Nationwide passes Bank of England Solvency Stress Test

On December 13 2021 the Bank of England issued the results of its Solvency Stress Test 2021 (SST).

The specified hypothetical scenario provided by the Bank of England for SST represented a severe stress in the initial years with a GDP trough 19 per cent below pre-pandemic levels, house price falls of 33 per cent peak-to-trough and a peak unemployment rate of 11.9 per cent.

Notwithstanding this, there was a strong economic recovery thereafter with both GDP and HPI, in particular, recovering quickly.

The results of the SST published by the Bank of England confirm that Nationwide, Britain’s biggest mutual, would remain profitable in such conditions and continue to make full distributions on all Tier 1 capital instruments, with a minimum stressed CET1 ratio on a transitional IFRS 9 basis of 17.0 per cent.

Consequently, Nationwide remains substantially above the regulatory hurdle rates set for this stress test of 8.4 per cent CET1 ratio and 3.6 per cent UK leverage ratio.

When the SST exercise was launched the Bank of England confirmed that, as the UK economy had entered a period of significant disruption, the focus of their stress testing changed to assess whether the buffers of capital built up by SST participants were large enough to deal with how the stress could unfold.

Consequently, there will be no ‘mechanical’ link between the SST exercise and the setting of Nationwide’s capital buffers.

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