NWG plc Q1 2022 Interim Management Statement
Q1 2022
Interim Management Statement
natwestgroup.com
NatWest Group plc
Q1 2022 Interim Management Statement
Chief Executive, Alison Rose, commented:
"The world has changed considerably during the last three months. Our thoughts are with everyone affected by the invasion of Ukraine and we are doing all that we can to support them. We are also very aware of the challenges and concerns the cost-of-living crisis is causing for many of our customers up and down the country. NatWest Group is focused on providing practical help and support for the people, families and businesses we serve.
Despite the challenging environment, I am pleased with our performance as we continue to execute well against our strategy, driving sustainable growth and returns. Income and profits are substantially up, costs are down and we remain well capitalised as we build long-term value and deliver a simpler and better banking experience for our customers.
Government ownership also reduced to around 48% in Q1; the first time it has fallen below 50% since the financial crisis. This was an important milestone for our bank and a further demonstration of the progress we are making as we continue to deliver for our customers and shareholders."
Strong Q1 2022 operating performance
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- Q1 2022 attributable profit of £841 million and a return on tangible equity of 11.3%. - Go-forward group (1) income excluding notable items increased by £219 million, or 8.6%, compared with Q1 2021 principally reflecting volume growth and favourable yield curve movements. - Bank net interest margin (NIM) of 2.46% was 15 basis points higher than Q4 2021 principally reflecting the impact of recent base rate rises. - Other operating expenses in the Go-forward group were £78 million, or 4.6%, lower than Q1 2021. - A total net impairment release of £38 million, £7 million in the Go-forward group, reflected the low levels of realised losses we continue to see across our portfolio, although the economic outlook remains uncertain.
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Robust balance sheet with strong capital and liquidity levels
- Net lending for the Go-forward group increased by £6.7 billion to £359.0 billion in comparison to Q4 2021 principally reflecting Retail Banking mortgage growth of £2.6 billion and a £2.4 billion increase across Commercial & Institutional.
- Customer deposits for the Go-forward group increased by £4.2 billion in the quarter to £465.6 billon driven by treasury repo activity and continued growth across the segments.
- RWAs increased by £0.5 billion to £176.8 billion compared with 1 January 2022.
- CET1 ratio of 15.2% was 70 basis points lower than 1 January 2022, principally reflecting the impact of the directed buyback.
- The liquidity coverage ratio (LCR) of 167%, representing £83.3 billion above 100%, decreased by 5 percentage points compared with Q4 2021.
Outlook(2)
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- We retain the outlook guidance provided in the 2021 Annual Report and Accounts, although we now expect 2022 income excluding notable items to be comfortably above £11.0 billion in the Go-forward group.
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(1) Go-forward group excludes Ulster Bank RoI and discontinued operations. (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 on pages 406 to 426 of the 2021 Annual Report and Accounts. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement.
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Our Purpose in action
We champion potential, helping people, families and businesses to thrive. As a relationship bank for a digital world, we are breaking down barriers, building financial confidence and delivering sustainable growth and sustainable returns by living up to our purpose. Some key achievements from Q1 2022:
People and families
- We supported customers with 2.8 million financial capability interactions in Q1 2022, with 0.2 million financial health checks carried out.
- Alongside footballer and campaigner Marcus Rashford MBE, we have created a programme designed to support young people in communities across the UK to learn about and develop a positive relationship with money.
- Our new Credit Score Predictor allows customers to simulate different scenarios to see the impact these could have on their credit score, supporting them to improve their financial health.
- The new Round Ups feature in our mobile banking app helps our customers save their small change every time they use their debit card or contactless device. Since its launch in Q1 2022, 644,000 customers have switched the feature on, saving more than £10 million as a result.
- We are the first UK high street bank to launch a bill-splitting function - Split Bill - in our banking app using Open Banking, making it simple to split bills with friends and family.
- From 1 February 2022, the Personal Portfolio Funds (PPF), available through NatWest Invest, Royal Bank Invest and Coutts Invest, include a commitment that a minimum of 50% of assets by value in each fund will be on a Net Zero Trajectory(1).
Businesses
- £5.6 billion of climate and sustainable funding and financing was completed in Q1 2022, bringing the cumulative contribution to £13.6 billion against our target to provide £100 billion between 1 July 2021 and the end of 2025.
- Collaborating with CoGo, we launched the pilot of an app to selected manufacturing and transport business banking customers to track their carbon footprint using their transaction data.
- We announced a collaboration with Workplace owner Meta to offer female business owners training and support, as well as opportunities to expand business connections and networks.
- As part of our commitment to help businesses benefit from the transition to net zero, we announced a new Clean Transport Accelerator hub in collaboration with the Warwick Manufacturing Group (WMG) at the University of Warwick, providing coaching, workspace and access to clean-energy, manufacturing and automotive experts at WMG.
- We also announced a new Accelerator hub facility offering specialist support to scale-up businesses across London.
Colleagues
- We have worked with over 11,000 colleagues, customers and community partners to introduce a refreshed set of values that will guide and inspire us in everything we do.
- The Ignite leadership development programmes were launched for female and Black, Asian and Minority Ethnic colleagues, with 90 places available on both programmes.
- We have recently been ranked in the top 50 of the Top 100 Employers in Stonewall's Workplace Equality Index, rewarding our commitment to being an LGBT+ inclusive employer.
Communities
- In response to the Russian invasion of Ukraine, NatWest Group colleagues and customers have donated £7.9 million (as at the end of Q1 2022) to the Disasters Emergency Committee's Ukraine Humanitarian Appeal, which includes NatWest Group matching of £2.5 million.
- As the cost of living rises, we are doing more to help customers in vulnerable situations. Through our partnership with Citizens Advice, 2,100 customers have been referred by the bank and helped with complex advice needs in the last year alone.
- We announced that we are giving our shareholders their say on climate through the bank's first climate resolution. The resolution is intended to promote transparency about the bank's climate ambitions and strategic direction.
- In Retail Banking, we completed £234 million of Green Mortgages in Q1 2022, rewarding customers for choosing an energy efficient home.
- We have installed electric vehicle (EV) chargers in 325 parking spaces across our Gogarburn, Liverpool, Bristol and Belfast offices - the early actions of our goal to have EV charging available for 15% of our car parking spaces by 2025.
- NatWest Group and NatWest Markets Group won four titles in the 2022 Environmental Finance Bond Awards. The awards won reflect the bank's impactful role as both an issuer and intermediary.
(1) Net Zero Trajectory is a commitment, credible plan or action taken to achieve net zero greenhouse gas emissions by 2050.
Business performance summary
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Quarter ended |
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31 March |
31 December |
31 March |
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2022 |
2021 |
2021 |
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£m |
£m |
£m |
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Continuing operations |
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Total income |
3,027 |
2,622 |
2,591 |
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Operating expenses |
(1,820) |
(2,328) |
(1,804) |
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Profit before impairment releases |
1,207 |
294 |
787 |
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Operating profit before tax |
1,245 |
635 |
885 |
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Profit attributable to ordinary shareholders |
841 |
434 |
620 |
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Excluding notable items within total income (1) |
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Total income excluding notable items (2) |
2,803 |
2,560 |
2,600 |
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Operating expenses |
(1,820) |
(2,328) |
(1,804) |
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Profit before impairment releases and excluding notable items |
983 |
232 |
796 |
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Operating profit before tax and excluding notable items |
1,021 |
573 |
894 |
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Go-forward group (3) |
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Total income (2) |
2,987 |
2,579 |
2,535 |
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Total income excluding notable items (2) |
2,763 |
2,517 |
2,544 |
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Other operating expenses |
(1,605) |
(2,034) |
(1,683) |
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Return on tangible equity |
11.9% |
5.6% |
8.5% |
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Performance key metrics and ratios |
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Bank net interest margin (2,4) |
2.46% |
2.31% |
2.32% |
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Bank average interest earning assets (2,4) |
£333bn |
£329bn |
£321bn |
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Cost:income ratio (2) |
59.7% |
88.6% |
69.2% |
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Loan impairment rate (2) |
(1bps) |
(38bps) |
(11bps) |
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Total earnings per share attributable to ordinary |
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shareholders - basic |
7.5p |
3.8p |
5.1p |
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Return on tangible equity (2) |
11.3% |
5.6% |
7.9% |
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£bn |
£bn |
£bn |
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Balance sheet |
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Total assets |
785.4 |
782.0 |
769.8 |
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Funded assets (2) |
685.4 |
675.9 |
646.8 |
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Loans to customers - amortised cost |
365.3 |
359.0 |
358.7 |
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Loans to customers and banks - amortised cost and FVOCI |
375.7 |
369.8 |
371.0 |
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Go-forward group net lending |
359.0 |
352.3 |
341.8 |
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Impairment provisions - amortised cost |
3.6 |
3.8 |
5.6 |
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Total impairment provisions |
3.7 |
3.8 |
5.8 |
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Expected credit loss (ECL) coverage ratio |
0.98% |
1.03% |
1.56% |
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Assets under management and administration (AUMA) (2) |
35.0 |
35.6 |
32.6 |
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Go-forward group customer deposits (2) |
465.6 |
461.4 |
434.9 |
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Customer deposits |
482.9 |
479.8 |
453.3 |
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Liquidity and funding |
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Liquidity coverage ratio (LCR) |
167% |
172% |
158% |
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Liquidity portfolio |
275 |
286 |
263 |
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Net stable funding ratio (NSFR) (5) |
152% |
157% |
153% |
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Loan:deposit ratio (2) |
73% |
72% |
77% |
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Total wholesale funding |
76 |
77 |
61 |
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Short-term wholesale funding |
22 |
23 |
20 |
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Capital and leverage |
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Common Equity Tier (CET1) ratio (6) |
15.2% |
18.2% |
18.2% |
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Total capital ratio (6) |
20.4% |
24.7% |
24.8% |
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Pro forma CET1 ratio, pre dividend accrual (7) |
16.1% |
19.5% |
18.6% |
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Risk-weighted assets (RWAs) |
176.8 |
157.0 |
164.7 |
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UK leverage ratio (8) |
5.5% |
5.9% |
6.4% |
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Tangible net asset value (TNAV) per ordinary share |
269p |
272p |
261p |
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Number of ordinary shares in issue (millions) (9) |
10,622 |
11,272 |
11,560 |
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(1) |
Refer to the following page for details of notable items within total income. |
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(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. |
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(3) |
Go-forward group excludes Ulster Bank RoI and discontinued operations. |
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(4) |
NatWest Group excluding Ulster Bank RoI and liquid asset buffer. |
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(5) |
NSFR reported in line with PRA Rulebook. Comparative historic numbers calculated in line with CRR2 regulations finalised in June 2019. |
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(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 23. As already announced in the Q4 2021 results, on 1 January 2022 the proforma CET1 ratio was 15.9% following regulatory changes. |
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(7) |
The pro forma CET1 ratio at 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; 31 March 2021 excludes foreseeable charges of £547 million for ordinary dividends). |
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(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 23. |
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(9) |
The number of ordinary shares in issue excludes own shares held. |
Summary consolidated income statement for the period ended 31 March 2022
| Quarter ended | ||
| 31 March | 31 December | 31 March |
| 2022 | 2021 | 2021 |
| £m | £m | £m |
Net interest income | 2,045 | 1,942 | 1,864 |
Non-interest income | 982 | 680 | 727 |
Total income | 3,027 | 2,622 | 2,591 |
Litigation and conduct costs | (102) | (190) | (16) |
Other operating expenses | (1,718) | (2,138) | (1,788) |
Operating expenses | (1,820) | (2,328) | (1,804) |
Profit before impairment releases | 1,207 | 294 | 787 |
Impairment releases | 38 | 341 | 98 |
Operating profit before tax | 1,245 | 635 | 885 |
Tax charge | (386) | (234) | (233) |
Profit from continuing operations | 859 | 401 | 652 |
Profit from discontinued operations, net of tax | 42 | 97 | 61 |
Profit for the period | 901 | 498 | 713 |
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Attributable to: |
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Ordinary shareholders | 841 | 434 | 620 |
Preference shareholders | - | 5 | 5 |
Paid-in equity holders | 59 | 58 | 87 |
Non-controlling interests | 1 | 1 | 1 |
| 901 | 498 | 713 |
Notable items within total income (1) |
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Private Banking |
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Consideration on the sale of Adam & Company |
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investment management business | - | 54 | - |
Commercial & Institutional |
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Fair value and disposal losses and asset disposals/strategic risk reduction (2) | - | (16) | (18) |
Own credit adjustments (OCA) | 18 | 3 | 2 |
Central items & other |
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Share of associate profits for Business Growth Fund | 23 | 11 | 121 |
Loss on redemption of own debt | (24) | - | (118) |
Liquidity Asset Bond sale gains | 41 | 50 | 5 |
Property strategy update | - | (44) | - |
IFRS volatility in Central items & other (3) | 166 | 3 | (1) |
Own credit adjustments (OCA) | - | 1 | - |
Total | 224 | 62 | (9) |
(1) Refer to page 1 of the Non-IFRS financial measures appendix.
(2) As previously reported Q4 2021 includes fair value and disposal losses in the banking book of £4 million (Q1 2021 - £14 million) and £12 million (Q1 2021 - £4 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.
(3) IFRS volatility relates to derivatives used for risk management not in IFRS hedge accounting relationships.
Non-IFRS financial measures
This document contains a number of non-IFRS financial measures and performance metrics not defined under IFRS. For details of the basis of preparation and reconciliations, where applicable, refer to the appendix.
Business performance summary
Chief Financial Officer review
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In the first quarter of 2022 we have made good progress against our strategic objectives and have delivered a strong financial performance, with a RoTE of 11.3%. We remain on track to achieve the targets we announced as part of our full year results in February and our capital and liquidity position remains robust. We continue to monitor the evolving economic outlook, including any indirect impacts on NatWest Group and our customers from the Russian invasion of Ukraine, which is having consequences for geopolitical stability, energy supply and prices, and cross-border financial transactions, including as a result of economic sanctions.
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Financial performance Total income increased by 16.8% to £3,027 million compared with Q1 2021. Excluding notable items, Go-forward group income was 8.6% higher than Q1 2021 driven by volume growth, principally in our mortgage book, and favourable yield curve movements. We have also seen increased fee income in Retail Banking, as consumer spending levels recover, and higher transactional banking fee income in Commercial & Institutional.
Bank NIM of 2.46% was 15 basis points higher than Q4 2021 principally reflecting the beneficial impact of recent base rate rises. Mortgage completion margins of 66 basis points decreased from 107 basis points in Q4 2021, and were lower than the back book margin of 158 basis points. Mortgage application margins declined from 67 basis points in Q4 2021 to 44 basis points, reflecting a steep rise in swap rates not fully matched by the increases made to our new business pricing. |
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Other operating expenses in the Go-forward group were £78 million, or 4.6%, lower than Q1 2021 largely reflecting ongoing cost discipline and some one-off items in the prior period. We remain on track to achieve our full year cost reduction target of around 3%, although savings will not be linear across the remaining quarters. |
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We have reported a total £38 million impairment release, £7 million in the Go-forward group. ECL provisions have reduced to £3.7 billion and ECL coverage ratio decreased to 0.98%. This impairment release reflects a decrease in underlying exposures, continued positive trends in portfolio performance and write-off activity. We recognise the significant uncertainty in the economic outlook and whilst we are comfortable with the strong credit performance of our book, our economic uncertainty post model adjustments (PMA) of £0.7 billion includes an increase of £0.1 billion to reflect the increased concerns arising from the Russian invasion of Ukraine and rising inflation. This level is 18.9% of total impairment provisions. We will continue to assess this position regularly. |
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As a result, we are pleased to report a Q1 2022 attributable profit of £841 million, with earnings per share of 7.5 pence and a RoTE of 11.3%. |
Go-forward group net lending increased by £6.7 billion over the quarter including £2.6 billion of mortgage lending growth in Retail Banking and £2.4 billion of growth in Commercial & Institutional. Unsecured balances in Retail Banking continued to grow in the quarter, with increased demand for unsecured lending and increased consumer spending, partly offset by expected seasonal paydowns. Retail Banking gross new mortgage lending was £9.1 billion in the quarter, compared with £8.4 billion in Q4 2021 and £9.6 billion in Q1 2021. |
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Go-forward group customer deposits increased by £4.2 billion compared with Q4 2021 as a result of treasury repo activity and continued growth across the franchises.
TNAV per share decreased by 3 pence in the quarter to 269 pence principally reflected movements in the cashflow hedging and other reserves, partially offset by the attributable profit for the period. |
Capital and leverage |
Following the successful directed buyback in March 2022, the CET1 ratio remains strong at 15.2%, or 15.0% excluding IFRS 9 transitional relief. The 70 basis points reduction compared with 1 January 2022 principally reflected the directed buyback and other distribution accruals partially offset by the attributable profit. RWAs of £176.8 billion were £0.5 billion higher than 1 January 2022. |
Funding and liquidity |
The LCR reduced by 5 percentage points to 167%, representing £83.3 billion headroom above 100% minimum requirement primarily due to an increase in customer lending which outstripped growth in customer deposits, and share buyback. Total wholesale funding decreased by £1 billion in the quarter to £76 billion.
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Business performance summary
Retail Banking
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Quarter ended |
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31 March |
31 December |
31 March |
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2022 |
2021 |
2021 |
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£m |
£m |
£m |
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Total income |
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1,217 |
1,164 |
1,056 |
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Operating expenses |
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(645) |
(774) |
(587) |
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of which: Other operating expenses |
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(591) |
(722) |
(585) |
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Impairment losses |
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(5) |
(5) |
(34) |
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Operating profit |
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567 |
385 |
435 |
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Return on equity |
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23.1% |
19.7% |
23.0% |
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Net interest margin |
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2.43% |
2.28% |
2.25% |
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Cost:income ratio |
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53.0% |
66.5% |
55.6% |
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Loan impairment rate |
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1bps |
1bps |
8bps |
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As at |
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31 March |
31 December |
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2022 |
2021 |
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£bn |
£bn |
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Net loans to customers - amortised cost |
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184.9 |
182.2 |
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Customer deposits |
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189.7 |
188.9 |
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RWAs |
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52.2 |
36.7 |
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During Q1 2022, Retail Banking continued to pursue sustainable growth with a measured approach to risk, delivering an operating profit of £567 million. Retail Banking completed £0.7 billion of climate and sustainable funding and financing in Q1 2022 which will contribute towards the NatWest Group target of £100 billion between 1 July 2021 and the end of 2025. |
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Total income was £161 million, or 15.2%, higher than Q1 2021 reflecting higher deposit income, supported by recent base rate rises, combined with higher mortgage balances and higher transactional-related fee income, partially offset by lower mortgage margins. |
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Net interest margin was 15 basis points higher than Q4 2021 reflecting higher deposit returns partly offset by mortgage margin pressure. Mortgage completion margins of 59 basis points were lower than the back book margin of 155 basis points, with application margins of 37 basis points in the quarter, reflecting a steep rise in swap rates not fully matched by the increases made to our new business pricing. |
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Other operating expenses were £6 million, or 1.0%, higher than Q1 2021 with higher technology and investment spend partly offset by an 11.4% reduction in operational headcount, as a result of continued customer digital adoption and automation of end-to-end customer journeys. |
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Impairment losses of £5 million in Q1 2022 continue to reflect a low level of stage 3 defaults, largely offset by provision releases in stage 1 and 2. |
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Net loans to customers increased by £2.7 billion, or 1.5% compared with Q4 2021 reflecting continued mortgage growth of £2.6 billion, with gross new mortgage lending of £9.1 billion representing flow share of around 12%. Personal advances increased by £0.1 billion as customer demand continued to increase. |
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Customer deposits increased by £0.8 billion, or 0.4%, compared with Q4 2021 as growth normalised towards pre-pandemic levels. |
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RWAs were £15.5 billion higher than Q4 2021 primarily reflecting 1 January 2022 regulatory changes. |
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Business performance summary
Private Banking
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| Quarter ended | |||
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| 31 March |
| 31 December | 31 March |
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| 2022 |
| 2021 | 2021 |
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| £m |
| £m | £m |
Total income |
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| 216 |
| 253 | 185 |
Operating expenses |
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| (139) |
| (155) | (121) |
of which: Other operating expenses |
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| (138) |
| (150) | (126) |
Impairment releases |
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| 5 |
| 12 | - |
Operating profit |
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| 82 |
| 110 | 64 |
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Return on equity |
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| 18.2% |
| 21.3% | 12.4% |
Net interest margin |
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| 3.07% |
| 2.67% | 2.64% |
Cost:income ratio |
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| 64.4% |
| 61.3% | 65.4% |
Loan impairment rate |
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| (11)bps |
| (26)bps | - |
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Net new money (£bn) (1) |
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| 0.8 |
| 0.7 | 0.6 |
(1) Net new money refers to client cash inflows and outflows relating to investment products (this can include transfers from saving accounts). Net new money excludes the impact of EEA resident client outflows following the UK's exit from the EU. (2) AUMA comprises both assets under management (AUMs) and assets under administration (AUAs) serviced through the Private Banking franchise. For further details refer to the non-IFRS financial measures appendix.
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Private Banking return on equity of 18.2% and operating profit of £82 million in Q1 2022 was supported by a strong operating performance and continued lending and deposit balance growth. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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- | Total income was £31 million, or 16.8%, higher than Q1 2021 primarily due to higher deposit income, supported by recent base rate rises, partially offset by higher cost of lending. Net interest margin of 3.07% was 40 basis points higher than Q4 2021 reflecting higher deposit returns. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- | Other operating expenses were £12 million, or 9.5%, higher than Q1 2021 principally due to increased headcount and investment to enhance AUMA growth propositions. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- | A net impairment release of £5 million in Q1 2022 reflected continued low levels of credit risk in the portfolio. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- | Net loans to customers increased by £0.3 billion, or 1.6%, compared with Q4 2021 due to continued strong mortgage lending growth, whilst RWAs increased by £0.2 billion, or 1.8%. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- | Net new money of £0.8 billion represents 9.1% of opening AUMAs annualised and has increased by 33.3% compared with Q1 2021. AUMA balances have reduced by £0.6 billion, or 1.7%, compared with Q4 2021 as a result of adverse market movements. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Business performance summary
Commercial & Institutional
|
|
| Quarter ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
| 31 March | 31 December | 31 March | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
| 2022 | 2021 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
| £m | £m | £m | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest income |
|
|
| 803 | 764 | 725 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-interest income |
|
|
| 572 | 404 | 528 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total income |
|
|
| 1,375 | 1,168 | 1,253 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating expenses |
|
|
| (922) | (1,059) | (915) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of which: Other operating expenses |
|
|
| (880) | (1,012) | (915) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impairment releases |
|
|
| 11 | 317 | 125 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating profit |
|
|
| 464 | 426 | 463 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Return on equity |
|
|
| 8.8% | 8.3% | 8.5% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest margin |
|
|
| 2.69% | 2.52% | 2.40% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost:income ratio |
|
|
| 66.3% | 90.4% | 72.3% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loan impairment rate |
|
|
| (3)bps | (101)bps | (38)bps | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(1) Assets held by Commercial & Institutional as an independent trustee and in a depositary service capacity. As previously announced, we have brought together our Commercial Banking, NatWest Markets and RBS International businesses to form a single franchise, Commercial & Institutional, with common management and objectives to best support our customers across the full non-personal customer lifecycle.
During Q1 2022 Commercial & Institutional delivered a resilient performance with a return on equity of 8.8% and operating profit of £464 million.
Commercial & Institutional completed £4.9 billion of climate and sustainable funding and financing in Q1 2022 delivering a cumulative £11.8 billion since 1 July 2021, contributing toward the NatWest Group target of £100 billion between 1 July 2021 and the end of 2025. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- | Total income was £122 million, or 9.7%, higher than Q1 2021 due to higher deposit returns from an improved interest rate environment, increased transactional banking fees and higher trading income. Total income was £207 million, or 17.7%, higher than Q4 2021 principally reflecting an uplift in trading income compared to a weak Q4 2021 and improved yield curve supporting deposit income. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- | Net interest margin was 17 basis points higher than Q4 2021 mainly due to improved deposit returns. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- | Other operating expenses were £35 million, or 3.8%, lower than Q1 2021 primarily reflecting reductions in front office restructuring costs and back office operational costs, and lower staff costs as a result of an 11% reduction in headcount. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- | An impairment release of £11 million reflects the continued low levels of realised losses seen across the portfolio. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- | Net loans to customers increased by £2.4 billion, or 1.9%, in Q1 2022 with Business Banking and Commercial Mid-market stable excluding continued UK Government financial support scheme repayments. Net lending grew in the Corporate & Institutions business driven by increased capital markets activity and growth in facility utilisation, and invoice and asset finance balances within our Commercial Mid-market business increased by £0.5 billion. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- | Customer deposits increased by £0.4 billion, or 0.2%, in Q1 2022 due to overall increased customer liquidity. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- | RWAs increased by £2.2 billion primarily due to regulatory changes from 1 January 2022 and higher levels of market risk and counterparty credit risk. This is partly offset by lower operational risk RWAs. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business performance summary
Ulster Bank RoI
Continuing operations |
|
| Quarter ended | ||
|
|
| 31 March | 31 December | 31 March |
|
|
| 2022 | 2021 | 2021 |
|
|
| €m | €m | €m |
Total income |
|
| 46 | 50 | 64 |
Operating expenses |
|
| (134) | (153) | (130) |
of which: Other operating expenses |
|
| (134) | (122) | (120) |
Impairment releases |
|
| 37 | 15 | 10 |
Operating loss |
|
| (51) | (88) | (56) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As at |
| |
|
|
| 31 March | 31 December |
|
|
|
| 2022 | 2021 |
|
|
|
| €bn | €bn |
|
Net loans to customers - amortised cost |
|
| 7.5 | 7.9 |
|
Customer deposits |
|
| 20.4 | 21.9 |
|
RWAs |
|
| 13.2 | 10.9 |
|
Ulster Bank RoI continues to make progress on its phased withdrawal from the Republic of Ireland.
- During April 2022, notice of formal account closure has been served to the first tranche of customers, with six months' notice to 'Choose, Move, Close' their current and deposit accounts.
- The sale agreement made in 2021 to Allied Irish Banks, p.l.c. (AIB) for the sale of the Ulster Bank RoI commercial lending portfolio has received approval from the Irish competition authority (the CCPC).
- NatWest Group has also entered into exclusive discussions with AIB for the sale of the Ulster Bank RoI performing tracker (and linked) mortgage portfolio.
- The sale agreement made in 2021 to Permanent TSB p.l.c. (PTSB) remains subject to competition, regulatory and other approvals, including PTSB's holding company shareholder approval, and other conditions being satisfied.
The loan sales agreed in 2021 are expected to occur in phases between Q4 2022 and Q1 2023 with the majority of loans still expected to transfer by Q4 2022. Discussions are also ongoing with other counterparties about their potential interest in other parts of the bank.
- | Total income was €18 million, or 28.1%, lower than Q1 2021 reflecting lower lending levels and fee income as a result of decision to withdraw from the RoI market. |
- | Other operating expenses were €14 million, or 11.7% higher than Q1 2021 with higher withdrawal-related programme costs and higher VAT costs being partially offset by lower regulatory levies and a 5.3% reduction in headcount. Ulster Bank RoI incurred €12 million of withdrawal-related direct costs in Q1 2022. |
- | A net impairment release of €37 million in Q1 2022 reflects improvements in the reducing portfolio. |
- | Net loans to customers decreased by €0.4 billion or 5.1% compared with Q4 2021 as repayments continue to exceed gross new lending and a further €0.3 billion of loans were reclassified as Assets Held for Sale. |
- | Customer deposits decreased by €1.5 billion, or 6.8%, compared with Q4 2021 due to one-off commercial placements at Q4 2021 and reducing personal deposits as customers begin to close accounts. |
- | RWAs were €2.3 billion higher than Q4 2021 primarily reflecting model updates which were mainly due to overlays as a result of new regulations applicable to IRB models from 1 January 2022. |
Total Ulster Bank RoI including discontinued operations |
| Quarter ended | |||
|
|
| 31 March | 31 December | 31 March |
|
|
| 2022 | 2021 | 2021 |
|
|
| €m | €m | €m |
Total income |
|
| 118 | 128 | 142 |
Operating expenses |
|
| (148) | (166) | (143) |
of which: Other operating expenses |
|
| (148) | (135) | (133) |
Impairment releases |
|
| 30 | 67 | 14 |
Operating profit |
|
| - | 29 | 13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As at |
| |
|
|
| 31 March | 31 December |
|
|
|
| 2022 | 2021 |
|
|
|
| €bn | €bn |
|
Net loans to customers (amortised cost) |
|
| 18.4 | 18.6 |
|
Customer deposits |
|
| 20.4 | 21.9 |
|
RWAs |
|
| 13.2 | 10.9 |
|
Business performance summary
Central items & other
| Quarter ended |
| ||
| 31 March | 31 December | 31 March |
|
| 2022 | 2021 | 2021 |
|
| £m | £m | £m |
|
Central items not allocated | 174 | (211) | (27) |
|
- A £174 million operating profit within central items not allocated principally reflects IFRS volatility gains of £166 million.
Segment performance
|
|
Quarter ended 31 March 2022 |
||||||
|
|
Go-forward group |
|
|
||||
|
|
|
|
|
|
Total excluding |
|
|
|
|
Retail |
Private |
Commercial & |
Central items |
Ulster Bank |
Ulster |
Total NatWest |
|
|
Banking |
Banking |
Institutional |
& other |
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 |
22 |
2,045 |
|
Non-interest income |
105 |
73 |
572 |
214 |
964 |
18 |
982 |
|
Total income |
1,217 |
216 |
1,375 |
179 |
2,987 |
40 |
3,027 |
|
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 |
(73) |
1,207 |
|
Impairment (losses)/releases |
(5) |
5 |
11 |
(4) |
7 |
31 |
38 |
|
Operating profit/(loss) |
567 |
82 |
464 |
174 |
1,287 |
(42) |
1,245 |
|
|
|
|
|
|
|
|
|
|
Income excluding notable items |
1,217 |
216 |
1,357 |
(27) |
2,763 |
40 |
2,803 |
|
|
|
|
|
|
|
|
|
|
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 |
59.7% |
|
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) |
1bps |
(11)bps |
(3)bps |
nm |
- |
nm |
(1)bps |
|
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.
Refer to page 13 for the notes to this table.
Segment performance
|
|
Quarter ended 31 December 2021 |
||||||
|
|
Go-forward group |
|
|
||||
|
|
|
|
|
|
Total excluding |
|
|
|
|
Retail |
Private |
Commercial & |
Central items |
Ulster Bank |
Ulster |
Total NatWest |
|
|
Banking |
Banking |
Institutional |
& other |
RoI |
Bank RoI |
Group |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Continuing operations |
|
|
|
|
|
|
|
|
Income statement |
|
|
|
|
|
|
|
|
Net interest income |
1,057 |
126 |
764 |
(28) |
1,919 |
23 |
1,942 |
|
Non-interest income |
107 |
127 |
404 |
22 |
660 |
20 |
680 |
|
Total income |
1,164 |
253 |
1,168 |
(6) |
2,579 |
43 |
2,622 |
|
Direct expenses |
(281) |
(61) |
(482) |
(1,236) |
(2,060) |
(78) |
(2,138) |
|
Indirect expenses |
(441) |
(89) |
(530) |
1,086 |
26 |
(26) |
- |
|
Other operating expenses |
(722) |
(150) |
(1,012) |
(150) |
(2,034) |
(104) |
(2,138) |
|
Litigation and conduct costs |
(52) |
(5) |
(47) |
(59) |
(163) |
(27) |
(190) |
|
Operating expenses |
(774) |
(155) |
(1,059) |
(209) |
(2,197) |
(131) |
(2,328) |
|
Operating profit/(loss) before impairment losses/releases |
390 |
98 |
109 |
(215) |
382 |
(88) |
294 |
|
Impairment releases/(losses) |
(5) |
12 |
317 |
4 |
328 |
13 |
341 |
|
Operating profit/(loss) |
385 |
110 |
426 |
(211) |
710 |
(75) |
635 |
|
|
|
|
|
|
|
|
|
|
Income excluding notable items |
1,164 |
199 |
1,181 |
(27) |
2,517 |
43 |
2,560 |
|
|
|
|
|
|
|
|
|
|
Additional information |
|
|
|
|
|
|
|
|
Return on tangible equity (1) |
na |
na |
na |
na |
5.6% |
na |
5.6% |
|
Return on equity (1) |
19.7% |
21.3% |
8.3% |
nm |
nm |
nm |
na |
|
Cost:income ratio (1) |
66.5% |
61.3% |
90.4% |
nm |
85.0% |
nm |
88.6% |
|
Total assets (£bn) |
210.0 |
29.9 |
425.9 |
93.4 |
759.2 |
22.8 |
782.0 |
|
Funded assets (£bn) (1) |
210.0 |
29.8 |
321.3 |
92.0 |
653.1 |
22.8 |
675.9 |
|
Net loans to customers - amortised cost (£bn) |
182.2 |
18.4 |
124.2 |
27.5 |
352.3 |
6.7 |
359.0 |
|
Loan impairment rate (1) |
1bps |
(26)bps |
(101)bps |
nm |
(37)bps |
nm |
(38)bps |
|
Impairment provisions (£bn) |
(1.5) |
(0.1) |
(1.7) |
- |
(3.3) |
(0.5) |
(3.8) |
|
Impairment provisions - stage 3 (£bn) |
(0.9) |
- |
(0.7) |
- |
(1.6) |
(0.4) |
(2.0) |
|
Customer deposits (£bn) |
188.9 |
39.3 |
217.5 |
15.7 |
461.4 |
18.4 |
479.8 |
|
Risk-weighted assets (RWAs) (£bn) |
36.7 |
11.3 |
98.1 |
1.8 |
147.9 |
9.1 |
157.0 |
|
RWA equivalent (RWAe) (£bn) |
36.7 |
11.3 |
99.9 |
2.1 |
150.0 |
9.1 |
159.1 |
|
Employee numbers (FTEs - thousands) |
14.6 |
1.9 |
11.8 |
27.9 |
56.2 |
1.7 |
57.9 |
|
Third party customer asset rate (2) |
2.58% |
2.34% |
2.75% |
nm |
nm |
nm |
nm |
|
Third party customer funding rate (2) |
(0.05%) |
0.00% |
(0.01%) |
nm |
nm |
0.05% |
nm |
|
Bank average interest earning assets (£bn) (1) |
183.5 |
18.7 |
120.4 |
nm |
329.5 |
na |
329.5 |
|
Bank net interest margin (1) |
2.28% |
2.67% |
2.52% |
nm |
2.31% |
na |
2.31% |
nm = not meaningful, na = not applicable.
Refer to page 13 for the notes to this table.
Segment performance
|
|
Quarter ended 31 March 2021 |
||||||
|
|
Go-forward group |
|
|
||||
|
|
|
|
|
|
Total excluding |
|
|
|
|
Retail |
Private |
Commercial & |
Central items |
Ulster Bank |
Ulster |
Total NatWest |
|
|
Banking |
Banking |
Institutional |
& other |
RoI |
Bank RoI |
Group |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Continuing operations |
|
|
|
|
|
|
|
|
Income statement |
|
|
|
|
|
|
|
|
Net interest income |
973 |
115 |
725 |
24 |
1,837 |
27 |
1,864 |
|
Non-interest income |
83 |
70 |
528 |
17 |
698 |
29 |
727 |
|
Total income |
1,056 |
185 |
1,253 |
41 |
2,535 |
56 |
2,591 |
|
Direct expenses |
(188) |
(43) |
(446) |
(1,052) |
(1,729) |
(59) |
(1,788) |
|
Indirect expenses |
(397) |
(83) |
(469) |
995 |
46 |
(46) |
- |
|
Other operating expenses |
(585) |
(126) |
(915) |
(57) |
(1,683) |
(105) |
(1,788) |
|
Litigation and conduct costs |
(2) |
5 |
- |
(10) |
(7) |
(9) |
(16) |
|
Operating expenses |
(587) |
(121) |
(915) |
(67) |
(1,690) |
(114) |
(1,804) |
|
Operating profit/(loss) before impairment losses/releases |
469 |
64 |
338 |
(26) |
845 |
(58) |
787 |
|
Impairment (losses)/releases |
(34) |
- |
125 |
(1) |
90 |
8 |
98 |
|
Operating profit/(loss) |
435 |
64 |
463 |
(27) |
935 |
(50) |
885 |
|
|
|
|
|
|
|
|
|
|
Income excluding notable items |
1,056 |
185 |
1,269 |
34 |
2,544 |
56 |
2,600 |
|
|
|
|
|
|
|
|
|
|
Additional information |
|
|
|
|
|
|
|
|
Return on tangible equity (1) |
na |
na |
na |
na |
8.5% |
na |
7.9% |
|
Return on equity (1) |
23.0% |
12.4% |
8.5% |
nm |
nm |
nm |
na |
|
Cost:income ratio (1) |
55.6% |
65.4% |
72.3% |
nm |
66.2% |
nm |
69.2% |
|
Total assets (£bn) |
199.2 |
26.9 |
450.6 |
67.2 |
743.9 |
25.9 |
769.8 |
|
Funded assets (£bn) (1) |
199.2 |
26.9 |
329.5 |
65.3 |
620.9 |
25.9 |
646.8 |
|
Net loans to customers - amortised cost (£bn) |
174.8 |
17.5 |
128.8 |
20.7 |
341.8 |
16.9 |
358.7 |
|
Loan impairment rate (1) |
8bps |
- |
(38)bps |
nm |
(10)bps |
nm |
(11)bps |
|
Impairment provisions (£bn) |
(1.8) |
(0.1) |
(2.9) |
(0.1) |
(4.9) |
(0.7) |
(5.6) |
|
Impairment provisions - stage 3 (£bn) |
(0.8) |
- |
(1.0) |
(0.1) |
(1.9) |
(0.5) |
(2.4) |
|
Customer deposits (£bn) |
179.1 |
33.5 |
205.1 |
17.2 |
434.9 |
18.4 |
453.3 |
|
Risk-weighted assets (RWAs) (£bn) |
35.0 |
11.2 |
105.8 |
1.6 |
153.6 |
11.1 |
164.7 |
|
RWA equivalent (RWAe) (£bn) |
35.0 |
11.2 |
108.6 |
1.7 |
156.5 |
11.1 |
167.6 |
|
Employee numbers (FTEs - thousands) |
15.8 |
1.9 |
13.2 |
26.0 |
56.9 |
1.9 |
58.8 |
|
Third party customer asset rate (2) |
2.73% |
2.36% |
2.62% |
nm |
nm |
nm |
nm |
|
Third party customer funding rate (2) |
(0.08%) |
0.00% |
(0.01%) |
nm |
nm |
0.00% |
nm |
|
Bank average interest earning assets (£bn) (1) |
175.3 |
17.7 |
122.6 |
nm |
320.9 |
na |
320.9 |
|
Bank net interest margin (1) |
2.25% |
2.64% |
2.40% |
nm |
2.32% |
na |
2.32% |
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. Net interest margin is calculated as net interest income as a percentage of the average interest-earning assets, and only excludes liquid asset buffer and assets of disposal groups.
Risk and capital management
|
|
Page |
|
Credit risk |
|
|
Segment analysis - portfolio summary |
14 |
|
Segment analysis - loans |
16 |
|
Movement in ECL provision |
16 |
|
ECL post model adjustments |
17 |
|
Sector analysis - portfolio summary |
18 |
|
Capital, liquidity and funding risk |
20 |
Credit risk
Segment analysis - portfolio summary
The table below shows gross loans and expected credit loss (ECL), by segment and stage, within the scope of the IFRS 9 ECL framework.
|
|
Go-forward group |
|
|
||||
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
Central |
excluding |
Ulster |
|
|
|
Retail |
Private |
Commercial & |
items & |
Ulster |
Bank |
|
|
|
Banking |
Banking |
Institutional |
other |
Bank RoI |
RoI |
Total |
|
31 March 2022 |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Loans - amortised cost and FVOCI (1) |
|
|
|
|
|
|
|
|
Stage 1 |
171,357 |
18,050 |
112,118 |
33,303 |
334,828 |
5,295 |
340,123 |
|
Stage 2 |
12,217 |
876 |
15,742 |
87 |
28,922 |
706 |
29,628 |
|
Stage 3 |
2,603 |
256 |
2,286 |
- |
5,145 |
756 |
5,901 |
|
Of which: individual |
- |
256 |
882 |
- |
1,138 |
76 |
1,214 |
|
Of which: collective |
2,603 |
- |
1,404 |
- |
4,007 |
680 |
4,687 |
|
Subtotal excluding disposal group loans |
186,177 |
19,182 |
130,146 |
33,390 |
368,895 |
6,757 |
375,652 |
|
Disposal group loans |
|
|
|
|
|
9,320 |
9,320 |
|
Total |
|
|
|
|
|
16,077 |
384,972 |
|
ECL provisions (2) |
|
|
|
|
|
|
|
|
Stage 1 |
141 |
13 |
158 |
18 |
330 |
8 |
338 |
|
Stage 2 |
514 |
22 |
742 |
14 |
1,292 |
55 |
1,347 |
|
Stage 3 |
879 |
38 |
733 |
- |
1,650 |
358 |
2,008 |
|
Of which: individual |
- |
38 |
305 |
- |
343 |
12 |
355 |
|
Of which: collective |
879 |
- |
428 |
- |
1,307 |
346 |
1,653 |
|
Subtotal excluding ECL provisions on disposal group loans |
1,534 |
73 |
1,633 |
32 |
3,272 |
421 |
3,693 |
|
ECL provisions on disposal group loans |
|
|
|
|
|
121 |
121 |
|
Total |
|
|
|
|
|
542 |
3,814 |
|
ECL provisions coverage (3) |
|
|
|
|
|
|
|
|
Stage 1 (%) |
0.08 |
0.07 |
0.14 |
0.05 |
0.10 |
0.15 |
0.10 |
|
Stage 2 (%) |
4.21 |
2.51 |
4.71 |
16.09 |
4.47 |
7.79 |
4.55 |
|
Stage 3 (%) |
33.77 |
14.84 |
32.06 |
- |
32.07 |
47.35 |
34.03 |
|
ECL provisions coverage excluding disposal group loans |
0.82 |
0.38 |
1.25 |
0.10 |
0.89 |
6.23 |
0.98 |
|
ECL provisions coverage on disposal group loans |
|
|
|
|
|
1.30 |
1.30 |
|
Total |
|
|
|
|
|
3.37 |
0.99 |
For the notes to this table refer to the following page.
Risk and capital management
Credit risk continued
Segment analysis - portfolio summary continued
|
|
Go-forward group |
|
|
||||
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
Central |
excluding |
Ulster |
|
|
|
Retail |
Private |
Commercial & |
items & |
Ulster |
Bank |
|
|
|
Banking |
Banking |
Institutional |
other |
Bank RoI |
RoI |
Total |
|
31 December 2021 |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Loans - amortised cost and FVOCI (1) |
|
|
|
|
|
|
|
|
Stage 1 |
168,013 |
17,600 |
107,368 |
32,283 |
325,264 |
5,560 |
330,824 |
|
Stage 2 |
13,594 |
967 |
18,477 |
90 |
33,128 |
853 |
33,981 |
|
Stage 3 |
1,884 |
270 |
2,081 |
- |
4,235 |
787 |
5,022 |
|
Of which: individual |
- |
270 |
884 |
- |
1,154 |
61 |
1,215 |
|
Of which: collective |
1,884 |
- |
1,197 |
- |
3,081 |
726 |
3,807 |
|
Subtotal excluding disposal group loans |
183,491 |
18,837 |
127,926 |
32,373 |
362,627 |
7,200 |
369,827 |
|
Disposal group loans |
|
|
|
|
|
9,084 |
9,084 |
|
Total |
|
|
|
|
|
16,284 |
378,911 |
|
ECL provisions (2) |
|
|
|
|
|
|
|
|
Stage 1 |
134 |
12 |
129 |
17 |
292 |
10 |
302 |
|
Stage 2 |
590 |
29 |
784 |
11 |
1,414 |
64 |
1,478 |
|
Stage 3 |
850 |
37 |
751 |
- |
1,638 |
388 |
2,026 |
|
Of which: individual |
- |
37 |
313 |
- |
350 |
13 |
363 |
|
Of which: collective |
850 |
- |
438 |
- |
1,288 |
375 |
1,663 |
|
Subtotal excluding ECL provisions on disposal group loans |
1,574 |
78 |
1,664 |
28 |
3,344 |
462 |
3,806 |
|
ECL provisions on disposal group loans |
|
|
|
|
|
109 |
109 |
|
Total |
|
|
|
|
|
571 |
3,915 |
|
ECL provisions coverage (3) |
|
|
|
|
|
|
|
|
Stage 1 (%) |
0.08 |
0.07 |
0.12 |
0.05 |
0.09 |
0.18 |
0.09 |
|
Stage 2 (%) |
4.34 |
3.00 |
4.24 |
12.22 |
4.27 |
7.50 |
4.35 |
|
Stage 3 (%) |
45.12 |
13.70 |
36.09 |
- |
38.68 |
49.30 |
40.34 |
|
ECL provisions coverage excluding disposal group loans |
0.86 |
0.41 |
1.30 |
0.09 |
0.92 |
6.42 |
1.03 |
|
ECL provisions coverage on disposal group loans |
|
|
|
|
|
1.20 |
1.20 |
|
Total |
|
|
|
|
|
3.51 |
1.03 |
(1) Fair value through other comprehensive income (FVOCI).
(2) Includes £4 million (31 December 2021 - £5 million) related to assets classified as FVOCI.
(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) The table shows gross loans only and excludes amounts that were outside the scope of the ECL framework. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling £167.7 billion (31 December 2021 - £176.3 billion) and debt securities of £42.9 billion (31 December 2021 - £44.9 billion).
- Stage 3 loans increased, as write-offs and repayments were more than offset by the effect of the new regulatory definition of default, which in isolation led to an increase of approximately £0.7 billion in Stage 3 balances, mostly in Retail mortgages, and an increase in defaults on government support schemes.
- Underlying flows into default remained subdued during Q1 2022. However, it is expected that defaults will increase as the year progresses and growing inflationary pressures on businesses, consumers and the broader economy continue to evolve.
- Stage 2 loans and ECL reduced further during the first quarter of 2022, with positive trends in underlying risk metrics maintained since 31 December 2021 and migration of exposures into Stage 3.
- The economic scenarios driving the ECL requirement, as well as model performance considerations, were consistent with those described in the 2021 Annual Report and Accounts.
Risk and capital management
Credit risk continued
Segment analysis - loans
- Retail Banking - Balance sheet growth continued during Q1 2022. This was primarily in mortgages, where new lending remained strong. Unsecured lending balances increased slightly during Q1 2022, with increased demand for loans and, following the easing of COVID-19 restrictions, increased consumer spending maintaining credit card balances. Total ECL coverage reduced during the first quarter of 2022, reflective of low unemployment and stable portfolio performance, whilst maintaining sufficient ECL coverage for key portfolios above pre-COVID-19 levels, given the persisting sources of uncertainty in relation to inflation and cost of living pressures. Stage 3 ECL increased overall, mainly because of the IFRS 9 alignment to the new regulatory default definition, implemented on 1 January 2022. This change resulted in an increase in Stage 3 exposures of approximately £0.7 billion, mostly in mortgages and driven by a more expansive suite of default definition guidelines, including probation treatments. Stage 2 balances decreased during the quarter, reflecting continued stability in IFRS 9 probability of default (PD) estimates and also the consequence of the migration of balances into Stage 3 under the new regulatory default definition. The implementation of new mortgage IFRS 9 models resulted in lower Stage 3 ECL coverage due to reduced loss estimates for cases where the customer was not subject to repossession activity. This mortgage reduction was the primary driver for the change in overall Retail Stage 3 coverage during the quarter.
- Commercial & Institutional - The balance sheet reduction observed in 2021 stabilised in Q1 2022, with repayments during the quarter largely offset by additional lending across the portfolio. Sector appetite is regularly reviewed with continued focus on appetite to high oversight sectors. Strategic reductions and right sizing of appetite limits continued to be achieved. Stage 2 balances continued to fall reflecting positive portfolio performance which lowered PDs and resulted in exposure migrating back into Stage 1. PD deterioration remained the primary driver of cases moving into Stage 2. The ECL release was largely due to improvements in underlying PDs and reduced Stage 2 balances, as assets migrated back into Stage 1, partly offset by net post model adjustment increases. There was a small increase in Stage 3 balances as write-offs were more than offset by increases due to the new regulatory default definition and an increase in defaults on government support schemes.
Movement in ECL provision
The table below shows the main ECL provision movements.
| ECL provision |
| £m |
At 1 January 2022 | 3,806 |
Transfers to disposal groups | (3) |
Changes in risk metrics and exposure: Stage 1 and Stage 2 | (128) |
Changes in risk metrics and exposure: Stage 3 | 142 |
Judgemental changes: changes in post model adjustments for Stage 1, Stage 2 and Stage 3 | (2) |
Write-offs and other | (122) |
At 31 March 2022 | 3,693 |
- ECL reduced during Q1 2022. This reflected a decrease in underlying exposures, continued positive trends in portfolio performance and write-off activity.
- Stage 3 new defaults remained low during the quarter. Stage 3 ECL balances remained broadly stable, mainly due to write-offs and repayments of defaulted debt largely offsetting the effect of the new regulatory default definition.
- Additionally, broader portfolio deterioration continued to be subdued and resulted in favourable movements in IFRS 9 risk metrics, which led to some additional post model adjustments being required to ensure provision adequacy in the face of growing uncertainty.
Risk and capital management
Credit risk continued
ECL post model adjustments
The table below shows ECL post model adjustments.
| Retail Banking |
| Private | Commercial & |
| Ulster Bank RoI |
| ||
| Mortgages | Other |
| Banking | Institutional |
| Mortgages | Other | Total |
31 March 2022 | £m | £m |
| £m | £m |
| £m | £m | £m |
Deferred model calibrations | - | 112 |
| - | 64 |
| - | 2 | 178 |
Economic uncertainty | 111 | 70 |
| 7 | 435 |
| 10 | 20 | 653 |
Other adjustments | 29 | - |
| - | 8 |
| 131 | - | 168 |
Total | 140 | 182 |
| 7 | 507 |
| 141 | 22 | 999 |
|
|
|
|
|
|
|
|
|
|
Of which: |
|
|
|
|
|
|
|
|
|
- Stage 1 | 13 | 8 |
| 1 | 42 |
| 2 | - | 66 |
- Stage 2 | 104 | 174 |
| 6 | 464 |
| 11 | 21 | 780 |
- Stage 3 | 23 | - |
| - | 1 |
| 128 | 1 | 153 |
|
|
|
|
|
|
|
|
|
|
31 December 2021 |
|
|
|
| |||||
Deferred model calibrations | 58 | 97 |
| - | 62 |
| - | 2 | 219 |
Economic uncertainty | 60 | 99 |
| 5 | 391 |
| 6 | 23 | 584 |
Other adjustments | 37 | - |
| - | 5 |
| 156 | - | 198 |
Total | 155 | 196 |
| 5 | 458 |
| 162 | 25 | 1,001 |
|
|
|
|
|
|
|
|
|
|
Of which: |
|
|
|
|
|
|
|
|
|
- Stage 1 | 9 | 5 |
| - | 15 |
| 4 | 1 | 34 |
- Stage 2 | 126 | 164 |
| 5 | 443 |
| 7 | 26 | 771 |
- Stage 3 | 20 | 27 |
| - | - |
| 151 | (2) | 196 |
(1) Excludes £61 million (31 December 2021 - £49 million) of post model adjustments (mortgages - £5 million; other - £56 million (31 December 2021 - mortgages £4 million; other - £45 million)) for Ulster Bank RoI disclosed as transfers to disposal groups.
- Retail Banking - The post model adjustment for deferred model calibrations decreased to £112 million from £155 million at 31 December 2021. This was due to the removal of the mortgage element of the post model adjustment because of the implementation of a new IFRS 9 PD model during the quarter. The remaining amount, reflected management's continued judgement that the implied ECL decreases that continued to manifest through the standard PD model monitoring process since 2020, were not fully supportable. Management retained this view on the basis that underlying portfolio performance is believed to be underpinned by government support schemes over the past two years and further outcome data is required on the level of default suppression, particularly with the backdrop of new sources of economic uncertainty and geopolitical risk.
- The post model adjustment for economic uncertainty increased from £159 million to £181 million, reflecting the increased level of uncertainty since 31 December 2021, because of inflation and cost of living pressures as well as the Russian invasion of Ukraine, and the expected effect on the economy. This demonstrated management's view of a net increase in uncertainty, notwithstanding the dissipating risk of economic effects from COVID-19.
- Other judgmental overlays included a post model adjustment of £16 million to capture the effect of potential cladding risk in the portfolio.
- Commercial & Institutional - The post model adjustment for economic uncertainty increased to £435 million from £391 million at 31 December 2021. This reflected the increased uncertainty due to rising inflation as well as the Russian invasion of Ukraine, again partially counter-balanced by the dissipated risks of COVID-19. The majority of the increase in the quarter, £44 million, was to offset underlying Q1 modelled ECL releases which were not considered reflective of the current uncertainty.
- Deferred model calibrations and other adjustments remain broadly consistent with 31 December 2021.
- Ulster Bank RoI - Other adjustments decreased to £131 million from £156 million at 31 December 2021 due to improved portfolio performance and balance sheet reduction.
- Deferred model calibrations and economic uncertainty adjustments remain broadly consistent with 31 December 2021.
Risk and capital management
Credit risk continued
Sector analysis - portfolio summary
The table below shows ECL by stage, for the Personal portfolio and key sectors of the Wholesale portfolio, that continue to be affected by COVID-19.
|
| Off-balance sheet |
|
| ||||||||
| Loans - amortised cost & FVOCI | Loan |
| Contingent |
| ECL provisions | ||||||
| Stage 1 | Stage 2 | Stage 3 | Total | commitments |
| liabilities |
| Stage 1 | Stage 2 | Stage 3 | Total |
31 March 2022 | £m | £m | £m | £m | £m |
| £m |
| £m | £m | £m | £m |
Personal | 193,562 | 13,058 | 3,446 | 210,066 | 41,642 |
| 56 |
| 157 | 541 | 1,185 | 1,883 |
Mortgages | 183,259 | 10,657 | 2,616 | 196,532 | 17,660 |
| - |
| 38 | 136 | 503 | 677 |
Credit cards | 2,914 | 931 | 102 | 3,947 | 15,696 |
| - |
| 57 | 137 | 67 | 261 |
Other personal | 7,389 | 1,470 | 728 | 9,587 | 8,286 |
| 56 |
| 62 | 268 | 615 | 945 |
Wholesale | 146,561 | 16,570 | 2,455 | 165,586 | 82,962 |
| 4,497 |
| 181 | 806 | 823 | 1,810 |
Property | 29,045 | 2,913 | 736 | 32,694 | 15,570 |
| 461 |
| 31 | 125 | 221 | 377 |
Financial institutions | 55,164 | 530 | 33 | 55,727 | 16,771 |
| 1,134 |
| 17 | 23 | 5 | 45 |
Sovereign | 5,958 | 222 | 9 | 6,189 | 1,166 |
| - |
| 19 | 1 | 2 | 22 |
Corporate | 56,394 | 12,905 | 1,677 | 70,976 | 49,455 |
| 2,902 |
| 114 | 657 | 595 | 1,366 |
Of which: |
|
|
|
|
|
|
|
|
|
|
|
|
Airlines and aerospace | 900 | 649 | 54 | 1,603 | 1,552 |
| 219 |
| 1 | 35 | 8 | 44 |
Automotive | 5,556 | 934 | 47 | 6,537 | 3,828 |
| 63 |
| 10 | 27 | 11 | 48 |
Health | 4,351 | 819 | 127 | 5,297 | 740 |
| 9 |
| 12 | 42 | 39 | 93 |
Land transport and logistics | 4,124 | 701 | 57 | 4,882 | 3,310 |
| 165 |
| 5 | 60 | 16 | 81 |
Leisure | 3,789 | 3,690 | 376 | 7,855 | 1,831 |
| 109 |
| 13 | 250 | 138 | 401 |
Oil and gas | 949 | 186 | 54 | 1,189 | 1,538 |
| 454 |
| 1 | 21 | 29 | 51 |
Retail | 6,581 | 1,098 | 225 | 7,904 | 4,738 |
| 414 |
| 10 | 26 | 84 | 120 |
Total | 340,123 | 29,628 | 5,901 | 375,652 | 124,604 |
| 4,553 |
| 338 | 1,347 | 2,008 | 3,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
31 December 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
Personal | 190,175 | 14,423 | 2,782 | 207,380 | 40,351 |
| 60 |
| 149 | 614 | 1,179 | 1,942 |
Mortgages | 180,418 | 11,543 | 2,050 | 194,011 | 16,827 |
| - |
| 32 | 174 | 562 | 768 |
Credit cards | 2,924 | 933 | 90 | 3,947 | 15,354 |
| - |
| 59 | 141 | 60 | 260 |
Other personal | 6,833 | 1,947 | 642 | 9,422 | 8,170 |
| 60 |
| 58 | 299 | 557 | 914 |
Wholesale | 140,649 | 19,558 | 2,240 | 162,447 | 83,231 |
| 4,254 |
| 153 | 864 | 847 | 1,864 |
Property | 28,679 | 3,101 | 742 | 32,522 | 15,882 |
| 460 |
| 24 | 111 | 239 | 374 |
Financial institutions | 52,263 | 732 | 46 | 53,041 | 16,906 |
| 992 |
| 14 | 39 | 4 | 57 |
Sovereign | 5,904 | 121 | 8 | 6,033 | 1,212 |
| - |
| 19 | 1 | 2 | 22 |
Corporate | 53,803 | 15,604 | 1,444 | 70,851 | 49,231 |
| 2,802 |
| 96 | 713 | 602 | 1,411 |
Of which: |
|
|
|
|
|
|
|
|
|
|
|
|
Airlines and aerospace | 779 | 668 | 44 | 1,491 | 1,528 |
| 221 |
| 1 | 39 | 15 | 55 |
Automotive | 5,133 | 1,304 | 38 | 6,475 | 3,507 |
| 65 |
| 9 | 32 | 10 | 51 |
Health | 3,818 | 1,235 | 133 | 5,186 | 799 |
| 9 |
| 9 | 58 | 48 | 115 |
Land transport and logistics | 3,721 | 833 | 39 | 4,593 | 3,069 |
| 188 |
| 4 | 53 | 12 | 69 |
Leisure | 3,712 | 4,050 | 340 | 8,102 | 1,874 |
| 107 |
| 11 | 247 | 133 | 391 |
Oil and gas | 1,482 | 141 | 52 | 1,675 | 1,126 |
| 453 |
| 1 | 14 | 28 | 43 |
Retail | 6,380 | 1,342 | 180 | 7,902 | 4,872 |
| 410 |
| 8 | 29 | 66 | 103 |
Total | 330,824 | 33,981 | 5,022 | 369,827 | 123,582 |
| 4,314 |
| 302 | 1,478 | 2,026 | 3,806 |
Risk and capital management
Credit risk continued
Sector analysis - portfolio summary continued
- Personal - Retail Banking was the main driver of balance sheet growth during the quarter. As noted earlier, growth was primarily in mortgages. Unsecured lending balances rose slightly in the quarter with higher demand for loans and increased consumer spending maintaining credit card balances during the quarter, although new business was still below pre-COVID-19 levels. As noted earlier, ECL in Stage 2 decreased due to continued subdued levels of portfolio deterioration, maintaining the reduced PD levels observed in Q4 2021. Furthermore, the new regulatory default definition implementation on 1 January 2022 resulted in a migration of Stage 2 assets into Stage 3. Overall ECL coverage requirements remained stable during Q1 2022 reflecting the balance of positive portfolio performance and economic uncertainty in the outlook due to inflation and cost of living pressures which may affect the affordability of NatWest Group customers. Affordability assumptions in lending criteria were refreshed during the quarter.
- Wholesale - In Wholesale, exposures were mainly in the UK. Balance sheet reduction due to repayments of both COVID-19 government support schemes and conventional borrowing during 2021 stabilised, with further reductions largely offset by additional lending across the portfolio.
- Scheduled repayment activity for government support schemes continued with the volumes of missed payments remaining in line with the average rate for scheme participants.
- When the government support schemes closed in 2021, approximately 317,000 applications across all schemes were approved, totalling £14.7 billion in new lending, of which, £13.4 billion was drawdown. £2.6 billion has been repaid to date.
- Oil and Gas reduction in drawn balances (Stage 1) reflected strategic exits aligned to NatWest Group's climate change purpose and aims. Increases in off-balance sheet exposures reflected selective support for customers with climate change transition plans.
- Increases within Financial Institutions reflected fluctuations in treasury related management activities.
- Wholesale credit risk performance metrics continue to improve, contributing to a reduction in Stage 2 balances, but headwinds remain. The combination of supply chain, energy price and general inflationary pressures already in existence towards the end of 2021 have been exacerbated by the Russian invasion of Ukraine and point to a potentially more challenging outlook. Sector appetite continues to be regularly reviewed and, where appropriate, adjusted for those sectors most affected by current economic and geopolitical conditions.
Risk and capital management
Capital, liquidity and funding risk
Introduction
NatWest Group continually ensures a comprehensive approach is taken 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 December 2021
CET1 ratio | The CET1 ratio decreased by 300 basis points to 15.2%. The decrease is primarily due to a £19.8 billion increase in RWAs and a £1.7 billion decrease in CET1 capital. The CET1 decrease is mainly driven by: - the directed buyback of £1.2 billion; - foreseeable dividend accrual of £0.3 billion; - a £0.2 billion decrease in the IFRS 9 transitional adjustment; - the removal of adjustment for prudential amortisation on software development costs of £0.4 billion; - a £0.3 billion decrease due to FX loss on retranslation on the redemption of a USD instrument; and - other reserve movements. - These reductions were partially offset by the £0.8 billion attributable profit in the period. |
Total RWAs | Total RWAs increased by £19.8 billion to £176.8 billion during the period mainly reflecting: - An increase in credit risk RWAs of £20.3 billion due to model adjustments applied as a result of new regulation applicable to IRB models from 1 January 2022 and increased exposures within Commercial & Institutional and Retail Banking. This was partially offset by improved risk metrics in Retail Banking and Commercial & Institutional. - Operational risk RWAs reduced by £1.9 billion following the annual recalculation. - Market risk RWAs increased by £0.6 billion driven by an increase in the capital multiplier for NWM Plc impacting VaR and SVaR calculations. - Counterparty credit risk RWAs increased by £0.9 billion mainly driven by the implementation of SA-CCR impacting the RWA calculation for the non-internal modelled exposure. |
UK leverage ratio | The UK leverage ratio decreased c.40 basis points to 5.5% driven by a £2.3 billion decrease in Tier 1 capital. |
Liquidity portfolio | The liquidity portfolio decreased by £11.9 billion during Q1 2022 to £274.5 billion. Primary liquidity decreased by £7.4 billion to £201.1 billion primarily due to an increase in customer lending and share buyback. Secondary liquidity reduced by £4.5 billion mainly driven by mortgage redemptions and repayments. |
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 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 our minimum requirements and our MDA threshold requirements.
Type | CET1 | Total Tier 1 | Total capital | |
Pillar 1 requirements | 4.5% | 6.0% | 8.0% | |
Pillar 2A requirements | 1.8% | 2.4% | 3.2% | |
Minimum Capital Requirements | 6.3% | 8.4% | 11.2% | |
Capital conservation buffer | 2.5% | 2.5% | 2.5% | |
Countercyclical capital buffer (1) | - | - | - | |
MDA threshold (2) | 8.8% |
| n/a | n/a |
Subtotal | 8.8% |
| 10.9% | 13.7% |
Capital ratios at 31 March 2022 | 15.2% | 17.4% | 20.4% | |
Headroom (3) | 6.4% | 6.5% | 6.7% | |
(1) In response to COVID-19, many countries reduced their CCyB rates. In December 2021, the Financial Policy Committee announced an increase in the UK CCyB rate from 0% to 1%. This rate will come into effect from December 2022 in line with the 12 month implementation period. In March 2022, the Central Bank of Ireland announced that the countercyclical buffer on Irish exposures is to be maintained at 0%. Previously, the CBI did note that it expected a gradual rebuilding of the CCyB to commence in 2022 and, while this guidance remains, it notes that the current macro-financial outlook is subject to considerable uncertainty therefore will continue to be monitored closely.
(2) Pillar 2A requirements for NatWest Group are set on a nominal capital basis. The PRA has confirmed that from Q4 2022 Pillar 2A will be set as a variable amount with the exception of some fixed add-ons.
(3) The headroom does not reflect excess distributable capital and may vary over time.
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. From 1 January 2022, NatWest Group are subject to the requirements set out in the PRA Rulebook, therefore going forward the capital and leverage ratios are being presented under these frameworks on a transitional basis.
|
|
|
|
| 31 March | 31 December | 31 March |
| 2022 | 2021 | 2021 |
Capital adequacy ratios (1) | % | % | % |
CET1 | 15.2 | 18.2 | 18.2 |
Tier 1 | 17.4 | 21.0 | 21.9 |
Total | 20.4 | 24.7 | 24.8 |
|
|
|
|
Capital | £m | £m | £m |
Tangible equity | 28,571 | 30,689 | 30,126 |
|
|
|
|
Prudential valuation adjustment | (297) | (274) | (436) |
Deferred tax assets | (769) | (761) | (750) |
Own credit adjustments | (27) | 21 | 6 |
Pension fund assets | (476) | (465) | (570) |
Cash flow hedging reserve | 1,113 | 395 | 38 |
Foreseeable ordinary dividends | (1,096) | (846) | (547) |
Foreseeable charges - on-market ordinary share buyback programme | (527) | (825) | - |
Foreseeable pension contributions | - | (365) | - |
Prudential amortisation of software development costs | - | 411 | 524 |
Adjustments under IFRS 9 transitional arrangements | 403 | 621 | 1,655 |
Insufficient coverage for non-performing exposures | (6) | (5) | - |
Total deductions | (1,682) | (2,093) | (80) |
|
|
|
|
CET1 capital | 26,889 | 28,596 | 30,046 |
|
|
|
|
End-point AT1 capital | 3,875 | 3,875 | 5,380 |
Grandfathered instrument transitional arrangements | - | 571 | 710 |
Transitional AT1 capital | 3,875 | 4,446 | 6,090 |
Tier 1 capital | 30,764 | 33,042 | 36,136 |
|
|
|
|
End-point T2 capital | 5,067 | 5,402 | 4,118 |
Grandfathered instrument transitional arrangements | 213 | 304 | 673 |
Transitional Tier 2 capital | 5,280 | 5,706 | 4,791 |
Total regulatory capital | 36,044 | 38,748 | 40,927 |
|
|
|
|
Risk-weighted assets |
|
|
|
Credit risk | 140,377 | 120,116 | 125,131 |
Counterparty credit risk | 8,776 | 7,907 | 8,579 |
Market risk | 8,550 | 7,917 | 9,962 |
Operational risk | 19,115 | 21,031 | 21,031 |
Total RWAs | 176,818 | 156,971 | 164,703 |
|
|
|
|
Leverage |
|
|
|
Cash and balances at central banks | 168,783 | 177,757 | 140,347 |
Trading assets | 64,950 | 59,158 | 65,558 |
Derivatives | 100,013 | 106,139 | 122,955 |
Financial assets | 416,677 | 412,817 | 418,290 |
Other assets | 25,750 | 17,106 | 22,626 |
Assets of disposal groups | 9,225 | 9,015 | - |
Total assets | 785,398 | 781,992 | 769,776 |
Derivatives |
|
|
|
- netting and variation margin | (100,386) | (110,204) | (126,250) |
- potential future exposures | 21,412 | 35,035 | 38,279 |
Securities financing transactions gross up | 2,838 | 1,397 | 3,249 |
Other off balance sheet items | 43,986 | 44,240 | 43,734 |
Regulatory deductions and other adjustments | (16,310) | (8,980) | (14,535) |
Claims on central banks | (165,408) | (174,148) | (137,685) |
Exclusion of bounce back loans | (7,112) | (7,474) | (8,609) |
UK leverage exposure | 564,418 | 561,858 | 567,959 |
UK leverage ratio (%) (2) | 5.5 | 5.9 | 6.4 |
For the notes to this table refer to the following page.
Risk and capital management
Capital, liquidity and funding risk continued
(1) Based on current PRA rules, therefore 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 31 March 2022 was £0.4 billion for CET1 capital, £44 million for total capital and £28 million RWAs (31 December 2021 - £0.6 billion CET1 capital, £0.5 billion total capital and £36 million RWAs, 31 March 2021 - £1.7 billion CET1 capital, £1.4 billion total capital and £135 million RWAs). Excluding these adjustments, the CET1 ratio would be 15.0% (31 December 2021 - 17.8%, 31 March 2021 - 17.2%). The transitional relief on grandfathered instruments at 31 March 2022 was £0.2 billion (31 December 2021 - £0.9 billion, 31 March 2021 - £1.4 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 17.2% (31 December 2021 - 20.3%, 31 March 2021 - 20.5%) and the end-point Total capital ratio would be 20.2% (31 December 2021 - 23.8%, 31 March 2021 - 23.2%).
(2) 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 as explained in note 1 above. Excluding the IFRS 9 transitional adjustment, the UK leverage ratio would be 5.4% (31 December 2021 - 5.8%, 31 March 2021 - 6.1%).
Capital flow statement
The table below analyses the movement in CET1, AT1 and Tier 2 capital for the three months ended 31 March 2022. Previously the NatWest Group capital flow statement was presented based on end-point CRR rules. It is being presented on a transitional basis as calculated under the PRA Rulebook Instrument requirements going forward.
| CET1 | AT1 | Tier 2 | Total |
| £m | £m | £m | £m |
At 31 December 2021 | 28,596 | 4,446 | 5,706 | 38,748 |
Attributable profit for the period | 841 | - | - | 841 |
Directed buyback | (1,212) | - | - | (1,212) |
Foreseeable ordinary dividends | (250) | - | - | (250) |
Foreign exchange reserve | 37 | - | - | 37 |
FVOCI reserve | (162) | - | - | (162) |
Own credit | (48) | - | - | (48) |
Share capital and reserve movements in respect of employee |
|
|
|
|
share schemes | 55 | - | - | 55 |
Goodwill and intangibles deduction | (462) | - | - | (462) |
Deferred tax assets | (8) | - | - | (8) |
Prudential valuation adjustments | (23) | - | - | (23) |
End of 2021 transitional relief on grandfathered instruments | - | (571) | (232) | (803) |
Net dated subordinated debt instruments | - | - | (158) | (158) |
Foreign exchange movements | (254) | - | 50 | (204) |
Adjustment under IFRS 9 transitional arrangements | (218) | - | - | (218) |
Other movements | (3) | - | (86) | (89) |
At 31 March 2022 | 26,889 | 3,875 | 5,280 | 36,044 |
- The decrease in CET1 capital is primarily due to the directed buyback of £1.2 billion, foreseeable dividend accrual of £0.3 billion, a £0.2 billion decrease in the IFRS 9 transitional adjustment, the removal of adjustment for prudential amortisation on software development costs of £0.4 billion, £0.3 billion due to FX loss on retranslation on the redemption of a USD instrument and other reserve movements in the period, partially offset by an attributable profit in the period of £0.8 billion.
- The AT1 and Tier 2 movements are primarily due to the end of the 2021 transitional relief on grandfathered instruments.
Risk and capital management
Capital, liquidity and funding risk continued
Risk-weighted assets
The table below analyses the movement in RWAs during the period, by key drivers.
|
| Counterparty |
| Operational |
|
| Credit risk | credit risk | Market risk | risk | Total |
| £bn | £bn | £bn | £bn | £bn |
At 31 December 2021 | 120.2 | 7.9 | 7.9 | 21.0 | 157.0 |
Foreign exchange movement | 0.3 | 0.1 | - | - | 0.4 |
Business movement | 1.6 | 0.4 | 0.9 | (1.9) | 1.0 |
Risk parameter changes | (1.1) | - | - | - | (1.1) |
Methodology changes | 0.2 | 0.4 | - | - | 0.6 |
Model updates | 19.2 | - | (0.3) | - | 18.9 |
At 31 March 2022 | 140.4 | 8.8 | 8.5 | 19.1 | 176.8 |
The table below analyses segmental RWAs.
| Go-forward group |
|
| ||||
|
|
|
|
| Total excluding |
| Total |
| Retail | Private | Commercial & | Central items | Ulster Bank | Ulster | NatWest |
| Banking | Banking | Institutional | & other | RoI | Bank RoI | Group |
Total RWAs | £m | £m | £m | £m | £m | £m | £m |
At 31 December 2021 | 36.7 | 11.3 | 98.1 | 1.8 | 147.9 | 9.1 | 157.0 |
Foreign exchange movement | - | - | 0.4 | - | 0.4 | - | 0.4 |
Business movement | 0.9 | 0.2 | 0.3 | (0.2) | 1.2 | (0.2) | 1.0 |
Risk parameter changes | (0.7) | - | (0.4) | - | (1.1) | - | (1.1) |
Methodology changes | - | - | 0.4 | - | 0.4 | 0.2 | 0.6 |
Model updates | 15.3 | - | 1.5 | - | 16.8 | 2.1 | 18.9 |
At 31 March 2022 | 52.2 | 11.5 | 100.3 | 1.6 | 165.6 | 11.2 | 176.8 |
|
|
|
|
|
|
|
|
Credit risk | 45.3 | 10.2 | 73.1 | 1.5 | 130.1 | 10.3 | 140.4 |
Counterparty credit risk | 0.1 | 0.1 | 8.6 | - | 8.8 | - | 8.8 |
Market risk | 0.1 | - | 8.4 | - | 8.5 | - | 8.5 |
Operational risk | 6.7 | 1.2 | 10.2 | 0.1 | 18.2 | 0.9 | 19.1 |
Total RWAs | 52.2 | 11.5 | 100.3 | 1.6 | 165.6 | 11.2 | 176.8 |
- | Total RWAs increased to £176.8 billion during the period due to the following: o Credit risk RWAs increased £20.3 billion due to model adjustments applied as a result of new regulation applicable to IRB models from 1 January 2022 in addition to increased exposures within Commercial & Institutional and Retail Banking. This was partially offset by improved risk metrics in Retail Banking and Commercial & Institutional. o Operational risk RWAs reduced by £1.9 billion following the annual recalculation. o Market risk RWAs increased by £0.6 billion driven by an increase in the capital multiplier for NWM Plc impacting VaR and SVaR calculations. o Counterparty credit risk RWAs increased by £0.9 billion mainly driven by the implementation of SA-CCR impacting the RWA calculation for the non-internal modelled exposure.
|
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 liquidity coverage ratio (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 coverage purposes.
| Liquidity value | ||||
| 31 March 2022 |
| 31 December 2021 |
| 31 March 2021 |
| NatWest |
| NatWest |
| NatWest |
| Group (1) |
| Group |
| Group |
| £m |
| £m |
| £m |
Cash and balances at central banks | 166,176 |
| 174,328 |
| 137,410 |
AAA to AA- rated governments | 31,385 |
| 31,073 |
| 29,406 |
A+ and lower rated governments | 105 |
| 25 |
| 7 |
Government guaranteed issuers, public sector entities and |
|
|
|
|
|
government sponsored entities | 266 |
| 307 |
| 250 |
International organisations and multilateral development banks | 3,087 |
| 2,720 |
| 2,825 |
LCR level 1 bonds | 34,843 |
| 34,125 |
| 32,488 |
LCR level 1 assets | 201,019 |
| 208,453 |
| 169,898 |
LCR level 2 assets | 121 |
| 117 |
| 114 |
Non-LCR eligible assets | - |
| - |
| - |
Primary liquidity | 201,140 |
| 208,570 |
| 170,012 |
Secondary liquidity (2) | 73,370 |
| 77,849 |
| 92,665 |
Total liquidity value | 274,510 |
| 286,419 |
| 262,677 |
(1) | NatWest Group includes the UK Domestic Liquidity Sub-Group (NWB Plc, RBS plc and Coutts & Co), 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)
| Comprises assets eligible for discounting at the Bank of England and other central banks. |
Condensed consolidated income statement for the period ended 31 March 2022 (unaudited)
|
| Quarter ended | ||
|
| 31 March | 31 December | 31 March |
|
| 2022 | 2021 | 2021 |
|
| £m | £m | £m |
Interest receivable |
| 2,448 | 2,345 | 2,282 |
Interest payable |
| (403) | (403) | (418) |
Net interest income |
| 2,045 | 1,942 | 1,864 |
Fees and commissions receivable |
| 694 | 724 | 644 |
Fees and commissions payable |
| (149) | (149) | (141) |
Income from trading activities |
| 362 | (3) | 160 |
Other operating income |
| 75 | 108 | 64 |
Non-interest income |
| 982 | 680 | 727 |
Total income |
| 3,027 | 2,622 | 2,591 |
Staff costs |
| (901) | (915) | (974) |
Premises and equipment |
| (251) | (368) | (248) |
Other administrative expenses |
| (471) | (735) | (377) |
Depreciation and amortisation |
| (197) | (310) | (205) |
Operating expenses |
| (1,820) | (2,328) | (1,804) |
Profit before impairment releases |
| 1,207 | 294 | 787 |
Impairment releases |
| 38 | 341 | 98 |
Operating profit before tax |
| 1,245 | 635 | 885 |
Tax charge |
| (386) | (234) | (233) |
Profit from continuing operations |
| 859 | 401 | 652 |
Profit from discontinued operations, net of tax |
| 42 | 97 | 61 |
Profit for the period |
| 901 | 498 | 713 |
|
|
|
|
|
Attributable to: |
|
|
|
|
Ordinary shareholders |
| 841 | 434 | 620 |
Preference shareholders |
| - | 5 | 5 |
Paid-in equity holders |
| 59 | 58 | 87 |
Non-controlling interests |
| 1 | 1 | 1 |
|
| 901 | 498 | 713 |
|
|
|
|
|
Earnings per ordinary share - continuing operations |
| 7.1p | 3.0p | 4.6p |
Earnings per ordinary share - discontinued operations |
| 0.4p | 0.8p | 0.5p |
Total earnings per share attributable to ordinary shareholders - basic |
| 7.5p | 3.8p | 5.1p |
Earnings per ordinary share - fully diluted continuing operations |
| 7.1p | 3.0p | 4.6p |
Earnings per ordinary share - fully diluted discontinued operations |
| 0.4p | 0.8p | 0.5p |
Total earnings per share attributable to ordinary shareholders - fully diluted |
| 7.5p | 3.8p | 5.1p |
Condensed consolidated statement of comprehensive income
for the period ended 31 March 2022 (unaudited)
|
| Quarter ended | ||
|
| 31 March | 31 December | 31 March |
|
| 2022 | 2021 | 2021 |
|
| £m | £m | £m |
Profit for the period |
| 901 | 498 | 713 |
Items that do not qualify for reclassification |
|
|
|
|
Remeasurement of retirement benefit schemes (1) |
| (508) | 71 | (508) |
Changes in fair value of credit in financial liabilities |
|
|
|
|
designated at fair value through profit or loss (FVTPL) due to own credit risk |
| 39 | - | (7) |
Fair value through other comprehensive income (FVOCI) |
|
|
|
|
financial assets |
| 9 | 2 | 1 |
Tax (1) |
| 122 | (21) | 137 |
|
| (338) | 52 | (377) |
Items that do qualify for reclassification |
|
|
|
|
FVOCI financial assets |
| (238) | 45 | (118) |
Cash flow hedges |
| (983) | (238) | (358) |
Currency translation |
| 35 | (115) | (343) |
Tax |
| 339 | 83 | 113 |
|
| (847) | (225) | (706) |
Other comprehensive loss after tax |
| (1,185) | (173) | (1,083) |
Total comprehensive (loss)/income for the period |
| (284) | 325 | (370) |
|
|
|
|
|
Attributable to: |
|
|
|
|
Ordinary shareholders |
| (345) | 261 | (463) |
Preference shareholders |
| - | 5 | 5 |
Paid-in equity holders |
| 59 | 58 | 87 |
Non-controlling interests |
| 2 | 1 | 1 |
|
| (284) | 325 | (370) |
(1) Following the purchase of ordinary shares in Q1 2022, NatWest Group plc contributed £500 million to its main pension scheme in line with the memorandum of
understanding announced on 17 April 2018. After tax relief, this contribution reduced total equity by £365 million.
Condensed consolidated balance sheet as at 31 March 2022 (unaudited)
| 31 March | 31 December |
2022 | 2021 | |
| £m | £m |
Assets |
|
|
Cash and balances at central banks | 168,783 | 177,757 |
Trading assets | 64,950 | 59,158 |
Derivatives | 100,013 | 106,139 |
Settlement balances | 10,505 | 2,141 |
Loans to banks - amortised cost | 7,063 | 7,682 |
Loans to customers - amortised cost | 365,340 | 358,990 |
Other financial assets | 44,274 | 46,145 |
Intangible assets | 6,774 | 6,723 |
Other assets | 8,471 | 8,242 |
Assets of disposal groups | 9,225 | 9,015 |
Total assets | 785,398 | 781,992 |
|
|
|
Liabilities |
|
|
Bank deposits | 21,975 | 26,279 |
Customer deposits | 482,887 | 479,810 |
Settlement balances | 9,602 | 2,068 |
Trading liabilities | 71,559 | 64,598 |
Derivatives | 95,310 | 100,835 |
Other financial liabilities | 47,809 | 49,326 |
Subordinated liabilities | 8,216 | 8,429 |
Notes in circulation | 2,999 | 3,047 |
Other liabilities | 5,797 | 5,797 |
Total liabilities | 746,154 | 740,189 |
|
|
|
Equity |
|
|
Ordinary shareholders' interests | 35,345 | 37,412 |
Other owners' interests | 3,890 | 4,384 |
Owners' equity | 39,235 | 41,796 |
Non-controlling interests | 9 | 7 |
Total equity | 39,244 | 41,803 |
Total liabilities and equity | 785,398 | 781,992 |
Condensed consolidated statement of changes in equity
for the period ended 31 March 2022 ( unaudited)
|
|
Share |
|
|
|
|
|
|
|
|
capital and |
|
|
|
Total |
Non |
|
|
|
statutory |
Paid-in |
Retained |
Other |
owners' |
controlling |
Total |
|
|
reserves (1) |
equity |
earnings |
reserves* |
equity |
interests |
equity |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
At 1 January 2022 |
12,980 |
3,890 |
12,966 |
11,960 |
41,796 |
7 |
41,803 |
|
Profit attributable to ordinary shareholders |
|
|
|
|
|
|
|
|
and other equity owners |
|
|
|
|
|
|
|
|
- continuing operations |
|
|
858 |
|
858 |
1 |
859 |
|
- discontinued operations |
|
|
42 |
|
42 |
|
42 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
- Realised gains in period |
|
|
|
|
|
|
|
|
on FVOCI equity shares |
|
|
1 |
(1) |
- |
|
- |
|
- Remeasurement of retirement |
|
|
|
|
|
|
|
|
benefit schemes (2) |
|
|
(508) |
|
(508) |
|
(508) |
|
- Changes in fair value of credit in financial |
|
|
|
|
|
|
|
|
liabilities designated at FVTPL due |
|
|
|
|
|
|
|
|
to own credit risk |
|
|
39 |
|
39 |
|
39 |
|
- Unrealised losses: FVOCI |
|
|
|
(187) |
(187) |
|
(187) |
|
- Amounts recognised in equity: cash flow hedges |
|
|
|
(911) |
(911) |
|
(911) |
|
- Foreign exchange reserve movement |
|
|
|
34 |
34 |
1 |
35 |
|
- Amount transferred from equity to earnings |
|
|
|
(113) |
(113) |
|
(113) |
|
- Tax |
|
|
126 |
335 |
461 |
|
461 |
|
Paid-in equity dividends paid |
|
|
(59) |
|
(59) |
|
(59) |
|
Shares repurchased during the period (3,4) |
- |
|
(1,522) |
|
(1,522) |
|
(1,522) |
|
Shares and securities issued during the |
|
|
|
|
|
|
|
|
period |
- |
|
3 |
|
3 |
|
3 |
|
Reclassification of preference shares (5) |
|
|
(750) |
|
(750) |
|
(750) |
|
Share-based payments |
|
|
(15) |
|
(15) |
|
(15) |
|
Movement in own shares held |
67 |
|
|
|
67 |
|
67 |
|
At 31 March 2022 |
13,047 |
3,890 |
11,181 |
11,117 |
39,235 |
9 |
39,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 March |
|
|
|
|
|
|
|
|
2022 |
|
Attributable to: |
|
|
|
|
£m |
||
|
Ordinary shareholders |
|
|
|
|
|
|
35,345 |
|
Preference shareholders |
|
|
|
|
|
|
- |
|
Paid-in equity holders |
|
|
|
|
|
|
3,890 |
|
Non-controlling interests |
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
39,244 |
|
*Other reserves consists of: |
|
|
|
|
|
|
|
|
Merger reserve |
|
|
|
|
|
|
10,881 |
|
FVOCI reserve |
|
|
|
|
|
|
107 |
|
Cash flow hedging reserve |
|
|
|
|
|
|
(1,113) |
|
Foreign exchange reserve |
|
|
|
|
|
|
1,242 |
|
|
|
|
|
|
|
|
11,117 |
|
(1) |
Share capital and statutory reserves includes share capital, share premium, capital redemption reserve and own shares held. |
|
(2) |
Following the purchase of ordinary shares in Q1 2022, NatWest Group plc contributed £500 million to its main pension scheme in line with the memorandum of understanding announced on 17 April 2018. After tax relief, this contribution reduced total equity by £365 million. |
|
(3) |
In March 2022, there was an agreement with HM Treasury to buy 549.9 million ordinary shares in NatWest Group plc from UK Government Investments Ltd, at 220.5 pence per share for the total consideration of £1.22 billion. NatWest Group cancelled all 549.9 million of the purchased ordinary shares. The nominal value of the share cancellation has been transferred to the capital redemption reserve. |
|
(4) |
NatWest Group plc repurchased and cancelled 150.7 million shares for total consideration of £337.7 million excluding fees in Q1 2022, as part of the On Market Share Buyback Programme. Of the 150.7 million shares bought back, 15.9 million shares were settled and cancelled in April 2022. The nominal value of the share cancellations has been transferred to the capital redemption reserve. |
|
(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 P&L reserves as a result of FX unlocking. |
Notes
1. Presentation of condensed consolidated financial statements
The condensed consolidated financial statements should be read in conjunction with NatWest Group plc's 2021 Annual Report and
Accounts which has been prepared in accordance with UK-adopted International Accounting Standards (IAS), International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and IFRS as adopted by the
European Union.
Going concern
Having reviewed NatWest Group's principal risks, forecasts, projections and other relevant evidence, the directors have a
reasonable expectation that NatWest Group will continue in operational existence for a period of twelve months from the date the
condensed consolidated financial statements are approved. Accordingly, the results for the period ended 31 March 2022 have been prepared on a going concern basis.
2. Accounting policies
NatWest Group's principal accounting policies are as set out on pages 307 to 312 of NatWest Group plc's 2021 Annual Report and Accounts. Amendments to IFRS effective from 1 January 2022 had no material effect on the condensed consolidated financial statements.
Critical accounting policies and key sources of estimation uncertainty
The judgments and assumptions that are considered to be the most important to the portrayal of NatWest Group's financial
condition are those relating to deferred tax, fair value of financial instruments, loan impairment provisions, goodwill and provisions
for liabilities and charges. These critical accounting policies and judgments are noted on page 311 of NatWest Group plc's 2021
Annual Report and Accounts. Management's consideration of uncertainty is outlined in the relevant sections of NatWest Group plc's 2021 Annual Report and Accounts, including the ECL estimate for the period in the Risk and capital management section contained in NatWest Group plc's 2021 Annual Report and Accounts.
Information used for significant estimates
Uncertainty with respect to the prolonged financial effect of the COVID-19 pandemic and the Russian invasion of Ukraine continues to cause significant economic and social disruption. Specifically, there continues to be uncertainty as to the indirect impacts on NatWest Group due to the Russian invasion of Ukraine and related consequences for geopolitical stability, energy supply and prices, and cross-border financial transactions, including as a result of economic sanctions. Key financial estimates are based on management's latest five-year revenue and cost forecasts. Measurement of goodwill, deferred tax and expected credit losses are highly sensitive to reasonably possible changes in those anticipated conditions. Other reasonably possible assumptions about the future include a prolonged financial effect of the COVID-19 pandemic on the economy of the UK and other countries or greater economic effect as countries and companies implement plans to counter climate risks. Changes in judgments and assumptions could result in a material adjustment to those estimates in future reporting periods. (Refer to the Risk factors in NatWest Group plc's 2021 Annual Report and Accounts).
Notes
3. Discontinued operations and assets and liabilities of disposal groups
Two legally binding agreements for the sale of UBIDAC business were announced in 2021 as part of the phased withdrawal from the Republic of Ireland:
On 28 June 2021 NatWest Group announced it had agreed a binding sale agreement with Allied Irish Banks, p.l.c. for the transfer of c.€4.2 billion (plus up to €2.8 billion of undrawn exposures), of performing commercial loans as well as those c.280 colleagues who are wholly or mainly assigned to supporting that part of the business, with the final number of roles to be confirmed as the deal completes. On 28 April 2022, approval was received from the Irish competition authority (the CCPC) in relation to this sale, which is expected to be completed in a series of transactions during 2022 and Q1 2023.
On the 17 December 2021 NatWest Group signed a legally binding agreement with Permanent TSB p.l.c. (PTSB). The proposed sale will include 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. The majority of loans are expected to transfer by Q4 2022. As part of the transaction it is anticipated that c.450 colleagues will have the right to transfer under the TUPE regulations, with the final number of roles to be confirmed as the deal completes. This sale remains subject to obtaining competition, regulatory and other approvals, including PTSB's holding company shareholder approval, and other conditions being satisfied.
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 at 31 March 2022. Comparative results for the quarter ended 31 March 2021 have been re-presented from those previously published to reclassify certain items as discontinued operations. The Ulster Bank RoI operating segment continues to be reported separately and reflects the results and balance sheet position of its continuing operations.
(a) Profit from discontinued operations, net of tax
|
|
|
|
Quarter ended |
|||
|
|
|
|
|
31 March |
31 December |
31 March |
|
|
|
|
|
2022 |
2021 |
2021 |
|
|
|
|
|
£m |
£m |
£m |
|
Net interest income |
|
|
|
60 |
62 |
67 |
|
Non-interest income |
|
|
|
(1) |
4 |
1 |
|
Total income |
|
|
|
59 |
66 |
68 |
|
Operating expenses |
|
|
|
(11) |
(14) |
(11) |
|
Profit before impairment (losses)/releases |
|
|
|
48 |
52 |
57 |
|
Impairment (losses)/releases |
|
|
|
(6) |
45 |
4 |
|
Operating profit before tax |
|
|
|
42 |
97 |
61 |
|
Tax charge |
|
|
|
- |
- |
- |
|
Profit from discontinued operations, net of tax |
|
|
|
42 |
97 |
61 |
(b) Assets and liabilities of disposal groups
|
|
|
As at |
|
|
|
|
31 March |
31 December |
|
|
|
2022 |
2021 |
|
|
|
£m |
£m |
|
Assets of disposal groups |
|
|
|
|
Loans to customers - amortised cost |
|
9,215 |
9,002 |
|
Derivatives |
|
2 |
5 |
|
Other assets |
|
8 |
8 |
|
|
|
9,225 |
9,015 |
|
|
|
|
|
|
Liabilities of disposal groups |
|
|
|
|
Other liabilities |
|
5 |
5 |
|
|
|
5 |
5 |
|
|
|
|
|
|
Net assets of disposal groups |
|
9,220 |
9,010 |
Notes
4. Litigation and regulatory matters
NatWest Group plc's 2021 Annual Report and Accounts, issued on 18 February 2022 , included disclosures about NatWest Group's litigation and regulatory matters in Note 27. Set out below are the material developments in those matters (which have all been previously disclosed) since publication of the 2021 Annual Report and Accounts .
Litigation
Residential mortgage-backed securities (RMBS) litigation in the US
NWMSI agreed to settle a purported RMBS class action entitled New Jersey Carpenters Health Fund v. Novastar Mortgage Inc. et al. for US$55.3 million. This was paid into escrow pending court approval of the settlement, which was granted in March 2019, but which then became the subject of an appeal by a class member who wanted to exit the settlement. On 14 March 2022, the United States Court of Appeals for the Second Circuit rejected that class member's appeal.
London Interbank Offered Rate (LIBOR) and other rates litigation
NatWest Group plc is a defendant in a class action pending in the United States District Court for the Southern District of New York (SDNY) on behalf of lender plaintiffs who allege that NatWest Group plc and other defendants engaged in fraud by artificially suppressing USD LIBOR. On 25 February 2022, the United States Court of Appeals for the Second Circuit reversed the SDNY's prior dismissal of the case, holding that the plaintiffs have adequately alleged the court's jurisdiction over the defendants. The claim will now proceed in the SDNY.
NatWest Group companies are defendants in class actions pending in the SDNY relating to alleged manipulation of the Singapore Interbank Offered Rate and Singapore Swap Offer Rate ('SIBOR / SOR') and the Australian Bank Bill Swap Reference Rate. In March 2022, agreements in principle were reached to settle both cases. The amounts of the settlements, which remain subject to final documentation and court approval, are covered by existing provisions.
FX litigation
An FX-related class action, on behalf of 'consumers and end-user businesses', is pending in the SDNY against NWM Plc and others. On 18 March 2022, the SDNY denied the plaintiffs' motion for class certification. Plaintiffs are seeking to appeal the decision.
Two separate FX-related applications seeking opt-out collective proceedings orders were filed in the UK Competition Appeal Tribunal (CAT) against NatWest Group plc, NWM Plc and other banks. On 31 March 2022, the CAT declined to certify as collective proceedings either of the applications, ruling that the opt-out basis on which they were brought was inappropriate. The CAT granted each applicant three months to revise their application for certification on an opt-in basis, if they wish to proceed. The applicants have stated that they intend to appeal the judgment.
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 defendants rigged the US Treasury securities auction bidding process to deflate the prices at which they bought such securities and colluded to increase the prices at which they sold such securities to plaintiffs. On 31 March 2022, the SDNY dismissed the operative complaint, without leave to re-plead. The dismissal is subject to appeal.
NWM Plc, NWMSI and other banks are defendants in a class action antitrust case in the SDNY in respect of Euro-denominated bonds issued by European central banks (EGBs). The complaint alleges a conspiracy among dealers of EGBs, between 2007 and 2012, 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. On 14 March 2022, the SDNY dismissed the claims against NWM Plc and NWMSI in the operative complaint on the ground that the complaint's conspiracy allegations are insufficient. The plaintiffs have indicated that they intend to file an amended complaint.
Regulatory matters
Systematic Anti-Money Laundering Programme assessment
In January 2022, NatWest Group received the Skilled Person's final report in connection with governance arrangements for two financial crime change programmes in respect of which the Skilled Person had been appointed under section 166 of the Financial Services and Markets Act 2000 to provide assurance. The FCA confirmed in March 2022 that the section 166 review has now concluded.
5. Post balance sheet events
On 28 April 2022, approval was received from the Irish competition authority (the CCPC) in relation to the agreement with AIB for the sale of UBIDAC's commercial lending portfolio.
Additionally, we have entered into exclusive discussions with AIB for the sale of UBIDAC's performing tracker (and linked) mortgage portfolio.
Other than as disclosed there have been no significant events between 31 March 2022 and the date of approval of these accounts that would require a change to or additional disclosure in the condensed consolidated financial statements.
Additional information
Presentation of information
'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 'NatWest Markets Group' or '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. 'Go-forward group' excludes Ulster Bank RoI and discontinued operations.
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.
Statutory results
Financial information contained in this document does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 ('the Act'). The statutory accounts for the year ended 31 December 2021 will be filed with the Registrar of Companies. The report of the auditor on those statutory accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Act.
Q1 2022 segmental re-organisation
On 27 January 2022, NatWest Group announced that a new franchise, Commercial & Institutional, would be created, bringing together the Commercial, NatWest Markets and RBSI businesses to form a single franchise, with common management and objectives, to best support our customers across the full non-personal customer lifecycle. Comparatives have been re-presented in this document. Refer to the re-segmentation document published on 22 April 2022 for further details. The re-presentation of operating segments does not change the consolidated financial results of NatWest Group.
Ulster Bank RoI
Continuing operations
Two legally binding agreements for the sale of the UBIDAC business were announced in 2021 as part of the phased withdrawal
from the Republic of Ireland: the sale of commercial lending to Allied Irish Banks p.l.c. (AIB) and the performing non-tracker
mortgages, performing micro-SME loans, UBIDAC's asset finance business and 25 of its branch locations to Permanent TSB plc.
(PTSB). 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 on 31 March 2022. Comparative results for the quarter ended 31 March 2021 have been re-presented from those previously published to reclassify certain items as discontinued operations. The Business performance summary presents the results of the Group's continuing operations. For further details refer to Note 3 on page 31.
MAR - Inside Information
This announcement contains information that qualified or may have qualified as inside information for NatWest Group plc, for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 (MAR) as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018. This announcement is made by Alexander Holcroft, Head of Investor Relations for NatWest Group plc.
Contacts
Analyst enquiries: | Alexander Holcroft, Investor Relations | |
Media enquiries: | NatWest Group Press Office | |
| Management presentation | |
Date: | 29 April 2022 | |
Time: | 9am UK time | |
Zoom ID: | 913 9426 3599 | |
Available on www.natwestgroup.com/results
- Q1 2022 Interim Management Statement and slides.
- A financial supplement containing income statement, balance sheet and segment performance for the quarter ended 31 March 2022.
- NatWest Group and NWH Group Pillar 3 supplements.
- Segmental Reporting Re-segmentation Financial Supplement (published 22 April 2022).
Forward looking statements
This document contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, such as statements that include, without limitation, 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. These statements concern or may affect future matters, such as NatWest Group's future economic results, business plans and strategies. In particular, this document may include forward-looking statements relating to NatWest Group plc in respect of, but not limited to: the impact of the COVID-19 pandemic, its regulatory capital position and related requirements, its financial position, profitability and financial performance (including financial, capital, cost savings and operational targets), the implementation of its purpose-led strategy, its ESG and climate-related targets, its access to adequate sources of liquidity and funding, increasing competition from new incumbents and disruptive technologies, its exposure to third party risks, its ongoing compliance with the UK ring-fencing regime and ensuring operational continuity in resolution, its impairment losses and credit exposures under certain specified scenarios, substantial regulation and oversight, ongoing legal, regulatory and governmental actions and investigations, the transition of LIBOR and IBOR rates to alternative risk free rates and NatWest Group's exposure to economic and political risks (including with respect to terms surrounding Brexit and climate change), operational risk, conduct risk, cyber, data and IT risk, financial crime risk, key person risk and credit rating risk. Forward-looking statements are subject to a number of risks and uncertainties that might cause actual results and performance to differ materially from any expected future results or performance expressed or implied by the forward-looking statements. Factors that could cause or contribute to differences in current expectations include, but are not limited to, the impact of the COVID-19 pandemic, future growth initiatives (including acquisitions, joint ventures and strategic partnerships), the outcome of legal, regulatory and governmental actions and investigations, the level and extent of future impairments and write-downs (including with respect to goodwill), legislative, political, fiscal and regulatory developments, accounting standards, competitive conditions, technological developments, interest and exchange rate fluctuations, general economic and political conditions and the impact of climate-related risks and the transitioning to a net zero economy. These and other factors, risks and uncertainties that may impact any forward-looking statement or NatWest Group plc's actual results are discussed in NatWest Group plc's UK 2021 Annual Report and Accounts (ARA), NatWest Group plc's Interim Results for Q1 2022 and NatWest Group plc's filings with the US Securities and Exchange Commission, including, but not limited to, NatWest Group plc's most recent Annual Report on Form 20-F and Reports on Form 6-K. The forward-looking statements contained in this document speak only as of the date of this document and NatWest Group plc does not assume or undertake any obligation or responsibility to update any of the forward-looking statements contained in this document, whether as a result of new information, future events or otherwise, except to the extent legally required.
Legal Entity Identifier: 2138005O9XJIJN4JPN90
Appendix
Non-IFRS financial measures
Non-IFRS financial measures
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 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 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.
Non-IFRS financial measures
1. Adjustment for notable items
Go-forward group income excluding notable items is calculated as total income excluding Ulster Bank RoI total income and excluding notable items.
The exclusion of notable items aims to remove the impact of one-offs which may distort period-on-period comparisons.
Refer to pages 3, 4 and 11 to 13 for further details.
| Quarter ended | ||
| 31 March | 31 December | 31 March |
| 2022 | 2021 | 2021 |
| £m | £m | £m |
Continuing operations |
|
|
|
Total income | 3,027 | 2,622 | 2,591 |
Less Ulster Bank RoI total income | (40) | (43) | (56) |
Go-forward group income | 2,987 | 2,579 | 2,535 |
Less notable items | (224) | (62) | 9 |
Go-forward group income excluding notable items | 2,763 | 2,517 | 2,544 |
2. Other operating expenses
Other operating expenses is calculated as total operating expenses less litigation and conduct costs. Other operating expenses of the Go-forward group excludes Ulster Bank RoI.
Our cost target for 2022 is based on this measure and we track progress against it.
Refer to pages 3, 4 and 11 to 13 for further details.
| Quarter ended | ||
| 31 March | 31 December | 31 March |
| 2022 | 2021 | 2021 |
| £m | £m | £m |
Continuing operations |
|
|
|
Total operating expenses | 1,820 | 2,328 | 1,804 |
Less litigation and conduct costs | (102) | (190) | (16) |
Other operating expenses | 1,718 | 2,138 | 1,788 |
Less Ulster Bank RoI other operating expenses | (113) | (104) | (105) |
Go-forward group other operating expenses | 1,605 | 2,034 | 1,683 |
.
Non-IFRS financial measures
3. 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 comparisons with prior periods.
Refer to page 26 for further details.
Non-statutory analysis
|
|
Quarter ended |
||
|
|
31 March 2022 |
||
|
|
Litigation and |
Other |
Statutory |
|
|
conduct |
operating |
operating |
|
|
costs |
expenses |
expenses |
|
Operating expenses |
£m |
£m |
£m |
|
Continuing operations |
|
|
|
|
Staff costs |
7 |
894 |
901 |
|
Premises and equipment |
- |
251 |
251 |
|
Other administrative expenses |
95 |
376 |
471 |
|
Depreciation and amortisation |
- |
197 |
197 |
|
Total |
102 |
1,718 |
1,820 |
|
|
|
|
|
|
|
Quarter ended |
||
|
|
31 December 2021 |
||
|
|
Litigation and |
Other |
Statutory |
|
|
conduct |
operating |
operating |
|
|
costs |
expenses |
expenses |
|
Operating expenses |
£m |
£m |
£m |
|
Continuing operations |
|
|
|
|
Staff costs |
- |
915 |
915 |
|
Premises and equipment |
- |
368 |
368 |
|
Other administrative expenses |
190 |
545 |
735 |
|
Depreciation and amortisation |
- |
310 |
310 |
|
Total |
190 |
2,138 |
2,328 |
|
|
|
|
|
|
|
Quarter ended |
||
|
|
31 March 2021 |
||
|
|
Litigation and |
Other |
Statutory |
|
|
conduct |
operating |
operating |
|
|
costs |
expenses |
expenses |
|
Operating expenses |
£m |
£m |
£m |
|
Continuing operations |
|
|
|
|
Staff costs |
- |
974 |
974 |
|
Premises and equipment |
- |
248 |
248 |
|
Other administrative expenses |
16 |
361 |
377 |
|
Depreciation and amortisation |
- |
205 |
205 |
|
Total |
16 |
1,788 |
1,804 |
Non-IFRS financial measures
4. Cost:income ratio
The cost:income ratio is calculated as total operating expenses less operating lease depreciation divided by total income less operating lease depreciation.
This is a common metric used to compare profitability across the banking industry.
Refer to pages 3, 6 to 8 and 11 to 13 for further details.
| Go-forward group |
|
|
| ||||
|
|
|
| Central | Total excluding |
| Ulster | Total |
| Retail | Private | Commercial & | items | Ulster |
| Bank | NatWest |
| Banking | Banking | Institutional | & other | Bank RoI |
| RoI | Group |
Quarter ended 31 March 2022 | £m | £m | £m | £m | £m |
| £m | £m |
Continuing operations |
|
|
|
|
|
|
|
|
Operating expenses | (645) | (139) | (922) | (1) | (1,707) |
| (113) | (1,820) |
Operating lease depreciation | - | - | 32 | - | 32 |
| - | 32 |
Adjusted operating expenses | (645) | (139) | (890) | (1) | (1,675) |
| (113) | (1,788) |
Total income | 1,217 | 216 | 1,375 | 179 | 2,987 |
| 40 | 3,027 |
Operating lease depreciation | - | - | (32) | - | (32) |
| - | (32) |
Adjusted total income | 1,217 | 216 | 1,343 | 179 | 2,955 |
| 40 | 2,995 |
Cost:income ratio | 53.0% | 64.4% | 66.3% | nm | 56.7% |
| nm | 59.7% |
|
|
|
|
|
|
|
|
|
Quarter ended 31 December 2021 |
|
|
|
|
|
|
|
|
Continuing operations |
|
|
|
|
|
|
|
|
Operating expenses | (774) | (155) | (1,059) | (209) | (2,197) |
| (131) | (2,328) |
Operating lease depreciation | - | - | 34 | - | 34 |
| - | 34 |
Adjusted operating expenses | (774) | (155) | (1,025) | (209) | (2,163) |
| (131) | (2,294) |
Total income | 1,164 | 253 | 1,168 | (6) | 2,579 |
| 43 | 2,622 |
Operating lease depreciation | - | - | (34) | - | (34) |
| - | (34) |
Adjusted total income | 1,164 | 253 | 1,134 | (6) | 2,545 |
| 43 | 2,588 |
Cost:income ratio | 66.5% | 61.3% | 90.4% | nm | 85.0% |
| nm | 88.6% |
|
|
|
|
|
|
|
|
|
Quarter ended 31 March 2021 |
|
|
|
|
|
|
|
|
Continuing operations |
|
|
|
|
|
|
|
|
Operating expenses | (587) | (121) | (915) | (67) | (1,690) |
| (114) | (1,804) |
Operating lease depreciation | - | - | 35 | - | 35 |
| - | 35 |
Adjusted operating expenses | (587) | (121) | (880) | (67) | (1,655) |
| (114) | (1,769) |
Total income | 1,056 | 185 | 1,253 | 41 | 2,535 |
| 56 | 2,591 |
Operating lease depreciation | - | - | (35) | - | (35) |
| - | (35) |
Adjusted total income | 1,056 | 185 | 1,218 | 41 | 2,500 |
| 56 | 2,556 |
Cost:income ratio | 55.6% | 65.4% | 72.3% | nm | 66.2% |
| nm | 69.2% |
Non-IFRS financial measures
5. 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.
Go-forward group return on tangible equity is calculated as annualised profit for the period less Ulster Bank RoI divided by Go-forward group total tangible equity. Go forward RWAe applying factor is the Go- forward group average RWAe as a percentage of total Natwest Group average RWAe.
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.
Refer to pages 3 and 11 to 13 for further details.
| Quarter ended or as at | ||
| 31 March | 31 December | 31 March |
| 2022 | 2021 | 2021 |
NatWest Group return on tangible equity | £m | £m | £m |
Profit attributable to ordinary shareholders | 841 | 434 | 620 |
Annualised profit attributable to ordinary shareholders | 3,364 | 1,736 | 2,480 |
|
|
|
|
Average total equity | 40,934 | 41,887 | 43,566 |
Adjustment for other owners' equity and intangibles | (11,067) | (10,719) | (12,333) |
Adjusted total tangible equity | 29,867 | 31,168 | 31,233 |
|
|
|
|
Return on tangible equity | 11.3% | 5.6% | 7.9% |
|
|
|
|
Go-forward group return on tangible equity |
|
|
|
Profit attributable to ordinary shareholders | 841 | 434 | 620 |
Less Ulster Bank RoI loss from continuing operations, net of tax | 42 | 73 | 59 |
Less profit from discontinued operations | (42) | (97) | (61) |
Go-forward group profit attributable to ordinary shareholders | 841 | 410 | 618 |
Annualised go-forward group profit attributable to ordinary shareholders | 3,364 | 1,640 | 2,472 |
|
|
|
|
Average total equity | 40,934 | 41,887 | 43,566 |
Adjustment for other owners' equity and intangibles | (11,067) | (10,719) | (12,333) |
Adjusted total tangible equity | 29,867 | 31,168 | 31,233 |
Go-forward group RWAe applying factor | 95% | 94% | 93% |
Go-forward group total tangible equity | 28,374 | 29,298 | 29,047 |
|
|
|
|
Go-forward group return on tangible equity | 11.9% | 5.6% | 8.5% |
Non-IFRS financial measures
6. Segmental return on equity
Segmental return on equity comprises segmental operating profit or loss, adjusted for preference share dividends and tax, divided by average notional tangible 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 tangible equity.
This measure shows the return generated by operating segments on equity deployed.
Refer to pages 6 to 8 and 11 to 13 for further details.
|
|
| Retail | Private | Commercial & |
Quarter ended 31 March 2022 |
|
| Banking | Banking | Institutional |
Operating profit (£m) |
|
| 567 | 82 | 464 |
Preference share cost allocation (£m) |
|
| (20) | (3) | (46) |
Adjustment for tax (£m) |
|
| (153) | (22) | (105) |
Adjusted attributable profit (£m) |
|
| 394 | 57 | 314 |
Annualised adjusted attributable profit (£m) |
|
| 1,576 | 228 | 1,256 |
Average RWAe (£bn) |
|
| 52.6 | 11.4 | 102.0 |
Equity factor (%) |
|
| 13.0% | 11.0% | 14.0% |
RWAe applying equity factor (£bn) |
|
| 6.8 | 1.3 | 14.3 |
Return on equity (%) |
|
| 23.1% | 18.2% | 8.8% |
|
|
|
|
|
|
Quarter ended 31 December 2021 |
|
|
|
|
|
Operating profit (£m) |
|
| 385 | 110 | 426 |
Preference share cost allocation (£m) |
|
| (20) | (5) | (59) |
Adjustment for tax (£m) |
|
| (102) | (29) | (92) |
Adjusted attributable profit (£m) |
|
| 263 | 76 | 275 |
Annualised adjusted attributable profit (£m) |
|
| 1,052 | 302 | 1,100 |
Average RWAe (£bn) |
|
| 36.9 | 11.3 | 101.0 |
Equity factor (%) |
|
| 14.5% | 12.5% | 13.0% |
RWAe applying equity factor (£bn) |
|
| 5.3 | 1.4 | 13.1 |
Return on equity (%) |
|
| 19.7% | 21.3% | 8.3% |
|
|
|
|
|
|
Quarter ended 31 March 2021 |
|
|
|
|
|
Operating profit (£m) |
|
| 435 | 64 | 463 |
Preference share cost allocation (£m) |
|
| (20) | (5) | (59) |
Adjustment for tax (£m) |
|
| (116) | (17) | (101) |
Adjusted attributable profit (£m) |
|
| 299 | 42 | 303 |
Annualised adjusted attributable profit (£m) |
|
| 1,196 | 170 | 1,212 |
Average RWAe (£bn) |
|
| 35.8 | 11.0 | 110.2 |
Equity factor (%) |
|
| 14.5% | 12.5% | 13.0% |
RWAe applying equity factor (£bn) |
|
| 5.2 | 1.4 | 14.3 |
Return on equity (%) |
|
| 23.0% | 12.4% | 8.5% |
7. Tangible equity
Tangible equity is ordinary shareholders' interest less intangible assets. 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 in valuing the bank and the starting point for calculating regulatory capital.
Refer to page 3 for further details.
| Year ended or as at | ||
| 31 March | 31 December | 31 March |
| 2022 | 2021 | 2021 |
Ordinary shareholders' interests (£m) | 35,345 | 37,412 | 36,792 |
Less intangible assets (£m) | (6,774) | (6,723) | (6,666) |
Tangible equity (£m) | 28,571 | 30,689 | 30,126 |
|
|
|
|
Ordinary shares in issue (millions) | 10,622 | 11,272 | 11,560 |
|
|
|
|
TNAV per ordinary share (pence) | 269p | 272p | 261p |
Non-IFRS financial measures
8. Bank net interest margin
Bank net interest margin is defined as annualised net interest income of the Go-forward group, 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 the Go-forward 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.
Refer to pages 3, 6 to 8 and 11 to 13 for further details.
| Quarter ended or as at | ||
| 31 March | 31 December | 31 March |
| 2022 | 2021 | 2021 |
Go-forward group | £m | £m | £m |
Continuing operations |
|
|
|
NatWest Group net interest income | 2,045 | 1,942 | 1,864 |
Less Ulster Bank RoI net interest income | (22) | (23) | (27) |
Bank net interest income | 2,023 | 1,919 | 1,837 |
|
|
|
|
Annualised NatWest Group net interest income | 8,294 | 7,705 | 7,560 |
Annualised Bank net interest income | 8,204 | 7,613 | 7,450 |
|
|
|
|
Average interest earning assets (IEA) | 549,298 | 551,577 | 502,515 |
Less Ulster Bank RoI average IEA | (7,185) | (7,672) | (7,958) |
Less liquid asset buffer average IEA | (208,764) | (214,412) | (173,694) |
Bank average IEA | 333,349 | 329,493 | 320,863 |
|
|
|
|
Bank net interest margin | 2.46% | 2.31% | 2.32% |
| Quarter ended or as at | ||
| 31 March | 31 December | 31 March |
| 2022 | 2021 | 2021 |
Retail Banking | £m | £m | £m |
Net interest income | 1,112 | 1,057 | 973 |
Annualised net interest income | 4,510 | 4,194 | 3,946 |
|
|
|
|
Retail Banking average IEA | 185,531 | 183,541 | 175,346 |
Less liquid asset buffer average IEA | - | - | - |
Adjusted Retail Banking average IEA | 185,531 | 183,541 | 175,346 |
|
|
|
|
Retail Banking net interest margin | 2.43% | 2.28% | 2.25% |
|
|
|
|
Private Banking |
|
|
|
Net interest income | 143 | 126 | 115 |
Annualised net interest income | 580 | 500 | 466 |
|
|
|
|
Private Banking average IEA | 18,867 | 18,721 | 17,689 |
Less liquid asset buffer average IEA | - | - | - |
Adjusted Private Banking average IEA | 18,867 | 18,721 | 17,689 |
|
|
|
|
Private Banking net interest margin | 3.07% | 2.67% | 2.64% |
|
|
|
|
Commercial & Institutional |
|
|
|
Net interest income | 803 | 764 | 725 |
Annualised adjusted net interest income | 3,257 | 3,031 | 2,940 |
|
|
|
|
Commercial & Institutional average IEA | 164,487 | 168,047 | 163,594 |
Less liquid asset buffer average IEA | (43,502) | (47,668) | (41,040) |
Adjusted Commercial & Institutional average IEA | 120,985 | 120,379 | 122,554 |
|
|
|
|
Commercial & Institutional net interest margin | 2.69% | 2.52% | 2.40% |
Non-IFRS financial measures
9. Net lending
NatWest Group net lending is calculated as total loans to customers less loan impairment provisions. Go-forward group net lending is calculated as net loans to customers less Ulster Bank RoI net loans to customers.
Refer to page 3 for further details.
| As at | ||
| 31 March | 31 December | 31 March |
| 2022 | 2021 | 2021 |
| £bn | £bn | £bn |
Total loans to customers (amortised cost) | 368.9 | 362.8 | 364.3 |
Less loan impairment provisions | (3.6) | (3.8) | (5.6) |
Net loans to customers (amortised cost) | 365.3 | 359.0 | 358.7 |
Less Ulster Bank RoI net loans to customers (amortised cost) | (6.3) | (6.7) | (16.9) |
Go-forward group net lending | 359.0 | 352.3 | 341.8 |
10. Customer deposits
Go-forward group customer deposits is calculated as total customer deposits less Ulster Bank RoI customer deposits.
Refer to page 3 for further details.
| As at | ||
| 31 March | 31 December | 31 March |
| 2022 | 2021 | 2021 |
| £bn | £bn | £bn |
Total customer deposits | 482.9 | 479.8 | 453.3 |
Less Ulster Bank RoI customer deposits | (17.3) | (18.4) | (18.4) |
Go-forward group customer deposits | 465.6 | 461.4 | 434.9 |
Performance metrics not defined under IFRS
Metrics based on GAAP measures, included as not defined under IFRS and reported for compliance with the European Securities and Markets Authority (ESMA) adjusted performance measure rules.
1. Loan:deposit ratio
Loan:deposit ratio is calculated as net customer loans held at amortised cost excluding reverse repos divided by total customer deposits excluding repos. Prior periods have been re-presented.
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.
Refer to page 3 for further details.
| As at | ||
| 31 March | 31 December | 31 March |
| 2022 | 2021 | 2021 |
| £m | £m | £m |
Loans to customers - amortised cost | 365,340 | 358,990 | 358,728 |
Less reverse repos | (26,780) | (25,962) | (20,548) |
| 338,560 | 333,028 | 338,180 |
|
|
|
|
Customer deposits | 482,887 | 479,810 | 453,308 |
Less repos | (16,166) | (14,541) | (16,141) |
| 466,721 | 465,269 | 437,167 |
|
|
|
|
Loan:deposit ratio (%) | 73% | 72% | 77% |
2. Loan impairment rate
Loan impairment rate is the annualised loan impairment charge divided by gross customer loans.
Refer to pages 3, 6 to 8 and 11 to 13 for further details.
3. Funded assets
Funded assets is calculated as total assets less derivative assets.
This measure allows review of balance sheet trends exclusive of the volatility associated with derivative fair values.
Refer to pages 3, 8 and 11 to 13 for further details.
4. AUMAs
AUMA comprises both assets under management (AUMs) and assets under administration (AUAs) serviced through the Private Banking franchise. 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 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. Private Banking receives a fee for providing investment management and execution services to Retail Banking and Commercial & Institutional franchises.
Private Banking is the centre of expertise for asset management across NatWest Group servicing all client segments across Retail, Premier and Private Banking.
Refer to pages 3 and 7 for further details.
5. Depositary assets
Assets held by Commercial & Institutional as an independent trustee and in a depositary service capacity.
Depositary assets are a closely monitored KPI for the Commercial & Institutional business and its inclusion in commentary highlights the services provided.
Refer to page 8 for further details.
6. Wholesale funding
Wholesale funding comprises deposits by banks, debt securities in issue and subordinated liabilities.
This is a closely monitored metric used across the banking industry to ensure capital requirements are being met.
Refer to page 3 for further details.
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