NWG Q3 IMS Interim Management Statement 2022

RNS Number : 4141E
NatWest Group plc
28 October 2022
 

F2A4E6A5-86EA-4413-90D6-619423C4A8DF|3|Oracle.SmartView.EPRCS|{86262e33-96fb-4c42-a709-0e94f1ae601e}

 

 

 

 

 

 

 

 

 

 

 

 

NatWest Group

Q3 2022

Interim Management Statement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NatWest Group plc  natwestgroup.com

 



 

NatWest Group Q3 2022 Results   

Page

Highlights

1

Our Purpose in action

2

Business performance summary

3

  CFO Review

6

  Retail Banking

7

  Private Banking

8

  Commercial & Institutional

9

  Ulster Bank RoI

10

  Central items & other

11

  Segment performance

12

Risk and capital management


  Credit risk

17

  Capital, liquidity and funding risk

25

Condensed consolidated financial statements

31

Notes to the financial statements

35

Additional information

38

Appendix - Non-IFRS financial measures

41

 

 

 




NatWest Group plc

Q3 2022 Interim Management Statement

Chief Executive, Alison Rose, commented:

"In a challenging environment, NatWest Group continues to deliver a strong financial performance; supporting our customers, responsibly growing our lending and making significant investments to transform the bank. 

At a time of increased economic uncertainty, we are acutely aware of the challenges that people, families and businesses are facing up and down the country. Although we are not yet seeing signs of heightened financial distress, we are very conscious of the growing concerns of our customers and we are closely monitoring any changes to their finances or behaviours.

The bank's strong capital and liquidity mean we are able to help those who are likely to need it the most, through support for our community partners, proactive outreach to our customers or targeted lending packages for the most impacted sectors."

Strong Q3 2022 performance

Q3 2022 attributable profit of £187 million and a return on tangible equity of 2.9% and 12.1% excluding Ulster Bank RoI.

Excluding notable items, income in the Go-forward group increased by £923 million, or 36.8%, compared with Q3 2021 principally reflecting the impact of volume growth, increased transactional related fees and yield curve movements.

Bank net interest margin (NIM) of 2.99% was 27 basis points higher than Q2 2022 driven by the impact of base rate rises.

Other operating expenses in the Go-forward group were £87 million, or 1.8%, higher for the year to date. We do, however, remain on track to achieve our 2022 cost reduction target of around 3%.

A net impairment charge of £242 million in the Go-forward group in Q3 2022 principally reflects revision of scenario weightings, with more weight being placed on the downside scenario, and not due to underlying book performance where conditions continue to be benign.

Total Ulster Bank RoI including discontinued operations reported a loss of €652 million in the quarter, which included a €419 million loss associated with the reclassification of UBIDAC mortgages to fair value.

Robust balance sheet with strong capital and liquidity levels

Net lending balances for the Go-forward group increased by £9.9 billion during Q3 2022 to £371.5 billion, with growth balanced across the business.

Go-forward group customer deposits decreased by £14.5 billion to £461.7 billion compared with Q2 2022, primarily driven by a reduction in Treasury repo activity of £7.6 billion and an £8.0 billion reduction in Commercial & Institutional reflecting reversal of short term inflows in Q2 2022 and general seasonal fluctuations in liquidity.

The liquidity coverage ratio (LCR) of 156%, representing £67.8 billion headroom above 100% minimum requirement, decreased by 3 percentage points compared with Q2 2022, reflecting shareholder distributions, redemption of senior debt and maturing commercial papers and certificates of deposit.

CET1 ratio of 14.3% was flat on Q2 2022 as the attributable profit and reduction in RWAs was offset by accruals for foreseeable dividends and pension contributions.

RWAs reduced by £1.3 billion in the quarter to £178.5 billion.

Outlook 2023(2)

In 2023, we continue to expect to achieve our planned return on tangible equity in the range of 14-16%.

However, reflecting changes in the economic outlook since H1 2022, the composition of those returns will be different:

Income will be higher supported by higher interest rates.

We no longer expect costs to be broadly stable given increased inflationary pressures.

Our loan book is performing well, and while we expect impairments to increase, we remain comfortable with our through the cycle impairment loss rate guidance of 20-30 basis points, including in 2023.

Outlook 2022(2)

At today's Bank of England base rate of 2.25% we expect 2022 income excluding notable items to be around £12.8 billion in the Go-forward group. We expect NIM to be greater than 2.80% for full year 2022 in the Go-forward group.

Other than as stated above, we retain the outlook guidance provided in the 2022 Interim Results.

 

(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 in the 2021 Annual Report and Accounts and Form 20-F and the Summary Risk Factors in the NatWest Group plc 2022 Interim Results. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement.

 



 

Our Purpose in action

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

People and families

8.3 million proactive contacts to our retail customers with support and information on the cost of living so far in 2022 .

Helped c.0.6 million customers with financial health checks so far in 2022, allowing them to organise their finances.

Launched benefits calculator(1) as part of the Cost of Living Hub and increased the interest paid on our Digital Regular Saver to 5%.

We extended our mortgage early refinance window from four months to six months, providing some eligible customers that refinanced in Q3 2022 with a saving of around 2% on their next mortgage rate.

In Retail Banking, we have completed £2.1 billion of green mortgages(2), which give a discounted interest rate to energy efficient properties, since they were launched in Q4 2020, including £668 million in Q3 2022.

Businesses

Contacted c.0.8 million business customers, providing support and advice with the cost of doing business through c.3 million pieces of proactive communication.

Continue to look at ways to support SMEs, for example through the freezing of fees on Business Current accounts for 12 months, and through our dedicated SME ecosystem with access to specialist relationship managers and business hubs.

Working with the UK's largest debt charity, Step Change, donating £2 million to help fund an independent debt advice service for SMEs.

Completed £6.2 billion of climate and sustainable funding and financing in Q3 2022, bringing the cumulative contribution to £26.2 billion against our target of £100 billion between 1 July 2021 and the end of 2025.

Lowered the application threshold for our Green Loan offering for SMEs, from £50,000 to £25,000, helping more businesses transition to net zero.

Launched the NatWest Carbon Planner in August 2022, a free to use digital platform designed to help UK businesses reduce their carbon footprint.

Colleagues

Our new Partner Leave Policy(3) will provide the same pay and leave entitlement   to all eligible new parents, regardless of gender, helping to support wider cultural change by promoting a shared approach to childcare responsibilities early on.

Launched the Peppy Health App, a brand-new digital product providing colleagues and their partners with online support on the menopause as well as access to specialist clinicians. The Peppy App provides support for colleagues at any stage of the menopause, from as early as having initial symptoms to post-menopause.

Targeted action to provide long-term support through a permanent increase in base pay for our lowest paid colleagues, globally. c.22,000 colleagues received a pay rise, effective from 1 September 2022. In the UK, a 4% salary rise for those earning less than £32,000.

246 apprentices have joined the bank so far in 2022(4), with a further c.50 due to join before the end of the year.

Communities

Launched our Greener Homes Retrofit Project with our Sustainable Homes and Buildings Coalition partners. This involves supporting households to improve the energy efficiency of their homes.

The DEC Ukraine Humanitarian Appeal has exceeded £10 million in donations from NatWest Group colleagues and customers. This includes £2.5 million matching from the bank, over £2.3 million in Reward donations (including Gift Aid) and £284,000 (including Gift Aid) donated by colleagues through our SponsorMe page.

MoneySense has helped almost c.0.9 million young people learn about money in 2022 so far, and is used in 58% of schools.   Our CareerSense programme has reached over 7,700 young people, through workshops in schools, paid placements/insight weeks and Find Your Path programme.

Since 1 January 2022, our colleagues have given back c.48,000 hours of volunteering leave within work time and fundraised c.£2.4 million for charitable causes.

 

 

(1)  Benefits calculator launched in October 2022.

(2)  Green mortgages are available to all intermediaries for all residential and Buy to Let properties with an energy performance rating of A or B and specific new build developer properties. Available for Purchase, Porting & Re-mortgage applications.

(3)  Our Partner Leave policies will replace existing Paternity Leave policies from 1 January 2023 in the UK, Guernsey, Jersey, Gibraltar, Republic of Ireland, India and Poland.

(4)  Apprentices who have joined the bank as at 25 October 2022.



 


Business performance summary


Nine months ended


Quarter ended


30 September

30 September


30 September

30 June

30 September


2022

2021


2022

2022

2021

 

£m

£m

 

£m

£m

£m

Continuing operations

 


 

 



Total income

9,448

7,827


3,229

3,211

2,686

Operating expenses

(5,549)

(5,430)


(1,896)

(1,833)

(1,931)

Profit before impairment (losses)/releases

3,899

2,397


1,333

1,378

755

Operating profit before tax

3,706

3,301


1,086

1,396

976

Excluding notable items within total income   (1)

 


 

 



Total income excluding notable items   (2)

9,295

7,679


3,397

3,114

2,568  

Operating expenses

(5,549)

(5,430)


(1,896)

(1,833)

(1,931)

Profit before impairment (losses)/releases and  

 



 



  excluding notable items

3,746

2,249


1,501

1,281

637

Operating profit before tax and excluding notable items

3,553

3,153


1,254

1,299

858

Go-forward group   (3)

 


 

 



Total income   (2)

9,452

7,705


3,266

3,199

2,629

Total income excluding notable items   (2)

9,299

7,557


3,434

3,102

2,511

Other operating expenses

(4,902)

(4,815)


(1,661)

(1,636)

(1,524)

Profit before impairment (losses)/releases   (2)

4,271

2,626


1,484

1,507

810

Return on tangible equity   (2)

13.5%

11.4%


12.1%

16.5%

8.6%

Cost:income ratio   (2)

54.4%

65.4%


54.1%

52.4%

68.8%

Performance key metrics and ratios

 


 

 



Bank net interest margin   (2,4)

2.73%

2.32%


2.99%

2.72%

2.28%

Bank average interest earning assets   (2,4)

£341bn

£323bn


£350bn

£340bn

£325bn

Cost:income ratio   (2)

58.3%

69.0%


58.3%

56.7%

71.5%

Loan impairment rate   (2)

7bps

(33bps)


26bps

(2bps)

(24bps)

Profit attributable to ordinary shareholders

2,078

2,516


187

1,050

674

Total earnings per share attributable to ordinary  

 



 



  shareholders - basic   (5)

20.9p

23.1p


1.9p

10.8p

6.3p

Return on tangible equity   (2)

10.0%

10.7%


2.9%

15.2%

8.5%

 

 

(1)

Refer to page 5 for details of notable items within total income.

(2)

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

(3)

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

(4)

NatWest Group excluding Ulster Bank RoI and liquid asset buffer.

(5)

At the General Meeting and Class Meeting on 25 August 2022, the shareholders approved the proposed special dividend and share consolidation.   On 30 August 2022 the issued ordinary share capital was consolidated in the ratio of 14 existing shares for 13 new shares.   The average number of shares for earnings per share has been adjusted retrospectively.



Business performance summary continued

 

 

30 September

30 June

31 December

 

 

2022

2022

2021

 

 

£bn

£bn

£bn

Balance sheet

 

 

 


Total assets


801.5

806.5

782.0

Funded assets   (1)


660.5

697.1

675.9

Loans to customers - amortised cost


371.8

362.6

359.0

Loans to customers and banks - amortised cost and FVOCI  


384.5

376.4

369.8

Go-forward group net lending   (1)


371.5

361.6

352.3

Total impairment provisions   (2)


3.4

3.5

3.8

Expected credit loss (ECL) coverage ratio  


0.88%

0.93%

1.03%

Assets under management and administration (AUMA)   (1)


32.3

32.9

35.6

Go-forward group customer deposits   (1)


461.7

476.2

461.4

Customer deposits  


473.0

492.1

479.8

Liquidity and funding

 

 



Liquidity coverage ratio (LCR)


156%

159%

172%

Liquidity portfolio


251

268

286

Net stable funding ratio (NSFR)   (3)


148%

153%

157%

Loan:deposit ratio   (1)


75%

71%

72%

Total wholesale funding


75

76

77

Short-term wholesale funding


24

24

23

Capital and leverage

 

 



Common Equity Tier (CET1) ratio   (4)


14.3%

14.3%

18.2%

Total capital ratio   (4)


19.2%

19.3%

24.7%

Pro forma CET1 ratio, pre foreseeable items   (5)


14.7%

15.6%

19.5%

Risk-weighted assets (RWAs)


178.5

179.8

157.0

UK leverage ratio   (4)


5.2%

5.2%

5.9%

Tangible net asset value (TNAV) per ordinary share   (6)


250p

267p

272p

Number of ordinary shares in issue (millions)   (6)


9,650

10,436

11,272

 

(1)

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

(2)

Includes £0.1 billion relating to off-balance sheet exposures (30 June 2022 - £0.1 billion; 31 December 2021 - £0.1 billion).

(3)

The NSFR is presented on a spot basis.

(4)

Refer to the Capital, liquidity and funding risk section for details of basis of preparation. On 1 January 2022 the proforma CET1 ratio was 15.9% following regulatory changes.

(5)

The pro forma CET1 ratio at 30 September 2022 excludes foreseeable items of £668 million; £386 million for ordinary dividends and £282 million foreseeable charges (30 June 2022 excludes foreseeable items of £2,341 million: £500 million for ordinary dividends, £1,750 million for special dividends and £91 million foreseeable charges; 31 December 2021 excludes foreseeable charges of £2,036 million: £846 million for ordinary dividends and £1,190 million foreseeable charges and pension contributions).

(6)

The number of ordinary shares in issue excludes own shares held. Comparatives for the number of shares in issue and TNAV per ordinary share have not been adjusted for the effect of the share consolidation referred to in footnote 5 on the previous page.



 

Summary consolidated income statement for the period ended 30 September 2022


Nine months ended


Quarter ended


30 September

30 September


30 September

30 June

30 September


2022

2021


2022

2022

2021


£m  

£m  


£m  

£m  

£m  

Net interest income

6,974

5,613


2,640

2,307

1,869

Non-interest income

2,474

2,214


589

904

817

Total income

9,448

7,827

 

3,229

3,211

2,686

Litigation and conduct costs

(294)

(276)


(125)

(67)

(294)

Other operating expenses

(5,255)

(5,154)


(1,771)

(1,766)

(1,637)

Operating expenses

(5,549)

(5,430)

 

(1,896)

(1,833)

(1,931)

Profit before impairment (losses)/releases

3,899

2,397

 

1,333

1,378

755

Impairment (losses)/releases

(193)

904


(247)

18

221

Operating profit before tax

3,706

3,301

 

1,086

1,396

976

Tax charge

(1,229)

(762)


(434)

(409)

(330)

Profit from continuing operations

2,477

2,539

 

652

987

646

(Loss)/profit from discontinued operations, net of tax

(206)

275

 

(396)

127

98

Profit for the period

2,271

2,814

 

256

1,114

744


 



 



Attributable to:

 


 

 



Ordinary shareholders

2,078

2,516


187

1,050

674

Preference shareholders

-

14


-

-

5

Paid-in equity holders

188

241


67

62

63

Non-controlling interests

5

43


2

2

2


2,271

2,814


256

1,114

744

 

 

 

 

 



Notable items within total income   (1)

 

 

 

 



Commercial & Institutional

 



 



Fair value, disposal losses and asset disposals/

 



 



  strategic risk reduction

(45)

(70)


-

(45)

(8)

Tax variable lease repricing

-

32


-

-

-

Own credit adjustments (OCA)

61

3


9

34

2

Central items & other

 



 



Share of associate (losses)/profits for Business  

 



 



  Growth Fund

(29)

208


(16)

(36)

79

Loss on redemption of own debt

(161)

(138)


(137)

-

-

Liquidity Asset Bond sale (losses)/gains

(88)

70


(124)

(5)

45

Interest and FX risk management derivatives not

 



 



  in accounting hedge relationships

415

44


100

149

-

Own credit adjustments (OCA)  

-

(1)


-

-

-

Total

153

148


(168)

97

118

(1)  Refer to page 41 of the Non-IFRS financial measures appendix.

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

The results for the quarter have been impacted by a significant loss in Ulster Bank RoI as we continue our withdrawal from the Republic of Ireland, however operating performance in the Go-forward group was strong, delivering a RoTE of 12.1%.  We continue to monitor the evolving economic outlook, particularly any impacts on NatWest Group and our customers from higher interest rates and inflationary pressures and recent pressure on sterling, gilts and pension fund liabilities. NatWest Group's capital and liquidity position remains robust.

Financial performance

Total income in the Go-forward group increased by 24.2% to £3,266 million compared with Q3 2021. Excluding notable items, income was £923 million, or 36.8%, higher than Q3 2021 driven by volume growth, increased transactional related fees, higher trading income and favourable yield curve movements.

Bank NIM of 2.99% was 27 basis points higher than Q2 2022 principally reflecting the impact of recent base rate increases.

Other operating expenses in the Go-forward group were £137 million, or 9.0%, higher than Q3 2021 principally driven by strategic investment in key areas, including data and financial crime, resulting in an increase of £87 million, or 1.8%, for the year to date.

A net impairment charge of £242 million for the Go-forward group for Q3 2022 principally reflects an increase in the charge relating to good book exposures, driven by revision of scenario weightings with more weight being placed on the downside scenarios.  We continue to see low levels of Stage 3 defaults. Compared with Q2 2022, our ECL provisions have reduced by £0.1 billion to £3.4 billion, and our ECL coverage ratio has decreased from 0.93% to 0.88%. The element of our economic uncertainty post model adjustments (PMA) that relates to COVID-19 risks has been reduced, which, when combined with revising our scenario weightings, has allowed us to reduce the amount we hold as economic uncertainty PMA to £0.5 billion, or 16.1% of total impairment provisions. Whilst we are comfortable with the strong credit performance of our book, we will continue to assess this position regularly and are closely monitoring the impacts of inflationary pressures on the UK economy and our customers.

After including a charge of €419 million in relation to the reclassification of UBIDAC mortgages to fair value, we report a Q3 2022 attributable profit of £187 million, with earnings per share of 1.9 pence and a RoTE of 2.9% for NatWest Group.

Retail Banking gross new mortgage lending was £11.0 billion in Q3 2022, compared with £8.3 billion in Q3 2021 and £9.8 billion in Q2 2022, bringing gross new lending for the year to £29.9 billion. Unsecured balances in Retail Banking grew £0.2 billion in the quarter as customer demand remained strong. Go-forward group net lending increased by £9.9 billion, or 2.7%, in the quarter including £3.9 billion of mortgage lending growth in Retail Banking and £4.6 billion of growth in Commercial & Institutional. Wholesale lending was strong across the whole book, with most activity in Commercial & Institutional. Government Scheme lending continues to reduce, with £0.6 billion repaid in the quarter.

Customer deposits in the Go-forward group decreased by £14.5 billion, or 3.0%, in the quarter. Retail Banking deposits remained stable, with the decrease primarily driven by an £8.0 billion reduction in Commercial & Institutional reflecting the reversal of short term inflows in Q2 2022 and general seasonal fluctuations in liquidity and a reduction in Treasury repo activity of £7.6 billion. In the Go-forward group around 60% of our customer deposits are interest bearing and the bank has passed on 25-30% of the 215 basis point UK base rate rises since Q4 2021.

TNAV per share decreased by 17 pence in the quarter to 250 pence principally reflecting movements in cashflow hedging reserves and dividend payments, offset by the impact of the share consolidation.

 

Capital and leverage

The Group Pension Fund is holding sufficient collateral and cash for current market levels and the robust risk management of the Fund has negated any need to sell assets to meet collateral calls to date. The Fund remains in surplus and funding levels have improved since the last valuation. The NatWest Group's exposure to LDI funds through secured lending (repo) or derivatives is collateralised on a daily basis.

 

The CET1 ratio remains robust at 14.3%, or 14.1% excluding IFRS 9 transitional relief, and was flat on Q2 2022 as the attributable profit and reduction in RWAs was offset by accruals for foreseeable dividends and pension contributions. The total capital ratio decreased by 10 basis points to 19.2%.

 

RWAs reduced by £1.3 billion in the quarter to £178.5 billion reflecting disposal activity in Ulster Bank RoI, partially offset by lending growth, FX movements and market risk. 

 

Funding and liquidity

The LCR decreased by 3 percentage points to 156%, representing £67.8 billion headroom above 100% minimum requirement. The main drivers of this include shareholder distributions, redemption of Senior debt and maturing commercial papers and certificates of deposit, coupled with a reduction in customers deposits and increased lending to our customers. Total wholesale funding reduced by £1.4 billion in the quarter to £75.0 billion. Short term wholesale funding increased by £0.2 billion in the quarter to £23.8 billion.



 


Business performance summary

Retail Banking


 

 

Quarter ended


 



30 September

30 June

30 September


 



2022

2022

2021


 



£m

£m

£m

Total income

 



1,475

1,337

1,131

Operating expenses

 



(693)

(597)

(552)

  of which: Other operating expenses

 

 

 

(630)

(593)

(537)

Impairment losses

 



(116)

(21)

(16)

Operating profit

 



666

719

563


 



 



Return on equity

 



27.0%

29.5%

29.9%

Net interest margin

 



2.85%

2.62%

2.29%

Cost:income ratio

 



47.0%

44.7%

48.8%

Loan impairment rate

 



24bps

4bps

4bps

 


 


As at


 



30 September

30 June

31 December


 



2022

2022

2021


 



£bn

£bn

£bn

Net loans to customers (amortised cost)

 



192.8

188.7

182.2

Customer deposits

 



190.9

190.5

188.9

RWAs

 



53.0

53.0

36.7

During Q3 2022, Retail Banking continued to pursue sustainable growth with an intelligent approach to risk, delivering a return on equity of 27.0% and an operating profit of £666 million.

We continue to support our customers facing the rising cost of living financial challenges during Q3 2022.  In addition to the measures taken during H1 2022, we have increased the support available to our mortgage customers during their roll-off period by extending the roll-off window from 4 to 6 months, giving customers more time to select their follow on product and secure rates in advance. We have also proactively engaged with those customers identified as potentially income stretched to make them aware of the support available, and offered pre-screening toolkits and soft scoring to help customers understand what borrowing they are eligible for and what their repayments would be.

Retail Banking completed £1.1 billion of climate and sustainable funding and financing in Q3 2022.

Q3 2022 performance

-

Total income was £344 million, or 30.4%, higher than Q3 2021 reflecting higher deposit income, supported by interest rate rises, strong loan growth and higher transactional-related fee income, partially offset by lower mortgage margins and the impact of the summer fee-free overseas spending offer.

-

Net interest margin was 23 basis points higher than Q2 2022 reflecting higher deposit returns, partly offset by mortgage margin pressure. Mortgage back book margin was 138 basis points in the period.

-

Other operating expenses were £93 million, or 17.3%, higher than Q3 2021 primarily due to higher marketing spend, higher fraud losses and increased investment in financial crime prevention, combined with the impact of pay awards to support colleague cost of living challenges. This was partly offset by a 9.3% headcount reduction as a result of the continued digitalisation, automation and improvement of end-to-end customer journeys.

-

Impairment losses of £116 million in Q3 2022 reflect a revision of the economic scenario weightings, with more weight being placed on the downside, and continued low level of stage 3 defaults.

-

Customer deposits increased by £0.4 billion, or 0.2%, in Q3 2022 including the impact of customers utilising savings balances over the summer period.

-

Net loans to customers increased by £4.1 billion, or 2.2%, in Q3 2022 mainly reflecting continued mortgage growth of £3.9 billion, with gross new mortgage lending of £11.0 billion representing flow share of around 13%. Personal advances increased by £0.1 billion and cards balances increased by £0.1 billion in Q3 2022 reflecting continued strong customer demand.

-

RWAs remained broadly in line with Q2 2022 at £53.0 billion with lending growth offset by quality improvements.



 



 

Business performance summary

Private Banking


 

 

Quarter ended




30 September

 

30 June

30 September




2022

 

2022

2021




£m

 

£m

£m

Total income



285

 

245

195

Operating expenses



(139)

 

(146)

(116)

  o f which: Other operating expenses



(138)

 

(146)

(119)

Impairment (losses)/releases



(7)

 

6

15

Operating profit



139

 

105

94




 

 



Return on equity



31.8%

 

23.5%

18.1%

Net interest margin



4.37%

 

3.60%

2.60%

Cost:income ratio



48.8%

 

59.6%

59.5%

Loan impairment rate



15bps

 

(13)bps

(32)bps




 

 



Net new money (£bn)   (1)



0.3  

 

0.6

0.7

 

 


 


As at




30 September

 

30 June

31 December




2022

 

2022

2021




£bn

 

£bn

£bn

Net loans to customers (amortised cost)



19.1

 

18.8

18.4

Customer deposits



42.2

 

41.6

39.3

RWAs



11.1

 

11.3

11.3

Assets under management (AUMs)   (1)



27.6

 

28.1

30.2

Assets under administration (AUAs)   (1)



4.7

 

4.8

5.4

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



32.3

 

32.9

35.6

(1)  Refer to page 48 of the Non-IFRS financial measures appendix.

 

During Q3 2022, Private Banking provided a strong operating performance with continued balance growth, delivering a return on equity of 31.8% and operating profit of £139 million.

We have continued to support our clients in helping them deal with financial challenges as a result of rising inflation and the volatile market environment through financial health checks and fraud and scams workshops. Despite volatile markets throughout the year, our year to date AUM net new money of £1.7 billion represents a strong performance relative to the overall UK investment market.

Private Banking completed £0.1 billion of climate and sustainable funding and financing during Q3 2022.

Q3 2022 performance

-

Total income was £90 million, or 46.2%, higher than Q3 2021 driven by higher deposit and lending balances, and improved deposit returns, supported by interest rate rises.

-

Net interest margin was 77 basis points higher than Q2 2022 reflecting higher deposit income.

-

Other operating expenses were £19 million, or 16.0%, higher than Q3 2021 due to continued investment in people and technology to enhance AUMA growth propositions.

-

Impairment losses of £7 million in Q3 2022 are primarily due to an increase in the impairment charge relating to good book exposures, driven by revision of scenario weightings, with more weight being placed on the downside scenario.

-

AUM net new money was £0.3 billion during Q3 2022 and £1.7 billion in the year to date, which represented 6.4% of opening AUMA balances on an annualised basis, demonstrating a strong performance given volatile investment market conditions. AUMAs decreased by £0.6 billion, or 1.8%, in Q3 2022 primarily reflecting investment market movements of £0.8 billion.

-

Customer deposits increased by £0.6 billion, or 1.4%, in Q3 2022 with continued savings growth.

-

Net loans to customers increased by £0.3 billion, or 1.6%, in Q3 2022 due to continued strong mortgage lending growth, whilst RWAs decreased by £0.2 billion, or 1.8%.

 

 



 

Business performance summary

Commercial & Institutional


 

 

Quarter ended


 



30 September

30 June

30 September


 



2022

2022

2021


 



£m

£m

£m

Net interest income

 



1,131

961

723

Non-interest income

 



526

601

473

Total income

 



1,657

1,562

1,196


 



 



Operating expenses

 



(893)

(898)

(874)

  of which: Other operating expenses

 



(840)

(854)

(845)

Impairment (losses)/releases

 



(119)

48

230

Operating profit

 



645

712

552


 



 



Return on equity

 



12.2%

14.0%

11.0%

Net interest margin

 



3.46%

3.09%

2.39%

Cost:income ratio

 



53.0%

56.6%

72.2%

Loan impairment rate

 



36bps

(15)bps

(72)bps

 

 


 


As at


 



30 September

30 June

31 December


 



2022

2022

2021


 



£bn

£bn

£bn

Net loans to customers (amortised cost)

 



131.9

127.3

124.2

Customer deposits

 



215.2

223.2

217.5

Funded assets   (1)

 



325.5

343.4

321.3

RWAs

 



104.8

103.0

98.1

(1)  Refer to page 48 of the Non-IFRS financial measures appendix.

During Q3 2022, Commercial & Institutional delivered a strong performance with a return on equity of 12.2% and an operating profit of £645 million.

As our customers are facing a volatile external macroeconomic environment, we continue to proactively provide support through our Relationship Manager-led model, alongside a 12-month freeze in SME fees, the launch of the Cost of Trading internet hub and launching Carbon Planner which enables businesses to accurately plan how they can reduce their energy and fuel costs with a bespoke strategy.

Commercial & Institutional completed £4.9 billion of climate and sustainable funding and financing in Q3 2022.

Q3 2022 performance

-

Total income was £461 million, or 38.5%, higher than Q3 2021 reflecting higher deposit returns from an improved interest rate environment, net loan growth and improved card payment fees. Markets income(1) of £136 million, was £31 million, or 29.5%, higher than Q3 2021 reflecting stronger performance in Currencies.

-

Net interest margin was 37 basis points higher than Q2 2022 reflecting higher deposit income.

-

Other operating expenses were £5 million, or 0.6%, lower than Q3 2021 due to the non-repeat of Q3 2021 restructuring costs partly offset by continued investment in the business including higher back office operational costs.

-

A net impairment charge of £119 million in Q3 2022 was predominantly driven by the revision of scenario weightings, with more weight being placed on the downside scenarios.

-

Customer deposits decreased by £8.0 billion, or 3.6%, in Q3 2022 reflecting the reversal of short term inflows in Q2 and general seasonal fluctuations in liquidity. Overall customer liquidity levels remain at heightened levels.

-

Net loans to customers increased by £4.6 billion, or 3.6%, in Q3 2022 due to increased facility utilisation and funds activity within Corporate & Institutions partly offset by UK Government scheme repayments of £0.6 billion across Commercial Mid-market and Business Banking.

-

RWAs increased by £1.8 billion, or 1.7%, in Q3 2022 driven by lending growth, counterparty credit risk and market risk, partly offset by risk parameter improvements and continued benefits from capital actions.

 

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



 

Business performance summary

Ulster Bank RoI

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

-

Successful migration of a further three tranches of gross performing commercial loans to Allied Irish Banks, p.l.c. (AIB) was completed during Q3 2022. Remaining migrations of commercial customers will be completed in phases over Q4 2022 and H1 2023. Colleagues who are wholly or mainly assigned to supporting this part of the business have begun to transfer to AIB under TUPE arrangements.

-

The planned migration of gross performing non-tracker mortgages to Permanent TSB p.l.c. (PTSB) is progressing and execution of the live migration is expected to commence before the end of the year. The transfer of the Lombard asset finance business, the business direct loan book and 25 branches to PTSB is still expected to be completed in H1 2023.

-

Migration of the portfolio of gross performing tracker and linked mortgages is still on track for delivery in Q2 2023. UBIDAC and AIB remain actively engaged with the Irish Competition and Consumer Protection Commission (CCPC) as it continues its review of the transaction.

-

There has been continued momentum on deposit outflows, with a significant level of customers reducing their balances and moving their active banking relationship in advance of closing their accounts.

-

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

 

Continuing operations

 

 

Quarter ended




30 September

30 June

30 September




2022

2022

2021




€m

€m

€m

Total income



(44)

13

68

Operating expenses   (1)



(135)

(167)

(131)

  of which: Other operating expenses



(130)

(154)

(132)

Impairment losses



(5)

(26)

(5)

Operating loss



(184)

(180)

(68)




 

 









 


As at


 


30 September

30 June

31 December


 


2022

2022

2021


 


€bn

€bn

€bn

Net loans to customers - amortised cost   (2)

 


0.4

1.2

7.9

Customer deposits

 


12.8

18.4

21.9

RWAs

 


9.1

12.6

10.9

(1)  Includes withdrawal-related direct programme costs of €24 million for the quarter ended 30 September 2022 (€19 million - 30 June 2022 and nil - 30 September 2021).

(2)  This excludes €0.7 billion of loans to customers held at fair value through profit or loss (nil - 30 June 2022 and nil - 30 September 2021).

Q3 2022 performance

-

Total income was €112 million lower than Q3 2021 reflecting reduced business levels, the continued cost of an inter-group liquidity facility that was put in place as part of the arrangements to manage deposit outflows and the cost of restructuring UBIDAC's hedging portfolio.

-

Other operating expenses were €2 million, or 1.5%, lower than Q3 2021 due to lower regulatory levies and reduced staff costs being partially offset by higher withdrawal-related programme costs.

-

Net loans to customers decreased by €0.8 billion, or 66.7%, in Q3 2022 due to the reclassification of mortgages to loans at fair value and repayments on the remaining portfolio.

-

Customer deposits decreased by €5.6 billion, or 30.4%, in Q3 2022 due to reducing personal and commercial deposits as  momentum continues in account closures.

-

RWAs decreased by €3.5 billion, or 27.8%, in Q3 2022 driven by asset sales and the move to the standardised approach to measuring risk weightings. The move to the standardised approach was part of simplifying processes arising from the phased withdrawal strategy.



 

Business performance summary

Ulster Bank RoI continued

Total Ulster Bank RoI including discontinued operations

 

Quarter ended



 

30 September

30 June

30 September



 

2022

2022

2021



 

€m

€m

€m

Total income


 

(518)

101

171

Operating expenses


 

(148)

(182)

(144)

  of which: Other operating expenses

 

 

(143)

(169)

(145)

Impairment releases


 

14

53

19

Operating (loss)/profit



(652)

(28)

46



 






 






 

As at



 

30 September

30 June

30 December



 

2022

2022

2021



 

€bn

€bn

€bn

Net loans to customers (amortised cost)   (1)


 

2.8

17.7

18.6

Customer deposits


 

12.8

18.4

21.9

RWAs


 

9.1

12.6

10.9

(1)  This excludes €12.1 billion of loans to customers held at fair value through profit or loss (nil - 30 June 2022 and nil - 30 September 2021).

 

Central items & other


Quarter ended

 


30 September

30 June

30 September

 


2022

2022

2021

 


£m

£m

£m

 

Central items not allocated

(208)

10  

(173)

 

An operating loss of £208 million within central items not allocated principally reflects losses on redemption of own debt and further bond disposals, offset by gains from risk management derivatives not in hedge accounting relationships.


Segment performance


Nine months ended 30 September 2022


Go-forward group

 

 


 

 

 

 

 

 

 


Retail

Private

Commercial &

Central items

Total excluding

Ulster  

Total NatWest


Banking

Banking

Institutional

& other

Ulster Bank RoI

Bank RoI

Group


£m

£m

£m

£m

£m

£m

£m

Continuing operations

 

 

 

 

 

 

 

Income statement

 

 

 

 

 

 

 

Net interest income

3,719

526

2,895

(178)

6,962

12

6,974

Non-interest income

310

220

1,699

261

2,490

(16)

2,474

Total income

4,029

746

4,594

83

9,452

(4)

9,448

Direct expenses

(498)

(157)

(1,101)

(3,279)

(5,035)

(220)

(5,255)

Indirect expenses

(1,316)

(265)

(1,473)

3,187

133

(133)

-

Other operating expenses

(1,814)

(422)

(2,574)

(92)

(4,902)

(353)

(5,255)

Litigation and conduct costs

(121)

(2)

(139)

(17)

(279)

(15)

(294)

Operating expenses

(1,935)

(424)

(2,713)

(109)

(5,181)

(368)

(5,549)

Operating profit/(loss) before impairment  

 

 

 

 

 

 

 

  (losses)/releases

2,094

322

1,881

(26)

4,271

(372)

3,899

Impairment (losses)/releases

(142)

4

(60)

2

(196)

3

(193)

Operating profit/(loss)  

1,952

326

1,821

(24)

4,075

(369)

3,706

 

 

 

 

 

 

 

 

Income excluding notable items

4,029

746

4,578

(54)

9,299

(4)

9,295

 

 

 

 

 

 

 

 

Additional information

 

 

 

 

 

 

 

Return on tangible equity   (1)

na

na

na

na

13.5%

na

10.0%

Return on equity   (1)

26.5%

24.5%

11.7%

nm

nm

nm

na

Cost:income ratio   (1)

48.0%

56.8%

58.2%

nm

54.4%

nm

58.3%

Total assets (£bn)

221.3

29.8

465.3

67.8

784.2

17.3

801.5

Funded assets (£bn)   (1)

221.3

29.8

325.5

66.6

643.2

17.3

660.5

Net loans to customers - amortised cost (£bn)

192.8

19.1

131.9

27.7

371.5

0.3

371.8

Loan impairment rate   (1)

10bps

(3)bps

6bps

nm

7bps

nm

7bps

Impairment provisions (£bn)

(1.5)

(0.1)

(1.6)

-

(3.2)

(0.1)

(3.3)

Impairment provisions - stage 3 (£bn)

(0.9)

-

(0.7)

-

(1.6)

(0.1)

(1.7)

Customer deposits (£bn)

190.9

42.2

215.2

13.4

461.7

11.3

473.0

Risk-weighted assets (RWAs) (£bn)

53.0

11.1

104.8

1.6

170.5

8.0

178.5

RWA equivalent (RWAe) (£bn)

53.0

11.1

106.5

2.1

172.7

8.0

180.7

Employee numbers (FTEs - thousands)

13.6

2.1

12.1

30.3

58.1

1.9

60.0

Third party customer asset rate   (2)

2.61%

2.80%

3.19%

nm

nm

nm

nm

Third party customer funding rate   (2)

(0.11%)

(0.15%)

(0.10%)

nm

nm

0.05%

nm

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

188.6

19.1

125.4

nm

341.3

na

341.3

Bank net interest margin   (1)

2.64%

3.69%

3.09%

nm

2.73%

na

2.73%

nm = not meaningful, na = not applicable.

Refer to page 16 for the notes to this table.

Segment performance


Nine months ended 30 September 2021


Go-forward group












Retail

Private

Commercial &

Central items

Total excluding

Ulster  

Total NatWest


Banking

Banking

Institutional

& other

Ulster Bank RoI

Bank RoI

Group


£m

£m

£m

£m

£m

£m

£m

Continuing operations








Income statement

 

 

 

 

 

 

 

Net interest income

3,017

354

2,210

14

5,595

18

5,613

Non-interest income

264

209

1,460

177

2,110

104

2,214

Total income

3,281

563

3,670

191

7,705

122

7,827

Direct expenses

(524)

(139)

(1,291)

(2,986)

(4,940)

(214)

(5,154)

Indirect expenses

(1,191)

(234)

(1,343)

2,893

125

(125)

-

Other operating expenses

(1,715)

(373)

(2,634)

(93)

(4,815)

(339)

(5,154)

Litigation and conduct costs

(24)

8

(64)

(184)

(264)

(12)

(276)

Operating expenses

(1,739)

(365)

(2,698)

(277)

(5,079)

(351)

(5,430)

Operating profit/(loss) before impairment  








  (losses)/releases

1,542

198

972

(86)

2,626

(229)

2,397

Impairment releases/(losses)

41

42

843

(4)

922

(18)

904

Operating profit/(loss)  

1,583

240

1,815

(90)

3,548

(247)

3,301

 








Income excluding notable items

3,281

563

3,705

8

7,557

122

7,679









Additional information








Return on tangible equity   (1)

na

na

na

na

11.4%

na

10.7%

Return on equity   (1)

28.3%

15.5%

11.8%

nm

nm

nm

na

Cost:income ratio   (1)

53.0%

64.8%

72.7%

nm

65.4%

nm

69.0%

Total assets (£bn)

207.6

28.2

436.0

81.3

753.1

25.2

778.3

Funded assets (£bn)   (1)

207.6

28.2

333.9

79.6

649.3

25.2

674.5

Net loans to customers - amortised cost (£bn)

180.5

18.4

125.4

23.5

347.8

13.2

361.0

Loan impairment rate   (1)

(3)bps

(30)bps

(88)bps

nm

(35)bps

nm

(33)bps

Impairment provisions (£bn)

(1.6)

(0.1)

(2.1)

-

(3.8)

(0.5)

(4.3)

Impairment provisions - stage 3 (£bn)

(0.8)

-

(1.0)

-

(1.8)

(0.4)

(2.2)

Customer deposits (£bn)

186.3

35.7

217.4

18.4

457.8

18.5

476.3

Risk-weighted assets (RWAs) (£bn)

36.6

11.4

99.9

1.9

149.8

10.0

159.8

RWA equivalent (RWAe) (£bn)

36.6

11.4

101.6

2.1

151.7

10.0

161.7

Employee numbers (FTEs - thousands)

15.0

1.9

12.0

27.5

56.4

1.8

58.2

Third party customer asset rate   (2)

2.68%

2.36%

2.70%

nm

nm

nm

nm

Third party customer funding rate   (2)

(0.06%)

0.00%

(0.02%)

nm

nm

0.01%

nm

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

177.6

18.1

121.1

nm

323.1

na

323.1

Bank net interest margin   (1)

2.27%

2.61%

2.44%

nm

2.32%

na

2.32%

nm = not meaningful, na = not applicable.

Refer to page 16 for the notes to this table.

Segment performance


Quarter ended 30 September 2022


Go-forward group

 

 


 

 

 

 

 

 

 


Retail

Private

Commercial &

Central items

Total excluding

Ulster  

Total NatWest


Banking

Banking

Institutional

& other

Ulster bank RoI

Bank RoI

Group


£m

£m

£m

£m

£m

£m

£m

Continuing operations

 

 

 

 

 

 

 

Income statement

 

 

 

 

 

 

 

Net interest income

1,379

211

1,131

(87)

2,634

6

2,640

Non-interest income

96

74

526

(64)

632

(43)

589

Total income

1,475

285

1,657

(151)

3,266

(37)

3,229

Direct expenses

(178)

(55)

(365)

(1,098)

(1,696)

(75)

(1,771)

Indirect expenses

(452)

(83)

(475)

1,045

35

(35)

-

Other operating expenses

(630)

(138)

(840)

(53)

(1,661)

(110)

(1,771)

Litigation and conduct costs

(63)

(1)

(53)

(4)

(121)

(4)

(125)

Operating expenses

(693)

(139)

(893)

(57)

(1,782)

(114)

(1,896)

Operating profit/(loss) before impairment

 

 

 

 

 

 

 

  (losses)/releases

782

146

764

(208)

1,484

(151)

1,333

Impairment (losses)/releases

(116)

(7)

(119)

-

(242)

(5)

(247)

Operating profit/(loss)

666

139

645

(208)

1,242

(156)

1,086

 

 

 

 

 

 

 

 

Income excluding notable items

1,475

285

1,648

26

3,434

(37)

3,397

 

 

 

 

 

 

 

 

Additional information

 

 

 

 

 

 

 

Return on tangible equity   (1)

na

na

na

na

12.1%

na

2.9%

Return on equity   (1)

27.0%

31.8%

12.2%

nm

nm

nm

na

Cost:income ratio   (1)

47.0%

48.8%

53.0%

nm

54.1%

nm

58.3%

Total assets (£bn)

221.3

29.8

465.3

67.8

784.2

17.3

801.5

Funded assets (£bn)   (1)

221.3

29.8

325.5

66.6

643.2

17.3

660.5

Net loans to customers - amortised cost (£bn)

192.8

19.1

131.9

27.7

371.5

0.3

371.8

Loan impairment rate   (1)

24bps

15bps

36bps

nm

26bps

nm

26bps

Impairment provisions (£bn)

(1.5)

(0.1)

(1.6)

-

(3.2)

(0.1)

(3.3)

Impairment provisions - stage 3 (£bn)

(0.9)

-

(0.7)

-

(1.6)

(0.1)

(1.7)

Customer deposits (£bn)

190.9

42.2

215.2

13.4

461.7

11.3

473.0

Risk-weighted assets (RWAs) (£bn)

53.0

11.1

104.8

1.6

170.5

8.0

178.5

RWA equivalent (RWAe) (£bn)

53.0

11.1

106.5

2.1

172.7

8.0

180.7

Employee numbers (FTEs - thousands)

13.6

2.1

12.1

30.3

58.1

1.9

60.0

Third party customer asset rate   (2)

2.64%

3.09%

3.53%

nm

nm

nm

nm

Third party customer funding rate   (2)

(0.17%)

(0.29%)

(0.19%)

nm

nm

0.05%

nm

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

192.1

19.2

129.8

nm

349.9

na

349.9

Bank net interest margin   (1)

2.85%

4.37%

3.46%

nm

2.99%

na

2.99%

nm = not meaningful, na = not applicable

Refer to page 16 for notes to this table.

Segment performance


Quarter ended 30 June 2022


Go-forward group












Retail

Private

Commercial &

Central items

Total excluding

Ulster  

Total NatWest


Banking

Banking

Institutional

& other

Ulster Bank RoI

Bank RoI

Group


£m

£m

£m

£m

£m

£m

£m

Continuing operations








Income statement

 

 

 

 

 

 

 

Net interest income

1,228

172

961

(56)

2,305

2

2,307

Non-interest income

109

73

601

111

894

10

904

Total income

1,337

245

1,562

55

3,199

12

3,211

Direct expenses

(159)

(53)

(329)

(1,144)

(1,685)

(81)

(1,766)

Indirect expenses

(434)

(93)

(525)

1,101

49

(49)

-

Other operating expenses

(593)

(146)

(854)

(43)

(1,636)

(130)

(1,766)

Litigation and conduct costs

(4)

-

(44)

(8)

(56)

(11)

(67)

Operating expenses

(597)

(146)

(898)

(51)

(1,692)

(141)

(1,833)

Operating profit/(loss) before impairment  








  (losses)/releases

740

99

664

4

1,507

(129)

1,378

Impairment (losses)/releases

(21)

6

48

6

39

(21)

18

Operating profit/(loss)

719

105

712

10

1,546

(150)

1,396

 








Income excluding notable items

1,337

245

1,573

(53)

3,102

12

3,114

 








Additional information








Return on tangible equity   (1)

na

na

na

na

16.5%

na

15.2%

Return on equity   (1)

29.5%

23.5%

14.0%

nm

nm

nm

na

Cost:income ratio   (1)

44.7%

59.6%

56.6%

nm

52.4%

nm

56.7%

Total assets (£bn)

216.2

30.0

451.5

87.1

784.8

21.7

806.5

Funded assets (£bn)   (1)

216.2

30.0

343.4

85.8

675.4

21.7

697.1

Net loans to customers - amortised cost (£bn)

188.7

18.8

127.3

26.8

361.6

1.0

362.6

Loan impairment rate   (1)

4bps

(13)bps

(15)bps

nm

(4)bps

nm

(2)bps

Impairment provisions (£bn)

(1.5)

(0.1)

(1.4)

-

(3.0)

(0.4)

(3.4)

Impairment provisions - stage 3 (£bn)

(0.9)

-

(0.7)

-

(1.6)

(0.4)

(2.0)

Customer deposits (£bn)

190.5

41.6

223.2

20.9

476.2

15.9

492.1

Risk-weighted assets (RWAs) (£bn)

53.0

11.3

103.0

1.7

169.0

10.8

179.8

RWA equivalent (RWAe) (£bn)

53.0

11.3

101.4

2.2

167.9

10.8

178.7

Employee numbers (FTEs - thousands)

13.9

2.0

11.8

29.4

57.1

1.8

58.9

Third party customer asset rate   (2)

2.59%

2.77%

3.19%

nm

nm

nm

nm

Third party customer funding rate   (2)

(0.10%)

(0.13%)

(0.09%)

nm

nm

0.04%

nm

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

188.1

19.1

124.9

nm

340.0

na

340.0

Bank net interest margin   (1)

2.62%

3.60%

3.09%

nm

2.72%

na

2.72%

nm = not meaningful, na = not applicable

Refer to the following page for notes to this table.



 

Segment performance


Quarter ended 30 September 2021


Go-forward group












Retail

Private

Commercial &

Central items

Total excluding

Ulster  

Total NatWest


Banking

Banking

Institutional

& other

Ulster Bank RoI

Bank RoI

Group


£m

£m

£m

£m

£m

£m

£m

Continuing operations








Income statement

 

 

 

 

 

 

 

Net interest income

1,041

122

723

(20)

1,866

3

1,869

Non-interest income

90

73

473

127

763

54

817

Total income

1,131

195

1,196

107

2,629

57

2,686

Direct expenses

(165)

(47)

(417)

(935)

(1,564)

(73)

(1,637)

Indirect expenses

(372)

(72)

(428)

912

40

(40)

-

Other operating expenses

(537)

(119)

(845)

(23)

(1,524)

(113)

(1,637)

Litigation and conduct costs

(15)

3

(29)

(254)

(295)

1

(294)

Operating expenses

(552)

(116)

(874)

(277)

(1,819)

(112)

(1,931)

Operating profit/(loss) before impairment  








  (losses)/releases

579

79

322

(170)

810

(55)

755

Impairment (losses)/releases

(16)

15

230

(3)

226

(5)

221

Operating profit/(loss)

563

94

552

(173)

1,036

(60)

976

 








Income excluding notable items

1,131

195

1,202

(17)

2,511

57

2,568

 








Additional information








Return on tangible equity   (1)

na

na

na

na

8.6%

na

8.5%

Return on equity   (1)

29.9%

18.1%

11.0%

nm

nm

nm

na

Cost:income ratio   (1)

48.8%

59.5%

72.2%

nm

68.8%

nm

71.5%

Total assets (£bn)

207.6

28.2

436.0

81.3

753.1

25.2

778.3

Funded assets (£bn)   (1)

207.6

28.2

333.9

79.6

649.3

25.2

674.5

Net loans to customers - amortised cost (£bn)

180.5

18.4

125.4

23.5

347.8

13.2

361.0

Loan impairment rate   (1)

4bps

(32)bps

(72)bps

nm

(26)bps

nm

(24)bps

Impairment provisions (£bn)

(1.6)

(0.1)

(2.1)

-

(3.8)

(0.5)

(4.3)

Impairment provisions - stage 3 (£bn)

(0.8)

-

(1.0)

-

(1.8)

(0.4)

(2.2)

Customer deposits (£bn)

186.3

35.7

217.4

18.4

457.8

18.5

476.3

Risk-weighted assets (RWAs) (£bn)

36.6

11.4

99.9

1.9

149.8

10.0

159.8

RWA equivalent (RWAe) (£bn)

36.6

11.4

101.6

2.1

151.7

10.0

161.7

Employee numbers (FTEs - thousands)

15.0

1.9

12.0

27.5

56.4

1.8

58.2

Third party customer asset rate   (2)

2.64%

2.36%

2.67%

nm

nm

nm

nm

Third party customer funding rate   (2)

(0.05%)

0.00%

(0.02%)

nm

nm

0.02%

nm

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

180.2

18.6

119.9

nm

325.4

na

325.4

Bank net interest margin   (1)

2.29%

2.60%

2.39%

nm

2.28%

na

2.28%

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


  Economic loss drivers

17

  Segment analysis - portfolio summary

18

  Segment analysis - loans

20

  Movement in ECL provision

20

  ECL post model adjustments

21

  Sector analysis - portfolio summary

22

  Wholesale support schemes

23

Capital, liquidity and funding risk

25

 

Credit risk

Economic loss drivers

Main macroeconomic variables


30 September 2022

 

30 June 2022


Base

Extreme

Weighted

 

Base

Extreme

Weighted


case

downside

average

 

case

downside

average

Five-year summary

%

%

%

 

%

%

%

GDP - CAGR

1.2

0.1

0.9


1.1

(0.1)

1.0

Unemployment - average

4.0

6.4

4.7

 

4.0

6.3

4.3

House price index - total change

13.1

(11.0)

3.8

 

13.7

(10.5)

8.9

Bank of England base rate - average

1.8

2.7

1.6

 

1.8

2.7

1.6

Commercial real estate price - total change

(3.6)

(15.4)

(6.8)

 

(2.6)

(14.5)

(3.2)

Consumer price index - CAGR

2.2

6.5

3.6

 

2.9

7.2

3.7


 

 

 

 




World GDP - CAGR

3.5

1.1

2.6

 

3.2

0.6

2.9


 

 

 

 




Probability weight

35

25

 


45

14


Probability weightings of scenarios

NatWest Group's approach to IFRS 9 multiple economic scenarios (MES) involves selecting a suitable set of discrete scenarios to characterise the distribution of risks in the economic outlook and assigning appropriate probability weights. For June 2022, NatWest Group reverted to using a quantitative approach, which was used prior to COVID-19. The approach involves comparing UK GDP paths for NatWest Group's scenarios against a set of 1,000 model runs, following which, a percentile in the distribution is established that most closely corresponded to the scenario.

NatWest Group has not updated the scenarios from those used at H1 2022, as is consistent with the approach used in prior years. However, since June 2022, the domestic and global economic outlook has deteriorated, reflecting the effect of higher inflation and interest rates. Forecasts for the expected future path of the economy have been revised lower. To reflect the weaker environment and greater risks to the outlook, NatWest Group made a qualitative adjustment to its H1 2022 scenario weightings. Specifically, NatWest Group moved weights from the upside and base case scenarios into the downside and extreme downside scenarios. The updated weights give a weaker weighted-average outcome for key macro variables, which NatWest Group judge to be consistent with prevailing outlook.

A 10% weighting was applied to the upside scenario (30 June 2022 - 21%), a 35% weighting applied to the base case scenario (30 June 2022 - 45%), a 30% weighting applied to the downside scenario (30 June 2022 - 20%) and a 25% weighting applied to the extreme downside scenario (30 June 2022 - 14%). NatWest Group continues to believe a range of reasonable scenarios is fully articulated between the upside and extreme downside scenarios. NatWest Group undertakes sensitivity analysis on the scenarios and possible variations in those scenarios as part of its assessment of overall scenario suitability and as an input to the assessment of adequacy. The effect of high inflation, ongoing monetary tightening and current geopolitical tensions pose considerable uncertainty to the economic outlook, with respect to the persistence of their effects and the degree to which they weigh down on economic activity, the labour market and asset prices.

 



 

Risk and capital management

Credit risk continued

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

 

 


 

 

 

 

excluding

 

 


 

 

 

Central

Ulster

Ulster

 


Retail

Private

Commercial &

items &

Bank

Bank

 


Banking

Banking

Institutional

other

RoI

RoI

Total

30 September 2022

£m

£m

£m

£m

£m

£m

£m

Loans - amortised cost and FVOCI   (1)








Stage 1

178,590

18,428

114,857

32,788

344,663

196

344,859

Stage 2

12,983

649

20,167

80

33,879

154

34,033

Stage 3

2,491

303

2,579

-

5,373

148

5,521

Of which: individual

-

181

848

-

1,029

66

1,095

Of which: collective

2,491

122

1,731

-

4,344

82

4,426

Subtotal excluding disposal group loans

194,064

19,380

137,603

32,868

383,915

498

384,413

Disposal group loans

 

 

 

 

 

2,216

2,216

Total

 

 

 

 

 

2,714

386,629

ECL provisions   (2)

 

 

 

 

 

 

 

Stage 1

234

17

252

16

519

4

523

Stage 2

420

17

637

10

1,084

37

1,121

Stage 3

911

25

741

-

1,677

68

1,745

Of which: individual

-

25

270

-

295

8

303

Of which: collective

911

-

471

-

1,382

60

1,442

Subtotal excluding ECL provisions on disposal group loans

1,565