Business
Response to Results of BoE Stress Test 2022
Response to Results of BoE Stress Test 2022.
About this update from Nationwide Building Society
[{"type":"text","content":"\n\nNationwide Building Society (\"Nationwide\")\nEmbargoed to 7.30am on 12 July 2023\n\nNATIONWIDE'S RESPONSE TO THE RESULTS OF THE BANK OF ENGLAND STRESS TEST 2022\n \nToday 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.\n \nThe 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.\n \nThe 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.\n \nAs 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.\n \nThe 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.\n \nNationwide 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.\n \nOn 19 May, Nationwide issued its full-year results for the period 5 ...