Leeds Building Society Annual Report and Accounts 2017
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13mm Spine Leeds Building Society C M Y K PMS ??? PMS ??? PMS ??? Annual Report & Accounts Annual Report PMS ??? Non-printing Colours COLOUR COLOUR JOB LOCATION: PRINERGY 3 2017 Annual Report & Leeds Accounts Building Society 2017 A Perfect Partnership LDS091-M39313C_R+A-18-Cov.indd 1 05/03/2018 11:13 13mm Spine 2017: a year in review Get in touch We paid an average of Gross residential Record savings lending eceeded alances up to to1.33% our savers compared Find your nearest branch to the rest of market (2016: £4bn) £13.1bn(2016: £11.2bn) £4.1bn average of 0.70% www.leedsbuildingsociety.co.uk/branch We helped 71,429 people We helped save for their 50,279 people future. UK-based contact centre have the home they want. Call 03450 50 50 75 An annual benefit to all our savers 8am–8pm, 7 days a week of £75m. We may monitor and/or record your telephone conversations with the Society to ensure consistent service levels (including colleague training). rot efore ta Common Equity Total assets up 16% to up 4% to Tier 1 Capital is (2016: £15.9bn) £18.5bn £120.9m(2016: £116.6m) 14.5%(2016: 15.2%) Reserves available to protect us from future problems. Colleague Customer engagement score satisfaction up 2% to 91%(2016: 92%) We have an ongoing commitment to be 80%(2016: 78%) customer focused in everything we do. We’re committed to being a great place to work. LDS091-M39313C_R+A-18-Cov.indd 2 05/03/2018 11:13 CM YK Contents P M S ? ? P M S ? ? P M S ? ? P M S ? ? N o n p in in Strategic Report 2 C o l o u r s Chairman’s Welcome 2 COLOUR COLOUR Chief Executive Officer’s Highlights 4 J O B Business Model 8 LOCATION: Key Performance Indicators 11 Principal Risks 14 Viability Statement 20 Financial Review 22 Colleagues 30 Corporate Responsibility Report 32 Governance 36 Chairman’s Introduction 36 Board of Directors 37 Corporate Governance Report 40 Directors’ Report 52 Board Risk Committee Report 54 Audit Committee Report 60 Directors’ Remuneration Report 68 Financial Statements 82 Independent Auditor’s Report 82 Income Statements 90 Statements of Comprehensive Income 91 Statements of Financial Position 92 Statements of Changes in Members’ Interest 93 Statements of Cash Flows 94 Notes to the Accounts 95 Other Information 142 Annual Business Statement 142 Country by Country Reporting 145 Glossary of Terms 146 LeedsAnnual Building Report Society Annual & Accounts 2014 Report & Accounts 2017 1 Strategic Report Corporate Responsibility Governance Financial Statements Other Information Report LDS091-M39313C_R+A-18-1.indd 1 02/03/2018 15:41 Strategic Report Year ended 31 December 2017 Chairman’s Welcome I’m pleased to report that Leeds Building Gross mortgage lending in the UK reached As part of the EU’s Bank Recovery and Resolution Society had a successful year in 2017. During £257 billion7, up 4% year on year, and while the Directive, the final framework and policies for a period of uncertainty around the UK’s future pace of house price inflation slowed in 2017, setting Minimum Requirement for Own Funds relationship with Europe and a snap General it remained positive. The Halifax House Price and Eligible Liabilities (MREL) have been published Election, we have delivered another strong Index grew 2.7% in the year to December, by the Bank of England. This will require relevant set of results and continued to help people compared to 6.5% a year earlier8. banks and building societies to hold additional save and have the home they want. Market rates paid to savers also fell in 2017 loss absorbing capital and this has been factored into our future plans, to ensure we are well Assets increased by 16%, to £18.5 billion, and but we continued to support our savings 9 positioned to meet the requirements. membership is now more than 796,000. Our members, paying on average 0.63% more to lending growth, combined with reduced losses savers than our competitors. Summary from historical loans, led to a record level of Regulation and industry developments During 2018, we anticipate that competition profit, enabling us to increase our capital In December 2017, the Basel Committee in the mortgage market will intensify and and invest further in the long term future of published the final requirements for the next uncertainty around leaving the EU will the Society. phase of prudential regulation, setting out continue. Economic background a number of further refinements to global Nonetheless, our strong performance over The UK economy continued to show signs of capital and liquidity requirements. We will many years means that we expect to continue resilience last year although the rate of growth continue to prepare for the changes, which we to grow in a measured way and invest in the slowed in 2017,1 as uncertainty remains, ahead expect to be implemented over the next few long term future of the Society for the benefit of the UK’s exit from the EU. Globally, however, years. of all our members. the outlook broadly strengthened. Earlier this year, the revised Payment Services Our Society would not be successful The US Federal Reserve has gradually Directive came into effect to enhance without our dedicated colleagues who increased interest rates, citing strong protection for customers and promote a level work so hard to deliver excellent service. prospects for economic growth and rising playing field for payment service providers. On behalf of the Board, I would like to thank employment. Within the Eurozone, activity Where applicable, we have taken the them and you, our members, for choosing also picked up and the European Central necessary steps to meet the new rules. Leeds Building Society. Bank announced it will begin to scale back its Over the coming years, the impact of leaving financial stimulus programme this year. the EU will become clearer. However, we do Robin Ashton Chairman UK unemployment was 4.4% in the three not expect any significant UK regulatory months to December2. However, CPI inflation changes as the Government negotiates 27 February 2018 reached 3.1%3 and is expected to remain above exit terms. We will continue to monitor any the Bank of England’s 2% target until 20204, developments and how these may affect the which will put pressure on disposable income Society or members. over the medium term. The Financial Conduct Authority (FCA) is In November the Bank of England responded carrying out an in-depth mortgage market to positive economic data by reversing the cut study, to assess customers’ abilities to make made to Bank Base Rate in the wake of the vote effective decisions on the right products and to leave the EU, raising it back to 0.50%. services for them. The outcome of the review is expected in spring this year. Competition in the mortgage market intensified, which resulted in further reductions The General Data Protection Regulation 5 to average new mortgage rates during 2017 . comes into force in May. This will strengthen 1. Source: Office for National Statistics – GDP in 2017 was 1.8% (vs. 1.9% in 2016) 2. Source: Office for National Statistics – ILO Unemployment rate This has been good news for borrowers the data protection framework across the October-December 2017 EU and provide consumers with greater 3. Source: Bank of England – CPI inflation, November 2017 as the cost of servicing mortgage debt for 4. Source: Bank of England – December 2017 Inflation Report inflation projections households is now lower than at any time control over their personal data. We are 5. Source: Bank of England – Average effective interest rates on new individual mortgages 6 preparing for these changes and taking the 6. Source: Bank of England – Aggregate household debt-servicing ratio – defined as since the early 1990s . interest payments plus regular mortgage principal repayments as a share of household necessary steps to comply with the new rules. disposable income 7. Source: UK Finance – Gross mortgage lending estimate for the 12 months up to December 2017 8. Source: Halifax HPI, Annual change as at December 2017 9. Source: CACI CSDB, Stock, January 2017 – December 2017, latest data available. CACI is an independent company that provides financial services benchmarking data and covers 86% of the high street cash savings market 2 Leeds Building Society Annual Report & Accounts 2017 Strategic Report Corporate Responsibility Governance Financial Statements Other Information Strategic Report Report LDS091-M39313C_R+A-18-1.indd 2 02/03/2018 15:41 Strategic Report Chairman’s Welcome Gross mortgage lending in the UK reached As part of the EU’s Bank Recovery and Resolution £257 billion7, up 4% year on year, and while the Directive, the final framework and policies for pace of house price inflation slowed in 2017, setting Minimum Requirement for Own Funds it remained positive. The Halifax House Price and Eligible Liabilities (MREL) have been published Index grew 2.7% in the year to December, by the Bank of England. This will require relevant compared to 6.5% a year earlier8. banks and building societies to hold additional Market rates paid to savers also fell in 2017 loss absorbing capital and this has been factored but we continued to support our savings into our future plans, to ensure we are well members, paying on average 0.63%9 more to positioned to meet the requirements. savers than our competitors. Summary Regulation and industry developments During 2018, we anticipate that competition In December 2017, the Basel Committee in the mortgage market will intensify and published the final requirements for the next uncertainty around leaving the EU will phase of prudential regulation, setting out continue.