RNS Number : 0918P

Santander UK Plc

14 August 2014

Santander UK plc

2014 Half Yearly Financial Report

2014 Half year results highlights

Net interest income	Profit before tax	Banking net interest margin
£1,673m	£545m	1.80%
Up 20% on the first half of 2013, largely due to lower cost of retail liabilities and increased lending in Commercial Banking.	Up 18% on the first half of 2013, with continued growth in net interest income, strong cost discipline and good credit quality.	Up 34 basis points from 1.46% in the first half of 2013, driven by lower customer deposit and wholesale funding costs.
Adjusted cost-to-income ratio	CET 1 Capital ratio	Loan-to-deposit ratio
52%(1)	11.8%	124%
Costs remained tightly controlled, absorbing on-going investment, with 10% positive jaws between income and expenses growth rates excluding significant items.	Common Equity Tier 1 ('CET 1') capital ratio strengthened from 11.6% at 31 December 2013, and after a £237m interim dividend approved in June 2014.	Improved two percentage points from 126% at 31 December 2013 reflecting strong growth in customer deposits, particularly current account balances.
Gross mortgage lending	1I2I3 World customers	Commercial lending
£12.8bn	3 million	10%growth
An increase of £4.9bn compared with the first half of 2013, with a resumption of positive net lending in the first half of 2014.	Up 25% in the first half of 2014, with almost one-in-four current account switchers joining Santander UK since the introduction of guaranteed current account switching in September 2013(2).	Growth of 10% over the past 12 months to £23.1bn, and continues to be subject to prudent risk management criteria.
(1)  A number of significant items impacted the financial results for the first half of 2014; their aggregate impact was £(206)m pre-tax and £(162)m post-tax. See page 8. Adjusted cost-to-income ratio of 52% for the first half of 2014 excludes significant items. The cost-to-income ratio for the first half of 2014 including significant items was 56%. (2)  Payments Council, Bacs for the industry and internal Management Information as reported to Bacs. Full switchers under the guarantee scheme from 24 September 2013 to 30 June 2014.

 Strategic report update

2014 Half Yearly Financial Report

	Strategic report update
2	Our heritage
3	Santander UK today
4	Our strategy and business model
5	Key performance indicators
6	Chief Executive Officer's review
	http://www.rns-pdf.londonstockexchange.com/rns/0918P_-2014-8-14.pdf
8	Chief Financial Officer's review
	http://www.rns-pdf.londonstockexchange.com/rns/0918P_1-2014-8-14.pdf
11	Summary risk report
	Detailed business review
15	Group and divisional results
24	Balance sheet review
36	Risk management report
83	Governance
83	Directors
83	Directors' Responsibility Statement
	Financial Statements
85	Independent Review report
86	Primary Financial statements
90	Notes to the financial statements
	Shareholder Information
119	Risk Factors
119	Contact information
119	Glossary of financial services industry terms
120	Forward-looking statements
	This Half Yearly Financial Report contains forward-looking statements that involve inherent risks and uncertainties. Actual results may differ materially from those contained in such forward-looking statements. See 'Forward-looking statements' on page 120.

Our heritage

http://www.rns-pdf.londonstockexchange.com/rns/0918P_2-2014-8-14.pdf 

Strong foundations	Our relationship with the Banco Santander group The Banco Santander group operates a subsidiary model. This model involves autonomous units, such as Santander UK, operating in core markets, with each unit being responsible for its own liquidity, funding and capital management on an ongoing basis. The model is designed to minimise the risk to individual Banco Santander group units from problems arising elsewhere in the Banco Santander group. The subsidiary model also gives Santander UK considerable financial flexibility, yet enables it to continue to take advantage  of the significant synergies that come from being part of a global group: in brand, products, systems, platforms, development and management capability. In the model,  the Banco Santander group facilitates the sharing of best practice and provides common technology, operations and support services	to all of its subsidiaries via independent operating entities, themselves established by the Banco Santander group so as to be able to continue operating as viable standalone businesses. On 10 January 2014, Santander UK Group Holdings Limited became the holding company of Santander UK plc following its acquisition of Santander UK plc from Banco Santander S.A.. The acquisition was satisfied by the issue of shares in Santander UK Group Holdings Limited. The new holding company was put in place in light of UK regulatory developments relating to Banking Reform and Resolution and Recovery planning under which having a holding company above the operating banking companies is considered preferable. For more information see the Directors' Report on page 188 of the 2013 Annual Report.
http://www.rns-pdf.londonstockexchange.com/rns/0918P_3-2014-8-14.pdf

Santander UK today(1)   Santander UK plc (the 'Company') and its subsidiaries collectively ('Santander UK' or the 'Santander UK group') operate primarily in the UK, are regulated by the UK Prudential Regulation Authority ('PRA') and the Financial Conduct Authority ('FCA') and are part of the Banco Santander, S.A. group (the 'Banco Santander group'). Santander UK is a major financial services provider in the UK, offering a wide range of personal financial products and services, and is a growing participant in the corporate and commercial banking market. Santander UK is well positioned  to continue to grow, with a distribution capability across our extensive branch and regional Corporate Business Centre ('CBC') network, and through our intermediary, telephony and digital channels. http://www.rns-pdf.londonstockexchange.com/rns/0918P_4-2014-8-14.pdf

Established UK market player
Active customers	Branches	Corporate Business Centres	Employees
14m	987	52	20,345

Our businesses
Retail Banking	Commercial Banking	Markets	Corporate Centre
Offers a wide range of products	Provides a wide range of products	Delivers risk management and	Principally comprises Financial
and financial services to individuals	and financial services to customers	other services to financial	Management & Investor Relations
and small businesses (with a	through a network of regional	institutions, as well as to other	('FMIR'), responsible for managing
turnover of less than £250,000	Corporate Business Centres ('CBCs')	Santander UK divisions. Its main	capital and funding, balance
per annum) through a network	and through telephony and	product areas are fixed income and	sheet composition and structure,
of branches and ATMs, as well as	e-commerce channels across small	foreign exchange, equities, capital	and strategic liquidity risk for
through telephony, e-commerce	and medium enterprise ('SME'),	markets and institutional sales.	the Santander UK group. Also
and intermediary channels.	mid-cap and large-cap corporates.		includes the non-core corporate
			and legacy portfolios.
Income	Income	Income	Short-term funding
£1,991m	£395m	£58m	£25.3bn
Profit before tax	Profit before tax	Profit before tax	Total wholesale funding
£1,053m	£145m	£1m	£67. 4bn
Residential mortgages	Customer loans	Total assets	Total liquid assets
£14 8.7bn	£23.1bn	£17. 3bn	£72.2bn
Loyal customers	Customers
3m	71,650
(1)   Data at 30 June 2014 and for the six months ended 30 June 2014

Our strategy and business model	Our purpose is to help people and businesses prosper throughout the United Kingdom
http://www.rns-pdf.londonstockexchange.com/rns/0918P_5-2014-8-14.pdf

Simple, Personal and Fair: the Santander Way
We want everything we do to be simple, personal and fair. This embodies what our stakeholders want from their bank and	define how we work together and how we treat our customers, our shareholders and our communities.	By making everything we do simple, personal and fair, we will achieve our aim to become the best bank in the UK.

Key performance indicators

Key performance indicators ('KPIs') help measure our progress against our strategic priorities and represent the set of measures that management reviews and tracks on a regular basis. In the first half of 2014, business performance improved further and we remain focused on delivering almost all of our key commitments for the end of 2015.

Definitions of the KPIs and explanations of why the chosen indicators are important to management are set out on page 6 of the 2013 Annual Report. The financial results for the first half of 2014 included a number of pre-tax significant items in Corporate Centre, as outlined in the Chief Financial Officer's Review. In the table below, RoTE and the cost-to-income ratio have been adjusted to exclude the impact of these items.

Performance indicator	Actual performance			Target for 2015
Loyal customers Our loyal customer base is growing, supported by the continued success of the 1I2I3 Current Account.	2012	2013	30 June 2014	4 million
	2.2 million	2.7 million	3.0 million
1I2I3 World customers 1I2I3 World has 3.0 million current account and credit card customers, more than 1 million higher than a year ago, and with a growing transactional primary customer base.	1.3 million	2.4 million	3.0 million	4 million
Customer satisfaction (Financial Research Survey ('FRS'))(1) FRS reported that customer satisfaction continued to improve in the last year, with the gap between Santander UK and the average of our top three peers reducing to 2 percentage points.	55% (60%)	57.3% (61.1%)	58.4% (60.4%)	Top 3 (Average of top 3 peers)
Commercial Banking percentage of customer loans Commercial Banking customer loans increased by £1.0bn in the first half of 2014 (and by £2.1bn over the last year) to £23.1bn, with growth in lending to large corporates and SMEs. We will not, however, compromise on our prudent risk management and returns objectives to achieve our 2015 mix aspiration for the Commercial Banking business. Our 20% target will not be achieved by the end of 2015, but remains a medium-term objective.	10%	12%	12%	20%
Return on tangible equity ('RoTE') Adjusted RoTE(3) improved to 11.7% in the first half of 2014. RoTE improved to 10.0% in the same period.	9.1%(2)	8.6%(2)	11.7%(3)	13%-15%
Cost-to-income ratio Adjusted cost-to-income ratio for the first half of 2014 was 52%(4).  Costs remained tightly controlled, absorbing ongoing investment, with 10% positive jaws between income and expense growth rates excluding significant items. Cost-to-income ratio for the first half of 2014 was 56%, and for the first half of 2013 was 57%.	53%	54%	52%(4)	<50%
Common Equity Tier 1 ('CET 1') capital ratio Capital was strengthened further, after declaring an interim dividend of £237m in the first half of 2014.	11.1%	11.6%	11.8%	>10.5%
Loan-to-deposit ratio The loan-to-deposit ratio improved 2 percentage points to 124%, reflecting growth in customer deposits, particularly current account balances, and we expect the ratio to reduce further over time. Consequently, we revised our 2015 target to <125% from <130%.	129%	126%	124%	<125%
Non-performing loan ('NPL') ratio The NPL ratio of 1.96% continued to improve, with retail and corporate loans performing in line with expectations.	2.16%	2.04%	1.96%	ratio maintained
Dividend payout ratio In the first half of 2014, we approved an interim dividend of £237m. All dividends are paid subject to the approval of the regulator.	50%	50%	50%(5)	50%
(1)   The FRS is a monthly personal finance survey of around 5,000 consumers prepared by the independent market research agency, GfK NOP. The 'Overall Satisfaction' score refers to the proportion of extremely and very satisfied customers across mortgages, savings, main current accounts, home insurance, UPLs and credit cards, based on a weighting of those products calculated to reflect the average product distribution across Santander UK and competitor brands. Data shown is for the 12 months ended 30 June 2014, 12 months ended 31 December 2013 and 12 months ended 30 June 2013. The competitor set in this analysis is Barclays, Halifax, HSBC, Lloyds Bank (including Lloyds TSB) and NatWest.  Previously this data was reported on a rolling three-month basis. (2)   Adjusted to reflect the retrospective adoption of IFRIC 21. (2011: 9.5%). See Note 1 to the Condensed Consolidated Interim Financial Statements. (3)   Adjusted RoTE for the first half of 2014 is annualised and adjusted for the effect of the UK Bank Levy and to exclude significant items (see page 8). (4)   Adjusted cost-to-income ratio for the first half of 2014 of 52% excludes significant items (see page 8). (5)   Dividend payout ratio is calculated as dividend paid and approved as a percentage of earnings attributable to ordinary shareholders (profit after tax less payment of dividend on preference shares and adjusted for the prior year restatement relating to FSCS).

Chief Executive Officer's review   Our aim is to become the best bank in the UK, for our people, our customers, our shareholders and the communities in which we operate, ensuring that everything we do is Simple, Personal and Fair. Our performance, with results once again ahead of our plans, reflects the strategic transformation we initiated in 2011.

http://www.rns-pdf.londonstockexchange.com/rns/0918P_6-2014-8-14.pdf	In the first half of 2014, we continued to support our customers against the backdrop of a UK economy that is showing an increasing positive momentum across all regions, while we continue to make steady progress: Our strategic priorities 1.    Loyal and satisfied retail customers 1I2I3 World, which offers value and rewards customers' loyalty, has continued to drive the success of our retail banking proposition. The number of 1I2I3 World customers increased by 600,000 in the first half of 2014 to 3.0 million. Since the introduction of guaranteed current account switching in September 2013, almost one-in-four of the customers who have moved banks have joined Santander UK(1). Current account balances have grown by around £1bn per month on average since 2012. Our share of related savings balances has also grown, with total deposits held by our primary banking customers up 19% to £62.4bn in the first half of 2014, and now accounting for 49% of total retail liabilities. During the first half of 2014, we helped 19,300 first-time buyers (£2.6bn gross lending) and 3,100 Help to Buy customers (£450m) purchase a home. Our total gross mortgage lending was £12.8bn, with a resumption of positive net lending. Our average loan-to-value on new mortgages was 65% with an average loan to income multiple of 3.1. We also offer our 1I2I3 current account customers exclusive mortgage rates and, as a result, since the beginning of the year more than 22% of mortgages sold in our branches have been to 1I2I3 customers. Our performance reflects improvements we have made to the customer experience. In July 2014, the FRS reported that the gap between our satisfaction score and that of our top 3 peers had narrowed to two percentage points from a gap of nine points at the end 2011. The experience of 1|2|3 World customers is now consistently among the highest in the industry.	We are building on our successful approach by developing more targeted products and services for our key customer segments, including our new segment for more affluent customers, Select, to which we have now introduced 540,000 customers. In the first half of 2014, we have also launched a 1I2I3 Mini, a new current account for children, and a 1I2I3 Student account. By the end of 2014, our programme of refurbishment will have covered 40% of our branches since it began, and we will have invested further to provide better products and improve customer service, with a strong emphasis on technology and digital capability. Our digital service is well advanced with  about 25% of our sales now coming from digital channels, and we have already made a number of improvements, including a new public website unveiled in June and improvements to our secure site. Lastly, in order to support our focus on digital innovation, we have announced a new US$100m Santander Fintech Fund, based in London, to invest in financial technology start-ups in the UK and elsewhere. 2. 'Bank of Choice' for UK companies Our Commercial Banking proposition is built on four pillars: a business model, based on 'proximity'; an IT platform, offering new products and services; a segmented risk approach; and our Breakthrough programme, to provide funding for fast growth SMEs. Commercial Banking lending has grown by 10% over the past year. During the first half of 2014, we extended £3.9bn of new facilities to UK corporates and SMEs, with loan balances increasing to £23.1bn. We continued to invest in our local presence and now have 52 Corporate Business Centres and 677 relationship managers. Customer satisfaction with our SME banking continues to improve and now matches that of our top 3 competitors(2)
http://www.rns-pdf.londonstockexchange.com/rns/0918P_7-2014-8-14.pdf
	(1)                   Payments Council, Bacs for the industry and internal Management Information as reported to Bacs. Full switchers under the guarantee scheme from 24 September 2013 to 30 June 2014. (2)                   The Charterhouse UK Business Banking Survey, published May 2014.
http://www.rns-pdf.londonstockexchange.com/rns/0918P_8-2014-8-14.pdf	We are investing further in our Commercial Banking business by building on the expertise and presence of the wider Banco Santander group. In the first half of 2014, we launched a new corporate internet banking capability ('Connect'), a new trade portal, the Santander Passport, and a range of other international financial services. Our pioneering Breakthrough programme, aimed at helping the UK's fast growth companies, has now supported 25 SMEs with £58m of growth-related finance and has created 1,082 new jobs. The success of Breakthrough and our support for UK businesses was highlighted at the recent International Festival for Business in Liverpool, which Santander UK co-sponsored, at which we launched a new incubator for SMEs in the heart of the city. 3. Consistent profitability and a strong balance sheet Our results in the first half of 2014 were once again ahead of expectations. Our profit before tax grew by 18%, rising to £545m. Our strong capital position continued to strengthen with a CET 1 capital ratio of 11.8% at 30 June 2014, after approving an interim dividend of £237m. We remain confident of achieving almost all our key performance objectives for 2015. For a more detailed update on our financial performance, please refer to the Chief Financial Officer's review on pages 8 to 10. Operating environment During the first half of 2014, the UK economic environment continued to improve.Demand for loans increased steadily and we saw growth in both Retail Banking and Commercial Banking lending. Following a managed reduction in selected higher risk segments of our mortgage book in 2012 and 2013, we expect to grow our portfolio this year broadly in line with the market. At the same time, we will continue to increase our corporate lending in contrast to the wider fall in the availability of credit to UK SMEs and corporates.	Looking ahead Once again, our results show that we have the right strategy to deliver consistent and sustainable growth. As the UK economy strengthens we will continue to transform Santander UK, improving still further our technology, digital offering, products and customer service. Competition in UK banking is strengthening. Customers are becoming more active and competitors are stabilising their businesses and focusing more on the UK. We are confident that our innovative approach and our continued investment in products and services will bring us further success. I would like to thank the Board for the  support they have given to the transformation of the business. The forthcoming arrival of Nathan Bostock will add further to the depth of experience of the Board. Finally, a very special thank you to everyone at Santander UK for their hard work. Our continued success depends on the energy and commitment of our team - and these results show that we have what it takes to achieve our aim of building the best bank, a bank that is Simple, Personal and Fair. http://www.rns-pdf.londonstockexchange.com/rns/0918P_10-2014-8-14.pdf
http://www.rns-pdf.londonstockexchange.com/rns/0918P_9-2014-8-14.pdf

Chief Financial Officer's review   In the first six months of 2014 we delivered profit before tax from continuing operations of £545m, an increase of 18% and profit after tax of £438m. We continue to deliver improved returns, strong capital and leverage with a better quality, lower cost funding mix, which will provide a solid backdrop for our future growth.

http://www.rns-pdf.londonstockexchange.com/rns/0918P_11-2014-8-14.pdf	Overview In the first half of 2014, we maintained our track record of consistent profitability and a strong balance sheet. RoTE improved to 10.0%, supported by increased net interest income, and banking NIM rose strongly to 1.80% (H1'13: 1.46%), a consequence of lower deposit and wholesale funding costs. Costs remained tightly controlled and absorbing investment spend, with an adjusted cost-to-income ratio of 52% (2013: 54%) and a 10 percentage point positive jaws between income and expenses growth rates excluding significant items. Credit quality remains good across all portfolios and in the mortgage book in particular where NPLs fell to 1.79%. The CET 1 capital ratio continued to strengthen to 11.8% at 30 June 2014 (31 December 2013: 11.6%) after approving a £237m interim dividend. The dividend was in line with our policy to pay 50% of attributable earnings and was approved by the UK regulator. Income statement highlights(A) Profit before tax from continuing operations increased by 18% to £545m in the first half of 2014, with continued growth in net interest income, strong cost discipline and good credit quality. A number of significant items impacted the financial results for the period; their aggregate impact was £(206)m pre-tax and £(162)m post-tax, as follows: Significant items -  A net gain of £218m arose in administrative expenses as a result of defined benefit pension scheme changes that limit future entitlements and provide for the longer-term sustainability of our staff pension arrangements.	-  Software write-offs of £206m were charged in depreciation, amortisation and impairment, and investment costs of £98m were charged in administrative expenses. Following implementation of our new digital platform and completion of our product simplification programme, we made write-offs for decommissioning redundant systems, and charged investment costs for technology and digital capability build out. -  Provisions for other liabilities and charges were impacted by £120m. These comprised a £50m provision for the costs of our ongoing branch de-duplication programme. There was also £70m, including related costs, as provisions for conduct remediation. Of this, £65m related to payment protection insurance ('PPI'), following a review of recent claims activity which indicates that claims are now expected to continue for longer than originally anticipated. There was a net £5m charge related to other retail products. Net interest income for the six months ended 30 June 2014 was 20% higher at £1,673m (H1'13: £1,391m). This was largely due to the lower cost of retail liabilities following the maturity of several tranches of higher cost eSaver products in 2013, and the reduced cost of new ISA deposits originated in the first half of 2014, as well as increased lending in Commercial Banking. Reduced mortgage stock margins partly offset these effects. Non-interest income was 9% lower at £519m (H1'13: £570m), reflecting a significantly reduced credit arising from the debit valuation adjustments on derivatives written by Santander UK, and lower banking fees in Retail Banking. Costs remained tightly controlled to accommodate continued investment in the transformation of the business. Administrative costs were 12% lower at £876m (H1'13: £992m), mainly due to the pensions gain described above.
http://www.rns-pdf.londonstockexchange.com/rns/0918P_12-2014-8-14.pdf
http://www.rns-pdf.londonstockexchange.com/rns/0918P_13-2014-8-14.pdf

http://www.rns-pdf.londonstockexchange.com/rns/0918P_14-2014-8-14.pdf	Depreciation, amortisation and impairment increased significantly to £347m (H1'13: £121m), due to the software write-offs described above. Impairment losses on loans and advances were 27% lower at £172m (H1'13: £235m). Credit quality in the Retail and Commercial Banking loan books continued to be good, supported by the improving economic environment. Provisions for other liabilities and charges were 66% higher at £252m (H1'13: £152m), principally due to the charges for branches and conduct described above, partially offset by a reduced provision for restructuring. For more information on conduct remediation, including PPI, see Note 25 to the Condensed Consolidated Interim Financial Statements on page 103. The taxation charge was up 19% largely due to higher profits. Our effective tax rate was stable at 20% (H1'13: 20%). Customer balances(B) Customer loans increased £1.3bn in the first half of 2014 to £188.4bn as we remained focused on supporting households and businesses while maintaining our prudent risk management objectives. In Retail Banking, mortgage balances increased to £148.7bn following a resumption of positive net lending in the first half of the year. Standard Variable Rate ('SVR') mortgage loan balances fell £4.2bn to £48.1bn, although we have been successful in the targeted retention of SVR customers on new offers. Commercial Banking loans increased with growth in both SMEs and mid corporate lending, and we made further progress in reducing balances in the non-core corporate and legacy portfolios with balances down £0.7bn in the past six months.	Customer deposits increased £4.3bn in the first half of 2014 to £150.7bn, as we focused on originating and retaining balances held by more loyal Retail Banking customers. Included in this, current account balances increased £7.2bn in the first half of 2014, partially offset by lower savings deposit balances as we focused on reducing more price sensitive short-term retail deposits. The loan-to-deposit ratio of 124% was two percentage points lower (31 December 2013: 126%), reflecting the growth in customer deposits. Credit quality(C) The overall credit quality of our loan portfolios remained good, with the total NPL ratio improving to 1.96% at 30 June 2014 (31 December 2013: 2.04%). The Retail Banking NPL ratio fell to 1.77% (31 December 2013: 1.89%), with an improvement across both the secured and unsecured lending portfolios. Credit quality in Commercial Banking remains strong as we continue to follow our prudent lending criteria, a policy we will adhere to as we deliver on our business plan and develop our Commercial Banking business. The Commercial Banking NPL ratio increased to 3.15% (31 December 2013: 3.02%), largely due to a single long-standing loan of £89m which moved to non-performance. A successful restructuring of this loan is anticipated and a conservative provision is held against it.
http://www.rns-pdf.londonstockexchange.com/rns/0918P_15-2014-8-14.pdf
	http://www.rns-pdf.londonstockexchange.com/rns/0918P_16-2014-8-14.pdf

	Liquidity and funding Our funding strategy is to develop and maintain a diversified funding base, which allows us access to a variety of funding sources. In the first half of 2014, we raised medium-term funding of £6.7bn (sterling equivalent), largely through unsecured issuances. In the second quarter of 2014, we also drew down a further £500m of Treasury Bills under the Bank of England and HM Treasury 'Funding for Lending' scheme. Total liquid assets fell slightly in the period to £72.2bn (31 December 2013: £73.0bn) and PRA-eligible liquid assets increased by £2.7bn to £32.2bn (31 December 2013: £29.5bn). Both total and PRA-eligible liquid assets significantly exceeded short-term wholesale funding requirements. At 30 June 2014, PRA-eligible liquid assets amounted to 127% (31 December 2013: 139%) of wholesale funding with a residual maturity of less than one year. The Liquidity Coverage Ratio ('LCR') was 107% (31 December 2013: 103%). Our level of encumbrance decreased in the first half of 2014 as planned, reflecting both the overall reduction in wholesale funding and the desire to better balance new wholesale funding issuance between secured and unsecured markets where possible. Capital and leverage(D) Our CET 1 capital ratio increased to 11.8% at 30 June 2014 (31 December 2013: 11.6%).  On 24 June 2014, Santander UK plc issued a £500m Additional Tier 1 ('AT1') security to its immediate parent Santander UK Group Holdings Ltd which, in turn, issued a similar security to Banco Santander, S.A. We expect that the strength of our CET 1 capital ratio, our ability to generate capital organically and the rebalancing of our business mix will enable us to meet our targeted capital ratios even once the capital requirements of CRD IV and the PRA are phased in.	Our end-point Tier 1 leverage ratio as defined by the PRA was 3.6%. Retained profits, and further AT1 issuance if required, are expected to result in a continued improvement in our leverage ratio. Risk weighted assets ('RWAs') increased to £79.9bn (31 December 2013: £77.7bn), reflecting the growth of customer lending. Outlook We expect the developments in the business and investment made to date to help maintain a strong business performance. A further reduction in the overall cost of deposits is expected to compensate for any further asset margin declines. Our tight control of costs will continue, while we invest further in the transformation of our business. Over the coming months, we anticipate greater clarity in respect of capital levels, leverage and the detailed rules necessary to meet the requirements of the Financial Services (Banking Reform) Act 2013 that will enable us to better plan the required structure of the business. However, considerable uncertainty will still remain and we cannot therefore be certain of the impact on our business model that the banking reform agenda will require. The increased positive momentum of the UK economy should also support our business in 2014 and we believe that our performance over time should continue to demonstrate the consistency and strength of Santander UK. http://www.rns-pdf.londonstockexchange.com/rns/0918P_17-2014-8-14.pdf
	http://www.rns-pdf.londonstockexchange.com/rns/0918P_18-2014-8-14.pdf

Summary risk report	As a significant financial services provider, managing risk is at the core of Santander UK's day-to-day activities. The understanding and control of risk is critical for the effective management of the business.
http://www.rns-pdf.londonstockexchange.com/rns/0918P_19-2014-8-14.pdf	This Summary Risk Report describes our approach to risk management and how we manage and control risk through our Risk Framework, which supports the implementation of Santander UK's strategic business objectives and business plan via the risk culture statement and our overriding principles. It also highlights our top and emerging risks. Risk management In managing risk, Santander UK aims to: -  Maintain a predictable medium-low risk profile in our business; -  Employ effective and advanced risk management techniques; and -  Deliver robust financial performance, and ultimately build sustainable value for all our stakeholders. Risk framework Santander UK manages and controls risk through its Risk Framework, which: -  Defines risk, enterprise-wide risk and key risk types; -  Sets out the required risk culture, the overriding principles and minimum standards; -  Summarises key roles and responsibilities and how Santander UK is organised for risk; -  Defines the terms of reference for risk committees and how and where decisions are made, reviewed and challenged; and -  Lists and explains the key internal risk regulation documents. The Risk Framework supports the implementation of Santander UK's strategic business objectives and business plan via the risk culture statement, guiding overriding principles and minimum standards to manage and control risks, and thus reduces the uncertainty around Santander UK meeting its objectives.	Separate risk frameworks are in place for each key risk type and core risk activities such as those relating to risk appetite, stress testing and policy. These specific risk frameworks establish the principles, standards, rules and governance requirements for the management and control of each risk type.  In support of these frameworks, each specific risk type has its own suite of policies and limits. These set out the rules and risk limits for the management of risk at a more granular level. Allocation of risk As Santander UK's business is focused on retail and commercial lending, its largest source of risk is credit risk. This is illustrated in the chart opposite, which sets out the allocation of risk across Santander UK based on the economic capital requirement at 30 June 2014 and 31 December 2013 by key risk type. This allocation is limited to risks for which capital is considered a mitigant, and does not make allowance for the effects of diversification across risks or assets. During the first half of 2014, the allocation of risk remained broadly stable, with only minor movements evident in line with the evolution of our balance sheet.

This information is provided by RNS

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