Interim Results - NatWest Group (Part 1 of 2)

RNS Number : 1756U
NatWest Group plc
29 July 2022
 

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NatWest Group

Interim Results 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NatWest Group plc    natwestgroup.com

 

 


 

NatWest Group plc

Interim results for the period ended 30 June 2022

 

Chief Executive, Alison Rose, commented

"NatWest Group delivered a strong performance in the first half of 2022, building on two years of progress against our strategic priorities. We are growing our lending to customers and continuing our £3 billion investment programme to create a simpler and better banking experience whilst delivering sustainable dividends and returns for our shareholders.

 

We know that continued increases in the cost of living are impacting people, families and businesses across the UK and we have put in place a range of targeted measures to support those who are likely to need it most. Our strong levels of profitability and capital generation mean we are well positioned to provide this support.

 

By building deeper relationships with our customers at every stage of their lives, we will deliver sustainable growth and help them to thrive in a challenging environment."

 

Strong H1 2022 performance

H1 2022 attributable profit of £1,891 million and a return on tangible equity of 13.1%. The cost:income ratio was 58.3% in the first half compared with 67.6% in H1 2021. 

Excluding notable items, income in the Go-forward group increased by £819 million, or 16.2%, compared with H1 2021 principally reflecting the impact of base rate increases and volume growth.

Bank net interest margin (NIM) of 2.72% was 26 basis points higher than Q1 2022 driven by the impact of base rate rises.

Other operating expenses in the Go-forward group were £50 million, or 1.5%, lower than H1 2021.

H1 2022 operating profit before impairments in the Go-forward group was £2,787 million, up 53.5% on H1 2021.

A net impairment release of £46 million in the Go-forward group in H1 2022 reflected the low levels of realised losses we continue to see across our portfolio, although we continue to monitor our book given the uncertain economic outlook.

 

Robust balance sheet underpins sustainable growth

Go-forward group net lending increased by £9.3 billion during H1 2022 to £361.6 billion, with growth well balanced across the business.

Customer deposits in the Go-forward group increased by £14.8 billion during H1 2022 to £476.2 billon.

The liquidity coverage ratio (LCR) of 159%, representing £76.1 billion above 100%, decreased by 13 percentage points compared with Q4 2021.

 

Continued strong capital generation supports substantial distributions to shareholders

We are pleased to announce an interim dividend of 3.5 pence per share, up 17% on 2021 and a special dividend with share consolidation of £1,750 million, or 16.8 pence per share, subject to shareholder approval.   Taken together these will deliver 20.3p of dividends per share.

When combined with the directed buyback in the first quarter, the proposed interim and special dividends bring total distributions deducted from capital in the first half to £3.3 billion, or c.32 pence per share.

CET1 ratio of 14.3% was c.160 basis points lower than 1 January 2022 as total distributions of c.190 basis points and increased RWAs of c.30 basis points were partially offset by the attributable profit of c.110 basis points.

RWAs increased by £3.5 billion compared to 1 January 2022 to £179.8 billion.

 

 



 

Outlook(1)

The economic outlook remains uncertain. The following statements are based on central economic forecasts, as detailed on pages 20 to 22, which include an anticipated increase in the central bank rate to 2.0% by the end of the year. We will monitor and react to market conditions and refine our internal forecasts as the economic position evolves.

In 2022, we expect income excluding notable items to be around £12.5 billion in the Go-forward group(2).

We expect NIM to be greater than 2.70% for full year 2022 in the Go-forward group.

We are investing around £3 billion(3) over 2021 to 2023 and, with continuing simplification, we plan to reduce Go-forward group operating expenses, excluding litigation and conduct costs, by around 3% in 2022 and to keep broadly stable in 2023, with positive jaws. In 2023 we expect some of the current inflationary impacts to be more significant, however this will be offset by ongoing savings from our investment programme.

We expect our 2022 and 2023 impairment charge to be lower than our through the cycle loss rate of 20-30 basis points, with 2022 below 10 basis points in the Go-forward group.

In 2023, we expect to achieve a return on tangible equity in the range of 14-16% for the Group.

 

Capital and funding

We aim to end 2022 with a CET1 ratio of around 14% and target a ratio of 13-14% by 2023.

We intend to maintain ordinary dividends of around 40% of attributable profit and to distribute a minimum of £1 billion in each of 2022 and 2023.

We intend to maintain capacity to participate in directed buybacks of the UK Government stake, recognising that any exercise of this authority would be dependent upon HMT's intentions and is limited to 4.99% of issued share capital in any 12-month period.

We will consider further on-market buybacks as part of our overall capital distribution approach as well as inorganic growth opportunities provided they are consistent with our strategy and have a strong shareholder value case.

As part of the NatWest Group capital and funding plans we intend to issue between £3 billion to £5 billion of MREL-compliant instruments in 2022, with a continued focus on issuance under our Green, Social and Sustainability Bond framework. NatWest Markets plc's funding plan targets £4 billion to £5 billion of public benchmark issuance.

 

Ulster Bank RoI

We have made significant progress on our phased withdrawal from the Republic of Ireland and have binding agreements in place for c.90% of gross customer loans. We expect the majority of the commercial asset sale to Allied Irish Banks and the majority of the asset sale to Permanent TSB to be largely complete by the end of 2022 and for the tracker mortgage asset sale to Allied Irish Banks to complete in the first half of 2023.

With this progress, we continue to expect total exit costs of €900 million, with the majority incurred by the end of 2023. In Q3 2022 we expect to incur around €350 million of these exit costs as a result of the reclassification of UBIDAC mortgages to fair value.

We continue to expect the phased withdrawal to be capital accretive.

 

(1)  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 on pages 406 to 426 of the 2021 Annual Report and Accounts and the Summary Risk Factors on pages 106 and 107 of this announcement. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement.

(2)  Go-forward group excludes Ulster Bank RoI and discontinued operations.

(3)  Denotes cash investment spend excluding certain regulatory and legacy programmes.



 


Our Purpose in action

We champion potential, helping people, families and businesses to thrive. We are breaking down barriers, building financial confidence and delivering sustainable growth and returns by living up to our purpose. Some key achievements from H1 2022 include:

 

People and families

We have proactively contacted 2.7 million personal and business customers year to date, offering support and information on the cost of living. We have also launched an online Cost of Living hub to share resources and tools, and to inform customers of the support that is available to them through third parties.

We delivered 3.7 million financial capability interactions in H1 2022, including carrying out 0.4 million financial health checks.

In Retail Banking, we have completed £1.4 billion of green mortgages (which give a discounted interest rate to energy efficient properties) since they were launched in Q4 2020, including £661 million in H1 2022.

Our support for young people continues with the launch of our new pocket money product, NatWest Rooster Money, which helps children build money confidence and develop positive money habits around saving and spending. We acquired Rooster

along with 130,000 customers and since the beginning of the year added 17,000 new customers plus a smooth connection to Rooster via the main Mobile App.

 

Businesses

We completed £11.9 billion of climate and sustainable funding and financing in H1 2022, bringing the cumulative contribution to £20.0 billion against our target of £100 billion between 1 July 2021 and the end of 2025.

We announced an additional £1.25 billion lending package to the UK farming community and our 40,000 customers within it, building on an earlier set of measures for the sector announced in June 2022.

To provide certainty to SMEs, Business Current Accounts remain available without a minimum charge and we are freezing the standard published tariffs on these accounts for the next 12 months.

NatWest Markets won the 'Most Impressive Investment Bank for Corporate Green and ESG-Linked Bonds' as well as the 'Most Impressive FIG (Financial Institutions Group) House in Sterling' at the 2022 Global Capital Bond Awards in June 2022.

 

Colleagues

To support our colleagues with the rising cost of living, we announced a permanent increase in base pay averaging £1,000 for more than 22,000 colleagues globally.

We announced a three-year partnership with the University of Edinburgh to make climate education available to all colleagues across the bank, including the delivery of more in-depth Climate Change Transformation and Sector Specific programmes for over 16,000 roles which require a broader level of knowledge.

To support our colleagues who are carers, unpaid carers' leave can now be taken day-by-day, instead of only in full-week blocks, up to a maximum of four weeks in a year, and up to a maximum of 18 weeks in total.

Building on our campaign to support learning for the future, colleagues are now able to take two dedicated, learning-for-the-future days each year to support the development of future skills.

 

Communities

To help with the rising cost of living, we announced a new £4 million hardship fund to provide grants and support, delivered through partner organisations including Citizens Advice, StepChange and Money Advice Trust.

We launched the pilot scheme for the NatWest Thrive with Marcus Rashford programme. The programme aims to help more young people pursue their dreams, appreciate their strengths and become more money confident.

In collaboration with Aston University, we published the report 'Time to change: A blueprint for advancing the UK's ethnic minority businesses', which sets out recommendations for policymakers, companies and entrepreneurs to advance the growth potential of ethnic minority businesses.

To champion female entrepreneurship in the UK, NatWest Group and The Telegraph launched the '100 Female Entrepreneurs to Watch' list. 10 female entrepreneurs will be selected from the list for further support, and one business will receive a £10,000 investment grant from NatWest Group as well as a year's mentorship from a Rose Review board member.

We pledged £100,000 to support 500 Ukrainian students to continue their studies at Polish universities and polytechnics following the Russian invasion.



 

 


Business performance summary


Half year ended

 

Quarter ended


30 June

30 June

 

30 June

31 March

30 June


2022

2021

 

2022

2022

2021

 

£m

£m

 

£m

£m

£m

Continuing operations

 


 

 



Total income

6,219

5,141


3,211

3,008

2,571

Operating expenses

(3,653)

(3,499)


(1,833)

(1,820)

(1,695)

Profit before impairment releases

2,566

1,642


1,378

1,188

876

Operating profit before tax

2,620

2,325


1,396

1,224

1,473

Profit attributable to ordinary shareholders

1,891

1,842


1,050

841

1,222

Excluding notable items within total income   (1)







Total income excluding notable items   (2)

5,898

5,111


3,114

2,784

2,532

Operating expenses

(3,653)

(3,499)


(1,833)

(1,820)

(1,695)

Profit before impairment releases and excluding notable items

2,245

1,612


1,281

964

837

Operating profit before tax and excluding notable items

2,299

2,295


1,299

1,000

1,434

Go-forward group   (3)

 



 



Total income   (2)

6,186

5,076


3,199

2,987

2,541

Total income excluding notable items   (2)

5,865

5,046


3,102

2,763

2,502

Other operating expenses

(3,241)

(3,291)


(1,636)

(1,605)

(1,608)

Profit before impairment releases/(losses)   (2)

2,787

1,816


1,507

1,280

971

Return on tangible equity

14.1%

12.8%


16.5%

11.9%

17.3%

Performance key metrics and ratios




 



Bank net interest margin   (2,4)

2.59%

2.35%


2.72%

2.46%

2.35%

Bank average interest earning assets   (2,4)

£337bn

£321bn


£340bn

£333bn

£323bn

Cost:income ratio   (2)

58.3%

67.6%


56.7%

60.1%

65.5%

Loan impairment rate   (2)

(3bps)

(37bps)


(2bps)

(1bp)

(65bps)

Total earnings per share attributable to ordinary  

 



 



  shareholders - basic

17.4p

15.6p


10.0p

7.5p

10.6p

Return on tangible equity   (2)

13.1%

11.7%


15.2%

11.3%

15.6%

 

 

30 June

31 March

31 December

 

2022

2022

2021

 

£bn

£bn

£bn

Balance sheet

 



Total assets

806.5

785.4

782.0

Funded assets   (2)

697.1

685.4

675.9

Loans to customers - amortised cost

362.6

365.3

359.0

Loans to customers and banks - amortised cost and FVOCI  

376.4

375.7

369.8

Go-forward group net lending   (2)

361.6

359.0

352.3

Total impairment provisions

3.5

3.7

3.8

Expected credit loss (ECL) coverage ratio  

0.93%

0.98%

1.03%

Assets under management and administration (AUMA)   (2)

32.9

35.0

35.6

Go-forward group customer deposits   (2)

476.2

465.6

461.4

Customer deposits

492.1

482.9

479.8

Liquidity and funding

 



Liquidity coverage ratio (LCR)

159%

167%

172%

Liquidity portfolio

268

275

286

Net stable funding ratio (NSFR)   (5)

153%

152%

157%

Loan:deposit ratio   (2)

71%

73%

72%

Total wholesale funding

76

76

77

Short-term wholesale funding

24

22

23

Capital and leverage

 



Common Equity Tier (CET1) ratio   (6)

14.3%

15.2%

18.2%

Total capital ratio   (6)

19.3%

20.4%

24.7%

Pro forma CET1 ratio, pre foreseeable items   (7)

15.6%

16.1%

19.5%

Risk-weighted assets (RWAs)

179.8

176.8

157.0

UK leverage ratio   (8)

5.2%

5.5%

5.9%

Tangible net asset value (TNAV) per ordinary share

267p

269p

272p

Number of ordinary shares in issue (millions)   (9)

10,436

10,622

11,272

 

(1)

Refer to the following page for details of notable items within total income.

(2)

Refer to the Non-IFRS financial measures appendix for details of basis of preparation and reconciliation of non-IFRS financial measures and performance metrics.

(3)

Go-forward group excludes Ulster Bank RoI and discontinued operations.

(4)

NatWest Group excluding Ulster Bank RoI and liquid asset buffer.

(5)

The NSFR is presented on a spot basis.

(6)

Based on the PRA Rulebook Instrument transitional arrangements, therefore includes transitional relief on grandfathered capital instruments and transitional arrangements for the capital impact of IFRS 9 expected credit loss (ECL) accounting. For additional information, refer to page 66. On 1 January 2022 the proforma CET1 ratio was 15.9% following regulatory changes.

(7)

The pro forma CET1 ratio at 30 June 2022 excludes foreseeable items of £2,341 million: £500 million for ordinary dividends, £1,750 million for special dividends and £91 million foreseeable charges (31 March 2022 excludes foreseeable items of £1,623 million: £1,096 million for ordinary dividends and £527 million foreseeable charges; 31 December 2021 excludes foreseeable charges of £2,036 million: £846 million for ordinary dividends and £1,190 million foreseeable charges and pension contributions).

(8)

The UK leverage exposure is calculated in accordance with the Leverage Ratio (CRR) part of the PRA Rulebook, and transitional Tier 1 capital is calculated in accordance with the PRA Rulebook. For additional information, refer to page 67.

(9)

The number of ordinary shares in issue excludes own shares held.



 

Summary consolidated income statement for the period ended 30 June 2022

 


Half year ended

 

Quarter ended


30 June

30 June

 

30 June

31 March

30 June

 

2022

2021

 

2022

2022

2021

 

£m

£m

 

£m

£m

£m

Net interest income

4,334

3,744


2,307

2,027

1,900

Non-interest income

1,885

1,397


904

981

671

Total income

6,219

5,141


3,211

3,008

2,571

Litigation and conduct costs

(169)

18


(67)

(102)

34

Other operating expenses

(3,484)

(3,517)


(1,766)

(1,718)

(1,729)

Operating expenses

(3,653)

(3,499)


(1,833)

(1,820)

(1,695)

Profit before impairment releases

2,566

1,642


1,378

1,188

876

Impairment releases

54

683


18

36

597

Operating profit before tax

2,620

2,325


1,396

1,224

1,473

Tax charge

(795)

(432)


(409)

(386)

(199)

Profit from continuing operations

1,825

1,893


987

838

1,274

Profit from discontinued operations, net of tax

190

177


127

63

83

Profit for the period

2,015

2,070


1,114

901

1,357

Attributable to:

 



 



Ordinary shareholders

1,891

1,842


1,050

841

1,222

Preference shareholders

-

9


-

-

4

Paid-in equity shareholders

121

178


62

59

91

Non-controlling interests

3

41


2

1

40


2,015

2,070


1,114

901

1,357


 



 



Notable items within total income   (1)

 



 



Commercial & Institutional

 



 



Fair value, disposal losses and asset  

 



 



  disposals/strategic risk reduction   (2)

(45)

(62)


(45)

-

(44)

Tax variable lease repricing

-

32


-

-

32

Own credit adjustments

52

1


34

18

(1)


 



 



Central items & other

 



 



Share of associate (losses)/profits for Business Growth  

 



 



  Fund

(13)

129


(36)

23

8

Loss on redemption of own debt

(24)

(138)


-

(24)

(20)

Liquidity Asset Bond sale gains/(losses)

36

25


(5)

41

20

Interest and FX risk management derivatives

 



 



  not in   accounting hedge relationships

315

44


149

166

45

Own credit adjustments

-

(1)


-

-

(1)

Total

321

30

 

97

224

39

 

(1)  Refer to page 1 of the Non-IFRS financial measures appendix.

(2)

As previously reported H1 2021 and Q2 2021 includes fair value and disposal gains/(losses) in the banking book H1 2021 - £22 million (Q2 2021 - (£8) million) and H1 2021 - £40 million (Q2 2021 - (£36) million) of asset disposals/strategic risk reduction relating to the costs of exiting positions, which includes changes in carrying value to align to the expected exit valuation, and the impact of risk reduction transactions entered into, in respect of the strategic announcements of 14 February 2020.





Business performance summary

Chief Financial Officer review

We have made good progress against our strategic objectives and our capital and liquidity position remains robust. We have delivered a strong financial performance in the first half of the year, with a RoTE of 13.1%, reflecting the strong profit and capital generation capacity of the business in the current interest rate environment. We also saw strong growth in lending and deposits across the business.

We continue to monitor the evolving economic outlook and are mindful of the impact that higher levels of inflation, higher interest rates and supply chain shortages are having on our customers.

We are pleased to announce an interim dividend of 3.5 pence per share and a special dividend of £1,750 million, representing total distributions deducted from capital of £3.3 billion when combined with the directed buyback in the first quarter. We have also now completed the £750 million on-market buyback programme we announced in February .

Financial performance

Total income in the Go-forward group increased by 21.9% to £6,186 million compared with H1 2021. Excluding notable items, income was 16.2% higher than H1 2021, primarily driven by volume growth and favourable yield curve movements. We have also seen increased payment card fees and markets income in Commercial & Institutional and higher spend-related fee income in Retail Banking. Bank NIM of 2.72% was 26 basis points higher than Q1 2022 reflecting the beneficial impact of recent base rate rises.

Other operating expenses in the Go-forward group were £50 million, or 1.5%, lower than H1 2021 as we continue with our 3-year investment programme. We remain on track to achieve our full year cost reduction target of around 3% in 2022, although savings will not be linear across the remaining quarters.

We have reported a £46 million impairment release in the Go-forward group for the first half of 2022, reflecting the continued low levels of realised losses we have seen across our portfolio; we do recognise the significant uncertainty in the economic outlook and are monitoring activity closely. Compared with Q1 2022, our ECL provisions have reduced by £0.2 billion to £3.5 billion, and our ECL coverage ratio has reduced from 0.98% to 0.93%. Whilst we are comfortable with the strong credit performance of our book, we continue to hold economic uncertainty post model adjustments (PMA) of £0.6 billion, or 17.2%, of total impairment provisions. PMAs have been pivoted more towards expected pressure from cost of living increases and supply chain issues rather than concerns over COVID-19 impacts. We will continue to assess this position regularly.

As a result, we are pleased to report an interim attributable profit of £1,891 million, with earnings per share of 17.4 pence and a RoTE of 13.1%.

Net lending in the Go-forward group increased by £9.3 billion over the first half of the year. Mortgage lending increased by £6.3 billion, with gross new lending of £20.6 billion in the first half, compared with £21.4 billion in H1 2021 and £18.3 billion in H2 2021.  Net lending in Commercial & Institutional grew by £3.1 billion reflecting growth across all areas of the business including increases in facility utilisation and funds activity, partly offset by continued UK Government financial support scheme repayments.

Customer deposits increased by £14.8 billion in the Go-forward group during the first half of the year principally reflecting a £5.7 billion increase in Commercial & Institutional, largely due to improved market liquidity, and treasury repo activity of £4.7 billion. We have seen a slowdown in Retail Banking deposit growth, with balances up by £1.6 billion in the first half of the year. 

TNAV per share reduced by 2 pence in the quarter to 267 pence principally reflecting the full year ordinary dividend payment and movements in cashflow hedging and other reserves partially offset by the attributable profit for the period.

 

Capital

The CET1 ratio remains strong at 14.3%, including 16 basis points of IFRS 9 transitional relief. The c.160 basis point reduction compared with 1 January 2022 principally reflects total distributions of c.190 basis points and increased RWAs of c.30 basis points partially offset by the attributable profit of c.110 basis points. The total capital ratio decreased by 540 basis points to 19.3% compared with Q4 2021.

Compared to the 1 January position, RWAs increased by £3.5 billion to £179.8 billion principally reflecting lending growth, FX movements and model updates. 

When combined with the directed buyback in the first quarter, the proposed interim and special dividends bring total distributions deducted from capital in the first half to £3.3 billion, or c.32 pence per share.

 

The special dividend will return material capital to shareholders whilst ensuring the UK Government's shareholding remains below 50%, which the Board has determined is the interests of all the Group's stakeholders. The proposed consolidation will be set to reduce the share count as if we were buying back at the market price thereby offsetting the dilutive impact to TNAV per share of the substantial special dividend.

 

Funding and liquidity

The LCR decreased by 8 percentage points to 159% in the quarter, representing £76.1 billion headroom above 100% minimum requirement.  The main drivers of this include an increase in cash outflows from wholesale funding and credit facilities to our customers and an increase in customer lending which outstripped growth in customer deposits. Total wholesale funding increased by £0.6 billion in the quarter to £76.4 billion. Short term wholesale funding increased by £1.6 billion in the quarter to £23.6 billion.



 


Business performance summary

Retail Banking


Half year ended

 

Quarter ended


30 June

30 June


30 June

31 March

30 June


2022

2021


2022

2022

2021


£m

£m


£m

£m

£m

Total income

2,554

2,150


1,337

1,217

1,094

Operating expenses

(1,242)

(1,187)


(597)

(645)

(600)

  of which: Other operating expenses

(1,184)

(1,178)

 

(593)

(591)

(593)

Impairment (losses)/releases

(26)

57


(21)

(5)

91

Operating profit

1,286

1,020


719

567

585

Return on equity

26.3%

27.5%


29.5%

23.1%

32.0%

Net interest margin

2.53%

2.26%


2.62%

2.43%

2.27%

Cost:income ratio

48.6%

55.2%


44.7%

53.0%

54.8%

Loan impairment rate

3bps

(6)bps


4bps

1bps

(20)bps


 



 




 



As at


 



30 June

31 March

31 December


 



2022

2022

2021





£bn

£bn

£bn

Net loans to customers (amortised cost)




188.7

184.9

182.2

Customer deposits




190.5

189.7

188.9

RWAs




53.0

52.2

36.7

During H1 2022, Retail Banking continued to pursue sustainable growth with an intelligent approach to risk, delivering a return on equity of 26% and an operating profit of £1,286 million.

To support our customers, we launched a new Cost of Living hub, online and in app, which provides tools and support including Financial Health Checks, budget planner, top 10 tips to save, advice on what to do if customers think they are going to miss a payment and links to third parties, including PayPlan and Citizens Advice. In addition, for our younger customers we launched NatWest Rooster Money aimed at building their money confidence and developing positive money habits around earning, saving, and spending. This complements our existing MoneySense education programme which has recently recommenced in-school workshops.

Retail Banking completed £1.5 billion of climate and sustainable funding and financing in H1 2022 which will contribute towards the NatWest Group target of £100 billion between 1 July 2021 and the end of 2025.

H1 2022 performance

Total income was £404 million, or 18.8%, higher than H1 2021 reflecting higher deposit income, supported by recent base rate rises, combined with strong mortgage balance growth, higher unsecured balances and higher transactional-related fee income, partially offset by lower mortgage margins.

Other operating expenses were £6 million, or 0.5%, higher than H1 2021 due to higher investment spend and increased costs for financial crime and fraud prevention. This was partly offset by a 9.2% reduction in operational headcount, as a result of continued customer digital adoption and automation of end-to-end customer journeys. Cost income ratio of 48.6 percent in H1 2022.

Impairment losses of £26 million in H1 2022 continue to reflect a low level of stage 3 defaults, partly offset by provision releases in stage 2. ECL provision includes post model adjustments of £179 million relating to economic uncertainty, as at 30 June 2022.

Net loans to customers increased by £6.5 billion, or 3.6%, in H1 2022 reflecting continued mortgage growth of £5.9 billion, with gross new mortgage lending of £18.9 billion representing flow share of around 13%. Cards balances increased by £0.3 billion and personal advances increased by £0.3 billion in H1 2022 from improving customer demand.

Customer deposits increased by £1.6 billion, or 0.8%, in H1 2022 with growth slowing towards pre-COVID-19 levels, reflecting higher customer spend levels.

RWAs increased by £16.3 billion in H1 2022 primarily reflecting 1 January 2022 regulatory changes of £15.3 billion, higher lending partially offset by quality improvements.

 

Q2 2022 performance

Total income was £120 million, or 9.9%, higher than Q1 2022 reflecting higher deposit income, supported by recent base rate rises, higher mortgage balances, higher unsecured balances and higher transactional-related fee income, partially offset by the non-repeat of an insurance profit share and lower mortgage margins.

Net interest margin was 19 basis points higher than Q1 2022 reflecting higher deposit returns, partly offset by mortgage margin pressure. Mortgage back book margin was 148 basis points in the period and application margins increased to around 60 basis points at the end of the quarter.

Other operating expenses were £2 million, or 0.3%, higher than Q1 2022 primarily due to higher property related provision costs.

Impairment losses of £21 million in Q2 2022 continue to reflect a low level of stage 3 defaults, partly offset by provision releases in stage 2.

Net loans to customers increased by £3.8 billion, or 2.1% compared with Q1 2022 reflecting continued mortgage growth of £3.3 billion, with gross new mortgage lending of £9.8 billion representing flow share of around 13%. Cards balances increased by £0.3 billion and personal advances increased by £0.2 billion in Q2 2022 as customer demand and spend levels continued to improve.

Customer deposits increased by £0.8 billion, or 0.4% in Q2 2022 with growth slowing towards pre-COVID-19 levels, reflecting higher customer spend levels.

RWAs increased by £0.8 billion, or 1.5%, in Q2 2022 primarily reflecting lending growth partially offset by quality improvements .



 

Business performance summary

Private Banking


Half year ended

 

Quarter ended

 


30 June

30 June


30 June

31 March

30 June

 


2022

2021


2022

2022

2021

 


£m

£m


£m

£m

£m

 

Total income

461

368


245

216

183

 

Operating expenses

(285)

(249)


(146)

(139)

(128)

 

  of which: Other operating expenses

(284)

(254)

 

(146)

(138)

(128)

 

Impairment releases

11

27


6

5

27

 

Operating profit

187

146


105

82

82

 

Return on equity

20.9%

14.2%


23.5%

18.2%

15.9%

 

Net interest margin

3.34%

2.62%


3.60%

3.07%

2.60%

 

Cost:income ratio

61.8%

67.7%


59.6%

64.4%

69.9%

 

Loan impairment rate

(12)bps

(30)bps


(13)bps

(11)bps

(60)bps

 

Net new money (£bn)   (1)

1.4

1.6


0.6

0.8

1.0

 


 



 



 


 



As at

 


 



30 June

31 March

31 December

 


 



2022

2022

2021

 





£bn

£bn

£bn

 

Net loans to customers (amortised cost)




18.8

18.7

18.4

 

Customer deposits




41.6

40.3

39.3

 

RWAs




11.3

11.5

11.3

 

Assets under management (AUMs)   (1)




28.1

29.6

30.2

 

Assets under administration (AUAs)   (1)




4.8

5.4

5.4

 

Total assets under management and administration (AUMA)   (1)



32.9

35.0

35.6

 

 

(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.

 

Private Banking operating profit of £187 million in H1 2022 was supported by robust deposit and lending growth with strong net new money despite volatile investment market conditions.   Return on equity of 20.9% represents an increase of 7 percentage points compared with H1 2021.  

Coutts achieved B Corp Certification in July 2021, and since then we've engaged with over 60 clients and 10 suppliers to support them in achieving B Corp status.  We have also worked with NatWest Group's 'Purpose Led Accelerator' to provide a deep dive on the B Corp Certification journey to 130 entrepreneurs and business leaders.


H1 2022 performance

Total income was £93 million, or 25.3%, higher than H1 2021 reflecting strong balance growth and higher deposit income, supported by recent interest rate rises and higher card and payment related fee income as transactional volumes continued to improve. Net interest margin was 72 basis points higher than H1 2021 reflecting higher deposit income.

Other operating expenses were £30 million, or 11.8%, higher than H1 2021 principally due to continued investment in people and technology to enhance our AUMA growth propositions and increased costs for financial crime and fraud.

A net impairment release of £11 million in H1 2022 reflects the continued low levels of credit risk in the portfolio.

Net loans to customers increased by £0.4 billion, or 2.2%, in H1 2022 due to continued strong mortgage lending growth, whilst RWAs were broadly in line with Q4 2021.

Customer deposits increased by £2.3 billion, or 5.9%, in H1 2022 as customers continue to build and retain liquidity.

AUMA balances decreased by £2.7 billion, or 7.6%, in H1 2022 largely driven by lower global investment markets. Net new money was £1.4 billion in H1 2022, which was £0.2 billion less than H1 2021, and represented 7.9% of opening AUMA balances on an annualised basis representing a strong performance given volatile investment market conditions.

Q2 2022 performance

Total income was £29 million, or 13.4%, higher than Q1 2022 reflecting higher deposit income, supported by further interest rate rises and continued balance growth. Net interest margin increased by 53 basis points compared with Q1 2022 reflecting higher deposit returns. 

Net loans to customers increased by £0.1 billion, or 0.5%, compared with Q1 2022 supported by continued mortgage lending growth.

AUMA balances reduced by £2.1 billion, or 6.0%, in the quarter as growth was more than offset by lower global investment markets. Net new money was £0.6 billion, which was £0.2bn lower than Q1 2022, and represented 8.0% of opening AUMA balances on an annualised basis.



 

Business performance summary

Commercial & Institutional


Half year ended

 

Quarter ended


30 June

30 June


30 June

31 March

30 June


2022

2021


2022

2022

2021


£m

£m


£m

£m

£m

Net interest income

1,764

1,487


961

803

762

Non-interest income

1,173

987


601

572

459

Total income

2,937

2,474


1,562

1,375

1,221

Operating expenses

(1,820)

(1,824)


(898)

(922)

(909)

  of which: Other operating expenses  

(1,734)

(1,789)

 

(854)

(880)

(874)

Impairment releases

59

613


48

11

488

Operating profit

1,176

1,263


712

464

800

Return on equity

11.4%

12.1%


14.0%

8.8%

15.9%

Net interest margin

2.84%

2.49%


3.09%

2.69%

2.52%

Cost:income ratio

61.1%

73.0%


56.6%

66.3%

73.7%

Loan impairment rate

(9)bps

(96)bps


(15)bps

(3)bps

(153)bps


 



 




 



As at


 



30 June

31 March

31 December


 



2022

2022

2021





£bn

£bn

£bn

Net loans to customers (amortised cost)




127.3

126.6

124.2

Customer deposits




223.2

217.9

217.5

Funded assets




343.4

334.6

321.3

RWAs




103.0

100.3

98.1

 

During H1 2022 Commercial & Institutional delivered a strong performance with a return on equity of 11.4% and operating profit of £1,176 million. 

Commercial & Institutional remains well positioned to support its customers in the current macro-economic environment. Our balance sheet strength means we are able to meet our customers' financing requirements and our product suite allows us to support customers' risk management during times of macroeconomic volatility. Our specialist Relationship Managers and business hubs located across the UK offer advice and support to those facing a cost of business, as well as living, crisis. We continually monitor all sectors to proactively identify the most vulnerable. As a result, for example, we have developed a tailored support package for our agricultural customer base who are facing extreme impacts on supply costs and profit margins.

Commercial & Institutional completed £10.3 billion of climate and sustainable funding and financing in H1 2022 delivering a cumulative £17.3 billion since 1 July 2021, contributing toward the NatWest Group target of £100 billion between 1 July 2021 and the end of 2025. To ensure that as many SMEs as possible can realise benefits from their carbon-reduction efforts and innovation, we have reduced the lower threshold for our Green Loans offering for SMEs from £50,000 to £25,000.

H1 2022 performance

Total income was £463 million, or 18.7%, higher than H1 2021 primarily reflecting strong balance sheet growth, higher interest rates supporting deposit returns, improved markets and card payment fees. Markets income(1) of £427 million, was £98 million, or 29.8%, higher than H1 2021 with good performance across the product suite.

Net interest margin was 35 basis points higher than H1 2021 reflecting higher deposit returns.

Other operating expenses were £55 million, or 3.1%, lower than H1 2021 due to ongoing cost management, and non-repeat of H1 2021 restructuring costs, partly offset by continued investment in the business.

An impairment release of £59 million in H1 2022 compared with an impairment release of £613 million in H1 2021, reflecting a continued low level of stage 3 defaults more than offset by good book provision releases. ECL provision includes post model adjustments of £388 million relating to economic uncertainty, as at 30 June 2022. 

Net loans to customers increased by £3.1 billion, or 2.5%, in H1 2022 with growth in facility utilisation and funds activity within Corporate & Institutions, partly offset by continued UK Government financial support scheme repayments. Invoice and asset finance balances within the Commercial Mid-market business increased by £0.8 billion.

Customer deposits increased by £5.7 billion, or 2.6%, in H1 2022 due to overall increased customer liquidity and strong growth in the funds business.

RWAs increased by £4.9 billion, or 5.0%, in H1 2022 primarily reflecting 1 January 2022 regulatory changes, business and FX movements, partly offset by risk parameter improvements.

Q2 2022 performance

Total income was £187 million, or 13.6%, higher than Q1 2022 due to continued balance sheet growth, higher deposit returns from an improved interest rate environment and increased card payment fees.

Net interest margin was 40 basis points higher than Q1 2022 reflecting higher deposit returns.

Other operating expenses were £26 million, or 3.0%, lower than Q1 2022 primarily reflecting increased capitalisation of certain investment costs, business efficiencies partly offset by the annual pay revision.

Net loans to customers increased by £0.7 billion, or 0.6%, in Q2 2022 due to increased funds activity and facility utilisation within Corporate & Institutions partly offset by UK Government scheme repayments, primarily in the Commercial Mid-market business.

Customer deposits increased by £5.3 billion, or 2.4%, in Q2 2022 reflecting continued customer liquidity and increased fund inflows.

RWAs increased by £2.7 billion, or 2.7%, in Q2 2022 mainly reflecting business movements and model updates .



 

(1)  Markets income excludes asset disposals/strategic risk reduction, own credit risk adjustments and central items.

Business performance summary

Ulster Bank RoI

  Continuing operations

Half year ended

 

Quarter ended


30 June

30 June


30 June

31 March

30 June


2022

2021


2022

2022

2021


€m

€m


€m

€m

€m

Total income

38

74


13

25

34

Operating expenses

(301)

(273)


(167)

(134)

(143)

  of which: Other operating expenses

(288)

(258)

 

(154)

(134)

(138)

Impairment releases/(losses)

9

(15)


(26)

35

(11)

Operating loss

(254)

(214)


(180)

(74)

(120)


 




 



 



As at


 



30 June

31 March

31 December


 



2022

2022

2021





€bn

€bn

€bn

Net loans to customers - amortised cost




1.2

7.5

7.9

Customer deposits




18.4

20.4

21.9

RWAs




12.6

13.2

10.9

 

Ulster Bank ROI continues to make progress on its phased withdrawal from the Republic of Ireland.

 

A significant milestone was reached with the successful completion of a migration of an initial tranche of commercial customers to Allied Irish Banks, p.l.c. (AIB). Remaining migrations of the c.€4.2 billion of gross performing commercial loans will be completed in phases mainly over H2 2022, with the final cohorts in H1 2023.

Confirmation was received from the Irish competition authority (the CCPC) that it had cleared the sale of c.€7.6 billion of gross performing non-tracker mortgages, the Lombard asset finance business, the business direct loan book, and 25 branches to Permanent TSB p.l.c. (PTSB). Shareholders of PTSB's holding company have also approved this transaction.

A legally binding agreement was reached with AIB for the sale of a c.€6 billion portfolio of gross performing tracker and linked mortgages. Completion of this sale, which is subject to obtaining any relevant regulatory approvals and satisfying the conditions of the legally binding agreement, is expected to occur in Q2 2023. UBIDAC now has binding agreements in place for c.90% of its total gross customer lending portfolio.

In other transactions, UBIDAC also announced that it will transfer its existing life assurance intermediary activities to Irish Life Financial Services Ltd and its Home and Car Insurance renewal rights to Aviva Direct.

'Choose, Move & Close' letters have been sent to customers since April with tranches of letters being sent out on a weekly basis. Customers have six months to choose a new provider, move their banking relationship and close their account with Ulster Bank.

Work continues on managing the residual activities of the bank, including remaining asset sales.

 

H1 2022 performance

Total income was €36 million, or 48.6%, lower than H1 2021 reflecting reduced business levels following the decision to withdraw, coupled with the cost of an inter-group liquidity facility that was put in place as part of the arrangements to manage deposit outflows.

Other operating expenses were €30 million, or 11.6%, higher than H1 2021, due to higher withdrawal-related programme costs and a one-off pension charge being partially offset by lower regulatory levies and a 5.3% reduction in headcount. Ulster Bank RoI incurred €31 million of withdrawal-related direct costs in H1 2022.

A net impairment release of €9 million in H1 2022 reflects improvements in the reducing portfolio and releases of COVID-related post-model adjustments, partially offset by new post-model adjustments for current macro-economic and divestment risks.

Net loans to customers decreased by €6.7 billion, or 84.8%, in H1 2022 as €5.9 billion of tracker loans were reclassified as Assets held for sale and as repayments continue to exceed gross new lending.

Customer deposits decreased by €3.5 billion, or 16.0%, in H1 2022 due to reducing personal deposits as customers continue to close their accounts.

RWAs increased by €1.7 billion in H1 2022 due to temporary model adjustments as a result of new regulations applicable to IRB models, partially offset by asset sales, other repayments and facility maturities in the context of the phased withdrawal.

Q2 2022 performance

Total income was €12 million, or 48.0%, lower than Q1 2022 reflecting reduced business levels and the cost of the inter-group liquidity facility.

Other operating expenses were €20 million, or 14.9%, higher than Q1 2022 due to higher withdrawal-related programme costs and a one-off pension charge.

Impairment losses of €26 million in Q2 2022 reflect post-model adjustments for current macro-economic and divestment risks.

RWAs reduced by €0.6 billion in Q2 2022 due to asset sales, other repayments and facility maturities in the context of the phased withdrawal.







 

Business performance summary

Ulster Bank RoI continued

 

Total Ulster Bank RoI including discontinued operations

 

 

 

 

Half year ended

 

Quarter ended


30 June

30 June

 

30 June

31 March

30 June


2022

2021

 

2022

2022

2021


€m

€m

 

€m

€m

€m

Total income

219

279

 

101

118

137

Operating expenses

(330)

(299)

 

(182)

(148)

(156)

  of which: Other operating expenses

(317)

(284)

 

(169)

(148)

(151)

Impairment releases/(losses)

83

13

 

53

30

(1)

Operating loss

(28)

(7)


(28)

-

(20)



 

 






 

 






 

 

As at



 

 

30 June

31 March

31 December



 

 

2022

2022

2021



 

 

€bn

€bn

€bn

Net loans to customers - amortised cost  


 

 

17.7

18.4

18.6

Customer deposits


 

 

18.4

20.4

21.9

RWAs


 

 

12.6

13.2

10.9

 

Central items & other


Half year ended

 

Quarter ended


30 June

30 June


30 June

31 March

30 June


2022

2021


2022

2022

2021


£m

£m


£m

£m

£m

Central items not allocated

184

83


10

174

110

 

An operating profit of £184 million within central items not allocated includes gains resulting from risk management derivatives not in hedge accounting relationships of £315 million.



 


Segment performance

 

 

Half year ended 30 June 2022

 

Go-forward group

 

 

 

 

 




Total  

 

 

 

 

 



Central

excluding

 

Total



Retail

Private

Commercial &

  items &

Ulster

Ulster

NatWest



Banking

Banking

Institutional

other

Bank RoI

Bank RoI

Group



£m

£m

£m

£m

£m

£m  

£m

Continuing operations








Income statement  








Net interest income

2,340

315

1,764

(91)

4,328

6

4,334

Own credit adjustments

-

-

52

-

52

-

52

Other non-interest income

214

146

1,121

325

1,806

27

1,833

Total income  

2,554

461

2,937

234

6,186

33

6,219

Direct expenses


(320)

(102)

(736)

(2,181)

(3,339)

(145)

(3,484)

Indirect expenses

(864)

(182)

(998)

2,142

98

(98)

-

Other operating expenses

(1,184)

(284)

(1,734)

(39)

(3,241)

(243)

(3,484)

Litigation and conduct costs

(58)

(1)

(86)

(13)

(158)

(11)

(169)

Operating expenses

(1,242)

(285)

(1,820)

(52)

(3,399)

(254)

(3,653)

Operating profit/(loss) before

 

 

 

 

 

 

 

  impairment (losses)/releases

1,312

176

1,117

182

2,787

(221)

2,566

Impairment (losses)/releases

(26)

11

59

2

46

8

54

Operating profit/(loss)

1,286

187

1,176

184

2,833

(213)

2,620



 

 

 

 

 

 

 

Income excluding notable items

2,554

461

2,930

(80)

5,865

33

5,898



 

 

 

 

 

 

 

Additional information

 

 

 

 

 

 

 

Return on tangible equity   (1)

na

na

na

na

14.1%

na

13.1%

Return on equity   (1)

26.3%

20.9%

11.4%

nm

nm

nm

na

Cost:income ratio   (1)

48.6%

61.8%

61.1%

nm

54.5%

nm

58.3%

Total assets (£bn)

216.2

30.0

451.5

87.1

784.8

21.7

806.5

Funded assets (£bn)   (1)

216.2

30.0

343.4

85.8

675.4

21.7

697.1

Net loans to customers - amortised cost (£bn)

188.7

18.8

127.3

26.8

361.6

1.0

362.6

Loan impairment rate   (1)

3bps

(12)bps

(9)bps

nm

(3)bps

nm

(3)bps

Impairment provisions (£bn)

(1.5)

(0.1)

(1.4)

-

(3.0)

(0.4)

(3.4)

Impairment provisions - stage 3 (£bn)

(0.9)

-

(0.7)

-

(1.6)

(0.4)

(2.0)

Customer deposits (£bn)

190.5

41.6

223.2

20.9

476.2

15.9

492.1

Risk-weighted assets (RWAs) (£bn)

53.0

11.3

103.0

1.7

169.0

10.8

179.8

RWA equivalent (RWAe) (£bn)

53.0

11.3

101.4

2.2

167.9

10.8

178.7

Employee numbers (FTEs - thousands)

13.9

2.0

11.8

29.4

57.1

1.8

58.9

Third party customer asset rate   (2)

2.59%

2.65%

3.01%

nm

nm

nm

nm

Third party customer funding rate   (2)

(0.07%)

(0.07%)

(0.06%)

nm

nm

0.05%

nm

Bank average interest earning assets (£bn)   (1)

186.8

19.0

125.2

nm

336.9

na

336.9

Bank net interest margin   (1)

2.53%

3.34%

2.84%

nm

2.59%

na

2.59%

nm = not meaningful, na = not applicable.

 

For the notes to this table, refer to page 18.

Segment performance

 

 

Half year ended 30 June 2021

 

Go-forward group



 

 





Total  



 

 




Central

excluding


Total



Retail

Private

Commercial &

items &

Ulster

Ulster

NatWest



Banking

Banking

Institutional

other

Bank RoI

Bank RoI

Group



£m

£m

£m

£m

£m

£m  

£m

Continuing operations








Income statement  








Net interest income

1,976

232

1,487

34

3,729

15

3,744

Own credit adjustments

-

-

1

(1)

-

-

-

Other non-interest income

174

136

986

51

1,347

50

1,397

Total income  

2,150

368

2,474

84

5,076

65

5,141

Direct expenses


(359)

(92)

(874)

(2,051)

(3,376)

(141)

(3,517)

Indirect expenses

(819)

(162)

(915)

1,981

85

(85)

-

Other operating expenses

(1,178)

(254)

(1,789)

(70)

(3,291)

(226)

(3,517)

Litigation and conduct costs

(9)

5

(35)

70

31

(13)

18

Operating expenses

(1,187)

(249)

(1,824)

-

(3,260)

(239)

(3,499)

Operating profit/(loss) before








  impairment releases/(losses)

963

119

650

84

1,816

(174)

1,642

Impairment releases/(losses)

57

27

613

(1)

696

(13)

683

Operating profit/(loss)

1,020

146

1,263

83

2,512

(187)

2,325










Income excluding notable items

2,150

368

2,503

25

5,046

65

5,111










Additional information








Return on tangible equity   (1)

na

na

na

na

12.8%

na

11.7%

Return on equity   (1)

27.5%

14.2%

12.1%

nm

nm

nm

na

Cost:income ratio   (1)

55.2%

67.7%

73.0%

nm

63.7%

nm

67.6%

Total assets (£bn)

204.2

27.7

442.2

76.4

750.5

25.4

775.9

Funded assets (£bn)   (1)

204.2

27.7

334.5

74.5

640.9

25.4

666.3

Net loans to customers - amortised cost (£bn)

178.1

18.0

125.2

24.7

346.0

16.7

362.7

Loan impairment rate   (1)

(6)bps

(30)bps

(96)bps

nm

(40)bps

nm

(37)bps

Impairment provisions (£bn)

(1.6)

(0.1)

(2.3)

-

(4.0)

(0.7)

(4.7)

Impairment provisions - stage 3 (£bn)

(0.8)

-

(1.0)

-

(1.8)

(0.4)

(2.2)

Customer deposits (£bn)

184.1

34.7

212.4

17.5

448.7

18.5

467.2

Risk-weighted assets (RWAs) (£bn)

35.6

11.2

104.0

1.7

152.5

10.5

163.0

RWA equivalent (RWAe) (£bn)

35.6

11.3

105.8

1.8

154.5

10.5

165.0

Employee numbers (FTEs - thousands)

15.3

1.9

12.3

27.1

56.6

1.9

58.5

Third party customer asset rate   (2)

2.70%

2.36%

2.71%

nm

nm

nm

nm

Third party customer funding rate   (2)

(0.07%)

-

(0.02%)

nm

nm

0.01%

nm

Bank average interest earning assets (£bn)   (1)

176.3

17.9

120.5

nm

320.6

na

320.6

Bank net interest margin   (1)

2.26%

2.62%

2.49%

nm

2.35%

na

2.35%

nm = not meaningful, na = not applicable.

 

For the notes to this table, refer to page 18.



 

Segment performance

 

 

Quarter ended 30 June 2022

 

Go-forward group

 

 

 

 

 




Total  

 

 

 

 

 



Central

excluding

 

Total



Retail

Private

Commercial &

  items &

Ulster

Ulster

NatWest



Banking

Banking

Institutional

other

Bank RoI

Bank RoI

Group



£m

£m

£m

£m

£m

£m  

£m

Continuing operations

 

 

 

 

 

 

 

Income statement  








Net interest income

1,228

172

961

(56)

2,305

2

2,307

Own credit adjustments

-

-

34

-

34

-

34

Other non-interest income

109

73

567

111

860

10

870

Total income  

1,337

245

1,562

55

3,199

12

3,211

Direct expenses


(159)

(53)

(329)

(1,144)

(1,685)

(81)

(1,766)

Indirect expenses

(434)

(93)

(525)

1,101

49

(49)

-

Other operating expenses

(593)

(146)

(854)

(43)

(1,636)

(130)

(1,766)

Litigation and conduct costs

(4)

-

(44)

(8)

(56)

(11)

(67)

Operating expenses

(597)

(146)

(898)

(51)

(1,692)

(141)

(1,833)

Operating profit/(loss) before

 

 

 

 

 

 

 

  Impairment (losses)/releases

740

99

664

4

1,507

(129)

1,378

Impairment (losses)/releases

(21)

6

48

6

39

(21)

18

Operating profit/(loss)

719

105

712

10

1,546

(150)

1,396



 

 

 

 

 

 

 

Income excluding notable items

1,337

245

1,573

(53)

3,102

12

3,114



 

 

 

 

 

 

 

Additional information

 

 

 

 

 

 

 

Return on tangible equity   (1)

na

na

na

na

16.5%

na

15.2%

Return on equity   (1)

29.5%

23.5%

14.0%

nm

nm

nm

na

Cost:income ratio   (1)

44.7%

59.6%

56.6%

nm

52.4%

nm

56.7%

Total assets (£bn)

216.2

30.0

451.5

87.1

784.8

21.7

806.5

Funded assets (£bn)   (1)

216.2

30.0

343.4

85.8

675.4

21.7

697.1

Net loans to customers - amortised cost (£bn)

188.7

18.8

127.3

26.8

361.6

1.0

362.6

Loan impairment rate   (1)

4bps

(13)bps

(15)bps

nm

(4)bps

nm

(2)bps

Impairment provisions (£bn)

(1.5)

(0.1)

(1.4)

-

(3.0)

(0.4)

(3.4)

Impairment provisions - stage 3 (£bn)

(0.9)

-

(0.7)

-

(1.6)

(0.4)

(2.0)

Customer deposits (£bn)

190.5

41.6

223.2

20.9

476.2

15.9

492.1

Risk-weighted assets (RWAs) (£bn)

53.0

11.3

103.0

1.7

169.0

10.8

179.8

RWA equivalent (RWAe) (£bn)

53.0

11.3

101.4

2.2

167.9

10.8

178.7

Employee numbers (FTEs - thousands)

13.9

2.0

11.8

29.4

57.1

1.8

58.9

Third party customer asset rate   (2)

2.59%

2.77%

3.19%

nm

nm

nm

nm

Third party customer funding rate   (2)

(0.10%)

(0.13%)

(0.09%)

nm

nm

0.04%

nm

Bank average interest earning assets (£bn)   (1)

188.1

19.1

124.9

nm

340.0

na

340.0

Bank net interest margin   (1)

2.62%

3.60%

3.09%

nm

2.72%

na

2.72%

nm = not meaningful, na = not applicable.

 

For the notes to this table, refer to page 18.

Segment performance

 

 

Quarter ended 31 March 2022

 

Go-forward group



 

 





Total  



 

 




Central

excluding


Total



Retail

Private

Commercial &

items &

Ulster

Ulster

NatWest



Banking

Banking

Institutional

other

Bank RoI

Bank RoI

Group



£m

£m

£m

£m

£m

£m  

£m

Continuing operations








Income statement  








Net interest income

1,112

143

803

(35)

2,023

4

2,027

Own credit adjustments

-

-

18

-

18

-

18

Other non-interest income

105

73

554

214

946

17

963

Total income  

1,217

216

1,375

179

2,987

21

3,008

Direct expenses


(161)

(49)

(407)

(1,037)

(1,654)

(64)

(1,718)

Indirect expenses

(430)

(89)

(473)

1,041

49

(49)

-

Other operating expenses

(591)

(138)

(880)

4

(1,605)

(113)

(1,718)

Litigation and conduct costs

(54)

(1)

(42)

(5)

(102)

-

(102)

Operating expenses

(645)

(139)

(922)

(1)

(1,707)

(113)

(1,820)

Operating profit/(loss) before








  impairment (losses)/releases

572

77

453

178

1,280

(92)

1,188

Impairment (losses)/releases

(5)

5

11

(4)

7

29

36

Operating profit/(loss)

567

82

464

174

1,287

(63)

1,224










Income excluding notable items

1,217

216

1,357

(27)

2,763

21

2,784










Additional information








Return on tangible equity   (1)

na

na

na

na

11.9%

na

11.3%

Return on equity   (1)

23.1%

18.2%

8.8%

nm

nm

nm

na

Cost:income ratio   (1)

53.0%

64.4%

66.3%

nm

56.7%

nm

60.1%

Total assets (£bn)

210.7

29.6

433.5

89.3

763.1

22.3

785.4

Funded assets (£bn)   (1)

210.7

29.6

334.6

88.2

663.1

22.3

685.4

Net loans to customers - amortised cost (£bn)

184.9

18.7

126.6

28.8

359.0

6.3

365.3

Loan impairment rate   (1)

1bp

(11)bps

(3)bps

nm

-

nm

(1)bp

Impairment provisions (£bn)

(1.5)

(0.1)

(1.6)

-

(3.2)

(0.4)

(3.6)

Impairment provisions - stage 3 (£bn)

(0.9)

-

(0.7)

-

(1.6)

(0.4)

(2.0)

Customer deposits (£bn)

189.7

40.3

217.9

17.7

465.6

17.3

482.9

Risk-weighted assets (RWAs) (£bn)

52.2

11.5

100.3

1.6

165.6

11.2

176.8

RWA equivalent (RWAe) (£bn)

52.2

11.5

102.6

1.9

168.2

11.2

179.4

Employee numbers (FTEs - thousands)

14.0

1.9

11.8

28.7

56.4

1.8

58.2

Third party customer asset rate   (2)

2.59%

2.53%

2.83%

nm

nm

nm

nm

Third party customer funding rate   (2)

(0.05%)

(0.01%)

(0.02%)

nm

nm

0.06%

nm

Bank average interest earning assets (£bn)   (1)

185.5

18.9

121.0

nm

333.3

na

333.3

Bank net interest margin   (1)

2.43%

3.07%

2.69%

nm

2.46%

na

2.46%

nm = not meaningful, na = not applicable.

 

For the notes to this table, refer to the following page.

 



 

 

Segment performance

 

 

Quarter ended 30 June 2021

 

Go-forward group



 

 





Total  



 

 




Central

excluding


Total



Retail

Private

Commercial &

items &

Ulster

Ulster

NatWest



Banking

Banking

Institutional

other

Bank RoI

Bank RoI

Group



£m

£m

£m

£m

£m

£m  

£m

Continuing operations








Income statement  








Net interest income

1,003

117

762

10

1,892

8

1,900

Own credit adjustments

-

-

(1)

(1)

(2)

-

(2)

Other non-interest income

91

66

460

34

651

22

673

Total income  

1,094

183

1,221

43

2,541

30

2,571

Direct expenses


(171)

(49)

(428)

(999)

(1,647)

(82)

(1,729)

Indirect expenses

(422)

(79)

(446)

986

39

(39)

-

Other operating expenses

(593)

(128)

(874)

(13)

(1,608)

(121)

(1,729)

Litigation and conduct costs

(7)

-

(35)

80

38

(4)

34

Operating expenses

(600)

(128)

(909)

67

(1,570)

(125)

(1,695)

Operating profit/(loss) before








  impairment releases/(losses)

494

55

312

110

971

(95)

876

Impairment releases/(losses)

91

27

488

-

606

(9)

597

Operating profit/(loss)

585

82

800

110

1,577

(104)

1,473










Income excluding notable items

1,094

183

1,234

(9)

2,502

30

2,532










Additional information








Return on tangible equity   (1)

na

na

na

na

17.3%

na

15.6%

Return on equity   (1)

32.0%

15.9%

15.9%

nm

nm

nm

na

Cost:income ratio   (1)

54.8%

69.9%

73.7%

nm

61.3%

nm

65.5%

Total assets (£bn)

204.2

27.7

442.2

76.4

750.5

25.4

775.9

Funded assets (£bn)   (1)

204.2

27.7

334.5

74.5

640.9

25.4

666.3

Net loans to customers - amortised cost (£bn)

178.1

18.0

125.2

24.7

346.0

16.7

362.7

Loan impairment rate   (1)

(20)bps

(60)bps

(153)bps

nm

(69)bps

nm

(65)bps

Impairment provisions (£bn)

(1.6)

(0.1)

(2.3)

-

(4.0)

(0.7)

(4.7)

Impairment provisions - stage 3 (£bn)

(0.8)

-

(1.0)

-

(1.8)

(0.4)

(2.2)

Customer deposits (£bn)

184.1

34.7

212.4

17.5

448.7

18.5

467.2

Risk-weighted assets (RWAs) (£bn)

35.6

11.2

104.0

1.7

152.5

10.5

163.0

RWA equivalent (RWAe) (£bn)

35.6

11.3

105.8

1.8

154.5

10.5

165.0

Employee numbers (FTEs - thousands)

15.3

1.9

12.3

27.1

56.6

1.9

58.5

Third party customer asset rate   (2)

2.67%

2.36%

2.81%

nm

nm

nm

nm

Third party customer funding rate   (2)

(0.06%)

-

(0.04%)

nm

nm

0.01%

nm

Bank average interest earning assets (£bn)   (1)

177.3

18.1

121.0

nm

323.0

na

323.0

Bank net interest margin   (1)

2.27%

2.60%

2.52%

nm

2.35%

na

2.35%

nm = not meaningful, na = not applicable.

 

(1)  Refer to the appendix for details of basis of preparation and reconciliation of non-IFRS performance measures where relevant.

(2)  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.



 

 


 

Risk and capital management


Page

Credit risk


  Economic loss drivers

20

  UK economic uncertainty

23

  Measurement uncertainty and ECL sensitivity analysis

 

26

  Measurement uncertainty and ECL adequacy

 

28

Credit risk - Banking activities


  Financial instruments within the scope of the IFRS 9 ECL framework

 

29

  Segment analysis

30

  Segment loans and impairment metrics

33

  Sector analysis

34

  Wholesale forbearance

39

  Personal portfolio

41

  Commercial real estate

44

  Flow statements

46

  Stage 2 decomposition by a significant increase in credit risk trigger

 

55

  Asset quality

57

Credit risk - Trading activities

61

Capital, liquidity and funding risk

64

Market risk


  Non-traded

74

  Traded

78

Other risks

79

 

Certain disclosures in the Risk and capital management section are within the scope of EY's review report and are marked as reviewed in the section header.

 

 



 

Risk and capital management

Credit risk

Economic loss drivers (reviewed)

Introduction

The portfolio segmentation and selection of economic loss drivers for IFRS 9 follow closely 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 factors (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 judgment.

The most material economic loss drivers are shown in the table below.

Portfolio

Economic loss drivers

UK retail mortgages

UK unemployment rate, sterling swap rate, UK house price index, UK household debt to income

UK retail unsecured

UK unemployment rate, sterling swap rate, UK household debt to income

UK large corporates

World GDP, UK unemployment rate, sterling swap rate, stock price index

UK commercial

UK GDP, UK unemployment rate, sterling swap rate

UK commercial real estate

UK GDP, UK commercial property price index, sterling swap rate, stock price index

RoI retail mortgages

RoI unemployment rate, European Central Bank base rate, RoI house price index

 

(1)  This is not an exhaustive list of economic loss drivers but shows the most material drivers for the most significant portfolios.

 

Economic scenarios

At 30 June 2022, 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 a range of outcomes associated with the most prominent risks facing the economy, and the associated effects on labour and asset markets.

The four economic scenarios are translated into forward-looking projections of credit cycle indices (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 overlaid with an additional mean reversion assumption, i.e. after reaching their worst forecast position the CCIs start to gradually revert to their long-run average of zero.

Upside - This scenario assumes a very strong recovery through 2022 as consumers dip into excess savings built up since amidst COVID-19. The labour market remains resilient, with the unemployment rate falling substantially below pre-COVID-19 levels. Inflation is marginally higher than the base case but eventually retreats close to the target without substantial tightening and with no major effect on growth. The housing market shows a strong performance.

Base case - After a strong recovery in 2021, growth moderates in 2022 as real incomes decline and consumer confidence falls . The unemployment rate decreases initially but subsequently increases above pre-COVID-19 levels , although remains low by historical standards. Inflation remains elevated at close to current levels through to early 2023 before retreating. Interest rates are raised to 2% to control price pressures. There is a gradual cooling in the housing market, but activity remains firm. As inflation retreats, economic growth returns to its pre-COVID-19 pace over the course of 2023, remaining steady through the forecast period.

Downside - This scenario assumes that inflation accelerates to 15%, triggered by further escalation in geopolitical tensions and an associated rise in energy prices. This undermines the recovery, harming business and consumer confidence and pushing the economy into recession . Unemployment rate rises above the levels seen during COVID-19 and there is a modest decline in house prices. Inflation subsequently normalises, paving the way for cuts to interest rates and recovery. 

Extreme downside - The trigger for the extreme downside is similar to the downside scenario. However, in this scenario, inflation remains more persistent, necessitating a significant degree of rate tightening. This tighter policy and fall in real income leads to a deep recession. There is widespread job shedding in the labour market while asset prices see deep corrections, with housing market falls higher than those seen during previous episodes. The recovery is tepid throughout the five-year period, meaning only a gradual decline in joblessness.

For June 2022, 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 and asset price falls around which there are pronounced levels of uncertainty.

The tables below provide details of the key economic loss drivers under the four scenarios.

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. The compound annual growth rate (CAGR) for GDP is shown. It also shows the five-year average for unemployment and the Bank of England base rate. The house price index and commercial real estate figures show the total change in each asset over five years.



 

Risk and capital management

Credit risk continued

Economic loss drivers (reviewed)

Main macroeconomic variables

30 June 2022

 

31 December 2021





Extreme

 




Extreme


Upside

Base case

Downside

downside

 

Upside

Base case

Downside

downside

Five-year summary

%

%

%

%

 

%

%

%

%

UK

 

 

 

 

 





GDP - CAGR

1.7

1.1

0.8

(0.1)


2.4

1.7

1.4

0.6

Unemployment - average

3.3

4.0

4.5

6.3

 

3.5

4.2

4.8

6.7

House price index - total change

24.4

13.7

(0.9)

(10.5)

 

22.7

12.1

4.3

(5.3)

Commercial real estate price - total change

7.5

(2.6)

(6.8)

(14.5)

 

18.2

7.2

5.5

(6.4)

Bank of England base rate - average

1.5

1.8

0.6

2.7

 

1.5

0.8

0.7

(0.5)

Consumer price index - CAGR

2.7

2.9

3.9

7.2

 

2.7

2.5

3.1

1.5


 

 

 

 

 





Republic of Ireland

 

 

 

 

 





GDP - CAGR

4.6

3.9

2.9

2.1

 

4.4

3.7

2.9

1.6

Unemployment - average

3.8

4.9

6.5

7.7

 

4.2

5.2

6.8

9.3

House price index - total change

28.9

22.2

6.3

(1.9)

 

30.3

23.4

16.3

4.6

European Central Bank base rate - average

1.3

2.0

0.1

1.4

 

0.8

0.1

0.2

-


 

 

 

 

 





World GDP - CAGR

3.8

3.4

2.0

1.0

 

3.5

3.2

2.6

0.6


 

 

 

 

 





Probability weight

21.0

45.0

20.0

14.0


30.0

45.0

20.0

5.0