Katie Murray: I think I will just move things to mortgages, if that’s okay. So in terms of the mortgage piece. So as you look at the mortgage book, if I start with the kind of phasing of the churn, what we see is more stable in Q1 or the roll-on and roll-off kind of dynamic. And then, we’ll expect stability, I think to kind of come through in Q2. We did in this last quarter, very much manage the application flows that was coming through as we saw the shape of the balance sheet. I think that’s a very rational thing to have done. 14% over the year, we’re very comfortable with. It’s above our stock share. And we do see this as an area that we can — is an important area for growth. I don’t think you should necessarily expect growth every quarter, but certainly growth over time is what we would be expecting.
I think it has been important with some of the pricing dynamics and things and the movements in the swap curve is to make sure you’re really managing it for value and maximizing your RoTE in that space. So very comfortable with that process, so I wouldn’t see that as 1 quarter being a bellwether for the future. We still view this is a book that’s important to us, returns very good, RoTE for the business and an important area for growth as we move forward from that and one of the areas that we’re making significant investments so that we’re able to scale and really benefit from the digitization of this business.
Operator: Our next question comes from Andrew Coombs of Citi.
Andrew Coombs : So 2 questions. First one, just on the structural hedge. I think the previous guidance was for it to finish the year at GBP 190 billion. And it’s actually come in at GBP 185 billion. And that’s even though the deposit mix shift seems to be — it seems to have been broadly in line with what you were guiding for Q3, so perhaps you could explain what caused the additional GBP 5 billion decline in the nominal? And also, any color you want to add on where you think the direction of travel is magnitude-wise for 2024? So that’s the first question. Second question was actually just on the impairments given the confident guidance you’ve given for this year, the less than 20 basis points. I noted on Slide 21, you still get through-the-cycle figures, 20 bps to 30 bps; and you obviously expect to come in better than that this year.
Just is there anything baked into that for release of the GBP 429 million adjustment for economic uncertainty? Or is it just the case of better IFRS 9 assumptions, lower Stage 3 migration, et cetera?
Paul Thwaite : Katie, do you want to take the hedge?
Katie Murray : Yes, perfect, absolutely.
Paul Thwaite : I’ll take impairments.
Katie Murray : Sure, absolutely. So as I look at the hedge, what we’d sort of talked about was around a GBP 190 billion base on a static balance sheet. We know that the balance sheet obviously is not static. In terms of the direction of travel is a few things I would probably mention on that. The average product yield for the hedge was 142 basis points. It’s important to understand in the fourth quarter that increased to 152 basis points for the quarter. When I look at the kind of sizing of the hedge as we go into next year, we would expect the shrinkage to be less than we saw in 2023, in line with that conversation we’ve had around deposit movements kind of stabilizing in the middle of the year. If you were to look at the year-end notional balances and the mix remains static, you could see that number would kind of recalibrate to about GBP 170 billion.
I think what’s important, though, as you look at the hedge is also the level of reinvestment. So Andrew, it matures over 2.5 years. You take the GBP 185 billion today. 1/5 of it will mature every year, so therefore, it’s GBP 37 billion when you look at that kind of average life of the book. We are assuming that it gets reinvested at around 310 over the course of the year. You can see that rates are slightly better than that today, but on average, we think that’s an appropriate number to look at. And we’ve talked in the past around the fact that the roll-off yield is so much lower than what the reinvested real. So we do see this as a positive tailwind as you see that stabilization coming through in the first half of the year and moving forward from there.
And Paul, do you want to take impairments?
Paul Thwaite : Yes, I’ll take impairments. Andrew, your hypothesis or as you outlined is pretty much spot on. The book is performing better than we’d anticipated. Customers have adapted resiliently to the higher rate environment, so arrears levels remain low across most of the asset books. So loan impairment, 15 bps for ’23, obviously below our through-the-cycle range. You’ve seen the guide for ’24, below 20. So assuming no sign of significant macro deterioration. You also astutely point out we do have post-model adjustments of GBP 0.5 billion, GBP 400 million for economic uncertainty, GBP 0.5 billion overall, but we will be very prudent about them in terms of the release. So your thesis is right in terms of what’s happening.
Andrew Coombs : Can I just clarify one thing with Katie? Roll-off yields. I think previously you said 80 bps for this year and 50 bps for ’25, presuming that guidance is unchanged.
Katie Murray : I mean it’s unchanged. There are some technicalities that I’m going to not get into too much detail, but as we’re kind of managing the process of reducing the notional and we fixed swaps to reduce, that roll-off yield actually does reduce. So it’s actually a bit lower than that in terms of the mechanics that we do, so — but I think, if you work with those and the difference between — but then just that pay fixed swap as we manage the notional does have a little bit of an impact. But those are good numbers for you to use.
