Nationwide Building Society ("Nationwide")

Embargoed to 7.30am on 12 July 2023

NATIONWIDE'S RESPONSE TO THE RESULTS OF THE BANK OF ENGLAND STRESS TEST 2022

Today the Bank of England issued the results of its latest Concurrent Stress Test. The specified hypothetical Annual Cyclical Scenario (ACS) 2022 considered a 31% fall in house prices, 8.5% peak in unemployment and Bank Base Rate peak of 6% in the first year of the scenario.

The results of ACS 2022 confirm that Nationwide would remain profitable in such conditions and continue to make full distributions on all Tier 1 capital instruments, with a minimum stressed CET1 ratio of 20.4%, and a minimum UK leverage ratio of 5.6%, after the application of management actions. In each case the Society remains substantially above the regulatory hurdle rates set for this stress test of 7.4% CET1 ratio and 3.6% UK leverage ratio, both before and after the application of management actions.

The PRA has confirmed that Nationwide is not required to submit a revised capital plan or take additional actions as a result of this stress test exercise.

As in the stress testing exercises completed in previous years, the CET1 ratio reduces primarily due to the impact of the significant house price reduction, rising interest rate environment and increase in unemployment rate on model risk weights, rather than capital losses.

The CST 2022 exercise was modelled using currently approved mortgage models with the June 2022 start point reflecting a temporary model adjustment applied to risk weighted assets to ensure outcomes are consistent with the PRA's revised IRB regulations which became effective on 1 January 2022 (for more information see Nationwide Pillar 3 disclosures). These regulations aim to increase consistency of approaches across different firms and reduce volatility of mortgage risk weights across differing economic conditions. As expected, this has significantly reduced the extent to which risk weighted assets (RWA) increase in ACS 2022 given the higher RWA start point.

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 May, Nationwide issued its full-year results for the period 5 April 2022 to 4 April 2023. These results reflected the continued capital strength and security of the business with a CET1 ratio of 26.5% (4 April 2022: 24.1%) and leverage ratio of 6.0% (4 April 2022: 5.4%).

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