FORMTable 6-Kof Contents

AbbeyTable National Treasury Services plc (“ANTS”) announces a change in circumstances with respect to its ability to rely on the exemption from reporting under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”) pursuant to Rule 12h-5 under the Exchange Act. Contents

ANTSTable willof separately file reports as required by the Exchange Act and will file an annual report on Form 20-F for the year ended 31 December 2012. Contents

~~SECURITIES~~FORM ~~AND~~6-K ~~EXCHANGE COMMISSION~~

~~Washington,~~SECURITIES ~~D.C.~~AND ~~20549~~EXCHANGE COMMISSION

~~Report~~Washington, ofD.C. ~~Foreign~~20549 ~~Issuer~~

~~Pursuant~~Report toof ~~Rule~~Foreign ~~13a-16~~Issuer ~~or 15d-16 of~~

~~Securities~~Pursuant ~~Exchange~~to ~~Act~~Rule of13a-16 ~~1934~~or 15d-16 of

~~For~~Securities ~~the~~Exchange ~~month~~Act of ~~March~~1934 ~~2013~~

~~ABBEY~~For ~~NATIONAL~~the ~~TREASURY~~month ~~SERVICES~~of ~~PLC~~August 2013

~~(Translation~~ABBEY ofNATIONAL ~~registrant’s~~TREASURY ~~name~~SERVICES ~~into~~PLC ~~English)~~

2(Translation ~~Triton Square,~~of ~~Regent~~registrant’s name into English)

~~Place,~~2 ~~London~~Triton ~~NW1 3AN~~Square, Regent’s ~~England~~

~~(Address~~Place, ofLondon ~~principal~~NW1 ~~executive~~3AN, ~~offices)~~England

~~Indicate~~(Address ~~by check~~of ~~mark~~principal ~~whether~~executive ~~the~~offices) ~~registrant files or will file annual reports under cover Form 20-F or Form 40-F.~~

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F x or Form 40-F ¨.

~~Indicate~~Form ~~by check mark whether the registrant by furnishing the information contained in this~~ 20-F x Form ~~is also thereby furnishing the information to the Commission pursuant to Rule 12g3~~40-~~2(b)~~F ¨ ~~under the Securities Exchange Act of 1934.~~

~~Yes ¨ No x~~Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

~~SIGNATURES~~Yes ¨ No x

~~Pursuant~~The toRegistrant ~~the~~hereby ~~requirements~~incorporates all parts of ~~the~~this ~~Securities~~Report ~~Exchange~~on ~~Act~~Form 6-K ofby ~~1934,~~reference ~~the~~in Registration ~~registrant~~Statement ~~has~~no. ~~duly~~333-190509-01 ~~caused~~filed ~~this~~by ~~report~~the toRegistrant bewith ~~signed~~the onSecurities ~~its~~and ~~behalf~~Exchange byCommission on Form F-3ASR under the ~~undersigned,~~Securities ~~thereunto~~Act ~~duly~~of ~~authorized~~1933.

~~March~~2013 ~~20,~~Half ~~2013~~Yearly Financial Report

Abbey National Treasury Services plc

~~Notice~~PART ofOF ~~Change~~THE inSANTANDER ~~Circumstances~~GROUP ~~in relation to Exchange Act Reporting Exemption~~

~~Santander~~This UKpage ~~plc (“Santander UK”), the parent company of ANTS, filed its annual report on Form 20-F for the year ended 31 December 2012 on March 20, 2013. Santander UK’s financial~~intentionally ~~statements~~left asblank included in the Form 20-F did not include condensed consolidating financial information for the same periods for ANTS as required under Rule 3-10(c)(4) of Regulation S-X. Accordingly, ANTS is no longer permitted to omit financial statements by Rule 3-10 of Regulation S-X and is therefore no longer exempt from the requirements of Section 13(a) or 15(d) of the Exchange Act pursuant to Rule 12h-5 under the Exchange Act.

ABBEY NATIONAL TREASURY SERVICES PLC

Dated: March 20, 2013

/S/ Jessica Petrie

Jessica Petrie

(Authorised Signatory)

Abbey National Treasury Services plc

2013 Half Yearly Financial Report

Index


Our Business and our Strategy
Our Business			2
Our Strategy			3

Business Review
Group and Divisional Results			4
Balance Sheet Review			9
Risk Management Report			15

Governance
Directors			51

Financial Statements
Primary Financial Statements			54
Notes to the Financial Statements			57

Shareholder Information
Risk Factors			85
Contact Information			85
Guarantees			86

Forward-looking Statements			92

Other Information for US Investors			93


Abbey National Treasury Services plc 2013 Half Yearly Financial Report			1

Our Business and Our Strategy

Our Business

Abbey National Treasury Services plc (the ‘Company’) and its subsidiaries (together, ‘ANTS’ or the ‘ANTS group’) operate primarily in the UK, under UK law and regulation and are part of the Santander UK group (together with its subsidiaries, ‘Santander UK’ or the ‘Santander UK group’) which is, in turn, part of the Banco Santander, S.A. group (together with its subsidiaries, the ‘Banco Santander group’). Banco Santander, S.A. is incorporated in Spain and is the ultimate parent company of ANTS.

Corporate purpose

ANTS provides treasury, corporate and wholesale banking services. ANTS provides these services to UK external clients and also to the wider Santander UK group, of which ANTS is a part. ANTS is also the treasury support function for the Santander UK group. In this regard, ANTS’s role is to provide access to financial markets and central bank facilities in order to meet the Santander UK group’s liquidity, funding, capital and balance sheet management requirements. As such, ANTS is one of the main debt issuance vehicles in the Santander UK group.

ANTS contains part of a number of Santander UK’s business segments. Whether transactions are booked in ANTS or another Santander UK group entity reflects historical or operational reasons and does not necessarily reflect any particular business split.

The Company has given a full and unconditional guarantee in respect of the unsubordinated liabilities of Santander UK plc incurred prior to 30 June 2015 under a deed poll guarantee entered into by the Company on 10 May 2012. Santander UK plc has given a reciprocal guarantee in respect of the unsubordinated liabilities of the Company incurred prior to 30 June 2015.

As a result of these guarantees, the results and creditworthiness of ANTS should not be viewed in isolation. Account should also be taken of the position of the Santander UK group into which the assets and liabilities of ANTS are fully consolidated.

ANTS has also entered into agreements to provide capital and/or liquidity to Santander UK plc and other members of the Santander UK group, in accordance with UK regulatory requirements. For further details, see Note 28 to the Condensed Consolidated Interim Financial Statements.

Business structure

ANTS consists of three business divisions, organised as follows:


Business division		About
Corporate Banking		Corporate Banking offers a wide range of products and financial services to customers through a network of regional business centres and through telephony and e-commerce channels. Corporate Banking products and services include loans, bank accounts, deposits, treasury services, invoice discounting, cash transmission and asset finance. The SME and mid corporate business principally serves small and medium enterprises with an annual turnover of more than £250,000 up to £50m (‘SMEs’), and other corporate customers with an annual turnover of up to £500m. This also includes real estate lending. The Large Corporates business offers specialist treasury services in fixed income and foreign exchange, lending, transactional banking services, capital markets and money markets to large multinational corporate customers with an annual turnover of more than £500m. Lending includes syndicated loans and structured finance. Transactional banking includes trade finance and cash management. Money market activities include securities lending/borrowing and repos.

Markets		Markets offers risk management and other services to financial institutions, as well as to other Santander UK divisions. Its main product areas are fixed income and foreign exchange, equity, capital markets and institutional sales.

Corporate Centre		Corporate Centre includes of Financial Management & Investor Relations (‘FMIR’) and the non-core portfolios of Social Housing loans and structured credit assets. FMIR is responsible for managing capital and funding, balance sheet composition, structural market risk and strategic liquidity risk for the Santander UK group. The non-core portfolios are being run-down and/or managed for value.


2		Abbey National Treasury Services plc 2013 Half Yearly Financial Report

Our Business and Our Strategy

Our Strategy

ANTS’s strategy is to continue to provide treasury support functions for the Santander UK group and to provide treasury, corporate and wholesale banking services to UK clients.

The structural relationship of ANTS and Santander UK with the Banco Santander group – the ‘subsidiary model’

The Banco Santander group operates a ‘subsidiary model’. This model involves autonomous units, such as the Santander UK group (of which ANTS is a part) operating in core markets, with each unit being responsible for its own liquidity, funding and capital management on an ongoing basis. The model is designed to minimise the risk to the Banco Santander group and all its units from problems arising elsewhere in the Banco Santander group. The subsidiary model means that Banco Santander, S.A. has no obligation to provide any liquidity, funding or capital assistance, although it enables Banco Santander, S.A. to selectively take advantage of opportunities. As a PRA regulated group, the Santander UK group is expected to satisfy the PRA liquidity and capital requirements on a standalone basis.

Under the subsidiary model, the Santander UK group primarily generates funding and liquidity through UK retail and corporate deposits, as well as in the financial markets through its own debt programmes and facilities to support its business activities and liquidity requirements. It does this in reliance on the strength of its own balance sheet and profitability and its own network of investors. The Santander UK group does not rely on a guarantee from Banco Santander, S.A. or any other member of the Banco Santander group (other than certain of Santander UK plc’s own subsidiaries, including Abbey National Treasury Services plc) to generate this funding or liquidity. The Santander UK group does not raise funds to finance other members of the Banco Santander group or guarantee the debts of other members of the Banco Santander group (other than certain of Santander UK plc’s own subsidiaries, including Abbey National Treasury Services plc).

Exposures to other Banco Santander group members are established and managed on an arm’s length commercial basis. All intergroup transactions are monitored by the Santander UK Board Risk Committee and transactions which are not in the ordinary course of business must be pre-approved by the Board. In addition, the Santander UK group is subject to PRA limits on exposures to, and on liquidity generated from, other members of the Banco Santander group.


Abbey National Treasury Services plc 2013 Half Yearly Financial Report			3

Business Review

Group and Divisional Results

GROUP SUMMARY

KEY PERFORMANCE INDICATORS

Key performance indicators are set at the Santander UK group level, rather than separately for the ANTS group.

SUMMARISED CONSOLIDATED INCOME STATEMENT


	Six months ended 30 June 2013 £m			Six months ended 30 June 2012 £m
Net interest expense		(8	)		(26	)
Non-interest income		436			287

Total operating income		428			261

Administrative expenses		(108	)		(105	)
Depreciation, amortisation and impairment		(1	)		(1	)

Total operating expenses excluding provisions and charges		(109	)		(106	)

Impairment losses on loans and advances		(18	)		(20	)
Provisions for other liabilities and charges		—			—

Total operating provisions and charges		(18	)		(20	)

Profit before tax		301			135
Taxation charge		(45	)		(15	)

Profit for the period		256			120

Six months ended 30 June 2013 compared to six months ended 30 June 2012

Profit before tax increased by £166m to £301m (2012: £135m). By income statement line, the movements were:

•

Net interest expense decreased by £18m to £8m (2012: £26m) partly as a result of continued growth and improving new business margins in customer loans. This was partially offset by an increase in net interest expense as a consequence of continued low interest rate environment.

•

Non-interest income increased by £149m to £436m (2012: £287m) principally due to mark-to-market gains on certain derivatives, which are only treated as hedging for Santander UK group purposes, partially offset by a decrease of £97m in non-interest income in Markets compared to a particularly strong first half of 2012, and lower ancillary fees from Large Corporates.

•

Administrative expenses increased by £3m to £108m (2012: £105m). The increase principally reflected selective investment in growth opportunities for Corporate Banking. This increase was partially offset by effective cost control.

•

Depreciation, amortisation and impairment costs were unchanged at £1m (2012: £1m).

•

Impairment losses on loans and advances decreased by £2m to £18m (2012: £20m) mainly due to the continued resilient credit quality in the Corporate Banking loan books.

•

The taxation charge was significantly higher than for the first half of 2012, in line with increased profits before tax.


4		Abbey National Treasury Services plc 2013 Half Yearly Financial Report

Business Review

Group and Divisional Results continued

Critical factors affecting results

The preparation of our Condensed Consolidated Interim Financial Statements requires management to make estimates and judgements that affect the reported amount of assets and liabilities at the balance sheet date and the reported amount of income and expenses during the reporting period. Management evaluates its estimates and judgements on an ongoing basis, and bases its estimates and judgements on historical experience and other factors believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Estimates and judgements that are considered important to the portrayal of our financial condition including, where applicable, quantification of the effects of reasonably possible ranges of such estimates are set out in “Critical Accounting Policies” in Note 1 to the Condensed Consolidated Interim Financial Statements.

The rest of this section contains a summary of the results, and commentary thereon, by Income Statement line item for each segment.

Basis of results presentation

The segmental information in this Half Yearly Financial Report reflects the reporting structure in place at the reporting date in accordance with which the segmental information in Note 2 to the Condensed Consolidated Interim Financial Statements has been presented. The Company’s board of directors (the ‘Board’) is the chief operating decision maker for the ANTS group. The segmental information below is presented on the basis used by the Board to evaluate performance and allocate resources. The Board reviews discrete financial information for each segment of the business which follows the ANTS group’s normal accounting policies and principles, including measures of operating results, assets and liabilities.

PROFIT BEFORE TAX BY SEGMENT


30 June 2013	Corporate Banking £m			Markets £m			Corporate Centre £m			Total £m
Net interest income/(expense)		69			(1	)		(76	)		(8	)
Non-interest income		114			40			282			436

Total operating income		183			39			206			428

Administration expenses		(42	)		(48	)		(18	)		(108	)
Depreciation, amortisation and impairment		—			(1	)		—			(1	)

Total operating expenses excluding provisions and charges		(42	)		(49	)		(18	)		(109	)

Impairment losses on loans and advances		(18	)		—			—			(18	)

Total operating provisions and charges		(18	)		—			—			(18	)

Profit/(loss) before tax		123			(10	)		188			301


30 June 2012	Corporate Banking £m			Markets £m			Corporate Centre £m			Total £m
Net interest income/(expense)		29			(3	)		(52	)		(26	)
Non-interest income		141			137			9			287

Total operating income		170			134			(43	)		261

Administration expenses		(37	)		(54	)		(14	)		(105	)
Depreciation, amortisation and impairment		—			(1	)		—			(1	)

Total operating expenses excluding provisions and charges		(37	)		(55	)		(14	)		(106	)

Impairment losses on loans and advances		(20	)		—			—			(20	)

Total operating provisions and charges		(20	)		—			—			(20	)

Profit/(loss) before tax		113			79			(57	)		135


Abbey National Treasury Services plc 2013 Half Yearly Financial Report			5

Business Review

Group and Divisional Results continued

CORPORATE BANKING

Corporate Banking offers a wide range of products and financial services to customers through a network of regional business centres and through telephony and e-commerce channels. Corporate Banking products and services include loans, bank accounts, deposits, treasury services, invoice discounting, cash transmission and asset finance.

The SME and mid corporate business principally serves small and medium enterprises with an annual turnover of more than £250,000 up to £50m (‘SMEs’), and other corporate customers with an annual turnover of up to £500m. This also includes real estate lending.

The Large Corporates business offers specialist treasury services in fixed income and foreign exchange, lending, transactional banking services, capital markets and money markets to large multinational corporate customers with an annual turnover of more than £500m. Lending includes syndicated loans and structured finance. Transactional banking includes trade finance and cash management. Money market activities include securities lending/borrowing and repos.

Summarised income statement


	Six months ended 30 June 2013 £m			Six months ended 30 June 2012 £m
Net interest income		69			29
Non-interest income		114			141

Total operating income		183			170

Administration expenses		(42	)		(37	)

Total operating expenses excluding provisions and charges		(42	)		(37	)

Impairment losses on loans and advances		(18	)		(20	)

Total operating provisions and charges		(18	)		(20	)

Profit before tax		123			113

Corporate Banking profit before tax

Six months ended 30 June 2013 compared to six months ended 30 June 2012

Profit before tax increased by £10m to £123m (2012: £113m). By income statement line, the movements were:

•

Net interest income increased by £40m to £69m (2012: £29m), partly as a result of continued growth in customer loans generated through our trade finance business (invoice discounting programmes) with Large Corporates. Net interest income also benefitted from the impact of improving new business margins.

•

Non-interest income decreased by £27m to £114m (2012: £141m) reflecting lower ancillary fees from Large Corporates, notably as a result of lower demand for interest rate and foreign exchange risk management products.

•

Administration expenses increased by £5m to £42m (2012: £37m). The increase reflected selective investment in growth opportunities for Corporate Banking.

•

Impairment losses on loans and advances decreased by £2m to £18m (2012: £20m), with the credit quality of business continuing to perform well.


6		Abbey National Treasury Services plc 2013 Half Yearly Financial Report

Business Review

Group and Divisional Results continued

MARKETS

Summarised income statement


	Six months ended 30 June 2013 £m			Six months ended 30 June 2012 £m
Net interest expense		(1	)		(3	)
Non-interest income		40			137

Total operating income		39			134

Administration expenses		(48	)		(54	)
Depreciation, amortisation and impairment		(1	)		(1	)

Total operating expenses excluding provisions and charges		(49	)		(55	)

Provisions for other liabilities and charges		—			—

Total operating provisions and charges		—			—

(Loss)/profit before tax		(10	)		79

Markets (loss)/profit before tax

Six months ended 30 June 2013 compared to six months ended 30 June 2012

(Loss)/profit before tax decreased by £89m to a loss of £10m (2012: profit of £79m). By income statement line, the movements were:

•

Net interest expense was broadly unchanged at £1m in 2013 (2012: £3m).

•

Non-interest income decreased by £97m to £40m in 2013 (2012: £137m), compared to a particularly strong first half of 2012. This reflected a return to more normalised levels of Market Making activity with reduced corporate and institutional sales in the relatively stable, low interest rate environment.

•

Administration expenses decreased by £6m to £48m in 2013 (2012: £54m), reflecting tight cost control, which was partially offset by investment in developing interest rate and foreign exchange product capabilities.

•

Depreciation and amortisation was unchanged at £1m (2012: £1m).


Abbey National Treasury Services plc 2013 Half Yearly Financial Report			7

Business Review

Group and Divisional Results continued

CORPORATE CENTRE

Summarised income statement


	Six months ended 30 June 2013 £m			Six months ended 30 June 2012 £m
Net interest income/(expense)		(76	)		(52	)
Non-interest income		282			9

Total operating income		206			(43	)

Administration expenses		(18	)		(14	)

Total operating expenses excluding provisions and charges		(18	)		(14	)

Provisions for other liabilities and charges		—			—

Total operating provisions and charges		—			—

Profit/(loss) before tax		188			(57	)

Corporate Centre profit/(loss) before tax

Six months ended 30 June 2013 compared to six months ended 30 June 2012

Profit/(loss) before tax increased by £245m to a profit of £188m (2012: loss of £57m). By income statement line, the movements were:

•

Net interest expense increased by £24m to £76m (2012: £52m) as a consequence of continued low interest rates, which reduced income earned on the structural hedges put in place in 2008 and 2009 and now maturing in a much lower, static environment. This has been partially offset by the same static interest rate environment reducing the costs of maintaining the liquid asset portfolio and a change in the internal UK transfer pricing mechanism to other Santander UK group companies.

•

Non-interest income increased by £273m to £282m (2012: £9m) principally due to mark-to-market gains on derivatives, which are only treated as hedging for Santander UK group purposes, and the £44m credit arising from the debit valuation adjustment on derivatives written by the ANTS group. This adjustment was introduced in 2013 in accordance with the requirements of IFRS 13. These increases were partially offset by a £3m net loss on the rebalancing of the liquidity and balance sheet management portfolios and related funding.

•

Administration expenses increased by £4m to £18m (2012: £14m), reflecting increased regulatory compliance and control costs.


8		Abbey National Treasury Services plc 2013 Half Yearly Financial Report

Business Review

Balance Sheet Review

Throughout this Balance Sheet Review, references to UK and non-UK, in the geographic analysis, refer to the location of the office where the transaction is recorded.

The Balance Sheet Review is divided into the following sections:

INDEX


	Page
Summarised condensed consolidated balance sheet		9

Short-term borrowings		11

Liquidity and funding		12

Interest rate sensitivity		13

Average balance sheet		14

This Balance Sheet Review focuses on those areas that have changed significantly during the first half of 2013, and represents an update to the Balance Sheet Review in the Company’s Annual Report and Accounts for the year ended 31 December 2012 (“2012 Annual Report”), with which it should be read in conjunction. The Balance Sheet Review in the 2012 Annual Report contains additional disclosures which have not changed significantly during the first half of 2013.

SUMMARISED CONDENSED CONSOLIDATED BALANCE SHEET


	30 June 2013 £m		31 December 2012 £m
Assets
Cash and balances at central banks		9,284		388
Trading assets		31,163		22,498
Derivative financial instruments		27,268		33,276
Financial assets designated at fair value		2,567		3,531
Loans and advances to banks		108,584		106,986
Loans and advances to customers		40,963		44,750
Available for sale securities		4,313		5,113
Loans and receivables securities		165		162
Macro hedge of interest rate risk		808		1,171
Property, plant and equipment		6		6
Tax, intangibles and other assets		111		31

Total assets		225,232		217,912

Liabilities
Deposits by banks		118,010		114,535
Deposits by customers		5,820		6,249
Derivative financial instruments		27,934		34,088
Trading liabilities		34,790		21,109
Financial liabilities designated at fair value		5,277		4,002
Debt securities in issue		28,982		33,770
Tax, other liabilities and provisions		396		364

Total liabilities		221,209		214,117

Equity
Total shareholders’ equity		4,023		3,795

Total equity		4,023		3,795

Total liabilities and equity		225,232		217,912

A more detailed consolidated balance sheet is contained in the Condensed Consolidated Interim Financial Statements.

30 June 2013 compared to 31 December 2012

Assets

Cash and balances at central banks

Cash and balances held at central banks increased to £9,284m at 30 June 2013 (2012: £388m), principally reflecting an increase in the element of the liquid asset portfolio held as cash at central banks as part of the rebalancing of the liquid asset portfolio.


Abbey National Treasury Services plc 2013 Half Yearly Financial Report			9

Business Review

Balance Sheet Review continued

Trading assets

Trading assets increased by 39% to £31,163m at 30 June 2013 (2012: £22,498m), reflecting increased trading activity relating to securities purchased under resale agreements to customers and increased holdings of debt securities, although securities purchased under resale agreements remained lower than at 30 June 2012.

Derivative assets

Derivative assets decreased by 18% to £27,268m at 30 June 2013 (2012: £33,276m). The decrease was attributable to a decrease in the fair values of interest rate derivative assets as a result of upward moves in longer term yield curves. There was a corresponding decrease in derivative liabilities.

Financial assets designated at fair value through profit and loss

Financial assets designated at fair value through profit and loss decreased by 27% to £2,567m at 30 June 2013 (2012: £3,531m). The decrease was primarily attributable to the maturity and refinancing of loans to UK Social Housing associations and new loans not being designated at fair value, in accordance with the ANTS group’s policy.

Loans and advances to banks

Loans and advances to banks increased by 1% to £108,584m at 30 June 2013 (2012: £106,986m).

Loans and advances to customers

Loans and advances to customers decreased by 8% to £40,963m at 30 June 2013 (2012: £44,750m) principally due to reductions in balances with other Santander UK group companies. These reductions were partially offset by increases in lending to small and medium enterprises (‘SME’), and increased customer loans to large corporate clients through our trade finance business.

Available for sale securities

Available for sale securities decreased by 16% to £4,313m at 30 June 2013 (2012: £5,113m). The movement reflected both purchases and sales as part of the rebalancing of the liquid asset portfolio.

Tax, intangibles and other assets

Tax, intangibles and other assets increased by 258% to £111m at 30 June 2013 (2012: £31m). The increase primarily reflected the increase in accrued income within other assets.

Liabilities

Deposits by banks

Deposits by banks increased by 3% to £118,010m at 30 June 2013 (2012: £114,535m). The increase was principally driven by increased deposits by customers in the Santander UK group which are then placed with the ANTS group.

Deposits by customers

Deposits by customers decreased by 7% to £5,820m at 30 June 2013 (2012: £6,249m), reflecting the maturities of, and decreased demand for retail structured products sold by the ANTS group.

Derivative liabilities

Derivative liabilities decreased by 18% to £27,934m at 30 June 2013 (2012: £34,088m). The decrease was attributable to a decrease in the fair values of interest rate derivative liabilities as a result of upward moves in longer term yield curves.

Trading liabilities

Trading liabilities increased by 65% to £34,790m at 30 June 2013 (2012: £21,109m). The increase was principally attributable to increased trading activity relating to securities sold under resale agreements to both banks and customers.

Financial liabilities designated at fair value

Financial liabilities designated at fair value increased by 32% to £5,277m at 30 June 2013 (2012: £4,002m). The increase principally reflected new issuances in the US$4bn Commercial Paper Programme.

Debt securities in issue

Debt securities in issue decreased by 14% to £28,982m at 30 June 2013 (2012: £33,770m) as surplus liquidity was utilised to fund maturing medium term funding.

Equity

Total shareholders equity increased by 6% to £4,023m at 30 June 2013 (2012: £3,795m). The increase was principally attributable to the retained profit for the period.


10		Abbey National Treasury Services plc 2013 Half Yearly Financial Report

Business Review

Balance Sheet Review continued

SHORT-TERM BORROWINGS

The ANTS group includes short-term borrowings within deposits by banks, trading liabilities, financial liabilities designated at fair value, and debt securities in issue and does not show short-term borrowings separately on the balance sheet. Short-term borrowings are defined by the US Securities and Exchange Commission (‘SEC’) as amounts payable for short-term obligations that are US Federal funds purchased and securities sold under repurchase agreements, commercial paper, borrowings from banks, borrowings from factors or other financial institutions and any other short-term borrowings reflected on the ANTS group’s balance sheet. The ANTS group’s only significant short-term borrowings are securities sold under repurchase agreements, commercial paper, borrowings from banks, negotiable certificates of deposit, and certain other debt securities in issue. Additional information on short-term borrowings is provided in the table below for each of the six months ended 30 June 2013 and 30 June 2012.


	Six months ended 30 June 2013 £m			Six months ended 30 June 2012 £m
Securities sold under repurchase agreements
- Period-end balance		23,664			32,742
- Period-end interest rate		0.35	%		0.46	%
- Average balance⁽¹⁾		19,607			32,416
- Average interest rate⁽¹⁾		0.39	%		0.39	%
- Maximum balance⁽¹⁾		23,664			37,621
Commercial paper
- Period-end balance		4,687			3,701
- Period-end interest rate		0.47	%		0.82	%
- Average balance⁽¹⁾		4,223			3,803
- Average interest rate⁽¹⁾		0.53	%		0.87	%
- Maximum balance⁽¹⁾		4,687			3,921
Borrowings from banks (Deposits by banks)
- Period-end balance		223			414
- Period-end interest rate		0.45	%		1.44	%
- Average balance⁽¹⁾		563			684
- Average interest rate⁽¹⁾		0.27	%		1.09	%
- Maximum balance⁽¹⁾		1,149			2,262
Negotiable certificates of deposit
- Period-end balance		2,336			2,054
- Period-end interest rate		1.96	%		1.67	%
- Average balance⁽¹⁾		2,299			2,344
- Average interest rate⁽¹⁾		1.77	%		1.52	%
- Maximum balance⁽¹⁾		2,724			2,576
Other debt securities in issue
- Period-end balance		4,661			4,002
- Period-end interest rate		2.92	%		2.91	%
- Average balance⁽¹⁾		6,211			4,015
- Average interest rate⁽¹⁾		2.95	%		2.92	%
- Maximum balance⁽¹⁾		7,888			4,084

(1)	Calculated using monthly data.

The ANTS group issues commercial paper generally in denominations of not less than US$50,000, with maturities of up to 365 days. Commercial paper is issued by the Company and its subsidiary Abbey National North America LLC.


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LIQUIDITY AND FUNDING

Sources and uses of liquidity and funding

ANTS is the treasury support function for the Santander UK group. In this regard, ANTS’s role is to provide access to financial markets and central bank facilities in order to meet the Santander UK group’s liquidity, funding, capital and balance sheet management requirements.

Liquidity and funding risk is managed on a Santander UK group basis and it is not therefore appropriate to consider these risks separately at an ANTS group level. In addition, under the PRA’s regulatory regime for liquidity, Santander UK and ANTS, together with Cater Allen Limited, a fellow subsidiary of Santander UK plc, form the Santander UK Defined Liquidity Group (‘DLG’). Under these arrangements, each member of the DLG is liable to support each other in terms of transferring or receiving surplus liquidity in times of stress. In considering the liquidity resources available to the ANTS group, its own liquid assets and also those of rest of the Santander UK group are separately presented.

In addition, the Company, Santander UK plc, and Cater Allen Limited, which are the three PRA-regulated entities within the Santander UK group, are party to a capital support deed dated 14 December 2012 (the “Capital Support Deed”) with certain other non-regulated subsidiaries of Santander UK plc. The parties to the Capital Support Deed constitute a core UK group for the purposes of section 10 of the Prudential Sourcebook for Banks, Building Societies and Investment Firms (“BIPRU”) of the PRA Handbook. Under section 10.8 of BIPRU, exposures of each of the three regulated entities to other members of the core UK group are exempt from large exposure limits that would otherwise apply. The purpose of the Capital Support Deed is to facilitate the prompt transfer of available capital resources from, or repayment of liabilities by, the non-regulated parties to any of the regulated parties in the event that one of the regulated parties has breached or is at risk of breaching its capital resources requirements or risk concentrations requirements.

Santander UK primarily generates funding and liquidity through UK retail and corporate deposits, as well as in the financial markets through its own debt programmes and facilities to support its business activities and liquidity requirements. It does this in reliance on the strength of its balance sheet and profitability and its own network of investors.

Liquidity and funding risks are identified and encompassed within Santander UK’s Risk Framework and subject to Santander UK’s three-tier risk governance framework.

The debt issuance programmes managed by ANTS are set out in Notes 18 and 19 to the Condensed Consolidated Interim Financial Statements.

Further information is set out in “Liquidity and funding risk” in the Risk Management Report on pages 31 to 33.

Cash flows


	Six months ended 30 June 2013 £m			Six months ended 30 June 2012 £m
Net cash (outflow)/inflow from operating activities		(1,771	)		13,121
Net cash flow from/(used in) investing activities		843			(4,710	)
Net cash flow (used in)/from financing activities		(3,596	)		3,894

Net (decrease)/increase in cash and cash equivalents		(4,524	)		12,305

The major activities and transactions that affected ANTS’s cash flows during the first six months of 2013 were as follows:

In the six months ended 30 June 2013, the net cash outflow from operating activities of £1,771m due to reductions in balances with other Santander UK group companies. These reductions were partially offset by increases in SME lending, and increased customer loans to large corporate clients through our trade finance business.

In the six months ended 30 June 2013, the net cash inflow from investing activities of £843m resulted primarily from purchases and sales of available-for-sale securities as part of the rebalancing of the liquid asset portfolio.

In the six months ended 30 June 2013, the net cash outflow from financing activities of £3,596m reflected primarily the issue of debt securities of £13,001m and repayments of debt securities of £16,597m.

Lower activity relating to securities purchased under resale agreements also meant that cash and cash equivalents were lower at 30 June 2013 than at 30 June 2012.


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INTEREST RATE SENSITIVITY

Interest rate sensitivity refers to the relationship between interest rates and net interest income resulting from the periodic repricing of assets and liabilities. The ANTS group seeks to manage the risks associated with movements in interest rates as part of its management of the overall non-trading position. This is done within limits as described in the Risk Management Report beginning on page 15.

Changes in net interest income – volume and rate analysis

The following table allocates changes in interest income, interest expense and net interest income between changes in volume and changes in rate for the ANTS group for the six months ended 30 June 2013 and 30 June 2012. Volume and rate variances have been calculated on the movement in the average balances and the change in the interest rates on average interest-earning assets and average interest-bearing liabilities. The variance caused by changes in both volume and rate has been allocated to rate changes.


	Six months ended 30 June 2013 compared to Six months ended 30 June 2012									Six months ended 30 June 2012 compared to Six months ended 30 June 2011
	Total change			Changes due to increase/(decrease) in						Total change			Changes due to increase/(decrease) in
	£m			Volume £m			Rate £m			£m			Volume £m			Rate £m
Interest income
Loans and advances to banks:
- UK		(267	)		(266	)		(1	)		(319	)		(598	)		279
- Non-UK		2			3			(1	)		(9	)		(21	)		12
Loans and advances to customers:
- UK		14			(79	)		93			239			138			101
Other interest earning financial assets:
- UK		4			35			(31	)		(8	)		102			(110	)
- Non-UK		1			—			1			—			—			—

Total interest income
- UK		(249	)		(310	)		61			(88	)		(358	)		270
- Non-UK		3			3			—			(9	)		(21	)		12

		(246	)		(307	)		61			(97	)		(379	)		282

Interest expense
Deposits by banks:
- UK		(279	)		(272	)		(7	)		(6	)		(336	)		330
Deposits by customers - wholesale deposits:
- UK		15			(19	)		34			9			—			9
Debt securities in issue:
- UK		6			(51	)		57			125			78			47
- Non-UK		(4	)		8			(12	)		(8	)		(29	)		21
Other interest-bearing liabilities:
- UK		(2	)		—			(2	)		2			—			2

Total interest expense
- UK		(260	)		(342	)		82			130			(258	)		388
- Non-UK		(4	)		8			(12	)		(8	)		(29	)		21

		(264	)		(334	)		70			122			(287	)		409

Net interest income		18			27			(9	)		(219	)		(92	)		(127	)


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AVERAGE BALANCE SHEET

As period-end statements may not be representative of the ANTS group’s activity throughout the period, average balance sheets for the ANTS group are presented below. The average balance sheets summarise the significant categories of assets and liabilities, together with average interest rates.


	Six months ended 30 June 2013								Six months ended 30 June 2012
	Average Balance⁽¹⁾ £m			Interest⁽⁴⁾⁽⁵⁾ £m			Average rate %		Average Balance⁽¹⁾ £m			Interest^(4) (5) £m			Average rate %
Assets
Loans and advances to banks:
- UK		110,903			1,021			1.84		123,661			1,288			2.08
- Non-UK		5,634			9			0.32		4,537			7			0.31
Loans and advances to customers:⁽³⁾
- UK		41,078			542			2.64		44,396			528			2.38
- Non-UK		—			—			—		—			—			—
Other interest-earning financial assets:
- UK		4,464			20			0.90		2,120			16			1.51
- Non-UK		289			1			0.69		—			—			—

Total average interest-earning assets, interest income⁽²⁾		162,368			1,593			1.96		174,714			1,839			2.11

Impairment loss allowances		(114	)		—			—		(143	)		—			—
Trading business		26,320			—			—		27,707			—			—
Assets designated at fair value through profit and loss		3,236			—			—		4,518			—			—
Other non-interest-earning assets		37,147			—			—		38,693			—			—

Total average assets		228,957			—			—		245,489			—			—

Non-UK assets as a % of total		2.59	%		—			—		1.85	%		—			—

Liabilities
Deposits by banks:
- UK		(117,862	)		(998	)		1.69		(131,905	)		(1,277	)		1.94
- Non-UK		(2	)		—			—		(148	)		—			—
Deposits by customers – wholesale:
- UK		(5,665	)		(67	)		2.37		(6,918	)		(52	)		1.50
Bonds and medium-term notes:
- UK		(27,099	)		(525	)		3.87		(28,495	)		(519	)		3.64
- Non-UK		(4,357	)		(11	)		0.50		(3,415	)		(15	)		0.88
Other interest-bearing liabilities UK		—			—			—		—			(2	)		—

Total average interest-bearing liabilities, interest expense⁽²⁾		(154,985	)		(1,601	)		2.07		(170,881	)		(1,865	)		2.18

Trading business		(31,233	)		—			—		(30,333	)		—			—
Liabilities designated at fair value through profit and loss		(4,902	)		—			—		(5,225	)		—			—
Non-interest-bearing liabilities:
- Other		(33,935	)		—			—		(35,346	)		—			—
- Shareholders’ funds		(3,902	)		—			—		(3,704	)		—			—

Total average liabilities and shareholders’ funds		(228,957	)		—			—		(245,489	)		—			—

Non-UK liabilities as a % of total		1.90	%		—			—		1.45	%		—			—

(1)	Average balances are based upon monthly data.

(2)	The ratio of average interest-earning assets to interest-bearing liabilities for the six months ended 30 June 2013 was 104.76% (Six months ended 30 June 2012: 102.24%).

(3)	Loans and advances to customers include non-performing loans. See the “Credit Risk” section of the Risk Management Report.

(4)	The net interest margin for the six months ended 30 June 2013 was 0.01% (Six months ended 30 June 2012: 0.03%). Net interest margin is calculated as net interest income divided by average interest earning assets.

(5)	The interest spread for the six months ended 30 June 2013 was 0.1% (Six months ended 30 June 2012: 0.08%). Interest spread is the difference between the rate of interest earned on average interest-earning assets and the rate of interest paid on average interest-bearing liabilities.


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Risk Management Report

RISK MANAGEMENT REPORT

This Risk Management Report contains information that forms an integral part of the Condensed Consolidated Interim Financial Statements.

The ANTS group provides treasury, corporate and wholesale banking services to UK clients and also to the wider Santander UK group, of which ANTS is a part. ANTS is also the treasury support function for the Santander UK group. In this regard, ANTS’s role is to provide access to financial markets and central bank facilities in order to meet the Santander UK group’s liquidity, funding, capital and balance sheet management requirements. As such, ANTS is one of the main debt issuance vehicles in the Santander UK group.

ANTS contains part of a number of Santander UK’s business segments. Specifically, ANTS consists of part of the Santander UK group’s Corporate Banking and Corporate Centre business segments and its entire Markets business segment. Whether transactions are booked in ANTS or another Santander UK group entity reflects historical or operational reasons and does not necessarily reflect any particular business split.

Santander UK plc has given a full and unconditional guarantee in respect of the liabilities of ANTS incurred up to 30 June 2015. The Company has given a reciprocal guarantee in respect of the liabilities of Santander UK plc incurred up to 30 June 2015. As a consequence of the reciprocal guarantee given by the Company in respect of the liabilities of Santander UK plc, the Company is exposed to the same risks as the Santander UK group, of which the Company and the ANTS group are part.

As a subsidiary of Santander UK plc, ANTS is subject to the Santander UK Risk Framework. As a consequence the ANTS group’s risks are managed at a Santander UK group level in accordance with the Santander UK group’s Risk Framework. The Risk Management Report describes the Santander UK group’s Risk Framework and includes more detail on the key risks (on a segmental basis or aggregated where relevant) to which the ANTS group is directly exposed. In addition, as a consequence of the guarantee given by the ANTS group in respect of the liabilities of Santander UK plc, the ANTS group is indirectly exposed to risks that arise in parts of the Santander UK group that are wholly outside the ANTS group. Those risks consist of retail credit risk and pension obligations risk.

The Risk Management Report consists of:

•

A description of Santander UK’s approach to the management of risk, including its Risk Framework; and

•

Further detail on the ANTS group’s key risks, with separate discussions of:

•

Financial risks; and

•

Non-financial risks.

Throughout the Risk Management Report, except where stated otherwise, references to Santander UK should be taken to include ANTS and the ANTS group (reflecting both the risks that ANTS is directly exposed to through its own activities and the risks arising elsewhere in the Santander UK group that ANTS is indirectly exposed to due to the existence of the cross guarantees described above).

This Risk Management Report focuses on those areas that have changed significantly during the first half of 2013, and represents an update to the Risk Management Report in the 2012 Annual Report, with which it should be read in conjunction. The Risk Management Report in the 2012 Annual Report contains more detailed narrative explanations on the framework, methodologies and processes used which were unchanged during the first half of 2013.

INDEX


RISK MANAGEMENT
•	Introduction		16
•	Risk framework		16
FINANCIAL RISKS
•	Credit Risk		16
	•	Corporate Banking	17
	•	Markets	22
	•	Corporate Centre	24
•	Market Risk		27
	•	Traded market risk	27
•	Structural Risk		30
	•	Non-traded market risk	30
	•	Liquidity and Funding risk	31
NON-FINANCIAL RISKS
•	Operational Risk		34
•	Other Risks		36
ADDITIONAL FINANCIAL RISK DISCLOSURES
•	Credit Risk - Areas of focus and other items		39
	•	Country risk exposure	39
	•	Loans and advances	48


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RISK MANAGEMENT

Introduction

As a significant financial services provider, risk is at the core of Santander UK’s day-to-day activities. The understanding and control of risk is critical for the effective management of the business. Santander UK aims to employ a prudent approach and advanced risk management techniques to facilitate the delivery of robust financial performance, and ultimately build sustainable value for all our stakeholders, including our staff, customers, fixed income investors, shareholders and the communities in which we operate.

Santander UK aims to maintain a predictable medium-low risk profile, consistent with its business model, which is key to the successful achievement of our strategic objectives.

RISK FRAMEWORK

During 2012, the Board of Santander UK plc (the ‘Santander UK Board’) approved a new Risk Framework (the ‘Risk Framework’), setting out enhancements to the management, control and oversight of all risk types in Santander UK. As a subsidiary of Santander UK plc, the Company is subject to this Risk Framework. The Risk Framework aims to continue to ensure that risk is managed and controlled on behalf of all our stakeholders. There were no changes to the Risk Framework during the first half of 2013. The key components of this framework include:

•

Risk definition and structure;

•

Core principles;

•

Governance, roles and responsibilities; and

•

Systems of internal control.

Refer to the 2012 Annual Report for full details of the Risk Framework.

FINANCIAL RISKS

CREDIT RISK

INTRODUCTION

Credit risk is the risk of financial loss arising from the default or credit quality deterioration of a customer or counterparty to which ANTS has directly provided credit, or for which ANTS has assumed a financial obligation.

Refer to the 2012 Annual Report for full details of credit risk classification and measurement across the credit cycle which is unchanged during 2013.

Approach to forbearance

To support customers that encounter actual or apparent financial difficulties, Santander UK may enter into forbearance arrangements (previously described as restructuring/refinancing). Forbearance arrangements include the granting of temporary or permanent concessions to customers to amend contractual payment amounts or timings. These are made where a customer’s financial position indicates the possibility that satisfactory repayment may not be made within the original terms and conditions of the contract but where analysis suggests that repayment is possible based on revised terms of the loan.

A range of forbearance strategies are employed in order to improve the management of customer relationships, maximise collection opportunities and, if possible, avoid foreclosure or repossession.

Santander UK’s policies and practices are based on criteria which, in the judgement of management, indicate that repayment is likely to continue and that after the initial period of financial difficulties the customer can revert to the previous terms, with appropriate support where necessary. These agreements may be initiated by the customer, Santander UK or by a third party.

Further detail on the approaches and extent of forbearance in each business segment is set out in the subsequent sections of this report. There have been no changes to the definition of forbearance (previously described as restructuring/refinancing in NPL) during the period.


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CREDIT RISK – CORPORATE BANKING

INTRODUCTION

Credit risk arises by Corporate Banking making loans, investing in other financial instruments or entering into financing transactions or derivatives. This section sets out further detail on credit risk in Corporate Banking as follows:


•		Committed exposures;

•		Credit risk mitigation;

•		Monitoring and recovery management;

•		Arrears;

•		Forbearance; and

•		Non-performing loans and advances and forbearance.

In Corporate Banking, credit risk arises on assets and off-balance sheet transactions. Consequently, the credit risk exposure below arises from on balance sheet assets, and off-balance sheet transactions such as committed and un-drawn credit facilities or guarantees.


MANAGEMENT’S APPROACH TO CREDIT RISK IN CORPORATE BANKING

Management’s approach to credit risk in Corporate Banking has not changed during 2013. For further details refer to page 46 of the 2012 Annual Report.

CORPORATE BANKING – COMMITTED EXPOSURES

COMMITTED EXPOSURES BY CREDIT RATING OF THE ISSUER OR COUNTERPARTY⁽¹⁾⁽²⁾

30 June 2013

Sovereign
£m

Large
Corporate
£m

Mid Corporate
and SME
£m

Real Estate
£m

Social Housing
£m

Total
£m

AAA

1,104

—

1,105

3,848

1,112

185

291

5,492

3,141

634

1,198

320

5,341

BBB

501

4,356

3,097

2,579

115

10,648

—

407

1,639

589

—

2,635

—

166

—

181

CCC

—

203

—

210

—

Total

5,501

9,016

5,451

4,928

726

25,622


31 December 2012	Sovereign £m		Large Corporate £m		Mid Corporate and SME £m		Real Estate £m		Social Housing £m		Total £m
AAA		1,131		25		—		36		—		1,192
AA		960		361		197		164		39		1,721
A		66		2,893		1,004		1,320		261		5,544
BBB		1		4,440		3,169		2,658		—		10,268
BB		—		353		758		642		—		1,753
B		—		—		25		202		115		342
CCC		—		—		10		46		—		56
D		—		—		25		281		—		306

Total		2,158		8,072		5,188		5,349		415		21,182

(1)	The committed exposure includes Over-The-Counter (‘OTC’) derivatives.

(2)	All exposures are internally rated. External ratings are taken into consideration in the rating process, where available.


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COMMITTED EXPOSURES BY GEOGRAPHICAL AREA⁽¹⁾

30 June 2013

Sovereign
£m

Large
Corporate
£m

Mid Corporate
and SME
£m

Real Estate
£m

Social Housing
£m

Total
£m

—

7,531

5,061

4,928

726

18,246

Peripheral eurozone

501

325

—

867

Rest of Europe

2,729

560

—

3,385

—

238

—

238

Other, including non-OECD

2,271

362

253

—

2,886

Total

5,501

9,016

5,451

4,928

726

25,622


31 December 2012	Sovereign £m		Large Corporate £m		Mid Corporate and SME £m		Real Estate £m		Social Housing £m		Total £m
UK		—		6,885		4,583		5,349		415		17,232
Peripheral eurozone		—		263		73		—		—		336
Rest of Europe		1,132		551		102		—		—		1,785
US		—		265		90		—		—		355
Other, including non-OECD		1,026		108		340		—		—		1,474
Total		2,158		8,072		5,188		5,349		415		21,182

(1)	The geographic location is classified by country of domicile of the counterparty.

30 June 2013 compared to 31 December 2012

During the first half of 2013, total commitments increased by £4.4bn or 21% to £25.6bn reflecting continued development of a UK corporate banking franchise.

The increase in sovereign holdings reflected the development of the business in this area. The increased exposures were mainly in the AA category (Japan and France). The increase in BBB exposures reflected the purchase of Italian Government bonds with less than one year maturity as part of short-term markets trading activity.

Large Corporates exposures increased by 12% as a result of the development of the franchise. Growth was focused on the UK, with some diversification in other European and non-European countries with counterparties with good credit quality.

In the Mid Corporate and SME portfolio growth was primarily due to new lending. The increase in exposures in the Social Housing portfolio was primarily due to refinancing. The Real Estate portfolio decreased by 8% reflecting exits and restructurings.

Commercial Real Estate loans

Real estate non-performing loans at 30 June 2013 and 31 December 2012 may be further analysed between loans originated pre-2009 and thereafter as follows:

Original vintage

30 June 2013

Pre-2009

2009 onwards

Total

Total loans

957m

3,972m

4,928m

NPLs ratio

19.4

—

3.8


	Original vintage
31 December 2012	Pre-2009			2009 onwards		Total
Total loans	£	1,299m		£	4,050m	£	5,349m
NPLs ratio		19.0	%		—		4.6	%

All the NPL balance relates to deals originated pre-2009. The pre-2009 vintage loans were written on terms prevailing in the market at that time which, compared to more recent times, included higher original LTVs, lower interest coverage and exposure to development or letting risk. Following the significant downturn in the commercial real estate market in 2008 and 2009, some of these customers suffered financial stresses resulting in their inability to meet the contractual payment terms or to comply with covenants or to achieve refinancing/repayment at maturity. As a result, the pre-2009 sub-portfolio has experienced higher NPL rates in recent years.

In light of the market deterioration, Santander UK’s lending criteria were significantly tightened from 2009 onwards, with lower LTVs and the avoidance of transactions with material letting or development risks (at 30 June 2013, this element of the portfolio represented only 3% of the total Real Estate portfolio). In addition, while the market remains challenging, prices have not declined significantly further since Santander UK’s lending criteria were tightened. As a result, the sub-portfolio representing loans originating from 2009 onwards continues to perform significantly better than the pre-2009 sub-portfolio.

The weighted average LTV of new deals written in the first half of 2013 was 54% with no deals written with an LTV of 70% or more.


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CORPORATE BANKING – CREDIT RISK MITIGATION

At 30 June 2013, the estimated value of collateral held against impaired loans amounted to 41% (2012: 68%) of the carrying amount of impaired loan balances.

CORPORATE BANKING – MONITORING AND RECOVERY MANAGEMENT

Cases exhibiting potentially higher risk characteristics are subject to risk monitoring under the Watchlist (FEVE) process. There are a range of indicators that may trigger a case being added to Watchlist (FEVE), including downturn in trade, covenant breaches, major contract loss, and resignation of key management etc. Such cases are assessed to determine the potential financial implications of these trigger events and in consultation with the borrower, a range of options available is considered which may include temporary forbearance. In addition, cases that require specialist risk management expertise, including all NPLs, are transferred to a dedicated restructuring team.

Cases subject to risk monitoring under the Watchlist (FEVE) process or classified as NPL by portfolio at 30 June 2013 and 31 December 2012 were:


			Watchlist (FEVE)														Observed impairment loss allowances
30 June 2013	Portfolio		Enhanced monitoring				Proactive monitoring				Total		NPL		NPL		Watchlist		NPL
30 June 2013	£m		£m		%		£m		%		£m		£m		%		£m		£m
Large Corporate		14,517		105		0.7		—		—		105		—		—		—		—
(including Sovereign)
Mid Corporate and SME		5,451		209		3.8		16		0.3		225		5		0.1		2		3
Real Estate		4,928		147		3.0		269		5.5		416		185		3.8		14		91
Social Housing		726		—		—		—		—		—		—		—		—		—

Total		25,622		461		1.8		285		1.1		746		190		0.7		16		94


			Watchlist (FEVE)														Observed impairment loss allowances
31 December 2012	Portfolio		Enhanced monitoring				Proactive monitoring				Total		NPL		NPL		Watchlist		NPL
31 December 2012	£m		£m		%		£m		%		£m		£m		%		£m		£m
Large Corporate		10,230		142		1.4		—		—		142		—		—		—		—
(including Sovereign)
Mid Corporate and SME		5,188		123		2.4		56		1.1		179		23		0.4		4		11
Real Estate		5,349		199		3.7		239		4.5		438		247		4.6		21		73
Social Housing		415		—		—		—		—		—		—		—		—		—
Total		21,182		464		2.2		295		1.4		759		270		1.3		25		84

NPLs in the tables above include committed facilities and derivative exposures and therefore are larger than the NPLs in the table on page 21 which only includes drawn balances.

30 June 2013 compared to 31 December 2012

During the first half of 2013, exposures across the majority of Watchlist categories decreased, as older cases were either successfully returned to performing status or were restructured, in some cases through to an exit. In the Large Corporates portfolio, there were no exposures in proactive monitoring status and the decrease of the enhanced monitoring status from 31 December was due to the exit from the relationship with one counterparty. In the Real Estate portfolio, the overall level of Watchlist cases decreased slightly with a switch of cases subject to enhanced monitoring into proactive monitoring reflecting a small number of cases where concerns have risen, rather than any wider trend of deterioration across the portfolio. In the Mid Corporate and SME portfolio, the level of Watchlist cases showed a decrease of 71% in proactive monitoring as cases have been successfully managed through the process.

During the first half of 2013, NPLs reduced as cases continued to be worked out, particularly within the Real Estate portfolio.

CORPORATE BANKING – ARREARS⁽¹⁾


	30 June 2013 £m			31 December 2012 £m
Corporate Banking loans and advances to customers in arrears		208			173
Corporate Banking loans and advances to customers⁽²⁾		6,394			6,356
Corporate Banking loans and advances to customers in arrears as a % of Corporate Banking loans and advances to customers		3.26	%		2.72	%

(1)	Accrued interest is excluded for purposes of these analyses. (2) Includes Social Housing loans.

30 June 2013 compared to 31 December 2012

Loans and advances to customers in arrears increased to £208m (2012: £173m) reflecting a small number of cases where payments have been missed. Consequently, loans and advances to customers in arrears as a percentage of loans and advances to customers increased to 3.26% (2012: 2.72%).


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FORBEARANCE

Forbearance commenced during the period/year

No arrangements have been entered into with respect to sovereign or large corporate counterparties. The accounts that entered forbearance during the period ended 30 June 2013 and year ended 31 December 2012 were:


	Mid Corporate and SMEs		Real Estate		Total
30 June 2013	£m		£m		£m
Forbearance of NPL		—		1		1
Forbearance of Non-NPL		—		55		55

		—		56		56


	Mid Corporate and SMEs		Real Estate		Total
31 December 2012	£m		£m		£m
Forbearance of NPL		1		—		1
Forbearance of Non-NPL		—		99		99

		1		99		100

Forbearance cumulative number and value of accounts

At 30 June 2013, 91% of the forbearance related to Commercial Real Estate Portfolio (31 December 2012: 86%).

a) Performance status when entering forbearance

The status of the cumulative number of accounts in forbearance at 30 June 2013 and 31 December 2012 when they originally entered forbearance, analysed by their payment status, was:


	Forbearance of NPL				Forbearance of Non-NPL				Total				Impairment allowance
30 June 2013	No.		£m		No.		£m		No.		£m		£m
Performing		—		—		15		424		15		424		56
In arrears		3		7		—		—		3		7		4

Total		3		7		15		424		18		431		60


	Forbearance of NPL				Forbearance of Non-NPL				Total				Impairment allowance
31 December 2012	No.		£m		No.		£m		No.		£m		£m
Performing		—		—		13		335		13		335		37
In arrears		3		24		—		—		3		24		11

Total		3		24		13		335		16		359		48

Debt-for-equity swaps

In addition to the forbearance above, ANTS has entered into a small number of debt-for-equity swaps where, on occasion, ANTS may agree to exchange a proportion of the amount owed by the borrower for equity in that borrower. In circumstances where a borrower’s balance sheet is materially over-leveraged but the underlying business is viewed as capable of being turned around, ANTS may agree to reduce the debt by exchanging a portion of it for equity in the company. This will typically only be done alongside new cash equity being raised, the implementation of a detailed business plan to effect a turnaround in the prospects of the business, and satisfaction with management’s ability to deliver the strategy.

These debt-for-equity swaps amounted to £39m at 30 June 2013 (2012: £34m) and in view of their small size are not included in these analyses.

b) Performance status at the period/year-end

The current status of accounts in forbearance analysed by their payment status at 30 June 2013 and 31 December 2012 was:


	Forbearance of NPL				Forbearance of Non-NPL				Total				Impairment allowance
30 June 2013	No.		£m		No.		£m		No.		£m		£m
Performing		—		—		13		358		13		358		11
In arrears		3		7		2		6		5		73		49

Total		3		7		15		424		18		431		60


	Forbearance of NPL				Forbearance of Non-NPL				Total				Impairment allowance
31 December 2012	No.		£m		No.		£m		No.		£m		£m
Performing		1		1		11		270		12		271		2
In arrears		2		23		2		65		4		88		46

Total		3		24		13		335		16		359		48


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30 June 2013 compared to 31 December 2012

The level of forbearance increased during the period, influenced by a small number of commercial real estate deals of pre-2009 vintage. Pre-2009 loans were written on terms prevailing in the market at that time which, compared to more recent times, included higher original LTVs, lower interest coverage and exposure to development or letting risk.

Accounts that are in forbearance continue to be closely monitored as described above, to ensure that the forbearance arrangements are sustainable. At 30 June 2013, 72% (2012: 75%) of the accounts in forbearance were performing in accordance with the revised terms agreed under ANTS’s forbearance arrangements. The decrease reflects the impact of the current challenging market conditions which resulted in it taking longer for cases to return to performing status after forbearance.

In rare circumstances, these market conditions may, and may continue to, lead to a second term extension, for example in the case of commercial real estate where it remains difficult to sell or refinance the property. These loans are individually assessed for observed impairment loss allowances. The greater probability of ultimate loss in these circumstances is reflected in the calculation of impairment loss allowances.

A customer’s ability to adhere to any revised terms agreed is an indicator of the sustainability of ANTS’s forbearance arrangements, although the forbearance is unlikely to be successful in all cases.

CORPORATE BANKING – NON-PERFORMING LOANS AND ADVANCES ^{(1) (2) (3)}

An analysis of Corporate Banking NPLs is presented below.


	30 June 2013 £m		31 December 2012 £m
Corporate Banking NPLs – impaired⁽⁴⁾		189		264

Corporate Banking NPLs		189		264

Corporate Banking loans and advances to customers		6,394		6,356

Corporate Banking impairment loan loss allowances		112		112

		%		%

NPLs ratio⁽⁵⁾		2.96		4.16
Coverage ratio⁽⁶⁾		59		42

(1)	Loans and advances are classified as non-performing typically when the counterparty fails to make payments when contractually due for three months or where it is deemed probable that this will occur in the near future.

(2)	Corporate Banking loans and advances to customers include Social Housing loans.

(3)	All Corporate Banking NPL balances are UK and continue accruing interest. The data presented excludes accrued interest.

(4)	NPLs against which an impairment loss allowance has been established.

(5)	Corporate Banking NPLs as a percentage of Corporate Banking loans and advances to customers.

(6)	Impairment loan loss allowances as a percentage of NPLs.

Movements in NPLs during the period are set out in the table below. Transfers ‘in’ represent loans which have fallen into arrears during the period and have missed three or more monthly payments. Transfers ‘out’ represent loans that have returned to performing status, or have been redeemed in full, or have proceeded to litigation and the property repossessed and sold, and the loan written off.


	2013 £m
At 1 January		264
Transfers in to NPL		31
Transfers out of NPL:
- Loan repayments/redemptions		(88	)
- Write-offs		(18	)

At 30 June		189

30 June 2013 compared to 31 December 2012

During the first half of 2013, the NPLs ratio decreased to 2.96% (2012: 4.16%) reflecting lower levels of NPLs as a result of several older vintage cases in the Real Estate portfolio having been successfully restructured during the period.

In the first half of 2013, interest income recognised on impaired loans amounted to £1m (six months ended 30 June 2012: £4m).

CORPORATE BANKING – FORBEARANCE

As previously described, loans may be forborne. At 30 June 2013, the carrying amount of financial assets that would otherwise be past due or impaired whose terms have been forborne was £nil (2012: £nil).

CORPORATE BANKING – RATIO OF WRITE-OFFS TO AVERAGE LOANS

At 30 June 2013 the ratio of net write-offs to average loans outstanding during the period was 0.42% (2012: 0.44%).


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CREDIT RISK – MARKETS

INTRODUCTION

Markets offers risk management and other services to financial institutions, as well as other Santander UK divisions. Its main product areas are fixed income and foreign exchange, equity, capital markets and institutional sales. Credit risk arises by Markets making loans, investing in other financial instruments, or entering into financing transactions or derivatives.

This section sets out further detail on credit risk in Markets as follows:


•		Committed exposures;

•		Credit risk mitigation;

•		Monitoring and recovery management; and

•		Forbearance.


MANAGEMENT’S APPROACH TO CREDIT RISK IN MARKETS

Management’s approach to credit risk in Markets has not changed during 2013. For further details refer to page 56 of the 2012 Annual Report.

MARKETS – COMMITTED EXPOSURES

DERIVATIVE COMMITTED EXPOSURES BY CREDIT RATING OF THE ISSUER OR COUNTERPARTY ⁽¹⁾


	30 June 2013 £m		31 December 2012 £m
AAA		43		38
AA		1,714		185
A		2,625		4,097
BBB and below		640		357

Total		5,022		4,677

(1)	External ratings are applied to all committed exposures where available.

DERIVATIVE COMMITTED EXPOSURES BY GEOGRAPHICAL AREA


	30 June 2013 £m		31 December 2012 £m
UK		2,249		1,635
Peripheral eurozone		516		364
Rest of Europe		1,128		1,409
US		1,000		974
Rest of the world		129		295

Total		5,022		4,677

30 June 2013 compared to 31 December 2012

The change in the mix of exposures from A to AA during the first half of 2013 principally reflected a continued focus on counterparties with higher credit quality.


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MARKETS – CREDIT RISK MITIGATION

Markets continued to focus its activities on derivative products, supported by increased collateralisation and use of central counterparties.


PORTFOLIO		DESCRIPTION
•	Derivatives	Collateralisation Cash collateral in respect of derivatives held at 30 June 2013 was £0.5bn (2012: £0.6bn), not all derivative arrangements being subject to collateral agreements. Collateral obtained during the period in respect of purchase and resale agreements (including securities financing) is equal to at least 100% of the amount of the exposure.

		Use of Central Counterparties (‘CCPs’) ANTS continues to use CCPs as an additional means to mitigate counterparty credit risk in derivative transactions. At 30 June 2013, CCPs were used in connection with 16.3% (2012: 6.3%) of Santander UK’s OTC derivatives. This increase was a result of regulatory requirements and market convention driving more business through CCPs.

MARKETS – MONITORING AND RECOVERY MANAGEMENT

Cases exhibiting potentially higher risk characteristics are subject to risk monitoring under the Watchlist (FEVE) system. At 30 June 2013, there were no impaired or non-performing loans or exposures (2012: none) and the assets in the Watchlist (FEVE) Active category amounted to only £33m (2012: £33m).

MARKETS – FORBEARANCE

At 30 June 2013 and 31 December 2012, there were no financial assets that would otherwise be past due or impaired whose terms have been forborne.


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CREDIT RISK – CORPORATE CENTRE

INTRODUCTION

Corporate Centre consists of Financial Management & Investor Relations (‘FMIR’) and the non-core portfolios of Social Housing loans and structured credit assets. FMIR is responsible for managing capital and funding, balance sheet composition, structural market risk and strategic liquidity risk for the rest of the Santander UK group. The non-core portfolios are being run-down and/or managed for value. Credit risk arises by Corporate Centre making loans (including to other businesses within Santander UK) and investing in debt securities. Credit risk also arises by Corporate Centre investing in other financial instruments (including assets held for liquidity purposes) or entering into financing transactions or derivative contracts.

This section sets out further detail on credit risk in Corporate Centre as follows:


•		Committed exposures;

•		Credit risk mitigation;

•		Monitoring and recovery management;

•		Arrears;

•		Forbearance; and

•		Non-performing loans and advances.


MANAGEMENT’S APPROACH TO CREDIT RISK IN CORPORATE CENTRE

Management’s approach to credit risk in Corporate Centre has not changed during 2013. For further details refer to page 59 of the 2012 Annual Report.

The table below shows the committed exposures in Corporate Centre after taking into account the credit mitigation procedures described in Markets on page 23. In addition, on lending to customers, credit risk arises on assets and off-balance sheet transactions. Consequently, the credit risk exposure below arises from on balance sheet assets, and off-balance sheet transactions such as committed and undrawn credit facilities or guarantees.

CORPORATE CENTRE – COMMITTED EXPOSURES

CORPORATE CENTRE COMMITTED EXPOSURE BY CREDIT RATING OF THE ISSUER OR COUNTERPARTY⁽¹⁾

30 June 2013

Sovereign
£m

Structured
Products
£m

Derivatives
£m

Social
Housing
£m

Total
£m

AAA

9,457

—

9,457

3,907

508

133

2,296

6,844

—

1,448

5,623

7,121

BBB and below

—

1,386

1,424

Total

13,364

596

1,581

9,305

24,846


31 December 2012	Sovereign £m		Structured Products £m		Derivatives £m		Social Housing £m		Total £m
AAA		3,368		132		—		—		3,500
AA		283		4		—		2,305		2,592
A		—		29		1,215		5,899		7,143
BBB and below		—		71		—		1,408		1,479

Total		3,651		236		1,215		9,612		14,714

(1)	All exposures are internally rated. External ratings are taken into consideration in the rating process, where available.


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CORPORATE CENTRE COMMITTED EXPOSURE BY GEOGRAPHICAL AREA⁽¹⁾

30 June 2013

Sovereign
£m

Structured
Products
£m

Derivatives
£m

Social
Housing
£m

Total
£m

3,784

110

331

9,305

13,530

Peripheral eurozone

—

Rest of Europe

—

117

740

—

857

9,457

—

510

—

9,967

Rest of world

123

298

—

421

Total

13,364

596

1,581

9,305

24,846


31 December 2012	Sovereign £m		Structured Products £m		Derivatives £m		Social Housing £m		Total £m
UK		1,978		16		88		9,612		11,694
Peripheral eurozone		—		85		—		—		85
Rest of Europe		627		135		675		—		1,437
US		763		—		452		—		1,215
Rest of world		283		—		—		—		283

Total		3,651		236		1,215		9,612		14,714

(1)	The geographic location is classified by country of domicile of the counterparty.

30 June 2013 compared to 31 December 2012

The committed exposures to Sovereigns principally reflect cash at central banks and holdings of highly rated liquid assets as part of normal liquid asset portfolio management, and are concentrated in UK and US exposures. During the first half of 2013, there was an increase of Sovereign exposure in AA as a result of the UK’s Sovereign downgrade in early 2013. In addition, AAA Sovereign exposure increased to £9.5bn reflecting US Sovereign holdings at 30 June 2013. Similarly, exposures to Structured Products reflect holdings of high quality corporate bonds and floating rate notes as part of normal liquid asset portfolio management.

The Social Housing portfolio reduced as a result of successful refinancings.

CORPORATE CENTRE – MONITORING AND RECOVERY MANAGEMENT

Cases exhibiting potentially higher risk characteristics are subject to risk monitoring under the Watchlist (FEVE) process. There are a range of indicators that may trigger a case being added to Watchlist (FEVE), including deteriorating rating, security value concerns, declining trends, debt service under pressure, downturn in trade, covenant breaches, major contract loss, and resignation of key management. Such cases are assessed to determine the potential financial implications of these trigger events and in consultation with the borrower, a range of options available is considered which may include temporary forbearance.

In addition, cases that require specialist risk management expertise, including all NPLs, are transferred to a dedicated restructuring team.


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Cases subject to risk monitoring under the Watchlist (FEVE) process or classified as NPL by portfolio and assessment of risk at 30 June 2013 and 31 December 2012 were:


			Watchlist (FEVE)														Observed impairment loss allowances
	Portfolio		Enhanced monitoring				Proactive monitoring				Total		NPL		NPL		Watchlist		NPL
30 June 2013	£m		£m		%		£m		%		£m		£m		%		£m		£m
Sovereign		13,364		—		—		—		—		—		—		—		—		—
Structured products		596		—		—		—		—		—		—		—		—		—
Derivatives		1,581		—		—		—		—		—		—		—		—		—
Social Housing		9,305		83		0.9		—		—		83		—		—		—		—

Total		24,846		83		0.7		—		—		83		—		—		—		—


			Watchlist (FEVE)														Observed impairment loss allowances
	Portfolio		Enhanced monitoring				Proactive monitoring				Total		NPL		NPL		Watchlist		NPL
31 December 2012	£m		£m		%		£m		%		£m		£m		%		£m		£m
Sovereign		3,651		—		—		—		—		—		—		—		—		—
Structured products		236		—		—		—		—		—		—		—		—		—
Derivatives		1,215		—		—		—		—		—		—		—		—		—
Social Housing		9,612		632		6.6		—		—		632		—		—		—		—

Total		14,714		632		4.3		—		—		632		—		—		—		—

30 June 2013 compared to 31 December 2012

During the first half of 2013, in Social Housing, the value of cases in enhanced monitoring decreased as a result of a small number of large value cases returning to performing status following resolution of governance issues as anticipated.

CORPORATE CENTRE – ARREARS

At 30 June 2013 and 31 December 2012, there were no loans and advances to customers in arrears in Corporate Centre.

FORBEARANCE

Forbearance allows a customer, by negotiation, to vary the terms of their contractual obligations for an agreed period (such as interest-only period or term extensions). ANTS also aims to ensure that after the initial period of financial difficulties the customer can revert to the previous terms, with appropriate support where necessary. These agreements may be initiated by the customer, ANTS or by a third party.

No forbearance arrangements have been entered into.

CORPORATE CENTRE – NON-PERFORMING LOANS AND ADVANCES

At 30 June 2013 and 31 December 2012, there were no non-performing loans in Corporate Centre.


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MARKET RISK

INTRODUCTION

Market risk is the risk of a variation to the capital, economic value or reported income resulting from changes in the variables of financial instruments including interest rate, inflation, equity, credit spread, property and foreign currency. Traded market risk is the risk of losses in on- and off-balance sheet positions arising from movements in market prices. Non-traded market risk includes exposures arising as a result of the structure of portfolios of assets and liabilities, or where the liquidity of the market is such that the exposure could not be closed out over a short-time horizon.

This section sets out further detail on:


•		Traded market risk; and

•		Non-traded market risk (which is classified as a structural risk and presented in the Structural Risks section).


MANAGEMENT’S APPROACH TO MARKET RISK


•		ANTS actively manages and controls traded market risk within clearly defined parameters by limiting the impact of adverse market movements whilst seeking to enhance earnings. The organisational structure ensures a segregation of responsibilities between the functions responsible for market risk origination, risk management and control, and risk oversight.

•		A comprehensive set of Santander UK-wide policies, procedures and processes have been developed and implemented to identify, monitor and manage market risk.

•		All material risk exposures must be measured and subject to monitoring against limits and triggers for management action and/or escalation. Market risk limits are approved under Board-delegated authority, and within the market risk appetite.

TRADED MARKET RISK

INTRODUCTION

Traded market risk arises in connection with financial services for customers and the buying, selling and positioning mainly in fixed income, equities, foreign exchange and property markets. This trading activity may lead to a potential decline in net income due to variations in market factors including interest rates, inflation rates, equity, exchange rates, credit spreads and bond prices, property and other instruments. The most significant risk exposures in traded market risk are sensitivities to moves in interest rates, interest rate basis and the equities market.

The key areas where traded market risk is generated, controlled and managed are:


•		Corporate Banking (in the short-term markets business); and
•		Markets.

Market risks arising from structured products, including exposure to changes in the levels of equity markets, are managed in Markets.


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TRADED MARKET RISK – CORPORATE BANKING

For trading activities (in the short-term markets business), market risk is measured using Value-At-Risk (‘VaR’) as well as complimentary sensitivity and stress testing metrics. Risks not captured in the VaR model are reported and monitored using non-VaR based limits and controls. The following table shows the 1 day 99% VaR-based consolidated exposures for the major risk classes at 30 June 2013 and 31 December 2012, together with the highest, lowest and average exposures for the period. Exposures within each risk class reflect a range of exposures associated with movements in that financial market. The main exposure is due to interest rate risks, e.g. the impact of absolute rate movements, and movements between interest rate bases.

The amounts below represent the potential change in market values of trading instruments. Since trading instruments are recorded at market value, these amounts also represent the potential effect on income.


	Actual Exposure
Trading instruments	30 June 2013 £m			31 December 2012 £m
Interest rate risks		3.4			2.3
Equity risks		0.8			1.0

Correlation offsets⁽¹⁾		(0.6	)		(0.6	)

Total correlated one-day VaR		3.6			2.7


	Exposure for the period ended
	Average exposure						Highest exposure				Lowest exposure
Trading instruments	30 June 2013 £m			31 December 2012 £m			30 June 2013 £m		31 December 2012 £m		30 June 2013 £m		31 December 2012 £m
Interest rate risks		3.0			2.3			4.3		3.8		1.9		1.7
Equity risks		0.8			1.0			1.2		1.4		0.6		0.6
Spread risks		—			0.2			—		0.8		—		—

Correlation offsets⁽¹⁾		(0.9	)		(0.9	)		—		—		—		—

Total correlated one-day VaR		2.9			2.6			4.3		3.9		1.7		1.9

(1)	The highest and lowest exposure figures reported for each risk type did not necessarily occur on the same day as the highest and lowest total correlated one-day Value-at-Risk. A corresponding correlation offset effect cannot be calculated and is therefore omitted from the above tables.

Corporate Banking daily VaR (short-term markets business)

LOGO

The principal component of the movements in Total VaR was changes in Interest Rate risks. Movements in Interest Rates risks in the first half of 2013 were driven by changing interest rate views taken by the trading desks. The increase in 2013 was due to increased risk positioning in line with business plans.


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TRADED MARKET RISK – MARKETS

Market risk-taking is performed only within the constraints of the Market Risk Framework. The majority of the exposure is due to interest rate and equity exposure. Interest rate exposure is generated through trading activities. The current equity exposures are generated by risk management of two types of client business: vanilla risk through the flow business and more exotic risk from structured products. Spread exposure arises indirectly from trading activities within Markets.

For trading activities, market risk is measured using VaR as well as complementary sensitivity and stress testing metrics. Risks not captured in the VaR model are reported and monitored using non-VaR based limits and controls. The following table shows the 1 day 99% VaR-based consolidated exposures for the major risk classes at 30 June 2013 and 31 December 2012, together with the highest, lowest and average exposures for the period. Exposures within each risk class reflect a range of exposures associated with movements in that financial market.


	Actual Exposure
Trading instruments	30 June 2013 £m			31 December 2012 £m
Interest rate risks		1.8			3.3
Equity risks		2.6			4.4
Property risks		0.1			2.3
Spread risks		0.4			0.2
Other risks⁽¹⁾		—			0.5

Correlation offsets⁽²⁾		(2.1	)		(1.9	)

Total correlated one-day VaR		2.8			8.8


	Exposure for the period ended
	Average exposure						Highest exposure				Lowest exposure
Trading instruments	30 June 2013 £m			31 December 2012 £m			30 June 2013 £m		31 December 2012 £m		30 June 2013 £m		31 December 2012 £m
Interest rate risks		2.8			3.0			4.4		5.2		1.8		1.7
Equity risks		2.2			5.0			4.6		8.0		1.4		3.5
Property risks		0.1			2.1			0.2		2.5		—		1.3
Spread risks		0.5			0.1			1.0		0.4		0.2		—
Other risks⁽¹⁾		0.2			0.9			0.5		2.3		—		0.4

Correlation offsets⁽²⁾		(2.2	)		(2.4	)		—		—		—		—

Total correlated one-day VaR		3.6			8.8			6.5		12.9		2.3		6.9

(1)	Other risks include foreign exchange risk.

(2)	The highest and lowest exposure figures reported for each risk type did not necessarily occur on the same day as the highest and lowest total correlated one-day Value-at-Risk. A corresponding correlation offset effect cannot be calculated and is therefore omitted from the above tables.

With effect from 1 January 2013, the tables above consist of VaR-based metrics. In prior years, the tables consisted of both VaR and non-VaR-based metrics. If the current year presentation were applied to the 2012 data, the total correlated one-day VaR would decrease by £5.1m to £3.6m.

Markets daily VaR

LOGO

The principal components of the movements in Total VaR were changes in Interest Rate risks and Equity risks. Movements in Interest Rate risks and Equity risks in the first half of 2013 were driven by changing interest rate views taken by the trading desks and also changing trading volumes within the Equity Derivatives desk.


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STRUCTURAL RISK

INTRODUCTION

Structural risk includes exposures arising as a result of the structure of portfolios of assets and liabilities, or where the liquidity of the market is such that the exposure could not be closed out over a short-time horizon. The risk exposure is generated by features inherent in either a product or portfolio and normally presented over the life of the product or portfolio. Such exposures are a result of the decision to undertake specific business activities, can take a number of different forms, and are generally managed over a longer-time horizon.

Through the internal transfer pricing mechanism, material structural risks arising from divisions are transferred from the originating business to FMIR in Corporate Centre where they are monitored, controlled and managed holistically in conjunction with exposures arising from the funding, liquidity or capital management activities of FMIR.

There are three key areas of structural risk within ANTS which are discussed in the sections that follow. These are:


•		Non-traded market risk;

•		Liquidity and funding risk; and

•		Capital risk.

NON-TRADED MARKET RISK

Non-traded market risk mainly arises through the provision of banking products and services to personal and corporate/business customers, as well as structural exposures arising in Santander UK’s balance sheet.

The most significant non-traded market risk on a gross basis is interest rate risk, which includes both yield curve and basis risks. Yield curve risk arises from the timing mismatch in the re-pricing of fixed and variable rate assets, liabilities and off-balance sheet instruments, as well as the investment of non-interest-bearing liabilities in interest-bearing assets. Basis risk arises, to the extent that the underlying market rates impacting pricing within variable rate assets and liabilities are not precisely matched. This exposes the balance sheet to changes in the relationship between market rates, for example between LIBOR and Bank of England Base Rate.

Santander UK is also exposed to behavioural risks arising from features in retail products that give customers the right to alter the expected cash flows of a financial contract. For example, prepayment risk, where customers may prepay loans before their contractual maturity. Santander UK is also exposed to product launch risk, where the customers may not take the expected volume of new mortgages or other products.

There are two areas where non-traded market risk is permitted, controlled and managed:


•		Corporate Banking; and

•		Corporate Centre.

All non-traded market risks arising from the Santander UK group’s Retail Banking and Corporate Banking divisions are substantially transferred from the originating business to FMIR in Corporate Centre.

NON-TRADED MARKET RISK – CORPORATE BANKING

Non-traded market risks originated in Corporate Banking are transferred from the originating business to FMIR in Corporate Centre. Funds received with respect to deposits taken are lent on to Corporate Centre on matching terms as regards interest rate re-pricing and maturity; in a similar manner loans are funded through matching borrowings. Any permitted retained market risk exposure is minimal, and is monitored against limits approved through the Market Risk Framework.

NON-TRADED MARKET RISK – CORPORATE CENTRE

As a consequence of the transfer process described above, all material non-trading market risk exposures are substantially transferred to and reside within Corporate Centre. Non-traded market risk is managed in line with the Risk Framework. The exposures at 30 June 2013 and 31 December 2012 are outlined below.


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Analysis of non-traded market risk exposures

Net Interest Margin (‘NIM’) and Economic Value of Equity (‘EVE’) measures are two of the key measures used by Santander UK that illustrate its exposure to yield curve risk. The following table reflects how the base case valuations would be affected by a 100 basis point parallel shift applied instantaneously to the yield curve. For comparison purposes these measures are shown at 30 June 2013 and 31 December 2012:


	30 June 2013 £m		31 December 2012 £m
NIM sensitivity to +100 basis points shift in yield curve		298		343
EVE sensitivity to +100 basis points shift in yield curve		282		405

The reduction in sensitivities over the first half of 2013 was due to the net addition of fixed rate assets onto the balance sheet which reduced the positive impact from an interest rate rise but also provide protection in the event of rates remaining lower than currently expected. Due to the protracted period of historically low interest rates, Santander UK remains exposed to a degree of margin compression. This is attributable to the combination of the historically low level of central bank base rates and to reduced earnings from the assets funded by Santander UK’s non-dated liabilities.

LIQUIDITY AND FUNDING RISK

Liquidity and funding risk is managed on a Santander UK group basis and it is not therefore appropriate to consider these risks separately at an ANTS group level. In addition, under the PRA’s regulatory regime for liquidity, Santander UK and ANTS together with Cater Allen Limited, a fellow subsidiary of Santander UK plc, form the Santander UK Defined Liquidity Group (‘DLG’). Under these arrangements, each member of the DLG is liable to support each other in terms of transferring or receiving surplus liquidity in times of stress. In considering the liquidity resources available to the ANTS group, both its own liquid assets and also those of the rest of the Santander UK group have been separately presented below.

These stress tests are supplemented with sensitivity analysis for instantaneous liquidity shocks by each major liquidity risk driver to understand the impact on internal liquidity risk appetite and regulatory liquidity metrics.


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LIQUIDITY RISK

LIQUID ASSETS

Santander UK holds, at all times, a portfolio of unencumbered liquid assets to mitigate liquidity risk. The size and composition of this portfolio is determined both by internal stress tests as well as the PRA’s regulatory regime for liquidity.

The following tables set out liquid assets held by the ANTS group and additional liquid assets held by the rest of the Santander UK group (to which the ANTS group has access through the cross guarantee and defined liquidity group arrangements described earlier) by the geographic location of the issuer or counterparty at 30 June 2013 and 31 December 2012:


	Held by the ANTS group				Held elsewhere in Santander UK
	30 June 2013 £bn		31 December 2012 £bn		30 June 2013 £bn		31 December 2012 £bn
Core liquid assets (PRA eligible):
Cash at central banks:
- UK		—		—		24		28
- US		9		—		—		—

		9		—		24		28
Government bonds:
- UK		1		4		—		—
- US		—		3		—		—
- Japan		—		1		—		—
- Germany		—		1		—		—
- Other countries, each less than £1bn⁽¹⁾		1		—		—		—

		2		9		—		—

Total core liquid assets (PRA eligible)		11		9		24		28

High quality⁽²⁾corporate bonds and asset-backed securities:
- UK		1		1		1		—
- US		—		—		—		1
- Other countries, each less than £1bn⁽³⁾		1		—		—		—

		2		1		1		1
Other liquid assets:
- UK – Whole loans and own debt securities		—		—		39		36
- UK – Other debt securities, bonds, and equities included in major indices		1		1		—		—
- Other countries, each less than £1bn⁽³⁾		—		—		—		—

		1		1		39		36

Total liquid assets		14		11		64		65

(1)	Consists of Belgium, Switzerland, Japan, France, Denmark and designated multilateral development banks.

(2)	A- rated or above.

(3)	Consists of Austria, Switzerland, Germany, France, Ireland, Luxembourg and Netherlands.

Liquidity developments in the first half of 2013

The first half of 2013 saw the continuation of the improvement in funding rates and market confidence observed in late 2012. Sentiment was driven primarily by the view that the current easing in monetary policy by central banks will continue into the medium term. Santander UK experienced this improvement both in terms of market-wide reduced wholesale, unsecured medium-term and secured medium-term funding rates and, as with other UK banks, in terms of confidence in its own current credit ratings. Throughout 2012, Santander UK continued to strengthen its liquidity position. Following the beneficial conditions prevailing in late 2012 and in the first half of 2013 Santander UK reduced its liquidity position whilst maintaining a conservative balance sheet structure (i.e. maintaining high levels of high quality liquid assets) and risk management controls to monitor and manage the levels of the liquid asset portfolio and encumbrance.

During the first half of 2013, Santander UK:

•

Maintained a conservative portfolio of liquid assets that can be utilised to counter the potential impact of a liquidity stress on Santander UK’s balance sheet whilst avoiding the holding of excess liquidity that could be better utilised in meeting strategic objectives and business plans.

•

Maintained the level of medium term funding in the mix at 20.3%, which continues to be balanced with the management of encumbrance risk.

•

Improved the mix of retail and corporate liabilities available for funding, backed by a strategy of rewarding the most stable and behaviourally long-term deposits.

•

Continued to improve and refine Santander UK’s liquidity management capabilities and contingency planning framework, following the revision of its risk management framework in 2012.


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FUNDING RISK

WHOLESALE FUNDING

The tables below show ANTS’s primary wholesale funding sources, excluding short-term repurchase agreements, together with a reconciliation of wholesale funding to the balance sheet at 30 June 2013 and 31 December 2012.


30 June 2013	Funding analysis £bn		Repos £bn		Other £bn			Balance sheet £bn
Deposits by banks		5.0		1.1		111.9	⁽¹⁾		118.0
Deposits by customers⁽²⁾		0.4		—		—			0.4
Debt securities in issue:
- covered bonds		17.0		—		—			17.0
- other debt securities		12.0		—		—			12.0

		34.4		1.1		111.9			147.4

Financial liabilities at fair value		5.0		—		0.3			5.3
Trading liabilities		2.6		22.7		9.5	⁽³⁾		34.8

Total wholesale funding		42.0		23.8		121.7			187.5


31 December 2012	Funding analysis £bn		Repos £bn		Other £bn			Balance sheet £bn
Deposits by banks		4.8		1.1		108.6	⁽¹⁾		114.5
Deposits by customers⁽²⁾		0.4		—		—			0.4
Debt securities in issue:
- covered bonds		20.6		—		—			20.6
- other debt securities		13.1		—		0.1			13.2

		38.9		1.1		108.7			148.7

Financial liabilities at fair value		4.0		—		—			4.0
Trading liabilities		0.9		11.7		8.5	⁽³⁾		21.1

Total wholesale funding		43.8		12.8		117.2			173.8

(1)	Principally consists of items in the course of transmission and other deposits. See Note 16 to the Condensed Consolidated Interim Financial Statements.

(2)	Included in the balance sheet total of £5,820m (2012: £6,249m).

(3)	Consists of short positions in securities and unsettled trades, cash collateral and short-term deposits. See Note 17 to the Condensed Consolidated Interim Financial Statements.

Funding developments in the first half of 2013

Santander UK’s overall funding strategy is to develop and maintain a diversified funding base, which allows us access to a variety of funding sources. In 2012, we primarily focused on secured issuance, in particular residential mortgage-backed securities and covered bonds, two forms of financing that permit us to benefit from our prime UK mortgage assets. This strategy minimised the cost of funding and provided protection against an uncertain and volatile market funding environment. In the second half of 2012, stability returned to the wholesale funding markets. The return of stable markets meant that in the full year 2013 medium term funding issuance is expected to be a more balanced mix of secured and unsecured issuance.

Within our balance sheet management strategy, we aim to align the sources and uses of funding. Customer loans and advances are largely funded by customer deposits, with any excess being funded by long-term wholesale debt and equity.


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NON-FINANCIAL RISKS

The key non-financial risks consist of:

• Operational risk;

• Regulatory risk;

• Conduct risk;

• Strategic risk;

• Reputational risk;

• Human Resources risk;

• Accounting and reporting risk; and

• Legal risk.

OPERATIONAL RISK

Operational risk is the risk of loss to ANTS resulting from inadequate or failed internal processes, people and systems, or from external events. As operational risk is inherent in the processes ANTS operates, in order to provide services to customers and generate profit for investors, an objective of operational risk management is not to remove operational risk altogether, but to manage the risk to an acceptable level, taking into account the cost/benefits of minimisation as opposed to the inherent risk levels. When such risks materialise they can have not only immediate financial consequences for ANTS, but also an effect on its business objectives, customer service and regulatory responsibilities. Examples of operational risks include fraud, process failures, system downtime or damage to assets due to fire or floods.

The Operational Risk Framework

Operational risk exposures arise across ANTS’s business divisions and operating units, and are managed on a consistent basis. ANTS aims to identify, measure/assess, control/mitigate and inform regarding this risk. ANTS’s priority is to identify and minimise the risk of loss wherever appropriate, irrespective of whether losses have occurred. Measurement of the risk contributes to the establishment of priorities in operational risk management.

The Operational Risk Framework creates the consistent approach to how Santander UK controls and manages its operational risks and helps everyone understand their responsibilities within this approach. It is a core component of the overall Risk Framework and facilitates the ongoing reassessment of risk, appetites and controls, in order to ensure that Santander UK manages its risks at all times in line with its business objectives.

The Operational Risk Framework defines the operational risk requirements and adopts the following principles:

•

The Santander UK Board must understand the main aspects of operational risk and approve and review the management framework.

•

The operational risk framework must be subject to reviews by the Internal Audit Department.

•

Operational risk management is part of senior management’s responsibility across the business. They must ensure it is introduced into management frameworks throughout Santander UK.

•

All ANTS’s personnel are managers of the operational risk that is intrinsic to the products, processes and systems they work with every day.

•

Directly and actively managing operational risk is the responsibility of all ANTS’s entities, divisions and areas.

•

Operational risk control is a separate function from operational risk management. Operational risk control is carried out by operational risk areas, which use qualitative and quantitative tools to identify, assess, track, measure and mitigate operational risk.


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•

Operational risk managers must have adequate organisation, policies, methodologies and support to hedge the risks.

•

Business areas must have contingency plans in place to ensure continued operations and minimise losses should their business be interrupted.

•

Business areas must ensure they have the information available that is needed by the Board and the rest of the business.

Santander UK obtains assurance that the appropriate standards of risk management are being maintained through the application of its “three lines of defence” Risk Governance Framework in the Risk Management Report of the 2012 Annual Report.

The management and oversight of Operational Risk is also covered by the “three lines of defence” model as described in the Risk Framework section. Within the first line of defence, all heads of business and management support units are accountable to the Chief Executive Officer for managing operational risks inherent in their products, activities, processes and systems and from external events. This is further supported by operational risk managers within the business areas and a specialised Operational Risk Unit under the office of the Chief Operating Officer. Within the second line there is the Operational Risk Control Unit (‘ORC’). The executive responsibility for the management of the ORC lies with the Head of Strategy & Internal Control who has responsibility for the overall Internal Control Unit. The Internal Control Unit is responsible for effectively controlling risks and ensuring they are managed within the risk limits and mandates approved by the Board and Chief Executive Officer. Operational Risks are reported in conjunction with all key non financial risk information firstly through to the Internal Control Committee which then escalates though to the Executive Risk, Risk Oversight and Board Risk Committees.

Operational risk management

The “three lines of defence” model applies throughout Santander UK and is implemented taking account of the materiality and perceived risk of the different business areas by following the Operational Risk Management process and using the following key operational risk management tools:


KEY TOOLS	DESCRIPTION
• Scenario Analysis	Santander UK performs simulations of control failures that may cause the most extreme loss events. Simulations are developed around high impact risks likely to exceed Santander UK’s future appetite. The analysis allows management to better understand the potential impacts and remediate issues by:

	•	identifying the high impact events that would cause most damage to Santander UK, both from a financial and reputational perspective;

	•	ensuring that the business is focused on its most critical risks; and

	•	facilitating the assessment of capital adequacy.

• Risk and Control Self Assessments		Business units identify and assess their operational risks to ensure they are being effectively managed and controlled, and actions prioritised and aligned to Santander UK’s risk appetite.

• Key Risk Indicators	Key Risk Indicator performance is monitored against tolerances and trigger points that prompt an early warning to potential exposures, whilst the creation of mitigation strategies help address potential concerns. Indicator metrics are used to provide insight into the changing risk profile of the organisation and are also used to assess the performance of key controls.

• Loss Data Management	Loss data capture and analysis processes exist to capture all operational risk loss events. The data is used to identify and correct control weaknesses using events as opportunities to prevent or reduce the impacts of recurrence, identify emerging themes, inform risk and control assessments, scenario analysis and risk reporting. Escalation of single or aggregated events to senior management and appropriate committees is determined by threshold breaches.

• Reporting	Reporting forms an integral part of operational risk management ensuring that issues are identified, escalated and managed on a timely basis. Exposures for each business area are reported through monthly risk and control reports which include details on risk exposures and mitigating plans. Events that have a material impact on Santander UK’s finances, reputation, or customers are prioritised and reported immediately to key executives.


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During the first half of 2013, ANTS continued to manage its key operational risks in the interest of all its stakeholders, responding to critical developments both within ANTS and in the environment in which it operates. Risk and any required changes to management controls are reported through the Risk Committee governance structure.


KEY RISKS		DESCRIPTION
• Operations and Technology Risk		ANTS continues to invest in electronic information systems to protect customer, employee and other information to effectively manage the evolving risks associated with the loss of confidentiality, integrity and of availability of this information. Appropriate security is applied to protect all customer, employee and other data. Measures taken to reduce the risks include staff education, IT and data access controls and data integrity controls.
• Fraud Risk		ANTS has continued to invest in staff education and improved fraud detection and prevention systems, in order to counter the increasing threat of financial crime. A suite of controls is in place to prevent and detect trading and position taking that is unauthorised or fraudulent. These controls are reviewed and enhanced as part of a programme of continual development.

• Supplier Risk		Supplier risk is the risk of reductions in earnings and/or value, through financial or reputational loss associated with the failure of a service or goods provision by a third party organisation. Santander UK has arrangements with both Banco Santander group companies (including the provision of IT infrastructure, software development and banking operations) and external outsourced service providers. A comprehensive supplier risk management and control framework applies to the management of all suppliers contracted by Santander UK to provide services or goods. Santander UK uses written service level agreements with these entities that include key service performance metrics to support this governance. The high-level governance processes include relationship management, service delivery management and contract management. Across these, there are a number of more detailed processes. Santander UK works closely, and continues to enhance its interaction with outsourced service providers via the application of appropriate risk frameworks. These frameworks include processes and procedures designed to ensure continuity of critical services up to and including disaster scenarios and that these plans are regularly validated through testing.

REGULATORY RISK

Regulatory risk is the risk of reductions in earnings and/or value, through financial or reputational loss, from failing to comply with applicable codes and regulatory rules.

ANTS seeks to ensure it fully meets all of its regulatory obligations. There are a number of legislative and regulatory developments both in the UK and abroad, going through a consultation and implementation process, which may have some effect on ANTS’s approach to regulatory risk. Details of the changes expected to have the greatest impact on the ANTS group’s operations are set out in the Supervision and Regulation section of the Directors’ Report on page 104 of the 2012 Annual Report.

There has been continued regulatory change following the financial crisis and the regulatory landscape continues to evolve. ANTS maintains a proactive approach to regulation and aims to provide constructive feedback on policy consultations and engage across the banking sector. ANTS takes compliance with regulatory requirements seriously and manages its arrangements accordingly.


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CONDUCT RISK

Conduct risk is the risk that the business and operational decisions ANTS takes and the behaviours displayed lead to poor outcomes for our customers. This is a key risk to ANTS in view of the evolving regulatory environment.

The ANTS group engages in discussion, and co-operates, with the FCA in its supervision of the ANTS group, including reviews exercised under statutory powers, regarding its interaction with past and present customers, both as part of the FCA’s general thematic work and in relation to specific products and services. The position is monitored with particular reference to those reviews currently in progress where it is not yet possible to reliably determine their outcome.


MANAGEMENT’S APPROACH TO CONDUCT RISK
•		ANTS takes a robust approach to managing conduct risk in accordance with the risk framework.

•		ANTS has noted the significant change in the regulatory environment in recent years. Furthermore, with the transition from the FSA to the Financial Conduct Authority there is a further increase in the attention of the regulators on conduct risk to ensure firms demonstrate that they are providing appropriate outcomes for customers. Specific focus is being seen on how firms evidence that they actually deliver the right outcomes for customers and that this is in line with expectations, moving away from a focus on processes and procedures.

•		In line with all other banks, the Santander UK group (including ANTS) initiated a series of activities to enhance the management of its conduct risks, which culminated in the Conduct Risk Programme. This has focused on the development of four key elements: Risk Policy, Products, Governance and Reporting and Culture. Changes have been made to specific business processes, as well as to the way the business considers, manages and reports conduct risks. In particular, all new products have to be approved by the Product Approval and Oversight Committee which seeks to ensure that new products are appropriately designed.

•		ANTS will continue to place significant attention and resource on seeking to ensure that customers receive the right outcome in every instance and that the necessary controls are in place to mitigate the associated risks, and this has been embodied in ANTS’s approach.

STRATEGIC RISK

Strategic Risk is the risk of material deviations in expected/target shareholder value as a result of poor definition or implementation of Santander UK’s strategy.

ANTS takes a robust approach to managing strategic risk in full alignment with the Strategic Risk framework. In setting the business’s strategy, risk policies are taken into consideration at all times and the strategy is stress tested against risk appetite statements. Both the strategy and Risk Appetite are approved by the Santander UK Board.

Strategic risk is managed on a monthly basis through the risk governance structure including the Strategic Risk and Financial Management Committee and the Board. Management assessment takes into consideration any relevant information across the whole business which may highlight either risks to the implementation of the bank’s strategy or where risks are being created due to poor definition of the strategy in order to inform the Executive Committee and Board of what further actions may be required.

REPUTATIONAL RISK

ANTS rigorously manages risks that may affect ANTS’s reputation and which may in turn impact upon its ability to achieve its strategic objectives. Reputational considerations are built into all the key risk and issue assessment tools.

HUMAN RESOURCES RISK

Human Resources (‘HR’) risk is defined in Santander UK as the risk of not having the sufficient number and quality of people to deliver Santander UK’s strategy, whilst complying with legislative requirements. In managing HR risk, Santander UK has established a set of policies which outline our minimum standards in relation to the management of people issues.


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ACCOUNTING AND REPORTING RISK

Accounting and reporting risk is defined as the failure to comply with regulatory and legal requirements for accounting and reporting of financial disclosures, which may lead to fines and/or restrictions and/or reputational damage.

In order to facilitate the identification, measurement, monitoring and reporting of accounting and reporting risks, a comprehensive business-wide framework of controls has been established, supported by a programme of regular assessment and reporting designed to identify and remedy any deficiencies in process or practice. This includes the systems and controls developed to support management’s attestation on the effectiveness of disclosure controls and controls over financial reporting.

LEGAL RISK

ANTS takes a robust approach to managing legal risk in full alignment with the Legal Risk Framework. This framework has been developed through Santander UK’s overall Risk Framework and Operational Risk Framework, which include the core principles of risk management and control activities.

The Legal Risk Framework defines the overriding principles and responsibilities for the identification, management, measurement, monitoring, control, reporting and oversight of legal risk. It is the operation of, and outputs from, these risk management activities that enables ANTS to manage legal risk exposures within the tolerances outlined in the Santander UK Risk Appetite, Limits and Triggers Statement. It is expected that all Business Units will manage their team activities and processes to follow the principles and guidelines set out in the Legal Risk Framework, and with those detailed in the Santander UK Risk and Operational Risk Frameworks.

ANTS continues to monitor, assess and respond to developments concerning legal requirements intended to prevent future financial crises or otherwise assure the stability of financial institutions.


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CREDIT RISK – AREAS OF FOCUS AND OTHER ITEMS

Certain areas and/or specific views of credit risk deserve specialist attention, complementary to global risk management. These consist of country risk exposure, significant concentrations of credit risk, financial instruments of special interest, loans and advances, and impairment loss allowances, and are described on pages 84 to 98 of the 2012 Annual Report. The areas and/or specific views which have changed significantly during the first half of 2013 are described in the following section and consist of:

1. Country risk exposure; and

2. Loans and advances.

1. COUNTRY RISK EXPOSURE

The ANTS group manages its country risk exposure under its global limits framework. Within this framework, the ANTS group sets its individual risk appetite for each country, taking into account any factors that may influence the risk profile of each country, including political events, the macro-economic situation and the nature of the risk incurred. Exposures are actively managed if it is considered appropriate. Accordingly, and over recent years, the ANTS group has intensified its monitoring of exposures to sovereigns and counterparties in eurozone countries, and has proceeded to selectively divest assets directly or indirectly affected by events in those countries. Santander UK group and other Banco Santander group-related risk is considered separately.

The country risk tables below show the ANTS group’s exposures to central and local governments, government guaranteed counterparties, banks, other financial institutions, retail customers and corporate customers at 30 June 2013 and 31 December 2012. Total exposures consist of the total of balance sheet values and off-balance sheet values. Balance sheet values are calculated in accordance with IFRS (i.e. after the effect of netting agreements recognised in accordance with the requirements of IFRS, principally with respect to derivatives) except for credit provisions which have been added back. Off balance sheet values consist of undrawn facilities and letters of credit. The country of exposure has been assigned based on the counterparty’s country of incorporation except where the ANTS group is aware that a guarantee is in place, in which case the country of incorporation of the guarantor has been used. The exposures are presented by type of counterparty other than where the specific exposures have been guaranteed by a sovereign counterparty in which case they are presented within the “Government guaranteed” category.

Separate disclosure is presented individually for each country where the exposure exceeds £50m, and aggregated for exposures of less than £50m. Given the ongoing interest in eurozone economies, disclosures relating to those economies are presented first and highlighted separately.

The tables exclude credit risk exposures to other Santander UK group companies and other Banco Santander group companies, which are presented separately on pages 45 to 47.

30 June 2013

Central and local
governments
£bn

Government
guaranteed
£bn

Banks ⁽²⁾
£bn

Other financial
institutions
£bn

Retail
£bn

Corporate
£bn

Total⁽¹⁾
£bn

Eurozone:

Peripheral eurozone countries:

Italy

0.5

—

0.1

—

0.1

0.7

Portugal

—

0.1

Ireland

—

0.1

Other eurozone countries:

France

1.4

—

2.5

—

0.1

4.0

Germany

0.1

—

2.5

—

0.2

2.8

Luxembourg

0.1

—

0.3

—

0.4

0.8

Netherlands

—

0.1

—

0.6

0.7

Belgium

—

0.2

—

0.1

0.3

Finland

—

0.1

—

0.1

All other eurozone, each < £50m⁽³⁾

—

2.1

—

5.8

—

1.7

9.6

All other countries:

5.5

—

11.2

16.8

—

20.0

53.5

9.4

0.1

11.1

1.9

—

0.2

22.7

Japan

2.3

—

0.3

—

2.6

Switzerland

0.6

—

1.2

0.4

—

0.1

2.3

Denmark

1.8

—

0.3

—

2.1

Norway

—

0.3

—

0.1

0.4

Canada

—

0.3

—

0.3

Australia

—

0.1

—

0.2

0.3

Lichtenstein

—

0.1

All others, each < £50m

—

0.5

19.6

0.1

24.8

19.1

—

21.2

84.8

(1)	Credit exposures exclude the macro hedge of interest rate risk, intangible assets, property, plant and equipment, current and deferred tax assets, and other assets. Loans and advances to customers are included gross of loan loss allowances.

(2)	Excludes balances with central banks.

(3)	Includes Greece of £nil and Cyprus of £nil.


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31 December 2012	Central and local governments £bn		Government guaranteed £bn		Banks⁽²⁾ £bn		Other financial institutions £bn		Retail £bn		Corporate £bn		Total⁽¹⁾ £bn
Eurozone:
Peripheral eurozone countries:
Portugal		—		—		—		—		—		0.1		0.1
Ireland		—		—		—		—		—		0.1		0.1
Italy		—		—		0.1		—		—		—		0.1
Spain (excluding Santander)		—		—		—		—		—		0.1		0.1
Other eurozone countries:
Germany		1.3		—		3.5		—		—		0.2		5.0
France		—		—		2.1		—		—		0.1		2.2
Netherlands		—		—		0.2		0.1		—		0.5		0.8
Luxembourg		—		—		—		0.1		—		0.5		0.6
Belgium		—		—		0.4		—		—		—		0.4
All other eurozone, each < £50m⁽³⁾		—		—		—		—		—		—		—

		1.3		—		6.3		0.2		—		1.6		9.4

All other countries:
UK		5.7		0.4		12.4		11.7		—		17.5		47.7
US		0.8		—		15.1		—		—		0.1		16.0
Switzerland		0.5		—		1.6		0.5		—		0.2		2.8
Denmark		—		—		2.3		—		—		—		2.3
Japan		1.2

Filing Compare · ABBEY NATIONAL TREASURY SERVICES PLC/ENG