Operator: Our next question comes from Robin Down of HSBC. Robin, if you’d like to unmute and ask your question.
Katie Murray: Hey, Robin.
Paul Thwaite: Hey, are you there, Robin?
Operator: Robin, if you’d like to unmute, then you may ask your question.
Paul Thwaite: No.
Operator: No, unfortunately it appears that we don’t have Robin at the moment. So we’re going to go to Andrew Coombs of Citibank. Andrew, if you’d like to unmute and go ahead and ask your question.
Katie Murray: Hi, Andrew.
Andrew Coombs: Good morning.
Paul Thwaite: Good morning.
Andrew Coombs: Good morning. If I could have a couple of follow-ups, please. Just firstly, on the structural hedge notional and the 12-month loopback, you talked about 2024 decline in line, I think with the balances. But if I look at that 12-month loopback component, if I look at the PCAs, they’re down £20 billion year-to-date. Your PCAs and savings are down £30 billion. Your guidance on the structural hedge notional is for a £19 billion decline over the course of the year to get to that £190 billion. So just is there an element of catch-up in the first half 2024 relative to those deposit balances, just to fully understand that 12 months loopback point. So that’s the first question. And then the second question just coming back to the lending margin.
And thank you for the point about being fully re-priced by year-end. I also appreciate that you’ve moved away from giving quarterly completion spreads and instead talked about this 80 bps over time. But just given the magnitude of the move down driven by lending margin, and that comes despite growth in higher margin areas like unsecured and commercial. Just trying to understand exactly where your front book completion spreads are today because they must be well below that 80 basis points that you’re talking about. And I know the swap curve has been volatile, but it does look like you’re running well below that at the moment.
Katie Murray: Yes. So Andrew, I guess I’m not going to be drawn on it. We have talked about the book re-pricing. It’s definitely under some pressure just now. Everyone be called on the exact number and as you know, it’s something that moves not quite week-to-week, but in terms of pricing, there’s a lot of activity. It is, I think, one of the most competitive mortgage markets we’ve been in for some time at the moment, excepting it’s always competitive. In terms of the 2024 decline, we’re very mechanistic about how we do this. We look at the previous 12 months of the eligible balances. We’ve given you a lot of disclosure over this year. You can see in the fence up in terms of what’s been exactly how current accounts and into term accounts.
We’ve also given you disclosure today around those term accounts and our look forward for them. We do expect the number to decline into next year. We will see some stabilization we think and we’ve talked about that a lot on the call today. And so that will then start as you then move forward and have the 12 months loopback at the end of Q3 and the end of Q4 and into 2025 that you start to see that stabilization of the — of the hedge. And then you’ll see the reinvestment of the kind of £10 billion at its fuel level. And that will come through in the later part of the year. I mean do I think consider the margin on other deposit categories and how they kind of work out compared to where our hedge balances are and obviously those term balances I think that will help you a little bit as well.
Thanks Andrew.
Operator: We are going to — come back to Robin Down of HSBC. Robin, if you’d like to unmute and ask your question.
Katie Murray: Hi, Robin.
Robin Down: Does that work?
Paul Thwaite: It does. We can hear you, Robin?
Robin Down: Sorry. You think after all this training on Zoom calls we get the mute function, right. Just one quick numbers question and one kind of slightly more conceptual question. Did I hear you earlier say that the mortgage book had dropped to 86 basis points?
Katie Murray: Yes.
Robin Down: In Q3. Okay. And that’s from what 102?
Katie Murray: Yes. So — and that’s been very consistent pattern on each of the quarters. I gosh I’d say even for the last six or seven quarters, it’s just been gently re-pricing around about 15-ish basis points each quarter.
Robin Down: Okay. And then, the second question kind of conceptual one, and I’m not really sure whether you’re going to be able to answer this, but the assumption we all make is that when the structural hedge benefits come through, that they’re retained by the bank and retained for shareholders and not passed back to customers through kind of higher deposit rates. Just what gives you confidence that that’s because the track history of UK banking in the last 30 years is that when these benefits come through, they tend to get passed on to the customers. What gives you confidence that you’re going to be able to retain that for shareholders?
Katie Murray: So I mean I think I’m probably not going to be able to give you a perfect answer, but I guess if I look at that structural hedge just now, it’s yielding 1.5%. If I look at what we’re paying to customers in different accounts, they vary across all of the accounts, whether it’s the fixed term where the customer is yielding 5.25%. Clearly, I’m hedging that in the background, so it’s not necessarily cost me all of that or to the term accounts where we’ve pass-through about half 50% of the rates and obviously, we don’t pay on the deposit account. So I think it’s very hard to say, as that structural hedge number goes up, then automatically we’ll go back. I think what’s really important is that we balance all of the stakeholders and that we make sure that we do the right level of pass-through to our customers.
And what you can see as you look at that graph on Slide 8, there has been a real ramp up in that pass-through during this year I mean we in terms of kind of interest payments, it’s £4.1 billion the first nine months of this year that compares to about 375 last year. So there’s been huge pass-throughs kind of going through. So I would find it very difficult to tie. This is what happened to the hedge and that was your pass-through. We are clearly managing the whole balance sheet, making sure that we’ve got stability and gentle growth on our lending side and the same on our deposit side. And we’re just kind of trying to make sure we have balance and deliver for all of the stakeholders. Hope that helps just a little bit.
Robin Down: Yes. Thanks, Katie.
Operator: Our final question comes from Fahed Kunwar of Redburn Atlantic. Fahed, if you’d like to unmute and ask your question.
Katie Murray: Hey, Fahed.
Fahed Kunwar: Hi, Katie. Hi, Paul.
Paul Thwaite: Hi, Fahed.
