ANALISIS DE FODA

Capital is held by the Group to protect its depositors, cover its inherent risks, provide a cushion for stress events and to support its business strategy. In assessing the adequacy of its capital resources, Nationwide considers its risk appetite, the material risks to which it is exposed and the appropriate strategies required to manage those risks.

The Group is required to manage its capital in accordance with prudential rules issued by the PRA, and from 1 January 2008 the Group has complied with the rules which implement the EU Capital Requirements Directive (Basel II). Since 4 April 2009 the Group has predominantly calculated its capital requirement on an Internal Ratings Based (IRB) approach.

As at 4 April 2013, regulatory capital stood at £8.5 billion (2012:

£9.0 billion) with the Group’s total solvency ratio increasing to 19.1% (2012: 18.9%). The Core Tier 1 solvency ratio remains strong at 12.3% (2012: 12.5%).

Since July 2012, the capital requirement for the majority of the Group’s commercial exposures, has been calculated using the Foundation IRB approach (previously Standardised). Specialised lending slotting criteria are used to calculate the capital for the Property Finance and Project Finance portfolios. This has led to an increase in expected losses and a decrease in the risk weighted assets attributable to commercial loans.

The European Parliament has now approved new capital reforms (referred to as CRD IV), which implement Basel III in Europe. The objective of the reform package is to improve the banking sector’s ability to absorb shocks arising from financial and/or economic stress, thus reducing the risk of spill-over from the financial sector into the real economy. CRD IV legislation is expected to be implemented on 1 January 2014.

The key elements of CRD IV are as follows:

Reduced capital resources through changes to the definition of capital and grandfathering of old instruments. Permanent Interest Bearing Shares (PIBS) and subordinated debt will be phased out over ten years from 2013. Over the period 2014-18, there will be changes and additions to capital deductions from Core Tier 1 and Tier 2 capital including pension deficit, AFS reserve, assets rated below BB- and expected loss.

Increased capital requirements through Asset Value Correlations, Credit Value Adjustments and deferred tax assets.

New limits and capital buffers. Higher thresholds for all forms of capital with an increased focus on Core Tier 1, with a potential requirement to hold a ratio of up to 12.5%

including capital conservation, countercyclical and systemic risk buffers.

Introduction of the Leverage Ratio. The Basel Committee is using a period to 2017 to test a minimum Tier 1 leverage ratio of 3%. Nationwide’s existing Tier 1 leverage ratio on the Basel II basis is 3.3% and we expect to meet the 3% limit under the CRD IV rules well before the requirements come into effect.

Nationwide is currently assessing the impact of the reforms approved by the European Parliament. The actual impact of CRD IV on capital ratios is also dependent on the related EBA technical standards and the PRA’s approach to implementation in those areas for which it is responsible. Nationwide has a strong track record of robust capital ratios and is confident that it is well positioned to maintain its overall capital strength through transition to the new rules.

To provide an indication of the potential impact on Nationwide of CRD IV, using the July 2011 draft rules, we have estimated our pro forma CRD IV Core Tier 1 ratio on a fully loaded basis at 9.1%, based on the 4 April 2013 capital position. The primary drivers behind the difference between Basel II and CRD IV ratios are changes to the treatment of any net pension fund obligation, the expected loss capital deduction (a change which has increased since the move to the IRB Slotting approach for commercial capital requirements) and an additional deduction to Core Tier 1 for unrealised losses. This Core Tier 1 ratio compares well relative to peers and places the Group in a strong position to meet the final requirements. Nationwide’s Core Tier 1 ratio in the first year of the transitional period is subject to the PRA’s approach to transitional measures and we expect to receive further clarity on this in the coming months.

CRD IV capital and leverage estimates will be incorporated in Nationwide’s Pillar 3 report, which will be available on our website from 19 June.

Nationwide issued €1.25 billion of Tier 2 capital in March 2013 to replenish the reduction in capital resulting from the tender of £350 million PIBS in December 2012 and call of £200 million subordinated debt in January 2013; and as part of our capital strategy to provide Nationwide with sufficient headroom against expected changes to capital requirements arising from CRD IV.

Nationwide has also been working with the regulator to create a mutual Core Tier 1 instrument, now termed Core Capital Deferred Shares, which will allow access to external capital when required to support the Group’s capital position and the achievement of its strategic objectives.

In common with all European banks, we are constantly reviewing the appropriateness of our capital structure. Future decisions with respect to capital calls are made in light of the then prevailing market, economic and regulatory conditions.

4 April 2013 4 April 2012 Basel II Basel II

£m £m

General reserve 6,765 6,450

Regulatory adjustments and deductions (note 1):

Prudential valuation adjustment (note 2) - (1)

Defined benefit pension fund adjustment (note 3) 263 383

Intangible assets (note 4) (878) (665)

Goodwill (note 4) (16) (16)

Excess of expected losses over impairment (429) (57)

Securitisation positions (50%) (245) (152)

Other (50%) (6) (6)

(1,311) (514)

Core Tier 1 capital 5,454 5,936

Permanent interest bearing shares (note 5) 1,304 1,625

Tax in respect of excess of expected losses over impairment (note 6) 136 20

Total Tier 1 capital 6,894 7,581

Dated subordinated debt (note 5) 2,281 1,475

Revaluation reserve 67 65

Collectively assessed impairment allowances 70 110

Deductions:

Excess of expected losses over impairment (note 6) (565) (77)

Securitisation positions (50%) (245) (152)

Other (50%) (6) (6)

(816) (235)

Tier 2 capital 1,602 1,415

Total regulatory capital 8,496 8,996

4 April 2013 4 April 2012 Basel II Basel II

Key capital ratios (note 7): % %

Core Tier 1 12.3 12.5

Tier 1 (note 6) 15.5 16.0

Total capital 19.1 18.9

Business review

32 Nationwide Building Society

Business review ^continued

4 April 2013 4 April 2012 Basel II Basel II

Risk weighted assets (note 8): £m £m

Credit risk:

Retail mortgages 16,953 15,958

Retail unsecured lending 6,485 5,755

Commercial loans 13,643 17,166

Treasury 2,802 3,632

Other 1,107 1,135

Total credit risk 40,990 43,646

Operational risk 3,398 3,760

Market risk 52 68

Total risk weighted assets 44,440 47,474

Notes

(1) Certain deductions from capital are required to be allocated to Tier 1 and to Tier 2 capital. Deductions are subject to different treatment under the Internal Ratings Based approach (IRB) in respect of net expected loss over accounting provisions and certain securitisation positions.

These are calculated in accordance with PRA guidance.

(2) A prudential valuation adjustment is applied in respect of fair valued instruments as required under regulatory capital rules.

(3) The regulatory capital rules allow the pension fund deficit to be added back to regulatory capital and a deduction taken instead for an estimate of the additional contributions to be made in the next five years, less associated deferred tax.

(4) Intangible assets and goodwill do not qualify as capital for regulatory purposes.

(5) Permanent interest bearing shares and subordinated debt include fair value adjustments related to changes in market interest rates, adjustments for unamortised premiums and discounts that are included in the consolidated balance sheet, and any amortisation of the capital value of lower Tier 2 instruments required by regulatory rules for instruments with less than five years to maturity.

(6) The tax in respect of the Tier 2 element of expected loss over impairment as at 4 April 2012, together with the Tier 1 ratio, has been restated to be consistent with the current treatment.

(7) Solvency ratios are calculated as relevant capital divided by risk weighted assets.

(8) The Basel II Pillar 1 capital requirements (risk weights) are calculated using the Retail IRB approach for prime mortgages (other than those originated by the Derbyshire, Cheshire and Dunfermline building societies) and unsecured lending; Foundation IRB and slotting for treasury and commercial portfolios (other than sovereign exposures); and the Standardised approach for all other credit risk exposures, including some treasury and commercial exposures that are exempt from using the IRB approach.