Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
28 July 2023
Commission file number: 001-10306
Form 6-K
NatWest Group plc
Gogarburn
PO Box 1000
Edinburgh EH12 1HQ
Scotland
United Kingdom
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F X Form 40-F
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
If “Yes” is marked, indicate below the file number assigned to
the registrant in connection with Rule 12g3-2(b): 82-
This report on Form 6-K, except for any information contained on any websites linked or documents referred to in this report, shall be deemed incorporated by reference into the company’s Registration Statement on Form F-3 (File No. 333-261837) and to be a part thereof from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished.
Forward-looking statements
Cautionary statement regarding forward-looking statements
Certain sections in this document contain ‘forward-looking statements’ as that term is defined in the United States Private Securities Litigation Reform Act of 1995, such as statements that include the words ‘expect’, ‘estimate’, ‘project’, ‘anticipate’, ‘commit’, ‘believe’, ‘should’, ‘intend’, ‘will’, ‘plan’, ‘could’, ‘probability’, ‘risk’, ‘Value-at-Risk (VaR)’, ‘target’, ‘goal’, ‘objective’, ‘may’, ‘endeavour’, ‘outlook’, ‘optimistic’, ‘prospects’ and similar expressions or variations on these expressions. In particular, this document includes forward-looking targets and guidance relating to financial performance measures, such as income growth, operating expense, RoTE, ROE, discretionary capital distribution targets, impairment loss rates, balance sheet reduction, including the reduction of RWAs, CET1 ratio (and key drivers of the CET1 ratio including timing, impact and details), Pillar 2 and other regulatory buffer requirements and MREL and non-financial performance measures, such as NatWest Group’s initial area of focus, climate and ESG-related performance ambitions, targets and metrics, including in relation to initiatives to transition to a net zero economy, Climate and Sustainable Funding and Financing (CSFF) and financed emissions. In addition, this document includes forward-looking statements relating, but not limited to: implementation of NatWest Group’s purpose-led strategy and other strategic priorities (including in relation to: phased withdrawal from ROI, cost-controlling measures, the creation of the C&I franchise and the progression towards working as One Bank across NatWest Group to serve customers); the timing and outcome of litigation and government and regulatory investigations; direct and on-market buy-backs; funding plans and credit risk profile; managing its capital position; liquidity ratio; portfolios; net interest margin and drivers related thereto; lending and income growth, product share and growth in target segments; impairments and write-downs; restructuring and remediation costs and charges; NatWest Group’s exposure to political risk, economic assumptions and risk, climate, environmental and sustainability risk, operational risk, conduct risk, financial crime risk, cyber, data and IT risk and credit rating risk and to various types of market risk, including interest rate risk, foreign exchange rate risk and commodity and equity price risk; customer experience, including our Net Promotor Score (NPS); employee engagement and gender balance in leadership positions.
Limitations inherent to forward-looking statements
These statements are based on current plans, expectations, estimates, targets and projections, and are subject to significant inherent risks, uncertainties and other factors, both external and relating to NatWest Group’s strategy or operations, which may result in NatWest Group being unable to achieve the current plans, expectations, estimates, targets, projections and other anticipated outcomes expressed or implied by such forward-looking statements. In addition, certain of these disclosures are dependent on choices relying on key model characteristics and assumptions and are subject to various limitations, including assumptions and estimates made by management. By their nature, certain of these disclosures are only estimates and, as a result, actual future results, gains or losses could differ materially from those that have been estimated. Accordingly, undue reliance should not be placed on these statements. The forward-looking statements contained in this document speak only as of the date we make them and we expressly disclaim any obligation or undertaking to update or revise any forward-looking statements contained herein, whether to reflect any change in our expectations with regard thereto, any change in events, conditions or circumstances on which any such statement is based, or otherwise, except to the extent legally required.
Important factors that could affect the actual outcome of the forward-looking statements
We caution you that a large number of important factors could adversely affect our results or our ability to implement our strategy, cause us to fail to meet our targets, predictions, expectations and other anticipated outcomes or affect the accuracy of forward-looking statements described in this document. These factors include, but are not limited to, those set forth in the risk factors and the other uncertainties described in NatWest Group plc’s Annual Report on Form 20-F and its other filings with the US Securities and Exchange Commission. The principal risks and uncertainties that could adversely NatWest Group’s future results, its financial condition and/or prospects and cause them to be materially different from what is forecast or expected, include, but are not limited to: economic and political risk (including in respect of: political and economic risks and uncertainty in the UK and global markets, including due to high inflation and rising interest rates, supply chain disruption and the Russian invasion of Ukraine); changes in interest rates and foreign currency exchange rates; uncertainty regarding the effects of Brexit; and HM Treasury’s ownership as the largest shareholder of NatWest Group plc); strategic risk (including in respect of the implementation of NatWest Group’s purpose-led strategy; future acquisitions and divestments; the phased withdrawal from ROI and the transfer of its Western European corporate portfolio); financial resilience risk (including in respect of: NatWest Group’s ability to meet targets and to make discretionary capital distributions; the competitive environment; counterparty and borrower risk; prudential regulatory requirements for capital and MREL; liquidity and funding risks; reductions in the credit ratings; the requirements of regulatory stress tests; model risk; sensitivity to accounting policies, judgments, estimates and assumptions; changes in applicable accounting standards; the value or effectiveness of credit protection; the adequacy of NatWest Group’s future assessments by the Prudential Regulation Authority and the Bank of England; and the application of UK statutory stabilisation or resolution powers); climate and sustainability risk (including in respect of: risks relating to climate change and sustainability-related risks; both the execution and reputational risk relating to NatWest Group’s climate change-related strategy, ambitions, targets and transition plan; climate and sustainability-related data and model risk; the failure to implement climate change resilient governance, systems, controls and procedures; increasing levels of climate, environmental, human rights and sustainability-related regulation and oversight; climate, environmental and sustainability-related litigation, enforcement proceedings investigations and conduct risk; and reductions in ESG ratings); operational and IT resilience risk (including in respect of: operational risks (including reliance on third party suppliers); cyberattacks; the accuracy and effective use of data; complex IT systems; attracting, retaining and developing diverse senior management and skilled personnel; NatWest Group’s risk management framework; and reputational risk); and legal, regulatory and conduct risk (including in respect of: the impact of substantial regulation and oversight; the outcome of legal, regulatory and governmental actions, investigations and remedial undertakings; the transition of LIBOR other IBOR rates to replacement risk-free rates; and changes in tax legislation or failure to generate future taxable profits).
NatWest Group – Form 6K Interim Results 2023 |
2 |
Climate and ESG disclosures
Climate and ESG disclosures in this document are not measures within the scope of International Financial Reporting Standards (‘IFRS’), use a greater number and level of judgements, assumptions and estimates, including with respect to the classification of climate and sustainable funding and financing activities, than our reporting of historical financial information in accordance with IFRS. These judgements, assumptions and estimates are highly likely to change over time, and, when coupled with the longer time frames used in these disclosures, make any assessment of materiality inherently uncertain. In addition, our climate risk analysis, net zero strategy, including the implementation of our climate transition plan remain under development, and the data underlying our analysis and strategy remain subject to evolution over time. The process we have adopted to define, gather and report data on our performance on climate and ESG measures is not subject to the formal processes adopted for financial reporting in accordance with IFRS and there are currently limited industry standards or globally recognised established practices for measuring and defining climate and ESG related metrics. As a result, we expect that certain climate and ESG disclosures made in this document are likely to be amended, updated, recalculated or restated in the future. Please also refer to the cautionary statement in the section entitled ‘Climate-related and other forward-looking statements and metrics’ of the NatWest Group 2022 Climate-related Disclosures Report.
Cautionary and forward looking statement regarding Non-IFRS financial measures and APMs
NatWest Group prepares its financial statements in accordance with generally accepted accounting principles (GAAP). This document may contain financial measures and ratios not specifically defined under GAAP or IFRS (‘Non-IFRS’) and/or are alternative performance measures (‘APMs’) as defined in European Securities and Markets Authority (‘ESMA’) guidelines. Non-IFRS measures and APMs are adjusted for notable and other defined items which management believes are not representative of the underlying performance of the business and which distort period-on-period comparison. Non-IFRS measures and APMs provide users of the financial statements with a consistent basis for comparing business performance between financial periods and information on elements of performance that are one-off in nature. Any Non-IFRS measures and/or APMs included in this document, are not measures within the scope of IFRS, are based on a number of assumptions that are subject to uncertainties and change, and are not a substitute for IFRS measures.
Disclaimer
The information, statements and opinions contained in this document do not constitute a public offer under any applicable legislation or an offer to sell or a solicitation of an offer to buy any securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments.
Introduction
Presentation of information
Unless otherwise specified herein, ‘Parent company’ refers to NatWest Group plc and ‘NatWest Group’ and ‘we’ refers to NatWest Group plc and its subsidiary and associated undertakings. The term ‘NWH Group’ refers to NatWest Holdings Limited (‘NWH’) and its subsidiary and associated undertakings. The term ‘NWM Group’ refers to NatWest Markets Plc (‘NWM Plc’) and its subsidiary and associated undertakings. The term ‘NWM N.V.’ refers to NatWest Markets N.V. The term ‘NWMSI’ refers to NatWest Markets Securities, Inc. The term ‘RBS plc’ refers to The Royal Bank of Scotland plc. The term ‘NWB Plc’ refers to National Westminster Bank Plc. The term ‘UBIDAC’ refers to Ulster Bank Ireland DAC.
NatWest Group publishes its financial statements in pounds sterling (‘£’ or ‘sterling’). The abbreviations ‘£m’ and ‘£bn’ represent millions and thousands of millions of pounds sterling, respectively, and references to ‘pence’ or ‘p’ represent pence where the amounts are denominated in pounds sterling (‘GBP’). Reference to ‘dollars’ or ‘$’ are to United States of America (‘US’) dollars. The abbreviations ‘$m’ and ‘$bn’ represent millions and thousands of millions of dollars, respectively. The abbreviation ‘€’ represents the ‘euro’, and the abbreviations ‘€m’ and ‘€bn’ represent millions and thousands of millions of euros, respectively.
To aid readability, this document retains references to EU legislative and regulatory provisions in effect in the UK before 1 January 2021 that have now been implemented in UK domestic law. These references should be read and construed as including references to the applicable UK implementation measures with effect from 1 January 2021.
Any information contained on websites linked or reports referenced in this interim results report for the period ended 30 June 2023 on Form 6-K is for information only and will not be deemed to be incorporated by reference herein.
Non-IFRS financial information
NatWest Group prepares its financial statements in accordance with generally accepted accounting principles (GAAP). This document contains a number of adjusted or alternative performance measures, also known as non-GAAP or non-IFRS performance measures. These measures are adjusted for notable and other defined items which management believe are not representative of the underlying performance of the business and which distort period-on-period comparison. The non-IFRS measures provide users of the financial statements with a consistent basis for comparing business performance between financial periods and information on elements of performance that are one-off in nature. The non-IFRS measures also include the calculation of metrics that are used throughout the banking industry. These non-IFRS measures are not measures within the scope of IFRS and are not a substitute for IFRS measures. For details of the basis of preparation and reconciliation where appropriate, please refer to appendix ‘Non-IFRS financial measures’ on page 113.
NatWest Group – Form 6K Interim Results 2023 |
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Natwest Group Interim Results on Form 6-K 2023 |
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NatWest Group – Form 6K Interim Results 2023 |
4 |
NatWest Group plc
Interim results for the period ended 30 June 2023
Chief Financial Officer, Katie Murray, commented
“NatWest Group’s strong performance for the first half of the year is underpinned by our robust balance sheet, with a high-quality deposit base, high levels of liquidity and a well-diversified loan book. As a result, we are able to continue lending to our customers and delivering sustainable returns and distributions to our shareholders, even in the current uncertain economic environment.
Although arrears remain low, we know that people, families and businesses are anxious about their finances and many are really struggling. We are being proactive in our support for those who are hardest hit, helping to build the financial resilience of the customers and communities we serve.”
Group Chief Executive Officer
On 25 July 2023, Alison Rose stepped down as Chief Executive Officer and as a Director of NatWest Group plc. Paul Thwaite was appointed as Chief Executive Officer and as a Director of NatWest Group plc for an initial period of 12 months, subject to regulatory approval.
Strong H1 2023 performance
- | H1 2023 attributable profit of £2,299 million, a return on equity of 12.6% and a return on tangible equity of 18.2%. |
- | Total income of £7,727 million increased by £1,508 million, or 24.2% compared with H1 2022. Total income, excluding notable items(1), increased by £1,485 million, or 25.2%, compared with H1 2022 principally reflecting the impact of lending growth and yield curve movements. |
- | Net interest margin (NIM) of 2.20% in H1 2023 compared with 1.60% in H1 2022. Q2 2023 NIM of 2.20% was 5 basis points lower than Q1 2023. Bank NIM of 3.20% in H1 2023 compared with 2.58% in H1 2022 with the increase reflecting favourable yield curve movements. Q2 2023 Bank NIM of 3.13% was 14 basis points lower than Q1 2023 principally reflecting asset margin pressure and changes in deposit mix from non-interest bearing to interest bearing balances. |
- | Operating expenses of £3,915 million were £262 million, or 7.2%, higher compared with H1 2022. Other operating expenses were £323 million, or 9.3%, higher than H1 2022. The cost:income ratio was 50.7% for the first half of the year compared with 58.7% in H1 2022. The cost:income ratio (excl. litigation and conduct) was 49.3% for the first half of the year compared with 56.0% in H1 2022. |
- | A net impairment charge of £223 million in H1 2023, or 12 basis points of gross customer loans, principally reflects an increase in post model adjustments driven by increased economic uncertainty notwithstanding a £98 million modelled release. Defaults remain stable and at low levels across the portfolio. |
Robust balance sheet underpinning growth
- | Net loans to customers increased by £7.6 billion to £373.9 billion during H1 2023. Net loans to customers excluding central items increased by £6.0 billion to £352.7 billion during H1 2023 primarily reflecting £5.9 billion of mortgage growth in Retail Banking. |
- | Up to 30 June 2023 we have provided £48.6 billion against our target to provide £100 billion climate and sustainable funding and financing between 1 July 2021 and the end of 2025. |
- | Customer deposit balances were stable in the second quarter following the outflows in the first quarter. Customer deposits excluding central items decreased by £11.8 billion to £421.1 billion during H1 2023. |
- | The loan:deposit ratio (LDR) was 86%. The LDR (excl. repos and reverse repos) was 83%, with customer deposits exceeding net loans to customers by around £71 billion. |
- | The liquidity coverage ratio (LCR) of 141%, representing £45.3 billion headroom above 100% minimum requirement, increased by 2 percentage points compared with Q1 2023 primarily due to increased wholesale funding and UBIDAC asset sale offset by capital distributions. |
Shareholder return supported by strong capital generation
- | We are pleased to announce an interim dividend of 5.5 pence per share and intend to commence an on-market buyback programme of up to £500 million in the second half of 2023 in addition to the £1.3 billion directed buyback completed in Q2 2023 bringing total distributions deducted from capital to £2.5 billion for H1 2023. |
- | Common Equity Tier (CET1) ratio of 13.5% was 70 basis points lower than at 31 December 2022 principally reflecting distributions deducted from capital of c.140 basis points and an increase in RWAs, partially offset by the attributable profit. |
- | RWAs increased by £1.4 billion during the first half of the year to £177.5 billion. |
Outlook(2)
We retain the guidance provided in the 2022 Annual Report on Form 20-F, with the exception of full year 2023 Bank NIM which is now expected to be less than 3.20%, with a current view of around 3.15%. This remains subject to market conditions including the assumption of a Bank of England base rate of 5.50% from Q3 2023 through to the end of the year.
(1) | Refer to the Non-IFRS financial measures appendix for details of notable items. |
(2) | The guidance, targets, expectations, and trends discussed in this section represent NatWest Group plc management’s current expectations and are subject to change, including as a result of the factors described in the NatWest Group plc Risk Factors section in the 2022 Annual Report on Form 20-F and the Summary Risk Factors in this announcement. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement. |
NatWest Group – Form 6K Interim Results 2023 |
5 |
Our Purpose in action
We champion potential, helping people, families, and businesses to thrive. By working to benefit our customers, colleagues, and communities, we will deliver long-term value and drive sustainable returns to our shareholders. Some key achievements in H1 2023 include:
People and families
- | We announced a new ambition to support 10 million people with their financial wellbeing every year by the end of 2027; starting with 6.5 million people in 2023 and increasing on an annual basis between 2024 and 2027, to reach 10 million a year by 2027. In H1 2023, we carried out c.341,000 financial health checks and extended our free Know Your Credit Score tool to everyone in the UK. |
- | From the end of April 2023, we stopped all fees and charges for personal mortgage customers in persistent financial difficulty who are receiving help from our specialist Financial Health and Support teams. |
- | We announced our collaboration with Places for People, British Gas Centrica and Schneider Electric – coordinated by Pineapple Sustainable Partnerships – to show that retrofitting homes at scale can be an achievable and affordable goal. |
Businesses
- | We announced our aim to provide an additional £1 billion of lending to the UK manufacturing sector by the end of 2030, aiming to stimulate growth and help manufacturers invest in cleaner, more efficient forms of energy generation and use(1). |
- | We announced strategic partnerships with WWF-UK to mobilise investment in climate and nature-friendly farming, and with food manufacturer McCain to reduce financial barriers for farmers transitioning to sustainable agricultural practices. |
- | As part of our ambition to remove the barriers for women in business, in March 2023 we became the first bank in Europe to issue a bond with the intention to use the net proceeds to lend to businesses identified as women-led. The nominal amount of the bond is €500 million (£446 million), as at 7 March 2023. |
Colleagues
- | With the National Youth Agency, we announced a new employee volunteering programme, which will enable our colleagues to deliver NatWest Thrive in their local youth clubs. |
- | We launched our new Women in Entrepreneurship learning programme, open to all colleagues across the bank, to help them offer practical advice and support to women entrepreneurs. |
- | We were included in The Times 2023 Top 50 Employers for Gender Equality list, run by business network, Business in the Community. |
Communities
- | We announced £5.7 million in cost of living donations to charities and strategic partners, including £1 million to the Trussell Trust to further support the Help through Hardship scheme and over £1.6 million to the debt advice sector. |
- | With the University of Edinburgh, we launched the Centre for Purpose-Driven Innovation in Banking, which will use business insights from NatWest Group to improve how data is used to benefit customers, researchers and policymakers. |
- | We launched the Royal Bank Regenerate Fund with giving platform, Neighbourly, to support schools, charities and community groups based in Scotland to deliver sustainability projects. |
Driving targeted growth
We’re driving our strategy forward through three areas of growth:
Delivering personalised solutions throughout our customers’ lifecycle
- | We’re focused on customer lifetime value to deliver growth: c.20% of youth accounts are held with NatWest Group(2) and in H1 2023 we attracted c.93,000 new NatWest Rooster card holders. |
- | According to a survey by Savanta, we have a 17.7% share of the start-up market, up from 13.0% at the same time last year, with c.55,000 new accounts opened in H1 2023(3). |
(1) | The £1 billion manufacturing fund lending package will be deployed through a variety of routes, including loans, asset finance and increased overdrafts. |
(2) | As at April 2023. Source: CACI – UK youth flow share max age 18, cash card and no overdraft and Rooster 11+ overlay (12 months rolling). |
(3) | Based on the % of 771 businesses, less than 2 years old, that name a NatWest Group brand as their main bank. Compared to other banks with a presence on the high street. Source: MarketVue Business Banking from Savanta at Q2 2023. Excludes those using personal bank accounts. |
NatWest Group – Form 6K Interim Results 2023 |
6 |
Supporting our customers’ sustainability transitions
- | During H1 2023 we provided £16.0 billion climate and sustainable funding and financing, bringing the cumulative contribution to £48.6 billion at 30 June 2023 against our target to provide £100 billion between 1 July 2021 and the end of 2025(4). |
- | As part of this, we aim to provide at least £10 billion in lending for residential properties with Energy Performance Certificate (EPC) ratings A and B between 1 January 2023 and the end of 2025. During H1 2023, we provided £2.3 billion in lending for residential properties with EPC ratings A and B. |
Embedding our services in our customers’ digital lives
- | We’re scaling up digital and payment offerings for our business customers: Mettle has grown its customer base to almost 100,000 with c.17,000 new accounts opened in H1 2023; £2.2 billion transactions were processed by Tyl by NatWest, a 64% year-on-year increase, and c.8,000 new merchants onboarded. |
- | We launched a whole-of-market(5) credit card offering: our credit card share is 9.6%(6), up from 5.7% this time last year, with c.309,000 cards issued in the year to date and c.76,000 new-to-bank customers. |
(4) | NatWest Group uses its climate and sustainable funding and financing inclusion criteria to determine the assets, activities and companies that are eligible to be included within its climate and sustainable funding and financing targets. This includes both provision of committed (on and off-balance sheet) funding and financing, including provision of services for underwriting issuances and private placements. |
(5) | Whole-of-market primarily comprises retail customers who do not currently hold a current account with NatWest Group. |
(6) | Source: eBenchmarkers 3 month rolling average to end May. |
NatWest Group – Form 6K Interim Results 2023 |
7 |
Business performance summary
|
|
Half year ended |
|
Quarter ended |
||||||
|
|
30 June |
|
30 June |
|
30 June |
|
31 March |
|
30 June |
|
|
2023 |
|
2022 |
|
2023 |
|
2023 |
|
2022 |
Summary consolidated income statement |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Net interest income |
|
5,726 |
|
4,334 |
|
2,824 |
|
2,902 |
|
2,307 |
Non-interest income |
|
2,001 |
|
1,885 |
|
1,027 |
|
974 |
|
904 |
Total income |
|
7,727 |
|
6,219 |
|
3,851 |
|
3,876 |
|
3,211 |
Litigation and conduct costs |
|
(108) |
|
(169) |
|
(52) |
|
(56) |
|
(67) |
Other operating expenses |
|
(3,807) |
|
(3,484) |
|
(1,875) |
|
(1,932) |
|
(1,766) |
Operating expenses |
|
(3,915) |
|
(3,653) |
|
(1,927) |
|
(1,988) |
|
(1,833) |
Profit before impairment losses/releases |
|
3,812 |
|
2,566 |
|
1,924 |
|
1,888 |
|
1,378 |
Impairment (losses)/releases |
|
(223) |
|
54 |
|
(153) |
|
(70) |
|
18 |
Operating profit before tax |
|
3,589 |
|
2,620 |
|
1,771 |
|
1,818 |
|
1,396 |
Tax charge |
|
(1,061) |
|
(795) |
|
(549) |
|
(512) |
|
(409) |
Profit from continuing operations |
|
2,528 |
|
1,825 |
|
1,222 |
|
1,306 |
|
987 |
(Loss)/profit from discontinued operations, net of tax |
|
(108) |
|
190 |
|
(143) |
|
35 |
|
127 |
Profit for the period |
|
2,420 |
|
2,015 |
|
1,079 |
|
1,341 |
|
1,114 |
Performance key metrics and ratios |
|
|
|
|
|
|
|
|
|
|
Notable items within total income (1) |
|
£344m |
|
£321m |
|
£288m |
|
£56m |
|
£97m |
Total income excluding notable items (1) |
|
£7,383m |
|
£5,898m |
|
£3,563m |
|
£3,820m |
|
£3,114m |
Bank net interest margin (1) |
|
3.20% |
|
2.58% |
|
3.13% |
|
3.27% |
|
2.71% |
Bank average interest earning assets (1) |
|
£361bn |
|
£338bn |
|
£362bn |
|
£360bn |
|
£342bn |
Cost:income ratio (excl. litigation and conduct) (1) |
|
49.3% |
|
56.0% |
|
48.7% |
|
49.8% |
|
55.0% |
Loan impairment rate (1) |
|
12bps |
|
(3bps) |
|
16bps |
|
7bps |
|
(2bps) |
Profit attributable to ordinary shareholders |
|
£2,299m |
|
£1,891m |
|
£1,020m |
|
£1,279m |
|
£1,050m |
Total earnings per share attributable to ordinary shareholders - basic (2) |
|
24.3p |
|
18.7p |
|
11.0p |
|
13.2p |
|
10.8p |
Return on tangible equity (RoTE) (1) |
|
18.2% |
|
13.1% |
|
16.4% |
|
19.8% |
|
15.2% |
Climate and sustainable funding and financing (3) |
|
£16.0bn |
|
£11.9bn |
|
£8.4bn |
|
£7.6bn |
|
£6.4bn |
NatWest Group – Form 6K Interim Results 2023 |
8 |
|
|
As at |
||||
|
|
30 June |
|
31 March |
|
31 December |
|
|
2023 |
|
2023 |
|
2022 |
Balance sheet |
|
£bn |
|
£bn |
|
£bn |
Total assets |
|
702.6 |
|
695.6 |
|
720.1 |
Net loans to customers - amortised cost |
|
373.9 |
|
374.2 |
|
366.3 |
Net loans to customers excluding central items (1) |
|
352.7 |
|
352.4 |
|
346.7 |
Loans to customers and banks - amortised cost and FVOCI |
|
385.2 |
|
385.8 |
|
377.1 |
Total impairment provisions (4) |
|
3.4 |
|
3.4 |
|
3.4 |
Expected credit loss (ECL) coverage ratio |
|
0.9% |
|
0.9% |
|
0.9% |
Assets under management and administration (AUMAs) (1) |
|
37.9 |
|
35.2 |
|
33.4 |
Customer deposits |
|
432.5 |
|
430.5 |
|
450.3 |
Customer deposits excluding central items (1,5) |
|
421.1 |
|
421.8 |
|
432.9 |
Liquidity and funding |
|
|
|
|
|
|
Liquidity coverage ratio (LCR) |
|
141% |
|
139% |
|
145% |
Liquidity portfolio |
|
227 |
|
210 |
|
226 |
Net stable funding ratio (NSFR) |
|
138% |
|
141% |
|
145% |
Loan:deposit ratio (excl. repos and reverse repos) (1) |
|
83% |
|
83% |
|
79% |
Total wholesale funding |
|
81 |
|
79 |
|
74 |
Short-term wholesale funding |
|
28 |
|
25 |
|
21 |
Capital and leverage |
|
|
|
|
|
|
Common Equity Tier (CET1) ratio (6) |
|
13.5% |
|
14.4% |
|
14.2% |
Total capital ratio (6) |
|
18.8% |
|
19.6% |
|
19.3% |
Pro forma CET1 ratio (excl. foreseeable items) (7) |
|
14.2% |
|
15.7% |
|
15.4% |
Risk-weighted assets (RWAs) |
|
177.5 |
|
178.1 |
|
176.1 |
UK leverage ratio |
|
5.0% |
|
5.4% |
|
5.4% |
Tangible net asset value (TNAV) per ordinary share (1,8) |
|
262p |
|
278p |
|
264p |
Number of ordinary shares in issue (millions) (8) |
|
8,929 |
|
9,581 |
|
9,659 |
(1) |
Refer to the Non-IFRS financial measures appendix for details of the basis of preparation and reconciliation of non-IFRS financial measures and performance metrics. |
(2) |
On 30 August 2022 issued ordinary share capital was consolidated in the ratio of 14 existing shares for 13 new shares. The average number of shares for earnings per share has been adjusted retrospectively. |
(3) |
NatWest Group uses its climate and sustainable funding and financing inclusion criteria to determine the assets, activities and companies that are eligible to be included within its climate and sustainable funding and financing targets. This includes both provision of committed (on and off-balance sheet) funding and financing, including provision of services for underwriting issuances and private placements. Up to 30 June 2023 we have provided £48.6 billion against our target to provide £100 billion climate and sustainable funding and financing between 1 July 2021 and the end of 2025. As part of this, we aim to provide at least £10 billion in lending for residential properties with Energy Performance Certificate (EPC) ratings A and B between 1 January 2023 and the end of 2025 During H1 2023 we provided £16.0 billion climate and sustainable funding and financing, which included £2.3 billion in lending for residential properties with EPC ratings A and B. |
(4) |
Includes £0.1 billion relating to off-balance sheet exposures (31 March 2023 - £0.1 billion; 31 December 2022 - £0.1 billion). |
(5) |
Central items includes Treasury repo activity and Ulster Bank Republic of Ireland. |
(6) |
Refer to the Capital, liquidity and funding risk section for details of the basis of preparation. |
(7) |
The pro forma CET1 ratio at 30 June 2023 excludes foreseeable items of £1.280 million: £780 million for ordinary dividends and £500 million foreseeable charges. (31 March 2023 excludes foreseeable items of £2,351 million: £1,479 million for ordinary dividends and £872 million foreseeable charges. 31 December 2022 excludes foreseeable charges of £2,132 million: £967 million for ordinary dividends and £1,165 million foreseeable charges). |
(8) |
The number of ordinary shares in issue excludes own shares held. Comparatives for the number of shares in issue and TNAV per ordinary share have not been adjusted for the effect of the share consolidation referred to in footnote 2 above. |
NatWest Group – Form 6K Interim Results 2023 |
9 |
Business performance summary
Chief Financial Officer review
We delivered a strong operating performance in the first half of the year with a return on equity of 12.6% and a RoTE of 18.2%. Total income of £7.7 billion was up by 24.2% on prior year levels. Total income excluding notable items of £7.4 billion was up by 25.2% on prior year and levels of default remain low across our portfolio.
The strength of our balance sheet has allowed us to continue to lend to our personal and business customers and we have seen customer deposit balances stabilise in the second quarter following the reduction in quarter one. We remain in a strong liquidity position, with an LCR of 141%, representing £45.3 billion headroom above 100% minimum requirement, and an LDR of 83%.
Our CET1 ratio remains strong at 13.5% with total distributions from capital of £2.5 billion.
We are pleased to announce an interim dividend of 5.5 pence per share and intend to commence an on-market buyback programme of up to £500 million in the second half of 2023. We have announced distributions of £2.3 billion to shareholders in the first half of the year and accrued a further £0.3 billion towards the final dividend payment in Q2 2023, bringing total distributions deducted from capital to £2.5 billion for H1 2023.
Financial performance
Total income increased by 24.2% to £7,727 million compared with H1 2022. Total income, excluding notable items, was 25.2% higher than H1 2022 principally driven by lending growth and favourable yield curve movements partially offset by the change in mix of deposits from non-interest bearing to interest bearing and lower deposit balances. These factors continued to impact in the quarter where net interest income fell by 2.7% compared with Q1 2023 driven by the ongoing change in mix of customer deposits, lower average balances and the impact of higher pass-through rates coupled with mortgage income reductions. We expect these factors to continue to be a feature of our results largely offsetting the positive gains of interest rate rises throughout 2023.
Net interest margin (NIM) of 2.20% in H1 2023 compared with 1.60% in H1 2022. NIM of 2.20% was 5 basis points lower than Q1 2023. Bank NIM of 3.20% in H1 2023 compared with 2.58% in H1 2022 with the increase reflecting favourable yield curve movements. Q2 2023 Bank NIM of 3.13% was 14 basis points lower than Q1 2023 principally reflecting asset margin pressure of 9 basis points, changes in deposit mix from non-interest bearing to interest bearing balances and the impact and timing of pass-through of rate rises on deposits, 5 basis points.
In line with our expectations, operating expenses of £3,915 million were £262 million or 7.2% higher than H1 2023. Other operating expenses were £323 million, or 9.3%, higher than H1 2022 principally reflecting increased staff costs due to inflation and a one-off cost of living payment, increased strategic investment costs, such as Financial Crime and Data, and a property impairment. We remain committed to delivering on our full year cost guidance.
A net impairment charge of £223 million principally reflects an increase in post model adjustments driven by increased economic uncertainty notwithstanding a £98 million modelled release. Defaults remain stable and at low levels across the portfolio. Compared with Q1 2023, our ECL provision increased by £0.1 billion to £3.6 billion and our ECL coverage ratio has increased from 0.89% to 0.92%. We retain post model adjustments of £0.5 billion related to economic uncertainty, or 13% of total impairment provisions. Whilst we are comfortable with the strong credit performance of our book, we will continue to assess this position regularly and are closely monitoring the impacts of inflationary pressures on the UK economy and our customers.
As a result, we are pleased to report an attributable profit for H1 2023 of £2,299 million, with earnings per share of 24.3 pence a return on equity of 12.6% and a RoTE of 18.2%.
Net loans to customers of £373.9 billion increased by £7.6 million. Net loans to customers excluding central items increased by £6.0 billion over the first half of the year. Retail Banking mortgage lending increased by £5.9 billion and unsecured lending increased by £1.0 billion due to strong customer demand. Gross new mortgage lending was £17.1 billion in H1 2023 compared with £18.9 billion in H1 2022 and £22.5 billion in H2 2022. Commercial & Institutional net loans to customers decreased by £0.7 billion which was primarily driven by UK Government scheme repayments of £1.4 billion and subdued activity in funds lending, partially offset by an increase in term loan facilities.
Up to 30 June 2023 we have provided £48.6 billion against our target to provide £100 billion climate and sustainable funding and financing between 1 July 2021 and the end of 2025. As part of this we aim to provide at least £10 billion in lending for residential properties with Energy Performance Certificate (EPC) ratings A and B between 1 January 2023 and the end of 2025. During H1 2023 we provided £16.0 billion climate and sustainable funding and financing, which included £2.3 billion in lending for residential properties with EPC ratings A and B.
During Q2 2023 customer deposits were stable following the outflows experienced in the first quarter. Customer deposits excluding central items reduced by £11.8 billion during H1 2023 reflecting customer tax payments which were significantly higher than previous years, competition for deposits and an overall market liquidity contraction.
TNAV per share reduced by 2 pence in H1 2023 to 262 pence primarily reflecting the full year ordinary dividend payment, movements in cash flow hedging reserves and other reserves partially offset by the attributable profit for the period.
NatWest Group – Form 6K Interim Results 2023 |
10 |
Business performance summary
Chief Financial Officer review continued
Capital
The CET1 ratio remains strong at 13.5%, or 13.4% excluding IFRS 9 transitional relief. The 70 basis points reduction compared with Q4 2022 principally reflects total distributions deducted from capital of £2.5 billion and increased RWAs of £1.4 billion, partially offset by the attributable profit. NatWest Group’s minimum requirement for own funds and eligible liabilities (MREL) ratio was 31.2%.
We have completed the £800 million share buyback programme announced as part of our 2022 annual results. In Q2 2023 we completed a £1.3 billion directed buyback and we intend to commence an on-market buyback programme of up to £500 million in the remainder of the year which, including the ordinary dividend accrual, brings total distributions deducted from capital to £2.5 billion for H1 2023.
We have continued to make good progress with our withdrawal from the Republic of Ireland with a €800 million dividend from Ulster Bank Ireland DAC declared in Q2 2023.
RWAs increased by £1.4 billion in H1 2023 to £177.5 billion largely reflecting lending growth and a £1.1 billion increase associated with the annual update to operational risk balances partially offset by reductions associated with our exit from the Republic of Ireland.
Funding and liquidity
The LCR increased by 2 percentage points to 141% in the quarter, representing £45.3 billion headroom above 100% minimum requirement, primarily due to increased wholesale funding and UBIDAC asset sale offset by capital distributions. Our primary liquidity as at 30 June 2023 was £147.5 billion and £119.6 billion or 81% of this was cash at central banks. Total wholesale funding increased by £1.8 billion in the quarter to £81.2 billion.
NatWest Group – Form 6K Interim Results 2023 |
11 |
Business performance summary
Retail Banking
|
|
Half year ended |
|
Quarter ended |
||||||
|
|
30 June |
|
30 June |
|
30 June |
|
31 March |
|
30 June |
|
|
2023 |
|
2022 |
|
2023 |
|
2023 |
|
2022 |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Total income |
|
3,120 |
|
2,554 |
|
1,516 |
|
1,604 |
|
1,337 |
Operating expenses |
|
(1,367) |
|
(1,242) |
|
(671) |
|
(696) |
|
(597) |
of which: Other operating expenses |
|
(1,343) |
|
(1,184) |
|
(650) |
|
(693) |
|
(593) |
Impairment losses |
|
(193) |
|
(26) |
|
(79) |
|
(114) |
|
(21) |
Operating profit |
|
1,560 |
|
1,286 |
|
766 |
|
794 |
|
719 |
|
|
|
|
|
|
|
|
|
|
|
Return on equity (1) |
|
29.1% |
|
26.3% |
|
28.2% |
|
30.0% |
|
29.5% |
Net interest margin (1) |
|
2.88% |
|
2.53% |
|
2.78% |
|
2.99% |
|
2.62% |
Cost:income ratio (excl. litigation and conduct) (1) |
|
43.0% |
|
46.4% |
|
42.9% |
|
43.2% |
|
44.4% |
Loan impairment rate (1) |
|
19bps |
|
3bps |
|
15bps |
|
22bps |
|
4bps |
|
|
As at |
||||
|
|
30 June |
|
31 March |
|
31 December |
|
|
2023 |
|
2023 |
|
2022 |
|
|
£bn |
|
£bn |
|
£bn |
Net loans to customers (amortised cost) |
|
204.4 |
|
201.7 |
|
197.6 |
Customer deposits |
|
183.1 |
|
184.0 |
|
188.4 |
RWAs |
|
57.3 |
|
55.6 |
|
54.7 |
(1) | Refer to the Non-IFRS financial measures appendix for details of the basis of preparation and reconciliation of non-IFRS financial measures and performance metrics. |
During H1 2023, Retail Banking continued to pursue sustainable growth with an intelligent approach to risk, delivering a return on equity of 29.1% and an operating profit of £1,560 million.
Retail Banking provided £2.2 billion of climate and sustainable funding and financing in H1 2023.
H1 2023 performance
- | Total income was £566 million, or 22.2%, higher than H1 2022 reflecting continued strong loan growth and higher deposit income supported by interest rate rises, partially offset by a reduction in mortgage margins, lower deposit balances with mix shift from non-interest bearing to interest bearing balances, as well as increased capital issuance and funding costs. |
- | Net interest margin was 35 basis points higher than H1 2022 reflecting higher deposit income supported by interest rate rises, partially offset by a reduction in mortgage margins, lower deposit balances with mix shift from non-interest bearing to interest bearing balances, as well as higher treasury funding costs. |
- | Operating expenses of £1,367 million were £125 million or 10.1% higher than H1 2022. Other operating expenses were £159 million, or 13.4%, higher than H1 2022 reflecting continued investment in the business and higher pay awards to support our colleagues with cost of living challenges, increased data costs and increased restructuring costs. This was partly offset by a 3.0% headcount reduction as a result of continued digitalisation, automation and improvement of end-to-end customer journeys. |
- | A net impairment charge of £193 million in H1 2023 largely reflects Stage 3 defaults, which remain stable, as well as good book charges driven by strong unsecured lending growth, partly offset by the benefits from the updated economic outlook. |
- | Net loans to customers increased by £6.8]billion, or 3.4%, in H1 2023 mainly reflecting continued mortgage growth of £5.9 billion, or 3.2%, with gross new mortgage lending of £17.1 billion, representing flow share of around 16%. Cards balances increased by £0.7 billion, or 15.9%, and personal advances increased by £0.3 billion, or 3.9%, in H1 2023 with strong customer demand. |
- | Customer deposits decreased by £5.3 billion, or 2.8%, in H1 2023 reflecting the impact of customer tax payments which were higher than previous years, lower household liquidity and increased competition for savings balances. Personal current account balances decreased by £5.5 billion, partially offset by an increase in personal savings of £0.2 billion in H1 2023. We have seen strong growth in our fixed term savings products in H1 2023. |
- | RWAs increased by £2.6 billion, or 4.8%, primarily reflecting lending volume growth. |
NatWest Group – Form 6K Interim Results 2023 |
12 |
Business performance summary
Retail Banking continued
Q2 2023 performance
- | Total income was £88 million, or 5.5%, lower than Q1 2023 reflecting a reduction in mortgage margins and lower deposit balances with mix shift from non-interest bearing to interest bearing balances, partly offset by lending growth and benefit of higher rates on deposit income. |
- | Net interest margin was 21 basis points lower than Q1 2023 reflecting lower mortgage margins and lower deposit balances with mix shift from non-interest bearing to interest bearing balances, partly offset by the impact of rate rises on deposit income. |
- | Operating expenses of £671 million were £25 million, or 3.6%, lower compared with Q1 2023. Other operating expenses were £43 million, or 6.2%, lower than Q1 2023 reflecting non repeat of Q1 2023 one-off cost of living payment, and lower restructuring costs, partially offset by the impact of April 2023 pay award and timing of investment and other non-staff costs. |
- | A net impairment charge of £79 million in Q2 2023 largely reflects Stage 3 defaults, which remain stable, as well as good book charges driven by strong unsecured lending growth, partly offset by benefits from the updated economic outlook. |
- | Net loans to customers increased by £2.7 billion, or 1.3%, in Q2 2023 mainly reflecting continued mortgage growth of £2.0 billion, or 1.0%, with gross new mortgage lending of £7.6 billion, representing flow share of around 15%. Cards balances increased by £0.5 billion, or 10.9%, and personal advances increased by £0.2 billion, or 2.6%, reflecting strong customer demand. |
- | Customer deposits decreased by £0.9 billion, or 0.5%, in Q2 2023 as growth in fixed term savings deposits was offset by lower instant access savings and current accounts. |
- | RWAs increased by £1.7 billion, or 3.1%, in Q2 2023 primarily reflecting strong lending volume growth and a small increase in risk parameters. |
NatWest Group – Form 6K Interim Results 2023 |
13 |
Business performance summary
Private Banking
|
|
Half year ended |
|
Quarter ended |
||||||
|
|
30 June |
|
30 June |
|
30 June |
|
31 March |
|
30 June |
|
|
2023 |
|
2022 |
|
2023 |
|
2023 |
|
2022 |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Total income |
|
567 |
|
461 |
|
271 |
|
296 |
|
245 |
Operating expenses |
|
(322) |
|
(285) |
|
(167) |
|
(155) |
|
(146) |
of which: Other operating expenses |
|
(311) |
|
(284) |
|
(159) |
|
(152) |
|
(146) |
Impairment (losses)/releases |
|
(11) |
|
11 |
|
(3) |
|
(8) |
|
6 |
Operating profit |
|
234 |
|
187 |
|
101 |
|
133 |
|
105 |
|
|
|
|
|
|
|
|
|
|
|
Return on equity (1) |
|
24.7% |
|
20.9% |
|
20.8% |
|
28.5% |
|
23.5% |
Net interest margin (1) |
|
4.50% |
|
3.34% |
|
4.17% |
|
4.83% |
|
3.60% |
Cost:income ratio (excl. litigation and conduct) (1) |
|
54.9% |
|
61.6% |
|
58.7% |
|
51.4% |
|
59.6% |
Loan impairment rate (1) |
|
11bps |
|
(12)bps |
|
6bps |
|
17bps |
|
(13)bps |
Net new money (£bn) (1) |
|
1.0 |
|
1.4 |
|
0.4 |
|
0.6 |
|
0.6 |
|
|
As at |
||||
|
|
30 June |
|
31 March |
|
31 December |
|
|
2023 |
|
2023 |
|
2022 |
|
|
£bn |
|
£bn |
|
£bn |
Net loans to customers (amortised cost) |
|
19.1 |
|
19.2 |
|
19.2 |
Customer deposits |
|
36.5 |
|
37.3 |
|
41.2 |
RWAs |
|
11.5 |
|
11.4 |
|
11.2 |
Assets under management (AUMs) (1) |
|
30.0 |
|
29.6 |
|
28.3 |
Assets under administration (AUAs) (1) |
|
7.9 |
|
5.6 |
|
5.1 |
Total assets under management and administration (AUMAs) (1) |
|
37.9 |
|
35.2 |
|
33.4 |
(1) | Refer to the Non-IFRS financial measures appendix for details of basis of preparation and reconciliation of non-IFRS financial measures and performance metrics. |
During H1 2023, Private Banking delivered a strong return on equity of 24.7%, and an operating profit of £234 million.
NatWest Group completed the acquisition of a majority shareholding in Cushon on 1 June 2023. The acquisition of the workplace savings and pensions fintech resulted in a £1.9 billion increase to the NatWest Group AUMAs on the date of acquisition.
Private Banking provided £0.1 billion of climate and sustainable funding and financing in H1 2023.
H1 2023 performance
- | Total income was £106 million, or 23.0%, higher than H1 2022 reflecting increased deposit income supported by interest rate rises, partially offset by a reduction in mortgage margins. |
- | Net interest margin was 116 basis points higher than H1 2022 reflecting higher deposit income, supported by interest rate rises, partially offset by a reduction in lending margins, lower deposit balances, as well as increased capital issuance and funding costs. |
- | Operating expenses of £322 million were £37 million or 13.0% higher than H1 2022. Other operating expenses were £27 million, or 9.5% higher than H1 2022 due to the impact of pay awards to support colleagues with cost of living challenges and the impact of one-offs including a £7 million property revaluation and an £8 million technology cost. |
- | A net impairment charge of £11 million in H1 2023 reflected higher good book charges and a small level of Stage 3 defaults. |
- | Net loans to customers decreased by £0.1 billion in H1 2023 as gross new lending of £1.4 billion, of which £0.9 billion related to mortgages, was offset by higher repayments. |
- | Customer deposits decreased by £4.7 billion, or 11.4% in H1 2023 reflecting the impact of customer tax payments which were higher than previous years, as well as increased competition for savings balances. Current account and instant access savings account balances decreased by £7.0 billion partially offset by an increase in term savings products. |
- | AUMAs increased by £4.5 billion, or 13.5%, in H1 2023 primarily reflecting AUM net new money of £1.0 billion, which represents 6.0% of opening AUMA balances, positive market movements, and acquisition of Cushon which contributes £2.0 billion(1). |
Q2 2023 performance
- | Total income was £25 million, or 8.4%, lower than Q1 2023 reflecting lower deposit balances and higher pass-through of rate rises on customer deposits partially offset by the benefit of higher interest rates. |
- | Net interest margin was 66 basis points lower than Q1 2023 reflecting lower deposit volumes, changes in deposit mix from non-interest bearing to interest bearing balances and increased funding costs. |
- | A net impairment charge of £3 million in Q2 2023 reflected benefits from the updated economic outlook with Stage 3 defaults remaining stable. |
- | Customer deposits decreased by £0.8 billion, or 2.1% in Q2 2023 as growth in fixed term savings deposits was offset by lower instant access savings and current accounts combined with repayment of debt. |
- | AUMAs increased by £2.7 billion, or 7.7%, in Q2 2023 primarily reflecting AUM net new money of £0.4 billion and positive investment market movements. The acquisition of Cushon contributes £2.0 billion(1) to the increase in AUMAs. |
(1)Cushon AUMAs at 30 June 2023 were £2.0 billion and £1.9 billion as at date of acquisition. AUMAs are reported within the Private Banking segment as the Investment Centre of Expertise, and the financials are within Central items & other.
NatWest Group – Form 6K Interim Results 2023 |
14 |
Business performance summary
Commercial & Institutional
|
|
Half year ended |
|
Quarter ended |
||||||
|
|
30 June |
|
30 June |
|
30 June |
|
31 March |
|
30 June |
|
|
2023 |
|
2022 |
|
2023 |
|
2023 |
|
2022 |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Net interest income |
|
2,504 |
|
1,764 |
|
1,243 |
|
1,261 |
|
961 |
Non-interest income |
|
1,244 |
|
1,173 |
|
552 |
|
692 |
|
601 |
Total income |
|
3,748 |
|
2,937 |
|
1,795 |
|
1,953 |
|
1,562 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
(1,987) |
|
(1,820) |
|
(984) |
|
(1,003) |
|
(898) |
of which: Other operating expenses |
|
(1,893) |
|
(1,734) |
|
(934) |
|
(959) |
|
(854) |
Impairment (losses)/releases |
|
(20) |
|
59 |
|
(64) |
|
44 |
|
48 |
Operating profit |
|
1,741 |
|
1,176 |
|
747 |
|
994 |
|
712 |
|
|
|
|
|
|
|
|
|
|
|
Return on equity (1) |
|
16.9% |
|
11.4% |
|
14.3% |
|
19.5% |
|
14.0% |
Net interest margin (1) |
|
3.84% |
|
2.84% |
|
3.79% |
|
3.90% |
|
3.09% |
Cost:income ratio (excl. litigation and conduct) (1) |
|
50.5% |
|
59.0% |
|
52.0% |
|
49.1% |
|
54.7% |
Loan impairment rate (1) |
|
3bps |
|
(9)bps |
|
20bps |
|
(13)bps |
|
(15)bps |
|
|
As at |
||||
|
|
30 June |
|
31 March |
|
31 December |
|
|
2023 |
|
2023 |
|
2022 |
|
|
£bn |
|
£bn |
|
£bn |
Net loans to customers (amortised cost) |
|
129.2 |
|
131.5 |
|
129.9 |
Customer deposits |
|
201.5 |
|
200.5 |
|
203.3 |
Funded assets (1) |
|
320.6 |
|
320.4 |
|
306.3 |
RWAs |
|
103.6 |
|
104.8 |
|
103.2 |
(1) | Refer to the Non-IFRS financial measures appendix for details of the basis of preparation and reconciliation of non-IFRS financial measures and performance metrics. |
During H1 2023, Commercial & Institutional delivered a strong performance with a return on equity of 16.9% and operating profit of £1,741 million. Commercial & Institutional provided £13.8 billion of climate and sustainable funding and financing in H1 2023.
H1 2023 performance
- | Total income was £811 million, or 27.6%, higher than H1 2022 primarily reflecting higher deposit returns from an improved interest rate environment, credit and debit card fees and higher markets income(1). |
- | Net interest margin was 100 basis points higher than H1 2022 reflecting higher deposit returns supported by interest rate rises, partly offset by lower deposits balances, evolving deposit and lending mix impacts and higher treasury funding costs. |
- | Operating expenses of £1,987 million were £167 million or 9.2% higher than H1 2022. Other operating expenses were £159 million, or 9.2%, higher than H1 2022 due to higher pay awards to support our colleagues with cost of living challenges and continued investment in the business. |
- | An impairment charge of £20 million in H1 2023 compared with an impairment release of £59 million in H1 2022 driven by an increase in post model adjustments to reflect increased inflationary and liquidity risk impacts to our customers offset by benefits of modelled releases to reflect benefits from the revised economic outlook. Stage 3 charges remain low. |
- | Net loans to customers decreased by £0.7 billion, or 0.5%, in H1 2023 due to UK Government scheme repayments of £1.4 billion and subdued activity within funds lending, partly offset by an increase in term loan facilities including revolving credit facilities and asset finance. |
- | Customer deposits decreased by £1.8 billion, or 0.9%, in H1 2023 primarily due to overall market liquidity contraction, particularly sight deposits with strong growth in term deposit balances. |
- | RWAs increased by £0.4 billion, or 0.4%, in H1 2023 primarily reflecting an evolving book mix of lending growth and UK Government scheme repayments, partially offset by foreign exchange benefits and lower market risk. |
NatWest Group – Form 6K Interim Results 2023 |
15 |
Business performance summary
Commercial & Institutional continued
Q2 2023 performance
- | Total income was £158 million, or 8.1%, lower than Q1 2023 largely reflecting lower markets income(1) mainly driven by challenging market conditions and additional treasury costs. |
- | Net interest margin was 11 basis points lower than Q1 2023 reflecting increased treasury costs and lower deposit balances, partly offset by higher deposit margins. |
- | Operating expenses of £984 million were £19 million, or 1.9%, lower compared with Q1 2023. Other operating expenses were £25 million, or 2.6%, lower than Q1 2023 reflecting non-repeat of the Q1 2023 one-off cost of living payments partly offset by continued investment in the business. |
- | A net impairment charge of £64 million in Q2 2023 reflected an increase in post model adjustments to reflect inflationary and liquidity risk impacts to our customers offset by benefits of modelled releases to reflect benefits from the revised economic outlook. Stage 3 charges remain low. |
- | Net loans to customers decreased by £2.3 billion, or 1.7%, in Q2 2023 largely due to lower funds activity and UK Government scheme repayments of £0.7 billion. |
- | Customer deposits increased by £1.0 billion, or 0.5%, in Q2 2023 primarily due to growth in the Corporate & Institutions business. We have seen continued strong growth in term deposit balances. |
- | RWAs decreased by £1.2 billion, or 1.1%, in Q2 2023 primarily reflecting foreign exchange benefits and lower lending balances. |
(1)Markets income excludes own credit risk adjustments and central items.
Business performance summary
Central items & other
|
|
Half year ended |
|
Quarter ended |
||||||
|
|
30 June |
|
30 June |
|
30 June |
|
31 March |
|
30 June |
|
|
2023 |
|
2022 |
|
2023 |
|
2023 |
|
2022 |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Continuing operations |
|
|
|
|
|
|
|
|
|
|
Total income |
|
292 |
|
267 |
|
269 |
|
23 |
|
67 |
Operating expenses (1) |
|
(239) |
|
(306) |
|
(105) |
|
(134) |
|
(192) |
of which: Other operating expenses |
|
(260) |
|
(282) |
|
(132) |
|
(128) |
|
(173) |
of which: Ulster Bank RoI direct expenses |
|
(163) |
|
(145) |
|
(63) |
|
(100) |
|
(81) |
Impairment releases/(losses) |
|
1 |
|
10 |
|
(7) |
|
8 |
|
(15) |
Operating profit/(loss) |
|
54 |
|
(29) |
|
157 |
|
(103) |
|
(140) |
of which: Ulster Bank RoI |
|
(295) |
|
(213) |
|
(136) |
|
(159) |
|
(150) |
|
|
As at |
||||
|
|
30 June |
|
31 March |
|
31 December |
|
|
2023 |
|
2023 |
|
2022 |
|
|
£bn |
|
£bn |
|
£bn |
Net loans to customers (amortised cost) (2) |
|
21.2 |
|
21.8 |
|
19.6 |
Customer deposits |
|
11.4 |
|
8.7 |
|
17.4 |
RWAs |
|
5.1 |
|
6.3 |
|
7.0 |
(1) | Includes withdrawal-related direct program costs of £64 million for the half year ended 30 June 2023 (30 June 2022 - £26 million) and £15 million for the quarter ended 30 June 2023 (31 March 2023 - £49 million; 30 June 2022 - £16 million). |
(2) | Excludes £0.4 billion of loans to customers held at fair value through profit or loss (31 March 2023 - £0.5 billion; 31 December 2022 - £0.5 billion). |
H1 2023 performance
- | Total income was £25 million higher than H1 2022 reflecting one-off items that broadly offset including foreign exchange recycling gains, partially offset by lower gains on interest and foreign exchange risk management derivatives not in hedge accounting relationships, gains on liquidity asset bond sales in the prior year and the effect of the continued withdrawal of our operations from the Republic of Ireland. |
- | Customer deposits decreased by £6.0 billion in H1 2023 primarily reflecting the continued withdrawal of our operations from the Republic of Ireland. Ulster Bank RoI customer deposit balances were £0.4 billion as at H1 2023. |
- | Net loans to customers increased £1.6 billion in H1 2023 mainly due to reverse repo activity in Treasury. |
Q2 2023 performance
- | Customer deposits increased by £2.7 billion during Q2 2023 primarily reflecting repo activity in Treasury partially offset by the continued withdrawal of our operations from the Republic of Ireland. |
NatWest Group – Form 6K Interim Results 2023 |
16 |
Segment performance
|
|
Half year ended 30 June 2023 |
||||||||
|
|
|
|
|
|
|
|
Central |
|
Total |
|
|
Retail |
|
Private |
|
Commercial & |
|
items & |
|
NatWest |
|
|
Banking |
|
Banking |
|
Institutional |
|
other |
|
Group |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Continuing operations |
|
|
|
|
|
|
|
|
|
|
Income statement |
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
2,908 |
|
428 |
|
2,504 |
|
(114) |
|
5,726 |
Own credit adjustments |
|
— |
|
— |
|
9 |
|
— |
|
9 |
Other non-interest income |
|
212 |
|
139 |
|
1,235 |
|
406 |
|
1,992 |
Total income |
|
3,120 |
|
567 |
|
3,748 |
|
292 |
|
7,727 |
Direct expenses |
|
(394) |
|
(109) |
|
(737) |
|
(2,567) |
|
(3,807) |
Indirect expenses |
|
(949) |
|
(202) |
|
(1,156) |
|
2,307 |
|
— |
Other operating expenses |
|
(1,343) |
|
(311) |
|
(1,893) |
|
(260) |
|
(3,807) |
Litigation and conduct costs |
|
(24) |
|
(11) |
|
(94) |
|
21 |
|
(108) |
Operating expenses |
|
(1,367) |
|
(322) |
|
(1,987) |
|
(239) |
|
(3,915) |
Operating profit before impairment losses/releases (1) |
|
1,753 |
|
245 |
|
1,761 |
|
53 |
|
3,812 |
Impairment (losses)/releases |
|
(193) |
|
(11) |
|
(20) |
|
1 |
|
(223) |
Operating profit (1) |
|
1,560 |
|
234 |
|
1,741 |
|
54 |
|
3,589 |
|
|
|
|
|
|
|
|
|
|
|
Income excluding notable items (1) |
|
3,120 |
|
567 |
|
3,739 |
|
(43) |
|
7,383 |
|
|
|
|
|
|
|
|
|
|
|
Additional information |
|
|
|
|
|
|
|
|
|
|
Return on tangible equity (1) |
|
na |
|
na |
|
na |
|
na |
|
18.2% |
Return on equity (1) |
|
29.1% |
|
24.7% |
|
16.9% |
|
nm |
|
na |
Cost:income ratio (excl. litigation and conduct) (1) |
|
43.0% |
|
54.9% |
|
50.5% |
|
nm |
|
49.3% |
Total assets (£bn) |
|
229.1 |
|
27.3 |
|
401.5 |
|
44.7 |
|
702.6 |
Funded assets (£bn) (1) |
|
229.1 |
|
27.3 |
|
320.6 |
|
43.7 |
|
620.7 |
Net loans to customers - amortised cost (£bn) |
|
204.4 |
|
19.1 |
|
129.2 |
|
21.2 |
|
373.9 |
Loan impairment rate (1) |
|
19bps |
|
11bps |
|
3bps |
|
nm |
|
12bps |
Impairment provisions (£bn) |
|
(1.7) |
|
(0.1) |
|
(1.5) |
|
(0.1) |
|
(3.4) |
Impairment provisions - stage 3 (£bn) |
|
(1.0) |
|
— |
|
(0.8) |
|
(0.1) |
|
(1.9) |
Customer deposits (£bn) |
|
183.1 |
|
36.5 |
|
201.5 |
|
11.4 |
|
432.5 |
Risk-weighted assets (RWAs) (£bn) |
|
57.3 |
|
11.5 |
|
103.6 |
|
5.1 |
|
177.5 |
RWA equivalent (RWAe) (£bn) |
|
57.3 |
|
11.5 |
|
104.9 |
|
5.8 |
|
179.5 |
Employee numbers (FTEs - thousands) |
|
13.5 |
|
2.2 |
|
12.5 |
|
33.3 |
|
61.5 |
Third party customer asset rate (1) |
|
3.03% |
|
4.24% |
|
5.61% |
|
nm |
|
nm |
Third party customer funding rate (1) |
|
(1.02%) |
|
(1.43%) |
|
(1.03%) |
|
nm |
|
nm |
Bank average interest earning assets (£bn) (1) |
|
203.4 |
|
19.2 |
|
131.4 |
|
na |
|
361.1 |
Bank net interest margin (1) |
|
2.88% |
|
4.50% |
|
3.84% |
|
na |
|
3.20% |
nm = not meaningful, na = not applicable.
(1) | Refer to the Non-IFRS financial measures appendix for details of the basis of preparation and reconciliation of non-IFRS financial measures and performance metrics. |
NatWest Group – Form 6K Interim Results 2023 |
17 |
Segment performance
|
|
Half year ended 30 June 2022 |
||||||||
|
|
|
|
|
|
|
|
Central |
|
Total |
|
|
Retail |
|
Private |
|
Commercial & |
|
items & |
|
NatWest |
|
|
Banking |
|
Banking |
|
Institutional |
|
other |
|
Group |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Continuing operations |
|
|
|
|
|
|
|
|
|
|
Income statement |
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
2,340 |
|
315 |
|
1,764 |
|
(85) |
|
4,334 |
Own credit adjustments |
|
— |
|
— |
|
52 |
|
— |
|
52 |
Other non-interest income |
|
214 |
|
146 |
|
1,121 |
|
352 |
|
1,833 |
Total income |
|
2,554 |
|
461 |
|
2,937 |
|
267 |
|
6,219 |
Direct expenses |
|
(320) |
|
(102) |
|
(736) |
|
(2,326) |
|
(3,484) |
Indirect expenses |
|
(864) |
|
(182) |
|
(998) |
|
2,044 |
|
— |
Other operating expenses |
|
(1,184) |
|
(284) |
|
(1,734) |
|
(282) |
|
(3,484) |
Litigation and conduct costs |
|
(58) |
|
(1) |
|
(86) |
|
(24) |
|
(169) |
Operating expenses |
|
(1,242) |
|
(285) |
|
(1,820) |
|
(306) |
|
(3,653) |
Operating profit/(loss) before |
|
|
|
|
|
|
|
|
|
|
impairment losses/releases (1) |
|
1,312 |
|
176 |
|
1,117 |
|
(39) |
|
2,566 |
Impairment (losses)/releases |
|
(26) |
|
11 |
|
59 |
|
10 |
|
54 |
Operating profit/(loss) (1) |
|
1,286 |
|
187 |
|
1,176 |
|
(29) |
|
2,620 |
|
|
|
|
|
|
|
|
|
|
|
Income excluding notable items (1) |
|
2,554 |
|
461 |
|
2,930 |
|
(47) |
|
5,898 |
|
|
|
|
|
|
|
|
|
|
|
Additional information |
|
|
|
|
|
|
|
|
|
|
Return on tangible equity (1) |
|
na |
|
na |
|
na |
|
na |
|
13.1% |
Return on equity (1) |
|
26.3% |
|
20.9% |
|
11.4% |
|
nm |
|
na |
Cost:income ratio (excl. litigation and conduct) (1) |
|
46.4% |
|
61.6% |
|
59.0% |
|
nm |
|
56.0% |
Total assets (£bn) |
|
216.2 |
|
30.0 |
|
451.5 |
|
108.8 |
|
806.5 |
Funded assets (£bn) (1) |
|
216.2 |
|
30.0 |
|
343.4 |
|
107.5 |
|
697.1 |
Net loans to customers - amortised cost (£bn) |
|
188.7 |
|
18.8 |
|
127.3 |
|
27.8 |
|
362.6 |
Loan impairment rate (1) |
|
3bps |
|
(12)bps |
|
(9)bps |
|
nm |
|
(3)bps |
Impairment provisions (£bn) |
|
(1.5) |
|
(0.1) |
|
(1.4) |
|
(0.4) |
|
(3.4) |
Impairment provisions - stage 3 (£bn) |
|
(0.9) |
|
— |
|
(0.7) |
|
(0.4) |
|
(2.0) |
Customer deposits (£bn) |
|
190.5 |
|
41.6 |
|
223.2 |
|
36.8 |
|
492.1 |
Risk-weighted assets (RWAs) (£bn) |
|
53.0 |
|
11.3 |
|
103.0 |
|
12.5 |
|
179.8 |
RWA equivalent (RWAe) (£bn) |
|
53.0 |
|
11.3 |
|
101.4 |
|
13.0 |
|
178.7 |
Employee numbers (FTEs - thousands) |
|
13.9 |
|
2.0 |
|
11.8 |
|
31.2 |
|
58.9 |
Third party customer asset rate (1) |
|
2.59% |
|
2.65% |
|
3.01% |
|
nm |
|
nm |
Third party customer funding rate (1) |
|
(0.07%) |
|
(0.07%) |
|
(0.06%) |
|
nm |
|
nm |
Bank average interest earning assets (£bn) (1) |
|
186.8 |
|
19.0 |
|
125.2 |
|
na |
|
338.5 |
Bank net interest margin (1) |
|
2.53% |
|
3.34% |
|
2.84% |
|
na |
|
2.58% |
nm = not meaningful, na = not applicable.
(1) | Refer to the Non-IFRS financial measures appendix for details of the basis of preparation and reconciliation of non-IFRS financial measures and performance metrics. |
NatWest Group – Form 6K Interim Results 2023 |
18 |
Segment performance
|
|
Quarter ended 30 June 2023 |
||||||||
|
|
|
|
|
|
|
|
Central |
|
Total |
|
|
Retail |
|
Private |
|
Commercial & |
|
items & |
|
NatWest |
|
|
Banking |
|
Banking |
|
Institutional |
|
other |
|
Group |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Continuing operations |
|
|
|
|
|
|
|
|
|
|
Income statement |
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
1,416 |
|
199 |
|
1,243 |
|
(34) |
|
2,824 |
Own credit adjustments |
|
— |
|
— |
|
3 |
|
— |
|
3 |
Other non-interest income |
|
100 |
|
72 |
|
549 |
|
303 |
|
1,024 |
Total income |
|
1,516 |
|
271 |
|
1,795 |
|
269 |
|
3,851 |
Direct expenses |
|
(185) |
|
(53) |
|
(379) |
|
(1,258) |
|
(1,875) |
Indirect expenses |
|
(465) |
|
(106) |
|
(555) |
|
1,126 |
|
- |
Other operating expenses |
|
(650) |
|
(159) |
|
(934) |
|
(132) |
|
(1,875) |
Litigation and conduct costs |
|
(21) |
|
(8) |
|
(50) |
|
27 |
|
(52) |
Operating expenses |
|
(671) |
|
(167) |
|
(984) |
|
(105) |
|
(1,927) |
Operating profit before impairment losses/releases (1) |
|
845 |
|
104 |
|
811 |
|
164 |
|
1,924 |
Impairment (losses) |
|
(79) |
|
(3) |
|
(64) |
|
(7) |
|
(153) |
Operating profit (1) |
|
766 |
|
101 |
|
747 |
|
157 |
|
1,771 |
|
|
|
|
|
|
|
|
|
|
|
Income excluding notable items (1) |
|
1,516 |
|
271 |
|
1,792 |
|
(16) |
|
3,563 |
|
|
|
|
|
|
|
|
|
|
|
Additional information |
|
|
|
|
|
|
|
|
|
|
Return on tangible equity (1) |
|
na |
|
na |
|
na |
|
na |
|
16.4% |
Return on equity (1) |
|
28.2% |
|
20.8% |
|
14.3% |
|
nm |
|
na |
Cost:income ratio (excl. litigation and conduct) (1) |
|
42.9% |
|
58.7% |
|
52.0% |
|
nm |
|
48.7% |
Total assets (£bn) |
|
229.1 |
|
27.3 |
|
401.5 |
|
44.7 |
|
702.6 |
Funded assets (£bn) (1) |
|
229.1 |
|
27.3 |
|
320.6 |
|
43.7 |
|
620.7 |
Net loans to customers - amortised cost (£bn) |
|
204.4 |
|
19.1 |
|
129.2 |
|
21.2 |
|
373.9 |
Loan impairment rate (1) |
|
15bps |
|
6bps |
|
20bps |
|
nm |
|
16bps |
Impairment provisions (£bn) |
|
(1.7) |
|
(0.1) |
|
(1.5) |
|
(0.1) |
|
(3.4) |
Impairment provisions - stage 3 (£bn) |
|
(1.0) |
|
— |
|
(0.8) |
|
(0.1) |
|
(1.9) |
Customer deposits (£bn) |
|
183.1 |
|
36.5 |
|
201.5 |
|
11.4 |
|
432.5 |
Risk-weighted assets (RWAs) (£bn) |
|
57.3 |
|
11.5 |
|
103.6 |
|
5.1 |
|
177.5 |
RWA equivalent (RWAe) (£bn) |
|
57.3 |
|
11.5 |
|
104.9 |
|
5.8 |
|
179.5 |
Employee numbers (FTEs - thousands) |
|
13.5 |
|
2.2 |
|
12.5 |
|
33.3 |
|
61.5 |
Third party customer asset rate (1) |
|
3.11% |
|
4.41% |
|
5.84% |
|
nm |
|
nm |
Third party customer funding rate (1) |
|
(1.20%) |
|
(1.71%) |
|
(1.18%) |
|
nm |
|
nm |
Bank average interest earning assets (£bn) (1) |
|
204.6 |
|
19.2 |
|
131.4 |
|
na |
|
362.3 |
Bank net interest margin (1) |
|
2.78% |
|
4.17% |
|
3.79% |
|
na |
|
3.13% |
nm = not meaningful, na = not applicable.
(1) | Refer to the Non-IFRS financial measures appendix for details of the basis of preparation and reconciliation of non-IFRS financial measures and performance metrics. |
NatWest Group – Form 6K Interim Results 2023 |
19 |
Segment performance
|
|
Quarter ended 31 March 2023 |
||||||||
|
|
|
|
|
|
|
|
Central |
|
Total |
|
|
Retail |
|
Private |
|
Commercial & |
|
items & |
|
NatWest |
|
|
Banking |
|
Banking |
|
Institutional |
|
other |
|
Group |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Continuing operations |
|
|
|
|
|
|
|
|
|
|
Income statement |
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
1,492 |
|
229 |
|
1,261 |
|
(80) |
|
2,902 |
Own credit adjustments |
|
— |
|
— |
|
6 |
|
— |
|
6 |
Other non-interest income |
|
112 |
|
67 |
|
686 |
|
103 |
|
968 |
Total income |
|
1,604 |
|
296 |
|
1,953 |
|
23 |
|
3,876 |
Direct expenses |
|
(209) |
|
(56) |
|
(358) |
|
(1,309) |
|
(1,932) |
Indirect expenses |
|
(484) |
|
(96) |
|
(601) |
|
1,181 |
|
— |
Other operating expenses |
|
(693) |
|
(152) |
|
(959) |
|
(128) |
|
(1,932) |
Litigation and conduct costs |
|
(3) |
|
(3) |
|
(44) |
|
(6) |
|
(56) |
Operating expenses |
|
(696) |
|
(155) |
|
(1,003) |
|
(134) |
|
(1,988) |
Operating profit/(loss) before |
|
|
|
|
|
|
|
|
|
|
impairment losses/releases (1) |
|
908 |
|
141 |
|
950 |
|
(111) |
|
1,888 |
Impairment (losses)/releases |
|
(114) |
|
(8) |
|
44 |
|
8 |
|
(70) |
Operating profit/(loss) (1) |
|
794 |
|
133 |
|
994 |
|
(103) |
|
1,818 |
|
|
|
|
|
|
|
|
|
|
|
Income excluding notable items (1) |
|
1,604 |
|
296 |
|
1,947 |
|
(27) |
|
3,820 |
|
|
|
|
|
|
|
|
|
|
|
Additional information |
|
|
|
|
|
|
|
|
|
|
Return on tangible equity (1) |
|
na |
|
na |
|
na |
|
na |
|
19.8% |
Return on equity (1) |
|
30.0% |
|
28.5% |
|
19.5% |
|
nm |
|
na |
Cost:income ratio (excl. litigation and conduct) (1) |
|
43.2% |
|
51.4% |
|
49.1% |
|
nm |
|
49.8% |
Total assets (£bn) |
|
227.2 |
|
28.1 |
|
399.0 |
|
41.3 |
|
695.6 |
Funded assets (£bn) (1) |
|
227.2 |
|
28.1 |
|
320.4 |
|
40.5 |
|
616.2 |
Net loans to customers - amortised cost (£bn) |
|
201.7 |
|
19.2 |
|
131.5 |
|
21.8 |
|
374.2 |
Loan impairment rate (1) |
|
22bps |
|
17bps |
|
(13)bps |
|
nm |
|
7bps |
Impairment provisions (£bn) |
|
(1.7) |
|
(0.1) |
|
(1.5) |
|
(0.1) |
|
(3.4) |
Impairment provisions - stage 3 (£bn) |
|
(1.0) |
|
— |
|
(0.7) |
|
(0.1) |
|
(1.8) |
Customer deposits (£bn) |
|
184.0 |
|
37.3 |
|
200.5 |
|
8.7 |
|
430.5 |
Risk-weighted assets (RWAs) (£bn) |
|
55.6 |
|
11.4 |
|
104.8 |
|
6.3 |
|
178.1 |
RWA equivalent (RWAe) (£bn) |
|
56.4 |
|
11.4 |
|
106.2 |
|
6.9 |
|
180.9 |
Employee numbers (FTEs - thousands) |
|
13.9 |
|
2.2 |
|
12.4 |
|
33.3 |
|
61.8 |
Third party customer asset rate (1) |
|
2.94% |
|
4.07% |
|
5.38% |
|
nm |
|
nm |
Third party customer funding rate (1) |
|
(0.83%) |
|
(1.15%) |
|
(0.87%) |
|
nm |
|
nm |
Bank average interest earning assets (£bn) (1) |
|
202.1 |
|
19.2 |
|
131.3 |
|
na |
|
360.0 |
Bank net interest margin (1) |
|
2.99% |
|
4.83% |
|
3.90% |
|
na |
|
3.27% |
nm = not meaningful, na = not applicable.
(1) | Refer to the Non-IFRS financial measures appendix for details of the basis of preparation and reconciliation of non-IFRS financial measures and performance metrics. |
NatWest Group – Form 6K Interim Results 2023 |
20 |
Segment performance
|
|
Quarter ended 30 June 2022 |
||||||||
|
|
|
|
|
|
|
|
Central |
|
Total |
|
|
Retail |
|
Private |
|
Commercial & |
|
items & |
|
NatWest |
|
|
Banking |
|
Banking |
|
Institutional |
|
other |
|
Group |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Continuing operations |
|
|
|
|
|
|
|
|
|
|
Income statement |
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
1,228 |
|
172 |
|
961 |
|
(54) |
|
2,307 |
Own credit adjustments |
|
— |
|
— |
|
34 |
|
— |
|
34 |
Other non-interest income |
|
109 |
|
73 |
|
567 |
|
121 |
|
870 |
Total income |
|
1,337 |
|
245 |
|
1,562 |
|
67 |
|
3,211 |
Direct expenses |
|
(159) |
|
(53) |
|
(329) |
|
(1,225) |
|
(1,766) |
Indirect expenses |
|
(434) |
|
(93) |
|
(525) |
|
1,052 |
|
— |
Other operating expenses |
|
(593) |
|
(146) |
|
(854) |
|
(173) |
|
(1,766) |
Litigation and conduct costs |
|
(4) |
|
- |
|
(44) |
|
(19) |
|
(67) |
Operating expenses |
|
(597) |
|
(146) |
|
(898) |
|
(192) |
|
(1,833) |
Operating profit/(loss) before impairment losses/releases (1) |
|
740 |
|
99 |
|
664 |
|
(125) |
|
1,378 |
Impairment (losses)/releases |
|
(21) |
|
6 |
|
48 |
|
(15) |
|
18 |
Operating profit/(loss) (1) |
|
719 |
|
105 |
|
712 |
|
(140) |
|
1,396 |
|
|
|
|
|
|
|
|
|
|
|
Income excluding notable items (1) |
|
1,337 |
|
245 |
|
1,573 |
|
(41) |
|
3,114 |
|
|
|
|
|
|
|
|
|
|
|
Additional information |
|
|
|
|
|
|
|
|
|
|
Return on tangible equity (1) |
|
na |
|
na |
|
na |
|
na |
|
15.2% |
Return on equity (1) |
|
29.5% |
|
23.5% |
|
14.0% |
|
nm |
|
na |
Cost:income ratio (excl. litigation and conduct) (1) |
|
44.4% |
|
59.6% |
|
54.7% |
|
nm |
|
55.0% |
Total assets (£bn) |
|
216.2 |
|
30.0 |
|
451.5 |
|
108.8 |
|
806.5 |
Funded assets (£bn) (1) |
|
216.2 |
|
30.0 |
|
343.4 |
|
107.5 |
|
697.1 |
Net loans to customers - amortised cost (£bn) |
|
188.7 |
|
18.8 |
|
127.3 |
|
27.8 |
|
362.6 |
Loan impairment rate (1) |
|
4bps |
|
(13)bps |
|
(15)bps |
|
nm |
|
(2)bps |
Impairment provisions (£bn) |
|
(1.5) |
|
(0.1) |
|
(1.4) |
|
(0.4) |
|
(3.4) |
Impairment provisions - stage 3 (£bn) |
|
(0.9) |
|
— |
|
(0.7) |
|
(0.4) |
|
(2.0) |
Customer deposits (£bn) |
|
190.5 |
|
41.6 |
|
223.2 |
|
36.8 |
|
492.1 |
Risk-weighted assets (RWAs) (£bn) |
|
53.0 |
|
11.3 |
|
103.0 |
|
12.5 |
|
179.8 |
RWA equivalent (RWAe) (£bn) |
|
53.0 |
|
11.3 |
|
101.4 |
|
13.0 |
|
178.7 |
Employee numbers (FTEs - thousands) |
|
13.9 |
|
2.0 |
|
11.8 |
|
31.2 |
|
58.9 |
Third party customer asset rate (1) |
|
2.59% |
|
2.77% |
|
3.19% |
|
nm |
|
nm |
Third party customer funding rate (1) |
|
(0.10%) |
|
(0.13%) |
|
(0.09%) |
|
nm |
|
nm |
Bank average interest earning assets (£bn) (1) |
|
188.1 |
|
19.1 |
|
124.9 |
|
na |
|
341.5 |
Bank net interest margin (1) |
|
2.62% |
|
3.60% |
|
3.09% |
|
na |
|
2.71% |
nm - not meaningful, na - not applicable
(1) | Refer to the Non-IFRS financial measures appendix for details of the basis of preparation and reconciliation of non-IFRS financial measurements and performance metrics. |
NatWest Group – Form 6K Interim Results 2023 |
21 |
Risk and capital management
NatWest Group – Form 6K Interim Results 2023 |
22 |
Risk and capital management
Credit risk
Economic loss drivers
Introduction
The portfolio segmentation and selection of economic loss drivers for IFRS 9 follows the approach used in stress testing. To enable robust modelling the forecasting models for each portfolio segment (defined by product or asset class and, where relevant, industry sector and region) are based on a selected, small number of economic variables (typically three to four) that best explain the temporal variations in portfolio loss rates. The process to select economic loss drivers involves empirical analysis and expert judgement.
The most significant economic loss drivers for the most material portfolios are shown in the table below:
Portfolio |
Economic loss drivers |
UK Personal mortgages |
UK unemployment rate, sterling swap rate, UK house price index, UK household debt to income |
UK Personal unsecured |
UK unemployment rate, sterling swap rate, UK household debt to income |
UK corporates |
UK stock price index, UK gross domestic product (GDP), Bank of England base rate |
UK commercial real estate |
UK stock price index, UK commercial property price index, UK GDP, Bank of England base rate |
Economic scenarios
At 30 June 2023, the range of anticipated future economic conditions was defined by a set of four internally developed scenarios and their respective probabilities. In addition to the base case, they comprised upside, downside and extreme downside scenarios. The scenarios primarily reflected the current risks faced by the economy, particularly related to persistently high inflation and interest rate environment, resulting in a fall in real household income, economic slowdown, a rise in unemployment and asset price declines.
For 30 June 2023, the four scenarios were deemed appropriate in capturing the uncertainty in economic forecasts and the non-linearity in outcomes under different scenarios. These four scenarios were developed to provide sufficient coverage across potential rises in unemployment, inflation, asset price declines and the degree of permanent damage to the economy, around which there remains pronounced levels of uncertainty.
Upside – This scenario assumes robust growth as inflation falls sharply and rates are lowered. Consumer spending is supported by savings built up since COVID-19 and further helped by fiscal support and strong business investment. The labour market remains resilient, with the unemployment rate remaining below pre-COVID-19 levels. The housing market slows down compared to the previous year but remains robust.
Base case – In the midst of high inflation and significant monetary policy tightening, the economic growth remains muted. However, recession is avoided as only a small proportion of households are directly affected by the rise in the mortgage costs. The unemployment rate rises modestly but job losses are contained. Inflation moderates over the medium-term and falls to target level of 2%. The housing market experiences price decline and lower activity but the extent of the decline is lower than that experienced during prior stresses.
Since 31 December 2022, the economic outlook has improved as energy prices fell sharply and the labour market remained resilient. However, the inflation outlook remains elevated due to higher core inflation pressure. As a result, interest rates need to rise higher than assumed previously. The base case now assumes muted growth in 2023 as opposed to a mild recession assumed previously. The unemployment rate still rises but the peak is lower, reflecting the labour market’s recent resilience. The peak to trough house price correction remains broadly similar to the previous assumption.
Downside – Inflation remains persistently high. The economy experiences a recession as consumer confidence weakens due to a fall in real income. Interest rates are raised higher than the base case and remain elevated for longer. High rates are assumed to have a more significant impact on the labour market. Unemployment is higher than the base case scenario while house prices experience declines comparable to previous episodes of stress.
The previous year’s downside scenario also included a deep recession, labour market deterioration and asset price falls, but the current downside scenario explores these risks in a persistently high inflation, high rates environment.
Extreme downside – This scenario assumes high and persistent inflation. Households see the highest recorded decline in real income. Interest rates rise to levels last observed in early 2000. Resulting economic recession is deep and leads to widespread job losses. House prices lose approximately a third of their value while the unemployment rate rises to a level above that observed during the 2008 financial crisis.
The main macroeconomic variables for each of the four scenarios used for expected credit loss (ECL) modelling are set out in the main macroeconomic variables table below.
NatWest Group – Form 6K Interim Results 2023 |
23 |
Risk and capital management
Credit risk continued
Economic loss drivers
Main macroeconomic variables |
|
30 June 2023 |
|
31 December 2022 |
||||||||||||||||
|
|
|
|
|
|
|
|
Extreme |
|
Weighted |
|
|
|
|
|
|
|
Extreme |
|
Weighted |
|
|
Upside |
|
Base case |
|
Downside |
|
downside |
|
average |
|
Upside |
|
Base case |
|
Downside |
|
downside |
|
average |
Five-year summary |
|
% |
|
% |
|
% |
|
% |
|
% |
|
% |
|
% |
|
% |
|
% |
|
% |
GDP |
|
1.8 |
|
0.9 |
|
0.4 |
|
(0.2) |
|
0.8 |
|
2.2 |
|
1.3 |
|
0.8 |
|
0.4 |
|
1.2 |
Unemployment |
|
3.5 |
|
4.2 |
|
4.9 |
|
6.6 |
|
4.6 |
|
3.9 |
|
4.5 |
|
4.9 |
|
6.7 |
|
4.8 |
House price index |
|
3.8 |
|
0.3 |
|
(0.8) |
|
(6.0) |
|
— |
|
5.1 |
|
0.8 |
|
(0.7) |
|
(4.4) |
|
0.6 |
Commercial real estate price |
|
3.3 |
|
0.2 |
|
(2.7) |
|
(7.6) |
|
(0.7) |
|
1.2 |
|
(1.9) |
|
(2.8) |
|
(9.1) |
|
(2.5) |
Consumer price index |
|
1.7 |
|
2.3 |
|
4.2 |
|
3.7 |
|
2.8 |
|
3.6 |
|
4.2 |
|
4.4 |
|
8.2 |
|
4.8 |
Bank of England base rate |
|
2.6 |
|
4.2 |
|
5.0 |
|
5.1 |
|
4.2 |
|
2.4 |
|
3.1 |
|
1.5 |
|
4.5 |
|
2.8 |
UK stock price index |
|
5.8 |
|
4.3 |
|
1.8 |
|
0.1 |
|
3.5 |
|
3.0 |
|
1.4 |
|
(1.1) |
|
(3.7) |
|
0.5 |
World GDP |
|
3.7 |
|
3.1 |
|
2.7 |
|
1.0 |
|
2.8 |
|
3.7 |
|
3.3 |
|
1.7 |
|
1.1 |
|
2.7 |
Probability weight |
|
19.5 |
|
45.0 |
|
21.5 |
|
14.0 |
|
|
|
18.6 |
|
45.0 |
|
20.8 |
|
15.6 |
|
|
(1) | The five-year summary runs from 2023-2027 for 30 June 2023. |
(2) | The table shows five calendar year CAGR for GDP, average for unemployment and Bank of England base rate and 20-quarter CAGR for other parameters. |
(3) | Comparatives have been aligned with the current calculation approach. |
Probability weightings of scenarios
NatWest Group’s quantitative approach to IFRS 9 multiple economic scenarios (MES) involves selecting a suitable set of discrete scenarios to characterise the distribution of risks in the economic outlook and assigning appropriate probability weights. This quantitative approach is used for 30 June 2023.
The approach involves comparing UK GDP paths for NatWest Group’s scenarios against a set of 1,000 model runs, following which, a percentile in the distribution is established that most closely corresponded to the scenario. Probability weight for base case is set first based on judgement, while probability weights for the alternate scenarios are assigned based on these percentiles scores.
The assigned probability weights were judged to be aligned with the subjective assessment of balance of the risks in the economy. The weights were broadly comparable to those used at 31 December 2022. Since then, the outlook has improved across key areas of the economy. However, the risks still remain elevated and there is considerable uncertainty in the economic outlook, particularly with respect to persistence and the range of outcomes on inflation. Given that backdrop, NatWest Group judges it appropriate that downside-biased scenarios have higher probability weights than the upside-biased scenario. It presents good coverage to the range of outcomes assumed in the scenarios, including the potential for a robust recovery on the upside and exceptionally challenging outcomes on the downside. A 19.5% weighting was applied to the upside scenario, a 45.0% weighting applied to the base case scenario, a 21.5% weighting applied to the downside scenario and a 14.0% weighting applied to the extreme downside scenario.
NatWest Group – Form 6K Interim Results 2023 |
24 |
Risk and capital management
Credit risk continued
Climate transition
During 2023, NatWest Group continued to align its financial planning process with the climate transition planning process. This included adding climate policy and technology related transition assumptions into NatWest Group’s base case macroeconomic scenario used for financial planning and assessment of ECL in this IFRS 9 reporting period. This resulted in an increase in ECL of £4 million.
As in the initial iteration of the Climate transition plan, included in NatWest Group’s 2022 Climate-related Disclosures Report, NatWest Group assesses the effects of climate transition policies within the base case macroeconomic scenario, using the UK Climate Change Committee (CCC) Balanced Net Zero (BNZ) scenario, aligned with the UK CCC sixth carbon budget, as a starting point. In addition, NatWest Group included estimated average policy delay into the climate economic assumptions for IFRS 9 purposes, based on the credibility ratings for sectoral policies provided by the UK CCC 2022 Progress Report to Parliament, to reflect estimated time delays based on credibility ratings as follows:
- | Credible policies – estimated zero years of delayed adjustment to the BNZ pathway for the associated policy. |
- | Policies with some or significant risk – estimated three and five years of delay respectively for the associated policy. |
- | Policies with insufficient plans – estimated ten years of delay for the associated policy. |
The base case macroeconomic scenario now explicitly includes assumptions about the changes in transition policy expressed as an additional implicit carbon price. Implicit carbon price is an additional cost related to greenhouse gas emissions as a result of climate transition policy. NatWest Group assumes that between now and 2028, the transition policy will change slowly, and the implicit carbon price will increase modestly by £10.5/tCO2e, which is consistent with the UK CCC BNZ scenario. The base case macroeconomic scenario also included assumptions about abatement technology development and specific sectors’ transition, for example, the switch from fossil fuels to renewable energy sources. NatWest Group will continue to enhance this analysis, including updates in the UK CCC 2023 Progress Report to Parliament published in June 2023.
While previous NatWest Group IFRS 9 base case scenarios included some climate transition considerations, they were based on all enacted policies and available technologies. The new approach described here applies to explicitly identifying the effect of additional climate transition policy.
NatWest Group and its customers have a dependency on timely and appropriate government policies to provide the necessary impetus for technology development and customer behaviour changes, to enable the UK’s successful transition to net zero. Policy delays and risks outlined in the UK CCC 2022 and 2023 Progress Reports, if not adequately addressed in a timely manner, put at risk the UK’s net zero transition and in turn that of NatWest Group and its customers.
For this first iteration of climate economic assumptions included within the base case macroeconomic scenario, NatWest Group focused on policy and technology related transition risks. It is assumed that in more extreme scenarios it is likely that climate policy changes would offset adverse/benign economic conditions. NatWest Group’s tools, methodologies and assessment of climate risks will continue to evolve to further align financial planning and climate transition planning processes.
NatWest Group – Form 6K Interim Results 2023 |
25 |
Risk and capital management
Credit risk continued
Economic loss drivers
Annual figures
|
|
|
|
|
|
|
|
Extreme |
|
Weighted |
|
|
Upside |
|
Base case |
|
Downside |
|
downside |
|
average |
GDP - annual growth |
|
% |
|
% |
|
% |
|
% |
|
% |
2023 |
|
1.4 |
|
0.3 |
|
— |
|
(0.3) |
|
0.3 |
2024 |
|
3.8 |
|
0.8 |
|
(1.4) |
|
(4.1) |
|
0.3 |
2025 |
|
1.4 |
|
1.0 |
|
1.0 |
|
0.9 |
|
1.1 |
2026 |
|
1.2 |
|
1.3 |
|
1.2 |
|
1.2 |
|
1.2 |
2027 |
|
1.2 |
|
1.4 |
|
1.3 |
|
1.2 |
|
1.3 |
2028 |
|
1.2 |
|
1.4 |
|
1.3 |
|
1.2 |
|
1.3 |
|
|
|
|
|
|
|
|
Extreme |
|
Weighted |
|
|
Upside |
|
Base case |
|
Downside |
|
downside |
|
average |
Unemployment rate - annual average |
|
% |
|
% |
|
% |
|
% |
|
% |
2023 |
|
3.9 |
|
3.9 |
|
4.1 |
|
4.3 |
|
4.0 |
2024 |
|
3.3 |
|
4.2 |
|
5.1 |
|
7.3 |
|
4.7 |
2025 |
|
3.3 |
|
4.4 |
|
5.3 |
|
7.7 |
|
4.8 |
2026 |
|
3.4 |
|
4.3 |
|
5.1 |
|
7.1 |
|
4.7 |
2027 |
|
3.4 |
|
4.3 |
|
4.9 |
|
6.5 |
|
4.6 |
2028 |
|
3.4 |
|
4.3 |
|
4.7 |
|
6.0 |
|
4.4 |
|
|
|
|
|
|
|
|
Extreme |
|
Weighted |
|
|
Upside |
|
Base case |
|
Downside |
|
downside |
|
average |
House price index - four quarter change |
|
% |
|
% |
|
% |
|
% |
|
% |
2023 |
|
(3.3) |
|
(6.9) |
|
(6.2) |
|
(8.2) |
|
(6.2) |
2024 |
|
10.4 |
|
(1.0) |
|
(13.2) |
|
(14.1) |
|
(3.1) |
2025 |
|
6.1 |
|
2.9 |
|
0.9 |
|
(16.4) |
|
0.9 |
2026 |
|
3.1 |
|
3.4 |
|
8.5 |
|
4.3 |
|
4.4 |
2027 |
|
3.5 |
|
3.4 |
|
7.9 |
|
6.8 |
|
4.7 |
2028 |
|
3.4 |
|
3.4 |
|
5.5 |
|
5.0 |
|
4.0 |
|
|
|
|
|
|
|
|
Extreme |
|
Weighted |
|
|
Upside |
|
Base case |
|
Downside |
|
downside |
|
average |
Commercial real estate price - four quarter change |
|
% |
|
% |
|
% |
|
% |
|
% |
2023 |
|
1.1 |
|
(5.8) |
|
(7.8) |
|
(10.7) |
|
(5.6) |
2024 |
|
5.5 |
|
0.5 |
|
(13.4) |
|
(35.3) |
|
(6.1) |
2025 |
|
4.6 |
|
2.5 |
|
2.5 |
|
2.5 |
|
3.0 |
2026 |
|
3.8 |
|
2.5 |
|
3.6 |
|
6.3 |
|
3.4 |
2027 |
|
1.8 |
|
1.3 |
|
3.0 |
|
6.9 |
|
2.3 |
2028 |
|
1.5 |
|
1.3 |
|
2.2 |
|
4.2 |
|
1.8 |
|
|
|
|
|
|
|
|
Extreme |
|
Weighted |
|
|
Upside |
|
Base case |
|
Downside |
|
downside |
|
average |
Consumer price index - four quarter change |
|
% |
|
% |
|
% |
|
% |
|
% |
2023 |
|
1.6 |
|
3.4 |
|
5.5 |
|
7.0 |
|
4.0 |
2024 |
|
1.1 |
|
2.3 |
|
4.3 |
|
6.8 |
|
3.2 |
2025 |
|
1.8 |
|
1.9 |
|
3.9 |
|
1.7 |
|
2.3 |
2026 |
|
1.9 |
|
1.9 |
|
3.8 |
|
1.2 |
|
2.2 |
2027 |
|
1.9 |
|
1.9 |
|
3.7 |
|
2.1 |
|
2.3 |
2028 |
|
1.9 |
|
1.9 |
|
3.2 |
|
2.1 |
|
2.2 |
NatWest Group – Form 6K Interim Results 2023 |
26 |
Risk and capital management
Credit risk continued
Economic loss drivers
|
|
|
|
|
|
|
|
Extreme |
|
Weighted |
|
|
Upside |
|
Base case |
|
Downside |
|
downside |
|
average |
Bank of England base rate - annual average |
|
% |
|
% |
|
% |
|
% |
|
% |
2023 |
|
4.3 |
|
4.8 |
|
4.7 |
|
4.8 |
|
4.7 |
2024 |
|
3.0 |
|
5.0 |
|
5.5 |
|
6.0 |
|
4.9 |
2025 |
|
2.3 |
|
4.2 |
|
5.0 |
|
5.7 |
|
4.2 |
2026 |
|
2.0 |
|
3.7 |
|
4.9 |
|
4.9 |
|
3.8 |
2027 |
|
1.6 |
|
3.3 |
|
4.7 |
|
4.1 |
|
3.4 |
2028 |
|
1.5 |
|
3.2 |
|
4.5 |
|
3.4 |
|
3.2 |
|
|
|
|
|
|
|
|
Extreme |
|
Weighted |
|
|
Upside |
|
Base case |
|
Downside |
|
downside |
|
average |
UK stock price index - four quarter change |
|
% |
|
% |
|
% |
|
% |
|
% |
2023 |
|
13.0 |
|
9.1 |
|
(9.2) |
|
(26.6) |
|
0.9 |
2024 |
|
5.7 |
|
3.1 |
|
(1.9) |
|
(9.4) |
|
1.4 |
2025 |
|
4.1 |
|
3.1 |
|
9.7 |
|
21.2 |
|
6.2 |
2026 |
|
3.6 |
|
3.1 |
|
6.5 |
|
12.9 |
|
4.9 |
2027 |
|
3.2 |
|
3.1 |
|
5.3 |
|
10.2 |
|
4.3 |
2028 |
|
3.0 |
|
3.1 |
|
5.3 |
|
6.4 |
|
3.9 |
Worst points |
|
30 June 2023 |
|
31 December 2022 |
||||||||||||||||
|
|
|
|
|
|
Extreme |
|
|
|
Weighted |
|
|
|
|
|
Extreme |
|
|
|
Weighted |
|
|
Downside |
|
|
|
downside |
|
|
|
average |
|
Downside |
|
|
|
downside |
|
|
|
average |
|
|
% |
|
Quarter |
|
% |
|
Quarter |
|
% |
|
% |
|
Quarter |
|
% |
|
Quarter |
|
% |
GDP |
|
(1.7) |
|
Q2 2024 |
|
(4.9) |
|
Q2 2024 |
|
0.1 |
|
(3.2) |
|
Q4 2023 |
|
(4.7) |
|
Q4 2023 |
|
(0.8) |
Unemployment rate - peak |
|
5.4 |
|
Q1 2025 |
|
8.0 |
|
Q4 2024 |
|
4.9 |
|
6.0 |
|
Q1 2024 |
|
8.5 |
|
Q3 2024 |
|
5.4 |
House price index |
|
(18.9) |
|
Q1 2025 |
|
(34.3) |
|
Q1 2026 |
|
(9.2) |
|
(15.0) |
|
Q1 2025 |
|
(26.2) |
|
Q3 2025 |
|
(3.4) |
Commercial real estate price |
|
(20.1) |
|
Q4 2024 |
|
(42.6) |
|
Q1 2025 |
|
(11.3) |
|
(21.8) |
|
Q4 2023 |
|
(46.8) |
|
Q3 2024 |
|
(16.4) |
Consumer price index |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- highest four quarter change |
|
10.1 |
|
Q1 2023 |
|
10.1 |
|
Q1 2023 |
|
10.1 |
|
15.7 |
|
Q1 2023 |
|
17.0 |
|
Q4 2023 |
|
11.7 |
Bank of England base rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- extreme level |
|
5.8 |
|
Q1 2024 |
|
6.0 |
|
Q1 2024 |
|
5.3 |
|
4.0 |
|
Q1 2023 |
|
6.0 |
|
Q1 2024 |
|
4.1 |
UK stock price index |
|
(15.5) |
|
Q2 2024 |
|
(40.9) |
|
Q2 2024 |
|
(1.1) |
|
(26.0) |
|
Q4 2023 |
|
(48.7) |
|
Q4 2023 |
|
(14.1) |
(1) | Unless specified otherwise, the figures show falls relative to the starting period. The calculations are performed over five years, with a starting point of Q4 2022 for 30 June 2023 scenarios. |
(2) | Comparatives have been aligned with the current calculation approach. |
Use of the scenarios in Personal lending
Personal lending follows a discrete scenario approach. The probability of default (PD), exposure at default (EAD), loss given default (LGD) and resultant ECL for each discrete scenario is calculated using product specific economic response models. Probability weighted averages across the suite of economic scenarios are then calculated for each of the model outputs, with the weighted PD being used for staging purposes.
Business Banking utilises the Personal lending methodology rather than the Wholesale lending methodology.
Use of the scenarios in Wholesale lending
The Wholesale lending scenario methodology is based on the concept of credit cycle indices (CCIs). The CCIs represent, similar to the exogenous component in Personal, all relevant economic drivers for a region/industry segment aggregated into a single index value that describes the credit conditions in the respective segment relative to its long-run average. A CCI value of zero corresponds to credit conditions at long-run average levels, a positive CCI value corresponds to credit conditions below long run average levels and a negative CCI value corresponds to credit conditions above long-run average levels.
The individual economic scenarios are translated into forward-looking projections of CCIs using a set of econometric models. Subsequently the CCI projections for the individual scenarios are averaged into a single central CCI projection according to the given scenario probabilities. The central CCI projection is then extended with an additional mean reversion assumption to gradually revert to the long-run average CCI value of zero in the outer years of the projection horizon.
Finally, ECL is calculated using a Monte Carlo approach by averaging PD and LGD values arising from many CCI paths simulated around the central CCI projection.
NatWest Group – Form 6K Interim Results 2023 |
27 |
Risk and capital management
Credit risk continued
UK economic uncertainty
The high inflation environment alongside rapidly rising interest rates and supply chain disruption are presenting significant headwinds for some businesses and consumers. These are a result of various factors and in many cases are compounding and look set to remain a feature of the economic environment into 2024. NatWest Group has considered where these are most likely to affect the customer base, with the rising cost of borrowing during 2023 for both businesses and consumers presenting an additional affordability challenge for many borrowers in recent months.
The effects of these risks are not expected to be fully captured by forward-looking credit modelling, particularly given the high inflation environment, low unemployment base case outlook. Any incremental ECL effects for these risks will be captured via post model adjustments and are detailed further in the Governance and post model adjustments section.
Governance and post model adjustments
The IFRS 9 PD, EAD and LGD models are subject to NatWest Group’s model risk policy that stipulates periodic model monitoring, periodic re-validation and defines approval procedures and authorities according to model materiality. Various post model adjustments were applied where management judged they were necessary to ensure an adequate level of overall ECL provision. All post model adjustments were subject to formal approval through provisioning governance, and were categorised as follows (business level commentary is provided below):
- | Deferred model calibrations – ECL adjustments where model monitoring and similar analyses indicates that model adjustments will be required to ensure ECL adequacy. As a consequence, an estimate of the ECL impact is recorded on the balance sheet until modelled ECL levels are affirmed by new model parallel runs or similar analyses. |
- | Economic uncertainty – ECL adjustments primarily arising from uncertainties associated with high inflation and rapidly rising interest rates as well as supply chain disruption, along with the residual effects from COVID-19 Government support schemes. In all cases, management judged that additional ECL was required until further credit performance data became available as the observable effects of these issues crystallise. |
- | Other adjustments – ECL adjustments where it was judged that the modelled ECL required amendment. |
Post model adjustments will remain a key focus area of NatWest Group’s ongoing ECL adequacy assessment process. A holistic framework has been established including reviewing a range of economic data, external benchmark information and portfolio performance trends with a particular focus on segments of the portfolio (both commercial and consumer) that are likely to be more susceptible to high inflation, rapidly rising interest rates and supply chain disruption.
ECL post model adjustments
The table below shows ECL post model adjustments.
|
|
Retail Banking |
|
Private |
|
Commercial & |
|
Central items |
|
|
||
|
|
Mortgages |
|
Other |
|
Banking |
|
Institutional |
|
& other |
|
Total |
30 June 2023 |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Deferred model calibrations |
|
— |
|
— |
|
1 |
|
22 |
|
— |
|
23 |
Economic uncertainty |
|
116 |
|
43 |
|
12 |
|
289 |
|
2 |
|
462 |
Other adjustments |
|
7 |
|
— |
|
— |
|
12 |
|
36 |
|
55 |
Total |
|
123 |
|
43 |
|
13 |
|
323 |
|
38 |
|
540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Of which: |
|
|
|
|
|
|
|
|
|
|
|
|
- Stage 1 |
|
74 |
|
19 |
|
6 |
|
113 |
|
20 |
|
232 |
- Stage 2 |
|
34 |
|
24 |
|
7 |
|
206 |
|
17 |
|
288 |
- Stage 3 |
|
15 |
|
— |
|
— |
|
4 |
|
1 |
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
31 December 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
Economic uncertainty |
|
102 |
|
51 |
|
6 |
|
191 |
|
2 |
|
352 |
Other adjustments |
|
8 |
|
20 |
|
— |
|
16 |
|
15 |
|
59 |
Total |
|
110 |
|
71 |
|
6 |
|
207 |
|
17 |
|
411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Of which: |
|
|
|
|
|
|
|
|
|
|
|
|
- Stage 1 |
|
62 |
|
27 |
|
3 |
|
63 |
|
— |
|
155 |
- Stage 2 |
|
32 |
|
44 |
|
3 |
|
139 |
|
16 |
|
234 |
- Stage 3 |
|
16 |
|
— |
|
— |
|
5 |
|
1 |
|
22 |
NatWest Group – Form 6K Interim Results 2023 |
28 |
Risk and capital management
Credit risk continued
UK economic uncertainty
Post model adjustments increased since 31 December 2022, with a notable shift in economic uncertainty reflecting rapidly rising interest rates and high inflation.
- |
Retail Banking – The post model adjustment for economic uncertainty increased from £153 million at 31 December 2022 to £159 million at 30 June 2023, with recent interest rate rises resulting in higher levels of mortgage customers at risk of financial difficulties and prompting an uplift in the cost of living post model adjustment (up from £127 million to £134 million). The cost of living post model adjustment captures the risk on segments in the Retail Banking portfolio that are more susceptible to the effects of cost of living rises, focusing on key affordability lenses, including customers with lower incomes in fuel poverty, over-indebted borrowers and customers vulnerable to a potential mortgage rate shock effect on their affordability. |
- |
The £20 million other judgemental overlay for EAD modelling dynamics in credit cards was no longer required. |
- |
Commercial & Institutional – The post model adjustment for economic uncertainty increased from £191 million at 31 December 2022 to £289 million at 30 June 2023. It still includes an overlay of £79 million to cover the residual risks from COVID-19, including the risk that government support schemes could affect future recoveries and concerns surrounding associated debt, to customers that have utilised government support schemes. The inflation and supply chain post model adjustment has been maintained with a mechanistic adjustment, via a sector-level downgrade, being applied to the sectors that were considered most at risk from these headwinds. A number of additional sectors have been included in the sector-level downgrade reflecting the pressures from inflation plus broader concerns around liquidity and reducing cash reserves across many sectors. The impact of the sector-level downgrades is a post model adjustment increase from £83 million at 31 December 2022 to £210 million at 30 June 2023, reflecting the significant headwinds for a number of sectors which are not fully captured in the models. |
- |
The £22 million judgemental overlay for deferred model calibrations relates to refinance risk with the existing mechanistic modelling approach not fully capturing the risk on deteriorated exposures. |
- |
Other adjustments includes an overlay of £10 million to mitigate the effect of operational timing delays in the identification and flagging of a SICR. |
- |
Other – The post model adjustments in Central items & other increased from £17 million at 31 December 2022 to £38 million at 30 June 2023 with the rise attributable to the divestment risk of the phased withdrawal of Ulster Bank RoI from the Republic of Ireland. |
NatWest Group – Form 6K Interim Results 2023 |
29 |
Risk and capital management
Credit risk continued
Wholesale support schemes
The table below shows the sector split for the Bounce Back Loan Scheme (BBLS) as well as associated debt split by stage. Associated debt refers to non-BBLS lending to customers who also have BBLS lending.
|
|
Gross carrying amount |
||||||||||||||||||||
|
|
BBL |
|
Associated debt |
|
ECL on associated debt |
||||||||||||||||
|
|
Stage 1 |
|
Stage 2 |
|
Stage 3 |
|
Total |
|
Stage 1 |
|
Stage 2 |
|
Stage 3 |
|
Total |
|
Stage 1 |
|
Stage 2 |
|
Stage 3 |
30 June 2023 |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Wholesale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property |
|
864 |
|
173 |
|
40 |
|
1,077 |
|
805 |
|
225 |
|
71 |
|
1,101 |
|
9 |
|
17 |
|
25 |
Financial institutions |
|
20 |
|
3 |
|
— |
|
23 |
|
8 |
|
2 |
|
— |
|
10 |
|
— |
|
— |
|
— |
Sovereign |
|
4 |
|
1 |
|
— |
|
5 |
|
1 |
|
— |
|
— |
|
1 |
|
— |
|
— |
|
— |
Corporate |
|
2,638 |
|
550 |
|
334 |
|
3,522 |
|
2,169 |
|
879 |
|
153 |
|
3,201 |
|
26 |
|
56 |
|
91 |
Of which: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture |
|
184 |
|
68 |
|
4 |
|
256 |
|
762 |
|
338 |
|
21 |
|
1,121 |
|
6 |
|
15 |
|
9 |
Airlines and aerospace |
|
3 |
|
1 |
|
— |
|
4 |
|
2 |
|
1 |
|
— |
|
3 |
|
— |
|
— |
|
— |
Automotive |
|
185 |
|
30 |
|
8 |
|
223 |
|
103 |
|
29 |
|
7 |
|
139 |
|
2 |
|
3 |
|
4 |
Chemicals |
|
5 |
|
1 |
|
— |
|
6 |
|
8 |
|
1 |
|
— |
|
9 |
|
— |
|
— |
|
— |
Health |
|
139 |
|
20 |
|
4 |
|
163 |
|
255 |
|
84 |
|
14 |
|
353 |
|
2 |
|
4 |
|
6 |
Industrials |
|
109 |
|
18 |
|
5 |
|
132 |
|
72 |
|
23 |
|
5 |
|
100 |
|
1 |
|
1 |
|
3 |
Land transport and logistics |
|
101 |
|
22 |
|
6 |
|
129 |
|
43 |
|
24 |
|
4 |
|
71 |
|
1 |
|
2 |
|
3 |
Leisure |
|
386 |
|
94 |
|
24 |
|
504 |
|
322 |
|
143 |
|
23 |
|
488 |
|
5 |
|
12 |
|
16 |
Mining and metals |
|
4 |
|
1 |
|
— |
|
5 |
|
6 |
|
— |
|
— |
|
6 |
|
— |
|
— |
|
— |
Oil and gas |
|
5 |
|
1 |
|
— |
|
6 |
|
4 |
|
1 |
|
— |
|
5 |
|
— |
|
— |
|
— |
Power utilities |
|
3 |
|
1 |
|
— |
|
4 |
|
3 |
|
3 |
|
1 |
|
7 |
|
— |
|
— |
|
— |
Retail |
|
460 |
|
88 |
|
22 |
|
570 |
|
256 |
|
104 |
|
17 |
|
377 |
|
4 |
|
8 |
|
12 |
Shipping |
|
2 |
|
— |
|
— |
|
2 |
|
1 |
|
— |
|
— |
|
1 |
|
— |
|
— |
|
— |
Water and waste |
|
12 |
|
2 |
|
1 |
|
15 |
|
9 |
|
2 |
|
2 |
|
13 |
|
— |
|
— |
|
1 |
Total |
|
3,526 |
|
727 |
|
374 |
|
4,627 |
|
2,983 |
|
1,106 |
|
224 |
|
4,313 |
|
35 |
|
73 |
|
116 |
31 December 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property |
|
1,029 |
|
197 |
|
51 |
|
1,277 |
|
908 |
|
217 |
|
61 |
|
1,186 |
|
10 |
|
15 |
|
27 |
Financial institutions |
|
24 |
|
4 |
|
— |
|
28 |
|
9 |
|
2 |
|
— |
|
11 |
|
— |
|
— |
|
1 |
Sovereign |
|
5 |
|
1 |
|
1 |
|
7 |
|
2 |
|
— |
|
— |
|
2 |
|
— |
|
— |
|
— |
Corporate |
|
3,165 |
|
629 |
|
338 |
|
4,132 |
|
2,302 |
|
872 |
|
116 |
|
3,290 |
|
26 |
|
56 |
|
69 |
Of which: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture |
|
221 |
|
74 |
|
4 |
|
299 |
|
819 |
|
297 |
|
22 |
|
1,138 |
|
6 |
|
14 |
|
11 |
Airlines and aerospace |
|
3 |
|
1 |
|
— |
|
4 |
|
— |
|
1 |
|
— |
|
1 |
|
— |
|
— |
|
— |
Automotive |
|
221 |
|
34 |
|
10 |
|
265 |
|
100 |
|
37 |
|
5 |
|
142 |
|
1 |
|
2 |
|
3 |
Chemicals |
|
6 |
|
1 |
|
— |
|
7 |
|
9 |
|
1 |
|
— |
|
10 |
|
— |
|
— |
|
— |
Health |
|
165 |
|
23 |
|
4 |
|
192 |
|
271 |
|
92 |
|
9 |
|
372 |
|
2 |
|
4 |
|
4 |
Industrials |
|
131 |
|
21 |
|
5 |
|
157 |
|
77 |
|
20 |
|
4 |
|
101 |
|
1 |
|
2 |
|
2 |
Land transport and logistics |
|
122 |
|
25 |
|
8 |
|
155 |
|
51 |
|
16 |
|
4 |
|
71 |
|
1 |
|
2 |
|
3 |
Leisure |
|
471 |
|
108 |
|
28 |
|
607 |
|
336 |
|
161 |
|
27 |
|
524 |
|
5 |
|
12 |
|
16 |
Mining and metals |
|
5 |
|
1 |
|
— |
|
6 |
|
5 |
|
1 |
|
— |
|
6 |
|
— |
|
— |
|
— |
Oil and gas |
|
6 |
|
1 |
|
— |
|
7 |
|
2 |
|
2 |
|
— |
|
4 |
|
— |
|
— |
|
— |
Power utilities |
|
3 |
|
1 |
|
— |
|
4 |
|
3 |
|
4 |
|
— |
|
7 |
|
— |
|
— |
|
— |
Retail |
|
554 |
|
102 |
|
26 |
|
682 |
|
283 |
|
94 |
|
14 |
|
391 |
|
4 |
|
7 |
|
10 |
Shipping |
|
2 |
|
— |
|
— |
|
2 |
|
1 |
|
3 |
|
— |
|
4 |
|
— |
|
— |
|
— |
Water and waste |
|
15 |
|
2 |
|
1 |
|
18 |
|
10 |
|
3 |
|
— |
|
13 |
|
— |
|
— |
|
— |
Total |
|
4,223 |
|
831 |
|
390 |
|
5,444 |
|
3,221 |
|
1,091 |
|
177 |
|
4,489 |
|
36 |
|
71 |
|
97 |
NatWest Group – Form 6K Interim Results 2023 |
30 |
Risk and capital management
Credit risk continued
Measurement uncertainty and ECL sensitivity analysis
The recognition and measurement of ECL is complex and involves the use of significant judgment and estimation, particularly in times of economic volatility and uncertainty. This includes the formulation and incorporation of multiple forward-looking economic conditions into ECL to meet the measurement objective of IFRS 9. The ECL provision is sensitive to the model inputs and economic assumptions underlying the estimate.
The impact arising from the base case, upside, downside and extreme downside scenarios was simulated. These scenarios are used in the methodology for Personal multiple economic scenarios as described in the Economic loss drivers section. In the simulations, NatWest Group has assumed that the economic macro variables associated with these scenarios replace the existing base case economic assumptions, giving them a 100% probability weighting and therefore serving as a single economic scenario.
These scenarios were applied to all modelled portfolios in the analysis below, with the simulation impacting both PDs and LGDs. Post model adjustments included in the ECL estimates that were modelled were sensitised in line with the modelled ECL movements, but those that were judgmental in nature, primarily those for deferred model calibrations and economic uncertainty, were not (refer to the Governance and post model adjustments section). As expected, the scenarios create differing impacts on ECL by portfolio and the impacts are deemed reasonable. In this simulation, it is assumed that existing modelled relationships between key economic variables and loss drivers hold, but in practice other factors would also have an impact, for example, potential customer behaviour changes and policy changes by lenders that might impact on the wider availability of credit.
The focus of the simulations is on ECL provisioning requirements on performing exposures in Stage 1 and Stage 2. The simulations are run on a stand-alone basis and are independent of each other; the potential ECL impacts reflect the simulated impact at 30 June 2023. Scenario impacts on SICR should be considered when evaluating the ECL movements of Stage 1 and Stage 2. In all scenarios the total exposure was the same but exposure by stage varied in each scenario.
Stage 3 provisions are not subject to the same level of measurement uncertainty – default is an observed event as at the balance sheet date. Stage 3 provisions therefore were not considered in this analysis.
NatWest Group’s core criterion to identify a SICR is founded on PD deterioration. Under the simulations, PDs change and result in exposures moving between Stage 1 and Stage 2 contributing to the ECL impact.
NatWest Group – Form 6K Interim Results 2023 |
31 |
Risk and capital management
Credit risk continued
Measurement uncertainty and ECL sensitivity analysis
|
|
|
|
|
|
Moderate |
|
Moderate |
|
Extreme |
|
|
|
|
Base |
|
upside |
|
downside |
|
downside |
30 June 2023 |
|
Actual |
|
scenario |
|
scenario |
|
scenario |
|
scenario |
Stage 1 modelled loans (£m) |
|
|
|
|
|
|
|
|
|
|
Retail Banking - mortgages |
|
168,723 |
|
168,198 |
|
169,272 |
|
168,676 |
|
160,339 |
Retail Banking - unsecured |
|
8,256 |
|
8,296 |
|
8,562 |
|
8,102 |
|
7,393 |
Wholesale - property |
|
27,157 |
|
27,445 |
|
27,594 |
|
26,830 |
|
17,541 |
Wholesale - non-property |
|
110,583 |
|
112,316 |
|
113,020 |
|
109,447 |
|
84,290 |
|
|
314,719 |
|
316,255 |
|
318,448 |
|
313,055 |
|
269,563 |
Stage 1 modelled ECL (£m) |
|
|
|
|
|
|
|
|
|
|
Retail Banking - mortgages |
|
85 |
|
84 |
|
81 |
|
87 |
|
83 |
Retail Banking - unsecured |
|
191 |
|
193 |
|
192 |
|
191 |
|
169 |
Wholesale - property |
|
98 |
|
76 |
|
60 |
|
128 |
|
131 |
Wholesale - non-property |
|
250 |
|
220 |
|
193 |
|
305 |
|
310 |
|
|
624 |
|
573 |
|
526 |
|
711 |
|
693 |
Stage 2 modelled loans (£m) |
|
|
|
|
|
|
|
|
|
|
Retail Banking - mortgages |
|
19,653 |
|
20,178 |
|
19,104 |
|
19,700 |
|
28,037 |
Retail Banking - unsecured |
|
3,400 |
|
3,360 |
|
3,094 |
|
3,554 |
|
4,263 |
Wholesale - property |
|
3,942 |
|
3,654 |
|
3,505 |
|
4,269 |
|
13,558 |
Wholesale - non-property |
|
16,854 |
|
15,121 |
|
14,417 |
|
17,990 |
|
43,147 |
|
|
43,849 |
|
42,313 |
|
40,120 |
|
45,513 |
|
89,005 |
Stage 2 modelled ECL (£m) |
|
|
|
|
|
|
|
|
|
|
Retail Banking - mortgages |
|
64 |
|
64 |
|
44 |
|
64 |
|
114 |
Retail Banking - unsecured |
|
376 |
|
369 |
|
304 |
|
404 |
|
515 |
Wholesale - property |
|
113 |
|
92 |
|
74 |
|
134 |
|
584 |
Wholesale - non-property |
|
405 |
|
336 |
|
279 |
|
483 |
|
1,234 |
|
|
958 |
|
861 |
|
701 |
|
1,085 |
|
2,447 |
Stage 1 and Stage 2 modelled loans (£m) |
|
|
|
|
|
|
|
|
|
|
Retail Banking - mortgages |
|
188,376 |
|
188,376 |
|
188,376 |
|
188,376 |
|
188,376 |
Retail Banking - unsecured |
|
11,656 |
|
11,656 |
|
11,656 |
|
11,656 |
|
11,656 |
Wholesale - property |
|
31,099 |
|
31,099 |
|
31,099 |
|
31,099 |
|
31,099 |
Wholesale - non-property |
|
127,437 |
|
127,437 |
|
127,437 |
|
127,437 |
|
127,437 |
|
|
358,568 |
|
358,568 |
|
358,568 |
|
358,568 |
|
358,568 |
Stage 1 and Stage 2 modelled ECL (£m) |
|
|
|
|
|
|
|
|
|
|
Retail Banking - mortgages |
|
149 |
|
148 |
|
125 |
|
151 |
|
197 |
Retail Banking - unsecured |
|
567 |
|
562 |
|
496 |
|
595 |
|
684 |
Wholesale - property |
|
211 |
|
168 |
|
134 |
|
262 |
|
715 |
Wholesale - non-property |
|
655 |
|
556 |
|
472 |
|
788 |
|
1,544 |
|
|
1,582 |
|
1,434 |
|
1,227 |
|
1,796 |
|
3,140 |
Stage 1 and Stage 2 coverage (%) |
|
|
|
|
|
|
|
|
|
|
Retail Banking - mortgages |
|
0.08 |
|
0.08 |
|
0.07 |
|
0.08 |
|
0.10 |
Retail Banking - unsecured |
|
4.86 |
|
4.82 |
|
4.26 |
|
5.10 |
|
5.87 |
Wholesale - property |
|
0.68 |
|
0.54 |
|
0.43 |
|
0.84 |
|
2.30 |
Wholesale - non-property |
|
0.51 |
|
0.44 |
|
0.37 |
|
0.62 |
|
1.21 |
|
|
0.44 |
|
0.40 |
|
0.34 |
|
0.50 |
|
0.88 |
Reconciliation to Stage 1 and Stage 2 ECL (£m) |
|
|
|
|
|
|
|
|
|
|
ECL on modelled exposures |
|
1,582 |
|
1,434 |
|
1,227 |
|
1,796 |
|
3,140 |
ECL on UBIDAC modelled exposures |
|
32 |
|
32 |
|
32 |
|
32 |
|
32 |
ECL on non-modelled exposures |
|
38 |
|
38 |
|
38 |
|
38 |
|
38 |
|
|
|
|
|
|
|
|
|
|
|
Total Stage 1 and Stage 2 ECL |
|
1,652 |
|
1,504 |
|
1,297 |
|
1,866 |
|
3,210 |
Variance to actual total Stage 1 and Stage 2 ECL |
|
|
|
(148) |
|
(355) |
|
214 |
|
1,558 |
NatWest Group – Form 6K Interim Results 2023 |
32 |
Risk and capital management
Credit risk continued
Measurement uncertainty and ECL sensitivity analysis
|
|
|
|
|
|
Moderate |
|
Moderate |
|
Extreme |
|
|
|
|
Base |
|
upside |
|
downside |
|
downside |
30 June 2023 |
|
Actual |
|
scenario |
|
scenario |
|
scenario |
|
scenario |
Reconciliation to Stage 1 and Stage 2 flow exposure (£m) |
|
|
|
|
|
|
|
|
|
|
Modelled loans |
|
358,568 |
|
358,568 |
|
358,568 |
|
358,568 |
|
358,568 |
UBIDAC loans |
|
565 |
|
565 |
|
565 |
|
565 |
|
565 |
Non-modelled loans |
|
20,993 |
|
20,993 |
|
20,993 |
|
20,993 |
|
20,993 |
Other asset classes |
|
145,405 |
|
145,405 |
|
145,405 |
|
145,405 |
|
145,405 |
(1) | Variations in future undrawn exposure values across the scenarios are modelled, however the exposure position reported is that used to calculate modelled ECL as at 30 June 2023 and therefore does not include variation in future undrawn exposure values. |
(2) | Reflects ECL for all modelled exposure in scope for IFRS 9. The analysis excludes non-modelled portfolios. |
(3) | Exposures related to Ulster Bank RoI continuing operations have not been included in the simulations. The current Ulster Bank RoI ECL has been included across all scenarios to enable reconciliation to other disclosures. |
(4) | All simulations are run on a stand-alone basis and are independent of each other, with the potential ECL impact reflecting the simulated impact as at 30 June 2023. The simulations change the composition of Stage 1 and Stage 2 exposure but total exposure is unchanged under each scenario as the loan population is static. |
(5) | Refer to the Economic loss drivers section for details of economic scenarios. |
(6) | Refer to the NatWest Group 2022 Annual Report on Form 20-F for 31 December 2022 comparatives. |
Measurement uncertainty and ECL adequacy
- | During H1 2023, overall modelled ECL remained stable reflecting portfolio growth coupled with stable portfolio performance offset by the H1 2023 economics update ECL reduction at 30 June 2023. Judgemental ECL post model adjustments, increased from 31 December 2022, reflecting the increased economic uncertainty and the expectation of increased defaults in H2 2023 and beyond, and represented 15% of total ECL (31 December 2022 – 12%). |
- | If the economics were as negative as observed in the extreme downside, total Stage 1 and Stage 2 ECL was simulated to increase by £1.6 billion (approximately 94%). In this scenario, Stage 2 exposure increased significantly and was the key driver of the simulated ECL rise. The movement in Stage 2 balances in the other simulations was less significant. |
- | In the Wholesale portfolio, there was a significant increase in ECL under both a moderate and extreme downside scenario. The Wholesale property ECL increase was mainly due to commercial real estate prices which show negative growth until 2024 and significant deterioration in the stock index. The non-property increase was mainly due to GDP contraction and significant deterioration in the stock index. |
- | The changes in the economic outlook and scenarios used in the IFRS 9 MES framework at 30 June 2023 resulted in a decrease in modelled ECL. Given that continued uncertainty remains due to high inflation, rapidly rising interest rates and supply chain disruption, NatWest Group utilised a framework of quantitative and qualitative measures to support the levels of ECL coverage, including economic data, credit performance insights, supply chain contagion analysis and problem debt trends. This was particularly important for consideration of post model adjustments. |
- | As the effects of high inflation, rapidly rising interest rates and supply chain disruption evolve during 2023 and into 2024, there is a risk of credit deterioration. However, the income statement effect of this should have been mitigated by the forward-looking provisions retained on the balance sheet at 30 June 2023. |
- | There are a number of key factors that could drive further downside to impairments, through deteriorating economic and credit metrics and increased stage migration as credit risk increases for more customers. Such factors which could impact the IFRS 9 models, include an adverse deterioration in GDP and unemployment in the economies in which NatWest Group operates. |
Movement in ECL provision
The table below shows the main ECL provision movements during H1 2023.
|
|
ECL provision |
|
|
£m |
At 1 January 2023 |
|
3,434 |
Changes in economic forecasts |
|
(98) |
Changes in risk metrics and exposure: Stage 1 and Stage 2 |
|
(48) |
Changes in risk metrics and exposure: Stage 3 |
|
263 |
Judgemental changes: changes in post model adjustments for Stage 1, Stage 2 and Stage 3 |
|
129 |
Write-offs and other |
|
(123) |
At 30 June 2023 |
|
3,557 |
- | ECL increased during H1 2023, reflecting a stable level of good book ECL alongside increases in Stage 3 ECL levels. |
- | Stage 3 default flows in the Personal portfolios remained stable, although there were modest increases in line with growth and post-COVID-19 lending strategy. For the Wholesale portfolios, with the exception of BBLS, default levels were lower than historic trends as the effects of high inflation, rapidly rising interest rates and supply chain disruption has to date not led to a significant change in defaults. |
- | Stage 3 balances increased due to default flows, as described above, alongside reduced write-off activity in H1 2023. |
- | The update to the economic scenarios at 30 June 2023 resulted in a modelled decrease in ECL of £98 million. While broader portfolio performance continued to be stable, the additional uncertainty due to high inflation and rapidly rising interest rates led to an increase in post model adjustments being required to ensure provision adequacy. |
NatWest Group – Form 6K Interim Results 2023 |
33 |
Risk and capital management
Credit risk – Banking activities
Introduction
This section details the credit risk profile of NatWest Group’s banking activities.
Financial instruments within the scope of the IFRS 9 ECL framework
Refer to Note 8 for balance sheet analysis of financial assets that are classified as amortised cost or fair value through other comprehensive income (FVOCI), the starting point for IFRS 9 ECL framework assessment. The table below excludes loans in disposal groups of £0.6 billion (31 December 2022 – £1.5 billion).
Financial assets
|
|
30 June 2023 |
|
31 December 2022 |
||||||||
|
|
Gross |
|
ECL |
|
Net |
|
Gross |
|
ECL |
|
Net |
|
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
£bn |
Balance sheet total gross amortised cost and FVOCI |
|
554.3 |
|
— |
|
— |
|
554.3 |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
In scope of IFRS 9 ECL framework |
|
541.7 |
|
— |
|
— |
|
550.3 |
|
— |
|
— |
% in scope |
|
98% |
|
— |
|
— |
|
99% |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans to customers - in scope - amortised cost |
|
377.9 |
|
3.5 |
|
374.4 |
|
370.1 |
|
3.3 |
|
366.8 |
Loans to customers - in scope - FVOCI |
|
0.1 |
|
— |
|
0.1 |
|
0.1 |
|
— |
|
0.1 |
Loans to banks - in scope - amortised cost |
|
7.2 |
|
— |
|
7.2 |
|
6.9 |
|
— |
|
6.9 |
Total loans - in scope |
|
385.2 |
|
3.5 |
|
381.7 |
|
377.1 |
|
3.3 |
|
373.8 |
Stage 1 |
|
336.4 |
|
0.6 |
|
335.8 |
|
325.2 |
|
0.6 |
|
324.6 |
Stage 2 |
|
43.4 |
|
1.0 |
|
42.4 |
|
46.8 |
|
0.9 |
|
45.9 |
Stage 3 |
|
5.4 |
|
1.9 |
|
3.5 |
|
5.1 |
|
1.8 |
|
3.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial assets - in scope - amortised cost |
|
138.5 |
|
— |
|
138.5 |
|
156.4 |
|
— |
|
156.4 |
Other financial assets - in scope - FVOCI |
|
18.0 |
|
— |
|
18.0 |
|
16.8 |
|
— |
|
16.8 |
Total other financial assets - in scope |
|
156.5 |
|
— |
|
156.5 |
|
173.2 |
|
— |
|
173.2 |
Stage 1 |
|
156.4 |
|
— |
|
156.4 |
|
172.4 |
|
— |
|
172.4 |
Stage 2 |
|
0.1 |
|
— |
|
0.1 |
|
0.8 |
|
— |
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Out of scope of IFRS 9 ECL framework |
|
12.6 |
|
na |
|
12.6 |
|
4.0 |
|
na |
|
4.0 |
Loans to customers - out of scope - amortised cost |
|
(0.6) |
|
na |
|
(0.6) |
|
(0.4) |
|
na |
|
(0.4) |
Loans to banks - out of scope - amortised cost |
|
0.1 |
|
na |
|
0.1 |
|
0.2 |
|
na |
|
0.2 |
Other financial assets - out of scope - amortised cost |
|
13.0 |
|
na |
|
13.0 |
|
4.1 |
|
na |
|
4.1 |
Other financial assets - out of scope - FVOCI |
|
0.1 |
|
na |
|
0.1 |
|
0.1 |
|
na |
|
0.1 |
na = not applicable
The assets outside the IFRS 9 ECL framework were as follows:
- | Settlement balances, items in the course of collection, cash balances and other non-credit risk assets of £12.5 billion (31 December 2022 – £4.3 billion). These were assessed as having no ECL unless there was evidence that they were defaulted. |
- | Equity shares of £0.3 billion (31 December 2022 – £0.4 billion) as not within the IFRS 9 ECL framework by definition. |
- | Fair value adjustments on loans hedged by interest rate swaps, where the underlying loan was within the IFRS 9 ECL scope of £0.9 billion (31 December 2022 – £(0.6) billion). |
Contingent liabilities and commitments
In addition to contingent liabilities and commitments disclosed in Note 13, reputationally-committed limits were also included in the scope of the IFRS 9 ECL framework. These were offset by £0.1 billion (31 December 2022 – £(0.1) billion) out of scope balances primarily related to facilities that, if drawn, would not be classified as amortised cost or FVOCI, or undrawn limits relating to financial assets exclusions. Total contingent liabilities (including financial guarantees) and commitments within IFRS 9 ECL scope of £136.2 billion (31 December 2022 – £137.2 billion) comprised Stage 1 £123.1 billion (31 December 2022 – £119.2 billion); Stage 2 £12.5 billion (31 December 2022 – £17.3 billion); and Stage 3 £0.7 billion (31 December 2022 – £0.7 billion).
The ECL relating to off-balance sheet exposures was £0.1 billion (31 December 2022 – £0.1 billion). The total ECL in the remainder of the Credit risk section of £3.6 billion (31 December 2022 – £3.4 billion) included ECL for both on and off-balance sheet exposures for non-disposal groups.
NatWest Group – Form 6K Interim Results 2023 |
34 |
Risk and capital management
Credit risk – Banking activities continued
Segment analysis – portfolio summary
The table below shows gross loans and ECL, by segment and stage, within the scope of the IFRS 9 ECL framework.
|
|
Retail |
|
Private |
|
Commercial & |
|
Central items |
|
|
|
|
Banking |
|
Banking |
|
Institutional |
|
& other |
|
Total |
30 June 2023 |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Loans - amortised cost and FVOCI (1) |
|
|
|
|
|
|
|
|
|
|
Stage 1 |
|
180,293 |
|
18,075 |
|
112,341 |
|
25,653 |
|
336,362 |
Stage 2 |
|
22,686 |
|
988 |
|
19,676 |
|
90 |
|
43,440 |
Stage 3 |
|
2,826 |
|
254 |
|
2,246 |
|
124 |
|
5,450 |
Of which: individual |
|
— |
|
203 |
|
1,017 |
|
27 |
|
1,247 |
Of which: collective |
|
2,826 |
|
51 |
|
1,229 |
|
97 |
|
4,203 |
Subtotal excluding disposal group loans |
|
205,805 |
|
19,317 |
|
134,263 |
|
25,867 |
|
385,252 |
Disposal group loans |
|
|
|
|
|
|
|
573 |
|
573 |
Total |
|
|
|
|
|
|
|
26,440 |
|
385,825 |
ECL provisions (2) |
|
|
|
|
|
|
|
|
|
|
Stage 1 |
|
282 |
|
23 |
|
333 |
|
23 |
|
661 |
Stage 2 |
|
439 |
|
17 |
|
507 |
|
28 |
|
991 |
Stage 3 |
|
1,038 |
|
31 |
|
765 |
|
71 |
|
1,905 |
Of which: individual |
|
— |
|
31 |
|
260 |
|
4 |
|
295 |
Of which: collective |
|
1,038 |
|
— |
|
505 |
|
67 |
|
1,610 |
Subtotal excluding ECL provisions on disposal group loans |
|
1,759 |
|
71 |
|
1,605 |
|
122 |
|
3,557 |
ECL provisions on disposal group loans |
|
|
|
|
|
|
|
31 |
|
31 |
Total |
|
|
|
|
|
|
|
153 |
|
3,588 |
ECL provisions coverage (3) |
|
|
|
|
|
|
|
|
|
|
Stage 1 (%) |
|
0.16 |
|
0.13 |
|
0.30 |
|
0.09 |
|
0.20 |
Stage 2 (%) |
|
1.94 |
|
1.72 |
|
2.58 |
|
31.11 |
|
2.28 |
Stage 3 (%) |
|
36.73 |
|
12.20 |
|
34.06 |
|
57.26 |
|
34.95 |
ECL provisions coverage excluding disposal group loans |
|
0.85 |
|
0.37 |
|
1.20 |
|
0.47 |
|
0.92 |
ECL provisions coverage on disposal group loans |
|
|
|
|
|
|
|
5.41 |
|
5.41 |
Total |
|
|
|
|
|
|
|
0.58 |
|
0.93 |
Impairment (releases)/losses (4) |
|
|
|
|
|
|
|
|
|
|
ECL (release)/charge |
|
193 |
|
11 |
|
20 |
|
(1) |
|
223 |
Stage 1 |
|
(88) |
|
(1) |
|
(124) |
|
4 |
|
(209) |
Stage 2 |
|
188 |
|
8 |
|
98 |
|
2 |
|
296 |
Stage 3 |
|
93 |
|
4 |
|
46 |
|
(7) |
|
136 |
Of which: individual |
|
— |
|
4 |
|
13 |
|
(4) |
|
13 |
Of which: collective |
|
93 |
|
— |
|
33 |
|
(3) |
|
123 |
Continuing operations |
|
193 |
|
11 |
|
20 |
|
(1) |
|
223 |
Discontinued operations |
|
— |
|
— |
|
— |
|
(1) |
|
(1) |
Total |
|
— |
|
— |
|
— |
|
(2) |
|
222 |
|
|
|
|
|
|
|
|
|
|
|
Amounts written-off |
|
63 |
|
1 |
|
50 |
|
8 |
|
122 |
Of which: individual |
|
— |
|
1 |
|
19 |
|
2 |
|
22 |
Of which: collective |
|
63 |
|
— |
|
31 |
|
6 |
|
100 |
|
|
|
|
|
|
|
|
|
|
|
For the notes to this table refer to the following page.
NatWest Group – Form 6K Interim Results 2023 |
35 |
Risk and capital management
Credit risk – Banking activities continued
Segment analysis – portfolio summary
|
|
Retail |
|
Private |
|
Commercial & |
|
Central items |
|
|
|
|
Banking |
|
Banking |
|
Institutional |
|
& other |
|
Total |
31 December 2022 |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Loans - amortised cost and FVOCI (1) |
|
|
|
|
|
|
|
|
|
|
Stage 1 |
|
174,727 |
|
18,367 |
|
108,791 |
|
23,339 |
|
325,224 |
Stage 2 |
|
21,561 |
|
801 |
|
24,226 |
|
245 |
|
46,833 |
Stage 3 |
|
2,565 |
|
242 |
|
2,166 |
|
123 |
|
5,096 |
Of which: individual |
|
— |
|
168 |
|
905 |
|
48 |
|
1,121 |
Of which: collective |
|
2,565 |
|
74 |
|
1,261 |
|
75 |
|
3,975 |
Subtotal excluding disposal group loans |
|
198,853 |
|
19,410 |
|
135,183 |
|
23,707 |
|
377,153 |
Disposal group loans |
|
|
|
|
|
|
|
1,502 |
|
1,502 |
Total |
|
|
|
|
|
|
|
25,209 |
|
378,655 |
ECL provisions (2) |
|
|
|
|
|
|
|
|
|
|
Stage 1 |
|
251 |
|
21 |
|
342 |
|
18 |
|
632 |
Stage 2 |
|
450 |
|
14 |
|
534 |
|
45 |
|
1,043 |
Stage 3 |
|
917 |
|
26 |
|
747 |
|
69 |
|
1,759 |
Of which: individual |
|
— |
|
26 |
|
251 |
|
10 |
|
287 |
Of which: collective |
|
917 |
|
— |
|
496 |
|
59 |
|
1,472 |
Subtotal excluding ECL provisions on disposal group loans |
|
1,618 |
|
61 |
|
1,623 |
|
132 |
|
3,434 |
ECL provisions on disposal group loans |
|
|
|
|
|
|
|
53 |
|
53 |
Total |
|
|
|
|
|
|
|
185 |
|
3,487 |
ECL provisions coverage (3) |
|
|
|
|
|
|
|
|
|
|
Stage 1 (%) |
|
0.14 |
|
0.11 |
|
0.31 |
|
0.08 |
|
0.19 |
Stage 2 (%) |
|
2.09 |
|
1.75 |
|
2.20 |
|
18.37 |
|
2.23 |
Stage 3 (%) |
|
35.75 |
|
10.74 |
|
34.49 |
|
56.10 |
|
34.52 |
ECL provisions coverage excluding disposal group loans |
|
0.81 |
|
0.31 |
|
1.20 |
|
0.56 |
|
0.91 |
ECL provisions coverage on disposal group loans |
|
|
|
|
|
|
|
3.53 |
|
3.53 |
Total |
|
|
|
|
|
|
|
0.73 |
|
0.92 |
|
|
|
|
|
|
|
|
|
|
|
Half year ended 30 June 2022 |
|
|
|
|
|
|
|
|
|
|
Impairment (releases)/losses (4) |
|
|
|
|
|
|
|
|
|
|
ECL (release)/charge |
|
26 |
|
(11) |
|
(59) |
|
(10) |
|
(54) |
Stage 1 |
|
(125) |
|
(6) |
|
(204) |
|
(7) |
|
(342) |
Stage 2 |
|
86 |
|
(7) |
|
108 |
|
18 |
|
205 |
Stage 3 |
|
65 |
|
2 |
|
37 |
|
(21) |
|
83 |
Of which: individual |
|
— |
|
2 |
|
— |
|
(3) |
|
(1) |
Of which: collective |
|
65 |
|
— |
|
37 |
|
(18) |
|
84 |
Continuing operations |
|
26 |
|
(11) |
|
(59) |
|
(10) |
|
(54) |
Discontinued operations |
|
|
|
|
|
|
|
(62) |
|
(62) |
Total |
|
|
|
|
|
|
|
(70) |
|
(116) |
|
|
|
|
|
|
|
|
|
|
|
Amounts written-off |
|
106 |
|
1 |
|
94 |
|
14 |
|
215 |
Of which: individual |
|
— |
|
1 |
|
57 |
|
— |
|
58 |
Of which: collective |
|
106 |
|
— |
|
37 |
|
14 |
|
157 |
(1) | Includes loans to customers and banks. |
(2) | Includes £4 million (31 December 2022 – £3 million) related to assets classified as FVOCI and £0.1 billion (31 December 2022 – £0.1 billion) related to off-balance sheet exposures. |
(3) | ECL provisions coverage is calculated as ECL provisions divided by loans – amortised cost and FVOCI. It is calculated on third party loans and total ECL provisions. |
(4) | Includes a £5 million release (30 June 2022 – £2 million release) related to other financial assets, of which £1 million (30 June 2022 – nil) related to assets classified as FVOCI; and £3 million release (30 June 2022 – £3 million release) related to contingent liabilities. |
(5) | The table shows gross loans only and excludes amounts that were outside the scope of the ECL framework. Refer to Financial instruments within the scope of the IFRS 9 ECL framework for further details. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling £121.9 billion (31 December 2022 – £143.3 billion) and debt securities of £34.7 billion (31 December 2022 – £29.9 billion). |
- | Stage 1 and Stage 2 modelled ECL remained broadly unchanged with stable portfolio performance and latest MES scenario update modelled ECL reduction being offset by increased post model adjustments to reflect growing economic uncertainty due to high inflation and rapidly rising interest rates. |
- | Stage 2 loans decreased during H1 2023, primarily within Wholesale portfolios, in line with the modelled ECL reduction, linked to the update of MES forward-looking economics at H1 2023. The latest MES scenario update captures a lower unemployment peak and better GDP outlook, offset by higher inflation and interest rates. |
- | Stage 3 loans increased, primarily due to reduced write-off activity in H1 2023. |
- | As previously mentioned, in Personal, the flows into default remained relatively stable and broadly in-line with post-COVID-19 lending strategy expectations and for Wholesale portfolios, with the exception of BBLS, default levels were lower than historic trends. However, it is expected that defaults will increase as growing inflationary pressures on businesses, consumers and the broader economy continue to evolve, particularly given the rapid rise in interest rates. |
NatWest Group – Form 6K Interim Results 2023 |
36 |
Risk and capital management
Credit risk – Banking activities continued
Segment analysis – portfolio summary
The table below shows Ulster Bank RoI disposal groups for Personal and Wholesale, by stage, for gross loans, off-balance sheet exposures and ECL. The tables in the rest of the Credit risk section are shown on a continuing basis and therefore exclude these exposures.
|
|
Loans - amortised cost |
|
Off-balance sheet |
|
|
|
|
|
|
|
|
||||||||
|
|
and FVOCI |
|
Loan |
|
Contingent |
|
ECL provisions |
||||||||||||
|
|
Stage 1 |
|
Stage 2 |
|
Stage 3 |
|
Total |
|
commitments |
|
liabilities |
|
Stage 1 |
|
Stage 2 |
|
Stage 3 |
|
Total |
30 June 2023 |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Personal |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Wholesale |
|
517 |
|
49 |
|
7 |
|
573 |
|
87 |
|
10 |
|
17 |
|
9 |
|
5 |
|
31 |
Total |
|
517 |
|
49 |
|
7 |
|
573 |
|
87 |
|
10 |
|
17 |
|
9 |
|
5 |
|
31 |
31 December 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Wholesale |
|
1,269 |
|
193 |
|
40 |
|
1,502 |
|
413 |
|
19 |
|
17 |
|
19 |
|
17 |
|
53 |
Total |
|
1,269 |
|
193 |
|
40 |
|
1,502 |
|
413 |
|
19 |
|
17 |
|
19 |
|
17 |
|
53 |
Segment loans and impairment metrics
The table below shows gross loans and ECL provisions, by days past due, by segment and stage, within the scope of the ECL framework.
|
|
Gross loans |
|
|
|
ECL provisions (2) |
||||||||||||||||||||||
|
|
|
|
Stage 2 (1) |
|
|
|
|
|
|
|
Stage 2 (1) |
|
|
|
|
||||||||||||
|
|
|
|
Not |
|
|
|
|
|
|
|
|
|
|
|
|
|
Not |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
past |
|
1-30 |
|
>30 |
|
|
|
|
|
|
|
|
|
past |
|
1-30 |
|
>30 |
|
|
|
|
|
|
|
|
Stage 1 |
|
due |
|
DPD |
|
DPD |
|
Total |
|
Stage 3 |
|
Total |
|
Stage 1 |
|
due |
|
DPD |
|
DPD |
|
Total |
|
Stage 3 |
|
Total |
30 June 2023 |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Retail Banking |
|
180,293 |
|
21,610 |
|
709 |
|
367 |
|
22,686 |
|
2,826 |
|
205,805 |
|
282 |
|
394 |
|
14 |
|
31 |
|
439 |
|
1,038 |
|
1,759 |
Private Banking |
|
18,075 |
|
913 |
|
46 |
|
29 |
|
988 |
|
254 |
|
19,317 |
|
23 |
|
17 |
|
— |
|
— |
|
17 |
|
31 |
|
71 |
Personal |
|
14,929 |
|
118 |
|
43 |
|
16 |
|
177 |
|
198 |
|
15,304 |
|
7 |
|
2 |
|
— |
|
— |
|
2 |
|
19 |
|
28 |
Wholesale |
|
3,146 |
|
795 |
|
3 |
|
13 |
|
811 |
|
56 |
|
4,013 |
|
16 |
|
15 |
|
— |
|
— |
|
15 |
|
12 |
|
43 |
Commercial & Institutional |
|
112,341 |
|
17,808 |
|
957 |
|
911 |
|
19,676 |
|
2,246 |
|
134,263 |
|
333 |
|
456 |
|
33 |
|
18 |
|
507 |
|
765 |
|
1,605 |
Personal |
|
2,374 |
|
16 |
|
16 |
|
10 |
|
42 |
|
46 |
|
2,462 |
|
3 |
|
— |
|
— |
|
1 |
|
1 |
|
13 |
|
17 |
Wholesale |
|
109,967 |
|
17,792 |
|
941 |
|
901 |
|
19,634 |
|
2,200 |
|
131,801 |
|
330 |
|
456 |
|
33 |
|
17 |
|
506 |
|
752 |
|
1,588 |
Central items & other |
|
25,653 |
|
80 |
|
4 |
|
6 |
|
90 |
|
124 |
|
25,867 |
|
23 |
|
24 |
|
2 |
|
2 |
|
28 |
|
71 |
|
122 |
Personal |
|
10 |
|
57 |
|
2 |
|
5 |
|
64 |
|
19 |
|
93 |
|
1 |
|
11 |
|
— |
|
2 |
|
13 |
|
16 |
|
30 |
Wholesale |
|
25,643 |
|
23 |
|
2 |
|
1 |
|
26 |
|
105 |
|
25,774 |
|
22 |
|
13 |
|
2 |
|
— |
|
15 |
|
55 |
|
92 |
Total loans |
|
336,362 |
|
40,411 |
|
1,716 |
|
1,313 |
|
43,440 |
|
5,450 |
|
385,252 |
|
661 |
|
891 |
|
49 |
|
51 |
|
991 |
|
1,905 |
|
3,557 |
Of which: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal |
|
197,606 |
|
21,801 |
|
770 |
|
398 |
|
22,969 |
|
3,089 |
|
223,664 |
|
293 |
|
407 |
|
14 |
|
34 |
|
455 |
|
1,086 |
|
1,834 |
Wholesale |
|
138,756 |
|
18,610 |
|
946 |
|
915 |
|
20,471 |
|
2,361 |
|
161,588 |
|
368 |
|
484 |
|
35 |
|
17 |
|
536 |
|
819 |
|
1,723 |
31 December 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Banking |
|
174,727 |
|
20,653 |
|
605 |
|
303 |
|
21,561 |
|
2,565 |
|
198,853 |
|
251 |
|
406 |
|
14 |
|
30 |
|
450 |
|
917 |
|
1,618 |
Private Banking |
|
18,367 |
|
730 |
|
39 |
|
32 |
|
801 |
|
242 |
|
19,410 |
|
21 |
|
14 |
|
— |
|
— |
|
14 |
|
26 |
|
61 |
Personal |
|
15,182 |
|
122 |
|
35 |
|
16 |
|
173 |
|
207 |
|
15,562 |
|
5 |
|
1 |
|
— |
|
— |
|
1 |
|
17 |
|
23 |
Wholesale |
|
3,185 |
|
608 |
|
4 |
|
16 |
|
628 |
|
35 |
|
3,848 |
|
16 |
|
13 |
|
— |
|
— |
|
13 |
|
9 |
|
38 |
Commercial & Institutional |
|
108,791 |
|
22,520 |
|
956 |
|
750 |
|
24,226 |
|
2,166 |
|
135,183 |
|
342 |
|
491 |
|
26 |
|
17 |
|
534 |
|
747 |
|
1,623 |
Personal |
|
2,475 |
|
17 |
|
17 |
|
7 |
|
41 |
|
46 |
|
2,562 |
|
3 |
|
1 |
|
— |
|
— |
|
1 |
|
12 |
|
16 |
Wholesale |
|
106,316 |
|
22,503 |
|
939 |
|
743 |
|
24,185 |
|
2,120 |
|
132,621 |
|
339 |
|
490 |
|
26 |
|
17 |
|
533 |
|
735 |
|
1,607 |
Central items & other |
|
23,339 |
|
234 |
|
4 |
|
7 |
|
245 |
|
123 |
|
23,707 |
|
18 |
|
42 |
|
1 |
|
2 |
|
45 |
|
69 |
|
132 |
Personal |
|
54 |
|
70 |
|
3 |
|
6 |
|
79 |
|
13 |
|
146 |
|
1 |
|
11 |
|
1 |
|
2 |
|
14 |
|
11 |
|
26 |
Wholesale |
|
23,285 |
|
164 |
|
1 |
|
1 |
|
166 |
|
110 |
|
23,561 |
|
17 |
|
31 |
|
— |
|
— |
|
31 |
|
58 |
|
106 |
Total loans |
|
325,224 |
|
44,137 |
|
1,604 |
|
1,092 |
|
46,833 |
|
5,096 |
|
377,153 |
|
632 |
|
953 |
|
41 |
|
49 |
|
1,043 |
|
1,759 |
|
3,434 |
Of which: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal |
|
192,438 |
|
20,862 |
|
660 |
|
332 |
|
21,854 |
|
2,831 |
|
217,123 |
|
260 |
|
419 |
|
15 |
|
32 |
|
466 |
|
957 |
|
1,683 |
Wholesale |
|
132,786 |
|
23,275 |
|
944 |
|
760 |
|
24,979 |
|
2,265 |
|
160,030 |
|
372 |
|
534 |
|
26 |
|
17 |
|
577 |
|
802 |
|
1,751 |
For the notes to this table refer to the following page.
NatWest Group – Form 6K Interim Results 2023 |
37 |
Risk and capital management
Credit risk – Banking activities continued
Segment loans and impairment metrics
The table below shows ECL and ECL provisions coverage, by days past due, by segment and stage, within the scope of the ECL framework.
|
|
ECL provisions coverage |
|
Half year ended 30 June 2023 |
||||||||||||||
|
|
|
|
Stage 2 (1,2) |
|
|
|
|
|
ECL |
||||||||
|
|
|
|
Not past |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
Amounts |
|
|
Stage 1 |
|
due |
|
1-30 DPD |
|
>30 DPD |
|
Total |
|
Stage 3 |
|
Total |
|
(release)/charge |
|
written-off |
30 June 2023 |
|
% |
|
% |
|
% |
|
% |
|
% |
|
% |
|
% |
|
£m |
|
£m |
Retail Banking |
|
0.16 |
|
1.82 |
|
1.97 |
|
8.45 |
|
1.94 |
|
36.73 |
|
0.85 |
|
193 |
|
63 |
Private Banking |
|
0.13 |
|
1.86 |
|
— |
|
— |
|
1.72 |
|
12.20 |
|
0.37 |
|
11 |
|
1 |
Personal |
|
0.05 |
|
1.69 |
|
— |
|
— |
|
1.13 |
|
9.60 |
|
0.18 |
|
4 |
|
1 |
Wholesale |
|
0.51 |
|
1.89 |
|
— |
|
— |
|
1.85 |
|
21.43 |
|
1.07 |
|
7 |
|
— |
Commercial & Institutional |
|
0.30 |
|
2.56 |
|
3.45 |
|
1.98 |
|
2.58 |
|
34.06 |
|
1.20 |
|
20 |
|
50 |
Personal |
|
0.13 |
|
— |
|
— |
|
10.00 |
|
2.38 |
|
28.26 |
|
0.69 |
|
1 |
|
1 |
Wholesale |
|
0.30 |
|
2.56 |
|
3.51 |
|
1.89 |
|
2.58 |
|
34.18 |
|
1.20 |
|
19 |
|
49 |
Central items & other |
|
0.09 |
|
30.00 |
|
50.00 |
|
33.33 |
|
31.11 |
|
57.26 |
|
0.47 |
|
(1) |
|
8 |
Personal |
|
10.00 |
|
19.30 |
|
— |
|
40.00 |
|
20.31 |
|
84.21 |
|
32.26 |
|
5 |
|
1 |
Wholesale |
|
0.09 |
|
56.52 |
|
100.00 |
|
— |
|
57.69 |
|
52.38 |
|
0.36 |
|
(6) |
|
7 |
Total loans |
|
0.20 |
|
2.20 |
|
2.86 |
|
3.88 |
|
2.28 |
|
34.95 |
|
0.92 |
|
223 |
|
122 |
Of which: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal |
|
0.15 |
|
1.87 |
|
1.82 |
|
8.54 |
|
1.98 |
|
35.16 |
|
0.82 |
|
203 |
|
66 |
Wholesale |
|
0.27 |
|
2.60 |
|
3.70 |
|
1.86 |
|
2.62 |
|
34.69 |
|
1.07 |
|
20 |
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
31 December 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Retail Banking |
|
0.14 |
|
1.97 |
|
2.31 |
|
9.90 |
|
2.09 |
|
35.75 |
|
0.81 |
|
26 |
|
106 |
Private Banking |
|
0.11 |
|
1.92 |
|
— |
|
— |
|
1.75 |
|
10.74 |
|
0.31 |
|
(11) |
|
1 |
Personal |
|
0.03 |
|
0.82 |
|
— |
|
— |
|
0.58 |
|
8.21 |
|
0.15 |
|
(2) |
|
1 |
Wholesale |
|
0.50 |
|
2.14 |
|
— |
|
— |
|
2.07 |
|
25.71 |
|
0.99 |
|
(9) |
|
— |
Commercial & Institutional |
|
0.31 |
|
2.18 |
|
2.72 |
|
2.27 |
|
2.20 |
|
34.49 |
|
1.20 |
|
(59) |
|
94 |
Personal |
|
0.12 |
|
5.88 |
|
— |
|
— |
|
2.44 |
|
26.09 |
|
0.62 |
|
1 |
|
1 |
Wholesale |
|
0.32 |
|
2.18 |
|
2.77 |
|
2.29 |
|
2.20 |
|
34.67 |
|
1.21 |
|
(60) |
|
93 |
Central items & other |
|
0.08 |
|
17.95 |
|
25.00 |
|
28.57 |
|
18.37 |
|
56.10 |
|
0.56 |
|
(10) |
|
14 |
Personal |
|
1.85 |
|
15.71 |
|
33.33 |
|
33.33 |
|
17.72 |
|
84.62 |
|
17.81 |
|
(7) |
|
6 |
Wholesale |
|
0.07 |
|
18.90 |
|
— |
|
— |
|
18.67 |
|
52.73 |
|
0.45 |
|
(3) |
|
8 |
Total loans |
|
0.19 |
|
2.16 |
|
2.56 |
|
4.49 |
|
2.23 |
|
34.52 |
|
0.91 |
|
(54) |
|
215 |
Of which: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal |
|
0.14 |
|
2.01 |
|
2.27 |
|
9.64 |
|
2.13 |
|
33.80 |
|
0.78 |
|
18 |
|
116 |
Wholesale |
|
0.28 |
|
2.29 |
|
2.75 |
|
2.24 |
|
2.31 |
|
35.41 |
|
1.09 |
|
(72) |
|
99 |
(1) | 30 DPD – 30 days past due, the mandatory 30 days past due backstop as prescribed by IFRS 9 for a SICR. |
(2) | ECL provisions on contingent liabilities and commitments are included within the Financial assets section so as not to distort ECL coverage ratios. |
- | Retail Banking – Balance sheet growth during H1 2023 mainly reflected continued mortgage growth. Unsecured balances growth, primarily in credit cards, was mainly a result of strong customer demand alongside disciplined credit risk appetite. Total ECL coverage increased. The increase in coverage was reflective of increased Stage 3 ECL on unsecured portfolios, mainly due to reduced write-off activity. Stable good book coverage reflected continued stable portfolio performance alongside the ECL release from the H1 2023 MES update. This was counterbalanced by an increased level of post model adjustments to capture increased affordability pressures on customers due to high inflation and rapidly rising interest rates. Stage 2 balances increased during H1 2023 as a result of the forecast rise in unemployment, therefore increasing IFRS 9 probability of defaults on a forward-looking basis during H1 2023. The expected peak in unemployment rate reduced as a result of the latest MES update at 30 June 2023, dampening the levels of PD SICR deterioration, but Stage 2 balance levels were maintained through three month PD persistence rules. |
Commercial & Institutional – The balance sheet was broadly stable. Sector appetite continues to be reviewed regularly, with particular focus on sector clusters and sub-sectors that are vulnerable to cost of living, supply chain or inflationary pressures, or deemed to represent a heightened risk. Total coverage remained broadly stable with reductions in ECL and exposure. Stage 1 and Stage 2 ECL decreased due to improvements in forward-looking economics and some positive portfolio performance more than offsetting increases in post model adjustments.
- | Central items & other – The balance sheet increase in H1 2023 was due to an increase in central items held in the course of treasury related management activities. |
NatWest Group – Form 6K Interim Results 2023 |
38 |
Risk and capital management
Credit risk – Banking activities continued
Sector analysis – portfolio summary
The table below shows financial assets and off-balance sheet exposures gross of ECL and related ECL provisions, impairment and past due by sector, asset quality and geographical region.
|
|
Personal |
|
Wholesale |
|
Total |
||||||||||||||
|
|
|
|
Credit |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages (1) |
|
cards |
|
personal |
|
Total |
|
Property |
|
Corporate |
|
FI |
|
Sovereign |
|
Total |
|
|
30 June 2023 |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Loans by geography |
|
208,689 |
|
5,150 |
|
9,825 |
|
223,664 |
|
32,925 |
|
73,975 |
|
49,199 |
|
5,489 |
|
161,588 |
|
385,252 |
- UK |
|
208,689 |
|
5,134 |
|
9,748 |
|
223,571 |
|
32,482 |
|
62,026 |
|
33,498 |
|
4,105 |
|
132,111 |
|
355,682 |
- RoI |
|
— |
|
16 |
|
77 |
|
93 |
|
32 |
|
1,009 |
|
48 |
|
— |
|
1,089 |
|
1,182 |
- Other Europe |
|
— |
|
— |
|
— |
|
— |
|
269 |
|
4,907 |
|
6,433 |
|
473 |
|
12,082 |
|
12,082 |
- RoW |
|
— |
|
— |
|
— |
|
— |
|
142 |
|
6,033 |
|
9,220 |
|
911 |
|
16,306 |
|
16,306 |
Loans by stage |
|
208,689 |
|
5,150 |
|
9,825 |
|
223,664 |
|
32,925 |
|
73,975 |
|
49,199 |
|
5,489 |
|
161,588 |
|
385,252 |
- Stage 1 |
|
186,983 |
|
3,526 |
|
7,097 |
|
197,606 |
|
28,183 |
|
56,770 |
|
48,468 |
|
5,335 |
|
138,756 |
|
336,362 |
- Stage 2 |
|
19,653 |
|
1,501 |
|
1,815 |
|
22,969 |
|
3,990 |
|
15,660 |
|
695 |
|
126 |
|
20,471 |
|
43,440 |
- Stage 3 |
|
2,053 |
|
123 |
|
913 |
|
3,089 |
|
752 |
|
1,545 |
|
36 |
|
28 |
|
2,361 |
|
5,450 |
- Of which: individual |
|
177 |
|
— |
|
15 |
|
192 |
|
398 |
|
606 |
|
24 |
|
27 |
|
1,055 |
|
1,247 |
- Of which: collective |
|
1,876 |
|
123 |
|
898 |
|
2,897 |
|
354 |
|
939 |
|
12 |
|
1 |
|
1,306 |
|
4,203 |
Loans - past due analysis (2) |
|
208,689 |
|
5,150 |
|
9,825 |
|
223,664 |
|
32,925 |
|
73,975 |
|
49,199 |
|
5,489 |
|
161,588 |
|
385,252 |
- Not past due |
|
206,026 |
|
5,014 |
|
8,838 |
|
219,878 |
|
31,818 |
|
70,389 |
|
48,516 |
|
5,416 |
|
156,139 |
|
376,017 |
- Past due 1-30 days |
|
1,091 |
|
31 |
|
91 |
|
1,213 |
|
404 |
|
2,370 |
|
620 |
|
71 |
|
3,465 |
|
4,678 |
- Past due 31-90 days |
|
633 |
|
35 |
|
106 |
|
774 |
|
361 |
|
572 |
|
35 |
|
2 |
|
970 |
|
1,744 |
- Past due 90-180 days |
|
376 |
|
27 |
|
96 |
|
499 |
|
56 |
|
47 |
|
3 |
|
— |
|
106 |
|
605 |
- Past due >180 days |
|
563 |
|
43 |
|
694 |
|
1,300 |
|
286 |
|
597 |
|
25 |
|
— |
|
908 |
|
2,208 |
Loans - Stage 2 |
|
19,653 |
|
1,501 |
|
1,815 |
|
22,969 |
|
3,990 |
|
15,660 |
|
695 |
|
126 |
|
20,471 |
|
43,440 |
- Not past due |
|
18,648 |
|
1,460 |
|
1,693 |
|
21,801 |
|
3,541 |
|
14,292 |
|
653 |
|
124 |
|
18,610 |
|
40,411 |
- Past due 1-30 days |
|
694 |
|
19 |
|
57 |
|
770 |
|
112 |
|
827 |
|
7 |
|
— |
|
946 |
|
1,716 |
- Past due 31-90 days |
|
311 |
|
22 |
|
65 |
|
398 |
|
337 |
|
541 |
|
35 |
|
2 |
|
915 |
|
1,313 |
Weighted average life(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- ECL measurement (years) |
|
9 |
|
3 |
|
6 |
|
6 |
|
5 |
|
6 |
|
2 |
|
2 |
|
5 |
|
6 |
Weighted average 12 months PDs(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- IFRS 9 (%) |
|
0.50 |
|
3.09 |
|
4.96 |
|
0.74 |
|
1.46 |
|
1.67 |
|
0.20 |
|
0.20 |
|
1.13 |
|
0.90 |
- Basel (%) |
|
0.66 |
|
3.29 |
|
3.24 |
|
0.82 |
|
1.02 |
|
1.33 |
|
0.18 |
|
0.20 |
|
0.87 |
|
0.84 |
ECL provisions by geography |
|
413 |
|
293 |
|
1,128 |
|
1,834 |
|
445 |
|
1,200 |
|
60 |
|
18 |
|
1,723 |
|
3,557 |
- UK |
|
413 |
|
288 |
|
1,103 |
|
1,804 |
|
415 |
|
988 |
|
32 |
|
11 |
|
1,446 |
|
3,250 |
- RoI |
|
— |
|
5 |
|
25 |
|
30 |
|
14 |
|
57 |
|
1 |
|
— |
|
72 |
|
102 |
- Other Europe |
|
— |
|
— |
|
— |
|
— |
|
9 |
|
95 |
|
8 |
|
2 |
|
114 |
|
114 |
- RoW |
|
— |
|
— |
|
— |
|
— |
|
7 |
|
60 |
|
19 |
|
5 |
|
91 |
|
91 |
ECL provisions by stage |
|
413 |
|
293 |
|
1,128 |
|
1,834 |
|
445 |
|
1,200 |
|
60 |
|
18 |
|
1,723 |
|
3,557 |
- Stage 1 |
|
92 |
|
60 |
|
141 |
|
293 |
|
99 |
|
220 |
|
36 |
|
13 |
|
368 |
|
661 |
- Stage 2 |
|
65 |
|
148 |
|
242 |
|
455 |
|
115 |
|
410 |
|
10 |
|
1 |
|
536 |
|
991 |
- Stage 3 |
|
256 |
|
85 |
|
745 |
|
1,086 |
|
231 |
|
570 |
|
14 |
|
4 |
|
819 |
|
1,905 |
- Of which: individual |
|
23 |
|
— |
|
10 |
|
33 |
|
79 |
|
169 |
|
10 |
|
4 |
|
262 |
|
295 |
- Of which: collective |
|
233 |
|
85 |
|
735 |
|
1,053 |
|
152 |
|
401 |
|
4 |
|
— |
|
557 |
|
1,610 |
ECL provisions coverage (%) |
|
0.20 |
|
5.69 |
|
11.48 |
|
0.82 |
|
1.35 |
|
1.62 |
|
0.12 |
|
0.33 |
|
1.07 |
|
0.92 |
- Stage 1 (%) |
|
0.05 |
|
1.70 |
|
1.99 |
|
0.15 |
|
0.35 |
|
0.39 |
|
0.07 |
|
0.24 |
|
0.27 |
|
0.20 |
- Stage 2 (%) |
|
0.33 |
|
9.86 |
|
13.33 |
|
1.98 |
|
2.88 |
|
2.62 |
|
1.44 |
|
0.79 |
|
2.62 |
|
2.28 |
- Stage 3 (%) |
|
12.47 |
|
69.11 |
|
81.60 |
|
35.16 |
|
30.72 |
|
36.89 |
|
38.89 |
|
14.29 |
|
34.69 |
|
34.95 |
ECL (release)/charge |
|
23 |
|
70 |
|
110 |
|
203 |
|
29 |
|
(2) |
|
(6) |
|
(1) |
|
20 |
|
223 |
- UK |
|
23 |
|
68 |
|
107 |
|
198 |
|
29 |
|
28 |
|
(11) |
|
(1) |
|
45 |
|
243 |
- RoI |
|
— |
|
2 |
|
3 |
|
5 |
|
5 |
|
(5) |
|
— |
|
— |
|
— |
|
5 |
- Other Europe |
|
— |
|
— |
|
— |
|
— |
|
(5) |
|
16 |
|
1 |
|
— |
|
12 |
|
12 |
- RoW |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(41) |
|
4 |
|
— |
|
(37) |
|
(37) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts written-off |
|
8 |
|
34 |
|
24 |
|
66 |
|
20 |
|
36 |
|
— |
|
— |
|
56 |
|
122 |
For the notes to this table refer to page 39.
NatWest Group – Form 6K Interim Results 2023 |
39 |
Risk and capital management
Credit risk – Banking activities continued
Sector analysis – portfolio summary
|
|
Personal |
|
Wholesale |
|
Total |
||||||||||||||
|
|
|
|
Credit |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages (1) |
|
cards |
|
personal |
|
Total |
|
Property |
|
Corporate |
|
FI |
|
Sovereign |
|
Total |
|
|
30 June 2023 |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Loans by residual maturity |
|
208,689 |
|
5,150 |
|
9,825 |
|
223,664 |
|
32,925 |
|
73,975 |
|
49,199 |
|
5,489 |
|
161,588 |
|
385,252 |
- <1 year |
|
3,349 |
|
2,867 |
|
3,261 |
|
9,477 |
|
7,359 |
|
23,585 |
|
37,554 |
|
2,898 |
|
71,396 |
|
80,873 |
- 1-5 year |
|
10,383 |
|
2,283 |
|
5,534 |
|
18,200 |
|
17,164 |
|
31,815 |
|
9,927 |
|
1,670 |
|
60,576 |
|
78,776 |
- 5 year |
|
194,957 |
|
— |
|
1,030 |
|
195,987 |
|
8,402 |
|
18,575 |
|
1,718 |
|
921 |
|
29,616 |
|
225,603 |
Other financial assets by |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
asset quality (3) |
|
— |
|
— |
|
— |
|
— |
|
39 |
|
90 |
|
16,985 |
|
139,464 |
|
156,578 |
|
156,578 |
- AQ1-AQ4 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
12 |
|
16,452 |
|
139,464 |
|
155,928 |
|
155,928 |
- AQ5-AQ8 |
|
— |
|
— |
|
— |
|
— |
|
39 |
|
78 |
|
533 |
|
— |
|
650 |
|
650 |
Off-balance sheet |
|
15,474 |
|
16,572 |
|
8,688 |
|
40,734 |
|
16,048 |
|
58,800 |
|
19,898 |
|
724 |
|
95,470 |
|
136,204 |
- Loan commitments |
|
15,474 |
|
16,572 |
|
8,643 |
|
40,689 |
|
15,604 |
|
56,181 |
|
18,610 |
|
570 |
|
90,965 |
|
131,654 |
- Financial guarantees |
|
— |
|
— |
|
45 |
|
45 |
|
444 |
|
2,619 |
|
1,288 |
|
154 |
|
4,505 |
|
4,550 |
Off-balance sheet by |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
asset quality (3) |
|
15,474 |
|
16,572 |
|
8,688 |
|
40,734 |
|
16,048 |
|
58,800 |
|
19,898 |
|
724 |
|
95,470 |
|
136,204 |
- AQ1-AQ4 |
|
14,791 |
|
536 |
|
7,403 |
|
22,730 |
|
12,486 |
|
36,034 |
|
18,318 |
|
644 |
|
67,482 |
|
90,212 |
- AQ5-AQ8 |
|
666 |
|
15,732 |
|
1,255 |
|
17,653 |
|
3,532 |
|
22,475 |
|
1,580 |
|
63 |
|
27,650 |
|
45,303 |
- AQ9 |
|
1 |
|
6 |
|
6 |
|
13 |
|
5 |
|
9 |
|
— |
|
— |
|
14 |
|
27 |
- AQ10 |
|
16 |
|
298 |
|
24 |
|
338 |
|
25 |
|
282 |
|
— |
|
17 |
|
324 |
|
662 |
For the notes to this table refer to page 39.
NatWest Group – Form 6K Interim Results 2023 |
40 |
Risk and capital management
Credit risk – Banking activities continued
Sector analysis – portfolio summary
|
|
Personal |
|
Wholesale |
|
Total |
||||||||||||||
|
|
|
|
Credit |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages (1) |
|
cards |
|
personal |
|
Total |
|
Property |
|
Corporate |
|
FI |
|
Sovereign |
|
Total |
|
|
31 December 2022 |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Loans by geography |
|
202,957 |
|
4,460 |
|
9,706 |
|
217,123 |
|
32,574 |
|
73,677 |
|
48,138 |
|
5,641 |
|
160,030 |
|
377,153 |
- UK |
|
202,957 |
|
4,420 |
|
9,602 |
|
216,979 |
|
31,452 |
|
62,318 |
|
32,480 |
|
4,285 |
|
130,535 |
|
347,514 |
- RoI |
|
— |
|
40 |
|
104 |
|
144 |
|
34 |
|
1,102 |
|
74 |
|
— |
|
1,210 |
|
1,354 |
- Other Europe |
|
— |
|
— |
|
— |
|
— |
|
623 |
|
4,670 |
|
6,967 |
|
475 |
|
12,735 |
|
12,735 |
- RoW |
|
— |
|
— |
|
— |
|
— |
|
465 |
|
5,587 |
|
8,617 |
|
881 |
|
15,550 |
|
15,550 |
Loans by stage |
|
202,957 |
|
4,460 |
|
9,706 |
|
217,123 |
|
32,574 |
|
73,677 |
|
48,138 |
|
5,641 |
|
160,030 |
|
377,153 |
- Stage 1 |
|
182,245 |
|
3,275 |
|
6,918 |
|
192,438 |
|
27,542 |
|
53,048 |
|
46,738 |
|
5,458 |
|
132,786 |
|
325,224 |
- Stage 2 |
|
18,787 |
|
1,076 |
|
1,991 |
|
21,854 |
|
4,316 |
|
19,153 |
|
1,353 |
|
157 |
|
24,979 |
|
46,833 |
- Stage 3 |
|
1,925 |
|
109 |
|
797 |
|
2,831 |
|
716 |
|
1,476 |
|
47 |
|
26 |
|
2,265 |
|
5,096 |
- Of which: individual |
|
172 |
|
— |
|
13 |
|
185 |
|
314 |
|
564 |
|
33 |
|
25 |
|
936 |
|
1,121 |
- Of which: collective |
|
1,753 |
|
109 |
|
784 |
|
2,646 |
|
402 |
|
912 |
|
14 |
|
1 |
|
1,329 |
|
3,975 |
Loans - past due analysis (2) |
|
202,957 |
|
4,460 |
|
9,706 |
|
217,123 |
|
32,574 |
|
73,677 |
|
48,138 |
|
5,641 |
|
160,030 |
|
377,153 |
- Not past due |
|
200,634 |
|
4,335 |
|
8,825 |
|
213,794 |
|
31,366 |
|
70,034 |
|
47,824 |
|
5,633 |
|
154,857 |
|
368,651 |
- Past due 1-30 days |
|
916 |
|
33 |
|
86 |
|
1,035 |
|
608 |
|
2,490 |
|
278 |
|
1 |
|
3,377 |
|
4,412 |
- Past due 31-90 days |
|
510 |
|
29 |
|
104 |
|
643 |
|
302 |
|
551 |
|
5 |
|
7 |
|
865 |
|
1,508 |
- Past due 90-180 days |
|
380 |
|
24 |
|
79 |
|
483 |
|
49 |
|
34 |
|
24 |
|
— |
|
107 |
|
590 |
- Past due >180 days |
|
517 |
|
39 |
|
612 |
|
1,168 |
|
249 |
|
568 |
|
7 |
|
— |
|
824 |
|
1,992 |
Loans - Stage 2 |
|
18,787 |
|
1,076 |
|
1,991 |
|
21,854 |
|
4,316 |
|
19,153 |
|
1,353 |
|
157 |
|
24,979 |
|
46,833 |
- Not past due |
|
17,951 |
|
1,039 |
|
1,872 |
|
20,862 |
|
3,866 |
|
17,915 |
|
1,344 |
|
150 |
|
23,275 |
|
44,137 |
- Past due 1-30 days |
|
588 |
|
19 |
|
53 |
|
660 |
|
185 |
|
754 |
|
5 |
|
— |
|
944 |
|
1,604 |
- Past due 31-90 days |
|
248 |
|
18 |
|
66 |
|
332 |
|
265 |
|
484 |
|
4 |
|
7 |
|
760 |
|
1,092 |
Weighted average life (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- ECL measurement (years) |
|
8 |
|
2 |
|
6 |
|
5 |
|
4 |
|
6 |
|
3 |
|
1 |
|
5 |
|
5 |
Weighted average 12 months PDs (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- IFRS 9 (%) |
|
0.50 |
|
2.62 |
|
4.78 |
|
0.71 |
|
1.88 |
|
2.11 |
|
0.23 |
|
0.19 |
|
1.41 |
|
1.01 |
- Basel (%) |
|
0.65 |
|
2.97 |
|
3.11 |
|
0.79 |
|
1.03 |
|
1.44 |
|
0.16 |
|
0.19 |
|
0.92 |
|
0.85 |
ECL provisions by geography |
|
376 |
|
257 |
|
1,050 |
|
1,683 |
|
441 |
|
1,228 |
|
63 |
|
19 |
|
1,751 |
|
3,434 |
- UK |
|
376 |
|
254 |
|
1,027 |
|
1,657 |
|
404 |
|
985 |
|
42 |
|
14 |
|
1,445 |
|
3,102 |
- RoI |
|
— |
|
3 |
|
23 |
|
26 |
|
13 |
|
66 |
|
1 |
|
— |
|
80 |
|
106 |
- Other Europe |
|
— |
|
— |
|
— |
|
— |
|
16 |
|
72 |
|
7 |
|
1 |
|
96 |
|
96 |
- RoW |
|
— |
|
— |
|
— |
|
— |
|
8 |
|
105 |
|
13 |
|
4 |
|
130 |
|
130 |
ECL provisions by stage |
|
376 |
|
257 |
|
1,050 |
|
1,683 |
|
441 |
|
1,228 |
|
63 |
|
19 |
|
1,751 |
|
3,434 |
- Stage 1 |
|
81 |
|
62 |
|
117 |
|
260 |
|
107 |
|
218 |
|
32 |
|
15 |
|
372 |
|
632 |
- Stage 2 |
|
62 |
|
122 |
|
282 |
|
466 |
|
105 |
|
457 |
|
14 |
|
1 |
|
577 |
|
1,043 |
- Stage 3 |
|
233 |
|
73 |
|
651 |
|
957 |
|
229 |
|
553 |
|
17 |
|
3 |
|
802 |
|
1,759 |
- Of which: individual |
|
18 |
|
— |
|
10 |
|
28 |
|
80 |
|
163 |
|
13 |
|
3 |
|
259 |
|
287 |
- Of which: collective |
|
215 |
|
73 |
|
641 |
|
929 |
|
149 |
|
390 |
|
4 |
|
— |
|
543 |
|
1,472 |
ECL provisions coverage (%) |
|
0.19 |
|
5.76 |
|
10.82 |
|
0.78 |
|
1.35 |
|
1.67 |
|
0.13 |
|
0.34 |
|
1.09 |
|
0.91 |
- Stage 1 (%) |
|
0.04 |
|
1.89 |
|
1.69 |
|
0.14 |
|
0.39 |
|
0.41 |
|
0.07 |
|
0.27 |
|
0.28 |
|
0.19 |
- Stage 2 (%) |
|
0.33 |
|
11.34 |
|
14.16 |
|
2.13 |
|
2.43 |
|
2.39 |
|
1.03 |
|
0.64 |
|
2.31 |
|
2.23 |
- Stage 3 (%) |
|
12.10 |
|
66.97 |
|
81.68 |
|
33.80 |
|
31.98 |
|
37.47 |
|
36.17 |
|
11.54 |
|
35.41 |
|
34.52 |
Half year ended 30 June 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ECL (release)/charge |
|
(80) |
|
20 |
|
78 |
|
18 |
|
21 |
|
(61) |
|
(31) |
|
(1) |
|
(72) |
|
(54) |
- UK |
|
(75) |
|
20 |
|
78 |
|
23 |
|
30 |
|
(66) |
|
(34) |
|
(1) |
|
(71) |
|
(48) |
- RoI |
|
(5) |
|
— |
|
— |
|
(5) |
|
2 |
|
(7) |
|
(3) |
|
— |
|
(8) |
|
(13) |
- Other Europe |
|
— |
|
— |
|
— |
|
— |
|
(12) |
|
10 |
|
1 |
|
— |
|
(1) |
|
(1) |
- RoW |
|
— |
|
— |
|
— |
|
— |
|
1 |
|
2 |
|
5 |
|
— |
|
8 |
|
8 |
Amounts written-off |
|
27 |
|
33 |
|
54 |
|
114 |
|
17 |
|
84 |
|
— |
|
— |
|
101 |
|
215 |
Loans by residual maturity |
|
202,957 |
|
4,460 |
|
9,706 |
|
217,123 |
|
32,574 |
|
73,677 |
|
48,138 |
|
5,641 |
|
160,030 |
|
377,153 |
- <1 year |
|
3,347 |
|
2,655 |
|
3,368 |
|
9,370 |
|
6,740 |
|
24,297 |
|
36,192 |
|
2,958 |
|
70,187 |
|
79,557 |
- 1-5 year |
|
10,968 |
|
1,805 |
|
5,387 |
|
18,160 |
|
17,523 |
|
32,127 |
|
10,380 |
|
1,819 |
|
61,849 |
|
80,009 |
- 5 year |
|
188,642 |
|
— |
|
951 |
|
189,593 |
|
8,311 |
|
17,253 |
|
1,566 |
|
864 |
|
27,994 |
|
217,587 |
Other financial assets by asset quality (3) |
|
— |
|
— |
|
— |
|
— |
|
49 |
|
25 |
|
14,704 |
|
158,416 |
|
173,194 |
|
173,194 |
- AQ1-AQ4 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
11 |
|
14,156 |
|
158,416 |
|
172,583 |
|
172,583 |
- AQ5-AQ8 |
|
— |
|
— |
|
— |
|
— |
|
49 |
|
14 |
|
548 |
|
— |
|
611 |
|
611 |
Off-balance sheet |
|
18,782 |
|
15,848 |
|
8,547 |
|
43,177 |
|
15,793 |
|
57,791 |
|
19,555 |
|
710 |
|
93,849 |
|
137,026 |
- Loan commitments |
|
18,782 |
|
15,848 |
|
8,496 |
|
43,126 |
|
15,302 |
|
54,651 |
|
18,223 |
|
710 |
|
88,886 |
|
132,012 |
- Financial guarantees |
|
— |
|
— |
|
51 |
|
51 |
|
491 |
|
3,140 |
|
1,332 |
|
— |
|
4,963 |
|
5,014 |
Off-balance sheet by asset quality (3) |
|
18,782 |
|
15,848 |
|
8,547 |
|
43,177 |
|
15,793 |
|
57,791 |
|
19,555 |
|
710 |
|
93,849 |
|
137,026 |
- AQ1-AQ4 |
|
17,676 |
|
436 |
|
7,353 |
|
25,465 |
|
12,477 |
|
35,960 |
|
17,899 |
|
606 |
|
66,942 |
|
92,407 |
- AQ5-AQ8 |
|
1,089 |
|
15,048 |
|
1,170 |
|
17,307 |
|
3,282 |
|
21,496 |
|
1,655 |
|
84 |
|
26,517 |
|
43,824 |
- AQ9 |
|
2 |
|
74 |
|
4 |
|
80 |
|
5 |
|
24 |
|
— |
|
— |
|
29 |
|
109 |
- AQ10 |
|
15 |
|
290 |
|
20 |
|
325 |
|
29 |
|
311 |
|
1 |
|
20 |
|
361 |
|
686 |
(1) |
Includes a portion of Private Banking lending secured against residential real estate, in line with ECL calculation methodology. Private Banking and RBS International mortgages are reported in UK reflecting the country of lending origination, and includes crown dependencies. |
(2) |
30 DPD – 30 days past due, the mandatory 30 days past due backstop as prescribed by the IFRS 9 guidance for a SICR. |
(3) |
AQ bandings are based on Basel PDs and the mapping is as follows: |
NatWest Group – Form 6K Interim Results 2023 |
41 |
Risk and capital management
Credit risk – Banking activities continued
Sector analysis – portfolio summary
Internal asset quality band |
Probability of default range |
Indicative S&P rating |
AQ1 |
0% - 0.034% |
AAA to AA |
AQ2 |
0.034% - 0.048% |
AA to AA- |
AQ3 |
0.048% - 0.095% |
A+ to A |
AQ4 |
0.095% - 0.381% |
BBB+ to BBB- |
AQ5 |
0.381% - 1.076% |
BB+ to BB |
AQ6 |
1.076% - 2.153% |
BB- to B+ |
AQ7 |
2.153% - 6.089% |
B+ to B |
AQ8 |
6.089% - 17.222% |
B- to CCC+ |
AQ9 |
17.222% - 100% |
CCC to C |
AQ10 |
100% |
D |
£0.3 billion (31 December 2022 – £0.3 billion) of AQ10 Personal balances primarily relate to loan commitments, the drawdown of which is effectively prohibited.
(4) |
Not within the scope of EY’s review report. |
NatWest Group – Form 6K Interim Results 2023 |
42 |
Risk and capital management
Credit risk – Banking activities continued
Sector analysis – portfolio summary
The table below shows ECL by stage, for the Personal portfolios and selected sectors of the Wholesale portfolios.
|
|
|
|
|
|
|
|
|
|
Off-balance sheet |
|
|
|
|
|
|
|
|
||
|
|
Loans - amortised cost and FVOCI |
|
Loan |
|
Contingent |
|
ECL provisions |
||||||||||||
|
|
Stage 1 |
|
Stage 2 |
|
Stage 3 |
|
Total |
|
commitments |
|
liabilities |
|
Stage 1 |
|
Stage 2 |
|
Stage 3 |
|
Total |
30 June 2023 |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Personal |
|
197,606 |
|
22,969 |
|
3,089 |
|
223,664 |
|
40,689 |
|
45 |
|
293 |
|
455 |
|
1,086 |
|
1,834 |
Mortgages (1) |
|
186,983 |
|
19,653 |
|
2,053 |
|
208,689 |
|
15,474 |
|
— |
|
92 |
|
65 |
|
256 |
|
413 |
Credit cards |
|
3,526 |
|
1,501 |
|
123 |
|
5,150 |
|
16,572 |
|
— |
|
60 |
|
148 |
|
85 |
|
293 |
Other personal |
|
7,097 |
|
1,815 |
|
913 |
|
9,825 |
|
8,643 |
|
45 |
|
141 |
|
242 |
|
745 |
|
1,128 |
Wholesale |
|
138,756 |
|
20,471 |
|
2,361 |
|
161,588 |
|
90,965 |
|
4,505 |
|
368 |
|
536 |
|
819 |
|
1,723 |
Property |
|
28,183 |
|
3,990 |
|
752 |
|
32,925 |
|
15,604 |
|
444 |
|
99 |
|
115 |
|
231 |
|
445 |
Financial institutions |
|
48,468 |
|
695 |
|
36 |
|
49,199 |
|
18,610 |
|
1,288 |
|
36 |
|
10 |
|
14 |
|
60 |
Sovereigns |
|
5,335 |
|
126 |
|
28 |
|
5,489 |
|
570 |
|
154.0 |
|
13 |
|
1 |
|
4 |
|
18 |
Corporate |
|
56,770 |
|
15,660 |
|
1,545 |
|
73,975 |
|
56,181 |
|
2,619 |
|
220 |
|
410 |
|
570 |
|
1,200 |
Of which: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture |
|
3,707 |
|
1,169 |
|
112 |
|
4,988 |
|
922 |
|
23 |
|
16 |
|
35 |
|
43 |
|
94 |
Airlines and aerospace |
|
1,262 |
|
596 |
|
13 |
|
1,871 |
|
1,609 |
|
251 |
|
4 |
|
11 |
|
7 |
|
22 |
Automotive |
|
6,642 |
|
837 |
|
30 |
|
7,509 |
|
4,120 |
|
86 |
|
21 |
|
18 |
|
12 |
|
51 |
Chemicals |
|
390 |
|
55 |
|
1 |
|
446 |
|
806 |
|
12 |
|
2 |
|
1 |
|
1 |
|
4 |
Health |
|
3,831 |
|
995 |
|
138 |
|
4,964 |
|
528 |
|
10 |
|
17 |
|
33 |
|
48 |
|
98 |
Industrials |
|
2,407 |
|
811 |
|
79 |
|
3,297 |
|
3,080 |
|
182 |
|
9 |
|
20 |
|
21 |
|
50 |
Land transport and logistics |
|
4,163 |
|
942 |
|
68 |
|
5,173 |
|
3,299 |
|
182 |
|
12 |
|
19 |
|
19 |
|
50 |
Leisure |
|
3,973 |
|
3,145 |
|
240 |
|
7,358 |
|
2,021 |
|
171 |
|
30 |
|
109 |
|
91 |
|
230 |
Mining and metals |
|
433 |
|
39 |
|
5 |
|
477 |
|
404 |
|
5 |
|
1 |
|
— |
|
4 |
|
5 |
Oil and gas |
|
915 |
|
94 |
|
29 |
|
1,038 |
|
1,912 |
|
258 |
|
3 |
|
2 |
|
28 |
|
33 |
Power utilities |
|
4,597 |
|
355 |
|
46 |
|
4,998 |
|
8,979 |
|
528 |
|
11 |
|
14 |
|
7 |
|
32 |
Retail |
|
5,505 |
|
1,797 |
|
232 |
|
7,533 |
|
4,515 |
|
358 |
|
22 |
|
39 |
|
87 |
|
148 |
Shipping |
|
181 |
|
93 |
|
3 |
|
277 |
|
78 |
|
28 |
|
— |
|
3 |
|
3 |
|
6 |
Water and waste |
|
3,425 |
|
406 |
|
15 |
|
3,846 |
|
2,012 |
|
96 |
|
4 |
|
5 |
|
4 |
|
13 |
Total |
|
336,362 |
|
43,440 |
|
5,450 |
|
385,252 |
|
131,654 |
|
4,550 |
|
661 |
|
991 |
|
1,905 |
|
3,557 |
31 December 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal |
|
192,438 |
|
21,854 |
|
2,831 |
|
217,123 |
|
43,126 |
|
51 |
|
260 |
|
466 |
|
957 |
|
1,683 |
Mortgages (1) |
|
182,245 |
|
18,787 |
|
1,925 |
|
202,957 |
|
18,782 |
|
— |
|
81 |
|
62 |
|
233 |
|
376 |
Credit cards |
|
3,275 |
|
1,076 |
|
109 |
|
4,460 |
|
15,848 |
|
— |
|
62 |
|
122 |
|
73 |
|
257 |
Other personal |
|
6,918 |
|
1,991 |
|
797 |
|
9,706 |
|
8,496 |
|
51 |
|
117 |
|
282 |
|
651 |
|
1,050 |
Wholesale |
|
132,786 |
|
24,979 |
|
2,265 |
|
160,030 |
|
88,886 |
|
4,963 |
|
372 |
|
577 |
|
802 |
|
1,751 |
Property |
|
27,542 |
|
4,316 |
|
716 |
|
32,574 |
|
15,302 |
|
491 |
|
107 |
|
105 |
|
229 |
|
441 |
Financial institutions |
|
46,738 |
|
1,353 |
|
47 |
|
48,138 |
|
18,223 |
|
1,332 |
|
32 |
|
14 |
|
17 |
|
63 |
Sovereigns |
|
5,458 |
|
157 |
|
26 |
|
5,641 |
|
710 |
|
— |
|
15 |
|
1 |
|
3 |
|
19 |
Corporate |
|
53,048 |
|
19,153 |
|
1,476 |
|
73,677 |
|
54,651 |
|
3,140 |
|
218 |
|
457 |
|
553 |
|
1,228 |
Of which: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture |
|
3,646 |
|
1,034 |
|
93 |
|
4,773 |
|
968 |
|
24 |
|
21 |
|
31 |
|
43 |
|
95 |
Airlines and aerospace |
|
483 |
|
1,232 |
|
19 |
|
1,734 |
|
1,715 |
|
174 |
|
2 |
|
40 |
|
8 |
|
50 |
Automotive |
|
5,776 |
|
1,498 |
|
30 |
|
7,304 |
|
4,009 |
|
99 |
|
18 |
|
18 |
|
11 |
|
47 |
Chemicals |
|
384 |
|
117 |
|
1 |
|
502 |
|
650 |
|
12 |
|
1 |
|
2 |
|
1 |
|
4 |
Health |
|
3,974 |
|
1,008 |
|
141 |
|
5,123 |
|
475 |
|
8 |
|
19 |
|
30 |
|
48 |
|
97 |
Industrials |
|
2,148 |
|
1,037 |
|
82 |
|
3,267 |
|
3,135 |
|
195 |
|
10 |
|
16 |
|
24 |
|
50 |
Land transport and logistics |
|
3,788 |
|
1,288 |
|
66 |
|
5,142 |
|
3,367 |
|
190 |
|
13 |
|
33 |
|
17 |
|
63 |
Leisure |
|
3,416 |
|
3,787 |
|
260 |
|
7,463 |
|
1,907 |
|
102 |
|
27 |
|
147 |
|
115 |
|
289 |
Mining and metals |
|
173 |
|
230 |
|
5 |
|
408 |
|
545 |
|
5 |
|
— |
|
1 |
|
5 |
|
6 |
Oil and gas |
|
953 |
|
159 |
|
60 |
|
1,172 |
|
2,157 |
|
248 |
|
3 |
|
3 |
|
31 |
|
37 |
Power utilities |
|
4,228 |
|
406 |
|
6 |
|
4,640 |
|
6,960 |
|
1,182 |
|
9 |
|
11 |
|
1 |
|
21 |
Retail |
|
6,497 |
|
1,746 |
|
150 |
|
8,393 |
|
4,682 |
|
416 |
|
21 |
|
29 |
|
68 |
|
118 |
Shipping |
|
161 |
|
151 |
|
14 |
|
326 |
|
110 |
|
22 |
|
— |
|
7 |
|
6 |
|
13 |
Water and waste |
|
3,026 |
|
335 |
|
7 |
|
3,368 |
|
2,143 |
|
101 |
|
4 |
|
4 |
|
4 |
|
12 |
Total |
|
325,224 |
|
46,833 |
|
5,096 |
|
377,153 |
|
132,012 |
|
5,014 |
|
632 |
|
1,043 |
|
1,759 |
|
3,434 |
(1) |
As at 30 June 2023, £143.5 billion, 69%, of the total residential mortgages portfolio had Energy Performance Certificate (EPC) data available (31 December 2022 – £138.8 billion, 68%). Of which, 43% were rated as EPC A to C (31 December 2022 – 42%). |
NatWest Group – Form 6K Interim Results 2023 |
43 |
Risk and capital management
Credit risk – Banking activities continued
Wholesale forbearance
The table below shows Wholesale forbearance, Heightened Monitoring and Risk of Credit Loss by sector. Personal forbearance is disclosed in the Personal portfolio section. This table shows current exposure but reflects risk transfers where there is a guarantee by another customer.
|
|
|
|
Financial |
|
|
|
Other |
|
|
|
|
Property |
|
institution |
|
Sovereign |
|
corporate |
|
Total |
30 June 2023 |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Forbearance (flow) |
|
843 |
|
82 |
|
24 |
|
1,614 |
|
2,563 |
Forbearance (stock) |
|
1,077 |
|
122 |
|
24 |
|
3,704 |
|
4,927 |
Heightened Monitoring and Risk of Credit Loss |
|
1,198 |
|
304 |
|
— |
|
4,183 |
|
5,685 |
|
|
|
|
|
|
|
|
|
|
|
31 December 2022 |
|
|
|
|
|
|
|
|
|
|
Forbearance (flow) |
|
746 |
|
105 |
|
— |
|
2,575 |
|
3,426 |
Forbearance (stock) |
|
933 |
|
107 |
|
— |
|
4,709 |
|
5,749 |
Heightened Monitoring and Risk of Credit Loss |
|
976 |
|
112 |
|
— |
|
3,445 |
|
4,533 |
- | Loans by geography – In line with NatWest Group’s strategic focus, exposures continued to be mainly in the UK. Exposure to the Republic of Ireland continued to reduce during H1 2023 as part of the phased withdrawal of Ulster Bank RoI. |
- | Loans by stage – There was an increase in Stage 1 exposure due to mortgage growth in Personal. An improvement in forward-looking economics meant a smaller proportion of Wholesale accounts exhibited a SICR compared to 2022, resulting in a migration of exposures from Stage 2 into Stage 1 during H1 2023. |
- | Loans – Past due analysis – In Personal, the value of arrears increased during H1 2023 as expected with portfolio growth and subsequent adjustments to lending criteria following the COVID-19 pandemic. In Wholesale, overall the past due profile remained broadly stable. |
- | Weighted average 12 months PDs – Basel II PDs remained relatively unchanged during H1 2023, reflecting stable credit performance in the portfolios. IFRS 9 PDs also remained broadly stable overall, with some modest increases in Personal portfolios, most notably in credit cards which had a PD model update. In Wholesale, some reductions were observed in PDs in corporate and property portfolios, linked to the economic scenario update at 30 June 2023. |
- | ECL provision by geography – In line with loans by geography, the vast majority of ECL related to exposures in the UK. |
- | ECL provisions by stage – Stage 2 provisions reduced during H1 2023, reflecting continued strong credit performance of the portfolios and the effect of H1 2023 MES scenario updates. Book growth was the key driver behind an increase in Stage 1 provisions. As outlined above, Stage 3 provisions have yet to be materially affected by the customer affordability risks linked to the current economic uncertainty prevalent in the UK. However, there has been an increase in Stage 3 linked to a modest rise in default levels and reduced write-off activity. |
- | ECL provisions coverage – Overall provisions coverage remained broadly consistent with 31 December 2022, mainly a result of continued stable portfolio performance and MES economics-driven modelled ECL releases contrasted with increased economic uncertainty, captured in ECL through post model adjustments. |
- | The ECL charge and loss rate – The impairment charge for H1 2023 of £223 million primarily reflected the underlying Stage 3 charges as good book ECL levels remaining broadly stable since 31 December 2022. The annualised loss rate at 30 June 2023 was 12bps with the expectation that this will rise in H2 2023 due to increased customer defaults. |
NatWest Group – Form 6K Interim Results 2023 |
44 |
Risk and capital management
Credit risk – Banking activities continued
- | Loans by residual maturity – The maturity profile of the portfolios remained consistent with prior periods. In mortgages, as expected, the vast majority of exposures were greater than five years. In unsecured lending – cards and other – exposures were concentrated in less than five years. In Wholesale, financial institutions and sovereigns lending was concentrated in less than one year. For the rest of Wholesale, most of the lending was residual maturity of one to five years. |
- | Other financial assets by asset quality – Consisting almost entirely of cash and balances at central banks and debt securities held in the course of treasury related management activities, these assets were mainly within the AQ1-AQ4 bands. |
- | Off-balance sheet exposures by asset quality – In Personal, undrawn exposures were reflective of available credit lines in credit cards and current accounts. Additionally, the mortgage portfolio had undrawn exposures, where a formal offer had been made to a customer but had not yet drawn down; the value decreased in line with the pipeline of offers. There was also a legacy portfolio of flexible mortgages where a customer had the right and ability to draw down further funds. The asset quality was aligned to the wider portfolio. In Wholesale, growth was primarily loan commitments to corporates in the AQ5-AQ8 bands. |
- | Wholesale forbearance – Forbearance flow and stock decreased in H1 2023. The retail and leisure, property and services sectors continued to represent the largest share of forbearance. The high inflation environment, cost of living, and supply chain issues continue to weigh on these sectors. Payment holidays and covenant waivers were the most common forms of forbearance granted. |
- | Heightened Monitoring and Risk of Credit Loss – Economic headwinds continued to drive an uncertain outlook. Heightened Monitoring and Risk of Credit Loss stock increased in H1 2023. The sector breakdown of exposures within the framework remained consistent with prior periods. |
NatWest Group – Form 6K Interim Results 2023 |
45 |
Risk and capital management
Credit risk – Banking activities continued
Personal portfolio
Disclosures in the Personal portfolio section include drawn exposure (gross of provisions).
|
|
30 June 2023 |
|
31 December 2022 |
||||||||||||||||
|
|
|
|
|
|
|
|
Central |
|
|
|
|
|
|
|
|
|
Central |
|
|
|
|
Retail |
|
Private |
|
Commercial & |
|
items |
|
|
|
Retail |
|
Private |
|
Commercial & |
|
items |
|
|
|
|
Banking |
|
Banking |
|
Institutional |
|
& other |
|
Total |
|
Banking |
|
Banking |
|
Institutional |
|
& other |
|
Total |
Personal lending |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Mortgages |
|
192,924 |
|
13,542 |
|
2,281 |
|
— |
|
208,747 |
|
186,891 |
|
13,709 |
|
2,357 |
|
— |
|
202,957 |
Of which: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
|
174,247 |
|
11,948 |
|
1,504 |
|
— |
|
187,699 |
|
168,790 |
|
12,096 |
|
1,541 |
|
— |
|
182,427 |
Buy-to-let |
|
18,677 |
|
1,594 |
|
777 |
|
— |
|
21,048 |
|
18,101 |
|
1,613 |
|
816 |
|
— |
|
20,530 |
Interest only - variable |
|
3,534 |
|
3,508 |
|
239 |
|
— |
|
7,281 |
|
3,515 |
|
3,286 |
|
258 |
|
— |
|
7,059 |
Interest only - fixed |
|
18,217 |
|
8,404 |
|
249 |
|
— |
|
26,870 |
|
17,954 |
|
8,591 |
|
261 |
|
— |
|
26,806 |
Mixed (1) |
|
10,160 |
|
1 |
|
12 |
|
— |
|
10,173 |
|
9,768 |
|
1 |
|
16 |
|
— |
|
9,785 |
ECL provisions (2) |
|
388 |
|
8 |
|
8 |
|
— |
|
404 |
|
355 |
|
9 |
|
6 |
|
— |
|
370 |
Other personal lending (3) |
|
12,915 |
|
1,761 |
|
251 |
|
93 |
|
15,020 |
|
11,935 |
|
1,853 |
|
267 |
|
143 |
|
14,198 |
ECL provisions (2) |
|
1,365 |
|
21 |
|
2 |
|
30 |
|
1,418 |
|
1,257 |
|
15 |
|
3 |
|
26 |
|
1,301 |
Total personal lending |
|
205,839 |
|
15,303 |
|
2,532 |
|
93 |
|
223,767 |
|
198,826 |
|
15,562 |
|
2,624 |
|
143 |
|
217,155 |
Mortgage LTV ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total portfolio |
|
55% |
|
59% |
|
56% |
|
— |
|
55% |
|
52% |
|
59% |
|
56% |
|
— |
|
53% |
- Stage 1 |
|
55% |
|
59% |
|
55% |
|
— |
|
55% |
|
52% |
|
59% |
|
56% |
|
— |
|
53% |
- Stage 2 |
|
56% |
|
61% |
|
59% |
|
— |
|
56% |
|
52% |
|
61% |
|
60% |
|
— |
|
52% |
- Stage 3 |
|
48% |
|
60% |
|
72% |
|
— |
|
49% |
|
45% |
|
59% |
|
74% |
|
— |
|
47% |
Buy-to-let |
|
53% |
|
59% |
|
53% |
|
— |
|
53% |
|
50% |
|
59% |
|
53% |
|
— |
|
51% |
- Stage 1 |
|
53% |
|
59% |
|
52% |
|
— |
|
53% |
|
51% |
|
59% |
|
53% |
|
— |
|
52% |
- Stage 2 |
|
52% |
|
56% |
|
50% |
|
— |
|
52% |
|
49% |
|
53% |
|
48% |
|
— |
|
49% |
- Stage 3 |
|
49% |
|
55% |
|
56% |
|
— |
|
51% |
|
47% |
|
55% |
|
57% |
|
— |
|
50% |
Gross new mortgage lending |
|
17,348 |
|
812 |
|
89 |
|
— |
|
18,249 |
|
41,227 |
|
2,968 |
|
327 |
|
— |
|
44,522 |
Of which: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
|
16,171 |
|
738 |
|
66 |
|
— |
|
16,975 |
|
36,305 |
|
2,701 |
|
221 |
|
— |
|
39,227 |
Weighted average LTV (4) |
|
69% |
|
64% |
|
68% |
|
— |
|
69% |
|
69% |
|
65% |
|
65% |
|
— |
|
69% |
Buy-to-let |
|
1,177 |
|
74 |
|
23 |
|
— |
|
1,274 |
|
4,922 |
|
267 |
|
106 |
|
— |
|
5,295 |
Weighted average LTV (4) |
|
58% |
|
65% |
|
55% |
|
— |
|
58% |
|
64% |
|
66% |
|
60% |
|
— |
|
64% |
Interest only - variable rate |
|
130 |
|
335 |
|
7 |
|
— |
|
472 |
|
24 |
|
329 |
|
11 |
|
— |
|
364 |
Interest only - fixed rate |
|
1,334 |
|
366 |
|
7 |
|
— |
|
1,707 |
|
5,299 |
|
2,335 |
|
51 |
|
— |
|
7,685 |
Mixed (1) |
|
912 |
|
— |
|
— |
|
— |
|
912 |
|
2,309 |
|
— |
|
2 |
|
— |
|
2,311 |
Mortgage forbearance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forbearance flow (5) |
|
111 |
|
11 |
|
6 |
|
— |
|
128 |
|
182 |
|
7 |
|
4 |
|
— |
|
193 |
Forbearance stock |
|
1,032 |
|
17 |
|
13 |
|
— |
|
1,062 |
|
1,015 |
|
16 |
|
8 |
|
— |
|
1,039 |
Current |
|
623 |
|
6 |
|
7 |
|
— |
|
636 |
|
649 |
|
8 |
|
6 |
|
— |
|
663 |
1-3 months in arrears |
|
171 |
|
8 |
|
3 |
|
— |
|
182 |
|
133 |
|
— |
|
2 |
|
— |
|
135 |
> 3 months in arrears |
|
238 |
|
4 |
|
3 |
|
— |
|
245 |
|
233 |
|
8 |
|
— |
|
— |
|
241 |
(1) | Includes accounts which have an interest only sub-account and a capital and interest sub-account to provide a more comprehensive view of interest only exposures. |
(2) | Retail Banking excludes a non-material amount of provisions held on relatively small legacy portfolios. |
(3) | Comprises unsecured lending except for Private Banking, which includes both secured and unsecured lending. It excludes loans that are commercial in nature. |
(4) | New mortgage lending LTV reflects the LTV at the time of lending. |
(5) | Forbearance flows only include an account once per year, although some accounts may be subject to multiple forbearance deals. Forbearance deals post default are excluded from these flows. |
- | Overall, mortgage portfolio growth continued in H1 2023, although new business volumes fluctuated in line with uncertainty regarding interest rate environment and product availability across the market. |
- | Portfolio LTV increased, partly due to the higher relative proportion of new business from recent years’ strong lending performance, but also, specifically in H1 2023, easing of house prices reflected in house price indices. |
- | Credit quality of new business was maintained. Lending criteria and affordability calculations and assumptions for new lending were adjusted during H1 2023, considering inflationary pressure and interest rate rises, to maintain credit quality in line with appetite and ensure customers are assessed fairly. |
- | The existing mortgage stock and new business were closely monitored against agreed risk appetite parameters. These included loan-to-value ratios, buy-to-let concentrations, new-build concentrations and credit quality. |
- | Other personal lending balances increased in H1 2023 mainly a result of credit card new business. Lending criteria were carefully managed and the credit quality (based on new business PD) of the new business written in H1 2023 improved. |
- | Flows into forbearance increased gradually in H1 2023 as NatWest Group continues to support customers, with portfolio growth also being a driver of increased forbearance flows overall. |
- | As noted previously, ECL increased. For further details on the movements in ECL provisions at product level, refer to the Flow statements section. |
NatWest Group – Form 6K Interim Results 2023 |
46 |
Risk and capital management
Credit risk – Banking activities continued
Personal portfolio
Mortgage LTV distribution by stage
The table below shows gross mortgage lending and related ECL by LTV band for the Retail Banking portfolio. Mortgage lending not within the scope of Governance and post-model adjustments reflected portfolios carried at fair value.
|
|
Mortgages |
|
ECL provisions |
|
ECL provisions coverage (2) |
|
||||||||||||||||||||||
Retail banking |
|
|
|
|
|
|
|
Not |
|
|
|
Of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
within |
|
|
|
which: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stage |
|
Stage |
|
Stage |
|
IFRS 9 |
|
|
|
gross new |
|
Stage |
|
Stage |
|
Stage |
|
|
|
Stage |
|
Stage |
|
Stage |
|
|
|
|
|
1 |
|
2 |
|
3 |
|
ECL scope |
|
Total |
|
lending |
|
1 |
|
2 |
|
3 |
|
Total (1) |
|
1 |
|
2 |
|
3 |
|
Total |
|
30 June 2023 |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
% |
|
% |
|
% |
|
% |
|
≤50% |
|
66,183 |
|
7,523 |
|
1,019 |
|
53 |
|
74,778 |
|
2,809 |
|
26 |
|
18 |
|
122 |
|
166 |
|
0.0 |
|
0.2 |
|
12.0 |
|
0.2 |
|
>50% and ≤70% |
|
66,810 |
|
7,816 |
|
704 |
|
7 |
|
75,337 |
|
4,854 |
|
35 |
|
28 |
|
81 |
|
144 |
|
0.1 |
|
0.4 |
|
11.5 |
|
0.2 |
|
>70% and ≤80% |
|
22,503 |
|
2,181 |
|
105 |
|
— |
|
24,789 |
|
4,018 |
|
12 |
|
8 |
|
15 |
|
35 |
|
0.1 |
|
0.4 |
|
14.3 |
|
0.1 |
|
>80% and ≤90% |
|
11,464 |
|
1,448 |
|
31 |
|
1 |
|
12,944 |
|
3,199 |
|
9 |
|
7 |
|
6 |
|
22 |
|
0.1 |
|
0.5 |
|
19.4 |
|
0.2 |
|
>90% and ≤100% |
|
4,434 |
|
513 |
|
12 |
|
— |
|
4,959 |
|
2,461 |
|
5 |
|
3 |
|
3 |
|
11 |
|
0.1 |
|
0.6 |
|
25.0 |
|
0.2 |
|
>100% |
|
45 |
|
7 |
|
13 |
|
— |
|
65 |
|
7 |
|
2 |
|
— |
|
6 |
|
8 |
|
4.4 |
|
— |
|
46.2 |
|
12.3 |
|
Total with LTVs |
|
171,439 |
|
19,488 |
|
1,884 |
|
61 |
|
192,872 |
|
17,348 |
|
89 |
|
64 |
|
233 |
|
386 |
|
0.1 |
|
0.3 |
|
12.4 |
|
0.2 |
|
Other |
|
110 |
|
1 |
|
1 |
|
— |
|
112 |
|
— |
|
2 |
|
— |
|
1 |
|
3 |
|
1.8 |
|
— |
|
100.0 |
|
2.7 |
|
Total |
|
171,549 |
|
19,489 |
|
1,885 |
|
61 |
|
192,984 |
|
17,348 |
|
91 |
|
64 |
|
234 |
|
389 |
|
0.1 |
|
0.3 |
|
12.4 |
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 December 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
≤50% |
|
71,321 |
|
8,257 |
|
1,036 |
|
61 |
|
80,675 |
|
7,467 |
|
26 |
|
20 |
|
121 |
|
167 |
|
— |
|
0.2 |
|
11.7 |
|
0.2 |
|
>50% and ≤70% |
|
68,178 |
|
7,792 |
|
616 |
|
7 |
|
76,593 |
|
14,088 |
|
32 |
|
30 |
|
71 |
|
133 |
|
— |
|
0.4 |
|
11.5 |
|
0.2 |
|
>70% and ≤80% |
|
17,602 |
|
1,602 |
|
62 |
|
1 |
|
19,267 |
|
11,154 |
|
7 |
|
6 |
|
11 |
|
24 |
|
— |
|
0.4 |
|
17.7 |
|
0.1 |
|
>80% and ≤90% |
|
7,918 |
|
944 |
|
17 |
|
1 |
|
8,880 |
|
7,127 |
|
6 |
|
5 |
|
5 |
|
16 |
|
0.1 |
|
0.5 |
|
29.4 |
|
0.2 |
|
>90% and ≤100% |
|
1,409 |
|
18 |
|
6 |
|
— |
|
1,433 |
|
1,389 |
|
3 |
|
— |
|
2 |
|
5 |
|
0.2 |
|
— |
|
33.3 |
|
0.3 |
|
>100% |
|
35 |
|
7 |
|
10 |
|
— |
|
52 |
|
2 |
|
2 |
|
— |
|
4 |
|
6 |
|
5.7 |
|
— |
|
40.0 |
|
11.5 |
|
Total with LTVs |
|
166,463 |
|
18,620 |
|
1,747 |
|
70 |
|
186,900 |
|
41,227 |
|
76 |
|
61 |
|
214 |
|
351 |
|
— |
|
0.3 |
|
12.3 |
|
0.2 |
|
Other |
|
59 |
|
1 |
|
1 |
|
— |
|
61 |
|
— |
|
3 |
|
— |
|
1 |
|
4 |
|
5.1 |
|
— |
|
100.0 |
|
6.6 |
|
Total |
|
166,522 |
|
18,621 |
|
1,748 |
|
70 |
|
186,961 |
|
41,227 |
|
79 |
|
61 |
|
215 |
|
355 |
|
— |
|
0.3 |
|
12.3 |
|
0.2 |
|
(1) | Excludes a non-material amount of provisions held on relatively small legacy portfolios. |
(2) | ECL provisions coverage is ECL provisions divided by mortgages. |
(3) | LTVs used in this table reflect the LTV at the reporting date, including changes in LTV after the date of new business due to repayments and indexation of property. |
- | Overall LTV for the portfolio increased during H1 2023, reflecting the easing of UK house prices, which was reflected in the increased exposure in the higher LTV bands. ECL coverage levels were maintained across the LTV bands. |
NatWest Group – Form 6K Interim Results 2023 |
47 |
Risk and capital management
Credit risk – Banking activities continued
Commercial real estate (CRE)
The CRE portfolio comprises exposures to entities involved in the development of, or investment in, commercial and residential properties (including house builders but excluding housing associations, construction and the building materials sub-sector).
|
|
30 June 2023 |
|
31 December 2022 |
||||||||||||
|
|
UK |
|
RoI |
|
Other |
|
Total |
|
UK |
|
RoI |
|
Other |
|
Total |
By geography and sub-sector (1) |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential (2) |
|
4,698 |
|
4 |
|
6 |
|
4,708 |
|
4,583 |
|
2 |
|
13 |
|
4,598 |
Office (3) |
|
2,682 |
|
4 |
|
— |
|
2,686 |
|
2,781 |
|
10 |
|
— |
|
2,791 |
Retail (4) |
|
3,582 |
|
1 |
|
— |
|
3,583 |
|
3,754 |
|
— |
|
— |
|
3,754 |
Industrial (5) |
|
3,137 |
|
— |
|
128 |
|
3,265 |
|
2,939 |
|
— |
|
184 |
|
3,123 |
Mixed/other (6) |
|
919 |
|
7 |
|
44 |
|
970 |
|
876 |
|
7 |
|
46 |
|
929 |
|
|
15,018 |
|
16 |
|
178 |
|
15,212 |
|
14,933 |
|
19 |
|
243 |
|
15,195 |
Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential (2) |
|
1,752 |
|
2 |
|
— |
|
1,754 |
|
1,693 |
|
7 |
|
— |
|
1,700 |
Office (3) |
|
46 |
|
— |
|
— |
|
46 |
|
81 |
|
— |
|
— |
|
81 |
Retail (4) |
|
58 |
|
— |
|
— |
|
58 |
|
56 |
|
— |
|
— |
|
56 |
Industrial (5) |
|
56 |
|
— |
|
— |
|
56 |
|
90 |
|
— |
|
— |
|
90 |
Mixed/other (6) |
|
12 |
|
1 |
|
— |
|
13 |
|
14 |
|
1 |
|
— |
|
15 |
|
|
1,924 |
|
3 |
|
— |
|
1,927 |
|
1,934 |
|
8 |
|
— |
|
1,942 |
Total |
|
16,942 |
|
19 |
|
178 |
|
17,139 |
|
16,867 |
|
27 |
|
243 |
|
17,137 |
(1) | Geographical splits are based on country of collateral risk. |
(2) | Properties including houses, flats and student accommodation. |
(3) | Properties including offices in central business districts, regional headquarters and business parks. |
(4) | Properties including high street retail, shopping centres, restaurants, bars and gyms. |
(5) | Properties including distribution centres, manufacturing and warehouses. |
(6) | Properties that do not fall within the other categories above. Mixed generally relates to a mixture of retail/office with residential. |
NatWest Group – Form 6K Interim Results 2023 |
48 |
Risk and capital management
Credit risk – Banking activities continued
Commercial real estate
CRE LTV distribution by stage
The table below shows CRE current exposure and related ECL by LTV band.
|
|
Gross loans |
|
ECL provisions |
|
ECL provisions coverage (2) |
||||||||||||||||||||
|
|
|
|
|
|
|
|
Not within |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS 9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stage |
|
Stage |
|
Stage |
|
ECL |
|
|
|
Stage |
|
Stage |
|
Stage |
|
|
|
Stage |
|
Stage |
|
Stage |
|
|
|
|
1 |
|
2 |
|
3 |
|
scope (1) |
|
Total |
|
1 |
|
2 |
|
3 |
|
Total |
|
1 |
|
2 |
|
3 |
|
Total |
30 June 2023 |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
% |
|
% |
|
% |
|
% |
≤50% |
|
7,136 |
|
951 |
|
61 |
|
3 |
|
8,151 |
|
34 |
|
14 |
|
12 |
|
60 |
|
0.5 |
|
1.5 |
|
19.7 |
|
0.7 |
>50% and ≤70% |
|
3,399 |
|
582 |
|
66 |
|
2 |
|
4,049 |
|
20 |
|
26 |
|
18 |
|
64 |
|
0.6 |
|
4.5 |
|
27.3 |
|
1.6 |
>70% and ≤100% |
|
182 |
|
114 |
|
200 |
|
2 |
|
498 |
|
2 |
|
3 |
|
31 |
|
36 |
|
1.1 |
|
2.6 |
|
15.5 |
|
7.2 |
>100% |
|
216 |
|
17 |
|
41 |
|
— |
|
274 |
|
1 |
|
1 |
|
14 |
|
16 |
|
0.5 |
|
5.9 |
|
34.1 |
|
5.8 |
Total with LTVs |
|
10,933 |
|
1,664 |
|
368 |
|
7 |
|
12,972 |
|
57 |
|
44 |
|
75 |
|
176 |
|
0.5 |
|
2.6 |
|
20.4 |
|
1.4 |
Total portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average LTV% |
|
47% |
|
50% |
|
80% |
|
50% |
|
48% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (3) |
|
1,703 |
|
493 |
|
51 |
|
64 |
|
2,311 |
|
7 |
|
18 |
|
22 |
|
47 |
|
0.4 |
|
3.7 |
|
43.1 |
|
2.0 |
Development (4) |
|
1,733 |
|
141 |
|
53 |
|
3 |
|
1,930 |
|
14 |
|
4 |
|
24 |
|
42 |
|
0.8 |
|
2.8 |
|
45.3 |
|
2.2 |
Total |
|
14,369 |
|
2,298 |
|
472 |
|
74 |
|
17,213 |
|
78 |
|
66 |
|
121 |
|
265 |
|
0.5 |
|
2.9 |
|
25.6 |
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 December 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
≤50% |
|
7,010 |
|
658 |
|
57 |
|
67 |
|
7,792 |
|
36 |
|
12 |
|
16 |
|
64 |
|
0.5 |
|
1.8 |
|
28.1 |
|
0.8 |
>50% and ≤70% |
|
3,515 |
|
798 |
|
43 |
|
19 |
|
4,375 |
|
23 |
|
18 |
|
12 |
|
53 |
|
0.7 |
|
2.3 |
|
27.9 |
|
1.2 |
>70% and ≤100% |
|
259 |
|
82 |
|
156 |
|
7 |
|
504 |
|
1 |
|
3 |
|
42 |
|
46 |
|
0.4 |
|
3.7 |
|
26.9 |
|
9.1 |
>100% |
|
102 |
|
10 |
|
23 |
|
1 |
|
136 |
|
1 |
|
1 |
|
14 |
|
16 |
|
1.0 |
|
10.0 |
|
60.9 |
|
11.8 |
Total with LTVs |
|
10,886 |
|
1,548 |
|
279 |
|
94 |
|
12,807 |
|
61 |
|
34 |
|
84 |
|
179 |
|
0.6 |
|
2.2 |
|
30.1 |
|
1.4 |
Total portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average LTV% |
|
45% |
|
52% |
|
75% |
|
44% |
|
47% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (3) |
|
1,800 |
|
627 |
|
55 |
|
86 |
|
2,568 |
|
9 |
|
15 |
|
27 |
|
51 |
|
0.5 |
|
2.4 |
|
49.1 |
|
2.0 |
Development (4) |
|
1,553 |
|
332 |
|
57 |
|
7 |
|
1,949 |
|
13 |
|
8 |
|
28 |
|
49 |
|
0.8 |
|
2.4 |
|
49.1 |
|
2.5 |
Total |
|
14,239 |
|
2,507 |
|
391 |
|
187 |
|
17,324 |
|
83 |
|
57 |
|
139 |
|
279 |
|
0.6 |
|
2.3 |
|
35.6 |
|
1.6 |
(1) | Includes exposures relating to non-modelled portfolios and other exposures carried at fair value. |
(2) | ECL provisions coverage is ECL provisions divided by gross loans. |
(3) | Relates mainly to business banking, rate risk management products and unsecured corporate lending. |
(4) | Relates to the development of commercial and residential properties. LTV is not a meaningful measure for this type of lending activity. |
- | Overall – The majority of the CRE portfolio was located and managed in the UK. Business appetite and strategy is aligned across NatWest Group. |
- | 2023 trends – H1 commenced with a fairly positive outlook as commercial property markets had observed a relatively quick repricing in late 2022 with investors keen to commence purchase and sale activity. However, as the economic outlook deteriorated over Q1 with higher interest rates, investor sentiment weakened. This resulted in very limited market activity, with residential build-to-rent being the exception. |
- | Credit quality – The CRE portfolio has been resilient to date despite the fall in capital values and increase in rates, with no significant increase to movements onto the Risk of Credit Loss framework. |
- | Risk appetite – Lending appetite is subject to regular review and is adjusted to prevailing and projected market conditions. Following recent market re-pricing, appetite increased for certain specific sub-sectors. As a cashflow lender in the current interest rate environment, leverage is typically capped by interest cover considerations. |
NatWest Group – Form 6K Interim Results 2023 |
49 |
Risk and capital management
Credit risk – Banking activities continued
Flow statements
The flow statements that follow show the main ECL and related income statement movements. They also show the changes in ECL as well as the changes in related financial assets used in determining ECL. Due to differences in scope, exposures may differ from those reported in other tables, principally in relation to exposures in Stage 1 and Stage 2. These differences do not have a material ECL effect. Other points to note:
- | Financial assets include treasury liquidity portfolios, comprising balances at central banks and debt securities, as well as loans. Both modelled and non-modelled portfolios are included. |
- | Stage transfers (for example, exposures moving from Stage 1 into Stage 2) are a key feature of the ECL movements, with the net re-measurement cost of transitioning to a worse stage being a primary driver of income statement charges. Similarly, there is an ECL benefit for accounts improving stage. |
- | Changes in risk parameters shows the reassessment of the ECL within a given stage, including any ECL overlays and residual income statement gains or losses at the point of write-off or accounting write-down. |
- | Other (P&L only items) includes any subsequent changes in the value of written-down assets (for example, fortuitous recoveries) along with other direct write-off items such as direct recovery costs. Other (P&L only items) affects the income statement but does not affect balance sheet ECL movements. |
- | Amounts written-off represent the gross asset written-down against accounts with ECL, including the net asset write-down for any debt sale activity. |
- | There were flows from Stage 1 into Stage 3 including transfers due to unexpected default events. |
- | The effect of any change in post model adjustments during the year is typically reported under changes in risk parameters, as are any effects arising from changes to the underlying models. Refer to the section on Governance and post model adjustments for further details. |
All movements are captured monthly and aggregated. Interest suspended post default is included within Stage 3 ECL with the movement in the value of suspended interest during the year reported under currency translation and other adjustments.
|
|
Stage 1 |
|
Stage 2 |
|
Stage 3 |
|
Total |
||||||||
|
|
Financial |
|
|
|
Financial |
|
|
|
Financial |
|
|
|
Financial |
|
|
|
|
assets |
|
ECL |
|
assets |
|
ECL |
|
assets |
|
ECL |
|
assets |
|
ECL |
NatWest Group total |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
At 1 January 2023 |
|
507,539 |
|
632 |
|
48,482 |
|
1,043 |
|
5,231 |
|
1,759 |
|
561,252 |
|
3,434 |
Currency translation and other adjustments |
|
(3,085) |
|
4 |
|
(259) |
|
(4) |
|
52 |
|
67 |
|
(3,292) |
|
67 |
Transfers from Stage 1 to Stage 2 |
|
(25,420) |
|
(161) |
|
25,420 |
|
161 |
|
— |
|
— |
|
— |
|
— |
Transfers from Stage 2 to Stage 1 |
|
23,485 |
|
380 |
|
(23,485) |
|
(380) |
|
— |
|
— |
|
— |
|
— |
Transfers to Stage 3 |
|
(156) |
|
(3) |
|
(1,723) |
|
(146) |
|
1,879 |
|
149 |
|
— |
|
— |
Transfers from Stage 3 |
|
185 |
|
18 |
|
320 |
|
27 |
|
(505) |
|
(45) |
|
— |
|
— |
Net re-measurement of ECL on stage transfer |
|
|
|
(277) |
|
|
|
406 |
|
— |
|
129 |
|
|
|
258 |
Changes in risk parameters (model inputs) |
|
|
|
(33) |
|
|
|
(14) |
|
— |
|
123 |
|
|
|
76 |
Other changes in net exposure |
|
(21,643) |
|
101 |
|
(4,134) |
|
(96) |
|
(1,003) |
|
(94) |
|
(26,780) |
|
(89) |
Other (P&L only items) |
|
|
|
— |
|
|
|
— |
|
— |
|
(22) |
|
|
|
(22) |
Income statement (releases)/charges |
|
|
|
(209) |
|
|
|
296 |
|
|
|
136 |
|
|
|
223 |
Transfers to disposal groups |
|
11 |
|
— |
|
(4) |
|
(4) |
|
11 |
|
4 |
|
18 |
|
— |
Amounts written-off |
|
— |
|
— |
|
(2) |
|
(2) |
|
(120) |
|
(120) |
|
(122) |
|
(122) |
Unwinding of discount |
|
— |
|
— |
|
|
|
— |
|
|
|
(67) |
|
|
|
(67) |
At 30 June 2023 |
|
480,916 |
|
661 |
|
44,615 |
|
991 |
|
5,545 |
|
1,905 |
|
531,076 |
|
3,557 |
Net carrying amount |
|
480,255 |
|
|
|
43,624 |
|
|
|
3,640 |
|
|
|
527,519 |
|
|
At 1 January 2022 |
|
546,178 |
|
302 |
|
35,557 |
|
1,478 |
|
5,238 |
|
2,026 |
|
586,973 |
|
3,806 |
2022 movements |
|
(2,063) |
|
106 |
|
(6,017) |
|
(356) |
|
769 |
|
(41) |
|
(7,311) |
|
(291) |
At 30 June 2022 |
|
544,115 |
|
408 |
|
29,540 |
|
1,122 |
|
6,007 |
|
1,985 |
|
579,662 |
|
3,515 |
Net carrying amount |
|
543,707 |
|
— |
|
28,418 |
|
— |
|
4,022 |
|
— |
|
576,147 |
|
— |
NatWest Group – Form 6K Interim Results 2023 |
50 |
Risk and capital management
Credit risk – Banking activities continued
Flow statements
|
|
Stage 1 |
|
Stage 2 |
|
Stage 3 |
|
Total |
||||||||
|
|
Financial |
|
|
|
Financial |
|
|
|
Financial |
|
|
|
Financial |
|
|
|
|
assets |
|
ECL |
|
assets |
|
ECL |
|
assets |
|
ECL |
|
assets |
|
ECL |
Retail Banking - mortgages |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
At 1 January 2023 |
|
165,264 |
|
79 |
|
18,831 |
|
61 |
|
1,762 |
|
215 |
|
185,857 |
|
355 |
Currency translation and other adjustments |
|
— |
|
— |
|
— |
|
— |
|
34 |
|
34 |
|
34 |
|
34 |
Transfers from Stage 1 to Stage 2 |
|
(9,502) |
|
(7) |
|
9,502 |
|
7 |
|
— |
|
— |
|
— |
|
— |
Transfers from Stage 2 to Stage 1 |
|
7,105 |
|
15 |
|
(7,105) |
|
(15) |
|
— |
|
— |
|
— |
|
— |
Transfers to Stage 3 |
|
(20) |
|
— |
|
(467) |
|
(3) |
|
487 |
|
3 |
|
— |
|
— |
Transfers from Stage 3 |
|
22 |
|
1 |
|
149 |
|
3 |
|
(171) |
|
(4) |
|
— |
|
— |
Net re-measurement of ECL on stage transfer |
|
|
|
(10) |
|
|
|
14 |
|
|
|
3 |
|
|
|
7 |
Changes in risk parameters (model inputs) |
|
|
|
18 |
|
|
|
(1) |
|
|
|
36 |
|
|
|
53 |
Other changes in net exposure |
|
6,922 |
|
(5) |
|
(1,245) |
|
(2) |
|
(258) |
|
(24) |
|
5,419 |
|
(31) |
Other (P&L only items) |
|
|
|
— |
|
|
|
(1) |
|
|
|
(7) |
|
|
|
(8) |
Income statement (releases)/charges |
|
|
|
3 |
|
|
|
10 |
|
|
|
8 |
|
|
|
21 |
Amounts written-off |
|
— |
|
— |
|
— |
|
— |
|
(7) |
|
(7) |
|
(7) |
|
(7) |
Unwinding of discount |
|
|
|
— |
|
|
|
— |
|
|
|
(22) |
|
|
|
(22) |
At 30 June 2023 |
|
169,791 |
|
91 |
|
19,665 |
|
64 |
|
1,847 |
|
234 |
|
191,303 |
|
389 |
Net carrying amount |
|
169,700 |
|
|
|
19,601 |
|
|
|
1,613 |
|
|
|
190,914 |
|
|
At 1 January 2022 |
|
159,966 |
|
24 |
|
10,748 |
|
155 |
|
1,267 |
|
250 |
|
171,981 |
|
429 |
2022 movements |
|
6,169 |
|
33 |
|
(1,763) |
|
(79) |
|
501 |
|
(38) |
|
4,907 |
|
(84) |
At 30 June 2022 |
|
166,135 |
|
57 |
|
8,985 |
|
76 |
|
1,768 |
|
212 |
|
176,888 |
|
345 |
Net carrying amount |
|
166,078 |
|
— |
|
8,909 |
|
— |
|
1,556 |
|
— |
|
176,543 |
|
— |
- | ECL levels for mortgages increased during H1 2023, reflecting continued strong growth. While portfolio performance remained stable, increased economic uncertainty is captured through ECL post model adjustments (reflected in changes in risk parameters). |
- | There were net flows into Stage 2 from Stage 1 as PDs increased due to moving closer to the forecasted unemployment peak, noting the latest MES update reduction in unemployment peak will not result in exits from Stage 2 until Q3 2023 (due to the three month PD persistence rule in stage allocation). |
- | The increase in the cost of living post model adjustment at 30 June 2023 proportionately allocated more ECL to Stage 1 given the forward-looking nature of the cost of living and inflation threat. Refer to the Governance and post model adjustments section for more information. |
- | The Stage 3 inflows remained broadly stable but there was a modest increase in Stage 3 ECL overall, partly linked to recent house price index deterioration. The relatively small ECL cost for net re-measurement on stage transfer included the effect of risk targeted ECL adjustments, when previously in the good book. Refer to the Governance and post model adjustments section for further details. |
- | Write-off occurs once the repossessed property has been sold and there is a residual shortfall balance remaining outstanding. This would typically be within five years from default but can be longer. Given repossession activity remains subdued relative to pre-COVID-19 levels, write-offs remained at a lower level. |
NatWest Group – Form 6K Interim Results 2023 |
51 |
Risk and capital management
Credit risk – Banking activities continued
Flow statements
|
|
Stage 1 |
|
Stage 2 |
|
Stage 3 |
|
Total |
||||||||
|
|
Financial |
|
|
|
Financial |
|
|
|
Financial |
|
|
|
Financial |
|
|
|
|
assets |
|
ECL |
|
assets |
|
ECL |
|
assets |
|
ECL |
|
assets |
|
ECL |
Retail Banking - credit cards |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
At 1 January 2023 |
|
3,062 |
|
61 |
|
1,098 |
|
120 |
|
113 |
|
71 |
|
4,273 |
|
252 |
Currency translation and other adjustments |
|
— |
|
— |
|
— |
|
— |
|
2 |
|
3 |
|
2 |
|
3 |
Transfers from Stage 1 to Stage 2 |
|
(862) |
|
(21) |
|
862 |
|
21 |
|
— |
|
— |
|
— |
|
— |
Transfers from Stage 2 to Stage 1 |
|
330 |
|
24 |
|
(330) |
|
(24) |
|
— |
|
— |
|
— |
|
— |
Transfers to Stage 3 |
|
(11) |
|
— |
|
(54) |
|
(23) |
|
65 |
|
23 |
|
— |
|
— |
Transfers from Stage 3 |
|
1 |
|
1 |
|
3 |
|
1 |
|
(4) |
|
(2) |
|
— |
|
— |
Net re-measurement of ECL on stage transfer |
|
|
|
(15) |
|
|
|
77 |
|
|
|
17 |
|
|
|
79 |
Changes in risk parameters (model inputs) |
|
|
|
6 |
|
|
|
(2) |
|
|
|
8 |
|
|
|
12 |
Other changes in net exposure |
|
660 |
|
3 |
|
(59) |
|
(25) |
|
(17) |
|
(1) |
|
584 |
|
(23) |
Other (P&L only items) |
|
|
|
— |
|
|
|
1 |
|
|
|
(1) |
|
|
|
— |
Income statement (releases)/charges |
|
|
|
(6) |
|
|
|
51 |
|
|
|
23 |
|
|
|
68 |
Amounts written-off |
|
— |
|
— |
|
— |
|
— |
|
(33) |
|
(33) |
|
(33) |
|
(33) |
Unwinding of discount |
|
|
|
— |
|
|
|
— |
|
|
|
(3) |
|
|
|
(3) |
At 30 June 2023 |
|
3,180 |
|
59 |
|
1,520 |
|
145 |
|
126 |
|
83 |
|
4,826 |
|
287 |
Net carrying amount |
|
3,121 |
|
|
|
1,375 |
|
|
|
43 |
|
|
|
4,539 |
|
|
At 1 January 2022 |
|
2,740 |
|
58 |
|
947 |
|
141 |
|
91 |
|
60 |
|
3,778 |
|
259 |
2022 movements |
|
64 |
|
6 |
|
77 |
|
(28) |
|
17 |
|
8 |
|
158 |
|
(14) |
At 30 June 2022 |
|
2,804 |
|
64 |
|
1,024 |
|
113 |
|
108 |
|
68 |
|
3,936 |
|
245 |
Net carrying amount |
|
2,740 |
|
— |
|
911 |
|
— |
|
40 |
|
— |
|
3,691 |
|
— |
- | The overall increase in ECL was mainly due to the increase in Stage 2 ECL. |
- | While portfolio performance remained stable, a net flow into Stage 2 from Stage 1 is observed as PDs increase as the forecasted unemployment peak moves closer and PD modelling updates capture more economic downside. |
- | Credit card balances have continued to grow since the 2022 year end, in line with industry trends in the UK, reflecting strong customer demand, while sustaining robust risk appetite. |
- | Reflecting the strong credit performance observed during H1 2023, Stage 3 inflows remained stable and therefore Stage 3 ECL movement was modest in H1 2023. |
- | Charge-off (analogous to partial write-off) typically occurs after 12 missed payments. |
NatWest Group – Form 6K Interim Results 2023 |
52 |
Risk and capital management
Credit risk – Banking activities continued
Flow statements
|
|
Stage 1 |
|
Stage 2 |
|
Stage 3 |
|
Total |
||||||||
|
|
Financial |
|
|
|
Financial |
|
|
|
Financial |
|
|
|
Financial |
|
|
|
|
assets |
|
ECL |
|
assets |
|
ECL |
|
assets |
|
ECL |
|
assets |
|
ECL |
Retail Banking - other personal unsecured |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
At 1 January 2023 |
|
4,784 |
|
111 |
|
2,028 |
|
269 |
|
779 |
|
631 |
|
7,591 |
|
1,011 |
Currency translation and other adjustments |
|
— |
|
(1) |
|
— |
|
— |
|
12 |
|
12 |
|
12 |
|
11 |
Transfers from Stage 1 to Stage 2 |
|
(1,450) |
|
(59) |
|
1,450 |
|
59 |
|
— |
|
— |
|
— |
|
— |
Transfers from Stage 2 to Stage 1 |
|
1,178 |
|
165 |
|
(1,178) |
|
(165) |
|
— |
|
— |
|
— |
|
— |
Transfers to Stage 3 |
|
(25) |
|
(1) |
|
(162) |
|
(64) |
|
187 |
|
65 |
|
— |
|
— |
Transfers from Stage 3 |
|
3 |
|
2 |
|
11 |
|
4 |
|
(14) |
|
(6) |
|
— |
|
— |
Net re-measurement of ECL on stage transfer |
|
|
|
(118) |
|
|
|
165 |
|
|
|
26 |
|
|
|
73 |
Changes in risk parameters (model inputs) |
|
|
|
(22) |
|
|
|
(10) |
|
|
|
49 |
|
|
|
17 |
Other changes in net exposure |
|
586 |
|
55 |
|
(268) |
|
(28) |
|
(51) |
|
(18) |
|
267 |
|
9 |
Other (P&L only items) |
|
|
|
— |
|
|
|
— |
|
|
|
5 |
|
|
|
5 |
Income statement (releases)/charges |
|
|
|
(85) |
|
|
|
127 |
|
|
|
62 |
|
|
|
104 |
Amounts written-off |
|
— |
|
— |
|
— |
|
— |
|
(23) |
|
(23) |
|
(23) |
|
(23) |
Unwinding of discount |
|
|
|
— |
|
|
|
— |
|
|
|
(15) |
|
|
|
(15) |
At 30 June 2023 |
|
5,076 |
|
132 |
|
1,881 |
|
230 |
|
890 |
|
721 |
|
7,847 |
|
1,083 |
Net carrying amount |
|
4,944 |
|
|
|
1,651 |
|
|
|
169 |
|
|
|
6,764 |
|
|
At 1 January 2022 |
|
4,548 |
|
52 |
|
1,967 |
|
294 |
|
629 |
|
540 |
|
7,144 |
|
886 |
2022 movements |
|
272 |
|
11 |
|
(194) |
|
(64) |
|
104 |
|
75 |
|
182 |
|
22 |
At 30 June 2022 |
|
4,820 |
|
63 |
|
1,773 |
|
230 |
|
733 |
|
615 |
|
7,326 |
|
908 |
Net carrying amount |
|
4,757 |
|
— |
|
1,543 |
|
— |
|
118 |
|
— |
|
6,418 |
|
— |
- | Total ECL increased mainly in Stage 3. While default levels were stable, they were higher than in 2022 in absolute terms. This increase was in line with post-COVID-19 portfolio growth alongside robust risk appetite and, given write-off levels are lower during 2023 so far, ECL levels have also risen. |
- | While portfolio performance remains stable, a net flow into Stage 2 from Stage 1 is observed as PDs increase as the forecasted unemployment peak moves closer. The lower forecast unemployment peak in the latest MES economics dampened the net effect of stage migrations on ECL, primarily through reducing PDs on existing Stage 2 cases. |
- | Unsecured retail balances have grown since the 2022 year end, in line with industry trends in the UK, as unsecured borrowing demand continues. |
- | Write-off occurs once recovery activity with the customer has been concluded or there are no further recoveries expected, but no later than six years after default. |
NatWest Group – Form 6K Interim Results 2023 |
53 |
Risk and capital management
Credit risk – Banking activities continued
Flow statements
|
|
Stage 1 |
|
Stage 2 |
|
Stage 3 |
|
Total |
||||||||
|
|
Financial |
|
|
|
Financial |
|
|
|
Financial |
|
|
|
Financial |
|
|
|
|
assets |
|
ECL |
|
assets |
|
ECL |
|
assets |
|
ECL |
|
assets |
|
ECL |
Commercial & Institutional total |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
At 1 January 2023 |
|
160,352 |
|
342 |
|
24,711 |
|
534 |
|
2,198 |
|
747 |
|
187,261 |
|
1,623 |
Currency translation and other adjustments |
|
(2,069) |
|
2 |
|
(249) |
|
(2) |
|
9 |
|
18 |
|
(2,309) |
|
18 |
Inter-group transfers |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Transfers from Stage 1 to Stage 2 |
|
(12,526) |
|
(69) |
|
12,526 |
|
69 |
|
— |
|
— |
|
— |
|
— |
Transfers from Stage 2 to Stage 1 |
|
13,546 |
|
167 |
|
(13,546) |
|
(167) |
|
— |
|
— |
|
— |
|
— |
Transfers to Stage 3 |
|
(45) |
|
(1) |
|
(900) |
|
(40) |
|
945 |
|
41 |
|
— |
|
— |
Transfers from Stage 3 |
|
111 |
|
16 |
|
147 |
|
16 |
|
(258) |
|
(32) |
|
— |
|
— |
Net re-measurement of ECL on stage transfer |
|
|
|
(128) |
|
|
|
136 |
|
|
|
76 |
|
|
|
84 |
Changes in risk parameters (model inputs) |
|
|
|
(41) |
|
|
|
(11) |
|
|
|
31 |
|
|
|
(21) |
Other changes in net exposure |
|
2,802 |
|
45 |
|
(2,345) |
|
(27) |
|
(572) |
|
(43) |
|
(115) |
|
(25) |
Other (P&L only items) |
|
|
|
— |
|
|
|
— |
|
|
|
(18) |
|
|
|
(18) |
Income statement releases |
|
|
|
(124) |
|
|
|
98 |
|
|
|
46 |
|
|
|
20 |
Amounts written-off |
|
— |
|
— |
|
(1) |
|
(1) |
|
(49) |
|
(49) |
|
(50) |
|
(50) |
Unwinding of discount |
|
|
|
— |
|
|
|
— |
|
|
|
(24) |
|
|
|
(24) |
At 30 June 2023 |
|
162,171 |
|
333 |
|
20,343 |
|
507 |
|
2,273 |
|
765 |
|
184,787 |
|
1,605 |
Net carrying amount |
|
161,838 |
|
|
|
19,836 |
|
|
|
1,508 |
|
|
|
183,182 |
|
|
At 1 January 2022 |
|
152,224 |
|
129 |
|
19,731 |
|
785 |
|
2,155 |
|
750 |
|
174,110 |
|
1,664 |
2022 movements |
|
10,103 |
|
56 |
|
(2,962) |
|
(154) |
|
199 |
|
(44) |
|
7,340 |
|
(142) |
At 30 June 2022 |
|
162,327 |
|
185 |
|
16,769 |
|
631 |
|
2,354 |
|
706 |
|
181,450 |
|
1,522 |
Net carrying amount |
|
162,142 |
|
— |
|
16,138 |
|
— |
|
1,648 |
|
— |
|
179,928 |
|
— |
- | There was a modest decrease in ECL levels during H1 2023, with reductions in modelled ECL from improving economic variables and risk metrics offset by increases in post model adjustments to capture increased economic uncertainty. |
- | Stage 2 exposure and ECL reduced, reflecting improving economic variables and risk metrics which lowered PDs and led to significant transfers of exposure and ECL from Stage 2 into Stage 1. The ECL reduction was partially offset by charges, the majority of which were from increases in post model adjustments, with the PD downgrade adjustment resulting in transfers from Stage 1 into Stage 2 and increased ECL on stage transfer, from moving from a 12 month ECL to a lifetime ECL. |
- | Stage 3 inflows remained stable. There was a modest increase in Stage 3 ECL overall with increases from transfers and charges largely offset by write-offs. |
NatWest Group – Form 6K Interim Results 2023 |
54 |
Risk and capital management
Credit risk – Banking activities continued
Flow statements
|
|
Stage 1 |
|
Stage 2 |
|
Stage 3 |
|
Total |
||||||||
|
|
Financial |
|
|
|
Financial |
|
|
|
Financial |
|
|
|
Financial |
|
|
|
|
assets |
|
ECL |
|
assets |
|
ECL |
|
assets |
|
ECL |
|
assets |
|
ECL |
Commercial & Institutional- corporate |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
At 1 January 2023 |
|
49,288 |
|
210 |
|
18,779 |
|
423 |
|
1,397 |
|
497 |
|
69,464 |
|
1,130 |
Currency translation and other adjustments |
|
(455) |
|
3 |
|
(198) |
|
(3) |
|
11 |
|
10 |
|
(642) |
|
10 |
Inter-group transfers |
|
3 |
|
— |
|
(17) |
|
— |
|
(7) |
|
(1) |
|
(21) |
|
(1) |
Transfers from Stage 1 to Stage 2 |
|
(9,015) |
|
(52) |
|
9,015 |
|
52 |
|
— |
|
— |
|
— |
|
— |
Transfers from Stage 2 to Stage 1 |
|
9,322 |
|
127 |
|
(9,322) |
|
(127) |
|
— |
|
— |
|
— |
|
— |
Transfers to Stage 3 |
|
(35) |
|
(1) |
|
(642) |
|
(31) |
|
677 |
|
32 |
|
— |
|
— |
Transfers from Stage 3 |
|
74 |
|
12 |
|
112 |
|
12 |
|
(186) |
|
(24) |
|
— |
|
— |
Net re-measurement of ECL on stage transfer |
|
|
|
(99) |
|
|
|
98 |
|
|
|
58 |
|
|
|
57 |
Changes in risk parameters (model inputs) |
|
|
|
(21) |
|
|
|
(20) |
|
|
|
22 |
|
|
|
(19) |
Other changes in net exposure |
|
5,386 |
|
32 |
|
(2,179) |
|
(18) |
|
(433) |
|
(35) |
|
2,774 |
|
(21) |
Other (P&L only items) |
|
|
|
— |
|
|
|
(1) |
|
|
|
(18) |
|
|
|
(19) |
Income statement (releases)/charges |
|
|
|
(88) |
|
|
|
59 |
|
|
|
27 |
|
|
|
(2) |
Amounts written-off |
|
— |
|
— |
|
(1) |
|
(1) |
|
(26) |
|
(26) |
|
(27) |
|
(27) |
Unwinding of discount |
|
|
|
— |
|
|
|
— |
|
|
|
(18) |
|
|
|
(18) |
At 30 June 2023 |
|
54,568 |
|
211 |
|
15,547 |
|
385 |
|
1,433 |
|
515 |
|
71,548 |
|
1,111 |
Net carrying amount |
|
54,357 |
|
|
|
15,162 |
|
|
|
918 |
|
|
|
70,437 |
|
|
- | There was a modest decrease in ECL levels during H1 2023, with reductions in modelled ECL from improving economic variables and risk metrics offset by increases in post model adjustments to capture increased economic uncertainty. |
- | Stage 2 exposure and ECL reduced, reflecting improving economic variables and risk metrics which lowered PDs, with the net effect of stage transfers leading to a reduction in ECL. The ECL reduction was partially offset by charges, the majority of which, were from increases in post model adjustments. |
- | Stage 3 inflows remained stable with the small increase in exposure largely attributable to government scheme lending. There was a modest increase in Stage 3 ECL overall with increases from transfers and charges partially offset by write-offs. |
NatWest Group – Form 6K Interim Results 2023 |
55 |
Risk and capital management
Credit risk – Banking activities continued
Flow statements
|
|
Stage 1 |
|
Stage 2 |
|
Stage 3 |
|
Total |
||||||||
|
|
Financial |
|
|
|
Financial |
|
|
|
Financial |
|
|
|
Financial |
|
|
|
|
assets |
|
ECL |
|
assets |
|
ECL |
|
assets |
|
ECL |
|
assets |
|
ECL |
Commercial & Institutional - property |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
At 1 January 2023 |
|
26,134 |
|
100 |
|
4,301 |
|
96 |
|
642 |
|
220 |
|
31,077 |
|
416 |
Currency translation and other adjustments |
|
(8) |
|
— |
|
(10) |
|
— |
|
— |
|
7 |
|
(18) |
|
7 |
Inter-group transfers |
|
2 |
|
— |
|
12 |
|
— |
|
7 |
|
1 |
|
21 |
|
1 |
Transfers from Stage 1 to Stage 2 |
|
(2,567) |
|
(15) |
|
2,567 |
|
15 |
|
— |
|
— |
|
— |
|
— |
Transfers from Stage 2 to Stage 1 |
|
2,290 |
|
30 |
|
(2,290) |
|
(30) |
|
— |
|
— |
|
— |
|
— |
Transfers to Stage 3 |
|
(9) |
|
(1) |
|
(248) |
|
(9) |
|
257 |
|
10 |
|
— |
|
— |
Transfers from Stage 3 |
|
27 |
|
3 |
|
32 |
|
4 |
|
(59) |
|
(7) |
|
— |
|
— |
Net re-measurement of ECL on stage transfer |
|
|
|
(21) |
|
|
|
33 |
|
|
|
17 |
|
|
|
29 |
Changes in risk parameters (model inputs) |
|
|
|
(16) |
|
|
|
9 |
|
|
|
3 |
|
|
|
(4) |
Other changes in net exposure |
|
440 |
|
11 |
|
(454) |
|
(7) |
|
(97) |
|
(7) |
|
(111) |
|
(3) |
Other (P&L only items) |
|
|
|
— |
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
Income statement (releases)/charges |
|
|
|
(26) |
|
|
|
35 |
|
|
|
14 |
|
|
|
23 |
Amounts written-off |
|
— |
|
— |
|
— |
|
— |
|
(19) |
|
(19) |
|
(19) |
|
(19) |
Unwinding of discount |
|
|
|
— |
|
|
|
— |
|
|
|
(5) |
|
|
|
(5) |
At 30 June 2023 |
|
26,309 |
|
91 |
|
3,910 |
|
111 |
|
731 |
|
220 |
|
30,950 |
|
422 |
Net carrying amount |
|
26,218 |
|
|
|
3,799 |
|
|
|
511 |
|
|
|
30,528 |
|
|
- | There was a modest increase in ECL levels during H1 2023, with reductions in modelled ECL from improving economic variables and risk metrics offset by increases in post model adjustments to capture increased economic uncertainty. |
- | Stage 2 exposure reduced reflecting improving economic variables and risk metrics which lowered PDs, with the net effect of stage transfers leading to a reduction in ECL. |
- | Stage 2 ECL increased due to economic uncertainty post model adjustments which more than offset reductions from stage transfers. |
- | Stage 3 inflows increased due to an uptick in defaults but this did not lead to a change in ECL with increases from transfers and charges offset by write-offs. |
NatWest Group – Form 6K Interim Results 2023 |
56 |
Risk and capital management
Credit risk – Banking activities continued
Flow statements
|
|
Stage 1 |
|
Stage 2 |
|
Stage 3 |
|
Total |
||||||||
|
|
Financial |
|
|
|
Financial |
|
|
|
Financial |
|
|
|
Financial |
|
|
|
|
assets |
|
ECL |
|
assets |
|
ECL |
|
assets |
|
ECL |
|
assets |
|
ECL |
Commercial & Institutional - other |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
At 1 January 2023 |
|
84,930 |
|
32 |
|
1,631 |
|
15 |
|
159 |
|
30 |
|
86,720 |
|
77 |
Currency translation and other adjustments |
|
(1,606) |
|
— |
|
(40) |
|
— |
|
(2) |
|
2 |
|
(1,648) |
|
2 |
Inter-group transfers |
|
(5) |
|
— |
|
5 |
|
— |
|
— |
|
— |
|
— |
|
— |
Transfers from Stage 1 to Stage 2 |
|
(944) |
|
(2) |
|
944 |
|
2 |
|
— |
|
— |
|
— |
|
— |
Transfers from Stage 2 to Stage 1 |
|
1,934 |
|
10 |
|
(1,934) |
|
(10) |
|
— |
|
— |
|
— |
|
— |
Transfers to Stage 3 |
|
— |
|
— |
|
(11) |
|
— |
|
11 |
|
— |
|
— |
|
— |
Transfers from Stage 3 |
|
10 |
|
1 |
|
3 |
|
— |
|
(13) |
|
(1) |
|
— |
|
— |
Net re-measurement of ECL on stage transfer |
|
|
|
(9) |
|
|
|
5 |
|
|
|
1 |
|
|
|
(3) |
Changes in risk parameters (model inputs) |
|
|
|
(3) |
|
|
|
— |
|
|
|
5 |
|
|
|
2 |
Other changes in net exposure |
|
(3,025) |
|
2 |
|
288 |
|
(1) |
|
(41) |
|
(1) |
|
(2,778) |
|
— |
Other (P&L only items) |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
Income statement (releases)/charges |
|
|
|
(10) |
|
|
|
4 |
|
|
|
5 |
|
|
|
(1) |
Amounts written-off |
|
— |
|
— |
|
— |
|
— |
|
(5) |
|
(5) |
|
(5) |
|
(5) |
Unwinding of discount |
|
|
|
— |
|
|
|
— |
|
|
|
(1) |
|
|
|
(1) |
At 30 June 2023 |
|
81,294 |
|
31 |
|
886 |
|
11 |
|
109 |
|
30 |
|
82,289 |
|
72 |
Net carrying amount |
|
81,263 |
|
|
|
875 |
|
|
|
79 |
|
|
|
82,217 |
|
|
- | There was a modest decrease in ECL levels during H1 2023, with reductions in modelled ECL from improving economic variables and risk metrics partially offset by increases in post model adjustments to capture increased economic uncertainty. |
- | Stage 2 exposure and ECL reduced, reflecting improving economic variables and risk metrics which lowered PDs and led to significant transfers of exposure and ECL from Stage 2 into Stage 1. |
NatWest Group – Form 6K Interim Results 2023 |
57 |
Risk and capital management
Credit risk – Banking activities continued
Stage 2 decomposition by a significant increase in credit risk trigger
The tables that follow show decomposition for the Personal and Wholesale portfolios.
|
|
UK mortgages |
|
Credit cards |
|
Other |
|
Total |
|
||||||||
30 June 2023 |
|
£m |
|
% |
|
£m |
|
% |
|
£m |
|
% |
|
£m |
|
% |
|
Personal trigger (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PD movement |
|
9,799 |
|
49.9 |
|
1,163 |
|
77.4 |
|
937 |
|
51.6 |
|
11,899 |
|
51.8 |
|
PD persistence |
|
8,349 |
|
42.5 |
|
265 |
|
17.7 |
|
417 |
|
23.0 |
|
9,031 |
|
39.3 |
|
Adverse credit bureau recorded with |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
credit reference agency |
|
935 |
|
4.8 |
|
49 |
|
3.3 |
|
89 |
|
4.9 |
|
1,073 |
|
4.7 |
|
Forbearance support provided |
|
98 |
|
0.5 |
|
1 |
|
0.1 |
|
12 |
|
0.7 |
|
111 |
|
0.5 |
|
Customers in collections |
|
185 |
|
0.9 |
|
2 |
|
0.1 |
|
6 |
|
0.3 |
|
193 |
|
0.8 |
|
Collective SICR and other reasons (2) |
|
183 |
|
0.9 |
|
21 |
|
1.4 |
|
337 |
|
18.6 |
|
541 |
|
2.4 |
|
Days past due >30 |
|
104 |
|
0.5 |
|
— |
|
— |
|
17 |
|
0.9 |
|
121 |
|
0.5 |
|
|
|
19,653 |
|
100 |
|
1,501 |
|
100 |
|
1,815 |
|
100 |
|
22,969 |
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 December 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal trigger (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PD movement |
|
16,477 |
|
87.7 |
|
814 |
|
75.7 |
|
1,129 |
|
56.7 |
|
18,420 |
|
84.3 |
|
PD persistence |
|
866 |
|
4.6 |
|
200 |
|
18.6 |
|
186 |
|
9.3 |
|
1,252 |
|
5.7 |
|
Adverse credit bureau recorded with |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
credit reference agency |
|
929 |
|
4.9 |
|
52 |
|
4.8 |
|
96 |
|
4.8 |
|
1,077 |
|
4.9 |
|
Forbearance support provided |
|
101 |
|
0.5 |
|
1 |
|
0.1 |
|
17 |
|
0.9 |
|
119 |
|
0.5 |
|
Customers in collections |
|
153 |
|
0.8 |
|
2 |
|
0.2 |
|
4 |
|
0.2 |
|
159 |
|
0.7 |
|
Collective SICR and other reasons (2) |
|
195 |
|
1.0 |
|
7 |
|
0.7 |
|
546 |
|
27.4 |
|
748 |
|
3.4 |
|
Days past due >30 |
|
66 |
|
0.4 |
|
— |
|
— |
|
13 |
|
0.7 |
|
79 |
|
0.4 |
|
|
|
18,787 |
|
100 |
|
1,076 |
|
100 |
|
1,991 |
|
100 |
|
21,854 |
|
100 |
|
For the notes to the table refer to the following page.
- | The levels of PD driven deterioration decreased in H1 2023, mainly in the mortgage portfolio. The economic scenario update at H1 2023 resulted in a reduction in lifetime PDs for the mortgage and personal loan portfolios, which has driven a segment of lower risk cases out of PD SICR deterioration (and now captured in three month PD persistence). |
- | The PD modelling update on the credit card portfolio resulted in more downside risk captured through modelled ECL and lead to more PD SICR deterioration being captured at 30 June 2023. |
NatWest Group – Form 6K Interim Results 2023 |
58 |
Risk and capital management
Credit risk – Banking activities continued
Stage 2 decomposition by a significant increase in credit risk trigger
|
|
Property |
|
Corporate |
|
Financial institutions |
|
Sovereign |
|
Total |
||||||||||
30 June 2023 |
|
£m |
|
% |
|
£m |
|
% |
|
£m |
|
% |
|
£m |
|
% |
|
£m |
|
% |
Wholesale trigger (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PD movement |
|
2,633 |
|
65.9 |
|
11,733 |
|
74.9 |
|
406 |
|
58.4 |
|
1 |
|
0.8 |
|
14,773 |
|
72.3 |
PD persistence |
|
119 |
|
3.0 |
|
329 |
|
2.1 |
|
5 |
|
0.7 |
|
— |
|
— |
|
453 |
|
2.2 |
Risk of credit loss |
|
722 |
|
18.1 |
|
2,016 |
|
12.9 |
|
146 |
|
21.0 |
|
104 |
|
82.5 |
|
2,988 |
|
14.6 |
Forbearance support provided |
|
40 |
|
1.0 |
|
418 |
|
2.7 |
|
— |
|
— |
|
— |
|
— |
|
458 |
|
2.2 |
Customers in collections |
|
8 |
|
0.2 |
|
35 |
|
0.2 |
|
— |
|
— |
|
— |
|
— |
|
43 |
|
0.2 |
Collective SICR and other reasons (2) |
|
198 |
|
5.0 |
|
751 |
|
4.8 |
|
84 |
|
12.1 |
|
19 |
|
15.1 |
|
1,052 |
|
5.1 |
Days past due >30 |
|
270 |
|
6.8 |
|
378 |
|
2.4 |
|
54 |
|
7.8 |
|
2 |
|
1.6 |
|
704 |
|
3.4 |
|
|
3,990 |
|
100 |
|
15,660 |
|
100 |
|
695 |
|
100 |
|
126 |
|
100 |
|
20,471 |
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 December 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale trigger (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PD movement |
|
2,807 |
|
65.0 |
|
15,645 |
|
81.7 |
|
1,231 |
|
91.0 |
|
79 |
|
50.3 |
|
19,762 |
|
79.2 |
PD persistence |
|
88 |
|
2.0 |
|
263 |
|
1.4 |
|
5 |
|
0.4 |
|
— |
|
— |
|
356 |
|
1.4 |
Risk of credit loss |
|
618 |
|
14.4 |
|
1,587 |
|
8.3 |
|
32 |
|
2.4 |
|
55 |
|
35.0 |
|
2,292 |
|
9.2 |
Forbearance support provided |
|
44 |
|
1.0 |
|
473 |
|
2.5 |
|
19 |
|
1.4 |
|
— |
|
— |
|
536 |
|
2.1 |
Customers in collections |
|
13 |
|
0.3 |
|
44 |
|
0.2 |
|
— |
|
— |
|
— |
|
— |
|
57 |
|
0.2 |
Collective SICR and other reasons (2) |
|
575 |
|
13.3 |
|
946 |
|
4.9 |
|
64 |
|
4.7 |
|
16 |
|
10.2 |
|
1,601 |
|
6.4 |
Days past due >30 |
|
171 |
|
4.0 |
|
195 |
|
1.0 |
|
2 |
|
0.1 |
|
7 |
|
4.5 |
|
375 |
|
1.5 |
|
|
4,316 |
|
100 |
|
19,153 |
|
100 |
|
1,353 |
|
100 |
|
157 |
|
100 |
|
24,979 |
|
100 |
(1) | The table is prepared on a hierarchical basis from top to bottom, for example, accounts with PD deterioration may also trigger backstop(s) but are only reported under PD deterioration. |
(2) | Includes cases where a PD assessment cannot be made and accounts where the PD has deteriorated beyond a prescribed backstop threshold aligned to risk management practices. |
- | PD deterioration continued to be the primary trigger of migration of exposures from Stage 1 into Stage 2. There was a reduction in cases triggering PD deterioration reflecting the economic scenario update at H1 2023 and positive portfolio performance which lowered PDs. Customers that triggered SICR due to post model adjustments for sector-level downgrades were also captured in the PD movement category. |
- | Moving exposures on to the Risk of Credit Loss framework remained an important backstop indicator of a SICR. The exposures classified under the Stage 2 Risk of Credit Loss framework increased over the period reflecting economic headwinds and the lower capture in PD deterioration category. |
- | There was an increase in customers meeting the >30 days past due trigger where since the regulatory definition of default changes all customer borrowing was categorised as past due. |
NatWest Group – Form 6K Interim Results 2023 |
59 |
Risk and capital management
Credit risk – Banking activities continued
Asset quality
The table below shows asset quality bands of gross loans and ECL, by stage, for the Personal portfolio.
|
|
Gross loans |
|
ECL provisions |
|
ECL provisions coverage |
||||||||||||||||||
|
|
Stage 1 |
|
Stage 2 |
|
Stage 3 |
|
Total |
|
Stage 1 |
|
Stage 2 |
|
Stage 3 |
|
Total |
|
Stage 1 |
|
Stage 2 |
|
Stage 3 |
|
Total |
30 June 2023 |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
% |
|
% |
|
% |
|
% |
UK mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
|
116,722 |
|
8,845 |
|
— |
|
125,567 |
|
54 |
|
24 |
|
— |
|
78 |
|
0.05 |
|
0.27 |
|
— |
|
0.06 |
AQ5-AQ8 |
|
70,112 |
|
10,114 |
|
— |
|
80,226 |
|
38 |
|
37 |
|
— |
|
75 |
|
0.05 |
|
0.37 |
|
— |
|
0.09 |
AQ9 |
|
149 |
|
694 |
|
— |
|
843 |
|
— |
|
4 |
|
— |
|
4 |
|
— |
|
0.58 |
|
— |
|
0.47 |
AQ10 |
|
— |
|
— |
|
2,053 |
|
2,053 |
|
— |
|
— |
|
256 |
|
256 |
|
— |
|
— |
|
12.47 |
|
12.47 |
|
|
186,983 |
|
19,653 |
|
2,053 |
|
208,689 |
|
92 |
|
65 |
|
256 |
|
413 |
|
0.05 |
|
0.33 |
|
12.47 |
|
0.20 |
Credit cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
|
143 |
|
— |
|
— |
|
143 |
|
1 |
|
— |
|
— |
|
1 |
|
0.70 |
|
— |
|
— |
|
0.70 |
AQ5-AQ8 |
|
3,375 |
|
1,454 |
|
— |
|
4,829 |
|
58 |
|
137 |
|
— |
|
195 |
|
1.72 |
|
9.42 |
|
— |
|
4.04 |
AQ9 |
|
8 |
|
47 |
|
— |
|
55 |
|
1 |
|
11 |
|
— |
|
12 |
|
12.50 |
|
23.40 |
|
— |
|
21.82 |
AQ10 |
|
— |
|
— |
|
123 |
|
123 |
|
— |
|
— |
|
85 |
|
85 |
|
— |
|
— |
|
69.11 |
|
69.11 |
|
|
3,526 |
|
1,501 |
|
123 |
|
5,150 |
|
60 |
|
148 |
|
85 |
|
293 |
|
1.70 |
|
9.86 |
|
69.11 |
|
5.69 |
Other personal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
|
966 |
|
118 |
|
— |
|
1,084 |
|
12 |
|
17 |
|
— |
|
29 |
|
1.24 |
|
14.41 |
|
— |
|
2.68 |
AQ5-AQ8 |
|
6,090 |
|
1,564 |
|
— |
|
7,654 |
|
125 |
|
185 |
|
— |
|
310 |
|
2.05 |
|
11.83 |
|
— |
|
4.05 |
AQ9 |
|
41 |
|
133 |
|
— |
|
174 |
|
4 |
|
40 |
|
— |
|
44 |
|
9.76 |
|
30.08 |
|
— |
|
25.29 |
AQ10 |
|
— |
|
— |
|
913 |
|
913 |
|
— |
|
— |
|
745 |
|
745 |
|
— |
|
— |
|
81.60 |
|
81.60 |
|
|
7,097 |
|
1,815 |
|
913 |
|
9,825 |
|
141 |
|
242 |
|
745 |
|
1,128 |
|
1.99 |
|
13.33 |
|
81.60 |
|
11.48 |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
|
117,831 |
|
8,963 |
|
— |
|
126,794 |
|
67 |
|
41 |
|
— |
|
108 |
|
0.06 |
|
0.46 |
|
— |
|
0.09 |
AQ5-AQ8 |
|
79,577 |
|
13,132 |
|
— |
|
92,709 |
|
221 |
|
359 |
|
— |
|
580 |
|
0.28 |
|
2.73 |
|
— |
|
0.63 |
AQ9 |
|
198 |
|
874 |
|
— |
|
1,072 |
|
5 |
|
55 |
|
— |
|
60 |
|
2.53 |
|
6.29 |
|
— |
|
5.60 |
AQ10 |
|
— |
|
— |
|
3,089 |
|
3,089 |
|
— |
|
— |
|
1,086 |
|
1,086 |
|
— |
|
— |
|
35.16 |
|
35.16 |
|
|
197,606 |
|
22,969 |
|
3,089 |
|
223,664 |
|
293 |
|
455 |
|
1,086 |
|
1,834 |
|
0.15 |
|
1.98 |
|
35.16 |
|
0.82 |
NatWest Group – Form 6K Interim Results 2023 |
60 |
Risk and capital management
Credit risk – Banking activities continued
Asset quality
|
|
Gross loans |
|
ECL provisions |
|
ECL provisions coverage |
||||||||||||||||||
|
|
Stage 1 |
|
Stage 2 |
|
Stage 3 |
|
Total |
|
Stage 1 |
|
Stage 2 |
|
Stage 3 |
|
Total |
|
Stage 1 |
|
Stage 2 |
|
Stage 3 |
|
Total |
31 December 2022 |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
% |
|
% |
|
% |
|
% |
UK mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
|
116,559 |
|
9,208 |
|
— |
|
125,767 |
|
45 |
|
24 |
|
— |
|
69 |
|
0.04 |
|
0.26 |
|
— |
|
0.05 |
AQ5-AQ8 |
|
65,510 |
|
8,962 |
|
— |
|
74,472 |
|
36 |
|
34 |
|
— |
|
70 |
|
0.05 |
|
0.38 |
|
— |
|
0.09 |
AQ9 |
|
176 |
|
617 |
|
— |
|
793 |
|
— |
|
4 |
|
— |
|
4 |
|
— |
|
0.65 |
|
— |
|
0.50 |
AQ10 |
|
— |
|
— |
|
1,925 |
|
1,925 |
|
— |
|
— |
|
233 |
|
233 |
|
— |
|
— |
|
12.10 |
|
12.10 |
|
|
182,245 |
|
18,787 |
|
1,925 |
|
202,957 |
|
81 |
|
62 |
|
233 |
|
376 |
|
0.04 |
|
0.33 |
|
12.10 |
|
0.19 |
Credit cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
|
98 |
|
— |
|
— |
|
98 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
AQ5-AQ8 |
|
3,172 |
|
1,036 |
|
— |
|
4,208 |
|
61 |
|
112 |
|
— |
|
173 |
|
1.92 |
|
10.81 |
|
— |
|
4.11 |
AQ9 |
|
5 |
|
40 |
|
— |
|
45 |
|
1 |
|
10 |
|
— |
|
11 |
|
20.00 |
|
25.00 |
|
— |
|
24.44 |
AQ10 |
|
— |
|
— |
|
109 |
|
109 |
|
— |
|
— |
|
73 |
|
73 |
|
— |
|
— |
|
66.97 |
|
66.97 |
|
|
3,275 |
|
1,076 |
|
109 |
|
4,460 |
|
62 |
|
122 |
|
73 |
|
257 |
|
1.89 |
|
11.34 |
|
66.97 |
|
5.76 |
Other personal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
|
1,047 |
|
128 |
|
— |
|
1,175 |
|
11 |
|
17 |
|
— |
|
28 |
|
1.05 |
|
13.28 |
|
— |
|
2.38 |
AQ5-AQ8 |
|
5,843 |
|
1,732 |
|
— |
|
7,575 |
|
104 |
|
224 |
|
— |
|
328 |
|
1.78 |
|
12.93 |
|
— |
|
4.33 |
AQ9 |
|
28 |
|
131 |
|
— |
|
159 |
|
2 |
|
41 |
|
— |
|
43 |
|
7.14 |
|
31.30 |
|
— |
|
27.04 |
AQ10 |
|
— |
|
— |
|
797 |
|
797 |
|
— |
|
— |
|
651 |
|
651 |
|
— |
|
— |
|
81.68 |
|
81.68 |
|
|
6,918 |
|
1,991 |
|
797 |
|
9,706 |
|
117 |
|
282 |
|
651 |
|
1,050 |
|
1.69 |
|
14.16 |
|
81.68 |
|
10.82 |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
|
117,704 |
|
9,336 |
|
— |
|
127,040 |
|
56 |
|
41 |
|
— |
|
97 |
|
0.05 |
|
0.44 |
|
— |
|
0.08 |
AQ5-AQ8 |
|
74,525 |
|
11,730 |
|
— |
|
86,255 |
|
201 |
|
370 |
|
— |
|
571 |
|
0.27 |
|
3.15 |
|
— |
|
0.66 |
AQ9 |
|
209 |
|
788 |
|
— |
|
997 |
|
3 |
|
55 |
|
— |
|
58 |
|
1.44 |
|
6.98 |
|
— |
|
5.82 |
AQ10 |
|
— |
|
— |
|
2,831 |
|
2,831 |
|
— |
|
— |
|
957 |
|
957 |
|
— |
|
— |
|
33.80 |
|
33.80 |
|
|
192,438 |
|
21,854 |
|
2,831 |
|
217,123 |
|
260 |
|
466 |
|
957 |
|
1,683 |
|
0.14 |
|
2.13 |
|
33.80 |
|
0.78 |
- | In the Personal portfolio, the majority of exposures were in AQ4 and AQ5 within mortgages. The higher proportion of UK mortgage loans in bands AQ5-AQ8 was reflected in the overall average Basel PD for mortgages marginally increasing from 0.65% to 0.66%. AQ band distributions for unsecured lending remained stable. |
- | In other personal, the relatively high level of exposures in AQ10 reflected that impaired assets can be held on the balance sheet, with commensurate ECL provision, for up to six years after default. |
NatWest Group – Form 6K Interim Results 2023 |
61 |
Risk and capital management
Credit risk – Banking activities continued
Asset quality
The table below shows asset quality bands of gross loans and ECL, by stage, for the Wholesale portfolio.
|
|
Gross loans |
|
ECL provisions |
|
ECL provisions coverage |
|
||||||||||||||||||
|
|
Stage 1 |
|
Stage 2 |
|
Stage 3 |
|
Total |
|
Stage 1 |
|
Stage 2 |
|
Stage 3 |
|
Total |
|
Stage 1 |
|
Stage 2 |
|
Stage 3 |
|
Total |
|
30 June 2023 |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
% |
|
% |
|
% |
|
% |
|
Property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
|
14,402 |
|
655 |
|
— |
|
15,057 |
|
13 |
|
6 |
|
— |
|
19 |
|
0.09 |
|
0.92 |
|
— |
|
0.13 |
|
AQ5-AQ8 |
|
13,770 |
|
3,223 |
|
— |
|
16,993 |
|
86 |
|
100 |
|
— |
|
186 |
|
0.62 |
|
3.10 |
|
— |
|
1.09 |
|
AQ9 |
|
11 |
|
112 |
|
— |
|
123 |
|
— |
|
9 |
|
— |
|
9 |
|
— |
|
8.04 |
|
— |
|
7.32 |
|
AQ10 |
|
— |
|
— |
|
752 |
|
752 |
|
— |
|
— |
|
231 |
|
231 |
|
— |
|
— |
|
30.72 |
|
30.72 |
|
|
|
28,183 |
|
3,990 |
|
752 |
|
32,925 |
|
99 |
|
115 |
|
231 |
|
445 |
|
0.35 |
|
2.88 |
|
30.72 |
|
1.35 |
|
Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
|
20,919 |
|
2,963 |
|
— |
|
23,882 |
|
26 |
|
24 |
|
— |
|
50 |
|
0.12 |
|
0.81 |
|
— |
|
0.21 |
|
AQ5-AQ8 |
|
35,818 |
|
12,450 |
|
— |
|
48,268 |
|
194 |
|
368 |
|
— |
|
562 |
|
0.54 |
|
2.96 |
|
— |
|
1.16 |
|
AQ9 |
|
33 |
|
247 |
|
— |
|
280 |
|
— |
|
18 |
|
— |
|
18 |
|
— |
|
7.29 |
|
— |
|
6.43 |
|
AQ10 |
|
— |
|
— |
|
1,545 |
|
1,545 |
|
— |
|
— |
|
570 |
|
570 |
|
— |
|
— |
|
36.89 |
|
36.89 |
|
|
|
56,770 |
|
15,660 |
|
1,545 |
|
73,975 |
|
220 |
|
410 |
|
570 |
|
1,200 |
|
0.39 |
|
2.62 |
|
36.89 |
|
1.62 |
|
Financial institutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
|
45,714 |
|
332 |
|
— |
|
46,046 |
|
23 |
|
1 |
|
— |
|
24 |
|
0.05 |
|
0.30 |
|
— |
|
0.05 |
|
AQ5-AQ8 |
|
2,746 |
|
353 |
|
— |
|
3,099 |
|
13 |
|
9 |
|
— |
|
22 |
|
0.47 |
|
2.55 |
|
— |
|
0.71 |
|
AQ9 |
|
8 |
|
10 |
|
— |
|
18 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
AQ10 |
|
— |
|
— |
|
36 |
|
36 |
|
— |
|
— |
|
14 |
|
14 |
|
— |
|
— |
|
38.89 |
|
38.89 |
|
|
|
48,468 |
|
695 |
|
36 |
|
49,199 |
|
36 |
|
10 |
|
14 |
|
60 |
|
0.07 |
|
1.44 |
|
38.89 |
|
0.12 |
|
Sovereign |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
|
5,115 |
|
123 |
|
— |
|
5,238 |
|
13 |
|
1 |
|
— |
|
14 |
|
0.25 |
|
0.81 |
|
— |
|
0.27 |
|
AQ5-AQ8 |
|
220 |
|
3 |
|
— |
|
223 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
AQ 9 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
AQ10 |
|
— |
|
— |
|
28 |
|
28 |
|
— |
|
— |
|
4 |
|
4 |
|
— |
|
— |
|
14.29 |
|
14.29 |
|
|
|
5,335 |
|
126 |
|
28 |
|
5,489 |
|
13 |
|
1 |
|
4 |
|
18 |
|
0.24 |
|
0.79 |
|
14.29 |
|
0.33 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
|
86,150 |
|
4,073 |
|
— |
|
90,223 |
|
75 |
|
32 |
|
— |
|
107 |
|
0.09 |
|
0.79 |
|
— |
|
0.12 |
|
AQ5-AQ8 |
|
52,554 |
|
16,029 |
|
— |
|
68,583 |
|
293 |
|
477 |
|
— |
|
770 |
|
0.56 |
|
2.98 |
|
— |
|
1.12 |
|
AQ9 |
|
52 |
|
369 |
|
— |
|
421 |
|
— |
|
27 |
|
— |
|
27 |
|
— |
|
7.32 |
|
— |
|
6.41 |
|
AQ10 |
|
— |
|
— |
|
2,361 |
|
2,361 |
|
— |
|
— |
|
819 |
|
819 |
|
— |
|
— |
|
34.69 |
|
34.69 |
|
|
|
138,756 |
|
20,471 |
|
2,361 |
|
161,588 |
|
368 |
|
536 |
|
819 |
|
1,723 |
|
0.27 |
|
2.62 |
|
34.69 |
|
1.07 |
|
NatWest Group – Form 6K Interim Results 2023 |
62 |
Risk and capital management
Credit risk – Banking activities continued
Asset quality
|
|
Gross loans |
|
ECL provisions |
|
ECL provisions coverage |
|
||||||||||||||||||
|
|
Stage 1 |
|
Stage 2 |
|
Stage 3 |
|
Total |
|
Stage 1 |
|
Stage 2 |
|
Stage 3 |
|
Total |
|
Stage 1 |
|
Stage 2 |
|
Stage 3 |
|
Total |
|
31 December 2022 |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
% |
|
% |
|
% |
|
% |
|
Property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
|
14,818 |
|
600 |
|
— |
|
15,418 |
|
17 |
|
4 |
|
— |
|
21 |
|
0.11 |
|
0.67 |
|
— |
|
0.14 |
|
AQ5-AQ8 |
|
12,712 |
|
3,618 |
|
— |
|
16,330 |
|
90 |
|
95 |
|
— |
|
185 |
|
0.71 |
|
2.63 |
|
— |
|
1.13 |
|
AQ9 |
|
12 |
|
98 |
|
— |
|
110 |
|
— |
|
6 |
|
— |
|
6 |
|
— |
|
6.12 |
|
— |
|
5.45 |
|
AQ10 |
|
— |
|
— |
|
716 |
|
716 |
|
— |
|
— |
|
229 |
|
229 |
|
— |
|
— |
|
31.98 |
|
31.98 |
|
|
|
27,542 |
|
4,316 |
|
716 |
|
32,574 |
|
107 |
|
105 |
|
229 |
|
441 |
|
0.39 |
|
2.43 |
|
31.98 |
|
1.35 |
|
Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
|
17,447 |
|
5,184 |
|
— |
|
22,631 |
|
23 |
|
37 |
|
— |
|
60 |
|
0.13 |
|
0.71 |
|
— |
|
0.27 |
|
AQ5-AQ8 |
|
35,567 |
|
13,643 |
|
— |
|
49,210 |
|
195 |
|
398 |
|
— |
|
593 |
|
0.55 |
|
2.92 |
|
— |
|
1.21 |
|
AQ9 |
|
34 |
|
326 |
|
— |
|
360 |
|
— |
|
22 |
|
— |
|
22 |
|
— |
|
6.75 |
|
— |
|
6.11 |
|
AQ10 |
|
— |
|
— |
|
1,476 |
|
1,476 |
|
— |
|
— |
|
553 |
|
553 |
|
— |
|
— |
|
37.47 |
|
37.47 |
|
|
|
53,048 |
|
19,153 |
|
1,476 |
|
73,677 |
|
218 |
|
457 |
|
553 |
|
1,228 |
|
0.41 |
|
2.39 |
|
37.47 |
|
1.67 |
|
Financial institutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
|
44,257 |
|
914 |
|
— |
|
45,171 |
|
18 |
|
5 |
|
— |
|
23 |
|
0.04 |
|
0.55 |
|
— |
|
0.05 |
|
AQ5-AQ8 |
|
2,479 |
|
429 |
|
— |
|
2,908 |
|
14 |
|
9 |
|
— |
|
23 |
|
0.56 |
|
2.10 |
|
— |
|
0.79 |
|
AQ9 |
|
2 |
|
10 |
|
— |
|
12 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
AQ10 |
|
— |
|
— |
|
47 |
|
47 |
|
— |
|
— |
|
17 |
|
17 |
|
— |
|
— |
|
36.17 |
|
36.17 |
|
|
|
46,738 |
|
1,353 |
|
47 |
|
48,138 |
|
32 |
|
14 |
|
17 |
|
63 |
|
0.07 |
|
1.03 |
|
36.17 |
|
0.13 |
|
Sovereign |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
|
5,319 |
|
75 |
|
— |
|
5,394 |
|
15 |
|
1 |
|
— |
|
16 |
|
0.28 |
|
1.33 |
|
— |
|
0.30 |
|
AQ5-AQ8 |
|
139 |
|
82 |
|
— |
|
221 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
AQ9 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
AQ10 |
|
— |
|
— |
|
26 |
|
26 |
|
— |
|
— |
|
3 |
|
3 |
|
— |
|
— |
|
11.54 |
|
11.54 |
|
|
|
5,458 |
|
157 |
|
26 |
|
5,641 |
|
15 |
|
1 |
|
3 |
|
19 |
|
0.27 |
|
0.64 |
|
11.54 |
|
0.34 |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
|
81,841 |
|
6,773 |
|
— |
|
88,614 |
|
73 |
|
47 |
|
— |
|
120 |
|
0.09 |
|
0.69 |
|
— |
|
0.14 |
|
AQ5-AQ8 |
|
50,897 |
|
17,772 |
|
— |
|
68,669 |
|
299 |
|
502 |
|
— |
|
801 |
|
0.59 |
|
2.82 |
|
— |
|
1.17 |
|
AQ9 |
|
48 |
|
434 |
|
— |
|
482 |
|
— |
|
28 |
|
— |
|
28 |
|
— |
|
6.45 |
|
— |
|
5.81 |
|
AQ10 |
|
— |
|
— |
|
2,265 |
|
2,265 |
|
— |
|
— |
|
802 |
|
802 |
|
— |
|
— |
|
35.41 |
|
35.41 |
|
|
|
132,786 |
|
24,979 |
|
2,265 |
|
160,030 |
|
372 |
|
577 |
|
802 |
|
1,751 |
|
0.28 |
|
2.31 |
|
35.41 |
|
1.09 |
|
- | Across the Wholesale portfolio, asset quality remained stable. The majority of the portfolio is within the AQ1-AQ4, and AQ5-AQ8 bands. Distribution differs across segments reflective of the underlying quality of counterparties, with financial institutions and sovereigns mostly in the AQ1-AQ4 bands, and property and corporates mostly in the AQ5-AQ8 bands. |
- | Customer credit grades were reassessed as and when a request for financing was made, a scheduled customer credit review was performed or a material credit event specific to that customer occurred. Credit grades are reassessed for all customers at least annually. |
- | ECL provisions coverage showed the expected trend, with increased coverage in the weaker asset quality bands within Stage 2 compared to Stage 1, and again within Stage 3 compared to Stage 2. |
NatWest Group – Form 6K Interim Results 2023 |
63 |
Risk and capital management
Credit risk – Trading activities
This section details the credit risk profile of NatWest Group’s trading activities.
Securities financing transactions and collateral
The table below shows securities financing transactions in Commercial & Institutional and Central items & Other. Balance sheet captions include balances held at all classifications under IFRS.
|
|
Reverse repos |
|
Repos |
||||||||
|
|
|
|
Of which: |
|
Outside |
|
|
|
Of which: |
|
Outside |
|
|
|
|
can be |
|
netting |
|
|
|
can be |
|
netting |
|
|
Total |
|
offset |
|
arrangements |
|
Total |
|
offset |
|
arrangements |
30 June 2023 |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Gross |
|
76,144 |
|
75,855 |
|
289 |
|
72,458 |
|
71,945 |
|
513 |
IFRS offset |
|
(33,097) |
|
(33,097) |
|
— |
|
(33,097) |
|
(33,097) |
|
— |
Carrying value |
|
43,047 |
|
42,758 |
|
289 |
|
39,361 |
|
38,848 |
|
513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Master netting arrangements |
|
(2,045) |
|
(2,045) |
|
— |
|
(2,045) |
|
(2,045) |
|
— |
Securities collateral |
|
(39,091) |
|
(39,091) |
|
— |
|
(36,803) |
|
(36,803) |
|
— |
Potential for offset not recognised under IFRS |
|
(41,136) |
|
(41,136) |
|
— |
|
(38,848) |
|
(38,848) |
|
— |
Net |
|
1,911 |
|
1,622 |
|
289 |
|
513 |
|
— |
|
513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
31 December 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
61,775 |
|
61,241 |
|
534 |
|
55,226 |
|
50,743 |
|
4,483 |
IFRS offset |
|
(20,211) |
|
(20,211) |
|
— |
|
(20,211) |
|
(20,211) |
|
— |
Carrying value |
|
41,564 |
|
41,030 |
|
534 |
|
35,015 |
|
30,532 |
|
4,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Master netting arrangements |
|
(2,445) |
|
(2,445) |
|
— |
|
(2,445) |
|
(2,445) |
|
— |
Securities collateral |
|
(38,387) |
|
(38,387) |
|
— |
|
(28,087) |
|
(28,087) |
|
— |
Potential for offset not recognised under IFRS |
|
(40,832) |
|
(40,832) |
|
— |
|
(30,532) |
|
(30,532) |
|
— |
Net |
|
732 |
|
198 |
|
534 |
|
4,483 |
|
— |
|
4,483 |
NatWest Group – Form 6K Interim Results 2023 |
64 |
Risk and capital management
Credit risk – Trading activities continued
Derivatives
The table below shows derivatives by type of contract. The master netting agreements and collateral shown do not result in a net presentation on the balance sheet under IFRS. A significant proportion of the derivatives relate to trading activities in Commercial & Institutional. The table also includes hedging derivatives in Central items & Other.
|
|
30 June 2023 |
|
31 December 2022 |
||||||||||||||||
|
|
Notional |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
GBP |
|
USD |
|
EUR |
|
Other |
|
Total |
|
Assets |
|
Liabilities |
|
Notional |
|
Assets |
|
Liabilities |
|
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
£m |
|
£m |
|
£bn |
|
£m |
|
£m |
Gross exposure |
|
|
|
|
|
|
|
|
|
|
|
104,122 |
|
102,983 |
|
|
|
118,275 |
|
116,158 |
IFRS offset |
|
|
|
|
|
|
|
|
|
|
|
(22,249) |
|
(25,737) |
|
|
|
(18,730) |
|
(22,111) |
Carrying value |
|
3,194 |
|
3,728 |
|
5,773 |
|
1,121 |
|
13,816 |
|
81,873 |
|
77,246 |
|
13,925 |
|
99,545 |
|
94,047 |
Of which: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate (1) |
|
2,900 |
|
2,373 |
|
5,277 |
|
261 |
|
10,811 |
|
50,730 |
|
46,895 |
|
10,742 |
|
53,480 |
|
48,535 |
Exchange rate |
|
292 |
|
1,352 |
|
488 |
|
860 |
|
2,992 |
|
30,938 |
|
30,106 |
|
3,168 |
|
45,829 |
|
45,237 |
Credit |
|
2 |
|
3 |
|
8 |
|
— |
|
13 |
|
205 |
|
245 |
|
15 |
|
236 |
|
275 |
Carrying value |
|
|
|
|
|
|
|
|
|
13,816 |
|
81,873 |
|
77,246 |
|
13,925 |
|
99,545 |
|
94,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty mark-to-market netting |
|
|
|
|
|
|
|
|
|
|
|
(62,547) |
|
(62,547) |
|
|
|
(77,365) |
|
(77,365) |
Cash collateral |
|
|
|
|
|
|
|
|
|
|
|
(12,380) |
|
(7,580) |
|
|
|
(14,079) |
|
(9,761) |
Securities collateral |
|
|
|
|
|
|
|
|
|
|
|
(4,465) |
|
(1,540) |
|
|
|
(4,571) |
|
(1,185) |
Net exposure |
|
|
|
|
|
|
|
|
|
|
|
2,481 |
|
5,579 |
|
|
|
3,530 |
|
5,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks (2) |
|
|
|
|
|
|
|
|
|
|
|
263 |
|
806 |
|
|
|
648 |
|
711 |
Other financial institutions (3) |
|
|
|
|
|
|
|
|
|
|
|
1,252 |
|
1,899 |
|
|
|
1,732 |
|
1,969 |
Corporate (4) |
|
|
|
|
|
|
|
|
|
|
|
910 |
|
2,840 |
|
|
|
1,068 |
|
2,969 |
Government (5) |
|
|
|
|
|
|
|
|
|
|
|
56 |
|
34 |
|
|
|
82 |
|
87 |
Net exposure |
|
|
|
|
|
|
|
|
|
|
|
2,481 |
|
5,579 |
|
|
|
3,530 |
|
5,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK |
|
|
|
|
|
|
|
|
|
|
|
1,111 |
|
3,150 |
|
|
|
1,271 |
|
2,878 |
Europe |
|
|
|
|
|
|
|
|
|
|
|
672 |
|
1,690 |
|
|
|
1,196 |
|
2,015 |
US |
|
|
|
|
|
|
|
|
|
|
|
592 |
|
546 |
|
|
|
753 |
|
626 |
RoW |
|
|
|
|
|
|
|
|
|
|
|
106 |
|
193 |
|
|
|
310 |
|
217 |
Net exposure |
|
|
|
|
|
|
|
|
|
|
|
2,481 |
|
5,579 |
|
|
|
3,530 |
|
5,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset quality of uncollateralised derivative assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
|
|
|
|
|
|
|
|
|
|
|
2,056 |
|
|
|
|
|
3,014 |
|
|
AQ5-AQ8 |
|
|
|
|
|
|
|
|
|
|
|
422 |
|
|
|
|
|
500 |
|
|
AQ9-AQ10 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
16 |
|
|
Net exposure |
|
|
|
|
|
|
|
|
|
|
|
2,481 |
|
|
|
|
|
3,530 |
|
|
(1) | The notional amount of interest rate derivatives included £8,006 billion (31 December 2022 – £8,065 billion) in respect of contracts cleared through central clearing counterparties |
(2) | Transactions with certain counterparties with whom NatWest Group has netting arrangements but collateral is not posted on a daily basis; certain transactions with specific terms that may not fall within netting and collateral arrangements; derivative positions in certain jurisdictions where the collateral agreements are not deemed to be legally enforceable. |
(3) | Includes transactions with securitisation vehicles and funds where collateral posting is contingent on NatWest Group’s external rating. |
(4) | Mainly large corporates with whom NatWest Group may have netting arrangements in place, but operational capability does not support collateral posting. |
(5) | Sovereigns and supranational entities with no collateral arrangements, collateral arrangements that are not considered enforceable, or one-way collateral agreements in their favour. |
NatWest Group – Form 6K Interim Results 2023 |
65 |
Risk and capital management
Credit risk – Trading activities continued
Debt securities
The table below shows debt securities held at mandatory fair value through profit or loss by issuer as well as ratings based on the lowest of Standard & Poor’s, Moody’s and Fitch.
|
|
Central and local government |
|
Financial |
|
|
|
|
||||
|
|
UK |
|
US |
|
Other |
|
institutions |
|
Corporate |
|
Total |
30 June 2023 |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
AAA |
|
— |
|
— |
|
1,452 |
|
936 |
|
— |
|
2,388 |
AA to AA+ |
|
— |
|
5,478 |
|
1,596 |
|
1,290 |
|
3 |
|
8,367 |
A to AA- |
|
2,703 |
|
— |
|
382 |
|
511 |
|
102 |
|
3,698 |
BBB- to A- |
|
— |
|
— |
|
1,415 |
|
227 |
|
645 |
|
2,287 |
Non-investment grade |
|
— |
|
— |
|
— |
|
58 |
|
61 |
|
119 |
Unrated |
|
— |
|
— |
|
— |
|
1 |
|
— |
|
1 |
Total |
|
2,703 |
|
5,478 |
|
4,845 |
|
3,023 |
|
811 |
|
16,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Short positions |
|
(2,377) |
|
(2,493) |
|
(4,293) |
|
(1,911) |
|
(137) |
|
(11,211) |
|
|
|
|
|
|
|
|
|
|
|
|
|
31 December 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
AAA |
|
— |
|
— |
|
469 |
|
766 |
|
3 |
|
1,238 |
AA to AA+ |
|
— |
|
2,345 |
|
1,042 |
|
1,114 |
|
21 |
|
4,522 |
A to AA- |
|
2,205 |
|
— |
|
372 |
|
77 |
|
29 |
|
2,683 |
BBB- to A- |
|
— |
|
— |
|
916 |
|
149 |
|
296 |
|
1,361 |
Non-investment grade |
|
— |
|
— |
|
— |
|
65 |
|
49 |
|
114 |
Unrated |
|
— |
|
— |
|
— |
|
1 |
|
3 |
|
4 |
Total |
|
2,205 |
|
2,345 |
|
2,799 |
|
2,172 |
|
401 |
|
9,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Short positions |
|
(2,313) |
|
(1,293) |
|
(3,936) |
|
(1,875) |
|
(107) |
|
(9,524) |
NatWest Group – Form 6K Interim Results 2023 |
66 |
Risk and capital management
Capital, liquidity and funding risk
Introduction
NatWest Group takes a comprehensive approach to the management of capital, liquidity and funding, underpinned by frameworks, risk appetite and policies, to manage and mitigate capital, liquidity and funding risks. The framework ensures the tools and capability are in place to facilitate the management and mitigation of risk ensuring that NatWest Group operates within its regulatory requirements and risk appetite.
Key developments since 31 December 2022
CET1 ratio |
The CET1 ratio decreased by 70 basis points to 13.5%. The decrease in CET1 ratio was due to a £1.0 billion decrease in CET1 capital and a £1.4 billion increase in RWAs. The CET1 decrease is mainly driven by: -
the directed buyback of £1.3 billion;
-
a foreseeable ordinary dividend accrual of £0.8 billion;
-
a foreseeable charge for the on-market ordinary share buyback programme of £0.5 billion;
-
a £0.1 billion decrease in the IFRS 9 transitional adjustment, primarily due to the annual update in the dynamic stage transition percentage and the end of transition on the static and historic stages;
-
an increase in the intangible assets deduction of £0.3 billion; and
-
other movements on reserves and regulatory adjustments of £0.3 billion.
These reductions were partially offset by the £2.3 billion attributable profit in the period. |
MREL |
MREL ratio as a percentage of risk-weighted assets decreased to 31.2% from 31.5% due to a £1.4 billion increase in RWAs and £0.2 billion decrease in MREL resources. The ratio remains well above the minimum of 22%, calculated as 2 x (Pillar 1 + Pillar 2A). |
|
In the first half of 2023 there were new issues of $3.3 billion and €1.5 billion senior unsecured debt and €0.7 billion Tier 2 instruments. These were partially offset by redemptions of $2.6 billion senior unsecured debt and £0.2 billion Tier 2 instruments. |
Total RWAs |
Total RWAs increased by £1.4 billion to £177.5 billion during H1 2023 reflecting: -
an increase in operational risk RWAs of £1.1 billion following the annual recalculation.
-
an increase in counterparty credit risk RWAs of £1.0 billion, primarily due to the removal of credit risk mitigation for a particular trade in Q2 2023.
-
an increase in credit risk RWAs of £0.7 billion, primarily due to increased exposures within Retail Banking and Commercial & Institutional, in addition to model adjustments applied as a result of new regulations applied to IRB models. This was partially offset by reduced exposures within Ulster Bank RoI as a result of the phased withdrawal from the Irish market.
-
a reduction in market risk RWAs of £1.3 billion, primarily due to lower volatility than in Q4 2022, and further reductions in the capital multiplier for NWM Plc in Q2, driven by a fall in the VaR back-testing exception count.
|
UK leverage ratio |
The leverage ratio decreased by 40 basis points to 5.0%. The decrease was due to a £1.0 billion decrease in Tier 1 capital and an £18.0 billion increase in leverage exposure. The key driver of the increase in leverage exposure was an increase in other financial assets, central bank exposures and other off balance sheet items. |
Liquidity portfolio |
The liquidity portfolio increased by £1.4 billion to £226.9 billion. Primary liquidity decreased by £14.1 billion to £147.5 billion, driven by a reduction in customer deposits, increased lending and capital distributions, partially offset by increase in wholesale funding. Secondary liquidity increased £15.5 billion due to an increase in pre-positioned collateral at the Bank of England. |
NatWest Group – Form 6K Interim Results 2023 |
67 |
Risk and capital management
Capital, liquidity and funding risk continued
Maximum Distributable Amount (MDA) and Minimum Capital Requirements
NatWest Group is subject to minimum capital requirements relative to RWAs. The table below summarises the minimum capital requirements (the sum of Pillar 1 and Pillar 2A), and the additional capital buffers which are held in excess of the regulatory minimum requirements and are usable in stress.
Where the CET1 ratio falls below the sum of the minimum capital and the combined buffer requirement, there is a subsequent automatic restriction on the amount available to service discretionary payments (including AT1 coupons), known as the MDA. Note that different capital requirements apply to individual legal entities or sub-groups and that the table shown does not reflect any incremental PRA buffer requirements, which are not disclosable.
The current capital position provides significant headroom above both NatWest Group’s minimum requirements and its MDA threshold requirements.
Type |
|
CET1 |
|
Total Tier 1 |
|
Total capital |
Pillar 1 requirements |
|
4.5% |
|
6.0% |
|
8.0% |
Pillar 2A requirements |
|
1.7% |
|
2.3% |
|
3.0% |
Minimum Capital Requirements |
|
6.2% |
|
8.3% |
|
11.0% |
Capital conservation buffer |
|
2.5% |
|
2.5% |
|
2.5% |
Countercyclical capital buffer (1,2) |
|
0.9% |
|
0.9% |
|
0.9% |
MDA threshold (3) |
|
9.6% |
|
n/a |
|
n/a |
Overall capital requirement |
|
9.6% |
|
11.7% |
|
14.4% |
Capital ratios at 30 June 2023 |
|
13.5% |
|
15.7% |
|
18.8% |
Headroom (4) |
|
3.9% |
|
4.0% |
|
4.4% |
(1) | The Financial Policy Committee announced an increase in the UK CCyB rate from 1% to 2% effective from 5 July 2023. |
(2) | The Central Bank of Ireland (CBI) announced the CCyB on Irish exposures will increase from 0.5% to 1.0% from 24 November 2023. A further increase to 1.5% will be effective June 2024. |
(3) | Pillar 2A requirements for NatWest Group are set as a variable amount with the exception of some fixed add-ons. |
(4) | The headroom does not reflect excess distributable capital and may vary over time. |
Leverage ratios
The table below summarises the minimum ratios of capital to leverage exposure under the binding PRA UK leverage framework applicable for NatWest Group.
Type |
|
CET1 |
|
Total Tier 1 |
|
Minimum ratio |
|
2.44 |
% |
3.25 |
% |
Countercyclical leverage ratio buffer (1) |
|
0.3 |
% |
0.3 |
% |
Total |
|
2.74 |
% |
3.55 |
% |
(1) | The countercyclical leverage ratio buffer is set at 35% of NatWest Group’s CCyB. As noted above the UK CCyB will increase from 1% to 2% from 5 July 2023. Foreign exposure may be subject to different CCyB rates depending on the rates set in those jurisdictions. |
NatWest Group – Form 6K Interim Results 2023 |
68 |
Risk and capital management
Capital, liquidity and funding risk continued
Capital and leverage ratios
The table below sets out the key capital and leverage ratios. NatWest Group is subject to the requirements set out in the UK CRR therefore the capital and leverage ratios are presented under these frameworks on a transitional basis.
|
|
30 June |
|
31 December |
|
|
2023 |
|
2022 |
Capital adequacy ratios (1) |
|
% |
|
% |
CET1 |
|
13.5 |
|
14.2 |
Tier 1 |
|
15.7 |
|
16.4 |
Total |
|
18.8 |
|
19.3 |
|
|
|
|
|
Capital |
|
£m |
|
£m |
Tangible equity |
|
23,415 |
|
25,482 |
|
|
|
|
|
Prudential valuation adjustment |
|
(271) |
|
(275) |
Deferred tax assets |
|
(742) |
|
(912) |
Own credit adjustments |
|
(49) |
|
(58) |
Pension fund assets |
|
(243) |
|
(227) |
Cash flow hedging reserve |
|
3,344 |
|
2,771 |
Foreseeable ordinary dividends |
|
(780) |
|
(967) |
Adjustment for trust assets (2) |
|
(365) |
|
(365) |
Foreseeable charges - on-market ordinary share buyback programme |
|
(500) |
|
(800) |
Adjustments under IFRS 9 transitional arrangements |
|
223 |
|
361 |
Insufficient coverage for non-performing exposures |
|
(19) |
|
(18) |
Total regulatory adjustments |
|
598 |
|
(490) |
|
|
|
|
|
CET1 capital |
|
24,013 |
|
24,992 |
|
|
|
|
|
Additional AT1 capital |
|
3,875 |
|
3,875 |
Tier 1 capital |
|
27,888 |
|
28,867 |
|
|
|
|
|
End-point Tier 2 capital |
|
5,364 |
|
4,978 |
Grandfathered instrument transitional arrangements |
|
73 |
|
75 |
Tier 2 capital |
|
5,437 |
|
5,053 |
Total regulatory capital |
|
33,325 |
|
33,920 |
|
|
|
|
|
Risk-weighted assets |
|
|
|
|
Credit risk |
|
142,704 |
|
141,963 |
Counterparty credit risk |
|
7,680 |
|
6,723 |
Market risk |
|
6,962 |
|
8,300 |
Operational risk |
|
20,198 |
|
19,115 |
Total RWAs |
|
177,544 |
|
176,101 |
(1) | Includes the transitional relief on grandfathered capital instruments and the transitional arrangements for the capital impact of IFRS 9 expected credit loss (ECL) accounting. The impact of the IFRS 9 transitional adjustments at 30 June 2023 was £0.2 billion for CET1 capital, £35 million for total capital and £37 million RWAs (31 December 2022 - £0.4 billion CET1 capital, £36 million total capital and £71 million RWAs). Excluding these adjustments, the CET1 ratio would be 13.4% (31 December 2022 14.0%). The transitional relief on grandfathered instruments at 30 June 2023 was £0.1 billion (31 December 2022 - £0.1 billion). Excluding both the transitional relief on grandfathered capital instruments and the transitional arrangements for the capital impact of IFRS 9 expected credit loss (ECL) accounting, the end-point Tier 1 capital ratio would be 15.6% (31 December 2022 – 16.2%) and the end-point Total capital ratio would be 18.8% (31 December 2022 – 19.2%). |
(2) | Prudent deduction in respect of agreement with the pension fund to establish new legal structure. |
NatWest Group – Form 6K Interim Results 2023 |
69 |
Risk and capital management
Capital, liquidity and funding risk continued
Capital and leverage ratios continued
|
|
30 June |
|
31 December |
|
|
2023 |
|
2022 |
Leverage |
|
£m |
|
£m |
Cash and balances at central banks |
|
123,022 |
|
144,832 |
Trading assets |
|
48,893 |
|
45,577 |
Derivatives |
|
81,873 |
|
99,545 |
Financial assets |
|
416,739 |
|
404,374 |
Other assets |
|
27,499 |
|
18,864 |
Assets of disposal groups |
|
4,575 |
|
6,861 |
Total assets |
|
702,601 |
|
720,053 |
Derivatives |
|
|
|
|
- netting and variation margin |
|
(82,798) |
|
(100,356) |
- potential future exposures |
|
16,654 |
|
18,327 |
Securities financing transactions gross up |
|
2,013 |
|
4,147 |
Other off balance sheet items |
|
48,668 |
|
46,144 |
Regulatory deductions and other adjustments |
|
(15,663) |
|
(7,114) |
Claims on central banks |
|
(114,253) |
|
(141,144) |
Exclusion of bounce back loans |
|
(4,627) |
|
(5,444) |
UK leverage exposure |
|
552,595 |
|
534,613 |
UK leverage ratio (%) (1) |
|
5.0 |
|
5.4 |
(1) | Excluding the IFRS 9 transitional adjustment, the UK leverage ratio would be 5.0% (31 December 2022 – 5.3)%. |
Capital flow statement
The table below analyses the movement in CET1, AT1 and Tier 2 capital for the half year ended 30 June 2023. It is presented on a transitional basis based on current PRA rules.
|
|
CET1 |
|
AT1 |
|
Tier 2 |
|
Total |
|
|
£m |
|
£m |
|
£m |
|
£m |
At 31 December 2022 |
|
24,992 |
|
3,875 |
|
5,053 |
|
33,920 |
Attributable profit for the period |
|
2,299 |
|
— |
|
— |
|
2,299 |
Directed buyback |
|
(1,259) |
|
— |
|
— |
|
(1,259) |
Foreseeable ordinary dividends |
|
(780) |
|
— |
|
— |
|
(780) |
Foreseeable charges - on-market share buyback |
|
(500) |
|
— |
|
— |
|
(500) |
Foreign exchange reserve |
|
(492) |
|
— |
|
— |
|
(492) |
FVOCI reserve |
|
60 |
|
— |
|
— |
|
60 |
Own credit |
|
9 |
|
— |
|
— |
|
9 |
Share capital and reserve movements in respect of employee share schemes |
|
62 |
|
— |
|
— |
|
62 |
Goodwill and intangibles deduction |
|
(337) |
|
— |
|
— |
|
(337) |
Deferred tax assets |
|
170 |
|
— |
|
— |
|
170 |
Prudential valuation adjustments |
|
4 |
|
— |
|
— |
|
4 |
Net dated subordinated debt instruments |
|
— |
|
— |
|
348 |
|
348 |
Foreign exchange movements |
|
— |
|
— |
|
(121) |
|
(121) |
Adjustment under IFRS 9 transitional arrangements |
|
(138) |
|
— |
|
— |
|
(138) |
Other movements |
|
(77) |
|
— |
|
157 |
|
80 |
At 30 June 2023 |
|
24,013 |
|
3,875 |
|
5,437 |
|
33,325 |
- | The CET1 decrease is mainly driven by the directed buyback of £1.3 billion, a foreseeable ordinary dividend accrual of £0.8 billion, a foreseeable charge for additional on-market ordinary share buyback programme of £0.5 billion, a £0.1 billion decrease in the IFRS 9 transitional adjustment, an increase in the intangible assets deduction of £0.3 billion and other movements in reserves and regulatory adjustments of £0.3 billion, partially offset by an attributable profit in the period of £2.3 billion. |
- | The Tier 2 movements include €700 million 5.763% Fixed to Fixed Reset Tier 2 Notes 2034 issued in February 2023, the derecognition of the £0.2 billion in respect of the cash tender offer for the outstanding 5.125% Subordinated Tier 2 Notes 2024 announced in March 2023 and maturity of Subordinated Notes with minimum regulatory value. Within Tier 2, there was also a £0.2 billion increase in the Tier 2 surplus provisions. |
NatWest Group – Form 6K Interim Results 2023 |
70 |
Risk and capital management
Capital, liquidity and funding risk continued
Capital resources
NatWest Group’s regulatory capital is assessed against minimum requirements that are set out under the UK CRR to determine the strength of its capital base. This note shows a reconciliation of shareholders’ equity to regulatory capital.
|
|
30 June |
|
31 December |
|
|
2023 |
|
2022 |
|
|
£m |
|
£m |
Shareholders' equity (excluding non-controlling interests) |
|
|
|
|
Shareholders' equity |
|
34,758 |
|
36,488 |
Preference shares - equity |
|
— |
|
— |
Other equity instruments |
|
(3,890) |
|
(3,890) |
|
|
30,868 |
|
32,598 |
Regulatory adjustments and deductions |
|
|
|
|
Own credit |
|
(49) |
|
(58) |
Defined benefit pension fund adjustment |
|
(243) |
|
(227) |
Cash flow hedging reserve |
|
3,344 |
|
2,771 |
Deferred tax assets |
|
(742) |
|
(912) |
Prudential valuation adjustments |
|
(271) |
|
(275) |
Goodwill and other intangible assets |
|
(7,453) |
|
(7,116) |
Foreseeable ordinary dividends |
|
(780) |
|
(967) |
Adjustment for trust assets (1) |
|
(365) |
|
(365) |
Foreseeable charges - on-market share buyback programme |
|
(500) |
|
(800) |
Adjustment under IFRS 9 transitional arrangements |
|
223 |
|
361 |
Insufficient coverage for non-performing exposures |
|
(19) |
|
(18) |
|
|
(6,855) |
|
(7,606) |
|
|
|
|
|
CET1 capital |
|
24,013 |
|
24,992 |
Additional Tier (AT1) capital |
|
|
|
|
Qualifying instruments and related share premium |
|
3,875 |
|
3,875 |
Qualifying instruments and related share premium subject to phase out |
|
— |
|
— |
AT1 capital |
|
3,875 |
|
3,875 |
Tier 1 capital |
|
27,888 |
|
28,867 |
Qualifying Tier 2 capital |
|
|
|
|
Qualifying instruments and related share premium |
|
5,189 |
|
4,953 |
Qualifying instruments issued by subsidiaries and held by third parties |
|
73 |
|
82 |
Other regulatory adjustments |
|
175 |
|
18 |
Tier 2 capital |
|
5,437 |
|
5,053 |
Total regulatory capital |
|
33,325 |
|
33,920 |
(1) | Prudent deduction in respect of agreement with the pension fund to establish new legal structure. |
NatWest Group – Form 6K Interim Results 2023 |
71 |
Risk and capital management
Capital, liquidity and funding risk continued
Minimum requirements of own funds and eligible liabilities (MREL)
The following table illustrates the components of estimated Minimum requirements of own funds and eligible liabilities (MREL) in NatWest Group and operating subsidiaries and includes external issuances only.
|
|
30 June 2023 |
|
31 December 2022 |
|
||||||||||||
|
|
|
|
Balance |
|
|
|
|
|
|
|
Balance |
|
|
|
|
|
|
|
Par |
|
sheet |
|
Regulatory |
|
MREL |
|
Par |
|
sheet |
|
Regulatory |
|
MREL |
|
|
|
value (1) |
|
value |
|
value (2,5) |
|
value (3) |
|
value |
|
value |
|
value |
|
value |
|
|
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
CET1 capital (4) |
|
24.0 |
|
24.0 |
|
24.0 |
|
24.0 |
|
25.0 |
|
25.0 |
|
25.0 |
|
25.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital: end-point CRR compliant AT1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of which: NatWest Group plc (holdco) |
|
3.9 |
|
3.9 |
|
3.9 |
|
3.9 |
|
3.9 |
|
3.9 |
|
3.9 |
|
3.9 |
|
of which: NatWest Group plc operating subsidiaries (opcos) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
|
3.9 |
|
3.9 |
|
3.9 |
|
3.9 |
|
3.9 |
|
3.9 |
|
3.9 |
|
3.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital: end-point CRR non-compliant (6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of which: holdco |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
of which: opcos |
|
0.1 |
|
0.1 |
|
— |
|
— |
|
0.1 |
|
0.1 |
|
— |
|
— |
|
|
|
0.1 |
|
0.1 |
|
— |
|
— |
|
0.1 |
|
0.1 |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 2 capital: end-point CRR compliant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of which: holdco |
|
5.7 |
|
5.2 |
|
5.1 |
|
5.1 |
|
6.0 |
|
5.5 |
|
4.9 |
|
5.4 |
|
of which: opcos |
|
— |
|
— |
|
— |
|
— |
|
0.1 |
|
0.1 |
|
— |
|
— |
|
|
|
5.7 |
|
5.2 |
|
5.1 |
|
5.1 |
|
6.1 |
|
5.6 |
|
4.9 |
|
5.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 2 capital: end-point CRR non-compliant (6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of which: holdco |
|
0.4 |
|
0.4 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
of which: opcos |
|
0.2 |
|
0.3 |
|
0.1 |
|
— |
|
0.3 |
|
0.5 |
|
0.1 |
|
— |
|
|
|
0.6 |
|
0.7 |
|
0.1 |
|
— |
|
0.3 |
|
0.5 |
|
0.1 |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior unsecured debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of which: holdco |
|
23.0 |
|
21.8 |
|
— |
|
22.1 |
|
23.4 |
|
22.3 |
|
— |
|
21.2 |
|
of which: opcos |
|
34.0 |
|
30.7 |
|
— |
|
— |
|
26.1 |
|
22.9 |
|
— |
|
— |
|
|
|
57.0 |
|
52.5 |
|
— |
|
22.1 |
|
49.5 |
|
45.2 |
|
— |
|
21.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 2 capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other regulatory adjustments |
|
— |
|
— |
|
0.2 |
|
0.2 |
|
— |
|
— |
|
— |
|
— |
|
|
|
— |
|
— |
|
0.2 |
|
0.2 |
|
— |
|
— |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
91.3 |
|
86.4 |
|
33.3 |
|
55.3 |
|
84.9 |
|
80.3 |
|
33.9 |
|
55.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RWAs |
|
|
|
|
|
|
|
177.5 |
|
|
|
|
|
|
|
176.1 |
|
UK leverage exposure |
|
|
|
|
|
|
|
552.6 |
|
|
|
|
|
|
|
534.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MREL as a ratio of RWAs |
|
|
|
|
|
|
|
31.2% |
|
|
|
|
|
|
|
31.5 |
% |
MREL as a ratio of UK leverage exposure |
|
|
|
|
|
|
|
10.0% |
|
|
|
|
|
|
|
10.4 |
% |
(1) | Par value reflects the nominal value of securities issued. |
(2) | Regulatory amounts reported for AT1, Tier 1 and Tier 2 instruments incudes grandfathered instruments as per the transitional provisions allowed under CRR2 (until 28 June 2025). |
(3) | MREL value reflects NatWest Group’s interpretation of the Bank of England’s approach to setting a minimum requirement for own funds and eligible liabilities (MREL), published in December 2021 (Updating June 2018). Liabilities excluded from MREL include instruments with less than one year remaining to maturity, structured debt, operating company senior debt, and other instruments that do not meet the MREL criteria. The MREL calculation includes Tier 1 and Tier 2 securities before the application of any regulatory caps or adjustments. |
(4) | Corresponding shareholders’ equity was £34.8 billion (31 December 2022 - £36.5 billion). |
(5) | Regulatory amount includes grandfathered instrument from operating companies as per the transitional provisions allowed under CRR2 (until 28 June 2025). On 30 June 2023, only 3 Tier 2 instruments from UBIDAC were classified as grandfathered. |
(6) | CRR2 non-compliant instruments - From January 2022, All Tier 1 and Tier 2 instruments that were grandfathered under CRR2 compliance (until 28 June 2025) are reported under “Tier 1 capital: end-point CRR non-compliant” and “Tier 2 capital: end-point CRR non-compliant” category. |
NatWest Group – Form 6K Interim Results 2023 |
72 |
Risk and capital management
Capital, liquidity and funding risk continued
Minimum requirements of own funds and eligible liabilities (MREL)
The following table illustrates the components of the stock of outstanding issuance in NatWest Group plc and its operating subsidiaries including external and internal issuances.
|
|
|
|
|
|
NatWest |
|
|
|
|
|
|
|
|
|
NatWest |
|
NWM |
|
RBS |
|
|
|
|
NatWest |
|
Holdings |
|
NWB |
|
RBS |
|
UBI |
|
NWM |
|
Markets |
|
Securities |
|
International |
|
|
|
|
Group plc |
|
Limited |
|
Plc |
|
plc |
|
DAC |
|
Plc |
|
N.V. |
|
Inc. |
|
Limited |
|
|
|
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
£bn |
Additional Tier 1 |
|
Externally issued |
|
3.9 |
|
— |
|
0.1 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Additional Tier 1 |
|
Internally issued |
|
— |
|
3.7 |
|
2.5 |
|
1.0 |
|
— |
|
0.9 |
|
0.2 |
|
— |
|
0.3 |
|
|
|
|
3.9 |
|
3.7 |
|
2.6 |
|
1.0 |
|
— |
|
0.9 |
|
0.2 |
|
— |
|
0.3 |
Tier 2 |
|
Externally issued |
|
5.6 |
|
— |
|
— |
|
— |
|
0.1 |
|
— |
|
0.2 |
|
— |
|
— |
Tier 2 |
|
Internally issued |
|
— |
|
5.1 |
|
3.4 |
|
1.4 |
|
— |
|
1.0 |
|
0.1 |
|
0.3 |
|
— |
|
|
|
|
5.6 |
|
5.1 |
|
3.4 |
|
1.4 |
|
0.1 |
|
1.0 |
|
0.3 |
|
0.3 |
|
— |
Senior unsecured |
|
Externally issued |
|
21.8 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Senior unsecured |
|
Internally issued |
|
— |
|
10.2 |
|
6.3 |
|
1.4 |
|
0.5 |
|
3.0 |
|
— |
|
— |
|
0.3 |
|
|
|
|
21.8 |
|
10.2 |
|
6.3 |
|
1.4 |
|
0.5 |
|
3.0 |
|
— |
|
— |
|
0.3 |
Total outstanding issuance |
|
31.3 |
|
19.0 |
|
12.3 |
|
3.8 |
|
0.6 |
|
4.9 |
|
0.5 |
|
0.3 |
|
0.6 |
(1) | The balances are the IFRS balance sheet carrying amounts, which may differ from the amount which the instrument contributes to regulatory capital. Regulatory balances exclude, for example, issuance costs and fair value movements, while dated capital is required to be amortised on a straight-line basis over the final five years of maturity. |
(2) | Balance sheet amounts reported for AT1, Tier 1 and Tier 2 instruments are before grandfathering restrictions imposed by CRR. |
(3) | Internal issuance for NWB Plc, RBS plc and UBIDAC represents AT1, Tier 2 or Senior unsecured issuance to NatWest Holdings Limited and for NWM N.V. and NWM SI to NWM Plc. |
(4) | Senior unsecured debt does not include CP, CD and short/medium term notes issued from NatWest Group operating subsidiaries. |
(5) | The above table does not include CET1 numbers. |
NatWest Group – Form 6K Interim Results 2023 |
73 |
Risk and capital management
Capital, liquidity and funding risk continued
Risk-weighted assets
The table below analyses the movement in RWAs during the half year, by key drivers.
|
|
|
|
Counterparty |
|
|
|
Operational |
|
|
|
|
Credit risk |
|
credit risk |
|
Market risk |
|
risk |
|
Total |
|
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
£bn |
At 31 December 2022 |
|
142.0 |
|
6.7 |
|
8.3 |
|
19.1 |
|
176.1 |
Foreign exchange movement |
|
(1.0) |
|
(0.1) |
|
— |
|
— |
|
(1.1) |
Business movement |
|
3.7 |
|
0.2 |
|
(1.3) |
|
1.1 |
|
3.7 |
Risk parameter changes |
|
(2.2) |
|
— |
|
— |
|
— |
|
(2.2) |
Methodology changes |
|
0.5 |
|
— |
|
— |
|
— |
|
0.5 |
Model updates |
|
0.6 |
|
— |
|
— |
|
— |
|
0.6 |
Other changes |
|
— |
|
0.9 |
|
— |
|
— |
|
0.9 |
Acquisitions and disposals |
|
(1.0) |
|
— |
|
— |
|
— |
|
(1.0) |
At 30 June 2023 |
|
142.6 |
|
7.7 |
|
7.0 |
|
20.2 |
|
177.5 |
The table below analyses segmental RWAs.
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Retail |
|
Private |
|
Commercial & |
|
Central items |
|
NatWest |
|
|
Banking |
|
Banking |
|
Institutional |
|
& other (1) |
|
Group |
Total RWAs |
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
£bn |
At 31 December 2022 |
|
54.7 |
|
11.2 |
|
103.2 |
|
7.0 |
|
176.1 |
Foreign exchange movement |
|
— |
|
— |
|
(1.0) |
|
(0.1) |
|
(1.1) |
Business movement |
|
2.1 |
|
0.3 |
|
2.1 |
|
(0.8) |
|
3.7 |
Risk parameter changes |
|
(0.3) |
|
— |
|
(1.9) |
|
— |
|
(2.2) |
Methodology changes |
|
0.2 |
|
— |
|
0.3 |
|
— |
|
0.5 |
Model updates |
|
0.6 |
|
— |
|
— |
|
— |
|
0.6 |
Other changes |
|
— |
|
— |
|
0.9 |
|
— |
|
0.9 |
Acquisitions and disposals |
|
— |
|
— |
|
— |
|
(1.0) |
|
(1.0) |
At 30 June 2023 |
|
57.3 |
|
11.5 |
|
103.6 |
|
5.1 |
|
177.5 |
|
|
|
|
|
|
|
|
|
|
|
Credit risk |
|
49.7 |
|
10.1 |
|
78.5 |
|
4.3 |
|
142.6 |
Counterparty credit risk |
|
0.2 |
|
— |
|
7.5 |
|
— |
|
7.7 |
Market risk |
|
0.2 |
|
— |
|
6.8 |
|
— |
|
7.0 |
Operational risk |
|
7.2 |
|
1.4 |
|
10.8 |
|
0.8 |
|
20.2 |
Total RWAs |
|
57.3 |
|
11.5 |
|
103.6 |
|
5.1 |
|
177.5 |
(1) | £3.5 billion of Central items & other relates to Ulster Bank RoI. |
Total RWAs increased by £1.4 billion to £177.5 billion during the period mainly reflecting:
- | Business movements totalling £3.7 billion, driven by increased credit risk exposures within Retail Banking and Commercial & Institutional and the impact of the operational risk recalculation. |
- | An increase in other changes of £0.9 billion, driven by the early termination of portfolio credit default swap resulting in a decrease to the CRM benefit. |
- | Model update increase of £0.6 billion, driven by model adjustments as a result of new regulations applied to IRB models within Retail Banking. |
- | Methodology changes totalling £0.5 billion, driven by revised LGD approach for non UK covered bonds. |
- | A decrease in risk parameters of £2.2 billion, primarily reflecting improved risk metrics within Commercial & Institutional in addition to changes in regulatory treatment for certain structured transactions. |
- | Disposals relating to the phased withdrawal from the Republic of Ireland, reducing RWAs by £1.0 billion. |
NatWest Group – Form 6K Interim Results 2023 |
74 |
Risk and capital management
Capital, liquidity and funding risk continued
Funding sources
The table below shows the carrying values of the principal funding sources based on contractual maturity. Balance sheet captions include balances held at all classifications under IFRS 9.
|
|
30 June 2023 |
|
31 December 2022 |
||||||||
|
|
Short-term |
|
Long-term |
|
|
|
Short-term |
|
Long-term |
|
|
|
|
less than |
|
more than |
|
|
|
less than |
|
more than |
|
|
|
|
1 year |
|
1 year |
|
Total |
|
1 year |
|
1 year |
|
Total |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Bank deposits |
|
|
|
|
|
|
|
|
|
|
|
|
Repos |
|
2,231 |
|
— |
|
2,231 |
|
1,446 |
|
— |
|
1,446 |
Other bank deposits (1) |
|
6,181 |
|
13,309 |
|
19,490 |
|
6,353 |
|
12,642 |
|
18,995 |
|
|
8,412 |
|
13,309 |
|
21,721 |
|
7,799 |
|
12,642 |
|
20,441 |
Customer deposits |
|
|
|
|
|
|
|
|
|
|
|
|
Repos |
|
9,083 |
|
239 |
|
9,322 |
|
9,575 |
|
254 |
|
9,829 |
Non-bank financial institutions |
|
50,733 |
|
59 |
|
50,792 |
|
50,226 |
|
9 |
|
50,235 |
Personal |
|
212,486 |
|
4,111 |
|
216,597 |
|
224,706 |
|
1,209 |
|
225,915 |
Corporate |
|
155,735 |
|
86 |
|
155,821 |
|
164,314 |
|
25 |
|
164,339 |
|
|
428,037 |
|
4,495 |
|
432,532 |
|
448,821 |
|
1,497 |
|
450,318 |
Trading liabilities (2) |
|
|
|
|
|
|
|
|
|
|
|
|
Repos (3) |
|
27,554 |
|
254 |
|
27,808 |
|
23,740 |
|
— |
|
23,740 |
Derivative collateral |
|
15,234 |
|
— |
|
15,234 |
|
17,680 |
|
— |
|
17,680 |
Other bank customer deposits |
|
775 |
|
440 |
|
1,215 |
|
413 |
|
654 |
|
1,067 |
Debt securities in issue - Medium term notes |
|
353 |
|
361 |
|
714 |
|
54 |
|
743 |
|
797 |
|
|
43,916 |
|
1,055 |
|
44,971 |
|
41,887 |
|
1,397 |
|
43,284 |
Other financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Customer deposits |
|
144 |
|
940 |
|
1,084 |
|
253 |
|
797 |
|
1,050 |
Debt securities in issue: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper and certificates of deposit |
|
13,195 |
|
141 |
|
13,336 |
|
5,587 |
|
85 |
|
5,672 |
Medium term notes |
|
5,170 |
|
33,258 |
|
38,428 |
|
6,934 |
|
31,750 |
|
38,684 |
Covered bonds |
|
2,043 |
|
— |
|
2,043 |
|
804 |
|
2,038 |
|
2,842 |
Securitisation (5) |
|
— |
|
857 |
|
857 |
|
— |
|
859 |
|
859 |
|
|
20,552 |
|
35,196 |
|
55,748 |
|
13,578 |
|
35,529 |
|
49,107 |
Subordinated liabilities |
|
968 |
|
5,052 |
|
6,020 |
|
974 |
|
5,286 |
|
6,260 |
Total funding |
|
501,885 |
|
59,107 |
|
560,992 |
|
513,059 |
|
56,351 |
|
569,410 |
Of which: available in resolution (4) |
|
|
|
|
|
25,634 |
|
|
|
|
|
24,899 |
(1) | Includes £12.0 billion (31 December 2022 – £12.0 billion) relating to Term Funding Scheme with additional incentives for Small and Medium-sized Enterprises participation. |
(2) | Excludes short positions of £11.2 billion (31 December 2022 - £9.5 billion). |
(3) | Comprises central & other bank repos of £2.5 billion (31 December 2022 - £1.6 billion), other financial institution repos of £22.7 billion (31 December 2022 - £19.4 billion) and other corporate repos of £2.6 billion (31 December 2022 - £2.7 billion). |
(4) | Eligible liabilities (as defined in the Banking Act 2009 as amended from time to time) that meet the eligibility criteria set out in the regulations, rules, policies, guidelines, or statements of the Bank of England including the Statement of Policy published by the Bank of England in December 2021 (updating June 2018). The balance consists of £21.0 billion (31 December 2022 - £20.0 billion) under debt securities in issue (senior MREL) and £4.6 billion (31 December 2022 - £4.9 billion) under subordinated liabilities. |
(5) | NatWest Group transfers credit risk on originated loans and mortgages without the transfer of assets to a structured entity, whereby it enters credit derivative and financial guarantee contracts with consolidated structured entities and they in turn issue debt securities to investors. This funding is legally ringfenced in the structured entity and is restricted to specifically cover investor credit protection claim payments in respect of the associated loans and mortgages. |
NatWest Group – Form 6K Interim Results 2023 |
75 |
Risk and capital management
Capital, liquidity and funding risk continued
Liquidity portfolio
The table below shows the liquidity portfolio by product, with primary liquidity aligned to internal stressed outflow coverage and regulatory LCR categorisation. Secondary liquidity comprises assets eligible for discount at central banks, which do not form part of the liquid asset portfolio for LCR or internal stressed outflow purposes. In addition, a reconciliation has been provided between the liquidity portfolio for internal stressed outflow coverage and high quality liquid assets on a regulatory LCR basis.
|
|
Liquidity value |
||||||||||
|
|
30 June 2023 |
|
31 December 2022 |
||||||||
|
|
NatWest |
|
NWH |
|
UK DoL |
|
NatWest |
|
NWH |
|
UK DoL |
|
|
Group (1) |
|
Group (2) |
|
Sub |
|
Group |
|
Group |
|
Sub |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Cash and balances at central banks |
|
119,612 |
|
79,423 |
|
78,916 |
|
140,820 |
|
106,869 |
|
103,708 |
AAA to AA- rated governments |
|
23,813 |
|
15,872 |
|
15,872 |
|
18,589 |
|
9,843 |
|
9,843 |
A+ and lower rated governments |
|
1,172 |
|
187 |
|
187 |
|
317 |
|
— |
|
— |
Government guaranteed issuers, public sector entities and government sponsored entities |
|
229 |
|
229 |
|
208 |
|
134 |
|
120 |
|
100 |
International organisations and multilateral development banks |
|
2,674 |
|
1,521 |
|
1,437 |
|
1,734 |
|
1,112 |
|
1,021 |
LCR level 1 bonds |
|
27,888 |
|
17,809 |
|
17,704 |
|
20,774 |
|
11,075 |
|
10,964 |
LCR level 1 assets |
|
147,500 |
|
97,232 |
|
96,620 |
|
161,594 |
|
117,944 |
|
114,672 |
LCR level 2 assets |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Non-LCR eligible assets |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Primary liquidity |
|
147,500 |
|
97,232 |
|
96,620 |
|
161,594 |
|
117,944 |
|
114,672 |
Secondary liquidity (3) |
|
79,424 |
|
79,389 |
|
79,388 |
|
63,917 |
|
63,849 |
|
63,849 |
Total liquidity value |
|
226,924 |
|
176,621 |
|
176,008 |
|
225,511 |
|
181,793 |
|
178,521 |
|
|
30 June 2023 |
|
|
||||||||
|
|
NatWest |
|
NWH |
|
UK DoL |
|
|
|
|
|
|
Stressed outflow coverage (SOC) to liquidity |
|
Group (1) |
|
Group (2) |
|
Sub |
|
|
|
|
|
|
coverage ratio (LCR) reconciliation* |
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
SOC primary liquidity (from table above) |
|
147,500 |
|
97,232 |
|
96,620 |
|
|
|
|
|
|
Level 1 assets excluded (4) |
|
4,180 |
|
3,467 |
|
3,447 |
|
|
|
|
|
|
Level 2 assets excluded (5) |
|
3,133 |
|
2,951 |
|
2,721 |
|
|
|
|
|
|
Methodology difference (6) |
|
960 |
|
1,135 |
|
1,081 |
|
|
|
|
|
|
Total LCR high quality liquid assets |
|
155,773 |
|
104,785 |
|
103,869 |
|
|
|
|
|
|
* Table not within the scope of EY’s review report.
(1) | NatWest Group includes the UK Domestic Liquidity Sub-Group (UK DoLSub), NatWest Markets Plc and other significant operating subsidiaries that hold liquidity portfolios. These include The Royal Bank of Scotland International Limited, NWM N.V. and Ulster Bank Ireland DAC who hold managed portfolios that comply with local regulations that may differ from PRA rules. |
(2) | NWH Group comprises UK DoLSub, Ulster Bank Ireland DAC and NatWest Bank Europe GmbH who hold managed portfolios that comply with local regulations that may differ from PRA rules. |
(3) | Comprises assets eligible for discounting at the Bank of England and other central banks. |
(4) | LCR level 1 assets include extremely high quality covered bonds, government guaranteed bonds, and other LCR level 1 assets, which are not included as primary liquidity, but included as inflows in stressed outflow coverage. |
(5) | LCR level 2 assets include high quality covered bonds, asset backed securities and other level 2 assets which are not included as primary liquidity but included as inflows in stressed outflow coverage. |
(6) | Methodology differences include cash in tills which is classified as LCR level 1 but not included in stressed outflow coverage, JPY bonds which are classified as level 1 for stressed outflow coverage but level 2 for LCR and weighting differences between stressed outflow coverage and LCR. |
(7) | NatWest Markets Plc liquidity portfolio is reported in the NatWest Markets Plc Company Announcement. |
NatWest Group – Form 6K Interim Results 2023 |
76 |
Risk and capital management
Non-traded market risk
Non-traded market risk is the risk to the value of assets or liabilities outside the trading book, or the risk to income, that arises from changes in market prices such as interest rates, foreign exchange rates and equity prices, or from changes in managed rates.
Key developments
- | In the UK, the base rate rose from 3.5% at 31 December 2022 to 5.0% at 30 June 2023 as inflation pressures persisted. |
- | The five-year sterling swap rate increased to 5.09% at the end of June 2023 from 4.10% at the end of December 2022. The ten-year sterling swap rate also increased, to 4.36% from 3.75%. |
- | The structural hedge notional decreased by £6 billion from £231 billion to £225 billion, due to lower current account and instant access savings deposits. The structural hedge yield rose over the same period to 1.38% from 1.14% as maturing hedges were replaced with new hedges at higher rates. |
- | The sensitivity of net interest earnings to parallel shifts in the yield curve reduced in H1 2023. Sensitivity to an upward 25-basis-point parallel shift in all rates was £135 million at 30 June 2023 compared to £198 million at 31 December 2022. |
- | The main driver was reduced sensitivity to managed margin products. This resulted from lower managed rate savings volumes - including the impact of migration from instant access accounts to term savings accounts - and from greater pass-through of future rate rises to depositors. |
- | Sterling strengthened against both the US dollar and the euro over the period. Against the dollar, sterling was 1.27 at 30 June 2023 compared to 1.21 at 31 December 2022. Against the euro, it was 1.17 at 30 June 2023 compared to 1.13 at 31 December 2022. |
- | Net investments in foreign operations decreased by £1.4 billion over the period, mainly reflecting the UBIDAC wind-down. However, residual structural foreign currency exposures after hedging were broadly stable, decreasing, in sterling equivalent terms, by £0.2 billion over the period. |
Non-traded internal VaR (1-day 99%)
The following table shows one-day internal banking book Value-at-Risk (VaR) at a 99% confidence level, split by risk type.
|
|
Half year ended |
||||||||||||||||||||||
|
|
30 June 2023 |
|
30 June 2022 |
|
31 December 2022 |
||||||||||||||||||
|
|
|
|
|
|
|
|
Period |
|
|
|
|
|
|
|
Period |
|
|
|
|
|
|
|
Period |
|
|
Average |
|
Maximum |
|
Minimum |
|
end |
|
Average |
|
Maximum |
|
Minimum |
|
end |
|
Average |
|
Maximum |
|
Minimum |
|
end |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Interest rate |
|
40.5 |
|
63.2 |
|
30.1 |
|
63.2 |
|
17.0 |
|
37.8 |
|
7.6 |
|
37.8 |
|
43.8 |
|
60.7 |
|
34.2 |
|
37.7 |
Credit spread |
|
23.6 |
|
29.7 |
|
20.9 |
|
29.7 |
|
48.8 |
|
86.6 |
|
33.4 |
|
34.6 |
|
23.8 |
|
29.1 |
|
19.9 |
|
20.3 |
Structural foreign exchange rate |
|
11.3 |
|
13.6 |
|
8.4 |
|
12.3 |
|
8.8 |
|
10.9 |
|
5.4 |
|
7.0 |
|
9.1 |
|
11.3 |
|
7.4 |
|
11.3 |
Equity |
|
16.7 |
|
19.0 |
|
13.0 |
|
13.0 |
|
18.9 |
|
22.2 |
|
13.7 |
|
18.8 |
|
17.4 |
|
19.3 |
|
14.7 |
|
14.7 |
Pipeline risk (1) |
|
3.1 |
|
4.4 |
|
1.4 |
|
3.4 |
|
1.0 |
|
2.9 |
|
0.3 |
|
2.9 |
|
1.9 |
|
4.5 |
|
0.6 |
|
2.4 |
Diversification (2) |
|
(35.3) |
|
|
|
|
|
(38.1) |
|
(33.4) |
|
|
|
|
|
(48.1) |
|
(40.4) |
|
|
|
|
|
(34.9) |
Total |
|
59.9 |
|
83.5 |
|
52.1 |
|
83.5 |
|
61.1 |
|
91.2 |
|
52.3 |
|
53.0 |
|
55.6 |
|
66.3 |
|
45.5 |
|
51.5 |
(1) | Pipeline risk is the risk of loss arising from Personal customers owning an option to draw down a loan – typically a mortgage – at a committed rate, where interest rate changes may result in greater or fewer customers than anticipated taking up the committed offer. |
(2) | NatWest Group benefits from diversification across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the correlation between the assets and risk factors in the portfolio at a particular time. The diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR. |
- | On an average basis, total non-traded VaR for H1 2023 was broadly similar to H1 2022 and H2 2022. |
- | Total non-traded VaR increased during H1 2023, driven by an increase in interest rate risk VaR. This reflects further interest rate volatility compared to H2 2022, particularly in sterling. |
- | Credit spread VaR was slightly higher than in H2 2022, driven by an increase in the holding of bonds in the liquidity portfolio. However, the holding of bonds in this portfolio is still considerably lower than in H1 2022. |
NatWest Group – Form 6K Interim Results 2023 |
77 |
Risk and capital management
Non-traded market risk continued
Structural hedging
NatWest Group has a significant pool of stable, non and low interest-bearing liabilities, principally comprising equity, current accounts and instant access savings. A proportion of these balances are hedged, either by investing directly in longer-term fixed-rate assets (usually fixed-rate mortgages) or by using interest rate swaps, which are generally booked as cash flow hedges of floating-rate assets, in order to provide a consistent and predictable revenue stream.
After hedging the net interest rate exposure, NatWest Group allocates income to equity or products in structural hedges by reference to the relevant interest rate swap curve. Over time, this approach has provided a basis for stable income attribution, particularly to products such as current accounts and instant access savings. The programme aims to track a time series of medium-term swap rates, so that at any point in time the total yield may be higher or lower than the current market yield. Additionally, the closeness of the yield to average swap rates in recent years is also affected by changes in the composition of the hedge caused by changes in product volumes or equity capital resources.
The table below shows the total income and total yield, incremental income relative to short-term cash rates, and the period-end and average notional balances allocated to equity and products in respect of the structural hedges managed by NatWest Group.
|
|
Half year ended |
||||||||||||||||||||||||||||
|
|
30 June 2023 |
|
30 June 2022 |
|
31 December 2022 |
||||||||||||||||||||||||
|
|
|
|
|
|
Period |
|
|
|
|
|
|
|
|
|
Period |
|
|
|
|
|
|
|
|
|
Period |
|
|
|
|
|
|
Incremental |
|
Total |
|
-end |
|
Average |
|
Total |
|
Incremental |
|
Total |
|
-end |
|
Average |
|
Total |
|
Incremental |
|
Total |
|
-end |
|
Average |
|
Total |
|
|
income |
|
income |
|
notional |
|
notional |
|
yield |
|
income |
|
income |
|
notional |
|
notional |
|
yield |
|
income |
|
income |
|
notional |
|
notional |
|
yield |
|
|
£m |
|
£m |
|
£bn |
|
£bn |
|
% |
|
£m |
|
£m |
|
£bn |
|
£bn |
|
% |
|
£m |
|
£m |
|
£bn |
|
£bn |
|
% |
Equity |
|
(246) |
|
204 |
|
23 |
|
22 |
|
1.83 |
|
111 |
|
182 |
|
21 |
|
21 |
|
1.71 |
|
(48) |
|
189 |
|
23 |
|
22 |
|
1.72 |
Product |
|
(2,773) |
|
1,362 |
|
202 |
|
205 |
|
1.33 |
|
61 |
|
662 |
|
204 |
|
188 |
|
0.70 |
|
(1,135) |
|
1,118 |
|
208 |
|
206 |
|
1.08 |
Total |
|
(3,019) |
|
1,566 |
|
225 |
|
227 |
|
1.38 |
|
172 |
|
844 |
|
225 |
|
209 |
|
0.81 |
|
(1,183) |
|
1,307 |
|
231 |
|
228 |
|
1.14 |
(1) | Incremental income represents the difference between total income (i.e. hedged income) and an unhedged return that is based on short-term cash rates. For example, the sterling overnight index average (SONIA) is used to estimate incremental income from sterling structural hedges. |
(2) | The basis of preparation of the table above has changed since December 2022. UBIDAC is no longer included. In addition, the ‘Other’ category is no longer used: hedges booked in Coutts & Co. have now been allocated between product hedges and equity hedges, while hedges booked in RBS International have been allocated to product hedges. |
Equity structural hedges refer to income allocated primarily to equity and reserves. At 30 June 2023, the equity structural hedge notional was allocated between NWH Group and NWM Group in a ratio of approximately 77%/23% respectively.
Product structural hedges refer to income allocated to customer products, mainly current accounts and customer deposits in Commercial & Institutional, Retail Banking and Private Banking.
At 30 June 2023, approximately 94% by notional of total structural hedges were sterling-denominated.
The following table presents the incremental income associated with product structural hedges at segment level.
|
|
Half year ended |
||||
|
|
30 June |
|
30 June |
|
31 December |
|
|
2023 |
|
2022 |
|
2022 |
|
|
£m |
|
£m |
|
£m |
Retail Banking |
|
(1,156) |
|
12 |
|
(475) |
Commercial & Institutional |
|
(1,415) |
|
39 |
|
(576) |
Private Banking & Other |
|
(202) |
|
10 |
|
(84) |
Total |
|
(2,773) |
|
61 |
|
(1,135) |
- | The structural hedge notional fell, mainly due to lower deposit volume. |
- | The five-year sterling swap rate rose to 5.09% at 30 June 2023 from 4.10% at 31 December 2022. The ten-year sterling swap rate also rose, to 4.36% from 3.75%. The structural hedge yield also rose to 1.38% in H1 2023 from 1.14% in H2 2022. |
- | Despite the increase in total yield, incremental income fell. This highlights the relative stability of the total yield of the structural hedge compared to an unhedged portfolio that would earn short-term cash rates. Compared to the 24-basis-point increase in the structural hedge total yield, SONIA increased 150 basis points to 4.93% at 30 June 2023 from 3.43% at 31 December 2022. |
NatWest Group – Form 6K Interim Results 2023 |
78 |
Risk and capital management
Non-traded market risk continued
Sensitivity of net interest earnings
Net interest earnings are sensitive to changes in the level of interest rates, mainly because maturing structural hedges are replaced at higher or lower rates and changes to coupons on managed rate customer products do not always match changes in market rates of interest or central bank policy rates.
Earnings sensitivity is derived from a market-implied forward rate curve, which will incorporate expected changes in central bank policy rates such as the Bank of England base rate. A simple scenario is shown that projects forward earnings based on the 30 June 2023 balance sheet, which is assumed to remain constant. An earnings projection is derived from the market-implied curve, which is then subject to interest rate shocks. The difference between the market-implied projection and the shock gives an indication of underlying sensitivity to interest rate movements.
Reported sensitivities should not be considered a forecast of future performance in these rate scenarios. Actions that could reduce interest earnings sensitivity include changes in pricing strategies on customer loans and deposits as well as hedging. Management action may also be taken to stabilise total income also taking into account non-interest income.
The table below shows the sensitivity of net interest earnings - for both structural hedges and managed rate accounts - on a one, two and three-year forward-looking basis to an upward or downward interest rate shift of 25 basis points.
|
|
+25 basis points upward shift |
|
-25 basis points downward shift |
||||||||
|
|
Year 1 |
|
Year 2 |
|
Year 3 |
|
Year 1 |
|
Year 2 |
|
Year 3 |
30 June 2023 |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Structural hedges |
|
49 |
|
151 |
|
249 |
|
(49) |
|
(151) |
|
(248) |
Managed margin |
|
86 |
|
76 |
|
157 |
|
(121) |
|
(75) |
|
(168) |
Total |
|
135 |
|
227 |
|
406 |
|
(170) |
|
(226) |
|
(416) |
|
|
|
|
|
|
|
|
|
|
|
|
|
31 December 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
Structural hedges |
|
50 |
|
158 |
|
260 |
|
(50) |
|
(158) |
|
(260) |
Managed margin |
|
148 |
|
141 |
|
136 |
|
(170) |
|
(140) |
|
(129) |
Total |
|
198 |
|
299 |
|
396 |
|
(220) |
|
(298) |
|
(389) |
(1) | Earnings sensitivity considers only the main drivers, namely structural hedging and margin management, and excludes UBIDAC. |
The following table analyses the one-year scenarios by currency and, in addition, shows the impact over one year of a 100-basis-point upward and downward shift in all interest rates.
|
|
Shifts in yield curve |
||||||||||||||
|
|
30 June 2023 |
|
31 December 2022 |
||||||||||||
|
|
+25 basis |
|
-25 basis |
|
+100 basis |
|
-100 basis |
|
+25 basis |
|
-25 basis |
|
+100 basis |
|
-100 basis |
|
|
points |
|
points |
|
points |
|
points |
|
points |
|
points |
|
points |
|
points |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Euro |
|
13 |
|
(15) |
|
56 |
|
(57) |
|
13 |
|
(12) |
|
48 |
|
(50) |
Sterling |
|
108 |
|
(137) |
|
431 |
|
(574) |
|
172 |
|
(194) |
|
698 |
|
(784) |
US dollar |
|
8 |
|
(13) |
|
37 |
|
(47) |
|
10 |
|
(11) |
|
42 |
|
(53) |
Other |
|
6 |
|
(5) |
|
23 |
|
(15) |
|
3 |
|
(3) |
|
13 |
|
(16) |
Total |
|
135 |
|
(170) |
|
547 |
|
(693) |
|
198 |
|
(220) |
|
801 |
|
(903) |
(1) The table excludes UBIDAC.
- | The overall reduction in net interest income sensitivity in all scenarios reflects lower managed rate deposit volumes. This includes changes to the deposit mix, where customers have moved balances into fixed-term savings from managed rate savings accounts. |
- | Changes in pass-through assumptions for managed rate savings products also contributed to the lower sensitivity. |
NatWest Group – Form 6K Interim Results 2023 |
79 |
Risk and capital management
Non-traded market risk continued
Foreign exchange risk
The table below shows structural foreign currency exposures.
|
|
|
|
|
|
Structural |
|
|
|
|
|
|
Net |
|
|
|
foreign currency |
|
|
|
Residual |
|
|
investments |
|
Net |
|
exposures |
|
|
|
structural |
|
|
in foreign |
|
investment |
|
pre-economic |
|
Economic |
|
foreign currency |
|
|
operations |
|
hedges |
|
hedges |
|
hedges (1) |
|
exposures |
30 June 2023 |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
US dollar |
|
1,215 |
|
(287) |
|
928 |
|
(928) |
|
— |
Euro |
|
4,913 |
|
(3,101) |
|
1,812 |
|
— |
|
1,812 |
Other non-sterling |
|
938 |
|
(406) |
|
532 |
|
— |
|
532 |
Total |
|
7,066 |
|
(3,794) |
|
3,272 |
|
(928) |
|
2,344 |
|
|
|
|
|
|
|
|
|
|
|
31 December 2022 |
|
|
|
|
|
|
|
|
|
|
US dollar |
|
1,278 |
|
(303) |
|
975 |
|
(975) |
|
— |
Euro |
|
6,189 |
|
(4,164) |
|
2,025 |
|
— |
|
2,025 |
Other non-sterling |
|
996 |
|
(431) |
|
565 |
|
— |
|
565 |
Total |
|
8,463 |
|
(4,898) |
|
3,565 |
|
(975) |
|
2,590 |
(1) | Economic hedges of US dollar net investments in foreign operations represent US dollar equity securities that do not qualify as net investment hedges for accounting purposes. They provide an offset to structural foreign exchange exposures to the extent that there are net assets in overseas operations available. |
- | Euro net investments in foreign operations and euro net investment hedges fell in H1 2023, mainly due to the wind-down of UBIDAC. Overall, residual structural foreign currency exposures fell. |
- | Changes in foreign currency exchange rates affect equity in proportion to structural foreign currency exposure. For example, a 5% strengthening or weakening in foreign currencies against sterling would result in a gain or loss of £0.2 billion in equity, respectively. |
NatWest Group – Form 6K Interim Results 2023 |
80 |
Risk and capital management
Traded market risk
Traded market risk is the risk arising from changes in fair value on positions, assets, liabilities or commitments in trading portfolios as a result of fluctuations in market prices.
Traded VaR (1-day 99%)
The table below shows one-day internal value-at-risk (VaR) for NatWest Group’s trading portfolios, split by exposure type.
|
|
Half year ended |
||||||||||||||||||||||
|
|
30 June 2023 |
|
30 June 2022 |
|
31 December 2022 |
||||||||||||||||||
|
|
|
|
|
|
|
|
Period |
|
|
|
|
|
|
|
Period |
|
|
|
|
|
|
|
Period |
|
|
Average |
|
Maximum |
|
Minimum |
|
end |
|
Average |
|
Maximum |
|
Minimum |
|
end |
|
Average |
|
Maximum |
|
Minimum |
|
end |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Interest rate |
|
9.0 |
|
19.3 |
|
4.3 |
|
16.5 |
|
7.4 |
|
12.6 |
|
4.1 |
|
6.0 |
|
7.3 |
|
12.5 |
|
4.5 |
|
9.0 |
Credit spread |
|
5.9 |
|
6.9 |
|
4.9 |
|
6.1 |
|
8.5 |
|
12.0 |
|
6.5 |
|
6.9 |
|
7.2 |
|
8.6 |
|
6.0 |
|
6.4 |
Currency |
|
2.1 |
|
4.9 |
|
1.0 |
|
1.5 |
|
2.8 |
|
8.0 |
|
1.2 |
|
2.3 |
|
3.3 |
|
6.9 |
|
1.5 |
|
1.5 |
Equity |
|
— |
|
0.1 |
|
— |
|
— |
|
0.1 |
|
0.3 |
|
— |
|
— |
|
— |
|
0.3 |
|
— |
|
— |
Commodity |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Diversification (1) |
|
(6.8) |
|
|
|
|
|
(6.3) |
|
(8.3) |
|
|
|
|
|
(6.0) |
|
(7.0) |
|
|
|
|
|
(6.8) |
Total |
|
10.2 |
|
17.8 |
|
6.6 |
|
17.8 |
|
10.5 |
|
15.1 |
|
7.2 |
|
9.2 |
|
10.8 |
|
13.7 |
|
8.3 |
|
10.1 |
(1) | NatWest Group benefits from diversification across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the correlation between the assets and risk factors in the portfolio at a particular time. The diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR. |
- | On an average basis, total traded VaR remained at similar levels in H1 2023 compared to 2022. |
- | The increase in average interest rate VaR, compared to 2022, reflected an increase in yield curve risk in sterling and euro flow trading. |
- | The decrease in average credit spread VaR reflected lower credit spread volatility in H1 2023. |
NatWest Group – Form 6K Interim Results 2023 |
81 |
Risk and capital management
Other risks
Operational risk
Risk management continued to focus on material risk areas. Key focus over the period has been the management of the large change portfolio, in particular the regulatory change initiatives relating to preparedness for Consumer Duty and ISO 20022, as well as addressing vulnerabilities in relation to the infrastructure requiring remediation. Linked to the focus on remediation, security, data and outsourcing remain key pillars for the ongoing management of the risk profile, operational integrity and continuity of service.
Compliance & conduct risk
The ring-fencing attestation was completed and submitted to the PRA on 31 March 2023. Implementation of Consumer Duty has been a key focus, with customer journeys being enhanced in line with the new standard which complements our purpose ‘to champion potential, helping people, families, and businesses to thrive’ and aligns with our strategy ‘supporting customers at every stage of their lives’. NatWest Markets has a program in place to review, remediate, and enhance certain areas of its business. Resources were agreed in February 2023. The results of this work will be shared with the Department of Justice Monitor and other regulators, with the ongoing work plan continuing to be assessed for potential impact.
The cost of living challenge continues to be a key priority for the conduct and regulatory compliance agenda as mortgage interest rates continue to increase in the UK. There has been continued oversight of delivery of the mandatory and regulatory change programmes, including the Mortgage Charter - a set of measures aimed at supporting residential mortgage customers concerned by rising interest rates.
Climate risk
NatWest Group continued to embed climate considerations in its risk management framework throughout the reporting period. This is focused on making iterative advancements in capabilities towards quantitative techniques in risk assessment. Particular attention continues to be paid to developing the next version of the NatWest Group Climate Transition Plan. Work is also underway to evolve NatWest Group’s customer-level climate risk assessments, including development of capability to assess customer climate plans. In-house modelling and scenario analysis capabilities continue to be developed to support the assessment of NatWest Group’s exposure to physical and transition risks.
NatWest Group – Form 6K Interim Results 2023 |
82 |
Condensed consolidated income statement for the period ended 30 June 2023 (unaudited)
|
|
Half year ended |
|
||
|
|
30 June |
|
30 June |
|
|
|
2023 |
|
2022 |
|
|
|
£m |
|
£m |
|
Interest receivable |
|
9,482 |
|
5,250 |
|
Interest payable |
|
(3,756) |
|
(916) |
|
Net interest income |
|
5,726 |
|
4,334 |
|
Fees and commissions receivable |
|
1,459 |
|
1,424 |
|
Fees and commissions payable |
|
(315) |
|
(300) |
|
Income from trading activities |
|
418 |
|
709 |
|
Other operating income |
|
439 |
|
52 |
|
Non-interest income |
|
2,001 |
|
1,885 |
|
Total income |
|
7,727 |
|
6,219 |
|
Staff costs |
|
(2,005) |
|
(1,808) |
|
Premises and equipment |
|
(570) |
|
(534) |
|
Other administrative expenses |
|
(871) |
|
(898) |
|
Depreciation and amortisation |
|
(469) |
|
(413) |
|
Operating expenses |
|
(3,915) |
|
(3,653) |
|
Profit before impairment losses/releases |
|
3,812 |
|
2,566 |
|
Impairment (losses)/releases |
|
(223) |
|
54 |
|
Operating profit before tax |
|
3,589 |
|
2,620 |
|
Tax charge |
|
(1,061) |
|
(795) |
|
Profit from continuing operations |
|
2,528 |
|
1,825 |
|
(Loss)/profit from discontinued operations, net of tax (2) |
|
(108) |
|
190 |
|
Profit for the period |
|
2,420 |
|
2,015 |
|
Attributable to: |
|
|
|
|
|
Ordinary shareholders |
|
2,299 |
|
1,891 |
|
Paid-in equity holders |
|
121 |
|
121 |
|
Non-controlling interests |
|
— |
|
3 |
|
|
|
2,420 |
|
2,015 |
|
Earnings per ordinary share - continuing operations |
|
25.4 |
p |
16.8 |
p |
Earnings per ordinary share - discontinued operations |
|
(1.1) |
p |
1.9 |
p |
Total earnings per share attributable to ordinary shareholders - basic |
|
24.3 |
p |
18.7 |
p |
Earnings per ordinary share - fully diluted continuing operations |
|
25.2 |
p |
16.7 |
p |
Earnings per ordinary share - fully diluted discontinued operations |
|
(1.1) |
p |
1.9 |
p |
Total earnings per share attributable to ordinary shareholders - fully diluted |
|
24.1 |
p |
18.6 |
p |
(1) | At the General Meeting and Class Meeting on 25 August 2022, the shareholders approved the proposed special dividend and share consolidation. On 30 August the issued ordinary share capital was consolidated in the ratio of 14 existing shares for 13 new shares. The average number of shares and earnings per share have been adjusted retrospectively. |
(2) | The results of discontinued operations, comprising the post-tax profit, is shown as a single amount on the face of the income statement. An analysis of this amount is presented in Note 7 to the consolidated financial statements. |
NatWest Group – Form 6K Interim Results 2023 |
83 |
Condensed consolidated statement of comprehensive income for the period ended 30 June 2023 (unaudited)
|
|
Half year ended |
||
|
|
30 June |
|
30 June |
|
|
2023 |
|
2022 |
|
|
£m |
|
£m |
Profit for the period |
|
2,420 |
|
2,015 |
|
|
|
|
|
Items that do not qualify for reclassification |
|
|
|
|
Remeasurement of retirement benefit schemes |
|
(64) |
|
(517) |
Changes in fair value of credit in financial liabilities designated at FVTPL |
|
(4) |
|
91 |
FVOCI financial assets |
|
30 |
|
3 |
Tax |
|
7 |
|
123 |
|
|
(31) |
|
(300) |
Items that do qualify for reclassification |
|
|
|
|
FVOCI financial assets |
|
53 |
|
(458) |
Cash flow hedges (1) |
|
(734) |
|
(1,557) |
Currency translation |
|
(469) |
|
185 |
Tax |
|
127 |
|
566 |
|
|
(1,023) |
|
(1,264) |
Other comprehensive losses after tax |
|
(1,054) |
|
(1,564) |
Total comprehensive income for the period |
|
1,366 |
|
451 |
Attributable to: |
|
|
|
|
Ordinary shareholders |
|
1,245 |
|
327 |
Paid-in equity holders |
|
121 |
|
121 |
Non-controlling interests |
|
— |
|
3 |
|
|
1,366 |
|
451 |
(1) | The unrealised losses on cash flow hedge reserves are mainly driven by deferral of losses on GBP net received fixed swaps as interest rates have increased. |
NatWest Group – Form 6K Interim Results 2023 |
84 |
Condensed consolidated balance sheet as at 30 June 2023 (unaudited)
|
|
30 June |
|
31 December |
|
|
2023 |
|
2022 |
|
|
£m |
|
£m |
Assets |
|
|
|
|
Cash and balances at central banks |
|
123,022 |
|
144,832 |
Trading assets |
|
48,893 |
|
45,577 |
Derivatives |
|
81,873 |
|
99,545 |
Settlement balances |
|
11,298 |
|
2,572 |
Loans to banks - amortised cost |
|
7,338 |
|
7,139 |
Loans to customers - amortised cost |
|
373,885 |
|
366,340 |
Other financial assets |
|
35,516 |
|
30,895 |
Intangible assets |
|
7,453 |
|
7,116 |
Other assets |
|
8,748 |
|
9,176 |
Assets of disposal groups |
|
4,575 |
|
6,861 |
Total assets |
|
702,601 |
|
720,053 |
Liabilities |
|
|
|
|
Bank deposits |
|
21,721 |
|
20,441 |
Customer deposits |
|
432,532 |
|
450,318 |
Settlement balances |
|
10,282 |
|
2,012 |
Trading liabilities |
|
56,182 |
|
52,808 |
Derivatives |
|
77,246 |
|
94,047 |
Other financial liabilities |
|
55,748 |
|
49,107 |
Subordinated liabilities |
|
6,020 |
|
6,260 |
Notes in circulation |
|
3,159 |
|
3,218 |
Other liabilities |
|
4,913 |
|
5,346 |
Total liabilities |
|
667,803 |
|
683,557 |
Equity |
|
|
|
|
Ordinary shareholders' interests |
|
30,868 |
|
32,598 |
Other owners' interests |
|
3,890 |
|
3,890 |
Owners’ equity |
|
34,758 |
|
36,488 |
Non-controlling interests |
|
40 |
|
8 |
Total equity |
|
34,798 |
|
36,496 |
|
|
|
|
|
Total liabilities and equity |
|
702,601 |
|
720,053 |
NatWest Group – Form 6K Interim Results 2023 |
85 |
Condensed consolidated statement of changes in equity for the period ended 30 June 2023 (unaudited)
|
|
Half year ended |
||
|
|
30 June |
|
30 June |
|
|
2023 |
|
2022 |
|
|
£m |
|
£m |
Called-up share capital - at beginning of period |
|
10,539 |
|
11,468 |
Share cancellation (1,2) |
|
(687) |
|
(885) |
At end of period |
|
9,852 |
|
10,583 |
Paid-in equity - at beginning and end of period |
|
3,890 |
|
3,890 |
Share premium account - at beginning and end of period |
|
1,161 |
|
1,161 |
Merger reserve - at beginning and end of period |
|
10,881 |
|
10,881 |
FVOCI reserve - at beginning of period |
|
(102) |
|
269 |
Unrealised gains/(losses) (3) |
|
60 |
|
(444) |
Realised losses/(gains) |
|
16 |
|
(17) |
Tax |
|
(16) |
|
125 |
At end of period |
|
(42) |
|
(67) |
Cash flow hedging reserve - at beginning of period |
|
(2,771) |
|
(395) |
Amount recognised in equity (4) |
|
(948) |
|
(1,386) |
Amount transferred from equity to earnings |
|
214 |
|
(171) |
Tax |
|
161 |
|
426 |
At end of period |
|
(3,344) |
|
(1,526) |
Foreign exchange reserve - at beginning of period |
|
1,478 |
|
1,205 |
Retranslation of net assets |
|
(308) |
|
307 |
Foreign currency gains/(losses) on hedges of net assets |
|
162 |
|
(122) |
Tax |
|
(23) |
|
14 |
Recycled to profit or loss (6) |
|
(323) |
|
— |
At end of period |
|
986 |
|
1,404 |
Capital redemption reserve - at beginning of period |
|
1,651 |
|
722 |
Share cancellation (1,2) |
|
687 |
|
885 |
At end of period |
|
2,338 |
|
1,607 |
Retained earnings - at beginning of period |
|
10,019 |
|
12,966 |
Profit/(loss) attributable to ordinary shareholders and other equity owners |
|
|
|
|
- continuing |
|
2,528 |
|
1,822 |
- discontinued |
|
(108) |
|
190 |
Paid-in equity dividends paid |
|
(121) |
|
(121) |
Ordinary dividends paid |
|
(965) |
|
(841) |
Shares repurchased (1,2) |
|
(1,713) |
|
(1,958) |
Redemption of preference shares (5) |
|
— |
|
(750) |
Tax on redemption/reclassification of paid-in equity |
|
— |
|
(21) |
Realised gains in period on FVOCI equity shares |
|
|
|
|
- gross |
|
7 |
|
6 |
- tax |
|
(3) |
|
— |
Remeasurement of the retirement benefit schemes |
|
|
|
|
- gross |
|
(64) |
|
(517) |
- tax |
|
15 |
|
133 |
Changes in fair value of credit in financial liabilities designated at FVTPL |
|
|
|
|
- gross |
|
(4) |
|
91 |
- tax |
|
— |
|
(9) |
Employee share schemes |
|
17 |
|
5 |
Share-based payments |
|
|
|
|
- gross |
|
(32) |
|
(30) |
- tax |
|
— |
|
(3) |
At end of period |
|
9,576 |
|
10,963 |
NatWest Group – Form 6K Interim Results 2023 |
86 |
Condensed consolidated statement of changes in equity for the period ended 30 June 2023 continued (unaudited)
|
|
Half year ended |
||
|
|
30 June |
|
30 June |
|
|
2023 |
|
2022 |
|
|
£m |
|
£m |
Own shares held - at beginning of period |
|
(258) |
|
(371) |
Shares vested under employee share schemes |
|
77 |
|
92 |
Own shares acquired (1) |
|
(359) |
|
— |
At end of period |
|
(540) |
|
(279) |
Owners' equity at end of period |
|
34,758 |
|
38,617 |
Non-controlling interests - at beginning of period |
|
8 |
|
7 |
Profit attributable to non-controlling interests |
|
— |
|
3 |
New minority interest holding |
|
32 |
|
— |
At end of period |
|
40 |
|
10 |
Total equity at end of period |
|
34,798 |
|
38,627 |
Attributable to: |
|
|
|
|
Ordinary shareholders |
|
30,868 |
|
34,727 |
Paid-in equity holders |
|
3,890 |
|
3,890 |
Non-controlling interests |
|
40 |
|
10 |
|
|
34,798 |
|
38,627 |
(1) | In May 2023, there was an agreement with HM Treasury to buy 469.2 million (2022 - 549.9 million) ordinary shares in NatWest Group plc from UK Government Investments Ltd, at 268.4 pence per share (2022 - 220.5 pence per share) for the total consideration of £1.27 billion (2022 - £1.22 billion). NatWest Group cancelled 336.2 million of the purchased ordinary shares, amounting to £0.91 billion excluding fees and held the remaining 133 million shares as Own Shares Held, amounting to £0.36 billion excluding fees. The nominal value of the share cancellation has been transferred to the capital redemption reserve. |
(2) | NatWest Group plc repurchased and cancelled 301.4 million (30 June 2022 – 345.6 million) shares for total consideration of £804.2 million (30 June 2022 – £756.7 million) excluding fees as part of the On Market Share Buyback Programme which has now concluded. The nominal value of the share cancellations has been transferred to the capital redemption reserve. |
(3) | Certain assets within this category have been hedged with derivatives which are not in an accounting hedge relationship. The effect of this creates a temporary difference between other comprehensive income and the income statement due to the difference in recognition criteria. This temporary difference is expected to reverse through the income statement over the duration of the hedge. |
(4) | The unrealised losses on cash flow hedge reserves are mainly driven by deferral of losses on GBP net received fixed swaps as interest rates have increased. |
(5) | Following an announcement of a Regulatory Call in February 2022, the Series U preference shares were reclassified to liabilities. A £254 million loss was recognised in retained earnings as a result of FX unlocking. |
(6) | Includes £305 million FX recycled to profit or loss upon completion of a capital repayment by UBIDAC. |
NatWest Group – Form 6K Interim Results 2023 |
87 |
Condensed consolidated cash flow statement for the period ended 30 June 2023 (unaudited)
|
|
Half year ended |
||
|
|
30 June |
|
30 June |
|
|
2023 |
|
2022 |
|
|
£m |
|
£m |
Operating activities |
|
|
|
|
Operating profit before tax from continuing operations |
|
3,589 |
|
2,620 |
Operating (loss)/profit before tax from discontinued operations |
|
(108) |
|
190 |
Adjustments for non-cash and other items |
|
2,133 |
|
355 |
Net cash flows from trading activities |
|
5,614 |
|
3,165 |
Changes in operating assets and liabilities |
|
(17,376) |
|
7,966 |
Net cash flows from operating activities before tax |
|
(11,762) |
|
11,131 |
Income taxes paid |
|
(631) |
|
(575) |
Net cash flows from operating activities |
|
(12,393) |
|
10,556 |
Net cash flows from investing activities |
|
(2,833) |
|
5,713 |
Net cash flows from financing activities |
|
(3,260) |
|
(6,970) |
Effects of exchange rate changes on cash and cash equivalents |
|
(1,801) |
|
2,224 |
Net (decrease)/increase in cash and cash equivalents |
|
(20,287) |
|
11,523 |
Cash and cash equivalents at beginning of period |
|
158,449 |
|
190,706 |
Cash and cash equivalents at end of period |
|
138,162 |
|
202,229 |
NatWest Group – Form 6K Interim Results 2023 |
88 |
Notes
1. Presentation of condensed consolidated financial statements
The condensed consolidated financial statements should be read in conjunction with NatWest Group plc’s 2022 Annual Report on Form 20-F. The accounting policies are the same as those applied in the consolidated financial statements.
The directors have prepared the condensed consolidated financial statements on a going concern basis after assessing the principal risks, forecasts, projections and other relevant evidence over the twelve months from the date they are approved and in accordance with IAS 34 Interim Financial Reporting, as adopted by the UK and as issued by the International Accounting Standards Board (IASB), and the Disclosure Guidance and Transparency Rules sourcebook of the UK’s Financial Conduct Authority.
Amendments to IFRS effective from 1 January 2023 had no material effect on the condensed consolidated financial statements.
2. Net interest income
|
|
Half year ended |
||
|
|
30 June |
|
30 June |
|
|
2023 |
|
2022 |
Continuing operations |
|
£m |
|
£m |
Balances at central banks and loans to banks - amortised cost |
|
1,722 |
|
582 |
Loans to customers - amortised cost |
|
7,130 |
|
4,483 |
Other financial assets |
|
630 |
|
185 |
Interest receivable |
|
9,482 |
|
5,250 |
Bank deposits |
|
402 |
|
157 |
Customer deposits |
|
1,695 |
|
179 |
Other financial liabilities |
|
1,345 |
|
433 |
Subordinated liabilities |
|
221 |
|
141 |
Internal funding of trading businesses |
|
93 |
|
6 |
Interest payable |
|
3,756 |
|
916 |
Net interest income |
|
5,726 |
|
4,334 |
3. Non-interest income
|
|
Half year ended |
||
|
|
30 June |
|
30 June |
|
|
2023 |
|
2022 |
Continuing operations |
|
£m |
|
£m |
Net fees and commissions (1) |
|
1,144 |
|
1,124 |
Foreign exchange |
|
125 |
|
258 |
Interest rate (2) |
|
315 |
|
364 |
Credit |
|
(34) |
|
33 |
Changes in fair value of own debt and derivative liabilities attributable to own credit risk |
|
|
|
|
- debt securities in issue |
|
9 |
|
52 |
Equity, commodities and other |
|
3 |
|
2 |
Income from trading activities |
|
418 |
|
709 |
Profit/(loss) on redemption of own debt |
|
2 |
|
(24) |
Rental income on operating lease assets and investment property |
|
118 |
|
114 |
Changes in fair value of financial assets and liabilities designated at fair value through profit or loss (3) |
|
(3) |
|
21 |
Hedge ineffectiveness |
|
49 |
|
(22) |
Loss on disposal of amortised cost assets and liabilities |
|
(2) |
|
(16) |
(Loss)/profit on disposal of fair value through other comprehensive income assets |
|
(24) |
|
10 |
Share of losses of associated entities |
|
(17) |
|
(20) |
Other income (4) |
|
316 |
|
(11) |
Other operating income |
|
439 |
|
52 |
Non-interest income |
|
2,001 |
|
1,885 |
(1) | Refer to Note 5 for further analysis. |
(2) | Includes fair value changes on derivatives which have not been designated in a hedge accounting relationship and gains and losses from the management of the NatWest Group’s funding requirements involving the use of derivatives including FX. These are aimed at managing the interest rate and foreign exchange risk that NatWest Group is exposed to. |
(3) | Includes related derivatives. |
(4) | Includes £305 million FX recycled to profit or loss upon completion of a capital repayment by UBIDAC. Also included are instruments that have failed solely payments of principal and interest testing under IFRS 9. |
NatWest Group – Form 6K Interim Results 2023 |
89 |
Notes
4. Operating expenses
|
|
Half year ended |
||
|
|
30 June |
|
30 June |
|
|
2023 |
|
2022 |
Continuing operations |
|
£m |
|
£m |
Salaries |
|
1,252 |
|
1,103 |
Bonus awards |
|
217 |
|
195 |
Temporary and contract costs |
|
106 |
|
116 |
Social security costs |
|
180 |
|
163 |
Pension costs |
|
151 |
|
184 |
- defined benefit schemes |
|
60 |
|
108 |
- defined contribution schemes |
|
91 |
|
76 |
Other |
|
99 |
|
47 |
Staff costs |
|
2,005 |
|
1,808 |
Premises and equipment |
|
570 |
|
534 |
Depreciation and amortisation (1) |
|
469 |
|
413 |
Other administrative expenses |
|
871 |
|
898 |
Administrative expenses |
|
1,910 |
|
1,845 |
Operating expenses |
|
3,915 |
|
3,653 |
(1) | Includes depreciation on right of use assets of £53 million (30 June 2022 - £58 million). |
5. Segmental analysis
The business is organised into the following reportable segments: Retail Banking, Private Banking, Commercial & Institutional and Central items & other.
Analysis of operating profit/(loss) before tax
The following tables provide a segmental analysis of operating profit/(loss) before tax by the main income statement captions.
|
|
Retail |
|
Private |
|
Commercial & |
|
Central items |
|
|
|
|
Banking |
|
Banking |
|
Institutional |
|
& other |
|
Total |
Half year ended 30 June 2023 |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Continuing operations |
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
2,908 |
|
428 |
|
2,504 |
|
(114) |
|
5,726 |
Net fees and commissions |
|
206 |
|
125 |
|
821 |
|
(8) |
|
1,144 |
Other non-interest income |
|
6 |
|
14 |
|
423 |
|
414 |
|
857 |
Total income |
|
3,120 |
|
567 |
|
3,748 |
|
292 |
|
7,727 |
Depreciation and amortisation |
|
— |
|
— |
|
(78) |
|
(391) |
|
(469) |
Other operating expenses |
|
(1,367) |
|
(322) |
|
(1,909) |
|
152 |
|
(3,446) |
Impairment (losses)/releases |
|
(193) |
|
(11) |
|
(20) |
|
1 |
|
(223) |
Operating profit/(loss) |
|
1,560 |
|
234 |
|
1,741 |
|
54 |
|
3,589 |
|
|
|
|
|
|
|
|
|
|
|
Half year ended 30 June 2022 |
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
2,340 |
|
315 |
|
1,764 |
|
(85) |
|
4,334 |
Net fees and commissions |
|
219 |
|
131 |
|
753 |
|
21 |
|
1,124 |
Other non-interest income |
|
(5) |
|
15 |
|
420 |
|
331 |
|
761 |
Total income |
|
2,554 |
|
461 |
|
2,937 |
|
267 |
|
6,219 |
Depreciation and amortisation |
|
— |
|
— |
|
(82) |
|
(331) |
|
(413) |
Other operating expenses |
|
(1,242) |
|
(285) |
|
(1,738) |
|
25 |
|
(3,240) |
Impairment releases/(losses) |
|
(26) |
|
11 |
|
59 |
|
10 |
|
54 |
Operating profit/(loss) |
|
1,286 |
|
187 |
|
1,176 |
|
(29) |
|
2,620 |
NatWest Group – Form 6K Interim Results 2023 |
90 |
Notes
5. Segmental analysis continued
Total revenue (1)
|
|
Retail |
|
Private |
|
Commercial & |
|
Central items |
|
|
|
|
Banking |
|
Banking |
|
Institutional |
|
& other |
|
Total |
Half year ended 30 June 2023 |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Continuing operations |
|
|
|
|
|
|
|
|
|
|
External |
|
3,419 |
|
550 |
|
5,734 |
|
2,095 |
|
11,798 |
Inter-segmental |
|
1 |
|
418 |
|
(720) |
|
301 |
|
— |
Total |
|
3,420 |
|
968 |
|
5,014 |
|
2,396 |
|
11,798 |
|
|
|
|
|
|
|
|
|
|
|
Half year ended 30 June 2022 |
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
|
|
|
|
|
|
|
|
External |
|
2,766 |
|
407 |
|
3,020 |
|
1,242 |
|
7,435 |
Inter-segmental |
|
— |
|
106 |
|
76 |
|
(182) |
|
— |
Total |
|
2,766 |
|
513 |
|
3,096 |
|
1,060 |
|
7,435 |
(1) | Total revenue comprises interest receivable, fees and commissions receivable, income from trading activities and other operating income. |
Analysis of net fees and commissions
|
|
Retail |
|
Private |
|
Commercial & |
|
Central items |
|
|
|
|
Banking |
|
Banking |
|
Institutional |
|
& other |
|
Total |
Half year ended 30 June 2023 |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Continuing operations |
|
|
|
|
|
|
|
|
|
|
Fees and commissions receivable |
|
|
|
|
|
|
|
|
|
|
- Payment services |
|
159 |
|
16 |
|
332 |
|
3 |
|
510 |
- Credit and debit card fees |
|
197 |
|
6 |
|
129 |
|
2 |
|
334 |
- Lending and financing |
|
8 |
|
3 |
|
335 |
|
1 |
|
347 |
- Brokerage |
|
18 |
|
3 |
|
21 |
|
— |
|
42 |
- Investment management, trustee and fiduciary services |
|
1 |
|
105 |
|
22 |
|
— |
|
128 |
- Underwriting fees |
|
— |
|
— |
|
71 |
|
— |
|
71 |
- Other |
|
1 |
|
2 |
|
31 |
|
(7) |
|
27 |
Total |
|
384 |
|
135 |
|
941 |
|
(1) |
|
1,459 |
|
|
|
|
|
|
|
|
|
|
|
Fees and commissions payable |
|
(178) |
|
(10) |
|
(120) |
|
(7) |
|
(315) |
Net fees and commissions |
|
206 |
|
125 |
|
821 |
|
(8) |
|
1,144 |
|
|
|
|
|
|
|
|
|
|
|
Half year ended 30 June 2022 |
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
|
|
|
|
|
|
|
|
Fees and commissions receivable |
|
|
|
|
|
|
|
|
|
|
- Payment services |
|
152 |
|
17 |
|
308 |
|
26 |
|
503 |
- Credit and debit card fees |
|
203 |
|
8 |
|
102 |
|
10 |
|
323 |
- Lending and financing |
|
8 |
|
4 |
|
327 |
|
1 |
|
340 |
- Brokerage |
|
27 |
|
3 |
|
21 |
|
— |
|
51 |
- Investment management, trustee and fiduciary services |
|
1 |
|
114 |
|
22 |
|
— |
|
137 |
- Underwriting fees |
|
— |
|
— |
|
65 |
|
— |
|
65 |
- Other |
|
— |
|
— |
|
56 |
|
(51) |
|
5 |
Total |
|
391 |
|
146 |
|
901 |
|
(14) |
|
1,424 |
|
|
|
|
|
|
|
|
|
|
|
Fees and commissions payable |
|
(172) |
|
(15) |
|
(148) |
|
35 |
|
(300) |
Net fees and commissions |
|
219 |
|
131 |
|
753 |
|
21 |
|
1,124 |
Total assets and liabilities
|
|
Retail |
|
Private |
|
Commercial & |
|
Central items |
|
|
|
|
Banking |
|
Banking |
|
Institutional |
|
& other |
|
Total |
30 June 2023 |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Assets |
|
229,150 |
|
27,295 |
|
401,548 |
|
44,608 |
|
702,601 |
Liabilities |
|
186,971 |
|
36,755 |
|
378,498 |
|
65,579 |
|
667,803 |
|
|
|
|
|
|
|
|
|
|
|
31 December 2022 |
|
|
|
|
|
|
|
|
|
|
Assets |
|
226,375 |
|
29,867 |
|
404,817 |
|
58,994 |
|
720,053 |
Liabilities |
|
192,282 |
|
41,491 |
|
383,768 |
|
66,016 |
|
683,557 |
NatWest Group – Form 6K Interim Results 2023 |
91 |
Notes
6. Tax
The actual tax charge differs from the expected tax charge computed by applying the standard UK corporation tax rate of 23.5% (2022 - 19)%, as analysed below:
|
|
Half year ended |
||
|
|
30 June |
|
30 June |
|
|
2023 |
|
2022 |
Continuing operations |
|
£m |
|
£m |
Profit before tax |
|
3,589 |
|
2,620 |
Expected tax charge |
|
(843) |
|
(498) |
Losses and temporary differences in period where no deferred tax assets recognised |
|
(38) |
|
(51) |
Foreign profits taxed at other rates |
|
(21) |
|
(39) |
Items not allowed for tax: |
|
|
|
|
- losses on disposals and write-downs |
|
(1) |
|
(4) |
- UK bank levy |
|
(12) |
|
(9) |
- regulatory and legal actions |
|
(3) |
|
(13) |
- other disallowable items |
|
(18) |
|
(12) |
Non-taxable items: |
|
|
|
|
- FX recycling on UBIDAC capital reduction |
|
75 |
|
— |
- other non-taxable items |
|
14 |
|
8 |
Taxable foreign exchange movements |
|
6 |
|
(7) |
Losses bought forward and utilised |
|
8 |
|
— |
Increase/(decrease) in the carrying value of deferred tax assets in respect of: |
|
|
|
|
- UK losses |
|
— |
|
10 |
- Ireland losses |
|
— |
|
(1) |
Banking surcharge |
|
(144) |
|
(207) |
Tax on paid-in equity |
|
22 |
|
22 |
UK tax rate change impact |
|
— |
|
(31) |
Adjustments in respect of prior periods |
|
(106) |
|
37 |
Actual tax charge |
|
(1,061) |
|
(795) |
At 30 June 2023, NatWest Group has recognised a deferred tax asset of £2,171 million (31 December 2022 - £2,178 million) and a deferred tax liability of £210 million (31 December 2022 - £227 million). These amounts include deferred tax assets recognised in respect of trading losses of £773 million (31 December 2022 - £952 million). NatWest Group has considered the carrying value of these assets as at 30 June 2023 and concluded that they are recoverable.
7. Discontinued operations and assets and liabilities of disposal groups
Three legally binding agreements for the sale of UBIDAC business have been announced as part of the phased withdrawal from the Republic of Ireland. Material developments since the end of Q1 2023 are set out below.
Agreement with Allied Irish Banks, p.l.c. (AIB) for the transfer of performing commercial loans.
In July 2023, UBIDAC completed the sale of commercial loans to AIB, with a cumulative €3.1 billion of gross performing loans being fully migrated. The transfer of the final cohort of colleagues to AIB who were wholly or mainly assigned to supporting this part of the business under Transfer of Undertakings, Protection of Employment (TUPE) arrangements has also materially completed. Losses on disposal of €55 million have been recognised in respect of the migrations completed during H1 2023 (30 June 2022: €5 million).
Agreement with Permanent TSB Group Holdings p.l.c. (PTSB) for the sale of performing non-tracker mortgages, the performing loans in the micro-SME business, the UBIDAC Asset Finance business, including its Lombard digital platform, and 25 Ulster Bank branch locations in the Republic of Ireland.
During Q2 2023, the remaining performing non-tracker mortgage and micro-SME balances were transferred to PTSB, with a cumulative €6.3 billion of gross performing loans being fully migrated. In July 2023, the Lombard Asset Finance business which included balances of c. €500 million migrated to PTSB and the transfer of remaining colleagues who were eligible to move to PTSB under TUPE regulations has also materially completed. The 25 Ulster Bank branches had already been transferred to PTSB during Q1 2023.
Agreement with AIB for the sale of performing tracker and linked mortgages.
In July 2023, UBIDAC completed the migration of €4.0 billion of performing tracker and linked mortgages to AIB. The remaining migrations are expected to occur in H2 2023.
The business activities relating to these sales that meet the requirements of IFRS 5 are presented as a discontinued operation and as a disposal group. Ulster Bank RoI continuing operations are reported within NatWest Group Central items & other.
NatWest Group – Form 6K Interim Results 2023 |
92 |
Notes
7. Discontinued operations and assets and liabilities of disposal groups continued
(a) | Profit from discontinued operations, net of tax |
|
|
30 June |
|
30 June |
|
|
2023 |
|
2022 |
|
|
£m |
|
£m |
Interest receivable |
|
26 |
|
156 |
Net interest income |
|
26 |
|
156 |
Non-interest income |
|
(14) |
|
(4) |
Total income |
|
12 |
|
152 |
Operating expenses |
|
(122) |
|
(24) |
(Loss)/profit before impairment releases |
|
(110) |
|
128 |
Impairment releases |
|
2 |
|
62 |
Operating (loss)/profit before tax |
|
(108) |
|
190 |
Tax charge |
|
— |
|
— |
(Loss)/profit from discontinued operations, net of tax |
|
(108) |
|
190 |
(b) | Assets and liabilities of disposal groups |
|
|
30 June |
|
31 December |
|
|
2023 |
|
2022 |
|
|
£m |
|
£m |
Assets of disposal groups |
|
|
|
|
Loans to customers - amortised cost |
|
549 |
|
1,458 |
Other financial assets - loans to customers |
|
4,025 |
|
5,397 |
Other assets |
|
1 |
|
6 |
|
|
4,575 |
|
6,861 |
|
|
|
|
|
Liabilities of disposal groups |
|
|
|
|
Other liabilities |
|
5 |
|
15 |
|
|
5 |
|
15 |
|
|
|
|
|
Net assets of disposal groups |
|
4,570 |
|
6,846 |
(c) | Operating cash flows attributable to discontinued operations |
|
|
30 June |
|
30 June |
|
|
2023 |
|
2022 |
|
|
£m |
|
£m |
Net cash flows from operating activities |
|
577 |
|
402 |
Net cash flows from investing activities |
|
1,591 |
|
150 |
Net increase in cash and cash equivalents |
|
2,168 |
|
552 |
NatWest Group – Form 6K Interim Results 2023 |
93 |
Notes
8. Financial instruments - classification
The following tables analyse financial assets and liabilities in accordance with the categories of financial instruments in IFRS 9.
|
|
|
|
|
|
Amortised |
|
Other |
|
|
|
|
MFVTPL |
|
FVOCI |
|
cost |
|
assets |
|
Total |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Assets |
|
|
|
|
|
|
|
|
|
|
Cash and balances at central banks |
|
— |
|
— |
|
123,022 |
|
— |
|
123,022 |
Trading assets |
|
48,893 |
|
— |
|
— |
|
— |
|
48,893 |
Derivatives (1) |
|
81,873 |
|
— |
|
— |
|
— |
|
81,873 |
Settlement balances |
|
— |
|
— |
|
11,298 |
|
— |
|
11,298 |
Loans to banks - amortised cost (2) |
|
— |
|
— |
|
7,338 |
|
— |
|
7,338 |
Loans to customers - amortised cost (3) |
|
— |
|
— |
|
373,885 |
|
— |
|
373,885 |
Other financial assets (4) |
|
714 |
|
18,176 |
|
16,626 |
|
— |
|
35,516 |
Intangible assets |
|
— |
|
— |
|
— |
|
7,453 |
|
7,453 |
Other assets |
|
— |
|
— |
|
— |
|
8,748 |
|
8,748 |
Assets of disposal groups (5) |
|
— |
|
— |
|
— |
|
4,575 |
|
4,575 |
30 June 2023 |
|
131,480 |
|
18,176 |
|
532,169 |
|
20,776 |
|
702,601 |
|
|
|
|
|
|
|
|
|
|
|
Cash and balances at central banks |
|
— |
|
— |
|
144,832 |
|
— |
|
144,832 |
Trading assets |
|
45,577 |
|
— |
|
— |
|
— |
|
45,577 |
Derivatives (1) |
|
99,545 |
|
— |
|
— |
|
— |
|
99,545 |
Settlement balances |
|
— |
|
— |
|
2,572 |
|
— |
|
2,572 |
Loans to banks - amortised cost (2) |
|
— |
|
— |
|
7,139 |
|
— |
|
7,139 |
Loans to customers - amortised cost (3) |
|
— |
|
— |
|
366,340 |
|
— |
|
366,340 |
Other financial assets (4) |
|
787 |
|
16,973 |
|
13,135 |
|
— |
|
30,895 |
Intangible assets |
|
— |
|
— |
|
— |
|
7,116 |
|
7,116 |
Other assets |
|
— |
|
— |
|
— |
|
9,176 |
|
9,176 |
Assets of disposal groups (5) |
|
— |
|
— |
|
— |
|
6,861 |
|
6,861 |
31 December 2022 |
|
145,909 |
|
16,973 |
|
534,018 |
|
23,153 |
|
720,053 |
|
|
Held-for- |
|
|
|
Amortised |
|
Other |
|
|
|
|
trading |
|
DFV |
|
cost |
|
liabilities |
|
Total |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Liabilities |
|
|
|
|
|
|
|
|
|
|
Bank deposits (6) |
|
— |
|
— |
|
21,721 |
|
— |
|
21,721 |
Customer deposits |
|
— |
|
— |
|
432,532 |
|
— |
|
432,532 |
Settlement balances |
|
— |
|
— |
|
10,282 |
|
— |
|
10,282 |
Trading liabilities |
|
56,182 |
|
— |
|
— |
|
— |
|
56,182 |
Derivatives (1) |
|
77,246 |
|
— |
|
— |
|
— |
|
77,246 |
Other financial liabilities (7) |
|
— |
|
2,408 |
|
53,340 |
|
— |
|
55,748 |
Subordinated liabilities |
|
— |
|
217 |
|
5,803 |
|
— |
|
6,020 |
Notes in circulation |
|
— |
|
— |
|
3,159 |
|
— |
|
3,159 |
Other liabilities (8) |
|
— |
|
— |
|
1,032 |
|
3,881 |
|
4,913 |
30 June 2023 |
|
133,428 |
|
2,625 |
|
527,869 |
|
3,881 |
|
667,803 |
|
|
|
|
|
|
|
|
|
|
|
Bank deposits (6) |
|
— |
|
— |
|
20,441 |
|
— |
|
20,441 |
Customer deposits |
|
— |
|
— |
|
450,318 |
|
— |
|
450,318 |
Settlement balances |
|
— |
|
— |
|
2,012 |
|
— |
|
2,012 |
Trading liabilities |
|
52,808 |
|
— |
|
— |
|
— |
|
52,808 |
Derivatives (1) |
|
94,047 |
|
— |
|
— |
|
— |
|
94,047 |
Other financial liabilities (7) |
|
— |
|
2,377 |
|
46,730 |
|
— |
|
49,107 |
Subordinated liabilities |
|
— |
|
345 |
|
5,915 |
|
— |
|
6,260 |
Notes in circulation |
|
— |
|
— |
|
3,218 |
|
— |
|
3,218 |
Other liabilities (8) |
|
— |
|
— |
|
1,205 |
|
4,141 |
|
5,346 |
31 December 2022 |
|
146,855 |
|
2,722 |
|
529,839 |
|
4,141 |
|
683,557 |
(1) | Includes net hedging derivative assets of £103 million (31 December 2022 - £143 million) and net hedging derivative liabilities of £359 million (31 December 2022 - £132 million). |
(2) | Includes items in the course of collection from other banks of £140 million (31 December 2022 - £229 million). |
(3) | Includes finance lease receivables of £8,741 million (31 December 2022 - £8,402 million). |
(4) | Includes amounts reclassified from amortised cost to FVTPL in relation to a mortgage portfolio in the prior year. Refer to Note 7 for further information. |
(5) | Includes £4,025 million (31 December 2022 - £5,397 million) of assets of disposal groups held at FVTPL. The portfolio is classified as level 3 in the fair value hierarchy. |
(6) | Includes items in the course of transmission to other banks of £49 million (31 December 2022 - £242 million). |
(7) | The carrying amount of other customer accounts designated at fair value through profit or loss is the same as the principal amount for both periods. No amounts have been recognised in the profit or loss for changes in credit risk associated with these liabilities as the changes are immaterial both during the period and cumulatively. |
(8) | Includes lease liabilities of £948 million (31 December 2022 - £1,118 million), held at amortised cost. |
NatWest Group – Form 6K Interim Results 2023 |
94 |
Notes
8. Financial instruments - classification continued
|
|
30 June |
|
31 December |
|
|
2023 |
|
2022 |
|
|
£m |
|
£m |
Reverse repos |
|
|
|
|
Trading assets |
|
21,347 |
|
21,537 |
Loans to banks - amortised cost |
|
280 |
|
277 |
Loans to customers - amortised cost |
|
21,420 |
|
19,750 |
|
|
|
|
|
Repos |
|
|
|
|
Bank deposits |
|
2,231 |
|
1,446 |
Customer deposits |
|
9,322 |
|
9,829 |
Trading liabilities |
|
27,808 |
|
23,740 |
8. Financial instruments - valuation
Disclosures relating to the control environment, valuation techniques and related aspects pertaining to financial instruments measured at fair value are included in NatWest Group plc’s 2022 Annual Report on Form 20-F. Valuation, sensitivity methodologies and inputs at 30 June 2023 are consistent with those described in Note 11 to NatWest Group plc’s 2022 Annual Report on Form 20-F.
Fair value hierarchy
The table below shows the assets and liabilities held by NatWest Group split by fair value hierarchy level. Level 1 are considered the most liquid instruments, and level 3 the most illiquid, valued using expert judgment and hence carry the most significant price uncertainty.
|
|
30 June 2023 |
|
31 December 2022 |
||||||||||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
— |
|
31,756 |
|
277 |
|
32,033 |
|
— |
|
35,260 |
|
395 |
|
35,655 |
Securities |
|
13,099 |
|
3,761 |
|
— |
|
16,860 |
|
7,463 |
|
2,458 |
|
1 |
|
9,922 |
Derivatives |
|
1 |
|
80,942 |
|
930 |
|
81,873 |
|
5 |
|
98,533 |
|
1,007 |
|
99,545 |
Other financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
— |
|
119 |
|
684 |
|
803 |
|
— |
|
172 |
|
727 |
|
899 |
Securities |
|
10,488 |
|
7,385 |
|
214 |
|
18,087 |
|
10,380 |
|
6,278 |
|
203 |
|
16,861 |
Total financial assets held at fair value |
|
23,588 |
|
123,963 |
|
2,105 |
|
149,656 |
|
17,848 |
|
142,701 |
|
2,333 |
|
162,882 |
As a % of total value assets |
|
16 |
% |
83 |
% |
1 |
% |
|
|
11 |
% |
88 |
% |
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
— |
|
44,256 |
|
1 |
|
44,257 |
|
— |
|
42,486 |
|
1 |
|
42,487 |
Debt securities in issue |
|
— |
|
713 |
|
1 |
|
714 |
|
— |
|
797 |
|
— |
|
797 |
Short positions |
|
9,142 |
|
2,069 |
|
— |
|
11,211 |
|
7,462 |
|
2,062 |
|
— |
|
9,524 |
Derivatives |
|
1 |
|
76,350 |
|
895 |
|
77,246 |
|
2 |
|
93,070 |
|
975 |
|
94,047 |
Other financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities in issue |
|
— |
|
1,323 |
|
— |
|
1,323 |
|
— |
|
1,327 |
|
— |
|
1,327 |
Other deposits |
|
— |
|
1,085 |
|
— |
|
1,085 |
|
— |
|
1,050 |
|
— |
|
1,050 |
Subordinated liabilities |
|
— |
|
217 |
|
— |
|
217 |
|
— |
|
345 |
|
— |
|
345 |
Total financial liabilities held at fair value |
|
9,143 |
|
126,013 |
|
897 |
|
136,053 |
|
7,464 |
|
141,137 |
|
976 |
|
149,577 |
As a % of total value assets |
|
7 |
% |
92 |
% |
1 |
% |
|
|
5 |
% |
94 |
% |
1 |
% |
|
(1) | Level 1 - Instruments valued using unadjusted quoted prices in active and liquid markets, for identical financial instruments. Examples include government bonds, listed equity shares and certain exchange-traded derivatives. |
Level 2 - Instruments valued using valuation techniques that have observable inputs. Observable inputs are those that are readily available with limited adjustments required. Examples include most government agency securities, investment-grade corporate bonds, certain mortgage products - including CLOs, most bank loans, repos and reverse repos, state and municipal obligations, most notes issued, certain money market securities, loan commitments and most OTC derivatives.
Level 3 - Instruments valued using a valuation technique where at least one input which could have a significant effect on the instrument’s valuation, is not based on observable market data. Examples include non-derivative instruments which trade infrequently, certain syndicated and commercial mortgage loans, private equity, and derivatives with unobservable model inputs.
(2) | Transfers between levels are deemed to have occurred at the beginning of the quarter in which the instrument was transferred. |
(3) | For an analysis of debt securities held at mandatorily fair value through profit or loss by issuer as well as ratings and derivatives, by type and contract, refer to Risk and capital management – Credit risk. |
NatWest Group – Form 6K Interim Results 2023 |
95 |
Notes
8. Financial instruments – valuation continued
Valuation adjustments
When valuing financial instruments in the trading book, adjustments are made to mid-market valuations to cover bid-offer spread, funding and credit risk. These adjustments are presented in the table below. For further information refer to the descriptions of valuation adjustments within ‘Financial instruments – valuation’ on page 95 to 98 of NatWest Group plc’s 2022 Annual Report on Form 20-F.
|
|
30 June |
|
31 December |
|
|
2023 |
|
2022 |
|
|
£m |
|
£m |
Funding – FVA |
|
126 |
|
173 |
Credit - CVA |
|
253 |
|
300 |
Bid - Offer |
|
89 |
|
130 |
Product and deal specific |
|
117 |
|
141 |
Total |
|
585 |
|
744 |
- | Valuation reserves comprising credit valuation adjustments (CVA), funding valuation adjustment (FVA), bid-offer and product and deal specific reserves, decreased to £585 million at 30 June 2023 (31 December 2022 – £744 million). |
- | The decrease in FVA was primarily driven by increases in interest rates. The decrease in CVA is driven by a combination of tighter credit spreads and increases in interest rates. The decrease in bid-offer was driven by risk reduction over the period. |
Level 3 sensitivities
The table below shows the high and low range of fair value of the level 3 assets and liabilities.
|
|
30 June 2023 |
|
31 December 2022 |
||||||||
|
|
Level 3 |
|
Favourable |
|
Unfavourable |
|
Level 3 |
|
Favourable |
|
Unfavourable |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
277 |
|
— |
|
— |
|
395 |
|
10 |
|
(10) |
Securities |
|
— |
|
— |
|
— |
|
1 |
|
— |
|
— |
Derivatives |
|
930 |
|
30 |
|
(40) |
|
1,007 |
|
50 |
|
(50) |
Other financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
684 |
|
— |
|
(30) |
|
727 |
|
— |
|
(10) |
Securities |
|
214 |
|
30 |
|
(30) |
|
203 |
|
20 |
|
(30) |
Total financial assets held at fair value |
|
2,105 |
|
60 |
|
(100) |
|
2,333 |
|
80 |
|
(100) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Trading liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
1 |
|
— |
|
— |
|
1 |
|
— |
|
— |
Debt securities in issue |
|
1 |
|
— |
|
— |
|
— |
|
— |
|
— |
Derivatives |
|
895 |
|
30 |
|
(30) |
|
975 |
|
30 |
|
(30) |
Total financial liabilities held at fair value |
|
897 |
|
30 |
|
(30) |
|
976 |
|
30 |
|
(30) |
Alternative assumptions
Reasonably plausible alternative assumptions of unobservable inputs are determined based on a specified target level of certainty of 90%. Alternative assumptions are determined with reference to all available evidence including consideration of the following: quality of independent pricing information considering consistency between different sources, variation over time, perceived tradability or otherwise of available quotes; consensus service dispersion ranges; volume of trading activity and market bias (e.g. one-way inventory); day 1 profit or loss arising on new trades; number and nature of market participants; market conditions; modelling consistency in the market; size and nature of risk; length of holding of position; and market intelligence.
NatWest Group – Form 6K Interim Results 2023 |
96 |
Notes
8. Financial instruments – valuation continued
Movement in level 3 assets and liabilities
The following table shows the movement in level 3 assets and liabilities.
|
|
Half year ended 30 June 2023 |
|
Half year ended 30 June 2022 |
||||||||||||
|
|
|
|
Other |
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Trading |
|
financial |
|
Total |
|
Total |
|
Trading |
|
financial |
|
Total |
|
Total |
|
|
assets (1) |
|
assets (2) |
|
assets |
|
liabilities |
|
assets (1) |
|
assets (2) |
|
assets |
|
liabilities |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
At 1 January |
|
1,403 |
|
930 |
|
2,333 |
|
976 |
|
1,659 |
|
393 |
|
2,052 |
|
609 |
Amounts recorded in the income statement (3) |
|
(80) |
|
— |
|
(80) |
|
(84) |
|
134 |
|
(20) |
|
114 |
|
139 |
Amount recorded in the statement of comprehensive income |
|
— |
|
12 |
|
12 |
|
— |
|
— |
|
(19) |
|
(19) |
|
— |
Level 3 transfers in |
|
4 |
|
(72) |
|
(68) |
|
7 |
|
143 |
|
— |
|
143 |
|
31 |
Level 3 transfers out |
|
(34) |
|
— |
|
(34) |
|
(5) |
|
(101) |
|
(1) |
|
(102) |
|
(36) |
Purchases/originations |
|
92 |
|
68 |
|
160 |
|
89 |
|
352 |
|
67 |
|
419 |
|
154 |
Settlements/other decreases |
|
(24) |
|
— |
|
(24) |
|
(27) |
|
(28) |
|
— |
|
(28) |
|
(15) |
Sales |
|
(150) |
|
(25) |
|
(175) |
|
(54) |
|
(526) |
|
— |
|
(526) |
|
(133) |
Foreign exchange and other adjustments |
|
(4) |
|
(15) |
|
(19) |
|
(5) |
|
4 |
|
2 |
|
6 |
|
2 |
At 30 June |
|
1,207 |
|
898 |
|
2,105 |
|
897 |
|
1,637 |
|
422 |
|
2,059 |
|
751 |
Amounts recorded in the income statement in respect of balances held at period end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- unrealised |
|
(80) |
|
(1) |
|
(81) |
|
(84) |
|
134 |
|
(20) |
|
114 |
|
139 |
(1) | Trading assets comprise assets held at fair value in trading portfolios. |
(2) | Other financial assets comprise fair value through other comprehensive income, designated at fair value through profit or loss and other fair value through profit or loss. |
(3) | Net gains of £4 million on trading assets and liabilities (30 June 2022 - £5 million net losses) were recorded in income from trading activities. Net losses on other instruments of nil (30 June 2022 – £20 million) were recorded in other operating income and interest income as appropriate. |
NatWest Group – Form 6K Interim Results 2023 |
97 |
Notes
8. Financial instruments – valuation continued
Fair value of financial instruments measured at amortised cost on the balance sheet
The following table shows the carrying value and fair value of financial instruments carried at amortised cost on the balance sheet.
|
|
Items where |
|
|
|
|
|
|
|
|
|
|
|
|
approximates |
|
Carrying |
|
|
|
Fair value hierarchy level |
||||
|
|
carrying value |
|
value |
|
Fair value |
|
Level 1 |
|
Level 2 |
|
Level 3 |
30 June 2023 |
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
£bn |
|
£bn |
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and balances at central banks |
|
123.0 |
|
— |
|
— |
|
— |
|
— |
|
— |
Settlement balances |
|
11.3 |
|
— |
|
— |
|
— |
|
— |
|
— |
Loans to banks |
|
0.2 |
|
7.1 |
|
7.2 |
|
— |
|
4.7 |
|
2.5 |
Loans to customers |
|
— |
|
373.9 |
|
359.3 |
|
— |
|
21.7 |
|
337.6 |
Other financial assets - securities |
|
— |
|
16.6 |
|
16.3 |
|
5.2 |
|
3.7 |
|
7.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
31 December 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and balances at central banks |
|
144.8 |
|
— |
|
— |
|
— |
|
— |
|
— |
Settlement balances |
|
2.6 |
|
— |
|
— |
|
— |
|
— |
|
— |
Loans to banks |
|
0.1 |
|
7.0 |
|
7.0 |
|
— |
|
4.2 |
|
2.8 |
Loans to customers |
|
— |
|
366.3 |
|
354.5 |
|
— |
|
20.3 |
|
334.2 |
Other financial assets - securities |
|
— |
|
13.1 |
|
12.8 |
|
3.6 |
|
3.2 |
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
30 June 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Bank deposits |
|
4.6 |
|
17.1 |
|
16.9 |
|
— |
|
14.1 |
|
2.8 |
Customer deposits |
|
373.4 |
|
59.1 |
|
59.3 |
|
— |
|
18.4 |
|
40.9 |
Settlement balances |
|
10.3 |
|
— |
|
— |
|
— |
|
— |
|
— |
Other financial liabilities - debt securities in issue |
|
— |
|
53.3 |
|
52.8 |
|
— |
|
40.5 |
|
12.3 |
Subordinated liabilities |
|
— |
|
5.8 |
|
5.5 |
|
— |
|
5.4 |
|
0.1 |
Notes in circulation |
|
3.2 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
31 December 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Bank deposits |
|
4.7 |
|
15.7 |
|
15.3 |
|
— |
|
13.1 |
|
2.2 |
Customer deposits |
|
407.0 |
|
43.3 |
|
43.3 |
|
— |
|
12.7 |
|
30.6 |
Settlement balances |
|
2.0 |
|
— |
|
— |
|
— |
|
— |
|
— |
Other financial liabilities - debt securities in issue |
|
— |
|
46.7 |
|
46.1 |
|
— |
|
40.7 |
|
5.4 |
Subordinated liabilities |
|
— |
|
5.9 |
|
5.6 |
|
— |
|
5.5 |
|
0.1 |
Notes in circulation |
|
3.2 |
|
— |
|
— |
|
— |
|
— |
|
— |
The assumptions and methodologies underlying the calculation of fair values of financial instruments at the balance sheet date are as follows:
Short-term financial instruments
For certain short-term financial instruments: cash and balances at central banks, items in the course of collection from other banks, settlement balances, items in the course of transmission to other banks, customer demand deposits and notes in circulation, carrying value is deemed a reasonable approximation of fair value.
Loans to banks and customers
In estimating the fair value of net loans to customers and banks measured at amortised cost, NatWest Group’s loans are segregated into appropriate portfolios reflecting the characteristics of the constituent loans. Two principal methods are used to estimate fair value; contractual cash flows and expected cash flows.
Debt securities and subordinated liabilities
Most debt securities are valued using quoted prices in active markets or from quoted prices of similar financial instruments in active markets. For the remaining population, fair values are determined using market standard valuation techniques, such as discounted cash flows.
Bank and customer deposits
Fair value of deposits are estimated using discounted cash flow valuation techniques.
NatWest Group – Form 6K Interim Results 2023 |
98 |
Notes
9. Trading assets and liabilities
Trading assets and liabilities comprise assets and liabilities held at fair value in trading portfolios.
|
|
30 June |
|
31 December |
|
|
2023 |
|
2022 |
|
|
£m |
|
£m |
Assets |
|
|
|
|
Loans |
|
|
|
|
Reverse repos |
|
21,347 |
|
21,537 |
Collateral given |
|
10,027 |
|
13,005 |
Other loans |
|
659 |
|
1,113 |
Total loans |
|
32,033 |
|
35,655 |
Securities |
|
|
|
|
Central and local government |
|
|
|
|
- UK |
|
2,703 |
|
2,205 |
- US |
|
5,478 |
|
2,345 |
- Other |
|
4,845 |
|
2,799 |
Financial institutions and Corporate |
|
3,834 |
|
2,573 |
Total securities |
|
16,860 |
|
9,922 |
Total |
|
48,893 |
|
45,577 |
|
|
|
|
|
Liabilities |
|
|
|
|
Deposits |
|
|
|
|
Repos |
|
27,808 |
|
23,740 |
Collateral received |
|
15,234 |
|
17,680 |
Other deposits |
|
1,215 |
|
1,067 |
Total deposits |
|
44,257 |
|
42,487 |
Debt securities in issue |
|
714 |
|
797 |
Short positions |
|
11,211 |
|
9,524 |
Total |
|
56,182 |
|
52,808 |
NatWest Group – Form 6K Interim Results 2023 |
99 |
Notes
10. Loan impairment provisions
Loan exposure and impairment metrics
The table below summarises loans and related credit impairment measures on an IFRS 9 basis.
|
|
30 June |
|
31 December |
|
|
2023 |
|
2022 |
|
|
£m |
|
£m |
Loans - amortised cost and FVOCI (1) |
|
|
|
|
Stage 1 |
|
336,362 |
|
325,224 |
Stage 2 |
|
43,440 |
|
46,833 |
Stage 3 |
|
5,450 |
|
5,096 |
Of which: individual |
|
1,247 |
|
1,121 |
Of which: collective |
|
4,203 |
|
3,975 |
|
|
385,252 |
|
377,153 |
ECL provisions (2) |
|
|
|
|
Stage 1 |
|
661 |
|
632 |
Stage 2 |
|
991 |
|
1,043 |
Stage 3 |
|
1,905 |
|
1,759 |
Of which: individual |
|
295 |
|
287 |
Of which: collective |
|
1,610 |
|
1,472 |
|
|
3,557 |
|
3,434 |
ECL provisions coverage (3) |
|
|
|
|
Stage 1 (%) |
|
0.20 |
|
0.19 |
Stage 2 (%) |
|
2.28 |
|
2.23 |
Stage 3 (%) |
|
34.95 |
|
34.52 |
|
|
0.92 |
|
0.91 |
|
|
|
|
|
|
|
Half year ended |
||
|
|
30 June |
|
30 June |
|
|
2023 |
|
2022 |
|
|
£m |
|
£m |
Impairment losses (4) |
|
|
|
|
ECL (release)/charge |
|
223 |
|
(54) |
Stage 1 |
|
(209) |
|
(342) |
Stage 2 |
|
296 |
|
205 |
Stage 3 |
|
136 |
|
83 |
Of which: individual |
|
13 |
|
(1) |
Of which: collective |
|
123 |
|
84 |
|
|
|
|
|
Amounts written off |
|
122 |
|
215 |
Of which: individual |
|
22 |
|
58 |
Of which: collective |
|
100 |
|
157 |
1) | Includes loans to customers and banks. |
2) | Includes £4 million (31 December 2022 - £3 million) related to assets classified as FVOCI and £0.1 billion (31 December 2022 – £0.1 billion) related to off-balance sheet exposures. |
3) | ECL provisions coverage is calculated as ECL provisions divided by loans – amortised cost and FVOCI. It is calculated on third party loans and total ECL provisions. |
4) | Includes a £5 million release (30 June 2022 – £2 million release) related to other financial assets, of which £1 million (30 June 2022 – nil) related to assets classified as FVOCI; and £3 million release (30 June 2022 - £3 million release) related to contingent liabilities. |
5) | The table shows gross loans only and excludes amounts that were outside the scope of the ECL framework. Refer to Financial instruments within the scope of the IFRS 9 ECL framework for further details. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling £121.9 billion (31 December 2022 – £143.3 billion) and debt securities of £34.7 billion (31 December 2022 – £29.9 billion). |
NatWest Group – Form 6K Interim Results 2023 |
100 |
Notes
11. Provisions for liabilities and charges
|
|
|
|
|
|
|
|
Financial |
|
|
|
|
|
|
Customer |
|
Litigation and |
|
|
|
commitments |
|
|
|
|
|
|
redress |
|
other regulatory |
|
Property |
|
and guarantees |
|
Other (1) |
|
Total |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
At 1 January 2023 |
|
431 |
|
240 |
|
154 |
|
87 |
|
226 |
|
1,138 |
Expected credit losses impairment release |
|
— |
|
— |
|
— |
|
(2) |
|
— |
|
(2) |
Currency translation and other movements |
|
(8) |
|
(8) |
|
(1) |
|
— |
|
(7) |
|
(24) |
Charge to income statement |
|
145 |
|
5 |
|
27 |
|
— |
|
60 |
|
237 |
Release to income statement |
|
(5) |
|
(33) |
|
(26) |
|
— |
|
(13) |
|
(77) |
Provisions utilised |
|
(104) |
|
(63) |
|
(9) |
|
— |
|
(70) |
|
(246) |
At 30 June 2023 |
|
459 |
|
141 |
|
145 |
|
85 |
|
196 |
|
1,026 |
(1) | Other materially comprises provisions relating to restructuring costs. |
Provisions are liabilities of uncertain timing or amount and are recognised when there is a present obligation as a result of a past event, the outflow of economic benefit is probable and the outflow can be estimated reliably. Any difference between the final outcome and the amounts provided will affect the reported results in the period when the matter is resolved.
12. Dividends
The 2022 final dividend was approved by shareholders at the Annual General Meeting on 25 April 2023 and the payment made on 2 May 2023 to shareholders on the register at the close of business on 17 March 2023.
NatWest Group plc announces an interim dividend for 2023 of £492 million, or 5.5 pence per ordinary share. The interim dividend will be paid on 15 September 2023 to shareholders on the register at close of business on 11 August 2023. The ex-dividend date will be 10 August 2023.
13. Contingent liabilities and commitments
The amounts shown in the table below are intended only to provide an indication of the volume of business outstanding at 30 June 2023. Although NatWest Group is exposed to credit risk in the event of a customer’s failure to meet its obligations, the amounts shown do not, and are not intended to, provide any indication of NatWest Group’s expectation of future losses.
|
|
30 June |
|
31 December |
|
|
2023 |
|
2022 |
|
|
£m |
|
£m |
Contingent liabilities and commitments |
|
|
|
|
Guarantees |
|
2,846 |
|
3,150 |
Other contingent liabilities |
|
1,531 |
|
1,855 |
Standby facilities, credit lines and other commitments |
|
120,262 |
|
121,576 |
Total |
|
124,639 |
|
126,581 |
Commitments and contingent obligations are subject to NatWest Group’s normal credit approval processes.
NatWest Group – Form 6K Interim Results 2023 |
101 |
Notes
14.Litigation and regulatory matters
NatWest Group plc and certain members of NatWest Group are party to legal proceedings and involved in regulatory matters, including as the subject of investigations and other regulatory and governmental action (Matters) in the United Kingdom (UK), the United States (US), the European Union (EU) and other jurisdictions.
NatWest Group recognises a provision for a liability in relation to these Matters when it is probable that an outflow of economic benefits will be required to settle an obligation resulting from past events, and a reliable estimate can be made of the amount of the obligation.
In many of these Matters, it is not possible to determine whether any loss is probable, or to estimate reliably the amount of any loss, either as a direct consequence of the relevant proceedings and regulatory matters or as a result of adverse impacts or restrictions on NatWest Group’s reputation, businesses and operations. Numerous legal and factual issues may need to be resolved, including through potentially lengthy discovery and document production exercises and determination of important factual matters, and by addressing novel or unsettled legal questions relevant to the proceedings in question, before a liability can reasonably be estimated for any claim. NatWest Group cannot predict if, how, or when such claims will be resolved or what the eventual settlement, damages, fine, penalty or other relief, if any, may be, particularly for claims that are at an early stage in their development or where claimants seek substantial or indeterminate damages.
There are situations where NatWest Group may pursue an approach that in some instances leads to a settlement agreement. This may occur in order to avoid the expense, management distraction or reputational implications of continuing to contest liability, or in order to take account of the risks inherent in defending claims or regulatory matters, even for those Matters for which NatWest Group believes it has credible defences and should prevail on the merits. The uncertainties inherent in all such Matters affect the amount and timing of any potential outflows for both Matters with respect to which provisions have been established and other contingent liabilities in respect of any such Matter.
It is not practicable to provide an aggregate estimate of potential liability for our legal proceedings and regulatory matters as a class of contingent liabilities.
The future outflow of resources in respect of any Matter may ultimately prove to be substantially greater than or less than the aggregate provision that NatWest Group has recognised. Where (and as far as) liability cannot be reasonably estimated, no provision has been recognised. NatWest Group expects that in future periods, additional provisions, settlement amounts and customer redress payments will be necessary, in amounts that are expected to be substantial in some instances. Please refer to Note 11 for information on material provisions.
Matters which are, or could be material, having regard to NatWest Group, considered as a whole, in which NatWest Group is currently involved are set out below. We have provided information on the procedural history of certain Matters, where we believe appropriate, to aid the understanding of the Matter.
For a discussion of certain risks associated with NatWest Group’s litigation and regulatory matters, see the Risk Factor relating to legal, regulatory and governmental actions and investigations set out on page 147 of NatWest Group plc’s 2022 Annual Report on Form 20-F.
Litigation
Residential mortgage-backed securities (RMBS) litigation in the US
NWMSI was defending an RMBS-related claim in the US in which the plaintiff, the Federal Deposit Insurance Corporation (FDIC), alleged that certain disclosures made in connection with the relevant offerings of RMBS contained materially false or misleading statements and/or omissions regarding the underwriting standards pursuant to which the mortgage loans underlying the RMBS were issued. In June 2023, NWMSI entered into an agreement to resolve that claim. The settlement amount paid by NWMSI was covered by an existing provision.
NatWest Group – Form 6K Interim Results 2023 |
102 |
Notes
14. Litigation and regulatory matters continued
London Interbank Offered Rate (LIBOR) and other rates litigation
NWM Plc and certain other members of NatWest Group, including NatWest Group plc, are defendants in a number of class actions and individual claims pending in the United States District Court for the Southern District of New York (SDNY) with respect to the setting of LIBOR and certain other benchmark interest rates. The complaints allege that certain members of NatWest Group and other panel banks violated various federal laws, including the US commodities and antitrust laws, and state statutory and common law, as well as contracts, by manipulating LIBOR and prices of LIBOR-based derivatives in various markets through various means.
Several purported class actions relating to USD LIBOR, as well as more than two dozen non-class actions concerning USD LIBOR, are part of a co-ordinated proceeding in the SDNY. The class actions include claims on behalf of persons who purchased LIBOR-linked instruments from defendants, bonds issued by defendants, persons who transacted futures and options on exchanges, and lenders who made LIBOR-based loans. The coordinated proceeding is currently in the discovery phase. In March 2020, NatWest Group companies finalised a settlement resolving the class action on behalf of bondholder plaintiffs (those who held bonds issued by non-defendants on which interest was paid from 2007 to 2010 at a rate expressly tied to USD LIBOR). The amount of the settlement (which was covered by an existing provision) was paid into escrow pending court approval of the settlement.
The non-class claims filed in the SDNY include claims that the FDIC is asserting on behalf of certain failed US banks. In July 2017, the FDIC, on behalf of 39 of those failed US banks, commenced substantially similar claims against NatWest Group companies and others in the High Court of Justice of England and Wales. The action alleges collusion with regard to the setting of USD LIBOR and that the defendants breached UK and European competition law, as well as asserting common law claims of fraud under US law. The defendant banks consented to a request by the FDIC for discontinuance of the claim in respect of 20 failed US banks, leaving 19 failed US banks as claimants. The trial is currently anticipated to take place in Q4 2025.
In addition to the USD LIBOR cases described above, there are two class actions relating to JPY LIBOR and Euroyen TIBOR. The first class action, which relates to Euroyen TIBOR futures contracts, was dismissed by the SDNY in September 2020 on jurisdictional and other grounds, and that decision was affirmed by the United States Court of Appeals for the Second Circuit (US Court of Appeals) in October 2022. The plaintiffs petitioned the court for a rehearing of their appeal and that petition was denied. The second class action, which relates to other derivatives allegedly tied to JPY LIBOR and Euroyen TIBOR, was dismissed by the SDNY in relation to NWM Plc and other NatWest Group companies in September 2021. That dismissal may be the subject of a future appeal.
Two other IBOR-related class actions, concerning alleged manipulation of Euribor and Pound Sterling LIBOR, were previously dismissed by the SDNY for various reasons. The plaintiffs’ appeals in those two cases remain pending.
In June 2021, NWM Plc and the plaintiffs in the Swiss Franc LIBOR class action finalised a settlement resolving that case. The amount of that settlement has been paid into escrow pending final court approval of the settlement.
In August 2020, a complaint was filed in the United States District Court for the Northern District of California by several United States retail borrowers against the USD ICE LIBOR panel banks and their affiliates (including NatWest Group plc, NWM Plc, NWMSI and NWB Plc), alleging (i) that the very process of setting USD ICE LIBOR amounts to illegal price-fixing; and (ii) that banks in the United States have illegally agreed to use LIBOR as a component of price in variable retail loans. In September 2022, the district court dismissed the complaint, subject to re-pleading by the plaintiffs. The plaintiffs filed an amended complaint in October 2022, which the defendants are again seeking to have dismissed.
NWM Plc is also named as a defendant in a motion to certify a class action relating to LIBOR in the Tel Aviv District Court in Israel. NWM Plc filed a motion for cancellation of service outside the jurisdiction, which was granted in July 2020. The claimants appealed that decision and in November 2020 the appeal was refused and the claim dismissed by the Appellate Court. The claim could in future be recommenced depending on the outcome of an appeal to Israel’s Supreme Court in respect of the dismissal of the substantive case against banks that had a presence in Israel.
NatWest Group – Form 6K Interim Results 2023 |
103 |
Notes
14. Litigation and regulatory matters continued
FX litigation
NWM Plc, NWMSI and/or NatWest Group plc are defendants in several cases relating to NWM Plc’s foreign exchange (FX) business. In 2015, NWM Plc paid US$255 million to settle the consolidated antitrust class action filed in the SDNY on behalf of persons who entered into over-the-counter FX transactions with defendants or who traded FX instruments on exchanges. In 2018, some members of the settlement class who opted out of that class action settlement filed their own non-class complaint in the SDNY asserting antitrust claims against NWM Plc, NWMSI and other banks.
In April 2019, some of the claimants in the opt-out case described above, as well as others, served proceedings in the High Court of Justice of England and Wales, asserting competition claims against NWM Plc and several other banks. The claim was transferred from the High Court of Justice of England and Wales in December 2021 and registered in the UK Competition Appeal Tribunal (CAT) in January 2022. In March 2023, NWM Plc entered into an agreement to resolve both the SDNY and CAT cases. The settlement amount paid by NWM Plc was covered by an existing provision.
An FX-related class action, on behalf of ‘consumers and end-user businesses’, was proceeding in the SDNY against NWM Plc and others. In March 2023, the court granted summary judgment in favour of the defendants, dismissing the plaintiffs’ claims. The plaintiffs have commenced an appeal of that decision as well as a prior decision denying class certification in the case.
In May 2019, a cartel class action was filed in the Federal Court of Australia against NWM Plc and four other banks on behalf of persons who bought or sold currency through FX spots or forwards between 1 January 2008 and 15 October 2013 with a total transaction value exceeding AUD $0.5 million. The claimant has alleged that the banks, including NWM Plc, contravened Australian competition law by sharing information, coordinating conduct, widening spreads and manipulating FX rates for certain currency pairs during this period. NatWest Group plc and NWMSI have been named in the action as ‘other cartel participants’, but are not respondents. The claim was served in June 2019 and NWM Plc filed its defence in March 2022.
In July and December 2019, two separate applications seeking opt-out collective proceedings orders were filed in the CAT against NatWest Group plc, NWM Plc and other banks. Both applications were brought on behalf of persons who, between 18 December 2007 and 31 January 2013, entered into a relevant FX spot or outright forward transaction in the EEA with a relevant financial institution or on an electronic communications network. In March 2022, the CAT declined to certify as collective proceedings either of the applications, which was appealed by the applicants, and the subject of an application for judicial review. In July 2023, the Court of Appeal allowed the appeal and decided that the claims should proceed on an opt-out basis. Separately, the court determined which of the two competing applicants can proceed as class representative, and dismissed the application for judicial review of the CAT’s decision. Subject to any potential appeal to the UK Supreme Court, the case will be remitted to the CAT for further case management.
Two motions to certify FX-related class actions were filed in the Tel Aviv District Court in Israel in September and October 2018, and were subsequently consolidated into one motion. The consolidated motion to certify, which names The Royal Bank of Scotland plc (now NWM Plc) and several other banks as defendants, was served on NWM Plc in May 2020. The applicants have sought the court’s permission to amend their motions to certify the class actions. NWM Plc has filed a motion challenging the permission granted by the court for the applicants to serve the consolidated motion outside the Israeli jurisdiction. That NWM Plc motion remains pending.
In December 2021, a claim was filed in the Netherlands against NatWest Group plc, NWM Plc and NWM N.V. by Stichting FX Claims on behalf of a number of claimants, seeking a declaration from the court that anti-competitive FX market conduct described in decisions of the European Commission (EC) of 16 May 2019 is unlawful, along with unspecified damages. The claimants amended their claim to also refer to a December 2021 decision by the EC, which described anti-competitive FX market conduct. The defendants contested the jurisdiction of the Dutch court. In March 2023, the district court in Amsterdam accepted that it has jurisdiction to hear claims against NWM N.V. but refused jurisdiction to hear any claims against the other defendant banks (including NatWest Group plc and NWM Plc) unless the claimants are domiciled in the Netherlands. Certain of the claimants are so domiciled and are therefore permitted to continue with their claims against all defendants, including NatWest Group plc and NWM Plc. The claimants are appealing that decision. In June 2023, a new group of claimants indicated their intention to join Stichting FX Claims to pursue similar claims against the defendants.
Certain other foreign exchange transaction related claims have been or may be threatened. NatWest Group cannot predict whether all or any of these claims will be pursued.
Government securities antitrust litigation
NWMSI and certain other US broker-dealers are defendants in a consolidated antitrust class action in the SDNY on behalf of persons who transacted in US Treasury securities or derivatives based on such instruments, including futures and options. The plaintiffs allege that the defendants rigged the US Treasury securities auction bidding process to deflate prices at which they bought such securities and colluded to increase the prices at which they sold such securities to the plaintiffs. In March 2022, the SDNY dismissed the complaint, without leave to re-plead. The plaintiffs are appealing the dismissal.
Class action antitrust claims commenced in March 2019 are pending in the SDNY against NWM Plc, NWMSI and other banks in respect of Euro-denominated bonds issued by European central banks (EGBs). The complaint alleges a conspiracy among dealers of EGBs to widen the bid-ask spreads they quoted to customers, thereby increasing the prices customers paid for the EGBs or decreasing the prices at which customers sold the bonds. The class consists of those who purchased or sold EGBs in the US between 2007 and 2012. In March 2022, the SDNY dismissed the claims against NWM Plc and NWMSI on the ground that the complaint’s conspiracy allegations are insufficient. The plaintiffs have filed a motion for permission to file an amended complaint.
NatWest Group – Form 6K Interim Results 2023 |
104 |
Notes
14. Litigation and regulatory matters continued
Swaps antitrust litigation
NWM Plc and other members of NatWest Group, including NatWest Group plc, as well as a number of other interest rate swap dealers, are defendants in several cases pending in the SDNY alleging violations of the US antitrust laws in the market for interest rate swaps. There is a consolidated class action complaint on behalf of persons who entered into interest rate swaps with the defendants, as well as non-class action claims by three swap execution facilities (TeraExchange, Javelin, and trueEx). The plaintiffs allege that the swap execution facilities would have successfully established exchange-like trading of interest rate swaps if the defendants had not unlawfully conspired to prevent that from happening through boycotts and other means. Discovery in these cases is complete, and the plaintiffs’ motion for class certification remains pending.
In June 2021, a class action antitrust complaint was filed against a number of credit default swap dealers, in New Mexico federal court on behalf of persons who, from 2005 onwards, settled credit default swaps in the United States by reference to the ISDA credit default swap auction protocol. The complaint alleges that the defendants conspired to manipulate that benchmark through various means in violation of the antitrust laws and the Commodity Exchange Act. The defendants filed a motion to dismiss the complaint and, in June 2023, such motion was denied as regards NWMSI and other financial institutions, but granted as regards to NWM Plc on the ground that the court lacks jurisdiction over that entity. As a result, the case is now expected to enter the discovery phase as against the non-dismissed defendants.
Odd lot corporate bond trading antitrust litigation
In October 2021, the SDNY granted the defendants’ motion to dismiss the class action antitrust complaint alleging that from August 2006 onwards various securities dealers, including NWMSI, conspired artificially to widen spreads for odd lots of corporate bonds bought or sold in the United States secondary market and to boycott electronic trading platforms that would have allegedly promoted pricing competition in the market for such bonds. The plaintiffs have filed an appeal.
Spoofing litigation
In December 2021, three substantially similar class actions complaints were filed in federal court in the United States against NWM Plc and NWMSI alleging Commodity Exchange Act and common law unjust enrichment claims arising from manipulative trading known as spoofing. The complaints refer to NWM Plc’s December 2021 spoofing-related guilty plea (described below under “US investigations relating to fixed-income securities”) and purport to assert claims on behalf of those who transacted in US Treasury securities and futures and options on US Treasury securities between 2008 and 2018. In July 2022, defendants filed a motion to dismiss these claims, which have been consolidated into one matter in the United States District Court for the Northern District of Illinois.
NatWest Group – Form 6K Interim Results 2023 |
105 |
Notes
14. Litigation and regulatory matters continued
Madoff
NWM N.V. was named as a defendant in two actions filed by the trustee for the bankrupt estates of Bernard L. Madoff and Bernard L. Madoff Investment Securities LLC, in bankruptcy court in New York, which together seek to clawback more than US$298 million that NWM N.V. allegedly received from certain Madoff feeder funds and certain swap counterparties. The claims were previously dismissed, but as a result of an August 2021 decision by the US Court of Appeals, they will now proceed in the bankruptcy court, where they have been consolidated into one action, subject to NWM N.V.’s legal and factual defences. In May 2022, NWM N.V. filed a motion to dismiss the amended complaint in the consolidated action and such motion was denied in March 2023. As a result, the case is now expected to enter the discovery phase.
EUA trading litigation
NWM Plc was a named defendant in civil proceedings before the High Court of Justice of England and Wales brought in 2015 by ten companies (all in liquidation) (the ‘Liquidated Companies’) and their respective liquidators (together, ‘the Claimants’). The Liquidated Companies previously traded in European Union Allowances (EUAs) in 2009 and were alleged to be VAT defaulting traders within (or otherwise connected to) EUA supply chains of which NWM Plc was a party. In March 2020, the court held that NWM Plc and Mercuria Energy Europe Trading Limited (‘Mercuria’) were liable for dishonestly assisting and knowingly being a party to fraudulent trading during a seven business day period in 2009.
In October 2020, the High Court quantified total damages against NWM Plc and Mercuria at £45 million plus interest and costs, and permitted the defendants to appeal to the Court of Appeal. In May 2021 the Court of Appeal set aside the High Court’s judgment and ordered that a retrial take place before a different High Court judge. The claimants have been denied permission by the Supreme Court to appeal that decision and the retrial is therefore expected to proceed on a date to be scheduled. Mercuria has also been denied permission by the Supreme Court to appeal the High Court’s finding that NWM Plc and Mercuria were both vicariously liable.
Offshoring VAT assessments
HMRC issued protective tax assessments in 2018 against NatWest Group plc totalling £143 million relating to unpaid VAT in respect of the UK branches of two NatWest Group companies registered in India. NatWest Group formally requested reconsideration by HMRC of their assessments, and this process was completed in November 2020. HMRC upheld their original decision and, as a result, NatWest Group plc lodged an appeal with the Tax Tribunal and an application for judicial review with the High Court of Justice of England and Wales, both in December 2020. In order to lodge the appeal with the Tax Tribunal, NatWest Group plc was required to pay £143 million to HMRC, and payment was made in December 2020. The appeal and the application for judicial review have both been stayed pending resolution of a separate case involving another bank.
US Anti-Terrorism Act litigation
NWM N.V. and certain other financial institutions are defendants in several actions filed by a number of US nationals (or their estates, survivors, or heirs), most of whom are or were US military personnel, who were killed or injured in attacks in Iraq between 2003 and 2011. NWM Plc is also a defendant in some of these cases.
According to the plaintiffs’ allegations, the defendants are liable for damages arising from the attacks because they allegedly conspired with and/or aided and abetted Iran and certain Iranian banks to assist Iran in transferring money to Hezbollah and the Iraqi terror cells that committed the attacks, in violation of the US Anti-Terrorism Act, by agreeing to engage in ‘stripping’ of transactions initiated by the Iranian banks so that the Iranian nexus to the transactions would not be detected.
The first of these actions, alleging conspiracy claims but not aiding and abetting claims, was filed in the United States District Court for the Eastern District of New York in November 2014. In September 2019, the district court dismissed the case, finding that the claims were deficient for several reasons, including lack of sufficient allegations as to the alleged conspiracy and causation. In January 2023, the US Court of Appeals affirmed the district court’s dismissal of this case. It is anticipated that the plaintiffs will file a motion to re-open the case to assert aiding and abetting claims that they previously did not assert. Another action, filed in the SDNY in 2017, which asserted both conspiracy and aiding and abetting claims, was dismissed by the SDNY in March 2019 on similar grounds as the first case, but remains subject to appeal to the US Court of Appeals. Other follow-on actions that are substantially similar to those described above are pending in the same courts.
1MDB litigation
A Malaysian court claim was served in Switzerland in November 2022 by 1MDB, a Sovereign Wealth Fund, in which Coutts & Co Ltd was named, along with six others, as a defendant in respect of losses allegedly incurred by 1MDB. It is claimed that Coutts & Co Ltd is liable as a constructive trustee for having dishonestly assisted the directors of 1MDB in the breach of their fiduciary duties by failing (amongst other alleged claims) to undertake due diligence in relation to a customer of Coutts & Co Ltd, through which funds totalling c.US$1 billion were received and paid out between 2009 and 2011. The claimant seeks the return of that amount plus interest. Coutts & Co Ltd filed an application in January 2023 challenging the validity of service and the Malaysian court’s jurisdiction to hear the claim.
In April 2023, the claimant filed a notice of discontinuance of its claim against certain defendants including Coutts & Co Ltd. The claimant subsequently indicated that it intends to issue further replacement proceedings. Coutts & Co Ltd is challenging the claimant’s ability to take that step and a hearing took place in the Malaysian Court in June 2023 to consider the validity of any new proceedings. Judgment is awaited.
Coutts & Co Ltd is a company registered in Switzerland and is in wind-down following the announced sale of its business assets in 2015.
NatWest Group – Form 6K Interim Results 2023 |
106 |
Notes
14. Litigation and regulatory matters continued
Regulatory matters (including investigations and customer redress programmes)
NatWest Group’s businesses and financial condition can be affected by the actions of various governmental and regulatory authorities in the UK, the US, the EU and elsewhere. NatWest Group has engaged, and will continue to engage, in discussions with relevant governmental and regulatory authorities, including in the UK, the US, the EU and elsewhere, on an ongoing and regular basis, and in response to informal and formal inquiries or investigations, regarding operational, systems and control evaluations and issues including those related to compliance with applicable laws and regulations, including consumer protection, investment advice, business conduct, competition/anti-trust, VAT recovery, anti-bribery, anti-money laundering and sanctions regimes. NatWest Group expects government and regulatory intervention in financial services to be high for the foreseeable future, including increased scrutiny from competition and other regulators in the retail and SME business sectors.
Any matters discussed or identified during such discussions and inquiries may result in, among other things, further inquiry or investigation, other action being taken by governmental and regulatory authorities, increased costs being incurred by NatWest Group, remediation of systems and controls, public or private censure, restriction of NatWest Group’s business activities and/or fines. Any of the events or circumstances mentioned in this paragraph or below could have a material adverse effect on NatWest Group, its business, authorisations and licences, reputation, results of operations or the price of securities issued by it, or lead to material additional provisions being taken.
NatWest Group is co-operating fully with the matters described below.
US investigations relating to fixed-income securities
In December 2021, NWM Plc pled guilty in the United States District Court for the District of Connecticut to one count of wire fraud and one count of securities fraud in connection with historical spoofing conduct by former employees in US Treasuries markets between January 2008 and May 2014 and, separately, during approximately three months in 2018. The 2018 trading occurred during the term of a non-prosecution agreement (NPA) between NWMSI and the United States Attorney’s Office for the District of Connecticut (USAO CT), under which non-prosecution was conditioned on NWMSI and affiliated companies not engaging in criminal conduct during the term of the NPA. The relevant trading in 2018 was conducted by two NWM traders in Singapore and breached that NPA. The plea agreement reached with the US Department of Justice and the USAO CT resolved both the spoofing conduct and the breach of the NPA.
As required by the resolution and sentence imposed by the court, NWM Plc is subject to a three-year period of probation. The plea agreement also imposes an independent corporate monitor. In addition, NWM Plc has committed to compliance programme reviews and improvements and agreed to reporting and co-operation obligations.
Other material adverse collateral consequences may occur as a result of this matter, as further described in the Risk Factor relating to legal, regulatory and governmental actions and investigations set out on page 147 of NatWest Group plc’s 2022 Annual Report on Form 20-F.
RBSI inspection report and referral to enforcement
The Isle of Man Financial Services Authority (IoMFSA) undertook an inspection at The Royal Bank of Scotland International Limited (RBSI), Isle of Man, in 2021, following which it issued an inspection report. The inspection was in relation to anti-money laundering and counter-terrorist financing controls and procedures relating to specific RBSI customers. In May 2022, the IoMFSA notified RBSI that it had been referred to its Enforcement Division in relation to certain issues identified in the inspection report. The enforcement referral does not relate to counter-terrorist financing.
RBSI reliance regime and referral to enforcement
In January 2023, the Jersey Financial Services Commission notified RBSI that it had been referred to its Enforcement Division in relation to RBSI’s operation of the reliance regime. The reliance regime is specific to certain Crown Dependencies and enables the bank to rely on regulated third parties for specific due diligence information.
Investment advice review
In October 2019, the FCA notified NatWest Group of its intention to appoint a Skilled Person under section 166 of the Financial Services and Markets Act 2000 to conduct a review of whether NatWest Group’s past business review of investment advice provided during 2010 to 2015 was subject to appropriate governance and accountability and led to appropriate customer outcomes. The Skilled Person’s review has concluded and, after discussion with the FCA, NatWest Group has now commenced additional review / remediation work.
Review and investigation of treatment of tracker mortgage customers in Ulster Bank Ireland DAC
In December 2015, correspondence was received from the Central Bank of Ireland setting out an industry examination framework in respect of the sale of tracker mortgages from approximately 2001 until the end of 2015. The redress and compensation process has now largely concluded, although certain cases remain outstanding.
UBIDAC customers have lodged tracker mortgage complaints with the Financial Services and Pensions Ombudsman (FSPO). UBIDAC challenged three FSPO adjudications in the Irish High Court. In June 2023, the High Court found in favour of the FSPO in all matters and a provision has been recognised. UBIDAC has been granted leave to appeal that decision.
Other customer remediation in Ulster Bank Ireland DAC
UBIDAC has previously identified other legacy business issues leading to the establishment of remediation programmes. The majority of these remediation programmes have concluded with one programme currently under management.
NatWest Group – Form 6K Interim Results 2023 |
107 |
Notes
15. Related party transactions
UK Government
The UK Government through HM Treasury is the ultimate controlling party of NatWest Group plc. The UK Government’s shareholding is managed by UK Government Investments Limited, a company wholly owned by the UK Government. As a result the UK Government and UK Government controlled bodies are related parties of the Group.
At 30 June 2023 HM Treasury’s holding in the company’s ordinary shares was 38.53%.
NatWest Group enters into transactions with many of these bodies. Transactions include the payment of: taxes – principally UK corporation tax and value added tax; national insurance contributions; local authority rates; regulatory fees and levies; together with banking transactions such as loans and deposits undertaken in the normal course of banker customer relationships.
Bank of England facilities
In the ordinary course of business, NatWest Group may from time to time access market-wide facilities provided by the Bank of England.
Other related parties
(a) In their roles as providers of finance, NatWest Group companies provide development and other types of capital support to businesses. These investments are made in the normal course of business.
(b) To further strategic partnerships, NatWest Group may seek to invest in third parties or allow third parties to hold a minority interest in a subsidiary of NatWest Group. We disclose as related parties where stakes of 10 per cent or more are held. Ongoing business transactions with these entities are on normal commercial terms.
(c) NatWest Group recharges the NatWest Group Pension Fund with the cost of administration services incurred by it. The amounts involved are not material to NatWest Group.
(d) In accordance with IAS 24, transactions or balances between NatWest Group entities that have been eliminated on consolidation are not reported.
Full details of NatWest Group’s related party transactions for the year ended 31 December 2022 are included in NatWest Group plc’s 2022 Annual Report on Form 20-F.
16. Post balance sheet events
On 25 July 2023, UBIDAC agreed the sale of a portfolio which consists mostly of non-performing mortgages; unsecured personal loans and commercial facilities with a gross value of c. €690 million at 31 December 2022.
Migrations of UBIDAC business to AIB and PTSB during July 2023 have been included in Note 7. Discontinued operations and assets and liabilities of disposal groups.
17. Date of approval
This announcement was approved by the Board of Directors on 27 July 2023.
NatWest Group – Form 6K Interim Results 2023 |
108 |
NatWest Group plc Summary Risk Factors
Summary of Principal Risks and Uncertainties
Set out below is a summary of the principal risks and uncertainties for the remaining six months of the financial year which could adversely affect NatWest Group. This summary should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties; a fuller description of these and other risk factors is included on pages 127 to 148 of NatWest Group plc’s 2022 Form 20-F. Any of the risks identified may have a material adverse effect on NatWest Group’s business, operations, financial condition or prospects.
Economic and political risk
- |
NatWest Group, its customers and its counterparties face continued economic and political risks and uncertainties in the UK and global markets, including as a result of high inflation and rising interest rates, supply chain disruption and the Russian invasion of Ukraine. |
- |
Changes in interest rates have significantly affected, and will continue to affect, NatWest Group’s business and results. |
- |
Fluctuations in currency exchange rates may adversely affect NatWest Group’s results and financial condition. |
- |
Continuing uncertainty regarding the effects and extent of the UK’s post Brexit divergence from EU laws and regulation, and NatWest Group’s post Brexit EU operating model may adversely affect NatWest Group and its operating environment. |
- |
HM Treasury (or UKGI on its behalf) could exercise a significant degree of influence over NatWest Group and further offers or sales of NatWest Group’s shares held by HM Treasury may affect the price of NatWest Group securities. |
Strategic risk
- |
NatWest Group continues to implement its purpose-led strategy, which carries significant execution and operational risks and may not achieve its stated aims and targeted outcomes. |
- |
Future acquisitions or divestments by NatWest Group may not be successful, and consolidation or fragmentation of the financial services industry may adversely affect NatWest Group. |
- |
NatWest Group’s phased withdrawal from the Republic of Ireland present various risks. |
- |
The transfer of NatWest Group’s Western European corporate portfolio involves certain risks. |
Financial resilience risk
- |
NatWest Group may not meet the targets it communicates or be in a position to continue to make discretionary capital distributions (including dividends to shareholders). |
- |
NatWest Group operates in markets that are highly competitive, with increasing competitive pressures and technology disruption. |
- |
NatWest Group has significant exposure to counterparty and borrower risk. |
- |
NatWest Group may not meet the prudential regulatory requirements for regulatory capital and MREL, or manage its capital effectively, which could trigger the execution of certain management actions or recovery options. |
- |
NatWest Group may not be able to adequately access sources of liquidity and funding. |
- |
Any reduction in the credit rating and/or outlooks assigned to NatWest Group plc, any of its subsidiaries or any of their respective debt securities could adversely affect the availability of funding for NatWest Group, reduce NatWest Group’s liquidity position and increase the cost of funding. |
- |
NatWest Group may be adversely affected if it fails to meet the requirements of regulatory stress tests. |
- |
NatWest Group could incur losses or be required to maintain higher levels of capital as a result of limitations or failure of various models. |
- |
NatWest Group’s financial statements are sensitive to underlying accounting policies, judgments, estimates and assumptions. |
- |
Changes in accounting standards may materially impact NatWest Group’s financial results. |
- |
The value or effectiveness of any credit protection that NatWest Group has purchased depends on the value of the underlying assets and the financial condition of the insurers and counterparties. |
- |
NatWest Group is subject to Bank of England and PRA oversight in respect of resolution, and NatWest Group could be adversely affected should the Bank of England in the future deem NatWest Group’s preparations to be inadequate. |
- |
NatWest Group may become subject to the application of UK statutory stabilisation or resolution powers which may result in, for example, the cancellation, transfer or dilution of ordinary shares, or the write-down or conversion of certain other of NatWest Group’s securities. |
NatWest Group – Form 6K Interim Results 2023 |
109 |
NatWest Group plc Summary Risk Factors
Summary of Principal Risks and Uncertainties continued
Climate and sustainability-related risks
- |
NatWest Group and its customers, suppliers and counterparties face significant climate and sustainability-related risks, which may adversely affect NatWest Group. |
- |
NatWest Group’s climate change related strategy, ambitions, targets and transition plan entail significant execution and reputational risk and are unlikely to be achieved without significant and timely government policy, technology and customer behavioural changes. |
- |
There are significant limitations related to accessing reliable, verifiable and comparable climate and other sustainability-related data, including as a result of lack of standardisation, consistency and completeness which, alongside other factors, contribute to substantial uncertainties in accurately modelling and reporting on climate and sustainability information, as well as making appropriate important internal decisions. |
- |
A failure to implement effective climate change resilient governance, procedures, systems and controls in compliance with legal and regulatory expectations to manage climate and sustainability-related risks and opportunities could adversely affect NatWest Group’s ability to manage those risks. |
- |
Increasing levels of climate, environmental, human rights and other sustainability-related laws, regulation and oversight which are constantly evolving may adversely affect NatWest Group. |
- |
NatWest Group may be subject to potential climate, environmental, human rights and other sustainability-related litigation, enforcement proceedings, investigations and conduct risk. |
- |
A reduction in the ESG ratings of NatWest Group could have a negative impact on NatWest Group’s reputation and on investors’ risk appetite and customers’ willingness to deal with NatWest Group. |
Operational and IT resilience risk
- |
Operational risks (including reliance on third party suppliers and outsourcing of certain activities) are inherent in NatWest Group’s businesses. |
- |
NatWest Group is subject to increasingly sophisticated and frequent cyberattacks. |
- |
NatWest Group operations and strategy are highly dependent on the accuracy and effective use of data. |
- |
NatWest Group’s operations are highly dependent on its complex IT systems and any IT failure could adversely affect NatWest Group. |
- |
NatWest Group relies on attracting, retaining and developing diverse senior management and skilled personnel, and is required to maintain good employee relations. |
- |
A failure in NatWest Group’s risk management framework could adversely affect NatWest Group, including its ability to achieve its strategic objectives. |
- |
NatWest Group’s operations are subject to inherent reputational risk. |
Legal, regulatory and conduct risk
- |
NatWest Group’s businesses are subject to substantial regulation and oversight, which are constantly evolving and may adversely affect NatWest Group. |
- |
NatWest Group is exposed to the risks of various litigation matters, regulatory and governmental actions and investigations as well as remedial undertakings, including conduct-related reviews, anti-money laundering and redress projects, the outcomes of which are inherently difficult to predict, and which could have an adverse effect on NatWest Group. |
- |
NatWest Group may not effectively manage the transition of LIBOR and other IBOR rates to replacement risk-free rates. |
- |
Changes in tax legislation or failure to generate future taxable profits may impact the recoverability of certain deferred tax assets recognised by NatWest Group. |
NatWest Group – Form 6K Interim Results 2023 |
110 |
Statement of directors’ responsibilities
We, the directors listed below, confirm that to the best of our knowledge:
-the condensed financial statements have been prepared in accordance with IAS 34 ‘Interim Financial Reporting’, as adopted by the UK and as issued by the International Accounting Standards Board (IASB);
-the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and
- |
the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties’ transactions and changes therein). |
By order of the Board
Howard Davies |
Katie Murray |
Chairman |
Group Chief Financial Officer |
27 July 2023
Board of directors
Chairman |
Executive directors |
Non-executive directors |
Howard Davies |
John-Paul Thwaite Katie Murray |
Frank Dangeard Roisin Donnelly Patrick Flynn Morten Friis Yasmin Jetha Mark Seligman Lena Wilson Stuart Lewis |
NatWest Group – Form 6K Interim Results 2023 |
111 |
Additional information
Other financial data
The following table shows NatWest Group’s issued and fully paid share capital, owners’ equity and indebtedness on a consolidated basis in accordance with IFRS as at 30 June 2023.
|
|
As at |
|
|
30 June |
|
|
2023 |
|
|
£m |
Share capital - allotted, called up and fully paid |
|
|
Ordinary shares of £1 |
|
9,852 |
Retained income and other reserves |
|
24,906 |
Owners’ equity |
|
34,758 |
|
|
|
NatWest Group indebtedness |
|
|
Trading liabilities - debt securities in issue |
|
714 |
Other financial liabilities – debt securities in issue |
|
55,748 |
Subordinated liabilities |
|
6,020 |
Total indebtedness |
|
62,482 |
Total capitalisation and indebtedness |
|
97,240 |
Under IFRS, certain preference shares are classified as debt and are included in subordinated liabilities in the table above.
The information contained in the table above has not changed materially since 30 June 2023.
Share information
|
|
30 June |
|
31 March |
|
31 December |
|
|
2023 |
|
2023 |
|
2022 |
Ordinary share price (pence) |
|
241 |
|
264 |
|
265 |
|
|
|
|
|
|
|
Number of ordinary shares in issue (millions) |
|
8,929 |
|
9,581 |
|
9,659 |
NatWest Group – Form 6K Interim Results 2023 |
112 |
Non-IFRS financial measures
NatWest Group prepares its financial statements in accordance with UK-adopted International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS). This document contains a number of non-IFRS measures, also known as alternative performance measures, defined under the European Securities and Markets Authority guidance or non-GAAP financial measures in accordance with SEC regulations. These measures are adjusted for notable and other defined items which management believes are not representative of the underlying performance of the business and which distort period-on-period comparison.
The non-IFRS measures provide users of the financial statements with a consistent basis for comparing business performance between financial periods and information on elements of performance that are one-off in nature. The non-IFRS measures also include a calculation of metrics that are used throughout the banking industry.
These non-IFRS measures are not a substitute for IFRS measures and a reconciliation to the closest IFRS measure is presented where appropriate.
1. Total income excluding notable items
Total income excluding notable items is calculated as total income less notable items.
The exclusion of notable items aims to remove the impact of one-offs and other items which may distort period-on-period comparisons.
|
|
Half year ended |
|
Quarter ended |
||||||
|
|
30 June |
|
30 June |
|
30 June |
|
31 March |
|
30 June |
|
|
2023 |
|
2022 |
|
2023 |
|
2023 |
|
2022 |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Continuing operations |
|
|
|
|
|
|
|
|
|
|
Total income |
|
7,727 |
|
6,219 |
|
3,851 |
|
3,876 |
|
3,211 |
Less notable items: |
|
|
|
|
|
|
|
|
|
|
Commercial & Institutional |
|
|
|
|
|
|
|
|
|
|
Fair value, disposal losses and asset disposals/strategic risk reduction |
|
— |
|
(45) |
|
— |
|
— |
|
(45) |
Own credit adjustments (OCA) |
|
9 |
|
52 |
|
3 |
|
6 |
|
34 |
Central items & other |
|
|
|
|
|
|
|
|
|
|
Loss on redemption of own debt |
|
— |
|
(24) |
|
— |
|
— |
|
— |
Liquidity Asset Bond sale (losses)/gains |
|
(24) |
|
36 |
|
(11) |
|
(13) |
|
(5) |
Share of associate (losses) for Business Growth Fund |
|
(15) |
|
(13) |
|
(3) |
|
(12) |
|
(36) |
Interest and FX management derivatives not in hedge accounting relationships |
|
52 |
|
315 |
|
(23) |
|
75 |
|
149 |
FX recycling gains |
|
322 |
|
— |
|
322 |
|
— |
|
— |
|
|
344 |
|
321 |
|
288 |
|
56 |
|
97 |
Total income excluding notable items |
|
7,383 |
|
5,898 |
|
3,563 |
|
3,820 |
|
3,114 |
NatWest Group – Form 6K Interim Results 2023 |
114 |
Non-IFRS financial measures continued
2. Operating expenses - management view
The management analysis of operating expenses shows litigation and conduct costs on a separate line. These amounts are included within staff costs and other administrative expenses in the statutory analysis. Other operating expenses excludes litigation and conduct costs, which are more volatile and may distort period-on-period comparisons.
Statutory analysis
|
|
Half year ended |
|
Quarter ended |
||||||
|
|
30 June |
|
30 June |
|
30 June |
|
31 December |
|
30 June |
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
2022 |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Staff costs |
|
2,005 |
|
1,808 |
|
965 |
|
1,029 |
|
907 |
Premises and equipment |
|
570 |
|
534 |
|
284 |
|
292 |
|
283 |
Other administrative expenses |
|
871 |
|
898 |
|
421 |
|
597 |
|
216 |
Depreciation and amortisation |
|
469 |
|
413 |
|
257 |
|
220 |
|
427 |
Total operating expenses |
|
3,915 |
|
3,653 |
|
1,927 |
|
2,138 |
|
1,833 |
Non-statutory analysis
|
|
Half year ended |
||||
|
|
30 June 2023 |
||||
|
|
Litigation and |
|
Other operating |
|
Statutory operating |
|
|
conduct costs |
|
expenses |
|
expenses |
|
|
£m |
|
£m |
|
£m |
Continuing operations |
|
|
|
|
|
|
Staff costs |
|
31 |
|
1,974 |
|
2,005 |
Premises and equipment |
|
— |
|
570 |
|
570 |
Depreciation and amortisation |
|
— |
|
469 |
|
469 |
Other administrative expenses |
|
77 |
|
794 |
|
871 |
Total |
|
108 |
|
3,807 |
|
3,915 |
|
|
Half year ended |
||||
|
|
30 June 2022 |
||||
|
|
Litigation and |
|
Other operating |
|
Statutory operating |
|
|
conduct costs |
|
expenses |
|
expenses |
|
|
£m |
|
£m |
|
£m |
Continuing operations |
|
|
|
|
|
|
Staff costs |
|
18 |
|
1,790 |
|
1,808 |
Premises and equipment |
|
— |
|
534 |
|
534 |
Depreciation and amortisation |
|
— |
|
413 |
|
413 |
Other administrative expenses |
|
151 |
|
747 |
|
898 |
Total |
|
169 |
|
3,484 |
|
3,653 |
|
|
Quarter ended |
||||
|
|
30 June 2023 |
||||
|
|
Litigation and |
|
Other operating |
|
Statutory operating |
|
|
conduct costs |
|
expenses |
|
expenses |
|
|
£m |
|
£m |
|
£m |
Continuing operations |
|
|
|
|
|
|
Staff costs |
|
17 |
|
948 |
|
965 |
Premises and equipment |
|
— |
|
284 |
|
284 |
Depreciation and amortisation |
|
— |
|
257 |
|
257 |
Other administrative expenses |
|
35 |
|
386 |
|
421 |
Total |
|
52 |
|
1,875 |
|
1,927 |
NatWest Group – Form 6K Interim Results 2023 |
115 |
Non-IFRS financial measures continued
2. Operating expenses - management view continued
|
|
Quarter ended |
||||
|
|
31 March 2023 |
||||
|
|
Litigation and |
|
Other operating |
|
Statutory operating |
|
|
conduct costs |
|
expenses |
|
expenses |
|
|
£m |
|
£m |
|
£m |
Continuing operations |
|
|
|
|
|
|
Staff costs |
|
14 |
|
1,026 |
|
1,040 |
Premises and equipment |
|
— |
|
286 |
|
286 |
Depreciation and amortisation |
|
— |
|
212 |
|
212 |
Other administrative expenses |
|
42 |
|
408 |
|
450 |
Total |
|
56 |
|
1,932 |
|
1,988 |
|
|
Quarter ended |
||||
|
|
30 June 2022 |
||||
|
|
Litigation and |
|
Other operating |
|
Statutory operating |
|
|
conduct costs |
|
expenses |
|
expenses |
|
|
£m |
|
£m |
|
£m |
Continuing operations |
|
|
|
|
|
|
Staff costs |
|
11 |
|
896 |
|
907 |
Premises and equipment |
|
— |
|
283 |
|
283 |
Depreciation and amortisation |
|
— |
|
216 |
|
216 |
Other administrative expenses |
|
56 |
|
371 |
|
427 |
Total |
|
67 |
|
1,766 |
|
1,833 |
NatWest Group – Form 6K Interim Results 2023 |
116 |
Non-IFRS financial measures continued
3. Cost:income ratio (excl. litigation and conduct)
NatWest Group uses the cost:income ratio (excl. litigation and conduct) in the Outlook guidance. This is calculated as other operating expenses (operating expenses less litigation and conduct costs) divided by total income. Litigation and conduct costs are excluded as they are one-off in nature, difficult to forecast for Outlook purposes and distort period-on-period comparisons.
The calculation of the cost:income ratio (excl. litigation and conduct) is shown below, along with a comparison to cost:income ratio using total operating expenses.
|
|
|
|
|
|
|
|
Central |
|
Total |
|
|
Retail |
|
Private |
|
Commercial & |
|
items |
|
NatWest |
|
|
Banking |
|
Banking |
|
Institutional |
|
& other |
|
Group |
Half year ended 30 June 2023 |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Continuing operations |
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
1,367 |
|
322 |
|
1,987 |
|
239 |
|
3,915 |
Less litigation and conduct costs |
|
(24) |
|
(11) |
|
(94) |
|
21 |
|
(108) |
Other operating expenses |
|
1,343 |
|
311 |
|
1,893 |
|
260 |
|
3,807 |
|
|
|
|
|
|
|
|
|
|
|
Total income |
|
3,120 |
|
567 |
|
3,748 |
|
292 |
|
7,727 |
|
|
|
|
|
|
|
|
|
|
|
Cost:income ratio |
|
43.8% |
|
56.8% |
|
53.0% |
|
nm |
|
50.7% |
Cost:income ratio (excl. litigation and conduct) |
|
43.0% |
|
54.9% |
|
50.5% |
|
nm |
|
49.3% |
|
|
|
|
|
|
|
|
|
|
|
Half year ended 30 June 2022 |
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
1,242 |
|
285 |
|
1,820 |
|
306 |
|
3,653 |
Less litigation and conduct costs |
|
(58) |
|
(1) |
|
(86) |
|
(24) |
|
(169) |
Other operating expenses |
|
1,184 |
|
284 |
|
1,734 |
|
282 |
|
3,484 |
|
|
|
|
|
|
|
|
|
|
|
Total income |
|
2,554 |
|
461 |
|
2,937 |
|
267 |
|
6,219 |
|
|
|
|
|
|
|
|
|
|
|
Cost:income ratio |
|
48.6% |
|
61.8% |
|
62.0% |
|
nm |
|
58.7% |
Cost:income ratio (excl. litigation and conduct) |
|
46.4% |
|
61.6% |
|
59.0% |
|
nm |
|
56.0% |
|
|
|
|
|
|
|
|
|
|
|
Quarter ended 30 June 2023 |
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
671 |
|
167 |
|
984 |
|
105 |
|
1,927 |
Less litigation and conduct costs |
|
(21) |
|
(8) |
|
(50) |
|
27 |
|
(52) |
Other operating expenses |
|
650 |
|
159 |
|
934 |
|
132 |
|
1,875 |
|
|
|
|
|
|
|
|
|
|
|
Total income |
|
1,516 |
|
271 |
|
1,795 |
|
269 |
|
3,851 |
|
|
|
|
|
|
|
|
|
|
|
Cost:income ratio |
|
44.3% |
|
61.6% |
|
54.8% |
|
nm |
|
50.0% |
Cost:income ratio (excl. litigation and conduct) |
|
42.9% |
|
58.7% |
|
52.0% |
|
nm |
|
48.7% |
|
|
|
|
|
|
|
|
|
|
|
Quarter ended 31 March 2023 |
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
696 |
|
155 |
|
1,003 |
|
134 |
|
1,988 |
Less litigation and conduct costs |
|
(3) |
|
(3) |
|
(44) |
|
(6) |
|
(56) |
Other operating expenses |
|
693 |
|
152 |
|
959 |
|
128 |
|
1,932 |
|
|
|
|
|
|
|
|
|
|
|
Total income |
|
1,604 |
|
296 |
|
1,953 |
|
23 |
|
3,876 |
|
|
|
|
|
|
|
|
|
|
|
Cost:income ratio |
|
43.4% |
|
52.4% |
|
51.4% |
|
nm |
|
51.3% |
Cost:income ratio (excl. litigation and conduct) |
|
43.2% |
|
51.4% |
|
49.1% |
|
nm |
|
49.8% |
|
|
|
|
|
|
|
|
|
|
|
Quarter ended 30 June 2022 |
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
597 |
|
146 |
|
898 |
|
192 |
|
1,833 |
Less litigation and conduct costs |
|
(4) |
|
— |
|
(44) |
|
(19) |
|
(67) |
Other operating expenses |
|
593 |
|
146 |
|
854 |
|
173 |
|
1,766 |
|
|
|
|
|
|
|
|
|
|
|
Total income |
|
1,337 |
|
245 |
|
1,562 |
|
67 |
|
3,211 |
|
|
|
|
|
|
|
|
|
|
|
Cost:income ratio |
|
44.7% |
|
59.6% |
|
57.5% |
|
nm |
|
57.1% |
Cost:income ratio (excl. litigation and conduct) |
|
44.4% |
|
59.6% |
|
54.7% |
|
nm |
|
55.0% |
nm = not meaningful
NatWest Group – Form 6K Interim Results 2023 |
117 |
Non-IFRS financial measures continued
4. NatWest Group return on tangible equity
Return on tangible equity comprises annualised profit or loss for the period attributable to ordinary shareholders divided by average tangible equity. Average tangible equity is average total equity excluding average non-controlling interests, average other owners’ equity and average intangible assets.
This measure shows the return NatWest Group generates on tangible equity deployed. It is used to determine relative performance of banks and used widely across the sector, although different banks may calculate the rate differently. A reconciliation is shown below including a comparison to the nearest GAAP measure, return on equity. This comprises profit attributable to ordinary shareholders divided by average total equity.
|
|
Half year ended |
|
|
|
|
|
|
||
|
|
and as at |
|
Quarter ended and as at |
||||||
|
|
30 June |
|
30 June |
|
30 June |
|
31 March |
|
30 June |
|
|
2023 |
|
2022 |
|
2023 |
|
2023 |
|
2022 |
NatWest Group return on tangible equity |
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Profit attributable to ordinary shareholders |
|
2,299 |
|
1,891 |
|
1,020 |
|
1,279 |
|
1,050 |
Annualised profit attributable to ordinary shareholders |
|
4,598 |
|
3,782 |
|
4,080 |
|
5,116 |
|
4,200 |
Average total equity |
|
36,562 |
|
39,857 |
|
36,216 |
|
37,195 |
|
38,625 |
Adjustment for other owners' equity and intangibles |
|
(11,352) |
|
(11,037) |
|
(11,378) |
|
(11,319) |
|
(10,944) |
Adjusted average total tangible equity |
|
25,210 |
|
28,820 |
|
24,838 |
|
25,876 |
|
27,681 |
Return on equity |
|
12.6% |
|
9.5% |
|
11.3% |
|
13.8% |
|
10.9% |
Return on tangible equity |
|
18.2% |
|
13.1% |
|
16.4% |
|
19.8% |
|
15.2% |
NatWest Group – Form 6K Interim Results 2023 |
118 |
Non-IFRS financial measures continued
5. Segmental return on equity
Segmental return on equity comprises segmental operating profit or loss, adjusted for paid-in equity and preference share cost allocation and tax, divided by average notional equity. Average RWAe is defined as average segmental RWAs incorporating the effect of capital deductions. This is multiplied by an allocated equity factor for each segment to calculate the average notional equity.
This measure shows the return generated by operating segments on equity deployed.
|
|
Retail |
|
Private |
|
Commercial & |
Half year ended 30 June 2023 |
|
Banking |
|
Banking |
|
Institutional |
Operating profit (£m) |
|
1,560 |
|
234 |
|
1,741 |
Paid-in equity cost allocation (£m) |
|
(30) |
|
(11) |
|
(86) |
Adjustment for tax (£m) |
|
(428) |
|
(62) |
|
(414) |
Adjusted attributable profit (£m) |
|
1,102 |
|
161 |
|
1,241 |
Annualised adjusted attributable profit (£m) |
|
2,203 |
|
321 |
|
2,483 |
Average RWAe (£bn) |
|
56.1 |
|
11.3 |
|
105.1 |
Equity factor |
|
13.5% |
|
11.5% |
|
14.0% |
Average notional equity (£bn) |
|
7.6 |
|
1.3 |
|
14.7 |
Return on equity (%) |
|
29.1% |
|
24.7% |
|
16.9% |
|
|
|
|
|
|
|
Half year ended 30 June 2022 |
|
|
|
|
|
|
Operating profit (£m) |
|
1,286 |
|
187 |
|
1,176 |
Preference share and paid-in equity cost allocation (£m) |
|
(40) |
|
(6) |
|
(93) |
Adjustment for tax (£m) |
|
(349) |
|
(51) |
|
(271) |
Adjusted attributable profit (£m) |
|
897 |
|
130 |
|
812 |
Annualised adjusted attributable profit (£m) |
|
1,794 |
|
261 |
|
1,624 |
Average RWAe (£bn) |
|
52.5 |
|
11.3 |
|
101.7 |
Equity factor |
|
13.0% |
|
11.0% |
|
14.0% |
Average notional equity (£bn) |
|
6.8 |
|
1.2 |
|
14.2 |
Return on equity (%) |
|
26.3% |
|
20.9% |
|
11.4% |
Quarter ended 30 June 2023 |
|
|
|
|
|
|
Operating profit (£m) |
|
766 |
|
101 |
|
747 |
Paid-in equity cost allocation (£m) |
|
(15) |
|
(6) |
|
(42) |
Adjustment for tax (£m) |
|
(210) |
|
(27) |
|
(176) |
Adjusted attributable profit (£m) |
|
541 |
|
68 |
|
529 |
Annualised adjusted attributable profit (£m) |
|
2,163 |
|
274 |
|
2,115 |
Average RWAe (£bn) |
|
56.8 |
|
11.4 |
|
106.0 |
Equity factor |
|
13.5% |
|
11.5% |
|
14.0% |
Average notional equity (£bn) |
|
7.7 |
|
1.3 |
|
14.8 |
Return on equity (%) |
|
28.2% |
|
20.8% |
|
14.3% |
|
|
|
|
|
|
|
Quarter ended 31 March 2023 |
|
|
|
|
|
|
Operating profit (£m) |
|
794 |
|
133 |
|
994 |
Paid-in equity cost allocation (£m) |
|
(15) |
|
(5) |
|
(44) |
Adjustment for tax (£m) |
|
(218) |
|
(36) |
|
(238) |
Adjusted attributable profit (£m) |
|
561 |
|
92 |
|
713 |
Annualised adjusted attributable profit (£m) |
|
2,244 |
|
369 |
|
2,850 |
Average RWAe (£bn) |
|
55.4 |
|
11.2 |
|
104.0 |
Equity factor |
|
13.5% |
|
11.5% |
|
14.0% |
Average notional equity (£bn) |
|
7.5 |
|
1.3 |
|
14.6 |
Return on equity (%) |
|
30.0% |
|
28.5% |
|
19.5% |
|
|
|
|
|
|
|
Quarter ended 30 June 2022 |
|
|
|
|
|
|
Operating profit (£m) |
|
719 |
|
105 |
|
712 |
Preference share and paid-in equity cost allocation (£m) |
|
(20) |
|
(3) |
|
(47) |
Adjustment for tax (£m) |
|
(196) |
|
(29) |
|
(166) |
Adjusted attributable profit (£m) |
|
503 |
|
73 |
|
499 |
Annualised adjusted attributable profit (£m) |
|
2,012 |
|
293 |
|
1,996 |
Average RWAe (£bn) |
|
52.4 |
|
11.3 |
|
101.0 |
Equity factor |
|
13.0% |
|
11.0% |
|
14.0% |
Average notional equity (£bn) |
|
6.8 |
|
1.2 |
|
14.1 |
Return on equity (%) |
|
29.5% |
|
23.5% |
|
14.0% |
NatWest Group – Form 6K Interim Results 2023 |
119 |
Non-IFRS financial measures continued
6. Bank net interest margin
Bank net interest margin is defined as annualised net interest income, as a percentage of bank average interest-earning assets. Bank average interest earning assets are the average interest earning assets of the banking business of NatWest Group excluding liquid asset buffer.
Liquid asset buffer consists of assets held by NatWest Group, such as cash and balances at central banks and debt securities in issue, that can be used to ensure repayment of financial obligations as they fall due. The exclusion of liquid asset buffer has been introduced as a way to present net interest margin on a basis more comparable with UK peers and exclude the impact of regulatory driven factors. A reconciliation is shown below including a comparison to the nearest GAAP measure, net interest margin. This is net interest income as a percentage of average interest earning assets.
|
|
Half year ended |
|
Quarter ended |
||||||
|
|
30 June |
|
30 June |
|
30 June |
|
31 March |
|
30 June |
|
|
2023 |
|
2022 |
|
2023 |
|
2023 |
|
2022 |
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
Continuing operations |
|
|
|
|
|
|
|
|
|
|
NatWest Group net interest income |
|
5,726 |
|
4,334 |
|
2,824 |
|
2,902 |
|
2,307 |
Annualised NatWest Group net interest income |
|
11,547 |
|
8,740 |
|
11,327 |
|
11,769 |
|
9,253 |
|
|
|
|
|
|
|
|
|
|
|
Average interest earning assets (IEA) |
|
518,359 |
|
546,045 |
|
514,459 |
|
522,393 |
|
548,371 |
Less liquid asset buffer average IEA |
|
(157,271) |
|
(207,583) |
|
(152,133) |
|
(162,409) |
|
(206,843) |
Bank average IEA |
|
361,088 |
|
338,462 |
|
362,326 |
|
359,984 |
|
341,528 |
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
2.23% |
|
1.60% |
|
2.20% |
|
2.25% |
|
1.69% |
Bank net interest margin |
|
3.20% |
|
2.58% |
|
3.13% |
|
3.27% |
|
2.71% |
|
|
|
|
|
|
|
|
|
|
|
Retail Banking |
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
2,908 |
|
2,340 |
|
1,416 |
|
1,492 |
|
1,228 |
Annualised net interest income |
|
5,864 |
|
4,719 |
|
5,680 |
|
6,051 |
|
4,925 |
|
|
|
|
|
|
|
|
|
|
|
Retail Banking average IEA |
|
220,898 |
|
205,749 |
|
221,468 |
|
220,323 |
|
207,408 |
Less liquid asset buffer average IEA |
|
(17,535) |
|
(18,936) |
|
(16,820) |
|
(18,259) |
|
(19,327) |
Adjusted Retail Banking average IEA |
|
203,363 |
|
186,813 |
|
204,648 |
|
202,064 |
|
188,081 |
|
|
|
|
|
|
|
|
|
|
|
Retail Banking net interest margin |
|
2.88% |
|
2.53% |
|
2.78% |
|
2.99% |
|
2.62% |
|
|
|
|
|
|
|
|
|
|
|
Private Banking |
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
428 |
|
315 |
|
199 |
|
229 |
|
172 |
Annualised net interest income |
|
863 |
|
635 |
|
798 |
|
929 |
|
690 |
|
|
|
|
|
|
|
|
|
|
|
Private Banking average IEA |
|
27,613 |
|
29,395 |
|
27,140 |
|
28,091 |
|
29,595 |
Less liquid asset buffer average IEA |
|
(8,425) |
|
(10,389) |
|
(7,976) |
|
(8,878) |
|
(10,451) |
Adjusted Private Banking average IEA |
|
19,188 |
|
19,006 |
|
19,164 |
|
19,213 |
|
19,144 |
|
|
|
|
|
|
|
|
|
|
|
Private Banking net interest margin |
|
4.50% |
|
3.34% |
|
4.17% |
|
4.83% |
|
3.60% |
|
|
|
|
|
|
|
|
|
|
|
Commercial & Institutional |
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
2,504 |
|
1,764 |
|
1,243 |
|
1,261 |
|
961 |
Annualised net interest income |
|
5,050 |
|
3,557 |
|
4,986 |
|
5,114 |
|
3,855 |
|
|
|
|
|
|
|
|
|
|
|
Commercial & Institutional average IEA |
|
197,796 |
|
202,551 |
|
196,735 |
|
198,872 |
|
203,093 |
Less liquid asset buffer average IEA |
|
(66,438) |
|
(77,363) |
|
(65,288) |
|
(67,601) |
|
(78,153) |
Adjusted Commercial & Institutional average IEA |
|
131,358 |
|
125,188 |
|
131,447 |
|
131,271 |
|
124,940 |
|
|
|
|
|
|
|
|
|
|
|
Commercial & Institutional net interest margin |
|
3.84% |
|
2.84% |
|
3.79% |
|
3.90% |
|
3.09% |
NatWest Group – Form 6K Interim Results 2023 |
120 |
Non-IFRS financial measures continued
7. Tangible net asset value (TNAV) per ordinary share
TNAV per ordinary share is calculated as tangible equity divided by the number of ordinary shares in issue.
This is a measure used by external analysts to value the bank and allows for comparison with other per ordinary share metrics including the share price.
|
|
As at |
||||
|
|
30 June |
|
31 March |
|
31 December |
|
|
2023 |
|
2023 |
|
2022 |
Ordinary shareholders' interests (£m) |
|
30,868 |
|
33,817 |
|
32,598 |
Less intangible assets (£m) |
|
(7,453) |
|
(7,171) |
|
(7,116) |
Tangible equity (£m) |
|
23,415 |
|
26,646 |
|
25,482 |
Ordinary shares in issue (millions) (1) |
|
8,929 |
|
9,581 |
|
9,659 |
TNAV per ordinary share (pence) |
|
262p |
|
278p |
|
264p |
(1) | The number of ordinary shares in issue excludes own shares held. |
8. Customer deposits excluding central items
Customer deposits excluding central items is calculated as total NatWest Group customer deposits excluding Central items & other customer deposits.
Central items & other includes Treasury repo activity and Ulster Bank RoI. The exclusion of Central items & other removes the volatility relating to Treasury repo activity and the expected reduction of deposits as part of our withdrawal from the Republic of Ireland. These items may distort period-on-period comparisons and their removal gives the user of the financial statements a better understanding of the movements in customer deposits.
|
|
As at |
||||
|
|
30 June |
|
31 March |
|
31 December |
|
|
2023 |
|
2023 |
|
2022 |
|
|
£bn |
|
£bn |
|
£bn |
Customer deposits |
|
432.5 |
|
430.5 |
|
450.3 |
Less Central items & other |
|
(11.4) |
|
(8.7) |
|
(17.4) |
Customer deposits excluding central items |
|
421.1 |
|
421.8 |
|
432.9 |
9. Net loans to customers excluding central items
Net loans to customers excluding central items is calculated as total NatWest Group net loans to customers excluding Central items & other net loans to customers.
Central items & other includes Treasury reverse repo activity and Ulster Bank RoI. The exclusion of Central items & other removes the volatility relating to Treasury reverse repo activity and the reduction of loans to customers over 2022 as part of our withdrawal from the Republic of Ireland. This allows for better period-on-period comparisons and gives the user of the financial statements a better understanding of the movements in net loans to customers.
|
|
As at |
||||
|
|
30 June |
|
31 March |
|
31 December |
|
|
2023 |
|
2023 |
|
2022 |
|
|
£bn |
|
£bn |
|
£bn |
Net loans to customers (amortised cost) |
|
373.9 |
|
374.2 |
|
366.3 |
Less Central items & other |
|
(21.2) |
|
(21.8) |
|
(19.6) |
Net loans to customers excluding central items |
|
352.7 |
|
352.4 |
|
346.7 |
NatWest Group – Form 6K Interim Results 2023 |
121 |
Non-IFRS financial measures continued
10. Loan:deposit ratio (excl. repos and reverse repos)
Loan:deposit ratio (excl. repos and reverse repos) is calculated as net customer loans held at amortised cost excluding reverse repos divided by total customer deposits excluding repos. This is a common metric used to assess liquidity.
The removal of repos and reverse repos reduces volatility and presents the ratio on a basis that is comparable to UK peers. A reconciliation is shown below including a comparison to the nearest GAAP measure, loan:deposit ratio. This is calculated as net loans to customers held at amortised cost divided by customer deposits.
|
|
As at |
||||
|
|
30 June |
|
31 March |
|
30 June |
|
|
2023 |
|
2023 |
|
2022 |
|
|
£m |
|
£m |
|
£m |
Loans to customers - amortised cost |
|
373,885 |
|
374,214 |
|
362,551 |
Less reverse repos |
|
(21,420) |
|
(21,743) |
|
(25,084) |
|
|
352,465 |
|
352,471 |
|
337,467 |
|
|
|
|
|
|
|
Customer deposits |
|
432,532 |
|
430,537 |
|
492,075 |
Less repos |
|
(9,322) |
|
(5,989) |
|
(19,195) |
|
|
423,210 |
|
424,548 |
|
472,880 |
|
|
|
|
|
|
|
Loan:deposit ratio (%) |
|
86% |
|
87% |
|
74% |
Loan:deposit ratio (excl. repos and reverse repos) (%) |
|
83% |
|
83% |
|
71% |
11. Loan impairment rate
Loan impairment rate is the annualised loan impairment charge divided by gross customer loans. This measure is used to assess the credit quality of the loan book.
|
|
Half year ended |
|
Quarter ended |
||||||
|
|
30 June |
|
30 June |
|
30 June |
|
31 March |
|
31 December |
|
|
2023 |
|
2022 |
|
2023 |
|
2023 |
|
2022 |
Loan impairment charge/(release) (£m) |
|
223 |
|
(54) |
|
153 |
|
70 |
|
144 |
Annualised loan impairment charge/(release) (£m) |
|
446 |
|
(108) |
|
612 |
|
280 |
|
576 |
|
|
|
|
|
|
|
|
|
|
|
Gross customer loans (£bn) |
|
377.3 |
|
366.0 |
|
377.3 |
|
377.6 |
|
369.7 |
|
|
|
|
|
|
|
|
|
|
|
Loan impairment rate |
|
12bps |
|
(3bps) |
|
16bps |
|
7bps |
|
16bps |
12. Funded assets
Funded assets are calculated as total assets less derivative assets. This measure allows review of balance sheet trends exclusive of the volatility associated with derivative fair values.
|
|
As at |
||||
|
|
30 June |
|
31 March |
|
31 December |
|
|
2023 |
|
2023 |
|
2022 |
|
|
£m |
|
£m |
|
£m |
Total assets |
|
702,601 |
|
695,624 |
|
720,053 |
Less derivative assets |
|
(81,873) |
|
(79,420) |
|
(99,545) |
Funded assets |
|
620,728 |
|
616,204 |
|
620,508 |
13. AUMAs
AUMAs comprises both assets under management (AUMs) and assets under administration (AUAs) serviced through the Private Banking segment.
AUMs comprise assets where the investment management is undertaken by Private Banking on behalf of Private Banking, Retail Banking and Commercial & Institutional customers.
AUAs comprise i) third party assets held on an execution-only basis in custody by Private Banking, Retail Banking and Commercial & Institutional for their customers, for which the execution services are supported by Private Banking. From 1 June 2023, AUA also comprises Cushon third party assets., and for which Private Banking receives a fee for providing investment management and execution services to Retail Banking and Commercial & Institutional business segments ii) AUA of Cushon, acquired on 1 June 2023, which are supported by Private Banking and held and managed by third parties.
This measure is tracked and reported as the amount of funds that we manage or administer, and directly impacts the level of investment income that we receive.
NatWest Group – Form 6K Interim Results 2023 |
122 |
Non-IFRS financial measures continued
14. Net new money
Net new money refers to client cash inflows and outflows relating to investment products (this can include transfers from savings accounts). Net new money excludes the impact of European Economic Area (EEA) resident client outflows following the UK’s exit from the EU and Russian client outflows since Q1 2022.
Net new money is reported and tracked to monitor the business performance of new business inflows and management of existing client withdrawals across Private Banking, Retail Banking and Commercial & Institutional.
15. Wholesale funding
Wholesale funding comprises deposits by banks (excluding repos), debt securities in issue and subordinated liabilities.
Funding risk is the risk of not maintaining a diversified, stable and cost-effective funding base. The disclosure of wholesale funding highlights the extent of our diversification and how we mitigate funding risk.
16. Third party rates
Third party customer asset rate is calculated as annualised interest receivable on third-party loans to customers as a percentage of third-party loans to customers. This excludes assets of disposal groups, intragroup items, loans to banks and liquid asset portfolios. Third party customer funding rate reflects interest payable or receivable on third-party customer deposits, including interest bearing and non-interest bearing customer deposits. Intragroup items, bank deposits, debt securities in issue and subordinated liabilities are excluded for customer funding rate calculation.
These metrics help investors better understand our net interest margin and interest rate sensitivity.
Legal Entity Identifier: 2138005O9XJIJN4JPN90
NatWest Group – Form 6K Interim Results 2023 |
123 |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorised.
NatWest Group plc
Registrant
/s/ Katie Murray |
|
Group Chief Financial Officer |
|
28 July 2023 |
|