Natwest Group PLC

LSE:NWG

Earnings Call Transcript 2020-Q2

[Operator]

Welcome, everyone. We will now play a prerecorded audio presentation of our fixed income results. This will be followed by a live Q&A session with Katie Murray and Donal Quaid.

[Katie Murray, Group CFO & Executive Director]

Good afternoon, everyone. Thank you for joining us this afternoon for our fixed income H1 results presentation. I am joined by Donal Quaid, our Treasurer. And I will take you through our headlines, then move into the detail, including a breakdown of the impairment charge and the scenarios we have used to model expected credit loss under IFRS 9. Donal will then take you through the balance sheet, capital and liquidity and give you an update on issuance plans. And we'll open the call at the end for Q&A. So let me start on Slide 3 with the headlines. We've had a strong start to the year before the impact of COVID-19, and our pre-impairment operating profit for the first half was GBP 2.1 billion. Since we spoke in May, however, the economic outlook has worsened. As a result, we are announcing a first half net impairment charge of GBP 2.9 billion, and I will take you through this in more detail later. We reported total income of GBP 5.8 billion for the first half, a decrease of 5% year-on-year, excluding the Alawwal disposal. Costs were slightly lower year-on-year. And after impairments, we made an operating loss of GBP 770 million and an attributable loss of GBP 705 million. Given the ongoing economic uncertainty, we are pleased to be operating from a position of strength in terms of liquidity, funding and capital. Our CET1 ratio is 17.2%, and our business continues to generate additional capital before impairments.Turning to Slide 4. We set out a new purpose in February to champion potential by helping people, families and businesses to thrive. And during this time of uncertainty, we have done all we can to support existing customers whose risk profile we understand through the government health schemes. We have helped people and families in the U.K. by extending 240,000 initial mortgage repayment holidays, which represents 20% of our book by volume, and 72,000 payment holidays on personal loans. With an easing of lockdown, our focus has shifted to helping customers as we start to resume normal repayments. At this stage, about 70% of U.K. customers who asked for a mortgage or a personal loan repayment holiday have recommenced payments, though this could change when the furlough system starts to roll off and all mortgage holidays run to their full 3 months. We have also played our full part in all the government loan schemes for large and small businesses. At the end of June, we had received applications amounting to GBP 13 billion under government-backed loan schemes, for which we approved lending of GBP 10 million, which is broadly in line with our market share. Of that GBP 10 billion, GBP 8.3 billion has been drawn down. Turning to Slide 5 and lending trends. Across the retail and commercial businesses, net lending increased by GBP 16 billion in total during the first half, approximately half of which relates to government lending scheme drawdowns. Looking at the impact of the pandemic on customer behavior in the second quarter. In Personal Banking, there was a falloff in demand in April, but we now see signs of recovery as lockdown eases. New mortgage applications in July are nearing pre-COVID-19 levels and are 30% higher than June, spurred on partly by a reduction in stamp duty. Debit and credit spending is also growing and is 10% higher than the levels we saw in June. In Commercial Banking, there was a steep increase in drawdowns on revolving credit facilities until April. As the government lending schemes have kicked in, drawings have normalized to about 30%, down from peaks of 40%. On to Slide 6 and the profile of our book. Despite the growth in lending, we remain comfortable with the level of risk and diversification of our books. U.K. personal banking loans represent almost half of our total loans and advances, and just 7% of our book is unsecured. Looking at U.K. mortgage book, our average loan-to-value is 57% and just 12% of the book has a loan-to-value above 80%. Commercial bank lending accounts for 1/3 of our total loans and advances and is well-diversified across large corporates, small and medium-sized businesses, real estate and others. There are, of course, some sectors that are more sensitive to a COVID-19-related downturn, including automotive, leisure, retail, commercial real estate. And in those sectors, we've reduced limits and increased oversight of any new business outside the government's gains. Moving to Slide 7. I want to give you a more detailed explanation of how we've arrived at the impairment charge, the treatment of COVID-19 support measures under IFRS 9 and our approach to stage migration. I'll start with the impairment movement on the balance sheet at the top. We reported an impairment charge of GBP 2.9 billion for H1 or 159 basis points of gross customer loans. The economic outlook has deteriorated during the second quarter. And under current economic assumptions, impairment charge for the full year is likely to be in the range of GBP 3.5 billion to GBP 4.5 billion. This increase is expected to be made up of migrations to Stage 3, as customers move into default. The Q1 overlay of GBP 798 million has been absorbed into our provisioning, so we no longer hold an economic uncertainty overlay in our numbers.So let me take you through our approach on Slide 8. In order to arrive at the impairment charge, we have broadly taken a 3-step approach. First, we developed 4 different economic scenarios based on a range of future economic indicators and made an assessment of their respective probabilities. After applying probability weightings to these scenarios and given the continued uncertainty, we are using 2 central scenarios to reflect NatWest Group's extended outlook. We both have a 35% weighting, while the upside scenario has a 20% weighting and the downside has a 10%. Over the 4 scenarios, our assumptions for 2020 included a drop in GDP growth ranging from 8.9% to 16.9%; U.K. unemployment rates between 7.4% and 14.4%; and a fall on house prices of 0.1% to 11.5%. They all assume a return to GDP growth and lower levels of unemployment from 2021 onwards.As the second step, we made model adjustments to reflect the effect of government support aimed at delaying impairments and reducing the likelihood of default. We also applied expert judgment on specific sectors. The third step was to apply further judgment, specifically for our high-risk customers and other uncaptured risks. I also wanted to cover our approach to stage migration. As a starting point, our approach to payment holidays and government lending schemes has continued in the second quarter. New or extended payment holidays will not, on their own, trigger a stage migration. The key trigger for Stage 2 migration in H1 is the deterioration and probability of default, driven by the adoption of the 4 new macroeconomic scenarios. We use a very conservative threshold for a significant increase in credit risk, or SICR, of just 10 basis points increase in PD. This has led to a large majority of high-quality up-to-date balances from Stage 1 to Stage 2. These will have a lower ECL coverage from past due Stage 2 balances. For a Stage 2 loan to migrate back to Stage 1, it must revert back to the PD threshold for a 3-month period. Assets only move to Stage 3 in the event of default, typically, once the account is 90 days past due. On the next slide, I will cover stage migration and expected credit loss coverage in more detail. Before going into the detail, I want to reiterate the fact that the vast majority of the movements I will be discussing on the following 2 slides are anticipatory and not in response to observed default. Our starting point is that we have continued to use an appropriately conservative approach to stage migration and ECL and personal. Our trigger criteria includes persistence, where we keep balances in Stage 3, typically, for at least 12 months. For mortgages, 13.5% of mortgage loans now sits in Stage 2, which are not past due against 5.6% in December. The majority of these are up-to-date as of the balance sheet date. In fact, of our total mortgage book, only 0.9% is past due and 1.6% is in Stage 3. Similarly, 30% of total loans and credit cards and personal advances now sit in Stage 2 not past due, against 24% at December. And you see a similar pattern repeating in credit cards and personal advances in terms of payments being up-to-date.Looking at our defaulted balances across personal. We have 1.9% in Stage 3 at June against 2.1% at December. However, given our guidance, we expect this to change over Q3 and Q4, as we see defaults started to come through. Turning now to wholesale migration on the next slide. As you would expect, there's been clearly been a larger migration here, with 38% of total loans at Stage 2 driven by forward-looking PDs. Across wholesale, 36% of loans now sit in Stage 2 not past due, while 1.7% is Stage 2 past due and 1.9% Stage 3. Our overall coverage for wholesale increases from 1.13% to 2.16%, reflecting the mix of PD migration across the good book and staging with a slight offset from a small reduction in our Stage 3 coverage.From what we can see today, it may not be until Q4 that we start seeing event-based stage migration as furloughs ends on 31st of October and the various government lending schemes close. These movements, conditional on development in economics, will combine to deliver our expected GBP 3.5 billion to GBP 4.5 billion of 2020 impairment charge expectations. Moving on now to look at risk-weighted assets. Risk-weighted assets decreased GBP 3.7 billion in Q2. Counterparty and market risk were both down GBP 1.5 billion, as NatWest markets works towards its full year reduction targets, which I'll cover in a bit more detail on the next slide. Credit risk was down GBP 700 million and mainly driven by personal banking, with reduced undrawn RWAs and credit cards. For drawn balances, new lending under government schemes, offset general credit risk migration. Looking forward, RWAs at end 2020 are expected to be in the range of GBP 185 billion to GBP 195 billion. Turning now to Slide 12. Although we have taken swift actions to address COVID-19, we have maintained focus on our key strategic priorities. NatWest markets is one of those, and we set a target to reduce RWAs in the business to GBP 32 billion in 2020 and to almost half them to GBP 20 billion over time. To date, we have reduced RWAs by GBP 2.8 billion, making good progress towards our 2020 targets. And we expect to have largely achieved our GBP 20 billion target by the end of 2021.We have confirmed Robert Begbie, who is well-known to you all in his post as CEO and appointed David King as CFO. We have started to refocus the business in the U.S. and Asia Pacific by reducing our footprint. And we have started aligning the business to a one-bank model by centralizing technology within the group. We've also formed a new partnership with BNP Paribas for both the execution and clearing of listed derivatives. So on to my final slide and to summarize. We have a strong business franchise and that we have supported our customers at a time of uncertainty. We are managing risk carefully and providing for impairment thoughtfully. We continue to execute on our strategic priorities. We have a robust capital position and a resilient capital-generative business. And with that, I will hand over to Donal, who will take you through the details of our capital and liquidity positions.

[Donal Quaid, Interim Treasurer & Head of Treasury Markets]

Thanks, Katie. Good afternoon, and thank you for joining today's call. Let me start off by thanking you for your continued engagement with NatWest Group through these unprecedented times. I'm pleased that we've been able to meet with many of you virtually in the weeks following our Q1 results as we all adjusted to new ways of working. Starting with the capital and leverage positions on Slide 15. We have entered current period of economic uncertainty with a very strong capital position from an absolute and relative basis. Our CET1 ratio ended the half year at 17.2%. This includes the IFRS 9 transitional benefit of GBP 1.6 billion or 90 basis points of CET1. At this level of CET1, we operate with significant headroom of 830 basis points or GBP 15 billion above our MDA of 8.9%. The decision to call our additional Tier 1 transaction resulted in an FX translation loss of GBP 345 million or a 19 basis points impact to CET1, which was realized on the announcement of the call and is reflected in our H1 figure. Excluding the IFRS 9 transitional benefit, our CET1 ratio was 16.3%. In response to the COVID-19 pandemic, a number of relief measures have been announced by regulators to support banks' capital and leverage positions. In March, the financial policy committee announced a reduction in the U.K.'s countercyclical buffer to 0%, and the Central Bank of Ireland reduced the Republic of Ireland's countercyclical buffer to 0% in April. The combined changes reduced NatWest Group's MDA to 8.9%. The PRA confirmed in July that our Pillar 2A requirements has temporarily converted to a nominal amount. The impact of the change currently has a minimal impact on our Pillar 2A percentage, but will result in a percentage reduction to our capital requirements and MDA if we experience future RWA inflation. The PRA also confirmed that the proposed reduction in Pillar 2A announced in the December 2019 Financial Stability Report would come into effect in December of this year. Our expectation, which remains to be confirmed, is that the reduction in the Pillar 2A requirement will be offset by an increase in the PRA buffer. We are expecting approximately 35 basis points of reduction in our Pillar 2A requirements, which will result in a 20 basis points reduction to our MDA, but our supervisory minimum will remain unchanged due to a 20 basis points increase in the PRA buffer. The H1 total loss-absorbing capital is 36.8%, well above the Bank of England's interim minimum requirements. Our NatWest markets entity ended the quarter with a CET1 ratio of 18.9%, a total capital ratio of 26.5%, and MREL of 43%, inclusive of internal MREL issued by it to the holding company. The NatWest market's CRR leverage ratio was 5.3% after including the netting effect of regular way, purchase and sales, settlement balances in line with CRR amendments. The NatWest Group's CRR leverage ratio was 5.1%. This included a reduction in leverage exposure of GBP 6.9 billion, following a modification by the European Commission in June to bring forward the netting of the regular way purchase and sales settlement balances. The U.K. leverage ratio was 6%, leaving 275 basis points of headroom above the U.K.'s minimum requirements. The POA announced a number of modifications to the U.K. leverage framework in June, and NatWest Group received permission to apply these changes, including the netting of regular way purchase and sales settlement balances and the exclusion of the U.K. leverage exposure for bounce-back loans. These measures combined reduced the U.K. leverage exposure by GBP 12 billion. On to liquidity and funding on Slide 16. Our LCR ratio for H1 increased by 14% to 166%, reflecting significant excess primary liquidity of GBP 68 billion above minimum requirements. The elevated liquidity levels were primarily driven by deposit inflows in H1, with customer deposits increasing by GBP 39 billion. Our total liquidity portfolio increased by GBP 44 billion to GBP 243 billion, of which total GBP 33 billion was an increase in primary liquidity. Secondary liquidity increased by GBP 11 billion, as we prepositioned more eligible collateral at the Bank of England. During H1, we took a decision to repay GBP 5 billion of the Bank of England term funding scheme and drew GBP 5 billion from the new term funding scheme with additional incentives for SMEs or TFSME. This leaves a total of GBP 10 billion outstanding, with GBP 5 billion of TFS and GBP 5 billion of TFSME. Our current drawing capacity for TFSME is in the region of GBP 70 billion following continued lending growth in Q2. I would expect our drawing capacity to increase further in H2, as we continue to support our customers with further net lending, primarily through the government lending schemes. Wholesale funding has remained stable at GBP 86 billion. On Slide 17, you can see that retail deposits grew by GBP 11 billion to GBP 161 billion, with most of the growth in current accounts, as a result of lower consumer spending in the face of lockdown and increased economic uncertainty. Commercial banking deposits grew GBP 25 billion to GBP 160 billion, as customers built up liquidity during the pandemic and retained a percentage of the government lending scheme drawdowns as deposits. Our deposit base is well-balanced across our commercial and retail franchises, and our wholesale funding mix reflects a range of different sources and maturities.Our loan-to-deposit ratio remains healthy at 86%, underpinning our strong liquidity and funding position as well as our considerable capacity for lending to support our customers. We will continue to look at all options available to us in the light of the impact of COVID to assess the optimal blend and most cost-effective means of funding. Turning to Slide 18 and issuance plans for the remainder of the year. Given market conditions in the latter part of Q1, we're very pleased with the progress we have made on our issuance plans in Q2. We took the decision to step away from capital and MREL issuance in March and April, given the market volatility. Our guidance for senior unsecured MREL for the year from the holding company was in the range of GBP 2 billion to GBP 4 billion. And in H1, we issued $1.6 billion in a dual tranche transaction, comprising a $1 billion 8-year non-call 7 maturity and a shorter dated $600 million 4-year non-call 3 green bond. This was NatWest Group's inaugural green bond issuance with the proceeds allocated to renewable energy assets across the U.K. This was also the first green bond issued into the U.S. onshore markets from a U.K. bank. We announced plans earlier this year to do more issuance in green, social and sustainable format, and I'm pleased that the green bond represents our second transaction under our GSS framework following last year's social bond. Last week, we published the first interim impact report relating to the social bond transaction.We are also making progress with our ESG ratings, with Sustainalytics recently announcing a reduction in our risk rating score from 27.7 to 20.5, leaving us very well placed from an industry perspective.On capital from the holding company, we guided up to GBP 2.5 billion of Tier 2, and we were very pleased to return to the sterling market with a GBP 1 billion 10-year non-call 5 transaction, our first sterling Tier 2 since 2006. We've also guided up to GBP 1.5 billion of additional Tier 1 to give the flexibility to refinance the outstanding $2 billion, 7.5% coupon with an August 2020 call. We were pleased to be in a position to issue a new $1.5 billion perpetual non-core 6 transaction on the 24th of June, our first additional Tier 1 issuance since 2016, and to subsequently announce the call of the $2 billion security on the 29th of June. The decision to refinance and call the outstanding security finally balanced from an economic perspective, given both the movements in FX impacting the GBP 345 million impact to CET1 and the movements we experienced in additional Tier 1 pricing, impacting the potential coupon savings on a new transaction. From our NatWest Markets operating company, we guided GBP 3 billion to GBP 5 billion senior unsecured for 2020. And in the public markets, we have issued a EUR 1 billion 5-year and a $1 billion 3-year transaction. In addition, NatWest Markets have completed a number of private placements. The progress we made in H1 gives us plenty of flexibility for the remainder of the year, and we'll continue to assess opportunities in light of market conditions. It is unlikely that we will consider secured issuance from NatWest Bank this year, given the introduction of TFSME and our significant funding surplus. However, we will keep this under review going forward subject to funding requirements. On Slide 19, the H1 total capital ratio was 22.5% or 21.6%, excluding IFRS 9 transitional benefits, well above the Bank of England's 2020 interim minimum requirements and reflecting our progress on MREL issuance. As of H1, we have a senior MREL stock of GBP 21 billion against an estimated end-state requirement of GBP 23 billion, and that's based on indicative RWAs of GBP 200 billion. On legacy securities, we are focused on a couple of areas of regulatory change that are on the horizon. Firstly, capital optimization opportunities have not been an area of priority so far this year, given the significant focus on our response to COVID-19 and the actions we have taken on additional Tier 1 and Tier 2 issuance. However, this is something that the team will be reviewing as we think ahead to the end of 2021.And secondly, on LIBOR transition, we've undertaken a comprehensive due diligence exercise on our outstanding securities that reference LIBOR. And we will continue to engage with the industry working groups to support the smooth transition to new risk-free rates by end of next year. And to ratings, on Slide 20. In March, both Fitch and S&P revised their outlook for banks, citing the increased downside risks to asset quality and earnings from the economic and market impact of the COVID-19 pandemic. Fitch affirmed the long-term senior debt ratings of NatWest Group plc at A and at the Royal Bank of Scotland plc, National Westminster Bank plc and Ulster Bank Limited at A+. Fitch also upgraded the senior debt ratings of NatWest Markets plc and NatWest Markets N.V. by one notch as a result of methodology changes. S&P affirmed the ratings of NatWest Group unrelated subsidiaries. In line with much of the U.K. banking sector, both Fitch and S&P revised the outlooks on the long-term issuer ratings for all entities in the NatWest Group to negative from stable. So in summary, substantial economic uncertainty remains, but we continue to build and operate with very strong levels of capital and liquidity. With that, I will now open up the call to Q&A.

[Operator]

[Operator Instructions] We will take the first question from Samir Adatia from Citibank.

[Samir Alaudin Adatia, Research Analyst]

I've got a number of questions. Firstly, can you discuss your Stage 2 balances and why they look optically higher than your peers, particularly within wholesale funding -- wholesale lending, sorry, as you point out on Slide 10?Secondly, are you able to share any thoughts on what proportion of your Stage 2 balance will migrate to Stage 3 under your base case forecast? And then finally, are you able to provide any guidance of how much of your IFRS 9 transitional benefit, which I see around as 90 basis points, do you expect to be used up by year-end driven by risk migration of Stage 2 into Stage 3?

[Katie Murray, Group CFO & Executive Director]

Thanks very much, Samir. Let me take them in order. In terms of the Stage 2 balancing, I guess, we're not overly concerned around the level. I mean I think if we look at our Stage 2 for the group, we're at 26%, which is slightly higher than Barclays and Lloyds. But the reason [ you're over them ], you would see that is the way that we basically treat something called SICR, which is the significant increase in credit risk. We have a 10 basis point move. So if I see a 10 basis point move in the probability of default in the PDs, then we'll move those loans into Stage 2. What that does is it lifts about GBP 16 billion of loans out of Stage 1 into Stage 2. And then that will basically explain some of the difference. Other banks use higher percentages than that. What's interesting, though, is of that book, that only accounts for about GBP 60 million of actual additional underwriting, I mean, impairment losses. So what it does mean is you're now moving them into that category. What you would see is they are generally high-quality [ range ]. And so you would still expect relatively lower levels of losses on that. And if we then go to the transitional adjustment, it's a very interesting kind of conversation. If we had a view today around what was moving into from Stage 2 into Stage 3, the reality is that would be based on kind of real experience and so we probably pushed it through already. So we can make some assumptions, and you might have heard me talk about on the equity call earlier on today to, sort of, say, could you get kind of mid-number in terms of that range, and that was to move predominantly from where it is now in Stage 2 into Stage 3, then you could see a, kind of, 20 basis point cut in that rate. And those numbers will vary because, obviously, as you're moving into Stage 3, you're quite possibly having new things moving into Stage 2 as well because, obviously, you've taken -- you will take more kind of more impairment hits in the last stage of that. And I mean, I'm sorry, I didn't write your last question.

[Donal Quaid, Interim Treasurer & Head of Treasury Markets]

Transitional relief, the 90 basis points, and how we see that evolve over time?

[Katie Murray, Group CFO & Executive Director]

Yes. So I think -- thank you very much, Donal. So how we see that evolve is it's very hard to say. What we're seeing is 3.5% to 4.5% for the end of the year. If we kind of got a mid-number of that being booked, I would see about 20 basis points being written off in terms of CET1. Because actually, what we're seeing is more migration happening into Stage 3, where, of course, it doesn't attract transitional relief.

[Operator]

The next question today comes from -- the link switching taken from the line of Robert Smalley from UBS.

[Robert Louis Smalley]

I want to go back to the economic scenarios that you had. And I'm wondering which one or which ones include Brexit, hard Brexit? And how that factors in? And where your probabilities lie on that? I also just wanted to ask a broader question. As we start to look through to the other side of government assistance and mitigation programs, how do we avoid some more cliff-like experience in terms of credit quality? What are you looking for in terms of early indicators? I know you're very formulaic in terms of provisioning, et cetera, and that makes sense. But are there any other indicators? Or what's on your dashboard that might be a little softer than that, that we can look at?

[Katie Murray, Group CFO & Executive Director]

Yes. Sure. Thanks very much, Robert. So if you look at the economic scenarios, the way that we would probably look at them is to say that the downsize is much more of a disorderly Brexit. So that's a really hard thing to, kind of, define what do we really mean by that. But actually, all aspects of the scenarios have got some level of Brexit in. And the reality is, at the moment, given that we're -- as a group of kind of economists, we're really struggling to even create a consensus forecast. It's very hard to separate what COVID is doing for the economics from what Brexit might be doing. But I would say that if we went to a very disorderly, you kind of get more towards the downside. That's how we sort of viewed it. But I think that there's a bit more art than science in some of that. In terms of the government assistance and the programs, look, I think the government has done a good job in getting out really fast, putting in a lot of stimulus into the economy. I don't think that we should assume that we're in furlough ends at the end of October or when the banking schemes end, that, that's when they consider their job is done. I think one of the best things that we've really done is just a great level of coordination between regulators, business and the government. And I think we will continue to see that happening over the next number of years as we all work our way through this. So they are as concerned of a -- by a cliff edge as we are. What I would say in terms of early indicators that credit ratings are, obviously, a big part for us. If I'm looking at the personal lending end space, you're looking for things like are people starting to use payday lending to kind of help cover themselves? What's happening on unemployment? Clearly, one of the key stats that we've got. And then what -- do we see flags being raised on the credit bureau and things like that. So there's a lot of work to kind of try to look for other flags as to why there might be issues in some of the loans.

[Operator]

[Operator Instructions] We'll take our next question from the line of Daniel David from Autonomous.

[Daniel Ryan David, Research Analyst]

The first one just touches on the payment holidays that you show on Slide 4. I just want to just drill in maybe to what you're seeing as the main drivers behind the kind of extensions of those holidays, whether it's unemployment or there are some other factors? The second one is just on your macro scenario assumptions, and I'm sorry to go back to it, and I'm cognizant of the comments that you've already made. But just looking at the probabilities that you assigned, you, obviously, put 70% on your central 1 and 2. I mean, there seems to be more upside, more of a probability given to the upside scenario rather than downside. And we've touched upon provisions build being quite a lot larger than some of your peers. So just holistically, if there's more weighting given to the upside scenario, what -- is it just the significant increase in credit risk that you talked about? Or is the central assumptions kind of a bit more severe than your peers? How do you see that? And then finally, if you -- let me with the third question. Just on your AT1, I guess, from the outside looking in, a lot of issues, and you talked about looking at the economics on the call. But just looking at the reset level on the AT1 that you did call and obviously, the FX hit that you took, it didn't perhaps look as economic as it could with that decision. So maybe if you could just help us through some of the points that you consider when making that call, that would be really helpful.

[Katie Murray, Group CFO & Executive Director]

Okay, Daniel. Let me start with the first couple, and then Donal will come in on the AT1. In terms of payment holidays, look, there will be as many different reasons almost as there are people in terms of the payment holidays. Some of them will almost certainly be unemployment. But at that point, that's something we would be flagging. And so therefore, you would say that, that's another kind of SICR event, so you'd start to see those kind of migrate. For many of them, it will just be sensible financial planning, though you might be somebody, who's self-employed who's a little bit worried about their income. And when you look at the lifetime of your mortgage, the reality at the rates that you're paying, the extra monthly costs when you start repaying, is quite de minimis, and this kind of allows you just to buy yourself a little bit of time. I think what's really pleasing is that at the peak, we had 20% of the break by volume that was on holiday. And at the moment, it was only about 1/3 of them requesting extensions. When we look at the 1/3 that's requesting extensions, they do not all need it. And in terms of because of their immediate financial situations, we can see that some of them are just doing, kind of, cash flow management from their side. In terms of the macro factors, there was one thing you said in your question, around our provisions being larger than our peers. Well, we probably just to, kind of, correct your wording a little bit. I think our exposures, as we move people into Stage 2, are probably bigger than the peers, the peers which have -- and some of the peers which have higher absolute provisions than us because, obviously, the provision in absolute maxes there. But -- and I explained earlier around the kind of the SICR piece. When we looked at the weightings, I mean you'll be familiar with this, as I am at the moment in terms of, to say, where the weighting is sitting, in terms of what's coming out from economics. And what we felt is that when we looked at the weightings, there was much more of a balance to the upside in terms of rather than to the very downside weightings. One of the disclosures, I think it's on Page 34 of the document. It shows you, if we had to move to 100% of either the upside or the downside weighting, we would -- if you went to 100% upside, you would add back GBP 1.4 billion of the provisions that we have to date in terms of the GBP 2.9 billion. Or if you went to the downside, you would add on another GBP 1.9 billion. So you can see there is quite a big, sort of, range within the numbers as to outcome. Donal, do you want to talk to AT1?

[Donal Quaid, Interim Treasurer & Head of Treasury Markets]

Yes, I'll take the AT1. So no change to our strategy that any call decision we make is on an economic basis and a decision on additional Tier 1 call was no different. So the considerations included, obviously, the replacement cost of the instrument, as you said, the potential FX impact as well. But it's important to remember that no call decision does not remove that FX impact. It only defers the impact to the next call days, so for which security that we had call was in 5 years' time. So we look at the economics over the life of the transaction, not just the Day 1 impact. So we look at C2 on impact from exercising the call up to now versus in the future and then compare that to the coupon savings over the 5 years, both from a lower notional and also a lower coupon of the new security. So if I look at the new security we issued, the $1.5 billion, that provided pretty much a similar amount of additional Tier 1 benefit in sterling terms and the outstanding $2 billion transaction. And then the reset on that new transaction as well was approximately about 19 basis points lower on a like-for-like basis. So as to coupon savings, I see, were greater than the incremental CET1 impact from FX translation. We concluded that it was an economic call decision.

[Operator]

There are no further questions at this stage. I'd like to hand the call back to Katie Murray for any closing comments.

[Katie Murray, Group CFO & Executive Director]

Okay. Thank you very much, Steve, and thank you very much to everybody on the call. It's really great that you take time to ask on the further questions. And we are, as Donal said earlier in his own speech, we're very appreciative of the support that you've given us, particularly this year in terms of some of the issuances that we've taken away. It really is -- it really is something we do value very highly. If you have any other further questions or would like any more detail, please don't hesitate to contact Paul Pybus from our IR team, who will be very happy to help you out and make sure that we can get in touch with you. Thanks very much, and enjoy the rest of your day. Goodbye.

[Donal Quaid, Interim Treasurer & Head of Treasury Markets]

Thank you.