Retail
continued
| Mortgage Arrears | Cases 000s | Total Mortgages % | Value of Debt £m* | Total Mortgages % | ||||
|---|---|---|---|---|---|---|---|---|
| 31.12.2006 | 31.12.2005 | 31.12.2006 | 31.12.2005 | 31.12.2006 | 31.12.2005 | 31.12.2006 | 31.12.2005 | |
| Mainstream | 28.3 | 33.0 | 1.17 | 1.30 | 2,362 | 2,593 | 1.46 | 1.73 |
| Specialist | 7.8 | 8.9 | 1.76 | 2.32 | 1,366 | 1,610 | 2.40 | 3.26 |
| Total | 36.1 | 41.9 | 1.26 | 1.43 | 3,728 | 4,203 | 1.70 | 2.11 |
* Value of debt represents total book value of mortgages in arrears.
The 2006 secured impairment charge decreased to 0.05% (2005 0.07%) of average advances, and closing secured provisions as a percentage of closing advances reduced to 0.19% (2005 0.21%). The average loan to value (‘LTV’) of the impaired mortgage portfolio reduced slightly to 57% (2005 58%). The equivalent figures for impaired mainstream and specialist mortgages were 52% (2005 52%) and 68% (2005 71%) respectively.
The provisions coverage of impaired secured loans remained stable at 10% (2005 10%), reflecting our unchanged, formulaic methodology for provisioning.
Unsecured Impairments
The rate of growth of impaired unsecured loans (Personal Loans, Credit Cards and Bank Accounts) moderated in the second half of 2006. This growth was driven predominantly by the residual seasoning of the pre 2004 Credit Card book.
Impaired unsecured loans increased to £2,411m (2005 £2,049m) representing 13.17% of closing advances (2005 11.51%). Provisions as a percentage of closing advances increased to 9.29% (2005 8.43%). Closing provisions cover as a percentage of impaired unsecured loans reduced slightly to 71% (2005 73%).
Corrective actions taken in 2004 to tighten lending criteria continue to drive improvements in arrears emergence on subsequent business. Whilst encouraging, we remain cautious about future impairment trends given the continued growth in UK personal insolvencies.
Personal Loans
The Personal Loans market in 2006 was characterised by the twin challenges of increasing personal insolvencies, driven by continued affordability stretch, and a reduction in market size as customers sought to reduce outstanding debt levels. Impaired Personal Loans rose to 17.0% (2005 15.6%) and provisions increased to 11.5% (2005 10.9%) of closing advances. The seasoning impact of pre 2004 business is now past its peak, with impairments decreasing slightly on an absolute basis in the second half of the year. Delinquency and loss emergence rates on new business also demonstrate a sustained improvement in the quality of business written subsequently.
Credit Cards
Credit Card impairments increased to 15.4% (2005 10.8%) and provisions increased to 11.4% (2005 8.4%) of closing advances, the rate of growth slowing in the second half of the year. The main driver of impairment growth in our book continues to be the residual seasoning of pre 2004 business. Delinquency and loss experience from business written since 2004 has performed to expectation, reflecting our continued focus on the acquisition of better quality business.
Whilst volumes of accounts new to arrears reduced, there was a slight hardening in arrears roll rates with an increase in average loss per case. We also saw some increase in both credit utilisation and overdrawn limits as a result of selectively tightening credit availability to accounts showing signs of stress.
| 31.12.2006 % |
31.12.2005 % |
|
|---|---|---|
| Credit utilisation(1) | 28.1 | 27.8 |
| Overdrawn limits(2) | 6.9 | 6.7 |
| Arrears roll rates(3) | 58.1 | 57.0 |
(1) percentage of total available credit lines that are drawn down (restated to exclude unutilised expired cards).
(2) percentage of accounts in excess of credit limit.
(3) percentage of credit card balances in arrears that have worsened in the period.
Bank Accounts
Impaired Bank Accounts decreased to 5.3% (2005 6.4%) and provisions reduced to 3.6% (2005 4.6%) of closing advances, in line with our business strategy to focus on the acquisition of full facility bank account customers.
Business Banking
Impaired loans and provisions as a proportion of closing advances decreased to 5.3% (2005 8.1%) and 3.5% (2005 7.5%) respectively. This improvement was, however, primarily the result of the amalgamation of a portfolio of business banking loans originated with the Corporate division into the existing Retail portfolio in the second half of 2006.
Non-operating Income
Non-operating income of £48m (2005 £46m) comprises realised investment gains of £26m (2005 £nil), the major component being the part disposal of our investment in Rightmove, and the profit on the sale and leaseback of premises of £22m (2005 £46m).
| As at 31.12.2006 | As at 31.12.2005 | |
|---|---|---|
| Loans & advances to customers | £237.7bn | £219.0bn |
| Classification of advances* | % | % |
| Residential mortgages | 92.1 | 91.4 |
| Other personal lending: | ||
| Secured Personal Loans | 0.6 | 0.8 |
| Unsecured Personal Loans | 3.7 | 3.8 |
| Credit cards | 3.0 | 3.3 |
| Banking | 0.6 | 0.7 |
| Total | 100.0 | 100.0 |
| Impairment provisions on advances | £m | £m |
| Secured | 408 | 424 |
| Unsecured | 1,700 | 1,500 |
| Total | 2,108 | 1,924 |
| Impairment provisions as a % of closing advances | % | % |
| Secured | 0.19 | 0.21 |
| Unsecured | 9.29 | 8.43 |
| Total | 0.89 | 0.88 |
| Impairment provisions as a % of impaired loans | % | % |
| Secured | 10 | 10 |
| Unsecured | 71 | 73 |
| Total | 33 | 30 |
| Impaired loans | £m | £m |
| Secured | 4,047 | 4,452 |
| Unsecured | 2,411 | 2,049 |
| Total | 6,458 | 6,501 |
| Impaired loans as a % of closing advances | % | % |
| Secured | 1.84 | 2.21 |
| Unsecured | 13.17 | 11.51 |
| Total | 2.72 | 2.97 |
| Risk weighted assets | £112.4bn | £109.2bn |
| Customer deposits | £144.6bn | £132.2bn |
* Before impairment provisions.
Operational Performance
Lending and Deposit Growth
Overall Retail lending increased by 9% to £237.7bn (2005 £219.0bn) and deposits also increased by 9% to £144.6bn (2005 £132.2bn).
Mortgages
Net residential mortgage lending increased by 58% in 2006 compared to market growth of 20%. This strong performance was the result of maintaining our appetite for new mortgage business in the larger market, combined with improvements to levels of principal repaid.
Gross mortgage lending was maintained at a level consistent with our share of stock. Gross mortgage lending was £73.6bn in 2006 (2005 £60.6bn) representing a market share of 21% (2005 21%). The mortgage book increased by £18.8bn to £220bn delivering a net mortgage lending market share of 17% (2005 14%), comfortably within our target range for the year of 15%-20%. Our share of principal repaid at 24% (2005 25%) continues largely to reflect previous levels of gross lending, the benefits of our retention strategy in relation to existing customers having yet to be fully realised.
We continue to focus on strong asset cover in our secured book. However, our retention strategy for existing customers and reduced appetite for lower return remortgage business resulted in a modest increase in the LTV ratio of new lending to 64% (2005 60%). The average LTV across our entire secured lending book was stable at 44% (2005 43%) reflecting the positive contribution to collateral cover from improving retention.
