Shawbrook Group plc
Annual Report
and Accounts
20
23
Banking for the real world.
a
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Shawbrook in numbers
Exceptional customer
franchise
3
15
Customer franchises
Customer verticals
4.7/5
Trustpilot score1
(2022: 4.6/5)
c.560,000
Customers served
(2022: c.425,000)
Innovative mindset
driving growth
24%
Annual loan book
growth2 to £13.3 billion
(2022: £10.5 billion)
4.9%
Net interest margin
(2022: 5.1%3)
£302
million
Underlying profit before tax
(2022: £238 million);
£287 million Statutory
profit before tax
(2022: £233 million)
84%
Employee engagement
score
(2022: 82%)
1,435
Employees4
(2022: 1,198)
Robust and
sustainable platform
38.2%
Underlying cost to income
ratio (2022: 40.0%);
40.9% Statutory cost
to income ratio
(2022: 41.1%)
51 bps
Cost of risk
(2022: 51 bps)
20.2%
Underlying return on
tangible equity (2022: 20.1%);
19.1% Statutory return on
tangible equity (2022: 19.5%)
12.9%
CET1 ratio
(2022: 12.7%5)
16.4%
Total capital ratio
(2022: 15.6%5)
Note: Reconciliation from underlying to statutory results is provided on page 11.
1 The Group’s total Trustpilot score (excluding The Mortgage Lender Limited (TML) and Bluestone Mortgages Limited (BML)) as at February 2024.
2 The annual growth rate of 24% represents the loan book growing to £13.0 billion and excludes the BML acquisition. Including the acquisition,
the loan book was £13.3 billion and represented a growth rate of 27%.
3 Excluding gain on sale, net interest margin was 5.0%.
4 The Group’s average number of employees is calculated in line with the Companies Act 2006 requirement.
5 Risk-weighted assets as at 31 December 2022 were restated to reflect adjustments in credit valuation adjustment and counterparty
credit risk in respect of the Group’s structured entities’ interest rate swaps. Risk-weighted assets have increased by
£80.6 million to £7,463.1 million and the capital and leverage ratios have also been restated to reflect these adjustments.
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial Statements Contents
Strategic Report
Risk Report
Financial Statements
1
5
7
9
13
22
44
48
About Shawbrook
Chairman’s statement
Chief Executive Officer’s statement
87
90
94
Financial review
Business reviews
Environmental, Social and Governance
(ESG) Report
Creating value for our stakeholders
(S172 statement)
Non-financial and sustainability
information statement
Corporate Governance Report
52
53
56
66
70
74
81
Chairman’s introduction
Board of Directors
Corporate governance
Audit Committee Report
Risk Committee Report
Directors’ Renumeration Report
Nomination and Governance
Committee Report
83
Directors’ Report
Other information
253 Abbreviations
Approach to risk management
180
Independent Auditor’s Report
Risk governance and oversight
189 Consolidated statement of profit and loss
254 Performance indicators
Top and emerging risks
190 Consolidated statement of comprehensive
255 Country-by-country reporting
104 Principal risks
150
ICAAP, ILAAP and stress testing
150 Recovery Plan and Resolution Pack
151 Group viability statement
Climate Report
154
Strategy
164 Governance
167
Risk management
173 Metrics and targets
income
191 Consolidated statement of financial position
192 Consolidated statement of changes in equity
193 Company statement of changes in equity
194 Consolidated and Company statement
of cash flows
195 Notes to the financial statements
shawbrook.co.uk
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Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial Statements About Shawbrook
We do this by focusing on our three strategic priorities
The business model we have created is unique
and difficult to replicate
We provide finance to a wide
range of customer segments
that value the premium
experience, flexibility and
certainty we deliver.
Our ambition is to deliver
for more customers in more
markets. We will do this by
combining the innovative
mindset and agility of a
start-up with the scale
and financial strength
of a large business.
Exceptional customer franchise
• Diversified offering, supporting clearly defined
customer groups in carefully selected markets.
• Innovative lending propositions tailored to meet
specific and often event-driven funding needs.
• Delivering excellent experiences and positive
customer outcomes.
Innovative mindset driving growth
• A culture that drives innovation and agility
by leveraging digital capabilities.
• Consistent balance sheet growth,
delivering strong risk-adjusted returns.
• Attractive destination for the best
technology and banking talent.
Robust and sustainable platform
• Sophisticated data-driven and forward-looking
risk management.
• Operationally efficient and cost-effective
model, with conservative capital management.
• Delivering long-term sustainable value for
our stakeholders.
Focused diversification,
offering innovative lending
propositions across a
breadth of carefully
selected markets.
‘Best of both’ approach
combining deep human
expertise and
digital capabilities.
Multi-channel
distribution, driven
by customer needs
and preference.
Ability to fuel our lending
by delivering a premium
experience, choice and
consistently great value
to smart savers.
1
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial Statements Our diversified product offering
Enterprise franchise
Consumer franchise
Retail Mortgage Brands
SME
Supports established and fast-
growth UK SMEs with a range of
debt-based financing solutions,
deployed through the following
business units:
Structured lending
• Financial sponsors
• Speciality finance
• Specialist markets
• Corporate lending
• Development finance
Digital SME lending
Real Estate
Supports the UK property
sector with a range of diverse
commercial and residential
mortgage products offered
to professional landlords
and property investors.
• Buy-to-let
• Bridging finance
• Commercial investment
Consumer lending
Provides a range of secured
and unsecured personal lending
products to consumers for
multiple purposes, distributed
through a range of partners
and direct through our
digital proposition.
• Unsecured personal loans
• Motor finance
Savings
Provides a wide range of savings
solutions with competitive
interest rates including easy
access, notice and fixed term
accounts as well as fixed
and easy access cash ISAs.
• Personal savings
• Business savings
The Mortgage Lender Limited (TML) and
Bluestone Mortgages Limited (BML)
Support customers with more complex income profiles, including
the self-employed, entrepreneurs and first-time buyers with
residential mortgage products, as well as UK landlords with
a range of specialist buy-to-let mortgage products.
• Owner-occupied mortgages
• Buy-to-let
£2.7bn
loan book
£6.1bn
loan book
£0.6bn
loan book
£13.6bn
deposits
£3.8bn1
loan book
Note: The combined loan book splits provided above (as at 31 December 2023) do not total £13.3 billion due to rounding adjustments.
1 Excluding the acquisition of BML, the Retail Mortgage Brands loan book was £3.5 billion.
2
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial Statements A unique and difficult to replicate business model
Enterprise franchise
Consumer franchise
Retail Mortgage Brands
1 Diversified
proposition
2
Enabled by
a proven
business
model
3
Fuelled by
stable and
scalable
funding
SME
Real Estate
Consumer Lending
Savings
The Mortgage Lender Limited (TML)
Bluestone Mortgages Limited (BML)
Origination
Multi-channel distribution
Intermediaries
Direct digital
Digital marketplaces
Platform lending
Inorganic
‘Best of both’ capabilities
Revenue model
Using technology intelligently to enhance human
judgement, automating where it makes sense
Optionality through multiple revenue sources
Human
expertise
and ingenuity
Excellent
customer
experiences
Modular
technology and
data capabilities
Interest income
Fee income
Structured asset sales
Liquidity
Capital
Our strong and predominantly retail deposit funded balance sheet is supplemented
with wholesale funding
Backed by supportive investors, our strong equity position is further strengthened
by our ability to issue debt instruments and securitise selected assets for funding
and capital optimisation purposes
Retail deposits
Wholesale funding
Equity
Debt instruments
Securitisations
3
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial Statements Creating sustainable competitive advantage
Our three strategic
priorities
What it means
2023 progress
We provide finance to a wide range of customer segments that value the premium experience, flexibility and certainty we deliver.
Exceptional customer franchise
Innovative mindset driving growth
Robust and sustainable platform
• Diversified offering, supporting clearly defined
customer groups in carefully selected markets.
• Innovative lending propositions tailored to meet
specific and often event-driven funding needs.
• Delivering excellent experiences and positive
customer outcomes.
• Developed innovative products and services
including a new digital SME term loan product to
support businesses to finance capital expenditure.
• Streamlined and accelerated customer journeys,
using enhanced digital capabilities. This included
the launch of our Next Generation Underwriting Hub
in our Real Estate business and a product transfer
solution for our TML and BML customers.
• Implemented Artificial Intelligence (AI) and machine
learning tools in order to transform our customer
and colleague experience, including new cloud
contact-centre technology.
• Introduced a dedicated large loans relationship team
to support our Real Estate customers and brokers.
• Expanded our portfolio and distribution of
development finance products to allow us
to reinvest in new schemes.
• A culture that drives innovation and agility
• Sophisticated data-driven and forward-looking
by leveraging digital capabilities.
• Consistent balance sheet growth,
delivering strong risk-adjusted returns.
• Attractive destination for the best
technology and banking talent.
• Continued to attract exceptional talent from
multiple fields, with 29% YoY growth in our
Technology and Product functions.
• Continued to embed our digital, product and
data-driven ways of working to build a modern
and agile organisational model.
• Launched leadership tools to develop our future
leader and emerging talent pools, including a new
Leadership Framework and mentoring platform.
• Continued improvements to our employee value
proposition, helping to reinforce our purpose
and culture.
risk management.
• Operationally efficient and cost-effective model,
with conservative capital management.
• Delivering long-term sustainable value
for our stakeholders.
• Introduced a dedicated data insight team
to enhance our forward-looking capabilities
and deployed over 20 interactive dashboards
and daily reporting.
• Adopted a more agile approach to risk management
using data and trigger based Management
Information (MI) to identify potential problem loans.
• Implemented new technology to create a single
source for identification and management of
non-financial risks across all lines of defence.
• Enhanced our climate data, including the
development of climate risk MI dashboards.
• Further optimised our capital stack with the
issuance of Tier 2 debt.
How we measure success
✓ Customer and broker satisfaction
✓ Customer growth
✓ Industry recognition
✓ Employee engagement and satisfaction
✓ Internal mobility
✓ Brand perception
✓ Proactive risk identification
✓ Operational costs
✓ External impact
4
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial Statements Chairman’s statement
John Callender
“I am pleased to introduce
Shawbrook’s 2023 Annual Report
and Accounts, following another
year of excellent progress for the
Group. 2023 was a year that again
demonstrated the strengths of
our unique business model. We
surpassed ambitious goals as
we continued to prioritise and
invest significantly in both
technology and talent.“
Our ability to deliver innovative new products and
a premium service across our diverse specialist
markets ensured we continued to attract new
UK SMEs, professional property investors and
consumers to Shawbrook.
Diversified offering serving clearly defined
customer needs
The consistent demand for our specialist lending
offering across the markets we serve resulted in
strong growth of the Group’s loan book. Throughout
the year we continued to provide innovative finance
solutions to more customers than ever before. This
included c.34,000 SMEs and professional landlords,
enabling a critical part of the UK economy to gain
access to the specialist finance they need to support
the efficient growth of their own businesses.
We continue to carefully scale our proposition
to address the demand for the premium service,
flexibility and certainty that we can offer. In May
2023, we completed the acquisition of Bluestone
Mortgages Limited (BML), increasing and diversifying
our presence in the UK mortgage market. The
ability to accelerate our strategy through inorganic
expansion, when the right opportunities present
themselves, is an established part of our model.
2023 was another year of heightened market
volatility, with elevated geopolitical tensions and
the UK economy impacted by persistently higher
levels of inflation. As a responsible business, we
have a critical role to play in supporting customers
under increasing pressure from rising living and
business costs.
Robust and resilient balance sheet
The resilience of our unique ‘best of both’ model
was clear to see during the year. Notwithstanding
the wider uncertainty felt across the banking
sector, the robustness of our balance sheet was
demonstrated by strong growth across both
our lending and deposit books.
A culture that drives innovation and agility
Our aspiration is to be recognised as a destination
that both attracts and retains the best talent.
During the year, we continued to grow our workforce
in scale and experience across all areas of the
organisation, from risk management and credit
structuring to technology, engineering and data.
We also continued to foster a culture that drives
innovation, investing in both our future leaders
and emerging talent. This included the launch
of a new Leadership Framework that articulates
the attributes needed to succeed as a leader at
Shawbrook. Our exceptional engagement score
continued to demonstrate our strong culture,
achieving an improved score of 84% in 2023.
The Board recognises that the Group’s success
is only possible because of our colleagues’ hard
work and commitment, so on behalf of the Board,
I would like to personally thank them all.
The continued growth in our diversified asset
portfolio is only possible as a consequence of our
strong presence in the savings market, built on
high levels of trust, transparency and engagement.
We made further enhancements to our digital
proposition and raised our profile in the market
by actively encouraging savers to take advantage
of rising rates. As a result, we attracted record
numbers of new deposit customers direct to
Shawbrook and our savings book increased to
£13.6 billion, helping to fuel our growth ambitions.
From a capital perspective, our credibility within
the debt markets and the capabilities within our
treasury function was further demonstrated with
the successful issuance of an additional £90 million
of Tier 2 capital in October 2023. The additional
capital will help to optimise our capital base,
while providing the Group with further capacity
to continue growing prudently over
the coming years.
5
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Creating value for our stakeholders
In undertaking its duties, the Board continues
to be mindful of the need to appropriately
balance the interests and expectations of the
Group’s stakeholders. Throughout the year we
maintained open and transparent dialogue
with all of our stakeholders to bring their valued
perspectives into the Boardroom. Details of
our stakeholder engagements can be found
in our S172 statement on page 44
Looking ahead
Whilst inflation is gradually receding, volatility
in the UK economy remains. This, alongside the
upcoming election and heightened geopolitical
tensions, will likely lead to another challenging
year. However, the proven flexibility of our model
and strong capital and liquidity base mean we
can adapt quickly to any challenges that may
arise. This, combined with the breadth of our
offering across multiple customer segments,
gives us optionality to deploy capital to
maximise opportunities as they emerge.
John Callender
Chairman
Deepening our positive impact
Delivering long-term sustainable value for all
of our stakeholders remains a strategic priority
and, as such, the Board and I are fully committed
to delivering our Environmental, Social and
Governance (ESG) strategy. From playing a role in
addressing the climate challenge, to the chronic
shortage of housing in the UK by supporting the
development of new homes, we are committed
to making a positive impact.
Providing sophisticated funding and a premium
service to growth-focused businesses is supporting
investment and job creation. We are also actively
working with our SME customers to guide future
thinking in how Shawbrook can facilitate positive
change and help them to achieve their own
sustainability goals.
Our climate strategy is a fundamental part of our
ESG strategy and our climate ambition remains to
support a just transition to net zero in the UK. From
monitoring the Group’s progress, to agreeing our
Sustainable Finance Framework and undertaking
climate training, the Board continues to actively
oversee the Group’s climate strategy. Further details
on our progress made during the year can be found
in our Climate Report on page 152.
I continue to personally support our wider
communities strategy and am delighted with the
progress we have made during 2023. From hosting
our inaugural charity dinner in support of the
successful Empower Her project to our involvement
in the Go Forward programme (both in partnership
with Saracens Foundation), these initiatives are
highlighting the impact we can make. You can
find out more about these activities and progress
against our strategy in our ESG Report on page 22.
Shawbrook Group plc | Annual Report and Accounts 2023
6
Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial Statements Chief Executive
Officer’s statement
Marcelino Castrillo
“2023 was another exceptional year
for Shawbrook as we continued
to provide finance to a diverse
range of customer segments that
value the premium experience,
flexibility and certainty we deliver.“
Technology continues to accelerate the pace of
change across the financial services industry, driven
by AI and machine learning. The Group is embracing
this opportunity to transform our customer and
colleague experience. This has so far included
the implementation of new cloud contact-centre
technology, driving enhanced customer experience
with in-depth sentiment analysis helping us to
identify customers that may require additional
support. We have also embedded generative AI
into our software development workflow to support
agility and drive productivity gains for our engineers.
Our ability to deliver tailored lending propositions
is driven by a deep understanding of our customers’
needs. During the year we leveraged the same AI
technology to advance our approach to employing
real-time customer feedback and insights,
supporting service enhancements and product
innovation. This has helped us to provide deeper
and faster analysis of customer sentiment, trends
and target areas of improvement.
Our approach has again delivered a strong set
of results, with underlying profit before tax of
£302 million and underlying return on tangible
equity of 20.2% (£287 million and 19.1% respectively
on a statutory basis).
The business model we have created is unique
and difficult to replicate, centred around our ‘best
of both’ approach that combines deep human
expertise with advanced digital, technology
and data capabilities. This enables us to serve
customers with specific and often event-driven
funding needs at scale, while maintaining
operational efficiency with our underlying
cost to income ratio reducing further to 38.2%
(40.9% on a statutory basis), whilst achieving
a LTV/CAC ratio of 8.0x1.
An exceptional customer franchise
We have a diversified offering, with our innovative
propositions tailored to specific customer needs
across a breadth of carefully selected markets
within the SME, Real Estate and Consumer sectors.
Our products range from complex structured
credit facilities for growth-focused businesses to
mortgages for professional landlords and property
investors, as well as simple loans for consumers
delivered digitally. During the year, we also
expanded our presence in the specialist residential
mortgage market with the acquisition of BML.
Innovative mindset driving growth
Our strategy is enabled by a modern organisational
model, combining customer focus, sophisticated
credit structuring and risk management capabilities
with our product, delivery and engineering
expertise. Being a destination for the best people
and retaining our talent is a strategic priority and
essential for the longevity of our business. A strong
employer brand and customer-first culture are
fostered through an inclusive environment where
our people are motivated through meaningful work.
We continue to attract exceptional talent from
multiple fields within digital, technology, data
science and product, with our Technology and
Product functions growing by c.29% during the year.
The ways of working adopted across these areas
mean that digital, product and data have now
become a vehicle for embedding an agile culture
across the organisation. This approach has enabled
us to accelerate the pace at which we can deliver
new innovative solutions, improving both customer
and colleague experiences. In 2023 this included
the launch of our Next Generation Underwriting
Hub, which digitalised the underwriting process
to maximise the time available for underwriters to
make valuable lending decisions. We also expanded
our auto-decisioning capabilities within our Digital
SME lending proposition, giving more customers
certainty with faster decisions.
1 Group’s customer lifetime value/customer acquisition cost (see other information section for definition).
7
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Robust and sustainable platform
The strength and resilience of our platform has
once again been proven during 2023. Enabled
by both our organisational agility and continued
financial strength, we have demonstrated the
ability to capitalise on opportunities as they
present themselves.
Our growth is fuelled by a stable deposit base.
During the year we continued to evolve our
digital savings proposition, helping us to deliver
a premium experience, choice and consistently
great value to smart savers. Further expanding
our brand presence in the deposit market, in
2023 we served c.350,000 savings customers and
increased our retail deposit base to £13.6 billion.
The overall credit quality of our loan book also
remains strong. Supported by a prudent approach
to underwriting, including low loan-to-value and
high debt service coverage ratios, our proactive
approach to portfolio monitoring has proven
resilient. We continue to invest in our data-driven
forward-looking risk framework, helping us to
manage risk and early warning indicators in the
portfolio. This included the build and implementation
of a new cloud-based analytics platform that will
enable enhanced portfolio monitoring and support
AI and machine learning use cases.
The long-term sustainability of our business enables
us to deliver value for all of our stakeholders.
During 2023 many of our people were actively
involved in initiatives which had a positive impact
on the communities we operate in, beyond just the
products and services we offer. We also remain
committed to reducing our climate impact and I
am pleased with the progress we have made this
year to embed our strategy. More information about
these initiatives can be found in our ESG Report
on page 22 and Climate Report on page 152.
Looking ahead
While the macroeconomic landscape continues
to evolve, we are encouraged by both the resilient
performance we have delivered to date and the
improving sentiment seen across our markets.
The attractive returns we generate year on year
give us the confidence to continue to pursue our
ambition – to deliver for more customers in more
markets by combining the innovative mindset and
agility of a start-up with the scale and financial
strength of a large business.
The embedded optionality of the platform we have
created at Shawbrook enables us to both react
quickly to attractive inorganic opportunities as they
arise, whilst continuing to pursue the significant
organic growth we see in our existing markets.
Marcelino Castrillo
Chief Executive Officer
Shawbrook Group plc | Annual Report and Accounts 2023
8
8
Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Financial review
Dylan Minto
“Our full year results demonstrate our consistent focus
on growth and efficiency, delivering an underlying
profit of £302 million, an underlying return on tangible
equity of 20.2%, loan book growth of 24%1, a stable
cost of risk at 51 bps and an underlying cost to income
ratio of 38.2%. While the challenging economic
conditions during the year created some uncertainty
in the markets we serve, our underlying results reflect
our ability to support our customers’ evolving needs
by combining the expertise of our people with great
technology – both of which we continue to invest in.“
We continue to focus on our strategic initiatives, which include
further digitalisation, organic growth and acquisition opportunities
as highlighted by our successful acquisition and integration of BML
during the year. All of these are underpinned by our prudent capital
and liquidity management as evidenced by our successful issuance of
a £90 million Tier 2 subordinated note during the year. On a statutory
basis, our profit before tax of £287 million and return on tangible
equity of 19.1% were impacted by the recognition of a provision at the
half year against historical timeshare loans for which we are actively
pursuing recovery options.
Performance indicators
Definitions of all metrics included in the following tables are provided
on page 254.
Financial performance metrics
In the year ended 31 December 2023, there are underlying
adjustments of £15.4 million (2022: £5.0 million) (see page 11). The
following table is shown on both an underlying and statutory basis.
Gross asset yield
Liability yield
Net interest margin
Management expenses ratio
Cost to income ratio
Cost of risk
Return on lending assets before tax
Return on tangible equity
2023
%
9.7
(4.8)
4.9
(1.9)
38.2
(0.51)
2.5
20.2
Underlying
Change
2.9%
(3.0%)
(0.2%)
0.1%
(1.8%)
–
–
0.1%
2022
%
6.8
(1.8)
5.1
(2.0)
40.0
(0.51)
2.5
20.1
2023
%
9.7
(4.8)
4.9
(2.0)
40.9
(0.51)
2.4
19.1
2022
%
6.8
(1.8)
5.1
(2.1)
41.1
(0.51)
2.5
19.5
Statutory
Change
2.9%
(3.0%)
(0.2%)
0.1%
(0.2%)
–
(0.1%)
(0.4%)
1 The annual growth rate of 24% represents the loan book growing to £13.0 billion and excludes the BML acquisition.
Including the acquisition, the loan book was £13.3 billion and represented a growth rate of 27%.
9
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Financial position metrics
Assets and liabilities
Loan book (£m)
Average principal employed (£m)
Customer deposits (£m)
Wholesale funding (£m)
Liquidity
2023
2022
(Restated)1
Change
13,310.8
11,854.4
13,562.7
1,867.8
10,495.2
9,375.7
10,914.5
1,615.1
26.8%
26.4%
24.3%
15.6%
Liquidity coverage ratio (%)
262.8
321.3
(58.5)
Capital and leverage2
Common Equity Tier 1 capital ratio (%)
Total Tier 1 capital ratio (%)
Total capital ratio (%)
Leverage ratio (%)2
Risk-weighted assets (£m)
12.9
14.3
16.4
8.2
12.7
14.3
15.6
8.8
8,701.3
7,463.1
0.2%
–
0.8%
(0.6%)
16.6%
1 Risk-weighted assets as at 31 December 2022 have been restated to reflect adjustments in credit valuation adjustment and
counterparty credit risk in respect of the Group’s structured entities’ interest rate swaps. Risk-weighted assets have increased by
£80.6 million from £7,382.5 million to £7,463.1 million. Capital and leverage ratios have also been restated to reflect these adjustments.
2 Capital and leverage metrics are shown on a transitional basis after applying IFRS 9 transitional arrangements. A comparison
of the Group’s reported capital metrics (including transitional adjustments) to the capital metrics as if IFRS 9 transitional
arrangements had not been applied (the ‘fully loaded’ basis) is provided on page 143.
Shawbrook Group plc | Annual Report and Accounts 2023
10
Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Summary of statutory results for the period
Reconciliation of underlying to statutory results
Operating income1
Interest expense and similar charges
Net operating income
2023
£m
1,153.8
(567.3)
586.5
2022
£m
640.8
(164.6)
476.2
Change
80.1%
Underlying profit before tax
(244.7%)
23.2%
Corporate activity costs
Timeshare provision charge
Administrative expenses
(226.6)
(194.7)
(16.4%)
Strategic review
(60.1)
(13.1)
(47.7)
(0.8)
(26.0%)
Total underlying adjustments
n/a2
(299.8)
(243.2)
(23.3%)
Statutory profit before tax
2023
£m
302.1
(4.0)
(11.4)
–
(15.4)
2022
£m
238.0
–
–
(5.0)
(5.0)
286.7
233.0
Impairment losses on financial instruments
Provisions
Total operating expenses
Statutory profit before tax
Tax
Statutory profit after tax
286.7
(74.6)
212.1
233.0
(58.3)
174.7
23.0%
(28.0%)
21.4%
The following adjustments have been excluded from the underlying results:
• Corporate activity costs: represents costs incurred in 2023 primarily relating to the acquisition of BML
(see Note 9 of the Financial Statements).
• Timeshare provision charge: represents the provision charge recognised in 2023 in relation to complaints
from customers about holiday ownership (timeshare) products (see Note 33 of the Financial Statements).
• Strategic review: represents costs incurred in 2022 in relation to a strategic review undertaken with
regard to the Group’s ownership.
Additional reconciliation from underlying to statutory results is provided in Note 10 of the Financial
Statements on page 211.
1
Includes interest income calculated using the effective interest rate method, other interest and similar income, net operating
lease income, net fee and commission income, net gains on derecognition of financial assets measured at amortised cost,
net gains/(losses) on derivative financial instruments and hedge accounting and net other operating income/expense.
2 The % change here is not comparable and irrelevant to the reader as it is an outlier change.
11
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Strong loan growth and careful cost
management delivered enhanced
profitability against a challenging
economic backdrop
Underlying profit before tax increased by 26.9% to
£302.1 million (2022: £238.0 million). Statutory profit
before tax increased by 23.0% to £286.7 million (2022:
£233.0 million) reflecting provisions of £13.1 million
(2022: £0.8 million) and corporate activity costs
of £4.0 million. The provision includes £11.4 million
relating to historical timeshare loans where we
are actively pursuing multiple routes of recovery.
During the period, statutory net operating income
increased by 23.2% to £586.5 million reflecting
loan book growth of £2.8 billion. The loan book
now stands at £13.3 billion following continued
strong originations in our core SME and property
markets and includes £0.3 billion of growth from
loans acquired as part of the acquisition of BML,
which completed in May 2023. Our gross asset
yield increased to 9.7% (2022: 6.8%), as we repriced
portfolios reflecting the Bank of England base rate
increases, higher Treasury income and benefited
from prudent interest rate risk hedging programmes.
Our overall funding costs increased during the period,
reflecting growth in customer deposits and the
increase in Bank of England base rate, with the total
liability yield increasing to 4.8% (2022: 1.8%). Overall
the net interest margin fell slightly to 4.9% (2022: 5.1%).
Investing in and strengthening our data capabilities
and innovative technology solutions across the
business remains a core focus. We believe this will
further support and enhance our customer and
distribution propositions and drive operational
efficiencies. Administrative expenses (excluding the
underlying adjustments for corporate activity costs
and 2022’s strategic review) increased by 17.3%
to £222.6 million (2022: £189.7 million) reflecting
continued investment in our digital strategy,
seven months of BML operating costs and higher
employee costs to support our growth strategy.
As detailed in Note 33 we have recognised a
statutory provision of £13.1 million (2022: £0.8
million), of which £11.4 million reflects historical
timeshare claims and we have disclosed as an
underlying adjustment. We continue to work closely
with the Financial Ombudsman Service in relation
to customers’ claims and have started to redress
customers where claims have merit. We expect
substantial reimbursement of redress claims in the
future but cannot record any compensation until
it is virtually certain in accordance with IAS 37.
The underlying cost to income ratio improved
to 38.2% (2022: 40.0%) and the management
expenses ratio improved to 1.9% (2022: 2.0%).
Prudent risk appetite and loan portfolio
management
Careful and robust management of our loan book
is a key focus and after reviewing the economic
scenario weightings used in the impairment models,
we updated the weightings with downside risk
scenarios representing 40% probability (downside
plus severe downside scenarios combined) from
50%. This change reflects the revised and less
risky UK outlook for interest rates and inflation
compared to December 2022.
Impairment losses were £60.1 million (2022: £47.7
million) reflecting a cost of risk of 51 bps, of which
28bps was due to loan write-offs (net of recoveries)
(2022: 51 bps). This reflects loan book growth and
changes in expected credit loss models driven
by macroeconomic assumptions, but credit risk
metrics whilst slightly elevated, remain within risk
appetite with the arrears ratio at 2.3% (2022: 1.9%).
We work closely with and are ready to support
customers who face financial difficulties.
Conservative capital management
and funding diversification provide
options for future growth
We continue to optimise our capital resources
whilst maintaining a robust and prudent risk
appetite. Our Common Equity Tier 1 capital ratio
increased to 12.9% (2022: 12.7%) and our total
capital ratio to 16.4% (2022: 15.6%). The increase
in the total capital ratio over the period is largely
attributable to retained earnings and a successful
issuance of a £90 million subordinated Tier 2 note
under our newly launched Euro Medium Term
Note Programme. Additionally, in the second
half of the year, we collateralised our over-the-
counter interest rate swaps held within our funding
structured entities, as highlighted in our half
year results and reduced our counterparty
credit risk and credit valuation adjustment.
During 2023, the Counter Cyclical Capital buffer
was increased by 1% to 2% and total regulatory
capital requirements are now 13.57%. With total
regulatory capital of £1,424.9 million, the Group
remains comfortably above regulatory requirements
and is well capitalised to support our customers,
deliver our strategic priorities and absorb future
changes to regulatory capital requirements as
proposed through Basel 3.1.
The Group is not required to comply with the
Prudential Regulation Authority (PRA) Leverage
Ratio Framework, however the Group maintains
its returns with prudent levels of leverage. The
leverage ratio for the Group is 8.2% (2022: 8.8%),
compared to minimum requirement of 3.25%.
Risk-weighted assets at £8.7 billion, as a proportion
of the loan book, is 65% (31 December 2022: 71%).
We continue to diversify our funding base, and
remain predominantly funded by retail and SME
customers. In a competitive market, our strong
savings proposition continues to attract new
customers with deposits growing 24.3% to
£13.6 billion. Wholesale funding is primarily
through the Bank of England’s TFSME programme
which remained stable, with drawn balances of
£1.2 billion. During 2023, we also completed two
further retained securitisations of £1.1 billion of
property assets, providing further liquidity benefits
to the Group. We maintained our prudent liquidity
approach with the 12 month average liquidity
coverage ratio (LCR) being 311% (2022: 290%),
comfortably above the regulatory minimum.
Looking ahead
We continue to closely monitor the UK economy
and macroeconomic environment to ensure
that we can actively support our customers
through these uncertain times. Over the years,
we have repeatedly demonstrated that we can
respond quickly to meet our customers’ needs
through innovative and pragmatic solutions,
whilst maintaining our prudent risk appetite
and the Group has a strong capital and liquidity
base to continue doing so. We are confident
in our ability to continue to meet the changing
needs of our customers, colleagues and
business partners in the future and continue
the momentum with our focus on growth,
efficiency and capital optimisation.
Dylan Minto
Chief Financial Officer
Shawbrook Group plc | Annual Report and Accounts 2023
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Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Business review
Business review
Enterprise franchise
SME markets
Our markets and customers
Why customers choose us
1. Structured
lending
Our SME proposition supports established and
fast-growth UK SMEs with innovative finance
solutions to meet their often complex and event-
driven needs. We operate across a diverse range
of large, established and growing SME markets
that we know well, offering strong business
flows today and attractive growth potential
for tomorrow. Our specialist segments are
often underserved due to their highly bespoke
structuring requirements and in-life relationship
nature, creating an opportunity for us to deploy
our broad range of customer focused and
flexible solutions to SMEs across the UK.
Financial sponsors:
• Unitranche targets the private
equity sponsor market to fund
investment in established
UK SMEs.
• Venture debt supports the further
growth of early-stage venture
capital-backed businesses.
• Equity fund finance offers net
asset value lending to small and
medium-sized private equity funds.
• Recurring Revenue finance
supports near-profit, sponsor-
backed SMEs with reliable,
contracted revenue streams.
Speciality finance:
• Wholesale finance and block
discounting provide committed
and uncommitted lending to UK
non-bank specialist lenders.
• Debt fund finance offers net asset
value lending focused towards
smaller/niche debt funds.
Development finance
Provides funding solutions to
experienced property developers for
the build or refurbishment of residential,
semi-commercial and commercial
property assets for sale or hold.
Corporate lending:
• Commercial loans are senior
debt term loans targeting
typically owner managed SMEs to
support acquisitions, refinancing,
management buy-outs and other
areas of growth.
• Asset based lending leverages hard
and paper assets to provide funding
to mid-market SMEs, supporting
needs including working capital,
strategic investment and acquisition.
Specialist markets
Provides a range of funding options
to both public and private regulated
healthcare providers, including
National Health Service (NHS) Trusts.
We support a variety of specialisms
across the sector, including care
homes, pharmacies and specialist
care providers, through both term
debt and asset finance solutions.
• Deep market expertise: customers
value being able to leverage our
lending expertise and insights.
• Extensive network: strong relationships
with UK wide key business introducers.
• Broad range of bespoke facilities
and highly flexible solutions to
match the customers growth cycle:
underpinned by deep knowledge
of the underlying asset classes.
• Experienced structuring and portfolio
management team: combining
‘always on’ oversight with early
and extensive support.
• Digital application and fulfillment
experience: fast credit decisioning
supporting slick customer journeys.
2. Digital SME
lending
Provides technology-enabled finance solutions to fast-growth SMEs in the form
of asset finance and term lending products. Our proposition leverages digital
to deliver automated and fast decisioning in a market where speed is essential.
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Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial Statements Business review
Enterprise franchise
2023 SME achievements
Exceptional
customer
franchise
✓ Evolved our Digital SME lending offering with the launch of a new capital expenditure
term loan product, expanding our offering to support businesses to finance
technology expenditure. We also rolled out auto-decisioning capabilities to give
customers more certainty with quicker decisions, helping to bring down funding times.
✓ Launched a new recurring revenue product in response to the growth in recurring
and subscription-based revenue models across the software and technology
space. This addition complements our existing offering and extends our
support to high-growth sponsor-backed SMEs across their investment lifecycle.
✓ Expanded our portfolio and distribution of development finance products
to allow us to reinvest in new schemes.
✓ Introduced our new credit structuring team to provide enhanced support
to our origination teams.
Innovative
mindset
driving
growth
✓ Further strengthened our portfolio management function, bringing all in-life
management teams under a single Enterprise risk team to enhance shared learning,
drive long-term partner value and efficient service delivery for our customers.
✓ Invested in our front and middle-office teams, focusing on key interactions
in our customer journeys to align our operations more closely with evolving
needs across our markets.
✓ Leveraged data analytics to enhance our Risk Management Frameworks.
We introduced new tools to improve early sight of trends and emerging risks
and maintain the strong and robust management of our client portfolio.
✓ Continued to enrich our data capabilities to provide increased depth
of analysis and insights across the portfolio.
Robust and
sustainable
platform
Looking ahead
Against a challenging macroeconomic backdrop
our SME proposition demonstrated resilience and
continued to deliver growth throughout 2023.
This was achieved despite lower levels of market
activity in a number of our key segments, most
notably mergers and acquisitions activity as SMEs
and investors remained cautious of the changing
market conditions. Looking ahead, we expect to
see attractive growth opportunities across our
markets, underpinned by their strong, long-term
fundamentals. Structural housing undersupply, the
need for bespoke and complex funding solutions,
and a desire for fast, digital access to capital all
mean that we remain well placed to support
more SMEs with their growth ambitions.
We are investing to take advantage of these
opportunities, leveraging our established origination
and risk management foundations to go deeper into
our product set and scale our proposition to cater
for the needs of more businesses. We will continue
to build on our established relationships and expand
our offering to support existing clients through their
growth lifecycle with additional funding. We will
also invest more in both digital and talent to further
disrupt digital lending markets and enhance our
customer journeys, front office capacity and
risk frameworks.
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Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Business review
Enterprise franchise
Real Estate markets
Our markets and customers
Why customers choose us
Our Real Estate proposition supports professional
property investors and experienced landlords
with funding to grow and sustain their successful
property businesses. We achieve this by offering
a range of residential, commercial and short-term
mortgage products through our specialist broker
network that is deeply embedded in our customer
markets. Our established and extensive distribution,
alongside experienced underwriting teams enable
us to originate a wide range of loan sizes and
asset types, unlocking funding opportunities for
customers. Our digital origination capabilities
continue to provide fast and consistent initial
decisions, offering competitive advantage in
an intermediary-led market.
1. Buy-to-let
Mortgages for professional property investors and experienced landlords often
already operating at scale or with the ambition to grow. Our products are
primarily distributed through specialist brokers, earning premium margins
by deploying our deep expertise to meet the more sophisticated needs and
expectations of the professional borrowers we serve. We utilise our digital
capabilities for seamless processing of more straightforward buy-to-let
mortgage applications.
2. Commercial
investment
Mortgages for professional property investors where the property is
commercial or semi-commercial. Our customers are experienced investors
seasoned in commercial property; developers retaining larger schemes for
rental; or growing buy-to-let landlords seeking to diversify their portfolios.
3. Bridging
Short-term mortgages for professional property investors and landlords
looking to swiftly acquire a property to increase its value or rental yield
through refurbishment or conversion. Our offering caters to residential,
commercial and semi-commercial properties. Our customers often retain
completed properties for rental and we offer incremental value to them
by being able to refinance them to a long-term mortgage once works
are complete, avoiding the need to find a second lending partner.
• Deep market expertise: allows
us to identify new opportunities
by understanding and effectively
managing risk at origination and
throughout the loan life.
• Advanced digital and data capabilities:
enable efficient delivery and rapid
response to changing market conditions.
• Bespoke range of solutions: designed
to meet the more sophisticated needs
of professional investors.
• Specialist credit underwriting:
a combination of digital capabilities
for efficient straight-through
processing of simple transactions
and deep expertise for manual
decisions on more complex cases.
• Extensive intermediary network:
strong and long-standing relationships
with key intermediaries.
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Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial Statements Business review
Enterprise franchise
2023 Real Estate achievements
Exceptional
customer
franchise
✓ Launched our Next Generation Underwriting Hub, digitalising all aspects
of the underwriting process. This investment has helped to evolve our digital
buy-to-let product by streamlining mortgage processing times, resulting
in significantly quicker flight times.
✓ Introduced a dedicated large loans relationship team to support our Real Estate
customers and brokers.
✓ Continually optimised our proposition, throughout a more volatile trading year.
Our constant focus on maximising opportunity, managing risk and delivering
good customer outcomes underpinned our commitment to the market as a
reliable funding partner.
Innovative
mindset
driving
growth
✓ Became the first UK bank to complete a limited company remortgage case
on the PEXA platform. Using automated valuation models to speed up the
conveyancing journey, for example in January 2024, we completed a buy-to-let
remortgage in only 37 working hours.
✓ Invested in credit structuring expertise to support the build of our bespoke
in-life management service to our large loans proposition, creating the
opportunity to extend our customer relationships.
✓ Launched a new risk tool, to help provide enhanced insights into early warning
indicators, while leveraging credit reference agency data to enable a better
understanding of credit performance trends for facilities held outside of Shawbrook.
✓ Integrated multiple services into our Next Generation Underwriting Hub, including
data from credit reference agencies and the UK House Price Index to help enhance
underwriting decisions.
Robust and
sustainable
platform
Looking ahead
The UK Real Estate market endured significant
volatility as a result of rapidly rising interest rates,
however our customers have proven resilient to
date. As such we will continue to seek opportunities
to support the market whilst maintaining a firm
focus on our robust forward-looking risk framework,
leveraging digital and data. As the professional
Real Estate market continues to adjust to a new
trading environment, we remain alert to attractive
risk-adjusted opportunities in our specialist
segments, while continuing to support the changing
requirements of professional landlords as they
transition through their growth journey.
Our sharp focus on the wider needs of professional
landlords, either already operating at scale, or
seeking to grow, provides us with a clear target
customer to serve, we will continue to leverage
data and digital to enhance automation and
enable predictive actions, combined with deep
human expertise to originate more complex loans
and customers using our relationship-led premium
service. Alongside originating attractive new
business, we will focus on enhancing our customer
retention offering, to maximise the lifetime value
of our customer relationships.
16
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Spotlight
The first UK bank to offer limited company
remortgages with PEXA
First completion demonstrates the potential for faster and simpler
remortgaging for professional property investors
Building on the development work in 2023, in January 2024 we became
the first bank in the UK to offer limited companies the ability to remortgage
using the digital conveyancing platform, PEXA.
Traditionally, property settlements involve a significant amount of paperwork
and manual processes. We have streamlined this by partnering with PEXA
to provide a digital platform for individuals and limited companies, where
all parties involved in the property transaction can collaborate, exchange
information, and settle the transaction electronically through the Bank of
England via PEXA Pay.
We, alongside the customer’s broker Clever Lending, completed our first
limited company remortgage using PEXA for a professional property investor
with an 11 property portfolio. Benefitting from automated valuation models
and a fully packaged case, the whole process took only 28 business days
from full mortgage application to completion.
Working with PEXA, our objective is to continue reducing the time and
effort on administration and to minimise the frustrations that the
traditional remortgaging process can create for investors and landlords.
“We’ve continued to build on our evolving digital strategy, adding
to existing innovations such as MyShawbrook portal, which provides
automated underwriting decisions.
Extending PEXA to limited companies is a further example of us delivering
against our technology ambitions, removing the unnecessary friction of
manual completion payments, which will now benefit more Shawbrook
customers. We’re glad that we are now able to further enhance user journeys
and enable more property investors to benefit from a smoother, more efficient
process, as demonstrated by this first completion for a limited company client.”
Claire Rankin
Director of Specialist Lending – Real Estate
“We are delighted to continue our partnership
with Shawbrook and roll-out the new limited
company functionality of the PEXA platform.
We know that property transactions are still
too painful and take too long here in the UK
and launching limited company capabilities is
the next step on our journey to enabling a smart,
seamless and secure experience for those
buying, selling and remortgaging property.
We look forward to continuing to work with
innovative partners such as Shawbrook to
make this journey a reality.”
Andrew Lloyd
UK Chief Customer Officer at PEXA
Shawbrook Group plc | Annual Report and Accounts 2023
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Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Business review
Consumer franchise
Consumer markets
Our markets and customers
Why customers choose us
Our consumer proposition supports UK consumers
and micro business owners with a broad range
of simple, flexible and transparent lending and
savings products for multiple purposes. Our
proposition is underpinned by a digital and
scalable distribution model, leveraging valued
relationships with key digital marketplaces
and data-driven risk models.
1. Unsecured
personal
lending
Offers a simple and transparent unsecured lending proposition to
UK consumers who are often underserved by the mainstream banks.
Our fully digital and scalable distribution model enables us to adapt
quickly to evolving customer needs and market conditions.
2. Motor finance
In 2023, we signed a committed platform lending facility with Blue Motor
Finance Limited (BMFL), allowing us to prudently originate hire purchase
agreements in the used car market through their established distribution
network and digital proposition. Our customers are typically UK homeowners
and tenants looking for finance to purchase a used vehicle.
3. Savings
We offer a diverse suite of ISA and non-ISA savings products aimed at
both consumers and businesses, including easy access, notice and fixed
term accounts. Our digital and scalable distribution model appeals to our
customer base which is dominated by individuals who value the high quality
product range and customer service we offer.
• Automated processes and data
strategies: driving efficient customer
journeys and highly responsive
to market dynamics.
• Simple, transparent and digital-first
proposition: performs well in a market
where simplicity and speed matters.
• Extensive digital marketplace
distribution: enables us to establish
our presence across a larger share
of our chosen markets.
• Diverse suite of simple products: helping
to fulfil a range of savings requirements.
• Broad partnership network: supports
diversity of funding and provides access
to a larger share of the market.
• Strong Shawbrook brand: recognised
for quality of product range and service,
supporting attractive deposit flows.
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Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial Statements Business review
Consumer franchise
2023 Consumer achievements
Exceptional
customer
franchise
Innovative
mindset
driving
growth
Robust and
sustainable
platform
Lending
Savings
✓ Implemented the Financial Conduct Authority’s (FCA) Consumer Duty,
ensuring our culture and governance framework continues to encourage
good customer outcomes and provides fair value.
✓ Created a dedicated customer experience forum to monitor and collect
valuable insights used to shape our proposition and drive continuous
improvements for our customers.
✓ Deployed a dedicated customer bereavement team, helping us to provide
an easy and empathetic experience for customers dealing with bereavement.
✓ Entered the motor finance market
through a platform lending agreement
with BMFL. The agreement provides
BMFL with a committed platform
lending facility to help customers
finance hire purchase agreements
for used cars.
✓ Transitioned to a new workflow tool
to help facilitate the automation
of manual tasks and streamline
processes, enhancing the colleague
and customer experience.
✓ Implemented a new real-time digital
decisioning tool utilising wider data
sources to enable more dynamic
market decisioning.
✓ Used new data sources to optimise
our credit scoring, affordability, policy
rules and KYC/AML processes, while
embedding new data quality controls
across the business.
✓ Expanded the reach of our savings
partnerships to further diversify
funding and uphold our commitment
to our target market.
✓ Leveraged predictive analytics to
inform pricing decisions, empowering
the team to refine strategies by
proactively adjusting interest rates
and enhancing overall retention.
✓ Continued to build out our new digital
savings experience, including the
introduction of a maturity carousel,
enabling Savings customers to view
our suite of available products and
self-serve online.
✓ Automated our ISA e-transfer process
by eliminating unnecessary manual
interventions, helping to improve
process efficiency, resulting in
faster customer journeys.
Looking ahead
During 2023, prevailing macroeconomic conditions
continued to exert strain on consumers’ income and
discretionary spending. Looking ahead to 2024 we
remain alert to these pressures and will adjust the
rate of growth within our consumer lending portfolio
accordingly. This agility is enabled by the strength
of our fully digital proposition and sophisticated
digital-first distribution model.
We will also fully implement our new digital savings
experience, offering customers the ability to self-
serve throughout the life cycle of their product,
while expanding our data and analytics capabilities.
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Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Business review
Retail Mortgage Brands
Retail Mortgage Brands markets
Our markets and customers
Why customers choose us
Our Retail Mortgage Brands, which are comprised of the Group’s subsidiary
entities TML and BML, provide buy-to-let and owner-occupied mortgages
to individuals and property professionals across the UK. Our multi-brand
proposition complements our core Real Estate offering and enables us to
serve the needs of a wide spectrum of customers, including those with
complex income and complex credit profiles that are often underserved by the
mainstream mortgage market. Products are distributed through FCA authorised
mortgage intermediaries including specialist brokers within our target markets.
1. Buy-to-let
Provides buy-to-let mortgages to support
landlords that own property in either personal
or multiple occupation/multi-unit blocks, as
well as holiday lets and expatriate scenarios.
2. Owner-
occupied
mortgages
Provides owner-occupied mortgages to support
customers either looking to purchase their
first property, move home or remortgage. Our
customers typically have complex income and
credit profiles, including the self-employed, as
well as those that continue to be penalised
for historical financial challenges.
• Data-led decisioning, combined
with human expertise: providing
speed in a typically slow market.
• Extensive intermediary network:
deep relationships and solid credibility,
offering nationwide distribution
and coverage.
• Digital strategy: digital proposition
delivered through data-driven
CRM capabilities.
• Inclusive eligibility criteria:
comprehensive offering to cater
for underserved needs.
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Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial Statements Business review
Retail Mortgage Brands
2023 Retail Mortgage Brands achievements
TML
BML
✓ Introduced a digital product transfer solution to support customers who are either
on TML or BML’s reversion rate or approaching the end of their fixed rate period.
Exceptional
customer
franchise
✓ Enhanced our customer relationship
✓ Introduced auto-decisioning
management ecosystems, with further
automated journeys implemented and
integrations into our origination and
broker sourcing platforms.
capabilities across the customer
application process, helping to
streamline the customer journey
and increase operational efficiency.
✓ Enhanced our owner-occupied product
range to support changing customer
needs and our evolving ESG strategy.
✓ Trustpilot score increased to 4.8,
the highest score of any specialist
mortgage lender.
✓ Designed our Customer First
Framework, supported by the
recruitment of a Head of In Life
Customer Experience role to drive
our customer first agenda.
✓ Evolved our pricing elasticity model
to accurately inform competitive
position and profitability.
Innovative
mindset
driving
growth
✓ Launched the Deposit Unlock Scheme
in January 2024, becoming the first
specialist mortgage lender to offer
the solution to support first-time
buyers onto the property ladder,
backed by an insurance policy to
protect against losses.
✓ Significantly invested in our sales talent,
growing the team by c.50% to support
our growth ambitions.
✓ Implementation of the Group’s new AI powered customer contact platform,
supporting the long-term integration into Group information technology infrastructure.
Robust and
sustainable
platform
✓ Upgraded our broker portal to deliver
bespoke underwriting requirements
relevant to individual customer needs.
✓ Introduced a new lending platform
introducing increased automation
and operational efficiency through
Application Programming Interfaces
and Open Banking.
Looking ahead
Our Retail Mortgage Brands proposition remained
in high demand during 2023, with our reputation
and strong digital capabilities supporting
continued growth. Looking ahead, the overall
mortgage market is expected to contract in 2024,
however, strong demand is expected to remain in
the specialist residential mortgage market, driven
by an increasing number of people being excluded
from high street lending due to their complex
income profiles, such as the self-employed or
those with multiple income streams.
To cater for these shifting dynamics while upholding
the quality of our loan book, we will continue to
leverage and invest in our data capabilities to gain
valuable insights into our portfolio while improving
the customer experience and speed of offers.
We also see significant opportunity to extend our
proposition into adjacent markets to support the
underserved segments, while strengthening our
existing relationships using our digital product
transfer capabilities.
Shawbrook Group plc | Annual Report and Accounts 2023
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Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial Statements Environmental, Social and
Governance (ESG) Report
Our ESG strategy is a tangible expression of our purpose,
and is designed to create sustainable value for our
customers, colleagues, communities, suppliers and
Shareholder, while having a positive impact on society
and the wider environment. Over the last 12 months we
have continued to grow and evolve our specialist finance
propositions, helping more customers to achieve their
goals. We also continued to invest in our people and
communities, helping us to deepen our impact.
We continue to take action to ensure our approach
to sustainability is embedded across all areas of
our business and a core part of our wider strategy.
This report provides an insight into the progress we
have made across all aspects of our ESG strategy
over the last year.
“Delivering long-term sustainable value for all of our
stakeholders remains a strategic priority and, as
such, the Board remains committed to embedding
sustainability across the organisation. Our ESG strategy
presents us with significant opportunities to make a
difference. From playing our part in addressing the
climate challenge, developing new homes to help
mitigate the chronic housing shortage in the UK,
to continuing to give back to the communities in
which we operate through various programmes,
we are committed to making a positive impact.”
John Callender
Chairman
Shawbrook Group plc | Annual Report and Accounts 2023
22
Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report We have a clear ambition and defined strategic pillars across each of the Environment, Social and Governance segments, focused on those areas where we believe we can make the greatest impact.
Environment
We want to play our part in enabling a just transition1
to net zero in the UK by leveraging our insights and expertise.
Social
We want to boost social mobility, champion equality and diversity
and create an inclusive environment by leveraging our capabilities,
networks and people.
Governance
We are committed to operating under a robust governance framework
which underpins our purpose and serves all our stakeholders.
1. Supporting the climate transition.
2. Reducing our climate impact.
3. Embedding climate into our corporate DNA.
• Provided £475 million of sustainable finance2.
• Completed an initial internal measurement of our SME financed emissions.
•
Enhanced data quality for our financed and operational emissions.
We will do this by…
1. Supporting customers with specialist finance.
2. Attracting and retaining the best talent.
3. Giving back to our communities.
2023 highlights
• Donated over £200,000 to multiple charitable causes.
•
Launched Go Forward, a new social mobility programme
with Saracens High School.
Launched tools including our new Leadership Framework
to support employee development.
•
1. Having effective Board and management structures.
2. Maintaining robust governance and data-driven,
forward-looking risk management.
3. Committing to transparent and accountable disclosures.
•
Evolved our Sustainable Finance Framework, including
incorporation of socially-focused lending criteria.
• Delivered climate training to employees.
•
Enhanced our ESG governance framework.
• Continue to develop our net zero roadmap including TPT3-aligned
transition plans.
Further enhance our carbon footprint data quality and coverage.
•
• Collaborate with partners to support the delivery of our climate ambition.
• Continue to improve diversity metrics across our focus areas.
Increase employee engagement in community and giving activities.
•
• Collaborate with partners to develop our social impact programmes.
• Horizon-scanning and impact assessment of ESG-related
emerging regulation to enhance our disclosures.
• Continue to deploy climate and ESG employee training.
• Ongoing embedding of climate risk to manage physical and transition risk.
• Continue to track ESG metrics in bonus design scheme.
Our short-term focus
Our ESG strategy is aligned to eight of the United Nations Sustainable Development Goals (SDGs), where we believe we can have the most impact and positively contribute.
Our 2023 Climate Report, included on pages 152 to 178 has been prepared in order to comply with the non-financial and sustainability-related requirements
of the Companies Act 2006. The report is aligned with the Task Force on Climate-related Financial Disclosures (TCFD) 2017 recommendations and 2021 Annex4
across all four TCFD pillars.
1 We use the term ‘just transition’ to describe applying a social lens to opportunities and risk arising from the climate transition, with the interests of employees, communities
and customers in mind, to ensure it is fair and inclusive for all actors in society.
2 Lending classified as sustainable finance/socially-focused lending is based on our internal sustainable finance framework which has been developed using best practice
and industry guidance including but not limited to Loans Market Association, International Capital Markets Association and EU Taxonomy. See page 43 for further information.
3 Transition Plan Taskforce (TPT) was launched by HM Treasury in April 2022 to develop the gold standard for private sector climate transition plans. The TPT has developed a sector neutral
Disclosure Framework for best-practice transition plan disclosures, alongside implementation guidance and sector guidance. The Disclosure Framework draws on the components identified
by The Glasgow Financial Alliance for Net Zero of a good transition plan, ensuring the outputs of both initiatives lock together to form an integrated approach to transition planning.
4 The 2021 TCFD Annex provides both general and sector-specific guidance on implementing the Task Force’s disclosure recommendations. Updates reflect the evolution of disclosure
practices, approaches and user needs.
23
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial Statements Our 2023 ESG highlights
E
S
42.1%
of our buy-to-let book
is rated EPC C or above1
46.9%
of our owner-occupied book
is rated EPC C or above2
S
29%
>£200,000
of vacancies filled by internal applicants
donated to multiple charitable causes
E
G
G
E
S
G
S
£475 million
of sustainable finance originations3
84%
employee engagement score
E
G
23
young people joined our
emerging talent programmes
100%
of employees completed
climate training4
Key
E
S
Environment
Social
G
Governance
53%
of our suppliers are
net zero aligned5
>100
employees utilised our new
mentoring platform
40%
of our Board members
are female
1 % of known EPC ratings in the Group’s buy-to-let portfolio as at 30 November 2023. This covers 66% of this portfolio.
2 % of known EPC ratings in the Group’s owner-occupied portfolio as at 30 November 2023. This covers 82% of this portfolio.
3 Lending that aligns to the environmental criteria within our Sustainable Finance Framework.
4 Training was rolled out to all Shawbrook Bank Limited and TML employees in 2023 with a 100% completion rate. This training was rolled out to BML in 2024.
5 % of suppliers, with spend over £200k, that either have a net zero target for their own operations or have aligned to the Science Based Targets initiative (SBTi) approach for net zero.
24
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial Statements Environment
Our approach to addressing the
climate challenge
We recognise the importance and urgency of
tackling climate change to mitigate against the
significant impact on us as an organisation and
wider society. Supporting the climate transition
forms a core part of our ESG agenda, with our
climate strategy designed to ensure we play
our part in protecting the environment as well
as supporting the 2015 Paris Agreement goals.
Our ambition is to reduce our climate impact
and become a net zero1 organisation by 20502
and by 20353 for our own operations.
We are members of
“During 2023, we continued to evolve our
data-driven approach to climate risk. By
leveraging climate insights across the
portfolio, we are able to better identify
and manage the risks associated with
climate change.”
Hugh Fitzpatrick,
Chief Risk Officer
42.1%
of our buy-to-let book
is rated EPC C or above
46.9%
of our owner-occupied book
is rated EPC C or above
£475 million
of sustainable finance originations
53%
of our suppliers are net zero aligned
1 We use the term ‘net zero’ to describe a reduction in GHG emissions coupled with carbon removal
(e.g. carbon capture through nature-based solutions or technology) for residual emissions.
2 Covers own operations (scopes 1, 2 and 3 excluding purchased goods and services) and financed emissions
for the Group’s Property Lending Portfolios (as defined on page 174 of the Climate Report) and SME portfolios.
3 Covers Scope 1, Scope 2 and Scope 3 (fuel and energy-related activities, waste, business travel, commuting
and work from home) emissions. This excludes purchased goods and services and financed emissions.
25
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial Statements “Climate change won’t wait for policy changes. Landlords
with modern, energy-efficient stock will not only attract
tenants and reduce voids, but also be prepared for
the inevitable shift towards a greener future.”
Emma Cox
Managing Director of Real Estate
Spotlight
Research reinforces UK landlords’ commitment to energy-efficient homes
Spotlight
Increasing SME sustainability engagement
While the 2025 Energy Performance Certificates (EPC) regulation
deadline may have shifted, the drive towards energy-efficient homes
remains a cornerstone of the UK’s net zero ambitions. At Shawbrook,
we see this as an opportunity to support a just transition in the rental
sector. Our research in August 2023, conducted with over 1,000 UK
landlords, revealed that 80% of landlords were already prepared for
the initial deadline, with nearly half investing significantly in property
improvements. This proactive approach demonstrates a commitment
to sustainability, tenant wellbeing and long-term resilience. However,
our research highlighted concerns about cost and labour which
reinforces the need for targeted support to ensure the transition
does not disproportionately burden landlords or leave tenants
facing rent hikes due to renovation costs.
We remain committed to supporting landlords throughout this
journey, using our specialist financing solutions including our
EPC mortgage discount product and expert guidance. We want
to ensure a balanced transition towards a sustainable rental
housing market, benefiting both landlords and tenants alike.
In 2023, we engaged c.50 of our SME customers on their
net zero transition to help understand their approach and
guide our strategy and ways that we can help to facilitate
positive change. We received a positive response, and
high levels of engagement from our customers, helping
to identify key focus areas. We plan to continue to increase
engagement throughout 2024, and will look for additional
ways to play our role in the SME transition.
Shawbrook Group plc | Annual Report and Accounts 2023
26
Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Climate Report: summary
Our Climate Report can be found on pages 152 to 178 and provides further insights into our strategy and progress made during the year.
Strategy
Governance
Risk management
Metrics and targets
• Our strategy recognises various short,
• The Board continued to monitor the Group’s
medium and long-term climate-related
risks and opportunities. We have outlined
our current and future mitigating actions
to embed climate into our corporate DNA,
and support our customers in their transition
to net zero.
• We have made progress against our net
zero ambitions. This includes providing
£475 million of sustainable financing
through our existing lending products.
• We continued to align our financial
planning process with the outputs from
the quantitative scenario analysis relating
to climate. We continue to invest in data
and technology, which have become a
key enabler for our climate strategy.
• We completed our second annual
quantitative assessment of the climate-
related scenarios to test the resilience of
our strategy over a three to five year period.
progress against the agreed climate strategy.
This included spotlight sessions on progress
against key metrics and climate data, as
well as an update on our evolved Sustainable
Finance Framework.
• In January 2024, the Board received
externally facilitated training to enhance
their climate-related skills and knowledge.
• The ESG Sub-Committee, and other climate-
related working groups, have continued to
oversee and develop our climate strategy.
• Mandatory climate training was rolled
out to all employees to build foundational
knowledge on climate to support with
our embedding ambitions.
• Climate risk has been designated as
a principal risk in our risk taxonomy
to further promote embedding.
• We identify and assess climate-related
risks through six stages: identification,
measurement, management, monitoring,
reporting and challenge.
• We manage climate risks through the selection
of one of four strategies: accept, avoid,
transfer and mitigate. The selection of the
strategy will determine our business decision.
• We continue to utilise data insights
to understand physical and transition
risk for our loan book.
• Our climate risk appetite is approved by the
Board and includes qualitative statements
and quantitative triggers and limits.
• We completed our 2023 Internal Capital
Adequacy Assessment Process (ICAAP)
exercise, demonstrating enhanced
scenario capabilities.
• We have climate-related metrics in place
across our operations, supply chain, financed
emissions and sustainable financing. These are
monitored with annual reporting to the Board.
• In 2023, we measured our Scope 1, Scope 2 and
relevant Scope 3 emissions related to our own
operations. During the year, we also enhanced
our methodology and data quality. Our full
streamlined energy and carbon reporting
(SECR) report can be found on page 28.
• We have continued to reduce our financed
emissions intensity from our 2021 baseline
for both our Residential Properties and
Commercial Properties Portfolios1. The main
driver has been higher rated EPC properties
within our new originations, improving the
overall EPC mix for both portfolios.
• We continue to have climate-related targets
in place. These include our 2035 and 2050
net zero ambitions for our own operations
and organisation respectively.
• We have recently updated our short-term (end
of 2025) targets relating to sustainable finance
originations and net zero aligned suppliers.
1 Each as defined on page 174 of the Climate Report.
27
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial Statements Our carbon footprint: operational emissions
In 2023, our total operational carbon footprint was calculated to be 11,865 tonnes of carbon
dioxide equivalent (tCO2e), which includes emissions from purchased goods and services.
Streamlined energy and carbon reporting (SECR)
Reporting period: 1st January 2023 – 31st December 2023
2023
20221
Energy
Total energy use for Scope 1 & 2 emissions (kWh)
823,811
708,389
Emissions from heating and own transport (Scope 1)
Emissions from the use of purchased electricity: Location-based2 (Scope 2)
Emissions from the use of purchased electricity: Market-based3 (Scope 2)
Total emissions (Scope 1 & 2)4
2.6
167.7
48.6
170.3
3.2
133.6
133.6
136.8
Scope 3 Category 1: (Purchased goods and services)
10,565.8
11,224.5
Emissions
(tCO2e)
Scope 3: Category 3 (Fuel-and energy-related activities)
Scope 3: Category 5 (Waste)
Scope 3: Category 6 (Business travel)
Scope 3: Category 7 (Employee commuting)
Total Scope 3 emissions
Total Scope 1, 2 & 3 emissions
53.3
12.1
559.6
504.2
47.0
9.6
346.0
563.9
11,695.0
12,191.0
11,865.3
12,327.8
Scope 1 & 2 emissions (kgCO2e) per full time equivalent (FTE)
113.0
110.9
Intensity
Change from previous year
1.86%
1 The Group’s 2022 figures have been restated as a result of changes in methodology and improvements in data quality resulting
in more accurate information.
2 The location-based approach reflects average emissions for electricity supplied through the UK grid. This is based on figures
published by the UK Government.
3 The market-based approach reflects the emissions from the electricity that the Group has purchased and derives emission
factors from contractual agreements.
4 Location-based approach is used to measure our total scope 1 and scope 2 emissions.
5 This includes Shawbrook Bank Limited, BML and TML, covering 10 office locations and those working remotely with a total
of 1,507.5 FTE as at 31 December 2023.
6 The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018.
Our greenhouse gas (GHG) reporting follows the
GHG Protocol, specifically under the operational
control approach, for all facilities owned by
the Group5, reported in tCO2e. This is in line
with our obligations under the Companies Act
2006 (Strategic Report and Directors’ Report)
Regulations 2013 and the SECR regulation6.
Our reporting year is from 1 January 2023
through to 31 December 2023.
Methodology
All GHG calculations were performed using the 2023
Department for Environment, Food & Rural Affairs
(DEFRA) emission factors, other than spend-based
calculations and working from home emissions
(which falls under employee commuting). We used
Exiobase 3.8.2 for all spend-based calculations.
Exiobase is a Multi-Regional Environmentally
Extended Input-Output Table, a global multi-
regional input-output (MRIO) application. We
used UK specific MRIO emission factors for our
measurement. International Energy Agency (IEA)
2022 emission factors were used to cover working
from home emissions. The data used was based on
operational data gathered and prepared internally
with emissions calculated utilising a climate
management and accounting platform.
Comparison to 2022 SECR
Emissions associated with energy consumption
(Scope 1 and Scope 2) increased due to the BML
acquisition, adding two offices to our premises
portfolio. Without the BML acquisition, these
emissions would have remained broadly flat
year-on-year. Total Scope 3 emissions excluding
purchased goods and services also increased. This
is attributable to employees returning to offices
and work-related travel for in-person meetings
following the impact of COVID-19 in previous
years, as well as growth in headcount.
We continued to improve our data quality and
coverage for Scope 3 (Category 1) purchased
goods and services through obtaining direct
emissions data from our suppliers which resulted
in a decrease in emissions. This accounted for 39%
of supplier spend in 2023 (2022: 33%), increasing
measurement accuracy and reducing reliance
on the spend-based method.
Energy efficiency measures
Throughout 2023, we took actions to reduce
energy consumption and use energy more
efficiently in our sites. Key highlights include:
• Consolidating our Brentwood estate from
two offices to one.
• All of our sites, except one, that we have
operational control over are on renewables tariffs.
• Continuing to work with landlords to identify
and implement energy-saving opportunities,
improving the energy efficiency of our offices.
In 2024, we will continue to focus on reducing our
emissions and increasing our energy efficiency.
This includes moving our London offices to 40
Leadenhall Street, a building on track to achieve
a Building Research Establishment’s Environmental
Assessment Method (BREEAM) ‘Excellent’ and
National Australian Built Environment Rating
System (NABERS) 5* rating, signifying best practice
in building operational energy performance.
28
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Social
Through the products and services we provide,
as well as the partnerships, communities and
colleague initiatives we support, our ambition
is to boost social mobility and champion equality
and diversity.
Nurturing and protecting an inclusive environment
within Shawbrook ensures we have the perspectives,
experiences and capabilities required to maximise
our impact.
Key highlights
84%
employee engagement score
23
young people joined our
emerging talent programmes
87%
participation rate in our
latest engagement survey
>£200,000
donated to multiple charitable causes
29%
of vacancies filled
by internal applicants
>100
employees utilised our
new mentoring platform
29
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial Statements Our customers: building an
exceptional customer franchise
Socially focused lending
We provide specialist finance solutions to
segments often underserved by mainstream
lenders. We are active in a number of markets
that can deliver a positive impact on society:
• In SME, our speciality finance proposition
provides wholesale funding facilities and
services to non-bank lenders across a range
of sectors and asset classes including
Community Development Finance Institutions
and the healthcare sector. During 2023, the
Community Development Finance Institutions
we worked with supported individuals with
guidance, signposting or loans, replacing
high-cost credit with fairer and more
affordable finance.
• Our Retail Mortgage Brands provide mortgages
to first time borrowers and those with complex
incomes to help them to buy their own homes,
often to customers who may otherwise have been
locked out of the traditional mortgage market.
During 2023, we also developed our Sustainable
Finance Framework to provide clear and
transparent definitions for financing that creates
a positive social outcome. The framework outlines
the conditions and thresholds required for the
financing to be considered as social-related.
More information can be found on page 43.
Spotlight
Great working relationship
delivering a quick
turnaround for complex
first-time buyer case
A challenging first-time buyer case TML recently handled
with specialist distributor TFC Homeloans shows how a great
relationship can pay dividends for everyone involved. The
customer was looking to buy their first home with a loan of
£100,000 but, as a self-employed applicant, plus reliance
on a gifted deposit to part fund the purchase, options
from high-street lenders were limited.
As a result of the long-standing relationship built with TFC
Homeloans over the years, they knew just what they needed
to provide to get a clear, fair and speedy decision. With all
necessary documents uploaded at application stage, TML
was able to progress the case in just eight days, offering the
customer a 70% loan-to-value mortgage fixed for five years,
satisfying their requirements at a competitive interest rate.
“This is a great example of a solid working
relationship. The introducing broker’s
professional and speedy work, plus the
knowledge and experience of our TFC
employees and TML’s product and speed
of decision all came together to produce
a positive outcome, in double-quick time.
By working together, broker, specialist
distributor and lender will always provide
better client solutions and outcomes.”
“We’re delighted we’ve been able to prove our
expertise in dealing with a complex first-time buyer
case. We have a long-standing relationship with TFC
Homeloans which helped to ensure that the process
moved along smoothly and at speed. Our extensive
experience working with complex cases combined
with a clear understanding of what our underwriters
need to progress an application, meant we were
able to move this application to offer quickly.”
Ian Balfour
Sales and Marketing Director
at TFC Homeloans
Chris Kirby
Head of Key Accounts and Specialist
Distribution at TML
30
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial Statements Listening to our customers
Customer insight and experience
Understanding and interpreting our customer data, behaviours and feedback is crucial to informing our
strategy, delivering exceptional customer experiences and our ability to scale our operations effectively.
Customer understanding
Embedding a detailed understanding of our
customers, their needs and expectations
within the organisation ensures we remain
connected to those we serve. Customer
segmentation and persona creation helps
us to identify opportunity through emerging
or growing segments of customers, as well
as using the findings to inform our strategy
and shape our customer propositions to
better serve their needs.
1
2
C
u
s
t
o
m
e
r
s
a
t
i
s
f
a
c
t
i
o
n
g
din
C usto m er understan
C u stomer outcomes
Customer satisfaction
We have established and maintain a rich
understanding of the customer experience
through our Voice of the Customer programme.
A consistent methodology is applied to our
Group-wide programme, gathering both
qualitative and quantitative data points.
Providing an excellent service to our customers
is our priority, but we recognise that things
don’t always go to plan. When this happens,
we strive to resolve issues promptly and
effectively, seeking fair resolutions that
address the root cause. By analysing the
drivers of complaints, we can leverage
relevant insight to continuously improve
our customer experience.
3
Customer outcomes
Delivering actionable insight is fundamental to the success of our Voice of the
Customer programme. Customer insights are disseminated throughout the business via
franchise-level customer experience forums, to feed the ongoing customer experience
roadmap of initiatives that will improve customer outcomes and their experience with us.
31
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial Statements
Our people: Attracting and retaining
the best talent
Digital driving an agile culture
Our culture is built on three principles: practical,
personal and creative, which we believe best
characterise the experience of both working with
and within Shawbrook. These principles, developed
in consultation with our people, are intended to both
shape the way in which we work, as well as define
how we wish to be perceived and experienced
by our stakeholders.
As we have continued to scale, we are proud to
have maintained our entrepreneurial and innovative
culture. Our digital strategy is enabled by a modern
organisational model, supported by our product,
delivery and engineering capabilities. Informed
by ways of working, our digital, product and data
teams have now become a vehicle for embedding
an agile culture across the organisation.
We continued to grow and evolve our workforce
during the year, welcoming new talent to help
drive our strategy. This was demonstrated through
our increased investment in digital, with c.29%
year on year growth across our Technology
and Product functions.
Supporting and listening to our people
We promote a culture where open and honest
dialogue is encouraged and employee sentiment
is continuously monitored through a range of
feedback tools. These include formal surveys, our
People Engagement Forum, all-employee question
and answer sessions and informal team town
halls. Further information on engagement with
our employees can be found in our S172 statement
on page 44.
In our November 2023 employee survey, our
engagement score increased to 84% (2022: 82%),
highlighting continued strong levels of engagement
across the organisation.
“Our expert people sit at the heart of our ‘best
of both’ approach, combining technology with
the ingenuity of our teams to deliver value for
our stakeholders. Our success is underpinned
by an engaged workforce that continues
to grow in scale, experience and reputation.
Optimisation of our talent is enabling us to
maximise business outcomes and build a
resilient and forward-thinking organisation.”
Debbie Griffin
Chief People and Marketing Officer
Shawbrook Group plc | Annual Report and Accounts 2023
32
Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Investing in our talent
To help build our future talent pipeline, in 2023
we launched various initiatives including:
• the second year of Thrive, our apprenticeship
programme, welcoming 10 new apprentices
to the Group;
• the Shawbrook Futures programme, which
provided nine year 12 students with access
to two weeks of work experience; and
• a pre-apprenticeship programme in partnership
with the Saracens High School. This provided year
12 students with access to on-the-job experience
in Shawbrook’s customer service teams, as well
as financial education sessions.
“Joining Shawbrook has been the most rewarding
experience, and has given me the opportunity to kick
start my legal career straight out of sixth form. It’s been
a big transition moving from a classroom to a work
environment and yet the support network at Shawbrook
has helped me grow my confidence. I’m excited to
see what the future holds for me at Shawbrook.”
Latifa Hussein
Thrive Legal Apprentice
During 2023, we also invested in the development
of our future leader and emerging talent pools,
including the introduction of a Leadership
Framework. Developed by the Executive
Committee, this Framework articulates the key
characteristics of a Shawbrook leader. Tailored
to the Shawbrook culture and expectations,
the Framework has enabled us to work with
our future leaders to identify their key strengths
and development areas. Our recently launched
suite of leadership tools, including coaching
and mentoring platforms, are then designed
to support and develop these skills further.
We continually review and evolve our people
initiatives to ensure that Shawbrook is a place that
attracts, develops and retains the best talent. To
support our employees with their physical and
mental wellbeing, we offer a range of non-financial
benefits including mental health first aiders and
an employee assistance programme. During 2023,
we improved our employee benefit programme
and introduced additional benefits including an
employee electric vehicle scheme and our online
e-learning portal which offers a range of helpful
courses, including those to support employee
health and wellbeing.
“I just had my second coaching session. It was
brilliant. Highly recommend it! Great to see
the business investing in us all in this way.”
Paul Asare-Archer
Chief Compliance Officer and MLRO
33
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Equality, diversity and inclusion (EDI)
At Shawbrook we recognise that
acknowledging the strengths and valuing
the differences of others will contribute
to a successful and thriving workplace.
We are therefore committed to creating
a diverse working environment, where all
our people feel included and can make
the most of the opportunities available
to them.
Over the past 12 months, we have made
good progress against our EDI agenda.
Our priority has been to further embed
our EDI strategy across our four key focus
areas, while also building a culture of trust
and belonging. We ask all new employees
to record their EDI data when they join the
Group and encourage existing employees
to keep this updated. We regularly
capture and review employee data
(aggregated and anonymised) to help us
understand our employee demographics
better, including gender, ethnicity and
socio-economic diversity, progression,
turnover and felt experience. This helps
us identify key areas of focus and align
our efforts appropriately to ensure we
deliver our EDI strategy.
Our employees scored us 87% in our
latest employee engagement survey in
response to the statement ‘I’m satisfied
with Shawbrook’s effort to support
diversity & inclusion’.
In 2024 we will continue to evolve our
approach to EDI and create a culture
of trust and belonging, ensuring our
governance, measures and reporting
evolve with anticipated upcoming
regulatory changes.
2023 highlights
• Mandatory unconscious bias e-learning rolled
out to all employees.
• Launched training for all leaders on creating
a culture of trust and belonging at work.
• Launched a number of new employee led groups
including those focused on neurodiversity,
family, women in tech and dementia.
B e l o nging
Race
Gender
Social mobility
“I set up the Neurodiversity community
at Shawbrook at the beginning of 2023.
As a parent of neurodiverse children,
and having worked with neurodiverse
colleagues, it’s important for us to
recognise the value and skills that
neurodiverse people can bring to
Shawbrook, as long as there is the
right support and adjustments in place.
Feedback has been consistently positive,
with some colleagues now feeling
more comfortable to disclose their own
neurodiversity within their teams and ask
for the support they need. I’m proud that
Shawbrook has been so supportive of
this community, and am looking forward
to developing our network further.”
• Shared employee stories, such
as those relating to Ramadan,
Pride, Black History Month
and Diwali.
• Hosted multiple employee
events on important topics
such as belonging, men as
allies and neurodiversity.
Kate Marechal
Group Director of Operational Risk and Monitoring
• Became a member of Progress
Together, a government
commissioned taskforce which
supports UK financial services
employers to share best practice
and boost collective efforts.
• Enhanced our paternity leave
policy, including doubling
the paid allowance.
34
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial Statements Gender pay gap
We have committed to external diversity charters including HM Treasury’s Women
in Finance Charter and the Business in the Community Race at Work Charter,
aimed at supporting industry and social change in these under-represented
groups. Under the Women in Finance Charter, we have committed to having
30% of females at Senior Management level by September 20241, currently
at 29.5% as at the end of 2023 (2022: 27.3%).
We also continue to monitor our gender pay gap1. Our 2023 outcomes remain broadly
consistent with the prior year, influenced by the proportionately higher number of
males in Senior Management roles at present. However, we believe we will make
sustainable change happen in the long-term by placing focus on this today.
See our full 2023 Gender Pay Gap Report here: shawbrook.co.uk
The below represents our
reportable statistics for our
2023 charter submission
Female staff as percentage of total workforce
46.0%
2022
47.0%
2023
Female senior managers as percentage
of total senior management
27.3%
2022
29.5%
2023
Gender pay gap and bonus
Mean
Median
2022
2023
2022
2023
Gender Pay Gap
36.5%
34.3%
42.1%
38.9%
Gender Bonus Gap
56.5%
53.9%
49.7%
42.9%
Our gap remains significantly influenced by the proportionately
higher number of males in Senior Management roles and is
therefore unlikely to materially change in the short term.
Proportion receiving a bonus
2023 gender pay representation by quartiles
Male
Female
2022
83.9%
2023
86.0%
2022
82.9%
2023
85.3%
Quartile
Upper
Upper middle
Lower middle
Lower
M
79.8%
61.5%
42.7%
33.8%
F
20.2%
38.5%
57.3%
66.2%
1 Scope covers Shawbrook Bank Limited employees only, with TML and BML employees currently excluded.
35
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Making an impact in our communities
Since our inception we have been supporting
our communities through fundraising activities,
employee volunteering and partnerships, helping
to drive positive and lasting social impact. Our
refreshed communities strategy is designed
to amplify our impact within the communities
in which we live and work.
Empower Her project continuing to make an impact
The Empower Her project aims to inspire the next generation of future female leaders
through sport, equipping them with skills beyond the rugby pitch. We have worked
in partnership with the Saracens Foundation to develop and deliver the project. Now
in its third year, the project provides the participants with skills for future employment
through mentoring, workshops and networking opportunities. The project was recently
recognised at the Sport Industry Awards and shortlisted for the “Purpose Driven
Sponsorship” of the year.
“Empower Her has become a flagship project for the Foundation, and none of this
would have been possible without the financial support and knowledge sharing
provided by Shawbrook. The project has continued to go from strength to strength
and we look forward to seeing all the positive change that can come from this
partnership in the future.”
Emma Wilson
Senior Business Manager, Saracens
Our people making a difference
We offer all colleagues two ‘make a difference’ days per year, enabling them
to volunteer their time to support a wide range of community and charitable
activities. These can be through one of our established partner programmes
or other more personal causes.
“In September 2023, myself and 10 colleagues volunteered at a local nature
reserve. We gained a great sense of satisfaction from seeing immediate results
and impact from our efforts and the charity partner was truly appreciative.
The day was a lot more physical than normal, however the feedback received
was overwhelmingly positive with colleagues motivated by the team building
it enabled. We are already planning our next opportunity!”
Janis Hambling
Head of Customer Resolution, Shawbrook
Supporting Go Forward at the Saracens High School
Go Forward provides support to secondary school students who may be at risk of
suspension or permanent exclusion. Project officers work with students to increase
their attendance, improve their attitude to learning and to explore their aspirations
for the future. Our financial contribution supports the delivery of Go Forward and we
continue to work with the Saracens Foundation to create opportunities for students,
both on and off the pitch.
“We use sport and mentoring to help change the lives of those who are at risk of a
multitude of factors at school and home, as well as those in their local communities.”
Charles Kiwanuka
Project Officer, Go Forward
Working with Future First to enable social mobility
Through our partnership with education charity Future First, we are committed to
enabling social mobility by giving young people in state schools and colleges the
opportunity to discover careers they may never have considered. In addition to
the financial support provided to Future First, we offer employees the opportunity
to get involved, including participation in insights days and mentoring.
“I thoroughly enjoy being a mentor through the Future First programme. I am
grateful for the opportunity to share my tips and advice on topics such as
revising, job applications and writing curriculum vitaes and personal statements
for university. It was great to see the mentees taking the initiative to drive
the conversations too.”
Prabhpreet Kaur
Data Analyst, Shawbrook
Shawbrook Group plc | Annual Report and Accounts 2023
36
36
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial Statements Governance
Strong and robust governance is fundamental
to the execution of the Group’s strategy,
underpinning our purpose and values and forming
an essential part of our ESG strategy. We are
committed to upholding high standards of
governance to ensure we continue to operate as
a responsible organisation that creates long-term
value for the benefit of all of our stakeholders.
Key highlights
Key highlights
100%
40%
of employees completed climate training
of our Board members are female
60%
of our Board members
are independent
37
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial Statements Board effectiveness
We continually review the composition of our Board
to ensure that we have a diverse range of skills,
experience and perspectives among our Directors
to fulfil our stewardship responsibilities and drive
our ambitious trajectory. The 2023 annual Board
effectiveness review concluded that the Board and
its Committees operated effectively. Details of the
Board effectiveness review can be found on page
58 of the Group’s Corporate Governance Report.
The Board recognises that diversity is a key
enabler to Board effectiveness. As a result, all
appointments seek to increase diversity in the
Boardroom without compromising the quality
of the Board. The Board fosters an inclusive
environment where every Director’s input is valued,
and bias and discrimination are not tolerated.
ESG-linked Executive pay
In 2023, the Group’s bonus scheme design for
its Executive Committee members continued
to include performance measures relating to
ESG factors, including:
• Evolving our EDI agenda, evidenced by progress
towards our Women in Finance Charter Target
of 30% female senior leaders by September 2024
and the evolution of our broader EDI data insights;
• Continued delivery of our climate strategy by
showing progress against our agreed strategic
pillars; and
• Successful delivery of our strategic charity
partner programmes.
ESG measures will continue to remain a key
feature of the bonus scheme design in 2024.
38
Board and Management
The Board is responsible for setting the Group’s
strategic aims to drive long-term sustainable
success, while Senior Management is responsible for
implementing and delivering ESG-related priorities.
Our comprehensive ESG governance framework,
embedded within our existing structure, comprises
a dedicated ESG Sub-Committee and Working
Groups. During 2023, ESG-related matters continued
to feature as Board agenda items, with Directors
engaging and challenging on these important
issues. The Board received dedicated climate-
focused training in January 2024 to further support
their understanding of the evolving sustainability
landscape, enabling input and challenge.
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Robust governance and risk management
Sustainable financing: ESG principles
We recognise that our customer and partner activities can have ESG impacts. To help us
assess and manage this, we have developed a set of ESG principles that are embedded within
our credit risk policy. These principles continued to guide our lending decisions during the year.
As part of our ESG principles, we seek to finance activities that support the transition to
net zero, while avoiding providing finance outside of our internally defined thresholds. The
principles outline lending prohibitions for specific activities and requirements for enhanced
due diligence for sectors we have determined as sensitive due to the potential for high adverse
environmental and/or social impact. These include power and energy, marine and aviation,
agriculture and transportation.
The ESG Panel, consisting of the Chief Executive Officer, Chief Risk Officer and Chief Financial
Officer, is an escalation route for transactions identified as having the potential for high
environmental and/or social risk.
SDG alignment
The United Nations Sustainable Development Goals (SDGs) are a set of 17 interconnected
global objectives to guide nations, governments and companies towards a sustainable future.
During 2023, we reassessed our current ESG activities against our focused eight SDGs and
believe we have positively contributed to our focused SDGs across our key stakeholder groups.
The table below shows examples of how we positively contribute to our focused SDGs across
our key stakeholder groups:
SDG
Employees
Customers
Communities
✓
Suppliers
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
39
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Data protection and privacy
We are committed to upholding and securing
the information we handle, adhering to the UK
Data Protection Regulation. With established
policies and processes, we aim to effectively
manage the privacy risks associated with the
personal data in our care. Oversight of our
comprehensive Privacy and Data Protection
Framework rests with our designated Data
Protection Officer, who ensures its management
across the Group. Additionally, our first-line
operations have appointed privacy champions
and data protection representatives to guide
and promote best practice.
In 2023, our focus was on strengthening trust
and confidence in our data protection approach
through a structured programme addressing
four key dimensions:
1
Fostering a compliant culture
2
Implementing robust policies,
procedures and controls
3
Staying responsive to emerging
privacy issues
4
Continuously evaluating the
effectiveness of our privacy framework
Cyber security
We adopt a holistic approach to information
security controls. We have a dedicated cyber
incident response plan in place which details the
material considerations in the event of a cyber
incident and focuses on the response flow of
prepare, detect, contain, eradicate and recover.
We have designed an Adaptive Security
Architecture Framework which provides the
information security capabilities to prevent,
detect, respond and predict. Combined, these
controls provide multiple layers of protection to
mitigate the cyber and information security risks
and maintain the ongoing security posture of the
Group. All controls that underpin the capabilities
are recorded against the respective risks in the
group risk management system and are subject
to bi-annual controls assessment.
Agreed cyber risk measures are reported monthly
into the Group Risk Appetite Review (GRAR) forum
and the topic of cyber risk is regularly considered
at the Operational Risk and Third-party Oversight
Committee (ORTOC), Executive Risk Committee
and by Board. During 2023 the Chief Information
Security Officer presented an ‘in focus session’ at
ORTOC on cyber information and technology risk
and provided updates to the Executive Committee
on identity access management improvements and
presented a summary of the 2023 CQUEST cyber
resilience questionnaire.
We continue to undertake periodic testing of the
controls at the Group’s technology perimeter with
the support of external advisers and continue with
a programme of visible awareness for colleagues.
Exposure/vulnerability assessment
Predict attacks | baseline systems
Harden systems
Isolate systems | prevent attacks
How Shawbrook predicts
• Secure code reviews
• Automated vulnerability scanning
• Pen testing/red-team exercises
• Cyber threat intelligence
t
Pre dic
How Shawbrook prevents
• Endpoint protection
• Network isolation
• Network intrusion prevention
systems
P
r
e
v
e
n
t
• User behaviour preventative
capabilities
Investigate/forensics Remediate/
change | design/model change
Continuous
monitoring
and analytics
R
e
s
p
o
n
d
e tect
D
How Shawbrook responds
• System patching
• Forensic & incident response services
• Incident response
Contain incidents
How Shawbrook detects
• Network anomaly detection
• Managed incident detection
and response
• Enterprise data loss
protection & data
classification capabilities
• Containment
To enhance our protections against cyber-attacks, we operate a programme of continuous
improvement. Throughout 2023, we continued to invest in our cyber security capabilities,
including increasing the capacity within our information security team. Cyber awareness
training and regular staff communications in response to relevant threats were performed
throughout 2023.
40
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial Statements
Compliance, conduct and ethics
Our policies, procedures and approach incorporate
regulatory requirements, including principles of
good conduct and responsible lending. We adopt
an ongoing process for developing compliance
policies, staying informed through regulatory
and legislative horizon scanning.
A significant focus during 2023 was the delivery of
Consumer Duty requirements, which establish higher
and clearer standards for consumer protection
across financial services. We successfully launched
Consumer Duty in July 2023 and continue to work
towards the implementation for back-book products
ahead of the July 2024 deadline.
Given the challenges associated with the
heightened cost of living, our forbearance policy
and processes continue to have significant
focus. When our customers face difficulties in
meeting repayments, we deploy appropriate
and proportionate controls, demonstrating
our commitment as a responsible lender.
Our vulnerable customer policy sets requirements
for and empowers front-line teams to ensure
customers who are vulnerable are identified
and treated appropriately.
Financial crime
We are committed to fulfilling our legal and
regulatory obligations through the application
of a risk-based approach to deter, detect,
prevent and report financial crime.
To mitigate the risk of the Group’s products and
services being used to perpetrate financial crime
we continue to invest in technology and talent to
enhance our control framework and protect us, our
customers, and the industries we operate in from
the harm caused by financial crime. During 2023,
we invested in technology and additional resource
to ensure that the Group’s financial crime prevention
infrastructure and processes remain robust.
We conduct a financial crime risk assessment to
assess compliance with Shawbrook policies, with
a focus on the following risk categories: money
laundering and terrorist financing risk, bribery and
corruption, sanctions risk, tax evasion risk and
fraud risk. Employees receive annual training in
these areas and completion is monitored through
the governance framework.
We continue to monitor the increasing complexity
of financial crime threats and changes to the
legislative and regulatory framework to identify
and manage emerging risks.
41
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial Statements Operational resilience
Our operational resilience approach ensures the
continuity of the most important services our
customers rely upon. We assess, improve, and test
our approach to minimise disruption and are focused
on meeting agreed service levels. In 2023 our focus
on third party and technology resilience improved
our ability to operate services during disruption
through contingency control development and further
investment in technology; notably our digital savings
platform and payment system upgrade projects. Our
enhanced Incident Management Framework continues
to support us in responding to and resolving incidents
faster to reduce disruption to our customers when
things go wrong. We continue to look ahead and
around corners at potential threats to our resilience
and assess them through testing to further minimise
disruption our customers may face and provide the
best service possible.
Third party suppliers
Our wide-reaching third-party supplier network
provides us with the goods and services which we rely
on to deliver good outcomes for our stakeholders. We
regularly review our supply chain and engage with
our supplier community to help ensure they are acting
responsibly and continue to align with our core values
and regulatory requirements. Throughout 2023, we
have embedded and aligned the Group Procurement
and Third-Party Risk Management Policy. This sets
out the relevant rules and guidance to ensure that
procurement, contracting and supplier management
activities are undertaken in line with relevant regulatory
standards. We have also set an ambition for at
least half of our suppliers, with annual spend of over
£200,000, to be net zero aligned by 31 December 2025.
Please refer to the Climate Report on page 152
for further information.
Human rights and modern slavery
We are committed to respecting human rights and
have a zero-tolerance approach to any modern
slavery. We regularly review our processes and
policies to ensure that any occurrences are swiftly
addressed. In 2023, we set up a cross-disciplinary
Modern Slavery Working Group to manage centrally
all anti-modern slavery related activity. We also
commissioned another assurance review of evidence
supporting our policies, procedures, and controls,
to ensure that we are taking appropriate steps to
prevent slavery and human trafficking from both
our business and supply chain.
A full copy of our modern slavery statement
can be found on the Group’s website at:
shawbrook.co.uk
Shawbrook Group plc | Annual Report and Accounts 2023
42
Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial Statements Training
All of our employees take part in structured
learning throughout the year on topics including
anti-bribery and corruption, anti-money
laundering, conduct, climate change, financial
crime and understanding vulnerable customers.
To complement our mandatory training, we
encourage all employees to undertake 35 hours
of continuing professional development each year.
Employees are provided with the opportunity to
sign up to courses and bite size learning through
a digital learning bank. Study support for external
training and development is also made available
on a case-by-case basis.
During 2023, we supported 30 employees to
achieve professional qualifications, delivered
a number of mental health awareness training
sessions and designed a new programme for
managing Mental Health, designed a new
management programme for all new managers
and supported students to gain vital skills to
start their working careers. We have also raised
awareness of our ESG agenda by inviting guest
speakers to internal events on a number
of topics including neurodiversity, gender
equality and climate change.
Whistleblowing and Speak Up
We are committed to the highest standards of
transparency and accountability. In 2023 we
launched our Speak Up Framework and policy
(rebranded from whistleblowing) and continue
to increase awareness and encourage employees
and third parties to speak up when they see
conduct inconsistent with our values. Our focus
on embedding our Speak Up approach will
continue throughout 2024.
Anti-bribery and corruption
It is the Group’s policy to conduct all business
in an honest and ethical manner, taking a zero-
tolerance approach to bribery and corruption.
We are committed to acting professionally, fairly
and with integrity in all our business dealings and
relationships wherever we operate by embedding
and enforcing effective systems to counter the risk
of bribery and corruption.
Sustainable Finance Framework
We are committed to providing clear and
transparent definitions for lending that creates
a positive environmental and/or social impact.
During 2023, we developed our Sustainable Finance
Framework which outlines our environmental and
social eligibility criteria to determine which assets
and activities qualify as sustainable finance.
Lending that meets the defined thresholds qualify
as sustainable finance, helping to measure
and demonstrate our contribution towards
environmental and socially beneficial activities.
The framework is informed by recognised industry
standards and taxonomies including, but not
limited to, the EU taxonomy, the International
Capital Market Association and Loan Markets
Association Green and Social Principles.
Our policy, which helps to establish controls
and ensure compliance with all applicable anti-
bribery and corruption regulations, applies to all
Directors, employees and partners and is reviewed
and approved annually by Board. We follow the
recommended Ministry of Justice Guidance on
the Bribery Act 2010 which presents six principles
for implementing adequate procedures to prevent
bribery. These are: Proportionality; Top-Level
Commitment; Risk Assessment; Due Diligence;
Communication; and Monitoring and Review.
To promote our commitment to conducting business
in a socially responsible manner, we undertake
due diligence checks when onboarding new
employees in addition to maintaining delivery
of our mandatory training and policy reading
for all employees.
Tax strategy
We are committed to fulfilling our tax obligations
responsibly and transparently, fairly contributing
to the UK economy and wider society. We have
adopted and comply with HMRC’s Code of
Practice on Taxation to manage tax risks, and
seek to maintain an open, honest and constructive
relationship with HMRC in relation our tax affairs.
More information on our tax approach
is available on our website: shawbrook.co.uk
Environmental
• Green built environment covers EPC A and
B rated properties, other specific industry
ratings such as BREEAM and retrofits for
existing buildings.
• Energy efficiency covers any assets or
activities that result in a minimum 20%
energy efficiency improvement or heat
loss reduction.
• Renewable and low carbon energy covers
assets and activities that relate to these energy
sources including wind, solar and biofuels.
• Sustainable infrastructure and transport
covers electric, hybrid or alternatively-fuelled
transportation and associated infrastructure
and activities, with specific emission thresholds.
• Sustainable management of natural resources
covers activities that support agriculture,
fisheries and forestry, complying with specific
sustainability standards.
• Sustainable waste and water management
covers activities that provide access to clean
water or improve water efficiency and quality.
Social
• Home ownership for specific underserved
population including first time buyers, later
life borrowers (aged 55 years or above) with
assessed incomes below the UK median
household income and complex incomes.
• Affordable housing covers social and
affordable housing including registered social
landlords, and mortgages to government or
industry backed schemes such as shared
ownership or deposit unlock scheme.
• Healthcare covers all NHS or affiliated with
NHS trust, not-for-profit care homes and
community health providers.
• Education and training covers all activities
not considered private education including
not-for-profit schools and schemes for
reskilling or upskilling.
• Access to credit and financing covers
financing to Community Development
Finance Institutions and SMEs that meet
specific criteria.
• Access to transportation and infrastructure
& access to public spaces covers activities in
underdeveloped rural areas or regions in the UK.
43
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Creating value for our stakeholders
(S172 statement)
This section describes how the Directors have
had regard to matters set out in Section 172(1)
(a) to (f) of the Companies Act 2006. Effective
stakeholder engagement is central to the
development and execution of our strategy,
helping us to achieve our purpose and ensure
the long-term sustainability of our business. In
undertaking its duties, the Board continues to
be mindful of the need to appropriately balance
the interests and expectations of the Group’s
stakeholders, and in doing so, throughout
2023, the Board (including its sub-committees)
continued to engage with and consider
the needs of the Group’s stakeholders.
Customers
Building an exceptional franchise is at the core of our strategy,
so understanding what is important to our customers is key to our
long-term success. We stay closely connected to our clearly defined
customer groups and use the valuable insights gathered to tailor
our offering to meet their evolving needs.
Throughout the year we provided support to those dealing with the
impacts of the increased cost of living. This included the introduction
of a new product transfer proposition to assist those customers
coming to the end of their fixed rate loans. The Board has and will
continue to be focused on ensuring the Group supports its customers
as needed.
Building on a deep understanding of our customers’ needs, during
2023 we continued to make good progress in engineering our
infrastructure to put data insights at the centre of the organisation.
Evolving our existing insight capabilities, we introduced a dedicated
team to encourage consistent application across the Group. We also
enhanced our data-driven approach with the continued investment
in technology and AI to distil customer feedback into actionable
insights, which will continue to be used to validate our existing and
develop future propositions. Outputs from our monthly customer
experience forum meetings, including a dashboard of customer
insight data, are regularly shared and discussed with the Executive
Committee and Board.
Using digital and data to enhance our customer journeys further, we
increased automation across our core platforms. We also extended
our reach into new markets offering underserved segments valuable,
digital-led propositions, including the used motor finance market
via our Board approved platform lending agreement with BMFL.
The Group won various awards during the year, including Buy-to-let
lender of the year at the National Association of Commercial Finance
Brokers Patron Awards 2023, Best Savings Provider at the Savings
Champion Awards 2023 and Lender of the Year at the HealthInvestor
Awards 2023. Being recognised by industry experts for the quality of
our products and service reinforces our customer-centric approach.
Shawbrook Group plc | Annual Report and Accounts 2023
44
Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Distribution partners
We work with a range of like-minded distribution
partners to help deploy our products and
services across our markets. These partnerships
form an essential part of our business model and
enable the successful delivery of our strategy,
providing us with deeper insights into our
markets to drive better customer outcomes.
During 2023, we maintained regular and
open dialogue with our extensive network of
distribution partners. This included direct broker
meetings and network events attended by our
Chief Executive Officer and Chief Financial
Officer to hear first-hand what matters most to
our partners and customers. This included our
Strategic Partners Day event, intended to set
out the Group’s response to the macroeconomic
environment and our plans for the coming year.
A number of interactive workshops were held
throughout the day, focused on key broker
support areas, to enhance our interactions and
their understanding of our combined Enterprise
proposition. The day was a success among
our brokers, with feedback suggesting they
appreciated our support during the volatile
period as well as the opportunity to provide
insights into how we can continue to support
them moving forward.
We continue to actively listen to and seek regular
feedback from our broker network. Our annual
broker barometer survey allows us to regularly
check-in with our broker partners, helping
us to stay informed on the challenges and
opportunities facing them. We also deployed
various ad hoc surveys across the Group, helping
us identify additional improvement areas to
benefit and support our brokers.
Feedback from our distribution partners
influences our technology investment
decisions, including most recently the
ongoing developments of our Next Generation
Underwriting Hub where several discovery
sessions were held with our brokers. Actionable
feedback included consistency of decision,
transparency and speed, helping to make our
journeys more streamlined. Our CRM ecosystem,
currently within TML, also continued to provide
an automated journey to welcome and nurture
our brokers, generating incremental results in
engagement. The Board received updates on
the enhancements made during the year, noting
the tool would be a helpful lever to drive
continued high quality broker engagement.
W e are Bluestone Mortgages
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Spotlight
Bluestone Mortgages Limited (BML) acquisition
The Board played a critical role in the Group’s
acquisition of BML, which has provided Shawbrook
with significant growth opportunity via a widened
distribution network and product range. Since
acquisition, the Board remains closely connected
to BML activity including participation in dedicated
spotlight sessions with BML.
Customer considerations were central to the Board’s
approval of the acquisition, acknowledging the
benefits that the broadened product proposition,
increased certainty of funding and combined market
reach would bring to our customers.
Ahead of the formal acquisition in May 2023, we
maintained ongoing dialogue with the regulator,
with regular updates shared with the Board.
Following the acquisition, we adopted a
harmonisation approach to efficiently combine
BML into the wider Group. All BML employees
are now part of the Group and integrated into
our human resource infrastructure. Throughout
the harmonisation process, integration of
technology was a core consideration to ensure
that all synergies were identified. BML’s Chief
Executive Officer also attends the Group Executive
Committee meetings and engages directly with
the Board, encouraging a consistent approach
and cascade of the Group’s strategy.
45
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Employees
Recognising that our continued success is
underpinned by a productive and engaged
workforce, the Board is committed to promoting
a truly inclusive environment where our people
are motivated to be innovative.
To continue to be recognised as an organisation
that both attracts and retains the best talent,
during 2023 we continued to invest in our broader
employee value proposition. This included the
introduction of new tools including a Leadership
Framework that articulates the guiding principles
needed to succeed as a leader at Shawbrook. We
also bolstered our future talent pool, introducing
various Board endorsed initiatives including our
Thrive apprenticeship and Institute of Chartered
Accountants in England and Wales finance
graduate programme.
To uphold our strong culture that drives innovation,
entrepreneurialism and inclusivity, the Board
recognises the importance of maintaining open and
honest dialogue with our employees. During 2023,
we continued to deploy our bi-annual engagement
surveys and maintained ongoing collaboration with
our employee-led People Engagement Forum. Both
of these initiatives provide the Group’s employees
with the opportunity to share feedback with
Board and Executive Committee members on
key strategic topics.
Collaboration forms a core part of our culture, so
in addition to the formal engagement methods,
employees are encouraged to get involved in various
networking events, panel discussions and more.
Alongside regular attendance at our office
locations, Board members are advocates of
our approach to EDI and play an active part in
driving our agenda. We hosted various events
throughout the year including our Gender and
Belonging events, some of which were attended
by the Group’s Chairman alongside the Group’s
Non-Executive Directors.
Recognising the importance of celebrating our
successes internally, we took steps to enhance
our employee recognition scheme. Designed
to commend those that have gone above and
beyond in living our experience principles of
personal, practical and creative, our internal
Ingenuity Awards encourage nominations all year
round. Winners are announced each quarter, with
a celebratory lunch also held annually for all
winners hosted by Executive Committee members.
Suppliers
Our suppliers include companies that provide
the goods and services we rely on to operate
as a sustainable business. The Group’s broad
community of suppliers has an important role to
play in the successful delivery of our operations.
We are committed to developing trusted
relationships with high quality suppliers, who
themselves are committed to operating under
ethical and environmental standards in line
with our own. We therefore regularly review our
supply chain and engage with our suppliers
to ensure they are acting responsibly.
In accordance with regulatory requirements,
regular performance updates of the Group’s
material third parties are shared with the Board.
These include MI, performance measures and risk
oversight to drive continuous improvement.
The Group is committed to doing business with
honesty and integrity. We have a zero-tolerance
approach to modern slavery, with the Board
approving the Group’s Modern Slavery Statement
each year. We expect all of our suppliers to be
compliant with the Modern Slavery Act and extend
our expectations of high business standards to our
suppliers by requiring them to uphold human rights,
health and safety and legal compliance. We perform
due diligence on all suppliers at the start of any
contractual relationship which includes screening
checks for criminal and regulatory breaches.
During 2023, we set up a cross-disciplinary Modern
Slavery Working Group to manage and enhance
our governance approach. We also commissioned
another assurance review of evidence supporting
our policies, procedures, and controls, to ensure
that we continue to take the appropriate steps
to prevent slavery and human trafficking from
both our business and supply chain.
Regulators
Shawbrook is regulated by both the PRA and the
FCA. The Board engages with our regulators on a
range of topics and is committed to maintaining
strong, open and transparent working relationships
with them.
We adopt an ongoing process of developing
compliance policies, consistently monitoring
changes in regulations. The Board is kept up to
date on key regulatory developments throughout
the year, helping to ensure that the Group’s
strategy and decision-making aligns with
regulatory requirements.
At each meeting a standing agenda item on
regulatory and legislative horizon scanning is
included from the Risk Committee. Alongside
references in management reports, the Group’s
Chief Risk Officer also provides regular updates
to the Risk Committee on regulatory engagement.
Throughout the year, the Group’s Chairman and
Executive Directors hosted meetings with the
regulators on key strategic topics, supported by
regular engagement with Senior Management,
covering prudential and conduct aspects.
An important focus during the year was the
adoption of the FCA Consumer Duty regulations
which seek to ensure that banks offer good
outcomes for customers. As well as ensuring its
principles are ingrained within the Group’s culture,
we continued to adapt our customer journeys to
align with expectations. Management attestation
of substantive compliance with the regulations
was provided to the Board in July 2023.
46
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New premises
During the year, we announced plans to upgrade
our London premises and move to a new state-of-
the-art office space in 2024.
Acknowledging the benefits for all of the Group’s
stakeholders, the Board championed this strategic
move. Throughout the procurement process the
Board was engaged in various discussions regarding
requirements, employee benefits and costs, enabling
them to make an informed decision before providing
formal approval in September 2023.
To ensure the new space aligned with our employee
value proposition, the Group’s Chief People and
Marketing Officer was actively involved throughout
the process. The premises will enable us to recruit
and retain the best talent centred around employee
engagement and collaboration, while supporting
accessibility and inclusive ways of working. The
new premises will also offer a modern and flexible
working environment, with a range of amenities
and facilities to support our employees’ wellbeing.
The building will provide a great space for our
people to come together, fostering strong
engagement and wellbeing objectives. It will also
offer more space to accommodate face-to-face
meetings with our customers and distribution
partners. The building will have exceptional client
facilities equipped with the latest technology,
to facilitate collaboration and communication,
providing new on-site opportunities with key
clients, partners and brokers.
We are committed to creating a workplace that
is considerate to both our environment and our
people. The new building is targeting leading
sustainable, smart and health accreditations
including BREEAM1 Excellent, NABERS 5*2 and
WELL Building Standard Platinum, aligning
with our own commitment to sustainability
and wellness.
Investors
Our investors include both our private equity-
backed Shareholder and our debt investors.
Community
Our community stakeholder group includes both
our local community and the wider environment.
We are an organisation focussed on creating
opportunity and are passionate about supporting
the communities we operate in as well as
contributing to a more sustainable future. Since our
inception, we have been helping to drive positive
and lasting social impact across our communities.
We continue to embed our Board approved ESG
strategy across our organisation. Further detail
on the impact we have had on our communities in
2023 is set out in our ESG Report on pages 22 to 43.
Our Shareholder’s interests are represented at
Board by two appointed Non-Executive Directors.
The relationship with our Shareholder is open
and transparent and we value their expertise
and trust. During 2023, our Shareholder and their
dedicated teams remained actively engaged in the
Group’s strategic decision-making, with our Senior
Management team able to draw on their expertise
as and when required. Our Shareholder also helps
to bring different perspectives into the Boardroom,
providing insights on strategic topics including asset
management, real estate and ESG.
Throughout the year we attended various events
hosted by our Shareholder, enabling us to share
with and leverage the insights and expertise of the
other companies included within our Shareholder’s
portfolios. During 2023, these covered finance,
people and ESG related topics.
We have a comprehensive engagement programme
with our debt investors. During 2023, we held c.40
meetings with the Group’s debt investor community,
covering various topics including financial results,
delivery against our strategy and wholesale debt
issuances. Feedback from our debt investor base
has been positive and has helped to shape our
proactive communication approach.
To ensure the Board is kept informed on changing
macroeconomic conditions that could influence
wholesale market decisions and potential investor
sentiment, the Group’s Chief Financial Officer
shares regular market updates with the Board.
1 Building Research Establishment’s Environmental Assessment Method.
2 National Australian Built Environment Rating System.
47
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Non-financial and sustainability information statement
Our non-financial and sustainability information statement has been prepared in order to comply with the requirements contained in sections 414CA and 414CB of the Companies Act 2006.
The information listed is incorporated by cross-reference to relevant content.
Reporting requirement
Relevant policies, principles and statements that govern our
approach (please see page 50 for a description of each policy)
Information necessary to understand our approach, impact and outcomes
Page
references in
this report
Our employees
Our suppliers
• Code of conduct and ethics policy
• Training and development policy
• Dignity at work policy
• Speak up policy
• Board diversity and inclusion policy
• Facilities policy
• Group procurement policy
• Third party risk management policy
Employees under creating value for our stakeholders (S172 statement)
Our people: Attracting and retaining the best talent, under Social within the ESG Report
Pace, scale of change and people risk of the Risk Report
Third party suppliers under Governance within the ESG Report
Suppliers under creating value for our stakeholders (S172 statement)
Intermediary, outsourcing and operational resilience of the Risk Report
• ESG principles
• Facilities policy
• Credit standards policy
Environment within the ESG Report
Climate risk within the Risk Report
Environmental matters
The Group is guided by the United Nations SDGs, Partnership for Carbon Accounting Financials methodology,
GHG Reporting Protocol Framework, the 2015 Paris Agreement and the TCFD recommendations.
Social matters
• Dignity at work policy
• Equal opportunities policy
• ESG policy
• Complaints handling policy
2023 Climate Report
Our website shawbrook.co.uk for more information
Social within the ESG Report
Our website shawbrook.co.uk for more information
Human rights and modern
slavery approach
• Pursuant to the UK Modern Slavery Act, we produce
an annual modern slavery statement shawbrook.co.uk
• Procurement policy
Human rights and modern slavery act under robust governance and risk management within the ESG Report
Suppliers under creating value for our stakeholders (S172 statement)
Anti-bribery and corruption
• Anti-bribery and corruption policy
Financial crime within the Risk Report
Training and anti-bribery and corruption under robust governance and risk management within the ESG Report
44
32
101
42
46
98
25
148
152
29
42
46
43
148
48
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial Statements Reporting requirement
Information necessary to understand our approach, impact and outcomes
Description of our business model
Unique and difficult to replicate business model within the Strategic Report
About Shawbrook within the Strategic Report
Non-financial key performance indicators
Principal risk and uncertainties
Climate-related disclosures as required by section 414CB of the Companies Act 2006
Creating competitive sustainable advantage within the Strategic Report
Shawbrook in numbers
ESG Report
Principal risks within the Risk Report
(a) Description of the governance arrangements in relation to assessing and managing
climate-related risks and opportunities.
(b) Description of how the company identifies, assesses, and manages climate-related risks
and opportunities.
(c) Description of how processes for identifying, assessing, and managing climate-related risks
are integrated into the company’s overall risk management process.
(d) Description of (i) the principal climate-related risks and opportunities arising in connection with
the operations of the company, and (ii) the time periods by reference to which those risks and
opportunities are assessed.
Page
references in
this report
1
3
4
Inside cover
22
104
164
167
167
154
(e) Description of the actual and potential impacts of the principal climate-related risks and opportunities
154
on the business model and strategy of the company.
(f) An analysis of the resilience of the company’s business model and strategy, taking into consideration
154
of different climate-related scenarios.
(g) Description of the targets used by the company to manage climate-related risks and to realise
climate-related opportunities and of performance against those targets.
(h) Description of the key performance indicators used to assess progress against targets used
to manage climate-related risks and realise climate-related opportunities and of the calculations
on which those key performance indicators are based.
173
173
49
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Description
Policy
Description
Anti-bribery and
corruption
Board diversity
This policy outlines our approach to managing the risk of bribery and
corruption to ensure we conduct business in an honest and ethical manner,
taking a zero-tolerance approach to bribery and corruption.
Group procurement
This policy provides rules and guidance to ensure that procurement, contracting
and supplier management activities are in line with our risk appetite, meet all
regulatory and legal obligations and align with our wider strategy and purpose.
Our commitment to having a diverse and inclusive culture applies to our Board.
This policy sets out our commitment to ensuring we have a diverse range of
skills, experience and perspectives among our Directors, with appointments
to the Board based on merit.
Policy governance
This policy sets out our responsibilities and requirements for the management,
monitoring and oversight of policies through their governance lifecycle and
details the controls, documentation and communication of key messages
or policy changes.
Code of conduct and
ethics
This policy is intended to assist employees in their daily decision-making,
providing guidelines for how to appropriately behave in relation to customers,
suppliers and external parties.
Training and
development
This policy sets out our approach to encouraging training and development,
acknowledging that it helps to improve the Group’s performance and
contributes to the retention and development of future talent.
Complaints handling
This policy sets out our aim of ensuring that any complaints received in relation
to the service we provide for our customers are handled fairly, effectively,
and promptly; thereby minimising the number of unresolved complaints and
delivering a fair outcome for our customers.
Dignity at work
This policy sets out our commitment to creating a work environment free of
harassment and bullying, where everyone is treated with dignity and respect.
Equal opportunities
This policy demonstrates our commitment to equal opportunities in employment
and opposition to all forms of unlawful discrimination in employment and
against customers.
ESG
Facilities
This policy sets out our approach to ESG and developing opportunities and
managing risks across ESG issues. The purpose is to communicate our ESG
strategy to employees and help to embed this across the organisation.
This policy sets out our duty as an employer to comply with relevant regulation
and legislation under the remit of facilities management and to ensure the
health, safety and welfare of all employees and our commitment to improving
environmental performance across all of our business activities and estate.
Group credit risk
policy standards
This policy outlines our approach and appetite for climate-related matters,
and wider environmental, social and ethical issues associated with the
sectors and customers we support. It sets out when exclusions apply or when
enhanced due diligence is required where there is potential for high adverse,
environmental, social and/or ethical impact linked to lending proposals.
Third party risk
management
Speak up
This policy contains the relevant rules and guidance to ensure that
procurement, contracting and supplier management activities are
undertaken in line with relevant regulatory standards.
This policy encourages colleagues to disclose information, in good
faith and without fear of unfair treatment, when they suspect any
illegal or unethical conduct or wrongdoing affecting the Group.
The Strategic Report was approved by the Board on 28 March 2024 and signed on its behalf
by the Chief Executive Officer.
Marcelino Castrillo
Chief Executive Officer
50
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Governance
Report
52
53
56
66
70
74
81
83
Chairman’s introduction
Board of Directors
Corporate governance
Audit Committee Report
Risk Committee Report
Directors’ Renumeration Report
Nomination and Governance Committee Report
Directors’ Report
Shawbrook Group plc | Annual Report and Accounts 2023
51
Chairman’s
introduction
“On behalf of the Board,
I am pleased to present
the Corporate Governance
Report for the year ended
31 December 2023.”
The Board receives updates throughout the year
regarding the Group and its stakeholders, including
details of our Group-wide employee engagement
surveys conducted in May and October 2023. The
Board and Senior Management also continue to
interact with the People Engagement Forum to bring
the voice of our employees into the Boardroom so
that better, more informed decisions are made. In
addition, members of the Board attend town halls,
all staff calls, site visits and community events.
Looking forward
Our corporate governance priorities for the year
ahead will be focused on ensuring continued
alignment between our purpose, culture, business
and strategy throughout our governance framework.
John Callender
Chairman
Our commitment to good
corporate governance
We maintain high standards of corporate
governance within the Group. There are a
comprehensive range of policies and procedures
in place designed to encourage effective oversight
and controls. This report explains how the Board
and its committees have ensured that the corporate
governance arrangements within the Group are
effective and continue to help support the creation
of long-term sustainable value for our Shareholder
and wider stakeholders.
The Board endorses the Financial Reporting Council’s
UK Corporate Governance Code 2018 (the Code),
which we have applied to our 2023 financial year.
We seek to ensure that our governance framework
remains aligned with best practice and is consistent
with the Code, where appropriate. The Board noted
the updated Code, published on 22 January 2024,
which comes into effect on 1 January 2025. Further
details on our compliance with the Code can be
found on page 56.
Board succession planning
No additional appointments were made to the
Board during 2023, however, the Nomination and
Governance Committee was strengthened with the
addition of Andrew Didham and Janet Connor to
the membership. This will allow the Committee to
extend its focus on executive succession and talent
development. The Board continues to monitor the
membership of the Board and its committees to
ensure that there is a suitable balance of diversity,
skills and experience.
Board meetings and activity
In 2023, the Board considered several key
areas, which can broadly be categorised into
the following themes: strategy and execution,
financial performance, risk management,
regulatory and corporate governance. Further
details on how the Board operated during 2023,
including the areas of Board focus, can be found
on page 62.
The Board’s committees also continued to play
a critical role in the governance and oversight
of the Group, by ensuring adherence to strong
governance practice and principles. In addition, two
Independent Non-Executive Directors continued to
ensure Board engagement and oversight through
their respective sponsorship of the Consumer Duty
and our data-led culture through model risk working
groups. This section contains a report from the
Board’s principal committees, which sets out
their approach and considerations.
Effectiveness and evaluation
Further details on how the Board reviews
its effectiveness can be found on page 58.
Purpose, culture and experience principles
The Group’s success is reliant on our commitment
to maintaining high standards of corporate
governance, as well as a strong purpose and
inclusive culture. In support of this, the Board
is committed to upholding the Group’s core
experience principles (practical, personal
and creative) that underpin how we run
our business.
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Financial Statements
Financial Statements
Board of Directors
John Callender
Chairman
R
N
Marcelino Castrillo
Chief Executive Officer
Dylan Minto
Chief Financial Officer
Lan Tu
Senior Independent
Director
A
RI
R
N
Appointed to the Board in March 2018.
Appointed to the Board in June 2021.
Appointed to the Board in February 2017.
Appointed to the Board in March 2022.
Skills and experience
John brings extensive financial services
experience to the Board, gained through
both his Executive and Non-Executive careers.
John has previously served as Interim Chair
and Chair of the Risk Committee of Aldermore
Group plc, and served on the Board for six
years, Chair of the trade body; the Finance
and Leasing Association, Non-Executive
Director of Motability Operations plc,
Non-Executive Chair of ANZ Bank Europe Ltd,
and Senior Independent Director and Chair
of the Risk Committee of FCE Bank plc.
John also sat on the Regulatory Decisions
Committee for the Financial Conduct Authority
for six years, finishing his two statutory terms
in January 2020.
External appointments
None.
Skills and experience
Marcelino brings a wealth of experience
in financial services, most recently he was
Managing Director, Customer Engagement
& Distribution at NatWest Group where he
led 9,000 employees through an ambitious
transformation programme. Prior to that,
he held senior roles at RBS and Santander,
leading Commercial Banking franchises. He
started his career at Boston Consulting Group
working across a number of industries and
countries. Marcelino holds an MBA from MIT
Sloan School of Management, MS Industrial
Engineering (ETSII, Madrid) and a Bachelor
in Physics (U. Complutense, Madrid).
External appointments
None.
Skills and experience
Dylan joined Shawbrook in 2013 from
KPMG LLP, where he spent 11 years in their
Financial Services practice advising large UK
and European banks. Dylan was appointed
Chief Financial Officer in February 2017. He
is a Fellow of the ICAEW and holds a dual
BA Honours degree in German and Business
Studies from Sheffield University.
External appointments
None.
Skills and experience
Lan has over 30 years experience in financial
services, starting her career at McKinsey & Co,
before holding a number of executive positions
at American Express, Standard Life Aberdeen
and Virgin Money Investments. Between 2015
and 2021 Lan was also a Non-Executive Director
of Arrow Global PLC. She has a particular
depth of experience in payments, digital/
technology and organisational design.
External appointments
Lan is a Non-Executive Director of WNS
Holdings Limited and Kings College London
University and is SID designate of Paypoint
plc. Until recently, Lan was also an advisor
to the Board of Mental Health @Work, a
company that promotes mental health
in the workplace.
A
Audit Committee
RI
Risk Committee
R
Remuneration Committee
N
Nomination and Governance Committee
Committee Chair
Shawbrook Group plc | Annual Report and Accounts 2023
53
Strategic Report
Corporate Governance Report
Risk Report
Climate Report
Financial Statements
Financial Statements
Andrew Didham
Independent Non-Executive
Director
Paul Lawrence
Independent Non-Executive
Director
Michele Turmore
Independent Non-Executive
Director
Janet Connor
Independent Non-Executive
Director
A
RI
N
A
RI
R
N
A
RI
R
N
A
RI
N
Appointed to the Board in February 2017.
Appointed to the Board in August 2015.
Appointed to the Board in October 2019.
Appointed to the Board in May 2022.
Skills and experience
Andrew has extensive financial services
experience. He is a fellow of the Institute
of Chartered Accountants, having enjoyed
a successful career at KPMG LLP, becoming
a partner in 1990, and subsequently as
Group Finance Director of the international
Rothschild investment banking group.
External appointments
Andrew is currently an Executive Vice-Chairman
for Rothschild and Non-Executive Director of
each of IG Group Holdings plc, IG Index Limited,
IG Markets Limited, IG Trading and Investments
Limited and Non-Executive Chairman of GCP
Infrastructure Ltd.
Skills and experience
Paul has considerable experience in financial
services having had a successful career within
HSBC Group. Paul has particular strengths
in managing risk and internal audit across
a number of business lines and previously
served as a member on the IIA Committee for
Internal Audit Guidance for Financial Services.
External appointments
Paul is currently the Chairman of HSBC Bank
Turkey and Independent Non-Executive
Director of HSBC Middle East Holdings B.V.
and HSBC Bank Middle East Ltd.
Skills and experience
Michele has comprehensive experience in
operations, transformation, IT and distribution
leadership, with focus on the customer. She
has operated across blue chip, mid-scale
and start-up entities, including private equity
backed banks. Michele previously held
Executive and Chief Operating Officer roles
at a number of banks, including Lloyds TSB,
Harrods and Allica.
External appointments
Michele is currently a Non-Executive Director
and the Risk Committee Chair of Davies
Broking Services Limited, Davies MGA Services
Limited and Davies Intermediary Support
Services Limited and a Non-Executive Director,
and Chair of the Remuneration Committee
of Northern Bank Limited.
Skills and experience
Janet has over 30 years experience in
consumer-facing financial services, latterly
in insurance. Starting her career at Abbey
National (now Santander), she went on to
hold a number of Managing Director positions
at RIAS plc, Royal & Sun Alliance (in its More
Than business) and most recently The AA
Group, where she was Managing Director
of AA Insurance Services Ltd.
External appointments
Janet is a Non-Executive Director and
Chair of AA Insurance Services Limited.
A
Audit Committee
RI
Risk Committee
R
Remuneration Committee
N
Nomination and Governance Committee
Committee Chair
Shawbrook Group plc | Annual Report and Accounts 2023
54
Strategic Report
Corporate Governance Report
Risk Report
Climate Report
Financial Statements
Financial Statements
Lindsey McMurray
Institutional Director
Cédric Dubourdieu
Institutional Director
Andrew Nicholson
Company Secretary
A
RI
R
N
A
RI
R
N
Appointed to the Board in April 2010.
Appointed to the Board in September 2017.
Skills and experience
Lindsey has been a private equity investor
for 25 years, with a particular focus on the
financial services sector. She has a First-Class
Honours degree in Accounting and Finance
and studied for an MPhil in Finance from
Strathclyde University.
External appointments
Lindsey is Managing Partner of Pollen Street
Capital and is Chairman of their Investment
Committee. Lindsey is also a Non-Executive
Director of several portfolio companies.
Skills and experience
Cédric has 20 years of private equity
experience, having led several investments
in a variety of sectors across Europe. He holds
a degree from Ecole Polytechnique, Paris.
External appointments
Cédric is a Partner of private equity firm BC
Partners and sits on BC Partners’ Investment
Committee. BC Partners is an affiliate of
Marlin Bidco Limited of which Cédric is also
a Director. Cédric is also a Board member of
Iqera the French leader of credit management
services, a board member of Davies Group, a
leader in professional services to the insurance
sector and other regulated industries and a
board member of Havea, the leading European
natural healthcare player.
Appointed as Company Secretary
in January 2023.
Skills and experience
Andrew has over 20 years experience
in corporate governance roles. Andrew
has previously held Head of Corporate
Governance roles at Revolut, Ulster Bank and
RBS International and was Assistant Company
Secretary of the Royal Bank of Scotland.
External appointments
None.
A
Audit Committee
RI
Risk Committee
R
Remuneration Committee
N
Nomination and Governance Committee
Committee Chair
Shawbrook Group plc | Annual Report and Accounts 2023
55
Corporate
governance
This report explains the
Board’s role and activities
and how corporate
governance operates
throughout the Group.
The UK Corporate Governance Code
The Company is no longer considered a listed
entity (since delisting in 2017) and is not required
to adopt the ‘comply or explain’ approach of the
Code published by the Financial Reporting Council.
However, the Company recognises the value of
a strong approach to corporate governance and
has therefore again elected to report against
the Code for the financial year.
The Company has complied with all the principles
and provisions of the Code throughout the financial
year and up until the date of this report, except
as explained below.
Audit, Risk and Remuneration Committee
Membership (Code Provisions 24, 25 and 32)
The membership of these committees comprises
a majority of Independent Directors, however
two Institutional Directors are also members.
A Memorandum of Understanding between the
Group and its Shareholder makes it clear that the
Shareholder expects these committees to retain
the independence and autonomy necessary
to carry out their respective responsibilities
under their applicable terms of reference.
Shareholding requirement for Directors
(Code Provision 36)
The Group has not adopted a formal policy
regarding post-employment shareholding
requirements for Directors given leaver
provisions in existing incentive arrangements.
Executive pensions (Code Provision 38)
Executive Directors may participate in the Group’s
workplace pension arrangement or receive a
cash allowance in lieu (in full or part) of pension
contributions. Each Executive Director currently
receives a pension contribution and/or allowance
to a combined value of 15% (8% wider workforce
with no cash equivalent) of salary per annum.
The remuneration approach is reviewed each
year and consideration is given to market
practice and industry guidance.
Where required, sections of the FCA’s Disclosure
and Transparency Rules have been applied in
line with obligations in relation to the Group’s
listed debt.
The Board
The Board takes account of the views of the
Group’s Shareholder, Marlin Bidco Limited, and
has regard to wider stakeholder interests and
other relevant matters in its discussions and
decision-making. The Board recognises that
stakeholders’ interests are integral to the
promotion of the Group’s long-term sustainable
success. Further information about how the
Board considers the interests of its stakeholders
can be found on pages 44 to 47.
A Framework Agreement is in place with the
Shareholder which includes a formal schedule of
matters reserved for the Board and those matters
which require recommendation to the Shareholder
for approval. This document is supported by a
Each member of the Board has had access to
all information relating to the Group, the advice
and services of the Company Secretary (who
is responsible for ensuring that governance
procedures are followed) and, as required, external
advice at the expense of the Group.
The Board, with the assistance of the Nomination
and Governance Committee, keeps under review
the structure, size, and composition of the Board
(and undertakes regular evaluations to ensure it
retains an appropriate balance of skills, knowledge
and experience). The membership of the various
Board committees and the expected time
commitment of the Directors is closely monitored.
The terms of appointment of the Independent
Non-Executive Directors specify the amount
of time they are expected to devote to the
Group’s business. They are currently required to
commit at least four days per month, which is
calculated based on the time required to prepare
for and attend Board and committee meetings,
meetings with the Shareholder and with Executive
Management and training.
Memorandum of Understanding, which preserves
the Board’s independence when making significant
decisions. The Board delegates specific powers
for some matters to Board committees, with the
outputs from each committee meeting reported
to the Board regularly, thus ensuring the Board
maintains the necessary oversight. More detail on
the committees and their work is described in the
separate committee reports on pages 66 to 82.
Composition, Board balance and
time commitment
The Board currently consists of ten members,
namely the Chairman, five Independent Non-
Executive Directors, two Executive Directors and
two Institutional Directors. Biographical details
of all Directors are on pages 53 to 55.
The Independent Non-Executive Directors have
substantial experience across all aspects of banking,
including relevant skills in financial management,
regulatory matters, credit assessment and pricing,
liability management, technology, operational and
conduct matters. The Independent Non-Executive
Directors are considered to be of sufficient
calibre and experience to influence the
decision-making process.
The Board considers that the balance of skillsand
experience is appropriate to the requirements of
the Group’s business and that the balance between
Executive and Independent Non-Executive Directors
allows it to exercise objectivity in decision-making
and proper control.
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Financial Statements
Financial Statements
Meetings and attendance
The Board holds joint meetings of Shawbrook
Group plc and Shawbrook Bank Limited, the Group’s
principal subsidiary, at regular intervals, at which
standing items such as the Group’s financial and
business performance, risk, compliance, human
resources, and strategic matters are reviewed
and discussed. A comprehensive Board pack and
agenda is circulated beforehand allowing Directors
to consider the issues to be discussed. Detailed
minutes and any actions arising out of discussions
are documented.
The Board and Board committees held a number
of scheduled meetings during 2023 at which senior
executives, external advisors and independent
advisors were invited, as required, to attend and
present on business developments and governance
matters. The Company Secretary and/or his deputy
attended all Board meetings and he, or his deputy,
attended all Board committee meetings. The table
below sets out the attendance by Directors at
scheduled Board and Board committee meetings
(of which they were members) during 2023.
Number of scheduled meetings attended1
Board
Audit Committee
Risk Committee
Remuneration
Committee
Nomination and
Governance
Committee
John Callender (Chair)2
Marcelino Castrillo3
Dylan Minto4
Lan Tu
Janet Connor5
Lindsey McMurray
Cédric Dubourdieu
Paul Lawrence
Andrew Didham6
Michele Turmore
7/7
7/7
7/7
7/7
6/7
7/7
4/7
6/7
7/7
7/7
–
–
–
6/7
7/7
3/7
2/7
5/7
7/7
6/7
–
–
–
6/6
5/6
5/6
3/6
6/6
6/6
6/6
4/4
–
–
4/4
–
3/4
3/4
4/4
–
4/4
3/3
–
–
3/3
1/2
2/3
3/3
3/3
2/2
3/3
The attendance above reflects the number of scheduled Board and committee meetings held during 2023. During the year there were also a number of ad-hoc
Board and committee meetings to deal with matters arising outside of the usual meeting schedule. The majority of Directors made themselves available at
short notice for these meetings.
1 Meetings were held from January to December 2023.
2 John Callender attended six of seven Audit Committee meetings and five of six Risk Committee meetings in 2023.
3 Marcelino Castrillo attended each Audit, Risk, Remuneration and Nomination and Governance Committee meeting in 2023.
4 Dylan Minto attended each Audit Committee meeting and four of six Risk Committee meetings in 2023.
5 Janet Connor was appointed as a Member of the Nomination and Governance Committee in May 2023, and was therefore eligible to attend two meetings.
6 Andrew Didham was appointed as a Member of the Nomination and Governance Committee in May 2023, and was therefore eligible to attend two meetings.
Shawbrook Group plc | Annual Report and Accounts 2023
57
Strategic Report
Corporate Governance Report
Risk Report
Climate Report
Financial Statements
Financial Statements
Board effectiveness review
The Board carries out a review of the effectiveness of its
performance every year. The review is externally facilitated
every three years, and this was last carried out in 2022.
The 2023 review was carried out internally.
Progress against 2022 actions
Set out below is the progress made against actions
identified through the previous externally facilitated Board
effectiveness review. All actions have now been completed.
Action
Progress
More time should be scheduled for Non-Executive
Directors to meet with each other and with the
Chief Executive Officer.
The Chair has held regular meetings during the year with each of the Non-Executive
Directors and with the Chief Executive Officer. There have also been regular
opportunities for the Board to meet privately with the Chief Executive Officer.
Additional time has also been created for Non-Executive Directors to meet with
each other, including during Board dinners.
Agenda time to be developed to facilitate
discussion and allow all perspectives to
be considered.
Board agendas and timings were reviewed and adjusted during 2023 to include more
time for debate and more opportunities for deep dives and demonstrations. The
Chairman meets regularly with the Non-Executive Directors to ensure that their views
and perspectives are considered, in addition to providing opportunities during Board
and committee meetings for challenge and debate to take place.
Ensure that more time is allowed to enhance
customer and market insight and understanding
the competitive landscape in more depth.
Customer and market insight has been further developed during 2023, including
all customer insight work being consolidated within one team. The Board discusses
customer and market insights at every Board meeting.
Further extend the focus on executive succession
and talent development, including widening the
membership of the Nominations and Governance
Committee to include all Non-Executive Directors.
The Nomination and Governance Committee membership was expanded in March 2023
with the addition of Janet Connor and Andrew Didham. The Committee has continued
to develop its focus on executive succession planning and receives an update on this
at each of its meetings.
2023 internally facilitated effectiveness review
At the end of 2023, an internally facilitated board effectiveness review was led by the Chairman, supported by the Company
Secretary, which focused on the undernoted themes:
Internal evaluation themes
Strategy, challenges
and culture
Board composition, skills
and succession planning
Board dynamics
and engagement
Governance and meeting
administration
The review concluded that the Board and its
committees continue to operate effectively.
There were no specific new actions arising
from the review, however, the Board recognised
that it was important that it continued to
develop and adapt to support the Group’s
strategic aims. It is intended that a further
internal review will take place for 2024. The
Board has committed to ensuring that future
internal reviews continue to be aligned to both
developing best practice and the Group’s values.
Shawbrook Group plc | Annual Report and Accounts 2023
58
Strategic Report
Corporate Governance Report
Risk Report
Climate Report
Financial Statements
Financial Statements
Structure of the Board, Board committees and Executive Management
The diagrams on pages 60 to 61 summarise the role of the Board, its committees and the responsibilities
of the Chairman, the Senior Independent Director, the Non-Executive Directors, the Chief Executive Officer,
and the Executive Committee. The Board and Board committees have unrestricted access to Executive
Management and external advisors to help discharge their responsibilities.
The Board and Board committees are satisfied that, in 2023, sufficient, reliable, and timely information
was received to enable them to perform their responsibilities effectively. Each committee plays a vital
role in helping the Board to operate efficiently and consider matters appropriately. The Board committees’
terms of reference can be found at: shawbrook.co.uk
Board
Leadership
Stakeholder engagement
Operations
Financial performance
Strategy
Culture and purpose
Information and support
The Board has clear divisions
of responsibility and seeks the
long-term sustainable success
of the Group.
The Board organises and
directs the Group’s affairs in
a way that it believes will help
the Group succeed for the
benefit of its Shareholder and
in consideration of the Group’s
wider stakeholders. More
information about the Group’s
stakeholders can be found on
pages 44 to 47.
The Board supervises the
Group’s operations, with a
view to ensuring that they
are effectively managed,
that effective controls and IT
systems are in place and that
risks and operational resiliency
are assessed and monitored
appropriately.
The Board sets the financial
plans, annual budgets and key
performance indicators and
monitors the Group’s results
and levels of capital and
liquidity against them.
The Board oversees the
development of the Group’s
strategy, and monitors
performance and progress
against the strategic aims
and objectives.
The Board develops and
promotes the collective
vision of the Group’s
purpose, culture, values,
and behaviours.
The Board accesses assistance
and advice from the Company
Secretary. The Board may
seek external independent
professional advice at the
Company’s expense, if required
to discharge its duties.
Board committees
The Audit Committee
The Risk Committee
The Remuneration Committee
The Nomination and Governance Committee
• Monitors the integrity of the Group’s external
• Provides oversight and advice to the Board in relation
• Oversees how the Group implements its
financial reporting, including review and challenge
of the critical accounting estimates and judgements.
• Oversees and challenges the effectiveness of the
Group’s financial controls.
• Monitors the work and effectiveness of the Group’s
internal and external auditors.
• Ensures whistleblowing policies remain adequate
and effective to support and encourage employees
to raise confidentially any concerns of impropriety.
to current and potential future risk exposures of
the Group and the future risk strategy, including
determination of risk appetite and tolerance.
• Responsible for reviewing and approving various
formal reporting requirements and promoting
a risk awareness culture within the Group.
remuneration policy.
• Monitors the level and structure of remuneration
• Reviews the Board’s structure, size, composition,
and balance of skills, experience, independence
and knowledge of the Directors.
arrangements for the Board, Executives and material
risk takers, approves share incentive plans and
recommends them to the Board and Shareholder.
• Leads the process for Board appointments and
Senior Management Function holder appointments
and makes recommendations to the Board.
• Oversees and ensures that adequate provision
is made for succession planning.
• Oversees and monitors the corporate governance
framework of the Group.
• Reviews and monitors the Group’s approach
to subsidiary governance.
Shawbrook Group plc | Annual Report and Accounts 2023
59
Board and Executive Management roles
Each Director brings different skills, experience and knowledge to the Group, with the Non-Executive Directors contributing additional
independent thought and judgement. There is a clear division of responsibilities between the Chairman, Chief Executive Officer and Senior
Independent Director and a summary of these responsibilities can be found at shawbrook.co.uk. Their roles have been clearly defined
in writing and agreed by the Board.
The Chairman
The Senior Independent Director
The Non-Executive Directors
• Guides, develops and leads the Board, ensuring its
effectiveness in all aspects of its role as well as being
responsible for its governance.
• Helps to ensure effective communication and information
flows with key stakeholders (such as employees, regulators
and investors).
• Sets the tone for the Group and ensures effective relationships
between Management, the Board and stakeholders.
• Helps to ensure effective communication and flow of
information between Executive and Non-Executive Directors.
• Chairs the Board and Nomination and Governance Committee.
• Acts as a sounding board for the Chairman and serves as
an intermediary for the other Directors when necessary.
• Is available to the Shareholder if they have any concerns,
which the normal channels of Chairman, Chief Executive
Officer or other Executive have failed to resolve, or for which
such contact is inappropriate.
• Leads the planning for the succession of the Chairman of the Board.
• Meets with the other members of the Board to appraise the
Chairman’s performance.
• Provides feedback to the Chairman, Shareholder and
Executive Directors on the Non-Executive Directors’ views.
• Provide constructive challenge to Executive Management and
bring experience to the Board’s discussions and decision-making.
• Monitor the delivery of the Group’s strategy against the
governance, risk and control framework established by the Board.
• Ensure the integrity of financial information and ensure that the
financial controls and systems of risk management are effective.
• Led by the Senior Independent Director, the Non-Executive
Directors are also responsible for evaluating the performance
of the Chairman and Senior Management.
The Chief Executive Officer
As authorised by the Board, the Chief Executive Officer manages the Group’s day-to-day operations and delivers its strategy. The Chief Executive Officer delegates certain elements of
his authority to members of the Executive Committee to help ensure that senior executives are accountable and responsible for managing their respective businesses and functional units.
The Chief Executive Officer chairs the Executive Committee, which meets no less than three times a month.
The Executive Committee
The Executive Committee is responsible for developing the business and delivering against a Board approved strategy, putting in place effective monitoring, control mechanisms and
setting out a framework for reporting to the Board.
Customer
Operations
and Service
Support Director
Chief Financial
Officer
Chief Risk Officer
Chief Technology
Officer
Chief Product
Officer
Head of Enterprise
Managing Director,
Consumer
General Counsel
Chief People
and Marketing
Officer
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Shawbrook Group plc | Annual Report and Accounts 2023Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Strategic Report
Corporate Governance Report
Risk Report
Climate Report
Financial Statements
Financial Statements
The Executive Committee
The Board delegates daily management responsibility for the Group to the Chief Executive Officer,
who discharges this responsibility through the Executive Committee. The Executive Committee is
responsible for developing the business and delivering against a Board approved strategy, putting in
place effective monitoring, control mechanisms and setting out a framework for reporting to the Board.
There are currently ten members of the Executive Committee, (including the Chief Executive Officer)
and their biographical details can be viewed on the Group’s website at shawbrook.co.uk
To discharge its duties, the Executive Committee has operated five executive level committees.
Details of these executive level committees and their responsibilities are set out below.
Environment, Social and
Governance Sub-Committee
(ESG)
Senior Managers and
Certification Regime
Sub-Committee (SMCR)
Asset and Liability
Committee
Enterprise Product
Sub-Committee
Consumer Strategy and
Product Sub-Committee
Product Sub-Committee
Purpose
Purpose
Purpose
Purpose
Purpose
Purpose
The ESG Sub-Committee has the
primary responsibility for overseeing
the development, implementation
and monitoring of the Group’s ESG
strategy. It reports and escalates
to the Executive Committee, which
appoints its members.
Frequency and membership
The ESG Committee meets on a
quarterly basis and is chaired by
the Chief of Staff. Other key
members are; the Senior ESG
Manager, Chief Prudential Risk
Officer, Group Company Secretary,
Group Marketing Director, Deputy
CFO, Director of Strategy –
Enterprise, Director of Specialist
Lending – Real Estate, Head of
Strategy -Consumer, Talent and
D&I Lead and the TML Senior
Compliance Manager.
The SMCR Sub-Committee has
the primary responsibility for
overseeing the management and
operation of the Senior Managers
and Certification Regime framework
within the Group. It reports
and escalates to the Executive
Committee, which appoints its
members.
Frequency and membership
The SMCR Committee meets on
a six-weekly basis and is chaired
by the Head of Compliance and
Ethics with membership comprising
of; the Chief Compliance Officer,
Group Company Secretary, Group
Head of Reward and Senior
Compliance Manager.
The Asset and Liability Committee
oversees asset, liability and other
solvency risks, specifically market
risk, treasury wholesale credit
risk, liquidity risk and capital
risk. It reports and escalates to
the Executive Committee, which
appoints its members.
Frequency and membership
The Asset and Liability Committee
meets monthly and is chaired by
the Chief Financial Officer, or
either of the Chief Executive
Officer or Chief Risk Officer as
their alternate, each of whom are
members. Other key members are
the Deputy Chief Financial Officer,
Group Treasurer, Head of Financial
Planning and Analysis, Head of
Financial Control and Head of
Market and Liquidity Risk.
The Enterprise Product Sub-
Committee has the primary
responsibility for overseeing the
design, development and ongoing
management and monitoring of
products intended for customers
within the Enterprise franchise.
It reports and escalates to the
Executive Committee, which
appoints its members.
The Consumer Strategy and Product
Sub-Committee has the primary
responsibility for overseeing the
design, development and ongoing
management and monitoring of
products intended for customers
within the Consumer franchise.
It reports and escalates to the
Executive Committee, which
appoints its members.
Frequency and membership
Frequency and membership
The Enterprise Product Sub-
Committee meets monthly and is
chaired by the Director of Strategy.
Other key members include the
Head of Enterprise, the Enterprise
Group Risk Director, the Head of
Product, the Director of Delivery
and Head of Financial Planning
and Analysis.
The Consumer Strategy and
Product Sub-Committee meets
monthly and is chaired by the Head
of Strategy. Other key members are;
the Product and Strategy Manager,
Chief Product Officer, Consumer
Group Risk Director and Senior
Marketing and Strategy Manager.
The Product Sub-Committee has the
primary responsibility for reviewing,
discussing and approving spending
of budget towards product or
technology initiatives. The Sub-
Committee reports and escalates
to the Executive Committee, which
appoints its members.
Frequency and membership
The Product Sub-Committee meets
on a weekly basis and is chaired
by the Chief Product Officer.
Other key members include the
Chief Technology Officer, Deputy
Chief Financial Officer, Chief
Prudential Risk Officer and the
Chief Compliance Officer.
In June 2023 the Executive Committee approved changes to replace the Group Risk Management Committees with a single Executive Risk Committee, supported by
second line oversight committees covering Credit; Operational Risk & Third Party; Conduct & Compliance; Financial Crime; and Model Risk. This restructure enables
Executive Committee members to focus on escalations and risk appetite breaches, and to discuss emerging risks and mitigating actions across all principal risks.
In order to maintain independence, the Executive Risk Committee reports directly to the Board Risk Committee.
Shawbrook Group plc | Annual Report and Accounts 2023
61
Board Strategy Day
The Board sets aside time each year outside the annual Board
calendar to give the Directors the opportunity to focus solely
on strategic matters relating to the Group. In November 2023,
the Board, Executive Management and representatives of
the Shareholder met to discuss key themes on the financial
plans of the Group, the competitive landscape, inorganic
opportunities and the Group’s future strategy.
Board effectiveness review
During the reporting period, an internal Board effectiveness
review was conducted, focusing on Board performance
in 2023. More information about the nature and outcomes
of this review are on page 58.
Conflicts of interest
All Directors have a duty to avoid situations that may give
rise to a conflict of interest (in accordance with Section 175
of Companies Act 2006). Formal procedures are in place
to deal with this. Directors are responsible for notifying
the Chairman and the Company Secretary as soon as
they become aware of any actual or potential conflict of
interest for discussion. This will then be considered by the
Board, which will take into account the circumstances of the
conflict when deciding whether to permit it (and whether
to impose any conditions). Any actual or potential conflicts
of interest are recorded in a central register which the
Board formally reviews on a six monthly basis and Directors
are also required, on an annual basis, to confirm that they
are not aware of any circumstances that may affect their
fitness and propriety, and therefore their ability, to continue
to serve on the Board. In addition, Directors are required
to seek the Board’s approval of any new appointments
or material changes in external commitments.
Board meetings and activity in 2023
Board meetings
The activities undertaken by the Board in 2023 were intended to help
promote the long-term sustainable success of the Group.
The scheduled Board meetings focused on five main themes in 2023:
• Strategy and execution, including approving and overseeing the Group’s
key strategic targets and monitoring the Group’s performance against
these targets; reviewing and approving key projects aimed at developing
the business; and reviewing the strategy of individual franchises.
• Financial performance, including setting financial plans, annual budgets and
key performance indicators and monitoring the Group’s results against them;
approving financial results for publication; and monitoring and approving the
approach to the Internal Capital Adequacy Assessment Process (ICAAP) and
Internal Liquidity Adequacy Assessment Process (ILAAP).
• Risk management, regulatory and other related governance, including
reviewing and agreeing the Group’s key policies; scanning for future risks;
setting risk appetites; reviewing the Group’s solvency position and forecast;
and monitoring the Group’s approach to financial crime and climate change.
The Board also approved the approach to the Recovery Plan and Resolution
Pack. Additionally, the Board reviewed and approved the approach to
implementation and embedding of the FCA’s Consumer Duty.
• Spotlights, including deep dive sessions on Consumer Duty, data, digital
strategy, climate disclosures and the deposit and liability strategy.
• Board and Board committee governance, including receiving reports from
the Board’s committees; updating terms of reference for the committees;
and approving the refreshed membership for the Nomination and
Governance Committee.
In addition to routine business, the Board considers and discusses key issues
that impact on the business as they arise. Members of the Executive team
spend a considerable amount of time with the different franchises and
business functions, ensuring that the Board’s strategy is being implemented
effectively throughout the Group, and that our employees’ views and
opinions are reported back to the Board and Board committees.
Shawbrook Group plc | Annual Report and Accounts 2023
62
Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Induction, training and professional development
On appointment, all new Directors receive a
comprehensive and tailored induction, having
regard to any previous experience they may have
as a director of a financial services company.
The Group also provides additional induction
materials and training for those Directors who
are also committee Chairs. The content of our
Director induction programmes are tailored,
with input from the new Director. The induction
information is delivered in a variety of formats,
including face to face meetings with the Chairman,
Board Directors, Executive Management and key
employees, and input from external advisers as
appropriate. This is supplemented by the provision
of key governance documents as reading material,
including policies, procedures, Board and committee
minutes, the Board meeting schedule, the Group
structure chart, the FCA Handbook, regulatory
codes/requirements and information on directors’
duties and responsibilities under the Companies
Act 2006 and other relevant legislation.
Each year an annual Board training schedule is
agreed. In 2023, the Board received training in
respect of securitisations, asset class policies,
the watchlist process and Consumer Duty.
The Chairman is responsible for reviewing the
training needs of each Director and for ensuring
that Directors continually update their skills and
knowledge of the Group. All Directors are advised
of changes in relevant legislation, regulations and
evolving risks, with the assistance of the Group’s
advisers where appropriate.
The Board receives detailed reports from Executive
Management on the performance of the Group at
its meetings and other information as necessary.
Regular updates are provided on relevant legal,
corporate governance and financial reporting
developments. The Board frequently reviews the
actual and forecast performance of the business
compared against the annual plan, as well as
other key performance indicators.
An ongoing programme of training is available to all
members of the Board, which includes professional
external training and bespoke Board training on
relevant topics such as regulatory and governance
developments, changes to the Companies Act 2006
or accounting requirements. Directors are also
encouraged to devote an element of their time to
self-development, including attendance at relevant
external seminars and events. This is in addition
to any guidance that may be given from time to
time by the Company Secretary.
Shawbrook Group plc | Annual Report and Accounts 2023
63
Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Risk management and system of internal controls
The Board has overall responsibility for the Group’s
system of internal controls and for monitoring
its effectiveness. The Audit Committee and Risk
Committee have been in operation throughout
the relevant period and oversee the Group’s
system of internal controls. Material risk or control
matters are reported by the Audit Committee
and Risk Committee to the Board. The Board
monitors the ongoing process by which top risks
affecting the Group are identified, measured,
managed, monitored, reported and challenged.
This process is consistent with both the Group Risk
Management Framework and with internal control
and related financial and business reporting
guidance issued by the Financial Reporting
Council. The key elements of the Group’s system
of internal controls include regular meetings of
the Executive Management and risk governance
committees, together with annual budgeting and
monthly financial and operational reporting for
all businesses within the Group. Conduct and
compliance are monitored by Management, the
Group risk function, internal audit and, to the
extent it considers necessary to support its
audit report, the external auditor.
The Board assesses the effectiveness of the
Group’s system of internal controls (including
financial, operational and compliance controls
and risk management systems) based on:
• established procedures, including those
already described, which are in place to
manage perceived risks;
• reports by Executive Management to the Audit
Committee and Risk Committee on the adequacy
and effectiveness of the Group’s system of
internal controls and significant control issues;
• under the direction of the Chief Risk Officer,
the continuous Group-wide process for formally
identifying, evaluating and managing the
significant risks to the achievement of the
Group’s objectives; and
• reports from the Audit Committee on the
results of internal audit reviews and work
undertaken by other departments.
The Group’s system of internal controls is designed
to manage, rather than eliminate, the risk of failure
to achieve the Group’s objectives and can only
provide reasonable, and not absolute, assurance
against material misstatement or loss. In assessing
what constitutes reasonable assurance, the Board
considers the materiality of financial and non-
financial risks and the relationship between the
cost of, and benefit from, the system of internal
controls. During 2023, the Group continued to
strengthen its risk management and internal
controls capability to ensure that it remained
relevant, appropriate and scalable to support
the Group’s objectives over the duration of the
strategic plan and continued to invest further in
its risk management capability. These included the
appointment of a new Risk Director for the Retail
Mortgage Brands, the appointment of a new Chief
Credit Officer in the second line and continued
enhancements to financial crime controls.
Lines of responsibility and delegated authorities are
clearly defined. The Group’s policies and procedures
are regularly updated and distributed throughout
the Group. The Audit Committee and Risk Committee
receive reports on a regular basis on compliance
with the Group’s policies and procedures.
Shawbrook Bank Limited (the principal operating
subsidiary of the Group) is subject to regulation
by the PRA and the FCA and as such undertakes
an ILAAP and ICAAP on an annual basis. The ICAAP
process benefited from ongoing improvements
during 2023; the process involves an assessment
of all the risks that the Group faces in its
operating environment, the likelihood of those
risks crystallising and their potential materiality
and the effectiveness of the control framework
in mitigating each risk. This includes a thorough
evaluation of how the Group would be impacted
by severe, but plausible, periods of stress in its
stress testing programme.
The purpose of the process is to establish the
level and quality of capital resources that the
business should maintain, both under current
market conditions and under a range of stressed
scenarios, to ensure that financial resources are
sufficient to successfully manage the effects
of any risks that may crystallise.
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Shawbrook Group plc | Annual Report and Accounts 2023Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Cyber resilience
The Group recognises the importance of cyber
resilience. The Board oversees the Group’s cyber
resilience approach and the level of investment
into cyber security, providing robust challenge and
scrutiny to ensure that the Group is adequately
mitigating the threats it faces. The Board
recognises that specialist knowledge is required
in this area and therefore seeks relevant advice
from third parties where appropriate. The cyber
resilience strategy is routinely monitored by the
Risk Committee and reviewed by the Board across
a series of engagements throughout the year.
These engagements consider the latest cyber
threat intelligence assessments, the specialist
nature of cyber threats, any outsourcing risks
faced by the Group in this area and the protective
controls we have in place via our Adaptive Security
Architecture. This ensures that the strategy
remains fit for purpose to combat the potential
cyber threats the Group may face.
Remuneration
The Board has delegated responsibility to the
Remuneration Committee for the remuneration
arrangements of the Group’s Executive Directors,
certain individuals considered to be ‘material risk
takers’ and the Group’s Chairman. You can find
out more about this in the Directors’ Remuneration
Report which starts on page 74.
Relationship with Marlin Bidco Limited
(the ‘Shareholder’)
The Group is committed to maintaining a
constructive relationship with the Shareholder,
whilst not compromising the independence of
the Board.
The Chief Executive Officer, Chief Financial Officer
and other members of the Executive Committee
meet with the Shareholder and their representatives
on a regular basis outside of Board and committee
meetings. The Shareholder also meets with the
Chairman and has the option to meet with other
Non-Executive Directors on request.
To ensure that governance arrangements with
the Shareholder are formalised, a Framework
Agreement and Memorandum of Understanding,
outlining the responsibilities of each party, was
established following the change in ownership.
The Framework Agreement ensures that
information flows are clear, that the independent
judgement of the Board is not impacted and that
the Board retains its oversight of the business in
respect of strategy, performance, risk appetite
and assessment of the control framework and
governance arrangements. The Memorandum of
Understanding seeks to support and protect the
independence of the Board, particularly in relation
to the appointment of Non-Executive Directors
to the Board and its committees. As set out in
the Framework Agreement, the Shareholder has
appointed two Directors to the Board, both of
whom are considered Institutional Directors.
The Group recognises the importance of
ensuring effective communication with all of its
stakeholders. This report, together with a wide
range of other information, including financial
reports and regulatory announcements are made
available on the Investor section of the Group’s
website at shawbrook.co.uk
Other committees
The Board has delegated authority to its principal
committees to carry out certain tasks as defined
in each committee’s respective terms of reference.
The written terms of reference in respect of the
Audit, Risk, Remuneration and Nomination and
Governance Committees are available on the
Group’s website. In addition to the principal
committees, the Board is supported by the work
of the Disclosure Committee and the Acquisitions
and Divestments Committee, which meet on an
as needed basis.
Annual General Meeting
Shawbrook Group plc’s Annual General Meeting
will be held on 21 May 2024.
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Shawbrook Group plc | Annual Report and Accounts 2023Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Audit Committee Report
“I am pleased to present the Audit
Committee Report, which describes
the work undertaken by the Committee
to discharge its responsibilities. The
Committee and its members bring together
a diverse range of experience across
disciplines including finance, audit,
risk and business, with many years of
experience operating across the financial
services sector in line with the Code.“
The Committee’s annual work plan is framed
around the Group’s financial reporting cycle,
which ensures that the Committee considers
all matters delegated to it by the Board.
In discharging these responsibilities, the
Committee has spent time considering the
impacts on credit risk as a result of rising
inflation and interest rates and on the
critical accounting and auditing judgements,
particularly relating to IFRS 9, fiar value through
other comprehensive income (FVOCI), conduct
provisions and securitisation transactions
that occurred during the year. The Committee
has considered the Group’s governance of its
expected credit losses model and continues
to review all new guidance issued to ensure
transparency in the financial statements.
The Committee continues to focus on the issues
relevant to the Group’s financial reporting and
considers emerging trends and best practice.
This includes overseeing the effectiveness
of the Group’s internal control framework to
ensure it remains robust and fit for purpose,
with particular focus given to its IT control
environment. In addition, the Committee has
considered, and continues to closely monitor,
developments relating to future audit and
corporate governance reform.
Andrew Didham
Chair of the Audit Committee
28 March 2024
Main activities during the year
Throughout the year, the Committee discussed
a range of topics including financial reporting,
internal controls and financial risk management,
internal audit, external audit and whistleblowing
(Speak Up). You can find out more about this in
the following sections.
Financial reporting
The Committee considered the integrity of the
Group’s financial statements and all external
announcements in relation to its financial
performance. In 2023, this included the Group’s
2022 Annual Report and Accounts and the 2023
Interim Financial Statements. Significant financial
reporting issues and judgements were considered
together with any significant accounting policies
and proposed changes to them.
Membership, attendance, and responsibilities
of the Committee can be found on pages 57
and 59.
The terms of reference for the Committee
can be found on the Group’s website at:
shawbrook.co.uk
Shawbrook Group plc | Annual Report and Accounts 2023
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Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Significant areas of judgement
During 2023, the key judgement areas were largely unchanged from the previous year. This reflects
the consistency of the Group’s approach to financial reporting and that there were no significant
changes to the business model. The main areas of focus were as follows:
Significant
financial and
reporting issue
Impairment
losses of
financial
instruments
Provisions
for customer
remediation and
conduct risk
How the Committee addressed the issue
During the year, the Committee met and challenged the IFRS 9 judgements and models used
to calculate the underlying expected credit losses and impairment recognition. This included
reviewing the IFRS 9 judgements, post-model adjustments and macroeconomic assumptions
used in the model to ensure that the modelled outcomes were reasonable and in line with
guidance. The regulatory and accounting guidance issued also extends to transparency for
external reporting and the Committee reviewed all external disclosure notes. The Committee
also discussed reporting disclosures and best practice with the external auditor.
The Committee also reviewed the movements in impairment coverage ratios and non-
performing loan ratios throughout the year and concluded that these had been appropriately
monitored during the year.
The Committee concluded that the impairment provisions, including Executive Management’s
judgements, were appropriate.
Refer to Note 8(a) of the Financial Statements for further details.
The Group’s Consumer Lending franchise is exposed to risk under Sections 75 and 140 of the
Consumer Credit Act, in relation to any misrepresentations, breaches of contract or other
failings by suppliers of goods and services to customers where the purchase of those goods
and services is financed by the Group.
The Committee considered and reviewed papers from Executive Management at each
meeting which detailed actual complaints received. At the half year a provision was raised
in relation to Timeshare complaints and this was reviewed and updated for the full year. The
Committee reviewed the key judgements that could impact the provision including whether
the original supplier remained solvent, the current complaint rates, Financial Ombudsman
Service (FOS) complaints and the expected average cost of redress. Additionally, the
Committee considered the latest communications and publications by the FOS in relation
to Timeshare as this is a new and developing area of redress across the market.
The Committee also reviewed that the disclosure notes were appropriate.
Significant
financial and
reporting issue
Acquisition of
subsidiary
Fair value of
debt instruments
measured
at fair value
through other
comprehensive
income
Securitisations
How the Committee addressed the issue
The Committee considered the accounting and disclosures in relation to the acquisition
of 100% of the share capital of Bluestone Mortgages Limited. The key area of judgment,
during the initial recognition of the acquisition, was to determine the fair value of the net
assets acquired. Judgements impact individual assets and liabilities and resulting goodwill
recognised on acquisition in the statement of financial position, which in turn impacts upon
how they are subsequently accounted for.
The Committee approved the addition of the acquisition, as a new, one-off area of critical
judgment for the 2023 reporting period only.
The Group’s loan book includes some mortgage loans that are measured at FVOCI. In order
to value these loans, the Group makes use of ‘unobservable inputs’, which brings with it
a level of estimation uncertainty. An ‘unobservable input’ refers to information that is not
based on observable market data.
To calculate the fair value of these loans, the Group used the discounted cash flow method. The
significant assumption used in this calculation is the risk-adjusted discount rate, which is derived
from cost of replacement assets based on period end closing swap rates. Changes in the
assumptions applied could have a material impact on the calculated fair value of these loans.
Securitisations involve the transfer of customer loans to structured entities. In determining the
accounting treatment to be applied for each securitisation transaction, complex assessments
must be performed which necessitates the application of judgement.
The Committee received accounting opinion papers from Executive Management on each
securitisation transacted during the year. The papers outlined each transaction and its structure
and compared this to the relevant accounting standards to confirm whether each transaction
met the requirements to be de-consolidated or, if not, whether it would be consolidated into the
Group as a subsidiary by virtue of control. The Committee concluded that the securitisations
were accounted for appropriately based on the structure of each transaction.
In addition to the matters described above, the Committee considered papers on the impact of accounting
standards changes, operating segments, large exposures and the performance of the external auditor. The
Committee also discussed the changes proposed from the UK’s corporate governance reform and any possible
impacts on the Annual Report and Accounts which would be discussed once final guidance was issued in 2024.
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Shawbrook Group plc | Annual Report and Accounts 2023Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Going concern and long-term viability
The Committee reviewed a paper from Executive
Management setting out the assumptions
underlying the going concern and viability
statement as detailed in the statement on page 84.
The Committee considered a wide range of
information relating to present and future
conditions, including the Group’s current financial
position, future projections of profitability,
cash flows and capital resources. In addition,
the Directors have considered the Group’s risk
assessment framework and the possible impacts
from the top and emerging risks, as highlighted
in the Risk Report, on the longer-term strategy
and financial position of the business.
The Committee concluded that as both capital
and liquidity forecasts remained within regulatory
requirements over the going concern period of 12
months from the date of approval of the financial
statements that it is appropriate to adopt the going
concern basis in preparing the Annual Report and
Accounts. The Committee reported accordingly to
the Board and recommended the viability statement
for approval as set out on page 151.
Fair, balanced and understandable
The Committee reviewed and concluded that the
Annual Report and Accounts taken as a whole is
fair, balanced, and understandable and provides
enough information to enable the reader to assess
the Group’s position and performance, business
model and strategy. When considering the Annual
Report and Accounts, the Committee focused
on the significant judgements and issues that
could be material to the financial statements.
This included the matters set out in the table
on page 67. The Committee challenged
the judgements being made and discussed
these matters with the external auditor.
Internal controls and risk management
The Committee annually assesses principal risks
and uncertainties on a financial control basis.
Details of the risk management systems in place
and principal risks and uncertainties are provided
within the Risk Report which starts on page 87.
The Group’s system of internal control has been
designed to manage risk and, whilst risk cannot
be eliminated, the systems assist with the provision
of reasonable assurance against material
misstatement or loss.
The risk and internal audit functions review the
extent to which the system of internal control
is effective, is adequate to manage the Group’s
principal risks, safeguards the Group’s assets and,
in conjunction with the Company Secretary and the
Group’s legal and compliance functions, ensures
compliance with legal and regulatory requirements.
Internal audit
The Committee reviews, challenges and approves
the annual audit plan and audit methodology for
internal audit and monitors progress against the
plan during the year. The Chief Internal Auditor
agrees the programme of work and reports directly
to the Committee on its outcomes. The Committee
also oversees that internal audit has unrestricted
access to all Group documentation, premises,
functions, and employees as required to enable
it to perform its functions.
On behalf of the Board, the Committee undertakes
regular reviews of the effectiveness of the Group’s
internal control arrangements as part of its
audit programme.
The Committee reviewed and challenged
the proposed approach and areas of focus
of Group Internal Audit. The internal audit
function has continued to mature during the
year, with additional headcount supplementing
its co-sourced model and delivery of various
transformation and innovation activities. Internal
audit provided the Committee with coverage
of important topics such as customer journeys,
cloud strategy, operational resilience, Consumer
Duty and financial crime, reflecting the Group’s
strategic priorities.
Internal audit delivered 23 audits from the 2023
internal audit plan of varying size and complexity.
Internal audit reports are circulated to the
Committee members, with the Chief Internal
Auditor reporting at each Committee and the
Committee monitoring progress against actions
identified in those reports.
The Committee monitors and reviews internal
audit’s effectiveness and independence using
feedback obtained from the Board and other
stakeholders. The Chief Internal Auditor confirms
to the Committee, on an annual basis, that internal
audit remains independent. Following each audit
engagement, client feedback is obtained to assess
the function’s performance.
Additionally, the Committee ensures that there are
sufficient resources available to internal audit to
complete its remit. The appointment and removal
of the Chief Internal Auditor is the responsibility
of the Audit Committee.
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Shawbrook Group plc | Annual Report and Accounts 2023Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report External audit
The Committee oversees the relationship with
its external auditor, KPMG LLP, including the
engagement terms, remuneration, the audit
effectiveness and auditor independence and
objectivity. The Committee also considers the
audit plan and audit strategy (including the
planned levels of materiality). The external auditor
attends Committee meetings as appropriate. The
Committee members have the opportunity to meet
privately with the external auditor upon request.
KPMG LLP was first appointed as the Group’s
external auditor in 2011. The Committee
acknowledges the provisions contained in the
Code in respect of audit tendering and, following
a tender process for external audit services
undertaken in 2017, the Committee concluded
that KPMG LLP should be retained as the Group’s
external auditor. As at the date of this report,
there are currently no plans to conduct another
tender for external audit services.
During the year, the Committee received regular
detailed reports from the external auditor,
including formal written reports dealing with
the audit objectives and reports on the auditor’s
qualifications, expertise, and resources; the
effectiveness of the audit process; procedures
and policies for maintaining independence; and
compliance with the ethical standards issued by
the Auditing Practices Board. The external auditor’s
management letter is reviewed, as is Executive
Management’s response to issues raised, and
progress is monitored against actions identified
in those reports. The Committee monitors the
provision of non-audit services by the external
auditor throughout the year, to ensure compliance
with the non-audit services policy.
The Committee is responsible for reviewing the
independence of the Group’s external auditor and
monitors the latest ethical guidance regarding audit
partner rotation. KPMG LLP has a policy of partner
rotation, which complies with regulatory standards.
Maintaining an independent relationship with
the Group’s external auditor is a critical part of
assessing the effectiveness of the audit process.
The Committee has a formal policy on the use of
the auditor for non-audit services. It ensures that
work is only awarded when permissible and if the
external auditor’s knowledge, skills or experience
are a decisive factor and therefore clearly
preferred over alternative suppliers. Each year, the
Committee receives and reviews an analysis of all
non-audit work and reviews the level of audit and
non-audit fees paid to KPMG LLP. This oversight
ensures that significant assignments are not
awarded without first being subject to the scrutiny
of the Committee. The fees paid to KPMG LLP for
audit and non-audit services are set out in Note
15 of the Financial Statements.
The Committee is satisfied with the performance
of the external auditor in 2023 and the policies
and procedures in place to maintain their
objectivity and independence.
The effectiveness of the external auditor was
assessed by way of a questionnaire during the
reporting period. The questionnaire, which sought
the views of members of both the Committee
and Executive Management, focused on, amongst
other things, the scope of the audit, as well as the
external auditor’s technical expertise, governance
and independence. This assessment concluded
that the external audit process was effective.
The Committee has recommended to the Board
that KPMG LLP be re-appointed as the Group’s
external auditor at the forthcoming 2023 Annual
General Meeting, at which resolutions concerning
the re-appointment of KPMG LLP and its audit fee
for 2024 will be proposed to our Shareholder.
During the year, the Committee held at least one
scheduled meeting with the External Auditor and
Internal Auditor privately.
Speak Up
The Committee annually reviews the arrangements
by which employees may, in confidence, raise
concerns about possible improprieties in matters
of financial reporting or other matters. Where
appropriate, the Committee also reviews reports
relating to areas of concern, including anonymised
cases, to ensure arrangements are in place for the
proportionate and independent investigation of
such matters and for appropriate follow-up action.
The Committee approved a new ‘Speak Up’ policy
to replace the Whistleblowing policy to encourage
employees to raise concerns when something does
not feel right and provide assurance that they
can feel safe doing so. The Committee probed
Executive Management and was satisfied that the
process met the necessary standards and that it
was adequately designed, operated effectively
and adhered to regulatory requirements.
Priorities for 2024
The key priorities in 2024 include:
• the impacts of the UK corporate reporting
and audit reform;
• reviewing the effectiveness of the co-sourced
internal audit model;
• oversight and review of the 2024 internal
audit plan including IT effectiveness and
third-party audits;
• ongoing review and monitoring of all conduct
issues and provision adequacy; and
• ensuring that the Group’s financial reporting
complies with all legislative requirements
and accounting standards.
Additional information
The Committee has unrestricted access to
Executive Management and external advisors to
help discharge its duties. It is satisfied that in 2023
it received sufficient, reliable, and timely information
to perform its responsibilities effectively.
The Chair reports on matters dealt with at each
Committee meeting to the subsequent Board meeting.
The Board reviewed and approved this report on
28 March 2024.
Andrew Didham
Chair of the Audit Committee
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Shawbrook Group plc | Annual Report and Accounts 2023Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Risk Committee Report
“I am pleased to present the Risk
Committee Report for the year
ended 31 December 2023. The
Committee’s key role is to provide
oversight of and advice to the Board
on the management of risk across
the Group, balancing the agenda
between risk exposure, emerging
risks and future risk strategy.”
The Committee provided oversight of the operation
of the Group’s Risk Management Framework
(RMF) and the continued collaboration between
the first and the second line risk management
teams, with regular updates on progress against
respective deliverables. This included the oversight
of performance against risk appetite and any
resulting actions required throughout the year.
The Committee also monitored the performance
of the Asset and Liability Committee, ensuring the
Group maintained appropriate levels of liquidity
through 2023. The Committee also reviewed the
Vulnerable Customer Policy. The Group’s approach
to cyber resilience and information security was
reviewed to ensure it remained suitable for the
size and scale of the Group and prevailing risks.
The Committee reviewed and recommended to
the Board for approval the annual review of the
RMF and considered the 2023 risk deliverables
across both the first and second lines of defence
risk teams and reviewed progress against the
risk deliverables during the year. The Committee
regularly considered external challenges, including
those arising from climate risk, the embedding of
the Group’s approach to climate risk within the
broader ESG agenda and regulatory changes.
The Committee recommended to the Board for
approval: the annual Money Laundering report,
the annual report from the Group’s Data Protection
Officer, the annual review of the Group Risk
Appetite, and the ICAAP, ILAAP and Recovery Plan.
In the context of the Recovery Plan the Committee
oversaw the completion of an externally facilitated
fire drill exercise.
In order to support the Committee a number
of additional Committee working groups were
held during the year, with these meetings
ensuring sufficient time was allocated to meet
both the regulatory agenda and oversee the
risk management response to both existing and
emerging risks. These working groups supported
the Committee in: the review and recommendation
of risk appetite proposals; the review of
components of the ICAAP, ILAAP, and Recovery
Plan; operational resilience assessment; and the
delivery of the Group’s plans to implement the
Consumer Duty.
During the year, the Committee continued to
focus on the oversight of existing risks, whilst
also ensuring emerging risks were appropriately
identified and addressed. The RMF supports
the management of new risks and controls
and embeds an appropriate culture across the
Group, by providing consistent challenge to the
suitability of scenarios and stress testing given
the challenging macroeconomic environment
and resultant impact on the Group’s risk profile
and appetite. This included oversight of the
management of Interest Rate Risk in the Banking
Book and the adequacy of the risk appetite in
relation to the changing economic environment.
To ensure that the RMF remains capable of
managing future growth and the associated
risks, the Risk Committee reviewed and approved
a new taxonomy that included ten principal risks.
Membership, attendance, and responsibilities
of the Committee can be found on pages 57
and 59.
The terms of reference for the Committee
can be found on the Group’s website at:
shawbrook.co.uk
Shawbrook Group plc | Annual Report and Accounts 2023
70
Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report The Committee continues to focus on the
continued enhancement and effectiveness of
financial crime controls and the performance
of, and reporting from, the Money Laundering
Reporting Officer who oversees the Group’s
financial crime controls. The Committee also
regularly received updates on the operational
resilience framework.
The Committee held several sessions during the
year to understand the way in which the Group
was preparing for the implementation of the FCA’s
Consumer Duty. As part of this, the Committee
also considered the Vulnerable Customers Policy
and a number of updates in relation to the Group
Affordability Policy to ensure that the way in
which the Group assessed affordability remained
appropriate given the impact of rising inflation and
interest rates on customers’ disposable incomes.
The Committee received reports on the Group’s
approach to product transfers in response to
the rapid interest rate environment impacting
affordability for customers in the Retail Mortgage
Brands businesses. The Committee also received
reports on forward-looking early warning indicators
and the integration of new external tools to support
the early identification of potential problem loans.
As part of this, the Committee received reports on
the Group’s preparedness for a deterioration in the
economic outlook, including the adequacy of the
approach to operational resilience and customer
facing resources. The Committee also received
reports on the implementation of the Group’s new
Governance, Risk and Controls system that will
bring together risks, controls and assurance into
one ecosystem, covering all Principal Risks.
The Committee continues to oversee the
impact of the continuing economic uncertainty,
particularly the primary and secondary impacts
of the conflict in Ukraine, and the continued
pressure on consumers’ real incomes and impact
on small to medium enterprises through higher
input prices and supply chain risks. During the
year the Committee oversaw the delivery of
enhancements to the RMF, including impacts
arising from changes in regulation and the risk
review of the annual budget process. In 2024, the
Committee will monitor and assess the risks facing
the Group as the economic environment evolves.
Paul Lawrence
Chair of the Risk Committee
28 March 2024
Main activities during the year
Risk monitoring and oversight
During 2023, the Committee considered a
wide range of risks facing the Group, both
existing and emerging, across all areas of risk
management. At each scheduled meeting, the
Committee received regular reports from the
Chief Risk Officer detailing the key activities
undertaken by the Group Risk function to
oversee the embedding of risk management
across the Group and was provided with
outputs of regular risk monitoring and details
of specific risk issues. The Committee has also
received details of the Group’s current and
forward-looking capital solvency position
and monitored performance against the
Group’s risk appetite statement.
Risk management and controls
Throughout the year, the Committee
monitored the effectiveness of the Group’s risk
management and control systems and reviewed
their effectiveness through the RMF. The RMF
sits across the business with a particular focus
on risk monitoring and control. The Committee
received and reviewed an attestation of
compliance with the RMF from the Chief Risk
Officer, divisions and functions, which included
a capability assessment to ensure the Group has
the resources it needs to deliver its objectives.
Top and emerging risks
The Group’s top and emerging risks are
considered regularly by the Committee.
Further information about the Group’s top
and emerging risks can be seen in the Risk
Report starting on page 87.
Shawbrook Group plc | Annual Report and Accounts 2023
71
Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Significant risks and primary areas of focus
During 2023, the following significant risks and primary areas of focus were considered by the Committee:
Significant risks
and primary areas
of focus
Group risk
management
Risk Committee review
• The Committee reviewed the 2023 Annual Risk Plan, which included the key areas
of focus for the first and second line risk functions.
• The Committee received regular summaries of the overall risk profile of the Group
through the Chief Risk Officer’s Report.
• The Committee reviewed the top and emerging risks for the Group for inclusion
in the Annual Report and Accounts.
• The Committee reviewed the effectiveness of the RMF throughout the year through
the Chief Risk Officer’s Report and updates on the Risk Plan.
• The Committee oversaw progress of the Climate Risk Implementation Plan, progress
on the maturity and effectiveness of the Financial Crime framework.
Significant risks
and primary areas
of focus
Operational risk
Risk Committee review
• The Committee received regular reports across the spectrum of operational risks,
information security and Cyber risk resilience.
• The Committee reviewed and recommended to the Board an updated list of Important
Business Services and associated Impact Tolerances and the Group’s Operational
Resilience Framework as part of the Group’s operational resiliency programme.
The Committee also reviewed the outcome of testing of impact tolerances.
• The Committee also received updated policies in relation to the risk management
approach to third parties.
Conduct, legal and
compliance risk
• The Committee continually reviews the Group’s risk management approach
to reflect the regulatory and legal environment in which the Group operates.
Board risk appetite
• The Committee reviewed progress on the annual review of the Board’s risk appetite,
Credit risk
including material risk appetite limits.
• The Committee received regular updates on the evolving risk appetite framework,
including the provision of a monthly risk appetite dashboard that accompanies
the Chief Risk Officer’s Report at each meeting.
• The Committee received a number of updates to the Group Affordability Policy
to ensure that it remained appropriate to the environment.
• The Committee received updates on policy changes, reflecting updates and
enhancements to the Group Policy Framework.
• The Committee received updates to Credit Risk Appetite during the cost-of-living
challenge, including updates on capacity in collections in advance of any potential
increase in arrears and potential problem loans.
• The Committee received regular updates on targeted portfolio reviews, including
any actions taken.
• The Committee received updates on various conduct risk and legal liability risk matters.
• The Committee received regular updates on the Group’s investment in financial crime
controls and received the annual Money Laundering Reporting Officer’s report and the
annual Data Protection Officer’s report.
• The Committee received regular updates on the implementation of the Consumer
Duty including managements attestation of compliance and ongoing monitoring
arrangements.
• The Committee reviewed enhancements to the Group’s Vulnerable Customers Policy
and associated management information.
• The Committee reviewed and recommended to the Board approval of the ILAAP.
• The Committee reviewed and recommended changes to the Group’s Interest Rate
Risk in the Banking Book appetite.
• The Committee reviewed and recommended to the Board approval of the ICAAP.
The Committee also reviewed a number of alternative scenarios through which to
assess the strategy and business model.
• The Committee reviewed and recommended to the Board the approval of the Recovery
Plan and received a report on the feedback arising from a fire drill test.
• The Committee reviewed a recommendation from management on its proportionate
approach to the implementation of the model risk principles for banks, that was
published in early 2023.
Liquidity and
market risk
Stress testing
and capital
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Shawbrook Group plc | Annual Report and Accounts 2023Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Other matters considered in detail
by the Committee in 2023
• Top and emerging risks
• Operational resiliency framework and design
• Climate risk implementation plan
• Implementation of the actions arising from
the Group’s annual RMF attestations
• Implementation of enhanced financial
crime controls
• Implementation of the Group’s new Governance,
Risk, Controls and Assurance platform
Additional information
The Committee has unrestricted access to
Executive Management and external advisors to
help discharge its duties. It is satisfied that in 2023
it received sufficient, reliable and timely information
to perform its responsibilities effectively.
During the year, the Committee held at least
one scheduled meeting with the Chief Risk
Officer privately.
The Chair reports on matters dealt with at
each Committee meeting to the subsequent
Board meeting.
The Board reviewed and approved this report
on 28 March 2024.
Paul Lawrence
Chair of the Risk Committee
Priorities for 2024
The key projects that the Group risk function
is accountable for delivering in 2024 include:
• delivery of compliance with the new model
risk principles for banks where it is appropriate
to do so;
• leveraging the Group’s analytical environment
in the Cloud to leverage data and technology
as a primary control and support use cases
on machine learning and AI;
• enhancements to strengthen the integration
of risk, controls and assurance alongside
the migration to a new governance, risk
and compliance system;
• oversight of planned phases of testing
of the financial crime control environment;
• oversight of the economic environment given
the cost-of-living crisis and increasing costs
for SMEs;
• oversight of enhancements to the cyber
resilience infrastructure;
• oversight of the vulnerable customer road map;
• oversight of the embedding of the consumer duty;
• oversight of outsourcing controls and associated
third party risk management;
• delivery of operational resilience enhancements
and operational continuity in resolution; and
• delivery of the climate risk implementation plan,
including further quantitative scenario testing,
including SMEs.
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Shawbrook Group plc | Annual Report and Accounts 2023Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Directors’
Remuneration Report
“I am pleased to present the
Directors’ Remuneration Report
for the year ended 2023.“
As outlined in the Chairman’s and Chief Executive
Officer’s Statements, 2023 was another positive
year for Shawbrook where the Group was able
to demonstrate the strengths of its diversified
offering, delivering long-term sustainable value
for all stakeholders. Against a backdrop of
heightened market volatility, the Group delivered
strong financial performance and maintained
robust governance and risk management.
Through investment in technology and talent,
the Group was able to drive product and service
innovations to support our customers whilst also
maintaining a highly engaged workforce. The
Group also delivered on commitments made to
the communities in which we operate through our
ESG strategy. Following the financial year end,
the Committee assessed performance against
financial and non-financial measures, alongside
individual business area performance and risk
alignment. This determined the overall bonus pool
for 2023. Individual performance was taken into
account to determine awards at an individual level.
In keeping with its terms of reference, during 2023,
the Committee continued to oversee Shawbrook’s
approach to reward for its material risk takers
as well as the wider workforce, informed by
employee engagement feedback. The Group
remains proud of the culture it has developed,
whereby employees have the opportunity to
develop their own careers internally, allowing
them to progress both professionally and
financially. The Committee also monitors and
keeps abreast of any significant changes to the
regulatory landscape, which for 2023 included
the new Consumer Duty, removal of the bonus
cap and, more recently, amendments to the
remuneration rules and regulatory guidance
applicable to smaller firms in the UK banking
sector. Shawbrook seeks to protect and promote
good outcomes for customers and our progress
on embedding the new Consumer Duty was taken
into account by the Committee when reviewing
remuneration outcomes at year-end. It is currently
intended that no immediate changes will be made
to the remuneration framework in direct response
to the removal of the bonus cap. The Committee
does however keep the remuneration framework
under continual review to ensure it appropriately
supports the delivery of our strategy and good
outcomes for all stakeholders, and this will be
considered further in 2024.
The Group’s Equality, Diversity and Inclusion
initiatives continue to remain a key focus for the
Board. We saw further improvements in our mean
gender pay gap this year, which reduced from
37% to 34%, although the Committee recognises
that there is still some way to go in terms of
closing the gap. Following a repledging of our
commitment to the Women in Finance Charter,
the Committee is pleased to report that the
Group is on track to meet its target of 30% of
women in senior management positions by
September 2024.
In line with normal practice, the Committee
undertook a review of the 2024 bonus arrangements
and ensured that the financial and non-financial
performance measures were fully aligned with the
Group’s ongoing strategy. The 2024 bonus design
will continue to involve the assessment of a balance
scorecard of weighted financial and non-financial
measures, including an assessment of risk, people,
customer, strategy and ESG related outcomes.
Overall, the Committee is satisfied that the
remuneration policy operated as intended
during the year.
Michele Turmore
Chair of the Remuneration Committee
28 March 2024
Membership, attendance, and responsibilities
of the Committee can be found on pages 57
and 59.
The terms of reference for the Committee
can be found on the Group’s website at:
shawbrook.co.uk
Shawbrook Group plc | Annual Report and Accounts 2023
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Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Main activities during the year
The Committee met on four occasions during 2023.
In addition to cyclical agenda items, the Committee
reviewed remuneration arrangements for the wider
workforce in the context of the economic climate,
strategic initiatives and employee engagement
feedback. The Committee also considered the
impact of regulatory changes, including the
Consumer Duty, on remuneration and a detailed
review of progress against the Group’s EDI
agenda from a remuneration perspective.
Deloitte LLP provided independent advice to
the Committee on all executive remuneration
matters during the year. Deloitte LLP is a member
of the Remuneration Consultants Group and is
a signatory to its Code of Conduct. During 2023,
Deloitte also provided internal audit, risk advisory,
share plan advisory, consulting and financial
advisory services to the Group. The Committee is
satisfied that the advice received from Deloitte LLP
was objective and independent.
In line with the Framework Agreement and
Memorandum of Understanding, the Shareholder
has representation on the Committee. Where
applicable, decisions are escalated through
the Board to the Shareholder for approval.
Guiding reward principles
The Group seeks to reward its employees fairly for their contribution
and motivate them to deliver the best outcomes for all stakeholders.
This is underpinned by the following principles:
• Remuneration arrangements are designed to attract, retain,
and motivate high calibre individuals who will assist the Group
in meeting its strategy.
• Reward structures will be developed in alignment with the Group’s
strategy and promote long-term sustainable success, while meeting
appropriate regulatory requirements.
• Remuneration will be determined within the Group’s stated risk
appetite defined as ‘maintaining a balanced strategy to reward
our employees for appropriate conduct and performance’.
Safeguarding the right outcomes for customers is at the heart
of this.
• There will be an appropriate mix of long-term and short-term
variable pay arrangements in place, which will assist in driving
the long-term security, soundness, and success of the Group.
• The long-term and short-term variable pay plans will be subject
to appropriate performance measures, ensuring the right balance
between these elements of the reward package.
• Remuneration outcomes will be determined with reference to total
reward principles. For example, when making bonus decisions,
the Group will take into account an employee’s total aggregate
remuneration.
• Eligibility for, and payment of, any remuneration will be
communicated in a clear and transparent way for all colleagues
and in a timely manner.
• Reward structures will be designed to avoid any conflicts of
interests as set out in the Group’s conflicts of interest policy. In
this regard, employees in control functions will be remunerated
independently from the performance of the business areas that
they oversee. Furthermore, the Committee will be constituted in
a way that avoids conflicts of interests and provides independent
oversight of remuneration matters within the Group. No individual
will be permitted to be present at the Committee when decisions
are taken which concern their own remuneration.
Shawbrook Group plc | Annual Report and Accounts 2023
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Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report The Group keeps its reward strategy, including the guiding reward principles, under regular review to ensure
it continues to support the delivery of its strategic priorities. The Committee considers that the current
framework appropriately addresses the following factors as set out in the UK Corporate Governance Code.
Clarity and
simplicity
Risk
As a private company, Shawbrook is not required to produce a full Directors’
Remuneration Report aligned to that of a UK-listed company. However, in the
interests of transparency, the Committee provides voluntary disclosure of our
remuneration policy and how this applies to Executive Directors.
As a financial institution, one of our guiding reward principles ensures that remuneration
is determined within the Group’s stated risk appetite defined as ‘maintaining a balanced
strategy to reward our employees for appropriate conduct and performance’. Safeguarding
the right outcomes for customers is at the heart of this.
Deferral under the annual bonus scheme and participation in the Management Incentive
Plan (MIP) encourages a long-term focus.
All incentive arrangements for material risk takers, including Executive Directors, are
subject to malus and clawback provisions. Shawbrook has a formal risk adjustment policy
which outlines how any risk adjustments (including through the application of malus
and/or clawback) would be determined and applied.
Predictability
The remuneration policy table contains details of maximum annual bonus opportunity
levels for Executive Directors, with actual bonus outcomes varying depending on the
level of performance achieved.
In terms of the MIP, value will only be delivered to participants if the value of the Group
grows by reference to the achievement of stretching hurdles set relative to the Group’s
business plan.
Payment under our incentive arrangements will be subject to the Committee’s discretion.
Proportionality
and alignment
to culture
All eligible permanent and fixed-term employees are considered for an annual bonus,
aligning reward to the overall financial and non-financial performance of the Group.
Under the annual bonus scheme, the Committee assesses performance against a range
of objectives, including ones related to our people, customers, risk, ESG and our strategy.
This ensures that reward is not determined solely on financial performance but also
drives behaviours consistent with Shawbrook’s culture.
The Committee has the discretion in circumstances of poor financial performance
to reduce the bonus outcome, including potentially to zero.
Shawbrook Group plc | Annual Report and Accounts 2023
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Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Directors’ remuneration policy
Shawbrook is not required to produce a Directors’ Remuneration Report in accordance with Schedule 8 of the Large and
Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended). However, for transparency
the Board has produced the table below which summarises the key components of the Group’s reward package and how
these apply to the Executive Directors. No material changes were made to the structure of this package during the year.
Element
Purpose and link
to strategy
Operation
Fixed elements of remuneration
Salary
Pension
Benefits
To provide a competitive
level of base pay to attract
and retain talent.
Base salaries are set with reference to the size and scope of the role, the
external market as well as the skills and experience of the individual. The
approach for the wider workforce is also taken into account.
To provide a competitive
post-retirement benefit
supporting the long-term
financial wellbeing
of employees.
To provide a suite of
competitive benefits
to support the wellbeing
of employees.
Salaries are normally reviewed on an annual basis.
Executive Directors may participate in the Group’s workplace pension arrangement
or receive a cash allowance in lieu (in full or part) of pension contributions.
For 2023, each Executive Director received a pension contribution and/or
allowance to a combined value of 15% of salary per annum.
The Group offers a wide range of benefits to support our employees’ health,
financial and lifestyle needs.
Benefits provided to our Executive Directors include (but are not limited to)
private medical cover, life assurance and permanent health insurance.
Additional benefits may be provided as reasonably required.
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Shawbrook Group plc | Annual Report and Accounts 2023Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Element
Purpose and link
to strategy
Operation
Variable elements of remuneration
Annual
discretionary
bonus
To incentivise and reward the
achievement of short-term
financial and non-financial
objectives which are closely
linked to the Group’s strategy.
Deferral encourages long-
term focus and risk alignment.
Long-term
incentives
To incentivise and reward the
delivery of the Group’s long-
term strategy and growth
over a sustained period.
Annual bonus awards are determined with reference to financial, non-financial
and individual objectives. Specific performance measures and objectives are
reviewed on an annual basis to ensure they appropriately align to the Group’s
ongoing strategy.
When finalising individual award levels, consideration is given to the overall
performance of the Group, business area performance and individual performance
against agreed objectives, including alignment with our purpose, experience
principles and culture, as well as the outcome of the independent risk adjustment
process. Poor financial performance can result in the bonus being reduced,
including potentially to zero.
The on-target opportunity for Executive Directors is 60% of salary per annum
with a normal maximum opportunity of 120% of salary per annum.
Awards over a threshold level (set by the Committee each year) are subject to
deferral. Deferred awards will normally be released in equal tranches after one,
two and three years, subject to continued employment.
Annual bonus awards are subject to the Group’s malus and clawback provisions.
Executive Directors are eligible to participate in the MIP, which has been designed
to incentivise senior management to deliver and execute the Group’s long-term
strategy as well as aligning their interests with those of our Shareholder.
Awards granted under the MIP are subject to an assessment of prior performance
at both an individual and Group level.
The MIP will deliver value to participants for growth in the value of the Group by
reference to the achievement of stretching hurdles set relative to the Group’s
business plan. The value accrued under the MIP will ordinarily be released to
participants at an exit event, i.e. the sale of the Group, the majority of its assets
or an Initial Public Offering. The MIP includes customary lock up provisions.
While the hurdles are financial in nature, the value of the Group, and therefore any
value delivered under the MIP, will depend not only on financial performance but also
on the overall health of the business which will consider other non-financial factors.
Awards will be subject to the Group’s malus and clawback provisions.
Non-Executive Director Fees
The Chair of the Board and Non-Executive Directors
are entitled to an annual fee, with additional fees
payable to the Senior Independent Director and
Chairs and members of the respective Committees
of the Board. Fee levels are reviewed periodically
and are set out within this report.
Reasonable expenses incurred in the performance
of Non-Executive duties may also be reimbursed
or paid directly by the Group, as appropriate.
Shawbrook Group plc | Annual Report and Accounts 2023
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Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Directors’ remuneration in 2023
The tables below set out the remuneration received by Executive and Non-Executive Directors during 2023.
The numbers included in the table below have been audited.
Annual bonus: Executive Directors were eligible to participate in the annual bonus in 2023, with an
on-target annual opportunity of 60% of salary and a maximum annual opportunity of 120% of salary.
The bonus pool outcome was determined through a rounded assessment of performance against a
range of weighted measures.
Executive Directors
Salary
Taxable benefits
Pension
Annual bonus
Total
Non-Executive Directors1
Fees
2023
Highest paid
Executive
Director
£000
2022
Highest paid
Executive
Director
£000
All Executive
Directors
£000
All Executive
Directors
£000
1,150
4
173
1,300
2,627
750
2
113
900
1,765
1,114
5
167
1,265
2,551
2023
£000
721
750
2
113
865
1,730
2022
£000
727
Notes to the tables
Pension: Executive Directors received their pension contributions during 2023 by way of a cash allowance,
except for Marcelino Castrillo who received part of his pension contribution by way of a contribution into
the Group’s workplace pension arrangement and part by way of a cash allowance.
Category Weighting Example measures
Financial
Risk
55%
15%
Customer
10%
People
Strategy &
Culture
10%
10%
PBT, RoTE
Risk appetite, risk management and other key risk objectives
Customer experience, complaints handling and effective implementation and
embedding of Consumer Duty
Attrition, engagement and EDI
Key business initiatives, including evolution of product, technology and digital strategy
and ESG measures focused on climate roadmap and the Group’s communities reach.
When determining the bonus pool outcome,
the Committee carefully reviewed performance
against each of the relevant measures, whilst
also taking into account broader considerations
relating to overall Group and business area
performance. The Committee also considered the
outcomes of the Chief Risk Officer’s independent
report. Overall, the Committee considered that
the Group had demonstrated strong financial
performance over the course of 2023 and
noted its robust approach to risk management,
alongside a strong focus on customer experience
and technology evolution. The Committee also
recognised the Group’s exceptional performance
against it people and strategic objectives as well
as the continued progress of its EDI agenda.
The overall value of awards for the Executive
Directors, which also took into account their
individual performance and contribution during
the year, are included in aggregate in the
emoluments table. In line with policy, 50% of
any amount in excess of £100,000 payable to an
individual will be subject to deferral in cash and
released in three equal tranches after one, two
and three years.
Share related benefits: no share related benefits
were exercised during 2023.
Payments for loss of office: no payments for
loss of office were made during 2023.
1 Whilst not paid directly to the individual, the Group incurs fees of £50,000 plus VAT per annum in relation to each Institutional
Director appointed to the Board by the ultimate parent company, as set out and agreed within the Framework Agreement.
The Institutional Directors are not employed by the Group and their fees are not included in the above table.
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Shawbrook Group plc | Annual Report and Accounts 2023Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Wider workforce remuneration
In line with our guiding reward principles, the
Group seeks to reward its employees fairly for
their contribution and motivate them to deliver
the best outcomes for all our stakeholders.
The remuneration approach applied for the
Executive Directors is closely aligned to the reward
framework for all employees. All employees receive
a salary, pension contribution and benefits set at
a level considered appropriate for their role and
experience. Fixed pay is set at a competitive level
to attract and retain talent.
In terms of variable pay, all permanent and fixed-
term employees are eligible to be considered for
an annual bonus as appropriate to their role. The
Group also operates a long-term incentive plan
to reward other selected senior individuals who
do not participate in the MIP for their contribution
to the delivery of the long-term strategy.
The Committee receives and considers internal
and external information as appropriate to guide
decisions on remuneration, including but not
limited to, the results of employee engagement
surveys as well as feedback sought from the
People Engagement Forum and other internal
(such as the Chief People and Marketing Officer
and Group Head of Reward) and external
stakeholders. The Committee also considers
progress against the Group’s EDI initiatives,
including gender pay gap outcomes for the year,
details of which can be found on our website,
and progress towards commitments made in
line with the Women in Finance Charter.
As a private company, Shawbrook is not required
to disclose the Chief Executive Officer pay ratio.
However, in line with the Board’s commitment
to give due consideration to the spirit of the UK
Corporate Governance Code and in the interests
of transparency, the Committee has chosen to
voluntarily disclose the ratio of the Chief Executive
Officer’s total remuneration to the median total
remuneration of our employees.
Annual bonus: the normal maximum annual bonus opportunity for Executive Directors will be 120% of
salary. When determining the annual bonus outcomes for 2024, the Committee will give consideration
to performance based on a range of weighted financial and non-financial measures, as well as the
individual’s overall performance and the outcome of the Chief Risk Officer’s independent risk review.
Long-term incentive: Executive Directors participate in the MIP, as detailed in the remuneration policy table.
This is the only long-term incentive arrangement in which the Executive Directors currently participate.
Non-Executive Director fees
Fees for Non-Executive Directors were reviewed in early 2024 resulting in the below changes:
Total remuneration 1 Median pay ratio
Fee from 1 January 2023
Fee from 1 January 2024
2023
2022
26:1
26:1
Directors’ remuneration in 2024
The Committee has determined that, for 2024,
the remuneration policy will be implemented
as follows for Executive Directors.
Executive Director salaries: the Committee
reviewed Executive Director salaries on an
individual basis. Considering market positioning
and to reflect performance in role, the Committee
determined that increases would be applied to
both Executive Directors in 2024.
Pension and benefits will continue to operate
in line with the remuneration policy.
Chair fee
Non-Executive Director base fee2
Senior Independent Director fee
Audit and Risk Committee Chair fee
Remuneration Committee Chair fee
£235,000
£70,000
£20,000
£20,000
£20,000
Audit and Risk Committee membership fee
£5,000
Remuneration Committee membership fee
£2,500
Nomination and Governance Committee
membership fee
£2,500
£275,000
£75,000
£20,000
£30,000
£25,000
£8,000
£8,000
£5,000
Additional information
The Committee has unrestricted access to Executive Management and external advisors to help
discharge its duties. It is satisfied that in 2023 it received sufficient, reliable, and timely information
to perform its responsibilities effectively.
The Chair reports on matters dealt with at each Committee meeting to the subsequent Board meeting.
The Board reviewed and approved this report on 28 March 2024.
Michele Turmore
Chair of the Remuneration Committee
1
Includes salary, taxable benefits, pension, and annual bonus awards earned in respect of the financial year. It does not include buyout
awards, payments for loss of office or any awards granted under the MIP and Long-Term Incentive Plan. In reaching the median total
remuneration of our employees, the Group has considered the full-time equivalent total remuneration of all individuals employed by the
Group for the entirety of 2023 where such earnings have not been impacted by notable periods of absence.
2 Whilst not paid directly to the individual, the Group incurs fees of £50,000 plus VAT per annum in relation to each Institutional Director
appointed to the Board by the ultimate parent company, as set out and agreed within the Framework Agreement.
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Shawbrook Group plc | Annual Report and Accounts 2023Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Nomination and Governance
Committee Report
“I am pleased to present the 2023 report as
Chair of the Nomination and Governance
Committee. The Committee continued to
focus on Board and Executive succession
planning, ensuring a desired mix of skills
and expertise is maintained across the
Board, its Committees, the Executive
and Senior Management to support
the delivery of the Group’s strategy.”
Shawbrook remains committed to EDI and continues
to be a signatory of the Business in the Community
Race at Work and HM Treasury Women in Finance
Charters. Both are sponsored by a member of the
Executive team who help to drive positive action
with the support of the EDI Steering Committee
and our wider employee inclusion network.
Developing and hiring great talent remains a key
focus and the Committee supports the Executive
team in delivering good outcomes. During 2023 the
Committee reviewed and approved a refreshed
Leadership Framework and reviewed regular updates
on a number of initiatives aimed at supporting the
development of talent, including the roll out of
company wide coaching and mentoring platforms.
Looking ahead, the Committee will continue to keep
the structure, size and composition of the Board and
its committees under review, as well as overseeing
succession of the Executive and Senior Management
team and the Group’s corporate governance
arrangements. The Committee will also monitor
progress on embedding the learnings from the
2023 Board and Committee effectiveness reviews.
Further information about the activities of the
Committee is provided in the following report.
John Callender
Chair of the Nomination and Governance Committee
28 March 2024
Membership, attendance, and responsibilities
of the Committee can be found on pages 57
and 59.
The terms of reference for the Committee
can be found on the Group’s website at:
shawbrook.co.uk
Shawbrook Group plc | Annual Report and Accounts 2023
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Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Main activities during the year
Throughout the year, the Committee considered
the composition of the Board and its Committees,
Board succession planning, appointments to
subsidiary boards, compliance with the UK
Corporate Governance Code 2018, executive
succession planning, the Group’s leadership
programme, SMCR appointments and EDI.
Board composition and succession planning
The Committee monitors the membership of the
Board and its committees to ensure that there is a
suitable balance of diversity, skills and experience.
Consideration to the length of service of the
members is also undertaken. This ensures that
appropriate succession and development plans are
in place for appointments to the Board. During the
year, this work was complemented by a 360-degree
review of the independent Non-Executive Directors
carried out by the Chair.
In May 2023 the Nomination and Governance
Committee was strengthened, with the appointment
of Janet Connor and Andrew Didham as members.
The Committee is satisfied that the succession
planning structure in place is appropriate for
the size and nature of the Group.
Non-Executive Director time commitment
The Committee continued to keep under review the
time commitment of each Non-Executive Director
to help ensure that the Board and its committees
had the appropriate representation and that the
Non-Executive Directors were able to commit the
appropriate time to their respective roles. This is
on average at least four days per month depending
on business needs.
Re-electing Directors
Before recommending the proposed re-election
of Directors at the 2023 Annual General Meeting,
the Committee reviewed the independence of
the Non-Executive Directors and concluded that
Andrew Didham, Paul Lawrence, Michele Turmore,
Lan Tu and Janet Connor met the criteria for
independence. John Callender was independent
when he was appointed as Chairman. Lindsey
McMurray and Cédric Dubourdieu’s re-election
as Institutional Non-Executive Directors was
made in line with the Framework Agreement.
Non-Executive Director contracts
Subject to annual re-election at each Annual
General Meeting, the contracts for Non-Executive
Directors are reviewed every three years. I am
pleased that my own appointment as Chairman
was approved, for a further three year period,
with effect from March 2024 and Andrew Didham’s
contract as Chair of the Audit Committee and
Non-executive Director has also been renewed for
a further three year period, from January 2023.
Executive and Non-Executive
Director induction
All new Directors are required to undertake
an induction programme, which includes
comprehensive training on their Senior Managers
and Certification Regime responsibilities. In addition,
Directors are required to undertake training in the
regulatory and compliance frameworks and are also
required to gain an understanding of relevant legal
requirements, such as money laundering legislation.
Inductions include sessions with the Chairman,
Directors, Executive Management and external
advisors to gain insight into the Group. Training
is tailored to the requirements of each Director’s
role, knowledge and experience.
EDI
Over the past 12 months, sustainable progress
has been made against our EDI agenda by further
embedding our pillars and continuing the focus
on building a culture of trust and belonging. We
achieved gender parity in our EDI staff survey
scores for the first time and are on track to meet
our 2024 Women in Finance target of 30% of
women in senior roles. During the year we joined
Progress Together, to further bolster our efforts to
improve social mobility across financial services.
We have, however, dropped back in the number
of Minority Ethnic Senior Leaders in the Group
and this continues to be a key focus in building
the pipeline of future leaders.
Senior Management Function
appointment process
The Committee is also responsible for overseeing
the appointment of Senior Management Function
holders, pursuant to the Senior Managers and
Certification Regime. Prior to such appointments,
the Committee evaluates the balance of skills,
knowledge and experience required for the role
and provides suitable oversight of the selection
and appointment process. The Committee is
pleased with the appointments made in 2023,
which will help the Group to achieve its
strategic aims.
Leadership Framework
In June 2023 the Committee reviewed and
approved a refreshed leadership framework. The
new framework clarifies what it means to be a
leader in Shawbrook, supported by an impactful
and transparent talent identification and
development programme. During the latter part
of the year Group wide coaching and mentoring
platforms were launched, with very encouraging
early levels of take-up. The Committee will continue
to oversee the development and embedding of
this framework.
Additional information
The Committee has unrestricted access to the
Executive, Senior Leadership and external advisors
to help discharge its duties. It is satisfied that in 2023
it received sufficient, reliable and timely information
to perform its responsibilities effectively.
The Board reviewed and approved this report
on 28 March 2024.
John Callender
Chair of the Nomination and Governance Committee
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Shawbrook Group plc | Annual Report and Accounts 2023Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Directors’ Report
Corporate governance statement
The Directors of the Company present their report, together with the audited financial
statements, for the year ended 31 December 2023. Other information that is relevant
to the Directors’ Report, and which is incorporated by reference into this report, can
be located as follows:
Subject
Pages
Business activities and future development
Charitable donations
Corporate Governance Report
Directors’ biographical details
Employees
Employee share schemes
Environment
Events after the reporting period
Internal controls and financial risk management
Relationship with suppliers
Relationship with the Shareholder
Results for the year
Risk management
13
84
52
53
46
84
22
251
64
46
47
189
87
Use of financial instruments
224-229 and 241-245
Section 414 of the Companies Act 2006 requires the Directors to present a Strategic Report
in the Annual Report and Accounts. The information can be found on pages 1 to 50.
The Group has chosen, in accordance with Section 414C (11) of the Companies Act 2006,
and as noted in this Directors’ Report, to include certain matters in its Strategic Report
that would otherwise be disclosed in this Directors’ Report.
Dividends
The Directors are not recommending a final
dividend in respect of the year ended 31 December
2023 (2022: £nil).
Employees with disabilities
Applications for employment by people with
disability are given full and fair consideration,
bearing in mind the respective aptitudes and
abilities of the applicant concerned and our ability
to make reasonable adjustments to the role and
the work environment. In the event of an existing
employee becoming disabled, all reasonable effort
is made to ensure that appropriate training is given
and their employment with the Group continues.
Training, career development and promotion of
a disabled person is, as far as possible, identical
to that of an able-bodied person.
Appointment and retirement of Directors
The Company’s Articles of Association set out
the rules for the appointment and replacement
of Directors and expects that all Directors shall
retire from office and may offer themselves for
re-appointment at the Annual General Meeting.
Powers of Directors
The Directors’ powers are conferred on them by
UK legislation and by the Company’s Articles of
Association. Changes to the Company’s Articles of
Association must be approved by the Shareholder
passing a special resolution and must comply with
the provisions of the Companies Act 2006. The
Company’s Articles of Association can be viewed
on the website: shawbrook.co.uk
Directors’ interests
None of the Directors hold shares in the Company.
Lindsey McMurray and Cédric Dubourdieu are
Directors of Marlin Bidco Limited, the Group’s
sole Shareholder.
Directors’ indemnities
The Company’s Articles of Association provide
that, subject to the provisions of the Companies
Act 2006, the Group may indemnify any Director or
former Director of the Company, or any associated
Company, against any liability and may purchase
and maintain for any Director or former Director
of the Company, or any associated Company
insurance against any liability.
The Directors of the Group have entered into
individual deeds of indemnity with the Group, which
constitute ‘qualifying party indemnity provisions’
entered into by the Directors and the Company.
The deeds of indemnity protect the Directors to the
maximum extent permitted by the law and by the
Articles of Association of the Company, in respect
of any liabilities incurred in connection with the
performance of their duties as a Director of the
Company and any associated Group company,
as defined by the Companies Act 2006.
The Group has maintained appropriate Directors’
and Officers’ liability insurance throughout 2023.
Company Secretary
All Directors have access to the services of the
Company Secretary in relation to the discharge of
their duties. Andrew Nicholson can be contacted
at the Company’s registered office, details of
which are on page 196.
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Shawbrook Group plc | Annual Report and Accounts 2023Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Going concern
The financial statements are prepared on a going
concern basis. To assess the appropriateness of
this basis, the Directors considered a wide range
of information relating to present and future
conditions, including the Group’s current financial
position and future projections of profitability, cash
flows and capital resources. The Directors also
considered the Group’s risk assessment framework
and potential impacts that the top risk identified
(see page 94 of the Risk Report) may have on the
Group’s financial position and longer-term strategy.
The Group continues to have a proven business
model, as demonstrated by its continued levels of
profitability, and remains well positioned in each
of its core markets. The Directors believe the Group
is well capitalised and efficiently funded, with
levels of liquidity.
The Directors have reviewed the Group’s capital
and liquidity plans, which have been stress tested
under a range of severe but plausible scenarios
as part of the annual planning process and the
annual Internal Capital Adequacy Assessment
Process (ICAAP) and Internal Liquidity Adequacy
Assessment Process (ILAAP). The stressed
forecasts indicate that, under these stressed
scenarios, the Group continues to operate
with sufficient levels of liquidity and capital
for the next 12 months, with the Group’s capital
ratios and liquidity remaining in excess of
regulatory requirements.
Based on the above, the Directors believe the
Group has sufficient resources to continue its
activities for a period of at least 12 months from
the date of approval of these financial statements
and the Group has sufficient capital and liquidity
to enable it to continue to meet its regulatory
requirements as set out by the PRA. Accordingly,
the Directors have concluded that it is appropriate
to adopt the going concern basis in preparing
these financial statements.
Political and charitable donations
The Group did not make any political donations
during the year (2022: £nil). The Group donated
c.£200,000 to charitable causes during 2023
(2022: c.£200,000).
Share capital
The Group is a non-listed public company limited
by shares.
Details of the Company’s issued share capital,
together with details of any movements in the
Company’s issued share capital during the year,
are shown in Note 39 of the Financial Statements.
The Company’s share capital comprises one
class of ordinary share with a nominal value of
£0.01 each. At 31 December 2023, 253,086,879
ordinary shares were in issue. There were no share
allotments in 2023.
Restrictions on the transfer of shares
According to the Articles of Association and
prevailing legislation there are no specific
restrictions on the transfer of shares of
the Company.
Rights attaching to shares
On a show of hands, each member has the right to
one vote at General Meetings of the Company. On
a poll, each member would be entitled to one vote
for every share held. The shares carry no rights to
fixed income. No one person has any special rights
of control over the Company’s share capital and all
shares are fully paid.
New issues of share capital
Subject to the Framework Agreement and under
Section 551 of the Companies Act 2006, the
Directors may allot equity securities only with the
express authorisation of the Shareholder. Under
Section 561 of the Companies Act 2006, the Board
may also not allot shares for cash (otherwise
than pursuant to an employee share scheme)
without first making an offer to the Shareholder
to allot such shares to them on the same or more
favourable terms in proportion to their respective
shareholdings, unless this requirement is waived by
a special resolution of the Shareholder.
Purchase of own shares by the Company
Subject to the Framework Agreement and under
Section 701 of the Companies Act 2006, the Group
may make a purchase of its own shares if the
purchase has first been authorised by a resolution
of the Shareholder.
Substantial shareholdings
The Group is 100% owned by Marlin Bidco Limited.
Auditor
Resolutions to reappoint KPMG LLP as the Group’s
auditor and to give the Directors the authority
to determine the auditor’s remuneration will
be proposed at the Annual General Meeting.
Disclosure of information to the auditor
The Directors confirm that:
• so far as each of the Directors is aware, there
is no relevant audit information of which the
auditor is unaware; and
• the Directors have taken all the steps that
they ought to have taken as Directors to
make themselves aware of any relevant audit
information and to establish that the auditor
is aware of that information.
This confirmation is given and should be
interpreted in accordance with the provisions
of the Companies Act 2006.
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Shawbrook Group plc | Annual Report and Accounts 2023Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Each of the Directors, whose names and functions are listed
on pages 53 to 55, confirms that, to the best of their knowledge:
• the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss of the
Group and the undertakings included in the consolidation taken
as a whole;
• the Strategic Report (on pages 1 to 50) and the Directors’ Report
(on pages 83 to 85) include a fair review of: (i) the business’s
development and performance and (ii) the position of the Group
and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face;
• the Annual Report and Accounts comply with all aspects of the
Guidelines for Disclosure and Transparency in Private Equity; and
• the Annual Report and Accounts, taken as a whole, are fair,
balanced and understandable, and provide the information
necessary for the Shareholder to assess the Group’s position
and performance, business model and strategy.
This Directors’ Report was approved by the Board of Directors
on 28 March 2024.
By order of the Board.
Andrew Nicholson
Company Secretary
Directors’ responsibility statement
The Directors are responsible for preparing the Annual Report
and Accounts and the Group and Parent Company financial
statements in accordance with applicable law and regulations.
Company Law requires the Directors to prepare such financial
statements for each financial year. Under that law, the Directors
must prepare the Group financial statements in accordance with
UK-adopted international accounting standards in conformity with
the requirements of the Companies Act 2006 and have elected to
prepare the Parent Company financial statements on the same basis.
Under company law, the Directors must not approve the accounts
unless they are satisfied that they give a true and fair view of the
state of affairs of the Group and Parent Company and of their profit
or loss for that period.
In preparing the Group’s financial statements, the Directors are
required to: properly select and apply accounting policies; present
information; including accounting policies, in a manner that provides
relevant, reliable, comparable and understandable information; and
provide additional disclosures when compliance with the specific
requirements of the relevant accounting standard is insufficient to
enable an understanding of the impact of particular transactions,
other events and conditions on the entity’s financial position and
financial performance. Finally, the Directors must assess the
Group’s ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group’s
transactions and disclose with reasonable accuracy, at any time,
the financial position of the Company, enabling them to ensure
that its financial statements comply with the Companies Act 2006.
Additionally, the Directors are responsible for safeguarding the
Group’s assets and, hence, take reasonable steps to prevent and
detect fraud and other irregularities. The Directors are responsible for
maintaining and ensuring the integrity of the corporate and financial
information included on the Group’s website at shawbrook.co.uk.
Legislation in the UK governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
85
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87
90
94
Approach to risk management
Risk governance and oversight
Top and emerging risks
104 Principal risks
150
ICAAP, ILAAP and stress testing
150 Recovery Plan and Resolution Pack
151 Group viability statement
Shawbrook Group plc | Annual Report and Accounts 2023
86
Approach to risk management
Shawbrook Group plc and its subsidiaries (together, the ‘Group’) seek
to manage the risks inherent in its business activities and operations
through close and disciplined risk management. This aims to quantify
the risks taken, manage and mitigate them as far as possible and
price for them in order to produce an appropriate commercial return
through the cycle.
The Group’s approach to risk management continues to evolve in
response to changes in the business model and the products offered,
changes in the way customers want to engage with the Group, as
well as external changes and developments such as the ongoing
challenges resulting from the rising cost of living.
Throughout 2023, further investment was made in key areas of risk
management. Notable activities and changes include the following:
• The annual review of the Group’s Risk Management Framework
(RMF) and risk appetite were approved in February 2023 and April
2023, respectively. The Group Risk Appetite Report (GRAR) sets out
the Group’s tolerance for risk in delivering its objectives.
• The Group conducted a review of its risk taxonomy to ensure that
the RMF is capable of managing future growth and the associated
risks. As a result, the Group now identifies ten principal risks
(see page 90). As part of these changes, the Group introduced a
new Executive Risk Committee to support the escalation of risk
related matters. This is supported by a number of new oversight
committees, which support the oversight of the new principal risks.
• Continued investment has been made by the Group in its risk
management capability. This has included a reorganisation within
the second line of defence to bring operational risk, monitoring and
third-party risk oversight together under the newly created role of
Group Director of Operational Risk and Monitoring. In addition, MI
(management information) and analytics were brought together
under the Group Risk Management Director.
• Following regulatory approval, the Group completed the acquisition
• The Group has continued to invest in risk technology and MI as a
of Bluestone Mortgages Limited on 31 May 2023. Launched in
2014, Bluestone Mortgages Limited is a well-established brand
in the UK specialist residential mortgage market, working with a
large network of brokers to support customers that do not fit the
traditional profile of high street banks. The Group has appointed
a Chief Risk Officer for the Retail Mortgage Brands franchise to
provide a shared risk service to drive consistency and promote
the embedding of the Group RMF across TML and BML.
primary source of control. This has included the delivery of a cloud-
native version of its analytical system that has been designed to
support access to data in any environment, new data visualisation
tools and support the implementation of AI and machine learning
into the lending process. The Group also implemented a new
governance, risk, compliance and assurance tool, which is designed
to bring risks, controls, and assurance into a single ecosystem
shared by all lines of defence.
• The Group has continued to evolve its environmental, social, and
governance (ESG) strategy, focusing on those areas in which it
can deliver the greatest impact. The Group has further developed
its climate strategy to support its customers’ transition to a low
carbon future, reduce its climate impact and embed climate risk
into the Group’s DNA. This has included additional investment
in climate data to support an assessment of physical and
transition risk for SMEs and progress in delivering the £1.2 billion
of sustainable finance by 2025.
• Enhancements to the Group’s financial crime control environment
have continued. All originations now pass through a financial crime
and compliance platform, and the MI suite has been enhanced.
The Group also processed the back book through the new system
to identify any potential flags.
• The Group has completed its work on the ‘Consumer Duty’,
delivering key product reviews against the rules by 30 April
2023 and management attestation of substantive compliance
with the regulation was provided to the Board in July 2023.
Ongoing compliance will be supported through reports to the
Board, updates to group risk appetite reporting, a new customer
experience dashboard and inclusion in the annual risk attestation.
• Model risk, which is now identified as a principal risk, is a key area
of focus for the Group, with further investment in resources to
support the development of a road map and activities to embed
the new PRA policy model risk management principles for banks.
Although the Group does not have permission to use its internal
models to calculate regulatory capital requirements, it supports
the aim of strengthening its controls around the use of models
as best practice. The Group continues to be regulated under
the Standardised Approach for credit risk and has considered
some further ‘no regrets’ actions that would be considered good
risk practices normally associated with firms that have an IRB
permission. These include the use of models in the way that the
bank operates, data, and data controls.
• Continued investment in the development of the Group’s internal
audit function, including the appointment of key resources to
support the co-source model and focus on data to support an
agile risk assessment and prioritisation of the audit plan.
• Considerable economic uncertainty has remained throughout
2023, with the rise in the cost of living, the underlying elevated
level of core inflation, elevated interest rates, the conflicts in
Ukraine and the Middle East and the potential for supply chain
disruption. These matters all require careful monitoring to identify
any associated risks that need to be addressed. This continues to
be monitored by the Group through a specifically designed set of
early warning indicators.
• In response to the ongoing changes in the economic environment,
the Group continues to maintain a focus on affordability, ensuring
its models and policies remain appropriate and closely aligned to
customer behaviour. The Group has continued to conduct regular
portfolio reviews, with the benefit of external information to ensure
that its risk appetite remains appropriate.
87
Composition and naming of disclosed lending segments
During the year, following the acquisition of Bluestone Mortgages Limited (BML), the Group’s disclosed lending segments have been
revised. The previously disclosed ‘Real Estate’ segment has been amended to extract all amounts relating to BML. Amounts relating to
BML are now aggregated with the previously disclosed ‘TML Mortgages’ segment; forming a new reportable operating segment named
‘Retail Mortgage Brands’ (which comprises the two subsidiaries, Bluestone Mortgages Limited and The Mortgage Lender Limited).
Prior year comparatives have been restated to reflect this change. Further details are provided in Note 10 of the Financial Statements.
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Approach to risk
management
Key elements to risk management
Effective risk management is recognised as being
key to the execution of the Group’s strategy.
The Group’s approach to risk management is
underpinned by five key elements:
• Risk strategy
• Risk appetite
• Risk Management Framework
• Governance
• Culture
The following information provides further
details about each of these key elements.
Risk strategy
The risk strategy is an integral part of the Group’s strategy. It sets out the
strategic risk management objectives that will support the achievement
of the Group’s commercial goals and the operation and activities of each
customer franchise that will facilitate the delivery of those aims. The risk
strategy sets out which risks are to be acquired or incurred and how they
will be managed. The risk strategy is embedded in the Group strategy
with short- and medium-term objectives outlined in the Group’s Risk Plan,
which is approved annually by the Board in February. The Group’s Risk Plan
includes the risk priorities for the Group’s risk function, together with the
risk plans for the customer franchises (Enterprise, Consumer and Retail
Mortgage Brands) and central functions.
The strategic risk management objectives are to:
• identify material risks arising in the day-to-day activities
and operations of the Group;
• quantify the risks attached to the execution of the Group’s
business plans;
• set an appropriate risk appetite with calibrated measures
and limits;
• optimise the risk/reward characteristics of business written;
• set minimum standards in relation to the acquisition and
management of risk;
• secure and organise the required level and capability
of risk infrastructure and resources;
• reflect the impact of internal controls;
• undertake remedial action where any weaknesses are
identified; and
• scan the horizon for emerging risks.
Risk appetite
The level of risk that the Group is willing to tolerate in operating the various
elements of its business are defined in the RMF. This articulates qualitative
and quantitative measures of risk that are cascaded across various areas of
the Group’s operations, calibrated by reference to the Group’s risk appetite
and absolute capacity for risk absorption.
During the year ended 31 December 2023, the Group completed the annual
review, together with some interim reviews, of the Group’s risk appetite.
The Risk Appetite Statement is not static and evolves to support the
Group’s business objectives, the operating environment and risk outlook.
Whilst the Group Risk Appetite Report provides an aggregated measure
of performance against risk appetite, it is not just a reporting tool. It also
provides a framework that is used dynamically to inform strategic and
operational management decisions, as well as supporting the business
planning process.
The Risk Appetite Statement is reviewed periodically by the Risk Committee
and agreed with the Board on an annual basis, or more frequently if
required. A dashboard with the status of each metric is monitored on a
monthly basis by the Executive Risk Committee and its sub-committees.
The Executive Risk Committee, Risk Committee and the Board exercise their
judgement as to the appropriate action required in relation to any threshold
breach, dependent on the scenario at the time.
As set out in the table on the following page, the Risk Appetite Statement
identifies ten risk appetite objectives that are further subdivided into
34 appetite dimensions. The objective assessment of each risk appetite
dimension is supported by qualitative statements and a series of
quantitative measures that are weighted by their importance to the
overall appetite.
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Risk appetite
objectives
Strategic risk
Credit risk
Risk appetite dimensions
• Equality, diversity and inclusion
• Governance risk
• Sponsorships and partnerships risk
• Strategy and transformation risk
• Concentration risk
• In-life management risk
• Losses due to default on
contractual obligations
• Losses due to inadequate
security/collateral
• Underwriting quality risk
Market, liquidity
and capital risk
• Capital adequacy
• Funding
• Liquidity
• Market
Operational risk
and resilience
Technology
and cyber risk
Conduct risk
• Data quality and governance risk
• Fraud
• Operational resilience risk
• People
• Physical assets availability, safety
and security
• Statutory reporting and tax risk
• Third party
• Transaction processing risk
• Technology availability risk
• Technology infrastructure risk
• Culture and market risk
• Customer conduct risk
• Lending to other lenders
Compliance and
regulatory risk
• Data privacy
• Regulatory management
• Legal risk
Financial crime risk
• Financial crime
Model risk
• Model design and implementation
• Model governance
• Model usage
Climate risk
• Environmental and climate risk
Governance
All of the Group’s risk activities are subject
to detailed and comprehensive governance
arrangements that set out how risk-based
authority is delegated from the Board to the
various risk management committees and
individuals. Risk governance and oversight
is detailed further below, starting on page 90.
Culture
The Group is led by an experienced
management team with a combination of
significant underwriting expertise, institutional
and regulatory banking experience at various
major financial institutions and specialist
lenders and product engineering expertise.
This heritage provides the platform for a set
of values and behaviour where the customer
is at the heart of the decision-making process
and the customer franchises are held fully
accountable for risk performance. At the
individual level, this process begins with the
induction programme and job descriptions,
is carried into the setting of individual
objectives and performance reviews and
is ultimately reflected in the compensation
and reward structure. The Group conducts
regular surveys for all of its employees,
to help identify any emerging risks and
to promote engagement.
Risk Management Framework
All of the Group’s business and support
service activities, including those outsourced
to third-party providers or originated via
brokers and other business intermediaries,
are managed within the parameters of a single
comprehensive RMF. This sets out minimum
requirements and ensures consistent standards
and processes are set across the Group. Risks
are identified, measured, managed, monitored,
reported and controlled using the RMF. The
design and effectiveness of the framework is
overseen and reviewed by the Risk Committee.
Responsibility for risk management sits at all
levels across the Group. The Board sets the
‘tone from the top’ and all colleagues are
expected to adopt the role of ‘risk manager’
in all aspects of their role.
The RMF describes various activities, techniques
and tools that are mandated to support the
identification, measurement, management,
monitoring, reporting and control of risk
across the Group. It is designed to provide
an integrated, comprehensive, consistent
and scalable structure that is capable
of being communicated to and clearly
understood by all of the Group’s employees.
The RMF also incorporates the organisational
arrangements for managing risk with
specific responsibilities distributed to certain
functions. This ensures that there is clear
accountability, responsibility and engagement
at appropriate levels within the Group, which
can provide robust review and challenge, as
well as be challenged. Operationally, the RMF
is organised around a number of principal risks
(see page 90).
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Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Risk governance and oversight
These bodies and senior officers are accountable
and responsible for ensuring that the day-to-
day risks are appropriately managed within the
agreed risk appetite and in accordance with the
requirements of the RMF.
Individuals are encouraged to adopt an open
and independent culture of challenge, which is
important in ensuring risk issues are fully surfaced
and debated, with views and decisions recorded.
Risk governance and culture is reinforced by
the provisions of the Senior Managers and
Certification Regime.
Formal risk escalation and reporting requirements
are set out in risk policies, individual committee
terms of reference and the approved risk appetite
thresholds and limits.
Oversight of principal risks is illustrated as follows.
The monitoring and control of risk is a
fundamental part of the management process
within the Group. Risk governance describes
the architecture through which the Board
allocates and delegates primary accountability,
responsibility and authority for risk management
across the Group.
Responsibility for risk oversight is delegated
from the Board to the Risk Committee and Audit
Committee. However, ultimate responsibility
for risk remains with the Board. An abbreviated
Board and Executive Committee structure is
set out in the Corporate Governance Report on
pages 51 to 85, which further describes their roles
and responsibilities.
Accountability, responsibility and authority for risk
management is delegated to the Chief Executive
Officer and Chief Risk Officer, who in turn allocate
responsibility for oversight and certain approvals
across a number of management committees.
The Managing Directors of each customer
franchise are assigned the designated role of
SMF18 (‘other overall responsibility function’).
Authority and responsibility for material
operational risk management, decision-making
and risk monitoring is vested in the Chief Risk
Officer and the risk function. Lesser levels of
authority are cascaded to Senior Management
within the first line of defence.
Oversight
Board
Risk Committee
Audit Committee
First line
Second line
Third line
Principal
risk
Strategic risk
Credit risk
Executive Directors
and Senior
Management
Credit
management
in customer
franchises
Prudential risk
Executive Risk
Committee
Credit risk
Liquidity and
market risk /
prudential risk
Credit Risk
Oversight
Committee
Asset and Liability
Committee
Market, liquidity
and capital risk
Treasury
Operational risk
and resilience
All customer
franchises and
central functions
Operational risk
and monitoring
Op Risk and 3rd Party
Oversight Committee
Internal
audit
Technology
and cyber risk
Chief
Technology Office
Operational risk
and monitoring
Op Risk and 3rd Party
Oversight Committee
Conduct risk
Compliance and
regulatory risk
Financial
crime risk
Model risk
Climate risk
All customer
franchises
All customer
franchises
All customer
franchises
All customer
franchises and
central functions
All customer
franchises and
central functions
Compliance
Compliance
Conduct / Compliance
Oversight Committee
Conduct / Compliance
Oversight Committee
Financial crime
Financial Crime Risk
Oversight Committee
Prudential risk
Model Risk
Oversight
Committee
Prudential risk
Conduct / Compliance
Oversight Committee
Shawbrook Group plc | Annual Report and Accounts 2023
90
90
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Risk governance and oversight
Three lines model
The RMF is underpinned by the three lines model, which is summarised in the illustration below:
Customer franchises
Central functions
Risk function
Led by the Chief Risk Officer
Credit risk
Operational risk
and resilience
Market, liquidity
and capital risk
Technology and
cyber risk
Strategic risk
Conduct risk
Compliance and
regulatory risk
Climate risk
Financial crime risk
Model risk
e
t
i
t
e
p
p
a
k
s
R
i
y
g
e
t
a
r
t
s
k
s
R
i
Internal audit
Led by Chief Internal Auditor
External audit
Regulator
First line
• Owner of the risk management
process and regulatory compliance
• Identifies, measures, manages,
monitors and reports on risks
Second line
• Designs, interprets and develops overall
Risk Management Framework and
monitors business as usual adherence
• Reviews and provides oversight
of top risks
• Develops compliance policies, leads
requirements for regulatory change
and monitors horizon risks and
regulatory issues
Third line
• Operates independently to provide
an objective evaluation of governance,
risk management and internal controls
across the Group
• Provides independent and objective
assurance to the Board and Executive
Management that the risk management
arrangements are operating as designed
Additional information regarding the three lines are provided in the following sections.
First line
Responsibility for risk management resides
in the frontline customer franchises together
with the central functions. Line management
is directly accountable for identifying and
managing the risks that arise in their business
or functional area. They are required to
establish effective controls in line with the
Group’s risk policies and act within the risk
appetite parameters set and approved by
the Board.
The first line comprises the customer
franchises and the central functions.
The central functions include:
• the finance function led by the Chief
Financial Officer;
• the customer service and experience function
led by the Customer Operation and Service
Support Director;
• the technology function led by the Chief
Technology Officer;
• the product function led by the Chief
Product Officer;
• the human resources and marketing
function led by the Chief People and
Marketing Officer; and
• the legal function led by the General Counsel.
Operational resilience oversight is performed
by the Customer Operation and Service Support
Director on behalf of the Executive Committee.
Each functional area operates to set risk
policies to ensure that activities remain within
the Board’s stated risk appetite for that area of
the Group. The risk policies are approved by the
appropriate committee in accordance with their
terms of reference and are reviewed annually,
with any material changes requiring approval at
committee level.
The first line has its own operational policy,
process and procedure manuals and controls
to demonstrate and document how it conforms
to the approved policies. Likewise, it develops
quality control programmes to monitor and
measure adherence to and effectiveness of
procedures. All employees within a customer
facing unit are considered first line. Each
employee is aware of the risks to the Group
of their particular activity and the customer
franchise and central function heads are
responsible for ensuring there is a ‘risk aware’
culture within the first line. For certain key
policies, employees within the customer
franchises complete regular online training
programmes to ensure knowledge is refreshed
and current.
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Risk governance and oversight
Second line
The second line comprises the Group’s central and independent risk
management and compliance function led by the Chief Risk Officer.
The Chief Risk Officer reports to the Chief Executive Officer and
laterally to the Chair of the Risk Committee. The Chief Risk Officer is
also provided with unfettered access to the Chairman of the Board.
The second line also includes the General Counsel, who reports to
the Chief Executive Officer.
The second line is necessarily and deliberately not customer facing
and has no responsibility for any business targets or performance.
It provides independent challenge and control of the first line, which
is delivered through the following:
• the design and build of the various components of the RMF and
embedding these, together with the risk strategy and risk appetite,
across the Group;
• independent monitoring of the Group’s activities against the
• providing advice and support to the first line in relation to risk
Board’s risk appetite and limits, and provision of monthly
analysis and reporting on the risk portfolio to the Executive
Risk Committee (or appropriate sub-committee) and the Board;
• issuing and maintaining the suite of Group risk policies and
associated standards;
• in relation to outsourced services, the setting of policies and
subsequent assessment of policy conformance;
• undertaking physical reviews of risk management, controls
and capability in the first line and providing risk monitoring
reports to the Executive Risk Committee (or appropriate sub-
committee) and the Board on all aspects of risk performance
and compliance with the RMF;
management activities;
• credit approvals between delegated authority and the threshold
for Credit Approval Committee; and
• undertaking stress testing exercises and working with the
finance and treasury functions on the production of the Internal
Capital Adequacy Assessment Process (ICAAP), Internal Liquidity
Adequacy Assessment Process (ILAAP) and Recovery Plan and
Resolution Pack.
The Group’s high-level risk structure is illustrated below. ‘SMF’
references included in the below diagram refer to designated
roles stipulated by the Senior Managers and Certification Regime.
Chair of the Risk Committee
Chief Executive Officer SMF 1 and SMF 3
Chief Risk Officer
SMF 4
Prudential
risk
Conduct,
compliance
and financial
crime risk
SMF 16
and SMF 17
Liquidity
and
market risk
Credit
risk
Non-
performing
loans
Collections
and
recoveries
Data, MI
and insight
Operational
risk and
monitoring
General
Counsel
Legal
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Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Risk governance and oversight
Third line
The third line comprises the internal audit function, led by the
Chief Internal Auditor.
The third line provides independent assurance directly to the Audit
Committee and Board on the activities of the Group, including
governance, the effectiveness of the RMF and internal controls.
The internal audit function reports directly to the Chair of the
Audit Committee, as well as the Chief Executive Officer, and is
independent of the first and second lines.
The third line has access to the activities and records of both the
first and second lines. It can inspect and review adherence to
policies and controls in the first line, the monitoring of activities in
the second line and the setting of policies, standards and controls
in the second line.
The third line does not independently establish policies or
controls itself, outside of those necessary to implement its
recommendations with respect to the other two lines. The third
line may in some cases use the reports and reviews compiled by
the second line as a starting point, but is not restricted to them
or necessarily influenced by their findings.
The scope of work of the third line is agreed with the Audit
Committee and is designed to provide an independent
assessment of the adequacy and effectiveness of governance,
risk management and the internal control frameworks operated by
the Group and to note the extent to which the Group is operating
within its risk appetite. It does this by reviewing aspects of the
control environment, key processes and specific risks and includes
a review of the operation of the second line.
Risk policies and controls
The RMF is enacted through a comprehensive suite of policies
and associated standards that set out the minimum standards in
relation to the acquisition and management of lending assets and
liabilities, as well as the control of risks embedded in the Group’s
operations, activities and markets.
The Group’s policies and associated standards are overseen by
the Group’s risk function, headed by the Chief Risk Officer and
are approved by the Board or, where delegated, the appropriate
risk oversight committee. The suite of policies and standards is
grouped according to importance and principal risk within a Board
approved policy hierarchy and framework.
Group-level policies and standards are supplemented, as required,
by customer franchise specific policies, guides, processes and
procedures, which detail more specific and tailored criteria. The
customer franchise and central function specific processes and
procedures are required to be compliant with Group policy and
dispensations or waivers are required where gaps are identified.
These process and procedure manuals provide employees at all
levels with day-to-day direction and guidance in the execution of
their duties.
The effectiveness of, and compliance with, risk policy
frameworks are evaluated on a continuous basis through
the monthly reporting requirements (including risk policy
exceptions reporting).
Additionally, a bi-annual risk and control self-assessment,
supplemented by a programme of audits, thematic risk monitoring
reviews and control testing, is undertaken by each of the three
lines. During 2023, the Group also implemented a capability
assessment to support the annual attestation process, which
confirms compliance with the RMF and identifies risk management
priorities over the duration of the five year plan.
Asset class policies
The Group controls its lending activities through an established
Credit Risk Framework defined by nine Group credit policies
and 17 individual asset class policies. This provides a stable,
consistent risk standard and control across the Group’s portfolio
of loan assets. Asset classes can also be aligned more readily
with risk-weightings, probability of default (PD), loss given default
(LGD) and expected credit loss (ECL) metrics, which facilitates
risk reporting, risk adjusted profitability analysis and modelling
for stress testing and capital adequacy purposes. During 2023,
the Group continued to utilise a matrix that sits above the asset
class policies to highlight the key criteria that are reserved for
Board approval.
Asset class policies are structured on the basis of policy rules,
which must be adhered to, and guidelines, where an element of
controlled discretion is permitted. All planned exceptions to policy
rules require approval at the Group risk level and both planned
and unplanned exceptions to policy rules are reported monthly
to the relevant risk management committee.
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Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Top and emerging risks
The Group’s top and emerging risks are
identified through the process outlined in
the RMF (see page 89) and are considered
regularly by the risk oversight committees,
Executive Risk Committee and subsequently
by the Risk Committee.
• Top risks are those risks that could cause
the delivery of the Group’s strategy,
results of operations, financial condition
and/or prospects to differ materially
from expectations.
• Emerging risks are those that have unknown
components, the impact of which could
crystallise over a longer period and could
include certain other factors beyond the
Group’s control, including escalation of
terrorism or global conflicts, natural disasters,
epidemic outbreaks and similar events.
As at 31 December 2023, the Group has
identified nine top risks and no emerging risks.
This is unchanged compared to 2022.
The nine themes identified as top risks are as follows:
Economic and competitive environment
Credit impairment
Geopolitical risk
Intermediary, outsourcing
and operational resilience
Technology, information
and cyber security risk
Pace and scale of regulatory change
Pace, scale of change and people risk
Financial crime
Climate risk
In the following pages, the below symbols are used to illustrate the change in risk environment during the year for each of the Group’s top risks.
Risk increased
Risk reduced
No change
Information on the following pages provides a review of each of these themes.
Links to key performance metrics provided in these reviews refer to those detailed in the ‘Shawbrook in numbers’ summary.
Shawbrook Group plc | Annual Report and Accounts 2023
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Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Top and emerging risks
Economic and competitive environment
Overview
There remains significant ongoing uncertainty regarding the
future economic trajectory for the UK, which could affect
the Group’s performance. Revisions to the National Accounts
show that the economy is now broadly in line with before the
pandemic, with the UK not expected to grow in 2024, having
flirted with recession in 2023. Market prices suggest that
interest rates are at, or near, to their peak, but the outlook is
higher for longer, with the Bank of England prepared to make
further changes if the economic signals suggest it needs to
in order to control inflation. The conflict in the Middle East
could increase oil prices, which could mean a further squeeze
on real incomes for many, with prospect for a modest rise in
unemployment and lower house prices.
The trading environment is expected to be challenging in the
face of a steep increase in interest rates and lower demand.
Housing transactions are expected to reduce just below the
long run average of 1.2 million transactions per year, with
rental supply reaching its peak.
Links to key performance metrics
• Loan book
• Customers served
• Cost of risk
• Net interest margin
• CET1 capital ratio
• Total capital ratio
How this could impact our strategy or business model
• Reduced gross lending from lower demand as customers defer
major purchases and investment in light of higher interest rates
and lower real income leading to lower buying power. This may
be partly offset by lower early repayments of loans.
• Increased impairments if a significant number of SMEs experience
financial distress or insolvency, or if consumers experience an
increase in unemployment.
• A prolonged economic downturn may impact the Group’s ability
to fund strategic investment to meet the needs of customers and
improve operations.
• Rising competition, or a sudden reduction in interest rates to
support the economy, may compress Group margins and impact
on target returns.
How we manage this risk
• The Group continues on its digital journey and, following the launch
of the MyShawbrook portal for buy-to-let, bridging and commercial
investment product ranges, ColleagueHub was implemented to
streamline the application process through the provision of fast
valuation-backed credit decisions. This tool will help the Group to
enhance the customer experience whilst allowing the Group to react
quickly to changes in the macroeconomic environment.
• The Group has implemented its new savings digital journey for 1,000
existing customers to test the self-service experience and provide
an opportunity for enhancement prior to the migration of all existing
customers by Q2 2024.
• The Group continues to deploy its proprietary portfolio management
tool to provide powerful insights into monitoring loan book risk
and performance across its Real Estate and SME portfolios. The
Group has continued to evolve its early warning indicators within its
interactive dashboard, which now provides a daily update on key
emerging risk indicators.
• The Group has carefully considered its risk appetite in its selected
markets. The Group has hosted regular in-focus sessions with
external experts in its key markets and completed regular product
and sector reviews to identify any early warning indicators.
• Investment in additional resources in the first and second lines
of defence continues to strengthen the Group’s ability to identify
and manage potential problem loans.
• The Group undertakes a comprehensive assessment of its risk
appetite under baseline and alternative scenarios to ensure that
it can meet its objectives in plausible economic conditions.
Focus areas for 2024
• Targeted application of risk appetite in carefully selected sectors
to align with the economic outlook as it emerges.
• Scale the business through the implementation of further
automation in lending, customer management (particularly
in SME lending), savings operations and digital self-service.
• Utilisation of third parties and technology to increase capacity
in originations, servicing and collections activities in order to
position the Group to meet the needs of its customers.
• Continue to invest in outsourcing controls and oversight to
manage any additional risk that the Group may be exposed to.
• Support the wider adoption of Agile through the embedding
of the product and engineering model.
• Investment in technology resources to deliver the
engineering requirements of the accelerated digital
strategy and internal controls.
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Top and emerging risks
Credit impairment
Overview
The Group’s growing loan book brings with it exposure to credit
impairment if customers are unable to repay loans and any
outstanding interest and fees.
The economic outlook will play a key role in driving the
impairment profile in the foreseeable future. An elevated
interest rate environment, reducing inflation, and cost of living
impacts on real income could impact affordability. In turn, this
could put upward pressure on the Group’s cost of risk. Retail
customers and SMEs are particularly vulnerable to interest
rates and increased energy costs.
How this could impact our strategy
or business model
• Increases in credit impairment could lead
to a material reduction in profitability and
retained earnings. In turn, this may impact
the Group’s capital ratios and its ability to
meet its objectives.
• Lack of preparation for the transition from
origination to in-life management may
lead to missed opportunities to support
customers, potentially causing increased
impairment and customer harm.
Links to key performance metrics
• Cost of risk
• CET1 capital ratio
• Total capital ratio
How we manage this risk
• The Group’s risk appetite is calibrated to
facilitate achievement of the business
strategy and is modified as required to
reflect uncertainty in the economic and
competitive landscape.
• The Group has enhanced its underwriting
guidelines and affordability policy to
ensure that it remains appropriate in
the current and emerging environment.
Asset class policies have also been
cautiously reviewed to position the
Group appropriately.
• Additional investment in permanent
employees to focus on potential problem
loans has managed the number of
watchlist and forbearance cases and
will continue to respond proactively to
uncertainty in the economic outlook.
• The impact on impairment models is
regularly monitored and reported to
internal committees and judgemental
adjustments to modelled ECLs are
reviewed by the Model Management Sub-
Committee and approved by the Group
Impairment Committee.
Focus areas for 2024
• Increase focus on product and sectoral
risk to support the Group’s evolution
of risk appetite in an uncertain
economic environment.
• Continue to develop strategic credit
management information to ensure
timely and accurate reflection of risk
in the Group’s lending segments, thus
enhancing the Group’s ability to make
proactive decisions.
• To implement an end to end and digitally
enabled Credit Management Platform
(CMP) to manage SME credit risk from
origination, through in-life management,
and potential problem management.
• The implementation of a resources
to focus on high value portfolio
management cases.
• Continue to develop the granularity
and accuracy of the Group’s stress
testing capability.
• Regular review of the evidence supporting
all key areas of judgement used in
support of the model-based ECL.
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Geopolitical risk
Overview
The geopolitical environment remains uncertain, with conflict
in Ukraine and the Middle East, possible Brexit-related changes
to the Northern Ireland protocol and the potential for a
Scottish referendum, amongst others.
The Group operates predominantly in England, Wales, and
Scotland and has no direct exposure to Russia, the Ukraine or
the Middle East. However, the Group is exposed to the second
order impacts on supply chains and the impact of inflation on
the real incomes of its customers.
Links to key performance metrics
• Loan book
• Cost to income ratio
• Customers served
• Cost of risk
• CET1 capital ratio
• Total capital ratio
How this could impact our strategy
or business model
• Lower economic growth, labour shortages
and disruption to supply chains could
impact the level of private sector
investment in the UK. In turn, this could
negatively impact on demand for loans,
funding and deposits.
• Trade disagreements could potentially
elevate economic issues, as seen with
the rise in inflation during 2022. This could
lead to higher interest rates and may
impact loan impairments.
• Credit spreads could widen leading to
reduced investor appetite for the Group’s
debt securities. This could impact the
Group’s cost of and/or access to funding
and the ability to grow its loan portfolios.
• The Group’s operational resilience may
be impacted by the need to transition
activities from non-UK firms.
• The new Data Protection and Digital
Information Bill may go live in 2024 and
could impact our adequacy decision
within the European Economic Area (EEA).
This would impact the cross-border data
transfers within the EEA.
How we manage this risk
• The Group undertakes a comprehensive
assessment of its risk appetite and stress
tests its lending and deposit portfolios to
ensure that it can meet its objectives in
plausible economic conditions.
• The Group regularly engages with its critical
suppliers to foresee and mitigate any
impact on services provided to the Group.
• The Group continues to strengthen
and optimise its capital position and
pursue a diversified funding structure.
The Group has implemented a Euro
Medium Term Note (EMTN) programme
to support capital issuance to optimise
the capital stack, markets permitting.
The Group has completed a number of
full stack and retained securitisations
of its loan portfolios and has invested
in the capability to complete additional
securitisations, markets permitting.
• The Group monitors and screens for
sanctions issued by the UK (The Office of
Financial Sanctions Implementation) and
USA (The Office of Foreign Assets Control).
• The Group has reviewed its register of
outsource providers and has no gaps in EU
General Data Protection Regulation Article
28 clauses.
• The Group has identified all cross border
data transfers recorded within the Record
of Processing Activities (ROPA) and issued
contract variations to all suppliers who
process data outside the EEA.
Focus areas for 2024
• Ensure that all outsourcers and third
parties are operationally resilient in
the event of geopolitical uncertainty,
including the review of business continuity
plans and disaster recovery plans and
regular tests of technology resilience
using tools such as penetration testing.
• Continue to develop a range of mitigating
actions, including the use of robust stress
tests that contain the risk of geopolitical
risk by comparing the economic scenarios
assessed in IFRS 9 with those used in
the ICAAP.
• Continue to monitor the situation in
Ukraine and the Middle East. Although
the Group does not have any direct
exposure, it does have indirect exposure,
for example the impacts of rising oil and
energy prices, cost of living and inflation,
potential supply chain issues faced by
customers and increased cyber security
threats. The Group has updated its
affordability policy and will continue to
monitor to ensure that its lending remains
appropriate. The Group will continue to
closely monitor the cyber perimeter and
information security risks, as detailed on
page 99, and will continue to engage with
key third parties.
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Intermediary, outsourcing and operational resilience
Overview
The Group uses a number of material third parties to support
the delivery of its objectives. The availability and resilience of
its core customer facing systems and ability to operate in line
with regulatory requirements play a key role in supporting the
Group’s reputation in its chosen markets.
The specialist nature of some of the Group’s lending through
intermediaries and brokers could mean some customers find
themselves with an increased risk of an unfavourable outcome.
This may result from the interpretation of Mortgage Conduct
of Business regulation, Consumer Credit sourcebook, the
Consumer Duty and other regulations, along with the oversight
of third parties where it may be exposed to Consumer Credit
Act Section 75 and Section 140 risk.
Links to key performance metrics
• Loan book
• Customers served
• Cost to income ratio
• Liquidity ratio
How this could impact our strategy or business model
• The Group may be impacted by the failure of material third parties
to deliver on the Group’s policies and regulatory obligations.
This may lead to increased complaints, customer harm, redress
costs and damage to the Group’s reputation through regulatory
censure. This may also lead to increased contingent liabilities
in certain areas where the Group is exposed to Section 75 and
Section 140 liabilities of the Consumer Credit Act, which impacts
on the Group’s profitability and capital resources.
• Failure of a material third-party supplier may lead to customer
harm, complaints, loss of confidence in the Group and potentially
regulatory censure.
• The Group, as a deposit taker, could be impacted if a systems
failure prevented a significant number of payments being made,
which may lead to financial stability being undermined.
• The potential for operational disruption could have a material
impact on profitability or viability.
How we manage this risk
• The Group has continued to invest in its relationship with its
key third parties, with a focus on good customer outcomes,
particularly as customers deal with increasing cost of living
pressures. This has included increased reporting on the
performance of material third parties at the Operational Risk
and Third Party Oversight Committee, Executive Risk Committee,
Risk Committee and Board, as appropriate.
• The Group has identified all of its important business
services and has invested in resources to improve controls
and develop contingency solutions and plans to help mitigate
service disruption.
• The Group has developed and implemented an operational
resilience roadmap and important business service dashboard to
measure resilience and help identify risks. This includes an update
to impact tolerances to promote greater focus on operational
resilience objectives, including revised safety and soundness
measures in line with regulatory requirements.
• The Group has further invested in both cloud and on-premise
technologies to increase the resilience of its core systems, provide
backup for core information and automate its key management
information. This has also included the onboarding of climate
related management information. The Group has further invested
in its capability through the completion of a cloud native analytic
platform that is capable of reaching data wherever it is located.
Focus areas for 2024
• Continue progress in embedding the Operational Resilience
Framework through scenario testing to refine the Group’s impact
tolerances in assessing both intolerable customer harm and the
risk to safety and soundness of the Group ahead of the March
2025 regulatory milestone.
• Continue to review the Group’s contracts to meet the
requirements of SS2/21 on outsourcing and third-party
management, as well as focusing on embedding SS4/21 on
operational continuity in resolution, including the impact on
risk appetite.
• Continue to work closely with the Group’s partners to ensure that
appropriate and, where necessary, skilled capacity is in place to
service the expected increase in customer contact as a result of
anticipated cost of living pressures.
• Continue to accelerate investment in digital enhancements
across the Group, including the embedding of Agile and product
engineering within its product segments and the automation of
its credit risk management information.
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Top and emerging risks
Technology, information and cyber security risk
Overview
The cyber threat remains significant and high profile across
all industries. Cyber security and information risk continues
to be a focus area for regulators and is increasingly assessed
as an integral part of operational resilience. This includes
an increase in public awareness on cyber risk in the face
of increasingly targeted, destructive ransomware attacks
experienced over recent years in the market.
Information and cyber security risk is further heightened by
the conflict in Ukraine and the Middle East.
Links to key performance metrics
• Loan book
• Customers served
• CET1 capital ratio
• Total capital ratio
• Cost to income ratio
How this could impact our strategy
or business model
• Increasing customer demand could
exceed the Group’s ability to provide
highly reliable and widely available
systems and services, leading to a fall
in confidence and customer attrition.
• The evolving nature and scale of
criminal activity could increase the
likelihood and severity of attacks on
the Group’s systems.
• Customer franchise value and customer
trust could be significantly eroded by a
successful attack on the Group’s systems,
leading to a denial of access to systems,
a diversion of funds or the theft of
customer data.
How we manage this risk
• The Group continually reviews its control
environment for information security to
reflect the evolving nature of the threats
to which the Group is exposed.
• The Group’s strategy for mitigating
information security risk is comprehensive,
including: a documented cyber strategy,
ongoing threat assessments, regular
penetration testing, the wide deployment
of preventative and detective controls
and a programme of cyber awareness
education and training.
• The Group continues to invest in its
technology layer, including the use of
cloud computing resources to improve
resilience and the implementation
of additional controls to support the
security of its core systems. This includes
investment in automated application
security testing tools, sensitive data
discovery software and cloud security
monitoring and alerting tools.
• The Group has implemented further
changes to support the simplification and
resiliency of its technology leveraging
the cloud. This includes a new telephony
system and the migration of key
technology for the Retail Mortgage Brands
businesses to the Shawbrook environment.
• Development of customer franchise
specific application and data heatmaps
to manage legacy system risk,
resilience and the build-up of technical
debt. This has included a programme
to reduce technical obsolescence
by upgrading servers to modern
equivalent infrastructure.
• In response to the conflict in Ukraine and
the Middle East, the Group’s Information
Security team continues to operate
at a heightened state of awareness
in response to threat intelligence and
security alerts and have implemented
technical mitigation steps where
possible, increased communications
with employees to enhance vigilance and
raise cyber awareness and engaged with
critical third parties to understand their
action plans in light of the increased risk.
Focus areas for 2024
• Continue to invest in capabilities to
reduce the Group’s exposure to a
cyber-attack and continue the Group’s
alignment to ISO 27001 standards to
further refine risk appetite and controls
with respect to information security.
• Continue to embed the Chief
Technology Office and information
security controls within the Group’s
outsourcers and third parties, including
third party perimeter monitoring.
• Continue the Group-wide implementation
of data ownership and controls to
promote improved accuracy of source
customer data and improvements in
management information.
• Continue to evaluate and deploy new
and emerging technology tools to identify
and/or mitigate cyber threats as well
as to increased awareness culturally.
• Continue the Group-wide implementation
of Agile through the embedding of
the product and engineering model.
• Technology objectives in 2024 include
continued customer journey enhancing
applications, championing data driven
Decision making and delivering colleague
experience improvements to improve
efficiency and collaboration.
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Pace and scale of regulatory change
Overview
The prudential and conduct regulatory regimes are subject
to change and could lead to either an increase in the level
and quality of financial resources, or change in policies and
processes to meet regulatory requirements.
In relation to financial risk, in July 2023, the Financial Policy
Committee increased the UK countercyclical capital buffer
from 1% to 2%. Other relevant prudential policy announcements
in the next year include the final rules on the implementation
of Basel 3.1 and Corporate Audit reform.
The financial sector will also continue to embed climate
risk regulation and industry standards, which are subject to
evolve over the coming years and will form a key part of the
business strategy. These include the expected impact of ISSB
regulations, which will require additional disclosures on the
path to net zero and interim targets.
In relation to non-financial risks, implementation of operational
resilience and third party and outsourcing regulations will
continue, along with other high priority regulatory initiatives
as published in the Regulatory Initiatives Grid, including
regulatory reviews following the implementation of the
new Consumer Duty.
Links to key performance metrics
• Loan book
• Cost to income ratio
• Cost of risk
• CET1 capital ratio
• Total capital ratio
How this could impact our strategy
or business model
• An increase in minimum regulatory capital
requirements may directly impact on
the Group’s risk appetite and its ability
to support its lending to current and
potential future customers.
• Changes in regulatory capital
requirements may lead the Group to
change its business mix, exit certain
business activities altogether, or not
expand in areas despite otherwise
attractive potential.
• An increase in minimum regulatory capital
requirements may restrict distributions
on capital instruments. This may impact
upon the Group’s ability to issue new, or
refinance existing, capital instruments.
• Frequent change in regulation could
also have wide ranging impacts beyond
financial resources reflected through
changes in internal policies and
processes, people and systems resources,
product offerings and the markets and
customers served by the Group.
How we manage this risk
• The Group engages with regulators,
Focus areas for 2024
• Ongoing stress testing of the Group’s
lending portfolios to quantify the impact
of any changes on the strategy and
business model.
• Completion of the annual review of
the ICAAP and Recovery Plan and
the Capital Supervisory Review and
Evaluation Process.
• Ongoing monitoring of controls to support
the monitoring of the Consumer Duty and
Consumer Principle.
• Investment in maturity of internal controls
and monitoring.
industry bodies and advisors to actively
engage in consultation processes. The
Group reviews regulatory publications to
assess their implications for the business
and oversees the impact analysis through
its Regulatory Change Working Group.
• During 2023, the Group supported UK
Finance and responded to the PRA directly
on the Basel 3.1 consultation.
• The Group follows its prudential
programme to update its ICAAP, ILAAP and
Recovery Plan and Resolution Pack and
considers the conclusions in the regular
business planning processes that have
taken place during the year.
• In October 2023, the Group completed
the issuance of £90 million of Tier 2
capital in a difficult market. The offering
was positively received by investors
and supports the optimisation of the
Group’s capital stack and maintenance
of capital buffers.
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Pace, scale of change and people risk
Overview
The Group needs to deliver a significant
number of projects over the duration
of its 2024 plan in order to deliver on its
objectives. Failure to deliver the required
change may lead to disruptions in the
delivery of its objectives.
ESG is a key pillar of the Group’s purpose-
led strategy and reflects the importance
of sustainability, and equality, diversity
and inclusion (EDI) in driving the long-term
strategy and business model.
Links to key performance metrics
• Loan book
• Customers served
• Cost to income ratio
• Net interest margin
• CET1 capital ratio
• Total capital ratio
How this could impact our strategy
or business model
• Delivering what customers need and in
the way that they want to engage with
the Group is essential to delivering the
Group’s objectives and failure to do this
may impact on originations, customer
retention and profitability.
• People risk remains a key factor in the post-
COVID environment as hybrid working and
flexible working hours becomes the ‘new
normal’. Improvement in technology continues
to create options for people to live and work
from a place of their choice and firms that
lag behind in their employee value proposition
might find it difficult to attract the right talent.
• Failure to protect employees and promote
mental health and wellbeing could lead to
higher absence and lead to a reduction in
employee engagement. This in turn could
impact upon the Group’s ability to look after
its existing customers.
• A clear and purposeful ESG strategy is
key to supporting long-term sustainable
performance, including strong engagement
from all employees.
technology and product change activity, has
been revised to reflect the wider adoption
of agile delivery methodologies and to more
clearly define quality assurance, information
security and release management approaches.
• The Chief Product Office (CPO) is firmly
established as a driver of excellence in product
delivery and collaborates closely with the
CTO function on both product and technical
change. The Software Engineering, Quality
Assurance and Delivery disciplines are now
fully integrated as part of the CPO function,
providing an optimised organisational model
for collaboration with the Product, Data and
Experience Design disciplines.
• The Group continues to develop its employee
value proposition to attract and retain the
best talent to support its business strategy.
The Group has adopted hybrid working,
providing the opportunity to access a wider
talent pool across the UK. The Group offers
employees membership to a wellbeing app and
access to an online GP service and completes
a comprehensive workplace assessment
process, with the provision of additional
support and/or equipment where reasonable
adjustments are required.
How we manage this risk
• During 2023, the Group has continued to evolve
and mature its technical and product change
execution model. The regular CTO committees
now provide Group-wide oversight of change
activity and associated risk management.
The Change Delivery Policy, which governs all
• The Group regularly conducts its employee
engagement survey to gather views and
suggestions from its employees to facilitate
the creation of the best possible working
environment. The Group maintained a positive
employee engagement score in the latest survey
conducted in November 2023 of 84% (2022: 82%).
• The Group has launched an ESG Sub-Committee
and EDI Steering Committee, which focuses on
four key pillars (belonging, race, gender and
social mobility).
• The Group works with a number of external
partnerships to build collaboration, insight
and leverage best practice that will support
employees and customers. This includes
a partnership with the rugby union team,
Saracens and supporting the Saracens
Foundation, whose mission is to transform
lives both on and off the pitch in order to build
stronger communities. In 2023, the Group
announced an extension for an additional
five years, including sponsorship of the three
elite teams and including support for as big a
positive impact as possible across women’s
sport, equality and inclusion.
Focus areas for 2024
• The Group has organised its strategic priorities
into a roadmap through which to prioritise
its resources. Delivery of this roadmap is key
to the Group’s objectives and will continue
throughout 2024.
• Continue to advance the digital strategy
through investment in people and technological
resources to deliver the Group’s objectives.
• Continue to work with external partnerships
to further create opportunities to create
future leaders.
• The transition to a new London office to support
greater engagement and collaboration across
the business and functions.
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Top and emerging risks
Financial crime
Overview
Financial crime is any kind of criminal conduct relating to
money or to financial services or markets. This includes any
offence involving:
• fraud or dishonesty;
• misconduct in, or misuse of information relating to,
a financial market;
• handling the proceeds of crime; or
• the financing of terrorism.
Although the risk has always been present in the financial
services industry, the increased use of digital channels has
elevated the risk profile. With the development of technology,
the type and impact of financial crime activities is likely to
increase over the coming years.
Links to key performance metrics
• Loan book
• Cost to income ratio
• Customers served
• Cost of risk
How this could impact our strategy
or business model
• An inadequate control environment for
financial crime could lead to increased
operational losses, credit impairment,
increased manual reviews and potentially
regulatory enforcement, restrictions
on business growth and acquisitions,
penalties and/or censure.
• The reputational damage associated
with financial crime could cause loss of
customers and intermediaries, impacting
the Group’s revenues and financial
position and/or regulatory standing.
• The current hybrid working environment
and the transition of resources to
new work activities may impact the
effectiveness of existing controls and
increase internal fraud opportunities.
How we manage this risk
• The Group continues to enhance its
control environment with respect to
financial crime. This is closely monitored
by the Executive Risk Committee and
Risk Committee.
• The Group began implementation of
an automated customer due diligence
process in 2021, automated transaction
screening in 2022 and the migration of the
back book in 2023 together with enhanced
MI and supported by control testing.
• The Group conducts a firm-wide
financial crime risk assessment to assess
compliance with Group policies. This
focuses on the following risk categories:
money laundering and terrorist financing
risk, bribery and corruption risk, sanctions
risk, tax evasion risk and fraud risk.
• The Group uses a combination of
mandatory reads of policy, online
training and communications to increase
awareness of best practice.
Focus areas for 2024
• Testing of the effectiveness of the
improved financial crime control
framework, with key focus on data
automation as well as the automation of
processes and controls such as customer
due diligence and transaction monitoring.
• Continue to invest in resources and risk
identification, prevention and control
mechanisms to protect the Group’s
customers and investors and protect
the Group from the facilitation of
financial crime.
• Continue to focus on adherence to
economic sanctions and the shifting
regulatory environment, in line
with new and updated UK financial
crime regulations.
• Monitor the increasing complexity
of financial crime threats and any
potential or actual changes to the
legislative framework to manage the
emerging threats.
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Climate risk
Overview
Climate change and society’s response to it, presents financial
risks which impact the Group’s objectives. The risks arise
through two primary channels: the physical effects of climate
change and the impact of changes associated with the
transition to a lower carbon economy.
Climate risk is an ongoing long risk and a continued area of
focus for the Group. The impact of climate risk on the Group’s
policies, customers, markets and products will be closely linked
to the UK Government’s policies on the transition to net zero
and how other financial institutions embed climate risk in their
business models.
Links to key performance metrics
• Loan book
• Customers served
• Cost of risk
• CET1 capital ratio
• Total capital ratio
How this could impact our strategy
or business model
• Physical risks could lead to real impacts
on the economy through business
disruption, asset destruction and
migration. This may drive market and
credit losses to the Group through lower
property and corporate asset values,
lower household wealth and lower
corporate profits. It may also result in
potential for litigation where products do
not deliver good outcomes for customers
or there is a risk of greenwashing.
• The transition to a lower carbon
economy could lead to lower growth
and productivity and the potential for
operational risks and underwriting losses.
• The transition to a low carbon economy
presents an opportunity for the Group
and inadequate preparations or delayed
actions could impact on the Group’s
reputation with investors and the market,
presenting a strategic risk to the Group
through adverse selection.
How we manage this risk
• The Group considers the embedding
of climate related matters to be a key
initiative and, as such, has appointed the
Chief Executive Officer and Chief Risk
Officer as the responsible executives
to oversee delivery of the Climate
Change Plan.
• The Group has promoted climate risk as
a principal risk in its own right, with a
focus on high materiality areas including
strategic risk and credit risk, particularly
within the Real Estate business.
• The Group has developed a proportionate
approach to climate change in line
with the requirements of SS3/19 and
focuses its assessment on term loans
in the Enterprise and Retail Mortgage
Brands franchises.
• The Group has partnered with leading
climate data providers and consultancies
to develop its understanding of physical
and transition risk and has used this to
develop its initial risk appetite statement
and measures together with metrics,
measures and Companies Act and
TCFD climate risk disclosures in the
Strategic Report.
• During 2023, the Group has continued
tracking lending emissions measures
within its Real Estate and Retail Mortgage
Brands businesses and has also
developed an emissions baseline for SME
lending for the first time. The Group has
also further developed its quantitative
scenario analysis for its Real Estate, Retail
Mortgage Brands and SME businesses.
Focus areas for 2024
• Extending climate measurement into
all lending within scope of the Group’s
proportionate approach to climate
change. Further embed climate risk
into its lending policy and strategy.
• Further consider the Group’s approach
to support financing to a low carbon
economy and how those plans align
to meeting net zero targets.
• Deliver further progress in the £1.2 billion
sustainable finance originations by 2025.
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The risk of financial loss due to the failure.
Principal risks refer to the key risks the Group is exposed to. Policies and associated standards are maintained to support principal risks and provide guidance on how
to achieve strategic objectives whilst managing the risk within defined risk appetite limits.
During the year, the Group conducted a review of its principal risk categories. The review was completed to reflect the growth of the Group and to ensure the RMF
remained appropriate to support the delivery of the Group’s objectives and associated risks. The review considered benchmarking of a number of banks that were of
a size consistent with the Group’s objectives over the planning horizon. As a result, the Group now identifies ten principal risks. These are summarised in the following
table and signposts are provided to indicate where additional information can be found. Oversight of the Group’s principal risks is outlined on page 91.
Certain information in the principal risks section is audited. Sections that are specifically marked as ‘audited’ are covered by the Independent Auditor’s Report starting
on page 180. All other sections are unaudited.
Principal risk
Definition
Principal sources of exposure
Credit risk
(Audited)
See pages 106 to 131
The risk that a borrowing client or treasury counterparty fails to repay some, or all,
of the capital or interest advanced to them, due to lack of willingness to pay and/or
lack of ability to pay. This can include credit risks that materialise during the life of the
asset such as refinance risk or elevate due to deteriorating security/collateral value.
Credit risk can be further divided into customer credit risk (from core lending activity)
and treasury credit risk (from treasury activity).
Credit risk also includes credit concentration risk, which is the risk of exposure to
particular groups of customers, sectors or geographies that, uncontrolled, may lead
to additional losses that the Shareholder or the market may not expect.
The principal source of customer credit risk is the Group’s loans and advances
to customers.
Treasury credit risk exposure is limited to short-term deposits placed with leading UK
banks, repo and reverse repo exposures and high quality liquid assets purchased for
inclusion in the Group’s liquidity buffer.
Market, liquidity
and capital risk
(Partially audited)
See pages 132 to 143
Market risk:
The risk of financial loss through unhedged or mismatched asset and liability
positions that are sensitive to changes in interest rates or currencies.
Exposure to market risk arises from the Group’s core activities of offering loans and
deposits to customers.
All financial assets held by the Group are non-trading.
Liquidity risk:
The risk that the Group is unable to meet its current and future financial obligations
as they fall due and maintain stakeholder confidence, or is only able to do so at
excessive cost.
Liquidity risk includes funding risk, which is the risk that the Group is unable to
maintain diverse funding sources and manage retail funding risk that can arise
from concentrations of higher risk deposits.
Capital risk:
The risk that the Group has insufficient quantity and quality of capital to absorb
losses over the cycle, cover regulatory requirements and/or to support its own
growth plans
The principal source of liquidity risk is the Group’s retail and wholesale deposits,
as well as affinity partnerships and bilateral/public securitisations.
Exposure to capital risk could arise due to a depletion of the Group’s capital resources
as a result of the crystallisation of any of the risks to which it is exposed or an
increase in minimum capital requirements.
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Principal risk
Definition
Principal sources of exposure
Operational risk
and resilience
See page 144
Technology and
cyber risk
See page 145
Strategic risk
See page 146
Conduct risk
See page 146
Compliance and
regulatory risk
See page 147
Climate risk
See page 148
Financial crime risk
See page 148
Model risk
See page 149
The risk of loss resulting from inadequate or failed internal processes, people,
data and MI availability, system failures, or from external events.
The principal sources of operational risk, as per the year-end risk and control self-
assessment, are data, information, third-party suppliers and process execution.
The risk of loss arising from disruption to a business service or process due to an
IT asset or service becoming unavailable or due to malicious activity (including a
cyber attack).
The risk to business objectives or future growth trajectory by failing to ensure that
system requirements are aligned and fit for purpose.
The risk that the Group is unable to meet its objectives through the inappropriate
selection or implementation of strategic plans. This includes the ability to ensure that
the proposition, products and services remain relevant, the embedding of appropriate
governance, change prioritisation, management of external partnerships and
successful embedding of equality, diversion and inclusion.
The risk that the Group’s behaviour will result in poor customer outcomes through the
delivery of the Group’s products, propositions and services.
The principal sources of technology and cyber risk are technology availability and
infrastructure risk.
The principal sources of strategic risk are lending growth, governance, management
of partnerships, products and propositions and change governance.
Conduct risk can manifest itself in a variety of ways including misconduct by
employees, culture, the provision of products and services that meet customers’
needs in a fair manner, and failure to address customer detriment quickly and fairly.
The risk of regulatory enforcement and sanction, material financial loss, or loss of
reputation the Group may suffer as a result of its failure to identify and comply with
applicable laws, regulations, codes of conduct and standards of good practice.
The Group conducts its activities in a highly regulated market and the principal
sources of exposure are linked to its lending and savings activities, data privacy,
legal risk, and regulatory management.
The risk of financial loss, or loss of reputation, as a result of the Group’s failure
to successfully embed physical risk, transition risk, litigation risk and relevant
industry standards.
The principal sources of exposure relate to financial and operational risks arising
from physical risks, and the transition risk to a lower carbon economy within its
lending portfolios.
The risk that the Group’s processes may be used to commit financial crime.
The risk of financial loss due to the failure to appropriately design, implement,
monitor, validate, and use of models for their intended purpose.
Financial crime risk arises when the Group’s systems and controls are circumvented
for the purposes of perpetrating financial crime, including bribery and corruption,
money laundering, sanctions, tax evasion, and the financing of terrorist activity.
The principal sources of exposure to model risk include the implementation of credit
strategy in the lending portfolios, the risk of inadequate impairment coverage arising,
and reputation risk arising from model design and implementation, model governance,
and model usage.
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Credit risk
Audited: the credit risk section (pages 106 to 131)
is covered in its entirety by the Independent
Auditor’s Report.
This section specifically provides
information about:
Managing credit risk
Impairment of financial assets
Exposure to credit risk
Concentrations of credit risk
Use of collateral to mitigate credit risk
Forbearance
Managing credit risk (audited)
Key aspects relating to the management of
credit risk are the implementation of robust
credit risk approval processes and the execution
of credit monitoring processes. These are detailed
further below.
Credit risk approval processes
To manage credit risk, the Group operates a
hierarchy of lending authorities based principally
upon the size of the aggregated credit risk
exposure to counterparties, group of connected
counterparties or, where applicable, a portfolio
of lending assets that are subject to a single
transaction. In addition to maximum amounts
of credit exposure, sole lending mandates may
stipulate sub-limits and/or further conditions
and criteria.
During the year ended 31 December 2023, the
Group implemented a number of new controls
to support the management of credit risk. These
included the implementation of a new set of early
warning indicators to support the identification
of potential problem loans, the implementation
of high risk sector reporting, key portfolio review
meetings and the implementation of additional
processes to support capacity planning in
collections and the non-performing loans team to
support the evolving economic environment. To
recognise the rapid increase in interest rates during
2023, the Group implemented product transfers to
support customers reaching the end of their fixed
rate period. The Group also implemented a new
credit grading model for all of its owner occupied
mortgages, which has improved the proportion of
customers covered by credit grading.
The Group appointed a new Chief Risk Officer for
Retail Mortgage Brands to provide a shared service
capability to both the TML and BML brands. The
Group also appointed a new Group Chief Credit
Officer in the second line risk function following
the planned retirement of the current role holder.
Lending is advanced subject to the Group lending
approval policy and specific credit criteria. When
evaluating the credit quality and covenant of the
borrower, significant emphasis is placed on the
nature of the underlying collateral. This process
also includes the review of the Board’s appetite
for concentration risk.
The Group is a responsible lender and affordability
remains a key area of focus for the Group. The
Group’s approach to affordability is set out in the
Group’s affordability policy, which is embedded
within each of the customer franchise’s lending
guides and systems. This policy has been updated
several times to ensure that it remains appropriate
in the current environment and adequately reflects
the increase in inflation, interest rate changes and
expenditure updates seen during the year. The
Group also uses a number of external systems to
check affordability and has the ability to refer to
Open Banking information, subject to policy and
customer consent.
Credit monitoring
Approval and ongoing monitoring controls are
exercised both within the customer franchises
and through oversight by the Group’s credit
risk function. This applies to both individual
transactions, as well as at the portfolio level,
by way of monthly credit information reporting,
measurement against risk appetite limits and
testing via risk monitoring reviews.
The Group’s risk function oversees collections
and arrears management processes, which are
managed internally or by selected third parties.
Throughout 2023, the Group has continued to
invest in its collections strategies and potential
problem loan management teams to ensure
that the Group is well positioned for a more
challenging environment.
Impairment of financial assets (audited)
To reflect the potential losses that the Group might
experience due to credit risk, the Group recognises
impairment provisions on its financial assets in
the financial statements. In accordance with
the Group’s accounting policy (Note 7(u) of the
Financial Statements), impairments are calculated
using a forward-looking ECL model. ECLs are
an unbiased probability-weighted estimate of
credit losses determined by evaluating a range
of possible outcomes.
The Group calculates ECLs and recognises a ‘loss
allowance’ in the statement of financial position
for its financial assets measured at amortised
cost and at fair value through other comprehensive
income (FVOCI) and for its loan commitments.
At 31 December 2023, the Group recognised a
provision of £0.5m for lending attached to its
lending pipeline where there is a probability
of completion.
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Principal risks: Credit risk
The following sections provide additional
information regarding the measurement and
calculation of ECLs, the application of judgemental
adjustments to modelled ECLs, analysis of the
loss allowance recognised in the statement of
financial position and an assessment of the critical
accounting judgements and estimates associated
with the impairment of financial assets.
Measurement of expected credit losses
(audited)
Measurement of ECLs depends on the stage the
financial asset is allocated to. Stage allocation is
based on changes in credit risk when comparing
credit risk at initial recognition to credit risk at the
reporting date, as follows:
• Stage 1: when a financial asset is first
recognised it is assigned to Stage 1. If there is
no significant increase in credit risk (SICR) from
initial recognition the financial asset remains
in Stage 1. For financial assets in Stage 1,
a 12-month ECL is recognised.
• Stage 2: when a financial asset shows a SICR it
is moved to Stage 2. A financial asset in Stage 2
can be ‘cured’ and reclassified back to Stage 1
when there is no longer a SICR and any probation
period has been completed. For financial assets
in Stage 2, a lifetime ECL is recognised.
• Stage 3: when there is objective evidence of
impairment and the financial asset is considered
to be in default, or otherwise credit-impaired,
it is moved to Stage 3. A financial asset in Stage
3 can be ‘cured’ and reclassified back to Stage
2 when it is no longer in default, or otherwise
credit-impaired, and any probation period has
been completed. For financial assets in Stage 3,
a lifetime ECL is recognised.
For loan commitments, where the loan
commitment relates to the undrawn component
of a facility, it is assigned to the same stage as
the drawn component of the facility.
In relation to the above:
• Lifetime ECL is defined as ECLs that result from
all possible default events over the expected
behavioural life of a financial instrument.
• 12-month ECL is defined as the portion of lifetime
ECL that will result if a default occurs in the
12 months after the reporting date, weighted
by the probability of that default occurring.
Assessing whether an asset shows a SICR and
determining whether an asset is considered to
be in default, or otherwise credit impaired, or is
considered to be ‘cured’, are all identified as areas
involving critical judgement and are detailed
further starting on page 117.
Financial assets may be separately allocated as
purchased or originated credit-impaired (POCI).
POCI assets are financial assets that are credit-
impaired on initial recognition. Once a financial
asset is assigned as POCI, it remains in this
category until derecognition irrespective of its
credit quality. For POCI assets, the ECL is always
measured on a lifetime basis. ECLs are only
recognised (or released) to the extent the ECL has
changed from the amount of credit impairment
recognised on initial recognition.
Calculation of expected credit losses
(audited)
ECLs are the discounted product of the probability
of default (PD), exposure at default (EAD) and loss
given default (LGD). Each of these components are
detailed further below.
ECLs are determined by projecting the PD,
EAD and LGD for each future month for each
exposure. The three components are multiplied
together and adjusted to reflect forward-looking
information. This calculates an ECL for each future
month, which is then discounted back to the
reporting date and summed. The discount rate
used in the ECL calculation is the current effective
interest rate, or the original effective interest rate
if appropriate.
Probability of default
PD is an estimate of the likelihood of default over a
given time horizon. A default may only happen at a
certain time over the assessed period if the facility
has not been previously derecognised and is still in
the portfolio.
In relation to loans and advances to customers
and loan commitments, the PD is based on internal
and external individual customer information
that is updated for each reporting period. The
Group operates both a model-based PD and a
slotting approach.
The model-based PD is used for high volume
portfolios such as those in Consumer Lending
and for residential mortgages within Real Estate
and Retail Mortgage Brands. Statistical modelling
techniques are used to determine which borrower
and account performance characteristics
are predictive of default behaviour based on
supportable evidence observed in historical data
that is related to the group of accounts to which
the model will be applied.
The slotting approach has been developed and
implemented for the low volume and high value
obligors in SME and large ticket Real Estate loans.
Slotting in Real Estate lending applies to facilities
over a set threshold. Both processes deliver a
point-in-time measure of default.
During 2023, the Group developed a new credit
grading model for all owner occupied mortgages
originated through Enterprise Real Estate and
the Retail Mortgage Brands. This means that a
coverage ratio method is used only for Buy to Let
mortgages originated through TML, certain other
acquired mortgages in Real Estate and loans
originated in Consumer Lending under the new
motor finance platform loan agreement. Credit
grading for these segments will be deployed as
soon as it is practical to do so.
For the model-based portfolios, the measure of PD
is based on information available to the Group from
credit reference agencies and includes information
from a broad range of financial services firms and
internal product performance data and is applied
at the borrower level. For the slotted portfolios,
the measure of PD relates to attributes relating to
financial strength, political and legal environment,
asset/transaction characteristics, strength of
sponsor and security. The Group is currently
updating its slotting models, which is expected to
be implemented in 2024. The Group does not expect
this to lead to a material impact in ECL and will take
twelve months to cover all loans through the annual
review, with any impact considered a 2024 event.
For each asset class, the Group has a proprietary
approach to extrapolate its best estimate of the
point-in-time PD from 12 months to behavioural
maturity to derive the lifetime PD. This uses
economic response models that have been
developed specifically to forecast the sensitivity
of PD to key macroeconomic variables.
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Exposure at default
EAD is an estimate of the exposure at a
future default date, taking into account
expected changes in the exposure after
the reporting date, including repayments of
principal and interest, whether scheduled by
contract or otherwise, expected drawdowns
on committed facilities, and accrued interest
from missed payments.
EAD is designed to address increases in
utilisation of committed limits and unpaid
interest and fees that the Group would
ordinarily expect to observe to the point of
default, or through to the point of realisation
of the collateral.
The Group determines EADs by modelling
the range of possible exposure outcomes
at various points in time, corresponding to
the multiple scenarios.
Loss given default
LGD is an estimate of the loss arising in
the case where a default occurs at a
given time. It is based on the difference
between the contractual cash flows due
and those that the lender would expect to
receive, including from the realisation of
any collateral. It is usually expressed as
a percentage of the EAD.
In relation to loans and advances to
customers and loan commitments, the
Group segments its lending products into
smaller homogenous portfolios based on
the Group’s lending segments as detailed
on the following page. In all cases the
LGD or its components are tested against
recent experience to ensure that they
remain current.
• Real Estate and Retail Mortgage Brands:
the LGD is generally broken down into two
parts. These include the Group’s estimate
of the probability of possession given
default, combined with the loss given
possession. The Group has continued to
focus on the proportion of accounts that
have not cured over an emergence period,
rather than the proportion of accounts
that enter possession in line with market
best practice. The loss given possession
is based on the Group’s estimate of a
shortfall, based on the difference between
the property value after the impact of
a forced sale discount plus a scenario
specific market value decline and sale
costs, and the loan balance with the
addition of unpaid interest and fees and
any first charge claims with regards to
second charge residential mortgages.
• SME: the LGD is based on experience of
losses on repossessed assets where the
Group has collateral, or management
judgement in situations where the Group
has minimal experience of actual losses.
For cases in Stage 3, the Group uses an
individual impairment that considers
a weighted average of alternative
recovery options.
• Consumer Lending: the LGD uses an
estimate of the expected write-off based
on an established contractual debt sale
agreement supplemented by analysis
of recoveries for loans terminated or
charged-off and the expected write-off
for loans held for deceased and vulnerable
customers or customers where there
are outstanding complaints. There is
no recovery portfolio.
Basis of calculation
A number of complex models are used in
the calculation of ECLs, which utilise both
the Group’s historical data and external
data inputs. The Group uses a bespoke
calculation engine to estimate ECLs on either
a collective or individual basis depending
on the nature of the underlying portfolio
and financial instruments. The collective
assessment groups loans with shared credit
risk characteristics through lines of business.
The engine captures model outputs from
the 12-month PD, Lifetime PD, LGD, EAD,
macroeconomic models and staging analysis
to calculate an estimate for each account.
Asset classes where the Group calculates
ECLs on an individual basis include:
• Stage 3 and POCI assets where individual
impairments are reviewed and approved
by the customer franchise specific
impairment committees and Group
Impairment Committee;
• large and unique slotted Stage 1 and Stage
2 loans in the Enterprise franchise; and
• treasury and interbank relationships
(such as cash and balances at central
banks, loans and advances to banks and
investment securities).
Asset classes where the Group calculates
ECLs on a collective basis include:
• Stage 1 and Stage 2 loans and certain
Stage 3 exposures within the Enterprise
franchise (except as identified above);
• mortgages originated through Retail
Mortgage Brands; and
• all loans within the Consumer franchise.
For ECLs calculated on a collective basis, exposures are grouped
into smaller homogeneous portfolios based on the Group’s
lending segments and a combination of internal and external
characteristics of the loans, as follows:
Real Estate
• Product asset class (owner-
occupied second-charge
lending, buy-to-let, bridging
finance and commercial/
semi-commercial investment)
• Time on file
• Exposure value
SME
• Business unit (digital
SME, structured finance,
corporate lending and
development finance)
• Time on file
• Collateral type
Consumer Lending
• Product type (personal loans
Retail Mortgage Brands
• Product type (buy-to-let and
and home improvement/
holiday ownership loans)
owner-occupied lending)
• Time on file
• Time on file
These impairment judgements are reviewed by the Group
Impairment Committee and Audit Committee.
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Using forward-looking information in the
calculation of expected credit losses
ECLs are required to reflect an unbiased
probability-weighted range of possible future
outcomes. In order to do this, the Group has
developed a proprietary approach to assess the
impact of the changes in economic scenarios on
the obligor level ECL. The Group has mapped each
asset class to an external long-run benchmark
series that is believed to behave in a similar way to
the Group’s portfolio over the economic cycle. For
some low default portfolios, internal data has been
used to support this assessment.
The Group has developed econometric models to
establish how much of the historical series can be
explained by movements in UK macroeconomic
factors. The models deliver an estimate of the
impact of a unit increase in default arising from
a 1% increase in the underlying macroeconomic
factors. The models are developed in line with the
Group’s Model Risk Governance Framework and
are subject to review at least every six months.
The models are tested across multiple sets of
scenarios to ensure that they work in a range of
scenarios, the output of the scenarios is a series of
scalars by asset class and a scenario that can be
applied to the underlying PDs to deliver a forward-
looking ECL.
The Group has developed a proprietary approach
to extrapolating its 12-month PDs over the
behavioural maturity of the loans that the scalars
can be applied to. The nature of the scenarios
means that there will be an impact on both the PD
and the number of obligors moving from Stage 1 to
Stage 2 in line with the SICR criteria.
Judgemental adjustments to modelled
ECLs (audited)
Limitations in the models used to calculate ECLs
may be identified through the ongoing performance
monitoring and assessment and validation of the
outputs from the models. Consequently, in certain
circumstances, the Group makes judgemental
adjustments to the modelled output to ensure
the overall loss allowance recognised adequately
reflects the risk in the portfolio.
Judgemental adjustments take the form of post-
model adjustments (PMAs) and overlays:
• Post model adjustments: PMAs are calculated
at a granular level through data driven analysis
to take into account particular attributes of
the portfolio that have not been adequately
captured by the models.
• Overlays: overlays are adjustments to the
modelled outputs that do not meet the
definition of a PMA. These include adjustments
that are not calculated through modelled or
data driven analysis.
All judgemental adjustments are carefully
monitored and are reviewed and approved at
least every six months by the Group Impairment
Committee and Audit Committee, along with other
key impairment judgements. Where appropriate,
the attributes that drives the judgemental
adjustments are incorporated into future
model development.
• SME: the cost of living PMA considers customers
at risk of higher input prices, higher energy costs
and supply chain issues that the models have
not be trained on. The Group has developed a
proprietary credit risk profiling tool to assess
customers at risk and concluded that, as at
31 December 2023, loans with a gross carrying
amount of £28 million were at risk. A PMA of
£1.6 million was applied to reflect this.
• Consumer Lending: the cost of living PMA
was removed following an update to the PD
calibration of the portfolio and to reflect the
seasoning of the portfolio.
• Retail Mortgage Brands: the cost of living PMA
is calculated on a portfolio segment basis and
includes customers that are expected to exit
their fixed rate agreement by 31 December
2024 and who are at higher refinance risk,
demonstrated by lower credit grades and
segments with lower debt service cover ratios.
As at 31 December 2023, loans with a gross
carrying amount of £185 million met these criteria
and a PMA of £0.5 million was applied based on a
Stage 2 ECL.
For 2022, the cost of living PMA was all allocated
to Stage 1 given the forward-looking nature of the
risks on affordability driven by higher inflation and
refinance risk given higher interest rates. For 2023,
the cost of living PMA has been applied to Stage 1
and Stage 2 loans and loan commitments.
In the current environment, judgemental
adjustments have the potential to significantly
impact the loss allowance recognised and involve
the application of significant management
judgement. Judgemental adjustments to modelled
ECLs are therefore considered to be an area of
critical judgement (see page 117).
During both reported years in Real Estate and
Retail Mortgage Brands, the Group has specifically
considered the impact of the increase to cost
of living and the increase in interest rates, as
the Group’s models have not been trained over
a comparable period in these areas. To reflect
this, a cost of living PMA has been applied in both
reported periods. There were no other PMAs or
overlays applied.
We continue to assess there to be higher
refinancing risk as many customers have not
come to the end of their fixed rate period albeit
the Group forecasts lower interest rates by 31
December 2024. The cost of living PMA reflects the
refinance risk for high risk loans in the Real Estate
and Retail Mortgage Brands segments that are
maturing in the following 12 month period. The PMA
also considers increased input prices and supply
issues within the SME franchise.
The cost of living PMA is applied to customers with
a similar risk profile as follows:
• Real Estate: the cost of living PMA is calculated
on a portfolio segment basis and includes
customers that are expected to exit their fixed
rate agreement by 31 December 2024 and who
are at higher refinance risk, demonstrated by
lower credit grades and segments with lower
debt service cover ratios. As at 31 December
2023, loans with a gross carrying amount of
£222 million met these criteria and a PMA of
£0.7 million was applied based on a Stage 2 ECL.
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The cost of living PMA in all lending segments has reduced compared to the prior year. The reduction
in the Real Estate and Retail Mortgage Brands PMA reflects an updated approach that considers
the lifetime PD rather than Stage 2 coverage, which is deemed to increase accuracy. The reduction
in the SME PMA reflects a more targeted PMA based on customer and sector risk. The removal
of the Consumer Lending PMA reflects the seasoning of the portfolio and an increase in the
PD calibration.
As at 31 December 2023
Cash and balances at central banks
Loans and advances to banks
2023
2022
(Restated)1
Loans and advances to customers
at amortised cost
Real
Estate
£m
Consumer
Lending
£m
SME
£m
Retail
Mortgage
Brands
£m
Total
£m
Real
Estate
£m
Consumer
Lending
£m
SME
£m
Retail
Mortgage
Brands
£m
Total
£m
Cost of
living PMA
Total
judgemental
adjustments
to modelled
ECLs
0.7
1.6
0.7
1.6
–
–
0.5
2.8
1.1
3.2
1.1
1.4
6.8
0.5
2.8
1.1
3.2
1.1
1.4
6.8
Analysis of the loss allowance recognised (audited)
A summary of the loss allowance recognised in the statement of financial position in relation
to each financial asset class is provided in the following tables. Except where noted, the loss
allowance is recognised as a deduction from the gross carrying amount of the asset.
Loans and advances to customers at
FVOCI (recognised in FVOCI reserve)
Investment securities
Loan commitments
(recognised as a provision)
Total loss allowance recognised
As at 31 December 2022
Cash and balances at central banks
Loans and advances to banks
Loans and advances to customers
at amortised cost
Loans and advances to customers at
FVOCI (recognised in FVOCI reserve)
Investment securities
Loan commitments
(recognised as a provision)
Total loss allowance recognised
Modelled
ECL
£m
Judgemental
adjustments
(See page 109)
£m
<0.1
<0.1
127.9
6.2
<0.1
3.8
137.9
–
–
2.3
0.5
–
–
2.8
Modelled
ECL
£m
Judgemental
adjustments
(See page 109)
£m
<0.1
<0.1
106.4
1.0
<0.1
0.5
107.9
–
–
5.4
1.4
–
–
6.8
Of which:
Stage 1
£m
Stage 2
£m
Stage 32
£m
<0.1
<0.1
47.3
3.4
<0.1
2.3
53.0
–
–
–
–
29.0
53.9
2.2
–
0.5
31.7
1.1
–
1.0
56.0
Of which:
Stage 1
£m
Stage 2
£m
Stage 31
£m
<0.1
<0.1
–
–
–
–
Total
£m
<0.1
<0.1
130.2
6.7
<0.1
3.8
140.7
Total
£m
<0.1
<0.1
111.8
43.2
22.6
46.0
2.4
<0.1
0.5
114.7
1.9
<0.1
0.3
45.4
0.3
–
–
22.9
0.2
–
0.2
46.4
1
Information is based on the revised lending segments as detailed on page 87. Prior year comparatives have been restated
accordingly, in which amounts have been reclassified from ‘Real Estate’ into the new ‘Retail Mortgage Brands’ segment.
2 Stage 3 includes ‘POCI’ (purchased or originated credit-impaired) loans with a loss allowance of £4.8 million (2022: £3.6 million).
For loans and advances to customers at amortised cost, loans and advances to customers at fair value
through other comprehensive income (FVOCI) and loan commitments, additional analysis of the loss
allowance recognised is provided starting on page 111, 114 and 116, respectively.
For cash and balances at central banks, loans and advances to banks and investment securities, the loss
allowance is immaterial, totalling less than £0.1 million in both reported years. Accordingly, no additional
analysis is provided.
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Additional analysis of loans and advances to customers at amortised cost
For loans and advances to customers at amortised cost, the loss allowance is £130.2 million (31 December 2022: £111.8 million).
The loss allowance is recognised as a deduction from the gross carrying amount of the asset (see Note 22 of the Financial Statements).
The following tables provide an analysis of loans and advances to customers at amortised cost by lending segment1 and the year-end stage classification:
As at 31 December 2023
Stage 1
Stage 2
Stage 32
Enterprise
Real
Estate
£m
SME
£m
Consumer
Lending
£m
5,577.6
2,329.7
452.2
173.2
343.1
82.6
590.0
40.1
6.9
Retail
Mortgage
Brands
£m
783.7
162.1
89.4
Total
£m
As at 31 December 2022
(Restated)1
9,281.0
Stage 1
997.5
Stage 2
352.1
Stage 32
Enterprise
Real
Estate
£m
SME
£m
Consumer
Lending
£m
Retail
Mortgage
Brands
£m
Total
£m
4,470.0
2,299.6
487.0
1,022.9
8,279.5
535.6
149.0
224.5
84.0
38.1
4.4
99.1
50.5
897.3
287.9
Gross carrying amount
6,203.0
2,755.4
637.0
1,035.2
10,630.6
Gross carrying amount
5,154.6
2,608.1
529.5
1,172.5
9,464.7
Stage 1
Stage 2
Stage 32
Loss allowance
(8.7)
(4.1)
(24.3)
(37.1)
(20.9)
(16.1)
(20.3)
(57.3)
(16.4)
(8.1)
(5.6)
(30.1)
(1.3)
(0.7)
(3.7)
(5.7)
(47.3)
Stage 1
(29.0)
Stage 2
(53.9)
Stage 32
(130.2)
Loss allowance
(6.8)
(3.7)
(16.4)
(26.9)
(19.7)
(11.6)
(23.5)
(54.8)
(14.1)
(6.7)
(3.5)
(24.3)
(2.6)
(0.6)
(2.6)
(5.8)
(43.2)
(22.6)
(46.0)
(111.8)
Carrying amount3
6,165.9
2,698.1
606.9
1,029.5
10,500.4
Carrying amount3
5,127.7
2,553.3
505.2
1,166.7
9,352.9
Loss allowance coverage
Loss allowance coverage
Stage 1
Stage 2
Stage 3
Total loss allowance coverage
0.2%
0.9%
14.0%
0.6%
0.9%
4.7%
24.6%
2.1%
2.8%
20.2%
81.2%
4.7%
0.2%
0.4%
4.1%
0.6%
0.5%
Stage 1
2.9%
Stage 2
15.3%
Stage 3
1.2%
Total loss allowance coverage
0.2%
0.7%
11.0%
0.5%
0.9%
5.2%
28.0%
2.1%
2.9%
17.6%
79.5%
4.6%
0.3%
0.6%
5.1%
0.5%
0.5%
2.5%
16.0%
1.2%
1
Information is based on the revised lending segments as detailed on page 87. Prior year comparatives have been restated
accordingly, in which amounts have been reclassified from ‘Real Estate’ into the new ‘Retail Mortgage Brands’ segment.
2 Stage 3 includes ‘POCI’ (purchased or originated credit-impaired) loans with a gross carrying amount of £22.3 million, of which
£14.9 million relates to Real Estate, £0.5 million to SME and £6.9 million to Retail Mortgage Brands (2022: £19.8 million; £16.0 million
Real Estate, £0.7 million SME and £3.1 million Retail Mortgage Brands). The associated loss allowance is £4.8 million, of which
£4.6 million relates to Real Estate and a £0.2 million relates to Retail Mortgage Brands (2022: £3.6 million; £3.5 million Real Estate
and £0.1 million Retail Mortgage Brands).
3 Excludes fair value adjustments for hedged risk recognised on loans and advances to customer.
111
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Principal risks: Credit risk
The following tables provide an analysis of loans and advances to customers at amortised cost
by agreement type and the year-end stage classification:
As at 31 December 2023
Stage 1
Stage 2
Stage 31
Gross carrying amount
Stage 1
Stage 2
Stage 31
Loss allowance
Loan
receivables
£m
Finance
lease
receivables
£m
Instalment
credit
receivables
£m
Total
£m
As at 31 December 2022
8,863.1
967.7
342.5
10,173.3
(45.5)
(27.1)
(47.5)
(120.1)
25.4
0.4
1.2
27.0
(0.2)
–
(0.8)
(1.0)
392.5
9,281.0
Stage 1
29.4
8.4
997.5
Stage 2
352.1
Stage 31
430.3
10,630.6
Gross carrying amount
(1.6)
(1.9)
(5.6)
(9.1)
(47.3)
Stage 1
(29.0)
Stage 2
(53.9)
Stage 31
(130.2)
Loss allowance
Loan
receivables
£m
Finance
lease
receivables
£m
Instalment
credit
receivables
£m
Total
£m
7,894.2
880.0
269.5
9,043.7
(41.2)
(21.1)
(37.3)
(99.6)
34.5
2.7
2.5
39.7
(0.2)
(0.1)
(1.7)
(2.0)
350.8
8,279.5
14.6
15.9
897.3
287.9
381.3
9,464.7
(1.8)
(1.4)
(7.0)
(10.2)
(43.2)
(22.6)
(46.0)
(111.8)
Carrying amount2
10,053.2
26.0
421.2
10,500.4
Carrying amount2
8,944.1
37.7
371.1
9,352.9
Loss allowance coverage
Loss allowance coverage
Stage 1
Stage 2
Stage 3
Total loss allowance coverage
0.5%
2.8%
13.9%
1.2%
0.8%
0.0%
66.7%
3.7%
0.4%
6.5%
66.7%
2.1%
0.5%
Stage 1
2.9%
Stage 2
15.3%
Stage 3
1.2%
Total loss allowance coverage
0.5%
2.4%
13.8%
1.1%
0.6%
3.7%
68.0%
5.0%
0.5%
9.6%
44.0%
2.7%
0.5%
2.5%
16.0%
1.2%
1 Stage 3 includes ‘POCI’ (purchased or originated credit-impaired) loans with a gross carrying amount of £22.3 million of which
£22.3 million relates to loan receivables, £nil million to finance lease receivables, £nil million to instalment credit receivables
(2022: £19.8 million, £19.8 million loan receivables, £nil million finance lease receivables, £nil million instalment credit receivables).
The associated loss allowance is £4.8 million, of which £4.8 million relates to loan receivables, £nil million to finance lease
receivables and £nil million to instalment credit receivables (2022: £3.6 million, £3.6 million loan receivables, £nil million finance
lease receivables and £nil million instalment credit receivables).
2 Excludes fair value adjustments for hedged risk recognised on loans and advances to customers.
112
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Principal risks: Credit risk
The following table provides an analysis of movements during the year in the loss allowance associated with loans and
advances to customers at amortised cost. The table is compiled by comparing the position at the end of the year to that
at the beginning of the year. Transfers between stages are deemed to have taken place at the start of the year, with
all other movements shown in the stage in which the asset is held at the end of the year. Where loans have been added
(including originations, purchases and acquisitions through business combinations) or removed (including derecognitions
and disposals) during the year, the full year movement is reflected on the relevant addition/disposal row.
Stage 1
£m
Stage 2
£m
Stage 3
£m
2023
Total
£m
Stage 1
£m
Stage 2
£m
Stage 3
£m
2022
Total
£m
Real Estate
SME
As at 1 January
43.2
22.6
46.0
111.8
25.8
15.2
35.0
76.0
ECL charge/(credit) for the year
Transfer from Stage 1
Transfer from Stage 2
Transfer from Stage 3
New financial assets originated or purchased
(3.1)
3.7
0.4
19.7
2.6
(8.0)
2.0
7.7
0.5
4.3
(2.4)
2.6
–
–
–
30.0
Financial assets derecognised (excluding disposals)
(14.9)
(5.6)
(20.0)
(40.5)
Changes in credit risk1
Net ECL charge/(credit) for the year
Other movements
Other adjustments
Total other movements
(1.7)
4.1
–
–
7.7
6.4
–
–
24.3
9.3
30.3
19.8
(1.4)
(1.4)
(1.4)
(1.4)
(2.6)
3.1
–
17.2
(5.2)
4.9
17.4
–
–
2.1
(4.3)
3.0
3.6
0.5
1.2
(3.0)
6.0
–
–
–
26.8
(3.1)
(9.5)
(17.8)
6.1
7.4
–
–
15.8
11.0
26.8
35.8
–
–
–
–
Total movement in loss allowance
4.1
6.4
7.9
18.4
17.4
7.4
11.0
35.8
As at 31 December
47.3
29.0
53.9
130.2
43.2
22.6
46.0
111.8
The net ECL charge for the year represents the amount recognised in the statement
of profit and loss within impairment losses on financial assets at amortised cost
(see Note 19 of the Financial Statements). An analysis of this charge by lending
segment2 is provided in the following table.
2023
£m
10.2
3.9
5.8
(0.1)
19.8
2022
(Restated)2
£m
6.3
16.0
10.2
3.3
35.8
Consumer Lending
Retail Mortgage Brands
Net ECL charge for the year
The lower net ECL charge in the current year reflects an increase in loan book and
changes in credit risk from increased arrears and watch list offset by derecognised
loans through charge-off and a reduction in the cost of living PMA. The net ECL charge
also includes migrations to Stage 2 and Stage 3 including Consumer where the portfolio
has seasoned following the targeted re-entry into the Personal loans segment. This was
partially offset by the reduction in the cost of living PMA (see page 110).
1 Changes in credit risk includes changes resulting from net changes in lending, including repayments, additional drawdowns and accrued interest,
and changes resulting from adjustments to the models used in the calculation of ECLs, including model inputs and underlying assumptions.
2 Information is based on the revised lending segments as detailed on page 87. Prior year comparatives have been restated accordingly, in which amounts
have been reclassified from ‘Real Estate’ into the new ‘Retail Mortgage Brands’ segment.
113
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Movements in the gross carrying amount of loans and advances to customers at amortised cost during
the year that contributed to the changes in the associated loss allowance during the year are shown
in the following table. The table is compiled using the same methodology as described for the loss
allowance movement table on the previous page.
Additional analysis of loans and advances to customers at FVOCI
For loans and advances to customers at FVOCI, the loss allowance is £6.7 million (2022: £2.4 million).
The loss allowance does not reduce the carrying amount of these assets, which remain at fair value.
Instead, the loss allowance is recognised in the FVOCI reserve.
Stage 1
£m
Stage 2
£m
Stage 3
£m
2023
Total
£m
Stage 1
£m
Stage 2
£m
Stage 3
£m
2022
Total
£m
The following table provides an analysis of loans and advances to customers at FVOCI by year-end stage
classification. All FVOCI loans are attributable to the Retail Mortgage Brands lending segment2 and all
represent mortgage loan receivables.
As at 1 January
8,279.5
897.3
287.9
9,464.7
7,315.7
831.2
221.6
8,368.5
Movements in gross
carrying amount
Transfer from Stage 1
(569.2)
465.8
103.4
Transfer from Stage 2
279.6
(338.6)
59.0
Transfer from Stage 3
7.0
21.5
(28.5)
–
–
–
(590.2)
478.0
112.2
295.0
(339.7)
44.7
0.3
25.5
(25.8)
–
–
–
New financial assets
originated or purchased
Financial assets derecognised
(excluding disposals)
3,296.7
146.5
22.2
3,465.4
2,761.7
108.6
35.8
2,906.1
(1,878.0)
(187.8)
(85.9)
(2,151.7)
(1,396.2)
(174.6)
(71.4)
(1,642.2)
Stage 3
Stage 1
Stage 2
Stage 3
Carrying amount3
Stage 1
Stage 2
Net changes in lending1
(134.6)
(7.2)
(6.0)
(147.8)
(106.8)
(31.7)
(29.2)
(167.7)
Loss allowance
Total movement in
gross carrying amount
1,001.5
100.2
64.2
1,165.9
963.8
66.1
66.3
1,096.2
Loss allowance coverage
As at 31 December
9,281.0
997.5
352.1
10,630.6
8,279.5
897.3
287.9
9,464.7
Stage 1
Stage 2
Stage 3
Total loss allowance coverage
1 Net changes in lending includes repayments, additional drawdowns and accrued interest.
2 This is based on the revised lending segments as detailed on page 87. Prior to this change, FVOCI loans were attributable to
Real Estate and TML Mortgages. Following the changes to lending segments, all FVOCI loans are now included in the new
‘Retail Mortgage Brands’ segment.
3. Excludes fair value adjustments for hedged risk recognised on loans and advances to customers.
2023
£m
2022
£m
2,546.4
1,285.4
239.3
26.3
28.8
2.2
2,812.0
1,316.4
(3.4)
(2.2)
(1.1)
(6.7)
0.1%
0.9%
4.2%
0.2%
(1.9)
(0.3)
(0.2)
(2.4)
0.1%
1.0%
9.1%
0.2%
114
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Principal risks: Credit risk
The following table provides an analysis of movements during the year in the loss allowance associated
with loans and advances to customers at FVOCI. The table is compiled by comparing the position at the
end of the year to that at the beginning of the year. Transfers between stages are deemed to have taken
place at the start of the year, with all other movements shown in the stage in which the asset is held at
the end of the year. Where loans have been added (including originations, purchases and acquisitions
through business combinations) or removed (including derecognitions and disposals) during the year,
the full year movement is reflected on the relevant addition/disposal row. Loans originated from 1 January
2022 within Retail Mortgage Brands are considered under the Group’s originate to distribute strategy.
The net ECL charge for the year represents the amount recognised in the statement of profit and loss
within impairment losses on financial assets (see Note 19 of the Financial Statements).
The higher net ECL charge in the current period is predominantly attributable to growth in the loan
book due to originations and loans acquired as part of the Bluestone Mortgages Limited acquisition
and portfolio seasoning which is reflected in an increase in arrears particularly in Bluestone
Mortgages Limited. Changes in the economic outlook included within the calculation of ECLs is
another contributory factor.
Stage 1
£m
Stage 2
£m
Stage 3
£m
2023
Total
£m
Stage 1
£m
Stage 2
£m
Stage 3
£m
As at 1 January
1.9
0.3
0.2
2.4
ECL charge for the year
Transfer from Stage 1
Transfer from Stage 2
Transfer from Stage 3
New financial assets
originated or purchased
Financial assets derecognised
(excluding disposals)
Changes in credit risk1
Net ECL charge for the year
(0.1)
–
–
0.1
(0.1)
–
–
0.1
–
–
–
–
1.6
0.8
0.2
2.6
–
–
1.5
(0.1)
(0.2)
(0.3)
1.2
1.9
0.8
0.9
2.0
4.3
–
–
–
–
1.9
–
–
1.9
2022
Total
£m
–
–
–
–
–
–
–
–
–
–
–
–
Movements in the carrying amount of loans and advances to customers at FVOCI during the year
(excluding fair value adjustments for hedged risk) are shown in the following table. The table is compiled
using the same methodology as described for the loss allowance movement table above.
Stage 1
£m
Stage 2
£m
Stage 3
£m
2023
Total
£m
Stage 1
£m
Stage 2
£m
Stage 3
£m
As at 1 January
1,285.4
28.8
2.2
1,316.4
Movements in carrying amount
Transfer from Stage 1
(98.4)
86.0
1.9
0.4
(5.1)
0.4
12.4
3.2
(0.8)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2022
Total
£m
–
–
–
–
0.3
0.2
2.4
–
–
–
–
–
–
0.3
0.2
2.4
Transfer from Stage 2
Transfer from Stage 3
New financial assets
originated or purchased
As at 31 December
3.4
2.2
1.1
6.7
1.9
0.3
0.2
2.4
Change in fair value
10.0
–
(0.1)
9.9
Net changes in lending2
128.6
(13.4)
5.7
120.9
(11.2)
(16.7)
Financial assets derecognised
(excluding disposals)
(24.4)
(0.4)
(0.7)
(25.5)
–
1,242.9
143.0
4.4
1,390.3
1,313.3
29.5
2.2
1,345.0
–
(0.3)
(0.4)
–
–
–
–
(11.5)
(17.1)
1. Changes in credit risk includes changes resulting from net changes in lending, including repayments, additional drawdowns and
accrued interest, and changes resulting from adjustments to the models used in the calculation of ECLs, including model inputs
and underlying assumptions.
2. Net changes in lending includes repayments, additional drawdowns and accrued interest.
115
Total movement
in carrying amount
1,261.0
210.5
24.1
1,495.6
1,285.4
28.8
2.2
1,316.4
As at 31 December
2,546.4
239.3
26.3
2,812.0
1,285.4
28.8
2.2
1,316.4
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Principal risks: Credit risk
Additional analysis of loan commitments
The loss allowance for loan commitments is £3.8 million (2022: £0.5 million). The loss allowance is
recognised as a provision (see Note 33 of the Financial Statements).
The following table provides an analysis of movements during the year in the loss allowance associated
with loan commitments. The table is compiled by comparing the position at the end of the year to that
at the beginning of the year. Transfers between stages are deemed to have taken place at the start of
the year, with all other movements shown in the stage in which the asset is held at the end of the year.
The net ECL charge for the year represents the amount recognised in the statement of profit
and loss within impairment losses on financial assets (see Note 19 of the Financial Statements).
Movements in the gross loan commitment during the year that contributed to the changes in the
associated loss allowance during the year are shown in the following table. The table is compiled
using the same methodology as described for the loss allowance movement table above.
Stage 1
£m
Stage 2
£m
Stage 3
£m
2023
Total
£m
Stage 1
£m
Stage 2
£m
Stage 3
£m
2022
Total
£m
Stage 1
£m
Stage 2
£m
Stage 3
£m
2023
Total
£m
Stage 1
£m
Stage 2
£m
Stage 3
£m
2022
Total
£m
0.2
0.5
0.3
0.1
0.3
0.7
As at 1 January
1,570.0
57.0
1.7
1,628.7
1,176.8
45.9
8.9
1,231.6
As at 1 January
ECL charge/(credit) for the year
Transfer from Stage 1
Transfer from Stage 2
Transfer from Stage 3
New loan commitments
Loan commitments derecognised
Changes in credit risk
Net ECL charge/(credit)
for the year
0.3
–
–
–
1.2
–
0.8
2.0
–
–
–
–
–
–
0.5
0.5
–
–
–
–
–
–
–
1.2
(0.2)
(0.2)
1.0
0.8
2.3
3.3
–
–
0.2
0.1
(0.2)
(0.1)
–
–
–
–
–
(0.1)
–
–
(0.2)
–
–
0.1
–
–
–
0.1
(0.2)
(0.1)
Movements in gross
loan commitments
Transfer from Stage 1
(24.9)
20.8
4.1
Transfer from Stage 2
Transfer from Stage 3
–
–
New loan commitments
361.5
(12.0)
12.0
–
4.9
–
0.1
–
–
–
(46.6)
38.4
23.0
(25.6)
2.5
366.5
416.7
1.5
8.5
–
8.2
2.6
(4.0)
–
–
–
–
425.2
(11.2)
(362.6)
Loan commitments derecognised
(247.7)
(19.0)
(0.6)
(267.3)
(351.4)
–
(0.1)
(0.1)
(0.2)
Total movement in gross
loan commitments
(361.9)
0.1
13.9
(347.9)
393.2
11.1
(7.2)
397.1
Net changes in commitments
(450.8)
5.4
(1.7)
(447.1)
349.0
(11.7)
(2.8)
334.5
As at 31 December
2.3
0.5
1.0
3.8
0.3
–
0.2
0.5
As at 31 December
1,208.1
57.1
15.6
1,280.8
1,570.0
57.0
1.7
1,628.7
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Critical judgements relating to the
impairment of financial assets (audited)
The measurement of ECLs requires the Group to
make a number of judgements. The judgements that
are considered to have the most significant effect
on the amounts in the financial statements are:
• assessing whether there has been a SICR
(resulting in the financial asset being transferred
to Stage 2);
• determining whether a financial asset is in
default or is credit-impaired (resulting in the
financial asset being transferred to Stage 3); and
• determining whether a financial asset is ‘cured’
(and is therefore reclassified back to a lower
stage).
The Group reviews and updates these key
judgements bi-annually, in advance of the Interim
Financial Report and the Annual Report and
Accounts. All key judgements are reviewed and
recommended to the Audit Committee for approval
prior to implementation.
Assessing whether there has been
a significant increase in credit risk
If a financial asset shows a SICR, it is transferred
to Stage 2 and the ECL recognised changes from a
12-month ECL to a lifetime ECL. The assessment of
whether there has been a SICR requires a high level
of judgement as detailed below. The assessment of
whether there has been a SICR also incorporates
forward-looking information (see page 109).
These judgements have an impact upon the stage
the financial asset is allocated to and therefore
whether a 12-month or lifetime ECL is recognised.
Additional details regarding each of these
significant judgement areas are provided in the
following sections.
The impairment of cash and balances at central
banks, loans and advances to banks, investment
securities and loan commitments is immaterial. As
such, the area where these judgements have the
most significant effect specifically relates to the
impairment of loans and advances to customers.
A further area of judgement that is considered
to have a significant effect on amounts in
the financial statements is the application of
judgemental adjustments to modelled ECLs.
Judgemental adjustments are applied to the
modelled ECL amount when the Group judges
that the modelled ECL does not adequately reflect
the expected risk in the portfolio, or where there
is a risk that the model cannot be expected to
pick up based on previous experience. Details of
judgemental adjustments to the modelled ECL
are provided on page 109.
For the purposes of the SICR assessment, the
Group applies a series of quantitative, qualitative
and backstop criteria:
• Quantitative criteria: this considers the increase
in an account’s remaining lifetime PD at the
reporting date compared to the expected
residual lifetime PD when the account was
originated. The Group segments its credit
portfolios into PD bands and has determined
a relevant threshold for each PD band, where a
movement in excess of threshold is considered
to be significant. These thresholds have been
determined separately for each portfolio based
on historical evidence of delinquency.
• Qualitative criteria: this includes the observation
of specific events such as short-term
forbearance, payment cancellation, historical
arrears or extension to customer terms (see
following table for further details).
• Backstop criteria: IFRS 9 includes a rebuttable
presumption that 30 days past due is an
indicator of a SICR. The Group considers this to
be an appropriate backstop measure and does
not rebut this presumption.
As a general indicator, there is deemed to be a SICR if the following criteria are identified based
on the Group’s quantitative modelling:
Real Estate: residential and commercial investment mortgages
• If external mortgage payments are in arrears from
the credit reference agencies. The external arrears
information is statistically a lead indicator of financial
difficulties and potential arrears on the loan book;
• for term loans with a modelled PD since origination:
if the PD > 0.38% and the absolute movement in
remaining lifetime PD is more than two times the
estimate at origination; or
• if the loan account is forborne;
• if the loan enters on to amber watchlist;
• for short-term loans with a modelled PD: if the PD >
0.38% and the absolute movement in remaining lifetime
PD is more than 1.5 times the estimate at origination;
• for all portfolios originated as slotted, or that have
ever been slotted during its life: if the PD > 0.38% and
the absolute movement in remaining lifetime PD is
more than three times the estimate at origination.
Real Estate: residential owner-occupied mortgages
• All exposures are graded under the modelled approach.
If the modelled PD > 1.76% and the absolute movement
in remaining lifetime PD is more than five times the
estimate at origination;
• if the customer has ever been six or more payments
in arrears on any fixed term account at the credit
reference agency;
SME
• if the customer has missed a mortgage payment in the
last six months at the credit reference agency;
• if the customer has missed 2 or more mortgage
payments;
• if the loan account is forborne.
• For accounts within the digital SME portfolio: if the
• if the customer has missed 2 or more mortgage
absolute movement in the remaining lifetime PD is more
than two times the estimate at origination;
payments;
• if the loan account is forborne; or
• if the loan enters on to amber watchlist.
Consumer Lending
• Non-personal loans: if the PD > 0.38% and the absolute
movement in remaining lifetime PD is more than two
times the estimate at origination;
• if there are county court judgements registered at
the credit reference agencies of > £150 in the last
12-months or > £1,000 in last three years;
• personal loans: if the PD > 0.38% and the absolute
• if the customer has missed 2 or more mortgage
movement in remaining lifetime PD is more than two
times the estimate at origination;
payments; or
• if the loan account is forborne.
Retail Mortgage Brands
• All exposures are graded under the modelled approach.
• If the modelled Bluestone PD > 0.76% and the absolute
movement in remaining lifetime PD is more than five
times the estimate at origination;
• If the modelled TML PD > 1.03% and the absolute
movement in remaining lifetime PD is more than five
times the estimate at origination;
• if the customer has missed 2 or more mortgage
payments; or
• if the loan account is forborne.
Shawbrook Group plc | Annual Report and Accounts 2023
117
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Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Principal risks: Credit risk
Stage 2 criteria are designed to be effective indicators of a
significant deterioration in credit risk. As part of the bi-annual
review of key impairment judgements, the Group undertakes
detailed analysis to confirm that the Stage 2 criteria remain
effective. This includes (but is not limited to):
• Criteria effectiveness: this includes the emergence to default
for each Stage 2 criterion when compared to Stage 1, Stage 2
outflow as a percentage of Stage 2, percentage of new defaults
that were in Stage 2 in the months prior to default, time in Stage 2
prior to default and percentage of the book in Stage 2 that are not
progressing to default or curing.
• Stage 2 stability: this includes stability of inflows and outflows from
Stage 2 and 3.
• Portfolio analysis: this includes the percentage of the portfolio
that is in Stage 2 and not defaulted, the percentage of the Stage 2
transfer driven by Stage 2 criterion other than the backstops and
back-testing of the defaulted accounts.
For low credit risk exposures, the Group is permitted to assume,
without further analysis, that the credit risk on a financial asset has
not increased significantly since initial recognition if the financial
asset is determined to have low credit risk at the reporting date.
The Group has opted not to apply this low credit risk exemption.
Determining whether a financial asset is in default
or is credit-impaired
When there is objective evidence of impairment and the financial
asset is considered to be in default, or otherwise credit-impaired,
it is transferred to Stage 3. The Group’s definition of default is fully
aligned with the definition of credit-impaired.
The Group applies a series of quantitative and qualitative criteria
to determine if an account meets the definition of default. These
criteria include:
• when the borrower is unlikely to pay its credit obligations to the
Group in full, without recourse by the Group to actions such as
realising security (if any is held);
• when the borrower is more than 90 days past due on any credit
obligation to the Group; and
• when a credit obligation to the Group has gone past maturity
or there is doubt that the exit strategy for the obligation is likely.
Inputs into the assessment of whether a financial asset is in
default and their significance may vary over time to reflect
changes in circumstances.
Determining whether a financial asset is cured
The Group considers a financial asset to be ‘cured’, and therefore
reclassifies back to a lower stage, when the assessed criteria that
caused movement into the higher stage are no longer present.
The following curing rules are applied by the Group:
• For Stage 3 loans with forbearance arrangements in place:
the loan must first successfully complete its 12-month curing
period to be transferred to Stage 2. Following this, the loan must
successfully complete a 24-month forbearance probation period
before the forbearance classification can be discontinued and it
can be returned to Stage 1.
• For Stage 3 loans that have cured without forbearance: the loan
must complete a 12-month probation in Stage 2 prior to returning
to Stage 1.
• For loans in Stage 2 as a result of arrears: the arrears must be
cured for a period of 180 days prior to returning to Stage 1.
• For loans in Stage 2 as a result of an increase in PD: a
probation period of 90 days must be completed prior to
returning to Stage 1.
• For Stage 2 loans with forbearance measures in place: the loan
must complete a 24-month forbearance probation period before
the forbearance classification can be discontinued and it can be
returned to Stage 1.
• For loan products such as revolving credit facilities: the loan
must be in ‘amber watchlist’ (monitoring) for 180-days prior to
returning to Stage 1 and, if it has forbearance measures in place,
it must complete a 24-month forbearance probation period,
throughout which it must remain in ‘amber watchlist’, before the
forbearance classification can be discontinued and it can be
returned to Stage 1.
The following table provides a breakdown of loans and advances to
customers (including both loans measured at amortised cost and
those measured at FVOCI) in Stage 2 and 3 to show the proportion
that are in a cure period:
Stage 2
Stage 3
Loss
allowance
£m
Gross
carrying
amount
£m
Loss
allowance
£m
(31.9)
(1.8)
(33.7)
355.8
31.0
386.8
(61.9)
(5.4)
(67.3)
Gross
carrying
amount
£m
1,000.2
140.3
1,140.5
Stage 2
Stage 3
Gross
carrying
amount
£m
Loss
allowance
£m
Gross
carrying
amount
£m
Loss
allowance
£m
788.0
85.1
873.1
(21.8)
(1.1)
(22.9)
244.6
38.1
282.7
(42.6)
(4.4)
(47.0)
As at
31 December 2023
Not in cure period
In cure period
Total
As at
31 December 2022
Not in cure period
In cure period
Total
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Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Principal risks: Credit risk
Critical accounting estimates relating to the impairment
of financial assets (audited)
The calculation of ECLs requires the Group to make a number of
assumptions and estimates. The accuracy of the ECL calculation
would be impacted by movements in the forward-looking
economic scenarios used, or the probability weightings applied
to these scenarios and by unanticipated changes to model
assumptions that differ from actual outcomes.
The key assumptions and estimates that, depending on a range of
factors, could result in a material adjustment in the next financial
year relate to the use of forward-looking information in the
calculation of ECLs and the inputs and assumptions used in the
ECL models. Additional information about both of these areas is
set out below.
The impairment of cash and balances at central banks, loans and
advances to banks, investment securities, assets held for sale
and loan commitments is immaterial. As such, the area where the
assumptions and estimates set out below could have the most
significant impact specifically relates to the impairment of loans
and advances to customers.
Forward-looking information
The Group incorporates forward-looking information into the
calculation of ECLs and the assessment of whether there has
been a SICR. The use of forward-looking information represents
a key source of estimation uncertainty.
The Group uses four forward-looking economic scenarios: a
base case (central view), an alternative upside scenario, an
alternative moderate downside scenario and an alternative
severe downside scenario.
Scenarios are developed to reflect the Group’s expectations
based on information available at the time (which may differ
to actual outcomes).
The central view used is informed by the HM Treasury Central
forecast that is published quarterly and used as part of the
Group’s corporate planning activity. Intra-quarter, the Group
considers survey-based data and lead indicators to inform
whether the central view continues to be appropriate. The Group
focuses its view on the next five years as part of the narrative
to the scenario but has rate paths that extend out beyond the
planning period for the Group and up to 20 years.
For the alternative scenarios, the Group is not large enough to
have an internal economist and therefore works with a third party
on the narrative of the scenarios and the rate paths to ensure that
they are internally consistent using the UK Treasury model. The
rate paths used in the scenarios are consistent with the core UK
macroeconomic factors that are published by the Bank of England
as part of the annual stress testing exercise.
The nature and shape of the economic scenarios reflect the
outlook of the UK economy.
As at 31 December 2023, the economic scenarios used reflect that
the UK economy is close to recession and no growth is expected in
2024. The scenarios reflect a higher for longer rate scenario with
Bank Rate not expected to reduce until late in 2024, with signals
that the Bank of England is prepared to act again if needed. The
risk outlook is impacted by geopolitical tensions from the Middle
East escalating and impacting on the price of oil.
This is in contrast to the economic scenarios used as at 31
December 2022, which reflected the expectation that the UK
economy would enter a shallow recession in all scenarios. The
scenarios incorporated the elevated interest rate environment
present at the time and the expectation that interest rates would
remain elevated for longer, that there would be high inflation, and
the potential for a fall in house prices as increased interest rates
reduced affordability, particularly for first-time buyers.
119
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report
Principal risks: Credit risk
A summary of the economic variables used in both reported years are detailed in the following charts and tables:
UK Real GDP (Indexed Dec 2022 = 100)
UK Unemployment (%)
UK Residential Property Prices (Indexed Dec 2022 = 100)
115%
110%
105%
100%
95%
90%
85%
0
2
c
e
D
1
2
r
a
M
1
2
n
u
J
1
2
p
e
S
1
2
c
e
D
2
2
r
a
M
2
2
n
u
J
2
2
p
e
S
2
2
c
e
D
3
2
r
a
M
3
2
n
u
J
3
2
p
e
S
3
2
c
e
D
4
2
r
a
M
4
2
n
u
J
4
2
p
e
S
4
2
c
e
D
5
2
r
a
M
5
2
n
u
J
5
2
p
e
S
5
2
c
e
D
6
2
r
a
M
6
2
n
u
J
6
2
p
e
S
6
2
c
e
D
7
2
r
a
M
7
2
n
u
J
7
2
p
e
S
7
2
c
e
D
8
2
r
a
M
8
2
n
u
J
8
2
p
e
S
8
2
c
e
D
9%
8%
7%
6%
5%
4%
3%
0
2
c
e
D
1
2
r
a
M
1
2
n
u
J
1
2
p
e
S
1
2
c
e
D
2
2
r
a
M
2
2
n
u
J
2
2
p
e
S
2
2
c
e
D
3
2
r
a
M
3
2
n
u
J
3
2
p
e
S
3
2
c
e
D
4
2
r
a
M
4
2
n
u
J
4
2
p
e
S
4
2
c
e
D
5
2
r
a
M
5
2
n
u
J
5
2
p
e
S
5
2
c
e
D
6
2
r
a
M
6
2
n
u
J
6
2
p
e
S
6
2
c
e
D
7
2
r
a
M
7
2
n
u
J
7
2
p
e
S
7
2
c
e
D
8
2
r
a
M
8
2
n
u
J
8
2
p
e
S
8
2
c
e
D
130%
120%
110%
100%
90%
80%
70%
0
2
c
e
D
1
2
r
a
M
1
2
n
u
J
1
2
p
e
S
1
2
c
e
D
2
2
r
a
M
2
2
n
u
J
2
2
p
e
S
2
2
c
e
D
3
2
r
a
M
3
2
n
u
J
3
2
p
e
S
3
2
c
e
D
4
2
r
a
M
4
2
n
u
J
4
2
p
e
S
4
2
c
e
D
5
2
r
a
M
5
2
n
u
J
5
2
p
e
S
5
2
c
e
D
6
2
r
a
M
6
2
n
u
J
6
2
p
e
S
6
2
c
e
D
7
2
r
a
M
7
2
n
u
J
7
2
p
e
S
7
2
c
e
D
8
2
r
a
M
8
2
n
u
J
8
2
p
e
S
8
2
c
e
D
Prior year
Base
Up
Down
Severe
Prior year
Base
Up
Down
Severe
Prior year
Base
Up
Down
Severe
120
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Principal risks: Credit risk
As at 31 December 2023
GDP – % average change
year-on-year
Bank Rate (%)
UK Unemployment (%)
Consumer Price Index –
% change year-on-year
Base
Upside
Downside
Severe downside
Base
Upside
Downside
Severe downside
Base
Upside
Downside
Severe downside
Base
Upside
Downside
Severe downside
UK Residential House Price
Index – % change year-on-year
Base
Upside
2024
0.0%
1.6%
(1.9%)
(3.7%)
5.00%
4.50%
5.50%
6.00%
4.7%
3.8%
5.9%
7.5%
2.0%
0.9%
3.2%
5.7%
(7.8%)
4.5%
2025
2.2%
3.0%
1.6%
0.7%
3.75%
3.50%
4.00%
5.00%
4.2%
3.8%
5.7%
7.7%
2.0%
2.0%
2.0%
2.1%
3.2%
5.8%
Downside
(10.8%)
(2.2%)
Severe downside
(17.2%)
(6.9%)
2026
2.8%
2.9%
3.9%
3.8%
3.25%
3.00%
3.50%
4.50%
4.1%
3.9%
4.8%
6.5%
2.0%
2.0%
2.0%
2.0%
4.9%
4.3%
3.7%
6.9%
2027
2.2%
2.1%
2.7%
4.1%
2.50%
2.25%
2.75%
3.50%
4.1%
3.9%
4.5%
5.7%
2.0%
2.0%
2.0%
2.0%
4.2%
3.2%
4.4%
6.3%
1.6%
1.6%
1.7%
2.1%
3.9%
4.4%
5.3%
2.0%
2.0%
2.0%
2.0%
3.3%
3.3%
3.4%
3.7%
2028
As at 31 December 2022
GDP – % average change
year-on-year
Base
Upside
Downside
2023
(1.1%)
0.5%
(1.7%)
2024
1.8%
3.1%
0.7%
2.25%
Bank Rate (%)
2.25%
2.25%
2.50%
4.1%
UK Unemployment (%)
Consumer Price Index –
% change year-on-year
Severe downside
(3.0%)
(0.7%)
Base
Upside
Downside
Severe downside
Base
Upside
Downside
Severe downside
Base
Upside
Downside
3.50%
3.25%
4.25%
5.00%
4.8%
3.5%
5.7%
6.9%
6.6%
3.8%
9.7%
Severe downside
12.5%
2.75%
2.50%
3.75%
4.75%
4.5%
3.7%
5.9%
7.8%
2.0%
2.0%
2.2%
6.2%
UK Residential House Price
Index – % change year-on-year
Base
Upside
(8.4%)
(0.3%)
3.4%
3.1%
Downside
(10.8%)
(3.9%)
Severe downside
(15.7%)
(10.4%)
2025
3.1%
3.0%
3.3%
3.4%
2.50%
2.25%
3.00%
3.75%
4.1%
3.9%
4.9%
6.2%
2.0%
2.0%
2.0%
2.1%
3.7%
4.3%
0.6%
4.3%
2026
3.3%
3.0%
3.3%
4.5%
2.25%
2.25%
2.25%
2.75%
4.1%
3.9%
4.4%
5.1%
2.0%
2.0%
2.0%
2.0%
3.4%
4.0%
3.1%
4.8%
2027
2.0%
2.0%
2.0%
2.8%
2.25%
2.25%
2.25%
2.25%
4.1%
3.9%
4.4%
4.7%
2.0%
2.0%
2.0%
2.0%
3.6%
3.6%
3.6%
3.9%
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Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Principal risks: Credit risk
The probability weightings applied to the above scenarios are another area of estimation uncertainty. They
are generally set to ensure that there is an asymmetry in the ECL. The probability weightings applied to the
four economic scenarios used are as follows:
Base
Upside
Downside
Severe downside
2023
50%
10%
30%
10%
2022
40%
10%
35%
15%
In determining the probability weightings, the Group has regularly considered the nature and
probability of the alternative downside scenarios. The forecasts have largely evolved as expected
since 30 June 2023 and, with current pricing suggesting that interest rates are at or close to their peak,
the probability weightings have been updated to reflect a slightly less risky outlook in the UK, with the
downside and severe downside scenario weightings decreasing by 5% each compared to 31 December
2022 to 30% and 10%, respectively, with a corresponding increase in the base case weighting.
The Group undertakes a review of its economic scenarios and the probability weightings applied at
least quarterly and more frequently if required. The results of this review are recommended to the
Audit Committee and the Board prior to any changes being implemented.
The calculation of ECLs is sensitive to the assumptions made regarding the forward-looking scenarios
used and the probability weightings applied. The Group performs sensitivity analysis to assess the
impact on the loss allowance recognised on its loans and advances to customers.
As at 31 December 2023
Real Estate
SME
Consumer Lending
Retail Mortgage Brands
Total
The following table shows the loss allowance as at 31 December 2023 for loans and advances to
customers at amortised cost and FVOCI, loan commitments based on the probability-weighted
multiple economic scenarios, as recognised in the statement of financial position, and the impact
on this loss allowance if each individual forward-looking scenario was weighted at 100%.
In relation to the below analysis, in each of the scenarios, judgemental adjustments to modelled
ECLs (PMAs and overlays) are assumed to be constant and have been added back into each of
the scenarios.
Probability –
weighted loss
allowance per
statement of
financial position
£m
37.4
60.6
30.2
12.5
140.7
Increase/(decrease) in loss allowance
if scenario weighted at 100%
Upside
£m
Downside
£m
Severe
downside
£m
(8.0)
(4.5)
(1.2)
(2.4)
(16.1)
2.2
1.4
0.5
0.8
4.9
9.2
5.0
2.5
3.4
20.1
Base
£m
(1.6)
(1.0)
(0.7)
(0.7)
(4.0)
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Model estimations
ECL calculations are outputs of complex models with a number of underlying assumptions regarding
the choice of variable inputs and their interdependencies. The Group considers the key assumptions
impacting the ECL calculation to be within the PD and LGD. Sensitivity analysis is performed by the Group
to assess the impact of changes in these key assumptions on the loss allowance recognised on loans and
advances to customers measured at amortised cost, FVOCI and loan commitments.
A summary of the key assumptions and sensitivity analysis as at 31 December 2023 is provided in the
following table.
Exposure to credit risk (audited)
The following table presents the Group’s maximum exposure to credit risk before taking into account
any collateral held or other credit risk enhancements (unless such enhancements meet accounting
offsetting enhancements).
For financial assets, the maximum exposure to credit risk is the carrying amount. For the purposes of
this disclosure, fair value adjustments for hedged risk recognised on loans and advances to customers
are not included. For loan commitments, the maximum exposure to credit risk is the full amount of the
committed facilities.
Assumption
Sensitivity analysis
PD
• A 10% increase in the PD for each customer would increase the total loss allowance
on loans and advances to customers at amortised cost by £7.7 million.
Cash and balances at central banks
LGD: Real Estate and
Retail Mortgages Brands1
• Property value
• Forced sale discount
• A 10% absolute reduction in property prices would increase the loss allowance on
loans and advances to customers at amortised cost in the Real Estate segments
by £10.1 million.
• A 10% absolute reduction in property prices would increase the loss allowance on
loans and advances to customers at FVOCI and amortised cost in Retail Mortgage
Brands segments by £3.0 million.
• A 5% absolute increase in the forced sale discount would increase the loss
allowance on loans and advances to customers at amortised cost in the Real
Estate segments by £6.8 million.
• A 5% absolute increase in the forced sale discount would increase the loss
allowance on loans and advances to customers at FVOCI and amortised cost
in Retail Mortgage Brands segments by £2.0 million.
Loans and advances to banks
Loans and advances to customers at amortised cost
Loans and advances to customers at FVOCI
Investment securities
Derivative financial assets
Loan commitments
Maximum exposure to credit risk
LGD: SME
• A 5% absolute increase in the LGD applied would increase the total loss allowance
• Absolute LGD value
on loans and advances to customers at amortised cost in SME by £6.4 million.
LGD: Consumer Lending
• A 10% absolute increase in the loss given charge-off would increase the loss
• Loss given charge-off
allowance on loans and advances to customers at amortised cost in Consumer
Lending by £3.7 million.
2023
£m
2,188.1
480.7
10,500.4
2,812.0
822.1
252.7
2022
£m
2,037.1
263.6
9,352.9
1,316.4
691.0
330.7
1,280.8
1,628.7
18,336.8
15,620.4
1 For the purpose of sensitivity analysis, all calculations are applied at account level, however the Retail Mortgage Brands parameters
are grouped with the Real Estate while the Group develops its methodology.
123
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To assess exposure to credit risk, the Group has developed a credit risk grading system, as set out in the
table below, which maps to a common master grading scale. This credit risk grading system is applied to
the Group’s financial assets for which a loss allowance is recognised, together with loan commitments.
The grading system consists of 25 grades on a master grading scale, reflecting varying degrees of risk
and default. Responsibility for setting risk grades lies with the approval point for the risk or committee,
as appropriate. Risk grades are subject to regular reviews by the Group’s risk function.
Credit risk grading
Master grading scale
Low risk
Medium risk
High risk
1-10
11-15
16-25
PD range
<=0.38%
>0.38% to <= 1.76%
>1.76%
The following information provides an analysis of the Group’s exposures to credit risk by credit risk grade
and year-end stage classification. The credit risk grade refers to the grades defined in the preceding
table. The year-end stage classification refers to the IFRS 9 stage, as defined on page 107. It should be
noted that the credit risk grading is a point-in-time assessment, whereas the year-end stage classification
is determined based on the change in credit risk since initial recognition. As such, for non-credit impaired
financial assets, there is not a direct relationship between the credit risk grade and stage classification.
Loans and advances
to customers at amortised cost
Stage 1
£m
Stage 2
£m
Stage 31
£m
2023
Total
£m
Stage 1
£m
Stage 2
£m
Stage 31
£m
2022
Total
£m
Low risk
Medium risk
High risk
Ungraded
1,077.9
14.8
1.2
1,093.9
923.2
8.2
–
931.4
4,758.2
180.6
8.3
4,947.1
3,210.4
141.4
1.4
3,353.2
2,999.7
787.7
329.7
4,117.1
3,168.9
648.3
235.8
4,053.0
445.2
14.4
12.9
472.5
977.0
99.4
50.7
1,127.1
Gross carrying amount
9,281.0
997.5
352.1
10,630.6
8,279.5
897.3
287.9
9,464.7
Loss allowance
(47.3)
(29.0)
(53.9)
(130.2)
(43.2)
(22.6)
(46.0)
(111.8)
Carrying amount2
9,233.7
968.5
298.2 10,500.4
8,236.3
874.7
241.9
9,352.9
For cash and balances at central banks, loans and advances to banks and investment securities, all
exposures are graded as low risk and are in Stage 1 in both reported years.
Loan commitments
Stage 1
£m
Stage 2
£m
Stage 3
£m
For loans and advances to customers at amortised cost, FVOCI, and loan commitments, analysis is
provided in the following tables. The reduction in ungraded loans during 2023 is due to the implementation
of a new credit grading model for owner occupied mortgages in Real Estate and the Retail Mortgage
brands. TML Buy to Let loans and advances to customers at FVOCI and certain acquired portfolios held
at amortised cost remain ungraded. The Group is planning to develop a new credit grading model for Buy
to Let, consequently, credit grading information is not provided for these loans for this reporting period.
Low risk
Medium risk
High risk
857.4
213.1
137.6
Total amount committed
1,208.1
–
0.5
56.6
57.1
–
6.4
9.2
857.4
986.6
220.0
203.4
302.5
280.9
15.6
1,280.8
1,570.0
–
–
57.0
57.0
–
–
1.7
1.7
1 Stage 3 includes ‘POCI’ (purchased or originated credit-impaired) loans with a gross carrying amount of £22.3 million,
of which £22.3 million is high risk and £nil million ungraded (2022: £19.8 million; £16.7 million high risk and £3.1 million ungraded).
The associated loss allowance is £4.8 million (2022: £3.6 million).
2 Excludes fair value adjustments for hedged risk recognised on loans and advances to customers.
2023
Total
£m
Stage 1
£m
Stage 2
£m
Stage 3
£m
2022
Total
£m
986.6
302.5
339.6
1,628.7
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Concentrations of credit risk (audited)
A concentration of credit risk exists when a number of counterparties are located in a geographical region or are engaged in similar activities and have similar economic
characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. The Group monitors
concentrations of credit risk and implements limits on concentrations where necessary in order to mitigate and control credit concentration risk.
Additional analysis regarding concentrations of credit risk in relation to loans and advances to customers, the principal source of credit risk for the Group, is provided below.
Amounts included in these tables present the combined carrying amount of the Group’s loans and advances to customers at amortised cost and at FVOCI.
Concentrations of credit risk by geographic location
The following tables analyse the combined carrying amount of loans and advances to customers at amortised cost and at FVOCI by lending segment1 and geographic location.
The Group is predominantly a UK lender and continues to maintain a geographically diverse portfolio spanning across the UK. Outside of the UK, a small proportion of loans are
attributable to counterparties domiciled in the Channel Islands, representing 0.2% of total loans (2022: 0.3% of total loans).
As at 31 December 2023
East Anglia
East Midlands
Greater London
Guernsey/Jersey/Isle of Man
North East
North West
Northern Ireland
Scotland
South East
South West
Wales
West Midlands
Yorkshire/Humberside
Carrying amount2
Enterprise
SME
£m
120.8
148.2
740.5
15.3
27.6
302.6
0.8
48.9
416.8
341.6
66.0
243.0
226.0
Real
Estate
£m
185.8
313.4
2,287.5
12.3
115.7
573.7
7.0
294.6
1,172.8
378.4
132.2
378.1
314.4
Consumer
Lending
£m
Retail
Mortgage
Brands
£m
22.9
39.9
66.7
–
31.2
70.0
0.1
72.0
115.6
49.0
31.1
55.1
53.3
149.6
251.7
912.1
–
113.5
410.5
2.6
268.0
846.9
224.7
121.9
283.0
257.0
Total
£m
As at 31 December 2022
(Restated)1
479.1
East Anglia
753.2
East Midlands
4,006.8
Greater London
27.6
Guernsey/Jersey/Isle of Man
288.0
North East
1,356.8
North West
10.5
Northern Ireland
683.5
Scotland
2,552.1
South East
993.7
South West
351.2
Wales
959.2
West Midlands
850.7
Yorkshire/Humberside
Enterprise
SME
£m
110.5
112.3
670.6
13.1
37.9
281.2
1.0
78.0
349.2
335.6
71.7
225.6
266.6
Real
Estate
£m
149.5
238.2
1,914.8
16.1
71.2
461.6
6.0
283.4
979.6
325.4
123.1
289.4
269.4
Consumer
Lending
£m
Retail
Mortgage
Brands
£m
19.2
34.0
54.6
–
26.9
58.0
0.2
59.6
97.2
41.7
24.7
44.9
44.2
100.1
159.6
517.9
–
82.5
271.2
–
180.7
562.9
164.1
86.2
181.2
176.7
Total
£m
379.3
544.1
3,157.9
29.2
218.5
1,072.0
7.2
601.7
1,988.9
866.8
305.7
741.1
756.9
6,165.9
2,698.1
606.9
3,841.5
13,312.4
Carrying amount2
5,127.7
2,553.3
505.2
2,483.1
10,669.3
1
Information is based on the revised lending segments as detailed on page 87. Prior period comparatives have been restated
accordingly, in which amounts have been reclassified from ‘Real Estate’ into the new ‘Retail Mortgage Brands’ segment.
2 Excludes fair value adjustments for hedged risk recognised on loans and advances to customers.
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Concentrations of credit risk by loan size
The following tables present an analysis of the combined carrying amount of loans and advances to customers at amortised cost and at FVOCI by lending
segment1 and loan size. The Group continues to manage concentration risk through product caps, restricting large exposures to higher credit graded customers,
and through specific risk appetite limits on exposure to larger counterparties. Loans with a carrying amount exceeding £25.0 million represents 1.9% of total
loans (2022: 1.9% of total loans), whilst 63.9% of total loans have a carrying amount of less than £1.0 million (2022: 63.8% of total loans).
As at 31 December 2023
0 – £50k
£50k – £100k
£100k – £250k
£250k – £500k
£500k – £1.0 million
£1.0 million – £2.5 million
£2.5 million – £5.0 million
£5.0 million – £10.0 million
£10.0 million – £25.0 million
> £25.0 million
Carrying amount2
Enterprise
SME
£m
35.9
45.0
93.0
110.5
157.3
345.4
465.2
533.4
711.4
201.0
Real
Estate
£m
118.0
333.2
1,044.0
1,262.0
904.9
1,175.1
582.5
373.7
317.0
55.5
Consumer
Lending
£m
606.0
0.9
Retail
Mortgage
Brands
£m
43.1
416.0
Total
£m
As at 31 December 2022
(Restated)1
803.0
0 – £50k
795.1
£50k – £100k
–
–
–
–
–
–
–
–
1,856.3
2,993.3
£100k – £250k
1,181.5
2,554.0
£250k – £500k
293.3
1,355.5
£500k – £1.0 million
48.5
2.8
–
–
–
1,569.0
£1.0 million – £2.5 million
1,050.5
£2.5 million – £5.0 million
907.1
£5.0 million – £10.0 million
1,028.4
£10.0 million – £25.0 million
256.5
> £25.0 million
Enterprise
SME
£m
31.3
38.4
91.4
106.7
144.8
392.7
446.5
431.9
717.8
151.8
Real
Estate
£m
140.2
354.8
1,022.7
1,134.1
790.4
825.9
357.6
257.5
188.8
55.7
Consumer
Lending
£m
504.9
0.3
–
–
–
–
–
–
–
–
Retail
Mortgage
Brands
£m
32.4
288.1
1,207.3
738.0
182.4
32.1
2.8
–
–
–
Total
£m
708.8
681.6
2,321.4
1,978.8
1,117.6
1,250.7
806.9
689.4
906.6
207.5
6,165.9
2,698.1
606.9
3,841.5
13,312.4
Carrying amount2
5,127.7
2,553.3
505.2
2,483.1
10,669.3
1
Information is based on the revised lending segments as detailed on page 87. Prior period comparatives have been restated
accordingly, in which amounts have been reclassified from ‘Real Estate’ into the new ‘Retail Mortgage Brands’ segment.
2 Excludes fair value adjustments for hedged risk recognised on loans and advances to customers.
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Concentrations of credit risk by industry
The following tables present an analysis of the combined carrying amount of loans and advances to customers at amortised cost and at FVOCI by lending
segment1 and industry. The industry segmentation of the Group’s loans and advances to customers remains focused on mortgages and real estate activities,
which represents 72.5% of total loans (2022: 68.7% of total loans).
Consumer
Lending
£m
Retail
Mortgage
Brands
£m
As at 31 December 2023
Agriculture, forestry and fishing
Manufacturing
Transport, storage and utilities
Construction
Wholesale and retail trade
Real estate activities
Financial and insurance activities
Services and other
Personal:
Mortgages
Other
Enterprise
SME
£m
13.6
173.5
329.0
537.9
221.5
556.3
616.3
245.9
4.0
0.1
Real
Estate
£m
0.4
4.2
8.3
490.1
13.0
3,960.6
25.8
106.3
1,284.7
272.5
Carrying amount2
6,165.9
2,698.1
–
–
–
–
–
–
–
–
–
606.9
606.9
Total
£m
As at 31 December 2022
(Restated)1
14.0
Agriculture, forestry and fishing
177.7
Manufacturing
337.5
Transport, storage and utilities
1,028.0
Construction
234.5
Wholesale and retail trade
–
–
0.2
–
–
962.9
5,479.8
Real estate activities
–
1.3
642.1
Financial and insurance activities
353.5
Services and other
Personal:
2,877.1
4,165.8
Mortgages
–
879.5
Other
Enterprise
SME
£m
16.5
203.4
266.9
460.1
192.0
553.0
600.3
253.0
8.0
0.1
Real
Estate
£m
0.2
2.6
7.0
386.0
13.1
3,026.0
20.3
104.8
1,261.3
306.4
Consumer
Lending
£m
Retail
Mortgage
Brands
£m
Total
£m
16.7
206.0
274.1
846.1
205.1
–
–
0.2
–
–
523.7
4,102.7
–
0.9
620.6
358.7
1,958.3
3,227.6
–
811.7
2,483.1
10,669.3
–
–
–
–
–
–
–
–
–
505.2
505.2
3,841.5
13,312.4
Carrying amount2
5,127.7
2,553.3
1
Information is based on the revised lending segments as detailed on page 87. Prior period comparatives have been restated
accordingly, in which amounts have been reclassified from ‘Real Estate’ into the new ‘Retail Mortgage Brands’ segment.
2 Excludes fair value adjustments for hedged risk recognised on loans and advances to customers.
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Collateral held and other credit enhancements (audited)
As a key method of mitigating credit risk, the Group holds collateral and other credit enhancements
against certain of its financial assets. The Group operates internal policies governing the acceptability
of specific classes of collateral or credit risk mitigation. The amount and type of collateral required
depends on an assessment of the credit risk of the counterparty.
The Group’s policies regarding obtaining collateral have not significantly changed during the year and there
has been no significant change in the overall quality of the collateral held by the Group since the prior year.
Derivative financial assets
All new eligible derivative transactions with wholesale counterparties are centrally cleared with cash
posted as collateral to further mitigate credit risk. Residual and non-eligible trades are collateralised
under a Credit Support Annex in conjunction with the ISDA Master Agreement.
Non-derivative financial assets
For loans and advances to banks and investment securities, collateral is generally not held. However,
at times, certain securities are held as part of reverse repurchase agreements.
For loans and advances to customers, the Group obtains collateral for certain of its exposures.
The types of collateral obtained is dependent upon the loan type:
• Loan receivables: amounts may be secured by a first or second charge over commercial and
residential property, or against debt receivables or other assets such as asset backed loans and
invoice receivables. Certain loans may also be non-asset backed, for example loans secured by
virtue of a guarantor, government guarantee (e.g. loans offered under the Coronavirus Business
Interruption Loan Scheme and Recovery Loan Scheme) or business covenant.
• Finance lease receivables and instalment credit receivables: amounts are secured against the
underlying asset, which can be repossessed in the event of a default.
Collateral held in relation to secured loans is capped, after taking into account the first charge
balance, at the carrying amount of the loan.
The following tables set out the security profile of the Group’s loans and advances to customers
by lending segment1. Amounts included in the tables present the combined carrying amount of
loans and advances to customers at amortised cost and at FVOCI.
Other secured loans include loans secured by other assets and non-asset backed loans.
1
Information is based on the revised lending segments as detailed on page 87. Prior period comparatives have been restated
accordingly, in which amounts have been reclassified from ‘Real Estate’ into the new ‘Retail Mortgage Brands’ segment.
2 Excludes fair value adjustments for hedged risk recognised on loans and advances to customers.
3 Certain amounts in SME have been reclassified to better reflect the nature of their security. This includes £263.4 million that was
previously included in the ‘secured on commercial and residential property’ and £15.4 million that was included in ‘unsecured loan
receivables’. These amounts are secured via other assets, guarantors or business guarantees so are now reflected in the renamed
‘other secured loans’ category.
As at 31 December 2023
Secured on commercial
and residential property
Secured on debt receivables
Secured on finance lease assets
Secured on instalment credit assets
Other secured loans
Total secured loans and
advances to customers
Enterprise
SME
£m
614.9
973.4
26.0
421.2
662.6
Real
Estate
£m
6,165.9
–
–
–
–
6,165.9
2,698.1
Consumer
Lending
£m
Retail
Mortgage
Brands
£m
Total
£m
–
–
–
–
–
–
3,841.5
10,622.3
–
–
–
–
973.4
26.0
421.2
662.6
3,841.5
12,705.5
Unsecured loan receivables
–
–
606.9
–
606.9
Carrying amount2
6,165.9
2,698.1
606.9
3,841.5
13,312.4
As at 31 December 2022
(Restated)1,3
Secured on commercial
and residential property
Secured on debt receivables
Secured on finance lease assets
Secured on instalment credit assets
Other secured loans
Total secured loans and
advances to customers
Enterprise
SME
£m
597.9
966.7
37.7
371.1
579.9
Real
Estate
£m
5,127.7
–
–
–
–
5,127.7
2,553.3
Consumer
Lending
£m
Retail
Mortgage
Brands
£m
Total
£m
–
–
–
–
–
–
2,483.1
8,208.7
–
–
–
–
966.7
37.7
371.1
579.9
2,483.1
10,164.1
Unsecured loan receivables
–
–
505.2
–
505.2
Carrying amount2
5,127.7
2,553.3
505.2
2,483.1
10,669.3
128
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Principal risks: Credit risk
Credit-impaired financial assets
The Group closely monitors collateral held for financial assets considered to be credit-impaired
(Stage 3 and POCI), reflecting the increased likelihood that the Group may need to take possession
of such collateral to mitigate credit losses.
The only asset categories with credit-impaired assets are loans and advances to customers
(including those measured at amortised cost and at FVOCI).
The below tables provide further information about the credit-impaired loans at amortised cost
and the related collateral held by lending segment. The fair value of collateral is capped at the
carrying amount of the loan.
Gross carrying amount
Loss allowance
Carrying amount
As at 31 December 2023
Secured
£m
Unsecured
£m
Secured
£m
Unsecured
£m
Secured
£m
Unsecured
£m
Real Estate
SME
Consumer Lending
Retail Mortgage Brands
Total credit-impaired
loans at amortised cost
173.2
82.6
–
89.4
345.2
–
–
6.9
–
6.9
(24.3)
(20.3)
–
(3.7)
–
–
(5.6)
–
148.9
62.3
–
85.7
(48.3)
(5.6)
296.9
–
–
1.3
–
1.3
Fair value of
collateral
held
£m
148.9
62.3
n/a
85.7
296.9
Gross carrying amount
Loss allowance
Carrying amount
As at 31 December 2022
(Restated)1
Secured
£m
Unsecured
£m
Secured
£m
Unsecured
£m
Secured
£m
Unsecured
£m
Real Estate
SME
Consumer Lending
Retail Mortgage Brands
Total credit-impaired
loans at amortised cost
149.0
84.0
–
50.5
283.5
–
–
4.4
–
4.4
(16.4)
(23.5)
–
(2.6)
–
–
(3.5)
–
132.6
60.5
–
47.9
(42.5)
(3.5)
241.0
–
–
0.9
–
0.9
Fair value of
collateral
held
£m
132.6
60.5
n/a
47.9
241.0
Credit-impaired loans at FVOCI have a carrying amount of £26.3 million (2022: £2.2 million). These loans
are fully secured with the fair value of collateral deemed to be at least equal to the carrying amount.
The following tables show the distribution of loan-to-value ratios for the Group’s credit-impaired
mortgage assets held in the Real Estate and Retail Mortgage Brands lending segments. The loan-to-
value is calculated as the ratio of the customer loan balance to the value of the collateral at origination.
Amounts in the following tables reflect the carrying amount of the credit-impaired mortgage assets.
As at 31 December 2023
Loan-to-value ratio
Less than 50%
50-70%
71-90%
91-100%
More than 100%
Credit-impaired mortgage
assets at amortised cost
Credit-impaired mortgage
assets at FVOCI
Real
Estate
£m
Retail
Mortgage
Brands
£m
Retail
Mortgage
Brands
£m
7.3
60.3
81.0
0.3
–
4.3
26.7
54.7
–
–
1.2
10.0
14.0
–
–
25.2
129
1
Information is based on the revised lending segments as detailed on page 87. Prior period comparatives have been restated
accordingly, in which amounts have been reclassified from ‘Real Estate’ into the new ‘Retail Mortgage Brands’ segment.
Total credit-impaired mortgage assets
148.9
85.7
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Principal risks: Credit risk
As at 31 December 2022
(Restated)1
Loan-to-value ratio
Less than 50%
50-70%
71-90%
91-100%
More than 100%
Credit-impaired mortgage
assets at amortised cost
Credit-impaired mortgage
assets at FVOCI
Real
Estate
£m
Retail
Mortgage
Brands
£m
Retail
Mortgage
Brands
£m
10.4
50.6
71.4
0.2
–
1.8
16.3
29.8
–
–
Total credit-impaired mortgage assets
132.6
47.9
Repossessions
The Group’s policy is to pursue the realisation of collateral in an orderly manner. As at 31 December
2023, the Group held 29 repossessed properties with a carrying amount of £36.5 million (2022:
17 repossessed properties with carrying amount of £22.8 million).
0.1
0.4
1.7
–
–
2.2
Forbearance (audited)
The Group maintains a forbearance policy for the servicing and management of customers who are
in financial difficulty and require some form of concession to be granted, even if this concession entails
a loss for the Group. A concession may be either of the following:
• modification of previous terms and conditions of an agreement, which the borrower is considered
unable to comply with due to its financial difficulties, to allow for sufficient debt service ability, that
would not have been granted had the borrower not been in financial difficulty; or
• total or partial refinancing of an agreement that would not have been granted had the borrower not
been in financial difficulty.
Forbearance in relation to an exposure can be temporary or permanent depending on the circumstances,
progress on financial rehabilitation and the detail of the concession(s) agreed.
The Group excludes short-term repayment plans that are up to three months in duration from its definition
of forborne loans.
The Group applies the European Banking Authority (EBA) Implementing Technical Standards on
forbearance and non-performing exposures as defined in Annex V of Commission Implementing
Regulation (EU) 2015/227. Under these standards, loans are classified as performing or non-performing
in accordance with the EBA rules, as adopted by the Prudential Regulation Authority (PRA).
Under these standards, loans are classified as performing or non-performing in accordance with
the EBA rules, as adopted by the Prudential Regulation Authority (PRA).
The EBA standards stipulate that a forbearance classification can be discontinued when all of the
following conditions have been met:
• the exposure is considered to be performing, including where it has been reclassified from
the non-performing category, after an analysis of the financial condition of the debtor showed
that it no longer met the conditions to be considered as non-performing;
• a minimum two-year probation period has passed from the date the forborne exposure was
considered to be performing;
• regular payments of more than an insignificant aggregate amount of principal or interest
have been made during at least half of the probation period; and
• none of the exposures to the debtor is more than 30 days past due at the end of the probation period.
The following tables provide a summary of the Group’s forborne loans and advances to customers
by lending segment and year-end stage classification. This includes both loans measured at amortised
cost and those measured at FVOCI. For FVOCI loans, the gross carrying amount column represents
the carrying amount of these loans (i.e. including fair value adjustments).
1
Information is based on the revised lending segments as detailed on page 87. Prior period comparatives have been restated
accordingly, in which amounts have been reclassified from ‘Real Estate’ into the new ‘Retail Mortgage Brands’ segment.
130
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Principal risks: Credit risk
Gross amount of forborne loans
Loss allowance on forborne loans
Gross amount of forborne loans
Loss allowance on forborne loans
As at
31 December 2023
Number
Performing
£m
Non-
performing
£m
Total
£m
Performing
£m
Non-
performing
£m
Total
£m
Coverage
%
As at
31 December 2023
Number
Performing
£m
Non-
performing
£m
Total
£m
Performing
£m
Non-
performing
£m
Total
£m
Coverage
%
105
505
610
151
223
374
167
675
842
10
327
337
6.5
–
6.5
109.8
–
109.8
0.4
–
0.4
1.4
–
1.4
5.3
42.5
47.8
–
26.4
26.4
0.6
3.0
3.6
0.4
58.8
11.8
42.5
54.3
109.8
26.4
136.2
1.0
3.0
4.0
1.8
58.8
59.2
60.6
(0.1)
–
(0.1)
(6.0)
–
(6.0)
–
–
–
–
–
–
Real Estate
Stage 2
Stage 3
Real Estate total
SME
Stage 2
Stage 3
SME total
Consumer Lending
Stage 2
Stage 3
Consumer
Lending total
Retail
Mortgage Brands
Stage 2
Stage 3
Retail Mortgage
Brands total
Total
Stage 2
Stage 3
Total
433
1,730
2,163
118.1
–
118.1
6.3
130.7
137.0
124.4
130.7
255.1
(6.1)
–
(6.1)
(0.5)
(16.9)
(17.4)
(6.6)
(16.9)
(23.5)
(0.2)
(5.5)
(5.7)
–
(6.7)
(6.7)
(0.3)
(2.4)
(0.3)
(5.5)
(5.8)
(6.0)
(6.7)
(12.7)
(0.3)
(2.4)
2.5
12.9
10.7
Real Estate
Stage 2
Stage 3
Total
SME
5.5
Stage 2
25.4
Stage 3
9.3
Total
Consumer Lending
30.0
80.0
Stage 2
Stage 3
(2.7)
(2.7)
67.5
–
–
(2.3)
(2.3)
(2.3)
(2.3)
Total
Total
Stage 2
Stage 3
Total
0.0
3.9
3.8
5.3
12.9
9.2
148
497
645
122
450
572
184
728
912
454
1,675
2,129
8.8
–
8.8
68.4
–
68.4
0.5
–
0.5
77.7
–
77.7
3.8
46.2
50.0
–
43.6
43.6
0.5
3.0
3.5
4.3
92.8
97.1
12.6
46.2
58.8
68.4
43.6
112.0
1.0
3.0
4.0
82.0
92.8
174.8
–
–
–
(4.0)
–
(4.0)
–
–
–
(4.0)
–
(4.0)
(0.1)
(3.8)
(3.9)
–
(10.3)
(10.3)
(0.2)
(2.4)
(2.6)
(0.3)
(16.5)
(16.8)
(0.1)
(3.8)
(3.9)
(4.0)
(10.3)
(14.3)
(0.2)
(2.4)
(2.6)
(4.3)
(16.5)
(20.8)
0.8
8.2
6.6
5.8
23.6
12.8
20.0
80.0
65.0
5.2
17.8
11.9
131
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Principal risks: Market,
liquidity and capital risk
In the following sections, information under
headings marked as ‘audited’ is covered by
the Independent Auditor’s Report. All other
information is unaudited.
The ‘market, liquidity and capital’ principal
risk comprises three components, each with
specific disclosure requirements attached to
them. As such, each of the components are
presented in turn.
Market risk
This section specifically provides information about:
• Managing market risk
• Exposure to market risk
• Metrics used in assessing and monitoring market risk
Managing market risk
The Group’s treasury function is responsible for managing the Group’s
exposure to all aspects of market risk within the operational limits set out
in the Group’s treasury policies, with the overall objective of managing
market risk in line with the Group’s risk appetite. The Asset and Liability
Committee approves the Group’s treasury policies and receives regular
reports on all aspects of market risk exposure.
Additional details about managing the specific forms of market risk that
the Group is exposed to are provided in the following section.
Exposure to market risk (audited)
The forms of market risk that the Group is exposed to can be further divided
into foreign exchange risk, basis risk and interest rate risk. Additional details
regarding each of these is provided in the following section.
Foreign exchange risk
Foreign exchange risk is the risk that the value of, or net income arising
from, assets and liabilities changes as a result of movements in exchange
rates. The Group has low levels of foreign exchange risk that is managed
by appropriate financial instruments including derivatives.
The tables below set out the Group’s exposure to foreign exchange risk:
As at 31 December 2023
Loans and advances to banks
Loans and advances
to customers
Total exposure
Euros
£m
5.0
1.5
6.5
US
Dollars
£m
Australian
Dollars
£m
5.2
19.8
25.0
0.4
–
0.4
As at 31 December 2022
Loans and advances to banks
Loans and advances
to customers
Total exposure
Euros
£m
4.7
3.2
7.9
US
Dollars
£m
Australian
Dollars
£m
4.6
9.6
14.2
0.4
–
0.4
As illustrated by the preceding table, there are no currencies to which the
Group has a significant exposure. Accordingly, foreign exchange sensitivity
analysis is not provided, as the impact of foreign exchange movements,
particularly after taking into account the impact of derivative financial
instruments used to manage such risk, is not material.
Basis risk
Basis risk is the risk of loss arising from changes in the relationship between
interest rates that have similar but not identical characteristics (for example,
SONIA and the Bank of England Bank rate). This is monitored closely and
regularly reported to the Asset and Liability Committee. This risk is managed
within established risk limits by matching and, where appropriate and
necessary, through the use of derivatives and via other control procedures.
The Group materially completed its transition from London Inter-bank
Offered Rate (LIBOR) to alternative rates during the previous reporting year.
As at 31 December 2022, just 48 customer loans with a gross carrying amount
of £4.8 million remained, all of which had been moved to synthetic LIBOR. As
at 31 December 2023, this has further reduced to 37 customer loans with a
gross carrying amount of £3.0 million remaining attached to synthetic LIBOR.
Interest rate risk
Interest rate risk is the risk of loss arising from adverse movements in
market interest rates. Interest rate risk arises from the loan and savings
products that the Group offers. This risk is managed through the use of
appropriate financial instruments, including derivatives, with established
risk limits, reporting lines, mandates and other control procedures.
The Group’s forecasts and plans take in to account the risk of interest
rate changes and are prepared and stressed accordingly in line with
PRA guidance.
During 2023, the Group completed the hedging of its free reserves and the
implementation of the savings pipeline into the risk framework.
132
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Principal risks: Market, liquidity and capital risk
Metrics used in assessing and monitoring market risk
The following tables provide a summary of the Group’s interest
rate gap position. Items are allocated to time bands by reference
to the earlier of the next contractual interest rate change and the
maturity date. A behavioural assumption is applied to loans and
advances to customers where this is considered material. Equity
of the Group is matched against originated long-term fixed loans
and the equity is spread across the time bands to match the
profile of these assets.
As at 31 December 2023
Assets
Cash and balances at central banks
Loans and advances to banks
Loans and advances to customers
Investment securities
Derivative financial assets
Non-financial assets
Total assets
Equity and liabilities
Amounts due to banks
Customer deposits
Derivative financial liabilities
Debt securities in issue
Lease liabilities
Subordinated debt liability
Non-financial liabilities
Within
3 months
£m
3 months but
<6 months
£m
6 months
but <1 year
£m
1 year but
<5 years
£m
>5 years
£m
Non-interest
bearing
£m
2,148.2
480.7
3,959.0
817.4
–
2.0
–
–
–
–
–
–
–
–
39.9
–
298.5
922.4
7,855.5
514.9
(271.0)
13,279.3
–
–
1.5
–
–
3.2
–
–
12.7
–
–
0.5
515.4
4.7
252.7
193.4
219.7
822.1
252.7
213.3
17,236.2
7,407.3
300.0
925.6
7,868.2
Total
£m
2,188.1
480.7
(1,389.0)
–
–
–
–
(16.0)
(1,405.0)
(6,901.9)
(2,100.8)
(2,675.9)
(1,665.3)
(45.8)
(173.0)
(13,562.7)
–
(452.6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(20.0)
(76.5)
(90.0)
–
–
–
(184.5)
(10.2)
(6.1)
(2.0)
(87.9)
(184.5)
(462.8)
(6.1)
(188.5)
(87.9)
Equity
(51.6)
(15.0)
(64.0)
(1,039.0)
(65.0)
(104.1)
(1,338.7)
Total equity and liabilities
(8,795.1)
(2,115.8)
(2,759.9)
(2,780.8)
(200.8)
(583.8)
(17,236.2)
Notional values of derivatives
1,879.0
1,312.3
1,857.6
(4,726.3)
(322.5)
–
Interest rate sensitivity gap
Cumulative gap
491.2
491.2
(503.5)
(12.3)
23.3
11.0
361.1
372.1
(7.9)
(364.2)
364.2
–
–
–
–
133
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Principal risks: Market, liquidity and capital risk
As at 31 December 2022
Assets
Cash and balances at central banks
Loans and advances to banks
Loans and advances to customers
Investment securities
Derivative financial assets
Non-financial assets
Total assets
Equity and liabilities
Amounts due to banks
Customer deposits
Derivative financial liabilities
Debt securities in issue
Lease liabilities
Subordinated debt liability
Non-financial liabilities
Within
3 months
£m
3 months but
<6 months
£m
6 months
but <1 year
£m
1 year but
<5 years
£m
>5 years
£m
Non-interest
bearing
£m
2,007.5
263.6
3,405.4
688.2
–
2.5
–
–
–
–
–
–
–
–
29.6
–
259.3
1,049.7
5,417.6
654.1
(329.0)
10,457.1
–
–
2.1
–
–
4.1
–
–
15.7
–
–
1.9
6,367.2
261.4
1,053.8
5,433.3
656.0
2.8
330.7
132.9
167.0
691.0
330.7
159.2
13,938.7
(1,490.0)
–
–
–
–
(8.7)
(1,498.7)
(4,365.8)
(1,752.3)
(2,880.2)
(1,815.1)
(60.8)
(40.3)
(10,914.5)
–
(116.6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(95.0)
–
–
–
–
–
–
(90.5)
0.2
(7.4)
(1.8)
(74.6)
(90.5)
(116.4)
(7.4)
(96.8)
(74.6)
(155.0)
(215.8)
(306.8)
(1,139.8)
(529.9)
(13,938.7)
Total
£m
2,037.1
263.6
The Group considers a parallel 250 basis points (bps) movement
in interest rates to be appropriate for scenario testing given the
current economic outlook and industry expectations.
The Group estimates that a +/ – 250 bps movement in interest
rates paid/received would impact the economic value as follows:
• + 250 bps: £7.6 million negative (2022: £9.2 million negative)
• – 250 bps: £8.5 million negative (2022: £22.2 million negative)
In addition, the effect of the same two interest rate shocks is
applied to the statement of financial position at year end, to
determine how net interest income may change on an annualised
basis for one year (earnings at risk), as follows:
• + 250 bps: £46.1 million positive (2022: £36.6 million positive)
• – 250 bps: £7.6 million negative (2022: £9.6 million negative)
In preparing the above, the Group makes certain assumptions
consistent with expected and contractual repricing behaviour
as well as behavioural repayment profiles of the underlying
statement of financial position items in relation to the specific
scenarios. In addition, equity is allocated to the specific reprice
buckets consistent with the Group’s reserves investment strategy.
The results also include the impact of hedge transactions.
Equity
(2.0)
(10.0)
(24.0)
(642.0)
Total equity and liabilities
(5,974.4)
(1,762.3)
(2,904.2)
(2,552.1)
Notional values of derivatives
294.5
990.4
1,886.8
(2,790.1)
(381.6)
–
Interest rate sensitivity gap
Cumulative gap
687.3
687.3
(510.5)
176.8
36.4
213.2
91.1
304.3
58.6
362.9
(362.9)
–
–
–
–
134
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Principal risks: Market, liquidity and capital risk
Liquidity risk
This section specifically provides information about:
• Managing liquidity risk
• Maturity analysis for financial assets and liabilities
• Metrics used in assessing and monitoring liquidity risk
Managing liquidity risk
The Group has developed comprehensive funding and liquidity policies to ensure that it maintains
sufficient liquid assets to be able to meet all of its financial obligations and maintain public confidence.
The Group’s treasury function is responsible for the day-to-day management of the Group’s liquidity and
wholesale funding. The Board sets limits over the level, composition and maturity of liquidity and deposit
funding balances, which are reviewed at least annually. Compliance with these limits is monitored on a
daily basis by finance and risk personnel that are independent of the treasury function.
Stress testing is a major component of liquidity risk management and the Group has developed a diverse
selection of scenarios covering a range of market-wide and firm-specific factors. The Group performs
liquidity stress tests to ensure that the Group maintains adequate liquidity for business purposes even
under stressed conditions. The Group’s core liquidity stress test is performed on a daily basis by the
finance function, with a further series of liquidity stress tests performed on a monthly basis that are
formally reported to the Asset and Liability Committee and the Board.
A comprehensive review of the Group’s Liquidity Risk Framework, including stress testing, is conducted at
least annually through the ILAAP. The Asset and Liability Committee, Risk Committee and the Board are
heavily involved in the full ILAAP life cycle, with all challenges clearly documented. The ILAAP is used to
demonstrate the Group’s compliance with the PRA’s Overall Liquidity Adequacy Rule and assess funding
and liquidity risk across the actual and budgeted statement of financial position.
Maturity analysis for financial assets and liabilities (audited)
The following tables segment the carrying amount of the Group’s financial assets and liabilities based
on the final contractual maturity date. In practice, the Group’s assets and liabilities may be repaid, or
otherwise mature, earlier or later than implied by their contractual tenor. Accordingly, this information
is not relied upon by the Group in managing liquidity risk.
In compiling these tables the following points should be noted:
• The ‘less than 1 month’ maturity group includes amounts repayable on demand;
• For loans and advances to customers and customer deposits, the ‘more than 5 years’ maturity group
also includes the fair value adjustment for hedged risk;
• Accrued interest is assigned to the maturity group based on when it is scheduled to be paid.
As at 31 December 2023
Financial assets
Cash and balances
at central banks
Loans and advances to banks
Loans and advances to customers
Investment securities
Derivative financial assets
Less than
1 month
£m
1-3
months
£m
3 months
– 1 year
£m
1-2
years
£m
2-5
years
£m
More than
5 years
£m
Total
£m
2,148.2
480.7
340.9
51.3
0.8
–
–
–
–
–
–
–
–
39.9
2,188.1
–
480.7
458.5
1,115.8
704.1
1,959.3
8,700.7
13,279.3
81.2
0.5
81.1
28.4
61.7
33.0
395.1
170.0
151.7
20.0
822.1
252.7
Total financial assets
3,021.9
540.2
1,225.3
798.8
2,524.4
8,912.3
17,022.9
Financial liabilities
Amounts due to banks
(205.0)
–
–
(1,200.0)
–
–
(1,405.0)
Customer deposits
(6,128.3)
(934.1)
(4,823.7)
(1,061.7)
(569.4)
(45.5) (13,562.7)
Derivative financial liabilities
Debt securities in issue
Lease liabilities
Subordinated debt liability
(7.5)
(5.6)
(0.2)
–
(5.5)
(7.6)
(0.4)
(0.3)
(24.8)
(21.6)
(110.7)
(14.4)
(184.5)
(21.1)
(14.9)
(42.3)
(371.3)
(462.8)
(1.8)
(4.2)
(1.5)
(2.0)
(0.2)
(6.1)
–
–
(184.0)
(188.5)
Total financial liabilities
(6,346.6)
(947.9)
(4,875.6)
(2,299.7)
(724.4)
(615.4) (15,809.6)
Cumulative gap
(3,324.7)
(3,732.4)
(7,382.7)
(8,883.6)
(7,083.6)
1,213.3
1,213.3
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As at 31 December 2022
Financial assets
Cash and balances
at central banks
Loans and advances to banks
Loans and advances to customers
Investment securities
Derivative financial assets
2,007.5
263.6
265.3
30.0
0.1
59.9
0.8
Less than
1 month
£m
1-3
months
£m
3 months
– 1 year
£m
1-2
years
£m
2-5
years
£m
More than
5 years
£m
Total
£m
The following tables segment the gross contractual cash flows of the Group’s financial liabilities into
relevant maturity groupings. Totals in the following table differ to the preceding tables, and do not
agree directly to the statement of financial position, as the table incorporates all cash flows on an
undiscounted basis, related to both principal and future coupon payments. Estimated future interest
payments are derived using interest rates and contractual maturities at the reporting date.
–
–
–
–
–
–
–
–
29.6
2,037.1
–
263.6
As at 31 December 2023
Less than
1 month
£m
1-3
months
£m
3 months
– 1 year
£m
1-2
years
£m
2-5
years
£m
More than
5 years
£m
Total
£m
302.8
1,164.6
827.6
1,725.1
6,171.7
10,457.1
Amounts due to banks
205.0
15.8
47.3
1,252.5
–
–
1,520.6
127.6
104.8
217.8
150.9
691.0
Customer deposits
6,148.9
940.7
4,980.8
1,104.1
636.1
54.6
13,865.2
17.7
3.6
272.3
36.2
330.7
Derivative financial liabilities
Total financial assets
2,566.5
363.5
1,309.9
936.0
2,215.2
6,388.4
13,779.5
Financial liabilities
Amounts due to banks
(298.7)
–
–
–
(1,200.0)
–
(1,498.7)
Customer deposits
(3,747.3)
(715.0)
(4,563.7)
(1,310.6)
(517.9)
(60.0)
(10,914.5)
Derivative financial liabilities
Debt securities in issue
Lease liabilities
Subordinated debt liability
(3.0)
(6.1)
(0.2)
–
(0.8)
(5.6)
(0.3)
(0.3)
(21.3)
(5.6)
(54.9)
(4.9)
(90.5)
(12.7)
(13.3)
(36.6)
(42.1)
(116.4)
(1.4)
(1.5)
(1.8)
(3.0)
(0.7)
(7.4)
–
–
(95.0)
(96.8)
Total financial liabilities
(4,055.3)
(722.0)
(4,600.6)
(1,331.3)
(1,812.4)
(202.7)
(12,724.3)
Cumulative gap
(1,488.8)
(1,847.3)
(5,138.0)
(5,533.3)
(5,130.5)
1,055.2
1,055.2
Debt securities in issue
Lease liabilities
Subordinated debt liability
7.5
7.2
0.2
2.8
5.5
10.2
0.4
0.7
24.8
35.2
1.9
13.0
21.6
33.4
1.5
19.1
110.7
14.4
184.5
95.1
2.1
57.2
631.9
813.0
0.2
6.3
258.8
351.6
Total financial liabilities
6,371.6
973.3
5,103.0
2,432.2
901.2
959.9
16,741.2
As at 31 December 2022
Amounts due to banks
Customer deposits
Derivative financial liabilities
Debt securities in issue
Lease liabilities
Subordinated debt liability
Less than
1 month
£m
1-3
months
£m
3 months
– 1 year
£m
1-2
years
£m
2-5
years
£m
More than
5 years
£m
Total
£m
298.7
3,759.7
3.0
6.6
0.2
–
12.0
719.1
0.8
6.4
0.3
0.7
36.0
48.0
1,240.0
–
1,634.7
4,662.1
1,345.9
567.3
67.9
11,122.0
21.3
16.5
1.5
7.5
5.6
17.7
1.9
8.1
54.9
45.8
3.1
24.1
4.9
48.1
0.7
90.5
141.1
7.7
116.1
156.5
Total financial liabilities
4,068.2
739.3
4,744.9
1,427.2
1,935.2
237.7
13,152.5
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Metrics used in assessing and monitoring liquidity risk
Certain metrics that are used by the Group in assessing and monitoring liquidity risk are summarised below.
Liquidity buffer
The Group maintains a liquidity buffer of high quality liquid assets, as defined by the EBA’s mandates and
adopted by the PRA. These assets can be monetised to meet stress requirements in line with internal
stress testing and the requirements of the Delegated Regulation on the Liquidity Coverage Ratio (LCR).
The average liquidity buffer, calculated as the simple average of the month end observations for the
preceding 12 months, is £2,738.6 million (2022: £2,162.5 million).
The composition of the Group’s liquidity buffer as at 31 December is as follows:
2023
£m
2022
£m
Cash and withdrawable central bank reserves (LCR level 1 assets)
2,451.9
2,004.3
Central government assets (LCR level 1 assets)
Extremely high quality covered bonds (LCR level 1 assets)
High quality covered bonds (LCR level 2A assets)
Asset backed securities (LCR level 2B assets)
–
480.7
–
57.8
–
453.6
9.0
13.5
Total liquidity buffer
2,990.4
2,480.4
Liquidity coverage ratio
The LCR is a regulatory metric that measures a set of standardised liquidity inflows and outflows over a
period of 30 days. The Group calculates the LCR in accordance with the EBA’s LCR standards, as adopted
by the PRA.
Liquidity buffer (£m)
Total net cash outflows (£m)
Liquidity coverage ratio (%)
2023
2022
2,990.4
2,480.4
1,138.0
262.8
772.1
321.3
Net stable funding ratio
The net stable funding ratio (NSFR) is a regulatory metric that measures the amount of stable funding
available compared to the amount of stable funding required. From 1 January 2022, as part of the revised
Capital Requirements Regulation (CRR II), it became a binding requirement that the NSFR must remain
above the minimum level of 100%. The Group’s NSFR remains above this required level, with a ratio of
145.5% as at 31 December 2023 (2022: 145.6%).
Asset encumbrance (audited)
A proportion of the Group’s assets have the potential to be used as collateral to support central bank or
other wholesale funding activities. Assets that have been committed for such purposes are classified as
encumbered assets and cannot be used for other purposes. The Group has Board imposed limits setting
out the percentage of assets that can be encumbered.
All other assets are defined as unencumbered assets. These comprise assets that are potentially
available to be used as collateral (‘available as collateral’) and assets that, due to their nature, are not
suitable to be used as collateral (‘other’).
The following tables and additional narrative set out the carrying amount of the Group’s encumbered
and unencumbered assets. The disclosure is designed to illustrate the availability of the Group’s assets
to support future funding and is not intended to identify assets that would be available in the event of a
resolution or bankruptcy.
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As at 31 December 2023
Cash and balances at central banks
Loans and advances to banks
Loans and advances to customers
Investment securities
Derivative financial assets
Non-financial assets
Total assets
As at 31 December 2022
Cash and balances at central banks
Loans and advances to banks
Loans and advances to customers
Investment securities
Derivative financial assets
Non-financial assets
Total assets
Encumbered assets
Unencumbered assets
Pledged as
collateral
£m
Other
£m
Available as
collateral
£m
–
303.4
4,292.5
79.3
–
–
39.9
139.3
–
25.0
–
–
–
38.0
8,986.8
713.5
–
31.5
Other
£m
2,148.2
–
–
4.3
252.7
181.8
Total
£m
2,188.1
480.7
13,279.3
822.1
252.7
213.3
4,675.2
204.2
9,769.8
2,587.0
17,236.2
Encumbered assets
Unencumbered assets
Pledged as
collateral
£m
–
155.5
2,964.6
79.3
–
–
Other
£m
29.6
59.5
–
–
–
–
Available as
collateral
£m
–
48.6
7,492.5
610.0
–
38.1
Other
£m
2,007.5
–
–
1.7
330.7
121.1
Total
£m
2,037.1
263.6
10,457.1
691.0
330.7
159.2
3,199.4
89.1
8,189.2
2,461.0
13,938.7
Encumbered assets ‘pledged as collateral’ comprise:
Loans and advances to banks totalling £303.4 million (2022: £155.5 million), of which:
• £286.6 million (2022: £155.5 million) is pledged as collateral against derivative contracts.
• £16.8 million (2022: £nil million) is pledged as collateral against repurchase agreements.
Loans and advances to customers totalling £4,292.5 million (2022: £2,964.6 million), of which:
• £2,057.1 million (2022: £1,602.3 million) is positioned with the Bank of England for use as collateral
against amounts drawn under the Term Funding Scheme with additional incentives for SMEs.
• £2,235.4 million (2022: £1,362.3 million) is pledged to securitisation programmes.
Investment securities totalling £79.3 million (2022: £79.3 million), of which:
• £79.3 million (2022: £79.3 million) is positioned with the Bank of England for use as collateral against
amounts drawn under the Term Funding Scheme with additional incentives for SMEs.
‘Other’ encumbered assets (assets that cannot be used for secured funding for legal or other
reasons) comprise:
• £39.9 million (2022: £29.6 million) of mandatory deposits with central banks.
• £139.3 million (2022: £59.5 million) of securitisation cash, which represents cash balances of
consolidated structured entities.
• £25.0 million (2022: £nil million) of investment securities, which represents restricted amounts
invested in short-term money market funds by consolidated structured entities.
The above tables do not include collateral received by the Group (i.e. from reverse repos) that
are not recognised on the statement of financial position, the vast majority of which the Group is
permitted to repledge.
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Capital risk
This section specifically provides information about:
• Managing capital risk
• Regulatory requirements
• Regulatory developments
• Metrics used in assessing and monitoring capital risk
The PRA supervises the Company on a consolidated basis, with
capital requirements set for the Group as a whole and information
on capital adequacy provided to the PRA at a consolidated Group
level only. Shawbrook Bank Limited and its subsidiaries, The Mortgage
Lender Limited and Bluestone Mortgages Limited, are the only
regulated subsidiaries within the Group. Shawbrook Bank Limited
is supervised by the PRA and the FCA, whilst The Mortgage Lender
Limited and Bluestone Mortgages Limited are regulated by the FCA.
Managing capital risk (audited)
The Group’s objective in managing capital risk is to maintain
appropriate levels of capital to support the Group’s business strategy
and meet regulatory requirements. Capital risk is overseen by the
Asset and Liability Committee, who monitor the capital position
against the Capital Contingency Plan and Recovery Plan triggers
and limits on a monthly basis. The Asset and Liability Committee also
regularly review the forward-looking capital surplus in the context of
its business plans and ensure that the Group has advance warning of
any potential capital challenges. The Group’s risk function regularly
reviews emerging regulatory changes that may impact on the capital
surplus and undertakes impact assessments.
The Group’s approach to capital management is driven by strategic
and organisational requirements, whilst also taking into account the
regulatory and commercial environments in which it operates.
The principal objectives when managing capital are to:
• address the expectation of the Shareholder and optimise business
activities to ensure return on capital targets are achieved though
efficient capital management;
• ensure that sufficient risk capital is held. Risk capital caters for
unexpected losses that may arise, protects the Shareholder and
depositors and thereby supports the sustainability of the Group
through the business cycle; and
• comply with capital supervisory requirements and related regulations.
The Group recognises the importance of allocating the correct risk-
weighting to its assets. Documentation and testing of risk-weighted
assets is overseen by the Regulatory Reporting Committee.
The PRA has also identified the Company to be a ‘Financial
Holding Company’.
Regulatory requirements
The Group applies the regulatory framework defined by the
revised Capital Requirements Regulation (CRR II) and the Capital
Requirements Directive (CRD V). Directive requirements are
implemented in the UK by the PRA and supplemented through
additional regulation under the PRA Rulebook.
The aim of the regulatory framework is to promote safety and
soundness in the financial system. The regulatory framework
categorises the capital and prudential requirements under
three pillars:
• Pillar 1: defines the minimum capital requirements firms are
required to hold for credit, market and operational risks.
• Pillar 2: builds on Pillar 1 and incorporates the Group’s own
assessment of additional capital required to cover specific
risks that are not covered by the minimum regulatory capital
requirement set out under Pillar 1. Under Pillar 2, the Group
completes an annual self-assessment of these risks as part of
its ICAAP. The ICAAP is reviewed by the PRA every three years
(or earlier if required) and culminates in the PRA setting a firm-
specific requirement of the level of capital required to be held,
known as the ‘Total Capital Requirement’.
• Pillar 3: requires the Group to publish a set of disclosures
that allow market participants to assess information on the
Group’s capital, risk exposures and risk assessment process.
The Group’s Pillar 3 Disclosures can be found on the Group’s
website shawbrook.co.uk
Minimum requirements set out by the regulatory framework are
summarised in the following table. The countercyclical capital
buffer increased from 1% to 2% with effect from 5 July 2023. There
were no other changes to minimum capital requirements between
reporting periods.
Minimum capital requirements
CET1
2023
Total
capital
2022
Total
capital
CET1
Pillar 1
Pillar 2A
4.50%
8.00%
4.50%
8.00%
0.60%
1.07%
0.60%
1.07%
Total Capital Requirement
5.10%
9.07%
5.10%
9.07%
Regulatory capital buffers
Capital conservation buffer
2.50%
2.50%
2.50%
2.50%
Countercyclical capital buffer
2.00%
2.00%
1.00%
1.00%
Overall Capital Requirement
9.60%
13.57%
8.60%
12.57%
Additional systemic buffers provided for by CRD V do not apply to
the Group.
The regulatory minimum for the UK leverage ratio also remains
unchanged compared to 31 December 2022 at 3.25%. Whilst the
Group is not required to comply with the PRA’s UK Leverage Ratio
Framework until its retail deposits exceed the £50 billion threshold,
the PRA has stated its expectation that all UK firms should
manage their leverage risk so that the ratio does not ordinarily
fall below 3.25%. Consequently, the Group treats 3.25% as its
minimum requirement.
The Group (including its regulated subsidiaries) maintains an
adequate capital base and has complied with all externally imposed
capital requirements. The Total Capital Requirement set by the PRA
has been met at all times and capital adequacy and leverage ratios
are well in excess of the minimum regulatory requirements.
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Regulatory developments
During the year ended 31 December 2023, the following regulatory changes came into effect:
• The UK countercyclical capital buffer increased from 1% to 2%, effective from 5 July 2023.
Future regulatory changes that are relevant to the Group are as follows:
• In September 2023, the PRA announced that it was moving the implementation date for Basel 3.1 to
1 July 2025 and was reducing the transition period to 4.5 years to ensure full implementation by 1
January 2030, in line with the proposals set out in Consultation Paper CP16/22. To allow more time
to consider the responses to the credit risk and output floor proposals, the PRA announced that it
would publish the near final rules on market risk, credit valuation adjustment risk, counterparty credit
risk and operational risk in Q4 2023. Near final policies on credit risk, the output floor and reporting
and disclosure requirements would be published in Q2 2024. The Group has conducted an initial
impact assessment to ascertain potential impacts of these changes, but these cannot be finalised
until the final rules are published.
• The PRA published PS15/23 on “The Strong and Simple Framework” in December 2023. The policy
statement defined a new name, Small Domestic Deposit Taker (SDDT), for firms which in previous
regulatory publications were referred to as strong and simple. The policy statement also set out the
Interim Capital Requirements (ICR) regime. Banks that do not wish to access the SDDT framework or
the ICR would transition into Basel 3.1 from 1st July 2025. Banks who wish to transition to SDDT and/
or ICR will need to make a modification request to the PRA. The policy statement also confirmed
Remuneration disclosure requirements.
Metrics used in assessing and monitoring capital risk
Certain disclosures relating to the Group’s capital position are shown on the following pages.
The disclosures present the consolidated capital position for the Group, as reported to the PRA.
Disclosures for the Group’s regulated subsidiaries (Shawbrook Bank Limited and its subsidiaries,
The Mortgage Lender Limited and Bluestone Mortgages Limited) are not separately disclosed and
can be found in Shawbrook Bank Limited’s own Annual Report and Accounts, which is available on
the Group’s website at: shawbrook.co.uk
Disclosures are presented on a CRD V basis after applying IFRS 9 transitional arrangements1.
A comparison of the reported capital metrics (including transitional adjustments) to the capital
metrics as if IFRS 9 transitional arrangements had not been applied (the ‘fully loaded’ basis) is
provided on page 143.
1 The Group applies the transitional approach when recognising the impact of adopting IFRS 9 ‘Financial Instruments’. This allows
the Group to phase in the full impact of IFRS 9 adoption by adding back a proportion of the impact during the first five years
of implementation in accordance with specific rules and transitional factors as published in Regulation (EU) 2017/2395.From 1
January 2023, the initial five-year phasing in period is complete and the Group may no longer add back a proportion of the impact
of adopting IFRS 9 (2022: 25% add back permitted). However, in response to the COVID-19 pandemic, for non-credit impaired ECLs
raised from 1 January 2020 the transitional arrangements were revised, as set out in the CRR ‘Quick Fix’. For such loans, the revised
add-back percentage for 2023 is 50% (2022: 75%).
2 For the purpose of regulatory capital calculations, capitalised interest and other accounting adjustments of £5.4 million are
excluded (2022: £2.7 million).
Regulatory capital (audited)
Composition of the Group’s regulatory capital as at 31 December is as follows:
Share capital
Share premium
Capital contribution reserve
Retained earnings
Intangible assets
Transitional adjustment for IFRS 9
Prudent valuation adjustment
Common Equity Tier 1 capital
Capital securities
Additional Tier 1 capital
Total Tier 1 capital
Subordinated debt liability2
Tier 2 capital
2023
£m
2.5
87.3
19.9
1,101.7
(107.2)
17.5
(3.0)
2022
£m
2.5
87.3
5.6
905.8
(76.4)
24.5
(1.3)
1,118.7
948.0
123.1
123.1
122.9
122.9
1,241.8
1,070.9
183.1
183.1
94.1
94.1
Total regulatory capital
1,424.9
1,165.0
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The Group’s total regulatory capital reconciles to the Group’s total equity per the statement of financial
position as follows:
Movement in the Group’s total regulatory capital during the year is as follows:
Total regulatory capital
Subordinated debt liability1
Intangible assets
Transitional adjustment for IFRS 9
Prudent valuation adjustment
Cash flow hedging reserve
Fair value through other comprehensive income reserve
Total equity
2023
£m
2022
£m
1,424.9
1,165.0
(183.1)
107.2
(17.5)
3.0
4.5
(0.3)
1,338.7
(94.1)
76.4
(24.5)
1.3
26.4
(10.7)
1,139.8
Total regulatory capital as at 1 January
Movement in Common Equity Tier 1 capital
Increase in capital contribution reserve
Increase in retained earnings:
Profit for the year
Share-based payments
Release of capitalised costs on settled capital securities
Coupon paid on capital securities
Increase in intangible assets
Increase/(decrease) in transitional adjustment for IFRS 9
Increase in prudent valuation adjustment
Total movement in Common Equity Tier 1 capital
Movement in Additional Tier 1 capital
Increase/(decrease) in capital securities
Total movement in Additional Tier 1 capital
Movement in Tier 2 capital
Issue of subordinated debt
Other movements in subordinated debt
Total movement in Tier 2 capital
2023
£m
1,165.0
2022
£m
996.4
14.3
–
212.1
0.7
–
(16.9)
(30.8)
(7.0)
(1.7)
170.7
0.2
0.2
90.0
(1.0)
89.0
174.7
0.1
(1.0)
(8.8)
(1.2)
7.2
(1.3)
169.7
(1.1)
(1.1)
–
–
–
1 For the purpose of regulatory capital calculations, capitalised interest and other accounting adjustments of £5.4 million are
excluded (2022: £2.7 million).
141
Total regulatory capital as at 31 December
1,424.9
1,165.0
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Principal risks: Market, liquidity and capital risk
Risk-weighted assets
The following table sets out the risk-weighted assets for the Group. The Group applies the standardised
approach to measure credit risk, counterparty credit risk and securitisation exposures and the basic
indicator approach to measure operational risk.
Capital ratios
Credit risk2
Real Estate
SME
Consumer Lending
Retail Mortgage Brands
Other
Total credit risk
2023
£m
2022
(Restated)1
£m
2,912.6
2,859.7
445.5
1,427.1
291.8
2,587.4
2,646.4
376.9
920.0
232.9
Common Equity Tier 1 capital ratio
Total Tier 1 capital ratio
Total capital ratio
Leverage ratio
Total Tier 1 capital
7,936.7
6,763.6
Exposure measure
Counterparty credit risk: credit valuation adjustment
Securitisation exposures in the banking book
Operational risk
2.7
46.2
715.7
65.0
31.8
602.7
Total risk-weighted assets
8,701.3
7,463.1
Total statutory assets
Regulatory adjustments to statutory assets
Central bank claims
Off-balance sheet items
Exposure value for derivatives
Securities financial transactions
Transitional adjustment for IFRS 9
Regulatory deductions
Total exposures
UK Leverage ratio (%)
1 Risk-weighted assets as at 31 December 2022 have been restated to reflect adjustments in credit valuation adjustment and
counterparty credit risk in respect of the Group’s structured entities’ interest rate swap derivatives. As a result, risk-weighted
assets have increased by £80.6 million from £7,382.5 million to £7,463.1 million. Capital and leverage ratios have also been
restated to reflect these adjustments.
2 Credit risk includes a breakdown by lending segment based on the revised lending segments as detailed on page 87. Prior year
comparatives have been restated accordingly, in which amounts have been reclassified from ‘Real Estate’ into the new ‘Retail
Mortgage Brands’ segment.
2023
%
12.9
14.3
16.4
2022
(Restated)1
%
12.7
14.3
15.6
2023
£m
2022
(Restated)1
£m
1,241.8
1,070.9
17,236.2
13,938.7
(435.9)
(293.8)
(2,188.1)
(2,037.1)
403.6
161.6
65.4
17.5
372.1
340.0
–
24.5
(114.6)
(104.1)
15,145.7
12,240.3
8.2%
8.8%
142
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Principal risks: Market, liquidity and capital risk
IFRS 9 transitional arrangements impact analysis
As detailed on page 140, the Group has elected to use a transitional approach when recognising the
impact of adopting IFRS 9. To illustrate the impact of using this transitional approach, the following table
provides a comparison of the Group’s reported capital metrics (including transitional adjustments) to the
capital metrics as if IFRS 9 transitional arrangements had not been applied (the ‘fully loaded’ basis).
2023
2022
(Restated)1
Including
transitional
adjustments
Transitional
adjustments
not applied
Including
transitional
adjustments
Transitional
adjustments
not applied
1,118.7
1,101.2
1,241.8
1,224.3
1,424.9
1,407.4
948.0
1,070.9
1,165.0
923.5
1,046.4
1,140.5
Capital resources
Common Equity Tier 1 capital (£m)
Total Tier 1 capital (£m)
Total regulatory capital (£m)
Risk-weighted assets
Total risk-weighted assets (£m)
8,701.3
8,686.1
7,463.1
7,442.7
Capital ratios
Common Equity Tier 1 capital ratio (%)
Total Tier 1 Capital Ratio (%)
Total capital ratio (%)
Leverage
UK Leverage ratio (%)
12.9
14.3
16.4
12.7
14.1
16.2
12.7
14.3
15.6
12.4
14.1
15.3
8.2
8.1
8.8
8.6
1. Risk-weighted assets as at 31 December 2022 have been restated to reflect adjustments in credit valuation adjustment and
counterparty credit risk in respect of the Group’s structured entities’ interest rate swap derivatives. As a result, risk-weighted
assets (on both a transitional and fully loaded basis) have increased by £80.6 million. Capital and leverage ratios have also been
restated to reflect these adjustments.
143
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Principal risks: Operational risk and resilience
Managing operational risk and resilience
Developments during the year
The Group manages operational risk across eight level 2 risk categories, with
the Risk Committee receiving regular reports across the spectrum of these
operational risks. These reports present the operational risk profile, including
incidents that have arisen and the movement of key indicators. This allows the
Risk Committee to assess the Group’s risk response and proposed remedial
actions, including oversight of change projects.
The risk and control self-assessment process is utilised by the Group as a key risk
management tool for non-financial risks, including operational risk. This exercise
is owned and completed by each customer franchise and function and takes into
consideration control effectiveness and residual risk score across the Group’s
non-financial risks.
The risk and control self-assessments are maintained in conjunction with the
Group’s operational risk team who provide challenge and oversight. Risk and
control self-assessments are aligned to top risk profile reporting. To enable
effective risk management, the Group focuses on identifying, monitoring and
managing operational risk events in each business area, driving appropriate
actions, and where needed re-engineering processes to minimise recurrence.
All business areas have business continuity and resilience plans in place,
supported by business impact assessments, with enhanced controls and
documentation in place for important business services. The Group has an
incident management framework in place that continues to identify and
respond to operational disruption incidents to help maintain service continuity
and prevent impact tolerance breaches. In addition, the Group uses external
disaster recovery sites as back-up locations for IT servers.
During 2023, the Group continued to invest in its oversight of operational risk, with the appointment of a new Director of
Operational Risk and Third Party Risk Management. The new role brings together the oversight of operational risk, third
party risk management and second line monitoring under a single risk function in the second line.
The Group implemented a new governance, risk, controls, and assurance (GRCA) tool that will bring together risks,
controls, issue management and assurance activities into a single ecosystem. This tool is already being used to record
issues and, following the approval of the new risk and controls taxonomy, is being rolled out across all customer
franchises and functions, with oversight from a design authority, including participants from all three lines.
Throughout 2023, the Group has continued to implement its operational resiliency roadmap and enhanced scenario
testing through to the compliance milestone of March 2025. The Risk Committee approved the third annual operational
resilience self-assessment in February 2024 and has approved additional non-time based impact tolerance metrics
across both FCA and PRA objectives. A ‘lessons learnt’ process has also been embedded to provide greater root cause
analysis when operational disruptions occur. The Risk Committee noted regular management updates on risk events and
incidents through the year and management proposals to improve resiliency.
Data management and privacy were two key focus areas for 2023, including enhancements to the Data Subject Access
Request (DSAR) process and monitoring alongside a new working group to monitor progress on data anonymisation
and deletion.
144
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Principal risks: Technology and cyber risk
Managing Technology and cyber risk
Developments during the year
Customer expectations for service availability continue to rise with the rapid
pace of new technologies, leading to a significantly lower tolerance for service
disruption. The Group recognises that, in order to continue to be recognised for
very high levels of customer satisfaction, it needs to continually monitor systems
risk and ensure that change is delivered with minimum disruption to customers.
The Group has continued to invest in its digital capability to improve customer
experience and has invested in cloud technologies to increase the scale, stability
and resilience of its systems.
The Group has invested in a Third-Party Continuous Security Monitoring solution
in order to mitigate the risks presented by key suppliers, particularly those that
are responsible for managing the Groups data.
The Group has also onboarded a new Governance Risk and Compliance system
and in addition refreshed both the risk and controls taxonomies. During H1
2024 the Technology, Data and Cyber Security controls will be aligned to the
new control taxonomy and this will enable more effective, data driven risk and
control assessments.
During 2023, the Group has continued to invest in capability to reimagine the customer and colleague journey for digital
savings. The launch of the new digital savings experience includes 1,000 existing customers to capture feedback to
further improve the customer journey in advance of the start of the migration of all customers in Q2 2024. Additionally,
the launch of the Colleague Hub within Real Estate has resulted in improved flight times for digital BTL customers as well
as the ability for underwriters to handle up to 4 times more applications.
The Group has ensured that Internal Audit reviews are regularly conducted and, in 2023, this covered the Digital lending
journey, lending applications and structured lending system controls. All the agreed management actions for the
internal audit observations identified were implemented by the end of 2023.
Technology and data remain a core competency for the Group, with strong capabilities and foundations already in
place. The Group has continued with its migration to the cloud, including key infrastructure following the acquisition of
BML in June 2023 and the move of TML servers to the Shawbrook cloud. This also included the implementation of a new
telephony system and upgrade of our windows infrastructure to maintain software currency. The successful migrations
of our subsidiaries onto the Group’s infrastructure provided technology consistency and enhanced the overall security
controls across the Group.
Incident Management and Disaster Recovery processes were fully tested following a service affecting incident at the
end of 2023. Change controls have been enhanced during the Root Cause Analysis and Lessons Learnt phases. The
Group has also procured additional infrastructure as a result.
The Group continued to perform annual penetration testing ensuring that any internal or external issues were
remediated, and project specific penetration testing linked to the go live of new systems (or major code/version/
infrastructure changes) were conducted during 2023.
The embedding of the Group’s software application security testing has matured during 2023, particularly in terms of
management Information and oversight. Automated deployment pipelines have been configured to have an automated
security scan stage which enforces compliance with policy. During 2024 this will be deployed across all pipelines to
support faster and more secure code releases.
The Risk Committee received an update on a Red Team Test covering open source intelligence gathering and a physical
security phase in a number of key sites. The results demonstrated further progress in key areas of security awareness,
preventative controls on phishing and other tests on infrastructure.
145
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Principal risks: Strategic risk
Managing strategic risk
Developments during the year
Strategic risk focuses on large, long-term risks that could
become a material issue for the delivery of the Group’s goals
and objectives. Management of strategic risk is primarily
the responsibility of the Group’s senior management team.
The management of strategic risk is intrinsically linked to the
corporate planning and stress testing processes and is further
supported by the regular provision of consolidated business
performance and risk reporting to the Executive Committee
and the Board. Strategic risk also includes the Group’s
progress on equality, diversity and inclusion.
During 2023, the Group established regular portfolio reviews, with a focus on what could go wrong in order to identify whether any changes
in risk appetite were appropriate. This was supported by the implementation of further early warning indicators to identify potential
problem loans and to support key areas of operational readiness such as arrears and non-performing loans.
The Group has made further progress on its Real Estate and Retail Mortgage Brands emission intensity and further progress towards its
sustainable finance commitment of £1.2 billion of originations by 2025. In addition, the Group signed an agreement with Experian to start to
collect operating location data for its SMEs to support a quantitative assessment of physical and transition risk and to support disclosures
of SME lending emissions.
The Group announced an extension of its partnership with Saracens for another five years, which will result in Shawbrook becoming official
banking partners for all three elite teams for the next five years and continue to deliver a positive impact across women’s sport, equality
and inclusion.
During the year, the Board received and approved a number of reports, including the strategy update. It has also actively engaged in the
compilation of the Group’s risk appetite, ICAAP, ILAAP, Recovery Plan and Resolution Pack, which are critical tools to managing strategic risk.
Principal risks: Conduct risk
Managing conduct risk
Developments during the year
The Group continually reviews its risk management approach
to reflect the regulatory and legal environment in which
it operates. The Group has no appetite for behaving
inappropriately resulting in unfair outcomes for its customers.
The Group is aware of the potential impacts that increased cost of living pressures may have upon its customers. In response, the Group has
reviewed the management of various associated conduct risks, with changes being made to the Group’s affordability models, forbearance
capabilities and approach to vulnerable customers.
The Group implemented a new product transfer process to support customers coming to the end of their fixed rate period, with a further
fixed rate product at a lower rate than the reversion rate to manage the impact of the increased mortgage payment following migration to
the reversion product.
Following an attestation by the customer facing franchises, the Group completed its implementation of the Consumer Duty (part 1 – open
book). Part 2 (closed book) of the Consumer Duty regulation is in the process of being implemented. Ongoing monitoring of compliance with
the regulation will be monitored through reports to Board, an updated risk appetite report, a customer experience dashboard, second and
third line assurance activities and part of the existing annual RMF attestation each year.
Further details on conduct matters the Group is involved in are provided in Note 47 of the Financial Statements.
146
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Principal risks: Compliance and regulatory risk
Managing compliance and regulatory risk
Developments during the year
The Group continually reviews its risk management approach to reflect the
regulatory and legal environment in which it operates. The Group has no appetite
for behaving inappropriately resulting in unfair outcomes for its customers
or reputation through non-compliance with regulation or standards of good
practice. The Group has implemented safeguards and controls to prevent the
misuse of its personal data which may constitute a breach of data privacy
regulations. The Group continually reviews its data privacy framework to ensures
it complies with any evolving regulatory and or legislative changes.
During 2023, the Group completed the implementation of a regulatory horizon scanning tool to enable more efficient
tracking of regulatory change and provide the Group with management information including an up to date schedule
of regulatory changes and a tracking implementation activities across the Group.
The Group implemented a ‘Speak Up’ policy which enhances the Group’s Whistleblowing Framework, encouraging
employees to raise concern where they identify or observe behaviours that are inconsistent with the Group’s values and
ways of working. This approach is best practice and the Group is committed to continue to support ‘Speak Up’ through
regular communications and drop in sessions throughout 2024.
Market conditions have meant the Group has retained a number of securitisations on balance sheet that have been
used to support useable collateral for liquidity. The Group has added additional controls and risk appetite measures
to ensure that large exposure thresholds are maintained at all times.
The Group has engaged with UK Finance and the PRA directly on the consultation on the final rules for Basel 3.1. The PRA
have subsequently announced a delay to the implementation until 1 July 2025 followed by a shorter implementation
period. Final rules for credit risk and pillar 2A are not expected until Q2 2024.
To strengthen the Group’s data privacy capabilities, Data Subject Access Request (DSAR) training sessions and
workshops were arranged through the year. The Data Privacy Framework was improved through a review of roles and
responsibilities and the increased use of technology improved business oversight of performance and trends as well
as further automation.
Refinements were made to the data inventory, One Trust, and Estate Searches to rectify inaccuracies and facilitate
greater automation. A comprehensive review of all cross-border data transfers was completed to prepare for enhanced
standard contractual clauses. A comprehensive policy revision was undertaken, alongside the establishment of a
dedicated Working Group aimed at addressing legacy policy waivers and exemptions.
147
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Principal risks: Climate risk
Managing climate risk
Developments during the year
The risks associated with climate change are subject to rapidly
increasing societal, regulatory, and political focus. In line with
regulatory requirements, the Group has embedded climate risk
as a principal risk in the RMF to address the risks associated
with physical risk and the risk from the transition to a low-
carbon economy.
The Group has continued to invest in its climate data capability, transitioning to a more frequent assessment of its physical and
transitional risk profile. This analysis has confirmed the ongoing improvement in EPC profile and a reduction in lending emissions for
the residential and commercial investment portfolios. However, the way in which UK energy was created during 2023 was more carbon
intensive, leading to only a modest reduction in relative lending emissions overall. The dependency on wider policy actions is clear and
will influence lending emissions targets in the medium term.
The Group has started its engagement with its SME customers on their ESG strategy with early findings designed to tailor further support
and insights during 2024.
The Group has engaged with an additional third party to establish baseline lending emissions numbers for its Enterprise SME portfolio
and to further increase its coverage over in-scope portfolios.
In October 2023, climate risk became one of the ten principal risks within the Group’s RMF. In 2023, the Group originated £353 million
of lending to properties with EPC A or B rating, against the wider target of £1.2 billion of sustainable financing by the end of 2025.
Principal risks: Financial crime risk
Managing financial crime risk
Developments during the year
The Group operates in a highly regulated market and has
proportionate procedures in place to mitigate the risk of
the Group’s services being used to facilitate financial crime.
The Group continues to monitor the increasing complexity
of financial crime threats and any changes to the legislative
and regulatory framework to manage any emerging risks.
During the year, considerable investment has been made in resources and technology to ensure that the Group’s anti-money laundering
and financial crime infrastructure and processes continue to operate rigorously. The Group continued to embed its new financial crime
system during 2023, completing a number of key stages including the completion of loading the back book and establishing additional
robust management information.
The Money Laundering Reporting Officer has implemented enhancements to key policies including the anti-bribery framework and
customer risk assessment methodologies. Key staff receive focussed training and all employees receive regular annual training in
these areas, with their understanding being tested and levels of completion monitored through the governance framework.
148
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Principal risks: Model risk
Managing model risk
Developments during the year
Model risk is the risk of an adverse outcome as a direct result of weaknesses
or failures in the development, implementation or use of a model. There is
an inherent risk associated with models because, by their very nature, they
are imperfect and incomplete representations that rely on assumptions and
theoretical methodologies and use historic data which may not represent
future outcomes.
Models are relied on to support a broad range of business and risk management
activities across the Group including credit approval process, ECLs, stress
testing, financial planning, pricing strategies, ALM, measurement of fair value
for loans at FVOCI, estimation of Timeshare provision and climate change.
Model errors can arise when models are implemented incorrectly or misused,
for instance when applied to uses that they were not designed for, or where
there is a failure to update key assumptions when required.
Model risk remains heightened due to inflationary and cost of living pressures,
interest rate rises and market volatility experienced during 2023.
The PRA published its Supervisory Statement SS1/23 ‘Model risk management principles for banks’ in May 2023 with
effect from May 2024. Although the principles do not apply to firms without an IRB permission, the Group has decided
to implement a number of the recommendations as they are considered best practice. The Board has supported the
implementation plans with the appointment of the Senior Independent Non-Executive Director as model risk champion,
with a focus on data and model risk culture.
Model risk became one of the Group’s ten principal risks in October 2023. Responsibility for model risk is delegated
from the Executive Risk Committee and the Chief Risk Officer (SMF for model risk) and oversight is provided by a Model
Risk Committee.
The Group has digitally enabled its model inventory to support the implementation of SS1/23 and has updated its
model risk policies and standards to reflect the emergence of AI and machine learning. The Group has completed the
implementation of a cloud native analytical environment using SAS Viya to support enhanced visualisation and support
the implementation of machine learning applications.
The Group has implemented a new credit grading model for owner occupied mortgages originated across all brands
which has been implemented within the ECL and improved the credit grading coverage of the lending portfolios. This has
been a key step in supporting the assessment of ECL on the FVOCI portfolios. The Group has also updated its models for
climate risk and in particular refined its approaches for SME.
Economic uncertainty may lead to some models operating outside of their development boundaries and the Group
continues to monitor and consider potential actions on calibration or post model adjustments.
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Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report ICAAP, ILAAP and stress testing
Recovery Plan and Resolution Pack
The ICAAP, ILAAP and associated stress testing exercises represent important
elements of the Group’s ongoing risk management processes. The results of the risk
assessment contained in these documents are embedded in the strategic planning
process and risk appetite to ensure that sufficient capital and liquidity are available
to support the Group’s growth plans, as well as cover its regulatory requirements at
all times and under varying circumstances.
The ICAAP and ILAAP are reviewed at least annually, and more often in the event of
a material change in the Group’s business, its capital or liquidity. Ongoing stress
testing and scenario analysis outputs are used to inform the formal assessments
and determination of required buffers, the strategy and planning for capital and
liquidity management, as well as the setting of risk appetite limits.
The Board, Executive Risk Management Committee and the Asset and Liability
Committee have engaged in a number of exercises that have considered and
developed stress test scenarios. The analysis enables the Group to evaluate its
capital and funding resilience in the face of severe but plausible risk shocks. In
addition to the Annual Cyclical Scenario prescribed by the PRA, the stress tests
have included a range of market-wide and idiosyncratic stress tests, as well as
operational risk scenario analyses. Stress testing is an integral part of the adequacy
assessment processes for liquidity and capital, and the setting of tolerances under
the annual review of the Group risk appetite.
The Group also performed reverse stress tests to help assess the full continuum of
adverse impacts and, therefore, the level of stress at which the Group would breach
its individual capital and liquidity guidance requirements as set by the PRA under the
ICAAP and ILAAP processes.
The Group has prepared a Recovery Plan and Resolution Pack in accordance with
PRA Supervisory Statements SS9/17 ‘Recovery planning’ and SS19/13 ‘Resolution
planning’. These documents represent the Group’s ‘Living Will’ and examine in detail:
• the consequences of severe levels of stress (i.e. beyond those in the ICAAP)
impacting the Group at a future date;
• the state of preparedness and contingency plan to respond to and manage
such a set of circumstances; and
• the options available to the Group to withstand and recover from such
an environment.
The Recovery Plan and Resolution Pack is updated annually and was last approved
by the Board in July 2023. The Recovery Plan or Resolution Pack can be updated
more frequently in the event of a material change in the Group’s status, capital or
liquidity position. The Recovery Plan triggers are updated annually as part of the risk
appetite update. The Board is fully engaged in considering the scenarios and options
available for remedial actions to be undertaken.
The Board considers that the Group’s business model, its supportive owners and the
diversified nature of its business markets, provide it with the flexibility to consider
selective business or portfolio disposals, credit appetite tightening, loan book run-
off, equity raising, or a combination of these actions. The Group would invoke the
Recovery Plan in the event that it is required.
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Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Group viability statement
The Directors have assessed the outlook for the
Group over a longer period than the 12 months
required by the going concern statement that
is set out in provision 31 of the UK Corporate
Governance Code.
The Board considers a three year period to be
an appropriate length of time for the viability
assessment. A period of three years is applied
because it mirrors the period covered by the
Group’s strategic planning cycle. The strategic
planning cycle is used to generate the Group’s
strategic plan, which is reviewed, approved
and monitored by the Board. Given the inherent
uncertainty involved in forward planning
assumptions, the Board considers three years
to be appropriate for the assessment. The
three year period is further supported by the
annual ICAAP process, which models capital
requirements over this period.
In assessing viability the Board has considered
the following:
• updates to the business plans at various times
during the year to assess current business
performance and the impact of any emerging
risks as identified through the Group’s
established RMF;
• the Group’s current and forecast liquidity
and funding plans supporting the
strategic objectives;
• the top and emerging risks, including the
overall control environment, for the Group
as part of the regular and ongoing reporting
to the Board. This included regular reviews
on operational resiliency and an update on
financial crime;
• the strategy and updated five-year plan,
which were approved in December 2023.
This included the business plans and financial
projections from 31 December 2023 to
31 December 2028. The plan included various
scenarios stressing the business performance,
which demonstrated that the Group continued
to operate within regulatory requirements for
both capital and liquidity over the period;
• the quantity and quality of capital
resources available to support the delivery
of the Group’s objectives. This included
consideration of the effects of a changing
regulatory landscape on the Total Capital
Requirement, Pillar 2B and the CRD V
combined buffer requirements, together
with the effect of the Group’s Recovery Plan
to restore the capital position in scenarios
of capital headwinds;
• the implications of implementing the minimum
requirement for own funds and eligible
liabilities in the event that the Group triggers
the threshold and the impact on capital from
implementing Basel 3.1; and
• the annual ICAAP and ILAAP, which
were approved in April 2023 and January
2024, respectively.
In addition, the Board considered the outcomes
of stress testing performed by the Group.
As part of the ICAAP, the Group performed
a variety of stress tests and reverse stress
tests, which were derived after considering
the Group’s top and emerging risks, and were
presented to the Executive Risk Management
Committee and the Board. The Group also
considered its funding and liquidity adequacy
in the context of the stress testing and reverse
stress tests. The stress tests performed enable
the Board to assess the impact of a number of
severe but plausible scenarios on its business
model. In the case of reverse stress testing,
the Board is able to assess scenarios and
circumstances that would render its business
model unviable, thereby identifying business
vulnerabilities and ensuring the development
of early warning indicators and potential
mitigating actions.
As part of such stress testing, key ongoing risks
were considered including:
• economic uncertainty arising from
the ongoing increases to cost of living
impacting interest rates, inflation and
the wider UK economy;
• the risks associated with the impact of severe
but plausible scenarios:
– A scenario where the Bank of England base
rate is assumed to fall from 5.25% to 2% by
the end of 2025. This scenario assumes that
UK Real GDP falls 5% and unemployment
increases to 8.3%;
– In the property stress scenario, the Group
applied the assumption of residential
property prices falling by 31% peak to trough
before partially recovering to 20% lower
in December 2028 than December 2023.
Commercial Property Prices fall by 45%
peak to trough by 2025 and recovering to
20% below 2023 prices at December 2028.
It is worth noting that the largest falling UK
property prices has been 20%;
– A scenario where there is a structural
change in the economic environment
following a disorderly transition to net
zero. In this scenario there is a 2% fall in UK
GDP, inflation increases to 4.2%, household
income falls by 1%, unemployment increases
to 8.2% and residential property prices fall
by 19%;
– A scenario where the Bank of England base
rate increase further to 7% by Q3 2024
before falling to 3% by December 2028
to explore a rates up scenario.
Under all these scenarios, the Group
demonstrated that it had the resources
to meet its obligations over the forecast
period and maintain a surplus over its
regulatory requirements for both capital
and liquidity following management actions
that the Group has demonstrated that it is
able to implement.
• legal and regulatory changes as a result of
the ongoing implementation of existing EU
legislation into UK law and the economic
impacts from any changes to the UK’s trading
relationship with the EU; and
• financial risks arising from the physical and
transitional impacts of climate change on
the Group’s business.
The Board believes these risks were captured
within the stress testing scenarios used.
Following due consideration of the areas
outlined above, the Board has a reasonable
expectation that the Group will be able to
continue in operation and meet its liabilities
as they fall due over a period of at least
three years.
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154
Strategy
164 Governance
167
Risk management
173 Metrics and targets
Shawbrook Group plc | Annual Report and Accounts 2023
152
This Climate Report outlines the approach we are
taking at Shawbrook to tackle climate change, as
well as the progress we have made during 2023
in delivering our strategy.
This Climate Report has been prepared in
order to comply with the amendments made to
the Companies Act 2006 requirements by The
Companies (Strategic Report) (Climate-related
Financial Disclosure) Regulations 2022. The report is
also aligned with the TCFD 2017 recommendations
and the 2021 Annex1 across all four TCFD pillars.
Our climate strategy continues to form a fundamental
part of our ESG strategy and our climate ambition
remains to support a balanced transition to net zero
in the UK. From monitoring the Group’s progress, to
agreeing our Sustainable Finance Framework and
undertaking climate training, the Board continues
to actively oversee the Group’s climate strategy.
1 The 2021 TCFD Annex provides both general and sector-specific guidance on implementing the Task Force’s disclosure recommendations.
Updates reflect the evolution of disclosure practices, approaches and user needs.
John Callender
Chairman
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Our climate strategy aims to support our customers in their transition to a low carbon future whilst managing the risks and opportunities associated with the shift towards net zero.
It also sets out how we will mitigate climate-related risks and embed climate considerations into our wider strategy. We will continue to evolve our approach in response to changes
in the external environment, while aligning to best practices as they develop over time.
Our strategic intent…
…which has defined our transition plan and targets
Our risks and opportunities
Processes to identify
risks and opportunities
1
2
3
To enable a just
transition1 to net
zero in the UK
by leveraging
our insights
and expertise
Supporting the transition
Scale up finance and engagement to support customers’ net zero transition
Reputational damage
Reducing our climate impact
Reduce our climate impact from financing and operational emissions
Embedding climate into our corporate DNA
Integrate climate into how we think, act and make decisions
Demand shifts for products
Funding activity for mitigation
and adaptation
Increased costs from regulation
Reduction in energy and carbon
related costs
£1.2 billion sustainable finance
originations by end 20252
At least half of our suppliers net zero
aligned by 31 December 20253
New products and services
Net zero by 2035 for own operations4
Net zero by 20505
Credit risk from reduced ability to
repay loans and asset valuations
Measuring
emissions
Qualitative
scenario
analysis
Quantitative
scenario
analysis
1 We use the term ‘just transition’ to describe applying a social lens to opportunities and risks arising from the climate transition, with the interests
of employees, communities and customers in mind, to ensure it is fair and inclusive for all actors in society.
2 For the period 1 January 2023 to 31 December 2025. Lending classified as sustainable finance will be based on internal criteria which has been developed
using best practice and industry guidance including, but not limited to, Loans Market Association, International Capital Markets Association and EU Taxonomy.
3 Number of suppliers, with annual spend of over £200,000, that either have a net zero target for their own operations or have aligned to the Science Based
Targets initiative (SBTi) approach for net zero.
4 This excludes purchased goods and services and financed emissions.
5 Scope includes own operations (scopes 1, 2 and 3 excluding purchased goods and services) and financed emissions for the Group’s Property Lending Portfolios
and SME portfolios.
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Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Strategy, transition plans and targets
Achieving net zero by 20501 demands a collective
global effort to reduce greenhouse gas
(GHG) emissions. This will be dependent on a
combination of factors including government
policies, grid decarbonisation, supply chain
transformation and shifts in consumer behaviour.
Given the complexity of this challenge, we
have focused our actions and targets on
areas that are within our sphere of influence.
This is reflected through our short-term focus
(current-2025) which is aimed at reducing our
operational emissions and supporting our
customers with their transition through our
products and services. We remain committed
to collaborating with others to address certain
challenges, such as data availability and quality,
to meet the goals of the Paris Agreement.
1 Scope includes own operations (scopes 1, 2 and 3 excluding purchased goods and services) and financed emissions
for the Group’s Property Lending Portfolios and SME portfolios.
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Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Our strategy encompasses three core pillars:
Supporting the transition
Scale up finance and engagement to support customers’
net zero transition
• Sustainable finance lending
• Energy efficient mortgages and retrofit proposition
• Engagement with customers, partnerships
and collaboration with industry bodies
1
Reducing our climate impact
Reduce our climate impact from financed
and operational emissions
• Reduce financed emissions
• Reduce operational emissions
T
Target
M
Metric
2
Embedding climate into our corporate DNA
Integrate climate into how we think,
act and make decisions
• Climate considerations embedded into lending,
strategic and financial decisions
• Colleagues, Management and Board engaged
on climate through awareness and training
3
Our short-term focus
(current-2025)
• Continue to develop net zero
roadmap including TPT-aligned
transition plans1
• Continue to roll-out existing
products and develop new
sustainable finance products
• Deliver insights to help customers
understand their climate impact
Metrics and targets
Sustainable finance
T £1.2 billion of originations
by the end of 20252
% EPC C+ rated properties
M Annual disclosure for
owner occupied and
buy-to-let portfolio
Our short-term focus
(current-2025)
• Continue to improve data quality
and coverage of financed
emissions calculations
• Reduce own operational
emissions through climate
objectives and considerations
built into sourcing and
procurement process
Metrics and targets
T Net zero by 20503
Carbon neutral
T Maintain for own operations
Net zero aligned suppliers4
T At least half by the end of 2025
Net zero by 20355
T For own operations
Our short-term focus
(current-2025)
• Develop climate-related
employee communications
and engagement plan
• Ongoing climate and net
zero training
• Implement policy responses
to manage physical and
transition risks
• Track ESG/climate metrics
in remuneration objectives
Metrics and targets
Executive remuneration
M Tracking ESG and climate
metrics in the bonus
scorecard design
Climate risk
M Annual disclosure on
how we embed climate
risk in the Group
What we achieved in 2023
✓ £475 million provided through existing lending products against
our Sustainable Finance commitment.
✓ Engaged with over 50 of our SME customers across a range
of sectors on their climate and net zero plans, and the role
that they see lenders playing in supporting the transition.
What we achieved in 2023
✓ Initial internal measurement of our SME financed emissions.
✓ Developed in-house process to measure financed emissions related
to the Group Property Lending Portfolios.
✓ Developed strategic risk measures to support net zero pathway.
✓ Developed process to improve location mapping of SME customers
to support physical risk assessment in SME and financed emissions.
✓ 53% of suppliers are net zero aligned.
✓ Developed offsetting strategy, targeting a diverse carbon credit portfolio.
✓ Achieved carbon neutrality.
What we achieved in 2023
✓ Completed Board training on climate and ESG which included
a look forward to developing regulation and the broader
sustainability landscape.
✓ Launched and rolled out climate change training to employees
with 100% completion rate6.
✓ Started embedding the climate portal in lending opportunities,
counterparty assessment, and sector reviews.
✓ Climate risk designated as a principal risk in our risk taxonomy.
1 The Transition Plan Taskforce (TPT) was launched by HM Treasury in April 2022 to develop the gold standard for private sector climate transition plans. The TPT has developed a sector neutral disclosure
framework for best-practice transition plan disclosures, alongside implementation guidance and sector guidance. The disclosure framework draws on the components identified by The Glasgow Financial Alliance
for Net Zero (GFANZ) of a good transition plan, ensuring the outputs of both initiatives lock together to form an integrated approach to transition planning.
2 We have revised our initial commitment to provide £500m of sustainable finance (funding that aligns to the environmental criteria within the Group’s Sustainable Finance Framework) to £1.2bn for the period
1 January 2023 to 31 December 2025.
3 Scope includes own operations (scopes 1, 2 and 3 excluding purchased goods and services) and financed emissions for the Group’s Property Lending Portfolios and SME portfolios.
4 Number of suppliers, with annual spend of over £200,000, that either have a net zero target for their own operations or have aligned to the Science Based Targets initiative (SBTi) approach for net zero.
We have revised our initial target of at least 40% of suppliers being net zero aligned by the end of 2025 to at least half being net zero aligned by the end of 2025.
5 This excludes purchased goods and services and financed emissions.
6 Training was rolled out to all Shawbrook Bank Limited and TML employees in 2023, and BML in 2024.
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Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Our transition plans cover our Enterprise
franchise and Retail Mortgage Brands,
encompassing mortgages and business lending.
Our Consumer franchise is not currently within
scope of our transition plans due to the nature
of the lending where we do not have influence
on how the proceeds are being utilised. During
2023, we also took a decision to withdraw from
partner finance where loan terms are typically
longer and could not have been considered
for physical risk. In addition, we entered the
motor finance market via a platform lending
arrangement with Blue Motor Finance Limited.
As a result, we plan to develop a transition
plan for our Consumer franchise during 2024.
We have used the Glasgow Financial Alliance
for Net Zero framework as a basis for
development of our initial transition plans which
covers foundation, implementation, engagement,
metrics and targets and governance. During 2024,
we plan to update these to align them to the
Transition Plan Taskforce Disclosure Framework.
Property Transition Plan:
Increase new lending
and build our core product
range to support the transition
Work with industry bodies
to collectively build a stronger
voice on energy efficiency
improvements in the
built environment
Reduce emissions intensity across
residential and commercial
portfolio to achieve net zero
financed emissions by 2050
Direct and indirect customer
communication
on energy efficiency
and EPC improvements
Partnerships to offer
customer awareness on energy
efficiency improvements
Progress update:
• Increased new lending to higher rated
Energy Performance Certificate (EPC)
properties. We provided c.£350 million
of lending during 2023 to properties with
an A or B EPC rating, increasing from
c.£250 million lending during 20221.
• Worked with industry bodies including
UK Finance and the UK Green Building
Council (UKGBC), including contributing
to their white papers and research.
1 This covers Enterprise franchise and TML.
1 This covers Enterprise franchise and TML.
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Own Operations Transition Plan:
Understand customers’ net zero
priorities and plans, and explore
partnerships to support their transition
Financing for energy efficiency
improvements and net zero transition
Improve energy efficiency
for existing estates
Climate criteria for new
or renewed leases
Understand transition plans and
implement climate assessment
for new or renewed suppliers
Direct and indirect customer
communication to raise awareness on
energy efficiency and energy provision
Work with industry bodies
to collectively build a stronger voice
in the SME market on net zero
Encourage lower carbon
options for employee travel
Engage employees on
climate aims and strategy,
and utilise external experts
to support awareness
Develop offsetting strategy
to purchase high quality
verified carbon credits
Progress update:
• Launched net zero focused engagement
with SME customers to guide future thinking
on ways we can help to facilitate change.
• Continued to work with industry bodies and
external partners to explore solutions to
support our customers’ net zero transition.
Progress update:
• Hosted multiple internal employee climate events
with external and internal speakers, to educate
and raise awareness of our climate strategy.
• Engaged employees through a recycling drive in
our offices. We also added additional recycling
bins in our London and Glasgow offices to
support this initiative.
• Started engagement with top suppliers
to understand their climate plans.
• Developed our offsetting strategy, working
directly with a project developer to purchase
high-quality verified carbon credits, focusing
on avoidance and removal projects.
• Climate principles built into sourcing process
for new offices including energy efficiency
requirements, renewable energy tariffs and
construction type. At the end of 2024, we will be
moving into a new London premises. The building
is targeting an ‘Excellent’ BREEAM1 rating and
a NABERS2 5* rating.
• All of our sites, except one, that we have
operational control over are on renewables tariffs.
1 Building Research Establishment’s Environmental Assessment Method.
2 National Australian Built Environment Rating System.
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Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Climate-related risks and opportunities
We have identified several climate-related transition and physical
risks that could impact the Group, as well as opportunities that
have been incorporated as part of our climate strategy. The table
below outlines (1) the type of risk or opportunity, (2) the impacted
area of the business, (3) the time horizon, (4) the expected impact
and (5) our current and future mitigating actions or key initiatives.
Our time horizons are short-term (0-2 years), medium-term (3-5
years) and long-term (>5 years). Long-term impacts are outside
of the current planning horizon.
Climate-related risk
Area impacted
Time
horizon
Description
Expected impact
Mitigations
Risk: Transition
Market – Customer
behaviour
• Enterprise franchise
(Real Estate and SME)
• Retail Mortgage Brands
Medium-term
Policy – Energy
efficiency regulation
• Enterprise franchise
(Real Estate and SME)
• Retail Mortgage Brands
Medium to
long-term
Consumer appetite for
sustainable lending continues
to change. There is a risk of
misunderstanding what
customers need when
structuring our products.
We are dependent on effective
government policy to help drive
financed emissions reductions.
There is a risk that policies will
not be in line with the UK’s net
zero commitment.
Reputational damage
of not meeting targets.
Policy – Customer ability
to increase efficiency
• Enterprise franchise
(Real Estate and SME)
• Retail Mortgage Brands
Medium to
long-term
Customers may struggle to fund
energy efficiency improvements.
This could mean customers’ ability
to repay loans decreases and
asset valuations may fall.
Increased credit risk and
collateral valuations decreases.
Reduced demand due to shift
in customer preferences.
• Regular customer and broker engagement.
• Deep market expertise embedded within the business to understand
customer needs and regularly review customer behaviour.
• Agreed restrictions on new lending for properties rated below EPC E,
unless exempt.
• Half-yearly monitoring of EPC distribution including retention and attrition
rates of EPC C+.
• All lending within Development Finance must have plans to meet EPC C
or above requirements.
• Controls and flags in place to notify customers when lending on EPC D
or E properties to consider future improvements to achieve EPC C or
above requirements.
• Plans to identify energy efficiency improvements and/or transition plans
through customer engagement.
• Actively monitor the market for signs and trends between falling property
values and EPC ratings.
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Area impacted
Time
horizon
Description
Expected impact
Mitigations
Risk: Transition
Policy – Carbon tax
• Enterprise franchise
(Real Estate and SME)
• Retail Mortgage Brands
• Own operations
Medium to
long-term
Increased carbon pricing on our
own emissions and customers
operational emissions. This could
mean increased operational cost
for the Group and the customers’
ability to repay loans decreases
and asset valuations may fall.
Increased operational costs
and customer credit risk.
• Engage with customers to understand their plans to reduce emissions
and improve their energy efficiency including the potential costs to their
business of an increase in the cost of carbon. This will also support in
improving business continuity risk.
• Enhanced due diligence carried out for high carbon sector transactions
to understand decarbonisation plans.
• Implement carbon savings and energy efficiency improvements in existing
offices to reduce own operational emissions.
• Climate and energy efficiency principles built into sourcing process for new offices.
Policy – Enhanced
reporting and regulatory
requirements
• Enterprise franchise
(Real Estate and SME)
• Retail Mortgage Brands
• Own operations
Short and
medium-term
Current metrics and disclosures
could be considered insufficient
or misleading as reporting
requirements continue to evolve.
Reputational damage
and compliance issues.
• Climate expertise embedded within the organisation to understand
and comply with current and upcoming requirements.
• Developing data to report carbon footprint and reduction targets
to meet future reporting requirements.
Technology – Costs
to transition to lower
emissions technology
• Enterprise franchise
(Real Estate and SME)
• Retail Mortgage Brands
Medium-term
New technology could be
required across all sectors
intended to reduce emissions,
which could result in devaluation
of existing technology.
Increased credit risk and
collateral valuations decreases.
• Continue working with industry bodies to increase customer awareness
of the benefits of reducing emissions to mitigate risk of retrofit solutions
being expensive in the short term.
Reputational – Increased
scrutiny of our role
in transition from
lending (financing) and
business (operations)
• Enterprise franchise
(Real Estate and SME)
• Retail Mortgage Brands
• Own operations
Short and
medium-term
Current exposure to high
emissions sectors and our role
in the transition including
impacts on mortgage and
commercial customers.
Reputational damage
and reduction in demand
for our products.
• Active monitoring of new lending to high climate risk sectors with enhanced
due diligence requirements.
• Climate considerations in all credit papers and own operations including
new suppliers and requirements for new offices.
• Climate oversight at Board to ensure we are progressing against our
climate strategy.
Risk: Physical
Acute – Severe
weather events
Chronic – Changes in
precipitation patterns
and temperatures
• Enterprise franchise
(Real Estate and SME)
• Retail Mortgage Brands
• Own operations
Long-term
Disruption due to physical
events; damaged assets
and/or business disruption
due to physical impacts.
Increased credit risk and
collateral asset valuations.
• Monitoring of flood risk for property exposure across the Group.
• Flood risk monitoring for our own operations and key suppliers.
• Scenario analysis includes physical impact scenario on our property portfolio.
• Integration of climate risk into business resilience scenarios.
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opportunity
Area impacted
Time
horizon
Description
Expected impact
Mitigations
Products and services
• Enterprise franchise
(Real Estate and SME)
• Retail Mortgage Brands
Medium-term
Financing the transition focusing
on the delivery of energy efficient
and low carbon solutions.
Increased revenue through
additional funding provided.
Partnerships
• Enterprise franchise
(Real Estate and SME)
• Retail Mortgage Brands
• Own operations
Short-term
Collaboration enables
acceleration of key opportunities.
Increased revenue through
additional funding provided.
• Actions have been taken across the Group to develop our sustainable
finance proposition which includes providing a discount for EPC A-C rated
BTL mortgages and funding electric and hybrid vehicles through our Digital
SME business.
• Further new sustainable lending opportunities are currently being explored.
• We are members of trade bodies that seek to advance the UK’s net zero
agenda and have participated in various industry forums on this agenda.
• We aim to continue to collaborate with partners across the industry
to further develop opportunities to enable the net zero transition.
Energy source
• Own operations
Medium-term
Increased use of
renewable energy.
Reduced exposure to GHG
emissions and reduced
sensitivity to changes
in cost of carbon.
• All of our sites, except one, that we have operational control are
on renewables tariffs1.
Energy efficiency
• Own operations
Medium-term
Increase energy efficiency
within our property portfolio.
Decreased GHG emissions
and operational costs.
• We continue to focus on increasing energy efficiency across our own
operations, working with landlords to implement changes. This includes
LED lighting and installing smart meters to monitor energy usage.
• We have established energy efficiency principles into the procurement
process for new offices.
1 As at 31 December 2023.
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Shawbrook Group plc | Annual Report and Accounts 2023Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Process to identify risks and opportunities
We utilise a suite of tools and processes to identify risks and opportunities presented by climate change relating to our lending activities.
These cover emissions measurement and both qualitative and quantitative scenario analysis.
Measuring building
emissions and EPC
data gathering
At an individual property level, we use EPC data to measure emissions and
ascertain issues affecting transition as well as a view of the property’s
potential energy efficiency.
Quantitative
scenario analysis
Measuring SME-
linked financed
emissions
Qualitative
scenario analysis
Our SME customers are typically small companies who are not mandated to
produce emissions figures under current regulation. During 2023, we engaged
a third party to identify trading locations for our SME customers and, where
possible and appropriate, their lending emissions. This will enable us to establish
a baseline from which to measure progress over time and consider appropriate
medium-term metrics and measures to support the transition to net zero.
This new data has been shared with our climate data partner to assess
the physical and transition risks and opportunities that may exist for each
customer and will be further developed during 2024.
We analysed climate risks using the 2021 Climate Biennial Exploratory Scenario
(CBES) (early, late action, and no action) over 30 years. These scenarios assumed
varying levels of policy intervention to reduce carbon emissions. This analysis
helped us understand potential transition and potential risks that could impact
our business. Using a proportionate approach based on exposure levels, we
selected five sectors for in-depth transition risk analysis. These sectors made
up c.90% of our Enterprise franchise and Retail Mortgage Brands.
Physical risk
assessments –
lending
We have completed our second quantitative scenario analysis using the late
action scenario, assuming a disorderly transition, published within the 2021
CBES. We tested our strategy and business model at 31 December 2023 but
assuming the date was 31 December 2030. We assessed the impact of the
macroeconomic pathway as well as physical and transition risk for all of our
lending portfolios where appropriate and proportionate. We also expanded
our climate measurement to our SME customers as we believe we can use
our expertise to help them prepare for the transition.
This analysis has shown that the cumulative losses expected over a 5-year
period post-2030 when compared with the Group’s 2024 budget scenario are
broadly consistent with the conclusions of the 2021 CBES compared to the
counterfactual scenario, particularly for the Group’s property-related lending.
Compared to the 2024 budget, which does not include any additional climate
specific risk, our cumulative increase in credit losses is 367% higher in the Real
Estate lending portfolio where we have measures of physical and transition
risk, which compares to 160% higher for firms covered by the CBES.
We have partnered with a leading climate-related data partner, CLSQ and
D-Risk to measure potential flood damage across the Group’s Property Lending
Portfolios and SME operating addresses. We have used the floodability index
which uses a Green, Amber, Red, Black 1 and Black 2 rating to categorise the
risk of flooding. This is widely used by lenders and valuation surveyors to
provide a consistent view across the property market.
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Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Physical risk
assessment –
own operations
We have completed a physical risk assessment of our own operations
under flood, subsidence and coastal erosion climate perils. This includes
the operational centres of our UK material outsourcers. The following
scenarios were assessed:
• Flood risks under four climate scenarios (RCP 2.6, 4.5, 6 and 8.5)
at three points in time (2030, 2050, 2080): One of our sites and
one outsourcer site identified.
• Coastal erosion rates for locations within 1km of the coastline up to 2100:
No office locations or current material outsourcers.
• Subsidence risks from a historical perspective (1961-90) and future
perspective (2020-49; 2040-69): Number of sites subject to elevated
subsidence risk.
Our third-party oversight team within Operational Risk have engaged with
internal relationship owners to determine what business continuity plans
are in place to support an assessment of residual risk, of which none are
outside of risk appetite.
We are considering developing our own base case during 2024 to support
strategy and planning.
Transition risk
assessment –
own operations
We have measured our Scope 1 and 2 emissions as well as relevant Scope 3
emissions for our own operations. We have develop a plan to achieve net zero
for our own operations by 2035 which include the use of renewable resources
and the purchase of carbon offsets, which we intend to reduce over time.
Input into financial planning
Qualitative horizon scanning relating to climate
change forms part of our macroeconomic trends
analysis that accompanies the financial plan.
In 2023, we used the outputs from quantitative
scenario analysis as an input into the ICAAP
process which spans five years. This analysis will
influence key financial metrics such as revenue and
capital by testing the impact of climate change on
our strategy and business model. Our investment
in data and technology, which will be a key enabler
for our response to climate change, is factored
into our operational budgets out to 2028.
Strategic resilience
Our strategy is aimed at supporting our
customers’ transition to net zero and is therefore
impacted by climate-specific risks. We see the
transition as an opportunity, particularly in our
Enterprise (Real Estate) business and Retail
Mortgage Brands where policy interventions have
already been taken including a minimum EPC
level and updates to our terms and conditions.
There are inherent risks in not recognising the
technological change as well as changes in
consumer demand which may lead to adverse
selection and a portfolio of loans which is less
re-financeable and at risk of reduced collateral
prices and/or increased customer defaults.
We have completed our second annual
quantitative assessment of the climate related
scenarios using data that we have received from
CLSQ and D-Risk, our climate data partner. We
have used the data to identify specific physical
and climate related adjustments to both customer
default and collateral valuations through which
we can apply our stress testing approaches to
assess the impact of late policy action scenario
within our Pillar 2B assessment as part of our
Internal Capital Adequacy Assessment Process
(ICAAP). For 2023 this includes a more detailed
assessment of physical and transition risk
where it is appropriate to do so. Pillar 2B is an
assessment of risks over a 3-to-5 year period
that are not currently picked up under Pillar 1
capital rules.
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Governance
The oversight and management of
climate-related risks and opportunities
is integrated into the Group’s governance
structure. A summary is shown in the
chart opposite.
Further information on both the Board and Management’s role
in overseeing and assessing and managing climate-related
risks and opportunities is included in the sections below.
Responsible for setting the strategic aims and promoting the long-term sustainable success of the Group.
Shawbrook Group Board
Audit Committee
Remuneration Committee
Risk Committee
Responsible for internal controls and financial
reporting including non-financial disclosures.
Responsible for reviewing and approving
performance measures including those
relating to purpose and climate.
Responsible for advising the Board on current
and future risks and determination of risk
appetite including climate and strategic risk.
Executive Committee
Supports the Chief Executive Officer in
discharging his accountabilities including
consideration of ESG strategy, trends
and commitments.
ESG Panel
Evaluates transactions identified as having
high environmental and/or social risk.
Comprises the Chief Executive Officer,
Chief Financial Officer and Chief Risk Officer.
Executive Risk Committee (ERC)
Supports the Chief Risk Officer in considering
enterprise-wide risks including climate
risk reporting and delivery against
regulatory plans.
ESG Sub-Committee
Responsible for developing and overseeing the delivery and implementation of the ESG strategy. Also acts as the principal forum overseeing
the activities of the Climate Working Group and the Emissions Measurement Working Group, and supports programme relate decision-making
as appropriate. Reporting/escalations to the Board via the Executive Committee.
Climate Working Group*
Responsible for delivery of strategy relating to climate-related risks and opportunities. Focused on key themes: capability, governance and leadership,
risk management, reporting and KPIs, climate data and measurement, operations, sustainable (green) finance and external engagement.
Please refer to the following pages in the Governance
report for further information:
Pages 53 to 55 – our Board member profiles
and committee memberships
Emissions Measurement Working Group
Responsible for delivery of strategy related to climate-related emissions, including measurement and assurance activities for both financed
and operational emissions.
Key
Board level committees
Executive level committees
Working Groups
* The Climate Working Group was established in Q1 2024 and replaces the Sustainable Finance Working Group and Climate Risk Working Group, combining them into one forum.
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Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Board’s role and activities
The Board sets the Group’s strategic goals, including
climate priorities, promoting the long-term sustainable
success of the Group for the benefit of all our stakeholder
groups. The Board is responsible for overseeing our
approach and response to climate change, including
monitoring progress against agreed targets.
The Board discusses climate-related matters throughout
the year, with formal updates received at least twice a
year, covering climate-related risks and opportunities as
well as progress against the agreed strategy. The Board
also receives regular training to keep abreast of the
evolving external landscape. Some aspects of climate
governance are delegated to Management committees,
as shown in the governance structure chart on page 164.
During 2023, the Board continued to be engaged
in all aspects of our climate strategy. Key topics
of engagement included:
• Reviewed and approved the Group’s 2022 TCFD Report.
• Agreed the 2023 climate priorities and key metrics
and targets to formally track.
• Participated in an interactive demonstration
of the climate portal. See spotlight opposite
for further information.
• Reviewed the evolved Sustainable Finance Framework
which includes definitions for what constitutes
sustainable finance lending.
• Agreed the inclusion of, and progress against,
ESG and climate metrics in the bonus scorecard.
• Approved the climate risk appetite statement and
a number of property-based risk appetite limits
that provide the framework for future risk
appetite limits that are aligned to interim
targets and measures.
Spotlight
Our climate portal
Data is at the heart of our climate strategy,
enabling us to review, manage and mitigate
climate-related risks. Our loan portfolio climate
data is available through our climate portal using
APIs to help embed climate considerations into
our digital lending journeys, with more granular
data available where an individual counterparty
approach is required.
In May 2023, the Board participated in an
interactive demonstration of the climate portal,
where in real time they experienced the benefits
of adopting a data-driven approach to managing
climate risk.
Shawbrook Group plc | Annual Report and Accounts 2023
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Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Management’s role and activities
The Board delegates responsibility for the
delivery and execution of the Group’s climate
strategy to the Chief Executive Officer,
supported by the Executive Committee, which
is responsible for ensuring that the climate
strategy is embedded across the Group. Under
the oversight of the Board, Management is
responsible for continuing to identify, measure,
manage, monitor, report and challenge on
both climate-related risks and opportunities.
To ensure climate action remains a top priority,
climate metrics have been integrated within
the bonus scorecard design.
During 2023, the ESG Sub-Committee
continued to steer key aspects of the
climate strategy, including:
• Reviewed and agreed Group-wide
all employee climate training.
• Reviewed operational carbon
footprint results.
• Reviewed the 2022 TCFD Report.
• Agreed the climate-related employee
communications plan, including
lunch and learn sessions.
• Reviewed progress against climate-
related metrics ahead of discussion
with the Executive Committee and
the Board.
Chief Executive
Officer
The Chief Executive Officer owns the development and delivery of sustainable
performance, purpose and ESG strategy, which includes overall accountability
for climate-related risks and opportunities. Through the Executive Committee
meetings, climate-related matters are discussed throughout the year, with
formal updates received at least twice a year.
Chief Risk Officer
The Chief Risk Officer (CRO) is the Senior Manager accountable under the Prudential
Regulatory Authority’s (PRA) Senior Managers and Certification Regime for identifying
and managing the risks arising from climate change. Climate considerations are
included in the regular monthly update to the Executive Risk Committee.
Chief Financial
Officer
The Chief Financial Officer has accountability for measuring financed emissions
and incorporation of climate considerations into strategic financial planning.
Customer
franchise heads
The Group’s four customer-facing heads are responsible for aligning their
strategic actions to respond to climate change by managing associated
risks and opportunities, including meeting climate commitments.
Executive
Committee
The Executive Committee is supported in climate-related matters by the ESG
Sub-Committee, chaired by the Chief of Staff, and its working groups. The ESG
Sub-Committee has delegated responsibility from the Executive Committee
to steer and provide oversight of the Group’s ESG strategy including climate-
related aspects. The ESG Sub-Committee convenes key senior representatives
at least quarterly to oversee implementation of the Group’s climate strategy
and embedding of climate-related deliveries into BAU activities, and track
progress against internal and external climate metrics and targets.
ESG team
The ESG team (reporting into the Chief Executive Officer) works in partnership
with key stakeholders across the Group to develop and deliver the climate
strategy and has accountability for measuring emissions from own operations.
Training on climate issues
The Board and Executive Committee received
periodic updates from internal subject matter
experts on climate topics throughout the
year. In January 2024, externally facilitated
climate training was provided to the Board,
focused on upcoming sustainability reporting
requirements and the evolving landscape,
to enhance Directors’ climate-related
knowledge. The combination of these is
designed to give the Board an informed
perspective when shaping and challenging
the Group’s strategic climate goals and
external disclosures.
Mandatory climate training was provided to
all employees during 2023, helping to embed
climate within our corporate DNA, with a
100% completion rate1. The training covered
the causes and impact of climate change,
actions to address it and the Group’s climate
strategy and targets. We plan to develop
and build on this training in the short-term
planning horizon, targeting specific roles
and areas of the business which are likely
to be most impacted by climate issues.
1 Training was distributed to 1,387 employees who joined before 1 October 2023 across Shawbrook and TML. BML will complete
the training in Q1 2024. New joiners (post 1 October 2023) will complete this training as part of their new joiner induction.
Shawbrook Group plc | Annual Report and Accounts 2023
166
Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Risk management
We are aware that climate change represents an
inherent risk to the Group, including the impact
on the UK economy, asset values, customer
affordability and operational risks. Our objective
is to continue to measure and embed climate risk
within the Group to evolve our assessment of
the risks and identify and deliver opportunities
arising from climate change.
We classify climate-related risks as follows:
Physical risks can appear in a variety of forms. For instance,
changes in water availability, sourcing and quality, food
security and extreme temperature changes affecting
organisations’ premises, operations, supply chain,
transport needs and employee safety.
Physical risk
Two main types:
• Acute physical risks refer to those that are event-driven,
including increased severity of extreme weather events,
such as cyclones, hurricanes or floods.
• Chronic physical risks refer to longer-term shifts in
climate patterns (e.g. sustained higher temperatures)
that may cause sea levels to rise or chronic heat waves.
Transitioning to a lower-carbon economy may entail extensive
policy, legal, technology and market changes to address
mitigation and adaptation requirements related to climate
change. Examples include implementing carbon pricing
mechanisms to reduce GHG emissions, shifting energy use
towards lower emission sources, adopting energy-efficiency
solutions, encouraging greater water efficiency measures
and promoting more sustainable land-use practices.
• Policy risks arise if we take policy actions that attempt
to constrain actions contributing to the adverse effects
of climate change and seek to promote adaptation to
climate change.
• Legal risks include the failure of organisations to mitigate
impacts of climate change, failure to adapt to climate
change and the insufficiency of disclosure around
material financial risks.
• Technology risks, for example, the development and use
of emerging technologies such as renewable energy,
battery storage, energy efficiency and carbon capture
and storage will affect the competitiveness of certain
organisations, their production and distribution costs.
• Market risk could be impacted by shifts in supply
and demand for certain commodities, products and
services as climate-related risks and opportunities
are increasingly taken into account.
• Reputational risks tie to changing customer or community
perceptions of an organisation’s contribution to or detraction
from the transition to a lower-carbon economy.
Litigation risk is defined as the risk of legal activity as a result of climate change. The risk arises from people
or businesses seeking compensation for losses they may have suffered from physical or transition risks.
Transition risk
Litigation risk
167
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report 2. Risk measurement
Risk measurement quantifies the risks to the
Group to enable assessment and selection of
the appropriate means of managing the risk
and to enable appropriate resources to be
dedicated to the management of risk.
Appropriate systems, methodologies and models
are selected for risk measurement and their
limitations understood and taken into account
where possible. We consider the consistent
application of planned and stressed conditions
into the tools and measurement of risk.
Risk Management Framework (RMF)
We recognise the cross-cutting causal nature of climate risk and,
during 2023, elevated climate risk as a principal risk in the Group’s
risk taxonomy to ensure that the RMF is able to support the Group’s
growth and manage the associated risks.
In order to embed climate risk into the RMF, it is cascaded from
the Board (through risk appetite) to underwriting decision-making.
See Risk Report on page 90 to see how climate risk is embedded
within our overall RMF.
To promote embedding, our climate risk standard supports principal
risk owners with the identification, management and reporting of
climate risk. The process for identifying, assessing and managing
climate-related risks follows the six stages set out in the Group’s
RMF and are reflected in all risk policies and include:
1. Identification
2. Measurement
3. Management
4. Monitoring
5. Reporting
6. Challenge
1. Risk identification
To identify the risks that may impact the Group,
we require in-depth knowledge of our strategic
objectives, business, target markets and structure
and includes:
• We have partnered with CLSQ and D-Risk to
procure climate data on our lending portfolios
where it is proportionate to do so. This includes
coastal erosion, surface water flooding and
subsidence under a number of different RCP
adopted by the Intergovernmental Panel on
Climate Change (IPCC). The data also includes
the average damage ratio (ADR) for buildings
under the same pathways. For transition risk
the data includes actual and potential EPCs for
residential and commercial properties including
the top 10 improvement initiatives and indicative
costs. The data includes key information on year
of build, build area and emissions numbers. Our
licence allows us understand how the book is
performing versus baseline emissions through
a six-month full back book review and through
an application programming interface (API) to
support implementation into lending strategies.
• We have partnered with Experian to procure
operating location data for our SME customers
through which comprehensive physical and
transitional risk assessment can be made
together with a lending emissions baseline data
for 2023. This work will develop further in 2024.
The purpose and requirements of each stage are outlined
in the following sections.
Shawbrook Group plc | Annual Report and Accounts 2023
168
Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report 3. Risk management
Risk management involves identifying an
appropriate strategy to address the risk in
question. This includes the selection of one
of the following risk responses or strategies:
• Accept the risk – this is normally selected
where the cost of mitigating the risk is more
than the loss if the risk was to materialise;
• Avoid the risk – by terminating the activity
that generates the risk;
• Transfer the risk – by transferring to a third
party, for example by taking insurance; or
• Mitigate the risk – by putting effective
controls in place to mitigate the risk.
Our primary risk management strategy for climate
risk is to use the data and insights from scenario
testing to mitigate the risk. This includes the
implementation of policies to support customers in
the transition to a low carbon economy through the
provision of financing. There are also some areas
where we will seek to avoid the risk in areas where
it may impact the net zero trajectory or where
the physical risk is not inside appetite.
4. Risk monitoring
We use physical and transition risk management
information to monitor the evolution of climate risk
within our lending portfolio. This includes setting
targets for EPC mix and physical risk exposure and
management information to assess the extent
to which we are subject to strategic risk through
adverse selection. For SME customers this may
also include continuity or resiliency scores to
support engaging customers on the risks to their
strategy and business model in addition to the
risks attached to servicing lending commitments.
5. Risk reporting
We report on climate risks regularly
through the Executive Risk Committee
and onwards to the Risk Committee
and Board. This includes performance
against risk appetite metrics and the
results of our quantitative scenario
analysis through the ICAAP.
6. Challenge
Challenge of the climate strategy is provided
by the governance process of the Board and
supported by assurance reviews provided by
the Group internal audit function.
Some examples of work completed during 2023
to incorporate climate risk into existing principal
risks include:
• Climate risk embedded within the terms
of reference for each Board and Executive
sub-committee where appropriate;
• Climate risk embedded in 26 policies to promote
the embedding of climate risk in each customer-
facing business and central function;
• An enhancement to the origination journey
was implemented for buy-to-let to assess
the transition risk by reviewing the energy
efficiency of properties including the EPC
rating to support both climate assessment
and legal or regulatory requirements;
• For lending secured on residential and commercial
properties, an analysis of the energy efficiency
of the property was undertaken together with an
assessment of exposure to flood, coastal erosion
and subsidence;
• For SME lending an analysis of the business
continuity score was assessed; and
• Within operational risk, enhanced guidance was
provided to support the assessment of climate risk
within the risk and control self-assessment (RCSA).
We have undertaken qualitative scenario analysis
using the scenarios published as part of the
2021 CBES and developed and implemented
our approach to embed the impact of climate
change quantitatively within the ICAAP.
Shawbrook Group plc | Annual Report and Accounts 2023
169
Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Risk appetite
Our risk appetite statement is the written
articulation of the aggregate levels and types
of risk that the Group is willing to accept, within
our risk capacity, or wants to avoid in order to
achieve our business objectives. The process to
agree our risk appetite is set annually alongside
the Budget and five-year plan and is approved by
the Board. The risk appetite statement includes
a qualitative statement supported by several risk
appetite objectives and dimensions and a series of
quantitative triggers and limits. Each measure in our
risk appetite report is weighted to ensure that the
most material measures drive the escalation of a
breach of dimension and ultimately an objective.
Risk management plays an active role in our
strategic planning process. As part of the strategic
planning sessions, the Group Risk function compares
the impact of the Group’s plan to the risk appetite
and has the authority to independently challenge
and escalate those initiatives that are not in line
with the risk appetite statement.
Climate risk was promoted to a principal risk
during 2023 to reflect the growth in complexity
of the Group and the associated risks it faces, The
Board approves and reviews performance against
the Group’s risk appetite limits including climate
measures which continue to be developed alongside
the development of new measures. Our risk appetite
statement, objectives and dimensions are set out in
the Risk Report on page 86.
Triggers are applied as ‘early warning indicators’ to
prompt early action in order to avoid a more serious
limit breach. In the context of climate risk we have
set metrics to manage strategic risk by focussing
on metrics such as potential EPC on the buy-to-let
and owner-occupied mortgage portfolios.
Risk management lifecycle
Climate will impact different risk types, with the
most material captured through a risk analysis we
conducted of our assets and liabilities. This exercise
highlighted the priority areas for embedding in the
RMF. This analysis concluded that strategic risk,
credit risk and liquidity risk are the primary areas
of focus, followed by operational and conduct risk.
Strategic risk
We face many different types of risk, but one of
the primary risks is strategic risk arising from the
failure to execute the Board approved strategy.
In a climate context, we believe that this could be
evidenced through adverse selection which may
lead to us taking a concentration in a particular
area that does not support the long-term viability
of the business or may expose us to concentrations
that are not in line with external expectations. We
have developed a series of key risk indicators in
support of our risk appetite to continually monitor
performance. We have established a set of metrics
to quantify the extent to which adverse selection
is impacting performance.
Credit risk
We have developed a bespoke approach to prioritise
the assessment of climate risk within credit risk,
involving three strategies covering 94% (2022: 95%)
of the net loan book. These are summarised on the
next page including a mapping of our exposure to
each strategy. Exclusions relate mainly to acquired
portfolios or loans with a short tenor where there
is very limited physical or transition risk. This
approach has been developed to demonstrate
the proportionate approach we have taken to
assessing climate risk in line with the requirements
of the PRA’s supervisory statement SS3/19 and
guide our approach to using our expertise to
support our customers in the transition to net zero.
170
Our risk appetite statement in relation
to climate risk is:
“The Group is committed to understanding the
impacts its activities can have on the environment
and embeds this understanding of physical and
transition risks within its purpose led ESG strategy.
The Group will support its customers with financing
for their transition to a low carbon economy
and play its part in supporting the government’s
commitment to net zero by 2050.”
Shawbrook Group plc | Annual Report and Accounts 2023Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Business franchise
Portfolio approach
Customer climate strategy
In scope
Buy-to-let mortgages
Commercial investment
1. Data led customer
climate strategy2
£10,391m
78%
Real Estate
Owner-occupied mortgages
Enterprise
franchise
Retail
Mortgage
Brands
SME
TML
BML
Bridging
Acquired mortgages
Digital SME lending
Corporate lending
Speciality finance
Specialist markets
Financial sponsors
Development finance
Buy-to-let mortgages
2. Policy/process driven
climate strategy
£785m
6%
3. Individual counterparty strategy
£1,366m
10%
Owner-occupied mortgages
Owner-occupied mortgages
4. Exclusions with low climate
risk/net zero impact3
£769m
6%
1. Data-led customer climate strategy
Our data and API driven climate strategy applies
to 78% (2022: 76%) of the net loan book. These are
predominantly areas where we lend over the longer-
term using term loans. The asset classes included
in this assessment are term buy-to-let mortgages,
commercial investment, owner-occupied mortgages,
digital SME and corporate lending businesses within
our Enterprise franchise and Retail Mortgage Brands.
For these asset classes we obtain physical and
transition risk data from our climate data partner
for our entire back book every six-months and have
the ability to do so more frequently if required.
This allows us to continue to review the physical
risk attached to flooding and subsidence risk and
the transition risk attached to property EPCs and
expected emissions derived from energy costs.
The insights gained from the physical and transition
risk data have already led to the support of new
product developments, strategy developments and
policy rules. These include supporting customers in
the transition to an EPC rating of a C or equivalent
or above and specific policy rules to support the
appropriate valuation for investment properties.
For a large number of these opportunities, we
are able to deliver the climate data through an
API to support a frictionless origination journey
and provide more certainty to customers on the
outcome of the lending journey. These changes
complement the work we’ve completed on the
MyShawbrook portal for Real Estate customers.
Consumer franchise1
Unsecured personal loans
1
In 2023, we entered the motor finance market via a platform lending arrangement with Blue Motor Finance Limited.
This is currently in the excluded category but we plan to develop a transition plan during 2024.
2 This includes second charge mortgages within our back book.
3 This exclusion extends to partner finance loans within our back book.
Source: Shawbrook net loan book at 31 December 2023
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Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report 2. Policy and assurance strategy
Building regulations and the development of
policies to promote the use of modern building
techniques will be important in the development
of sustainable housing. This is particularly
important in bridging finance and development
finance which are strategically important asset
classes that make up 6% (2022: 7%) of the net loan
book. We use independent monitoring surveyors
to confirm at each stage that the property
development is progressing in line with our policy.
3. Individual counterparty strategy
There are situations where we will need to apply
a climate lens to our lending strategy through a
more tailored approach. To support this, we are
refining the approach to material counterparties to
include questions that may identify the key climate
risks that each counterparty has. The climate data
that is available as part of the API and back book
analysis is also available through a portal which
helps to inform our relationship management
teams prior to engaging with customers.
4. Exclusions
We have taken a proportionate approach to our
climate risk assessment. This means that we have
not sought to complete a detailed climate risk
assessment for short tenor products where the
physical or transition risk is not believed to be
material. This applies to our Consumer franchise
and acquired loans in the Enterprise franchise
that are in run-off. Together these loans make
up 6% (2022: 5%) of the Group’s net loan book.
We have the benefit of a portal to check the
surrounding area to complete a physical risk
assessment including flood and subsidence
risk that we use to ensure that any completed
property is capable of being refinanced at
exit under normal insurance terms.
Impact against other risk types
We extend our risk management process to affiliates
and other principal risks over time including the
delivery of climate change opportunities and through
the embedding of policy changes to ensure there
is no climate arbitrage across the Group.
Top and emerging risks
Our top and emerging risks are identified through
the process outlined in the RMF and are considered
regularly by the Executive Risk Committee and
subsequently by the Risk Committee. These are
set out in the Risk Report on page 94.
The Board has considered the top and emerging
risks and concluded that climate risk remains
a top risk in 2023.
172
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Metrics and targets
Developing metrics and targets is an essential part
of monitoring our impact and progress against our
climate ambitions. The Group has agreed metrics
and targets to measure our impact across Scopes
1 to 3, in alignment with established standards
such as the Partnership for Carbon Accounting
Financials (PCAF) and the GHG Protocol. These are
used to assess and manage our climate-related
risks and opportunities.
In light of progress to date, we have revised
several of our initial climate targets that were
set during 2022. This includes expanding the
scope of our net zero by 2050 target to cover
our SME portfolios. In 2023, we undertook an
initial internal measurement of our SME portfolios.
This remains under development and we plan
to provide further disclosure in the future.
Going forward, we will continue to improve
our data quality and coverage, in alignment
with PCAF and the GHG Protocol.
This section outlines:
• Financed emissions covering Group Property
Lending Portfolios
• Energy risk assessment for residential properties
• Flood risk assessment for residential properties
• Sustainable finance originations
• Own operational footprint
CH4
CO2
N2O
PFCs
HFCs
SF6
Scope 2
Indirect
Purchased electricity,
steam, heating and
cooling for own use
Scope 3
Indirect
Scope 1
Direct
Scope 3
Indirect
Purchased goods and services
Company facilities
Transportation and distribution
Fuel and energy-related activities
Company vehicles
Processing of sold products
Transportation and distribution
Waste generated in operations
Employee commuting
Business travel
Leased assets
Capital goods
Use of sold products
End-of-life treatment
of sold products
Leased assets
Franchises
Investments
Upstream activities
Upstream activities
Reporting company
Downstream activities
Source (as adapted): https://ghgprotocol.org/blog/you-too-can-master-value-chain-emissions
173
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Financed emissions
Our most significant GHG emissions are Scope 3:
Category 15 – Investments or financed emissions
associated with our lending portfolios. We
recognise the need to measure these emissions
to inform our reduction actions and achieve net
zero by 2050. We are committed to measuring
and disclosing financed emissions using the
PCAF methodology to ensure consistency and
comparability across the financial services
sector. We have used the PCAF methodology to
calculate our financed emissions for our Property
Lending Portfolios, and have a data quality score
of 31. We recognise the main limitations of using
EPC to measure our emissions2 and we plan to
take mitigating actions to increase data quality
over time. For clarity, all asset classes within
our Consumer franchise are outside of scope3
while our SME portfolio measurement is currently
under development. We will continue to improve
our data quality and increase coverage across
our loan book, where proportionate, to assess
and manage our carbon-related assets
and exposures.
Our ambition is to reach
net zero by 20504.
Property Lending Portfolios
The following table shows how we segment our Property Lending Portfolios
in line with PCAF guidance on how to classify buildings, split into residential
and commercial properties. This excludes bridging and acquired portfolios5.
Property Lending Portfolios6
Property type
classification
Franchise
Operating
segment
Asset classes
included in scope
Residential Properties
Enterprise
Real Estate
Retail
Mortgage
Brands
TML & BML
Commercial Properties
Enterprise
Real Estate
• Buy-to-let
(secured against
residential property)
• Owner-occupied
mortgages7
• Buy-to-let
(secured against
residential property)
• Owner-occupied
mortgages
• Commercial investment
(including semi-
commercial)8 lending
1 Defined by PCAF as using estimated building energy consumption per floor area based on official building energy labels and the floor area available.
2 Not all UK dwellings have EPCs, due to outdated assumptions that rely on averages.
3 Due to the short-term nature of the lending and purpose where we do not have influence on how the proceeds are being utilised.
4 This covers own operations (scopes 1, 2 and 3 excluding purchased goods and services) and financed emissions for the Group’s Property Lending Portfolios and SME portfolios.
5 The Group’s acquired portfolios include certain buy-to-let and commercial investment lending that is in run-off.
6 We use the term Property Lending Portfolios to cover all of the Group’s property-related asset classes currently within scope for measurement of our financed emissions,
as shown in column 4 of the table labelled ‘Property Lending Portfolios’ above.
7 This includes second charge mortgages within our back book.
8 Where the commercial element of the property accounts for more than 50% of its value it is classified as a Commercial Investment mortgage.
174
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Measurement of emissions for the Group’s Property Lending Portfolios
For our measurement, we sourced building emissions from available EPC data. To improve data
quality when measuring our emissions, we adjusted EPC data by accounting for changes in the
UK grid decarbonisation and including unregulated emissions such as appliances. We used the
PCAF methodology to calculate the Group’s Property Lending Portfolios financed emissions
baseline and have a data quality score of 3 (defined by PCAF as using “Estimated building energy
consumption per floor area based on official building energy labels and the floor area are available”).
Financed emissions
(with b = building)
Attribution factorb
(with b = building)
=
=
Attribution
factorb
x
Building emissionsb
Outstanding amountb
Property value at originationb
Type
Absolute emissions (tCO2e)1
Emissions intensity (kgCO2e/m2)2
Residential
Properties
Commercial
Properties
2023
20223
2021
2023
2022
2021
75,350
51,478
46,993
25,984
20,407
21,598
42
111
44
134
46
133
Our progress
Emissions intensity from our 2021 baseline has
continued to reduce for both Residential Properties
and Commercial Properties. The main driver has
been higher rated EPC properties within our new
originations, improving the overall EPC mix for
both portfolios.
There was a further reduction in the Residential
Properties portfolio emissions intensity between
2022 and 2023 of 2.7% and emissions have reduced
by 8.5% from our 2021 baseline. However, the
underlying emissions intensity would have reduced
to 41.7 kgCO2e/m2 if we had utilised the 2022
emissions factors. This suggests that in 2023
the UK generated more carbon intensive
energy compared to 2022.
The Commercial Properties portfolio emissions
intensity continued to reduce in 2023 compared
to 2022 and 2021.
1 Total GHG emissions associated with the Property Lending Portfolios.
2 To understand the efficiency of the Property Lending Portfolios in terms of emissions per unit, which allows for portfolio growth.
3 The Group’s 2022 figures have been restated as a result of changes in methodology and improvements in data quality resulting
in more accurate information.
175
Shawbrook Group plc | Annual Report and Accounts 2023Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Energy risk assessment
Exposure to buy-to-let and owner-occupied1 portfolios
We are committed to supporting customers with their transition to
a low carbon economy. Lending on property is a core part of our
strategy and supporting our professional property investors and
owner-occupied mortgage customers in their transition is a key
part of our climate strategy. Our energy risk assessment has been
targeted on the buy-to-let and owner-occupied portfolios where
we have been able to identify an exact match for the property
location. We do not have a material aged back book so the
coverage of EPC ratings in our back book is consistent with
the broader market. The potential EPC ratings demonstrate
the opportunities available to the Group in supporting the
financing the transition to a low carbon economy. EPC coverage
of buy-to-let mortgages is 65% (December 2022: 62%) and
owner-occupied mortgages is 82% (December 2022: 80%).
See charts for our current and potential EPC exposure
for ourbuy-to-let and owner-occupied mortgages.
Exposure to buy-to-let mortgages by EPC
Exposure to owner-occupied by EPC
1 This includes second charge mortgages within our back book.
176
Shawbrook Group plc | Annual Report and Accounts 2023Strategic ReportFinancial StatementsCorporate Governance ReportRisk ReportClimate Report Flood risk assessment
Exposure to buy-to-let and
owner-occupied1 portfolios
Our flood risk assessment has been targeted
on the buy-to-let and owner-occupied portfolios
across the UK using location-specific data. We
have partnered with CLSQ and D-Risk to measure
flood hazards considering surface water, coastal
and river events. The model has been applied at
property level where potential flood damage is
dependent upon the potential type, frequency
and depth of flooding. Properties with a flood
rating defined as high risk or very high risk
may have their insurance risk ceded to the
Flood Re scheme which is expected to close
in 2039 at which point the property insurance
premiums would no longer be capped and
would be subject to market forces. The ratings
considered in this analysis are based on the
level of risk in November 2023 and are based
on current defences. We will leverage this data
to understand the risk under the CBES scenarios
as part of our evolving analysis of flood risk.
The maps in this section represent the
proportion of our buy-to-let and owner-
occupied mortgages that are at high risk
and very high risk of flooding by value in
specific regions of the UK.
Flood risk assessment – exposure
to buy-to-let mortgages
Band
High
risk
Very
high risk
Total
Flood risk assessment – exposure
to owner-occupied mortgages1
Band
High
risk
Very
high risk
Total
East Anglia
1.6%
1.0%
3.2%
East Anglia
1.0%
1.6%
4.4%
East Midlands
1.4%
1.1%
6.2%
East Midlands
0.4%
0.9%
7.1%
Greater London
0.7%
1.1%
32.0%
Greater London
1.3%
2.5%
13.9%
North East
0.2%
0.4%
2.7%
North East
0.3%
0.2%
3.6%
North West
0.5%
0.9%
11.0%
North West
0.9%
1.1%
11.8%
Scotland
0.7%
0.8%
6.7%
Northern Ireland
0.0%
0.0%
0.1%
South East
0.5%
1.9%
18.1%
Scotland
0.5%
1.4%
7.5%
South West
0.3%
2.4%
6.3%
South East
0.4%
1.0%
24.2%
Wales
2.7%
2.1%
2.3%
South West
1.0%
1.7%
7.2%
West Midlands
0.6%
1.2%
5.8%
Wales
1.7%
2.3%
4.0%
Yorkshire/
Humberside
1.7%
2.6%
5.4%
West Midlands
0.3%
1.0%
8.1%
Yorkshire/
Humberside
1.3%
2.5%
8.1%
1 This includes second charge mortgages within our back book.
177
Shawbrook Group plc | Annual Report and Accounts 2023Financial StatementsFinancial StatementsCorporate Governance ReportRisk ReportClimate ReportStrategic Report Emissions from
our own operations:
1,300 tCO2e
Sustainable finance originations
As part of our commitment to support
customers’ in their transition to net zero,
we provided £475 million of sustainable finance
during 2023. This is based on the environmental
criteria of our Sustainable Finance Framework.
Sustainable finance
Year ended
31 December 2023
Lending to properties
with EPC A or B1
£353 million
Other lending within the
scope of the Group’s
Sustainable Finance
environmental criteria2
£122 million
Own operational footprint
We utilise a climate management and
accounting platform to measure the GHG
emissions associated with our operational
carbon footprint3. We use the GHG Protocol
to measure our emissions across Scopes 1, 2
and 3 (all relevant categories 1 – 14), with Scope
3 Category 15 financed emissions covered on
page 175. Our 2023 total operational carbon
footprint was calculated to be 11,865 tonnes
of carbon dioxide equivalent (tCO2e).
Please see our SECR report on page 28
for a breakdown of emissions per scope.
We also purchased high-quality verified
carbon credits to neutralise 1,300 tCO2e
emissions attributable to our own operations,
maintaining carbon neutrality4, as we progress
towards achieving net zero through our
emissions reduction actions.
We have committed to provide
£1.2 billion sustainable finance
originations between 1 January
2023 and 31 December 2025.
Our ambition is to reach
net zero by 2035 for our
own operations5 and
maintain carbon neutrality
in the meantime.
Emissions from purchased goods
and services: 10,566 tCO2e
energy and fuel
employee commuting
business travel
waste
1 This includes Residential Properties and Commercial Properties.
2 This includes development finance loans to properties being built to EPC A and B standards, electric and hybrid taxis, and a loan to a water and waste management company.
3 To calculate our carbon emissions, we follow the GHG Protocol framework, which identifies three scopes of emissions. Scope 1 represents the direct emissions from owned or controlled
sources. Scope 2 represents the indirect emissions from the generation of purchased electricity. Scope 3 represents other indirect emissions across our value chain, including upstream
and downstream emissions.
4 Through the purchase of carbon credits certified under the Gold or VCS Standard programmes, two of the most widely accepted international certification systems.
5 This covers Scope 1, Scope 2 and Scope 3 (fuel and energy-related activities, waste, business travel, commuting and work from home) emissions. This excludes purchased goods
and services and financed emissions.
6 This means suppliers either having a net zero target for their own operations or utilising the Science Based Targets initiative (SBTi) approach for net zero by 2050.
Purchased goods and services
We recognise that our climate impact extends to
our suppliers, with purchased goods and services
accounting for the majority of our operational
carbon footprint. We have expanded the scope
of our net zero aligned suppliers target to ensure
that it is dynamic and aligns to our overall net zero
goals as a growing business.
During 2023, we started engagement with suppliers
to understand their approach on climate and their
plans to reduce their emissions. As at 31 December
2023, 53% of our supplier spend is net zero aligned,
as sourced from supplier disclosures through
our procurement system or public sustainability
reports. Our ambition is to improve on our current
progress through continued engagement into 2024.
We are committed to ensuring
at least half of our suppliers,
with annual spend of over
£200,000, are net zero aligned
by 31 December 20256.
Shawbrook Group plc | Annual Report and Accounts 2023
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Statements
180
Independent Auditor’s Report
189 Consolidated statement of profit and loss
190 Consolidated statement of comprehensive income
191 Consolidated and Company statement of financial position
192 Consolidated statement of changes in equity
193 Company statement of changes in equity
194 Consolidated and Company statement of cash flows
195 Notes to the financial statements
Independent Auditor’s Report
to the members of Shawbrook Group plc
1. Our opinion is unmodified
We have audited the financial statements of
Shawbrook Group Plc (the ‘Company’) and its
subsidiaries (together referred to as the ‘Group’)
for the year ended 31 December 2023 which
comprise the Consolidated statement of profit
and loss, Consolidated statement of comprehensive
income, Consolidated and Company statement
of financial position, Consolidated statement of
changes in equity, Company statement of changes
in equity, Consolidated and Company statement
of cash flows, and the related notes, including the
accounting policies in note 7.
In our opinion:
• 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 31 December 2023 and
of the Group’s profit for the year then ended;
• the Group financial statements have been
properly prepared in accordance with UK-adopted
international accounting standards;
• the parent Company financial statements have
been properly prepared in accordance with UK-
adopted international accounting standards and
as applied in accordance with the provisions of
the Companies Act 2006;
• and the financial statements have been prepared
in accordance with the requirements of the
Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with
International Standards on Auditing (UK) (“ISAs (UK)”)
and applicable law. Our responsibilities are described
below. We believe that the audit evidence we have
obtained is a sufficient and appropriate basis for
our opinion. Our audit opinion is consistent with our
report to the audit committee.
We were first appointed as auditor by the directors
in June 2011. The period of total uninterrupted
engagement is for the thirteen financial years
ended 31 December 2023. We have fulfilled our
ethical responsibilities under, and we remain
independent of the Group in accordance with,
UK ethical requirements including the FRC Ethical
Standard as applied to public interest entities.
No non-audit services prohibited by that standard
were provided.
Overview
Materiality:
group financial
statements as
a whole
Coverage
Key audit matters
Recurring risks
£13.5 million (2022: £ 10.1 million)
4.7% of Group profit before tax
(2022: 4.3% of Group
profit before tax)
100% (2022: 100%) of
Group profit before tax
vs 2022
Expected Credit losses
on loans and advances
to customers
Measurement of
loans and advances
to customers at Fair
value through other
comprehensive income
NEW: Conduct
provision – Timeshare
IT user access
management
Recoverability of
parent Company’s
investment
in Subsidiaries
2. Key audit matters: our assessment
of risks of material misstatement
Key audit matters are those matters that, in our
professional judgement, were of most significance
in the audit of the financial statements and include
the most significant assessed risks of material
misstatement (whether or not due to fraud) identified
by us, including 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. We summarise below
the key audit matters, in decreasing order of audit
significance, in arriving at our audit opinion above,
together with our key audit procedures to address
those matters and, as required for public interest
entities, our results from those procedures. These
matters were addressed, and our results are based
on procedures undertaken, in the context of, and
solely for the purpose of, our audit of the financial
statements as a whole, and in forming our opinion
thereon, and consequently are incidental to that
opinion, and we do not provide a separate opinion
on these matters.
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Key Audit Matter
Expected credit losses on loans and advances to customers
Risk vs 2022:
£130.2 million; 2022: £111.8 million
Refer to page 67 (Audit Committee Report), page 106 to 131 (Risk Report), page 205 to 206 (accounting policy) and pages 217,
219 to 221 (financial disclosures).
The risk
Our response
Subjective estimate
The estimation of expected credit losses (“ECL”) of loans
to customers involves significant judgement and estimates
with a high degree of uncertainty. The key areas where we
have identified greater levels of management judgement
and therefore increased levels of audit focus in the
estimation of ECL are:
• Model estimations – Inherently judgemental modelling
is used to estimate ECL, particularly in determining the
Probability of Default (“PD”) in certain portfolios. These
models utilise both the Group’s historical data and
external data inputs.
• Economic scenarios – IFRS 9 requires the Group to
measure ECL on an unbiased forward-looking basis
reflecting a range of future economic conditions.
Significant management judgement is applied in
determining the economic scenarios used, particularly
in the current economic environment, and the probability
weightings applied to them.
We performed the tests below rather than seeking
to rely on any of the Group’s controls because the
nature of the balance is such that we would expect to
obtain audit evidence primarily through the detailed
procedures described.
Our credit risk modelling expertise: We engaged with our
own credit risk modelling specialists which assisted us in
the following for a selection of models:
• for those models which were changed or updated
during the year, evaluated whether the changes
were appropriate by assessing the updated
model methodology;
• independently evaluated the model output by
inspecting the corresponding model functionality
and independently implementing the model by
rebuilding the model code and comparing our
independent output with management’s output;
• independently assessed and reperformed the updated
model calibrations and model redevelopments; and
• Post-model adjustments – Adjustments to the
• independently applied management’s staging
model-driven ECL results are made by management
to address known impairment model limitations or
emerging trends. Such adjustments are inherently
subjective and significant judgement is involved in
estimating these amounts.
• Significant Increase in Credit Risk (“SICR”) – The
criteria selected to identify a significant increase in
credit risk is a key area of judgement within the Group’s
ECL calculation as these criteria determine whether a
12-month or a lifetime provision is recorded. We have
specifically identified an increased risk associated
with the judgement relating to the effectiveness
of SICR criteria where customers or portfolios are
impacted by the current macroeconomic pressures.
The effect of these matters is that, as part of our risk
assessment, we determined that ECL provisioning
has a high degree of estimation uncertainty, with a
potential range of reasonable outcomes greater than
our materiality for the financial statements as a whole,
and possibly many times that amount.
Disclosure quality
The disclosures regarding the Group’s application of
IFRS 9 are important in explaining the key judgements
and material inputs to the IFRS 9 ECL results, as well
as sensitivity of the ECL results.
methodology and inspected model code for the
calculation of the ECL to assess its consistency of
the Group’s approved staging criteria and the output
of the model;
Our economics expertise: We engaged our own
economic specialists who assisted us in:
• assessing the reasonableness of the Group’s
methodology and models for determining the
economic scenarios used and the probability
weightings applied to them;
• assessing key economic variables by comparing
the economic variables to external sources; and
• assessing the overall reasonableness of the economic
forecasts by comparing the Group’s forecasts to our
own modelled forecasts.
Test of details: Other key areas of our testing in addition
to those set out above included:
• critically evaluating management’s assumptions
which are applied to determine the basis of post
model adjustments;
• assessing the completeness of post model
adjustments identified;
• reperforming the calculation of the qualitative
adjustments to assess consistency with the qualitative
adjustment methodologies; and
• evaluating the completeness of SICR criteria in capturing
new risks due to changes in the economic environment.
Assessing transparency: We assessed whether the
disclosures appropriately reflect and describe the
uncertainty which exists when determining the expected
credit losses. In addition, we assessed whether the
disclosure of the key judgements and assumptions
made is sufficiently clear.
Our results: We found the resulting estimate of the ECL
recognised and the associated disclosures made to be
acceptable (2022: acceptable).
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Key Audit Matter
Measurement of loans and advances to customers at fair value through other comprehensive income
Risk vs 2022:
£2,815.3 million; 2022: £1,268.8 million
Refer to page 67 (Audit Committee Report), page 203 to 205 (accounting policy) and page 219 to 221 (financial disclosures).
The risk
Our response
Subjective estimate
During 2022, the Group introduced a new business
model ‘held to collect and sell’. The loans to customers
originated under this business model are classified
in accordance with IFRS 9 as measured at fair value
through other comprehensive income.
The fair value model uses unobservable inputs and as
such the loans are classified as level 3 in the fair value
hierarchy under IFRS 13.
For fair value measurement, there is subjectivity in pricing
the significant unobservable inputs. Where significant
pricing inputs are unobservable, management has limited
reliable, relevant market data available in determining the
fair value, and hence estimation uncertainty can also be
high which leads to a significant risk of fraud and error.
We determined that the discount factor has a high degree
of estimation uncertainty, with a potential range of
reasonable outcomes on the fair valuation of loans and
advances to customers greater than our materiality for
the financial statements as a whole, and possibly many
times that amount.
As a result, a significant audit risk was identified in
respect of the risk-adjusted discount rate.
Disclosure quality
The disclosures regarding the application of IFRS 13 are
key to explaining the key judgements and material inputs
to the fair value estimate, including model sensitivities
estimated by the Group.
We performed the tests below rather than seeking
to rely on any of the Group’s controls because the
nature of the balance is such that we would expect to
obtain audit evidence primarily through the detailed
procedures described.
Methodology choice: We assessed the appropriateness
of the methodology used to value the loans, including
suitability of the model and key assumptions used around
the risk-adjusted discount rate.
Our valuation expertise: We engaged our internal
valuation specialists to reprice the fair value portfolio
using an independent risk-adjusted discount factor
developed based on the risk characteristics of each
product and data on similar instruments in the market.
Sensitivity analysis: Our valuation specialists also
performed sensitivity analysis over the key assumptions
such as the risk-adjusted discount factor.
Test of details: We performed tests of details over the
completeness and accuracy of the data that feeds into
the model primarily by tracing the relevant data elements
to the original source documentation.
Assessing transparency: We critically assessed the
adequacy of the disclosures regarding the degree
of estimation uncertainty involved in arriving at the
valuation including sensitivity analysis and fair value
hierarchy disclosure.
Our results
We have found the resulting measurement of the loans
and advances to customers at fair value through other
comprehensive income, including unobservable inputs
and associated disclosures made to be acceptable
(2022: acceptable).
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Key Audit Matter
Conduct provisions – Timeshare
Risk vs 2022:
£11.4 million; 2022 £nil
Refer to page 67 (Audit Committee Report), page 146 (Risk Report), page 207 (accounting policy) and page 236
(financial disclosures).
The risk
Our response
Subjective estimate
Due to the uncertainties that can arise in measuring
potential obligations resulting from operational, legal
and regulatory matters, the Directors apply judgement
in estimating the value of any associated provisions or
contingent liability.
In the current period, the Directors have recognised
a provision for complaints from customers relating to
historic fractional timeshare holiday ownership products.
The key elements of estimation uncertainty are the future
customer complaints rate, the uphold rate of complaints
received and the estimated redress cost per upheld
complaint. Given the limited historical information, there
is a risk that the actual experience may differ from the
Group’s expectation.
The effect of these matters is that, as part of our risk
assessment, we determined that the provision related
to timeshare conduct matters has a high degree
of estimation uncertainty, with a potential range
of reasonable outcomes greater than our materiality
for the financial statements as a whole.
Disclosure quality
The disclosures relating to the provision for
conduct matters are important in explaining
the Group’s key judgements and material inputs
to the subjective estimate.
We performed the tests below rather than seeking
to rely on any of the Group’s controls because the
nature of the balance is such that we would expect
to obtain audit evidence primarily through the detailed
procedures described.
Methodology choice: We assessed the methodology
used by the Group to calculate the provision and
evaluate the key accounting judgements made.
Test of details: Our test of details included evaluating
management’s assumptions used in the model, testing
the existence and accuracy of key data inputs by tracing
them to underlying source documentation, reperforming
model calculations, inspecting regulatory correspondence
and making enquiries with management, including legal
counsel and involving our legal specialists as necessary.
Sensitivity analysis: We assessed and challenged
the reasonableness of the provisioning model’s
key assumptions, to critically assess the impact of
alternative assumptions and the range of reasonably
possible outcomes.
Assessing transparency: We evaluated the adequacy of
Group’s disclosure in respect of the estimation uncertainty
associated with the timeshare provision, including the
sensitivity disclosures appropriately reflect uncertainty
inherent in the assessment of the provision as well as
reasonably plausible changes in key assumptions that
could lead to an alternative provision.
Results: We have found the resulting estimate of the
conduct provision recognised to be acceptable (2022:
not applicable).
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Key Audit Matter
IT user access management
Risk vs 2022:
Refer to page 99 (Risk Report).
The risk
Our response
Control performance
The Group’s accounting and reporting processes
are dependent on automated controls enabled by
IT systems. User access management controls are
an important component of the general IT control
environment assuring that unauthorised access to
systems does not impact the effective operation of the
automated controls in the financial reporting processes.
Key user access management controls include
privileged access management and the timely removal
of user access.
There is a risk that user access management controls are
not consistently implemented and effectively operated
across the Group, including controls operated by third
party service providers.
If these user access management controls are deficient
and not remediated or adequately mitigated, the
pervasive nature of these deficiencies may undermine
our ability to place reliance on automated controls in
our audit.
Our audit procedures included:
Control testing: We tested the design, implementation
and operating effectiveness of the relevant controls
over user access management including:
• Authorising access rights for new access provision;
• Authorising modified access;
• Timely removal of user access rights;
• Privileged user and developer access to production
systems, the procedures to assess granting, potential
use, and the removal of these access rights; and
• Segregation of duties including access to
multiple systems that could circumvent
segregation controls.
Test of details: For certain account balances we
responded to the deficient general IT controls by
performing additional substantive testing. For instance,
we increased sample testing over certain account
balances. We also compared selected data to external
sources (such as third-party contracts and / or bank
statements), to test the integrity of the transactional
level data that is flowing into and contained within
the Group’s financial statements.
Our Results: Based on our testing and the additional
procedures performed in response to the IT
deficiencies identified, we concluded that none of
the IT deficiencies impacted the effective operation
of automated controls that we placed reliance on in
our audit (2022: None identified).
Key Audit Matter
Recoverability of parent Company’s investment in subsidiary
Risk vs 2022:
£431.8 million; 2022: £416.8 million
Refer to page 202 (accounting policy) and page 234 to 235 (financial disclosures).
The risk
Our response
Low risk, high value
The carrying amount of the parent Company’s investment
in its subsidiary represents 70% (31 Dec 2022: 81%) of the
Company’s total assets.
The investment’s recoverability is not at a high risk
of significant misstatement or subject to significant
judgement or estimation uncertainty.
However, due to the materiality in the context of the
parent Company’s financial statements, this is considered
to be the area that has the greatest effect on our overall
parent Company audit.
We performed the following audit procedure rather than
seeking to rely on any of the Company’s controls because
the nature of the balance is such that we would expect
to obtain audit evidence primarily through the detailed
procedures described below.
Tests of detail: We compared the carrying amount of 100%
of investments with the relevant subsidiary’s financial
statements to identify whether its net assets, being an
approximation of its minimum recoverable amount, were
in excess of its carrying amount and assessing whether
the subsidiary has historically been profit-making.
Our results: We found the Parent Company’s assessment
of the recoverability of the investment in Shawbrook Bank
Limited to be acceptable (2022: acceptable).
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3. Our application of materiality and an
overview of the scope of our audit
Materiality for the Group financial statements as a
whole was set at £ 13.5 million (2022: £10.1 million),
determined with reference to a benchmark of Group’s
profit before tax of £286.7 million (2022: £233.0 million).
Materiality for the parent Company financial
statements as a whole was set at £4.3 million
(2022: £4.2 million), determined with reference to
a benchmark of total assets, of which it represents
0.7% (2022: 0.8%)
In line with our audit methodology, our procedures
on individual account balances and disclosures
were performed to a lower threshold, performance
materiality, so as to reduce to an acceptable level
the risk that individually immaterial misstatements
in individual account balances add up to a material
account across the financial statements as a whole.
Performance materiality was set at 65% (2022: 65%)
of materiality for the financial statements as a whole,
which equates to £8.7 million (2022: £6.5 million) for
the Group and £ 2.8 million (2022: £ 2.7 million) for
the parent Company. We applied this percentage in
our determination of performance materiality based
on the level of identified misstatements and control
deficiencies during the prior period.
We agreed to report to the Audit Committee any
corrected or uncorrected identified misstatements
exceeding £ 0.65 million (2022: £0.5 million), in addition
to other identified misstatements that warranted
reporting on qualitative grounds.
We were able to rely upon the Group’s internal control
over financial reporting in several areas of our audit,
where our control testing supported this approach,
which enabled us to reduce the scope of our
substantive audit work; in the other areas the scope
of the audit work performed was fully substantive.
The Group team performed the audit of the Group as if
it was a single aggregated set of financial information.
The audit was performed using the materiality and
performance materiality levels set out above.
4. Going concern
The directors have prepared the financial statements
on the going concern basis as they do not intend to
liquidate the Group or the Company or to cease their
operations, and as they have concluded that the
Group’s and the Company’s financial position means
that this is realistic. They have also concluded that
there are no material uncertainties that could have
cast significant doubt over their ability to continue
as a going concern for at least a year from the date
of approval of the financial statements (‘the going
concern period’). We used our knowledge of the
Group and Company, its industry and the general
economic environment to identify the inherent risks
to its business model and analysed how those risks
might affect the Group’s and Company’s financial
resources or ability to continue operations over the
going concern period.
The risks that we considered most likely to adversely
affect the Group’s and Company’s available financial
resources over this period were:
• The availability of funding and liquidity in the event
of a market-wide stress scenario; and
• Insufficient regulatory capital to meet minimum
regulatory capital levels.
We considered whether these risks could plausibly
affect regulatory capital and liquidity in the going
concern period by comparing severe, but plausible,
downside scenarios that could arise from these
risks individually and collectively against the level of
available financial resources indicated by the Group’s
and Company’s financial forecasts.
We considered whether the going concern
disclosure in the financial statements gives a full
and accurate description of the Director’s assessment
of going concern.
Our conclusions based on this work:
• we consider that the directors’ use of the going
concern basis of accounting in the preparation
of the financial statements is appropriate;
• we have not identified, and concur with the directors’
assessment that there is not, a material uncertainty
related to events or conditions that, individually
or collectively, may cast significant doubt on the
Group’s or Company’s ability to continue as a going
concern for the going concern period; and
• we found the going concern disclosure in note 3
to be acceptable.
However, as we cannot predict all future events or
conditions and as subsequent events may result in
outcomes that are inconsistent with judgements
that were reasonable at the time they were made,
the above conclusions are not a guarantee that the
Group or the Company will continue in operation.
Normalised group
profit before tax
£286.7 million
(2022: £233.0 million)
Group materiality
£13.5 million (2022: £10.1 million)
£13.5 million
Whole financial statements
materiality (2022: £10.1 million)
Normalised PBT
Group materiality
£8.7 million
Whole financial statements
performance materiality
(2022: £6.5 million)
£0.65 million
Misstatements reported
to the audit committee
(2022: £0.5 million)
Shawbrook Group plc | Annual Report and Accounts 2023
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We performed procedures including:
• identifying journal entries and other adjustments
to test based on risk criteria and comparing the
identified entries to supporting documentation.
These included journal entries posted by senior
finance management, journals posted to seldom
used accounts, unbalanced journal postings
and those including specific descriptors; and
• assessing whether the judgements made in
making accounting estimates are indicative
of a potential bias.
We discussed with the audit committee matters
related to actual or suspected fraud, for which
disclosure is not necessary, and considered any
implications for our audit.
Identifying and responding to risks of material
misstatement due to non-compliance with laws
and regulations
We identified areas of laws and regulations
that could reasonably be expected to have a
material effect on the financial statements from
our general commercial and sector experience
through discussion with the directors and other
management (as required by auditing standards),
and from inspection of the Group’s regulatory
and legal correspondence and discussed with
the directors and other management the policies
and procedures regarding compliance with laws
and regulations.
As the Group is regulated, our assessment of risks
involved gaining an understanding of the control
environment including the entity’s procedures for
complying with regulatory requirements.
We communicated identified laws and
regulations throughout our team and remained
alert to any indications of non-compliance
throughout the audit.
The potential effect of these laws and regulations
on the financial statements varies considerably.
Firstly, the Group is subject to laws and regulations
that directly affect the financial statements
including financial reporting legislation (including
related companies legislation), distributable
profits legislation and taxation legislation and
we assessed the extent of compliance with these
laws and regulations as part of our procedures
on the related financial statement items.
5. Fraud and breaches of laws and
regulations – ability to detect
Identifying and responding to risks of material
misstatement due to fraud
To identify risks of material misstatement due to fraud
(‘fraud risks’) we assessed events or conditions that
could indicate an incentive or pressure to commit
fraud or provide an opportunity to commit fraud.
Our risk assessment procedures included:
• Enquiring of directors, internal audit, executive
management and inspection of policy
documentation as to the Group’s high-level
policies and procedures to prevent and detect
fraud, including the internal audit function, and
the Group’s channel for ‘whistleblowing’, as well
as whether they have knowledge of any actual,
suspected or alleged fraud;
• Reading Board, audit committee and risk
committee meeting minutes;
• Considering remuneration incentive schemes
and performance targets for management and
directors; and
• Using analytical procedures to identify any
unusual or unexpected relationships.
We communicated identified fraud risks throughout
the audit team and remained alert to any indications
of fraud throughout the audit.
As required by auditing standards, and taking into
account possible pressures to meet profit targets
and our overall knowledge of the control environment,
we perform procedures to address the risk of
management override of controls, in particular the
risk that management may be in a position to make
inappropriate accounting entries and the risk of bias
in accounting estimates and judgements such as
expected credit losses on loans and advances to
customers, measurement of loans and advances to
customers at fair value through other comprehensive
income and conduct provision – Timeshare. On this
audit we do not believe there is a fraud risk related
to revenue recognition because there is limited
complexity and judgement involved in calculation
and recognition of revenue.
We also identified a fraud risk related to expected
credit losses on loans and advances to customers,
measurement of loans and advances at fair value
through other comprehensive income and conduct
provision – Timeshare due to the fact these involve
significant estimation uncertainty and subjective
judgements that are difficult to corroborate.
Further detail in respect of expected credit
losses on loans and advances to customers,
measurement of loans and advances at fair value
through other comprehensive income and conduct
provision – Timeshare is set out in the key audit
matter disclosures in Section 2 of this report as
the procedures relating to those estimates and
judgements also address the risk of fraud.
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Secondly, the Group is subject to many other laws
and regulations where the consequences of non-
compliance could have a material effect on amounts
or disclosures in the financial statements, for
instance through the imposition of fines or litigation
or the loss of the Group’s license to operate. We
identified the following areas as those most likely
to have such an effect: specific areas of regulatory
capital and liquidity, conduct (including consumer
duty), money laundering and financial crime and
certain aspects of company legislation recognising
the financial and regulated nature of the Group’s
activities. Auditing standards limit the required audit
procedures to identify non-compliance with these
laws and regulations to enquiry of the directors and
other management and inspection of regulatory and
legal correspondence, if any. Therefore if a breach
of operational regulations is not disclosed to us
or evident from relevant correspondence, an audit
will not detect that breach.
We discussed with the audit committee matters
related to actual or suspected breaches of laws or
regulations, for which disclosure is not necessary,
and considered any implications for our audit.
Context of the ability of the audit to detect fraud
or breaches of law or regulation
Owing to the inherent limitations of an audit, there is
an unavoidable risk that we may not have detected
some material misstatements in the financial
statements, even though we have properly planned
and performed our audit in accordance with auditing
standards. For example, the further removed non-
compliance with laws and regulations is from the
events and transactions reflected in the financial
statements, the less likely the inherently limited
procedures required by auditing standards would
identify it.
In addition, as with any audit, there remained a
higher risk of non-detection of fraud, as these may
involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal
controls. Our audit procedures are designed to
detect material misstatement. We are not responsible
for preventing non-compliance or fraud and cannot
be expected to detect non-compliance with all laws
and regulations.
6. We have nothing to report on the other
information in the Annual Report
The directors are responsible for the other information
presented in the Annual Report together with the
financial statements. Our opinion on the financial
statements does not cover the other information
and, accordingly, we do not express an audit opinion
or, except as explicitly stated below, any form of
assurance conclusion thereon.
Our responsibility is to read the other information and,
in doing so, consider whether, based on our financial
statements audit work, the information therein is
materially misstated or inconsistent with the financial
statements or our audit knowledge. Based solely
on that work we have not identified material
misstatements in the other information
Strategic report and directors’ report
Based solely on our work on the other information:
• we have not identified material misstatements in
the strategic report and the directors’ report;
• in our opinion the information given in those reports
for the financial year is consistent with the financial
statements; and
• in our opinion those reports have been prepared
in accordance with the Companies Act 2006.
7. We have nothing to report on the other
matters on which we are required to
report by exception
Under the Companies Act 2006, we are required 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.
We have nothing to report in these respects.
187
Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial StatementsShawbrook Group plc | Annual Report and Accounts 2023 Independent Auditor’s Report
9. The purpose of our audit work and
to whom we owe our responsibilities
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.
Simon Clark (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
28 March 2024
to the members of Shawbrook Group plc
8. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out
on page 85, the directors are responsible for: the
preparation of the financial statements including
being satisfied that they give a true and fair view;
such internal control as they determine is necessary
to enable the preparation of financial statements
that are free from material misstatement, whether
due to fraud or error; 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 they 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
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 our opinion in an
auditor’s report. Reasonable assurance is a high
level of assurance, but does not 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 aggregate,
they could reasonably be expected to influence the
economic decisions of users taken on the basis of
the financial statements.
A fuller description of our responsibilities
is provided on the FRC’s website at
www.frc.org.uk/auditorsresponsibilities.
188
Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial StatementsShawbrook Group plc | Annual Report and Accounts 2023 Consolidated statement of profit and loss
for the year ended 31 December 2023
Consolidated statement of profit and loss
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
Consolidated statement of profit and loss
Interest income calculated using the effective interest rate method
Other interest and similar income
Interest expense and similar charges
Net interest income
Operating lease rental income
Depreciation on operating leases
Net other operating lease income
Net operating lease income
Fee and commission income
Fee and commission expense
Net fee and commission income
Net gains on derecognition of financial assets measured at amortised cost
Net gains/(losses) on derivative financial instruments and hedge accounting
Net other operating income/(expense)
Net operating income
Administrative expenses
Impairment losses on financial assets
Provisions
Total operating expenses
Profit before tax
Tax
Note
11
11
12
26
13
13
13
14
25
15
19
33
2023
£m
946.0
197.8
(567.3)
576.5
9.6
(8.2)
0.1
1.5
16.9
(12.6)
4.3
–
5.1
(0.9)
2022
£m
588.1
36.2
(164.6)
459.7
10.1
(8.7)
0.3
1.7
14.1
(8.6)
5.5
7.7
(0.8)
2.4
586.5
476.2
(226.6)
(194.7)
(60.1)
(13.1)
(47.7)
(0.8)
(299.8)
(243.2)
286.7
233.0
20
(74.6)
(58.3)
Profit after tax, attributable to owners
212.1
174.7
The notes on page 196 to 251 are an integral part of these financial statements.
Shawbrook Group plc
Annual Report and Accounts 2023
3
189
Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial StatementsShawbrook Group plc | Annual Report and Accounts 2023
Consolidated statement of comprehensive income
for the year ended 31 December 2023
Consolidated statement of comprehensive income
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
Consolidated statement of comprehensive income
Profit after tax
Items that may be reclassified subsequently to the statement of profit and loss:
Cash flow hedging reserve
Net gains/(losses) from effective portion of changes in fair value
Reclassifications to statement of profit and loss
Related tax
Movement in cash flow hedging reserve
Fair value through other comprehensive income reserve
Net gains/(losses) from changes in fair value
Change in loss allowance
Related tax
Movement in fair value through other comprehensive income reserve
Total items that may be reclassified subsequently to the statement of profit and loss
Other comprehensive income/(expense), net of tax
Note
2023
£m
212.1
2022
£m
174.7
25
25
28
19
28
(23.1)
(6.8)
8.0
(21.9)
9.9
4.3
(3.8)
10.4
(11.5)
(11.5)
38.4
(2.2)
(9.8)
26.4
(17.1)
2.4
4.0
(10.7)
15.7
15.7
Total comprehensive income, attributable to owners
200.6
190.4
The notes on page 196 to 251 are an integral part of these financial statements.
Shawbrook Group plc
Annual Report and Accounts 2023
4
190
Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial StatementsShawbrook Group plc | Annual Report and Accounts 2023
Consolidated and Company
Consolidated and Company
statement of financial position
statement of financial position
for the year ended 31 December 2023
for the year ended 31 December 2023
CONFIDENTIAL. DRAFT. Version: LIVE
Assets
Cash and balances at central banks
Loans and advances to banks
Loans and advances to customers
Investment securities
Derivative financial assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Other assets
Investment in subsidiaries
Subordinated debt receivable
Total assets
Liabilities
Amounts due to banks
Customer deposits
Provisions
Derivative financial liabilities
Debt securities in issue
Current tax liabilities
Lease liabilities
Other liabilities
Subordinated debt liability
Total liabilities
Equity
Share capital
Share premium account
Capital securities
Capital contribution reserve
Cash flow hedging reserve
Fair value through other comprehensive income reserve
Retained earnings
Total equity
Note
21
21
22
24
25
26
27
28
29
30
37
31
32
33
25
34
35
36
37
39
40
2023
£m
2,188.1
480.7
Group
2022
£m
2,037.1
263.6
13,279.3
10,457.1
822.1
252.7
40.5
107.2
35.7
29.9
–
–
691.0
330.7
48.3
76.4
19.4
15.1
–
–
17,236.2
13,938.7
1,405.0
13,562.7
1,498.7
10,914.5
15.9
184.5
462.8
1.4
6.1
70.6
188.5
6.0
90.5
116.4
3.2
7.4
65.4
96.8
15,897.5
12,798.9
2.5
87.3
123.1
19.9
4.5
(0.3)
1,101.7
1,338.7
2.5
87.3
122.9
5.6
26.4
(10.7)
905.8
1,139.8
2023
£m
Company
2022
£m
–
–
–
–
–
–
–
–
–
431.8
189.9
621.7
–
–
–
–
–
–
–
7.4
188.5
195.9
2.5
87.3
123.1
19.9
–
–
193.0
425.8
–
0.1
–
–
–
–
–
–
0.5
416.8
97.4
514.8
–
–
–
–
–
–
–
6.9
96.8
103.7
2.5
87.3
122.9
5.6
–
–
192.8
411.1
Total equity and liabilities
17,236.2
13,938.7
621.7
514.8
The Company’s profit for the year 2023 was £16.4 million (2022: £3.7 million).
The notes on page 196 to 251 are an integral part of these financial statements.
These financial statements were approved by the Board of Directors on 28 March 2024 and were signed on its behalf by:
Marcelino Castrillo
Chief Executive Officer
Registered number 07240248
Dylan Minto
Chief Financial Officer
Shawbrook Group plc
Annual Report and Accounts 2023
5
191
Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial StatementsShawbrook Group plc | Annual Report and Accounts 2023
Consolidated statement of changes in equity
for the year ended 31 December 2023
Consolidated statement of changes in equity
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
Consolidated statement of changes in equity
Share
capital
£m
Share
premium
account
£m
Capital
securities
£m
Capital
contribution
reserve
£m
Cash flow
hedging
reserve
£m
FVOCI
reserve
£m
Retained
earnings
£m
Total
equity
£m
As at 1 January 2023
2.5
87.3
122.9
5.6
26.4
(10.7)
905.8
1,139.8
Profit for the year
Movement in cash flow hedging
reserve
Movement in fair value through other
comprehensive income reserve
Total comprehensive income
Equity-settled share-based payments
Coupon paid on capital securities
Capital contribution
Other movements
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.2
–
–
–
–
–
–
14.3
–
–
(21.9)
–
–
–
10.4
212.1
212.1
–
–
(21.9)
10.4
(21.9)
10.4
212.1
200.6
–
–
–
–
–
–
–
–
0.7
0.7
(16.9)
(16.9)
–
–
14.3
0.2
As at 31 December 2023
2.5
87.3
123.1
19.9
4.5
(0.3)
1,101.7
1,338.7
Share
capital
£m
Share
premium
account
£m
Capital
securities
£m
Capital
contribution
reserve
£m
Cash flow
hedging
reserve
£m
FVOCI
reserve
£m
Retained
earnings
£m
Total
equity
£m
As at 1 January 2022
2.5
87.3
124.0
5.6
Profit for the year
Movement in cash flow hedging
reserve
Movement in fair value through other
comprehensive income reserve
Total comprehensive income
Equity-settled share-based payments
Issue of capital securities
Settlement of capital securities
Coupon paid on capital securities
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
121.9
(123.0)
–
–
–
–
–
–
–
–
–
–
–
26.4
–
–
–
–
(10.7)
740.8
960.2
174.7
174.7
–
–
26.4
(10.7)
26.4
(10.7)
174.7
190.4
–
–
–
–
–
–
–
–
0.1
–
0.1
121.9
(1.0)
(124.0)
(8.8)
(8.8)
As at 31 December 2022
2.5
87.3
122.9
5.6
26.4
(10.7)
905.8
1,139.8
The notes on page 196 to 251 are an integral part of these financial statements.
Shawbrook Group plc
Annual Report and Accounts 2023
6
192
Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial StatementsShawbrook Group plc | Annual Report and Accounts 2023
Company statement of changes in equity
for the year ended 31 December 2023
Company statement of changes in equity
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
Company statement of changes in equity
Share
capital
£m
Share
premium
account
£m
Capital
securities
£m
Capital
contribution
reserve
£m
Retained
earnings
£m
Total
equity
£m
As at 1 January 2023
2.5
87.3
122.9
5.6
192.8
411.1
Profit for the year
Total comprehensive income
Equity-settled share-based payments
Coupon paid on capital securities
Capital contribution
Other movements
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.2
–
–
–
–
14.3
–
16.4
16.4
16.4
16.4
0.7
0.7
(16.9)
(16.9)
–
–
14.3
0.2
As at 31 December 2023
2.5
87.3
123.1
19.9
193.0
425.8
Share
capital
£m
Share
premium
account
£m
Capital
securities
£m
Capital
contribution
reserve
£m
Retained
earnings
£m
As at 1 January 2022
2.5
87.3
124.0
5.6
198.8
Profit for the year
Total comprehensive income
Equity-settled share-based payments
Issue of capital securities
Settlement of capital securities
Coupon paid on capital securities
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
121.9
(123.0)
–
–
–
–
–
–
–
3.7
3.7
0.1
–
(1.0)
(8.8)
Total
equity
£m
418.2
3.7
3.7
0.1
121.9
(124.0)
(8.8)
As at 31 December 2022
2.5
87.3
122.9
5.6
192.8
411.1
The notes on page 196 to 251 are an integral part of these financial statements.
Shawbrook Group plc
Annual Report and Accounts 2023
7
193
Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial StatementsShawbrook Group plc | Annual Report and Accounts 2023
Consolidated and Company statement of cash flows
for the year ended 31 December 2023
Consolidated and Company statement of cash flows
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
Cash flows from operating activities
Profit before tax
Adjustments for non-cash items and other adjustments
included in the statement of profit and loss
(Increase)/decrease in operating assets
Increase in operating liabilities
Tax (paid)/ recovered
Net cash generated from operating activities
Cash flows from investing activities
Purchase of investment securities
Disposals and maturities of investment securities
Purchase of property, plant and equipment
Purchase and development of intangible assets
Purchase of subordinated debt
Purchase of subsidiary, net of cash acquired
Note
41
41
41
2023
£m
286.7
73.5
Group
2022
£m
233.0
61.3
(2,494.5)
(2,233.9)
2,738.3
2,633.0
(88.1)
515.9
(61.9)
631.5
(365.4)
(204.8)
211.6
(0.9)
(14.5)
–
(8.8)
33.5
(0.5)
(9.4)
–
–
Net cash used by investing activities
(178.0)
(181.2)
Cash flows from financing activities
Increase/(decrease) in amounts due to banks
Issue of debt securities
Repurchase and redemption of debt securities
Costs arising on issue of debt securities
Payment of principal portion of lease liabilities
Issue of subordinated debt
Costs arising on issue of subordinated debt
Costs arising on issue of capital securities
Coupon paid to holders of capital securities
Capital contribution
Net cash generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents as at 1 January
Cash and cash equivalents as at 31 December
21
21
Additional information on operational cash flows
from interest
Interest paid
Interest received
(93.7)
200.0
298.0
–
(170.3)
(203.4)
(0.2)
(2.3)
90.0
(1.0)
–
(16.9)
14.3
19.9
357.8
2,271.1
2,628.9
(0.3)
(2.2)
–
–
(2.1)
(8.8)
–
81.2
531.5
1,739.6
2,271.1
Company
2022
£m
3.7
0.1
0.7
6.9
(0.4)
11.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2.1)
(8.8)
–
(10.9)
0.1
–
0.1
2023
£m
16.4
0.4
0.1
0.5
0.4
17.8
–
–
–
–
(90.0)
–
(90.0)
–
–
–
–
–
90.0
(1.0)
–
(16.9)
–
72.1
(0.1)
0.1
–
(416.8)
1,106.6
(125.2)
574.2
(8.1)
8.1
(8.1)
8.1
The notes on page 196 to 251 are an integral part of these financial statements.
Shawbrook Group plc
Annual Report and Accounts 2023
8
194
Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial StatementsShawbrook Group plc | Annual Report and Accounts 2023
Notes to the financial statements
for the year ended 31 December 2023
Basis of preparation and accounting policies
1. Reporting entity ................................................................................................................................................. 196
2. Basis of accounting and measurement .................................................................................................. 196
3. Going concern .................................................................................................................................................... 196
4. Functional and presentation currency .................................................................................................... 197
5. Presentation of risk and capital management disclosures .......................................................... 197
6. New and revised standards and interpretations ................................................................................ 197
7. Material accounting policies ....................................................................................................................... 197
8. Critical accounting judgements and estimates ................................................................................ 206
Significant one-off transactions
9. Acquisition of subsidiary ............................................................................................................................... 208
Financial performance
10. Segmental analysis .......................................................................................................................................... 210
Interest and similar income .......................................................................................................................... 213
11.
12. Interest expense and similar charges ..................................................................................................... 213
13. Net fee and commission income ................................................................................................................ 214
14. Derecognition of financial assets measured at amortised cost ................................................ 214
15. Administrative expenses ................................................................................................................................ 214
16. Employees ............................................................................................................................................................. 215
17. Employee share-based payment transactions ................................................................................... 215
18. Directors’ remuneration ................................................................................................................................. 216
Impairment losses on financial assets ................................................................................................... 217
19.
20. Tax ............................................................................................................................................................................ 218
Assets and liabilities
21. Cash and cash equivalents .......................................................................................................................... 219
22. Loans and advances to customers ........................................................................................................... 219
23. Securitisations and structured entities ................................................................................................... 221
24. Investment securities ..................................................................................................................................... 224
25. Derivative financial instruments and hedge accounting .............................................................. 224
26. Property, plant and equipment .................................................................................................................. 230
27. Intangible assets .............................................................................................................................................. 232
28. Deferred tax assets ......................................................................................................................................... 233
29. Other assets ....................................................................................................................................................... 234
30. Investment in subsidiaries ............................................................................................................................ 234
31. Amounts due to banks ................................................................................................................................... 235
32. Customer deposits .......................................................................................................................................... 235
33. Provisions ............................................................................................................................................................. 236
34. Debt securities in issue .................................................................................................................................. 237
35. Leases .................................................................................................................................................................... 238
36. Other liabilities .................................................................................................................................................. 239
37. Subordinated debt ........................................................................................................................................... 240
38. Financial assets and financial liabilities ................................................................................................ 241
Equity
39. Share capital ...................................................................................................................................................... 245
40. Capital securities ............................................................................................................................................. 246
Other information
41. Notes to the cash flow statement ............................................................................................................ 247
42. Ultimate parent company ............................................................................................................................. 247
43. Subsidiary companies .................................................................................................................................... 248
44. Related party transactions ......................................................................................................................... 250
45. Capital commitments ..................................................................................................................................... 251
46. Loan commitments ........................................................................................................................................... 251
47. Contingent liabilities and contingent assets ....................................................................................... 251
48. Events after the reporting period .............................................................................................................. 251
195
Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial StatementsShawbrook Group plc | Annual Report and Accounts 2023 Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
1. Reporting entity
Shawbrook Group plc (the ‘Company’) is a public limited
company incorporated and domiciled in the UK. The
Company is registered in England and Wales (company
number 07240248) and the registered office is Lutea House,
Warley Hill Business Park, The Drive, Great Warley,
Brentwood, Essex, CM13 3BE.
The consolidated financial statements comprise the results
of the Company and its subsidiaries (together, the ‘Group’),
including its principal subsidiary, Shawbrook Bank Limited.
Details of subsidiary companies included in the Group are
provided in Note 43.
The ultimate parent company is Marlin Bidco Limited, as
detailed in Note 42.
The principal activities of the Group are lending and savings.
Further details regarding the nature of the Group’s operations
are provided in the Strategic Report.
2. Basis of accounting and measurement
Both the consolidated and Company financial statements are
prepared in accordance with UK-adopted international
accounting standards, as defined by the UK Endorsement
Board. New and revised standards and interpretations
adopted by the Group during the year are detailed in Note 6.
Material accounting policies applied by the Group are detailed
in Note 7.
The reporting period for the consolidated and
Company financial statements is the 12 months
ended 31 December 2023.
No individual statement of profit and loss or related notes are
presented for the Company, as permitted by Section 408 of
the Companies Act 2006.
The financial statements are prepared on a going concern
basis (see Note 3) and on a historical cost basis, except for
the following material items, which are carried at fair value:
derivative financial instruments and certain loan receivables
measured at fair value through other comprehensive income
(FVOCI).
3. Going concern
The financial statements are prepared on a going concern
basis. To assess the appropriateness of this basis, the
Directors considered a wide range of information relating to
present and future conditions, including the Group’s current
financial position and future projections of profitability, cash
flows and capital resources. The Directors also considered
the Group’s risk assessment framework and potential impacts
that the top and emerging risks identified (see page 94 of the
Risk Report) may have on the Group’s financial position and
longer-term strategy.
The Group continues to have a proven business model, as
demonstrated by its continued levels of profitability, and
remains well positioned in each of its core markets. The
Directors believe the Group is well capitalised and efficiently
funded, with appropriate levels of liquidity.
The Directors have reviewed the Group’s capital and liquidity
plans, which have been stress tested under a range of severe
but plausible scenarios as part of the annual planning process
and the annual Internal Capital Adequacy Assessment
Process (ICAAP) and Internal Liquidity Adequacy Assessment
Process (ILAAP). In this reporting period, stress testing
considered the impact of a number of severe but plausible
scenarios. The stresses included:
• A scenario where the Bank of England base rate is
assumed to fall from 5.25% to 2% by the end of 2025.
This scenario assumes that UK Real GDP falls 5% and
unemployment increases to 8.3%.
• In the property stress scenario, the Group applied the
assumption of residential property prices falling by 31%
peak to trough before partially recovering to 20% lower
in December 2028 than December 2023. Commercial
Property Prices fall by 45% peak to trough by 2025 and
recovering to 20% below 2023 prices at December 2028.
It is worth noting that the largest falling UK property prices
has been 20%.
• A scenario where there is a structural change in the
economic environment following a disorderly transition to
net zero. In this scenario there is a 2% fall in UK GDP,
inflation increases to 4.2%, household income falls by 1%,
unemployment increases to 8.2% and residential property
prices fall by 19%.
• A scenario where the Bank of England base rate increase
further to 7% by Q3 2024 before falling to 3% by December
2028 to explore a rates up scenario.
Under all these scenarios, the Group demonstrated that it had
the resources to meet its obligations over the forecast period
and maintain a surplus over its regulatory requirements for
both capital and liquidity following management actions that
the Group has demonstrated that it is able to implement.
The ICAAP process includes an assessment of potential
operational and conduct risks that it could face over a
12-month period. This was completed through the analysis
of the likelihood and impact of a series of severe but plausible
scenarios. The analysis considered eleven key risk scenarios
and did not highlight any factors which cast doubt on the
Group’s ability to continue as a going concern.
Based on the above, the Directors believe the Group has
sufficient resources to continue its activities for a period of at
least 12 months from the date of approval of these financial
statements and the Group has sufficient capital and liquidity
to enable it to continue to meet its regulatory requirements
as set out by the PRA. Accordingly, the Directors have
concluded that it is appropriate to adopt the going concern
basis in preparing these financial statements.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
4. Functional and presentation currency
Both the consolidated and Company financial statements are
presented in pounds sterling, which is the functional currency
of the Company and all of its subsidiaries. All amounts are
rounded to the nearest million (to one decimal place), except
where otherwise indicated.
Foreign currency transactions are translated into the
functional currency using the spot exchange rate at the
date of the transaction.
Monetary assets and liabilities denominated in foreign
currencies are translated into the functional currency using
the spot exchange rate at the reporting date. Foreign
exchange gains and losses resulting from the restatement
and settlement of such transactions are recognised in the
statement of profit and loss.
Non-monetary assets and liabilities measured on a historical
cost basis and denominated in foreign currencies are
translated into the functional currency using the spot
exchange rate at the date of the transaction. Non-monetary
assets and liabilities measured at fair value and denominated
in foreign currencies are translated into the functional
currency at the spot exchange rate at the date of valuation.
Where these assets and liabilities are held at fair value
through profit or loss (FVTPL), exchange differences are
reported as part of the fair value gain or loss.
5. Presentation of risk and capital
management disclosures
Disclosures required under IFRS 7 ‘Financial Instruments:
Disclosures’ concerning the nature and extent of risks relating
to financial instruments are included within the principal risks
section of the Risk Report. Specifically, this includes
information about credit risk, liquidity risk and market risk
(starting on page 106, page 136 and page 132, respectively).
Disclosures required under IAS 1 ‘Presentation of Financial
Statements’ concerning the management of capital are also
included within the principal risks section of the Risk Report
(starting on page 139).
6. New and revised standards
and interpretations
Adoption of new and revised standards and
interpretations during the current reporting period
During the year ended 31 December 2023, IFRS 17
‘Insurance Contracts’, along with several amendments to
existing accounting standards, came into effect and were
adopted by the Group upon endorsement by the UK
Endorsement Board. Adopted amendments are:
• Disclosure of Accounting Policies – Amendments to IAS 1
‘Presentation of Financial Statements’ and IFRS Practice
Statement 2 ‘Making Materiality Judgements’.
• Definition of Accounting Estimates - Amendments to IAS 8
‘Accounting Policies, Changes in Accounting Estimates
and Errors’.
• Deferred Tax related to Assets and Liabilities arising
from a Single Transaction – Amendments to IAS 12
‘Income Taxes’.
• International Tax Reform – Pillar Two Model Rules –
Amendments to IAS 12 ‘Income Taxes’.
With the exception of the ‘Disclosure of Accounting Policies’
amendment, detailed in the following paragraph, none of
these new or revised standards had a significant impact
on the Group.
The ‘Disclosure of Accounting Policies’ amendment means
entities are now only required to disclose their material
accounting policies, as opposed to their significant accounting
policies. The Group has assessed the requirements of the
amendments and concluded that the disclosure of certain
accounting policies included within the 2022 Annual Report
and Accounts would no longer be necessary. Consequently,
while the Group continues to apply these policies, the
following accounting policy wording has been omitted by
adopting the amendments:
• Taxation: income tax/current tax.
• Property, plant, equipment and depreciation.
• Leases: operating leases where the Group acts as a lessor/
finance leases where the Group acts as a lessee.
• Assets and disposal groups held for sale.
This change is reflected accordingly in Note 7.
Future developments
A number of amendments to existing accounting
standards have not yet come into effect. The Group has
not early adopted any of these amendments. Based on
initial assessments, the upcoming amendments to be
implemented for the next year would not have a material
impact on the Group.
7. Material accounting policies
Except where otherwise indicated, the Group has consistently
applied the following accounting policies to all periods
presented in these financial statements.
Basis of consolidation
Subsidiaries
See disclosures at Note 43
Subsidiaries are entities, including structured entities, that are
controlled by the Group. Control is achieved when the Group
has power over the entity, is exposed or has rights to variable
returns from its involvement with the entity and can use its
power over the entity to affect its returns. The Group
reassesses whether it controls the entity if facts and
circumstances indicate that there are changes to one or more
of these three elements of control.
Subsidiaries are consolidated from the date on which control
is transferred to the Group and are deconsolidated from the
date that control ceases. Accounting policies are applied
consistently across the Group and intragroup transactions
and balances are eliminated in full on consolidation.
Business combinations
Business combinations are accounted for using the
acquisition method. Consideration transferred and the
identifiable assets acquired and liabilities assumed as part
of the business combination are generally, with some limited
exceptions, recognised at their acquisition date fair values.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
7. Material accounting policies (continued)
The cost of acquisition is the aggregate of the fair value of
consideration transferred, amount recognised for non-
controlling interests and fair value of any previous interest
held. If the cost of acquisition exceeds the fair value of
identifiable net assets acquired, goodwill is recognised and
is treated in accordance with the policies set out in Note 7(m).
If the fair value of identifiable net assets acquired exceeds the
cost of acquisition (a ‘bargain purchase’), a gain is recognised
in the statement of profit and loss.
Acquisition-related costs are expensed as incurred and are
included in administrative expenses in the statement of profit
and loss, except if related to the issue of debt or equity
securities, whereby any incremental direct transaction costs
are recognised as a deduction from the instrument.
Operating segments
See disclosures at Note 10
Operating segments are identified based on internal reports
and components of the Group that are regularly reviewed by
the chief operating decision maker to allocate resources to
segments and to assess their performance. For this purpose,
the chief operating decision maker for the Group is the
Executive Committee. Operating segments may be included
as a reportable operating segment even when quantitative
thresholds stipulated in IFRS 8 ‘Operating segments’ are not
met, if the Group deems that such information is useful to
users of the financial statements in understanding the
performance of the different markets it operates within.
The Group determines operating segments according to
similar economic characteristics and the nature of its products
and services. No operating segments are aggregated to form
the Group’s reportable operating segments.
Interest income and expense
See disclosures at Note 11 and Note 12
Interest on financial instruments measured at amortised
cost and fair value through other comprehensive income
For interest-bearing financial instruments measured at
amortised cost or FVOCI, interest income and expense
is recognised using the effective interest rate (EIR) method,
which allocates interest over the expected life of the
financial instrument.
In calculating interest under the EIR method, the Group
applies its established accounting policy in relation to financial
instruments that revert from a fixed to variable rate of interest,
whereby the EIR is based on the fixed rate for the fixed period
and does not take account of any reversionary interest post
the end of the fixed date. The Group monitors actual and
expected customer repayment behaviour and periodically
adjusts the recognition profile to reflect significant changes.
The EIR is the rate that exactly discounts the estimated future
cash flows over the expected life of the financial instrument to
the gross carrying amount of a financial asset, or the
amortised cost of a financial liability.
When calculating the EIR, future cash flows are estimated by
considering all contractual terms of the financial instrument,
excluding the loss allowance recognised on financial assets.
The calculation includes all fees paid or received between
parties to the contract that are an integral part of the EIR,
transaction costs and all other premiums or discounts.
Transaction costs include incremental costs that are
directly attributable to the acquisition or issue of the
financial instrument.
For non-credit impaired financial assets (i.e. a ‘Stage 1’ or
‘Stage 2’ asset per page 107 of the Risk Report), interest
income is calculated by applying the calculated EIR to the
gross carrying amount of the financial asset.
For financial assets that become credit-impaired after initial
recognition (i.e. a ‘Stage 3’ asset per page 107 of the Risk
Report), interest income is calculated by applying the
calculated EIR to the amortised cost of the financial asset.
If the asset is no longer credit-impaired, the calculation of
interest income reverts to the gross basis.
For financial assets that were credit-impaired on initial
recognition (I.e. a ‘POCI’ asset per page 107 of the Risk
Report), interest income is calculated by applying a credit-
adjusted EIR to the amortised cost of the financial asset.
The calculation of interest income does not revert to the
gross basis, even if the credit risk of the asset improves.
For financial liabilities, interest expense is calculated by
applying the calculated EIR to the amortised cost of the
financial liability.
Interest on derivative financial instruments
For derivative financial instruments forming part of a qualifying
hedging relationship, net interest income or expense is
recognised based on the underlying hedged items. For
derivative financial instruments hedging assets, the net
interest income or expense is recognised in interest income.
For derivative financial instruments hedging liabilities, the net
interest income or expense is recognised in interest expense.
For derivative financial instruments not in a qualifying hedging
relationship, interest is presented in accordance with whether
it represents interest income or interest expense.
Interest on leases
Interest relating to lease and instalment credit agreements is
recognised in a manner that achieves a constant rate of
interest on the remaining balance of the receivable/liability.
Fee and commission income and expense
See disclosures at Note 13
Fee and commission income includes amounts from contracts
with customers that are not included in the EIR calculation.
These amounts are recognised when performance obligations
attached to the fee or commission have been satisfied. The
income streams included in fee and commission income all
have a single performance obligation attached to them.
Where income is earned from the provision of a service, such
as an account maintenance fee or a non-utilisation fee, the
performance obligation is deemed to have been satisfied
when the service is delivered. In general, services are
provided each month, thus the performance obligation is
satisfied and the income recognised on a monthly basis.
Where income is earned upon the execution of a significant
act, such as fees for executing a payment, the performance
obligation is deemed to have been satisfied and the income
recognised when the act is completed.
Incremental costs incurred to generate fee and commission
income are charged to fee and commission expense as they
are incurred.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
7. Material accounting policies (continued)
Administrative expenses
See disclosures at Note 15
Administrative expenses are recognised on an accruals basis.
Accounting policies for expenses relating to intangible assets
are set out in Note 7(m). Accounting policies for payroll
related costs, are set out below:
Salaries and social security costs are recognised over the
period the employees provide the services to which the
payments relate.
Cash bonus awards are recognised to the extent that there
is a present obligation to employees that can be reliably
measured and are recognised over the period the employees
are required to provide services.
For long-term incentive plans, benefits are recognised at the
present value of the obligation at the reporting date, reflecting
the best estimate of the effect of the associated performance
conditions. Costs are recognised over the period until which
all vesting conditions are considered to have been reasonably
achieved, which takes into account the period the employees
are required to provide services.
For defined contribution pension arrangements, the Group
pays fixed contributions into employees’ personal pension
plans, with no further payment obligations once the
contributions have been paid. The Group’s contributions
to such arrangements are recognised as an expense when
they fall due.
For equity-settled share-based payments, the grant date fair
value of the share-based payment transaction is recognised
as an expense, with a corresponding increase in retained
earnings in equity, on a straight-line basis over the period
the employees become unconditionally entitled to the awards
(the ‘vesting period’).
The grant date fair value is estimated using a generally
accepted valuation method. Where there are market
conditions or non-vesting conditions, the grant date fair value
is measured to reflect such conditions and there is no true-up
for differences between expected and actual outcomes.
Where the vesting period is dependent on achieving a non-
market performance condition, the length of the expected
vesting period at grant date is estimated based on the most
likely outcome. Subsequently, the estimated vesting period
is revised until the actual outcome is known.
The amount recognised as an expense is adjusted to reflect
the number of awards for which the non-market vesting
conditions are expected to be met, such that the amount
ultimately recognised as an expense is based on the number
of awards that will eventually vest.
For cash-settled share-based payments, the fair value of the
amount payable to employees is recognised as an expense,
with a corresponding increase in other liabilities, over the
vesting period. The fair value of the liability is remeasured
at each reporting date and at the date of settlement, with
any changes recognised as an expense.
In the Company’s financial statements, the equity-settled
share-based payment transaction is recognised as an
increase in its investment in subsidiaries, with a
corresponding increase in retained earnings in equity.
Tax
See disclosures at Note 20 and Note 28
Tax comprises current tax and deferred tax. Tax is generally
recognised in the statement of profit and loss, except where
it relates to items recognised directly in equity, in which case
the tax is also recognised in equity. An exception to this is
distributions to holders of capital securities, whereby the
distribution is recognised directly in equity, but the tax relief
is recognised in the statement of profit and loss, to align with
where the transactions and events that generated the
distributable profits are recognised.
Deferred tax
Deferred tax is recognised in respect of temporary differences
between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for
tax purposes.
The measurement of deferred tax reflects the expected
manner of realisation or settlement of the carrying amount of
assets and liabilities, using tax rates enacted or substantively
enacted at the reporting date.
Deferred tax assets are recognised in the statement of
financial position for unused tax losses, unused tax credits
and deductible temporary differences to the extent that it is
probable that future taxable profits will be available against
which they can be utilised. Deferred tax assets are reviewed
at each reporting date and are reduced to the extent that it is
no longer probable that the related tax benefit will be realised.
Cash and cash equivalents
See disclosures at Note 21
Cash and cash equivalents is the aggregate of cash and
balances at central banks (less mandatory deposits with
central banks), loans and advances to banks and short-term
highly liquid debt securities with less than three months to
maturity from the date of acquisition.
All components of cash and cash equivalents are classified as
financial assets measured at amortised cost (see Note 7(t)).
Loans and advances to banks include cash collateral paid
under terms that are usual and customary for such activities.
Loans and advances to customers
See disclosures at Note 22
Loans and advances to customers include loan receivables,
finance lease receivables and instalment credit receivables.
Loan receivables are financial assets measured at either
amortised cost or FVOCI (see Note 7(t)).
Finance lease receivables and instalment credit receivables
are accounted for as detailed in Note 7(r). For presentational
purposes, they are included within loans and advances to
customers at amortised cost.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
7. Material accounting policies (continued)
Certain assets included in loans and advances to customers
are pledged as collateral under terms that are usual and
customary for such activities, whilst others have been
transferred to structured entities as part of securitisation
transactions. These assets do not meet the derecognition
criteria outlined in Note 7(t) and therefore continue to
be recognised in their entirety in the statement of
financial position.
Certain loans are designated as the hedged item in hedge
relationships. The total carrying amount of loans and
advances to customers includes the cumulative fair value
adjustment to the carrying amount of the hedged item in
relation to fair value hedges (see Note 7(l)).
Securitisation transactions
See disclosures at Note 23 and Note 34
Certain loans included within loans and advances to
customers are securitised, by transferring the beneficial
interest in the loans to a bankruptcy remote structured entity.
A structured entity is an entity designed so that its activities
are not governed by way of voting rights.
An assessment is performed to determine whether the Group
controls such structured entities, in accordance with the
criteria set out in Note 7(a). In performing this assessment,
factors considered include: the purpose and design of the
entity; its practical ability to direct the relevant activities of the
entity; the nature of the relationship with the entity; and the
size of its exposure to the variability of returns of the entity.
Where the Group is assessed to control the structured entity,
it is treated as a subsidiary and is fully consolidated.
A further assessment is performed to determine whether the
securitised loans meet the derecognition criteria outlined in
Note 7(t). If the derecognition criteria are met, the transferred
loans are treated as sales, referred to as ‘structured asset
sales’ and a gain or loss on derecognition is recognised in
the statement of profit and loss. If the derecognition criteria
are not met, the transfer of loans is not treated as a sale and
the loans continue to be recognised in their entirety in the
statement of financial position.
Securitisations involve the simultaneous issue of debt
securities by the associated structured entity to investors.
In securitisation transactions where the structured entity is
consolidated, the issued debt securities are classified on initial
recognition as financial liabilities, as the substance of the
contractual arrangements are such that there is an obligation
to deliver the cash flows generated from the underlying
securitised loans to the debt security holder.
These financial liabilities are measured at amortised cost (see
Note 7(t)) and are presented in debt securities in issue in the
statement of financial position.
Certain debt securities issued by structured entities are
retained by the Group. Where retained debt securities are
issued by consolidated structured entities, they are eliminated
in full on consolidation. Where retained debt securities are
issued by unconsolidated structured entities, they are
recognised in investment securities in the statement of
financial position.
Investment securities
See disclosures at Note 24
Investment securities are classified as financial assets
measured at amortised cost (see Note 7(t)).
Certain investment securities are pledged as collateral under
terms that are usual and customary for such activities. These
assets do not meet the derecognition criteria outlined in Note
7(t) and therefore continue to be recognised in their entirety
in the statement of financial position.
Investment securities may be sold subject to a commitment
to repurchase them at a predetermined price (a ‘repurchase
agreement’). The terms of these transactions are such that
the derecognition criteria outlined in Note 7(t) are not met and,
accordingly, the sold assets continue to be recognised in their
entirety in the statement of financial position.
Consideration received as part of repurchase agreements
is recognised as a liability in amounts due to banks in the
statement of financial position, reflecting that there is an
obligation to repurchase the assets for a fixed price at a future
date. The difference between the sale and repurchase price
is treated as interest and is accrued over the life of the
agreement using the EIR method.
Investment securities may also be swapped via linked
repurchase and reverse repurchase agreements with the
same counterparty (a ‘security swap’). In such transactions,
no cash consideration is exchanged, the transferred assets
are not derecognised and there is no associated liability as
the non-cash collateral received is not recognised in the
statement of financial position (i.e. the transaction is off-
balance sheet). Net fees are treated as interest and are
accrued over the life of the agreement using the EIR method.
Derivative financial instruments
See disclosures at Note 25
Derivative financial instruments are classified as FVTPL (see
Note 7(t)). Derivatives are classified as financial assets when
their fair value is positive and financial liabilities when their fair
value is negative. Where there is the legal right and intention
to settle net, the derivative is classified as a net asset or net
liability, as appropriate.
To calculate fair values, discounted cash flow models using
yield curves that are based on observable market data are
typically used. For collateralised positions, discount curves
based on overnight indexed swap rates are used. For non-
collateralised positions, discount curves based on Sterling
Overnight Index Average rate (SONIA) are used.
For measuring derivatives that might change the classification
from being an asset to a liability or vice versa, fair values do
not take into consideration the credit valuation adjustment,
debit valuation adjustment or the funding valuation adjustment
because the impact on any uncollateralised position is
deemed to be immaterial.
Where derivatives are not designated as part of an accounting
hedge relationship, gains and losses arising from changes in
the clean fair value are recognised in net gains/(losses) on
derivative financial instruments and hedge accounting in the
statement of profit and loss. Where derivatives are designated
within an accounting hedge relationship, the treatment of the
changes in fair value are as described in Note 7(l).
The Group enters into master netting and margining
agreements with derivative counterparties.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
7. Material accounting policies (continued)
In general, under such master netting agreements, the
amounts owed by each counterparty that are due on a single
day in respect of all transactions outstanding under the
agreement are aggregated into a single net amount payable
by one party to the other.
In certain circumstances, for example when a credit event
such as a default occurs, all outstanding transactions
under the agreement are aggregated into a single net
amount payable by one party to the other and the
agreements terminated.
Under margining agreements, where there is a net asset
position valued at current market values in respect of
derivatives with a counterparty, then that counterparty
will place collateral, usually cash, with the Group to cover
the position. Similarly, where there is a net liability position,
the Group will place collateral, usually cash, with the
counterparty.
Hedge accounting
See disclosures at Note 25
The Group has elected, as an accounting policy choice
permitted under IFRS 9 ‘Financial Instruments’, to continue to
apply the hedge accounting rules set out in IAS 39 ‘Financial
Instruments – Recognition and measurement’. However,
additional hedge accounting disclosures introduced by IFRS
9’s consequential amendments to IFRS 7 are provided.
Hedge accounting is permitted when documentation, eligibility
and testing criteria are met. Accordingly, at the inception of
a hedge relationship, the Group formally designates and
documents the hedge relationship that it wishes to apply
hedge accounting to and the risk management objective and
strategy for undertaking the hedge. The method to be used
to assess the effectiveness of the hedge relationship is
also documented.
At inception, and on a monthly basis thereafter, an
assessment is performed to determine whether the hedging
instrument is highly effective in offsetting changes in the fair
value or cash flows of the hedged item. For this assessment,
the dollar-offset method is used, except for trades designated
in dynamic hedge accounting relationships, whereby the
regression method is used. The hedge is deemed to be highly
effective where the actual results of the hedge are within a
range of 80-125%. If it is concluded that the hedge is no
longer highly effective, hedge accounting is discontinued.
The Group’s hedging strategy incorporates the use of both
fair value hedges and cash flow hedges, as detailed below:
Fair value hedges
Certain derivatives are designated as hedging instruments to
hedge interest rate risk. The hedged items are portfolios of
loans and advances to customers or customer deposits that
are identified as part of the risk management process.
The portfolios comprise either fixed rate loans, or fixed rate
deposits, in respect of the designated benchmark interest
rate (e.g. SONIA). Each portfolio is grouped into repricing
time periods based on expected repricing dates, by
scheduling cash flows into the periods in which they are
expected to occur. The hedging instruments are designated
to those repricing time periods.
Changes in the fair value of the derivatives designated as
hedging instruments, together with changes in the fair value
f the hedged item attributable to the hedged risk, are
recognised in net gains/(losses) on derivative financial
instruments and hedge accounting in the statement of profit
and loss. Movement in the fair value of the hedged item is
recognised as an adjustment to the carrying amount of the
hedged asset or liability.
If the hedge no longer meets the criteria for hedge
accounting, hedge accounting is discontinued prospectively.
The cumulative fair value adjustment to the carrying amount
of the hedged item is amortised to the statement of profit and
loss over the remaining period to maturity.
If the hedged item is derecognised, the cumulative fair value
adjustment to the carrying amount of the hedged item is
recognised immediately in the statement of profit and loss.
Cash flow hedges
Certain derivatives are designated as hedging instruments to
hedge variability in cash flows attributable to interest rate risk.
The hedged cash flows may be highly probable future cash
flows attributable to a recognised asset or liability, or a highly
probable forecast transaction.
The effective portion of changes in the fair value of derivatives
designated as hedging instruments is recognised in other
comprehensive income and is presented in the cash flow
hedging reserve in the statement of financial position. The
ineffective portion is recognised immediately in the statement
of profit and loss in net gains/(losses) on derivative financial
instruments and hedge accounting. The carrying amount of
the hedged item is not adjusted.
Amounts accumulated in the cash flow hedging reserve are
reclassified to the statement of profit and loss in the periods
in which the hedged cash flows affect profit or loss.
When a hedging instrument expires or is sold, or when a hedge
no longer meets the criteria for hedge accounting, any
cumulative gain or loss remains in the cash flow hedging
reserve and is subsequently reclassified to the statement of
profit and loss when the forecast transaction affects profit or
loss. When a forecast transaction is no longer expected to
occur, any cumulative gain or loss included in the cash flow
hedging reserve is immediately reclassified to the statement
of profit and loss. When reclassifying amounts to the statement
of profit and loss they are recognised in net gains/(losses) on
derivative financial instruments and hedge accounting.
Intangible assets and amortisation
See disclosures at Note 27
Goodwill
Goodwill may arise on the acquisition of subsidiaries and
represents the excess of the cost of acquisition over the fair
value of identifiable net assets acquired. Goodwill is stated at
cost less any accumulated impairment losses.
Goodwill is not amortised but is tested for impairment annually
and whenever there is an indication that impairment may
exist. For the purpose of impairment testing, goodwill is
allocated to cash generating units (CGUs). A CGU is the
smallest identifiable group of assets that generates cash
inflows that are largely independent of the cash inflows from
other assets or groups of assets. If the carrying amount of a
CGU exceeds the recoverable amount, an impairment loss is
recognised in administrative expenses in the statement of
profit and loss.
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for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
7. Material accounting policies (continued)
Other intangible assets
Other intangible assets are measured at cost less
accumulated amortisation and any accumulated impairment
losses. For externally acquired intangible assets, cost
includes the original purchase price of the asset and any
directly attributable costs of preparing the asset for its
intended use. For internally developed intangible assets,
cost includes all costs directly attributable in preparing the
asset so that it is capable of operating in its intended manner.
For internally developed intangible assets costs may only be
capitalised when it can be demonstrated that: the expenditure
can be reliably measured; the product or process is
technically and commercially feasible; future economic
benefits are probable; and there is the intention and ability
to complete development and subsequently use or sell the
asset. Until the point that all conditions are regarded as met,
costs are recognised in administrative expenses in the
statement of profit and loss as incurred.
Subsequent expenditure is capitalised only when it increases
the future economic benefits embodied in the specific asset it
relates to. All other expenditure is recognised in administrative
expenses in the statement of profit and loss as incurred.
Amortisation is calculated to write off the cost of the asset less
its estimated residual value on a straight-line basis over its
estimated useful life and is charged to administrative
expenses in the statement of profit and loss. The estimated
useful life is three to seven years. The amortisation method,
useful lives and residual values are reviewed at each
reporting date and adjusted if appropriate.
Assets are reviewed for indicators of impairment at each
reporting date and if indicators are present, an impairment
review is performed. If the carrying amount exceeds the
recoverable amount, an impairment loss is recognised in
administrative expenses in the statement of profit and loss.
On the disposal of an asset, the net disposal proceeds are
compared with the carrying amount of the asset and any gain
or loss included in administrative expenses in the statement
of profit and loss.
Investment in subsidiaries
See disclosures at Note 30
The Company’s investments in controlled entities are valued
at cost less any accumulated impairment losses.
Investments are reviewed for indicators of impairment at each
reporting date and if indicators are present, an impairment
review is performed. If the carrying amount exceeds the
recoverable amount, an impairment loss is recognised in
the statement of profit and loss.
Amounts due to banks
See disclosures at Note 31
Amounts due to banks are classified as financial liabilities
measured at amortised cost (see Note 7(t)).
Amounts due to banks may include liabilities recognised as
part of repurchase agreements (see Note 7(j)) and cash
collateral received under terms that are usual and customary
for such activities.
Customer deposits
See disclosures at Note 32
Customer deposits are classified as financial liabilities
measured at amortised cost (see Note 7(t)).
Certain deposits are designated as the hedged item in hedge
relationships. The total carrying amount of customer deposits
includes the cumulative fair value adjustment to the carrying
amount of the hedged item in relation to fair value hedges
(see Note 7(l)).
Provisions
See disclosures at Note 33
Provisions are recognised when there is a present obligation
arising as a result of a past event, it is probable that an
outflow of resources will be required to settle the obligation
and the amount of the obligation can be reliably estimated.
Provisions for levies are recognised when the conditions that
trigger the payment of the levy are met.
When it is expected that some or all of a provision will be
reimbursed, for example, under an insurance contract, the
reimbursement is recognised as a separate asset, but only
when the reimbursement is virtually certain. The expense
relating to a provision is presented in the statement of profit
and loss net of any reimbursement.
Provisions also include the loss allowance recognised on loan
commitments (see Note 7(u)).
Leases
See disclosures at Note 35
Group as a lessor: finance leases
Lease and instalment credit agreements in which the
Group transfers substantially all the risks and rewards of
ownership of the underlying asset to the lessee are treated
as finance leases.
A receivable equal to the net investment in the lease is
recognised in loans and advances to customers in the
statement of financial position. This amount represents the
future lease payments less profit and costs allocated to future
periods. The receivable is subject to impairment, as detailed
in Note 7(u).
Lease payments are apportioned between interest income
in the statement of profit and loss and a reduction of the
receivable in order to achieve a constant rate of interest
on the remaining balance of the receivable.
Subordinated debt
See disclosures at Note 37
Subordinated debt liabilities are classified as financial
liabilities measured at amortised cost (see Note 7(t)).
Subordinated debt receivables in the Company are
classified as financial assets measured at amortised cost
(see Note 7(t)).
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
7. Material accounting policies (continued)
Financial assets and financial liabilities
See disclosures at Note 38
Recognition of financial assets and financial liabilities
Financial assets and financial liabilities are recognised when
the Group becomes a party to the contractual provisions of
the instrument. Regular way purchases and sales of financial
assets are recognised on trade date.
Classification and measurement of financial assets
To classify financial assets, two assessments are performed:
• The ‘business model assessment’: this assessment
determines whether the Group’s objective is to generate
cash flows from collecting contractual cash flows (‘hold-to-
collect’), by both collecting contractual cash flows and
selling financial assets (‘hold-to-collect-and-sell’) or neither.
The assessment is performed at a portfolio level and is
based on expected scenarios. In making this assessment,
information considered includes: sales in prior periods,
expected sales in future periods and the reasons for such
sales. If cash flows are realised in a manner that is different
from the original expectation, the classification of the
remaining financial assets in that portfolio is not changed,
but such information is used when assessing new financial
assets going forward.
• The ‘SPPI test’: this assessment determines whether the
contractual cash flows of the financial asset are solely
payments of principal and interest on the principal amount
outstanding (SPPI) (i.e. whether the contractual cash flows
are consistent with a basic lending arrangement). For the
purposes of this test, principal is defined as the fair value of
the financial asset at initial recognition. Interest is defined
as consideration for the time value of money and credit risk
associated with the principal amount outstanding and for
other basic lending risks and costs (e.g. liquidity risk and
administrative costs), as well as a reasonable profit margin.
The SPPI test is performed at an instrument level based on
the contractual terms of the instrument at initial recognition.
In performing the SPPI test, terms that could change the
contractual cash flows so that they are not SPPI are
considered, such as: contingent and leverage features, non-
recourse arrangements and features that could modify the
time value of money.
Based on the two assessments, financial assets are classified
as amortised cost, fair value through other comprehensive
income (FVOCI) or fair value through profit or loss (FVTPL),
as follows:
• Amortised cost: when the financial asset is held in a hold-
to-collect business model and its contractual terms give rise
on specified dates to cash flows that are SPPI.
• FVOCI: when the financial asset is held in a hold-to-collect-
and-sell business model and its contractual terms give rise
on specified dates to cash flows that are SPPI.
• FVTPL: when the financial asset does not meet the criteria
to be classified as amortised cost or FVOCI.
Derivatives embedded in contracts where the host is a
financial asset are never separated. Instead, the hybrid
financial instrument as a whole is assessed for classification.
For financial assets that meet the requirements to be
classified as amortised cost or FVOCI, on initial recognition,
the Group may irrevocably designate the financial asset as
FVTPL, if doing so eliminates or significantly reduces an
accounting mismatch that would otherwise arise.
Investments in equity instruments are normally classified
as FVTPL. However, on initial recognition of an equity
instrument that is not held for trading, the Group may
irrevocably elect, on an investment-by-investment basis,
to present subsequent changes in fair value in the statement
of other comprehensive income.
After initial recognition, financial assets are reclassified only
under the rare circumstances that the Group changes its
business model for managing financial assets.
Financial assets classified as amortised cost are initially
measured at fair value plus incremental direct transaction
costs. Subsequent measurement is at amortised cost using
the EIR method (see Note 7(c)). Amortised cost is reduced
by impairment losses (see Note 7(u)). Interest income, foreign
exchange gains and losses and impairment losses are
recognised in the statement of profit and loss.
Financial assets classified as FVOCI are initially measured
at fair value plus incremental direct transaction costs.
Subsequent measurement is at fair value, with changes in
fair value recognised in other comprehensive income and
presented in the FVOCI reserve in the statement of financial
position. Interest income, foreign exchange gains and losses
and impairment losses are recognised in the statement of
profit and loss.
Financial assets classified as FVTPL are initially measured at
fair value and are subsequently remeasured at fair value. Net
gains and losses, including any interest or dividend income,
are recognised in the statement of profit and loss.
Classification and measurement of financial liabilities
Financial instruments are classified as a financial liability
when the substance of the contractual arrangements result in
the Group having a present obligation to deliver cash, another
financial asset or a variable number of equity instruments.
Financial liabilities are classified at initial recognition as
FVTPL or amortised cost as follows:
• FVTPL: when the financial liability meets the definition of
held for trading, or when the financial liability is designated
as such to eliminate or significantly reduce an accounting
mismatch that would otherwise arise.
• Amortised cost: when the financial liability is not classified
as FVTPL.
Financial liabilities classified as FVTPL are initially measured
at fair value and are subsequently remeasured at fair value.
Net gains and losses, including any interest, are recognised in
the statement of profit and loss.
Financial liabilities classified as amortised cost are initially
measured at fair value minus incremental direct transaction
costs. Subsequent measurement is at amortised cost using
the EIR method (see Note 7(c)). Interest expense is
recognised in the statement of profit and loss.
Derecognition of financial assets and financial liabilities
Derecognition is the point at which the Group ceases to
recognise a financial asset or a financial liability on its
statement of financial position.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
7. Material accounting policies (continued)
A financial asset (or a part of a financial asset) is
derecognised when:
• the contractual rights to the cash flows from the financial
asset have expired;
• the financial asset is transferred in a transaction in which
substantially all the risks and rewards of ownership of the
financial asset are transferred; or
• the financial asset is transferred in a transaction in which
substantially all the risks and rewards of ownership of the
financial asset are neither transferred nor retained and
control of the asset is not retained. If control of the asset is
retained, the transferred asset continues to be recognised
only to the extent of the Group’s continuing involvement,
with the remainder being derecognised.
A financial liability (or a part of a financial liability) is
derecognised when the contractual obligations are
extinguished (i.e. discharged, cancelled, or expired).
On derecognition, the difference between the carrying
amount (or the carrying amount allocated to the portion being
derecognised) and the sum of the consideration received/paid
(including any new asset obtained less any new liability
assumed) is recognised in the statement of profit and loss.
For financial assets classified as FVOCI, any gains/losses
accumulated in the FVOCI reserve are reclassified to the
statement of profit and loss.
Modification of financial assets and financial liabilities
When a financial asset or financial liability is modified, a
quantitative and qualitative evaluation is performed to assess
whether or not the new terms are substantially different to
the original terms.
For financial assets, the Group considers the specific
circumstances including:
• if the borrower is in financial difficulty, whether the
modification merely reduces the contractual cash flows to
amounts the borrower is expected to be able to pay;
• whether any substantial new terms are introduced that
substantially affects the risk profile of the loan;
• significant extension of the loan term when the borrower is
not in financial difficulty;
• significant change in the interest rate; and
• insertion of collateral, other security or credit enhancements
that significantly affect the credit risk associated with the
loan.
For financial liabilities, the Group specifically, but not
exclusively, considers the outcome of the ‘10% test’.
This involves a comparison of the cash flows before and
after the modification, discounted at the original EIR, whereby
a difference of more than 10% indicates the modification
is substantial.
If the terms and cash flows of the modified financial
instrument are deemed to be substantially different, the
derecognition criteria are met and the original financial
instrument is derecognised and a ‘new’ financial instrument is
recognised at fair value. The difference between the carrying
amount of the derecognised financial instrument and the new
financial instrument with modified terms is recognised in the
statement of profit and loss.
If the terms and cash flows of the modified financial
instrument are not deemed to be substantially different,
the financial instrument is not derecognised and the Group
recalculates the ‘new’ gross carrying amount of the financial
instrument based on the revised cash flows of the modified
financial instrument discounted at the original EIR and
recognises any associated gain or loss in the statement of
profit and loss. Any costs and fees incurred are recognised
as an adjustment to the carrying amount of the financial
instrument and are amortised over the remaining term of the
modified financial instrument by recalculating the EIR on the
financial instrument.
In relation to financial assets, where a modification is granted
due to the financial difficulty of the borrower, the objective of
the modification is usually to maximise recovery of the original
contractual terms rather than to originate a new asset with
substantially different terms. Under such circumstances,
it is first considered whether a portion of the asset should be
written off before the modification takes place. This approach
impacts the result of the quantitative evaluation and usually
means the derecognition criteria are not met.
Since 1 January 2021, the Group has applied ‘Interest Rate
Benchmark Reform – Phase 2 (Amendments to IFRS 9, IAS
39, IFRS 7, IFRS 4 and IFRS 16)’. The amendments provide
a practical expedient that allows a change in the basis of
determining the contractual cash flows of a financial
instrument required by the reform to be accounted for by
updating the EIR, rather than applying the modification policy
outlined above. This practical expedient is only applied where
the change to the contractual cash flows is necessary as
a direct consequence of the reform and the new basis for
determining the contractual cash flows is economically
equivalent to the previous basis. In the event changes are
in addition to those required by the reform, the practical
expedient is applied first, after which the usual accounting
policy for modifications outlined above is applied.
Fair value of financial assets and financial liabilities
Fair value is defined as the price that would be received to
sell an asset, or paid to transfer a liability, in an orderly
transaction between market participants at the measurement
date in the principal, or in its absence, the most advantageous
market to which the Group has access at that date. The fair
value of a liability reflects its non-performance risk.
Where possible, fair value is determined with reference to
quoted prices in an active market or dealer price quotations.
A market is regarded as active if transactions for the asset
or liability take place with sufficient frequency and volume
to provide pricing information on an ongoing basis.
Where quoted prices are not available, generally accepted
valuation techniques are used to estimate fair value, including
discounted cash flow models and Black-Scholes option
pricing. Where possible these valuation techniques use
independently sourced market parameters, such as interest
rate yield curves, option volatilities and currency rates.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
7. Material accounting policies (continued)
On initial recognition, the best evidence of the fair value of
a financial instrument is normally transaction price (i.e. the
fair value of the consideration given or received). If it is
determined that the fair value on initial recognition differs
from the transaction price, such differences are accounted
for as follows:
• if fair value is evidenced by a quoted price in an active
market for an identical asset or liability, or based on a
valuation technique that uses only data from observable
markets, the difference is recognised in the statement
of profit and loss on initial recognition (i.e. day one profit
or loss);
• in all other cases, the fair value will be adjusted to bring it in
line with the transaction price (i.e. day one profit or loss will
be deferred by including it in the initial carrying amount of
the asset or liability). Subsequently, the deferred gain or
loss will be released to the statement of profit and loss on
an appropriate basis over the life of the instrument, but
no later than when the valuation is wholly supported by
observable market data or the transaction is closed out.
If an asset or liability measured at fair value has a bid price
and an ask price, assets are measured at bid price and
liabilities are measured at ask price.
A fair value hierarchy is used that categorises financial assets
and financial liabilities into three different levels, as detailed
in Note 38(b). Levels are reviewed at each reporting date to
determine whether transfers between levels are required.
Further details of the fair value calculation of derivative
financial instruments are set out in Note 7(k).
Offsetting financial assets and financial liabilities
Financial assets and financial liabilities are offset and the net
amount reported in the statement of financial position when
there is a legally enforceable right to offset the recognised
amounts and there is an intention to settle on a net basis, or
realise the asset and settle the liability simultaneously.
Income and expenses are presented on a net basis only when
permitted by accounting standards, or for gains and losses
arising from a group of similar transactions.
Impairment of financial assets
See disclosures at Note 19
Impairment of financial assets is calculated using a forward-
looking expected credit loss (ECL) model. ECLs are an
unbiased probability-weighted estimate of credit losses
determined by evaluating a range of possible outcomes.
A summary of ECL measurement is as follows:
• Financial assets that are not credit-impaired at the
reporting date: as the present value of all cash shortfalls.
Cash shortfalls are the difference between the contractual
cash flows due and the cash flows that are expected to
be received.
• Financial assets that are credit-impaired at the
reporting date: as the difference between the gross
carrying amount and the present value of estimated future
cash flows discounted at the financial asset’s original EIR.
• Loan commitments: as the present value of the difference
between the contractual cash flows due if the commitment
is drawn down and the cash flows that are expected to
be received.
ECLs are measured in a manner that reflects the time value of
money and uses reasonable and supportable information that
is available at the reporting date, without undue cost or effort,
about past events, current conditions and forecasts of future
economic conditions.
ECLs are calculated and a loss allowance recorded for all
financial assets not held at FVTPL (i.e. those at amortised
cost and FVOCI) and for loan commitments. Assets held at
FVTPL and equity instruments are not subject to impairment.
Loss allowances are presented in the statement of financial
position as follows:
• Financial assets measured at amortised cost: as
a deduction from the gross carrying amount of the
financial asset.
• Financial assets measured at FVOCI: in other
comprehensive income in the FVOCI reserve. It does
not reduce the carrying amount of the financial asset,
which remains at fair value.
• Loan commitments: generally, as a provision.
Where a financial instrument includes both a drawn and an
undrawn component, and the loss allowance on the undrawn
component cannot be separately identified from the drawn
component, a combined loss allowance is presented as
a deduction from the gross carrying amount of the drawn
component. Any excess of the loss allowance over the
gross carrying amount of the drawn component is presented
as a provision.
The calculation of ECLs is dependent upon the ‘stage’
the asset is assigned to (Stage 1, 2 or 3). The stage is
determined based on changes in credit risk when comparing
credit risk at initial recognition to credit risk at the reporting
date, or whether the asset was purchased or originated credit-
impaired (POCI).
Details of the ‘staging’ of assets and POCI assets, the
calculation of ECLs and the key judgements and estimates
associated with this, are provided in the credit risk section of
the Risk Report starting on page 107.
It is possible to elect, as an accounting policy choice, to use
the ‘simplified approach’ for trade receivables, contract assets
and lease receivables. The Group has elected not to use this
simplified approach.
Modifications
If a financial asset is modified, an assessment is made to
determine whether it meets the derecognition criteria outlined
in Note 7(t).
If the modification does not result in derecognition of the
existing asset, the expected cash flows arising from the
modified financial asset are included in calculating the cash
shortfalls from the existing asset.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
7. Material accounting policies (continued)
If the modification does result in derecognition of the existing
asset, the expected fair value of the ‘new’ asset is treated as
the final cash flow from the existing financial asset at the time
of its derecognition. This amount is included in calculating the
cash shortfalls from the existing financial asset that are
discounted from the expected date of derecognition to the
reporting date using the original EIR of the existing financial
asset. The date of renegotiation is considered to be the date
of initial recognition for impairment calculation purposes,
including in determining whether a significant increase in
credit risk has occurred and whether the new financial asset
is deemed to be a POCI asset.
Write-offs
Loans and debt securities are written off (either partially or
in full) when there is no realistic prospect of recovery. This
is generally the case when it is determined that the borrower
does not have assets or sources of income that could
generate sufficient cash flows to repay the amounts subject
to the write-off. Write-offs constitute a derecognition event,
as detailed in Note 7(t).
Financial assets that are written off can still be subject to
enforcement activities in order to comply with the Group’s
procedures for recovery of amounts due. Amounts
subsequently recovered on assets written off are recognised
in impairment losses on financial assets in the statement
of profit and loss.
Capital securities
See disclosures at Note 40
Capital securities are classified as equity instruments, as the
substance of the contractual arrangements are such that
there is no present obligation to deliver cash, another financial
asset or a variable number of equity instruments. The capital
securities are measured at the fair value of the proceeds from
the issuance less any costs that are incremental and directly
attributable to the issuance (net of applicable tax).
Distributions to holders of the capital securities are recognised
when they become irrevocable and are deducted from
retained earnings in equity.
Loan commitments
See disclosures at Note 46
Loan commitments are firm commitments to provide credit
under pre-specified terms and conditions. Certain
uncommitted facilities are included within reported loan
commitments where the terms are such that there is an
obligation to the customer should the customer get into
financial distress.
A loss allowance is recognised on loan commitments in
accordance with the policies set out in Note 7(u). The loss
allowance is included within provisions in the statement of
financial position.
Contingent assets and contingent liabilities
See disclosures at Note 47
Contingent assets are possible assets that arise from past
events whose existence will be confirmed only by the
occurrence, or non-occurrence, of one or more uncertain
future events not wholly within the control of the Group.
Contingent assets are not recognised in the financial
statements, but they are disclosed if an inflow of economic
benefits is probable.
Contingent liabilities are possible obligations that arise from
past events whose existence will be confirmed only by the
occurrence, or non-occurrence, of one or more uncertain
future events not wholly within the control of the Group.
Alternatively, they are present obligations that have arisen
from past events where the outflow of resources is uncertain
or cannot be reliably measured. Contingent liabilities are not
recognised in the financial statements, but they are disclosed
unless the probability of settlement is remote.
8. Critical accounting judgements
and estimates
The preparation of financial statements requires the
Group to make judgements and estimates that affect the
application of accounting policies and the reported results
and financial position.
Estimates, and the underlying assumptions driving these
estimates, are reviewed by the Group on an ongoing basis.
Due to the inherent uncertainty in making estimates, actual
results reported in the future may differ from the amounts
estimated. Revisions to estimates are recognised in the
period in which the estimates are revised and in any future
periods affected.
In the reported year, the areas involving the most complex
and subjective judgements, and areas where estimates are
considered to have the most significant effect on the financial
statements, are set out in the following sections.
Impairment losses on financial assets
See accounting policies at Note 7(u) and disclosures
at Note 19
Impairment of financial assets is calculated using a forward-
looking ECL model. The calculation and measurement of
ECLs requires the use of complex judgements and represents
a key source of estimation uncertainty.
Judgements
Judgements considered to have the most significant effect on
amounts in the financial statements are:
• determining the stage the financial asset is allocated to and
therefore whether a 12-month or lifetime ECL is recognised
in the financial statements. This involves judgements over
whether the financial asset has had a significant increase
in credit risk since initial recognition, whether the financial
asset is in default or whether the financial asset is ‘cured’;
and
• application of judgemental adjustments to modelled ECLs
when the Group judges that the modelled ECL amount does
not adequately reflect the expected outcome.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
8. Critical accounting judgements
and estimates (continued)
Estimates
Underlying assumptions used in estimating ECLs that,
depending on a range of factors, could result in a material
adjustment in the next financial year are:
• the forward-looking economic scenarios used;
• probability weightings applied to these scenarios; and
• model assumptions used, such as the probability of
default and loss given default.
Additional details, of the critical judgements and estimates,
including sensitivity analysis, are included in the credit
risk section of the Risk Report starting on page 117 and
page 119, respectively.
Provisions for customer remediation
and conduct issues
See accounting policies at Note 7(q) and disclosures
at Note 33
Provisions have been recognised in respect of potential
claims for instances of misrepresentation, breaches of
contract or other wrongdoing by suppliers, in circumstances
where the Group may have a liability under consumer credit
legislation for the acts or omissions of suppliers (although the
Group continues to pursue recovery from such suppliers).
Calculating the amount of the provision requires judgement
and represents a source of estimation uncertainty.
Judgements
The judgement considered to have the most significant effect
on amounts in the financial statements is determining whether
an event has occurred in the past that would result in a claim,
and whether it is probable that such a claim would result in an
outflow of resources for the Group.
In the current year, a specific area where significant
judgement has been required relates to complaints from
customers about holiday ownership (timeshare) products.
The provision made in relation to such claims relates to a
specific sub-set of customer complaints where it is judged
that an outflow of resources is probable.
Estimates
The timeshare model splits the portfolio into cohorts reflecting
the loans that were impacted by the outcome of the Judicial
Review and loans that were not. Each cohort has different
assumptions (referred to as the base case) for number of
complaints expected, the uphold rate and the amount of
redress. For sensitivity modelling, where the sensitivity would
result in the revised assumption being lower than the base
case assumption, the sensitivity assumption has been floored
at the base case assumption.
The following table sets out the underlying assumptions used
in estimating the provision that, depending on a range of
factors, could result in a material adjustment in the next
financial year. Sensitivity analysis to illustrate the impact of,
what the Group considers to be, reasonable changes to these
underlying assumptions, is also provided.
Assumption
Sensitivity analysis
Number of complaints
In deriving this figure the Group
takes into account:
•
the status of current claims and
projected potential future claims
based on existing complaint
data; and
•
the statutory limitation period.
Number of upheld claims
Once the number of complaints has
been estimated, it is necessary to
estimate how many of these claims
will be upheld. The sensitivity is
driven by the fact that we have
limited claims that have completed
the full review process including
where customers might appeal to
FOS for the claim to be reviewed.
Therefore the final upheld number
could be higher depending on final
outcomes on complaints received
but not yet processed to completion.
Redress costs on upheld claims
This reflects the expected average
customer compensation on the
estimated number of upheld claims,
based on agreed redress strategies
(inclusive of loan balance
adjustments and cash payments).
This is based on actual claim data.
The impact of a +/- 5
percentage point change
in the absolute number of
complaints would result in
a £0.6 million increase or a
£0.3 million decrease in the
provision, respectively.
The impact of a +/-10
percentage point change in
the average uphold rate per
complaint would result in a
£6.6 million increase or a
£0.7 million decrease in
the provision, respectively.
The impact of a +/-10
percentage point change
in the average redress per
complaint would result in
a £0.8 million increase or
decrease in the provisions,
respectively.
Fair value of debt instruments measured at
fair value through other comprehensive income
See accounting policies at Note 7(t) and disclosures
at Note 38(b)
The Group holds certain mortgage loans that are measured
at FVOCI. In valuing these loans, the Group makes use
of unobservable inputs (i.e. Level 3 in the fair value
hierarchy) and the calculation represents a source of
estimation uncertainty.
Estimates
To calculate the fair value of the loans measured at FVOCI,
the Group uses the discounted cash flow method, in which the
significant unobservable inputs are the risk-adjusted discount
rate and prepayment curve used.
Additional details, including sensitivity analysis, are provided
in Note 38(b) starting on page 241.
Shawbrook Group plc
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
8. Critical accounting judgements and
estimates (continued)
9. Acquisition of subsidiary
See accounting policies in Note 7(a)
Securitisations
See accounting policies at Note 7(i) and disclosures at Note 23
Securitisation transactions involve the transfer of certain
customer loans to a structured entity. In determining the
accounting treatment to be applied for such transactions the
Group must perform a number of complex assessments,
which necessitates the application of judgement.
Judgements
Judgements considered to have the most significant effect
on amounts in the financial statements are:
• assessing whether the Group controls the structured entity
and whether it should therefore be treated as a subsidiary
by virtue of control and consolidated; and
• assessing whether the securitised loans should be
derecognised.
The outcome of these assessments significantly impacts the
resulting accounting treatment and amounts recognised in
the financial statements.
In making such assessments the structure and terms of the
contractual arrangements are scrutinised, with particular
consideration given to matters such as: who will service and
manage the securitised loans and the ownership of any ‘X’
notes and residual certificates issued by the structured entity
(which represents the ‘equity’ investment in the securitised
loans, giving the rights to any excess spread and the risk of
losses associated with any defaults).
During the year, the Group completed two securitisation
transactions. Judgement was applied to ultimately conclude
for both transactions that the structured entity should be
consolidated and the loans retained on balance sheet,
as detailed in Note 23.
On 31 May 2023, following the receipt of regulatory and legal
approval, Shawbrook Bank Limited, the Group’s principal
subsidiary, completed the acquisition of 100% of the ordinary
shares of Bluestone Mortgages Limited (BML), making BML
a wholly owned subsidiary of the Group.
BML is a specialist mortgage lender focused primarily on
residential owner-occupied mortgages. Acquiring BML will
strengthen the Group’s presence in the specialist mortgage
market, providing the Group with growth opportunities through
an extended product range and increased distribution network.
BML has four wholly owned subsidiary companies, along
with two subsidiaries by virtue of control, all of which become
indirect subsidiary companies of the Group as part of this
acquisition (see Note 43).
BML commenced being consolidated as a subsidiary of the
Group from 31 May 2023, the date control transferred to the
Group. In the seven months of the reporting period that BML
has been a subsidiary of the Group, it has contributed net
operating loss of £1 million and a loss before tax of £10.1
million to the Group’s results. If the acquisition had occurred
on 1 January 2023, it is estimated that the consolidated net
operating income for the Group for the year ended 31
December 2023 would have been £592.9 million and
consolidated profit before tax for the Group would have been
£289.7 million. In determining these amounts, management
has assumed that the fair value adjustments that arose on
the date of acquisition would have been the same if the
acquisition had occurred on 1 January 2023.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
9. Acquisition of subsidiary (continued)
As detailed below, the Group has determined provisional fair values at the date of acquisition for the consideration transferred
and the identifiable assets acquired and liabilities assumed. The Group continues to assess these amounts, in particular the fair
value of identifiable net assets acquired, to determine if any additional information existed at the date of acquisition that would
alter these amounts. This assessment will be completed by no later than 31 May 2024.
Consideration transferred
The acquisition date fair value of each major class of consideration transferred is as follows:
Cash
Total fair value of consideration transferred
There are no contingent consideration arrangements.
£m
44.7
44.7
Identifiable assets acquired and liabilities assumed
The following table sets out information about the net assets acquired at the date of acquisition, including the carrying amount,
fair value adjustments recognised and the resultant fair value. Details of the fair value adjustments recognised are set out on
the following page as cross referenced in the table.
Cash and balances at central banks
Loans and advances to customers
Derivative financial assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Other assets
Debt securities in issue
Lease liabilities
Other liabilities
Total identifiable net assets acquired
Carrying
amount
£m
Fair value adjustment
(See note below table)
£m
Fair value
£m
35.9
299.4
15.1
1.4
2.4
0.3
5.0
(316.9)
(1.0)
(15.7)
25.9
(3.2)
i
(1.4)
ii
(4.6)
35.9
296.2
15.1
1.4
1.0
0.3
5.0
(316.9)
(1.0)
(15.7)
21.3
Fair value adjustments per above table:
i: The net £3.2 million negative fair value adjustment to loans and advances to customers comprises: £0.9 million to remove
the loss allowance on acquisition, as required by acquisition accounting; offset by a negative £4.1 million fair value
adjustment reflecting the output of discounted cash flow model calculations.
ii: The net £1.4 million fair value adjustment to intangible assets comprises: the recognition of a £1.0 million separately
identifiable intangible asset for broker relationships; offset by a negative £2.4 million fair value adjustment to reduce
the value of capitalised software development costs.
As detailed in ‘i’ above, acquisition accounting requires the acquired loans to be recognised at fair value, resulting in a £nil
loss allowance on acquisition. Subsequent to initial recognition at fair value, the loans are then subject to the Group’s ECL
methodology, with a full loss allowance calculated. This resulted in a £0.4 million ECL charge being recognised in the statement
of profit and loss immediately following the acquisition date.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
9. Acquisition of subsidiary (continued)
Goodwill
Goodwill arising from the acquisition has been recognised as follows:
Fair value of consideration transferred
Fair value of identifiable net assets acquired
Goodwill recognised
£m
44.7
(21.3)
23.4
The goodwill recognised is mainly attributable to the synergies expected to be achieved from integrating BML into the Group.
None of the goodwill recognised is expected to be tax deductible for trading purposes.
Acquisition related costs
In the year ended 31 December 2023, acquisition related costs of £2.8 million are recognised in administrative expenses
in the statement of profit and loss (2022: acquisition related costs of £0.2 million).
Capital contribution from ultimate parent company
In conjunction with this transaction, the ultimate parent company, Marlin Bidco Limited, made a capital contribution to the
Company of £14.3 million. This is recognised in the capital contribution reserve in the statement of financial position.
10. Segmental analysis
See accounting policies in Note 7(b)
The following section provides information regarding the operating segments of the Group. Substantially all of the Group’s
activities are in the UK and, as such, segmental analysis on geographical lines is not presented. The Group is not reliant on
any single customer and therefore information about major customers is also not provided.
Operating segments
In the 2022 Annual Report and Accounts, the Group disclosed five reportable operating segments (Real Estate, SME,
Consumer Lending, TML Mortgages, Savings and Central). In response to the acquisition of BML, as detailed in Note 9,
a review of the Group’s reportable operating segments was performed in accordance with the criteria in IFRS 8 ‘Operating
Segments’. As a result, the previously disclosed Real Estate segment has been amended to extract all amounts relating to
BML1. Amounts relating to BML are now aggregated with the previously disclosed TML Mortgages segment; forming a new
reportable operating segment comprised of the two subsidiaries (Bluestone Mortgages Limited and The Mortgage Lender
Limited). This new operating segment is referred to as ‘Retail Mortgage Brands’.
In addition, during the year, the Group made a number of changes to how it reports its results to the chief operating decision
maker, which for the Group represents the Executive Committee. Specifically, the presentation of interest expense by operating
segment has been enhanced to reallocate certain items to the ‘Other’ operating segment. Consequently, the prior year
operating segment disclosure has been updated to reflect this change.
New reportable
operating segments
Description
Real Estate
SME
Provides specialist commercial and residential mortgage products to professional landlords, investors
and homeowners.
Provides debt-based financing solutions to support UK small and medium-sized enterprises (SMEs).
Consumer Lending
Provides unsecured personal loans and unsecured loans through strategic partnerships.
Retail Mortgage Brands
Comprised of the Group’s subsidiaries, The Mortgage Lender Limited and Bluestone Mortgages Limited.
Provides residential mortgages for those with complex income profiles, including the self-employed,
entrepreneurs and first-time buyers, and buy-to-let mortgages.
Any income or expense not allocated to the above reportable operating segments under the new methodology is included in
‘Other’, which does not represent a reportable operating segment.
1 Prior to the acquisition of BML, forward flow agreements were in place which meant certain loans originated by BML, and the associated
income and expenses, were recognised in the Group’s financial statements.
1 Prior to the acquisition of BML, forward flow agreements were in place which meant certain loans originated by BML, and the associated income and expenses, were recognised in the
Group’s financial statements.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
10. Segmental analysis (continued)
The following tables provide summarised information regarding the results of each reportable operating segment based on the
new reportable operating segments and using the revised allocation methodology to reflect how results are provided to the chief
operating decision maker. Prior year comparative information has been restated accordingly.
Where applicable, segment results are presented on an underlying basis, with underlying adjustments presented separately to
allow reconciliation to the statutory results of the Group. Underlying adjustments are exceptional items of income or expense
that are material by size and/or nature and are typically non-recurring. These items are presented separately in order to facilitate
comparison of the Group’s underlying performance from period to period. Further details about the underlying adjustments
made are provided on page 11 of the Strategic Report.
The results for each segment are presented on a consolidated basis, as reviewed by the chief operating decision maker. Intra-
group transactions between segments are minimal and are not separately disclosed. Intra-group transactions are conducted
under terms that are usual and customary for such activities.
Year ended 31 December 2023
Enterprise
Real
Estate
£m
Consumer
Lending
£m
SME
£m
Retail
Mortgage
Brands
£m
Other
£m
Underlying
total
£m
Underlying
adjustment
£m
Statutory
total
£m
Interest and similar income
337.2
291.1
56.9
162.1
296.5
1,143.8
Interest expense and similar charges
(185.2)
(111.4)
(13.9)
(97.9)
(158.9)
(567.3)
Net interest income
152.0
179.7
43.0
64.2
137.6
576.5
Net operating lease income
–
1.5
–
–
–
Net fee and commission
income/(expense)
Net gains on derivative financial
instruments and hedge accounting
Net other operating expense
(2.5)
10.0
(3.4)
1.9
(1.7)
–
–
–
–
–
–
–
–
5.1
(0.9)
(0.9)
1.5
4.3
5.1
Net operating income
149.5
191.2
39.6
66.1
140.1
586.5
–
–
–
–
–
–
–
–
1,143.8
(567.3)
576.5
1.5
4.3
5.1
(0.9)
586.5
Administrative expenses
(25.4)
(32.5)
Impairment losses on financial assets
(15.4)
(13.6)
Provisions
–
–
(15.0)
(27.1)
(1.7)
(34.4)
(115.3)
(222.6)
(4.0)
(226.6)
(3.9)
(0.1)
–
–
(60.1)
(1.7)
–
(60.1)
(11.4)
(13.1)
Total operating expenses
(40.8)
(46.1)
(43.8)
(38.3)
(115.4)
(284.4)
(15.4)
(299.8)
Profit/(loss) before tax
108.7
145.1
(4.2)
27.8
24.7
302.1
(15.4)
286.7
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
10. Segmental analysis (continued)
Year ended 31 December 2022
(Restated)
Enterprise
Real
Estate
£m
SME
£m
Consumer
Lending
£m
Interest and similar income
254.3
196.7
Interest expense and similar charges
(109.0)
(46.0)
Net interest income
145.3
150.7
47.8
(8.4)
39.4
Retail
Mortgage
Brands
£m
74.7
(31.9)
42.8
Other
£m
50.8
30.7
81.5
Net operating lease income
Net fee and commission
income/(expense)
Net gains on derecognition of financial
assets measured at amortised cost
Net losses on derivative financial
instruments and hedge accounting
Net other operating income
–
(2.9)
7.7
(0.1)
–
1.7
9.3
–
–
–
–
–
–
(1.9)
2.2
(1.2)
–
–
–
–
–
–
–
(0.7)
(0.8)
2.4
2.4
Net operating income
150.0
161.7
37.5
45.0
82.0
476.2
Underlying
total
£m
Underlying
adjustment
£m
Statutory
total
£m
624.3
(164.6)
459.7
1.7
5.5
7.7
–
–
–
–
–
–
–
–
–
624.3
(164.6)
459.7
1.7
5.5
7.7
(0.8)
2.4
476.2
Administrative expenses
(25.0)
(29.1)
Impairment losses on financial assets
(6.4)
(15.3)
Provisions
–
–
(13.3)
(20.3)
(0.8)
(23.6)
(98.7)
(189.7)
(5.0)
(194.7)
(5.7)
–
–
–
(47.7)
(0.8)
–
–
(47.7)
(0.8)
Total operating expenses
(31.4)
(44.4)
(34.4)
(29.3)
(98.7)
(238.2)
(5.0)
(243.2)
Profit/(loss) before tax
118.6
117.3
3.1
15.7
(16.7)
238.0
(5.0)
233.0
The following tables present summarised information about the Group’s assets and liabilities based on the revised reportable
operating segments. Prior period comparative information has been restated accordingly.
Loans and advances to customers and assets on operating leases (i.e. the Group’s ‘loan book’) are allocated to the relevant
lending segments. All other assets and liabilities are allocated to ‘Other’.
As at 31 December 2023
Assets
Liabilities
Enterprise
Real
Estate
£m
SME
£m
Consumer
Lending
£m
Retail
Mortgage
Brands
£m
Other
£m
Total
£m
6,127.3
2,729.6
603.8
3,850.1
3,925.4
17,236.2
–
–
–
–
(15,897.5)
(15,897.5)
Net assets/(liabilities)
6,127.3
2,729.6
603.8
3,850.1
(11,972.1)
1,338.7
As at 31 December 2022
(Restated)
Assets
Liabilities
Enterprise
Real
Estate
£m
SME
£m
Consumer
Lending
£m
Retail
Mortgage
Brands
£m
Other
£m
Total
£m
4,986.2
2,591.4
499.6
2,418.0
3,443.5
13,938.7
–
–
–
–
(12,798.9)
(12,798.9)
Net assets/(liabilities)
4,986.2
2,591.4
499.6
2,418.0
(9,355.4)
1,139.8
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
11. Interest and similar income
See accounting policies in Note 7(c)
Interest income calculated using the effective interest rate method
On cash and balances at central banks
On loans and advances to customers: loan receivables measured at amortised cost
On loans and advances to customers: loan receivables measured at FVOCI
On investment securities
Total interest income calculated using the effective interest rate method
Other interest and similar income
On loans and advances to customers: finance lease and instalment credit receivables
On derivative financial instruments
Total other interest and similar income
2023
£m
103.0
707.4
97.9
37.7
946.0
36.6
161.2
197.8
2022
£m
31.0
522.6
23.0
11.5
588.1
28.0
8.2
36.2
Total interest and similar income
1,143.8
624.3
With the exception of interest on loans and advances to customers measured at FVOCI, interest income calculated using the
effective interest rate (EIR) method is attributable to financial assets measured at amortised cost.
Interest on derivative financial instruments comprises £161.2 million of interest income (2022: £8.2 million of interest income).
Of this amount, interest attributable to derivative financial instruments in qualifying hedging relationships hedging assets is
£122.3 million of interest income (2022: £5.0 million of interest income).
12. Interest expense and similar charges
See accounting policies in Note 7(c)
On amounts due to banks
On customer deposits
On derivative financial instruments
On debt securities in issue
On lease liabilities
On subordinated debt liability
2023
£m
58.5
409.4
70.7
17.8
0.1
10.8
2022
£m
18.3
132.4
(0.9)
6.5
0.2
8.1
Total interest expense and similar charges
567.3
164.6
Except for interest on derivative financial instruments and lease liabilities, amounts in the above table are calculated using the
EIR method and are attributable to financial liabilities measured at amortised cost.
Interest on derivative financial instruments comprises £70.7 million of interest expense (2022: £4.3 million of interest expense
and £5.2 million of interest income). Of this amount, interest attributable to derivative financial instruments in qualifying hedging
relationships hedging liabilities is £27.8 million of interest expense (2022: £5.2 million of interest income).
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
13. Net fee and commission income
See accounting policies in Note 7(d)
Fee income on loans and advances to customers
Credit facility related fees
Fee and commission income
Fee and commission expense
Net fee and commission income
14. Derecognition of financial assets measured at amortised cost
See accounting policies in Note 7(t)
Net gains on sale of customer loan portfolios
Net gains on derecognition of financial assets measured at amortised cost
2023
£m
12.7
4.2
16.9
2022
£m
10.5
3.6
14.1
(12.6)
(8.6)
4.3
5.5
2023
£m
–
–
2022
£m
7.7
7.7
In the comparative year ended 31 December 2022, the net gain was attributable to the sale of a portfolio of loans from Real
Estate in January 2022. At the point of derecognition, the loan portfolio had a gross carrying amount (before loss allowance
deducted) of £298.8 million and a carrying amount (after loss allowance deducted) of £298.3 million.
15. Administrative expenses
See accounting policies in Note 7(e)
Payroll costs
Depreciation of property, plant and equipment1
Amortisation of intangible assets
Other administrative expenses
Total administrative expenses
Note
16
26
27
2023
£m
131.8
3.5
8.1
83.2
226.6
2022
£m
107.5
3.1
8.2
75.9
194.7
Other administrative expenses include fees paid to the Group’s auditor, KPMG LLP, as detailed below. Amounts represent
both current year costs and prior year overruns.
Audit of these annual accounts
Audit of the annual accounts of subsidiary companies
Audit related assurance services
Other assurance services
Total auditor’s remuneration
2023
£000
170
3,775
387
50
4,382
2022
£000
150
2,915
341
50
3,456
1
Includes depreciation of all asset categories except for assets on operating leases. Depreciation of assets on operating leases is presented as
a separate line item in the statement of profit and loss, forming part of the net operating lease income total.
1 Includes depreciation of all asset categories except for assets on operating leases. Depreciation of assets on operating leases is presented as a separate line item in the statement of profit
and loss, forming part of the net operating lease income total.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
16. Employees
See accounting policies in Note 7(e)
Aggregate payroll costs included in administrative expenses (see Note 15) are as follows:
Wages and salaries
Social security costs
Pension costs
Payroll costs
2023
£m
114.6
10.5
6.7
131.8
2022
£m
92.8
9.1
5.6
107.5
Wages and salaries include share-based payment charges. Further details regarding share-based payment transactions
are provided in Note 17.
Pension costs represent contributions to defined contribution pension schemes. The Group does not operate any defined
benefit pension schemes.
Details of Directors’ remuneration are provided in Note 18.
The average number of persons employed by the Group on a full-time equivalent basis by reportable operating segment
is set out in the following table.
Real Estate
SME
Consumer Lending
Retail Mortgage Brands
Other
2023
218
265
82
276
505
2022
(Restated)1
211
241
79
189
409
Average employees (on a full-time equivalent basis)
1,346
1,129
Figures in the above tables include contracted employees of the Group only and do not include contractors.
17. Employee share-based payment transactions
See accounting policies in Note 7(e)
The Group operates one equity-settled share-based payment scheme and one cash-settled share-based payment scheme,
as detailed below. The total expense recognised within payroll costs for these schemes is £0.8 million (2022: £0.1 million).
Management Incentive Plan (equity-settled)
The equity-settled Management Incentive Plan (MIP) was originally introduced for a set of individuals in April 2019. Individuals
selected for inclusion in the equity-settled MIP were entitled to acquire non-voting ‘B’ Class ordinary shares in Marlin Bidco
Limited, the ultimate parent company of the Group. Awards are subject to performance conditions relating to the equity valuation
of the Group in the event of a prescribed exit event. The outcome of the performance conditions determines the vesting
outcome of the awards.
During the year ended 31 December 2023, the charge recognised in payroll costs for the equity settled MIP is £0.7 million
(2022: £0.1 million).
1 As detailed in Note 10, reportable operating segments have been revised during the year ended 31 December 2023. Comparative data has been
restated accordingly to allocate staff to the revised segments using the same methodology applied in the current year.
1 As detailed in Note 10, reportable operating segments have been revised during the year ended 31 December 2023. Comparative data has been restated accordingly to allocate staff to the
revised segments using the same methodology applied in the current year.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
17. Employee share-based payment transactions (continued)
Movements in the number of share-based awards during the year are as follows:
As at 1 January
Granted
Forfeited
As at 31 December
2023
9,400
–
–
9,400
2022
8,750
1,350
(700)
9,400
None of the share-based awards have a contractual maturity date and none were exercisable as at 31 December in either of the
reported years.
The grant date fair value of the share-based awards is determined using a Monte Carlo modelling technique. Key assumptions
used in the valuation of awards granted in the comparative year and the resultant grant date fair value is set out in the following
table. There were no awards made in the current reported year.
Weighted average expected volatility
Weighted average dividend yield
Weighted average risk-free rate of return (based on government bonds)
Weighted average expected life at grant date
Weighted average grant date fair value (per share)
2022 awards
36.0%
0%
0%
2.9 years
£540
Expected volatility is calculated based on the historical volatility of banks closely aligned to the Group.
Management Incentive Plan (cash-settled)
The cash-settled MIP was introduced in May 2022. Individuals selected for inclusion in the cash-settled MIP are entitled to a
cash payment subject to performance conditions relating to the equity valuation of the Group in the event of a prescribed exit
event. The outcome of the performance conditions determines the vesting outcome of the awards.
In both reported years, the charge recognised in payroll costs for the cash-settled MIP, and the resultant liability recognised
within other liabilities in the statement of financial position, is immaterial, totalling less than £0.1 million.
Movements in the number of awards during the year are as follows:
As at 1 January
Granted
As at 31 December
2023
200
–
200
2022
–
200
200
The fair value of liability at both grant date and reporting date was calculated using the Monte Carlo modelling technique using
the same assumptions as applied for the equity-settled MIP.
18. Directors’ remuneration
Directors' emoluments
Total Directors' remuneration
2023
£000
3,347
3,347
2022
£000
3,278
3,278
The above table includes both Executive and Non-Executive Directors. Further information is provided in the Directors’
Remuneration Report starting on page 74.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
19. Impairment losses on financial assets
See accounting policies in Note 7(u)
Impairment losses on financial assets are attributable to the Group’s loans and advances to customers and loan commitments.
Impairment losses for the Group’s other financial asset categories that are in scope of IFRS 9 impairments (cash and balances
at central banks, loans and advances to banks and investment securities) are immaterial, totalling less than £0.1 million in both
reported years.
The following table analyses impairment losses on financial assets by financial asset category.
Impairment losses on loans and advances to customers at amortised cost
Net ECL charge for the year
Loan balances written off in the year
Amounts recovered in the year in respect of loan balances previously written off
Total impairment losses on loans and advances to customers at amortised cost
Impairment losses on loans and advances to customers at FVOCI
Net ECL charge for the year
Total impairment losses on loans and advances to customers at FVOCI
Impairment losses on loan commitments
Net ECL charge/(credit) for the year
Total impairment losses on loan commitments
2023
£m
19.8
38.5
(5.8)
52.5
4.3
4.3
3.3
3.3
2022
£m
35.8
14.4
(4.7)
45.5
2.4
2.4
(0.2)
(0.2)
Total impairment losses on financial assets
60.1
47.7
Further analysis of the net ECL charge for the year in respect of loans and advances to customers at amortised cost, loans and
advances to customers at FVOCI and loan commitments is provided in the credit risk section of the Risk Report on page 111,
page 114 and page 116, respectively.
Critical accounting judgements and estimates
The impairment of financial assets is an area identified as involving critical accounting judgements and estimates.
Additional details are provided in Note 8(a) and in the credit risk section of the Risk Report starting on page 117 and
page 119, respectively.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
20. Tax
See accounting policies in Note 7(f)
A summary of the tax charge recognised in the statement of profit and loss is as follows:
Current tax
Current year
Adjustment in respect of prior years
Total current tax
Deferred tax
Origination and reversal of temporary differences
Adjustment in respect of prior years
Tax rate changes
Total deferred tax
Total tax charge
2023
£m
87.7
(1.3)
86.4
(13.4)
1.7
(0.1)
(11.8)
2022
£m
71.1
(1.8)
69.3
(11.9)
0.9
–
(11.0)
74.6
58.3
Additional information about the Group’s deferred tax assets is provided in Note 28.
A reconciliation of profit before tax to the total tax charge is shown in the following table. The effective tax rate is 26% (2022:
25.0%). This is higher than the UK corporation tax rate due to the combined impact of the banking surcharge and the other
adjustments set out in the table below.
Profit before tax
Implied tax charge thereon at 23.5% (2022: 19%)
Adjustments
Banking surcharge
Tax relief on coupon paid on capital securities
Adjustment in respect of prior years
Disallowable expenses and other permanent differences
Tax rate changes
Total tax charge
2023
£m
286.7
2022
£m
233.0
67.4
44.3
10.8
(4.6)
0.4
0.7
(0.1)
17.0
(2.3)
(0.9)
0.2
–
74.6
58.3
Tax rate changes
On 1 April 2023, the following tax rate changes came into effect:
• as part of the Finance Act 2021, the UK corporation tax rate increased from 19% to 25%.
• as part of the Finance Act 2022, the banking surcharge decreased from 8% to 3% and the banking surcharge
exempt amount increased from £25 million to £100 million.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
21. Cash and cash equivalents
See accounting policies in Note 7(g)
Cash and balances at central banks
Less: mandatory deposits with central banks
Loans and advances to banks
Total cash and cash equivalents
2023
£m
2,188.1
(39.9)
480.7
Group
2022
£m
2,037.1
(29.6)
263.6
2,628.9
2,271.1
Company
2022
£m
–
–
0.1
0.1
2023
£m
–
–
–
–
Mandatory deposits with central banks represent amounts held with the Bank of England in accordance with statutory
requirements. These deposits are not included in cash and cash equivalents as they are not available for use in the
Group’s day-to-day operations.
The Group’s cash and cash equivalents balance includes:
• £286.6 million (2022: £155.5 million) of cash collateral paid against derivative contracts.
• £139.3 million (2022: £59.5 million) of securitisation cash, which represents the cash balances of consolidated
structured entities.
• £16.8 million (2022: nil) of cash collateral paid against repurchase agreements.
The loss allowance for both cash and balances at central banks and loans and advances to banks is immaterial
in both reported years, totalling less than £0.1 million.
22. Loans and advances to customers
See accounting policies in Note 7(h)
The following tables analyse the carrying amount of loans and advances to customers by loan classification and agreement
type. Finance lease and instalment credit receivables are presented within loans and advances to customers at amortised cost.
As at 31 December 2023
Loan receivables
Finance lease receivables
Instalment credit receivables
Loans and advances to customers at
amortised cost
Gross carrying
amount
£m
Loss
allowance
£m
Carrying
amount
£m
Loans and
advances to
customers
at FVOCI
£m
Total
£m
10,173.3
(120.1)
10,053.2
2,812.0
12,865.2
27.0
430.3
(1.0)
(9.1)
26.0
421.2
–
–
26.0
421.2
10,630.6
(130.2)
10,500.4
2,812.0
13,312.4
Fair value adjustments for hedged risk (see Note 25)
(36.4)
3.3
(33.1)
Total loans and advances to customers
10,464.0
2,815.3
13,279.3
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
22. Loans and advances to customers (continued)
As at 31 December 2022
Loan receivables
Finance lease receivables
Instalment credit receivables
Loans and advances to customers at amortised
cost
Gross carrying
amount
£m
Loss
allowance
£m
Carrying
amount
£m
Loans and
advances to
customers
at FVOCI
£m
Total
£m
9,043.7
39.7
381.3
(99.6)
(2.0)
(10.2)
8,944.1
1,316.4
10,260.5
37.7
371.1
–
–
37.7
371.1
9,464.7
(111.8)
9,352.9
1,316.4
10,669.3
Fair value adjustments for hedged risk (see Note 25)
(164.6)
(47.6)
(212.2)
Total loans and advances to customers
9,188.3
1,268.8
10,457.1
Additional analysis of the Group’s loans and advances to customers at amortised cost and loans and advances to customers at
FVOCI and the associated loss allowance is provided in the credit risk section of the Risk Report starting on page 111 and page
114, respectively.
Loans and advances to customers include the following pledged and transferred assets. Amounts represent the carrying
amount (after loss allowance deducted).
• £2,057.1 million (2022: £1,602.3 million) positioned with the Bank of England for use as collateral against amounts drawn
under the Term Funding Scheme with additional incentives for SMEs.
• £2,235.4 million (2022: £1,362.3 million) transferred to consolidated structured entities as part of securitisation programmes,
which are pledged as collateral against debt securities in issue.
Loans and advances to customers also include loans with a carrying amount (after loss allowance deducted) of £12.0 million
(2022: £31.6 million) that were offered under COVID-19 related business support schemes. The UK Government provides a
guarantee to protect 80% of any post-recovery loss in the event of default on these loans. Details of claims made against the
government guarantee are as follows:
Number of claims made during the year
Amount pending receipt as at 1 January (£m)
Amount claimed during the year (£m)
Amount received on claims during the year (£m)
Amount pending receipt as at 31 December (£m)
2023
2022
8
3.4
3.4
6.6
0.2
5
–
3.8
0.4
3.4
Finance lease and instalment credit receivables
Finance lease and instalment credit receivables relate to agreements issued by the Group to customers for a variety of assets,
predominantly plant and machinery. The following table sets out a maturity analysis, showing the undiscounted payments to be
received after the reporting date and a reconciliation to the gross carrying amount of the receivable.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
22. Loans and advances to customers (continued)
2023
2022
Finance lease
receivables
£m
Instalment credit
receivables
£m
Finance lease
receivables
£m
Instalment credit
receivables
£m
Undiscounted payments receivable
Within one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
After five years
Total undiscounted payments receivable
Unearned finance income
Gross carrying amount
12.0
7.6
5.4
5.5
1.1
0.0
31.6
(4.6)
27.0
283.9
61.8
74.8
19.6
7.7
1.1
448.9
(18.6)
430.3
19.4
10.5
6.3
4.1
2.8
0.7
43.8
(4.1)
39.7
Instalment credit receivables include block discounting facilities of £295.4 million (2022: £239.7 million).
The cost of assets acquired by the Group during the year for the purpose of letting to customers under finance lease and
instalment credit agreements is as follows:
Finance lease agreements
Instalment credit agreements
Total cost of assets acquired during the year
2023
£m
5.7
71.0
76.7
231.5
65.3
33.7
58.8
8.4
2.1
399.8
(18.5)
381.3
2022
£m
11.8
37.8
49.6
Modifications
The Group sometimes modifies the terms of loans provided to customers due to commercial renegotiations, or for distressed
loans with a view to maximising recovery. Modifications occurring due to the customer encountering financial difficulties are
referred to as forbearance activities. Details of forborne loans are provided in the credit risk section of the Risk Report starting
on page 130.
No modification gains or losses were recognised in the statement of profit and loss in either reported year.
Write-offs still under enforcement activity
Loans that are written off can still be subject to enforcement activities in order to comply with the Group’s procedures for
recovery of amounts due. The contractual amount outstanding on loans and advances to customers that were written off
during the reporting period, and are still subject to enforcement activity, is £60.7 million (2022: £38.6 million).
23. Securitisations and structured entities
See accounting policies in Note 7(i)
Consolidated structured entities
The Group includes consolidated structured entities relating to securitisation programmes. These securitisations involve the
transfer of certain mortgage loans included within loans and advances to customers to bankruptcy remote structured entities.
The Group continues to service the transferred loans in return for an administration fee and is entitled to any residual income
from the structured entity after the debt obligations and senior expenses of the securitisation programme have been met.
Based on the structure of these securitisations, for accounting purposes, it is assessed that the Group controls the structured
entities and they are therefore treated as subsidiaries and are fully consolidated (see Note 43). The transfer of loans does not
meet the derecognition criteria and they therefore continue to be recognised in their entirety in loans and advances to customers
in the statement of financial position.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
23. Securitisations and structured entities (continued)
The securitisations involve the simultaneous issue of debt securities by the structured entities to investors. The debt
securities may be issued to external investors, which provides a form of long-term funding to the Group. Alternatively,
some, or all, of the debt securities may be purchased by a subsidiary of the Group, Shawbrook Bank Limited. These
internally held debt securities are used for funding and liquidity purposes. For example, they may be exchanged for UK
gilts, referred to as a ‘security swap’, or they may be positioned with the Bank of England for use as collateral against
amounts drawn under its funding schemes.
During the year ended 31 December 2023, the following transactions with consolidated structured entities took place:
• BML, which was acquired in May 2023 (see Note 9), includes two consolidated structured entities relating to securitisation
transactions, Genesis Mortgage Funding 2019-1 PLC and Genesis Mortgage Funding 2022-1 PLC. Genesis Mortgage
Funding 2019-1 PLC has no remaining balances at the reporting date and does not therefore feature in the table on the
following page.
• In June 2023, loans with a gross carrying amount (before loss allowance) of £677.6 million and a carrying amount (after
loss allowance) of £676.7 million were transferred to Holbrook Mortgage Transaction 2023-1 plc. The structured entity
simultaneously issued mortgage-backed debt securities of £677.6 million and £0.2 million of uncollateralised ‘X’ notes,
all of which were retained by the Group and are eliminated on consolidation.
• In November 2023, loans with a gross carrying amount (before loss allowance) of £400.7 million and a carrying amount
(after loss allowance) of £399.6 million were transferred to Lanebrook Mortgage Transaction 2023-1 plc. The structured
entity simultaneously issued mortgage-backed debt securities of £400.7 million and £4.0 million of uncollateralised ‘X’
notes, £200.0 million of which was issued to external investors (see Note 34), with the remainder retained by the Group
and eliminated on consolidation.
In the comparative year ended 31 December 2022, the following transaction with consolidated structured entities took place:
• In June 2022, loans with a gross carrying amount (before loss allowance deducted) of £351.9 million and a carrying
amount (after loss allowance deducted) of £351.3 million were transferred to Ealbrook Mortgage Funding 2022-1 plc.
The structured entity simultaneously issued mortgage-backed debt securities of £351.9 million and £12.3 million of
uncollateralised ‘X’ notes, all of which were retained by the Group and are eliminated on consolidation.
• In September 2022, the loan portfolio transferred to Shawbrook Mortgage Funding 2019-1 plc in June 2019 was
repurchased and the outstanding debt securities were redeemed. A liquidator was appointed to liquidate Shawbrook
Mortgage Funding 2019-1 plc. The company was dissolved in February 2024.
• In October 2022, loans with a gross carrying amount (before loss allowance deducted) of £342.8 million and a carrying
amount (after loss allowance deducted) of £342.2 million were transferred to Lanebrook Mortgage Transaction 2022-1 plc.
The structured entity simultaneously issued mortgage-backed debt securities of £342.8 million and £3.4 million of
uncollateralised ‘X’ notes, all of which were retained by the Group and are eliminated on consolidation.
• In December 2022, loans with a gross carrying amount (before loss allowance deducted) of £574.0 million and a carrying
amount (after loss allowance deducted) of £573.2 million were transferred to Shawbrook Mortgage Funding 2022-1 plc.
The structured entity simultaneously issued mortgage-backed debt securities of £574.0 million and £0.2 million of
uncollateralised ‘X’ notes, all of which were retained by the Group and are eliminated on consolidation.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
23. Securitisations and structured entities (continued)
The following table summarises the carrying amount of securitised loans that continue to be recognised in the statement
of financial position and the associated debt securities issued by consolidated structured entities.
Wandle Mortgage Funding Limited
Ealbrook Mortgage Funding 2022-1 plc
Lanebrook Mortgage Transaction 2022-1 plc
Shawbrook Mortgage Funding 2022-1 plc
Genesis Mortgage Funding 2022-1 PLC
Holbrook Mortgage Transaction 2023-1 plc
Lanebrook Mortgage Transaction 2023-1 plc
Loans and
advances
securitised
£m
(Note 22)
2023
Debt
securities
in issue
£m
(Note 34)
2022
Loans and
advances
securitised
£m
(Note 22)
Debt securities
in issue
£m
(Note 34)
97.8
206.7
318.7
475.4
173.6
568.0
400.3
103.1
253.3
335.7
483.2
177.4
611.8
407.8
133.0
321.8
340.2
570.6
–
–
–
142.2
354.6
349.6
575.6
–
–
–
2,240.5
2,372.3
1,365.6
1,422.0
Less: loss allowance on securitised loans
(5.1)
(3.3)
Less: held by the Group (and eliminated on consolidation)
(1,909.5)
(1,305.6)
Total recognised in statement of financial position
2,235.4
462.8
1,362.3
116.4
Unconsolidated structured entities
The Group has interests in two unconsolidated structured entities associated with securitisation programmes. These
securitisations involve the transfer of certain mortgage loans included within loans and advances to customers to bankruptcy
remote structured entities. The residual certificates, representing the rights to receive residual income from the structured entity,
are sold as part of these transactions.
Based on the structure of these securitisations, for accounting purposes, it is assessed that the Group does not control the
structured entities and they are therefore not consolidated. The transfer of loans meet the criteria for derecognition and they
are therefore derecognised in their entirety from the statement of financial position, referred to as ‘structured asset sales’.
There have been no new transactions with unconsolidated structured entities in either of the reported years.
A portion of the debt securities issued by unconsolidated structured entities as part of these securitisation transactions
were purchased by a subsidiary of the Group, Shawbrook Bank Limited. The Group therefore has a direct interest in these
unconsolidated structured entities. As at 31 December 2023, the carrying amount of the Group’s investment in debt securities
issued by unconsolidated structured entities is £117.6 million (2022: £126.4 million) (see Note 24). This amount represents the
Group’s maximum exposure to loss from its interests in unconsolidated structured entities.
As at 31 December 2023, the total asset value1 of the unconsolidated structured entities that the Group has a direct interest in,
including the portion in which the Group has no interest, is £560.5 million (2022: £672.0 million).
The Group does not provide any ongoing financial support to any of the unconsolidated structured entities that it has a direct
interest in.
Critical accounting judgements
For each securitisation transaction completed, the assessments involved in determining whether the Group controls the
structured entity and whether the loans meet the criteria to be derecognised are identified as involving critical accounting
judgements. Additional details are provided in Note 8(d).
1 Based on unaudited management information provided by the unconsolidated structured entities.
1 Based on unaudited management information provided by the unconsolidated structured entities.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
24. Investment securities
See accounting policies in Note 7(j)
As at 1 January
Additions
Maturities
Other movements
As at 31 December
Covered
bonds
£m
Debt
securities
£m
499.7
211.6
(194.8)
0.5
517.0
191.3
153.8
(16.8)
(23.2)
305.1
2023
Total
£m
691.0
365.4
(211.6)
(22.7)
822.1
Covered
bonds
£m
Debt
securities
£m
392.5
139.5
(33.5)
1.2
499.7
129.5
65.3
–
(3.5)
191.3
2022
Total
£m
522.0
204.8
(33.5)
(2.3)
691.0
Debt securities represent mortgage-backed debt securities, of which £117.6 million (2022: £126.4 million) were issued by
unconsolidated structured entities as part of securitisation transactions that were retained by the Group.
The Group's investment securities balance includes:
• £79.3 million (2022: £79.3 million) of debt securities positioned with the Bank of England for use as collateral against amounts
drawn under the Term Funding Scheme with additional incentives for SMEs.
• £25.0 million (2022: nil) of restricted amounts invested in short-term money market funds by consolidated structured entities.
The loss allowance for investment securities is immaterial, totalling less than £0.1 million in both reported years.
25. Derivative financial instruments and hedge accounting
See accounting policies in Note 7(k) and Note 7(l)
Derivative financial instruments
Derivative financial instruments are used by the Group for risk management purposes to minimise or eliminate the impact
of movements in interest rates and foreign exchange rates. Derivatives are not used for trading or speculative purposes.
The Group uses the International Swaps and Derivatives Association Master Agreement to document these transactions
in conjunction with a Credit Support Annex.
The following table analyses the Group’s derivative financial instruments by instrument type and whether the instrument
is designated as a hedging instrument in a qualifying hedging relationship.
As at 31 December 2023
Instruments not in hedging relationships
Interest rate swaps
Spot and forward foreign exchange swaps
Total instruments not in hedging relationships
Instruments in fair value hedging relationships
Interest rate swaps
Balance guaranteed swaps
Total instruments in fair value hedging relationships
Instruments in cash flow hedging relationships
Interest rate swaps
Total instruments in cash flow hedging relationships
Nominal
amount
£m
1,888.8
7.3
1,896.1
5,970.0
124.3
6,094.3
350.0
350.0
Assets
Carrying
amount
£m
67.0
–
67.0
179.2
5.8
185.0
0.7
0.7
Nominal
amount
£m
6,813.1
21.5
6,834.6
5,370.0
–
5,370.0
770.0
770.0
Liabilities
Carrying
amount
£m
65.1
–
65.1
88.8
–
88.8
30.6
30.6
Total derivative financial instruments
8,340.4
252.7
12,974.6
184.5
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
25. Derivative financial instruments and hedge accounting (continued)
As at 31 December 2022
Instruments not in hedging relationships
Interest rate swaps
Spot and forward foreign exchange swaps
Total instruments not in hedging relationships
Instruments in fair value hedging relationships
Interest rate swaps
Total instruments in fair value hedging relationships
Instruments in cash flow hedging relationships
Interest rate swaps
Total instruments in cash flow hedging relationships
Nominal
amount
£m
1,327.5
–
1,327.5
Assets
Carrying
amount
£m
63.1
–
63.1
Nominal
amount
£m
9,081.8
18.6
9,100.4
5,664.0
5,664.0
264.0
264.0
1,825.0
1,825.0
295.0
295.0
3.6
3.6
162.0
162.0
Liabilities
Carrying
amount
£m
60.9
0.1
61.0
26.0
26.0
3.5
3.5
Total derivative financial instruments
7,286.5
330.7
11,087.4
90.5
Interest rate swaps are used to manage interest rate risk associated with the Group’s loans and advances to customers
(including pipeline loans) and customer deposits (including offers/ pipeline for savings).
Spot and forward foreign exchange swaps are used to manage foreign exchange risk associated with the Group’s loans
and advances to customers and loans and advances to banks.
Balance guaranteed swaps were acquired as part of the BML acquisition and fair value hedge accounting was designated
on acquisition.
As part of the BML acquisition (see Note 9), the Group acquired derivative financial assets with a fair value of £15.1 million.
This comprised balance guaranteed swaps held in fair value hedging relationships of £12.0 million and interest rate swaps not
in hedging relationships of £3.1 million.
In respect of the derivative financial instruments set out above, cash collateral totalling £286.6 million has been paid (2022:
£155.5 million) and £189.0 million has been received (2022: £290.0 million) (see Note 21 and Note 31, respectively). There was
also securitisation collateral received in the form of Gilts with a nominal value of £52.6 million (2022: £nil) and a market value of
£68.0 million (2022: £nil).
Additional information about market risk, and the use of derivatives in managing such risk, is included in the Risk Report starting
on page 132.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
25. Derivative financial instruments and hedge accounting (continued)
The majority of the Group’s derivatives are cleared through the London Clearing House via ABN Amro and Barclays. There are
also over-the-counter (OTC) derivatives with BNP Paribas, Lloyds and NatWest. The following tables split out the total nominal
amount of derivative financial instruments into cleared and OTC.
As at 31 December 2023
Instruments not in hedging relationships
Cleared
£m
OTC
£m
Assets
Total
£m
Liabilities
Cleared
£m
OTC
£m
Total
£m
Interest rate swaps
27.7
1,861.1
1,888.8
6,813.1
–
6,813.1
Spot and forward foreign exchange swaps
–
7.3
7.3
–
Total instruments not in hedging relationships
27.7
1,868.4
1,896.1
6,813.1
21.5
21.5
21.5
6,834.6
Instruments in fair value hedging relationships
Interest rate swaps
Balance guaranteed swaps
5,812.4
157.6
5,970.0
5,370.0
–
124.3
124.3
–
Total instruments in fair value hedging relationships
5,812.4
281.9
6,094.3
5,370.0
Instruments in cash flow hedging relationships
Interest rate swaps
Total instruments in cash flow hedging relationships
350.0
350.0
–
–
350.0
350.0
770.0
770.0
–
–
–
–
–
5,370.0
–
5,370.0
770.0
770.0
Total derivative financial instruments
6,190.1
2,150.3
8,340.4
12,953.1
21.5
12,974.6
As at 31 December 2022
Instruments not in hedging relationships
Cleared
£m
OTC
£m
Assets
Total
£m
Liabilities
Cleared
£m
OTC
£m
Total
£m
Interest rate swaps
152.7
1,174.8
1,327.5
9,081.8
–
9,081.8
Spot and forward foreign exchange swaps
–
–
–
–
Total instruments not in hedging relationships
152.7
1,174.8
1,327.5
9,081.8
18.6
18.6
18.6
9,100.4
Instruments in fair value hedging relationships
Interest rate swaps
5,497.6
166.4
5,664.0
Total instruments in fair value hedging relationships
5,497.6
166.4
5,664.0
1,825.0
1,825.0
Instruments in cash flow hedging relationships
Interest rate swaps
Total instruments in cash flow hedging relationships
295.0
295.0
–
–
295.0
295.0
162.0
162.0
–
–
–
–
1,825.0
1,825.0
162.0
162.0
Total derivative financial instruments
5,945.3
1,341.2
7,286.5
11,068.8
18.6
11,087.4
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
25. Derivative financial instruments and hedge accounting (continued)
Hedge accounting
The Group holds certain derivative financial instruments as hedging instruments in fair value hedges and cash flow hedges in
order to hedge exposures to changes in interest rates. Additional details of these hedges are provided in the following sections.
During the year ended 31 December 2022, one fair value hedge failed the effectiveness testing criteria and was de-designated.
All other hedge accounting relationships have remained highly effective throughout both reported years.
Fair value hedges
Details of the Group’s fair value hedges are presented in the following tables.
Less than
1 month
1 - 3
months
3 months –
1 year
1 - 5
years
More than
5 years
Maturity
Total
As at 31 December 2023
Interest rate swaps
Nominal amount (£m)
Average fixed interest rate
Balance guaranteed swaps
Nominal amount (£m)
Average fixed interest rate
As at 31 December 2022
Interest rate swaps
Nominal amount (£m)
Average fixed interest rate
438.2
3.23%
–
0%
844.9
3.95%
4,437.2
4.64%
–
0%
–
0%
5,507.1
3.20%
124.3
1.07%
112.6
2.08%
11,340.0
3.81%
–
0%
124.3
1.07%
Maturity
Total
Less than
1 month
1 - 3
months
3 months –
1 year
1 - 5
years
More than
5 years
237.0
1.29%
168.2
0.63%
3,324.8
3.10%
3,669.3
1.84%
89.7
0.61%
7,489.0
2.34%
Amounts relating to items designated as hedging instruments and hedge ineffectiveness are set out in the following tables.
The carrying amount of assets and liabilities included in these tables are presented in the statement of financial position on the
lines derivative financial assets and derivative financial liabilities, respectively. Ineffectiveness is recognised in the statement
of profit and loss on the line net gains/(losses) on derivative financial instruments and hedge accounting. The main sources of
ineffectiveness in these hedge relationships relate to the modelled prepayment/repayment behaviour and the assumptions that
are used in modelling this behaviour.
As at 31 December 2023
Nominal
amount
£m
Carrying amount
Assets
£m
Liabilities
£m
Change in fair value
used for calculating
ineffectiveness
£m
Ineffectiveness
recognised in statement
of profit and loss
£m
Interest rate swaps
11,340.0
179.2
Balance guaranteed swaps
124.3
5.8
88.8
–
(152.7)
(5.2)
0.5
(0.1)
As at 31 December 2022
Nominal
amount
£m
Carrying amount
Assets
£m
Liabilities
£m
Change in fair value
used for calculating
ineffectiveness
£m
Ineffectiveness recognised
in statement of profit and
loss
£m
Interest rate swaps
7,489.0
264.0
26.0
174.6
(1.5)
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
25. Derivative financial instruments and hedge accounting (continued)
Amounts relating to items designated as hedged items are as follows:
As at 31 December 2023
Assets
Accumulated fair value
hedge adjustments included
in the carrying amount
of the hedged item1
£m
Change in fair
value used for
calculating
ineffectiveness
£m
Carrying
amount
£m
Fixed rate mortgage loans included in loans and advances to customers
6,210.2
(36.2)
175.4
Liabilities
Fixed rate customer deposits included in customer deposits
Balance guaranteed swaps
As at 31 December 2022
Assets
5,367.1
5.5
Carrying
amount
£m
(2.8)
3.6
(22.2)
5.0
Accumulated fair value
hedge adjustments
included in the carrying
amount of the hedged item1
£m
Change in fair
value used for
calculating
ineffectiveness
£m
Fixed rate mortgage loans included in loans and advances to customers
3,971.7
(212.2)
(191.7)
Liabilities
Fixed rate customer deposits included in customer deposits
2,763.1
19.4
15.6
Cash flow hedges
Details of the Group’s cash flow hedges are presented in the following tables.
As at 31 December 2023
Interest rate swaps (pay fixed)
Nominal amount (£m)
Average fixed interest rate
Interest rate swaps
(received fixed)
Nominal amount (£m)
Average fixed interest rate
As at 31 December 2022
Interest rate swaps (pay fixed)
Nominal amount (£m)
Average fixed interest rate
Less than
1 month
1 - 3
months
3 months –
1 year
1 - 5
years
More than
5 years
–
–
–
–
–
–
–
–
–
–
170.0
5.16%
560.0
4.60%
180.0
4.79%
210.0
4.42%
–
–
Less than
1 month
1 - 3
months
3 months –
1 year
1 - 5
years
More than
5 years
–
–
–
–
–
–
165.0
4.04%
292.0
4.10%
Maturity
Total
770.0
4.55%
350.0
4.97%
Maturity
Total
457.0
4.08%
Amounts relating to items designated as hedging instruments and hedge ineffectiveness are set out in the following tables.
The carrying amount of assets and liabilities included in these tables are presented in the statement of financial position on
the lines derivative financial assets and derivative financial liabilities, respectively. Ineffectiveness recognised in the statement
of profit and loss and amounts reclassified from the cash flow hedging reserve to the statement of profit and loss are both
presented on the line net gains/(losses) on derivative financial instruments and hedge accounting. The main source of
ineffectiveness in these hedge relationships relate to differences in the timing of cash flows between the hedged item and
hedging instrument.
1 The accumulated amount of fair value adjustments remaining in the statement of financial position for hedged items that have been
de-designated, for which the fair value hedged item adjustment is being amortised into the statement of profit and loss is £0.5 million
(2022: £1.3 million).
1 The accumulated amount of fair value adjustments remaining in the statement of financial position for hedged items that have been de-designated, for which the fair value hedged item
adjustment is being amortised into the statement of profit and loss is £0.5 million (2022: £1.3 million).
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
25. Derivative financial instruments and hedge accounting (continued)
Carrying amount
Nominal
amount
£m
Assets
£m
Liabilities
£m
Change in fair
value used for
calculating
ineffectiveness
£m
Change in value of
hedging instrument
recognised in other
comprehensive
income
£m
Ineffectiveness
recognised in
statement of
profit and loss
£m
Amount
reclassified from
cash flow hedging
reserve to
statement of
profit and loss
£m
770.0
–
30.6
(20.3)
(20.2)
350.0
0.7
–
(4.7)
(3.1)
(0.1)
(1.7)
9.9
(3.2)
Carrying amount
Nominal
amount
£m
Assets
£m
Liabilities
£m
Change in fair
value used for
calculating
ineffectiveness
£m
Change in value of
hedging instrument
recognised in other
comprehensive
income
£m
Ineffectiveness
recognised in
statement of
profit and loss
£m
Amount reclassified
from cash flow
hedging reserve to
statement of profit
and loss
£m
457.0
3.6
3.5
38.4
38.4
–
2.2
As at 31
December 2023
Interest rate
swaps (pay fixed)
Interest rate
swaps (received
fixed)
As at 31
December 2022
Interest rate
swaps (pay fixed)
Amounts relating to items designated as hedged items are as follows:
As at 31 December 2023
Liabilities
Change in value used
for calculating hedge
ineffectiveness
£m
Cash flow hedging reserve
Continuing
hedges
£m
Discontinued
hedges
£m
Floating rate debt securities included in debt securities in issue
and floating rate borrowings included in amounts due to banks
Floating rate covered bonds and asset finance floating rate assets
20.2
3.1
(30.5)
0.7
36.5
(0.6)
As at 31 December 2022
Liabilities
Change in value used
for calculating hedge
ineffectiveness
£m
Cash flow hedging reserve
Continuing
hedges
£m
Discontinued
hedges
£m
Floating rate debt securities included in debt securities in issue
and floating rate borrowings included in amounts due to banks
38.4
0.1
38.3
Net gains and losses on derivative financial instruments and hedge accounting
Gains and losses on derivative financial instruments and hedge accounting recognised in the statement of profit and loss are
summarised as follows:
Net fair value gains/(losses) on derivative financial instruments
Net fair value gains/(losses) on hedged risk
Net gains/(losses) on derivative financial instruments and hedge accounting
2023
£m
(183.2)
188.3
5.1
2022
£m
211.5
(212.3)
(0.8)
Net fair value gains/(losses) on derivative financial instruments includes foreign exchange gains and losses.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
26. Property, plant and equipment
Year ended 31 December 2023
Cost
As at 1 January 2023
Additions
Acquisitions through business combinations
Disposals
Other movements*
Transfer to finance leases
As at 31 December 2023
Accumulated depreciation
As at 1 January 2023
Charge for the year
Disposals
Other movements*
Transfer to finance leases
As at 31 December 2023
Carrying amount
As at 1 January 2023
As at 31 December 2023
Right-of-use
leasehold
property
£m
Leasehold
property
£m
Fixtures,
fittings and
equipment
£m
Assets on
operating
leases
£m
11.9
–
0.9
–
–
–
2.3
–
–
–
–
–
15.5
0.9
0.5
–
–
–
12.8
2.3
16.9
5.7
2.0
–
–
–
7.7
6.2
5.1
1.1
0.4
–
–
–
12.7
1.1
–
–
–
1.5
13.8
1.2
0.8
2.8
3.1
60.6
2.8
–
(6.0)
7.6
(4.2)
60.8
22.5
8.2
(5.3)
7.6
(3.7)
29.3
38.1
31.5
Total
£m
90.3
3.7
1.4
(6.0)
7.6
(4.2)
92.8
42.0
11.7
(5.3)
7.6
(3.7)
52.3
48.3
40.5
*Other movements of £7.6 million include operating lease costs and depreciation previously reported on a net basis.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
26. Property, plant and equipment (continued)
Year ended 31 December 2022
Cost
As at 1 January 2022
Additions
Disposals
Transfer to finance leases
As at 31 December 2022
Accumulated depreciation
As at 1 January 2022
Charge for the year
Disposals
Transfer to finance leases
As at 31 December 2022
Carrying amount
As at 1 January 2022
As at 31 December 2022
Right-of-use
leasehold
property
£m
Leasehold
property
£m
Fixtures,
fittings and
equipment
£m
Assets on
operating
leases
£m
12.3
–
(0.4)
–
11.9
4.1
1.8
(0.2)
–
5.7
8.2
6.2
1.7
0.8
(0.2)
–
2.3
1.0
0.3
(0.2)
–
1.1
0.7
1.2
15.1
0.5
(0.1)
–
15.5
11.8
1.0
(0.1)
–
12.7
3.3
2.8
56.9
11.9
(6.0)
(2.2)
60.6
20.8
8.7
(5.2)
(1.8)
22.5
36.1
38.1
Total
£m
86.0
13.2
(6.7)
(2.2)
90.3
37.7
11.8
(5.7)
(1.8)
42.0
48.3
48.3
Further details relating to right-of-use leasehold property and assets on operating leases are provided in Note 35.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
27. Intangible assets
See accounting policies in Note 7(m)
Cost
As at 1 January
Additions
Acquisitions through business combinations
Disposals
As at 31 December
Accumulated amortisation and impairment
As at 1 January
Amortisation charge for the year
Disposals
As at 31 December
Carrying amount
As at 1 January
As at 31 December
Goodwill
£m
Other
intangibles
£m
54.8
–
23.4
–
78.2
1.1
–
–
1.1
53.7
77.1
67.5
14.5
1.0
(0.1)
82.9
44.8
8.1
(0.1)
52.8
22.7
30.1
2023
Total
£m
122.3
14.5
24.4
(0.1)
161.1
45.9
8.1
(0.1)
53.9
76.4
107.2
Goodwill
£m
Other
intangibles
£m
54.8
–
–
58.1
9.4
–
2022
Total
£m
112.9
9.4
–
54.8
67.5
122.3
1.1
–
36.6
8.2
37.7
8.2
1.1
44.8
45.9
53.7
53.7
21.5
22.7
75.2
76.4
Other intangibles predominantly comprises computer software, but also includes assets recognised on the acquisition of
businesses, representing brands and the benefit of business networks. Other intangibles additions include £14.2 million of
internally generated assets (2022: £9.3 million).
Goodwill impairment testing
The Group performed its annual assessment to identify any impairment to goodwill. For the purposes of impairment testing,
goodwill is allocated to the Group’s CGUs. The Group’s CGUs are the same as the Group’s operating segments per Note 10,
with the exception that Retail Mortgage Brands is further divided into two CGUs representing the two subsidiaries that are
combined in forming the segment (i.e. The Mortgage Lender Limited (TML) and Bluestone Mortgages Limited (BML)).
Goodwill is impaired if the carrying amount of a CGU exceeds the recoverable amount. Determining the recoverable amount
involves the calculation of the CGU’s value in use, which is derived by discounting the forecast cash flows (post-tax profits) to
be generated from its continuing use, as described below.
Forecast cash flows are based on the Board approved budget and assumptions regarding the long-term pattern of sustainable
cash flows thereafter. Five years of forecast cash flows (post-tax profits) are included in the discounted cash flow model (2022:
five years). A terminal value growth rate of 1.0% is then applied into perpetuity to extrapolate cash flows beyond the cash flow
period (2022: 1.0%). The terminal value growth rate is estimated by the Group taking into account rates disclosed by
comparable institutions.
To discount the forecast cash flows, the Group derives a CGU specific discount rate. These discount rates are an estimate of
the return that investors would require if they were to choose an investment that would generate cash flows of amount, timing
and risk profile equivalent to those that the entity expects to derive from the CGU. The Group calculates the discount rates using
the price-to-book ratio method, which incorporates target return on equity, growth rate and the price-to-book ratio. The discount
rate for each CGU is adjusted to reflect the risks inherent to the individual CGU.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
27. Intangible assets (continued)
Discount rates used for each CGU are as follows:
Real Estate
SME
TML
BML
Post-tax
12.8%
14.3%
15.3%
15.8%
2023
Pre-tax1
17.1%
19.0%
20.5%
21.5%
Post-tax
13.5%
14.5%
16.0%
–
2022
Pre-tax1
17.7%
18.8%
21.1%
–
In both reported years, impairment testing indicated the recoverable amount of each CGU was in excess of its carrying amount
and, as such, no impairment losses have been recognised. Reasonably possible changes in forecast cash flows and the applied
post-tax discount rate would not result in the recoverable amount of any CGU reducing below the carrying amount, as verified
by sensitivity analysis.
A summary of the carrying amount of goodwill by CGU is as follows:
Real
Estate
£m
9.0
–
SME
£m
34.7
TML
£m
10.0
BML
£m
–
2023
Total
£m
53.7
–
–
23.4
23.4
Real
Estate
£m
9.0
–
SME
£m
34.7
TML
£m
10.0
2022
Total
£m
53.7
–
–
–
As at 1 January
Acquisitions through
business combinations
As at 31 December
9.0
34.7
10.0
23.4
77.1
9.0
34.7
10.0
53.7
28. Deferred tax assets
See accounting policies in Note 7(f)
Deferred tax assets are attributable to the following items:
Decelerated tax depreciation
IFRS 9 adjustment
Tax losses in subsidiary companies
SPV hedging swaps
Fair value through other comprehensive income reserve
Other
Total deferred tax assets
2023
£m
5.1
1.5
1.9
17.9
0.2
9.1
35.7
2022
£m
6.1
1.9
3.3
–
4.0
4.1
19.4
1 The Group applies post-tax discount rates to post-tax cash flows when testing CGUs for impairment. The pre-tax discount rate is disclosed
in accordance with IAS 36 ‘Impairment of Assets’.
1 The Group applies post-tax discount rates to post-tax cash flows when testing CGUs for impairment. The pre-tax discount rate is disclosed in accordance with IAS 36 ‘Impairment of Assets’.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
28. Deferred tax assets (continued)
Movements in deferred tax assets are as follows:
As at 1 January
Amounts recognised in statement of profit and loss (see Note 20):
Current year movement
Adjustment in respect of prior years
Tax rate changes
Amounts recognised in other comprehensive income:
Current year movement in cash flow hedging reserve
Current year movement in fair value through other comprehensive income reserve
Other:
Acquisitions through business combinations
As at 31 December
2023
£m
19.4
13.4
(1.7)
0.1
8.0
(3.8)
0.3
35.7
2022
£m
14.2
11.9
(0.9)
–
(9.8)
4.0
–
19.4
The Group’s business plans project future profits that are sufficient to fully recognise the deferred tax assets. The deferred tax
assets will unwind over the remaining life of the underlying assets with which they are associated. Deferred tax assets have
been calculated based on an aggregation rate of 26.9% (2022: 26.6%), which is the estimated rate of recovery that will unwind
over the remaining life of the underlying assets with which they are associated. Deferred tax assets reflect the substantively
enacted tax rate changes detailed in Note 20.
29. Other assets
Other debtors
Prepayments
Accrued income
Total other assets
30. Investment in subsidiaries
See accounting policies in Note 7(n)
2023
£m
13.4
15.1
1.4
29.9
Group
2022
£m
3.5
10.3
1.3
15.1
Company
2022
£m
0.4
0.1
–
0.5
2023
£m
–
–
–
–
The investment in subsidiary in the Company statement of financial position relates to the Company’s investment in Shawbrook
Bank Limited and is attributable to the following components.
Equity shares
Capital securities
Capital contribution
Share-based payments
Total investment in subsidiaries
2023
£m
267.8
125.0
19.9
19.1
431.8
2022
£m
267.8
125.0
5.6
18.4
416.8
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
30. Investment in subsidiaries (continued)
Movements in the Company’s investment in subsidiaries are as follows:
As at 1 January
Capital securities issued
Capital securities settled
Capital contribution
Share-based payments
As at 31 December
2023
£m
416.8
–
–
14.3
0.7
431.8
2022
£m
416.7
124.0
(124.0)
–
0.1
416.8
The capital contribution made during the year relates to Shawbrook Bank Limited’s acquisition of BML, as detailed in Note 9.
Details of the capital securities transactions between Shawbrook Bank Limited and the Company are provided in Note 40.
Share-based payments are attributable to the scheme detailed in Note 17.
31. Amounts due to banks
See accounting policies in Note 7(o)
Cash at Bank of England
Derivative collateral received
Other
Total amounts due to banks
2023
£m
2022
£m
1,215.8
1,208.5
189.0
0.2
290.0
0.2
1,405.0
1,498.7
Amounts due to banks include:
• £1,200.0 million (2022: £1,200.0 million) drawn under the Bank of England’s Term Funding Scheme with additional
incentives for SMEs, which fall due for repayment in 2025. These amounts are collateralised by customer loan assets
and investment securities.
• £189.0 million (2022: £290.0 million) of cash collateral received against derivative contracts.
32. Customer deposits
See accounting policies in Note 7(p)
Retail customers:
Instant access
Term deposits and notice accounts
Corporate customers:
Term deposits
Fair value adjustments for hedged risk
Total customer deposits
2023
£m
2022
£m
5,586.5
7,947.7
25.7
2.8
3,334.0
7,599.9
–
(19.4)
13,562.7
10,914.5
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
33. Provisions
See accounting policies in Note 7(q)
As at 1 January
Provisions utilised
Provisions made/(released)
As at 31 December
2023
Loss
provision
£m
Other
provisions
£m
Total
£m
Loss provision
£m
Other
provisions
£m
0.5
–
3.3
3.8
5.5
(6.5)
13.1
12.1
6.0
(6.5)
16.4
15.9
0.7
–
(0.2)
0.5
13.5
(8.8)
0.8
5.5
2022
Total
£m
14.2
(8.8)
0.6
6.0
Loss provision
The loss provision represents the loss allowance on loan commitments (see Note 46). Provisions made/(released) represent
the net ECL charge/(credit) for the year on loan commitments and is recognised in impairment losses on financial assets in
the statement of profit and loss (see Note 19).
Other provisions
Other provisions represent provisions made in relation to customer remediation and conduct issues and provisions for
legal costs to defend cases brought against the Group. Provisions made are recognised in provisions in the statement
of profit and loss.
A reconciliation of the net amount recognised in provisions in the statement of profit and loss is as follows:
Other provisions made
Other provisions utilised
Net charge/(credit) for provisions
2023
£m
13.1
(6.5)
6.6
2022
£m
0.8
(8.8)
(8.0)
Provisions made in the current period predominantly relates to timeshare complaints. The Group has received a number of
complaints from customers about holiday ownership (timeshare) products, where the Group provided finance to customers to
fund the purchase of those products. While the Financial Ombudsman Service had previously not upheld the majority of such
complaints that were referred to it, in November 2021, they subsequently issued a final decision on one such complaint that
was found in the customer’s favour. The Group commenced a legal challenge of this decision by way of judicial review that
was determined in May 2023. While the Group was ultimately unsuccessful in its challenge, the court found that the Financial
Ombudsman Service made a number of errors of law in reaching its final decision and concluded each complaint must be
carefully considered on its own individual facts.
In total, the Group has advanced loans of c. £200 million to customers in relation to timeshare financing. Based on the
information available at the reporting date, the Group has recognised a provision of £11.4 million, reflecting the best estimate
of probable outflows associated with timeshare claims. Ultimately redress will depend on claim rates. At this time, the Group
believes the provision recognised is adequate. Further information regarding an associated contingent liability is provided in
Note 47.
The Group has commenced work to pursue recoveries from either original suppliers or, failing that, the Group’s insurers,
however, in accordance with IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’, such reimbursement cannot
be recognised as an asset unless it is virtually certain. The Group typically does not deem a reimbursement claim to be
virtually certain until it has been accepted by the other party. At this point, the Group therefore discloses a contingent asset
for reimbursements (see Note 47). In accordance with IAS 37, any recoveries from suppliers or insurers will be recognised in
the statement of profit and loss within provisions.
Critical accounting judgements and estimates
The calculation of other provisions relating to customer remediation and conduct issues is an area identified as involving
critical accounting judgements and estimates. Additional details are provided in Note 8(b).
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
34. Debt securities in issue
See accounting policies in Note 7(i)
Debt securities in issue comprise asset-backed notes issued to external investors by consolidated structured entities as part of
securitisation transactions (see Note 23). The notes are secured on the underlying portfolio of securitised loans and recourse
under the notes is limited to the structured entity only.
A summary of notes in issue is provided in the following table. Amounts included in the table include accrued interest and
unamortised capitalised costs.
Issued
Issuer
Listing
Optional
redemption
date
Maturity date
Senior notes
Aug 2021
Wandle Mortgage
Funding Limited
Unlisted
Aug 2024
Oct 2038
2023
£m
84.5
Class A-E mortgage-
backed floating rate
notes
Class A mortgage-
backed floating rate
notes
May 2022
Genesis Mortgage
Funding 2022-1 PLC
Euronext
Dublin
Jun 2025
Sept 2059
177.4
Nov 2023
Lanebrook Mortgage
Transaction 2023-1 plc
Euronext
Dublin
May 2027
Aug 2060
200.9
2022
£m
116.4
–
–
Total debt securities in issue
462.8
116.4
Movements in the year are summarised in the following table:
As at 1 January
Issuances
Acquisitions through business combinations
Repurchases and redemptions
Costs capitalised
Other movements
As at 31 December
2023
£m
116.4
200.0
316.9
2022
£m
319.2
–
–
(170.3)
(203.4)
(0.2)
–
462.8
(0.3)
0.9
116.4
During the year ended 31 December 2023, issuances comprised £200 million Class A mortgage-backed floating rate notes
due 2027. These notes were issued to external investors in November 2023 by a consolidated structured entity, Lanebrook
Mortgage Transaction 2023-1 plc, and are listed on Euronext Dublin.
As part of the BML acquisition (see Note 9), the Group acquired issued debt securities totalling £316.9 million, this comprised
of £233.1 million Class A-E mortgage-backed floating rate notes due 2025 issued to external investors by a consolidated
structured entity, Genesis Mortgage Funding 2022-1 plc and £83.8 million various notes issued by Bluestone Mortgage
Finance 5 Ltd. Notes issued by Bluestone Mortgage Finance 5 Ltd were redeemed shortly after the acquisition date.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
35. Leases
See accounting policies in Note 7(r)
Group as a lessor: finance leases
Assets leased to customers under finance lease and instalment credit agreements are predominantly plant and machinery.
The underlying asset provides security against the gross receivable and the Group provides no residual value guarantees in
order to mitigate risk.
Details of the Group’s finance lease and instalment credit receivables are set out in Note 22. This includes a maturity analysis
showing the gross investment in the lease (the undiscounted lease payments receivable) and a reconciliation to the net
investment in the lease (the gross carrying amount of the receivable).
Finance income recognised during the year on finance lease and instalment credit receivables is included in other interest and
similar income (see Note 11).
Group as a lessor: operating leases
Assets leased to customers under operating leases are predominantly plant and machinery. The carrying amount of the Group’s
assets on operating leases and the movements during the year are set out in Note 26.
Net income from operating leases is presented on the face of the statement of profit and loss.
Future minimum rentals receivable under non-cancellable operating leases as at 31 December are as follows:
Within one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
After five years
2023
£m
6.7
4.8
3.7
2.5
1.7
0.5
2022
£m
8.7
6.1
4.3
3.3
2.0
1.9
Total future minimum rentals receivable
19.9
26.3
Group as a lessee: finance leases
The Group has lease contracts for several buildings. These leases typically have lease terms of between 5 and 10 years.
The Group does not sublease any of these leased assets.
Details of right-of-use assets recognised in relation to these leases, including the carrying amount and movements during the
year, are set out in Note 26.
The carrying amount of associated lease liabilities and movements during the year are as follows:
As at 1 January
Additions
Acquisitions through business combinations
Disposals
Interest expense
Payments
As at 31 December
2023
£m
7.4
–
1.0
–
0.1
(2.4)
6.1
2022
£m
9.8
–
–
(0.2)
0.2
(2.4)
7.4
A maturity analysis of lease liabilities is presented in the liquidity risk section of the Risk Report on page 135.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
35. Leases (continued)
The Group also has a number of low value lease contracts for office equipment, for which the Group applies the recognition
exemption for leases of low value assets. For such leases, no right-of-use asset is recognised and lease payments are charged
to administrative expenses in the statement of profit and loss.
The following table provides a summary of the amounts recognised in the statement of profit and loss:
Depreciation expense on right-of-use assets
Interest expense on lease liabilities
Rental expense on low value assets
Total
Administrative
expenses
£m
Interest
expense
£m
2.0
–
0.8
2.8
–
0.1
–
0.1
2023
Total
£m
2.0
0.1
0.8
2.9
Administrative
expenses
£m
Interest
expense
£m
1.8
–
0.3
2.1
–
0.2
–
0.2
Cash outflows from leases in the statement of cash flows are as follows:
Payment of the interest portion of the lease liability (cash flows from operating activities)
Payment of the principal portion of the lease liability (cash flows from financing activities)
Total cash outflows from leases
2023
£m
0.1
2.3
2.4
2022
Total
£m
1.8
0.2
0.3
2.3
2022
£m
0.2
2.2
2.4
In December 2023, the Group entered into a 10-year lease agreement for new office space with an anticipated lease
commencement date of March 2024. The lease liability, representing the net present value for the total payments expected
throughout the lease term, amounts to £31.3 million. As at 31 December 2022, the Group was not committed to any lease
contracts that have not yet commenced.
36. Other liabilities
Other creditors (including sundry creditors and other taxes)
Accruals
Amounts owed to Group companies
Total other liabilities
2023
£m
18.0
52.6
–
70.6
Group
2022
£m
17.6
47.8
–
65.4
Company
2022
£m
0.1
2.3
4.5
6.9
2023
£m
–
0.1
7.3
7.4
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
37. Subordinated debt
See accounting policies in Note 7(s)
Subordinated debt liability
Subordinated debt liabilities comprise notes issued by the Company, as summarised in the following table. Amounts included
in the table include accrued interest and unamortised capitalised costs.
Issued
Listing
Call
date1
Maturity
date
6.5% fixed rate reset callable
subordinated notes
Sep 2019
Open Market of Frankfurt
Stock Exchange
Sep 2024 Sep 2029
9.0% fixed rate reset callable
subordinated notes
Jul 2020
Global Exchange Market
of Euronext Dublin
Jul 2025
Oct 2030
12.25% fixed rate reset callable
subordinated notes
Oct 2023
International Securities Market
of London Stock Exchange
Oct 2028
Jan 2034
Total subordinated liabilities
Movements in the year are summarised in the following table:
As at 1 January
Issuances
Costs capitalised
Other movements
As at 31 December
2023
£m
20.3
76.5
91.7
188.5
2023
£m
96.8
90.0
(1.0)
2.7
188.5
2022
£m
20.3
76.5
–
96.8
2022
£m
96.8
–
–
–
96.8
During the year ended 31 December 2023, the Company established a £1 billion Euro Medium Term Note (EMTN) Programme.
In October 2023, the Company completed its first issuance under the programme, issuing £90.0 million of 12.25% fixed rate
reset callable subordinated notes. The notes are listed on the International Securities Market of the London Stock Exchange.
The principal terms of the subordinated debt liabilities are as follows:
• Interest: interest on the notes is fixed at an initial rate until the reset date. On the reset date, the interest rate will be reset
and fixed based on a set margin above a defined market rate.
• Redemption: the Company may elect to redeem all, but not part, of the notes by exercising its call option as specified in
the terms of the agreement. Optional redemption may also take place for certain regulatory or tax reasons. Any optional
redemption requires the prior consent of the PRA.
• Ranking: the notes constitute direct, unsecured and subordinated obligations of the Company and rank at least pari passu,
without any preference, among themselves as Tier 2 capital. The notes rank behind the claims of depositors and other
unsecured and unsubordinated creditors, but rank in priority to holders of Tier 1 capital and of equity in the Company.
Subordinated debt receivable
The subordinated debt receivable in the Company statement of financial position represents subordinated debt issued to the
Company by the Group’s principal subsidiary, Shawbrook Bank Limited. The notes issued by Shawbrook Bank Limited are
on terms consistent with the listed notes issued by the Company.
As at 31 December 2023, the subordinated debt receivable in the Company statement of financial position is £189.9 million
(2022: £97.4 million). The loss allowance recognised on the subordinated debt receivable is £nil in both reported years.
1 The call date may be a fixed date or a defined period of time. Where it relates to a period of time, the date listed reflects the start of the period,
thus reflecting the earliest date the call option may be exercised.
1 The call date may be a fixed date or a defined period of time. Where it relates to a period of time, the date listed reflects the start of the period, thus reflecting the earliest date the call option
may be exercised.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
38. Financial assets and financial liabilities
See accounting policies in Note 7(t)
Classification of financial assets and financial liabilities
The following table analyses the carrying amount of the Group’s financial assets and financial liabilities by measurement
classification. There were no reclassifications between classification categories during either of the reported years.
Amortised
cost
£m
FVOCI
£m
Mandatorily
at FVTPL
£m
Carrying
amount
£m
Amortised
cost
£m
FVOCI
£m
Mandatorily
at FVTPL
£m
Carrying
amount
£m
2023
2022
Financial assets
Cash and balances
at central banks
2,188.1
Loans and advances to banks
480.7
–
–
Loans and advances
to customers1
Investment securities
Derivative financial assets
10,464.0
2,815.3
822.1
–
–
–
–
–
–
–
252.7
2,188.1
2,037.1
480.7
263.6
–
–
13,279.3
9,188.3
1,268.8
822.1
252.7
691.0
–
–
–
–
–
–
–
330.7
2,037.1
263.6
10,457.1
691.0
330.7
Total financial assets
13,954.9
2,815.3
252.7
17,022.9
12,180.0
1,268.8
330.7
13,779.5
Financial liabilities
Amounts due to banks
Customer deposits
Derivative financial liabilities
Debt securities in issue
Lease liabilities2
Subordinated debt liability
1,405.0
13,562.7
–
462.8
6.1
188.5
Total financial liabilities
15,625.1
–
–
–
–
–
–
–
–
–
184.5
–
–
–
1,405.0
1,498.7
13,562.7
10,914.5
184.5
462.8
6.1
188.5
–
116.4
7.4
96.8
184.5
15,809.6
12,633.8
–
–
–
–
–
–
–
–
–
1,498.7
10,914.5
90.5
–
–
–
90.5
116.4
7.4
96.8
90.5
12,724.3
Fair value of financial assets and financial liabilities
A summary of the valuation methods used by the Group to calculate the fair value of its financial assets and financial liabilities
is as follows:
• Cash and balances at central banks and loans and advances to banks: fair value approximates the carrying amount
as balances have minimal credit losses and are either short-term in nature or re-price frequently.
• Loans and advances to customers: fair value is calculated based on the present value of future principal and interest
cash flows, discounted at the market rate of interest at the reporting date, and adjusted for future credit losses if
considered material.
• Investment securities, debt securities in issue and subordinated debt liability: fair value is based on quoted prices
where available or by discounting cash flows using market rates.
• Derivative financial instruments: fair value is obtained from quoted market prices in active markets and, where these are
not available, from valuation techniques including discounted cash flows.
• Amounts due to banks and customer deposits: fair value is estimated using discounted cash flows applying either market
rates where practicable, or rates offered with similar characteristics by other financial institutions. The fair value of floating rate
placements, fixed rate placements with less than six months to maturity and overnight deposits is considered to approximate
the carrying amount.
In accordance with IFRS 7, fair value disclosures are not required for lease liabilities. As such, the Group does not calculate
a fair value for lease liabilities and they are not included in the following fair value disclosures.
1 The loans and advances to customers balance includes finance lease and instalment credit receivables, which are measured in accordance
1 The loans and advances to customers balance includes finance lease and instalment credit receivables, which are measured in accordance with IFRS 16 ‘Leases’. These are included in the
2 Lease liabilities, which are measured in accordance with IFRS 16 ‘Leases’, are included in the amortised cost column.
with IFRS 16 ‘Leases’. These are included in the amortised cost column.
amortised cost column.
2 Lease liabilities, which are measured in accordance with IFRS 16 ‘Leases’, are included in the amortised cost column.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
38. Financial assets and financial liabilities (continued)
The Group uses a fair value hierarchy which reflects the significance of the inputs used in making fair value measurements.
There are three levels to the hierarchy as follows:
• Level 1: quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date;
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices). A Level 2 input must be observable for substantially the full term of the
instrument. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical
or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset
or liability, such as interest rates and yield curves observable at commonly quoted intervals, implied volatilities and credit
spreads. Assets and liabilities classified as Level 2 have been valued using models whose inputs are observable in an active
market; and
• Level 3: inputs for the asset or liabilities that are not based on observable market data (unobservable inputs).
In assessing whether a market is active, factors such as the scale and frequency of trading activity, the availability of prices and
the size of bid/offer spreads are considered. If, in the opinion of the Group, a significant proportion of an instrument’s carrying
amount is driven by unobservable inputs, the instrument, in its entirety, is classified as Level 3 of the fair value hierarchy. Level
3 in this context means that there is little or no current market data available from which to determine the level at which an arm’s
length transaction would be likely to occur. It generally does not mean that there is no market data available at all upon which to
base a determination of fair value (for example, consensus pricing data may be used).
Financial assets and financial liabilities measured at amortised cost
The following table analyses the Group’s financial assets and financial liabilities measured at amortised cost into the fair value
hierarchy. There were no transfers between levels of the fair value hierarchy during either of the reported years.
Level 3
£m
Level 2
£m
2023
Level 1
£m
Level 3
£m
Level 2
£m
2022
Level 1
£m
Financial assets at amortised cost
Cash and balances at central banks
Loans and advances to banks
–
–
Loans and advances to customers
10,464.0
Investment securities
Financial liabilities at amortised cost
Amounts due to banks
Customer deposits
Debt securities in issue
Subordinated debt liability
–
–
–
–
–
–
2,188.1
480.7
–
–
–
117.6
704.5
1,405.0
13,562.7
462.8
188.5
–
–
–
–
–
–
9,188.3
–
–
–
–
–
–
2,037.1
263.6
–
–
–
126.4
564.6
1,498.7
10,914.5
116.4
96.8
–
–
–
–
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
38. Financial assets and financial liabilities (continued)
The following table provides a comparison of the carrying amount per the statement of financial position and the calculated
fair value for the Group’s financial assets and financial liabilities measured at amortised cost.
For cash and balances at central banks, loans and advances to banks and assets held for sale, the carrying amount is
considered to be a reasonable approximation of fair value and, as such, these are not included in the following table.
Financial assets at amortised cost
Loans and advances to customers
Investment securities
Financial liabilities at amortised cost
Amounts due to banks
Customer deposits
Debt securities in issue
Subordinated debt liability
Carrying
amount
£m
2023
Fair value
£m
Carrying
amount
£m
2022
Fair value
£m
10,464.0
10,676.0
9,188.3
9,336.0
822.1
822.8
691.0
687.7
1,405.0
1,407.2
1,498.7
1,500.2
13,562.7
13,484.3
10,914.5
10,871.8
462.8
188.5
465.1
187.2
116.4
96.8
117.1
94.8
Financial assets and financial liabilities measured at fair value
The following table analyses the Group’s financial assets and financial liabilities measured at fair value into the fair value
hierarchy. There were no transfers between levels of the fair value hierarchy during either of the reported years. All financial
assets and financial liabilities measured at fair value are recurring fair value measurements.
Level 3
£m
Level 2
£m
2023
Level 1
£m
Financial assets at fair value
Loans and advances to customers
2,815.3
Derivative financial assets
Financial liabilities at fair value
Derivative financial liabilities
–
–
–
252.7
184.5
–
–
–
Level 3
£m
Level 2
£m
1,268.8
–
–
–
330.7
90.5
2022
Level 1
£m
–
–
–
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
38. Financial assets and financial liabilities (continued)
Financial assets and financial liabilities measured at fair value: Level 3 analysis
The following section provides additional analysis of the Group’s financial assets and financial liabilities measured at fair value
that are categorised as Level 3.
Movements in the fair value of Level 3 financial assets and financial liabilities are as follows:
As at 1 January
Additions1
Net fair value gains/(losses) recognised in the statement of
profit and loss
Net fair value gains/(losses) recognised in other
comprehensive income
Settlements/repayments
As at 31 December
2023
Loans and
advances to
customers
at FVOCI
£m
1,268.8
1,514.2
54.7
9.9
(32.3)
2,815.3
Loans and
advances to
customers
at FVOCI
£m
Derivative
financial assets
£m
–
1,352.7
(47.6)
(17.1)
(19.2)
1,268.8
0.2
–
(0.2)
–
–
–
2022
Derivative
financial
liabilities
£m
(0.2)
–
0.2
–
–
–
In relation to the above table:
• Net fair value gains/(losses) recognised in the statement of profit and loss are included in net gains/(losses) on derivative
financial instruments and hedge accounting. The net gains/(losses) attributable to loans and advances to customers at FVOCI
represent unrealised gains/(losses) on hedged items, which are largely offset by unrealised gains/(losses) on the derivative
financial instruments in the hedge accounting relationship. The net gains/(losses) attributable to derivative financial
instruments relate to the balance guaranteed swaps. In the comparative year, the amounts were attributable to swaps that
matured and were therefore realised amounts.
• Net fair value gains/(losses) recognised in other comprehensive income are included in net gains/(losses) from changes in fair
value in relation to the FVOCI reserve. All gains/(losses) recognised are unrealised.
For the Level 3 loans and advances to customers at FVOCI, the fair value is calculated using the discounted cash flow method.
The significant unobservable inputs used in this calculation are the risk-adjusted discount rate, which is derived from cost of
replacement assets based on period end closing swap rates, and the prepayment curve. As at 31 December 2023, the following
risk-adjusted discount rates are used in the calculation of fair value on loans and advances to customers at FVOCI: commercial
TML portfolio – 5.27%, secured residential TML portfolio – 6.26%, BML residential portfolio – 6.72%.
Critical accounting estimates
The valuation of loans and advances to customers at FVOCI is an area identified as involving critical accounting estimates.
Additional details are provided in Note 8(c).
The Group believes that the calculated fair values are appropriate, however, the following table provides sensitivity analysis
to illustrate the impact that reasonably possible changes could have on the asset value and total equity recognised as at
31 December 2023. There would be no impact to the statement of profit and loss as a result of these changes. The following
table does not include sensitivity analysis on variable rate loans at FVOCI.
Change in significant unobservable input
Decrease in discount rate by 50 bps
Increase in discount rate by 50 bps
Decrease in prepayment curve by 10%
Increase in prepayment curve by 10%
Increase/(decrease)
to asset value and
FVOCI reserve
£m
42.8
(41.7)
20.2
(12.4)
1 Additions include new financial assets originated or purchased, additional drawdowns and accrued interest.
1 Additions include new financial assets originated or purchased, additional drawdowns and accrued interest.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
38. Financial assets and financial liabilities (continued)
Offsetting financial assets and financial liabilities
The disclosures set out in the following tables include financial assets and financial liabilities that are either offset in the
statement of financial position, or are subject to an enforceable master netting arrangement or similar agreement, irrespective
of whether they are offset in the statement of financial position.
Financial collateral amounts disclosed in the tables are limited to the net balance sheet exposure for the instrument in order
to exclude any over collateralisation. Financial collateral amounts disclosed exclude initial margin cash collateral with central
clearing houses. Financial collateral amounts disclosed as at 31 December 2023 do not include securities received with a
notional of £69.3m and a market value of £85.7m. As at 31 December 2022, the Group didn’t hold any collateral in the form
of securities.
Gross
amount
£m
Amount
offset
£m
Net amount
presented on
statement of
financial
position
£m
Related amounts not offset
Subject to
master netting
arrangements
£m
Financial
collateral
received/
pledged
£m
Net amount
£m
252.7
252.7
184.5
184.5
–
–
–
–
252.7
252.7
184.5
184.5
Gross
amount
£m
Amount
offset
£m
Net amount
presented on
statement of
financial
position
£m
330.7
330.7
90.5
90.5
–
–
–
–
330.7
330.7
90.5
90.5
(4.1)
(4.1)
(177.5)
(177.5)
–
–
(184.5)
(184.5)
Related amounts not offset
71.1
71.1
–
–
Subject to master
netting
arrangements
£m
–
–
–
–
Financial
collateral
received/
pledged
£m
(271.5)
(271.5)
(90.4)
(90.4)
Net amount
£m
59.2
59.2
0.1
0.1
As at 31 December 2023
Financial assets
Derivative financial assets
Total financial assets
Financial liabilities
Derivative financial liabilities
Total financial liabilities
As at 31 December 2022
Financial assets
Derivative financial assets
Total financial assets
Financial liabilities
Derivative financial liabilities
Total financial liabilities
39. Share capital
Share capital comprises 253,086,879 issued and fully paid ordinary shares of £0.01 each, totalling share capital of £2,530,869.
Each ordinary share has full voting, dividend and capital distribution rights, including on a winding up, but does not have any
rights of redemption. There were no movements in share capital during either of the reported years.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
40. Capital securities
See accounting policies in Note 7(v)
Capital securities comprise securities issued by the Company, as summarised in the following table. Amounts included in the
table are presented net of transaction costs of £1.9 million (2022: £2.1 million).
12.103% fixed rate reset perpetual Additional
Tier 1 write down capital securities
Oct 2022
International Securities
Market of London
Stock Exchange
Dec 2027
122.1
121.9
Issued
Listing
Next call
date1
2023
£m
2022
£m
10.298% fixed rate reset perpetual Additional
Tier 1 write down capital securities (interest rate
reset from 7.875% in December 2022)
Total capital securities
Dec 2017
Global Exchange Market
of Euronext Dublin
Dec 2027
Movements in the year are summarised in the following table:
As at 1 January
Issuances
Issuance costs capitalised
Settlements (via exchange)
Amortisation of capitalised costs
Capitalised costs on settled instruments written off
As at 31 December
1.0
1.0
123.1
122.9
2023
£m
122.9
–
–
–
0.2
–
123.1
2022
£m
124.0
124.0
(2.1)
(124.0)
–
1.0
122.9
In the comparative year, holders of £125 million of capital securities that were issued in 2017 were invited to exchange their
existing capital securities for new capital securities. The principal amount that was accepted for exchange was £124.0 million.
Accordingly, £124.0 million new 12.103% fixed rate reset perpetual Additional Tier 1 write down capital securities was issued
in exchange for the original capital securities issued in 2017. These new capital securities were listed on the International
Securities Market of London Stock Exchange in October 2022. The remaining £1.0 million of capital securities issued in 2017
that was not accepted for exchange was reset to a new rate of interest of 10.298% in December 2022.
In both reported years, the Group paid all interest when scheduled. Distributions made to holders of the capital securities,
recognised directly in equity, totalled £16.9 million (2022: £8.8 million).
The principal terms of the capital securities are as follows:
• Interest: interest is fully discretionary and the Company may elect to, or in certain circumstances is obliged to, cancel (in
whole or in part) any interest otherwise scheduled to be paid. Any interest not paid when scheduled is cancelled. The capital
securities bear a fixed rate of interest until the first reset date. On the first reset date, and on each fifth anniversary thereafter,
the interest rate will be reset and fixed based on a set margin above a defined market rate.
• Redemption: the capital securities are perpetual with no fixed redemption date. The Company may elect to redeem all, but
not part, of the capital securities by exercising its call option on certain dates, or during defined periods, as specified in the
terms of the agreement. Optional redemption may also take place for certain regulatory or tax reasons. Any optional
redemption requires the prior consent of the PRA.
• Write-down: in the event of the Group’s Common Equity Tier 1 capital ratio falling below 7.0%, an automatic and permanent
write down shall occur, resulting in the full reduction and cancellation of all capital securities and the cancellation of any
interest which is accrued and unpaid.
• Ranking: the capital securities constitute direct, unsecured and subordinated obligations of the Company and rank pari
passu, without any preference, among themselves. The capital securities also rank pari passu with the most senior class of
issued preference shares in the Company, if any, and rank ahead of the holders of all other classes of issued shares of the
Company, but rank junior to the claims of unsubordinated and subordinated creditors, other than those creditors whose claims
rank, or are expressed to rank, pari passu with, or junior to, the claims of holders of the capital securities.
In conjunction with each transaction between the Company and external investors, equivalent transactions take place between
the Company and its principal subsidiary, Shawbrook Bank Limited. The capital securities issued by Shawbrook Bank Limited
are on terms consistent with the equivalent listed capital securities issued by the Company. This is recognised in the Company
statement of financial position as part of the investment in subsidiaries (see Note 30).
1 The call date may be a fixed date or a defined period of time. Where it relates to a period of time, the date listed reflects the start of the period,
thus reflecting the earliest date the call option may be exercised.
1 The call date may be a fixed date or a defined period of time. Where it relates to a period of time, the date listed reflects the start of the period, thus reflecting the earliest date the call option
may be exercised.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
41. Notes to the cash flow statement
Adjustments for non-cash items and other adjustments included in the statement of profit and loss
ECL charge on loans and advances to customers
at amortised cost
ECL charge on loans and advances to customers at FVOCI
ECL charge/(credit) on loan commitments
Other movements on investment securities
Depreciation of property, plant and equipment
Amortisation of intangible assets
Other movements on subordinated debt
Other movements on debt securities in issue
Other movements on capital securities
Equity-settled share-based payments
2023
£m
19.8
4.3
3.3
22.7
11.7
8.1
2.7
–
0.2
0.7
Group
2022
£m
35.8
2.4
(0.2)
2.3
11.8
8.2
–
0.9
–
0.1
Total non-cash items and other adjustments
73.5
61.3
Net change in operating assets
Increase in mandatory deposits with central banks
2023
£m
(10.3)
Group
2022
£m
(8.5)
Increase in loans and advances to customers
(2,536.0)
(2,237.9)
(Increase)/decrease in derivative financial assets
Increase in operating lease assets
Increase in other assets
Decrease in assets held for sale
63.2
(1.6)
(9.8)
–
(273.0)
(10.7)
(3.5)
299.7
(Increase)/decrease in operating assets
(2,494.5)
(2,233.9)
Net change in operating liabilities
Increase in customer deposits
Increase/(decrease) in other provisions
Increase in derivative financial liabilities
Increase/(decrease) in other liabilities
Increase in operating liabilities
2023
£m
Group
2022
£m
2,648.2
2,555.9
6.6
94.0
(10.5)
2,738.3
(8.0)
82.4
2.7
2,633.0
Company
2022
£m
2023
£m
–
–
–
–
–
–
0.2
–
0.2
–
0.4
2023
£m
–
–
–
–
0.1
–
0.1
2023
£m
–
–
–
0.5
0.5
–
–
–
–
–
–
–
–
–
0.1
0.1
Company
2022
£m
–
–
–
–
0.7
–
0.7
Company
2022
£m
–
–
–
6.9
6.9
42. Ultimate parent company
The ultimate parent and controlling party of the Group is Marlin Bidco Limited. Marlin Bidco Limited is a company jointly owned
by PSCM Pooling LP and Marlinbass Limited. Both companies are incorporated in Guernsey and are investment vehicles of
Pollen Street Capital Limited and BC Partners LLP, respectively.
The largest company in which the results of the Group are consolidated is that headed by Shawbrook Group plc (see Note 1).
No other financial statements include the results of the Group.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
43. Subsidiary companies
See accounting policies in Note 7(a)
Wholly owned subsidiary companies
As at 31 December 2023, the Group includes the following subsidiary companies whose results are included in the consolidated
financial statements. The Company’s investment in subsidiaries is detailed in Note 30.
Country of
incorporation
Class of
shares
Ownership
%
Principal
activity
Registered
address
(see below)
Audit
status
(see below)
Name
Shawbrook Bank Limited
and its subsidiaries, as follows:
The Mortgage Lender Limited
(company number: 09280057)
Bluestone Mortgages Limited
(company number: 02305213)
and its subsidiaries, as follows:
Bluestone Mortgage Finance
No. 3 Limited
(company number: 10863328)
Bluestone Mortgage Finance
No. 5 Limited
(company number: 13177731)
Bluestone Mortgage Retention
Finance No. 1 Limited
(company number: 12087164)
Bluestone Mortgage Retention
Finance No. 2 Limited
(company number: 13904329)
England and Wales
Ordinary
100
Banking
England and Wales
Ordinary
100
England and Wales
Ordinary
100
England and Wales
Ordinary
100
England and Wales
Ordinary
100
England and Wales
Ordinary
100
England and Wales
Ordinary
100
Mortgage
finance
Mortgage
finance
Special
purpose
vehicle
Special
purpose
vehicle
Risk
retention
holder
Risk
retention
holder
Singers Corporate Asset Finance Limited
(company number: 06863223)
Singers Healthcare Finance Limited
(company number: 00983790)
England and Wales
Ordinary
100
Dormant
England and Wales
Ordinary
100
Dormant
Coachlease Limited
(company number: 03462512)
Hermes Group Limited
(company number: 02452917)
Singer & Friedlander Commercial
Finance Limited
(company number: SC053939)
Link Loans Limited
(company number: 06642090)
Centric SPV 1 Limited
(company number: 06441060)
Resource Partners SPV Limited
(company number: 03817443)
England and Wales
Ordinary
100
Dormant
England and Wales
Ordinary
100
Dormant
Scotland
Ordinary
100
Dormant
England and Wales
Ordinary
100
Dormant
England and Wales
Ordinary
100
Dormant
England and Wales
Ordinary
100
Dormant
a
a
b
b
b
b
b
a
a
a
a
c
a
a
a
i
ii
ii
ii
ii
ii
ii
iii
iii
iii
iii
iii
iii
iii
iii
The following changes took place during the year ended 31 December 2023:
• Bluestone Mortgages Limited (BML) became a wholly owned subsidiary of Shawbrook Bank Limited, the Group’s principal
subsidiary, in May 2023 (see Note 9). BML has four wholly owned subsidiary companies, as detailed in above table, all of
which became indirect subsidiary companies of the Group as part of the acquisition1.
Registered addresses of the subsidiary companies included in the above table are as follows:
a: Lutea House, Warley Hill Business Park, The Drive, Great Warley, Brentwood, Essex, England, CM13 3BE.
b: 3rd Floor, 22 Chancery Lane, London, United Kingdom, WC2A 1LS.
c: Nelson Mandela Place, Glasgow, Scotland, G2 1BT.
1 Bluestone Mortgage Finance No. 4 Limited, which was a wholly owned subsidiary of BML, was dissolved in April 2023 before the completion
of the BML acquisition.
1 Bluestone Mortgage Finance No. 4 Limited, which was a wholly owned subsidiary of BML, was dissolved in April 2023 before the completion of the BML acquisition.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
43. Subsidiary companies (continued)
The audit status of the subsidiary companies included in the above table is as follows:
i: audited accounts are prepared for the subsidiary company.
ii: an exemption from audit has been applied and the Group guarantees all outstanding liabilities of the exempted
subsidiary company in accordance with Section 479A-C of the Companies Act 2006.
iii: an exemption from audit for dormant companies has been applied in accordance with Section 480 of the
Companies Act 2006.
Subsidiaries by virtue of control
As at 31 December 2023, the Group includes the following structured entities relating to securitisation programmes (see Note
23). Shares of these entities are ultimately beneficially owned through an independent trust. However, for accounting purposes,
the entities are controlled by the Group and, as such, they are treated as subsidiaries and are fully consolidated.
Name
Country of incorporation Principal activity
Shawbrook Mortgage Funding 2019-1 plc
(company number: 11546385)
England and Wales
Special purpose vehicle
Shawbrook Mortgage Funding Holdings Limited
England and Wales
Special purpose vehicle
Wandle Mortgage Funding Limited
England and Wales
Special purpose vehicle
Ealbrook Mortgage Funding 2022-1 plc
England and Wales
Special purpose vehicle
Ealbrook Mortgage Funding 2022-1 Holdings Limited
England and Wales
Holding company
Lanebrook Mortgage Transaction 2022-1 plc
England and Wales
Special purpose vehicle
Shawbrook Mortgage Funding 2022-1 plc
England and Wales
Special purpose vehicle
Genesis Mortgage Funding 2019-1 PLC
(company number: 12035334)
England and Wales
Special purpose vehicle
Genesis Mortgage Funding 2022-1 PLC
England and Wales
Special purpose vehicle
Holbrook Mortgage Transaction 2023-1 plc
England and Wales
Special purpose vehicle
Lanebrook Mortgage Transaction 2023-1 plc
England and Wales
Special purpose vehicle
Registered
address
(see below)
Audit
status
(see below)
a
b
c
b
b
b
b
b
d
b
b
ii
i
i
i
i
i
i
ii
i
i
i
The following changes took place during the year ended 31 December 2023:
• BML, which was acquired in May 2023 (see ‘wholly owned subsidiary companies’ section above and Note 9), has two
subsidiary companies by virtue of control, Genesis Mortgage Funding 2019-1 PLC and Genesis Mortgage Funding 2022-1
PLC. Both of these companies became indirect subsidiaries by virtue of control of the Group as part of the acquisition.
• Holbrook Mortgage Transaction 2023-1 plc became a subsidiary in June 2023 as part of a securitisation transaction
(see Note 23).
• Lanebrook Mortgage Transaction 2023-1 plc became a subsidiary in November 2023 as part of a securitisation transaction
(see Note 23).
The liquidation process of Shawbrook Mortgage Funding 2019-1 plc has been completed in February 2024. The liquidation
process of Genesis Mortgage Funding 2019-1 plc remains ongoing. On completion, the companies will cease to be subsidiaries
of the Group.
Registered addresses of the subsidiary companies included in the above table are as follows:
a: 40a Station Road, Upminster, Essex, England, RM14 2TR.
b: 1 Bartholomew Lane, London, England, EC2N 2AX.
c: 6th Floor, 125 London Wall, London, England EC2Y 5AS.
d: 10th Floor, 5 Churchill Place, London, United Kingdom, E14 5HU
The audit status of the subsidiary companies included in the above table is as follows:
i: audited accounts are prepared for the subsidiary company.
ii: an exemption from audit for dormant companies has been applied in accordance with Section 480 of the
Companies
Act 2006.
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
for the year ended 31 December 2023
44. Related party transactions
Transactions with key management personnel
Key management personnel refer to the Executive Management team and the Directors of the Group.
Total compensation for the year for key management personnel that are employed by the Group is as follows:
Short-term employee benefits
Other long-term benefits
Termination benefits
Total compensation for employed key management personnel
2023
£m
6.5
1.0
–
7.5
2022
£m
6.3
1.0
–
7.3
In addition to the above, in the year ended 31 December 2023, the Group incurred fees in relation to the Institutional Directors
appointed to the Board by the ultimate parent company, as set out and agreed within the Framework Agreement, totalling
£0.1 million (2022: £0.1 million). The institutional Directors are not employed by the Group and, accordingly, their fees are
not included in the above table.
Further details of compensation paid to the Directors of the Group are provided in the Directors’ Remuneration Report on page 74.
The Group provides employee loans to certain key management personnel. These loans are subject to interest in accordance with the
beneficial loan arrangements rate set by HMRC. The loans do not involve more than the normal risk of collectability or present other
unfavourable features. As at 31 December 2023, the amount outstanding in respect of these loans is £0.6 million (2022: £0.5 million).
Interest income recognised in respect of these loans is less than £0.1 million in both reported years. No provisions have been
recognised in respect of these loans and no balances have been written off or forgiven during either of the reported years.
The Group holds savings deposits from certain key management personnel and their close family members. Such deposits
are held in the ordinary course of business on normal commercial terms. As at 31 December 2023, the amount held in respect
of these deposits is £0.8 million (2022: £0.6 million). Interest expense recognised in respect of these deposits is less than
£0.1 million in both reported years.
The Group also issued subordinated notes listed on various stock exchanges. The key management personnel have subscribed
for £25,000 aggregate principal amount of Fixed Rate Reset Callable Tier 2 Capital Notes due January 2034 and £50,000
aggregate principal amount of Fixed Rate Reset Callable Subordinated Notes due October 2030.
Transactions with the ultimate parent
The ultimate parent and controlling party of the Group is Marlin Bidco Limited (see Note 42).
As at 31 December 2023, the balance owed to Marlin Bidco Limited is £0.8 million (2022: £0.8 million).
In both reported years, certain employees, including key management personnel, have acquired non-voting ‘B’ Class ordinary
shares in Marlin Bidco Limited as part of an employee share-based payment scheme (see Note 17).
Transactions between the Company and subsidiary companies
Subsidiary companies of the Group are detailed in Note 43.
Amounts due to the Company from its principal subsidiary, Shawbrook Bank Limited, and recognised in the Company statement
of financial position, are as follows:
Other amounts payable
Subordinated debt receivable1
Total amounts due from subsidiary
Note
36/29
37
2023
£m
(7.3)
188.5
181.2
2022
£m
(4.5)
96.8
92.3
Transactions during the year between the Company and Shawbrook Bank Limited, recognised in the Company statement of
profit and loss, are as follows:
Coupon on capital securities2
Interest on subordinated debt receivable
Management fee
Total income from subsidiary
2023
£m
16.9
10.5
0.7
28.1
2022
£m
8.8
7.9
0.3
17.0
1 The total subordinated debt receivable per Note 37 is £189.9 million (2022: £97.4 million). The difference compared to the amount presented in
this table of £1.4 million (2022: £0.6 million) relates to capitalised amounts (capitalised costs and a modification loss), which do not constitute
amounts owing between the parties.
1 The total subordinated debt receivable per Note 37 is £189.9 million (2022: £97.4 million). The difference compared to the amount presented in this table of £1.4 million (2022: £0.6 million)
2 The coupon on capital securities relates to capital securities issued to the Company by Shawbrook Bank Limited, which are included as part of
relates to capitalised amounts (capitalised costs and a modification loss), which do not constitute amounts owing between the parties.
the investment in subsidiaries (see Note 30).
2 The coupon on capital securities relates to capital securities issued to the Company by Shawbrook Bank Limited, which are included as part of the investment in subsidiaries (see Note 30).
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Notes to the financial statements
for the year ended 31 December 2023
Notes to the financial statements
CONFIDENTIAL. DRAFT. Version: LIVE
The Group has insurance cover in place that it believes would
substantially recover any remediation costs incurred in
relation to such timeshare claims. Discussions are ongoing
regarding reimbursement, however, in accordance with IAS
37 ‘Provisions, Contingent Liabilities and Contingent Assets’,
such reimbursement cannot be recognised as an asset unless
it is virtually certain. The Group typically does not deem a
reimbursement claim to be virtually certain until it has been
accepted by the other party. Consequently, at this point in
time, the associated reimbursement claim is deemed to be
a contingent asset, which leads to a timing difference
when compared to the recognition of the provision for
remediation costs.
Motor finance commission arrangements
The Group has received a number of complaints in respect of
its historical regulated motor finance discretionary commission
arrangements (DCAs). The Financial Ombudsman Service
(the FOS) found in favour of the complainants in two
decisions in January 2024 relating to other lenders. The
Financial Conduct Authority (FCA) notes that this is likely to
prompt a significant increase in complaints from consumers to
lenders and the FOS. The FCA therefore announced they are
using their powers under s166 of the Financial Services and
Markets Act 2000 to review historical motor finance
commission arrangements and sales across several firms
(which currently does not include the Group). Until that review
is concluded, the usual timeframes for handling such
complaints have been suspended. As this is an ongoing
review, with the findings not expected to be published until
September 2024, it is currently not possible to predict the
ultimate outcome of any such complaints, including the
financial impact or the scope or nature of any remediation
requirements. The Group has however undertaken a review
of its historical regulated motor finance lending that might be
considered in scope and, due to low volumes, it is not
expected that the outcome of the FCA review and any
resulting remediation of in-scope complaints would have
a material financial impact on the Group.
48. Events after the reporting period
There have been no significant events between 31 December
2023 and the date of approval of the 2023 Annual Report and
Accounts that require a change or additional disclosure in the
financial statements.
for the year ended 31 December 2023
45. Capital commitments
As at 31 December 2023, the Group has no capital
commitments (2022: £nil).
46. Loan commitments
See accounting policies in Note 7(w)
As at 31 December 2023, the Group has loan commitments,
which are not recognised in the statement of financial
position, of £1,280.8 million (2022: £1,628.7 million). A loss
allowance of £3.8 million (2022: £0.5 million) is held against
these loan commitments, which is recognised in provisions
in the statement of financial position (see Note 33).
Additional analysis of the Group’s loan commitments and the
associated loss allowance is provided in the credit risk section
of the Risk Report starting on page 116.
47. Contingent assets
and contingent liabilities
See accounting policies in Note 7(x)
Part of the Group’s business is regulated by the Consumer
Credit Act (CCA), a piece of UK legislation designed to protect
the rights of consumers. The Group’s Consumer franchise is
exposed to risk under Section 75 and Section 140A of the
CCA, in relation to any misrepresentations, breaches of
contract or other failures by suppliers of goods and services
to customers, where the purchase of those goods and
services is financed by the Group. While the Group would
have recourse to the supplier in the event of such liability,
if the supplier became insolvent that recourse would have
limited value.
The Group continues to undertake reviews of its compliance
with the CCA and other consumer regulations. The Group has
identified some areas of potential non-compliance, which,
based on current information, are not considered to be
material. However, in light of the uncertainties involved in
such matters, there can be no assurance that the outcome of
a particular matter will not result in a material liability.
Additional information regarding specific matters of note is
provided below to the extent possible, however it is
highlighted that certain information usually required in
accordance with IAS 37 ‘Provisions, Contingent Liabilities and
Contingent Assets’ may not be disclosed on the grounds that
it may prejudice the position of the Group in any relating
dispute with other parties.
Timeshare complaints
The Group has received a number of complaints from
customers about holiday ownership (timeshare) products and
as at 31 December 2023, the Group has recognised a
provision of £11.4 million in relation to specific customer
complaints (see Note 33). As this is an ongoing area of review
there is potential for further liabilities from customers that
have not yet complained. However, based on current
evidence, the level of uncertainty regarding the outcome
means the criteria to be recognised as a provision are not
judged to have been met.
Shawbrook Group plc
Annual Report and Accounts 2023
65
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Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial StatementsShawbrook Group plc | Annual Report and Accounts 2023
Other
information
253 Abbreviations
254 Performance indicators
255 Country-by-country reporting
Abbreviations
Throughout this document:
‘Company’ refers to:
‘Group’ refers to:
‘Shawbrook’ refers to:
‘Shareholder’ refers to:
Shawbrook Group plc
the ‘Company’ and its subsidiaries
the ‘Group’
Marlin Bidco Limited
The following abbreviations are used within this document:
API
BML
bps
CAIS
CCA
CET1
CGU
Application programme interface
Bluestone Mortgages Limited
Basis point
Credit Account Information Sharing
Consumer Credit Act
Common Equity Tier 1
Cash generating unit
the ‘code’
UK Corporate Governance Code 2018
COVID-19
Coronavirus disease
CRD V
CRM
Capital Requirements Directive
Customer relationship management
CRR/CRR II
Capital Requirements Regulation
EAD
EBA
ECL
EDI
EIR
EPC
ESG
EU
FCA
FVOCI
FVTPL
HMRC
IAS
Exposure at default
European Banking Authority
Expected credit loss
Equality, diversity and inclusion
Effective interest rate
Energy performance certificate
European Union
Financial Conduct Authority
Fair value through other
comprehensive income
Fair value through profit or loss
HM Revenue and Customs
International Accounting Standards
IFRS
ILAAP
ISAs
LCR
LGD
International Financial Reporting Standards
Internal Liquidity Adequacy
Assessment Process
Individual Savings Account
Liquidity coverage ratio
Loss given default
LIBOR
London Inter-bank Offered Rate
MIP
NSFR
OTC
PD
PMA
POCI
PRA
RMF
SICR
SMEs
SMF
Management Incentive Plan
Net stable funding ratio
Over-the-counter
Probability of default
Post-model adjustment
Purchased or originated credit-impaired
Prudential Regulation Authority
Risk Management Framework
Significant increase in credit risk from
initial recognition
Small and medium-sized enterprises
Senior Management Function
SPPI
TCFD
TFSME
TML
UK
USA
Solely payments of principal and interest
on the principal amount outstanding
Task Force on Climate-related
Financial Disclosures
Term Funding Scheme with additional
incentives for SMEs
The Mortgage Lender Limited
United Kingdom
United States of America
Environmental, social and governance
SONIA
Sterling Overnight Index Average rate
ICAAP
Internal Capital Adequacy Assessment Process
Time periods referred to within this document are defined as follows:
FY
H1
H2
Q1
Q2
Q3
Q4
Full year: 12 months from 1 January to 31 December
First half: six month period from 1 January to 30 June
Second half: six month period from 1 July to 31 December
First quarter: three month period from 1 January to 31 March
Second quarter: three month period from 1 April to 30 June
Third quarter: three month period from 1 July to 30 September
Fourth quarter: three month period from 1 October to 31 December
253
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Performance indicators
Certain financial measures disclosed in the Annual Report and Accounts do not have a standardised meaning
prescribed by international accounting standards and may not therefore be comparable to similar measures
presented by other issuers. These measures are considered ‘alternative performance measures’ (non-GAAP
financial measures) and are not a substitute for measures prescribed by international accounting standards.
Definitions of financial performance indicators referred to in the Strategic Report (in alphabetical order) are
set out below:
Average principal employed
The average of monthly closing loans and advances to customers1
(net of loss allowance and fair value adjustments for hedged risk)
and assets on operating leases included in property, plant and equipment.
Common Equity Tier 1 (CET1) capital ratio
Common Equity Tier 1 capital, divided by, risk-weighted assets.
Cost of risk
Cost to income ratio
Gross asset yield
Leverage ratio
Liability yield
Liquidity coverage ratio
Loan book
Management expenses ratio
Impairment losses on financial assets, divided by, average principal employed.
The sum of administrative expenses and the provisions charge/credit
recognised in the statement of profit and loss, divided by, net operating income.
Net operating income less interest expense and similar charges, divided by,
average principal employed.
Total Tier 1 capital, divided by, total leverage ratio exposure measure.
Interest expense and similar charges, divided by, average principal employed.
Liquidity buffer, divided by, total 30-day net cash outflows in a standardised
stress scenario.
The sum of loans and advances to customers1 (net of loss allowance and
fair value adjustments for hedged risk) and the carrying amount of assets
on operating leases included in property, plant and equipment.
The sum of administrative expenses and the provisions charge/credit
recognised in the statement of profit and loss, divided by, average
principal employed.
Net interest margin
Net operating income, divided by, average principal employed.
Return on lending assets before tax
Profit before tax, divided by, average principal employed.
Return on tangible equity
Profit after tax (adjusted to deduct distributions made to holders of capital
securities), divided by, average tangible equity.
Risk-weighted assets
‘Average tangible equity’ is calculated as, total equity less capital securities
and intangible assets at the beginning of the period, plus total equity less
capital securities and intangible assets at the end of the period, divided
by two.
A measure of assets adjusted for their associated risks. Risk weightings are
established in accordance with Prudential Regulation Authority rules and
are used to assess capital requirements and adequacy under Pillar 1.
Total capital ratio
Total regulatory capital, divided by, risk-weighted assets.
Total Tier 1 capital ratio
Total Tier 1 capital, divided by, risk-weighted assets.
Wholesale funding
The sum of amounts due to banks and debt securities in issue.
1 For the purpose of this calculation, loans and advances to customers includes both loans measured at amortised cost and loans at FVOCI,
along with loans transferred to assets held for sale, which are still considered to be part of the Group’s overall loan book until derecognised.
254
Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial StatementsShawbrook Group plc | Annual Report and Accounts 2023 Country-by-country reporting
The following disclosures are provided solely to comply with the requirements of the Capital Requirements
(Country-by-Country Reporting) Regulations 2013. These disclosures may not be relied on for any other purpose.
The country-by-country reporting requirements originate from Article 89 of the Capital Requirements Directive
(CRD IV). The purpose is to provide increased transparency regarding the source of the Group’s income and the
locations of its operations.
In both reported years, Shawbrook Group plc and its subsidiaries (the ‘Group’) are all UK registered entities.
The activities of the Group are detailed in Note 1 of the Financial Statements and in the Strategic Report. Details
of subsidiary companies included in the Group are provided in Note 43 of the Financial Statements.
Required disclosures for the year ended 31 December are summarised below:
Net operating income (£m)
Profit before tax (£m)
Tax charge (£m)
Tax paid (£m)
Average number of employees on a full-time equivalent basis
The Group received no public subsidies during either of the reported years.
2023
UK
586.5
286.7
74.6
88.1
1,269
2022
UK
476.2
233.0
58.3
61.9
1,129
255
Strategic ReportCorporate Governance ReportRisk ReportClimate ReportFinancial StatementsShawbrook Group plc | Annual Report and Accounts 2023 Shawbrook Group plc
Registered office: Lutea House, Warley Hill Business Park, The Drive, Great Warley, Brentwood, Essex, CM13 3BE.
Registered in England and Wales – Company Number 07240248.