Arrears analysis: Nationwide sets aside £746m for losses in consumer banking and mortgages

The results published this morning (May 29), for the year to April 2020, show the impact so far of the pandemic and a deteriorating economy, with Nationwide setting aside extra sums to cover anticipated losses across commercial lending, as well as consumer banking and residential mortgages.

While making provisions of £494m in consumer banking, £252m for mortgages and £40m for commercial loans, Nationwide has also seen statutory profit fall to £466m from £833m a year ago. These allowances increased recently due to payment holidays and the worsening economy.

The value of Nationwide’s mortgage balances with a payment holiday attached now stands at just over £28bn.

Chief executive Joe Garner explained that while the coronavirus impacted the lender’s profitability in the last few weeks of the year to end of April 2020, there “was pressure on margins even before it hit.”

On circumstances around staff retention, he added: “We’ve taken steps to protect our employees’ physical and mental health so we can maintain essential services to our members, and we’ve gone a step further and promised that everyone’s job is safe in 2020. We are also paying our suppliers early, especially smaller ones, to help them stay in business.

“We have also increased our support for charitable partners, like Shelter, to help protect their vital services during the pandemic. We believe that the character of any organisation comes very much to the fore in times like these, and we have been making our decisions very much with this in mind.”

Mortgage arrears and repossessions

The results show Nationwide has £1.4bn of mortgages which are up to 30 days past due, while £618m are in arrears of between one and three months.

In total across its residential book, the lender has £2.76bn of mortgages in arrears of up to 12 months, including those in possession.

Nationwide typically has low mortgage arrears compared to the industry average, and the number of its repossessions increased marginally to 248, from 231 the previous year. The lender previously announced it would be suspending repossessions for a year, for borrowers affected by Covid-19.

Across its residential mortgages, Nationwide’s impairment provisions increased to £252m from £206m a year ago, a total that includes a recent extra provision of £51m in relation to Covid-19.

The lender saw only £53m of losses against impaired mortgages in its reporting year, with £40m of those seen in specialist lending and £13m in prime. More generally, the trading update states that Nationwide grew mortgage lending at an intentionally slower rate, with total gross lending of £31bn, compared to £36bn in the year to April 2019.

Consumer banking
The lender has set aside £494m for expected losses in consumer banking, a rise of £76m from 2019. Nationwide said this was due to book growth and the extra £43m provision for the impact of Covid-19.

The financials show Nationwide has £310m of consumer banking accounts which are at ‘Stage 3’ under IFRS9, and that this total includes charged-off balances now in recoveries.

In terms of actual losses against impaired consumer banking accounts, Nationwide took a £159m hit, which included £56m in credit cards, £82m in personal loans and £21m in overdrawn current accounts.

Nationwide’s consumer banking balances have increased to £5bn from £4.6bn last year. This largely comprises personal loans of £3bn and credit cards of £1.6bn (2019: £1.8 billion).

Business banking
Nationwide has now halted plans to launch a UK business banking service, at a cost of nearly £90m, saying the business case for entering that market was no longer commercially viable because of the low rate outlook and uncertain economic environment.

The mutual said the overall financials reflected lower income, technology investment, higher PPI provisions, and the financial impact of Covid-19.

In the medium-term the society’s focus will be on “maintaining its strong capital and liquidity position through the economic cycle.”