Unaudited results for the six months to 30/06/2025

22 July 2025

For immediate release

ARBUTHNOT BANKING GROUP PLC ("Arbuthnot", "the Company", "the Group" or "ABG")

Unaudited results for the six months to 30 June 2025

Arbuthnot Banking Group PLC is the holding company for Arbuthnot Latham & Co., Limited.

FINANCIAL HIGHLIGHTS

OPERATIONAL HIGHLIGHTS

Commenting on the results, Sir Henry Angest, Chairman and Chief Executive of Arbuthnot, said: "Arbuthnot has continued to grow the overall business and in particular its relationship deposit base, funds under management and specialist commercial lending. The continued strength of the business is reflected in the decision to increase the interim dividend by 10 per cent even though, as anticipated, this year's results reflect the effect of a series of reductions in base rate over the last twelve months."

The Directors of the Company accept responsibility for the contents of this announcement.

The information contained within this announcement is deemed to constitute inside information as stipulated under the retained EU law version of the Market Abuse Regulation (EU) No. 596/2014 (the "UK MAR") which is part of UK law by virtue of the European Union (Withdrawal) Act 2018. The information is disclosed in accordance with the Company's obligations under Article 17 of the UK MAR. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

Chairman's Statement

The Group has reported a profit before tax for the first six months of the year of £10.9m compared to £20.8m in the same period last year.

This reduction in reported profit was expected, as the Bank of England's base rate was lower than the prior period. However, the Group continues to make good strategic progress. As in prior periods, the Group has maintained its discipline in allocating capital to the lending proposals that offer the best returns on capital rather than using lending volumes themselves as an indicator of success.

During the first half of the year our lending balances fell to £2.3bn compared to the position at the end of 2024 where they stood at £2.4bn. Within this we have continued to grow our asset finance and truck leasing balances but have seen more subdued conditions elsewhere in the Group, in particular in the real estate finance market along with our invoice finance business.

The uncertain economic outlook has meant that real estate markets have seen thin volumes of business and therefore other lenders have been chasing this business by offering sub optimal rates. We have always considered ourselves to be counter cyclical lenders, and we refuse to be drawn into competing on price alone, so we remain content to preserve our capital for the future, when these markets become firmer, and the prices produce acceptable returns on our capital deployed.

I was delighted to see that our plan to increase lending in our specialist divisions was recognised in the recently published Asset Finance UK 50 report, where Asset Alliance was the number one firm with the highest percentage growth rate in the last reported year and Renaissance Asset Finance was ranked sixth with the highest percentage growth rate over the past three years.

The success that the Bank has enjoyed in attracting new deposits has continued into the first half of the year, with balances growing to in excess of £4.4bn. This is an increase of £285.5m since the year end and £554.9m since the same time in the prior year. This is a growth rate of 7% since the year end, despite seeing approximately net £140m of outflows around the tax payment season.

As we have previously indicated, our profitability performance is somewhat linked to the level of the base rate as our surplus liquidity balances are held at the Bank of England or invested in short term fixed income products. The continued fall in the base rate during the first half, after the initial reductions that started in August 2024, is the most significant factor in the reduction in the reported profit.

However, there is also a lag effect as a result of the time it takes for deposit balances to reprice. This can be seen in the average cost of deposits, which fell to 2.80% for the six month period compared to 3.19% for the same period in the prior year; it stood at 2.68% at the end of June 2025.

I am happy to report that our Wealth Management distribution continues to grow at a very acceptable rate, with funds under management increasing to £2.4bn despite the volatile markets. That is a growth rate of 8% since the year end and 22% in the past year. The business is also making good progress in its optimisation project which should be up and running in 2026.

Given the continued progress of the Group and the strength of the balance sheet the Board are proposing to pay an interim dividend of 22p per Ordinary and Ordinary Non-Voting share, an increase of 2p per share compared to the regular interim dividend paid in the prior year. This dividend will be paid on 26 September 2025 to shareholders on the register at 29 August 2025.

Finally, at the AGM both Ian Dewar and Sir Alan Yarrow retired from the Board having reached the notorious nine year guillotine. I would like to thank them once again for their significant contributions and advice, as they have guided the Group through a period of exceptional growth. On 16 July we appointed Charlotte Crosswell to the Board of Directors, and I would like to welcome her to the Group and look forward to working alongside her in the future.

Banking

Banking's relationship-led approach continued to support the acquisition and retention of criteria clients across Private and Commercial Banking.

Despite the annual expected outflows to HMRC in the early part of 2025, these were more than offset with an increase in deposit flows from new and existing clients. As a result, core deposits for Banking increased by £285.5m to £4.4bn, equating to 7% growth for the first half of 2025, and 14% compared to 30 June 2024.

Lending declined, as expected, in the first half of 2025 by 8% to £1.4bn. The Bank continued its strategy to recycle capital into higher margin lending by the subsidiary companies. With the macro-economic outlook remaining uncertain, the Bank's loan appetite remains cautious, with a focus on continuing to support existing clients, whilst maintaining its principle of high quality credit lending for new business. Consequently, the low growth environment has suppressed opportunities, resulting in a lower deal flow, with market participants competing for the quality deals by lowering margins, and hence returns on capital. Given our long standing principle of maintaining our returns on capital employed we have not been drawn into this competition.

The Bank's recent Net Promotor Score of 68 reflects the ongoing support from its clients and its commitment to its vision of being a leading full service, human-scale relationship bank powered by modern technology.

Wealth Management

Funds Under Management & Administration (FUMA) continued to grow in the first half of 2025 to finish June at £2.4bn, up 8% from the start of the year and representing growth of 22% year on year (30 June 2024: £2.0bn).

The threat of a global trade war along with geo-political instability resulted in high levels of market volatility in the first 6 months of 2025. However despite the turbulence, year to date gross inflows of £204m over the period compared to £170m over the same period last year, which has resulted in net flows for the current period of £127m.

Arbuthnot Commercial Asset Based Lending (ACABL)

ACABL reported a profit of £4.8m compared to £4.4m for the same period the prior year and finished the period with a loan book of £231.2m, relatively unchanged from the end of 2024.

The economic uncertainty and low growth environment, which suppressed activity in 2024, continued in the first half of 2025. Client facilities reaching the end of their terms continued to offset growth in the loan book, although originations in Q2 including the provision of additional facilities for existing clients, together with ACABL's pipeline, are showing more positive signs.

The business carries on closely monitoring watch cases, but the proven business model of high quality collateral continues to mitigate against credit losses.

Renaissance Asset Finance (RAF)

RAF reported a profit of £3.3m (30 June 2024: £2.2m), an increase of 48% compared to the same period in the prior year, and finished the first half with a loan book of £279.6m, equating to annual growth of 19% when compared to £234.3m for the same period in the prior year and 12% up from the year end (31 December 2024: £248.8m).

The Block Discounting business now makes up 21% of the RAF book with balances of £58m, equating to annual growth of 88% when compared to £30.9m for the same period in the prior year.

Despite the challenging economic climate for the SME sector, problem debt provisions remain low and favourable net margins were maintained.

Asset Alliance (AAG)

AAG reported a loss before tax of £0.5m (30 June 2024: £0.03m profit).

Whilst the commercial vehicle market remains subdued, there are definite signs of improvement in both new business lending and end of lease asset sales. As at 30 June 2025 the business had assets available for lease and finance leases totalling £385.0m (30 June 2024: £363.1m), growth of 6% since the year end and over the previous 12 months (31 December 2024: £363.0m).

Own book origination of £75m in the first six months has been achieved by a continuation of the strong origination within the bus and coach market from 2024 as well as the improvements on truck and trailer leasing. Yields on new business remain stable, in line with the prior year and resilient amidst recent rate reductions and a highly competitive market.

Trading in used end of lease commercial vehicles, which saw a slump in 2024, has seen improvement towards the second half of the period. The strategy to diversify the portfolio has resulted in strong performance from the bus and coach division offsetting the more challenging truck sector.

The Bus Rental Division which launched in 2024 continues to deliver growth amidst the ongoing drive for Extra Low Emission Zones within the UK Cities with all assets fully utilised and delivering strong yields, coupled with a healthy forward pipeline.

The lending book remains robust with minimal impairments. 

Operations

The Bank has continued to pursue its client growth strategy in target markets whilst investing in infrastructure to improve client service and operational resilience. New account growth was 5% higher than for the same period in the prior year.

Inbound and outbound payments increased by 8% to 630,162 for the period compared to 585,520 for the prior year. The Total Number of Active cards grew to 7,834 with a 32% increase in Digital Wallet spending.

The digital transformation programme launched in the prior year continued to progress, enhancing the client experience and how they interact with the Bank whilst improving operational efficiency with greater integration across the Bank's suite of applications in a modern, cloud-based architecture.

Outlook

The UK economic environment appears to be weaker than expected with two months of falling GDP. This suggests that further rate cuts may be required. However, inflation remains stubbornly higher than the target rate so any rate cuts will have to balance this, and that is before the effect of global tariffs or the increase in employers' national insurance have fed their way into the economy. Added to this, the geopolitical situation is far from stable. Regardless, the Group remains focused on pursuing its long term 'Future State 2' strategy and will continue to seek and pursue opportunities with caution and discipline.

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Notes to the Consolidated Financial Statements

1. Basis of preparation

The interim financial statements have been prepared on the basis of accounting policies set out in the Group's 2024 statutory accounts as amended by UK-adopted standards and interpretations effective during 2025 as set out below and in accordance with IAS 34 "Interim Financial Reporting" as adopted for use in the UK. The directors do not consider the fair value of the assets and liabilities presented in these financial statements to be materially different from their carrying value.

The statements were approved by the Board of Directors on 21 July 2025 and are unaudited. The interim financial statements will be available on the Group website (www.arbuthnotgroup.com) from 23 July 2025.

2. Risks and Uncertainties

The Group regards the monitoring and controlling of risks and uncertainties as a fundamental part of the management process. Consequently, senior management are involved in the development of risk management policies and in monitoring their application. A detailed description of the risk management framework and associated policies is set out in Note 4.

The principal risks inherent in the Group's business are reputational, macroeconomic and competitive environment, strategic, credit, market, liquidity, operational, cyber, residual value, conduct and, regulatory and capital.

Reputational risk

Reputational risk is the risk to the Group from a failure to meet reasonable stakeholder expectations as a result of any event, behaviour, action or inaction by ABG itself, its employees or those with whom it is associated. This includes the associated risk to earnings, capital or liquidity.

ABG seeks to ensure that all of its businesses act consistently with the seven corporate principles as laid out on page 1 of the Annual Report and Accounts. This is achieved through a central Risk Management framework and supporting policies, the application of a three-lines of defence model across the Group and oversight by various committees. Employees are supported in training, studies and other ways and encouraged to live out the cultural values within the Group of integrity, energy and drive, respect, collaboration and empowerment. In applying the seven corporate principles, the risk of reputational damage is minimised as the Group serves its shareholders, customers and employees with integrity and high ethical standards. 

Macroeconomic and competitive environment

The Group is exposed to indirect risk that may arise for the macroeconomic and competitive environment.

In recent years there have been a number of global and domestic events which have had significant implications for the Group's operating environment, namely: Russia's war in the Ukraine, the Israel-Hamas war in Gaza and Coronavirus. The culmination of these events has led to significant turmoil in both global and domestic markets. Geo-political volatility and uncertainty remains high with the potential to adversely affect the UK economy, as well as the Group's customers and assets.

Strategic risk

Strategic risk is the risk that the Group's ability to achieve its corporate and strategic objectives may be compromised. This risk is particularly important to the Group as it continues its growth strategy. However, the Group seeks to mitigate strategic risk by focusing on a sustainable business model which is aligned to the Group's business strategy. Also, the Directors normally meet once a year to ensure that the Group's strategy is appropriate for the market and economy.

Credit risk

Credit risk is the risk that a counterparty (borrower) will be unable to pay amounts in full when due. This risk exists in Arbuthnot Latham, which currently has a loan book of £2.0bn (30 June 2024: £2.1bn). The lending portfolio in Arbuthnot Latham is extended to clients, the majority of which is secured against cash, property or other high quality assets. Credit risk is managed through the Credit Committee of Arbuthnot Latham.

Market risk

Market risk arises in relation to movements in interest rates, currencies, property and equity markets.

Interest rate and currency risk

The Group's treasury function operates mainly to provide a service to clients and does not take significant unmatched positions in any market for its own account. As a result, the Group's exposure to adverse movements in interest rates and currencies is limited to interest earnings on its free cash and interest rate re-pricing mismatches. The Group actively monitors its exposure to future changes in interest rates. However, at the current time the Group does not hedge the earnings from the free cash which currently totals £769m. The cost of hedging is prohibitive. Cash is held at the Bank of England and with the general consensus in the market that rates are expected to fall, the Group has shifted its focus to longer term fixed rate lending products and also investing some of the excess liquidity into high quality short dated fixed income assets, such as gilts.

Property and equity market risk

The Group is exposed to changes in the market value of its properties. The current carrying value of Investment Property is £5.3m (31 December 2024: £5.3m) and properties classified as inventory are carried at £16.5m (31 December 2024: £17.4m). Any changes in the market value of the property will be accounted for in the Income Statement for the Investment Property and could also impact the carrying value of inventory, which is at the lower of cost and net realisable value. As a result, it could have a significant impact on the profit or loss of the Group. The Group is also exposed to changes in the value of equity investments. The current carrying value of financial investments is £5.0m (31 December 2024: £4.9m). Any changes in the value of financial investments will be accounted for in Other Comprehensive Income.

Liquidity risk

Liquidity risk is the risk that the Group, although solvent, either does not have sufficient financial resources to enable it to meet its obligations as they fall due, or can only secure such resources at an excessive cost. The Group takes a conservative approach to managing its liquidity profile. Retail client deposits, together with drawings from the Bank of England Term Funding Scheme and capital fund the Bank. The loan to deposit ratio is maintained at a prudent level, and consequently the Group maintains a high level of liquidity. The Arbuthnot Latham Board annually approves the Internal Liquidity Adequacy Assessment Process ("ILAAP"). The Directors model various stress scenarios and assess the resultant cash flows in order to evaluate the Group's potential liquidity requirements. The Directors firmly believe that sufficient liquid assets are held to enable the Group to meet its liabilities in a stressed environment.

Operational risk

Operational risk is the risk that the Group may be exposed to financial losses from conducting its business. The Group's exposure to operational risk include its Information Technology ("IT") and Operating platforms. There are additional internal controls in these processes that are designed to protect the Group from these risks. The Group's overall approach to managing internal control and financial reporting is described in the Corporate Governance section of the Annual Report.

In line with guidance issued by the Regulator, the Bank has continued to focus on ensuring that the design of systems and operational plans are robust to maintain operational resilience in the face of unexpected incidents.

Cyber risk

Cyber risk is an increasing risk for the Group within its operational processes. It is the risk that the Group is subject to some form of disruption arising from an interruption to its IT and data infrastructure. The Group regularly tests the infrastructure to ensure that it remains robust to a range of threats and has continuity of business plans in place including a disaster recovery plan.

Residual value risk

Residual value risk equals the difference in the residual value of a leased asset set at lease inception and the lower salvage value realised upon its disposal or re-lease at the end of the lease term. The Group is exposed to residual value risk in its AAG business. Normal residual value risk is managed through the process set out below, and it should be noted that the transition to greener technology may further impact residual values in two ways. Firstly, residual values could decrease due to assets becoming obsolete; climate related regulations might change, which could result in legal restrictions on the use of assets or technological advances could lead to preferred environmental technologies. Secondly, the lack of historical information on green vehicles could lead to inaccurate measurement of residual values at inception of leases.

The AAG business manages Residual Value setting through its Residual Value Committee that comprises representatives from its Asset Management, Procurement, Sales and Leasing divisions and is chaired by the Residual Value Manager. Assets are valued using either an approved Residual Value matrix or individually, dependent upon the nature of the asset and current market conditions. The strategy for Residual Value setting and oversight of the Residual Value Committee is conducted by the AAG Residual Risk Committee, which in turn reports into the Asset Alliance Group Holdings Limited board. The Residual Risk Committee, chaired by the AAG Group Risk Director, includes AAG CEO, AL Group Risk Director, AAG Managing Director, AAG Finance Director and heads of Asset Management, Sales and Leasing divisions in AAG.

Conduct risk

As a financial services provider the Group faces conduct risk, including selling products to customers which do not meet their needs, failing to deal with clients' complaints effectively, not meeting clients' expectations, and exhibiting behaviours which do not meet market or regulatory standards.

The Group adopts a low risk appetite for any unfair customer outcomes. It maintains clear compliance guidelines and provides ongoing training to all employees. Periodic spot checks, compliance monitoring and internal audits are performed to ensure these guidelines are followed. The Group also has insurance policies in place to provide some cover for any claims that may arise.

Financial Crime

The Group is exposed to risk due to financial crime including money laundering, sanctions evasion, bribery and corruption, market abuse, tax evasion and fraud. The Group operates policies and controls which are designed to ensure that financial crime risks are identified, appropriately mitigated and managed.

Regulatory and capital risk

Regulatory and capital risk includes the risk that the Group will have insufficient capital resources to support the business and/or does not comply with regulatory requirements. The Group adopts a conservative approach to managing its capital. The Board of Arbuthnot Latham approves an ICAAP annually, which includes the performance of stringent stress tests to ensure that capital resources are adequate over a three year horizon. Capital and liquidity ratios are regularly monitored against the Board's approved risk appetite as part of the risk management framework.

Regulatory change also exists as a risk to the Group's business. Notwithstanding the assessments carried out by the Group to manage regulatory risk, it is not possible to predict how regulatory and legislative changes may alter and impact the business. Significant and unforeseen regulatory changes may reduce the Group's competitive situation and lower its profitability.

3. Critical accounting estimates and judgements in applying accounting policies

The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. For a full list of critical accounting estimates and judgements, please refer back to the Annual Report and Accounts for 2024. Assumptions surrounding credit losses are discussed in more detail below, while other critical accounting estimates and judgements have remained unchanged from what was previously reported.

Estimation uncertainty - Expected credit losses ("ECL") on financial assets

The Group reviews its loan portfolios and debt security investments to assess impairment at least on a quarterly basis. The measurement of ECL required by IFRS 9, necessitates a number of significant judgements. Specifically, judgements and estimation uncertainties relate to assessment of whether credit risk on the financial asset has increased significantly since initial recognition, incorporation of forward-looking information ("FLI") in the measurement of ECLs and key assumptions used in estimating recoverable cash flows. These estimates are driven by a number of factors that are subject to change which may result in different levels of ECL allowances.

The Group incorporates FLI into the assessment of whether there has been a significant increase in credit risk. Forecasts for key macroeconomic variables that most closely correlate with the Bank's portfolio are used to produce five economic scenarios, comprising of a Baseline, which is the central scenario, developed internally based on public consensus forecasts, and four less likely scenarios, one upside and three downside scenarios (Downside 1, Downside 2 and Extreme Downside), and the impacts of these scenarios are then probability weighted. The estimation and application of this FLI will require significant judgement supported by the use of external information.

12-month ECLs on loans and advances (loans within Stage 1) are calculated using a statistical model on a collective basis, grouped together by product and geographical location. The key assumptions are the probability of default, the economic scenarios and loss given default ("LGD") having consideration for collateral. Lifetime ECLs on loans and advances (loans within Stage 2 and 3) are calculated based on an individual valuation of the underlying asset and other expected cash flows.

For financial assets in Stage 2 and 3, ECL is calculated on an individual basis and all relevant factors that have a bearing on the expected future cash flows are taken into account. These factors can be subjective and can include the individual circumstances of the borrower, the realisable value of collateral, the Group's position relative to other claimants, and the likely cost to sell and duration of the time to collect. The level of ECL is the difference between the value of the recoverable amount (which is equal to the expected future cash flows discounted at the loan's original effective interest rate), and its carrying amount.

The Group considered the impact of various assumptions on the calculation of ECL (changes in GDP, unemployment rates, inflation, exchange rates, equity prices, wages and collateral values/property prices) and concluded that collateral values/property prices, UK GDP and UK unemployment rate are key drivers of credit risk and credit losses for each portfolio of financial instruments.

The five macroeconomic scenarios modelled on future property prices were as follows:

• Baseline

• Upside

• Downside 1

• Downside 2

• Extreme downside

The tables below therefore reflect the expected probability weightings applied for each macroeconomic scenario:

The tables below show the five-year forecasted average for property prices growth, UK unemployment rate and UK real GDP growth:

The tables below list the macroeconomic assumptions at 30 June 2025 used in the base, upside and downside scenarios over the five-year forecast period. The assumptions represent the absolute percentage unemployment rates and year-on-year percentage change for GDP and property prices.

The graphs below plot the historical data for HPI, Commercial real estate price, unemployment rate and GDP growth rate in the UK as well as the forecasted data under each of the five scenarios.

Management have assessed the impact of assigning a 100% probability to each of the economic scenarios, which would have the following impact on the Profit or Loss of the Group:

4. Financial risk management

Strategy

By their nature, the Group's activities are principally related to the use of financial instruments. The Directors and senior management of the Group have formally adopted a Group Risk and Controls Policy which sets out the Board's attitude to risk and internal controls. Key risks identified by the Directors are formally reviewed and assessed at least once a year by the Board, in addition to which key business risks are identified, evaluated and managed by operating management on an ongoing basis by means of procedures such as physical controls, credit and other authorisation limits and segregation of duties. The Board also receives regular reports on any risk matters that need to be brought to its attention. Significant risks identified in connection with the development of new activities are subject to consideration by the Board. There are budgeting procedures in place and reports are presented regularly to the Board detailing the results of each principal business unit, variances against budget and prior year, and other performance data.

The principal non-operational risks inherent in the Group's business are credit, macroeconomic, market, liquidity and capital.

Credit risk

The Company and Group take on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. Significant changes in the economy, or in the health of a particular industry segment that represents a concentration in the Company and Group's portfolio, could result in losses that are different from those provided for at the balance sheet date. Credit risk is managed through the Credit Committee of the banking subsidiary.

The Committee regularly reviews the credit risk profile of the Group, with a clear focus on performance against risk appetite statements and risk metrics. The Committee considered credit conditions during the period.

The Company and Group structure the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to products, and one borrower or groups of borrowers. Such risks are monitored on a revolving basis and subject to an annual or more frequent review. The limits are approved periodically by the Board of Directors and actual exposures against limits are monitored daily.

Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate. Exposure to credit risk is also managed in part by obtaining collateral, and corporate and personal guarantees.

The Group has attempted to leverage stress test modelling insights to inform ECL model refinements to enable reasonable estimates. Management review of modelling approaches and outcomes continues to inform any necessary adjustments to the ECL estimates through the form of in-model adjustments, based on expert judgement including the use of available information. Management considerations included the potential severity and duration of the economic shock, including the mitigating effects of government support actions, as well the potential trajectory of the subsequent recovery.

The Group employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of collateral to secure advances, which is common practice. The principal collateral types for loans and advances include, but are not limited to:

• Charges over residential and commercial properties;

• Charges over business assets such as premises, inventory and accounts receivable;

• Charges over financial instruments such as debt securities and equities;

• Charges over other chattels; and

• Personal guarantees

Upon initial recognition of loans and advances, the fair value of collateral is based on valuation techniques commonly used for the corresponding assets. In order to minimise any potential credit loss the Group will seek additional collateral from the counterparty as soon as impairment indicators are noticed for the relevant individual loans and advances. Repossessed collateral, not readily convertible into cash, is made available for sale in an orderly fashion, with the proceeds used to reduce or repay the outstanding indebtedness, or held as inventory where the Group intends to develop and sell in the future. Where excess funds are available after the debt has been repaid, they are available either for other secured lenders with lower priority or are returned to the customer.

Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards.

The Group incorporates forward-looking information into both its assessment of whether the credit risk of an instrument has increased significantly since its initial recognition and its measurement of ECL. The key inputs into the measurement of the ECL are:

• assessment of significant increase in credit risk

• future economic scenarios

• probability of default

• loss given default

• exposure at default

The IFRS 9 impairment model adopts a three stage approach based on the extent of credit deterioration since origination.

Capital management

During the period all regulated entities have complied with all of the externally imposed capital requirements to which they are subject. The capital position of the Group remains strong. The Total Capital Requirement Ratio ("TCR") is 8.32% (30 June 2024: 8.32%; 31 December 2024: 8.32%), while the CET1 capital ratio is 12.7% (30 June 2024: 11.6%; 31 December 2024: 13.2%) and the total capital ratio is 14.8% (30 June 2024: 13.6%; 31 December 2024: 15.3%).

Valuation of financial instruments

The Group measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions. If a market for a financial instrument is not active, the Group establishes fair value using a valuation technique. These include the use of recent arm's length transactions, reference to other instruments that are substantially the same for which market observable prices exist, net present value and discounted cash flow analysis. The objective of valuation techniques is to determine the fair value of the financial instrument at the reporting date as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. In the event that fair values of assets and liabilities cannot be reliably measured, they are carried at cost.

The Group measures fair value using the following fair value hierarchy that reflects the significance of the inputs used in making measurements:

The consideration of factors such as the magnitude and frequency of trading activity, the availability of prices and the size of bid/offer spreads assists in the judgement as to whether a market is active. If in the opinion of management, a significant proportion of the instrument's carrying amount is driven by unobservable inputs, the instrument in its entirety is classified as valued using significant unobservable inputs. 'Unobservable' in this context means that there is little or no current market data available from which to determine the level at which an arm's length transaction would be likely to occur. It generally does not mean that there is no market data available at all upon which to base a determination of fair value (consensus pricing data may, for example, be used).

The tables below analyse financial instruments measured at fair value by the level in the fair value hierarchy into which the measurement is categorised: