Lloyds Bank Group PLC. (LYG) Q4 2019 Earnings Call Transcript

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Lloyds Bank Group PLC. (LYG 0.40%)
Q4 2019 Earnings Call
Feb 20, 2020, 4:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

Good morning, and thank you for joining our 2019 Full Year Results Presentation. I will briefly talk about the Group's financial performance and then review our strategic progress as we are now in the final year of GSR3. Vim will then give an update on our retail bank before William runs through the financials.

We remain focused on delivering our purpose of helping Britain prosper while building additional strategic advantages for the benefit of our customers and generating strong and sustainable returns for our shareholders. Against these objectives, we have again delivered significant strategic progress while continuing to invest in the business. We have made around GBP2 billion of strategic investments since the start of GSR3 and are on track to meet our commitment of more than GBP3 billion by the end of 2020. We have also generated solid financial returns in 2019 despite the challenging external environment and the large PPI charges we took in the first nine months of the year in response to the unprecedented volume of information requests ahead of the time bar in August.

Underlying profit for the year amounted to GBP7.5 billion with a market-leading underlying return on tangible equity of 14.8%. Statutory profit after tax was GBP3 billion and statutory return on tangible equity was 7.8%, both significantly below last year, mainly driven by PPI. Excluding PPI, RoTE would have been 14.4%, ahead of prior year illustrating the profit generation capacity of the Group as PPI comes to an end. Our unique business model delivered a solid statutory performance which together with our robust capital position has enabled the Board to recommend an increased final dividend of 2.25p per share taking the total ordinary dividend to 3.37p, an increase of 5% on last year in line with our progressive and sustainable ordinary dividend policy.

And we are moving to quarterly dividends from Q1 2020. Our approach of progressing our strategic transformation at pace and continuing to deliver strong and sustainable returns to shareholders while being watchful and responsive to external risks remains the right one and this confidence is reflected in our 2020 guidance. In terms of the financials, as I said, we delivered a solid performance despite the previously mentioned headwinds. Net income of GBP17.1 billion was slightly lower than prior year with the net interest margin remaining resilient at 2.88%, in line with our guidance.

At the same time, we maintained our relentless focus on costs and reduced total cost by 5%, including BAU costs by 6% and delivered positive operating jaws. This enabled our market leading cost to income ratio to reduce further to 48.5% even while we continue to invest strongly in the business.

We are maintaining our prudent approach to risk with credit quality remaining strong and the net asset quality ratio of 29 basis points within our guidance despite the two large single name cases we talked about earlier in the year. And the Group built 86 basis points of free capital. Pre PPI the capital build reached 207 basis points, demonstrating the capital generative nature of our business model.

The Group continues to target an ongoing CET1 capital ratio of around 12.5% plus a management buffer of around 1%. For now, given the announced increase in the countercyclical buffer likely only partially mitigated by the proposed Pillar 2A offset both at the end of 2020, we are holding a level slightly above this finishing 2019 at 13.8%. From 2021, our current view all else being equal is for the Pillar 2A to fall further as pension contributions increase enabling us to bring capital back toward our target level of circa 13.5%.

The business model remains strongly capital generative. In line with our ongoing guidance, we expect free capital build of 170 basis points to 200 basis points in 2020. And the Board will continue to consider potential excess capital repatriation at each year-end. We have grown our portfolio prudently in key segments. Open mortgage book, consumer finance, SME, and mid-markets have grown by over GBP6 billion since the start of GSR3, while large corporates are deliberately lower as we continue to optimize the commercial portfolio toward higher risk-adjusted returns. The open mortgage book was up GBP3.5 billion in 2019 as a result of the Tesco book acquisition announced in September. Our SME portfolio has continued to outperform and has grown by 3.3% since the start of GSR3 ahead of the rest of the market. We are also focused on delivering the growth opportunities in our insurance and wealth business.

Since the start of GSR3, our open book assets under administration have increased by around GBP37 billion, supported by GBP18 billion transferred from the Zurich acquisition. On the liability side, I have talked to you before about our strategy to grow high quality current accounts and reduce tactical balances. Since the start of GSR3, we have grown personal current accounts by 11%, well ahead of the rest of the market. This shows the strength of our customer-focused, multi-channel, multi-brand strategy.

I will now turn briefly to the UK economy. The UK economy remains resilient despite the challenges in 2019 from the slowing global economy and elevated uncertainty from both domestic politics and the future relationship with EU. With the new majority government now in place and the UK having left the EU, there is now a clearer sense of direction and some signs of gradually improving economic indicators.

Household spending power is rising at close to 2% a year, the strongest for three years reflecting a combination of stronger pay growth and low inflation. Employment continues to reach all-time highs, the unemployment rate remains close to its recent 45-year low, and we are seeing some signs of improving consumer confidence.

On the corporate side, business confidence also shows evidence of a gradual recovery as Brexit related uncertainty has reduced. And similarly, housing market data displays early signs of upturn in both activity and prices driven by the reduced uncertainty. However, despite the early signs of improvements in economic indicators and the expected significant government stimulus through infrastructure projects to be potentially announced next month as part of the budget, the interest rate curves are yet to react. There remains uncertainty given the ongoing trade deal negotiations, which continues to weigh on absolute growth. And of course there remains uncertainty about how the Coronavirus outbreak will impact the world economy.

I will now give you a brief update on the Group's significant strategic progress in 2019. Two years ago, we launched the third phase of our strategic journey with the aim of transforming the Group for success in a digital world, while continuing to support our core purpose of helping Britain prosper. Our strategy is underpinned by increasing levels of strategic investment, which is only possible due to our unique business model and market leading efficiency. This investment drives improvements to the customer experience and delivers further productivity enhancements, which ultimately both creates greater investment capacity and underpins strong and sustainable returns.

As I have said on many occasions, we see this as a key competitive advantage of our business model. Our plan is built upon a number of ambitious targeted outcomes across four pillars covering the breadth of the Group. With one-year remaining, we are performing well against this and running ahead of plan in many areas. I will look at some of the outcomes in more detail.

Through the combination of our unique business model and strong digital capabilities, we are the only provider to serve all of our customers' financial needs in one place. Our unique single customer view is now available to more than 5 million banking and insurance customers covering multiple products including pensions, home insurance, and protection and we remain on course to extend this to around 9 million customers by the end of 2020. Engagement levels with single customer view significantly surpass those of stand-alone insurers, as well as initial open banking user activity.

Our continued efforts to enhance customer experience has resulted in consistent improvements in our Net Promoter Scores, up by 3% during the first two years of GSR3 or by nearly 50% since 2011. In line with our commitment to Helping Britain Prosper, we have continued to demonstrate support for UK businesses. We are a leading lender to SMEs. We have increased our stock of lending by around GBP8 billion, since 2010 versus a market that has decreased by around GBP21 billion. This has resulted in a market share increase of around 6 percentage points to 19% at the end of 2019. We are also seeing a strong start for our joint venture Schroders Personal Wealth. In 2019 retail wealth referrals increased by 33% with associated gross new assets under administration growing by 21%. Both have shown a strong pickup since the launch of the joint venture.

We are confident that Schroders Personal Wealth can build on this positive start and meets the ambition of becoming a to three financial planning business by the end of 2023. We also continue to operate a disciplined approach to cost management supported by investment in transforming ways of working and new technological capabilities. And we have today announced a new target of less than GBP7.7 billion of operating costs in 2020.

Our cost advantage relative to peers now stands at more than 13 percentage points having improved by a further 3 percentage points in the last two years and we remain committed to driving further efficiencies. As well as investing in our own capabilities, we also recognize a need to embrace external innovation and work collaboratively with fintech providers that can offer products and services that will deliver additional value to our customers. This has resulted in a number of exciting partnerships and we continue to monitor opportunities in this space.

Successful execution is reinforcing our competitive advantage and creating new ones. We are future-proofing the business delivering increasing levels of investment in key areas. In absolute terms, our technology spend increased by 14% year-on-year in 2019 and remains among the top quartile of global peers, while as I highlighted earlier, our cost-to-income ratio continues to improve.

As a result, the Group continues to deliver strong and sustainable returns for shareholders with statutory return on tangible equity at both peers over the period. Despite this, we are not complacent and remain focused on ensuring that our key strategic and financial priorities are delivered in 2020, while also thinking ahead to the next phase of our strategy. Alongside the significant strategic progress, we are also continuing to deliver on our ESG targets and today we have published a separate investor presentation outlining our approach. This makes clear that we see ESG as a core element of building a sustainable business not just an ancillary activity.

We have a proven track record on ESG with our Helping Britain Prosper plan and I would like to highlight some of the areas we have led the market such as being the number one UK bank in supporting green bonds for UK corporates and being the first FTSE 100 company to set public diversity targets for gender and ethnicity. We have also become the highest corporate payer of UK taxes in each of the last four years. And in January, we announced a series of new and ambitious targets that recognize the need to tackle climate change and promote green finance for the future business prosperity of the UK. This includes targeting more than 50% reduction in the carbon emissions refiners by 2030.

I will now hand over to Vim, who will talk about how we are delivering a leading customer experience in the Retail Bank.

Vim Maru -- Group Director, Retail

Thank you, Antonio, and good morning, everybody. I'm delighted to be here today to share the strategic progress we are making within the retail bank. I'll start with an overview of our business.

We have an outstanding customer franchise with significant reach through our multi-brand and multi-channel model. The combination of these allow us to interact with a broad spectrum of customers, generate data and insight, and deliver excellent service through whichever channel they wish to engage. We are a truly customer-focused business and continually strive to make things simpler and more transparent for our customers. And our success here is reflected in an improvement in customer satisfaction scores by almost 50% since 2011, as you've heard from Antonio and a reduction in customer complaints by more than 75% during the same period.

On the back of these strong foundations, we are delivering on our targeted strategic priorities. We remain on course to maintain our number one branch market share by the end of the plan. We have the largest digital bank in the UK with 16.4 million digitally active customers and 10.7 million mobile app customers, both of which are up 3 million since 2017. And finally, we are delivering more tailored propositions to our customers. I will provide more detail on each of these later in the presentation.

During the first two years of GSR3, we have delivered a resilient financial performance against a challenging backdrop, which has been characterized by low interest rates, heightened levels of competition, and a number of regulatory developments. On the latter, we have often proactively made changes ahead of those implemented across the industry. Despite this, we have delivered stable income in the period with resilient margin trends due to the result of clear management actions in light of the competitive environment, a shift in business mix as we deliver a combination of organic growth in targeted segments, and the identification of inorganic opportunities that are value accretive to our business.

These actions have largely offset a more challenging environment for other income, a trend that we have seen across the industry. As a means to offset these pressures in line with the Group, we have demonstrated strong cost control despite investing heavily in our business with BAU costs down 7% in the period and investment up 14%. In addition, underlying credit quality metrics have remained robust. As a result, the business which accounts for around 50% of the Group has continued to deliver strong returns above the Group's target level.

Turning now to two pillars of our multi-channel strategy. The behavior of our customers continues to change. Whilst digital adoption has increased significantly in recent years especially in our mobile channel, interactions with our branch network have continued to decline albeit at a more moderated pace in the last few years. Whilst these trends mean the way in which we serve our customers through the branch network will change accordingly, it is worth reiterating that we do not see branches as a cost lever. Branches represent a small proportion of Group costs and this is outweighed by their significant value to our multi-channel model. Indeed over 70% of our customers interacted with us through more than one channel in 2019.

Given the strategic importance of our branch network, our priority has been on refocusing and reformatting this to meet the varying customer needs. The pivot toward serving more complex customer needs has delivered a number of tangible successes to-date such as increasing market shares in relationship mortgages and business banking current accounts, as well as a 19% increase in mortgages protected through the branch network. The continued shift to digital channels and in particular mobile during the course of GSR3 is creating new customer expectations with a focus on simplicity and real-time insight with these expectations also influenced by their experiences outside financial services.

In response, we are delivering functionality enhancements that resonate with our customers. These enhancements include areas where we were first to market such as the integration of Google Maps in our app, which has the dual benefit of increasing customer satisfaction, while also improving self service capabilities and consequently freeing up colleague capacity. Our actions have supported an improvement in our mobile app NPS by 3% to 68.4 between 2017 and 2019. These developments combined with our targeted propositions to customers have enabled us to further strengthen our customer relationships with current account customers growing by 9%, since 2014, while average balances per customer have increased by more than 50% showing that we remain the primary bank of choice for our customers.

In a period when new entrants to the market have been increasing in share, we believe this demonstrates the success of our business in not only attracting new customer relationships, but increasing our relevance for existing customers. The growth in PCAs also contributes to our balance sheet structural hedge that William will talk about later.

As the largest retail bank in the UK, we have an unrivaled understanding of our customers with a vast array of data points providing unique insights on behaviors, preferences, and expectations. This knowledge combined with our significant investment in data and digital capabilities is allowing us to better identify the varying needs of our customer base and consequently deliver more tailored propositions that deliver real value. For example, half of our customer base hold larger balances and have more complex needs. Through our multi-brand propositions, we have tailored our solutions for these customers.

As an example our Club Lloyds proposition; which offers credit interest, lifestyle benefits, and access to preferential conditions for additional needs; aligns well with this population with these customers holding balances nearly three times higher than the average customer. It is this level of customer understanding that enables those to deliver products and services that offer true differentiation supported by the investment in our data capabilities.

In the future, it also provides the opportunity to diversify our revenue streams. This will remain an area of major focus for us in the coming years as expectations for personalization continue to rise and given our unique proposition serving all financial needs in one place, we believe we are well positioned to build on this.

Finally, we have a leading franchise across a number of our business lines and have made good progress over the course of the latest strategic plan. In areas such as mortgages, we have operated with a clear strategy. Within the highly competitive intermediary channel, we have prioritized margin and risk over volume, as well as delivering excellent service for our intermediary partners, while we have grown more significantly in the relationship channel supported by increased investment during GSR3. Elsewhere, we have continued to take share in targeted segments such as PCAs, car finance, and consumer loans.

Looking ahead, we will continue to adopt a channel specific strategy in mortgages. In the intermediary market, which accounts for 75% of new business, the extent of our participation will likely be dictated by market pricing trends as you saw in 2019 where our growth increased in the second half as the market improved.

In consumer lending, we have successfully integrated MBNA delivering a return on investment of 18% above the original target. Going forward, we see opportunities from the expansion of MBNA into personal loans. We also see opportunities in motor finance where we have recently renewed a number of key relationships including, I'm pleased to announce, Jaguar Land Rover. We will continue to improve links between the retail bank and our joint venture Schroders Personal Wealth. We also expect the sophistication of our single customer view to provide customers with more functionality and further increase engagement, while we will better integrate our home and protection offerings within our digital and physical channels.

In addition, working with Scottish Widows at the beginning of this year, we launched our new Lifetime Mortgage proposition through the intermediary channel and we will roll this out further during the course of this year. Finally, in Business Banking, our branches will be used to facilitate more meaningful conversations. And as Antonio mentioned earlier, our collaboration with fintech partners as a group will enable us to combine innovative services without significant scale. These initiatives will leave us well positioned for the future and ensure that we continue to deliver a leading customer experience.

Thank you. And I will hand over to William, who will run through the financials.

William Chalmers -- Executive Director and Chief Financial Officer

Thank you, Vim. As Antonio said, I'll now give you an overview of the Group's financial performance in 2019. We can then open up for Q&A. Turning to the first slide with a summary of the financials. As you've already heard, in 2019 the Group delivered solid financial returns and a resilient underlying performance in what was a challenging external environment. NII of GBP12.4 billion was down 3% with a resilient NIM of 288 basis points, in line with our guidance. Other income of GBP5.7 billion continued to be somewhat pressured in Q4 and was down 5% on the year.

Moving down the P&L. The 5% reduction in total costs was driven by both operating costs and remediation being lower year-on-year. Within that, operating costs were down 4% year-on-year reaching our guidance of less than GBP7.9 billion. Remediation was down 26% albeit a bit above our expectation for 2019 as a whole. This operating performance resulted in solid pre-provision trading surplus of GBP8.8 billion, which is relatively stable on the prior year.

Moving further down the P&L. Credit quality remained strong with a net AQR of 29 basis points, again within our guidance. Together all this translated into a resilient underlying profit of GBP7.5 billion. Statutory profit before tax, however, of GBP4.4 billion was down 26% compared to the previous year. This was given the impact of PPI. PPI is also reflected in the earnings per share of 3.5p, which is 36% lower than in 2018.

I'll now discuss the individual items in some more detail and begin with net interest income and margin on the next slide. NII of GBP12.4 billion was down 3% on 2018 based on a resilient net interest margin and broadly stable average interest earning assets. The NIM of 288 basis points fell by 5 basis points year-on-year and 3 basis points in the fourth quarter. This margin pressure in 2019 as a whole was mainly driven by continued competitive pressure on the asset side and to a degree this is likely to continue over the coming quarters as we discussed at the Q3 results.

On the other side of the balance sheet, lower deposit costs and higher retail current account balances provided partial offsets during 2019. Also in the fourth quarter the stated margin saw a further benefit of about 4 basis points from aligning MBNA product terms with the rest of the cards business. This represents the completion of the EIR adjustments as I highlighted at Q3. Average interest earning assets were essentially stable at GBP435 billion in 2019. The Tesco book acquisition and other targeted loan growth in SME and motor finance were offset by closed mortgage book run-off and the tail effect of the Irish portfolio sale in 2018. We expect average interest earning assets to stay broadly unchanged in 2020.

In protecting the margin, we are maintaining our active approach to managing the balance sheet, including taxes of our acquisitions such as the Tesco portfolio. These help partly mitigate the impact of rates in the competitive environment in which we are situated. Going forward in 2020, we expect the NIM to be between 275 basis points to 280 basis points. This importantly assumes an average five-year swap yield of 75 basis points throughout the course of 2020.

I'll now move on to the next slide and to asset margins across our key segments. The margin has remained resilient in 2019. Turning first to mortgages. Our approach to focusing on margin and risk rather than volume and the new business flexibility provided by the Tesco book helped to protect our margin in what was a competitive environment. Furthermore, the rollover of new maturing fixed business is now also happening on much more favorable terms versus the last couple of years.

The gross margin on our total mortgage book stood at 1.7% in the second half of 2019, down 10 basis points, compared to the same period last year. Bank book attrition meanwhile remained in line with our expectation of 15% with a significant proportion of customers now on relatively small balances. In consumer finance, we've continued to grow our portfolio mainly in motor finance, which was up GBP1 billion over the year. This targeted growth supports the Group margin.

More broadly, the consumer finance market evidences some competitive pressure. The increase in gross margin to 7% in consumer finance was driven in part by the MBNA product terms alignment that I mentioned earlier. Excluding this benefit, the margin would have been 6.6%.

And finally, the margin on the commercial banking portfolio showed stability at 2%. The asset base here was down by around GBP5 billion over the year primarily in the second half and this in turn was mainly driven by our ongoing repositioning of the commercial business -- commercial portfolio. Focused on the global corporate and larger mid-market segments, we are actively repositioning the commercial business toward higher risk-adjusted returns. We are addressing low returning client relationships and maintaining a very clear focus on RWA optimization and this approach is going to continue into 2020.

Now let's look at the other side of the balance sheet on our liabilities including the structural hedge. The current low interest rate environment is challenging for all retail and commercial banks. Over the last two years since the start of GSR3, in-year five-year swap rates have reduced significantly and the curve as you know has flattened. Despite this, we delivered a resilient margin. This demonstrates the strength of our approach to actively managing the balance sheet and indeed protecting value.

In support of this, we continue to grow current accounts and reduce tactical balances. Current accounts were up by over GBP3 billion in the year and now make up nearly 30% of our deposits versus 16% only five years ago. This improving the profile continues to support the liability margin, which in turn was stable over the past year. We do continue to see further opportunities to grow current accounts leveraging our multi-brand strategy and allowing us to maintain pricing segmentation in the low rate environment. Tactical balances on the other hand are expected to reduce further as we continue to enhance the mix of our deposit portfolio.

Turning to the hedge. Generally given rates, we held back from reinvesting the structural hedge during 2019. We do however invest when we can protect value following our disciplined hedging approach. In Q4 for example, we reinvested some maturities as term rates improved. The hedge balance therefore stood at GBP179 billion at the end of 2019, which is up around GBP7 billion since the end of September. The weighted average life of that is remaining at about three years. The approved hedge capacity stands now at around GBP185 billion meaning that in turn we have approximately GBP6 billion uninvested, which in turn provides us some additional flexibility should the rates change.

So, next I'll turn to other income on Slide 26. Other income came in at GBP5.7 billion, down 5% year-on-year. 2019 as a whole continued to see a helpful backdrop for our commercial banking markets business. To a lesser extent, we also saw lower other income in retail than 2018. The latter was particularly impacted by lower fleet volumes in Lex Autolease. Q4 was a little softer than Q3 at GBP1.27 billion driven by continued softness in commercial banking and a number of smaller items including some pressure on retail current account fees.

Insurance and wealth on the other hand is continuing to perform well albeit it's also impacted by rates. The year saw healthy growth in workplace pensions supported by auto enrollment and higher general insurance income net of claims. And the first half, as you know, had also benefited from the change in the investment management provider and longevity benefits. Central items are down a little partly due to lower gilt sales and an exceptional 2018 for LDC as we had flagged previously. Gains on the sale of gilts and other liquid assets amounted to GBP185 million, compared to GBP270 million a year earlier.

Now looking forward in 2020, we plan to continue investing to build the resilience of the other income line. For example in insurance and wealth, we're investing in financial planning and retirement, protection, and home insurance product capabilities. These will allow us to continue to benefit from the structural and market share growth opportunities that we see in this market.

In commercial, we've invested in the corporate payments platform to increase flow revenues. And in retail, we're developing value-added rewards and loyalty propositions to our current accounts to support a continued high quality customer proposition. Together, this all means we expect other income to build gradually during 2020. To be clear, it will still be market dependent and improvements are likely to be somewhat back-end loaded, but we do not think Q4 should be annualized in 2020.

I'll now look at costs on Slide 27. In today's revenue environment, doing what we can to preserve operating leverage and investment capacity is clearly critical. Total costs were GBP8.3 billion and down 5%, driven by reductions in both operating costs and in remediation. We reduced operating costs to less than GBP7.9 billion, which was down 4% in line with our guidance which we enhanced twice over the last year. Remediation of GBP445 million relates to a number of small items across existing programs was 26% lower than the previous year. Although Q4 was a bit above our expectation, we expect remediation costs to reduce to around GBP200 million to GBP300 million per year from 2020.

Alongside this, we drove a 6% reduction in BAU cost. This increased efficiency was combined in turn with continued investment. Above the line cash investment totaled GBP2.4 billion in the year including GBP1 billion of strategic investment. That in turn was up 6% in the year. Around 63% of the GBP2.4 billion investment spend was capitalized, which is in line as you know with previous periods. Notably, the reduction in operating costs came at the same time as improved customer experience with NPS going up as Antonio and Vim highlighted in their presentations.

So, turning to costs and we look in particular at one or two items here. As you know, the Group has a focused cross culture and a strong track record of delivery. Going forward, there remain further opportunities and examples of this are listed on the slide here; including automation, reduction in our property footprint, our cloud strategy, and just simply doing things better. For example, there are meaningful further opportunities in private and public cloud for a more flexible and indeed lower cost base.

Reflecting on all of this, and as Antonio said earlier, we expect operating costs to be less than GBP7.7 billion in 2020 and for the cost income ratio including remediation to be lower than in 2019. As I said, focus on cost control is particularly important in the current environment. It is something we will continue to concentrate on and it will remain a source of competitive advantage for the Group.

Turning to the next slide, we'll take a look at credit. Credit quality remains strong. The net AQR for 2019 was 29 basis points. This is in line with our guidance as you know for the year. It was impacted by two material single name cases as highlighted already at Q2 and then again at Q3. Excluding these, the net AQR remained low and stable. Looking at the balance sheet, we remain in a prudent and a relatively benign position. Stage 2 and 3 balances are stable versus 2018. Coverage has reduced slightly mainly driven by write-offs for fully provided commercial assets moving into Stage 3 of heavily collateralized assets and methodology refinements in the commercial banking portfolios.

Looking forward, the underlying credit portfolio remains strong. IFRS 9 may introduce additional volatility and recent years benefits from retail debt sales and commercial write-backs will slow. But we nevertheless continue to expect the AQR to be less than 30 basis points in 2020.

Turning to the next slide to take a look at the portfolios. Our mortgage portfolio credit quality remains strong. New to arrears are low at around 4% and the book has a low average LTV of 44.9%. New business LTV is correspondingly also low at 64.3%. Our legacy mortgages originated in 2006 to 2008 continue to reduce every year. These fell by 12% in 2019. Although the portfolio is seasoned and is performing well, it generates disproportionately large stress losses. With continued reduction in its size albeit at a gradually slowing pace, the impact on our stress results will consequently reduce.

Moving to cards. New to arrears in credit cards remained modest at around 0.7% and charge-off rates correspondingly are low and stable. In motor, we continue to price and reserve prudently. Used car prices softened during the year, but they stabilized during Q4. And finally, our commercial book remains high quality and it benefits from diversification, low interest rates and effective risk management. This includes a prudent approach to what we define as vulnerable sectors with each representing less than 1% of the Group's loans and advances.

Likewise, collateral is an important safeguard. SME lending, which is one of our targeted growth areas and represents more than 30% of the commercial portfolio, is largely secured. The two single name cases we have talked about during the year are not representative of the wider commercial portfolio. Again, overall credit quality remained strong.

I'll now move to address the below the line items. As I mentioned earlier, statutory profit after tax of GBP3 billion was down 33% and, as you know, impacted by PPI. Focusing on restructuring for a moment. The charge of GBP471 million was down 46% on last year, primarily reflecting the completion of the MBNA integration and the ring-fencing work. These reductions were partially offset by initial costs relating to the establishment of Schroders Personal Wealth.

Looking forward in 2020, we expect restructuring to be somewhat higher as we continue to transform the business. This will include severance costs, the state rationalization, and regulatory driven costs; for example the IBOR transition. You will note that no further provision for PPI was taken in Q4. We continue to work through the information requests received by the August time bar. We've now reviewed over 60% of the 5 million PIRs completed. The conversion rate remains low. Indeed we are comfortable with our 10% assumption and continue to work within the existing provision. We're also pleased to say that the final agreement has now been reached with the Official Receiver and that is included in our provision.

Moving to taxes. The higher effective tax rate of 32% reflects the non-deductible PPI provisions. It is in turn partially offset by the release of a deferred tax liability. We continue to expect the medium-term effective tax rate around 25%. However, in 2020 given the corporate tax rate is now likely to remain unchanged, it should be slightly lower as we see a DCA revaluation of about GBP300 million coming through.

Looking briefly at returns. As I mentioned earlier, the underlying return on tangible equity in 2019 was strong at 14.8%. The statutory return of 7.8% has clearly been impacted by PPI. Indeed if you exclude PPI, the statutory RoTE would have been 14.4% as Antonio has said, up just under 1 percentage point from the previous year. Now I realize that's just a hypothetical number, but it does illustrate the profit generation capacity of the Group as PPI comes to an end. As we've communicated earlier, we expect the underlying and statutory profits to converge and this convergence will be driven by resilient underlying performance and lower below the line items. 2020, therefore, we expect increased statutory profits and a statutory RoTE of 12% to 13%.

So, let's turn to the balance sheet. Group loans and advances stood at GBP440 billion at the end of the year. We enjoyed some growth in key segments offset by continued run-off of a closed mortgage book and lower balances in mid markets and global corporates as I described earlier. The open mortgage book of GBP270 billion was ahead of last year in turn enhanced by the GBP3.5 billion Tesco book acquisition.

Motor finance meanwhile increased by GBP1 billion while SME continued to grow ahead of the market. We maintain our focus on pricing with discipline particularly in the intermediary mortgage market. Our open mortgage book strategy remains unchanged. We are very focused on efficient management of the balance sheet. RWAs reduced by GBP3 billion in the year as we continued to optimize the commercial banking portfolio as I mentioned earlier. This more than offset the impact of IFRS 16 and the Tesco book acquisition together. Looking forward in 2020, we expect RWAs to be broadly in line with 2019 despite regulatory headwinds. Indeed our estimate of regulatory pressure in RWAs is currently below our initial estimate of GBP6 billion to GBP10 billion in 2020.

And now moving to TNAV. Tangible net asset value per share reduced by 2.2p to 50.8p in the year. The in-year generation of 1.1p after SPPI was more than offset by dividends of 3.3p. As you can see from the quarter-on-quarter TNAV walk at the lower part of the slide, market movements in the fourth quarter did have a meaningful impact.

And finally before I conclude with 2020 guidance, we'll take a brief look at capital. Organic capital build remained strong with the Group generating 207 basis points of free capital in 2019 before PPI and 86 basis points even after the PPI charge. The Group's organic capital build in the year was supplemented by 34 basis points from the cancellation of the remaining buyback in the third quarter. Meanwhile, we deployed 9 basis points of capital for the Tesco book acquisition. The pro forma CET1 ratio therefore ended at 13.8% after the announced final dividend of 2.25p per share. The ordinary dividend is equivalent to 123 basis points of capital.

Looking forward, the Group continues to target an ongoing CET1 capital ratio of around 12.5% plus a management buffer of around 1%. For now given the announced increase in the counter-cyclical buffer very likely only partially mitigated by the proposed Pillar 2A offset both at the end of 2020, we are holding a level slightly above this finishing 2019 at 13.8%.

From 2021, our current view all else being equal is for the Pillar 2A to fall further as pension contributions increase. That will enable us to bring capital back toward our target level of circa 13.5%. The business model, as you know, remains strongly capital generative. In line with our ongoing guidance, we continue to expect free capital build of between 170 basis points to 200 basis points in 2020. And as Antonio said at the start, the Board will continue to consider potential excess capital repatriation at each year-end.

So, turning to 2020 guidance. To recap, in 2019 the Group delivered significant progress against our strategic priorities and generated solid financial returns. As a result, the Board increased our total ordinary dividend to 3.37p per share, which is up 5% on 2018. As Antonio noted in his presentation, we'll be moving to quarterly dividends from Q1 onwards with the first payment being in June.

And looking forward, our 2020 guidance is outlined on the slide at my left. It reflects the health of our business and indeed the confidence that we have in it. In setting our guidance, we remain focused on delivering our purpose of Helping Britain Prosper, while building strategic advantage and generating strong and sustainable returns.

And this concludes the presentation for today and we're now ready to take your questions. So, thank you for listening.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

Thank you, William. So, let's start the Q&A. Maybe we can start here in the center maybe with Joe, Rohith afterwards, and we'll go to the left side. Joe?

Questions and Answers:

Joe Dickerson -- Jefferies -- Analyst

Hi, thank you. you, It's Joe Dickerson from Jefferies. Just on the outlook for the non-interest income, can you talk about what you're seeing in the insurance business? Others are talking about a potential hardening of rates in 2020. Are you seeing anything like this or expect anything like this to help drive that business? And then in terms of the full-year on the capital guide, can we expect that you would distribute down to that 13.8% level in respect of the full-year in terms of excess capital repatriation? Thanks.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

Thanks, Joe. William, shall you take this one?

William Chalmers -- Executive Director and Chief Financial Officer

Sure. Well, maybe just to address the insurance point first. The -- just to give some background, if you like on what's going on in the insurance business, because it's important context really. We see 2019 performance, as you know, as being a year of investment in the business. It was partly influenced in the first half by the change in investment manager and by the longevity benefits that we got, but it was also characterized if you like by building the business across all lines really; auto enrollment being one, annuities being a second. As we go into the second half, those benefits from changed investment management provider and the longevity benefit drop out and the underlying business if you like starts to perform.

So looking forward into 2020, there's a number of factors going on: one, is the change in investment management provider and the annuity -- and the longevity benefit are unlikely to repeat. But having said that, the engines of the business, including annuities for example, including protection for example start to takeover. There are within that also some cost benefits, which should be coming through probably in the second half of the year and that also will help build the insurance contribution through the other income line.

In terms of the specifics of your rate hardening, to a degree I'm not sure whether that's a particularly general insurance related question. I imagine it is to a degree, but I don't think we're relying upon them for the performance in the insurance business during the course of 2020. The capital question. We have taken a deliberately prudent stance in relation to capital. We've obviously observed the counter-cyclical buffer change. We've observed what we think is very likely the partial mitigation through Pillar 2A. We have a view on what will happen to capital requirements in the years thereafter as Antonio and I articulated in our message. It is the case that we have the benefit of being at 13.8% now and therefore have anticipated the change in the counter-cyclical buffer mitigated partly by Pillar 2A. And therefore in theory if you like the build that we enjoy through the course of 2020, 170 basis points to 200 basis points that I mentioned in the speech, in theory if you like is distributable capital. But that will be a matter for the Board at the end of 2020 to decide what the capital repatriation policy should be.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

Rohith?

Rohith Chandra-Rajan -- Bank of America Merrill Lynch -- Analyst

Thank you. Good morning. Rohith Chandra-Rajan, Bank of America. I had a couple of questions on net interest income, please. The NIM guidance for this year so your exit run rate is 2.81%. So, the guidance for 275 basis points to 280 basis points is pretty resilient on that exit position. I was just wondering if you could talk through some specific areas. So, you talked a little bit about the hedge. So, what's the impact of the reinvestment that you've done in Q4 and also an expectation that the five-year swap is slightly above current levels? So, you were previously guiding for 250 headwind from the hedge this year, how has that changed and also what do you -- any guidance on the impact in 2021?

The second thing is the SVR book fell by GBP12 billion in the year. What impact does that have and what pace of attrition do you see going forward? And then finally on the NIM, the repositioning of the commercial book. What impact does that have in the year? And I guess relative to those three potential headwinds, where do you see the offsets?

And the second was just a clarification on the balance sheet, you talked about flat interest earning assets. Is that flat on the Q4 number of GBP437 billion or the full-year number of GBP435 billion and how do you see the balance sheet mix or the loan book mix I guess evolving over the course of the year? Thank you.

William Chalmers -- Executive Director and Chief Financial Officer

That's a lot of questions. Thank you first of all for the questions, Rohith. Maybe I'll start with the net interest margin and give you some sense of the dynamics going on there. When we look at the net interest margin, there's a number of features -- there's a number of factors going on. One is, as you say, the structural hedge and the replacement, if you like, of the structural hedge balances that roll off during the course of 2020. Two is what is happening in our major product markets, mortgages obviously being a big one; but also what we're doing in unsecured, what we're doing in motor. Furthermore, there's also the dynamic introduced by the corporate optimization -- commercial banking optimization that I described earlier on.

Savings on the other side, the liability side of the balance sheet, and then what are -- your question was to our sensitivities, if you like, to market rate. So, those are the dynamics. To give you some context and color around them. In terms of our guidance, we see about GBP200 million less structural hedge income in 2020 versus 2019. That's been factored into our guidance of 275 basis points to 280 basis points.

In terms of the mortgage picture, there's two features going on and Vim will want to comment I'm sure on the SVR point, which I'll get to in a second. There's two features going on principally. One is we are seeing a much more benign front-end pricing environment now to what we were seeing this time 12 months ago, which means that as we roll off if you like, our fixed mortgage book is rolling on more attractive rates. That differential is favorable and is positive today versus negative as it was 12 months ago. When we then look at what else is going on in the balance sheet, there's a bit of a mix effect. It's modest to be honest, but there's a bit of a mix effect in terms of unsecured and motor. There is a little bit of growth there as I pointed out historically and looking forward.

And then our corporate optimization and our commercial optimization is very much about addressing the low yielding relationships, if you like, and that comes through in part in net interest margin and again feeds through into the guidance that we've given. Savings maturities, there's a little bit of that going on in 2020.

And then finally, your point about sensitivity -- your question to sensitivity. There's not a huge differential between 75 basis points versus where the five-year swap curve is today, it's about 10 basis points I think off the back of last night's pricing. If we were to take a more market aligned scenario into account, we would think that shaves off a couple of basis points in terms of our view on the NIM, which puts us in turn at the lower end of our guidance. So still within guidance, but at the lower end of our guidance. And that's the cumulative effect of, if you like, the ongoing or introduced part of the structural hedge coming in at slightly lower levels than we anticipated our 75 basis points plus the absence of a base rate rise. That cumulative effect, as I say, shaves off a couple of basis points; shifts us toward the lower end of our guidance. Antonio?

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

Before Vim goes, William, do you want to comment which was the base for the AIEAs?

William Chalmers -- Executive Director and Chief Financial Officer

Yes. I think you mentioned GBP435 billion.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

Okay. Vim?

Vim Maru -- Group Director, Retail

Yes. Just to add to William's point. I guess on the mortgage side rates, I mean three key elements that matter. One is where the reversionary book goes so that your question in terms of attrition, that's been stable in the second half of the year so -- and that's obviously on a smaller base as that keeps coming down. So, that's sort of stable. Then retention of customers, that's also stable during the course of the year, which is good news. And then as William called out, the new business margins that we're seeing right now in the market are looking better than maturing margins at the moment and therefore we get a carry there, which is obviously we've started to see that happen in the sort of final quarter of the year and that's obviously a positive in terms of what we see coming into this year.

Rohith Chandra-Rajan -- Bank of America Merrill Lynch -- Analyst

Thank you, Vim.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

Shall we go here, please. Can you bring the microphone? We have three questions on this side. Guy, please.

Guy Stebbings -- Exane BNP Paribas -- Analyst

Good morning. Guy Stebbings from Exane BNP Paribas. Can I come back to the other income line and insurance first of all? You referenced the strong benefit from auto enrollment rates picking up coming through on the workplace planning retirement income. My understanding is given the embedded value accounting approach without another step-up in auto enrollment rates, that line goes backwards in 2020. So, if you could just confirm whether that's true or not? And also you referenced strong general insurance, presumably the run-off St. Andrew's book becomes a headwind there.

So if you put that together with some headwinds on regulatory changes for other income line with some of your peers giving guidance around the overdraft fee changes for instance and high cost of credit, I'm just trying to gauge whether GBP5.7 billion is a sort of sensible run rate or the H2 GBP5.1 billion to GBP5.2 billion is more like where we're going to end up for the full-year.

Then I have just a quick second question on current account growth, which has obviously been very strong and then helping the growth in the structural hedge, if we look at the current account switching data, it tends to be quite negative over the last few quarters for Lloyds, So, I'm just trying understand the very strong data that you're reporting for current account growth and how we reconcile that with the current account switching data. Thanks.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

Okay. So, William will take the first and Vim will speak to you about the second.

William Chalmers -- Executive Director and Chief Financial Officer

Well, thanks for the question, Guy. On the insurance topic, you're right. Auto enrollment is effectively better value accounted. The step-up that we saw in 2019 was in part a function of the contributions step-up. We do ultimately expect that to be insufficient and there will in turn by a further step-up, but I very much doubt it will be 2020. So as a result, what you see in auto enrollment is an ongoing business, which is again one that we very strongly believe in and we'll continue to invest in, but you will see it slightly dip or slightly lower if you like in 2020, that piece of the business versus 2019 simply by virtue of that accounting. But again I want to underline it's a business that we strongly believe in and we'll continue to invest in and we see that as a going forward point.

The GI point, there is -- there are a number of factors going on within GI both as to premiums and growth of the business, the opportunities that we see around the business. I wouldn't identify St. Andrew's as a -- I mean to a degree it's relevant, but I wouldn't identify it as a particularly strong issue in the overall profile of the GI business that we are building -- in the process of building right now. There will be other factors that will be far more important.

The regulatory changes, you mentioned the high cost of credit and in particular the overdraft pricing issue. The -- we're not going to put a number on the overdraft issue. Most of the overdraft issue is in the net interest margin line not in the other income line. Much of the overdraft issue has been to a degree contemplated and anticipated by some of the product changes that Vim can talk about that we have introduced in years prior to today. So some of the pressure, if you like, from that overdraft change has been pre-empted by some of the moves in the product line that as I say precede 2020. So, that particular issue is unlikely to change the other income line. I think your point more broadly on regulatory pressures and other exerting pressure on the business, for sure they are there. The business that we have I think is a very successful business model that will succeed no matter what, but the regulatory pressures, for sure they exert pressure on the income.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

Vim, would you like just to add something?

Vim Maru -- Group Director, Retail

Yes. So, I'll add two things I guess. I'll do -- finish the overdraft point and then I'll just talk about switches. So as William says, we eliminated unarranged overdrafts and returned item fees two years ago. So, in effect the change that we've got to make now is different to what most of the industry is having to go through and therefore I guess we're not specifically calling that out this time around and it's all embedded into William's margin guidance. So, I think that's probably just worth iterating and also I think from an ROI perspective, it's not in there so -- because we made the change already a couple of years ago. But as we've said, in the market as well 90% of customers will be better off so that will be a headwind, but as I say, that's in the guidance.

And then on switches, I think I tried to allude to this in the presentation as well that there's a real -- really important for us to focus on existing customers, as well as new customers and you've seen the data in terms of existing customers, what we're seeing in terms of growth of balances from those existing customers. We're also seeing as you've seen 9% growth over a period of current account customers too. It doesn't have to come through the switching service for us to book new current accounts too. And then when you look at the switching out data and what we can see -- what we see in the switching out data, the quality of where the growth is coming in, the switching out data is pretty low and that's why you're not seeing that impact our business in the way you might think it does.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

So, I mean we are growing with segmenting our personal business and we have key segments where we want to grow and we came to the conclusion, just to build on what William says, that for example the Halifax switch off that we are giving to customers was quite indiscriminated and it did not attract the right customers that we wanted to attract. So, that's an example of what you now see. So, we are very pleased about how our attraction of the right current accounts is going and I think that is highly demonstrated by the fact that our PCA balances, as you were asking Guy, continue to increase above the market and significantly, 11% versus 7% since the beginning of GSR3 and we could go to a much longer time zone.

That really demonstrates the high quality of those current account balances. Those are stable balances not driven by price, but by trust and convenience and they have the additional advantage that given they are stable, they have a higher yield because they are invested on average at four years maturity, which we now have shortened because of the yield curve being flattened. So, you have to look at the evolution of current accounts sales in the market with that perspective and also with the fact that current accounts are free so you can have as many as you want. The question is which one is your primary bank account and that can only be measured by the current account balances.

William Chalmers -- Executive Director and Chief Financial Officer

Can I -- Guy, just before we leave your question, I think there was one aspect that we didn't adequately address, which is on whether you should annualize the Q4. So, perhaps just to give some response to that. The -- I think, I mentioned some points in my speech, which ended with you should not annualize the Q4 other income line. Reasons -- just to give you some context and reasoning behind that. When we go through the business lines, we look at commercial banking for example and there will be a couple of variance in commercial banking.

One is for sure the market dependency and if you see a market that comes back to life, you'll see a lot more activity in the commercial banking market. Equally if you don't, the second prong if you like -- second strand to the commercial banking business is around the cash management part. That's been an area of substantial investment for the Group over the last couple of years. We now have a platform which is successfully being rolled out and delivered to a number of clients. So, that's the strand which is much less market dependent, if you like. It's therefore a more reliable indicator of commercial bank activity and as it will build into the second half of 2020.

If you look at insurance, there's a number of areas in insurance. Again it's not going to repeat the more one-off natures as I mentioned in the first half, but you see some underlying build in annuities for example, you see some underlying build in the protection product for example. There is, as I mentioned, in the second half of 2020 some cost benefits which we're expecting, which will come in through the other income line simply, because of the way in which insurance is accounted in our business.

You look in turn at the retail banking business, there's a transition in customer behavior going on as you know in the payments area. And so as they move away from cash and toward cards, we expect better payment revenues off the back of that. And these factors allow us to build into 2020 in the other income line. So what it means I think is that we see other income, which is going to be gradual, number one; number two, it's going to be back ended; number three, to a degree at least some aspects of it will be market dependent too; but it would be very disappointing to see Q4 annualized. We do not believe that Q4 should be annualized.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

So, we'll finish those two questions and we will go to that side. I will join...

Aman Rakkar -- Barclays -- Analyst

Morning, William, morning, Antonio, and Morning, Vim. It's Aman Rakkar from Barclays. I had two questions. One on the net interest margin. Can I just clarify your comment earlier? You were saying if basically you kind of updated your net interest margin for a 75 basis point five-year swap, you'd come in at the lower end of the guidance that you've given at 275 basis points to 280 basis points. I mean, you mentioned that basically captures the fact that you're also not getting a base rate hike. What happens if we actually get a base rate cut because when I look at forward curves, it looks like there's an increasing chance of a cut? Is that incremental risk of you basically coming in below 275 basis points next year? And I guess part of the answer to that will be dependent on deposit betas. Do you think you can basically absorb the majority of a base rate cut in terms of your customer margin? That's question one.

And the second was regarding CET1. So, the messaging around capital seems quite positive. I was wondering are you able to provide any guidance on Basel IV either in terms of the impact on your business when it would come in and a view as to whether it will be implemented on 1st of January 2022? Thank you.

William Chalmers -- Executive Director and Chief Financial Officer

Sure. Maybe just take each of those three, Aman. The first point I should clarify if it wasn't clear enough, our guidance is based upon 75 basis points in-year five-year swap rate on average through 2020. So, that's the basis for our guidance. The market rate for the five-year swap rate is circa 65 basis points, 66 basis points right now, a difference of about 10 basis points. If we get that market rate aligned with the absence of a base rate rise in the back end of 2020, the impact of that is a couple of basis points. We see that as being within our 275 basis points to 280 basis points margin guidance. It just puts us toward the lower end. So, that's the first point.

The second point, you said what if there is a cut. I think there's a couple of points to make around that. Clearly, a cut is not what we envision. We think as Antonio mentioned or we anticipate rather a significant fiscal stimulus, which in turn changes the monetary outlook and that's the reason why our scenario is as it is. But should we get a cut, there's a couple of points to make there. One is that a base rate change of that type allows a degree of friction if you like within the overall product base, which means that you can recoup some of the issue there. The second is in the context of a base rate cut, you may very well see a widening gap between the swap rate and the rates at which mortgages are being sold, and so you may see some widening in the margins off the back of that, which is effectively similar to what you're seeing now frankly. In that context, we would expect to see some recompense if you like or some benefit from a more benign margin pricing environment, which in turn would help us build margin and indeed to a degree the volumes of the business. So, that's the second one.

Antonio, do you want to add?

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

In any case just for you to have clarity on this. In terms of our base rate, it is our expectation to be back ended so it does not really impact the NIM of the year. Just for you to have that clear on our plan. You got the second point.

William Chalmers -- Executive Director and Chief Financial Officer

I think to move on to your core Tier 1 question, the Basel point. Basel IV is obviously something that we're keeping a close eye on. We are at the moment in a situation of some uncertainty about what the authorities choose to enact in terms of Basel IV -- finally enact. We are also in a state of uncertainty about how the PRA might choose to incorporate that or adopt that and indeed what mitigation might be possible around Basel IV set of rules if you like, whatever they might be. And so we've stepped back from giving guidance on Basel IV partly because right now we're simply giving guidance on 2020 full stop, but also because frankly uncertainties around Basel IV are still very considerable. And so we're reluctant, if you like, to start giving guidance which in turn may well be wrong.

Aman Rakkar -- Barclays -- Analyst

Sorry, just one follow-on then about the [Indecipherable] if I'm allowed. So, potentially this time next year you could end the year with a 13.8% CET1 ratio, pretty decent visibility about Pillar 2A coming down such that 13.5% is the right number for you. So, is Basel IV enough of a risk on the horizon such that you wouldn't pay down to 13.5% during the course of 2021 or...

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

Our position in that is very simple and is unchanged. So, we have an ongoing capital guidance of around 13.5% and if at the end of the year when the Board decides -- if the Board would decide not to pay down to 13.5%, there will have to be a significant reason which we have explain you to, right? So, this is exactly as in previous years. That is the policy. We come to the end of the year and the Board decides with information available then, our guidance is 13.5%. Should we not to go to 13.5%, we'll have to explain you why as we told you this year given what happened with this bump at the end of the year. We are prudently hold already -- holding already the 30 basis points that we see at this year, which would then come down next year, right? So, the Board has always the same policy at the end of the year with information available then would decide on dividends and on repatriation of excess capital and the usual practice is the same. We would distribute down to the target and if we don't, we would have to explain why. Please, Andrew.

Andrew Coombs -- Citi -- Analyst

Good morning. It's Andrew Coombs from Citi. If I could just stay on capital and the capital stack. You've been very transparent on your thoughts on counter-cyclical, the 2A offset and I think the remaining question that hasn't been asked is around the impact from the Bank of England stress test and the implications for your PRA buffer. On the basis that you haven't changed your 1% headroom above the 12.5%, should we assume that when you look at the stress test in coordination with your internal stress tests, the 2B has not changed?

And second question will be could you just elaborate now with the benefit of hindsight on the stress test and with times past, why was there such a leg up in your losses for the consumer book under stress in the Bank of England stress test?

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

Thank you, Andrew.

William Chalmers -- Executive Director and Chief Financial Officer

Thanks, Andrew.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

William will take your questions.

William Chalmers -- Executive Director and Chief Financial Officer

First of all, you wouldn't expect me to and I'm not going to comment on Pillar 2B. It's the math of the PRA. The second point in terms of the stress test results. The stress test results are first of all characterized by us passing. We in fact passed by a higher hurdle to the relevant CET1 requirement than we did the year before. So, I think it's important to characterize it in that way before we begin. Why was it a relatively significant drawdown? A couple of reasons. I think one is given that we're a retail business, as you know IFRS 9 hits us probably harder than a commercial business or corporate business and that's simply because of the perfect foresight that is going on in the stress test bringing losses forward. Two, is it's a very UK focused stress. Three, conduct has been a feature unfortunately of our results for some time and it also featured in the stress test. As we roll forward, we very much hope that conduct will come down and hence our illustrations today of numbers if you like if you exclude PPI charges, but that we hope will be a lesser issue in the stress test moving forward than it has been historically.

And then to your particular point within the kind of retail book, what is causing a bit of stress. It's the mortgage portfolio in particular that I mentioned on the slide up there earlier on, which is to say the '06 to '09 call it the '06 to '08 mortgage portfolio is a mortgage portfolio that incurs higher stress losses. Now, as we see it, it is a well performing book that is well seasoned and we feel very comfortable with it. But when you run it through the stress particularly the PRA generated stress, it is generating significant stress losses.

Andrew Coombs -- Citi -- Analyst

Okay. If I could perhaps come out to the first question and phrase it slightly differently. Your 1% management buffer that you incorporate, what are the inputs into that 1%? What makes you feel comfortable that 1% is the right number?

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

Andrew, as William says, we can't really comment on the PRA buffer like any other bank cannot comment on PRA buffer. But I would add that given that you saw that we kept exactly the same capital guidance of capital requirements around 12.5% and the management buffer of around 1%, if you do the math, I think that is quite helpful.

Andrew Coombs -- Citi -- Analyst

Understood.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

So, we go to Rahul and the other side of the room.

Raul Sinha -- JPMorgan -- Analyst

Thanks. Good morning. It's Rahul Sinha from JPMorgan. I guess the first one is on the comment around the outlook slightly starting to improve for the UK.

William Chalmers -- Executive Director and Chief Financial Officer

On the -- sorry.

Raul Sinha -- JPMorgan -- Analyst

On the outlook improving the recovery trends, I mean you probably got the best insight of all the banks given your current account share into what's going on on the ground. So, just to understand a little bit more, what are you seeing? And then secondly, trying to marry that with your flat balance sheet guidance on average assets because I think you also said pricing has improved. So, if I take that along with the fact that you're seeing some signs of recovery, why are you not being more positive on the asset growth aspiration for the --. And I've got a second one, I don't know if you want me to wait.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

You want me to start the first one? Why don't you say the second one?

Raul Sinha -- JPMorgan -- Analyst

So the second one is on the head office, which is quite big in the context of the Group.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

You mean our building?

Raul Sinha -- JPMorgan -- Analyst

Well, this GBP26 billion of RWA is it makes GBP800 million of obviously profits, LDCs within that. And HSBC yesterday said that they are going to close their principal finance business because of the peak to trough losses and the stress test and I was wondering if you've got any thoughts about whether or not this is also one of the areas which is causing your volatility in the stress test performance. The head office, how should we think about the outlook for the profitability of that and the RWAs? Thank you.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

Thank you. Rahul. Look, I mean you are absolutely right, I mean we are the largest retail and commercial bank in the UK and we -- and throughout the country. So, I think we have quite important information available as leading indicators and what we see is actually quite a clear picture which is coming into December and we have discussed this in previous presentations, you have seen a resilient household sector built on rising real wages and continued rising employment and households are supporting consumption, which is more than two-thirds of the economy. But you were seeing a decline on business confidence that sooner or later if continued would not only damage the investment, but employment and would affect the rest of the economy.

So what happens with the election, as I said in my remarks, where you have a clear government with a clear majority, you now have in our opinion a much clearer sense of direction. And in line with that what we are seeing is the following. Real wages, we just had the final numbers, the highest in the last few years if you do average of the three months. So, real wages continue to grow at around 2%. This is compounded by another record employment number. You see house prices with early signs of recovery for two months in a row and much broader number of transactions -- much bigger number of transactions and this is throughout the country. This is not only London and Southeast. Consumer confidence levels that several service have published have also improved.

And on the business side where the problem was, you have seen a significant pickup in confidence. We see that throughout the country as well in our contacts with our customers, which should lead over time to more investments which is positive. Finally, on the positive side, we clearly expect a significant fiscal stimulus on infrastructure projects from the government in the budget, which should change as William said the relative stances of monetary versus fiscal policies.

So, what do you have on the negative side? You still have significant uncertainty as I also said on the trade deal with EU in particular, but also with the other main geographic regions. So, that also still has some uncertainty. And obviously, we should not underplay whatever the impact of the coronavirus might be in terms of supply chains on one hand and trades and on the other hand on consumption of China, which is the largest part of the world GDP growth every year. So, those are the negatives.

My view, as I see the economy at this moment in the UK, is that this all taken together is positive. So, your question then is why are you not increasing assets as a consequence and also given what we are seeing on mortgage prices. Well, depends on the segments. We are absolutely minded to continue to grow in our key target segments as I mentioned in my presentation. So in terms of car finance, we have a 15% market share, but that's lower than our overall 18% market share. We intend to continue to grow there. In SMEs we have constantly grown above the market. In mortgages, the prices have -- the margins have continued to improve as Vim said and this has been back ended in Q4 and into Q1. Our January performance is better than what we expected. So, you should expect us to act accordingly.

But as William also says and I mentioned as well, we are continuing to -- on the large corporate space, we are continuing to optimize the portfolio in the sense of some products and relationships where we have sub cost of equity returns. And as you saw, the commercial bank has been as a consequence a big contributor to the cash flow -- to the free capital that we release every year and that should continue. So, our guidance for the moment although stable has these two differences between large corporates if you want and our target segments, which lead to the guidance and that's squares the two parts of your question.

Vim Maru -- Group Director, Retail

And maybe if I just add one thing just on the mortgage market. The beauty of our intermediary channel strategy is that it's not fixed, it's a triangle that we're looking at and if things look better, we'll do more as we did in the second half.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

James?

Raul Sinha -- JPMorgan -- Analyst

The Group center question?

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

Sorry.

William Chalmers -- Executive Director and Chief Financial Officer

I'll get to the Group center in just a second. I'd simply add one point to the comments there of Antonio and Vim, which is that because of this optimization exercise if you like in the commercial business, it's not a static balance sheet. We are getting out of some exposure simply because the relationships are not yielding what we would like to see, but we are going into others. And so don't think of it is just a static set of relationships, it's actually one that's turning and changing all through the year.

The -- on the head office point, the central piece if you like is made up of a number of different blocks. The LDC component is one of them, Treasury and gilt sales for example is another. I think I mentioned in my comments that we expect to see that down during the course of '20 -- the gilt sales piece I mean during the course of 2020. We hope that we will see some improvement actually in LDCs so there'll be some offsetting factors there. And then the third element is central as ever I suppose is composed in part of transfer pricing relationships and how we price and set the business up and that's a picture which is not really dependent upon external market conditions. It's very much dependent on the internal choices that we make as to how we establish and run the business.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

James?

James Invine -- Societe Generale -- Analyst

Thanks. Hi, good morning. It's James Invine here from SocGen. William, you talked about the Pillar 2A coming down with the pension contributions. I was just wondering if you could tell us please what the gearing is on that. So for every GBP100 million that goes in, what happens to the Pillar 2A? Second question I guess is just to confirm that within your ongoing 170 basis points to 200 basis points guidance, you've included the current existing plan that you've agreed with the trustees so you're not assuming any renegotiation. And then the third is I was just wondering if you could give us a view on where the deficit stands today versus the GBP6 billion scheduled payments that you've got. Thanks.

William Chalmers -- Executive Director and Chief Financial Officer

Sorry, James. I caught well one of those questions. I may need to come back to you just to clarify on the other two. On the pension relationships, the trustee contributions point that you made, we are about to undertake next revaluation and pensions contribution discussion with the trustees. That would be effectively with a date of the end of 2019 and then the negotiation will proceed during the course of 2020 with the expectation of we'll wrap it up at the back end of 2020, which then establishes our contributions going forward. So, the contributions for 2020 will be as planned if you like. Contributions thereafter will be a function of that discussion that we have with the trustee, which will be subject to the normal inputs, if you like, into that conversation.

Now, just give me your first and third question again, because I'm not sure I fully...

James Invine -- Societe Generale -- Analyst

It was just for the money that goes into the pension fund, what's the gearing? What do you get back on your Pillar 2A?

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

So the Pillar 2A contributions, what is the impact of the pension contributions?

William Chalmers -- Executive Director and Chief Financial Officer

Yes. That's probably something, which I won't will talk about publicly because it's really a matter between us and the PRA as to the extent to which they see Pillar 2A benefits from pension contributions. Safe to say that the Pillar -- a component of the Pillar 2A, if you like, is to accommodate a pension stress and so logically the amount of capital that you need for that stress should go down as the pension fund gets better funded. So, you can see the correlation there. I won't go into the particularities or the exact maths of the offset.

James Invine -- Societe Generale -- Analyst

Okay. And then just, do you have a view on how big the deficit is at the moment?

William Chalmers -- Executive Director and Chief Financial Officer

It's in line with our expectations based upon obviously the disclosure as to the accounting and the liability if you like less the contributions as we had anticipated before.

James Invine -- Societe Generale -- Analyst

Thanks.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

Shall we continue here? Chris?

Chris Cant -- Autonomous Research -- Analyst

Good morning. It's Chris Cant from Autonomous. Thank you for taking my question. If I could ask on your RoTE guidance, please. You've cut the guidance for 2020 to 12% to 13% and I understand you're still adding back the amortization costs within that. In 2019, the amortization add back was worth about 120 bps on your report -- your reported return, but obviously, your EPS figures include those costs as do most peers in their calculations. So if I take your guided range of 12% to 13%, knock off 120 basis points, multiplied through by the 50.8p of TNAV you've just reported; that implies statutory earnings for 2020 of 5.5p to 6p. Am I missing anything in the maths there?

And when I look at consensus of 6.5p of earnings for next year given everything you've said, it does feel like that other income number is going to come down quite a lot if that is the EPS number you're pointing us to given the rest of your guidance on provisions and NIM. Thank you.

William Chalmers -- Executive Director and Chief Financial Officer

Okay. Thanks for the question, Chris, I'm going to answer that in parts If you like, because what I don't want to do is to give you guidance on any particular EPS number that you may be arriving at. The first of those two parts, the RoTE calculation, you're right, the amortization point is in the RoTE and that is responsible -- I see it more generally as about 100 basis points, but you're absolutely right it's there. We have thought about that and I think to the extent that we take into account, any adjustments that we will do are more likely to be off the back of GSR4 rather than right now. So, the point is certainly cognizant of the point, but it's going to be addressed in GSR4 not today. As to your calculations, it may be worth you just running with Douglas around the calculations that you have and he can give you some guidance. But again, I'd hesitate before being too precise about confirming any particular EPS outcome that you're coming out with.

On the other income point, I think I would come back to the discussion that we had earlier on around what's going on in the other income line. And the strands there really just to briefly recapitulate, if you like, we are seeing in each of our business lines clearly a degree of pressure, but also a degree of opportunity as to each of them. Going through them very briefly, commercial banking, I mentioned the two strands earlier to a degree about markets activity, but also to a degree about transaction banking or cash management I should say. Within insurance, we see the advancement in annuities both bulk and individual. We see the advances in protection. We see some cost benefits, which don't get locked in until the second half. And in retail, as said as payments practices change so will payments revenues. So, there's then the central item which as I mentioned earlier on, I think is going to see lesser gilts income, hopefully a little bit of improved performance of the back of LDC. You add all of that together, I'm not going to give you any other income guidance number, if you like, because we don't; but it is firmly encapsulated within the overall P&L guidance that we're giving you including the RoTE of 12% to 13%.

Chris Cant -- Autonomous Research -- Analyst

If I could just follow up briefly in terms of bridging from your guided statutory RoTE target to an EPS number, I appreciate you don't want to give a figure, but if I ask it slightly differently. The TNAV number of 50.8p for the full year, you're around the level you say you need in terms of CET1, you're going to be doing quarterly dividends during the course of 2020 which will avoid any meaningful build I guess in TNAV during the course of the year because you're distributing on a more regular basis. So, that does appear to be kind of your base jumping-off point for the 12% to 13%. So, is there a bigger range of uncertainty around your statutory RoTE guidance or can we use that in the maths because you have given us the 12% to 13%?

William Chalmers -- Executive Director and Chief Financial Officer

No, I don't think so. I'd hesitate before reading too much into your dividend point though, Chris. I mean the dividend as you say may get distributed more often.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

That doesn't change the total distribution.

William Chalmers -- Executive Director and Chief Financial Officer

But on the other hand, it doesn't change the total distribution, number one. But also number two, the cash if you like sits in the balance sheet and therefore contributes to TNAV for quite a long period. You only actually hit the targets. Already made the distribution, half the point of distribution you may accrue for it earlier on, but it's still in the TNAV.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

And I think, Chris, another point that obviously you have to consider is that if you look at TNAV evolution, I think the impact of PPI on TNAV was higher than the dividends distributed and PPI as we just said is about over. So, that's another point that increases TNAV throughout the year, right.

Chris Cant -- Autonomous Research -- Analyst

Okay. Thank you.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

Fahed?

Fahed Kunwar -- Redburn -- Analyst

Hi, it's Fahed Kunwar from Redburn. Just a couple of questions. The first one is on restructuring charges. So, I think going forward you're looking at a restructuring charge in excess of the GBP471 million that you booked for this year in 2020. A lot of the UK banks -- a lot of the banks have come out with restructuring charges that have been higher than expected. So, I've got the kind of sense from the presentation that there's more to come on the cost base. Should we expect kind of permanently higher restructuring charges on the back of that as well if we are to assume that costs keep coming down? That's question one.

And question two is on capital distribution. So, I think we can all do the maths that you have excess capital in 2020. You're trading at 1.1 times price to book, your P&L's or your revenue line's going backwards. Any growth you've had over the last couple of years has come from inorganic acquisitions on NII, MBNA, and Tesco. Would you consider more organic acquisitions and how do you think inorganic purchases and how do you think of that in terms of buying loan books versus buying stuff to help you wealth business, your insurance business, and that struggling OOI line? Thanks.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

Just to start with your final question and then William can elaborate and answer the first one as well. I mean, our strategy is exactly the same. Within our positioning, If there are loan books that fit our positioning with our type of customers, we would consider them. We are not considering anything significant at the time as we speak, but we will continue with the policy that we have followed in the past. If there are loan books like Tesco or like others that fit within our positioning and have interesting customer segments at attractive returns for our shareholders, you should expect us to look at all of those and potentially we could acquire some of it. I mean, this is completely the repetition of the policy because as I said, we don't have anything at the moment that we are looking at.

Fahed Kunwar -- Redburn -- Analyst

Can I ask one follow-up question there? Is there a regulatory kind of burden on how much you can increase that loan book by because you are sized in the UK and would that incentivize you to look outside of your loan book to other parts of your business?

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

No, I don't think so. We have a particular attention to our market share in terms of current accounts where we showed you our current account market share in terms of balance is around 22%, but in terms of loan books, we are below that. So we don't think there is any special constraint. It will be a matter of target segments, the right customers, attractive economics for shareholders because I think the past transactions show.

William Chalmers -- Executive Director and Chief Financial Officer

You had a question on restructuring charge as well, Fahad, which perhaps I'll answer. The restructuring charges I mentioned for 2020 we expect to be somewhat higher than it was in 2019. 2019 saw the run-off of a couple of programs, ring-fencing and MBNA among them. 2020 is going to see one or two if you like factors going the other way. I mentioned increased severance, I mentioned property portfolio rationalization, I mentioned response to regulatory change in particular IBOR. Those are features. There are other bits and pieces, if you like, in that overall restructuring picture, but those are three significant ones that are important to point out.

Your question was is that going to be a kind of an ongoing feature, if you like, of the business. It's an interesting question in a way because the restructuring line is a response to what is going on in the world around us. And so in a sense, the question has to depend upon a point of view as to regulatory change. How often are we going to see IBOR type shifts for example? It's a question that relates to how is technology going to change? How often are we going to see movements from -- to cloud if you like off the back of legacy systems? It's a function of those types of issues. And if you have a view, if you like, the regulatory change is hopefully going to be slightly less prevalent looking forward than it has been in the past that in turn we should see our restructuring charge benefit off of that as we go forward. Having said that, as you know, we are in an environment of rapid technology change right now and restructuring charges in part are a response to that. I don't expect that to slow down any time soon.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

Please -- you already have a mic.

Fahad Changazi -- Mediobanca. -- Analyst

Hello. Good morning. It's Fahad Changazi from Mediobanca now. Couple of quick questions. Firstly, just a quick one on Solvency II. You got one 170% pre divi Solvency II. Can I just confirm that you're happy with this level, you're happy with the leverage after repayment of loan last year, and consequently GBP500 million of divis?

And second question, you accelerated the bulks in H2, there is some seasonality in that. I remember in Q3 you mentioned the sourcing of assets and the yields on those assets and Vim mentioned that now you're going to LTMs. So I was wondering could we expect at least 2 billion of bulks each year of where that's going? Could I just confirm, William, that you did say we can expect zero longevity releases in 2020? And just very finally, the longevity swap you did with the pension, the GBP10 billion, will that have any tangible impact on the P 2A?

William Chalmers -- Executive Director and Chief Financial Officer

Yes. Good question. Thanks, Fahad, for those questions. They are all important ones. Solvency II, yes, we're happy with where we are in Solvency II. There are, as you know, a number of kind of counterbalancing factors that go on into that. At the moment, we're in a low interest rate environment. Low interest rate environments are not especially helpful from an insurance capital point of view. They increase the SCR, they increase the risk margin. But so far we are managing with that and we expect to manage with that during the course of 2020. So, we feel good about the capital position and we feel good about the dividends during the course of 2020 coming off the back of the insurance company.

Second question bulks, you're right, it's been an area of increased focus and attention from us. It is an area that it's not only us, if you like, that are competing in that field and so there is a relatively competitive landscape, if you like, in terms of sourcing assets. To a degree, we should be able to source some assets from within the banking business that we run that in turn afford us proprietary opportunities if you like. Now, we need to be very mindful of a, the arm's length nature of those transactions and b, concentration risks. But subject to those caveats, it is if you like one of the benefits of being a combined group. So, I think the asset picture is as a whole a competitive picture for sure. We should enjoy some competitive advantage there.

The yield point, you're right. I would say the bigger challenge to the pricing if you like around bulks right now is more actually subject to the low interest rate pressures that we see rather than necessarily the competitive environment. The challenge being that in a low interest rate environment, the pricing that you can offer on a bulk is just inherently less attractive to a client. That I think is a more important factor for now. Hopefully, we'll emerge over -- out of that over the course of the year.

The annuities, I would go beyond bulks a little bit when we talk about our annuity strategy because I'd also want to point out the individual annuities aspect to it. Antonio mentioned it in his speech with respect to the opening up if you like of the individual annuities platform that we have. That's an important engine of the business and it's an important engine in 2020 of the business.

You then asked about longevity releases. We had a big longevity release in the context of 2019 as you know. I wouldn't rule it out for 2020, but I wouldn't expect it to be of the order of magnitude that we saw in 2019. If we do get it -- I think the other point is worth making. If we do get it, it's likely to be back end, second half of 2020 not front end as it was in the course of 2019.

And then finally longevity swap, in a way I'm glad that you brought that up because the longevity swap is quite a good example of the Pillar 2A analysis debate if you like. We have a few risks in the pension fund. We have hedged and eliminated most of them. Longevity is one of those that was outstanding. By taking out the longevity swap, we have effectively addressed if you like part of that risk. We haven't done the whole pension population. I think it's about half the pension population is covered by that GBP10 billion swap that we did. Part of the reason that we did it and ultimately this is going to be up to the PRA not up to us. But part of the reason why we did it is because it removes or reduces the stress of the pension fund in an adverse longevity environment and that in turn should allow us to get some Pillar 2A benefits off the back of it. Now, that's a discussion between us and the PRA about the quantum of those benefits, but that's certainly part of the objective.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

Claire?

Claire Kane -- Credit Suisse -- Analyst

Hi. It's Claire Kane from Credit Suisse. A couple of questions, please. The RWA optimization, how much of that strategy is driven by trying to improve stress test performance? Because I know you said you had an improved stress test performance last year in terms of the hurdle rate, but you're now going to the next 100 basis points lower and effectively wiping out all of that hurdle. So, you mentioned you should have an improvement from run-off of the legacy mortgage book, hopefully lower conduct. How aligned are you on decrease in risk in mid and global corporates to help with that? Can you just comment on the differential margin between that business and new mortgage business because I guess that's where the new growth is coming from?

And then my second question is on the capital generation guide of 170 basis points to 200 basis points. Can you tell us how much you've penciled in there for the GBP800 million of pension contributions because that's gross 40 bps, but you have visibility on which schemes you're in surplus so perhaps it's not quite as large as 40 bps? And then on the insurance dividend, you said you feel good about the outlook there. So, are you assuming you have an increased insurance dividend for capital generation purposes next year? Thanks.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

Sure. Thank you, Claire. William will take your questions.

William Chalmers -- Executive Director and Chief Financial Officer

Thanks, Claire. RWA optimization first of all, it's not inspired by the stress test. The RWA optimization is about improving the returns of our commercial business. If you look at the returns within our business and the capital allocation against them, it has been the case that retail has been a relatively positive return and though commercial has been positive, but it's been less positive if you like versus the retail business and we would like to correct that balance over time. The testimony to that in a sense is the fact that much of the retail -- sorry, much of the commercial optimization exercise is actually going on at the better end of the credit spectrum. So, it is not involving the relationships that would typically contribute to stress losses if you were to have an adverse macroeconomic environment. That's where we see some of the weaker returns and that's where we see the optimization opportunity if you like being better for the Group.

The third of your questions around insurance dividend. The insurance dividend typically contributes around 13-ish basis points of capital to the Group. We have two ways of looking at it. We have a run rate dividend if you like that comes off of the insurance business based upon the performance of the insurance business and obviously subject to the insurance board's OK on that. And then we have to the extent capital management activity is undertaken within the insurance business for any given issue, for example, we put an equity hedge on it during the course of 2019, then that in turn reduces the requirement for equity or for capital I should say in the insurance business which then generates an additional opportunity for capital repatriation, for want of a better word, from the insurance companies of the Group. And so we see the dividend if you like in two pieces in that respect, the ongoing business and the capital actions piece. 2020 we have -- in our pro forma numbers actually the end of 2019, we have included the business as usual dividend and then over the course of 2020, we will obviously see how the progress of the business matches up to see what the dividends will be at that time.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

Okay. I think we can take one further question.

Claire Kane -- Credit Suisse -- Analyst

Sorry. I did ask about how much the pension contribution would take a hit because GBP800 million growth is not going to be fully come off the CET1 given some of the schemes are not all in surplus. So, see the pension contribution, what are you factoring? Is it not 40 bps, is it less than 40 bps?

William Chalmers -- Executive Director and Chief Financial Officer

Claire, would you mind, can I -- can we take that one separately with the IR team simply because it's perhaps a question that will be better answered by them. I would say that most of the schemes -- one or two of them are close to the edge for sure, but most of the schemes are in surplus and those that are not in surplus are only just. So, there's not really -- there's not too much of an issue that you're describing. But again, maybe we'll get the question answered in more detail by the IR team.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

Right. We'll take one final question. We are a bit over time. Martin, why don't you start?

Martin Leitgeb -- Goldman Sachs -- Analyst

Thank you. Martin Leitgeb from Goldman Sachs. Could I ask on competition in mortgages. So, I was just wondering if you could comment how you've seen competition and mortgages evolving through the year. And a couple of -- a number of your peers have essentially indicated they would like to grow above the current stock share going forward. I was just wondering...

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

I know that is your favorite question.

Martin Leitgeb -- Goldman Sachs -- Analyst

And the second question just on the TFS. So, obviously there is the first meaningful maturities coming toward the end of the year. I was just wondering how you think this will impact deposit pricing here and whether you think there will be any spillover in terms of asset pricing given obviously a reduced amount of funding being available? Thank you.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

Okay. We broadly think that the mortgage environment will stay as you have seen it over the last few months. It is true what you said. On the other hand as Vim also says and given where the swaps are, the margins have improved for the market as a whole. The market is growing more as well. As I just told you, we are seeing early important indicators of additional house sales, house prices, and mortgage business as a consequence; and the mortgages at the moment of new business side above the mortgages -- the mortgage margins of new business are higher than the ones of maturing business. So we are not -- we are anticipating this trend to continue, but on the back of a stronger market given we see -- what we see on the economy, what we see on house prices, what we see on volumes of transactions, and of mortgages requests. And as you kind of imagine, we already saw January numbers. Okay?

In terms of TFS, I think you're right there are still additional redemptions to be made. We are very comfortable with our liquidity position because, as you know, savings prices have in general in the market been going down and savings continue to be quite easy to attract. And you look at our current account balances which are the most -- the high quality ones, they continue to grow significantly above the market. So, I would not expect those TFS redemptions that you mentioned, which will be a fact to modify the behavior because they have been also happening last year. Please, last question.

Jenny Cook -- Mediobanca -- Analyst

Jenny Cook. I have just one very quick question. I'm just trying to square your guidance on average interest earning assets because you're going from GBP437 billion at the end of Q4 -- the Q4 average to GBP435 billion as an average for FY '20. Simple averaging suggests that you might be exiting FY '20 with around GBP433 billion to get me to that average. I just want to understand one, if I was correct in that kind of line of thinking; and two, if I look at expectations for FY '20, '21 they are up at GBP441 billion. So, quite a big gap versus a potential Q4 exit rate. Do you see yourselves as kind of achieving the volume growth necessary to close that gap? Thanks.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

I think I'll allow William to answer that.

William Chalmers -- Executive Director and Chief Financial Officer

I'll give a very brief answer and then perhaps we can just sort of follow-up as appropriate, which is simply to say over the course of the year, there are periods of the year where the asset base is going down particularly in relation to certain product areas and then follows up off the back of that. So, what you're seeing is an average interest rate -- I'm sorry an average interest earning asset picture, which in turn reflects that in-year if you like change in pattern of the overall assets. So, you won't necessarily see the numbers work out in quite the way to be expected based upon end of period numbers. So, that's a brief answer to the question and we can discuss it further.

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

We can follow up with you later. Look, thank you very much everyone for joining us and for your questions. We really appreciate it. Thank you.

Duration: 109 minutes

Call participants:

Antonio Horta-Osorio -- Executive Director and Group Chief Executive

Vim Maru -- Group Director, Retail

William Chalmers -- Executive Director and Chief Financial Officer

Joe Dickerson -- Jefferies -- Analyst

Rohith Chandra-Rajan -- Bank of America Merrill Lynch -- Analyst

Guy Stebbings -- Exane BNP Paribas -- Analyst

Aman Rakkar -- Barclays -- Analyst

Andrew Coombs -- Citi -- Analyst

Raul Sinha -- JPMorgan -- Analyst

James Invine -- Societe Generale -- Analyst

Chris Cant -- Autonomous Research -- Analyst

Fahed Kunwar -- Redburn -- Analyst

Fahad Changazi -- Mediobanca. -- Analyst

Claire Kane -- Credit Suisse -- Analyst

Martin Leitgeb -- Goldman Sachs -- Analyst

Jenny Cook -- Mediobanca -- Analyst

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