direction during the year.
Reliance on the processes and controls of third-party service providers
Many of the Bank’s IT systems are hosted
by third parties. The Bank receives
reports, prepared by independent audit
firms, on the effectiveness of the third
We performed procedures to obtain an
understanding of the processes which are
outsourced to third-parties and their
impact on the financial statements.
We obtained reasonable assurance
over the Bank’s processes and
controls over the completeness and
Independent auditors’ report to the members of Sainsbury’s Bank plc
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
42
Risk
Our response to the risk
Key observations communicated
to the Audit Committee
parties’ control environments. In some
instances, deficiencies in the control
environment were identified or
assurance was unable to be provided by
the third party over the design and
operating effectiveness of their control
environment.
There is a risk that there is insufficient
oversight of the third-party service
providers and where control deficiencies
at the third-party are identified, a report
is not obtained, or assurance is unable to
be obtained over the third-party control
environment. These risks are:
(a) not mitigated by
compensating controls within the Bank’s
own control environment; and
(b) not appropriately quantified by the
Bank.
We consider the risk related to the
oversight of third-party service providers
to have increased in the current year due
to a change in the Bank’s ability to rely
on the design and operating
effectiveness of controls in place at a key
third party service organisation.
We made inquiries of Management to
understand the process through which the
Bank:
(i)
Monitors control effectiveness at
third parties; and
(ii)
Performs control activities over the
completeness and accuracy of data
received from third parties
For the third-party service provider control
reports obtained by the Bank, we obtained
and inspected the reports to understand
the design and operating effectiveness of
the key controls in place. Where control
deficiencies were identified or assurance
over the control environment was unable
to be provided, we assessed the impact on
our planned audit procedures and, where
necessary, performed incremental
procedures in order to obtain reasonable
assurance over the impacted account
balances.
We reviewed the assessment performed by
Management over the third-party service
provider control reports, including:
(i)
The mapping of the key controls
within the report to the processes in
place at the Bank and identification
of any complimentary end user
controls in place at the Bank; and
(ii)
Management’s evaluation of any
ineffective controls within the
control reports.
Where reports were not obtained or reports
that were obtained were unable to provide
reliance over the third-party control
environment, we obtained and reviewed
Management’s assessment of these
observations and the mitigating controls in
place at the Bank. We tested the
compensating controls where appropriate.
Where we were no longer able to rely on
controls as a result of the deficiencies
identified, we reassessed our planned
audit procedures over impacted balances
accuracy of data received from
third parties.
We inspected the SOC reports and
are satisfied that Management
have responded appropriately to
relevant control deficiencies. We
have also assessed the
implementation of the appropriate
complimentary end user controls
where necessary.
Independent auditors’ report to the members of Sainsbury’s Bank plc
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
43
Risk
Our response to the risk
Key observations communicated
to the Audit Committee
and performed incremental substantive
testing procedures in order to obtain
reasonable assurance over account
balances.
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the
audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the
economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of
our audit procedures.
We determined materiality for the Group to be £6.2m which is 1.5% of gross margin. We have not provided prior year comparatives for
materiality thresholds because previously the Group has not presented consolidated financial information. We believe that gross
margin provides us with an appropriate basis for materiality as the Group is composed of profit-orientated entities. This basis is
consistent with the basis used for materiality in previous periods for the Parent Company financial statements when a consolidated
Group position was not reported.
We determined materiality for the Parent Company to be £4.3m (2022: £3.6m), which is 1.5% (2022: 1.5%) of gross margin.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low
level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was
that performance materiality was 75% of our planning materiality, namely £4.7m. We have set performance materiality at this
percentage due to a limited history of misstatements or significant control deficiencies.
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £0.3m which is set at
5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of
other relevant qualitative considerations in forming our opinion.
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 this 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 the other information, we are required to report that fact.
Independent auditors’ report to the members of Sainsbury’s Bank plc
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
44
We have nothing to report in this regard.
Opinions on other matters prescribed by 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 directors’ report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of
the audit, we have not identified material misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you
if, in our opinion:
•
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; or
•
certain disclosures of directors’ remuneration specified by law are not made; or
•
we have not received all the information and explanations we require for our audit
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement [set out on page…], 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 and 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.
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.
Explanation as to what extent 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 irregularities, including fraud. The risk of not detecting a material misstatement due to fraud
is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery
or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities,
including fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the
company and management.
Independent auditors’ report to the members of Sainsbury’s Bank plc
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
45
•
We obtained an understanding of the legal and regulatory frameworks that are applicable to the group and determined that
the most significant are the regulations, licence conditions and supervisory requirements of the Prudential Regulation
Authority (PRA) and the Financial Conduct Authority (FCA) and the Companies Act 2006.
•
We understood how Sainsbury’s Bank plc is complying with those frameworks making inquiries of Management, internal
audit, and those responsible for legal and compliance matters. We also performed review of regulatory correspondence and
reviewed minutes of the Board and Board Risk Committee meetings held. We gained an understanding of the Bank’s
approach to governance demonstrated by the Board’s enterprise risk management framework (‘ERMF’) and internal control
processes. We also reviewed the Bank’s complaints process and Whistleblowing.
•
We assessed the susceptibility of the group’s financial statements to material misstatement, including how fraud might
occur by assessing the controls that have established to address risks of fraud identified by the Bank, or that otherwise seek
to prevent, deter, or detect fraud. We also considered performance and incentive plan targets and their potential to influence
Management to manage earnings.
•
Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations.
Our procedures involved inquiries of legal counsel, executive management, internal audit, and performed procedures over
the risk of management override of internal control. We also focused our audit procedures on areas identified as higher risk
as referred to in the Key Audit Matters section of this report.
•
The Bank operates in the financial services industry which is a highly regulated environment. As such, the Senior Statutory
Auditor considered the experience and expertise of the engagement team to ensure that the team had the appropriate
competence and capabilities, which included the use of specialists where appropriate.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Other matters we are required to address
•
Following the recommendation from the audit committee we were appointed by the company on 16 August 2017 to audit the
financial statements for the year ending 28 February 2018 and subsequent financial periods.
•
The period of total uninterrupted engagement including previous renewals and reappointments is 6 years, covering the years
ending 28 February 2018 to 28 February 2023.
•
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company and we
remain independent of the group and the parent company in conducting the audit.
•
The audit opinion is consistent with the additional report to the audit committee.
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.
Blake Adlem (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Edinburgh
26 April 2023
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
46
Consolidated Income Statement
For the year-ended 28 February 2023
2023
2022
Note
£m
£m
Interest income
3
394
322
Interest expense
3
(74)
(43)
Net interest income
320
279
Fees and commissions income
4
109
103
Fees and commissions expense
4
(10)
(29)
Net fees and commissions income
99
74
Other operating income
5
28
6
Total income
447
359
Administrative expenses
6
(266)
(256)
Impairment of Intangible and Tangible assets
Property, plant and equipment
20
-
(1)
Depreciation and amortisation
Property, plant and equipment
20
(1)
(2)
Intangible assets
19
(31)
(21)
Operating expenses
(298)
(280)
Impairment losses on financial assets
13
(107)
(62)
Realised gains on financial instruments
7
1
2
Fair value gains on financial instruments
7
1
2
Profit before taxation
44
21
Analysed as:
Underlying profit before tax
49
37
Non-underlying items
8
(5)
(16)
44
21
Taxation
12
(11)
(3)
Profit for the financial year attributable to the owners of the Group
33
18
The accompanying notes on pages 52 to 117 form part of these financial statements.
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
47
Consolidated statement of comprehensive income
For the year ended 28 February 2023
2023
2022
Note
£m
£m
Profit for the financial year
33
18
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Financial assets fair value movements
30
2
-
FVOCI gains recycled to income statement
30
(1)
(2)
Total other comprehensive income, net of tax
1
(2)
Total comprehensive income / (expense)
34
16
All amounts are attributable to the owners of the Bank.
The accompanying notes on pages 52 to 117 form part of these financial statements.
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
48
Consolidated Balance Sheet
As at 28 February 2023
The Group
The Bank
2023
2022
2023
2022
Note
£m
£m
£m
£m
Assets
Cash, balances with central banks and other demand deposits
15
546
387
499
346
Loans and advances to banks
16
100
121
100
121
Derivative financial instruments
17
99
35
47
19
Investment securities
18
741
443
741
443
Loans and advances to customers
13
5,293
5,067
4,555
4,311
Investments in subsidiaries
21
-
-
325
325
Intangible assets
19
179
191
147
162
Property, plant and equipment
20
9
9
9
9
Other assets
22
242
283
691
700
Total assets
7,209
6,536
7,114
6,436
Liabilities
Customer accounts
23
4,735
4,235
4,735
4,235
Other deposits
24
1,212
1,024
1,212
1,024
Subordinated liabilities
25
122
179
122
179
Derivative financial instruments
17
53
19
53
19
Other liabilities
26
190
173
144
113
Provisions for liabilities and charges
27
31
28
12
9
Total liabilities
6,343
5,658
6,278
5,579
Equity
Called up share capital
28
701
701
701
701
Retained earnings
29
163
176
133
155
Other reserves
30
2
1
2
1
Total equity
866
878
836
857
Total equity and liabilities
7,209
6,536
7,114
6,436
Retained profit for the year of £23m (2022: £6m) is attributable to the Bank.
The financial statements on pages 52 to 117 were approved by the Board of Directors on 26 April 2023 and signed on its behalf by:
Michael Larkin
Director and Chief Financial Officer
The accompanying notes on pages 52 to 117 form part of these financial statements.
Sainsbury's Bank plc – Company number 3279730
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
49
Consolidated statement of changes in equity
For the year ended 28 February 2023
Note
Called up
share capital
Retained
earnings
Other
reserves
Total equity
The Group
£m
£m
£m
£m
As at 1 March 2022
701
175
1
877
Profit for the financial year
-
33
-
33
Capital reduction
-
-
-
-
Other comprehensive income:
Financial assets fair value movements (FVOCI)
30
2
2
FVOCI gains recycled to income statement
30
-
-
(1)
(1)
Total comprehensive income
-
33
1
34
Transactions with owners:
Share-based payment (net of tax)
-
5
-
5
Dividends Paid
-
(50)
-
(50)
At 28 February 2023
701
163
2
866
Note
Called up
share capital
Retained
earnings
Other
reserves
Total equity
The Group
£m
£m
£m
£m
As at 1 March 2021
901
(47)
3
857
Profit for the financial year
-
18
-
18
Capital reduction
(200)
200
-
-
Other comprehensive income:
FVOCI gains recycled to income statement
30
-
-
(2)
(2)
Total comprehensive income
(200)
218
(2)
16
Transactions with owners:
Share-based payment (net of tax)
-
4
-
4
At 28 February 2022
701
175
1
877
All amounts are attributable to the owners of the Group.
The accompanying notes on pages 52 to 117 form part of these financial statements.
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
50
Sainsbury’s Bank statement of changes in equity
For the year ended 28 February 2023
Note
Called up
share capital
Retained
earnings
Other
reserves
Total equity
The Bank
£m
£m
£m
£m
As at 1 March 2022
701
155
1
857
Profit for the financial year
-
23
-
23
Capital reduction
-
-
-
-
Other comprehensive income:
Financial assets fair value movements (FVOCI)
30
2
2
FVOCI gains recycled to income statement
30
-
-
(1)
(1)
Total comprehensive income
-
23
1
24
Transactions with owners:
Share-based payment (net of tax)
-
5
-
5
Dividends Paid
-
(50)
-
(50)
At 28 February 2023
701
133
2
836
Note
Called up
share capital
Retained
earnings
Other
reserves
Total equity
The Bank
£m
£m
£m
£m
As at 1 March 2021
901
(55)
3
849
Profit for the financial year
-
6
-
6
Capital reduction
(200)
200
-
-
Other comprehensive income:
FVOCI gains recycled to income statement
30
-
-
(2)
(2)
Total comprehensive income
(200)
206
(2)
4
Transactions with owners:
Share-based payment (net of tax)
-
4
-
4
At 28 February 2022
701
155
1
857
All amounts are attributable to the owners of the Bank.
The accompanying notes on pages 52 to 117 form part of these financial statements.
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
51
Consolidated Cash flow statement
For the year ended 28 February 2023
The Group
The Bank
2023
2022
2023
2022
Note
£m
£m
£m
£m
Profit/(Loss) before taxation
44
21
31
8
Non-cash and other items included in profit before taxation
153
102
87
53
Change in operating assets and liabilities
167
(702)
231
(668)
Income tax payments
(4)
-
(4)
-
Cash flows (used in) / generated from operating activities
14
360
(579)
345
(607)
Purchase of equipment
(1)
(1)
(1)
(1)
Purchase of intangibles
(20)
(49)
(11)
(26)
Cash flows used in investing activities
(21)
(50)
(12)
(27)
Interest paid on subordinated liabilities
(9)
(11)
(9)
(11)
Dividend Paid
(50)
-
(50)
-
Repayment of subordinated liabilities
(175)
-
(175)
-
Issuance of subordinated liabilities
120
-
120
-
Lease payments
(1)
(2)
(1)
(2)
Cash flows used in financing activities
(115)
(13)
(115)
(13)
Change in cash and cash equivalents
224
(642)
218
(647)
Opening cash and cash equivalents
422
1,064
381
1,028
Closing cash and cash equivalents
646
422
599
381
For the purposes of the cash flow statements, cash and cash equivalents comprise the following:
The Group
The Bank
2023
2022
2023
2022
£m
£m
£m
£m
Cash, balances with central banks and other demand deposits
546
387
499
346
Less: mandatory reserve deposit held at central banks
(15)
(15)
(15)
(15)
531
372
484
331
Loans and advances to banks
-
25
-
25
Investment securities
115
25
115
25
646
422
599
381
The accompanying notes on pages 49 to 115 part of these financial statements.
Sainsbury’s Bank plc Annual Report and Financial Statements for the year ended 28 February 2023
52
Notes to the financial statements
1.
Basis of Preparation
The Sainsbury’s Bank consolidated financial statements
represent the year ended 28 February 2023 and incorporate the
financial statements of the Bank and the entities it controls.
These financial statements have been prepared in accordance
with UK adopted international accounting standards.
The Group provides a range of retail banking services and related
financial services wholly within the UK.
The financial statements have been prepared under the historical
cost convention as modified for the revaluation of financial assets
and liabilities (including derivative instruments) held at fair value
through profit and loss and fair value through other
comprehensive income. The principal accounting policies have
been applied consistently throughout the year.
The Group has elected to take the exemption under section 408 of
the Companies Act 2006 and therefore does not present the
Income Statement and Statement of Comprehensive Income of
the Bank on a standalone basis.
The financial statements have been prepared on a going concern
basis. This is discussed in the Directors’ report, under the heading
‘Going
Concern’.
The
Directors
have
considered
the
appropriateness of the going concern basis of preparation of the
financial statements taking into account the Group’s current and
projected performance. The Directors are satisfied that the Group
has adequate resources to continue in business for the
foreseeable future taking into account a range of possible
operational, economic and legal scenarios. Consequently, the
going concern basis continues to be appropriate in preparing the
financial statements.
The preparation of financial statements in conformity with the
requirements of the Companies Act 2006 requires the use of
certain
critical
accounting
estimates.
It
also
requires
management to exercise its judgement in the process of applying
the Group’s accounting policies. The areas involving a higher
degree of judgement or complexity, or areas where assumptions
and estimates are significant to the financial statements are
disclosed in note 2.
The risk management framework as described in the strategic
report on page 21 is considered adequate in managing liquidity
and other key risks in the current environment. The Group
continues to maintain its strong capital and liquidity position and
has also been subject to review and challenge by the PRA as part
of its remit as lead regulator of the Group. Further information on
the key financial risks of the business can be found in note 33.
The Bank is a wholly-owned subsidiary of J Sainsbury plc and the
Group results are included in the consolidated financial
statements of J Sainsbury plc which are publicly available.
Foreign currencies
The Bank and Consolidated financial statements are presented in
sterling which is the Group’s functional and presentation
currency. Foreign currency transactions are translated into
sterling at the exchange rate prevailing at the date of the
transaction. Monetary assets and liabilities are translated at
balance sheet date exchange rates. Exchange differences arising
are recognised in the income statement.
Classification and measurement of financial instruments
The Group classifies all of its financial assets based on the
business model for managing the assets and the assets’
contractual terms, measured at either:
-
Amortised cost,
-
Fair value through other comprehensive income (FVOCI), or
-
Fair value through profit and loss (FVPL)
To determine their classification and measurement category,
IFRS 9 requires all financial assets, except equity instruments and
derivatives, to be assessed based on a combination of the entity’s
business model for managing the assets and the instruments’
contractual cash flow characteristics.
The business model assessment reflects how the Group manages
the risks relating to the underlying financial assets, including
whether the Group’s principal objective is to collect the
contractual cashflows arising from the instruments (amortised
cost), to sell the financial instruments (FVPL) or a combination
thereof (FVOCI).
The Group’s business model is not assessed on an instrument-by-
instrument basis, but at a higher level of aggregated portfolios
and is based on observable factors such as how performance is
reported to the entity’s key management personnel, the way that
risks are managed, how managers of the business are
compensated and the expected frequency, value and timing of
sales are also important aspects of the Group’s assessment.
The business model assessment is based on reasonably expected
scenarios without taking ‘worst case’ or ‘stress case’ scenarios
into account. If cash flows after initial recognition are realised in
a way that is different from the Group’s original expectations, the
Group does not change the classification of the remaining
financial assets held in that business model but incorporates
such information when assessing newly originated or newly
purchased financial assets going forward.
As a second step of its classification process, where the business
model involves the collection of contractual cashflows, the Group
assesses the contractual cashflow characteristics of financial
assets to identify whether they can be considered solely
payments of principal and interest (the SPPI test).
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
53
1.
Basis of Preparation (continued)
Amortised cost
Financial assets that are principally held for the collection of
contractual cashflows which pass the SPPI test are classified as
amortised cost. Initial recognition is at fair value and subsequent
measurement is at amortised cost, using the effective interest
rate method, less provision for impairment as described in the
impairment section below.
Fair value through other comprehensive income
Financial assets that are held for both the purpose of collecting
contractual cashflows and to sell are classified as FVOCI. Initial
recognition and subsequent measurement is at fair value, with
movements in fair value being recognised through OCI. Interest
income is measured using the effective interest rate method and
impairment gains and losses are recognised in the income
statement.
Fair value through profit and loss
Financial assets that do not meet amortised cost or FVOCI criteria
are classified as FVPL.
Equity instruments
Upon initial recognition, the Group occasionally elects to classify
irrevocably some of its equity investments as equity instruments
at FVOCI when they meet the definition of Equity under IAS 32
Financial instruments: Presentation and are not held for trading.
Such classification is determined on an instrument-by-
instrument basis. Gains and losses on these equity instruments
are never recycled to profit or loss. Dividends are recognised in
profit or loss as other operating income.
Where this election is not applied equity instruments are
measured at FVPL.
Financial liabilities
Other than derivative financial liabilities, all of the Group’s
financial liabilities are recognised at amortised cost. Derivatives
are classified as FVPL.
Basis of consolidation
The consolidated financial statements of the Group comprise the
financial statements of the Bank and all consolidated
subsidiaries.
Subsidiaries
Subsidiaries are all entities, including special purpose entities,
over which the Group has control. This is when the Group is
exposed to, 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 entity. The results of subsidiaries are included
in the income statement from the date of acquisition or, in the
case of disposals, up to the effective date
of disposal. Intercompany transactions and balances between
Group companies are eliminated upon consolidation.
The consolidated subsidiaries of the Bank are as follows:
- Home Retail Group Card Services Ltd
- Home Retail Group Insurance Services Ltd
- ARG Personal Loans Ltd
- Drury Lane Funding 2020-1 plc
Standards and interpretations effective for the Company in
these financial statements:
No new standards or interpretations became effective in the
period or in the prior year that have a material impact on the
Group.
Standards and interpretations effective for the Company in
future periods:
None of the following standards issued by the IASB but not yet
effective, are expected to have a material impact on the Group or
Bank’s financial statements in future periods:
— IFRS 17 ‘Insurance Contracts’
No other interpretation or amendment effective in a future period
has a material impact on the Company or Group
2.
Critical accounting estimates and judgements
The
preparation
of
the
financial
statements
requires
management to make judgements, estimates and assumptions
that affect the application of policies and reported amounts of
assets and liabilities, most critically in respect of impairment
losses on loans and advances, capitalisation of intangible assets
and effective yield.
Estimates and judgements are continually evaluated and are
based on historical experience and other factors, including
expectations of future events that are believed to be reasonable
under the circumstances. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the
revision affects only that period or in the period of the revision
and future periods if the revision affects both current and future
periods.
Impairment of loans and advances
Impairment loss models involve the estimation of future cash
flows of financial assets, based on observable data at the balance
sheet date and historical loss experience for assets with similar
credit risk characteristics. This will typically take into account the
level of arrears, security, past loss experience and default levels.
These calculations are undertaken on a portfolio basis using
various statistical modelling techniques. Impairment models are
continually reviewed to ensure data and assumptions are
appropriate with the most material assumption being around
expected loss rates.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
54
2.
Critical accounting estimates and judgements
(continued)
The Group has an Independent Model Oversight function who
periodically validate the performance of IFRS 9 models including
methodology and predictive accuracy. Monitoring is undertaken
at Model Risk Committee (MRC) on a monthly basis with actions
put in place to remediate any deficiencies.
Depending on their materiality, model changes are approved at
either MRC or Retail Credit Risk Committee (RCRC) for approval by
either the Senior Managers or Head of Credit Risk and Chief Risk
Officer.
Significant increase in credit risk (SICR)
The Group determines whether there has been a significant
increase in credit risk by reference to quantitative thresholds,
qualitative indicators and has also chosen to adopt the rebuttable
backstop presumption that credit risk has significantly increased
if contractual payments are more than 30 days past due.
Quantitative thresholds have been determined that when the PD
of an instrument as at the reporting date has increased to greater
than a specified multiple of the origination PD, a significant
increase in credit risk is deemed to have occurred. Qualitative
tests are based around selective credit origination policy rules. In
addition to variable risk appetite metrics, certain rules are in
place at account origination for Loans and Credit Cards in order to
decline accounts that may demonstrate factors outside of risk
appetite that are not yet reflected in PD. At the reporting date, if
an account satisfies any of these policy decline rules that it had
not at the point of origination, it will be considered to have
significantly increased in credit risk.
There is no probationary period applied in respect of accounts
that cure from stage 2 to stage 1. Transfer criteria have been
subject to extensive analysis to ensure that they appropriately
reflect the flow of accounts from origination to default so as to
maximise the number of accounts that flow through the stages
and minimise accounts that jump directly from stage 1 to stage 3,
or that fail to enter stage 3 from stage 2.
The Group has applied the low credit risk exemption in respect of
its high quality treasury portfolio held for liquidity purposes. This
exemption permits low credit risk loans (i.e. those considered
investment grade) to remain in stage 1 without an assessment of
significant increase in credit risk.
Definition of default
The Group’s definition of default is used in determining those
accounts classified as stage 3 (i.e. credit impaired). The Group has
chosen not to rebut the backstop presumption prescribed by IFRS
9 that where an account is 90 days or more past its due date then
default has occurred.
The Group has also defined a number of unlikeliness to pay
criteria that result in an account being deemed to have defaulted.
These include:
•
Where
operational collections activities have been
exhausted on accounts that are less than 90 days past due
and the account is subject to recoveries processes
•
If any forbearance has been granted on the account
•
Where the customer is subject to insolvency proceedings
•
Where the customer is deceased
Where an account no longer meets any of the default criteria,
such as by bringing payments back up to date, the Group will
continue to consider the account as being in default for the
probation period (24 months for Loans and Cards, and 12 months
for Storecards) from the date when it last met the definition of
default.
IFRS 9 staging and management of credit risk
The Group’s staging criteria as outlined above is used to monitor
credit risk performance at various management forums, and
Board level governance including Audit Committee and Board
Risk Committee. Key metrics such as coverage ratio and
proportion of balances in each stage are monitored for directional
movements, albeit there are no explicit risk appetite thresholds in
this area. At the onset of the Covid-19 pandemic our appetite for
credit risk was reduced to protect the Group from losses,
including the financial impacts of balances moving from stage 1
to stages 2 and 3, however we have since reversed our tightening
strategy.
Write off
Loans and advances to customers are written off (either partially
or in full) when there is no realistic prospect of recovery. This is
generally the case when the Group determines that the borrower
does not have assets or sources of income that could generate
sufficient cash flows to repay the amounts subject to write off.
Subsequent recoveries of amounts previously written off result in
impairment gains recorded in the income statement.
Expected lifetime
For the purposes of considering the lifetime probability of default,
the expected lifetime of a financial asset is the contractual term
where this is fixed within the contract, or in the case of revolving
products such as credit cards a behavioural life is determined by
reference to historic trends.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
55
2.
Critical accounting estimates and judgements
(continued)
Portfolios
The Group calculates its ECL on a portfolio based approach
(collective assessment). The different portfolios the Group has are
Loans, Credit Cards, Mortgages AFS Storecards and AFS Monthly
Payment Plan (MPP). The products within the different portfolios
share key characteristics such as term, interest rate, repayment
expectations and operational processes which drive related
assumptions within ECL models.
Modified financial assets
When the contractual cash flows of a financial asset have been
renegotiated or modified and the financial asset was not
derecognised, its gross carrying amount is recalculated as the
present value of the modified contractual cash flows, discounted
at the original effective interest rate with a gain or loss recognised
in the income statement. In practice the renegotiation of lending
is linked to an impairment event (forbearance) and any related
gains or losses are reflected in the impairment charge recognised
in the income statement.
Overlays and Post model adjustments (PMAs)
Overlays and PMAs are short-term increases or decreases to the
ECL at either a customer or portfolio level to account for items
that have not been fully reflected in the existing models.
Consistent with the most recent recommendations of the
Taskforce on Disclosures about Expected Credit Losses (DECL), the
Group has defined overlays as adjustments made outside of the
granular account level ECL calculation and PMAs as being
calculated at granular account level, most often in respect of
known data or model limitations.
Internal governance is in place to approve and monitor overlays
and PMAs regularly and to reduce the reliance on them through
model recalibration or redevelopment, as appropriate.
Overlays and PMAs applied in estimating the reported ECL at 28
February 2023 are set out in the following table. The table includes
adjustments in relation to data and model limitations. It shows
the adjustments applicable to the scenario-weighted ECL
numbers.
The Group
The Bank
2023
£m
2022
£m
2023
£m
2022
£m
Economic overlays
1
5
2
2
Operational PMAs
(4)
10
(16)
9
Total
(3)
15
(14)
11
The proportion of net overlays and PMAs for the Group is -1% of
the total ECL provision as at 28 February 2023 (2022: 7%).
Economic overlays are included where management judge the
underlying models do not respond adequately to the economic
scenarios. In the year, the Group introduced a new economic
overlay of £5m (2022: £nil) in response to the cost of living crisis
and the potential impact of inflation on customers’ ability to
repay debts. As current levels of inflations are the highest
experienced in over 40 years, certain models have not been
calibrated on such extreme values whilst others don’t include
inflation as an economic variable. Where appropriate, the
modelled impact of inflation has been removed and overlays
have been included to ensure the expected impacts of inflation
are reflected in the provisions. Additionally, a £3m overlay was
recognised in respect of interest rates as the models have been
built using data from the recent historic low period for interest
rates and do not adequately respond to the current economic
forecasts in a higher rate environment. Finally, a £6m reduction
in ECL was recognised via overlay in acknowledgement that the
Group’s economic scenarios of unemployment and GDP, taken
at December 2022 in order to be incorporated into the models,
were overly pessimistic comparted to consensus views of the
economic outlook as at 28 February 2023. As at February 2023 our
base scenario showed peak unemployment of 5.7% in Q1 2025
whereas the Bank of England forecast predicted 5.2% at that time.
Similarly, our GDP view of -1% in early 2023 was more pessimistic
than the Bank of England’s -0.5%.
In the year, the Group released the economic overlay relating to
Covid-19 uncertainties (2022: £10m overlay recognised) as the
residual risks associated with the pandemic are no longer
considered likely.
The majority of the operational overlays relate to specific model
limitations that have been manually corrected whilst a
permanent fix is being developed.
For all PMAs there will always be an attempt to use existing IFRS
9 models as a base and amend assumptions and methodology as
required to determine the level of impact a specific change would
make. This change in ECL is recognised as a PMA until such time
as those changes are implemented into production and the PMA
can be removed.
Management use of ECL information
ECL forecasts and sensitivities are used in assessing the expected
returns on different forms of lending and forms part of the
assessment of whether or not lending should be offered. Default
rates for certain subgroups within a portfolio drive forecasts and
estimates when investigating the risks of lending changes within
that portfolio.
ECL information is a key driver of financial performance and key
performance drivers are regularly included in internal financial
reporting. Where relevant, plausible alternative scenarios and
assumptions will be presented as sensitivities to the current
position or forecast to enable informed decisions on lending and
provisioning to be made.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
56
Macro-economic scenarios
IFRS 9 requires that the measurement of ECL should reflect an
unbiased and probability weighted amount that is determined by
evaluating a range of forward-looking economic assumptions.
The Group has engaged an external supplier to provide economic
forecasts which are subject to review, challenge and approval
through the Group’s governance processes.
For the year ended 28 February 2023, the Group commissioned
economic scenarios which considered a range of plausible but
alternative economic conditions that could arise in relation to the
ongoing impacts of the cost of living crisis and current economic
uncertainty.
The ECL models utilise 4 scenarios (2022: 4 scenarios) including a
‘base case’ scenario considered to be the most likely outcome
together with an upside, downside and severe downside scenario.
The base case has been assigned a probability weighting of 40%
with the upside, downside and severe downside scenarios
weighted 30%, 25%, 5% respectively (2022: base scenario 45%,
upside, downside and severe downside scenarios were 35%, 15%
and 5% respectively).
Each portfolio, when modelled for IFRS9, showed different
characteristics with predictive tendencies and this is the key
driver for using different economic variables across portfolios.
Unsecured products place greater weighting on unemployment
rates, GDP and inflation, whereas our secured portfolio includes
reference to house prices and levels of mortgage debt.
Approval and governance of the Group scenarios is via RCRC &
ALCo, with ALCo approving the appropriate scenario weightings
to be applied to ensure the most appropriate reflection of our
views on future variables, such as unemployment and CPI rates.
Beyond the 5 year forecast period, forecast economic variables
are assumed to revert to long term averages, with the exception
of unemployment which is expected to experience a gradual
return to 4% by 2034. They are applied in ECL models for the
remaining residual behavioural life of the related financial
instruments, which can also exceed 5 years.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
57
2.
Critical accounting estimates and judgements (continued)
The graphs below plot the data for Unemployment, GDP, Consumer price growth and mortgage debt as a percentage of household
income for each of the 4 scenarios used in our IFRS 9 models:
The most material economic variables to the calculation of ECL are unemployment and GDP.
Our base case scenario envisages a peak unemployment of 5.70% in Q4 2024 before reverting to the long-term average in Q1 2034 and
a spike in CPI of 10.71% in the 4th quarter of 2022.
The key macro-economic assumptions included in the ECL calculation have also been summarised in the table below (shown as 5 year
averages from the reporting date).
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
58
2.
Critical accounting estimates and judgements (continued)
Scenario 5 Year Averages
As at 28 February 2023
Base
%
Upside
%
Downside
%
Severe Downside
%
Unemployment rate
5.3
4.5
6.2
7.6
Consumer price growth
3.4
2.9
3.8
4.3
GDP
0.8
1.4
0.3
(0.3)
Mortgage debt as a percentage of household income
99.9
97.6
102.0
104.5
Real household disposable income
0.8
1.2
0.2
(0.3)
Probability weighting
40
30
25
5
Sensitivity analysis
Increase (decrease) in gross balance stage allocation
under 100% probability weighting:
Stage 1
£15.7m
£90.7m
£(95.5)m
£(330)m
Stage 2
£(15.7)m
£(90.7)m
£95.5m
£330m
Increase (decrease) on ECL provision under 100%
probability weighting
£(2.5)m
£(12.5)m
£12.9m
£44.5m
Unsecured
£(2.5)m
£(12.5)m
£12.9m
£44.3m
Secured
(£0.0)m
£(0.0)m
£0.0m
£0.2m
Scenario 5 Year Averages
As at 28 February 2022
Base
%
Upside
%
Downside
%
Severe Downside
%
Unemployment rate
4.0
3.9
4.7
6.2
Consumer price growth
2.7
2.8
2.6
2.5
GDP
1.8
2.2
1.5
1.0
Mortgage debt as a percentage of household income
102.8
101.7
104.3
105.9
Real household disposable income
1.0
1.3
0.7
0.4
Probability weighting
45
35
15
5
Sensitivity analysis
Increase (decrease) in gross balance stage allocation under
100% probability weighting:
Stage 1
£14.4m
£82.0m
£(86.4)m
£(300.0)m
Stage 2
£(14.4)m
£(82.0)m
£86.4m
£300.0m
Increase (decrease) on ECL provision under 100% probability
weighting
£(3.8)m
£(7.4)m
£9.7m
£30.6m
Unsecured
£(3.8)m
£(7.4)m
£9.7m
£30.4m
Secured
£(0.0)m
£(0.0)m
£0.0m
£0.2m
The significant changes in the base scenario reflect current uncertain conditions, with concerns of potential recession and spikes in
inflation and interest rates. This contrasts with the prior year which saw the outlook improving following the Covid-19 pandemic, with
higher levels of unemployment not materialising to the extent predicted.
The sensitivity disclosed above is based on the modelled ECL and does not include overlays and PMAs.
Further explanation of the inputs, assumptions, estimation techniques used at the reporting date in measuring ECLs are set out at note
13.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
59
2.
Critical accounting estimates and judgements
(continued)
Capitalisation and carrying value of intangible assets
Capitalisation of intangible assets involves an assessment as
to the appropriateness of costs that meet the qualifying
criteria of IAS 38.
Intangible assets are assessed to ensure they continue to meet
the criteria of IAS 38, and for indicators of impairment, at each
balance sheet date or more frequently where required by
changes in circumstances.
Where impairments are indicated, the carrying values of fixed
assets are written down by the amount of the impairment and
the charge is recognised in profit or loss in the period in which
it occurs. A previously recognised impairment charge on an
intangible asset may be reversed in full or in part where a
change in circumstances leads to a change in the estimates
used to determine its recoverable amount. The carrying value
of the asset will only be increased to the carrying value at
which it would have been held had the impairment not been
recognised.
Details of any impairments recognised in the period are
disclosed in notes 19 & 20.
Effective interest rate
In calculating the effective interest rate of a financial
instrument, the Group takes into account all amounts that are
integral to the yield of a financial instrument as well as
incremental transaction costs. In the case of loans and
advances to customers significant judgement is applied in
estimating the effect of various factors, including future
customer transactional and repayment behaviours, on future
cash flows. As at 28 February 2023 the carrying value of the EIR
asset was £108m (2022: £112m).
Estimates are based on historical experience from similar
product types. Management considers that the most material
judgements are the post promotional yield and the repayment
rate on the Bank’s credit card portfolio.
To the extent that post promotional yield were to shift by +/-
100bps, the value of EIR asset would change by +/- £5m. To the
extent that the repayment rate were to increase by +/-5% the
value of the EIR asset would change by +/- £2.5m.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
60
3.
Net interest income
Accounting
policy
Interest income and expense in the income statement is determined using the effective interest rate method.
This calculation takes into account all amounts that are integral to the yield as well as incremental transaction
costs. The effective interest rate is the rate that discounts the expected future cash flows over the expected life
of the financial instrument to the net carrying amount of the financial asset or liability at initial recognition.
The effective interest rate of a financial asset is calculated on initial recognition and is applied to the gross
carrying amount of the asset. For financial assets that have subsequently become credit-impaired, interest
income is calculated by applying the effective interest rate to the amortised cost of the financial asset net of any
provision for expected credit losses. If the asset is no longer credit impaired, then the calculation of interest
income reverts to the gross basis.
Interest income calculated using the effective interest method presented in the income statement includes
interest on financial assets and financial liabilities measured at amortised cost, at fair value through other
comprehensive income and the effective portion of hedge accounting instruments. Interest expense presented
in the statement of profit or loss includes financial liabilities measured at amortised cost and the effective portion
of hedge accounting instruments for derivatives in a hedge accounting relationship.
Interest income and expense on other financial assets and financial liabilities at FVPL are presented in fair value
gains on financial instruments (see note 7).
Interest expense on lease liabilities is included within Interest expense on customer accounts, deposits and
borrowings.
2023
2022
The Group
£m
£m
Interest income calculated using the effective interest rate method:
Interest income on financial assets measured at amortised cost
366
319
Interest income on financial assets measured at FVOCI
13
2
Interest income on derivatives
15
-
Other interest income
-
1
Interest receivable
394
322
Interest expense on customer accounts, deposits and borrowings
(62)
(16)
Interest expense on subordinated liabilities
(12)
(11)
Interest expense on derivatives
-
(16)
Interest payable
(74)
(43)
Net interest income
320
279
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
61
4.
Net fees and commissions income
Accounting
policy
Fees and commissions income
Fees and commissions that are not integral to the effective interest rate calculation primarily relate to Credit Card
and ATM interchange fees, and Insurance introduction commission receivable from insurance partners. These
fees are recognised in line with the satisfaction of performance obligations. This can either be at a point in time
or over time.
Banking income
The Group earns income on Credit card and ATM interchange fees, and from transaction-based fees which are
charged to the customer’s account. The revenue relating to transactions is recognised at the point in time when
the transaction takes place.
Insurance income
The Group earns commission income from the sale of insurance policies underwritten by a third party. This
commission income is recognised as policies are sold, in line with the satisfaction of performance obligations to
the customers.
Contract balances
Contract assets relate to the incremental costs of obtaining a contract with a customer. These costs are
capitalised and deferred over the period to which performance obligations are satisfied and revenue is earned.
Judgement is applied by management when determining what costs qualify to be capitalised, in particular
whether these costs are incremental and whether they are expected to be recoverable.
Disaggregation of fee and commission income
In the following table, fee and commission income from contracts with customers in scope of IFRS 15 is disaggregated by major type
of service.
2023
2022
The Group
£m
£m
Banking income
72
62
Insurance income
36
39
Other income
1
2
Total fees and commission income
109
103
Fees payable
(10)
(29)
Total fees and commission payable
(10)
(29)
Net fees and commission income
99
74
Capitalised costs incurred to obtain contracts in the year were £2m (2022: £5m) and the unamortised balance as at the reporting date,
included within other assets in note 22 was £5m (2022: £7m). These costs relate to incremental costs of acquiring insurance contracts
with customers.
The amount of amortisation recognised in the year relating to capitalised costs to obtain contracts with customers was £4m (2022:
£4m).
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
62
5.
Other operating income
Accounting
policy
Margin from the sale of Travel Money, representing the difference between the purchase price and the selling
price, is recognised on the effective date of the customer transaction.
2023
2022
The Group
£m
£m
Travel Money income
28
6
Other operating income
28
6
Other operating income relates to the Bank’s sale of foreign currency and related products through its Travel Money business. Income
increased in the year as there were minimal travel restrictions compared to 2022 when restrictions resulted in Travel Money bureaux
being closed for part of the period.
6.
Administrative expenses
2023
2022
The Group
£m
£m
Staff costs:
Wages and salaries
(74)
(71)
Social security costs
(9)
(8)
Pension costs
(4)
(5)
Share-based payments
(5)
(4)
(92)
(88)
Other operating costs
(174)
(168)
(266)
(256)
Staff costs and other operating costs include £6m (2022: £17m) of non-underlying items as described in note 8.
See note 9 for further details on employee arrangements.
7.
Gains/(losses) on financial assets and liabilities
2023
2022
The Group
£m
£m
Realised gains on derecognition
1
2
Fair value gains on derivatives not in an effective hedge relationship
1
2
Further detail on the Group’s hedging policies is provided in note 17.
Finance fair value movements relate to net fair value movements on derivative financial instruments not designated in a hedging
relationship and any hedge ineffectiveness that is expected to amortise over the remaining life of the hedged items.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
63
8.
Non-underlying items
Certain items recognised in the Group’s profit before taxation are of an unusual and infrequent nature and do not relate to the Group’s
underlying performance. The Directors believe that the ‘underlying profit before tax’ measure presented provides a clear and consistent
presentation of the underlying performance of the Group. Underlying profit is not defined by IFRS and therefore may not be directly
comparable with the ‘adjusted’ profit measures of other companies.
2023
2022
The Group
£m
£m
Impairment of Intangible and Tangible assets
-
(1)
New Bank Programme transition costs
-
(12)
Provisions
(3)
-
Strategic initiatives
(3)
(5)
Total non-underlying items - Costs
(6)
(18)
Fair value gains on hedge ineffectiveness of derivatives in hedge relationship
1
2
Total non-underlying items - Gains / losses on financial instruments
1
2
Total non-underlying items
(5)
(16)
New Bank Programme activity concluded in the year ended 28 February 2022, with costs principally comprised of contractor and service
provider costs relating to the migration of data and other services to the Group’s new infrastructure and operating model.
Provisions relate to liabilities arising from the historic New Bank Programme transition. As these are material and relate to a historic
time period, they are recognised outside of underlying profit in order to provide a clear and consistent view of the Group’s underlying
performance. For more detail see note 27 on provisions.
In the year to 28 February 2023, costs relating to strategic initiatives reflect one off projects to simplify the business and drive
efficiencies and predominantly is consultancy costs. In the year to 28 February 2022 strategic initiatives principally related to costs
associated with the strategic decision to exit certain elements of our office accommodation and costs connected to the potential sale
of Sainsbury’s Bank by J Sainsbury plc.
9.
Employees
The average monthly number of colleagues working on the Group’s operations during the year is set out below.
2023
2022
The Group
Number
Number
Full time
1,299
1,265
Part time
924
851
2,223
2,116
Full time equivalent
1,803
1,752
Colleague costs are disclosed in administrative expenses in note 6.
Included in average colleague headcount were 87 Travel Money colleagues (2022: 203) who were seconded to the Sainsbury’s retail
business, with the related costs being recharged. Further details on recharges is provided in note 27.
Colleagues are eligible to join the defined contribution pension arrangements of J Sainsbury plc. These plans are also used where
colleagues have been automatically enrolled into a pension. Contributions paid by the Group are based on grade and the amount that
the colleague chooses to pay or whether they have been automatically enrolled.
The pension cost charge for the year (see note 6) represents contributions payable by the Group was entirely in relation to the defined
contribution schemes.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
64
10.
Director’s emoluments
2023
2022
The Bank
£m
£m
Emoluments
2.1
3.5
Share-based payments
1.1
1.1
3.2
4.6
Highest paid director:
Emoluments
1.0
1.8
Share-based payments
0.7
0.7
1.7
2.5
The Directors’ positions and remuneration status are set out in the Directors’ report on page 31. The emoluments set out above include
those Directors who held office during the year.
All executive Directors were employed and remunerated by the Group.
During the year two Directors (2022: two) received share awards under J Sainsbury plc share incentive schemes reflective of their
qualifying services. Two Directors (2022: none) exercised share options in the year including the highest paid Director. Further detail of
the relevant incentive plans is outlined in note 37.
During the year two Directors (2022: two) accrued retirement benefits in respect of qualifying services under defined contribution
schemes. No directors (2022: none) were paid a sum following retirement in the year.
Payments were made to independent Non-Executive Directors who served during the year and are included in the above details. There
was no recharge to the Bank in respect of emoluments for Non-Executive Directors who were employed by J Sainsbury plc as their
emoluments are deemed to be wholly attributable to services to the parent company. See Directors report on page 31 for further details.
11.
Profit / (loss) before taxation
2023
2022
The Group
£m
£m
Profit / (loss) before taxation is stated including the following items of income and (expense):
Loss on disposal of intangible assets
-
-
Loss on disposal of tangible assets
-
-
Impairment loss
(0.1)
(1.3)
Auditors’ remuneration:
Statutory audit of the Group
(1.2)
(1.1)
Audit-related assurance services were also performed by the Statutory Auditors during the year in respect of assurance work over
consolidated management information and providing comfort in respect of figures included in a prospectus for the issuance of
subordinated debt. Fees for this work totalled £0.15m (2022: £0.03m assurance over balances prepositioned with the Bank of England).
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
65
12.
Taxation
Accounting
policy
Taxation on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the
income statement except to the extent that it relates to items recognised directly in equity, in which case it is
recognised in equity. Taxation is determined using tax rates (and laws) enacted or substantively enacted at the
balance sheet date. Deferred tax is provided using the balance sheet liability method, providing for temporary
differences between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes.
Deferred tax assets and liabilities are offset against each other when there is a legally enforceable right to set-off
current taxation assets against current taxation liabilities and it is the intention to settle these on a net basis.
2023
2022
The Group
£m
£m
UK corporation tax on profit for the year
7
3
Adjustments in respect of prior years
(2)
-
Current tax
5
3
Deferred tax charge
Change in tax rate
-
(3)
Origination and reversal of temporary differences
2
1
Adjustments in respect of prior years
4
2
Deferred tax
6
-
Total tax charge
11
3
Differences between profit before tax multiplied by the UK corporation tax rate for the year of 19% and the income tax expense
recognised in the income statement are explained below:
2023
2022
The Group
£m
£m
Profit/(Loss) before taxation
44
21
Tax on ordinary activities at 19% (2022: 19%)
8
4
Effects:
Change in Corporation Tax rate
-
(3)
Non-deductible expenses
1
-
Adjustment in respect of prior years
2
2
Total income tax (credit) recognised in the income statement
11
3
In the current period, the substantively enacted UK Corporation tax rate applicable to the company was 19% (2022: 19%).
Deferred income tax assets have been recognised in respect of all income tax losses and other temporary differences giving rise to
deferred income tax assets because it is probable that these assets will be recovered.
It was announced in the UK Government’s Budget on 3 March 2021 that the main UK corporation tax rate will increase to 25% from 1
April 2023. This change was substantively enacted on 24 May 2021. Closing deferred tax assets and liabilities have therefore been
recalculated taking into account this change of rate and the applicable period when the deferred tax assets and liabilities are expected
to crystallise.
It was announced on 27 October 2021 that the UK banking surcharge will decrease from 8% to 3% from 1 April 2023 and that the
surcharge allowance available to banking groups would increase from £25m to £100m. This legislation was enacted on 24 February
2022.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
66
13.
Loans and advances to customers
Accounting
policy
Loans and advances are initially recognised at fair value and subsequently held at amortised cost, using the
effective interest method, less provision for impairment and recognised on the balance sheet when cash is
advanced.
The accounting policies for classification and measurement under IFRS are detailed in note 1.
ECL impairment model
IFRS 9 uses a 3 stage forward-looking expected credit loss (ECL) approach. IFRS 9 requires the Group to record an
allowance for ECL for all loans and other debt financial assets not held at FVPL, together with loan commitments
and financial guarantee contracts. The allowance is calculated by reference to the estimated probability of default
(PD), exposure at default (EAD) and loss given default (LGD).
The probability of default represents the likelihood of a borrower defaulting either within 12 months from the
balance sheet date or within the expected lifetime of the instrument.
Exposure at default represents the expected amount due from the borrower at the point of default by reference to
exposure at the balance sheet date adjusted for expected future changes including repayments and utilisation of
undrawn facilities.
Loss given default represents the expected percentage loss at the point of default relative to the EAD. The estimate
takes into account utilisation of any expected collections and recoveries strategies, debt sale arrangements and
collateral.
The 3 stage model to determine impairment allowance is summarised as follows:
•
Stage 1 – Impairment allowance on financial assets that have not significantly increased in credit risk
since origination, nor are credit impaired, is calculated using the probability that a borrower will default
within 12 months from the balance sheet date. Interest income is recognised on the gross carrying value
of the financial asset.
•
Stage 2 – Where a financial asset exhibits a significant increase in credit risk (SICR) but is not yet
considered to be credit impaired, the probability of default considered in the impairment allowance is
based upon the lifetime probability of the borrower defaulting. Interest income continues to be
recognised on the gross carrying value of the financial asset.
•
Stage 3 – Assets considered to be credit impaired. One or more events has occurred that has resulted in a
detrimental impact on the estimated future cash flows of the asset. Stage 3 assets will continue to
recognise lifetime expected impairment losses (with a 100% probability of default) and interest income
will be recognised on the net carrying amount (i.e., gross amount less impairment allowance).
In determining ECL allowances, expected future recoveries are discounted to the reporting date at the original
effective interest rate of the relevant instrument.
A number of inputs and variables used in the ECL calculation are not defined within IFRS 9 and involve complex
modelling and application of judgement as discussed in the remainder of this section. Further details on these
critical accounting judgements can be found in note 2.
Undrawn commitments
Undrawn loan, credit card and store-card commitments are commitments under which the Group is required to
provide a loan with pre-specified terms to the customer. Under IFRS 9 these contracts are in scope of the ECL
requirements.
The Group is required to estimate the extent to which undrawn commitments and facilities will be utilised by
borrowers.
The nominal contractual value of these commitments, where the lending agreed to be provided is on market terms,
are not recorded in the Balance Sheet. The ECLs in relation to undrawn commitments are disclosed in note 32. The
impairment allowance in respect of these instruments is included within provisions for liabilities and charges as
there is no related asset on balance sheet against which to offset the related impairment allowance
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
67
13.
Loans and advances to customers (continued)
The Group’s gross lending exposure before deduction of impairment provisions is analysed below:
The Group
The Bank
2023
2022
2023
2022
£m
£m
£m
£m
Gross advances
5,577
5,286
4,683
4,429
Impairment
(239)
(203)
(135)
(118)
Adjustment in relation to fair value hedging
(45)
(16)
7
-
Loans and advances to customers
5,293
5,067
4,555
4,311
Gross advances being:
Repayable on demand
2,388
2,031
1,949
1,624
Other loans and advances repayable:
In 3 months or less
531
382
222
199
Between 3 months and 1 year
662
789
519
524
Between 1 and 5 years
1,459
1,409
1,456
1,408
After 5 years
537
675
537
674
5,577
5,286
4,683
4,429
The Group
The Bank
2023
2022
2023
2022
£m
£m
£m
£m
Individuals:
Secured Lending
581
782
581
781
Unsecured Lending
4,996
4,504
4,102
3,648
Gross loans and advances to customers
5,577
5,286
4.683
4,429
Eligible personal and mortgage loans with applicable haircuts are used as collateral for the Group’s securitisation facility and the Bank
of England’s Term Funding Scheme Small and Medium-sized enterprises (TFSME) and Indexed Long-term Repo (ILTR) facilities.
As at 28 February 2023 £414m (2022: £558m) of Personal Loans assets and £459m (2022: £626m) of Mortgage assets were pledged to the
Bank of England facilitating funding of £660m (2022: £661) from the TFSME and £nil (2022: £225m) from the ILTR. These drawings were
further supported by the indirect pledging of personal loans collateral via our securitisation facilities as outlined in the following
paragraph.
The Bank has also securitised and sold personal loans to a special purpose vehicle (SPV) as part of a securitisation. The SPV has issued
a £500m Senior class A note and £121m Junior class Z note to the bank. As at 28 February 2023, the Bank had pledged £621m (2022:
£621m) of personal loans to the SPV. Of the A notes held by the Bank £200m (2022: £200m) have been pre-positioned with the Bank of
England to support the funding facilities outlined in the previous paragraph of which £80m (2022: £80m) was encumbered.
As at the 28 February 2023, the Bank had also pledged £nil (2022: £28m) of the A note as collateral in a repurchase agreement and £111m
(2022: £28m) in a collateral swap. These are backed by £137m (2022: £69m) of personal loans generating £88m (2022: £50m) of funding.
Within the reconciliations which follow, transfers reflect balance and provision movements between the opening or origination
classification of an account and its classification at the closing date of the reporting period. It does not reflect the cumulative impact
of intra period movements such as an account moving multiple times between stages during the period. The below reconciliations
include expected credit losses on Gross Exposures and loan commitments, whereas the gross carrying amount is on balance sheet
exposures only.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
68
13.
Loans and advances to customers (continued)
Unsecured allowance for impairment losses measured under IFRS 9
Reconciliation of Expected Credit Loss Allowance (ECL) and Gross Carrying Amount (GCA) of unsecured Loans and advances
measured at amortised cost
Non-credit-impaired
Credit-impaired
Total
Unsecured Lending
Stage 1
Stage 2
Stage 3
GCA
ECL
GCA
ECL
GCA
ECL
GCA
ECL
The Group
£m
£m
£m
£m
£m
£m
£m
£m
As at 1 March 2022
3,823
(43)
513
(56)
168
(119)
4,504
(218)
of which Impairment on Gross Balance
(32)
(48)
(119)
(199)
of which Undrawn commitments Impairment
(11)
(8)
-
(19)
Transfers of financial assets:
To Stage 1
232
(18)
(230)
17
(2)
1
-
-
To Stage 2
(215)
4
217
(4)
(2)
-
-
-
To Stage 3
(55)
2
(42)
10
97
(12)
-
-
Net Transfer between stages
(12)
23
(11)
-
Increases due to originations(1)
1,598
(17)
139
(10)
17
(8)
1,753
(35)
Decreases due to repayments
(1,068)
9
(100)
7
(26)
19
(1,194)
35
Write offs
(2)
-
(17)
4
(49)
33
(68)
37
Changes in credit risk(2)
-
8
-
(28)
-
(58)
-
(78)
As at 28 February 2023
4,313
(55)
480
(60)
203
(144)
4,995
(259)
of which Impairment on Gross Balance
(42)
(53)
(144)
(239)
of which Undrawn commitments Impairment
(13)
(7)
-
(20)
In addition to the natural flow of balances, transfers between stages identified above have also been driven by model calibration
applied in the year. Overall, the closing proportion of stage 2 exposures within the unsecured portfolio was lower than at 28 February
2022 reflecting model calibration in respect of SICR criteria.
Non-credit-impaired
Credit-impaired
Total
Unsecured Lending
Stage 1
Stage 2
Stage 3
GCA
ECL
GCA
ECL
GCA
ECL
GCA
ECL
The Group
£m
£m
£m
£m
£m
£m
£m
£m
As at 1 March 2021
3,649
(49)
546
(68)
206
(158)
4,401
(275)
of which Impairment on Gross Balance
(40)
(63)
(157)
(260)
of which Undrawn commitments Impairment
(9)
(5)
(1)
(15)
Transfers of financial assets:
To Stage 1
95
(10)
(91)
10
(4)
0
-
-
To Stage 2
(201)
18
204
(18)
(3)
0
-
-
To Stage 3
(42)
6
(41)
(1)
83
(5)
-
-
Net Transfer between stages
14
(9)
(5)
-
Increases due to originations(1)
1,055
(17)
42
(7)
12
(4)
1,109
(28)
Decreases due to repayments
(726)
6
(140)
10
(29)
15
(895)
31
Write offs
(4)
-
(6)
1
(100)
79
(110)
80
Changes in credit risk(2)
-
2
-
18
-
(47)
-
(27)
As at 28 February 2022
3,826
(44)
514
(55)
165
(120)
4,505
(219)
of which Impairment on Gross Balance
(34)
(47)
(119)
(200)
of which Undrawn commitments Impairment
(10)
(8)
(1)
(19)
(1) This also reflects assets which were originated in stage 1 and subsequently moved to stage 2 or stage 3 during the year.
(2) Changes in credit risk includes changes to the allowance for credit impairment losses arising from stage transfers and other changes to risk parameters
(such as management overlays).
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
69
13.
Loans and advances to customers (continued)
Non-credit-impaired
Credit-impaired
Total
Unsecured Lending
Stage 1
Stage 2
Stage 3
GCA
ECL
GCA
ECL
GCA
ECL
GCA
ECL
The Bank
£m
£m
£m
£m
£m
£m
£m
£m
As at 1 March 2022
3,121
(24)
433
(30)
93
(69)
3,647
(123)
of which Impairment on Gross Balance
(21)
(26)
(68)
(115)
of which Undrawn commitments Impairment
(3)
(4)
(1)
(8)
Transfers of financial assets:
To Stage 1
207
(11)
(206)
11
(1)
-
-
-
To Stage 2
(174)
2
175
(2)
(1)
-
-
-
To Stage 3
(28)
-
(23)
4
51
(4)
-
-
Net Transfer between stages
(9)
13
(4)
-
Increases due to originations(1)
1,513
(12)
119
(10)
12
(8)
1,644
(30)
Decreases due to repayments
(1,046)
9
(98)
6
(17)
14
(1,161)
29
Write offs
-
0
(11)
1
(16)
11
(27)
12
Changes in credit risk(2)
-
8
-
(7)
-
(31)
-
(30)
As at 28 February 2023
3,593
(28)
389
(27)
121
(87)
4,103
(142)
of which Impairment on Gross Balance
(23)
(25)
(86)
(134)
of which Undrawn commitments Impairment
(5)
(2)
(1)
(8)
Non-credit-impaired
Credit-impaired
Total
Unsecured Lending
Stage 1
Stage 2
Stage 3
GCA
ECL
GCA
ECL
GCA
ECL
GCA
ECL
The Bank
£m
£m
£m
£m
£m
£m
£m
£m
As at 1 March 2021
2,903
(28)
463
(40)
137
(109)
3,503
(177)
of which Impairment on Gross Balance
(25)
(38)
(108)
(171)
of which Undrawn commitments Impairment
(3)
(2)
(1)
(6)
Transfers of financial assets:
To Stage 1
71
(9)
(68)
9
(3)
-
-
-
To Stage 2
(149)
2
152
(2)
(3)
-
-
-
To Stage 3
(15)
(10)
(21)
(14)
36
24
-
-
Net Transfer between stages
(17)
(7)
24
-
Increases due to originations(1)
976
(8)
37
(4)
3
(3)
1,016
(15)
Decreases due to repayments
(661)
2
(124)
3
(20)
12
(805)
17
Write offs
(4)
-
(6)
1
(57)
45
(67)
46
Changes in credit risk(2)
-
26
-
18
-
(38)
-
6
As at 28 February 2022
3,121
(25)
433
(29)
93
(69)
3,647
(123)
of which Impairment on Gross Balance
(21)
(25)
(69)
(115)
of which Undrawn commitments Impairment
(4)
(4)
-
(8)
(1) This also reflects assets which were originated in stage 1 and subsequently moved to stage 2 or stage 3 during the year.
(2) Changes in credit risk includes changes to the allowance for credit impairment losses arising from stage transfers and other changes to risk parameters
(such as management overlays).
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
70
13.
Loans and advances to customers (continued)
Secured allowance for impairment losses measured under IFRS 9
Reconciliation of Expected Credit Loss Allowance (ECL) and Gross Carrying Amount (GCA) of secured Loans and advances measured
at amortised cost
Non-credit-impaired
Credit-impaired
Total
Secured Lending
Stage 1
Stage 2
Stage 3
GCA
ECL
GCA
ECL
GCA
ECL
GCA
ECL
The Group and Bank
£m
£m
£m
£m
£m
£m
£m
£m
As at 1 March 2022
711
-
61
-
10
(3)
782
(3)
of which Impairment on Gross Balance
-
-
(3)
(3)
of which Undrawn commitments
Impairment
-
-
-
-
Transfers of financial assets:
To Stage 1
11
-
(10)
-
(2)
-
(1)
-
To Stage 2
(9)
-
10
-
-
-
1
-
To Stage 3
(1)
-
(1)
-
2
-
-
-
Net Transfer between stages
-
-
-
-
Increases due to originations(1)
-
-
0
-
-
-
-
-
Decreases due to repayments
(180)
-
(18)
-
(3)
-
(201)
-
Write offs
-
-
-
-
-
-
-
-
Changes in credit risk(2)
-
-
2
2
As at 28 February 2023
532
-
42
-
7
(1)
581
(1)
of which Impairment on Gross Balance
-
-
(1)
(1)
of which Undrawn commitments
Impairment
-
-
-
-
The key movements seen between Stage 1 and Stage 2 is reflective of the maturing profile of our closed Mortgage book as it
continues to be repaid.
Non-credit-impaired
Credit-impaired
Total
Secured Lending
Stage 1
Stage 2
Stage 3
GCA
ECL
GCA
ECL
GCA
ECL
GCA
ECL
The Group and Bank
£m
£m
£m
£m
£m
£m
£m
£m
As at 1 March 2021
1,189
-
47
-
11
(3)
1,247
(3)
of which Impairment on Gross Balance
-
-
(3)
(3)
of which Undrawn commitments Impairment
-
-
-
-
Transfers of financial assets:
To Stage 1
10
-
(10)
-
-
-
-
-
To Stage 2
(35)
-
36
-
(1)
-
-
-
To Stage 3
(3)
-
-
-
3
-
-
-
Net Transfer between stages
-
-
-
-
Increases due to originations(1)
-
-
2
-
-
-
2
-
Decreases due to repayments
(450)
-
(14)
-
(3)
-
(467)
-
Write offs
-
-
-
-
-
-
-
-
Changes in credit risk(2)
-
-
-
-
As at 28 February 2022
711
-
61
-
10
(3)
782
(3)
of which Impairment on Gross Balance
-
-
(3)
(3)
of which Undrawn commitments Impairment
-
-
-
-
(1) This also reflects assets which were originated in stage 1 and subsequently moved to stage 2 or stage 3 during the year.
(2) Changes in credit risk includes changes to the allowance for credit impairment losses arising from stage transfers and other changes to risk parameters
(such as management overlays).
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
71
13.
Loans and advances to customers (continued)
Reconciliation of movements in total loss allowance in the year to the income statement
2023
2022
Non-credit-impaired
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
The Group
£m
£m
£m
£m
£m
£m
£m
£m
Transfers of financial assets:
To Stage 1
(18)
17
1
-
(10)
10
-
-
To Stage 2
5
(5)
-
-
17
(17)
-
-
To Stage 3
2
10
(12)
-
6
(1)
(5)
-
Net Transfer between stages
(11)
22
(11)
-
13
(8)
(5)
-
Increases due to originations
(17)
(10)
(8)
(35)
(17)
(7)
(4)
(28)
Decreases due to repayments
9
8
16
33
8
9
16
33
Write offs
0
4
33
37
-
1
79
80
Changes in credit risk
8
(28)
(56)
(76)
2
17
(47)
(28)
Movement in ECL allowance
(11)
(4)
(26)
(41)
6
12
39
57
Net expected credit loss
charge
(76)
(22)
Recoveries and write-offs
(19)
(29)
C&R charges
(12)
(13)
Total Income Statement
Charge
(107)
(64)
Analysis of Total Stage 2 balances by driver
2023
2022
Gross
balances
ECL
Gross balances
ECL
The Group
£m
£m
£m
£m
Currently >30 days past due
35
11
33
10
Currently <30 days past due:
Breach on PD threshold
418
47
467
44
Policy Rule Changes
69
3
73
2
Total Stage 2 at 28 February 2023
522
61
573
56
2023
2022
Gross
balances
ECL
Gross balances
ECL
The Bank
£m
£m
£m
£m
Currently >30 days past due
20
5
20
6
Currently <30 days past due:
Breach on PD threshold
342
20
400
23
Policy Rule Changes
68
2
73
2
Total Stage 2 at 28 February 2023
430
27
493
31
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
72
14.
Notes to the cash flow statement
Accounting
policy
For the purpose of the cash flow statement, cash and cash equivalents comprises cash in hand, deposits at central
banks (less mandatory deposits) and deposits with banks with an original maturity of three months or less,
together with Treasury Bills and other short-term highly liquid investments that are readily convertible to a known
amount of cash and are subject to an insignificant risk of changes in value.
Reconciliation of profit before taxation to cash flows used in operating activities
The Group
The Bank
2023
2022
2023
2022
£m
£m
£m
£m
Profit / (loss) before taxation
44
21
31
8
Non-cash and other items included in profit before taxation
Impairment losses on loans and advances
107
62
46
14
Depreciation on property, plant and equipment
1
2
1
2
Amortisation of intangible assets
31
21
26
20
Share-based payment expense
5
5
5
4
Impairment, gains, (losses) and disposals
-
1
-
2
Interest paid on subordinated liabilities
9
11
9
11
153
102
87
53
Change in operating assets and liabilities
Net decrease / (increase) in loans and advances to customers
(333)
263
(290)
274
Net (increase) in derivative assets
(65)
(17)
(29)
(17)
Net (increase) in Loans and advances to other banks greater than 3 months
(4)
(86)
(4)
(86)
Net (increase) / decrease in investment securities greater than 3 months
(207)
117
(207)
117
Net increase / (decrease) in derivative liabilities
34
(10)
34
(10)
Net decrease in other assets
34
35
5
54
Net increase / (decrease) in customer accounts
500
(893)
500
(893)
Net increase / (decrease) in borrowed funds
188
(137)
188
(137)
Net (decrease) in other liabilities including provisions
20
26
34
30
167
(702)
231
(668)
Cash generated from / (used in) operations
364
(579)
349
(607)
Income taxes paid
(4)
-
(4)
-
Cash flows generated from / (used in) operating activities
360
(579)
345
(607)
Operational cash flows from interest
Interest paid
(40)
(51)
(28)
(51)
Interest received
407
347
284
231
367
296
256
180
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
73
14.
Notes to the cash flow statement (continued)
Reconciliation of liabilities arising from financing activities
The Group
The Bank
2023
2022
2023
2022
£m
£m
£m
£m
Subordinated liabilities:
At 1 March
179
179
179
179
Issuance of loan notes
120
-
120
-
Redemption of loan notes
(175)
-
(175)
-
Non-cash movements
(2)
-
(2)
-
At 28 February
122
179
122
179
The Group
The Bank
2022
2022
2023
2022
£m
£m
£m
£m
Lease liabilities:
At 1 March
3
5
3
5
Lease payments
(1)
(2)
(1)
(2)
Lease modifications
-
-
-
-
Lease interest
-
-
-
-
At 28 February
2
3
2
3
Restricted cash balances
The Group
The Bank
2023
2022
2023
2022
£m
£m
£m
£m
Bank of England deposit
15
15
15
15
15
15
15
15
A reserve deposit is held with the Bank of England in accordance with statutory requirements. This deposit is not available for use in
day-to-day operations and has been excluded from the cash and cash equivalents balance in the cash flow statement.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
74
15.
Cash, balances with central banks and other demand deposits
The Group
The Bank
2023
2022
2023
2022
£m
£m
£m
£m
Cash and balances with central banks
471
329
471
329
Other demand deposits
75
58
28
17
546
387
499
346
The balances with central banks are repayable on demand, with the exception of the £15m (2022: £15m) reserve deposit pledged to Bank
of England as part of its Cash Ratio Deposit scheme (see note 14). There were no significant credit losses expected on cash and other
demand deposits.
16.
Loans and advances to banks
Accounting
policy
Loans and advances to other banks, including reverse repurchase agreements, are initially recognised at fair
value and subsequently measured at amortised cost using the effective interest rate method.
The Group and Bank
2023
2022
£m
£m
Reverse repurchase agreements
100
50
Fixed Term Funds
-
71
100
121
Other loans and advances to other banks:
On demand
-
-
In 3 months or less
-
25
Between 3 months and 1 year
100
96
100
121
Under IFRS9, the Group holds an impairment provision for loans and advances to other banks of £nil (2022: nil)
17.
Derivative financial instruments
Accounting
policy
All derivative financial instruments are initially recognised at fair value on the contract date and are re-measured
to their fair value at each subsequent reporting date. Changes in fair value of all derivative instruments are
recognised immediately in the income statement. Fair values are obtained from observable market data before
the application of appropriate discounting factors.
Where the overall carrying value of a derivative is positive it is held and classified on the balance sheet as an asset.
Alternatively, when the overall carrying value of a derivative is negative it is held and classified as a liability.
The Group intends to use derivatives for economic purposes only, and not for trading. Where possible it will elect
to designate the derivative into an effective hedge accounting relationship, where the gains and losses on
derivatives are offset by effective hedged item adjustments within the income statement.
Fair value hedging
The Group designates certain derivatives as fair value hedges where the derivative financial instrument hedges the
change in fair value of the particular risks inherent in recognised assets or liabilities (fair value hedges).
The Group has adopted IFRS 9 hedge accounting requirements for fair value hedges of investment securities and
its Fixed Rate Debt issuance. These instruments are hedged via plain vanilla interest rate swaps, with the critical
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
75
17.
Derivative financial instruments (continued)
economic terms of both the hedging instrument and hedged item matching. The notional amount, fixed interest
legs and maturity dates are economically matched. The main source of ineffectiveness within the micro hedge
relationships relates to the floating leg valuation changes inherent within the hedging instrument that do not exist
within the hedged item.
The Group continues to adopt IAS 39 for its macro portfolio fair value hedges of fixed rate personal loans and
residential mortgages, as it is permitted to do so under IFRS 9 and until the point that the new Dynamic Risk
Management hedge accounting standard is finalised and adopted.
Portfolio fair value hedging allows the designation of the whole or part of a portfolio of assets or liabilities with
similar risk exposures. The hedged item can be designated based on expected maturities to match the hedging
derivative maturity. Hedge effectiveness is considered to have been met where the change in fair value of the
hedged item offsets the change in fair value of hedging instruments, within the 80% to 125% ratio corridor.
Ineffectiveness on portfolio hedges can arise as a result of several factors, including floating leg valuation changes
inherent within the hedging instrument that do not exist within the hedged item, mismatch in cash flow maturities
between the hedged item and hedging instrument and basis risk between cash flows discounted using different
benchmark rates.
To qualify for hedge accounting the Group documents at the inception of the hedge, the hedging risk management
strategy, the relationship between the hedging instrument and the hedged item or transaction and the nature of
the risks being hedged. The Group also documents the assessment of the effectiveness of the hedging relationship,
to show that the hedge is expected to be (prospectively) and, subsequently, has been (retrospectively) effective.
Derivatives not in a hedge accounting relationship
The Group’s entire derivative portfolio is executed for economic purposes. Under IAS 39 rules, for macro portfolio
hedging, some of the Group’s hedging derivatives do not qualify, or prove too onerous, to be designated into an
effective hedged relationship. In those instances, the interest rate swaps are viewed as trading derivatives under
IFRS 9 with any movements in fair value recognised in the income statement, without offset. In October 2022, the
Bank entered a £200m short term (<12 month) interest rate swap (2022: £nil) in order to manage the additional
volatility experienced in the interest rate environment in late 2022.This swap was not designated into a hedge
accounting relationship and therefore movements in fair value are recognised in the income statement without
offset.
Foreign currency derivative contracts
Foreign currency exposure arises from currency holdings within the Group’s travel money business.
The Group entered into foreign exchange derivative contracts to hedge foreign currency exposure. Foreign
exchange derivative instruments included FX spot, FX forwards and FX swaps. As at 28 February 2023, the Group
reported a FX derivative asset of £nil (2022: £1m) and a FX derivative liability of £nil (2022: £1m).
Fair value hedges
The amounts relating to items designated as hedging instruments and hedge ineffectiveness were as follows.
The Group
Carrying Amount
Ineffectiveness recognised
in income statement
£m
Notional
amount
Assets
Liabilities
£m
£m
£m
Interest rate swaps - Hedge of loans and advances
At 28 February 2023
2,824
98
(53)
-
At 28 February 2022
3,226
34
(18)
2
Further detail on the fair value of hedged item can be found in Notes 13 and 25.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
76
17.
Derivative financial instruments (continued)
The Bank
Carrying Amount
Ineffectiveness recognised
in income statement
£m
Notional
amount
Assets
Liabilities
£m
£m
£m
Interest rate swaps - Hedge of loans and advances
At 28 February 2023
2,203
46
(53)
-
At 28 February 2022
2,614
19
(19)
2
Derivatives not in fair value hedge accounting relationship are as follows
The Group and Bank
Notional amount
Assets
Liabilities
£m
£m
£m
Interest rate swap
At 28 February 2023
209
1
-
At 28 February 2022
9
0
-
Foreign currency swap
At 28 February 2023
14
0
-
At 28 February 2022
113
1
(1)
The line item in the Balance Sheet where the hedging instrument is included is ‘Derivative financial instruments’. The line item in the
income statement that includes hedge ineffectiveness is ‘Fair value gains on financial instruments’.
The maturity profile and average price/rate of the hedging instruments in fair value hedges of interest rates were as follows:
The Group
Maturity
Less than 1 month
1-3 months 3 months – 1 year
1-5 years More than 5 years
As at February 2023
Fair value hedges
Nominal amount (£’m)
-
125
589
748
1,362
Average fixed interest rate
-
0.7%
0.7%
1.2%
3.5%
As at February 2022
Fair value hedges
- Nominal amount (£’m)
-
138
584
1,246
1,267
- Average fixed interest rate
-
0.5%
0.6%
0.7%
0.1%
The Bank
Maturity
Less than 1 month
1-3 months 3 months – 1 year
1-5 years More than 5 years
As at February 2023
Fair value hedges
Nominal amount (£’m)
-
125
589
748
741
Average fixed interest rate
-
0.7%
0.7%
1.2%
5.3%
As at February 2022
Fair value hedges
- Nominal amount (£’m)
-
138
584
1,246
646
- Average fixed interest rate
-
0.5%
0.6%
0.7%
0.1%
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
77
18.
Investment securities
Accounting
policy
These comprise debt securities and other fixed interest securities, including Treasury and other eligible bills and
are recognised on the date the contract is entered into. Investment securities are measured at amortised cost or
FVOCI based on their contractual terms and the business model in which they are held.
Impairment of investment securities
As with customer lending, impairment of investment securities is determined under IFRS 9- again using a 3 stage
forward-looking expected credit loss (ECL) approach. IFRS 9 requires the Group to record an allowance for ECL for
all loans and other debt financial assets not held at FVPL, together with loan commitments and financial
guarantee contracts. The allowance is calculated by reference to the estimated probability of default (PD),
exposure at default (EAD) and loss given default (LGD)
The Group and Bank
2023
2022
£m
£m
Investment securities comprise the following:
Equity investments
2
1
Gilts
0
98
Government backed investment securities
71
67
T-Bills
25
-
Covered bonds
418
169
Supranational investment securities
13
55
Asset backed securities
162
28
Commercial paper
50
25
741
443
Of which:
Equity investments
2
1
Maturing in three months or less
115
25
Maturing between three months and one year
128
196
Maturing between 1 and 5 years
496
199
Maturing in more than 5 years
-
22
741
443
Investment securities include £nil (2022: £50m) pledged as collateral under sale and repurchase agreements or derivative contracts.
Investment securities include £nil of collateral prepositioned with the Bank of England as at 28 February 2023. The fair value movement
recognised in the Statement of Other Comprehensive Income during the year on investment securities was a profit of £1m (2022: £1m).
Under IFRS9, the Group holds an impairment provision for investment securities of £0.1m (2022: £0.1m)
19.
Intangible assets
Accounting
policy
Computer Software
Computer software is carried at cost less accumulated amortisation and any provision for impairment. Externally
acquired software and licences are capitalised and amortised on a straight-line basis over their useful economic
lives. Costs relating to development of computer software for internal use are capitalised once the recognition
criteria of IAS 38 ‘Intangible Assets’ are met. Other development expenditures that do not meet these criteria are
recognised as an expense as incurred. When the software is available for its intended use, these costs are amortised
on a straight-line basis over their useful economic lives being:
•
Core banking software – fifteen years
•
Other software – three to ten years
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
78
19.
Intangible assets (continued)
Capitalised development expenditure and purchased software is stated at cost less accumulated amortisation and
impairment losses. Such assets are assessed for impairment where there is an indication of impairment or, in the
case of assets which are not yet available for use, at least annually. Where impairment exists, the carrying amount
of the asset is reduced to its recoverable amount and the impairment loss recognised in the income statement. The
amortisation charge for the asset is then adjusted to reflect the asset’s revised carrying amount.
Cost includes the purchase price after deducting discounts and rebates, and other directly attributable costs of
preparing the asset for its intended use.
Subsequent expenditure is only capitalised when it increases the future economic benefits embodied in the
specific asset to which it relates.
The Group
The Bank
2023
2022
2023
2022
The Group
£m
£m
£m
£m
Cost
At 1 March
361
317
330
310
Additions
19
51
11
27
Disposals
(2)
(7)
(2)
(7)
As at 28 February
378
361
339
330
Accumulated amortisation
At 1 March
(170)
(156)
(168)
(155)
Charge for the year
(31)
(21)
(26)
(20)
Impairment
-
-
-
-
Disposals
2
7
2
7
As at 28 February
(199)
(170)
(192)
(168)
Net book value as at 28 February
179
191
147
162
20.
Property, Plant & Equipment
Accounting
policy
Land and buildings
Land and buildings are stated at cost less accumulated depreciation and any recognised provision for
impairment. Capital work in progress is held at cost less any recognised provision for impairment. Cost includes
the original purchase price of the asset and the costs incurred attributable to bringing the asset to its working
condition for intended use. This includes capitalised borrowing costs.
Fixtures and equipment
Fixtures and equipment, including tenant’s improvements, are held at cost less accumulated depreciation and
any recognised provision for impairment. Cost includes the original purchase price of the asset and the costs
attributable to bringing the asset to its working condition and its intended use.
Right of use assets
Right of use assets obtained under a lease arrangement are included in the above categories as appropriate and
depreciated as described below.
Depreciation
Depreciation is calculated to write down the cost of the assets to their residual values, on a straight-line method,
on the following bases:
• Freehold buildings and leasehold properties – fifty years, or the lease term if shorter
• Fixtures and equipment – three to fifteen years or, in the case of tenant’s improvements, the lease term if
shorter
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
79
20.
Property, Plant & Equipment (continued)
Capital work in progress is not depreciated.
Gains and losses on disposal are determined by comparing proceeds with the asset’s carrying amount and are
recognised within operating profit. The assets’ residual values and useful lives are reviewed, and adjusted if
appropriate, at the end of each reporting period.
The Group and Bank
28 February 2023
Land and buildings
Fixtures and
equipment
Total
£m
£m
£m
Cost
At 1 March 2022
9
61
70
Additions
-
1
1
Disposals/Write off
-
(1)
(1)
As at 28 February 2023
9
61
70
Accumulated depreciation
At 1 March 2022
(8)
(53)
(61)
Charge for the year
-
(1)
(1)
Disposals/Write off
-
1
1
Impairment loss1
-
-
-
As at 28 February 2023
(8)
(53)
(61)
Net book value as at 28 February 2023
1
8
9
(1) For further details, see note 19
The Group and Bank
28 February 2022
Land and buildings
Fixtures and
equipment
Total
£m
£m
£m
Cost
At 1 March 2021
9
62
71
Additions
-
1
1
Disposals/Write off
-
(2)
(2)
As at 28 February 2022
9
61
70
Accumulated depreciation
At 1 March 2021
(6)
(54)
(60)
Charge for the year
(1)
(1)
(2)
Disposals/Write off
-
2
2
Impairment loss
(1)
-
(1)
As at 28 February 2023
(8)
(53)
(61)
Net book value as at 28 February 2022
1
8
9
Land and buildings include right of use assets of £1m (2022: £1m) related to head office premises.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
80
21.
Investments in Subsidiaries
Accounting
policy
Subsidiaries are entities, including special purpose vehicles (SPVs), over which the Bank has the power to govern
the financial and operating policies.
The Bank’s investment in subsidiaries was as follows.
2023
2022
The Bank
£m
£m
325
325
Country of
registration or
incorporation
Ownership
Interest
Registered address
Home Retail Group Card Services
Limited
England
100%
489-499 Avebury Boulevard, Milton Keynes,
United Kingdom, MK9 2NW
Home Retail Group Insurance Services
Limited
England
100%
489-499 Avebury Boulevard, Milton Keynes,
United Kingdom, MK9 2NW
ARG Personal Loans Limited
England
100%
489-499 Avebury Boulevard, Milton Keynes,
United Kingdom, MK9 2NW
The Bank has no direct or indirect ownership interest in the equity of the Drury Lane Funding 2020-1 plc, however the company was
established for the purpose of providing a source of funding to the Bank by way of contractual agreement and the Bank has the rights
to substantially all the benefits from its activities. The company is therefore effectively controlled by the Bank.
Country of
registration or
incorporation
Date started
being a
subsidiary
Registered address
Drury Lane Funding 2020-1 plc
England
11 November 2020
5 Churchill Place, 10th Floor, London, E14 5HU
22.
Other assets
Accounting
policy
Other assets, including amounts receivable from Sainsbury’s Group companies, are initially recognised at fair
value and subsequently measured at amortised cost using the effective interest rate method.
The Group
The Bank
2023
2022
2023
2022
£m
£m
£m
£m
Amounts receivable from Sainsbury’s Group
companies
6
-
473
445
Funds in course of settlement
115
136
103
117
Prepayments and accrued income
32
33
30
31
Insurance instalment debtor
25
32
25
32
Current tax asset
3
5
4
5
Deferred tax asset
8
14
4
7
VAT Control
1
-
-
-
Cash collateral paid
52
63
52
63
242
283
691
700
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
81
22.
Other assets (continued)
Other assets have no fixed maturities but materially expected to be realised within 12 months See note 33 for further details on the
residual contractual maturity of other assets.
The deferred tax asset is in respect of temporary differences which will reverse and result in a higher tax charge in future years, can be
analysed as follows:
The Group
The Bank
2023
2022
2023
2022
£m
£m
£m
£m
At 1 March
14
13
7
7
Movement in deferred tax asset (charged) / credited to
income statement
(2)
2
(1)
1
Movement in deferred tax asset credited to other
comprehensive income
-
1
-
1
Adjustments in respect of prior years
(4)
(2)
(2)
(2)
At 28 February
8
14
4
7
Tax effect of timing differences due to:
Other temporary differences*
18
20
12
13
Accelerated capital allowances
(10)
(6)
(8)
(6)
8
14
4
7
* Other temporary differences predominately relate to the day 1 reduction to retained earnings following adoption of IFRS 9,
which is deductible evenly over the 10 year period following adoption.
23.
Customer accounts
Accounting
policy
Financial liabilities comprise customer accounts, deposits from banks, subordinated liabilities and other wholesale
deposits. All financial liabilities are initially recognised at fair value and subsequently measured at amortised cost
using the effective interest rate method. A financial liability is derecognised from the balance sheet when the
Group has discharged its obligations, the contract is cancelled or it expires.
Customer accounts comprise Sterling interest bearing deposits.
The Group and Bank
2023
2022
£m
£m
Repayable:
On demand
3,806
3,777
Within 3 months
203
79
Between 3 months and 1 year
352
227
Between 1 and 5 years
374
152
4,735
4,235
Of the above balance, £4,289m (2022: £3,923m) qualified for protection under the Financial Services Compensation Scheme.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
82
24.
Other Deposits
Accounting
policy
All financial liabilities are initially recognised at fair value and subsequently measured at amortised cost.
Amortised cost is calculated by taking into account any discount or premium on issue of funds, and costs that are
an integral part of the EIR. A financial liability is derecognised from the balance sheet when the Group has
discharged its obligations, the contract is cancelled or it expires.
Other deposits comprise Sterling wholesale deposits, including drawings under the Bank of England’s TFSME and ILTR schemes.
The Group and Bank
2023
2022
£m
£m
Repayable:
Within 3 months
229
269
Between 3 months and 1 year
291
93
Between 1 and 5 years
692
662
1,212
1,024
Of the above balance, £263m (2022: £20m) qualified for protection under the Financial Services Compensation Scheme. Included within
this are £191m (2022: £nil) of deposits obtained via deposit aggregators where the ultimate depositors are retail customers.
25.
Subordinated liabilities
Accounting
policy
Subordinated liabilities are initially recognised at fair value and subsequently held at amortised cost. Amortised
cost is calculated by taking into account any discount or premium on issue of funds, and costs that are an integral
part of the EIR. Interest is recognised in the income statement through interest payable.
The Group and Bank
2023
2022
£m
£m
Fixed rate subordinated Tier 2 notes due March 2028
120
175
Accrued interest
5
3
Fair value hedge accounting adjustments
(3)
1
122
179
The Group has £120m of fixed rate reset callable subordinated Tier 2 notes in issuance (28 Feb 2022: £175m). The Bank issued £120m of
fixed rate reset callable subordinated Tier 2 notes on 12 September 2022. These notes pay interest on the principal amount at a rate of
10.5 per cent per annum, payable in equal instalments semi-annually in arrears, until 12 March 2028 at which time the interest rate will
reset. The Bank has the option to redeem these notes on 12 March 2028.
This was issued in conjunction with a tender to repurchase and extinguish £120m of the existing £175m subordinated Tier 2 notes that
were issued on 23 November 2017. On 23 November 2022, the Bank redeemed the remaining £55m in full on the call date.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
83
26.
Other liabilities
Accounting
policy
Other liabilities are initially recognised at fair value and subsequently measured at amortised cost using the
effective interest rate method.
All other liabilities are expected to be settled within 3 months with the exception of lease liabilities.
The Group
The Bank
2023
2022
2023
2022
£m
£m
£m
£m
Customer funds in course of settlement
11
14
10
14
Accruals and deferred income
90
85
67
76
Amounts payable to Sainsbury’s group companies
22
33
-
-
Cash collateral received
61
20
61
20
Current tax liability
-
2
-
-
Lease liabilities
2
3
2
3
Other creditors
4
16
4
-
190
173
144
113
27.
Provisions for liabilities and charges
Accounting
policy
The Group recognises a provision if there is a present obligation as a consequence of either a legal or a constructive
obligation resulting from a past event. To recognise this it should be probable that an outflow of economic resources,
that can be reliably measured, will be required to settle the obligation. Provisions are measured as the discounted
expected future cash flows taking account of the risks and uncertainties associated with the specific liability where
appropriate.
Provision on loan commitments issued is included in the movement analysis in note 13. It primarily relates to expected credit losses
on credit card and store card commitments.
Other provisions
The Group
The Bank
2023
2022
2023
2022
£m
£m
£m
£m
At 1 March
10
14
1
2
Charged to the income statement
3
2
3
1
Released
-
(1)
-
-
Utilised in the year
(2)
(5)
0
(2)
At 28 February
11
10
4
1
The Group
The Bank
2023
2022
2023
2022
£m
£m
£m
£m
Provision on loan commitments issued
20
18
8
8
Other provisions
PPI customer remediation
6
9
-
-
Other
5
1
4
1
Other provisions total
11
10
4
1
31
28
12
9
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
84
27.
Provisions for liabilities and charges (continued)
The PPI customer remediation provision relates to the costs associated with potential redress from customers in respect of past sales
of Payment Protection Insurance (PPI) policies. This liability sits with the Bank’s subsidiary Home Retail Group Insurance Services
Limited.
The FCA deadline for customers PPI claims through the complaints procedure passed on 29th August 2019. However, customers can
continue to bring claims against firms through a legal route, claiming an Unfair Relationship under the Consumer Credit Act. The
closing PPI provision of £6m (2022: £8m) represents the cost of future litigation claims and the associated costs, including solicitors’
fees and the operational costs of processing claims. The provision represents management’s best estimate of future costs and will
remain under review. The eventual cost is dependent upon claim volumes, claim values and claim handling costs. These assumptions
are inherently uncertain, and the ultimate financial impact may be different than the amount provided. The Group will continue to
monitor the position and update its assumptions as more information becomes available.
Other provisions relate to liabilities arising from our historic New Bank Programme transition, dilapidations and onerous cost provisions
associated with the Bank’s head office property. £3m was charged to the income statement during the year ended 28 February 2023 in
respect of the New Bank Programme transition (2022: £1m charged to income statement upon the decision of the Bank to exit and make
part of the head office available for sub-let).
Where charges on provisions are material and relate to a historic time period they are recognised outside of underlying profit in order
to provide a clear and consistent view of the Group’s underlying performance.
28. Called up share capital
Accounting
policy
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary
shares or options are shown in equity as a deduction, net of tax, from the proceeds.
The Bank
2023
2022
£m
£m
900,750,000 Authorised, allotted, called up and fully paid ordinary shares
(£0.777963 / £1):
At 1 March
701
901
Share capital reduction
-
(200)
At 28 February
701
701
There were no movements in share capital in the current period.
In the prior year, there was a reduction of the ordinary share capital of the Bank from £900,750,000 to £700,750,172.25. The reduction
became effective on 1 April 2021 upon registration of the court order with Companies House and resulted in an equal and opposite
increase to retained earnings.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
85
29.
Retained Earnings
The Group
The Bank
2023
2022
2023
2022
£m
£m
£m
£m
At 1 March
175
(46)
155
(55)
Share Capital Reduction (note 28)
-
200
-
200
Profit/(Loss) for the financial year
33
18
23
6
Dividends Paid
(50)
-
(50)
-
Share-based payment (net of tax)
5
4
5
4
At 28 February
163
176
133
155
30.
Other reserves
Other reserves comprise the unhedged fair value movements for investment securities. The reserve will unwind in line with the maturity
profile of the underlying investment securities.
Other Reserves
The Group and Bank
£m
At 1 March 2022
1
Net unrealised gains
2
Realised gains reclassified to the income statement on disposal
(1)
At 28 February 2023
2
At 1 March 2021
3
Net unrealised gains
-
Realised gains reclassified to the income statement on disposal
(2)
At 28 February 2022
1
These balances include deferred tax of £1m in the reserve (2022: £1m).
31.
Analysis of financial assets and liabilities by measurement basis
Accounting
policy
Designation of financial instruments
The Group classifies all of its financial assets based on the business model for managing the assets and the
assets’ contractual terms, measured at either Amortised cost, FVOCI or FVPL.
The Group classifies and measures its derivative portfolio at FVPL, as explained in note 17. The Group may
designate financial instruments at FVPL, if so doing eliminates or significantly reduces measurement or
recognition inconsistencies.
Financial liabilities, other than loan commitments and financial guarantees, are measured at amortised cost or
at FVPL when they are held for trading and derivative instruments, or the fair value designation is applied.
Derecognition of financial assets
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or
where the Group has transferred substantially all risks and rewards of ownership
Financial assets and financial liabilities are measured on an on-going basis either at fair value or at amortised cost. The principal
accounting policies describe how financial instruments are measured, and how income and expenses, including fair value gains and
losses, are recognised. The following table analyses the financial assets and liabilities in the balance sheet by the class of financial
instrument to which they are assigned, and therefore by the measurement basis:
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
86
31.
Analysis of financial assets and liabilities by measurement basis (continued)
The Group
Amortised cost
Fair value
through OCI
Fair value through
profit or loss
Other
Total
At 28 February 2023
£m
£m
£m
£m
£m
Assets
Cash, balances with central banks and
other demand deposits
546
-
-
-
546
Loans and advances to other banks
100
-
-
-
100
Derivative financial instruments
-
-
99
-
99
Investment securities
50
691
-
-
741
Loans and advances to customers
5,293
-
-
-
5,293
Investments in subsidiaries
-
-
-
-
-
Intangible assets
-
-
-
179
179
Property, plant and equipment
-
-
-
9
9
Other assets
231
-
-
11
242
6,220
691
99
199
7,209
Liabilities
Customer accounts
(4,735)
-
-
-
(4,735)
Other deposits
(1,212)
-
-
-
(1,212)
Other borrowed funds
-
-
-
-
-
Subordinated liabilities
(122)
-
-
-
(122)
Derivative financial instruments
-
-
(53)
-
(53)
Other liabilities
(189)
-
-
(1)
(190)
Provisions for liabilities and charges
(20)
-
-
(11)
(31)
(6,278)
-
(53)
(12)
(6,343)
The Group
Amortised cost
Fair value
through OCI
Fair value through
profit or loss
Other
Total
At 28 February 2022
£m
£m
£m
£m
£m
Assets
Cash, balances with central banks and
other demand deposits
387
-
-
-
387
Loans and advances to other banks
121
-
-
-
121
Derivative financial instruments
-
-
35
-
35
Investment securities
25
418
-
-
443
Loans and advances to customers
5,067
-
-
-
5,067
Investments in subsidiaries
-
-
-
-
-
Intangible assets
-
-
-
191
191
Property, plant and equipment
-
-
-
9
9
Other assets
268
-
-
15
283
5,868
418
35
215
6,536
Liabilities
Customer accounts
(4,235)
-
-
-
(4,235)
Other deposits
(1,024)
-
-
-
(1,024)
Other borrowed funds
-
-
-
-
-
Subordinated liabilities
(179)
-
-
-
(179)
Derivative financial instruments
-
-
(19)
-
(19)
Other liabilities
(169)
-
-
(4)
(173)
Provisions for liabilities and charges
(27)
-
-
(1)
(28)
(5,634)
-
(19)
(5)
(5,658)
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
87
31.
Analysis of financial assets and liabilities by measurement basis (continued)
The Bank
Amortised cost
Fair value
through OCI
Fair value through
profit or loss
Other
Total
At 28 February 2023
£m
£m
£m
£m
£m
Assets
Cash, balances with central banks and
other demand deposits
499
-
-
-
499
Loans and advances to other banks
100
-
-
-
100
Derivative financial instruments
-
-
47
-
47
Investment securities
50
691
-
-
741
Loans and advances to customers
4,555
-
-
-
4,555
Investments in subsidiaries
-
-
-
325
325
Intangible assets
-
-
-
147
147
Property, plant and equipment
-
-
-
9
9
Other assets
684
-
-
7
691
5,888
691
47
488
7,114
Liabilities
Customer accounts
(4,735)
-
-
-
(4,735)
Other deposits
(1,212)
-
-
-
(1,212)
Other borrowed funds
-
-
-
-
-
Subordinated liabilities
(122)
-
-
-
(122)
Derivative financial instruments
-
-
(53)
-
(53)
Other liabilities
(143)
-
-
(1)
(144)
Provisions for liabilities and charges
(7)
-
-
(5)
(12)
(6,219)
-
(53)
(6)
(6,278)
The Bank
Amortised cost
Fair value
through OCI
Fair value through
profit or loss
Other
Total
At 28 February 2022
£m
£m
£m
£m
£m
Assets
Cash, balances with central banks and
other demand deposits
346
-
-
-
346
Loans and advances to other banks
121
-
-
-
121
Derivative financial instruments
-
-
19
-
19
Investment securities
25
418
-
-
443
Loans and advances to customers
4,311
-
-
-
4,311
Investments in subsidiaries
-
-
-
325
325
Intangible assets
-
-
-
162
162
Property, plant and equipment
-
-
-
9
9
Other assets
692
-
-
8
700
5,495
418
19
504
6,436
Liabilities
Customer accounts
(4,235)
-
-
-
(4,235)
Other deposits
(1,024)
-
-
-
(1,024)
Other borrowed funds
-
-
-
-
-
Subordinated liabilities
(179)
-
-
-
(179)
Derivative financial instruments
-
-
(19)
-
(19)
Other liabilities
(109)
-
-
(4)
(113)
Provisions for liabilities and charges
(8)
-
-
(1)
(9)
(5,555)
-
(19)
(5)
(5,579)
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
88
32. Loan commitments
Accounting
policy
Undrawn Loan, Mortgage, Credit Card and AFS Storecard commitments are commitments under which, over the
duration of the commitment, the Bank is required to provide a loan with pre-specified terms to the customer. These
contracts are in scope of the ECL requirements and accounting policies in relation to this are detailed in Note 13.
The nominal contractual value of these commitments, where the lending agreed to be provided is on market terms,
are not recorded in the Balance Sheet.
The contractual amount of the Group's off-balance sheet financial instruments that commit it to extend credit to customers is as
follows:
The Group and Bank
2023
2022
£m
£m
Commitments to extend credit
11
26
Lending commitments reduced significantly year on year as a result of the continued digitisation of the loans application journey and
reduction in timings between applications being approved and funds transferred to customers. The above table does not include
undrawn limits on credit cards or AFS Storecards. These are not considered a contractual commitment but because in practice the
Group does not expect to withdraw these credit limits from customers, they are within the scope of impairment provisioning as found
in Note 13.
The loss allowance on loan commitments are recognised as part of provisions for liabilities (see note 27).
33.
Risk management
The Group encounters a range of different risks and uncertainties as it undertakes its day-to-day activities and seeks to achieve its
strategic objectives. Our approach to risk management and an overview of the primary risk types are described in the Risk Overview
section on page 21. Further detail on credit and liquidity risk exposures are shown below, with capital adequacy discussed further in
note 34.
Credit risk
Credit risk is central to the Group’s day to day activities and is managed in line with the Board approved risk appetite as detailed within
the Principal Risks section (page 25).
Retail credit risk
Retail Credit Risk is the possibility of losses arising from a retail customer failing to meet their agreed repayment terms as they fall
due. Retail Credit utilise automated scorecards to assess the credit worthiness and affordability criteria of new applicants and ongoing
behavioural characteristics of existing customers. The outcome from all scorecard models is monitored utilising a set of credit quality
metrics to ensure actual performance is in line with agreed expectations. Additional expert underwriting of credit applications is
undertaken by a specialist operational team where further consideration is appropriate.
The Retail Credit Risk Committee provide portfolio oversight control over credit risk strategy to maintain lending in line with the Board
approved risk appetite, with additional oversight and control provided by the Executive Risk Committee and Board Risk Committee.
Internal Audit provide additional assurance by undertaking regular reviews on the adequacy of credit risk policies and procedures.
Wholesale and derivative credit risk
The Group’s treasury assets portfolio is held primarily for liquidity management purposes and in the case of derivatives, for the purpose
of managing market risk. The treasury assets portfolio is invested in eligible investment securities that qualify for the regulatory
Liquidity Coverage Ratio (LCR) and internal Operational Liquidity Pool (OLP). These investments include the Bank of England’s (BoE)
reserve account, UK government securities (gilts or Treasury bills), multilateral development bank securities, government guaranteed
agency securities, covered bonds and asset backed securities.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
89
33.
Risk management (continued)
Limits are established for all counterparty and asset class exposures based on their respective credit quality and market liquidity.
Consideration is also given to geographical region and the strength of relevant sovereign credit ratings.
Derivatives are subject to the same credit risk control procedures as are applied to other wholesale market instruments and the credit
risk arising from mark-to-market derivative valuations is mitigated by daily margin calls, posting cash collateral to cover exposures.
Daily monitoring is undertaken by the Group’s Treasury and Financial Risk teams, including early warning indicators with appropriate
triggers for escalation. Oversight of the Group’s Wholesale credit risk positions included as part of ALCo.
At 28 February 2023, the maximum credit exposure of the Group in the event of other parties failing to perform their obligations is equal
to the sum of loans and advances to customers, loans and advances to banks, investment securities and credit lines and other
commitments to lend. These are set out in notes 13, 16, 18 and 33 respectively. No account is taken of any collateral held and the
maximum exposure to loss is considered to be the instrument's balance sheet carrying amount.
The table below shows the maximum exposure to credit risk for the components of the balance sheet, including derivatives. The
maximum exposure is shown gross, before the effect of mitigation through the use of collateral agreements.
The Group
The Bank
2023
2022
2023
2022
£m
£m
£m
£m
Credit risk exposures relating to on balance sheet items
Loans and advances to customers
Unsecured
4,729
4,296
3,991
3,540
Secured
564
771
564
771
Cash and balances with central banks
546
387
499
346
Derivative financial instruments
99
35
47
19
Loans and advances to other Banks
100
121
100
121
Investment securities
741
443
741
443
Other assets
231
268
684
692
Credit risk exposures relating to off balance sheet items
Loans commitments
11
26
11
26
Total credit risk exposures
7,021
6,347
6,637
5,958
Risk concentrations
Concentrations arise when a number of customers or counterparties are engaged in similar business activities, or activities in the
geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly
affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Group's
performance to developments affecting a particular industry, counterparty or geographical location.
The Group is a retail-focused financial institution operating solely in the UK. In line with its risk principles, the Group seeks to actively
identify and manage risk concentrations across its business areas and activities. It has set clear targets for diversification within its
asset and liability portfolios and sources of income. These are supported by a range of portfolio limits and a focus on key processes
and controls across its activities, systems and supply chain.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
90
33.
Risk Management (continued)
Geographical sectors
The Group
The Bank
2023
2022
2023
2022
Maximum exposure
£m
£m
£m
£m
United Kingdom
6,807
6,124
6,423
5,734
Europe
158
182
158
183
Other
56
41
56
41
7,021
6,347
6,637
5,958
Concentration by location for investment securities is measured based on the location of the issuer of the security. The analysis reflects
the credit risk associated with the balance and is not reflective of a currency exposure.
Industry sectors
The Group
The Bank
2023
2022
2023
2022
Maximum exposure
£m
£m
£m
£m
Retail
5,304
5,093
4,566
4,337
Financial institutions
1,175
805
1,530
1,172
Government
542
449
541
449
7,021
6,347
6,637
5,958
Retail credit risk
The Group’s retail credit risk management strategy is to ensure that its retail asset portfolios are suitably diversified through
identifying and managing credit risk concentrations whilst serving our target market, being Sainsburys and/or Argos customers, in line
with a targeted risk versus return framework. Retail credit risks are managed in accordance with limits set out within Board Risk
appetite which is documented in detailed policies and policy standards. There were no significant changes noted in appetite over the
period albeit credit risk strategies were reviewed. Most notably, affordability calculations were updated and reinforced to reflect the
rising cost of living. Reviews of credit risk appetite levels are subject to annual review and more frequently if required. Credit strategy
is updated within appetite, to reflect emerging trends and/or changes to appetite.
We have considered whether any new or emerging risks (as detailed in the Strategic report on page 22) result in an impact on our ECL
provisions. The immediate impacts on inflation are considered as part of our provisions adequacy and have resulted in us holding an
economic uncertainty overlay as outlined in note 2. To date climate risk has not resulted in any significant impact on our observed
expected credit losses. We continue to evolve our thinking in relation to this issue as described in the climate strategy on page 8.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
91
33.
Risk Management (continued)
Credit quality per class of financial asset
Loans and advances are summarised as follows:
The Group
The Bank
2023
2022
2023
2022
£m
£m
£m
£m
Impaired
210
174
128
102
Past due but not impaired
60
61
20
21
Neither past due nor impaired
5,307
5,051
4,535
4,306
Gross amount due
5,577
5,286
4,683
4,429
Less: allowance for impairment
(239)
(203)
(135)
(118)
hedging fair value adjustment
(45)
(16)
7
-
5,293
5,067
4,555
4,311
Stage 3 gross impaired loans includes £7m of unsecured loans and £nil of secured loans that have cured however, are held in stage 3
due to the application of a probationary period.
Credit quality analysis
The Group
At 28 February 2023
Stage 1
Stage 2
Stage 3
Total
Unsecured lending
£m
£m
£m
£m
Impaired
Less than 3 months, but impaired*
-
-
31
31
Over 3 months
-
-
91
91
Recoveries
-
-
81
81
Total gross impaired loans
-
-
203
203
Past due 30 days to 3 months
-
23
-
23
Past due less than 30 days
10
26
-
36
Not past due
4,303
431
-
4,734
Total gross amount due
4,313
480
203
4,996
Impairment
Impairment on gross balance
42
53
144
239
Undrawn commitments impairment
13
7
0
20
Total impairment
55
60
144
259
Average 12 month PDs (stage 1 balances only)
2.1%
Average lifetime PDs (stage 2 balances only)
39.2%
Average LGD
56.4%
Coverage
1.3%
12.5%
71.0%
5.2%
*Includes £4m of loans that would have been past due had their terms not been renegotiated.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
92
33.
Risk Management (continued)
The Group
At 28 February 2022
Stage 1
Stage 2
Stage 3
Total
Unsecured lending
£m
£m
£m
£m
Impaired
Less than 3 months, but impaired*
-
-
31
31
Over 3 months
-
-
75
75
Recoveries
-
-
59
59
Total gross impaired loans
-
-
165
165
Past due 30 days to 3 months
-
20
-
20
Past due less than 30 days
11
29
-
40
Not past due
3,815
465
-
4,280
Total gross amount due
3,826
514
165
4,505
Impairment
Impairment on gross balance
34
47
119
200
Undrawn commitments impairment
10
8
1
19
Total impairment
44
55
120
219
Average 12 month PDs (stage 1 balances only)
1.7%
Average lifetime PDs (stage 2 balances only)
31.2%
Average LGD
54.9%
Coverage
1.2%
10.7%
72.7%
4.9%
*Includes £5m of loans that would have been past due had their terms not been renegotiated.
The Bank
At 28 February 2023
Stage 1
Stage 2
Stage 3
Total
Unsecured lending
£m
£m
£m
£m
Impaired
Less than 3 months, but impaired*
-
-
9
9
Over 3 months
-
-
31
31
Recoveries
-
-
81
81
Total gross impaired loans
-
-
121
121
Past due 30 days to 3 months
-
9
-
9
Past due less than 30 days
-
10
-
10
Not past due
3,593
370
-
3,963
Total gross amount due
3,593
389
121
4,103
Impairment
Impairment on gross balance
23
25
86
134
Undrawn commitments impairment
5
2
1
8
Total impairment
28
27
87
142
Average 12 month PDs (stage 1 balances only)
0.8%
Average lifetime PDs (stage 2 balances only)
16.2%
Average LGD
57.2%
Coverage
0.8%
6.9%
71.9%
3.5%
*Includes £2m of loans that would have been past due had their terms not been renegotiated.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
93
33.
Risk Management (continued)
The Bank
At 28 February 2022
Stage 1
Stage 2
Stage 3
Total
Unsecured lending
£m
£m
£m
£m
Impaired
Less than 3 months, but impaired*
-
-
11
11
Over 3 months
-
-
23
23
Recoveries
-
-
59
59
Total gross impaired loans
-
-
93
93
Past due 30 days to 3 months
-
7
-
7
Past due less than 30 days
-
13
-
13
Not past due
3,121
413
-
3,534
Total gross amount due
3,121
433
93
3,647
Impairment
Impairment on gross balance
21
25
69
115
Undrawn commitments impairment
4
4
-
8
Total impairment
25
29
69
123
Average 12 month PDs (stage 1 balances only)
0.5%
Average lifetime PDs (stage 2 balances only)
10.0%
Average LGD
53.2%
Coverage
0.8%
6.7%
74.1%
3.4%
*Includes £3m of loans that would have been past due had their terms not been renegotiated.
The Group and Bank
At 28 February 2023
Stage 1
Stage 2
Stage 3
Total
Secured lending
£m
£m
£m
£m
Impaired
Less than 3 months, but impaired*
-
-
6
6
Over 3 months
-
-
1
1
Recoveries
-
-
-
-
Total gross impaired loans
-
-
7
7
Past due 30 days to 3 months
-
-
-
-
Past due less than 30 days
-
1
-
1
Not past due
532
41
-
573
Total gross amount due
532
42
7
581
Impairment
Impairment on gross balance
0
0
1
1
Undrawn commitments impairment
-
-
-
-
Total impairment
0
0
1
1
Average 12 month PDs (stage 1 balances only)
0.5%
Average lifetime PDs (stage 2 balances only)
2.7%
Average LGD
0.0%
Coverage
0.01%
0.05%
10.44%
0.14%
*Includes £nil of loans that would have been past due had their terms not been renegotiated.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
94
33.
Risk Management (continued)
The Group and Bank
At 28 February 2022
Stage 1
Stage 2
Stage 3
Total
Secured lending
£m
£m
£m
£m
Impaired
Less than 3 months, but impaired*
-
-
8
8
Over 3 months
-
-
1
1
Recoveries
-
-
-
-
Total gross impaired loans
-
-
9
9
Past due 30 days to 3 months
-
-
-
-
Past due less than 30 days
-
1
-
1
Not past due
713
59
-
772
Total gross amount due
713
60
9
782
Impairment
Impairment on gross balance
0
1
2
3
Undrawn commitments impairment
-
-
-
-
Total impairment
0
1
2
3
Average 12 month PDs (stage 1 balances only)
0.6%
Average lifetime PDs (stage 2 balances only)
2.2%
Average LGD
0.1%
Coverage
0.6%
0.75%
23.57%
0.37%
*Includes £nil of loans that would have been past due had their terms not been renegotiated.
Unsecured coverage has increased from 4.9% to 5.2% year on year as a result of the change in economic outlook between reporting
dates as post Covid-19 recoveries is partially offset by worsening economic outlook, as reflected in the economic scenarios applied as
outlined in note 2.
Mortgages held over residential properties represent the only collateral held by the Group for retail exposures. The market value of
collateral held for impaired loans and loans past due but not impaired was £17m (2022: £23m).
If a customer falls into arrears, the customer will be held in 'collections' where the Group will work with the customer to try to regularise
the position over a period of time. Where the arrears status of a customer deteriorates and there is a failure to respond to
correspondence or agree an acceptable repayment proposal, including notice of default, the customer balance will fall into 'recoveries'.
A specialist debt recovery team will take steps to recover the debt, using their expertise to determine the optimal recovery strategy.
Collateral
The Group holds collateral against loans and advances to customers in the form of mortgages over residential property and second
charges over business assets, including commercial and residential property.
Credit quality
The Group defines the following classifications for all credit exposures: High, Satisfactory, Low and Credit impaired. These are
segmented by 12 month probability of default (PD) under IFRS 9. Unsecured lending represents credit cards, personal loans, AFS
storecards and AFS MPP lending at 28 February 2023. Secured lending represents mortgage lending.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
95
33.
Risk Management (continued)
IFRS 9 12 month PD (no change from 2022)
High quality:
<=3.02%
Satisfactory quality
>3.03%; < 11.10%
Low quality
>= 11.11%
Credit impaired
100%
Unsecured Lending
The Group
28 February 2023
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
High quality
3,594
125
-
3,719
Satisfactory quality
641
215
-
856
Low quality
78
140
-
218
Credit impaired
-
-
203
203
Total gross amount due
4,313
480
203
4,996
The Group
28 February 2022
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
High quality
3,401
233
-
3,634
Satisfactory quality
381
181
-
562
Low quality
44
100
-
144
Credit impaired
-
-
165
165
Total gross amount due
3,826
514
165
4,505
The Bank
28 February 2023
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
High quality
3,143
125
-
3,268
Satisfactory quality
430
195
-
625
Low quality
20
69
-
89
Credit impaired
-
-
121
121
Total gross amount due
3,593
389
121
4,103
The Bank
28 February 2022
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
High quality
2,939
232
-
3,171
Satisfactory quality
178
158
-
336
Low quality
4
36
-
40
Credit impaired
-
7
93
100
Total gross amount due
3,121
433
93
3,647
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
96
33.
Risk Management (continued)
Secured lending
The Group and Bank
28 February 2023
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
High quality
532
30
-
5623
Satisfactory quality
-
10
-
10
Low quality
-
2
-
2
Credit impaired
-
-
7
7
Total gross amount due
532
42
7
581
The Group and Bank
28 February 2022
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
High quality
713
59
-
772
Satisfactory quality
-
1
-
1
Low quality
-
-
-
-
Credit impaired
-
-
9
9
Total gross amount due
713
60
9
782
An analysis by loan-to-value (LTV) ratio of the Group’s residential mortgage lending is presented below. The value of collateral used in
determining the LTV ratios has been estimated based upon the last actual valuation, adjusted to take into account subsequent
movements in house prices.
The Group and Bank
Stage 1
Stage 2
Stage 3
Total
At 28 February 2023
£m
£m
£m
£m
Less than 70%
518
41
6
565
70% to 80%
14
1
1
16
80% to 90%
-
-
-
-
90% to 100%
-
-
-
-
Greater than 100%
-
-
-
-
Total mortgages
532
42
7
581
The Group and Bank
Stage 1
Stage 2
Stage 3
Total
At 28 February 2022
£m
£m
£m
£m
Less than 70%
607
57
8
672
70% to 80%
102
2
1
105
80% to 90%
4
1
-
5
90% to 100%
-
-
0
0
Greater than 100%
-
-
-
-
Total mortgages
713
60
9
782
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
97
33.
Risk Management (continued)
The following table shows the maximum exposure to credit risk for commitments and balances measured at amortised cost along with
the related amounts which are credit impaired at the reporting date.
The Group
2023
2022
Maximum
exposure to
credit risk
Of which secured
by collateral -
Residential
Property
Maximum
exposure to
credit risk
Of which secured
by collateral -
Residential
Property
£m
£m
£m
£m
Loan Commitments
8,685
-
8,803
-
Of which credit impaired
50
-
62
-
Financial assets measured at amortised
cost – Retail lending
5,577
581
5,287
781
Of which credit impaired
210
7
174
9
Total
14,262
581
14,090
781
of which credit impaired
260
7
236
9
The Bank
2023
2022
Maximum
exposure to
credit risk
Of which secured
by collateral -
Residential
Property
Maximum
exposure to
credit risk
Of which secured
by collateral -
Residential
Property
£m
£m
£m
£m
Loan Commitments
5,873
-
5,962
-
Of which credit impaired
22
-
19
-
Financial assets measured at amortised
cost – Retail lending
4,684
581
4,430
781
Of which credit impaired
128
7
103
9
Total
10,557
581
10,392
781
of which credit impaired
150
7
122
9
Forbearance
The Group provides support to customers who are experiencing financial difficulties. Forbearance is relief granted by a lender to assist
customers in financial difficulty, through arrangements which temporarily allow the customer to pay an amount other than the
contractual amounts due. These temporary arrangements may be initiated by the customer or the Group where financial difficulty
would prevent repayment within the original terms and conditions of the contract. The main aim of forbearance is to support customers
in returning to a position where they are able to meet their contractual obligations.
The Group has well defined forbearance policies and processes. A number of forbearance options are made available to customers.
These include arrangements to repay arrears over a period of time, by making payments above the contractual amount, that ensure
the loan is repaid within the original repayment term and short-term concessions, where the borrower is allowed to make reduced
repayments (or in exceptional circumstances, no repayments) on a temporary basis to assist with short-term financial hardship.
The table below details the values of secured and unsecured advances that are subject to forbearance programmes.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
98
33.
Risk Management (continued)
The Group
2023
2022
Gross loans
and advances
subject to
forbearance
Forbearance
as a total
loans and
advances
Forbearance
covered by
impairment
provision
Gross loans and
advances
subject to
forbearance
Forbearance
as a total
loans and
advances
Forbearance
covered by
impairment
provision
£m
%
%
£m
%
%
Unsecured
61
1.2
69.1
52
1.2
72.0
Secured
1
0.2
4.5
2
0.3
25.7
Total
62
1.1
68.1
54
1.0
70.1
The Bank
2023
2022
Gross loans
and advances
subject to
forbearance
Forbearance
as a total
loans and
advances
Forbearance
covered by
impairment
provision
Gross loans and
advances
subject to
forbearance
Forbearance
as a total
loans and
advances
Forbearance
covered by
impairment
provision
£m
%
%
£m
%
%
Unsecured
35
0.9
67.1
29
0.8
72.6
Secured
1
0.2
4.5
2
0.3
25.6
Total
36
0.8
65.5
31
0.7
69.3
Climate-related credit risk
Our assessment of climate related credit risk is outlined in the emerging risks section on page 22. To date we have not seen and do not
actively monitor any changes to the probability of default or loss given default that arise as a result of physical or transitional climate
risk. Due to our predominantly unsecured portfolios, we do not anticipate material exposure to credit risks as a result of climate change
over the next 5 years, however we continually monitor this assumption.
Governmental and societal responses to climate change risks are still developing, and are interdependent upon each other,
consequently financial statements cannot capture all possible future outcomes as these are not yet known.
Debt securities, balances with central banks and other eligible investment securities
The total gross amount of individually impaired debt securities, cash and balances with central banks, UK government securities (Gilts
and Treasury bills) and other eligible investment securities as at 28 February 2023 was £nil (2022: £nil). The tables below present an
analysis of the credit quality of cash and cash equivalents and the treasury assets portfolio by market value. Analysis is by rating
agency designation, based on Moody's ratings:
The Group
Cash and balances
with central banks
UK government
securities
Other investment
securities
Total
At 28 February 2023
£m
£m
£m
£m
Aaa to A3
-
25
716
741
ATM cash and balances with central banks
471
-
-
471
Other demand deposits
75
-
-
75
546
25
716
1,287
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
99
33.
Risk Management (continued)
The Bank
Cash and balances
with central banks
UK government
securities
Other investment
securities
Total
At 28 February 2023
£m
£m
£m
£m
Aaa to A3
-
25
716
741
ATM cash and balances with central banks
471
-
-
471
Other demand deposits
28
-
-
28
499
25
716
1,240
The Group
Cash and balances
with central banks
UK government
securities
Other investment
securities
Total
At 28 February 2022
£m
£m
£m
£m
Aaa to A3
-
98
345
443
ATM cash and balances with central banks
329
-
-
329
Other demand deposits
58
-
-
58
387
98
345
830
The Bank
Cash and balances
with central banks
UK government
securities
Other investment
securities
Total
At 28 February 2022
£m
£m
£m
£m
Aaa to A3
-
98
345
443
ATM cash and balances with central banks
329
-
-
329
Other demand deposits
17
-
-
17
346
98
345
789
Credit Risk Profile by external rating grades of Treasury Assets measured at FVOCI
The Group and Bank
2023
2022
Non-credit
impaired
Total Gross
Carrying Amount
Non-credit
impaired
Total Gross
Carrying Amount
External Rating Grades
Stage 1
Stage 1
£m
£m
£m
£m
Aaa to A3
741
741
443
443
741
741
443
443
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
100
33.
Risk Management (continued)
Financial assets and liabilities subject to offsetting, master netting agreements and similar agreements
The following table shows financial instruments which are subject to offsetting, master netting and similar agreements:
The Group
Related amounts not offset
in the balance sheet
Gross assets /
(liabilities)
recognised
Amounts
offset
Net amounts
recognised in
the balance
sheet
Financial
instruments
Collateral
pledged /
(received)
Net amounts
At 28 February 2023
£m
£m
£m
£m
£m
£m
Derivative financial
instruments – assets
99
-
99
-
(49)
49
Derivative financial
instruments – liabilities
(53)
-
(53)
-
52
(1)
46
-
46
-
3
48
The Group
Related amounts not offset in
the balance sheet
Gross assets /
(liabilities)
recognised
Amounts
offset
Net amounts
recognised in
the balance
sheet
Financial
instruments
Collateral
pledged /
(received)
Net amounts
At 28 February 2022
£m
£m
£m
£m
£m
£m
Derivative financial
instruments – assets
35
-
35
-
(20)
15
Derivative financial
instruments – liabilities
(19)
-
(19)
-
22
3
16
-
16
-
2
18
The Bank
Related amounts not offset
in the balance sheet
Gross assets /
(liabilities)
recognised
Amounts
offset
Net amounts
recognised in
the balance
sheet
Financial
instruments
Collateral
pledged /
(received)
Net amounts
At 28 February 2023
£m
£m
£m
£m
£m
£m
Derivative financial
instruments – assets
47
47
-
(49)
(2)
Derivative financial
instruments – liabilities
(53)
-
(53)
-
52
(1)
(6)
-
(6)
-
3
(3)
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
101
33.
Risk Management (continued)
The Bank
Related amounts not offset in
the balance sheet
Gross assets /
(liabilities)
recognised
Amounts
offset
Net amounts
recognised in
the balance
sheet
Financial
instruments
Collateral
pledged /
(received)
Net amounts
At 28 February 2023
£m
£m
£m
£m
£m
£m
Derivative financial
instruments – assets
19
-
19
-
(20)
(1)
Derivative financial
instruments – liabilities
(19)
-
(19)
-
20
1
-
-
-
-
-
-
The Group has derivatives which are governed by the International Swaps and Derivatives Association (ISDA), credit support annex
(CSA) and cleared derivatives execution agreement (CDEA) whereby if the fair value exceeds a pre-agreed level, cash collateral is
exchanged. The Group’s exposures are held with a central clearing counterparty, the London Clearing House (LCH), the terms of which
also required an initial margin to be provided. At 28 February 2023, the Group had posted cash collateral of £49m (2022: £20m) and
received cash collateral of £52m (2022: £20m) against its derivative positions, and £21m of initial margin collateralised by encumbered
Gilts (2022: £22m of initial margin collateralised by encumbered Gilts). Following the Bank’s award of a credit rating in the year, the
Group is no longer required to pledge cash collateral with Mastercard for the risk of issuing merchant spend credit and therefore the
value pledged is USD nil (2022: USD 58.5m).
Liquidity and funding risk
Liquidity risk is the risk that the Group cannot meet its payment obligations as they fall due or can only do so at excessive cost. The
Group seeks to ensure that financial obligations can be met at all times, even under liquidity stress conditions.
The annual ILAAP enables the Group to:
•
Identify and assess its most relevant liquidity risk drivers
•
Quantify its liquidity needs under various stress scenarios and
•
Put in place appropriate limits and controls to mitigate liquidity risks.
In meeting its internal limits as well as PRA requirements, the Group maintains a stock of high-quality liquid assets that can be readily
monetised by outright sale or repurchase agreement to meet the Group’s obligations to depositors and other creditors.
The Group’s Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) are regularly monitored and forecast alongside net
cash flows and key funding ratios. Treasury prepare long term and short term forecasts to assess liquidity requirements, taking into
account factors such as ATM cash management, contractual maturities and customer deposit patterns (stable or less stable deposits)
as well as outflows regarding undrawn commitments. These reports support daily liquidity risk management, with early warning
indicators reviewed on a daily basis and appropriate triggers for escalation and action in line with risk appetite, Liquidity and Funding
Risk Policy and Liquidity Contingency Plan. Asset encumbrance ratios and key risk indicators for wholesale funding are also regularly
monitored and reported to ALCO.
The table below shows the undiscounted cash flows on the Group’s financial assets, liabilities and unrecognised loan commitments on
the basis of their earliest possible contractual maturity. The expected (behavioural) cash flows on these instruments vary significantly
from this analysis and as such are regularly modelled to ensure operational net cash flows are managed. The disclosure for derivatives
shows a gross inflow and outflow amount. As derivatives have a simultaneous net settlement it is not considered representative to
show only the outflow amount.
Repayments which are subject to notice are treated as if notice were to be given immediately. However, the Group expects that many
customers will not request repayment on the earliest date the Group could be required to pay and the table does not reflect the
expected cash flows indicated by the Group's deposit retention history.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
102
33.
Risk Management (continued)
Residual contractual maturity analysis
The Group
Less than 1 month
1 to 3
months
3 to 12
months
1 to 5
years
Over 5
years
Total
At 28 February 2023
£m
£m
£m
£m
£m
£m
Assets
Non-derivative assets
Cash and balances at central banks
546
-
-
-
-
546
Loans and Advances to customers
2,591
544
735
1,686
822
6,378
Loans and Advances to Other Banks
-
-
100
-
-
100
Investment securities
2
54
246
552
-
854
Other Assets
225
-
-
-
-
225
Long term interest receivable
1
1
5
-
-
7
3,365
599
1,086
2,238
822
8,110
Net derivative asset cash flows
12
5
45
46
4
112
Total cash inflows
3,377
604
1,131
2,284
826
8,222
Liabilities
Non-derivative liabilities
Customer accounts
3,978
208
365
386
-
4,937
Other deposits
94
137
318
738
-
1,287
Other liabilities (excluding lease
liabilities)
191
-
-
-
-
191
Lease liabilities
0
0
1
1
-
2
Subordinated Debt
6
-
6
50
126
188
4,269
345
690
1,175
126
6,605
Net derivative liability cash flows
1
5
22
29
-
57
Unrecognised loan commitments
(11)
-
-
-
-
(11)
Total cash outflows
4,259
350
712
1,204
126
6,651
Net liquidity
(882)
254
419
1,080
700
1,571
The Bank
Less than 1 month
1 to 3
months
3 to 12
months
1 to 5
years
Over 5
years
Total
At 28 February 2023
£m
£m
£m
£m
£m
£m
Assets
Non-derivative assets
Cash and balances at central banks
499
-
-
-
-
499
Loans and Advances to customers
1,995
241
604
1,716
824
5,380
Loans and Advances to Other Banks
-
-
100
-
-
100
Investment securities
2
54
246
552
-
854
Other Assets
678
-
-
-
-
678
Long term interest receivable
1
1
5
-
-
7
3,175
296
955
2,268
824
7,518
Net derivative asset cash flows
11
0
23
17
4
55
Total cash inflows
3,186
296
978
2,285
828
7,573
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
103
33.
Risk Management (continued)
Liabilities
Non-derivative liabilities
Customer accounts
3,978
208
365
386
-
4,937
Other deposits
94
137
318
738
-
1,287
Other liabilities (excluding lease
liabilities)
145
-
-
-
-
145
Lease liabilities
0
0
(1)
(1)
-
(2)
Subordinated Debt
6
-
6
50
126
188
4,223
345
688
1,173
126
6,555
Net derivative liability cash flows
1
5
22
29
-
57
Unrecognised loan commitments
11
-
-
-
-
11
Total cash outflows
4,235
350
710
1,202
126
6,623
Net liquidity
(1,049)
(54)
268
1,083
702
950
The Group
Less than 1 month
1 to 3
months 3 to 12 months 1 to 5 years Over 5 years
Total
At 28 February 2022
£m
£m
£m
£m
£m
£m
Assets
Non-derivative assets
Cash and balances at central banks
387
-
-
-
-
387
Loans and Advances to customers
2,572
154
630
1,620
879
5,855
Loans and Advances to Other Banks
25
-
96
-
-
121
Investment securities
26
-
199
204
25
454
Other Assets
255
-
-
-
-
255
Long term interest receivable
1
1
5
6
-
13
3,266
155
930
1,830
904
7,085
Net derivative asset cash flows
-
-
12
35
1
48
Total cash inflows
3,266
155
942
1,865
905
7,133
Liabilities
Non-derivative liabilities
Customer accounts
3,798
57
230
154
-
4,239
Other deposits
30
40
297
675
-
1,042
Other liabilities (excluding lease
liabilities)
166
-
-
-
-
166
Lease liabilities
-
-
1
1
1
3
Subordinated Debt
-
5
180
-
-
185
3,994
102
708
830
1
5,635
Net derivative liability cash flows
-
2
8
22
-
32
Unrecognised loan commitments
26
-
-
-
-
26
Total cash outflows
4,020
104
716
852
1
5,693
Net liquidity
(754)
51
226
1,013
904
1,440
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
104
33.
Risk Management (continued)
The Bank
Less than 1
month
1 to 3
months
3 to 12
months
1 to 5
years
Over 5
years
Total
At 28 February 2022
£m
£m
£m
£m
£m
£m
Assets
Non-derivative assets
Cash and balances at central banks
346
-
-
-
-
346
Loans and advances to customers
1,637
154
630
1,620
879
4,920
Loans and advances to banks
25
-
96
-
-
121
Investment securities
26
-
199
204
25
454
Other assets
679
-
-
-
-
679
Long term interest receivable
1
1
5
6
-
13
2,714
155
930
1,830
904
6,533
Net derivative asset cash flows
0
(1)
5
25
1
30
Total cash inflows
2,714
154
935
1,855
905
6,563
Liabilities
Non-derivative liabilities
Customer accounts
3,798
57
230
154
-
4,239
Other deposits
30
40
297
675
-
1,042
Other liabilities (excluding lease liabilities)
106
-
-
-
-
106
Lease liabilities
-
-
1
1
1
3
Subordinated Debt
-
5
180
-
-
185
3,934
102
708
830
1
5,575
Net derivative liability cash flows
-
1
1
11
-
13
Unrecognised loan commitments
26
-
-
-
-
26
Total cash outflows
3,960
103
709
841
1
5,614
Net liquidity
(1,246)
51
226
1,014
904
949
Asset Encumbrance
An asset is defined as encumbered if it has been pledged as collateral against a recognised or off balance sheet liability and therefore
is no longer available for disposal or as collateral to support liquidity or funding requirements of the Group. The encumbrance levels of
assets and related recognised or off balance sheet liabilities are shown in the following tables.
The Group
Encumbered
Unencumbered
Total
At 28 February 2023
£m
£m
£m
Loans and advances to customers
1,116
4,177
5,293
Debt securities
-
741
741
Other assets
64
465
529
Cash, balances with central banks and loans and advances
to Banks
15
631
646
1,195
6,014
7,209
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
105
33.
Risk Management (continued)
The Group
Encumbered
Unencumbered
Total
At 28 February 2022
£m
£m
£m
Loans and advances to customers
1,365
3,702
5,067
Debt securities
157
286
443
Other assets
40
478
518
Cash, balances with central banks and loans and advances
to Banks
15
493
508
1,577
4,959
6,536
The Bank
Encumbered
Unencumbered
Total
At 28 February 2023
£m
£m
£m
Loans and advances to customers
1,116
3,439
4,555
Debt securities
-
741
741
Other assets
64
1,155
1,219
Cash, balances with central banks and loans and advances
to Banks
15
584
599
1,195
5,919
7,114
The Bank
Encumbered
Unencumbered
Total
At 28 February 2022
£m
£m
£m
Loans and advances to customers
1,365
2,946
4,311
Debt securities
157
286
443
Other assets
40
1,175
1,215
Cash, balances with central banks and loans and advances
to Banks
15
452
467
1,577
4,859
6,436
The Group and Bank
Carrying value of encumbered
assets
Matching liabilities, contingent
liabilities or securities lent
At 28 February 2023
£m
£m
Loans and advances to customers
1,116
760
Debt securities
-
-
Other assets
64
-
Cash, balances with central banks and loans and advances
to Banks
15
-
1,195
760
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
106
33.
Risk Management (continued)
The Group and Bank
Carrying value of encumbered
assets
Matching liabilities, contingent
liabilities or securities lent
At 28 February 2022
£m
£m
Loans and advances to customers
1,365
885
Debt securities
157
75
Other assets
40
27
Cash, balances with central banks and loans and advances
to Banks
15
-
1,577
987
The main sources of encumbrance in the Group relate to margin requirements for derivative transactions and collateral relating to
secured funding transactions. Cash collateral is advanced and received as variation margin on derivatives transactions, whilst eligible
treasury assets are pledged as collateral for initial margin requirements on derivatives which are centrally cleared. Eligible personal
and mortgage loans with applicable haircuts are used as collateral for the securitisation facility and the Bank of England’s Term
Funding Scheme with additional incentives for SMEs (TFSME) and Indexed Long-term Repo (ILTR). The personal loans and mortgages
used to secure the funding are held within Loans and advances to customers. There are assets which would not normally be considered
available for encumbrance in the normal course of the Group's business including intangible assets, property, plant and equipment,
prepayments and accruals and deferred tax assets. These are included within the carrying value of unencumbered assets.
Market risk
Market risk is the risk of loss as a result of the value of the Group’s assets, liabilities and off-balance-sheet instruments being adversely
affected by movements in market prices, interest rates or foreign exchange rates which leads to a reduction in either earnings or
economic value. The key market risks are Interest Rate Risk in the Banking Book (IRRBB) and Foreign Exchange risk. The Bank does
not have a trading book.
Interest Rate Risk in the Banking Book
IRRBB is the current or prospective risk to both earnings and economic value from movements in interest rates. The main sub-types of
IRBBB include
-
Re-pricing risk (or gap risk): the risk arising from timing differences in the interest rate changes of bank assets and liabilities
(e.g. fixed rate personal loans and instant access savings accounts).
-
Yield curve risk: the risk arising from changes in the slope and shape of the yield curve.
-
Basis risk: risk arising from imperfect correlation between different interest rate indices (e.g. administered rate on savings
products and treasury assets linked to SONIA).
-
Prepayment risk: the risk arising from the timing of customer prepayments which differ from planning and hedging
assumptions.
-
Credit Spread Risk: the risk of adverse effects resulting from a change in credit spreads, arising via the Group’s treasury
assets portfolio.
Foreign exchange risk
The Group is exposed to FX risk through its holding of cash denominated in foreign currencies, primarily Euro and US Dollar, within its
travel money bureaux in J Sainsbury plc stores and its currency dispensing ATM machines. Foreign exchange risk is currently mitigated
through forward rate transactions. Further details of the hedging arrangements in place at year end are disclosed in note 17.
Risk Appetite Measures
The Bank’s market risk appetite statements defines limits for the following market risk measures:
-
Capital at Risk: an aggregate measure based on assessing each of the IRRBB risks and allocating a capital charge
against each risk driver using a series of plausible but severe interest rate stresses. This includes parallel and non-
parallel movements of the yield curve. Where applicable a customer behavioural repayment profile is applied.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
107
33.
Risk Management (continued)
-
Annual Earnings at Risk: measures the sensitivity of the Bank’s earnings over the next 12 months, in response to adverse
movements in interest rates.
-
Net Open Currency Position: measures the Bank’s net open currency position aggregated across all currencies.
Controls and Mitigants
The Market Risk Policy defines the approach the Bank must apply to measure, monitor and control market risk which includes
the Board approved market risk appetite statement and specific limits. The Treasury function undertakes the day to day
management of market risk, using systems and models to assess risk exposure against limits. Oversight is provided by 2nd line.
The main hedging instruments used to hedge IRRBB exposures are interest swaps as well as taking into account natural hedges
between assets and liabilities with similar repricing characteristics in the first instance. Any residual exposures are then
assessed against Board approved limits.
Hedging strategies are implemented and reviewed on a regular basis at ALCo to ensure the Bank remains within limits.
As at 28 February 2023 earnings at risk (change in net interest income) for changes in interest rates of +/-100 basis points movements
in rates are as follows:
The Group
The Bank
2023
2022
2023
2022
£m
£m
£m
£m
+/- 100 basis points
(1)/4
(5)/(9)
7/(7)
1/(15)
The above analysis assumes that interest rates would floor at 0% and would not result in negative rates becoming applicable.
34.
Capital resources (unaudited)
From a prudential perspective, the Bank is monitored and supervised on a consolidated basis with its subsidiary, Home Retail Group
Card Services Limited. The Bank has obtained an individual consolidation waiver from the PRA, which allows the Bank to monitor its
capital position on a consolidated basis only. Therefore, the capital position shown below is on a regulatory consolidated basis. The
following table analyses the regulatory capital resources under CRD IV.
Transitional
Full impact
Transitional
Full impact
2023
2023
2022
2022
IFRS9
IFRS9
IFRS9
IFRS9
The Regulatory Consolidated Group
£m
£m
£m
£m
Common Equity Tier 1 (CET 1) capital:
Ordinary share capital
701
701
701
701
Allowable reserves (unaudited)
165
165
126
126
CET 1 capital pre Regulatory adjustments
866
866
827
827
Regulatory adjustments:
Intangible assets
(165)
(165)
(180)
(180)
Additional value adjustment
(1)
(1)
-
-
Non-Performing Exposures insufficient coverage
(1)
(1)
-
-
Transitional adjustment
23
-
38
-
Total Regulatory adjustments to CET 1 Capital
(144)
(167)
(142)
(180)
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
108
34.
Capital resources (continued)
Tier 1 Capital
722
699
685
647
Loan notes (listed)
113
113
109
109
Tier 2 Capital
113
113
109
109
Total capital
835
812
794
756
The movement of CET 1 capital during the financial year is analysed as follows:
Transitional
Full impact
Transitional
Full impact
2023
2023
2022
2022
IFRS9
IFRS9
IFRS9
IFRS9
The Regulatory Consolidated Group
£m
£m
£m
£m
At 1 March
685
647
791
726
Verified profit / (losses)
38
38
22
22
Foreseeable Dividend
-
-
(50)
(50)
Transitional adjustments
(15)
-
(27)
-
Other reserve movements
1
1
(2)
(2)
Movement in additional value adjustments
(1)
(1)
1
1
Movement in Non Performing Exposures
insufficient coverage
(1)
(1)
Movement in intangible assets
15
15
(50)
(50)
As at 28 February
722
699
685
647
Reconciliation of statutory reserves to regulatory reserves
2023
2022
The Regulatory Consolidated Group
£m
£m
Total shareholders’ funds
866
856
Foreseeable Dividend
-
(50)
Total shareholders’ funds of subsidiary undertakings and consolidation adjustments
-
20
Regulatory adjustments
(144)
(142)
CET 1 capital
722
685
Leverage ratio (unaudited)
The leverage ratio is defined as the ratio of Tier 1 capital to adjusted assets, which is measured below on a regulatory consolidated
basis. The denominator represents the total non-risk weighted assets of the regulatory group adjusted for certain off balance sheet
exposures assets and regulatory deductions and provides a non-risk-weighted 'backstop' capital measure. The leverage ratio is
calculated below as at 28 February 2023 on the UK basis which allows central bank assets to be excluded from the leverage exposures.
The Bank's leverage ratio of 9.6% (2022: 9.7%) exceeds the minimum Basel leverage ratio of 3%.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
109
34.
Capital resources (continued)
Transitional
Full impact
Transitional
Full impact
2023
2023
2022
2022
IFRS9
IFRS9
IFRS9
IFRS9
The Regulatory Consolidated Group
£m
£m
£m
£m
Components of the leverage ratio
Total assets as per published financial
statements
7,209
7,209
6,536
6,536
Movement on consolidation of subsidiary
undertakings
(6)
(6)
(20)
(20)
Exposure value for derivatives and securities
financing transactions
32
32
37
37
Off balance sheet exposures: unconditionally
cancellable (10%)
867
867
878
878
Off balance sheet: other (100%)
2
2
5
5
Other adjustments
(243)
(266)
(169)
(207)
Central Bank Claims
(331)
(331)
(219)
(219)
7,530
7,507
7,048
7,010
Tier 1 capital
722
699
685
647
Leverage ratio
9.6%
9.3%
9.7%
9.2%
Capital management
The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk
characteristics of its activities. Capital adequacy is monitored on an on-going basis by senior management, the ALCo, the Executive
Risk Committee and the Board Risk Committee. Our submissions to the PRA in the year have shown that the Group has complied with
all externally imposed capital requirements.
The Group will disclose Pillar 3 information as required by the Capital Requirements Regulations and PRA prudential sourcebook on
the J Sainsbury plc external website.
35.
Fair value of financial instruments
Fair value hierarchy
IFRS 13 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or
unobservable. Observable inputs reflect market data obtained from independent sources; unobservable inputs reflect the Group’s
market assumptions. These two types of inputs have created the following fair value hierarchy:
Level 1
Quoted prices (unadjusted) in active markets for identical assets or liabilities. This level includes listed equity securities and debt
instruments on exchanges (for example, London Stock Exchange, Frankfurt Stock Exchange, New York Stock Exchange) and exchange
traded derivatives like futures.
Level 2
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or
indirectly (that is, derived from prices). The sources of input parameters like SONIA yield curve or counterparty credit risk are
Bloomberg and Reuters.
Level 3
Inputs for the asset or liability that are not based on observable market data (unobservable inputs). This level includes equity
investments and debt instruments with significant unobservable components.
This hierarchy requires the use of observable market data when available. The Group considers relevant and observable market prices
in its valuations where possible.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
110
35.
Fair value of financial instruments (continued)
The below table provides an analysis of the relevant fair value hierarchy for items recognised at fair value:
The Group
Level 1
Level 2
Level 3
Total
At 28 February 2023
£m
£m
£m
£m
Derivatives designated as fair value hedging
instruments
-
98
-
98
Derivatives not in fair value hedging relationships
-
1
-
1
Investment Securities
689
2
-
691
Total assets
689
101
-
790
Derivatives designated as fair value hedging
instruments
-
53
-
53
Total liabilities
-
53
-
53
The Bank
Level 1
Level 2
Level 3
Total
At 28 February 2023
£m
£m
£m
£m
Derivatives designated as fair value hedging
instruments
-
46
-
46
Derivatives not in fair value hedging relationships
-
1
-
1
Investment Securities
689
2
-
691
Total assets
689
49
-
738
Derivatives designated as fair value hedging
instruments
-
53
-
53
Total liabilities
-
53
-
53
The Group
Level 1
Level 2
Level 3
Total
At 28 February 2022
£m
£m
£m
£m
Derivatives designated as fair value hedging
instruments
-
34
-
34
Derivatives not in fair value hedging relationships
-
1
-
1
Investment Securities
417
1
-
418
Total assets
417
36
-
453
Derivatives designated as fair value hedging
instruments
-
19
-
19
Total liabilities
-
19
-
19
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
111
35.
Fair value of financial instruments (continued)
The Bank
Level 1
Level 2
Level 3
Total
At 28 February 2022
£m
£m
£m
£m
Derivatives designated as fair value hedging
instruments
-
18
-
18
Derivatives not in fair value hedging relationships
-
1
-
1
Investment Securities
417
1
-
418
Total assets
417
20
-
437
Derivatives designated as fair value hedging
instruments
-
19
-
19
Total liabilities
-
19
-
19
The table below summarises the fair value of financial assets and liabilities that are not presented in the Group’s balance sheet at fair
value. The fair values of financial instruments are based on market prices where available, or are estimated using other valuation
techniques. Where they are short term in nature or re-price frequently, fair value approximates to carrying value. The fair value
information presented does not represent the fair value of the Group as a going concern at 28 February 2023 or 28 February 2022.
2023
2022
Carrying value
Fair value
Carrying value
Fair value
The Group
£m
£m
£m
£m
Assets:
Loans and advances to customers
5,293
5,240
5,067
5,094
Cash and balances at central banks
546
546
387
387
Loans and advances to other banks
100
100
121
121
Investment Securities
50
50
25
25
Liabilities:
Customer accounts
4,735
4.739
4,235
4,236
Other deposits
1,212
1,214
1,024
1,024
Subordinated debt
122
131
179
180
2023
2022
Carrying value
Fair value
Carrying value
Fair value
The Bank
£m
£m
£m
£m
Assets:
Loans and advances to customers
4,555
4,433
4,311
4,262
Cash and balances at central banks
499
499
346
346
Loans and advances to other banks
100
100
121
121
Investment Securities
50
50
25
25
Liabilities:
Customer accounts
4,735
4,739
4,235
4,236
Other deposits
1,212
1,214
1,024
1,024
Subordinated debt
122
131
179
180
The carrying value of other assets and other liabilities is a reasonable approximation of fair value.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
112
35.
Fair value of financial instruments (continued)
The fair value hierarchy classification adopted by the Group in respect of assets not presented in the Group’s balance sheet at fair value
is shown in the following table:
The Group
The Bank
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
At 28 February 2023
£m
£m
£m
£m
£m
£m
£m
£m
Loans and advances to customers
-
5,240
-
5,240
-
4,433
-
4,433
Cash and balances at central banks
-
546
-
546
-
499
-
499
Loans and advances to other banks
-
100
-
100
-
100
-
100
Total assets
-
5,886
-
5,886
-
5,032
-
5,032
Customer accounts
-
4.739
-
4,739
-
4,739
-
4,739
Other deposits
-
1,214
-
1,214
-
1,214
-
1,214
Subordinated debt
131
-
-
131
131
-
-
131
Total liabilities
131
5,953
-
6,084
131
5,953
-
6,084
The Group
The Bank
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
At 28 February 2022
£m
£m
£m
£m
£m
£m
£m
£m
Loans and advances to customers
-
5,094
-
5,094
-
4,262
-
4,262
Cash and balances at central banks
-
387
-
387
-
346
-
346
Loans and advances to other banks
-
121
-
121
-
121
-
121
Total assets
-
5,602
-
5,602
-
4.729
-
4,729
Customer accounts
-
4,236
-
4,236
-
4,236
-
4,236
Other deposits
-
1,024
-
1,024
-
1,024
-
1,024
Subordinated debt
180
-
-
180
180
-
-
180
Total liabilities
180
5,260
-
5,440
180
5,260
-
5,440
The estimated fair value of loans and advances represents the discounted amount of estimated future cash flows expected to be
received. Expected cash flows are discounted at current market rates to determine fair value.
For fixed interest bearing deposits and other borrowings without quoted market price, valuations are based on discounted cash flows
using market interest rates for new lending with similar remaining maturity. The estimated fair value of deposits with no stated
maturity is the amount repayable on demand.
36.
Parent company
The immediate and ultimate parent company and controlling party of the Bank is J Sainsbury plc, which is registered in England. Its
registered office is 33 Holborn, London, EC1N 2HT. J Sainsbury plc forms the only group into which the financial statements of the Group
are consolidated. Copies of the parent company’s financial statements may be obtained from www.j-sainsbury.co.uk.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
113
37.
Share-based payments
Accounting
policy
The Group, through schemes operated by its parent company J Sainsbury plc, provides benefits to employees
(including Directors) in the form of equity-settled and cash-settled share-based payment transactions, whereby
employees render services in exchange for shares, rights over shares or the value of those shares in cash terms.
For equity-settled share-based payments the fair value of the employee services rendered is determined by
reference to the fair value of the shares awarded or options granted, excluding the impact of any non-market
vesting conditions. All share options are valued using an option-pricing model (Black-Scholes or Monte Carlo). This
fair value is charged to the income statement over the vesting period of the share-based payment scheme with a
corresponding increase to equity.
Income statement
The Group recognised £5m (2022: £4m) of employee costs (note 6) related to share-based payment transactions made during the
financial year. Of these, £nil (2022: £nil) were cash-settled.
The parent company, J Sainsbury plc, operates various share-based payment schemes, in which employees of the Group participate.
a. Savings Related Share Option Scheme (‘SAYE’)
The Sainsbury’s Group operates a Savings-Related Share Option Scheme, which is open to all UK employees with more than three
months’ continuous service. This is an approved HMRC Scheme and was established in 1980. Under the SAYE scheme, participants
remaining in the Sainsbury’s Group’s employment at the end of the three-year (and historically also five-year) savings period are
entitled to use their savings to purchase shares in J Sainsbury plc at a pre-stated exercise price. Employees leaving for certain reasons
can use their savings to purchase shares within six months of their leaving.
2023
Number of
options
2023
Weighted
average
exercise price
2022
Number of
options
2022
Weighted
average
exercise price
million
pence
million
pence
Outstanding at end of year
1.5
176.2
1.3
193.4
Exercisable at end of year
0.2
164.9
0.1
245.2
Exercisable price range
161 to 260
161 to 260
The weighted average share price of J Sainsbury plc during the period for options exercised over the year was 259 pence (2022: 260
pence). The weighted average remaining contractual life of share options outstanding at 28 February 2023 was 2.8 years (2022: 2.7
years). Options granted during the year were valued using the Black-Scholes option-pricing model.
b. Long-Term Incentive Plan
Under the Long-Term Incentive Plan, shares in J Sainsbury plc are conditionally awarded to the senior managers in the Company. The
core awards are calculated as a percentage of the participants’ salaries and scaled according to grades.
Performance is measured at the end of the three-year performance period. If the required performance conditions, which are financial
and non-financial non-market conditions, have been met, the awards vest and the participants are able to exercise 100% of the awards
received. For 2020 awards and prior, recipients were only able to receive 50% of their awards after 3 years and 50% of their awards after
4 years. Options granted will expire five years from the grant date.
The core award can grow by up to four times, dependent on the level of performance. Straight-line vesting will apply if performance
falls between two points. Awards are structured as nil cost options.
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
114
37.
Share-based payments (continued)
2023
2022
Million
Million
Outstanding at end of year
1.9
2.2
The weighted average remaining contractual life of share options outstanding at 28 February 2023 was 0.4 years (2022: 1.5 years).
Options to acquire the award of shares were valued using the Black-Scholes option-pricing model. No performance conditions were
included in the fair value calculations.
The weighted average share price during the year for options exercised was 233 pence (2022: 252 pence).
c.
Bonus Share Award
Senior Managers and supermarket managers receive 60 per cent of their bonus in cash and 40 per cent of the award in shares. Director
level managers receive 50 per cent of their bonus in cash and 50 per cent of the award in shares. Before 2021 awards had a three-year
deferral period, however awards granted from 2021 now have a deferral period of two years (except for certain colleagues who are
subject to a deferral period due to financial services regulations).
Dividends accrue on these shares and are released at the end of the three-year retention period.
2023
2022
Million
Million
Outstanding at end of year
1.9
1.3
The weighted average remaining contractual life of share options outstanding at 28 February 2023 was 1.3 years (2022: 1.1 years). The
weighted average share price during the year for options exercised was 230 pence (2022: 246 pence).
38.
Related party transactions
a)
Transactions with Related Entities
J Sainsbury plc
The Bank is a wholly owned subsidiary of J Sainsbury plc. From time to time the Treasury function of J Sainsbury plc places short term
cash deposits with the Bank on an arm’s length basis, receiving interest in return.
2023
2022
The Group
£m
£m
Transactions during the year
Deposits by J Sainsbury plc:
Interest payable by the Group
2
-
Balances at end of year
Deposits by J Sainsbury plc:
Balance at the reporting date
-
-
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
115
38.
Related party transactions (continued)
Sainsbury’s Supermarkets Limited
Sainsbury’s Supermarkets Limited is a fellow subsidiary of J Sainsbury plc. Certain services are provided between the 2 entities.
2023
2022
The Group
£m
£m
Transactions during the year
Services provided by Sainsbury’s Supermarkets Limited:
Management services
11
20
Services provided to Sainsbury’s Supermarkets Limited:
Management services
-
(1)
Balances at end of year
Payables:
Management services
9
3
Included within management services provided by Sainsbury’s Supermarkets Limited are amounts recharged to the Group for Nectar
points. Services provided to Sainsbury’s Supermarkets comprises Travel Money staff of the Group being redeployed to Sainsbury’s
Supermarkets store working during closed Bureaux periods as a result of Covid-19 pandemic travel restrictions. This was significantly
reduced year on year as international travel returned in 2022.
Argos Limited
As described in note 21, Home Retail Group Card Services Limited and Home Retail Group Insurance Services Limited are
subsidiaries of the Bank. These entities provide credit and insurance intermediary services on behalf or Argos Limited, a fellow
subsidiary of J Sainsbury plc. Fees are payable and receivable under a transfer pricing agreement. Additionally, short term
intercompany balances can exist where amounts are paid by or on behalf of Argos Limited, including in respect of retail sales
made in Argos Limited stores financed by credit plans offered by Home Retail Group Card Services Limited.
2023
2022
The Group
£m
£m
Transactions during the year
Fees (receivable) / payable by the Group in respect of services provided
(1)
16
Balances at end of year
Payables
16
34
b)
Transactions with key management personnel
For the purposes of IAS 24 ‘Related party disclosures’, key management personnel comprise members of the Board and the Executive
Committees of all Group companies, who held office during the year.
Remuneration and other compensation
2023
2022
The Group
£m
£m
Short term employee benefits
4.4
7.0
Termination benefits
1.3
-
Share-based payments
1.5
2.0
7.2
9.0
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
116
38.
Related party transactions (continued)
Short term employee benefits represent salary, bonus and benefits in kind. Share-based payments relates to share schemes operated
by J Sainsbury plc (see note 37).
In the current year, there are no additional short term employee benefits met by another J Sainsbury plc group company (2022: £2.4m).
For 2022, this amount is not included in staff costs (note 6).
Product transactions
Details of transactions, under terms and conditions available to all colleagues, between the Group and key management personnel are
provided below. For this purpose, key management personnel include the Group key management personnel and members of their
close families.
Number of key
management
personnel
Directors
Other
The Group
£000
£000
Mortgages, credit cards and term loans
At 28 February 2021
3
3
2
Resignations during 2021/22
-
-
-
Appointments/ New accounts during 2021/22
-
-
-
Amounts advanced during the year
-
14
45
Amounts repaid during the year
-
(16)
(45)
At 28 February 2022
3
1
2
Resignations during 2022/23
(1)
-
(6)
Appointments/ New accounts during 2022/23
3
-
-
Amounts advanced during the year
-
16
68
Interest Charged
-
-
1
Amounts repaid during the year
-
(15)
(61)
At 28 February 2023
5
2
4
Based on the Companies Act definition of Loans to Directors, total lending outstanding at 28 February 2023 was £nil (2022: £nil).
Number of key
management
personnel
Directors
Other
The Group
£000
£000
Savings and deposit accounts
At 28 February 2021
2
39
-
Resignations during 2021/22
-
-
-
Appointments/ New accounts during 2021/22
-
-
-
Amounts deposited during the year
-
-
46
Interest paid
-
-
-
Amounts withdrawn during the year
-
(39)
(10)
At 28 February 2022
2
-
36
Resignations during 2022/23
-
-
-
Appointments/ New accounts during 2022/23
-
-
-
Amounts deposited during the year
-
-
49
Interest paid
-
-
-
Amounts withdrawn during the year
-
-
(60)
At 28 February 2023
2
-
25
Notes to the financial statements (continued)
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
117
39.
Capital commitments
There are commitments in respect of capital expenditure which have been authorised, but not provided for in the financial statements,
for which contracts have been entered into, on:
The Group
The Bank
2023
2022
2023
2022
£m
£m
£m
£m
Property, plant and equipment
-
-
-
-
Software development
2
5
1
5
2
5
1
5
Alternative Performance Measures
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
118
In the reporting of financial information, the Directors use various Alternative Performance Measures (APMs) which they believe
provide additional useful information for understanding the financial performance and financial health of the Bank. These APMs
should be considered in addition to and are not intended to substitute for IFRS measurements. As they are not defined by International
Financial Reporting Standards, they may not be directly comparable with other companies who use similar measures. All of the
following APMs relate to the current period’s results and comparative periods where provided.
The Bank also discloses a number of capital and liquidity metrics relevant to its financial position which are required under prudential
rules issued by the PRA and FCA. The bases of calculation of those metrics is defined within the relevant legislation and are disclosed
in the Glossary.
APM
Definition/Purpose
Reconciliation
Underlying profit
before tax
Profit before tax before any
items recognised which, by
virtue of their size and/or
nature, do not reflect the
Bank’s underlying
performance
A reconciliation of underlying profit before tax is provided in note 8 of the
financial statements
Financial Services
Underlying Profit
Underlying Profit before net
amounts payable to Argos
A reconciliation of Financial Services underlying profit before tax is provided in
the summary income statement in the financial review
Net Interest Margin
(NIM)
Net interest income as a
percentage of average
interest-earning assets
Ref
2023
2022
Interest Income £m
IS
394
322
Interest expense £m
IS
(74)
(43)
Underlying Net Interest Income £m
320
279
Monthly average interest earning
assets £m*
6,271
6,249
Underlying NIM
5.1%
4.5%
*Monthly average interest earning assets is not presented in the financial
statements. The average balance at Feb-23 is £6,271m (2022: £6,249m) made
up of;
- Average loans & advances to customers £5,178m (2022: £5,076m)
- Average treasury assets £1,094m (2022: £1,173m)
Bad Debt Asset
Ratio (BDAR)
Impairment losses as a
percentage of the average
net balance of loans and
advances to customers
Ref
2023
2022
Impairment losses £m
IS
107
62
Monthly average customer lending
£m*
5,178
5,076
BDAR
2.1%
1.2%
*Monthly average customer lending is not presented in the financial
statements.
Alternative Performance Measures
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
119
APM
Definition/Purpose
Reconciliation
Cost: Income Ratio
Underlying operating
expenses as a percentage
of total income
Ref
2023
2022
Operating expenses £m
IS
298
280
Non-underlying items £m
Note 8
(6)
(19)
Underlying FS expenses £m
292
261
Total FS Income £m
IS
456
385
Cost: Income ratio
64%
68%
Return on capital
employed
Underlying profit after
tax divided by average
equity
Ref
2023
2022
Underlying FS uPBT before tax £m
IS
58
64
Notional tax charge £m
(11)
(12)
Underlying FS profit after tax £m
47
52
Monthly average equity £m*
854
864
Return on tangible equity
5.5%
6.0%
*Monthly average equity is not presented in the financial statements.
In the above table, IS refers to the income statement presented in the financial review on page 17.
Glossary
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
120
Bad debt asset ratio – Impairment losses as a percentage of the average net balance of loans and advances to customers.
Tier 1 capital - A measure of the Group’s financial strength as defined by the PRA. It captures Common Equity Tier 1 capital plus
other Tier 1 securities in issue, but is subject to a deduction in respect of material holdings in financial companies.
Common equity tier 1 capital ratio - Tier 1 capital as a percentage of risk-weighted assets.
Cost: income ratio (underlying) – Underlying operating expenses as a percentage of total income.
Debt securities – Assets held by the Group representing certificates of indebtedness of credit institutions, public bodies or other
undertakings, excluding those issued by Central Banks.
Earnings at risk - Approach set out for the quantification of interest rate risk expressed as the impact of the sensitivity analysis on
the change to net interest income.
Effective interest rate - The effective interest rate method calculates the amortised cost of a financial asset or financial liability and
allocates the interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future
cash receipts through the expected life of the financial asset or financial liability.
Encumbered Asset - An asset is defined as encumbered if it has been pledged as collateral against an existing or off-balance sheet
liability and therefore is no longer available for disposal or as collateral to support liquidity or funding requirements of the Group.
Fair value – The amount for which an asset could be exchanged, or a liability settled, between willing parties in an arm’s length
transaction.
Financial Services Compensation Scheme (FSCS) – The UK’s independent statutory compensation fund for customers of
authorised financial services firms and pays compensation if a firm is unable to pay claims against it. The FSCS is funded by
management expenses levies and, where necessary, compensation levies on authorised firms.
Full time equivalent - The hours worked by part time employees are accumulated along with the number of full time employees
and counted as full time equivalents. This is a more consistent measure of the amount of time worked than employee numbers
which will fluctuate as the mix of part time and full time employees changes.
Impaired loans - Impaired loans are loans for which all the full contractual cash flows are no longer expected to be collected or
collection of such cash flows will not be as they are contractually due.
Impairment losses - An impairment loss is the reduction in value that arises after the impairment review of an asset that
determines that the asset’s value is lower than its carrying value.
Interest rate risk - The risk of a reduction in the value of earnings or assets resulting from an adverse movement in interest rates.
Loans past due – These are loans for which a customer has failed to make payment as and when they are contractually due.
Leverage ratio – CET 1 capital divided by the exposure measure. This is a new balance sheet metric introduced by the PRA.
Liquidity Coverage Ratio (LCR) - Percentage of the stock of highly liquid assets such as cash to net cash outflow over a 30-day
period.
Loans to deposits ratio - The ratio of loans and advances to customers net of allowance for impairment losses divided by customer
deposits.
Master netting agreement - An agreement between two counterparties that have multiple derivative contracts with each other that
provides for the net settlement of all contracts through a single payment, in a single currency, in the event of default on, or
termination of, any one contract.
Net interest margin - Net interest margin is net interest income as a percentage of average interest-earning assets.
Glossary
Sainsbury’s Bank plc Annual Report and Consolidated Financial Statements for the year ended 28 February 2023
121
Net stable funding ratio - Amount of available stable funding (ASF) relative to the amount of required stable funding (RSF) over a
one year time horizon, assuming a stressed scenario.
Pillar 3 – The third pillar of the Basel III framework which aims to encourage market discipline by setting out disclosure
requirements for Banks on their capital, risk exposures and risk assessment processes. These disclosures are aimed at improving the
information made available to the market.
Repurchase agreements - An agreement where one party, the seller, sells a financial asset to another party, the buyer, at the same
time the seller agrees to reacquire and the buyer to resell the asset at a later date. From the seller’s perspective such agreements are
repurchase agreements (repos) and they are reverse repurchase agreements (reverse repos) from the buyer’s perspective.
Return on capital employed (underlying) – Underlying profit after tax divided by average equity
Securitisation – This is a process by which a group of assets, usually loans, are aggregated into a pool, which is used to back the
issuance of new securities.