14 December 2021

Nationwide's Response to Results of Bank of England Stress Test 2021 

On 13 December 2021 the Bank of England issued the results of its Solvency Stress Test 2021 (SST). The specified hypothetical scenario provided by the Bank of England for SST represented a severe stress in the initial years with a GDP trough 19% below pre-pandemic levels, house price falls of 33% peak-to-trough and a peak unemployment rate of 11.9%. Notwithstanding this there was a strong economic recovery thereafter with both GDP and HPI, in particular, recovering quickly.

The results of the SST published by the Bank of England confirm that Nationwide, Britain's biggest mutual, would remain profitable in such conditions and continue to make full distributions on all Tier 1 capital instruments, with a minimum stressed CET1 ratio on a transitional IFRS 9 basis of 17.0%, and a minimum UK leverage ratio of 5.0%. Consequently, Nationwide remains substantially above the regulatory hurdle rates set for this stress test of 8.4% CET1 ratio and 3.6% UK leverage ratio.

When the SST exercise was launched the Bank of England confirmed that, as the UK economy had entered a period of significant disruption, the focus of their stress testing changed to assess whether the buffers of capital built up by SST participants were large enough to deal with how the stress could unfold. Consequently, there will be no 'mechanical' link between the SST exercise and the setting of Nationwide's capital buffers.

Nationwide recognises the value of industry-wide stress testing and continues to support the financial stability objectives of the Financial Policy Committee and the Bank of England.

On 19 November 2021, Nationwide issued its interim results for the period 5 April to 30 September 2021. These results reflected the continued capital strengthening and security of our business with a CET1 ratio of 37.7% (4 April 2021: 36.4%) and UK leverage ratio of 5.5% (4 April 2021: 5.4%).

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