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  Title	Paragon Banking : Pillar III Disclosures YE 30 September 2024
  ID	6172593
  External ID	7495115885
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  Published Date	Jan. 24, 2025, 11:46 a.m.
  Summary	January 24, 2025 at 03:46 pm Paragon Banking Group PLC Pillar III Disclosures - 30 September 2024 Contents Paragon Banking Group PLC 51 Homer Road, Solihull, West Midlands, B91 3QJ Registered
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  Content	January 24, 2025 at 03:46 pm Paragon Banking Group PLC Pillar III Disclosures - 30 September 2024 Contents Paragon Banking Group PLC 51 Homer Road, Solihull, West Midlands, B91 3QJ Registered number: 2336032 LEI: 213800S1TDKIB1IUTS72 CAUTIONARY STATEMENT Sections of this Pillar III disclosure may contain forward-looking statements with respect to certain of the plans and current goals and expectations relating to the future financial condition, business performance and results of the Group. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They use words such as 'anticipate', 'estimate', 'expect', 'intend', 'will', 'project', 'plan', 'believe', 'target' and other words and terms of similar meaning in connection with any discussion of future operating or financial performance but are not the exclusive means of identifying such statements. These have been made by the directors in good faith using information available up to the date on which they approved this report, and the Group undertakes no obligation to update or revise these forward-looking statements for any reason other than in accordance with its legal or regulatory obligations (including under the UK Market Abuse Regulation, UK Listing Rules and the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority ('FCA')). By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the control of the Group and depend upon circumstances that may or may not occur in the future that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. There are also a number of factors that could cause actual future financial conditions, business performance, results or developments to differ materially from the plans, goals and expectations expressed or implied by these forward-looking statements and forecasts. As a result, you are cautioned not to place reliance on such forward-looking statements as a prediction of actual results or otherwise. These factors include, but are not limited to: material impacts related to foreign exchange fluctuations; macro-economic activity; the impact of outbreaks, epidemics or pandemics, and the extent of their impact on overall demand for the Group's services and products; potential changes in dividend policy; changes in government policy and regulation (including the monetary, interest rate and other policies of central banks and other regulatory authorities in the principal markets in which the Group operates) and the consequences thereof; actions by the Group's competitors or counterparties; third party, fraud and reputational risks inherent in its operations; the UK's exit from the EU; unstable UK and global economic conditions and market volatility, including currency and interest rate fluctuations and inflation or deflation; the risk of a global economic downturn; social unrest; acts of terrorism and other acts of hostility or war and responses to, and consequences of those acts; technological changes and risks to the security of IT and operational infrastructure, systems, data and information resulting from increased threat of cyber and other attacks; general changes in government policy that may significantly influence investor decisions (including, without limitation, actions taken in support of managing and mitigating climate change and in supporting the global transition to net zero carbon emissions); societal shifts in customer financing and investment needs; and other risks inherent to the industries in which the Group operates. Nothing in this Pillar III disclosure should be construed as a profit forecast. 1. Introduction This section sets out An introduction to the Group An overview of the disclosure framework under which this document is prepared A summary of the Group's Pillar III disclosure policies A summary of the scope and basis of preparation for this document A summary of changes made since the Group's last Pillar III disclosures A summary of the approval process for the document Paragon Banking Group PLC (the 'Company') is a UK specialist banking group, sourcing funds in the retail deposit market and lending to consumers and smaller corporates. It is subject to banking regulation and therefore is required, under UK banking regulations, to publicly report on risk and governance matters for each financial year. This expands on the disclosures already required to be given in an entity's annual report and accounts. This document, referred to as a Pillar III report, is intended to satisfy those requirements. An overview of the disclosures given by theme is shown on page 5. The Group The Company controls a group of companies (together the 'Group') including a regulated bank, Paragon Bank PLC (the 'Bank'). The Group analyses its operations, both for internal management reporting and external financial reporting, on the basis of the markets from which its assets are generated. The segments used are described below: Mortgage Lending, including the Group's buy-to-let, and owner-occupied first and second charge lending and related activities Commercial Lending, including the Group's equipment leasing activities, development finance, structured lending and other offerings targeted towards SME customers, together with its motor finance business Each division is responsible for the generation of new business with servicing and the majority of other support functions managed on a group-wide basis. On 18 February 2014 the Bank was authorised by the Prudential Regulation Authority ('PRA') and is regulated by the PRA and the Financial Conduct Authority ('FCA'). The PRA sets requirements for the Bank relating to capital and liquidity adequacy. Disclosure framework The Group is regulated for prudential capital purposes under the Basel III regime, the international regime governing capital maintenance in banks, which is supervised by the Basel Committee on Banking Supervision ('BCBS'). In the UK this regime is enforced through the PRA Rulebook (the 'Rulebook'), following the implementation of the Financial Services Act 2021 on 1 January 2022. Formerly these rules were applied on a European Union ('EU') basis through the fourth Capital Requirements Directive ('CRD IV') and the first Capital Requirements Regulation ('CRR') (Regulation 575/2013). Certain aspects of this EU legislation remain applicable in the UK. The Company has been operating under the Basel III regime since the authorisation of the Bank in 2014. The Basel III approach consists of three elements, or 'Pillars', which represent the key principles of the regime: Pillar I Pillar II Pillar III This covers the minimum capital requirements of Basel III. The calculation is based on a risk-based approach. It focuses on credit, operational and market risk in determining the Group's Minimum Capital Requirement ('MCR'), based on a standard 8% of its risk weighted assets. This requires that the Group conducts an Internal Capital Adequacy Assessment Process ('ICAAP') which is subject to review by the PRA under the Supervisory Review and Evaluation Process ('SREP'). In the ICAAP the Company's Board undertakes an assessment of the key risks facing the Company's business against which capital has not been provided under Pillar I to determine whether additional regulatory capital, over and above the 8% Pillar I requirement, should be held, based on the identified risks and the quality of the risk management processes in place. A firm's Individual Capital Requirement ('ICR') is set by the PRA based on the ICAAP. Pillar III complements Pillars I and II and aims to encourage market discipline by setting out disclosure requirements which should allow market participants to assess key pieces of information on a firm's capital, risk exposures, risk management processes and remuneration. These requirements are set out in the Disclosure (CRR) Part of the Rulebook. Since 2022 the regulatory approach to Pillar III includes standardised templates for all disclosure items which are set out in the Rulebook. The majority of this report comprises these templates, all of which are labelled in accordance with the Rulebook. Where full compliance with the disclosure objectives of the Rulebook might not be achieved through the templates alone, additional information has been provided. The Group has adopted the Standardised Approach ('SA') for credit risk and the Basic Indicator Approach ('BIA') for operational risk. It has submitted an application for authorisation to adopt an Internal Ratings Based ('IRB') approach for credit risk in future periods. These choices impact on which disclosures are required under Pillar III. Pillar III disclosure policy The Company's Pillar III disclosures cover the Group as a whole, comprising the Company and all its subsidiary undertakings. They are therefore prepared on the same basis as the Group's consolidated accounts. These bodies are regulated on a consolidated basis and this disclosure treats them as such. References to the Group in this document therefore include the Bank. The Company's Disclosure Policy for Pillar III is based on its Board of Directors' interpretation of the requirements of the Disclosure (CRR) Part of the Rulebook. The PRA has redefined the threshold for presenting detailed Pillar 3 information to exclude Small Domestic Deposit Takers ('SDDTs'). The Group would currently meet the SDDT criteria, but this status requires a PRA waiver. The Group has not applied for such a waiver. Its balance sheet also exceeds the grandfathered €5.0 billion threshold set in the previous version of the Rulebook for reduced disclosure. The Group is defined as an 'Other Institution' under these rules (i.e. neither Large nor Small and Simple) having a balance sheet of less than €30.0 billion but greater than €5.0 billion. Its disclosure requirements are therefore set out in Article 433c of the Rulebook. This requires that the Group produces an annual Pillar III report and a summary Pillar III at each half-year date. There are certain disclosures that are only required by the Rulebook where an institution is large or an LREQ firm, as defined by the PRA Rulebook. The Group's balance sheet size is too small to be classified as large or to fall within the LREQ rules on leverage. Therefore, these have not been presented for the Group and this is stated under the relevant sections within the report. The level of disclosure on remuneration matters is subject to additional rules, now set out in the Rulebook. UK-only institutions with no trading book and average assets less than £20.0 billion are defined as 'Small CRR Firms' and a number of templates in the PRA rulebook apply only to larger institutions. The Group currently qualifies as a Small CRR Firm, and these templates are therefore not applicable. This is noted under the relevant sections within the report. These additional Rulebook provisions replaced the former rules on disclosure proportionality, which had been included in the PRA Supervisory Statement SS 2 / 17. The Pillar III disclosures are updated on an annual basis using the Group's year end date of 30 September, following publication of the Annual Report and Accounts. A half-yearly summary using the Group's half-year date of 31 March is also provided. The annual and half-yearly reporting process will include consideration of regulatory changes and developing best practice, to ensure that disclosures remain appropriate. More frequent disclosures will be made if there is a material change in the nature of the Group's risk profile during any particular year. Pillar III disclosures are prepared with input from the Finance, Risk, Treasury and Human Resources functions, and from regulatory specialists. They are reviewed at senior and executive management level, considered by the Audit Committee and approved by the Board of Directors in the same way as the Group's half-year and Annual Report and Accounts for the year. Pillar III regulatory capital disclosures are published on the investor relations section of the Group's corporate website (www.paragonbankinggroup.co.uk), alongside the Annual Report and Accounts for the year. Both documents are published on the website at approximately the same time, in accordance with the requirement in Article 433 of the Rulebook to publish the Pillar III disclosures in conjunction with the date of publication of the financial statements. The Company's Pillar III disclosure policy is considered annually to ensure that it remains appropriate in the light of new regulations and emerging best practice. The Company's Pillar III regulatory capital disclosure policies were approved by the Board of Directors in February 2015 and have been confirmed annually, most recently in December 2024 on the approval of this document. Scope and basis of disclosure This Pillar III disclosure has been drawn up in conjunction with the Annual Report and Accounts of the Group for the year ended 30 September 2024 ('the Group Accounts') and with the Group's regulatory reporting for the year. The figures in this Pillar III disclosure are consistent with the Group Accounts, but do not form part of the Group Accounts. The disclosures presented have been reviewed internally but have not been externally audited. The disclosures are also consistent, where appropriate, with regulatory disclosures submitted to the regulator. The level, structure and format of the Pillar III disclosures are prescribed by the Rulebook, which includes a suite of templates covering all Pillar III disclosure matters. The requirement to use these standard templates, where much content may not be relevant for any particular bank, means that simpler reporters, such as the Group, will provide a significant volume of nil returns. The Rulebook requires that all disclosures required by the Disclosure (CRR) Part are provided in a single location, therefore requirements may not be addressed by cross-reference to other public documents. In drawing up these disclosures the Group has considered the regulations carefully and reviewed emerging market practice, analysing Pillar III reports made by comparable UK lenders including those for the larger challenger banks and building societies. The Group consolidation for regulatory purposes is the same as that used for statutory purposes and hence all subsidiary undertakings within the Group have been consolidated in the Pillar III disclosures. These are listed in Section 4 - Scope of Application, template UK LI3. The Pillar III disclosures have been prepared for the Group as a whole, in accordance with the rules laid out in Articles 431 to 451 of the Disclosure (CRR) Part of the Rulebook and having regard to materiality as described above. The disclosures provide information on the capital adequacy and risk management processes of the Group. These disclosures have been compiled on the most appropriate basis for this purpose and following the instructions on calculation and classification given in the Rulebook. Therefore they may not agree directly with disclosures addressing similar matters presented in the Group Accounts. Overview of disclosures Under the PRA Rulebook 'Disclosure (CRR)' part, the disclosures are set out in prescribed templates which are required to be presented in their entirety within the Pillar III report. For the purpose of this document these disclosures and their applicable templates have been grouped thematically, as illustrated below. Pillar III document overview Pillar III disclosures Section 8 Development in disclosures The Group's Pillar III disclosures were updated in 2022 following the onshoring of the CRR into the Rulebook. No significant changes have been made in the requirements for the current year, but as the Group was among the earliest organisations to report under the new rules, emerging market practice has been kept under review and some minor enhancements to the disclosures presented, particularly in the provision of more information across the Group's principal risks, have been made for the 2024 disclosure. Market practice will clearly continue to develop as more reports under the new rules are published. The Group will continue to monitor practice as it emerges over time. As noted above, the requirements for remuneration disclosures were amended by PRA Policy Statement PS 16/23 published on 5 December 2023. This moved the size thresholds for certain remuneration disclosures from Supervisory Statement 2 / 17 into the Rulebook itself. This marginally reduced the level of disclosure required of the Group. The PRA is also expected to make further changes to the Pillar III disclosure regime as part of its work to implement the Basel 3.1 capital reforms. So far, these changes are limited to reducing the disclosures required where a firm is classified as a Small Domestic Deposit Takers ('SDDT'). While the Group would currently qualify to apply for SDDT status, it has not yet made any such application. The near-final Basel 3.1 Rules published by the PRA in September 2024 include changes to a large number of the templates to correspond with changes made to the capital rules more generally. The near-final rules also expand the half-year reporting requirements for listed firms not qualifying as 'large'. These changes are now expected to be introduced from 1 January 2027. Approval The Board of Directors considered this document in light of, amongst other things: The Board's consideration of the Group Accounts The ICAAP approved by the board in July 2024, and the directors' input into this process The Individual Liquidity Adequacy Assessment Process ('ILAAP') approved by the board in November 2024, and the directors' input into this process The Board's overall understanding of the Group's risk profile and operations The Group Accounts include audited and unaudited disclosures addressing the Group's risk exposure, mitigation and appetites. In approving the Group Accounts the directors had to consider the appropriateness of those disclosures and the overall adequacy of the Group's risk management framework, supported by analysis prepared by the Risk and Internal Audit functions. The Group undertook its annual ICAAP process during the year. The ICAAP was prepared under the direction of the Chief Financial Officer ('CFO') and the executive management of the Group, with appropriate input and challenge from other areas of the business. The ICAAP was reviewed and challenged by the Group's executive, through the Executive Risk Committee ('ERC') and its sub-committees. It was reviewed in detail by board-level Risk and Compliance Committee and was formally approved by the Board in April 2024. Throughout the ICAAP's preparation, the Board was kept up-to-date with its progress and key findings, and the directors have received regulatory training sessions to ensure that they are able to provide the appropriate level of challenge. The Group completes an ICAAP on at least an annual basis. The update process will occur more frequently if there is a significant change in the Group's business model (potentially following a major acquisition) or in the economic environment within which the Group operates. In 2021 the PRA conducted a SREP of the Group's capital requirements, based on the ICAAP analysis performed in 2020. The results of this review were very positive, with the regulator significantly reducing its capital requirement based on its assessment of the Group's risk exposures and management systems. A further review was carried out in 2024, but the results had not been shared by the regulator before the date of approval of this document. Future ICAAPs will be subject to SREP reviews periodically, particularly in the event of significant changes in the business. This document was considered by the executive directors and by the Board and the Audit Committee and non-executive directors prior to publication, having regard to their understanding of the business and appropriate external advice. In particular, they considered whether: as a whole the document properly represented the Group's position the use of materiality for disclosure purposes was appropriate the Group's formal Pillar III disclosure policy remained appropriate annual publication of the disclosures remained appropriate The directors were able to satisfy themselves on these matters and the Pillar III disclosures were therefore approved for publication by the Board of Directors of Paragon Banking Group PLC on 23 January 2025. 2. Key metrics and overview of risk weighted exposure amounts This section sets out Key metrics Overview of risk weighted assets Included in this section are tables which set out the Group's key capital and liquidity metrics and the calculation of its total Risk Weighted Exposure Amount ('RWEA'). The key metrics table (UK KM1), which the Group is required to publish on a six-monthly basis, summarises information covered in more detail in subsequent sections. The RWEA table (UK OV1) summarises the individual elements of RWEA, the derivation of which is discussed in more detail in other sections of the document. Summary of key metrics During the year the Group has maintained strong regulatory capital ratios, with capital balances being carefully managed. The Group's business is subject to supervision by the Prudential Regulation Authority ('PRA') and, as part of this supervision, the regulator sets a Total Capital Requirement ('TCR'), the minimum amount of regulatory capital which we must hold. This is defined under the international Basel 3 rules, implemented through the PRA Rulebook. The Group's Common Equity Tier 1 ('CET1') capital comprises equity shareholders' funds, adjusted as required by the Regulatory Capital Rules of the PRA and can be used for all capital purposes. TRC, in addition, includes tier-2 capital in the form of the Group's Tier-2 Bond. This tier-2 capital can be used to meet up to 25% of the TCR. Capital levels on both measures in the year have remained broadly stable, with positive operational performance continuing to support the capital position, even after allowing for paid and proposed distributions. The year-on-year increase in TCR requirements relates principally to the growth in the asset base over the period, mitigated by a reduction in derivative exposures. The Group's capital ratios show a continued reversion to more normal levels over the year, in accordance with its capital strategy. The trading performance supported growth in the loan book, together with dividends in line with policy and a £100.0 million share buy-back programme. At the same time, the inclusion in trading profits of the phased unwind of fair value gains on hedge accounting recognised in the year ended 30 September 2022, served to reverse the inflated capital levels seen at previous year ends. As IFRS 9 reliefs are phased out the fully loaded and regulatory bases are automatically converging. During the period the Capital Conservation buffer remained at 2.5%, its long-term rate, while the UK Counter-Cyclical buffer ('CCyB') was 2.0% (31 March 2024: 2.0%; 30 September 2023: 2.0%). Strong deposit flows resulted in an average Liquidity Coverage Ratio ('LCR') of 211.5% for the year (2023: 193.7%) which has facilitated the refinancing of £2.0 billion of our TFSME drawings together with our last outstanding public securitisation and our final retail bond. At 30 September 2024, the Bank's Net Stable Funding Ratio ('NSFR') stood at 139.5% (31 March 2024: 132.9%; 30 September 2023: 123.4%), higher than its position twelve months earlier, reflecting a marginal strengthening of the position in the year. 2.1 UK KM1 - Key metrics template Notes: These buffers are not currently applicable to the Group. These lines are only required for LREQ banks, as defined by the PRA Rulebook. The Group's balance sheet size is too small to be classified as an LREQ bank. These measures are based on a 12-month rolling average of month-end positions. This measure is based on a 12-month rolling average of month-end positions, therefore cannot be derived from the values given above it. These measures are based on a 4-quarter rolling average of quarter-end positions. 2.2 UK OV1 - Overview of risk weighted exposire amounts Empty set in the UK Empty set in the UK Empty set in the UK Empty set in the UK Empty set in the UK Attachments Original document Permalink Disclaimer Paragon Banking Group plc published this content on January 24, 2025 , and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on January 24, 2025 at
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