Definition (audited)

Traded market risk is the risk of losses in trading book positions

from fluctuations in market variables, such as interest rates,

credit spreads, foreign exchange rates, equity prices, implied

volatilities and asset correlations.

Sources of risk (audited)

NWM Group is exposed to traded market risk through trading

activities that it enters into where such risk arises from market-

making and underwriting activity and by facilitating customer-

facing business that cannot be immediately offset with other

customers or market participants.

From a market risk perspective, activities are focused on rates;

currencies; and traded credit. NWM Group undertakes

transactions in financial instruments including debt securities, as

well as securities financing and derivatives.

The key categories of traded market risk are interest rate risk,

credit spread risk and foreign currency price risk. Trading

activities may also give rise to counterparty credit risk. For

NWM Group uses VaR, SVaR and the incremental risk charge

(IRC) to capitalise traded market risk. Risks that are not

adequately captured by VaR or SVaR are captured by the Risks

Not In VaR (RNIV) framework to ensure that NWM Group is

adequately capitalised for market risk. In addition, stress testing

is used to identify any vulnerabilities and potential losses.

The key inputs into these measurement methods are market

data and risk factor sensitivities. Sensitivities refer to the changes

in trade or portfolio value that result from small changes in

market parameters that are subject to the market risk limit

framework. Revaluation ladders are used in place of sensitivities

to capture the impact of large moves in risk factors or the joint

impact of two risk factors.

The suite of internal metrics used for risk management purposes

at NWM Group level have been designed to capture correlation

effects and to allow for an aggregated view of traded market risk

across risk types, markets and business lines while also taking

The table below shows one-day 99% internal VaR for the trading portfolios of NWM Group, split by exposure type.

(1)

NWM Group benefits from diversification across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the correlation between

the assets and risk factors in the portfolio at a particular time. The diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR.

•

Both interest rate VaR and credit spread VaR decreased on an average basis, compared to 2024.

•

Definition (audited)

Non-traded market risk is the risk to the value of assets or

liabilities outside the trading book, or the risk to income, that

arises from changes in market prices such as interest rates,

foreign exchange rates and equity prices, or from changes in

managed rates.

Sources of risk (audited)

Non-traded market risk exists in all balance-sheet exposure that

makes reference to market risk factors. The key sources of non-

traded market risk are interest rate risk, credit spread risk,

Risk governance for non-traded market risk is in line with the

Regulatory capital consists of reserves and instruments issued

that are available, have a degree of permanency and are

capable of absorbing losses. A number of strict conditions are set

by applicable regulations to determine capital eligibility.

Capital risk is the inability to conduct business in base or stress

conditions on a risk or leverage basis due to insufficient qualifying

capital as well as the failure to assess, monitor, plan and manage

capital adequacy requirements.

Liquidity risk is defined as the risk that the Group or any of its

subsidiaries or branches cannot meet its actual or potential

financial obligations in a timely manner as they fall due in the

short term.

Funding risk is the current or prospective risk that the Group or

its subsidiaries or branches cannot meet financial obligations as

they fall due in the medium to long term, either at all or without

increasing funding costs unacceptably.

Liquidity and funding risks arise in a number of ways, including

through the maturity transformation role that banks perform.

The risks are dependent on factors such as:

•

Maturity profile;

•

Composition of sources and uses of funding;

•

The quality and size of the liquidity portfolio;

•

Wholesale market conditions; and

•

Depositor and investor behaviour.

Sources (audited)

Capital

The eligibility of instruments and financial resources as regulatory

capital is laid down by applicable regulation. Capital is

categorised by applicable regulation under two tiers (Tier 1 and

Tier 2) according to the ability to absorb losses on either a going

or gone concern basis, degree of permanency and the ranking of

loss absorption. There are three broad categories of capital

across these two tiers:

•

CET1 capital

- CET1 capital must be perpetual and capable

of unrestricted and immediate use to cover risks or losses as

soon as these occur. This includes ordinary shares issued and

retained earnings.

•

Additional Tier 1 (AT1) capital

- This is the second type of loss

absorbing capital and must be capable of absorbing losses on

a going concern basis. These instruments are perpetual in

nature, with an initial call period of at least five years from

issue and are written off or converted into CET1 capital if a

pre-specified CET1 ratio is reached. The sum of CET1 and

AT1 capital is referred to as Tier 1 capital.

•

Tier 2 capital

- Tier 2 capital is the bank entities’

supplementary capital and provides loss absorption on a gone

concern basis. Gone concern refers to the situation in which

resources must be available to enable an orderly resolution,

in the event that the Bank of England (BoE) deems that NWM

Plc has failed. Tier 2 capital absorbs losses after Tier 1

capital. It typically consists of subordinated debt securities

with a minimum initial maturity of five years.

Minimum requirement for own funds and eligible liabilities

(MREL)

In addition to capital, other specific loss absorbing instruments,

including senior notes with a residual maturity of at least one

year issued by NWM Plc, may be used to cover certain gone

concern capital requirements.

Liquidity

NWM Group maintains a prudent approach to the definition of

liquidity portfolio to ensure it is available when and where

required, taking into account regulatory, legal and other

constraints.

Liquidity portfolio is divided into primary and secondary liquidity

as follows:

•

Primary liquidity is LCR eligible assets and includes cash and

balances at central banks, Treasury bills and high-quality

government securities.

•

Secondary liquidity is assets eligible as collateral for local

central bank liquidity facilities. These assets include own-

issued securitisations or whole loans that are retained on

balance sheet and pre-positioned with a central bank so that

they may be converted into additional sources of liquidity at

very short notice.

Funding

NWM Group’s primary funding sources are as follows:

Managing capital, liquidity and funding requirements:

regulated entities

In line with paragraph 135 of IAS 1 ‘Presentation of Financial

Statements’, NWM Group manages capital having regard to

regulatory requirements. Regulatory capital, MREL, RWA and

leverage is monitored and reported on an individual regulated

bank legal entity basis (‘bank entity’), which is based on the

relevant CRR prudential rules and regulations as applied in the

UK and EU.

Liquidity metrics including the LCR are presented for the solo

legal entity as regulated by the PRA. Disclosures for funding

sources and notes issued are presented for NWM Group rather

The table below shows NWM Group’s carrying values of the principal funding sources based on contractual maturity.

(1)

Funding sources excludes short positions of £7,504 million (2024 - £10,491 million) reflected as trading liabilities on the balance sheet.

(2)

Comprises Central and other bank repos of £8,152 million (2024 - £7,174 million), other financial institution repos of £18,042 million (2024 - £20,398 million) and other corporate repos of

£2,384 million (2024 - £2,990 million).

(3)

Amounts due to holding company and fellow subsidiaries relating to non-financial instruments of £90 million (2024 - £94 million) have been excluded from the table.

(4)

Eligible liabilities (as defined in the Banking Act 2009 as amended from time to time) that meet the eligibility criteria set out in the regulations, rules, policies, guidelines, or statements of

the Bank of England. In July 2025, the Bank of England finalised MREL policy changes requiring firms to use full accounting values for eligible liabilities, with the new rules taking effect on

Definition (audited)

Credit risk is the risk that customers, counterparties or issuers fail

to meet a contractual obligation to settle outstanding amounts.

debt securities, and settlement risk through trading activities.

Key developments in 2025 (audited)

•

The credit profile remained stable and NWM Group has yet to

see signs of financial stress materially affect customers’ ability

to repay.

•

Current and potential credit exposure increased in the context

of planned business growth.

Governance (audited)

Risk governance for credit risk is in line with the approach outlined

Forbearance occurs when a concession is made on the

contractual terms of a debt in response to a customer’s financial

difficulties.

The aim of forbearance is to help the customer regain financial

stability while reducing risk. To ensure that forbearance is

appropriate for the customer, minimum standards are applied

when assessing, recording, monitoring and reporting forbearance.

Forbearance may involve covenant waivers, amendments to

margins, payment concessions and loan rescheduling (including

extensions in contractual maturity), capitalisation of arrears, and

debt forgiveness or debt-for-equity swaps.

Customer probability of default (PD) and facility LGD are

reassessed prior to finalising any forbearance arrangement. The

ultimate outcome of a forbearance strategy is highly dependent

on the co-operation of the borrower and a viable business or

repayment outcome. If forbearance becomes unsuitable or is

unsuccessful, NWM Group may pursue repayment, enforcement

of security or insolvency proceedings, although these are options

remained resilient in 2025, with prices expected to grow modestly.