Report & Accounts 2012
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REPORT & ACCOUNTS 2012 CONTENTS 2 Chairman’s Report 6 Financial & Business Performance 8 Chief Executive’s Report 14 Business Review 30 Corporate Responsibility 34 Directors and Senior Management 38 Directors’ Report 41 Corporate Governance Report 48 Audit Committee Report 52 Risk Management Report 61 Directors’ Remuneration Report 69 Directors’ Responsibilities Statement 70 Independent Auditor’s Report 71 Income Statements 72 Statements of Comprehensive Income 73 Statements of Financial Position 74 Statements of Changes in Members’ Interest 75 Statements of Cash Flows 76 Notes to the Accounts 131 Annual Business Statement 135 Glossary YBS00001-R+A-2012-Inner.indd 1 22/02/2013 16:12 CHAIRMAN’S REPORT Ed Anderson The FCA will have the job of making markets work well, A REAL MUTUAL ALTERNATIVE and will focus on three objectives: protecting consumers, promoting competition and enhancing market integrity. The FCA is there to ensure that across the spectrum, – BUILT ON TRUST from the boardroom to the point of sale, firms keep the interests of consumers at the heart of what they do. As Chairman of Yorkshire Building Society I am delighted to report that The PRA, which will be part of the Bank of England, will share with the FCA the responsibility for the oversight the Group has once again performed strongly with robust profits, growing of building societies, banks and insurers. The PRA’s mortgage assets and improving the quality of those assets, in what continue objective will be to promote the safety and soundness to be challenging market conditions. of regulated firms. We have always prided ourselves on our strong relationship with the regulator and this has been The Group has been able to deliver another strong by a record-low Bank of England Bank Rate and, more characterised over recent years by: performance thanks to the trust our customers place in recently we believe, by the effect on the market of the us as a real mutual alternative to the retail banks, and government’s Funding for Lending Scheme (FLS). At • Sharing the regulator’s goals of protecting the financial because we have maintained our prudent approach to present we do not anticipate an increase in the Bank Rate system and protecting customers. the management of the business. for some considerable time. • Open and honest communication and dealings. In 2012 the Group consolidated its position as the UK’s The housing market has yet to recover and house • Professional completion of regulatory documentation second largest independent mutual building society price inflation remains flat. The future for house prices and assessments. during a period that witnessed an ongoing crisis of trust is uncertain with a strong pick up unlikely in the in many of the UK’s leading institutions. As Chris Pilling foreseeable future. Unemployment is high, especially • Proactive reporting on any matters thought to be of explains in his Chief Executive’s Report, the Group’s amongst young adults, labour markets are fragile and interest to the regulator. strong performance in 2012 included robust profits, the there are increased levels of part-time and temporary • Adopting a positive approach to establishing what delivery of excellent customer service and the initiation of employment, creating challenges for borrowers and matters to address and how. a major transformation programme. savers alike. One example of how we have observed the challenging economic conditions affecting our customers • Due priority in addressing agreed issues. External environment is in the first time buyer market, which has seen a steady During 2012 we reviewed our approach to conduct risk increase in the average age of first time buyers. This is, and have embedded this into the Group’s risk strategy. Trust in the financial services industry is at an all-time however, a market we are committed to supporting. This ongoing cultural commitment to behaving in an low, exacerbated by a range of widely-reported issues exemplary manner is a key foundation to ensuring fair including branch closures, failures in IT systems, the Changes have taken place in the competitive arena as customer outcomes and therefore the management of mis-selling of payment protection insurance (PPI), the the large retail banks work to address the challenges conduct risk. LIBOR-fixing scandal and the poor controls to prevent faced by their business models, including the loss of money laundering overseas. Looking at society generally, their customers’ trust. Throughout 2012 resurgent Further regulatory changes are affecting the savings and trust has been lost in some of our leading institutions as consumer interest in alternatives to the big retail banks mortgage markets and these include: a result of scandals and the perception of how well the coincided with the entry into the market of new retail- • The Retail Distribution Review (RDR) which came into institutions involved responded to them. As a building branded competitors. At the same time, existing mutual effect on 1 January 2013 and which, we believe, will society, with customers at our heart, we regret the challengers increasingly repositioned themselves as have the effect of restricting the availability of financial impact that these events have clearly had on customers’ alternative providers of current accounts. The Group advice to the mass market. We are working closely confidence in the financial services industry, however, experienced high levels of customers switching from with our partner, Legal & General, to ensure that our we believe that it may raise awareness of the values we other providers to our own Norwich & Peterborough sales processes continue to enable us to provide our stand for. (N&P) branded current account during the year. members with a range of options in how they choose to The Board’s view of the UK economy is that conditions The pace of regulatory change within the sector remains manage their money and to support them in doing so. remain challenging. There is continuing turmoil in the high, opening up opportunities for us as well as imposing • The Mortgage Market Review (MMR) will come fully EU which serves to increase uncertainty, and despite new sets of standards. In 2013 our existing regulator, into effect in 2014 and will place the full responsibility the UK technically exiting a ‘double dip’ recession in the Financial Services Authority (FSA), will be replaced for ensuring customers can afford the mortgage they October 2012 overall growth remains weak. Our savers by two new regulators, the Financial Conduct Authority request onto the lender. For example, MMR clarifies continue to feel the impact of low interest rates, driven (FCA) and the Prudential Regulation Authority (PRA). 2 Yorkshire Building Society | Report and Accounts 2012 YBS00001-R+A-2012-Inner.indd 2 22/02/2013 16:12 The FCA will have the job of making markets work well, the requirements on lenders when mortgage terms and will focus on three objectives: protecting consumers, extend beyond a customer’s expected retirement promoting competition and enhancing market integrity. age. The requirements of MMR have already resulted The FCA is there to ensure that across the spectrum, in a significantly reduced availability of interest only from the boardroom to the point of sale, firms keep the mortgages. interests of consumers at the heart of what they do. • The FSA’s thematic review of interest only mortgage The PRA, which will be part of the Bank of England, will As Chairman of Yorkshire Building Society I am delighted to report that sales (expected in early 2013) will further impact the share with the FCA the responsibility for the oversight nature and availability of such mortgages. the Group has once again performed strongly with robust profits, growing of building societies, banks and insurers. The PRA’s mortgage assets and improving the quality of those assets, in what continue objective will be to promote the safety and soundness During summer 2012 the Bank of England and to be challenging market conditions. of regulated firms. HM Treasury introduced the FLS, a scheme whose aim is to incentivise banks and building societies to increase We have always prided ourselves on our strong net lending to UK households and businesses. FLS relationship with the regulator and this has been is a liquidity programme that provides participating by a record-low Bank of England Bank Rate and, more characterised over recent years by: recently we believe, by the effect on the market of the lenders with access to funding at a lower cost than government’s Funding for Lending Scheme (FLS). At • Sharing the regulator’s goals of protecting the financial was available in the wholesale markets at the time the present we do not anticipate an increase in the Bank Rate system and protecting customers. scheme was announced. By 31 December 2012, 35 lenders had signed up for the scheme and were eligible for some considerable time. • Open and honest communication and dealings. to draw down a total of £68bn. The Group has signed The housing market has yet to recover and house • Professional completion of regulatory documentation up for the scheme but has yet to draw down any funds price inflation remains flat. The future for house prices and assessments. and is currently reviewing its planned utilisation of the is uncertain with a strong pick up unlikely in the scheme to support its funding strategy. The scheme • Proactive reporting on any matters thought to be of foreseeable future. Unemployment is high, especially has, as intended, led to lower mortgage rates and may interest to the regulator. amongst young adults, labour markets are fragile and encourage some lenders to re-enter markets they had there are increased levels of part-time and temporary • Adopting a positive approach to establishing what previously withdrawn from. employment, creating challenges for borrowers and matters to address and how.