DERIVATIVE FINANCIAL INSTRUMENTS (Tables)

12 Months Ended

Dec. 31, 2019

DERIVATIVE FINANCIAL INSTRUMENTS (Tables) [Line Items]

Disclosure of derivative financial instruments [text block]

NOTE 17: DERIVATIVE FINANCIAL INSTRUMENTS

The fair values and notional amounts of derivative instruments are set out in the following table:

	31 December 2019						31 December 2018
	Contract/ notional amount £m		Fair value assets £m		Fair value liabilities £m		Contract/ notional amount £m		Fair value assets £m		Fair value liabilities £m
Trading and other
Exchange rate contracts:
Spot, forwards and futures		44,095		681		616		41,571		746		549
Currency swaps		349,606		3,857		5,425		311,491		4,566		3,709
Options purchased		8,310		452		–		10,202		485		–
Options written		9,557		–		499		11,393		–		495
		411,568		4,990		6,540		374,657		5,797		4,753
Interest rate contracts:
Interest rate swaps		5,245,703		17,318		15,213		4,381,271		13,624		12,629
Forward rate agreements		555,742		7		13		494,430		–		2
Options purchased		27,158		2,468		–		30,724		2,107		–
Options written		23,610		–		2,216		26,463		–		1,997
Futures		199,884		17		22		128,211		16		4
		6,052,097		19,810		17,464		5,061,099		15,747		14,632
Credit derivatives		16,959		83		167		13,757		99		181
Equity and other contracts		11,414		250		503		15,145		389		699
Total derivative assets/liabilities – trading and other		6,492,038		25,133		24,674		5,464,658		22,032		20,265
Hedging
Derivatives designated as fair value hedges:
Currency swaps		34		8		–		490		3		29
Interest rate swaps		183,489		798		229		150,971		947		187
		183,523		806		229		151,461		950		216
Derivatives designated as cash flow hedges:
Interest rate swaps		426,740		355		743		556,945		358		844
Currency swaps		9,549		75		133		10,578		255		48
		436,289		430		876		567,523		613		892
Total derivative assets/liabilities – hedging		619,812		1,236		1,105		718,984		1,563		1,108
Total recognised derivative assets/liabilities		7,111,850		26,369		25,779		6,183,642		23,595		21,373

The notional amount of the contract does not represent the Group’s exposure to credit risk which is limited to the current cost of replacing contracts with a positive value to the Group should the counterparty default. To reduce credit risk the Group uses a variety of credit enhancement techniques such as netting and collateralisation, where security is provided against the exposure; a large proportion of the Group’s derivatives are held through exchanges such as London Clearing House and are collateralised through those exchanges. Further details are provided in note 53 Credit risk.

The Group holds derivatives as part of the following strategies:

–	Customer driven, where derivatives are held as part of the provision of risk management products to Group customers;
–	To manage and hedge the Group’s interest rate and foreign exchange risk arising from normal banking business. The hedge accounting strategy adopted by the Group is to utilise a combination of fair value and cash flow hedge approaches as described in note 53; and
–	Derivatives held in policyholder funds as permitted by the investment strategies of those funds.
The principal derivatives used by the Group are as follows:
–	Interest rate related contracts include interest rate swaps, forward rate agreements and options. An interest rate swap is an agreement between two parties to exchange fixed and floating interest payments, based upon interest rates defined in the contract, without the exchange of the underlying principal amounts. Forward rate agreements are contracts for the payment of the difference between a specified rate of interest and a reference rate, applied to a notional principal amount at a specific date in the future. An interest rate option gives the buyer, on payment of a premium, the right, but not the obligation, to fix the rate of interest on a future loan or deposit, for a specified period and commencing on a specified future date.
–	Exchange rate related contracts include forward foreign exchange contracts, currency swaps and options. A forward foreign exchange contract is an agreement to buy or sell a specified amount of foreign currency on a specified future date at an agreed rate. Currency swaps generally involve the exchange of interest payment obligations denominated in different currencies; the exchange of principal can be notional or actual. A currency option gives the buyer, on payment of a premium, the right, but not the obligation, to sell specified amounts of currency at agreed rates of exchange on or before a specified future date.
–	Credit derivatives, principally credit default swaps, are used by the Group as part of its trading activity and to manage its own exposure to credit risk. A credit default swap is a swap in which one counterparty receives a premium at pre-set intervals in consideration for guaranteeing to make a specific payment should a negative credit event take place.
–	Equity derivatives are also used by the Group as part of its equity-based retail product activity to eliminate the Group’s exposure to fluctuations in various international stock exchange indices. Index-linked equity options are purchased which give the Group the right, but not the obligation, to buy or sell a specified amount of equities, or basket of equities, in the form of published indices on or before a specified future date.

Details of the Group’s hedging instruments are set out below:

Maturity

31 December 2019

Up to 1 month £m

1-3 months £m

3-12 months £m

1-5 years £m

Over 5 years £m

Total £m

Fair value hedges

Interest rate

Cross currency swap

Notional

–

–

–

–

34

34

Average fixed interest rate

–

–

–

–

1.28%

Average EUR/GBP exchange rate

–

–

–

–

1.38

Average USD/GBP exchange rate

–

–

–

–

–

Average NOK/GBP exchange rate

–

–

–

–

–

Interest rate swap

Notional

331

9,305

37,948

106,339

29,566

183,489

Average fixed interest rate

2.58%

1.74%

1.22%

1.71%

2.81%

Cash flow hedges

Foreign exchange

Currency swap

Notional

–

413

1,611

2,389

5,136

9,549

Average EUR/GBP exchange rate

–

–

–

1.05

1.05

Average USD/GBP exchange rate

–

1.29

1.30

1.31

–

Interest rate

Interest rate swap

Notional

9,675

23,589

58,447

209,108

125,921

426,740

Average fixed interest rate

1.05%

1.22%

1.29%

1.47%

2.39%

	Maturity
31 December 2018	Up to 1 month £m		1-3 months £m		3-12 months £m		1-5 years £m		Over 5 years £m		Total £m
Fair value hedges
Interest rate
Cross currency swap
Notional		–		36		–		283		171		490
Average fixed interest rate		–		4.82%		–		5.88%		4.44%
Average EUR/USD exchange rate		–		–		–		1.13		–
Average USD/GBP exchange rate		–		–		–		1.30		–
Average NOK/GBP exchange rate		–		9.22		–		9.19		9.03
Interest rate swap
Notional		393		417		32,876		86,451		30,834		150,971
Average fixed interest rate		1.38%		2.06%		1.65%		1.75%		2.98%
Cash flow hedges
Foreign exchange
Currency swap
Notional		67		47		2,234		2,111		6,119		10,578
Average USD/EUR exchange rate		1.15		–		1.13		1.10		1.07
Average USD/GBP exchange rate		–		1.32		1.34		1.27		1.28
Interest rate
Interest rate swap
Notional		4,874		11,204		66,312		292,712		181,843		556,945
Average fixed interest rate		1.47%		1.03%		0.99%		1.46%		1.85%

The carrying amounts of the Group’s hedging instruments are as follows:

	Carrying amount of the hedging instrument
	Contract/notional amount		Assets		Liabilities		Changes in fair value used for calculating hedge ineffectiveness (YTD)
31 December 2019	£m		£m		£m		£m
Fair value hedges
Interest rate
Currency swaps		34		8		–		2
Interest rate swaps		183,489		798		229		1,142
Cash flow hedges
Foreign exchange
Currency swaps		9,549		75		133		(185	)
Interest rate
Interest rate swaps		426,740		355		743		992

	Carrying amount of the hedging instrument
	Contract/notional amount		Assets		Liabilities		Changes in fair value used for calculating hedge ineffectiveness (YTD)
31 December 2018	£m		£m		£m		£m
Fair value hedges
Interest rate
Currency swaps		490		3		29		(10	)
Interest rate swaps		150,971		947		187		104
Cash flow hedges
Foreign exchange
Currency swaps		10,578		255		48		229
Interest rate
Interest rate swaps		556,945		358		844		(781	)

All amounts are held within Derivative financial instruments.

The Group’s hedged items are as follows:

	Carrying amount of the hedged item				Accumulated amount of fair value adjustment on the hedged item				Change in fair value of hedged item for			Cash flow hedge reserve
									ineffectiveness assessment			Continuing			Discontinued
	Assets		Liabilities		Assets		Liabilities		(YTD)			hedges			hedges
31 December 2019	£m		£m		£m		£m		£m			£m			£m
Fair value hedges
Interest rate
Fixed rate mortgages1		83,818		–		154		–		(73	)
Fixed rate issuance2		–		70,353		–		3,058		(1,333	)
Fixed rate bonds3		21,354		–		660		–		405
Cash flow hedges
Foreign exchange
Foreign currency issuance2										72			(2	)		179
Customer deposits4										116			18			(48	)
Interest rate
Customer loans1										(680	)		1,248			336
Central bank balances5										(263	)		128			163
Customer deposits4										–			(31	)		5

	Carrying amount of the hedged item				Accumulated amount of fair value adjustment on the hedged item					Change in fair value of hedged item for			Cash flow hedge reserve
										ineffectiveness assessment			Continuing			Discontinued
	Assets		Liabilities		Assets			Liabilities		(YTD)			hedges			hedges
31 December 2018	£m		£m		£m			£m		£m			£m			£m
Fair value hedges
Interest rate
Fixed rate mortgages1		53,136		–		(45	)		–		(173	)
Fixed rate issuance2		–		63,746		–			1,598		807
Fixed rate bonds3		23,285		–		232			–		(666	)
Cash flow hedges
Foreign exchange
Foreign currency issuance2											(165	)		114			327
Customer deposits4											(62	)		70			(78	)
Interest rate
Customer loans1											456			867			60
Central bank balances5											(16	)		30			20
Customer deposits4											(118	)		(9	)		(6	)

1	Included within loans and advances to customers.
2	Included within debt securities in issue.
3	Included within financial assets at fair value through other comprehensive income.
4	Included within customer deposits.
5	Included within cash and balances at central banks.

The accumulated amount of fair value hedge adjustments remaining in the balance sheet for hedged items that have ceased to be adjusted for hedging gains and losses is a liability of £692 million (2018: liability of £170 million).

Gains and losses arising from hedge accounting are summarised as follows:

							Amounts reclassified from reserves to income statement as:
31 December 2019	Gain (loss) recognised in other comprehensive income £m			Hedge ineffectiveness recognised in the income statement1 £m			Hedged cashflows will no longer occur £m			Hedged item affected income statement £m			Income statement line item that includes reclassified amount
Fair value hedges
Interest rate
Fixed rate mortgages					186
Fixed rate issuance					(32	)
Fixed rate bonds					(11	)
Cash flow hedges
Foreign exchange
Foreign currency issuance		(265	)		–			(101	)		(92	)	Interest expense
Customer deposits		(22	)		–			–			7		Interest expense
Interest rate
Customer loans		651			98			–			(362	)	Interest income
Central bank balances		237			36			–			(66	)	Interest income
Customer deposits		–			–			–			6		Interest expense

							Amounts reclassified from reserves to income statement as:
31 December 2018	Gain (loss) recognised in other comprehensive income £m			Hedge ineffectiveness recognised in the income statement1 £m			Hedged item affected income statement £m			Income statement line item that includes reclassified amount
Fair value hedges
Interest rate
Fixed rate mortgages					106
Fixed rate issuance					(17	)
Fixed rate bonds					(27	)
Cash flow hedges
Foreign exchange
Foreign currency issuance		85			–			(81	)	Interest expense
Customer deposits		(22	)		(2	)		(32	)	Interest expense
Interest rate
Customer loans		(418	)		(17	)		(467	)	Interest income
Central bank balances		(63	)		(5	)		(52	)	Interest income
Customer deposits		(49	)		(1	)		(69	)	Interest expense

1 Hedge ineffectiveness is included in the income statement within net trading income.

There was a gain of £101 million (2018: nil) reclassified from the cash flow hedging reserve for which hedge accounting had previously been used but for which the hedged future cash flows are no longer expected to occur.

Disclosure of information about terms and conditions of hedging instruments and how they affect future cash flows [text block]

Details of the Group’s hedging instruments are set out below:

Maturity

31 December 2019

Up to 1 month £m

1-3 months £m

3-12 months £m

1-5 years £m

Over 5 years £m

Total £m

Fair value hedges

Interest rate

Cross currency swap

Notional

–

–

–

–

34

34

Average fixed interest rate

–

–

–

–

1.28%

Average EUR/GBP exchange rate

–

–

–

–

1.38

Average USD/GBP exchange rate

–

–

–

–

–

Average NOK/GBP exchange rate

–

–

–

–

–

Interest rate swap

Notional

331

9,305

37,948

106,339

29,566

183,489

Average fixed interest rate

2.58%

1.74%

1.22%

1.71%

2.81%

Cash flow hedges

Foreign exchange

Currency swap

Notional

–

413

1,611

2,389

5,136

9,549

Average EUR/GBP exchange rate

–

–

–

1.05

1.05

Average USD/GBP exchange rate

–

1.29

1.30

1.31

–

Interest rate

Interest rate swap

Notional

9,675

23,589

58,447

209,108

125,921

426,740

Average fixed interest rate

1.05%

1.22%

1.29%

1.47%

2.39%

	Maturity
31 December 2018	Up to 1 month £m		1-3 months £m		3-12 months £m		1-5 years £m		Over 5 years £m		Total £m
Fair value hedges
Interest rate
Cross currency swap
Notional		–		36		–		283		171		490
Average fixed interest rate		–		4.82%		–		5.88%		4.44%
Average EUR/USD exchange rate		–		–		–		1.13		–
Average USD/GBP exchange rate		–		–		–		1.30		–
Average NOK/GBP exchange rate		–		9.22		–		9.19		9.03
Interest rate swap
Notional		393		417		32,876		86,451		30,834		150,971
Average fixed interest rate		1.38%		2.06%		1.65%		1.75%		2.98%
Cash flow hedges
Foreign exchange
Currency swap
Notional		67		47		2,234		2,111		6,119		10,578
Average USD/EUR exchange rate		1.15		–		1.13		1.10		1.07
Average USD/GBP exchange rate		–		1.32		1.34		1.27		1.28
Interest rate
Interest rate swap
Notional		4,874		11,204		66,312		292,712		181,843		556,945
Average fixed interest rate		1.47%		1.03%		0.99%		1.46%		1.85%

Swaps [Member]

DERIVATIVE FINANCIAL INSTRUMENTS (Tables) [Line Items]

Disclosure of hedge accounting [text block]

The carrying amounts of the Group’s hedging instruments are as follows:

	Carrying amount of the hedging instrument
	Contract/notional amount		Assets		Liabilities		Changes in fair value used for calculating hedge ineffectiveness (YTD)
31 December 2019	£m		£m		£m		£m
Fair value hedges
Interest rate
Currency swaps		34		8		–		2
Interest rate swaps		183,489		798		229		1,142
Cash flow hedges
Foreign exchange
Currency swaps		9,549		75		133		(185	)
Interest rate
Interest rate swaps		426,740		355		743		992

	Carrying amount of the hedging instrument
	Contract/notional amount		Assets		Liabilities		Changes in fair value used for calculating hedge ineffectiveness (YTD)
31 December 2018	£m		£m		£m		£m
Fair value hedges
Interest rate
Currency swaps		490		3		29		(10	)
Interest rate swaps		150,971		947		187		104
Cash flow hedges
Foreign exchange
Currency swaps		10,578		255		48		229
Interest rate
Interest rate swaps		556,945		358		844		(781	)

DebSecurities[Member]

DERIVATIVE FINANCIAL INSTRUMENTS (Tables) [Line Items]

Disclosure of separate financial statements [text block]

The Group’s hedged items are as follows:

	Carrying amount of the hedged item				Accumulated amount of fair value adjustment on the hedged item				Change in fair value of hedged item for			Cash flow hedge reserve
									ineffectiveness assessment			Continuing			Discontinued
	Assets		Liabilities		Assets		Liabilities		(YTD)			hedges			hedges
31 December 2019	£m		£m		£m		£m		£m			£m			£m
Fair value hedges
Interest rate
Fixed rate mortgages1		83,818		–		154		–		(73	)
Fixed rate issuance2		–		70,353		–		3,058		(1,333	)
Fixed rate bonds3		21,354		–		660		–		405
Cash flow hedges
Foreign exchange
Foreign currency issuance2										72			(2	)		179
Customer deposits4										116			18			(48	)
Interest rate
Customer loans1										(680	)		1,248			336
Central bank balances5										(263	)		128			163
Customer deposits4										–			(31	)		5

	Carrying amount of the hedged item				Accumulated amount of fair value adjustment on the hedged item					Change in fair value of hedged item for			Cash flow hedge reserve
										ineffectiveness assessment			Continuing			Discontinued
	Assets		Liabilities		Assets			Liabilities		(YTD)			hedges			hedges
31 December 2018	£m		£m		£m			£m		£m			£m			£m
Fair value hedges
Interest rate
Fixed rate mortgages1		53,136		–		(45	)		–		(173	)
Fixed rate issuance2		–		63,746		–			1,598		807
Fixed rate bonds3		23,285		–		232			–		(666	)
Cash flow hedges
Foreign exchange
Foreign currency issuance2											(165	)		114			327
Customer deposits4											(62	)		70			(78	)
Interest rate
Customer loans1											456			867			60
Central bank balances5											(16	)		30			20
Customer deposits4											(118	)		(9	)		(6	)

1	Included within loans and advances to customers.
2	Included within debt securities in issue.
3	Included within financial assets at fair value through other comprehensive income.
4	Included within customer deposits.
5	Included within cash and balances at central banks.

Change in fair value of hedged item for ineffectiveness assessment

DERIVATIVE FINANCIAL INSTRUMENTS (Tables) [Line Items]

Disclosure of separate financial statements [text block]

Gains and losses arising from hedge accounting are summarised as follows:

							Amounts reclassified from reserves to income statement as:
31 December 2019	Gain (loss) recognised in other comprehensive income £m			Hedge ineffectiveness recognised in the income statement1 £m			Hedged cashflows will no longer occur £m			Hedged item affected income statement £m			Income statement line item that includes reclassified amount
Fair value hedges
Interest rate
Fixed rate mortgages					186
Fixed rate issuance					(32	)
Fixed rate bonds					(11	)
Cash flow hedges
Foreign exchange
Foreign currency issuance		(265	)		–			(101	)		(92	)	Interest expense
Customer deposits		(22	)		–			–			7		Interest expense
Interest rate
Customer loans		651			98			–			(362	)	Interest income
Central bank balances		237			36			–			(66	)	Interest income
Customer deposits		–			–			–			6		Interest expense

							Amounts reclassified from reserves to income statement as:
31 December 2018	Gain (loss) recognised in other comprehensive income £m			Hedge ineffectiveness recognised in the income statement1 £m			Hedged item affected income statement £m			Income statement line item that includes reclassified amount
Fair value hedges
Interest rate
Fixed rate mortgages					106
Fixed rate issuance					(17	)
Fixed rate bonds					(27	)
Cash flow hedges
Foreign exchange
Foreign currency issuance		85			–			(81	)	Interest expense
Customer deposits		(22	)		(2	)		(32	)	Interest expense
Interest rate
Customer loans		(418	)		(17	)		(467	)	Interest income
Central bank balances		(63	)		(5	)		(52	)	Interest income
Customer deposits		(49	)		(1	)		(69	)	Interest expense

1 Hedge ineffectiveness is included in the income statement within net trading income.

At fair value [member] | Notional amounts [member]

DERIVATIVE FINANCIAL INSTRUMENTS (Tables) [Line Items]

Disclosure of derivative financial instruments [text block]

The fair values and notional amounts of derivative instruments are set out in the following table:

	31 December 2019						31 December 2018
	Contract/ notional amount £m		Fair value assets £m		Fair value liabilities £m		Contract/ notional amount £m		Fair value assets £m		Fair value liabilities £m
Trading and other
Exchange rate contracts:
Spot, forwards and futures		44,095		681		616		41,571		746		549
Currency swaps		349,606		3,857		5,425		311,491		4,566		3,709
Options purchased		8,310		452		–		10,202		485		–
Options written		9,557		–		499		11,393		–		495
		411,568		4,990		6,540		374,657		5,797		4,753
Interest rate contracts:
Interest rate swaps		5,245,703		17,318		15,213		4,381,271		13,624		12,629
Forward rate agreements		555,742		7		13		494,430		–		2
Options purchased		27,158		2,468		–		30,724		2,107		–
Options written		23,610		–		2,216		26,463		–		1,997
Futures		199,884		17		22		128,211		16		4
		6,052,097		19,810		17,464		5,061,099		15,747		14,632
Credit derivatives		16,959		83		167		13,757		99		181
Equity and other contracts		11,414		250		503		15,145		389		699
Total derivative assets/liabilities – trading and other		6,492,038		25,133		24,674		5,464,658		22,032		20,265
Hedging
Derivatives designated as fair value hedges:
Currency swaps		34		8		–		490		3		29
Interest rate swaps		183,489		798		229		150,971		947		187
		183,523		806		229		151,461		950		216
Derivatives designated as cash flow hedges:
Interest rate swaps		426,740		355		743		556,945		358		844
Currency swaps		9,549		75		133		10,578		255		48
		436,289		430		876		567,523		613		892
Total derivative assets/liabilities – hedging		619,812		1,236		1,105		718,984		1,563		1,108
Total recognised derivative assets/liabilities		7,111,850		26,369		25,779		6,183,642		23,595		21,373