We expect the shape to improve as you go through the year but with the second half being slightly stronger than the first half. I’ll just pick up one last bit on the DBB. The retail share offering does not impact our buybacks. As a board, we plan our — what we need to do. And so it’s a completely separate debate.
Paul Thwaite: And it is in the plan.
Operator: Our next question comes from Benjamin Toms of RBC.
Benjamin Toms : You know your guidance on your income, ex notable items, of GBP 13 billion to GBP 13.5 billion, but could you provide us with an estimate for NIM for the full year, I guess, based on your new measure; and how the shape of NIM might change as we go through the year? And then secondly, just a clarification question on your sensitivities to rate cuts, where you assume a 60% pass-through assumption. Can you just clarify what that 60% means? Is it measured from the first rate rise in the cycle or from the first rate cut? If it’s the latter, is 60% a fairly conservative assumption? I think I’ve heard peers of yours talk about deposit pass-through being much higher on the way down than it is on the way up.
Paul Thwaite: Thanks, Ben. Katie, do you want to pick the NIM piece up?
Katie Murray: Yes, sure, absolutely. So in terms of NIM, Ben, we’re providing you with total income guidance today, GBP 13 billion to GBP 13.5 billion. As you’ve heard, we’ve managed margins across both sides of the balance sheet. Managing margins is obviously a key focus for the entire management team, but it really is one of the drivers that we look to in terms of the overall return. You need to consider the cost of risk, capital requirements and, of course, the operational costs of doing business. And this is why RoTE is our key financial metric, and it’s what will drive capital generation and capacity for investment and distribution to shareholders. The key income drivers that I’ve talked a little bit about already for 2024 are also our key margin drivers, so you can assume that margin will follow a similar shape to income as we progress through the year.
So on the sensitivity. So the way that we’ve done it, I think, it’s an illustrative example of a single 25 basis point cut. So by definition, it’s the incremental pass-through on that. We have said that the pass-through will be very much a function of competitive dynamics. And similarly to the way, when we were on the way up, we didn’t share with you what our next pass-through thoughts were. They obviously emerged as competition and market dynamic as dictated. And I’m not going to share with you — or it just now, but we have worked on a 60% pass-through of that rate, taking in mind as well that there is a delay in passing through because of some of the regulatory requirements so the speed of notification that you need to give to our customer base.
So that has also been built in a little bit as well. Clearly, how we do it and the time of implementation will be dependent on customer and market.
Paul Thwaite : Yes. What I’d add on that, Ben, is I would see it as a sensitivity and an example, not a statement of our pricing strategies. Our pricing strategy will be influenced by as and when the rate changes happen, what the competitor responses are, what our funding and liquidity needs are at that time as well.
Operator: Our next question comes from Rahul Sinha from JPMorgan.
Rahul Sinha : I’ve got 2, please. The first one is just around the confidence in your new RoTE targets, just interested in the moving parts from the sort of 12% that you guide for ’24 to above 13% for 2026. I guess the simple question is, is it all just driven by the hedge? Or are there other sort of material drivers that you would point to as well? And I guess, related to that, the second question, just on the mortgage business. The book didn’t grow in Q4. Obviously your flow share was 10.5%. I think you’ve done 14% share through the year. I’m just trying to understand if this more disciplined approach to mortgage growth means that we should expect lower growth in the loan book driven by mortgages going forward given competitiveness in this market is probably not going to change.
And just an addendum to that, if you could give us a bit more color on the mortgage refinancing churn, the back book to front book; how it phases through the quarters in 2024 that would be really helpful.
Paul Thwaite : Thanks, Rahul. Katie, why don’t — I’ll start with a couple of things on RoTE. And maybe you can talk to the bridge. And then I’m sure we can both have a go on mortgages. So Rahul, just on the broader kind of RoTE guidance. Obviously, we’ve shared around 12% for ’24 and greater than 13% for ’26. We thought about that carefully. You can see the economic assumptions we’ve played through there. And again, in my response to Aman, you can take your view on them. The main thing really that’s driving that is the path of the peak, I guess, from 5.25 to 3 over the course of the 2 years, but to the heart of your question is what drives the upturn. It’s certainly more than the hedge. Katie talked about the kind of tailwind from the hedge, but from my perspective, I’m very focused on growing a number of the different P&L lines.
We’ll be managing costs and capital very tightly, thinking very carefully about capital allocation but also driving growth in our core businesses as well, whether that’s the fee lines or lending growth, be it mortgages or corporate. So it’s certainly supported by the tailwind in the hedge, but we’re gripping the other levers to drive the business forward.
