v3.25.4

Derivative financial instruments | 12 Months Ended
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Dec. 31, 2025
Disclosure of derivative financial instruments [Abstract] |
Derivative financial instruments | Note 19: Derivative financial instruments The fair values and notional amounts of derivative instruments are set out in the following table:
| 2025 |  | 2024
| Contract/ notional amount £m |  | Fair value |  | Contract/ notional amount £m |  | Fair value
|  | Assets £m |  | Liabilities £m |  |  | Assets £m |  | Liabilities £m
Trading and other |  |  |  |  |  |  |  |  |  |  |
Exchange rate contracts | 689,215 |  | 7,594 |  | 6,454 |  | 707,329 |  | 10,247 |  | 9,172
Interest rate contracts | 15,086,291 |  | 11,797 |  | 8,924 |  | 12,864,265 |  | 13,436 |  | 11,644
Credit derivatives | 5,566 |  | 75 |  | 170 |  | 6,103 |  | 87 |  | 172
Equity, commodity and other contracts | 8,914 |  | 236 |  | 294 |  | 8,678 |  | 247 |  | 333
Total derivative assets/liabilities – trading and other | 15,789,986 |  | 19,702 |  | 15,842 |  | 13,586,375 |  | 24,017 |  | 21,321
Hedging |  |  |  |  |  |  |  |  |  |  |
Interest rate |  |  |  |  |  |  |  |  |  |  |
Currency swaps | 35 |  | 4 |  | – |  | 43 |  | 2 |  | –
Interest rate swaps | 211,737 |  | 8 |  | 253 |  | 231,064 |  | 6 |  | 337
Designated as fair value hedges | 211,772 |  | 12 |  | 253 |  | 231,107 |  | 8 |  | 337
Foreign exchange |  |  |  |  |  |  |  |  |  |  |
Currency swaps | 1,554 |  | 6 |  | 33 |  | 1,963 |  | 30 |  | 14
Interest rate |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps | 571,126 |  | 7 |  | 4 |  | 484,996 |  | 10 |  | 4
Designated as cash flow hedges | 572,680 |  | 13 |  | 37 |  | 486,959 |  | 40 |  | 18
Total derivative assets/liabilities – hedging | 784,452 |  | 25 |  | 290 |  | 718,066 |  | 48 |  | 355
Total recognised derivative assets/liabilities | 16,574,438 |  | 19,727 |  | 16,132 |  | 14,304,441 |  | 24,065 |  | 21,676
The notional amount of the contract does not represent the Group’s exposure to credit risk, which is limited to the current cost of replacing contracts with a positive value to the Group should the counterparty default. To reduce credit risk the Group uses a variety of credit enhancement techniques such as netting and collateralisation, where security is provided against the exposure; a large proportion of the Group’s derivatives are held through exchanges such as London Clearing House and are collateralised through those exchanges. The Group holds derivatives as part of the following strategies: •Customer driven, where derivatives are held as part of the provision of risk management products to Group customers •To manage and hedge the Group’s interest rate and foreign exchange risk arising from normal banking business. The hedge accounting strategy adopted by the Group is to utilise a combination of fair value and cash flow hedge approaches •Derivatives held in policyholder funds as permitted by the investment strategies of those funds The principal derivatives used by the Group are as follows: •Interest rate related contracts that include interest rate swaps, forward rate agreements and options. An interest rate swap is an agreement between two parties to exchange fixed and floating interest payments, based upon interest rates defined in the contract, without the exchange of the underlying principal amounts. Forward rate agreements are contracts for the payment of the difference between a specified rate of interest and a reference rate, applied to a notional principal amount at a specific date in the future. An interest rate option gives the buyer, on payment of a premium, the right, but not the obligation, to fix the rate of interest on a future loan or deposit, for a specified period and commencing on a specified future date •Exchange rate related contracts that include forward foreign exchange contracts, currency swaps and options. A forward foreign exchange contract is an agreement to buy or sell a specified amount of foreign currency on a specified future date at an agreed rate. Currency swaps generally involve the exchange of interest payment obligations denominated in different currencies. A currency option gives the buyer, on payment of a premium, the right, but not the obligation, to sell specified amounts of currency at agreed rates of exchange on or before a specified future date •Credit derivatives, principally credit default swaps, are used by the Group as part of its trading activity and to manage its own exposure to credit risk. A credit default swap is a swap in which one counterparty receives a premium at pre-set intervals in consideration for guaranteeing to make a specific payment should a negative credit event take place •Equity, commodity and other contracts including commodity swaps and options Note 19: Derivative financial instruments continued The Group’s hedged items and gains and losses arising from hedge accounting are summarised as follows:
| Carrying amount of the hedged item |  | Accumulated amount of fair value adjustment on the hedged item |  | Change in fair value of hedged item for ineffectiveness assessment £m |  | Hedge ineffectiveness recognised in the income statement 4 £m
Fair value hedges | Assets £m |  | Liabilities £m |  | Assets £m |  | Liabilities £m |  |
At 31 December 2025 |  |  |  |  |  |  |  |  |  |  |
Interest rate |  |  |  |  |  |  |  |  |  |  |
Fixed rate mortgages 1 | 121,732 |  | – |  | (178) |  | – |  | 725 |  | (68)
Fixed rate issuance 2 | – |  | 45,053 |  | – |  | 829 |  | (530) |  | 10
Fixed rate bonds 3 | 35,058 |  | – |  | (1,053) |  | – |  | (138) |  | 4
Total | 156,790 |  | 45,053 |  | (1,231) |  | 829 |  | 57 |  | (54)
At 31 December 2024 |  |  |  |  |  |  |  |  |  |  |
Interest rate |  |  |  |  |  |  |  |  |  |  |
Fixed rate mortgages 1 | 124,013 |  | – |  | (890) |  | – |  | (184) |  | (52)
Fixed rate issuance 2 | – |  | 51,499 |  | – |  | 1,340 |  | (75) |  | (11)
Fixed rate bonds 3 | 29,264 |  | – |  | (1,070) |  | – |  | (1,158) |  | (18)
Total | 153,277 |  | 51,499 |  | (1,960) |  | 1,340 |  | (1,417) |  | (81)
1 Included within loans and advances to customers. 2 Included within debt securities in issue at amortised cost and subordinated liabilities. 3 Included within financial assets at amortised cost and financial assets at fair value through other comprehensive income. 4 Hedge ineffectiveness is included in the income statement within net trading income.
| Gain (loss) recognised in other comprehensive income £m |  | Amounts reclassified from reserves to net interest income as: |  | Cash flow hedge reserve |  | Change in fair value of hedged item for ineffectiveness assessment £m |  | Hedge ineffectiveness recognised in the income statement 1 £m
Cash flow hedges |  | Hedged cash flows that will no longer occur £m | Hedged item affected income statement £m |  | Continuing hedges £m |  | Discontinued hedges £m |  |
At 31 December 2025 |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency issuance 2 | (3) |  | – |  | (4) |  | (11) |  | 138 |  | 7 |  | –
Customer deposits 3 | – |  | – |  | 4 |  | – |  | 9 |  | – |  | –
Interest rate |  |  |  |  |  |  |  |  |  |  |  |  |
Customer loans 4 | 294 |  | – |  | 1,131 |  | (2,159) |  | (1,475) |  | (802) |  | 63
Central bank balances 5 | 205 |  | – |  | 793 |  | (100) |  | (831) |  | (487) |  | 3
Customer deposits 3 | (14) |  | – |  | (55) |  | 1,527 |  | 38 |  | 72 |  | (12)
Total | 482 |  | – |  | 1,869 |  | (743) |  | (2,121) |  | (1,210) |  | 54
At 31 December 2024 |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency issuance 2 | 61 |  | – |  | (4) |  | 75 |  | 59 |  | (60) |  | –
Customer deposits 3 | – |  | – |  | – |  | – |  | 5 |  | – |  | –
Interest rate |  |  |  |  |  |  |  |  |  |  |  |  |
Customer loans 4 | (2,700) |  | – |  | 2,458 |  | (3,470) |  | (1,590) |  | 982 |  | (61)
Central bank balances 5 | (780) |  | – |  | 937 |  | (1,012) |  | (917) |  | 384 |  | (7)
Customer deposits 3 | 842 |  | – |  | (794) |  | 1,592 |  | 42 |  | (51) |  | 8
Total | (2,577) |  | – |  | 2,597 |  | (2,815) |  | (2,401) |  | 1,255 |  | (60)
1 Hedge ineffectiveness is included in the income statement within net trading income. The reported hedge ineffectiveness includes an adjustment for off-market derivatives. 2 Included within debt securities in issue at amortised cost and subordinated liabilities. 3 Included within customer deposits. 4 Included within loans and advances to customers. 5 Included within cash and balances at central banks. There was no gain or loss in either 2025 or 2024 reclassified from the cash flow hedge reserve for which hedge accounting had previously been used but for which the hedged future cash flows are no longer expected to occur. The accumulated amount of fair value hedge adjustments remaining on the balance sheet for hedged items that have ceased to be adjusted for hedging gains and losses is a liability of £524 million relating to fixed rate issuances of £498 million and mortgages of £26 million (2024: liability of £980 million relating to fixed rate issuances of £582 million and mortgages of £398 million). Note 19: Derivative financial instruments continued Details of the Group’s hedging instruments are set out below:
| Maturity |  | Changes in fair value used for calculating hedge ineffectiveness £m
Fair value hedges | Up to 1 month £m |  | 1 to 3 months £m | 3 to 12 months £m |  | 1 to 5 years £m | Over 5 years £m |  | Total £m |
At 31 December 2025 |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate |  |  |  |  |  |  |  |  |  |  |  |  |
Cross currency swap |  |  |  |  |  |  |  |  |  |  |  |  |
Notional | – |  | – |  | – |  | 35 |  | – |  | 35 |  | 2
Average fixed interest rate | – |  | – |  | – |  | 1.28% |  | – |  |  |  |
Average EUR/GBP exchange rate | – |  | – |  | – |  | 1.38 |  | – |  |  |  |
Interest rate swap |  |  |  |  |  |  |  |  |  |  |  |  |
Notional | 395 |  | 5,503 |  | 31,294 |  | 132,417 |  | 42,128 |  | 211,737 |  | (113)
Average fixed interest rate | 3.00% |  | 3.24% |  | 3.70% |  | 3.33% |  | 1.96% |  |  |  |
|  |  |  |  |  |  |  |  |  |  | 211,772 |  | (111)
Cash flow hedges |  |  |  |  |  |  |  |  |  |  |  |  |
At 31 December 2025 |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange |  |  |  |  |  |  |  |  |  |  |  |  |
Currency swap |  |  |  |  |  |  |  |  |  |  |  |  |
Notional | 152 |  | 162 |  | 157 |  | 884 |  | 199 |  | 1,554 |  | (7)
Average EUR/GBP exchange rate | 1.13 |  | 1.16 |  | 1.14 |  | 0.98 |  | 0.95 |  |  |  |
Average USD/GBP exchange rate | 1.33 |  | 1.31 |  | 1.30 |  | 1.29 |  | – |  |  |  |
Interest rate |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap |  |  |  |  |  |  |  |  |  |  |  |  |
Notional | 12,636 |  | 31,911 |  | 114,577 |  | 321,862 |  | 90,140 |  | 571,126 |  | 1,771
Average fixed interest rate | 4.03% |  | 3.43% |  | 3.65% |  | 3.59% |  | 3.56% |  |  |  |
|  |  |  |  |  |  |  |  |  |  | 572,680 |  | 1,764
Total |  |  |  |  |  |  |  |  |  |  | 784,452 |  | 1,653
Fair value hedges |  |  |  |  |  |  |  |  |  |  |  |  |
At 31 December 2024 |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate |  |  |  |  |  |  |  |  |  |  |  |  |
Cross currency swap |  |  |  |  |  |  |  |  |  |  |  |  |
Notional | – |  | – |  | – |  | – |  | 43 |  | 43 |  | –
Average fixed interest rate | – |  | – |  | – |  | – |  | 1.28% |  |  |  |
Average EUR/GBP exchange rate | – |  | – |  | – |  | – |  | 1.38 |  |  |  |
Interest rate swap |  |  |  |  |  |  |  |  |  |  |  |  |
Notional | 5,236 |  | 13,781 |  | 55,607 |  | 111,300 |  | 45,140 |  | 231,064 |  | 1,336
Average fixed interest rate | 3.04% |  | 3.68% |  | 4.04% |  | 3.36% |  | 2.27% |  |  |  |
|  |  |  |  |  |  |  |  |  |  | 231,107 |  | 1,336
Cash flow hedges |  |  |  |  |  |  |  |  |  |  |  |  |
At 31 December 2024 |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange |  |  |  |  |  |  |  |  |  |  |  |  |
Currency swap |  |  |  |  |  |  |  |  |  |  |  |  |
Notional | 107 |  | 441 |  | 646 |  | 763 |  | 6 |  | 1,963 |  | 61
Average EUR/GBP exchange rate | 1.17 |  | 1.16 |  | 1.15 |  | 1.10 |  | 1.06 |  |  |  |
Average USD/GBP exchange rate | 1.30 |  | 1.27 |  | 1.27 |  | 1.27 |  | 1.30 |  |  |  |
Interest rate |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap |  |  |  |  |  |  |  |  |  |  |  |  |
Notional | 9,195 |  | 21,010 |  | 129,436 |  | 262,387 |  | 62,968 |  | 484,996 |  | (600)
Average fixed interest rate | 4.32% |  | 4.36% |  | 3.84% |  | 3.34% |  | 3.01% |  |  |  |
|  |  |  |  |  |  |  |  |  |  | 486,959 |  | (539)
Total |  |  |  |  |  |  |  |  |  |  | 718,066 |  | 797

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