REG - NatWest Group plc - Interim Results - NatWest Group (Part 1 of 2)
29/07/2022 07:00
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RNS Number : 1756U NatWest Group plc 29 July 2022
NatWest Group
Interim Results 2022
NatWest Group
plc
natwestgroup.com
NatWest Group plc
Interim results for the period ended 30 June 2022
Chief Executive, Alison Rose, commented
"NatWest Group delivered a strong performance in the first half of 2022,
building on two years of progress against our strategic priorities. We are
growing our lending to customers and continuing our £3 billion investment
programme to create a simpler and better banking experience whilst delivering
sustainable dividends and returns for our shareholders.
We know that continued increases in the cost of living are impacting people,
families and businesses across the UK and we have put in place a range of
targeted measures to support those who are likely to need it most. Our strong
levels of profitability and capital generation mean we are well positioned to
provide this support.
By building deeper relationships with our customers at every stage of their
lives, we will deliver sustainable growth and help them to thrive in a
challenging environment."
Strong H1 2022 performance
- H1 2022 attributable profit of £1,891 million and a return on tangible
equity of 13.1%. The cost:income ratio was 58.3% in the first half compared
with 67.6% in H1 2021.
- Excluding notable items, income in the Go-forward group increased by
£819 million, or 16.2%, compared with H1 2021 principally reflecting the
impact of base rate increases and volume growth.
- Bank net interest margin (NIM) of 2.72% was 26 basis points higher than
Q1 2022 driven by the impact of base rate rises.
- Other operating expenses in the Go-forward group were £50 million, or
1.5%, lower than H1 2021.
- H1 2022 operating profit before impairments in the Go-forward group was
£2,787 million, up 53.5% on H1 2021.
- A net impairment release of £46 million in the Go-forward group in H1
2022 reflected the low levels of realised losses we continue to see across our
portfolio, although we continue to monitor our book given the uncertain
economic outlook.
Robust balance sheet underpins sustainable growth
- Go-forward group net lending increased by £9.3 billion during H1 2022
to £361.6 billion, with growth well balanced across the business.
- Customer deposits in the Go-forward group increased by £14.8 billion
during H1 2022 to £476.2 billon.
- The liquidity coverage ratio (LCR) of 159%, representing £76.1 billion
above 100%, decreased by 13 percentage points compared with Q4 2021.
Continued strong capital generation supports substantial distributions to
shareholders
- We are pleased to announce an interim dividend of 3.5 pence per share,
up 17% on 2021 and a special dividend with share consolidation of £1,750
million, or 16.8 pence per share, subject to shareholder approval. Taken
together these will deliver 20.3p of dividends per share.
- When combined with the directed buyback in the first quarter, the
proposed interim and special dividends bring total distributions deducted from
capital in the first half to £3.3 billion, or c.32 pence per share.
- CET1 ratio of 14.3% was c.160 basis points lower than 1 January 2022 as
total distributions of c.190 basis points and increased RWAs of c.30 basis
points were partially offset by the attributable profit of c.110 basis points.
- RWAs increased by £3.5 billion compared to 1 January 2022 to £179.8
billion.
Outlook((1))
The economic outlook remains uncertain. The following statements are based on
central economic forecasts, as detailed on pages 20 to 22, which include an
anticipated increase in the central bank rate to 2.0% by the end of the year.
We will monitor and react to market conditions and refine our internal
forecasts as the economic position evolves.
- In 2022, we expect income excluding notable items to be around £12.5
billion in the Go-forward group((2)).
- We expect NIM to be greater than 2.70% for full year 2022 in the
Go-forward group.
- We are investing around £3 billion((3)) over 2021 to 2023 and, with
continuing simplification, we plan to reduce Go-forward group operating
expenses, excluding litigation and conduct costs, by around 3% in 2022 and to
keep broadly stable in 2023, with positive jaws. In 2023 we expect some of the
current inflationary impacts to be more significant, however this will be
offset by ongoing savings from our investment programme.
- We expect our 2022 and 2023 impairment charge to be lower than our
through the cycle loss rate of 20-30 basis points, with 2022 below 10 basis
points in the Go-forward group.
- In 2023, we expect to achieve a return on tangible equity in the range
of 14-16% for the Group.
Capital and funding
- We aim to end 2022 with a CET1 ratio of around 14% and target a ratio of
13-14% by 2023.
- We intend to maintain ordinary dividends of around 40% of attributable
profit and to distribute a minimum of £1 billion in each of 2022 and 2023.
- We intend to maintain capacity to participate in directed buybacks of
the UK Government stake, recognising that any exercise of this authority would
be dependent upon HMT's intentions and is limited to 4.99% of issued share
capital in any 12-month period.
- We will consider further on-market buybacks as part of our overall
capital distribution approach as well as inorganic growth opportunities
provided they are consistent with our strategy and have a strong shareholder
value case.
- As part of the NatWest Group capital and funding plans we intend to
issue between £3 billion to £5 billion of MREL-compliant instruments in
2022, with a continued focus on issuance under our Green, Social and
Sustainability Bond framework. NatWest Markets plc's funding plan targets £4
billion to £5 billion of public benchmark issuance.
Ulster Bank RoI
- We have made significant progress on our phased withdrawal from the
Republic of Ireland and have binding agreements in place for c.90% of gross
customer loans. We expect the majority of the commercial asset sale to Allied
Irish Banks and the majority of the asset sale to Permanent TSB to be largely
complete by the end of 2022 and for the tracker mortgage asset sale to Allied
Irish Banks to complete in the first half of 2023.
- With this progress, we continue to expect total exit costs of €900
million, with the majority incurred by the end of 2023. In Q3 2022 we expect
to incur around €350 million of these exit costs as a result of the
reclassification of UBIDAC mortgages to fair value.
- We continue to expect the phased withdrawal to be capital accretive.
(1) The guidance, targets, expectations, and trends discussed in this
section represent NatWest Group plc management's current expectations and are
subject to change, including as a result of the factors described in the
NatWest Group plc Risk Factors section on pages 406 to 426 of the 2021 Annual
Report and Accounts and the Summary Risk Factors on pages 106 and 107 of this
announcement. These statements constitute forward-looking statements. Refer to
Forward-looking statements in this announcement.
(2) Go-forward group excludes Ulster Bank RoI and discontinued
operations.
(3) Denotes cash investment spend excluding certain regulatory and
legacy programmes.
Our Purpose in action
We champion potential, helping people, families and businesses to thrive. We
are breaking down barriers, building financial confidence and delivering
sustainable growth and returns by living up to our purpose. Some key
achievements from H1 2022 include:
People and families
- We have proactively contacted 2.7 million personal and business
customers year to date, offering support and information on the cost of
living. We have also launched an online Cost of Living hub to share resources
and tools, and to inform customers of the support that is available to them
through third parties.
- We delivered 3.7 million financial capability interactions in H1 2022,
including carrying out 0.4 million financial health checks.
- In Retail Banking, we have completed £1.4 billion of green mortgages
(which give a discounted interest rate to energy efficient properties) since
they were launched in Q4 2020, including £661 million in H1 2022.
- Our support for young people continues with the launch of our new
pocket money product, NatWest Rooster Money, which helps children build money
confidence and develop positive money habits around saving and spending. We
acquired Rooster
along with 130,000 customers and since the beginning of the year added 17,000
new customers plus a smooth connection to Rooster via the main Mobile App.
Businesses
- We completed £11.9 billion of climate and sustainable funding and
financing in H1 2022, bringing the cumulative contribution to £20.0 billion
against our target of £100 billion between 1 July 2021 and the end of 2025.
- We announced an additional £1.25 billion lending package to the UK
farming community and our 40,000 customers within it, building on an earlier
set of measures for the sector announced in June 2022.
- To provide certainty to SMEs, Business Current Accounts remain
available without a minimum charge and we are freezing the standard published
tariffs on these accounts for the next 12 months.
- NatWest Markets won the 'Most Impressive Investment Bank for Corporate
Green and ESG-Linked Bonds' as well as the 'Most Impressive FIG (Financial
Institutions Group) House in Sterling' at the 2022 Global Capital Bond Awards
in June 2022.
Colleagues
- To support our colleagues with the rising cost of living, we announced
a permanent increase in base pay averaging £1,000 for more than 22,000
colleagues globally.
- We announced a three-year partnership with the University of Edinburgh
to make climate education available to all colleagues across the bank,
including the delivery of more in-depth Climate Change Transformation and
Sector Specific programmes for over 16,000 roles which require a broader level
of knowledge.
- To support our colleagues who are carers, unpaid carers' leave can now
be taken day-by-day, instead of only in full-week blocks, up to a maximum of
four weeks in a year, and up to a maximum of 18 weeks in total.
- Building on our campaign to support learning for the future,
colleagues are now able to take two dedicated, learning-for-the-future days
each year to support the development of future skills.
Communities
- To help with the rising cost of living, we announced a new £4 million
hardship fund to provide grants and support, delivered through partner
organisations including Citizens Advice, StepChange and Money Advice Trust.
- We launched the pilot scheme for the NatWest Thrive with Marcus
Rashford programme. The programme aims to help more young people pursue their
dreams, appreciate their strengths and become more money confident.
- In collaboration with Aston University, we published the report 'Time
to change: A blueprint for advancing the UK's ethnic minority businesses',
which sets out recommendations for policymakers, companies and entrepreneurs
to advance the growth potential of ethnic minority businesses.
- To champion female entrepreneurship in the UK, NatWest Group and The
Telegraph launched the '100 Female Entrepreneurs to Watch' list. 10 female
entrepreneurs will be selected from the list for further support, and one
business will receive a £10,000 investment grant from NatWest Group as well
as a year's mentorship from a Rose Review board member.
- We pledged £100,000 to support 500 Ukrainian students to continue
their studies at Polish universities and polytechnics following the Russian
invasion.
Business performance summary
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2022 2021 2022 2022 2021
£m £m £m £m £m
Continuing operations
Total income 6,219 5,141 3,211 3,008 2,571
Operating expenses (3,653) (3,499) (1,833) (1,820) (1,695)
Profit before impairment releases 2,566 1,642 1,378 1,188 876
Operating profit before tax 2,620 2,325 1,396 1,224 1,473
Profit attributable to ordinary shareholders 1,891 1,842 1,050 841 1,222
Excluding notable items within total income (1)
Total income excluding notable items (2) 5,898 5,111 3,114 2,784 2,532
Operating expenses (3,653) (3,499) (1,833) (1,820) (1,695)
Profit before impairment releases and excluding notable items 2,245 1,612 1,281 964 837
Operating profit before tax and excluding notable items 2,299 2,295 1,299 1,000 1,434
Go-forward group (3)
Total income (2) 6,186 5,076 3,199 2,987 2,541
Total income excluding notable items (2) 5,865 5,046 3,102 2,763 2,502
Other operating expenses (3,241) (3,291) (1,636) (1,605) (1,608)
Profit before impairment releases/(losses) (2) 2,787 1,816 1,507 1,280 971
Return on tangible equity 14.1% 12.8% 16.5% 11.9% 17.3%
Performance key metrics and ratios
Bank net interest margin (2,4) 2.59% 2.35% 2.72% 2.46% 2.35%
Bank average interest earning assets (2,4) £337bn £321bn £340bn £333bn £323bn
Cost:income ratio (2) 58.3% 67.6% 56.7% 60.1% 65.5%
Loan impairment rate (2) (3bps) (37bps) (2bps) (1bp) (65bps)
Total earnings per share attributable to ordinary
shareholders - basic 17.4p 15.6p 10.0p 7.5p 10.6p
Return on tangible equity (2) 13.1% 11.7% 15.2% 11.3% 15.6%
30 June 31 March 31 December
2022 2022 2021
£bn £bn £bn
Balance sheet
Total assets 806.5 785.4 782.0
Funded assets (2) 697.1 685.4 675.9
Loans to customers - amortised cost 362.6 365.3 359.0
Loans to customers and banks - amortised cost and FVOCI 376.4 375.7 369.8
Go-forward group net lending (2) 361.6 359.0 352.3
Total impairment provisions 3.5 3.7 3.8
Expected credit loss (ECL) coverage ratio 0.93% 0.98% 1.03%
Assets under management and administration (AUMA) (2) 32.9 35.0 35.6
Go-forward group customer deposits (2) 476.2 465.6 461.4
Customer deposits 492.1 482.9 479.8
Liquidity and funding
Liquidity coverage ratio (LCR) 159% 167% 172%
Liquidity portfolio 268 275 286
Net stable funding ratio (NSFR) (5) 153% 152% 157%
Loan:deposit ratio (2) 71% 73% 72%
Total wholesale funding 76 76 77
Short-term wholesale funding 24 22 23
Capital and leverage
Common Equity Tier (CET1) ratio (6) 14.3% 15.2% 18.2%
Total capital ratio (6) 19.3% 20.4% 24.7%
Pro forma CET1 ratio, pre foreseeable items (7) 15.6% 16.1% 19.5%
Risk-weighted assets (RWAs) 179.8 176.8 157.0
UK leverage ratio (8) 5.2% 5.5% 5.9%
Tangible net asset value (TNAV) per ordinary share 267p 269p 272p
Number of ordinary shares in issue (millions) (9) 10,436 10,622 11,272
(1) Refer to the following page for details of notable items within total income.
(2) Refer to the Non-IFRS financial measures appendix for details of basis of
preparation and reconciliation of non-IFRS financial measures and performance
metrics.
(3) Go-forward group excludes Ulster Bank RoI and discontinued operations.
(4) NatWest Group excluding Ulster Bank RoI and liquid asset buffer.
(5) The NSFR is presented on a spot basis.
(6) Based on the PRA Rulebook Instrument transitional arrangements, therefore
includes transitional relief on grandfathered capital instruments and
transitional arrangements for the capital impact of IFRS 9 expected credit
loss (ECL) accounting. For additional information, refer to page 66. On 1
January 2022 the proforma CET1 ratio was 15.9% following regulatory changes.
(7) The pro forma CET1 ratio at 30 June 2022 excludes foreseeable items of £2,341
million: £500 million for ordinary dividends, £1,750 million for special
dividends and £91 million foreseeable charges (31 March 2022 excludes
foreseeable items of £1,623 million: £1,096 million for ordinary dividends
and £527 million foreseeable charges; 31 December 2021 excludes foreseeable
charges of £2,036 million: £846 million for ordinary dividends and £1,190
million foreseeable charges and pension contributions).
(8) The UK leverage exposure is calculated in accordance with the Leverage Ratio
(CRR) part of the PRA Rulebook, and transitional Tier 1 capital is calculated
in accordance with the PRA Rulebook. For additional information, refer to page
67.
(9) The number of ordinary shares in issue excludes own shares held.
Summary consolidated income statement for the period ended 30 June 2022
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2022 2021 2022 2022 2021
£m £m £m £m £m
Net interest income 4,334 3,744 2,307 2,027 1,900
Non-interest income 1,885 1,397 904 981 671
Total income 6,219 5,141 3,211 3,008 2,571
Litigation and conduct costs (169) 18 (67) (102) 34
Other operating expenses (3,484) (3,517) (1,766) (1,718) (1,729)
Operating expenses (3,653) (3,499) (1,833) (1,820) (1,695)
Profit before impairment releases 2,566 1,642 1,378 1,188 876
Impairment releases 54 683 18 36 597
Operating profit before tax 2,620 2,325 1,396 1,224 1,473
Tax charge (795) (432) (409) (386) (199)
Profit from continuing operations 1,825 1,893 987 838 1,274
Profit from discontinued operations, net of tax 190 177 127 63 83
Profit for the period 2,015 2,070 1,114 901 1,357
Attributable to:
Ordinary shareholders 1,891 1,842 1,050 841 1,222
Preference shareholders - 9 - - 4
Paid-in equity shareholders 121 178 62 59 91
Non-controlling interests 3 41 2 1 40
2,015 2,070 1,114 901 1,357
Notable items within total income (1)
Commercial & Institutional
Fair value, disposal losses and asset
disposals/strategic risk reduction (2) (45) (62) (45) - (44)
Tax variable lease repricing - 32 - - 32
Own credit adjustments 52 1 34 18 (1)
Central items & other
Share of associate (losses)/profits for Business Growth
Fund (13) 129 (36) 23 8
Loss on redemption of own debt (24) (138) - (24) (20)
Liquidity Asset Bond sale gains/(losses) 36 25 (5) 41 20
Interest and FX risk management derivatives
not in accounting hedge relationships 315 44 149 166 45
Own credit adjustments - (1) - - (1)
Total 321 30 97 224 39
(1) Refer to page 1 of the Non-IFRS financial measures appendix.
(2) As previously reported H1 2021 and Q2 2021 includes fair value and disposal
gains/(losses) in the banking book H1 2021 - £22 million (Q2 2021 - (£8)
million) and H1 2021 - £40 million (Q2 2021 - (£36) million) of asset
disposals/strategic risk reduction relating to the costs of exiting positions,
which includes changes in carrying value to align to the expected exit
valuation, and the impact of risk reduction transactions entered into, in
respect of the strategic announcements of 14 February 2020.
Business performance summary
Chief Financial Officer review
We have made good progress against our strategic objectives and our capital
and liquidity position remains robust. We have delivered a strong financial
performance in the first half of the year, with a RoTE of 13.1%, reflecting
the strong profit and capital generation capacity of the business in the
current interest rate environment. We also saw strong growth in lending and
deposits across the business.
We continue to monitor the evolving economic outlook and are mindful of the
impact that higher levels of inflation, higher interest rates and supply chain
shortages are having on our customers.
We are pleased to announce an interim dividend of 3.5 pence per share and a
special dividend of £1,750 million, representing total distributions deducted
from capital of £3.3 billion when combined with the directed buyback in the
first quarter. We have also now completed the £750 million on-market buyback
programme we announced in February.
Financial performance
Total income in the Go-forward group increased by 21.9% to £6,186 million
compared with H1 2021. Excluding notable items, income was 16.2% higher than
H1 2021, primarily driven by volume growth and favourable yield curve
movements. We have also seen increased payment card fees and markets income in
Commercial & Institutional and higher spend-related fee income in Retail
Banking. Bank NIM of 2.72% was 26 basis points higher than Q1 2022 reflecting
the beneficial impact of recent base rate rises.
Other operating expenses in the Go-forward group were £50 million, or 1.5%,
lower than H1 2021 as we continue with our 3-year investment programme. We
remain on track to achieve our full year cost reduction target of around 3% in
2022, although savings will not be linear across the remaining quarters.
We have reported a £46 million impairment release in the Go-forward group for
the first half of 2022, reflecting the continued low levels of realised losses
we have seen across our portfolio; we do recognise the significant uncertainty
in the economic outlook and are monitoring activity closely. Compared with Q1
2022, our ECL provisions have reduced by £0.2 billion to £3.5 billion, and
our ECL coverage ratio has reduced from 0.98% to 0.93%. Whilst we are
comfortable with the strong credit performance of our book, we continue to
hold economic uncertainty post model adjustments (PMA) of £0.6 billion, or
17.2%, of total impairment provisions. PMAs have been pivoted more towards
expected pressure from cost of living increases and supply chain issues rather
than concerns over COVID-19 impacts. We will continue to assess this position
regularly.
As a result, we are pleased to report an interim attributable profit of
£1,891 million, with earnings per share of 17.4 pence and a RoTE of 13.1%.
Net lending in the Go-forward group increased by £9.3 billion over the first
half of the year. Mortgage lending increased by £6.3 billion, with gross new
lending of £20.6 billion in the first half, compared with £21.4 billion in
H1 2021 and £18.3 billion in H2 2021. Net lending in Commercial &
Institutional grew by £3.1 billion reflecting growth across all areas of the
business including increases in facility utilisation and funds activity,
partly offset by continued UK Government financial support scheme repayments.
Customer deposits increased by £14.8 billion in the Go-forward group during
the first half of the year principally reflecting a £5.7 billion increase in
Commercial & Institutional, largely due to improved market liquidity, and
treasury repo activity of £4.7 billion. We have seen a slowdown in Retail
Banking deposit growth, with balances up by £1.6 billion in the first half of
the year.
TNAV per share reduced by 2 pence in the quarter to 267 pence principally
reflecting the full year ordinary dividend payment and movements in cashflow
hedging and other reserves partially offset by the attributable profit for the
period.
Capital
The CET1 ratio remains strong at 14.3%, including 16 basis points of IFRS 9
transitional relief. The c.160 basis point reduction compared with 1 January
2022 principally reflects total distributions of c.190 basis points and
increased RWAs of c.30 basis points partially offset by the attributable
profit of c.110 basis points. The total capital ratio decreased by 540 basis
points to 19.3% compared with Q4 2021.
Compared to the 1 January position, RWAs increased by £3.5 billion to £179.8
billion principally reflecting lending growth, FX movements and model
updates.
When combined with the directed buyback in the first quarter, the proposed
interim and special dividends bring total distributions deducted from capital
in the first half to £3.3 billion, or c.32 pence per share.
The special dividend will return material capital to shareholders whilst
ensuring the UK Government's shareholding remains below 50%, which the Board
has determined is the interests of all the Group's stakeholders. The proposed
consolidation will be set to reduce the share count as if we were buying back
at the market price thereby offsetting the dilutive impact to TNAV per share
of the substantial special dividend.
Funding and liquidity
The LCR decreased by 8 percentage points to 159% in the quarter, representing
£76.1 billion headroom above 100% minimum requirement. The main drivers of
this include an increase in cash outflows from wholesale funding and credit
facilities to our customers and an increase in customer lending which
outstripped growth in customer deposits. Total wholesale funding increased by
£0.6 billion in the quarter to £76.4 billion. Short term wholesale funding
increased by £1.6 billion in the quarter to £23.6 billion.
Business performance summary
Retail Banking
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2022 2021 2022 2022 2021
£m £m £m £m £m
Total income 2,554 2,150 1,337 1,217 1,094
Operating expenses (1,242) (1,187) (597) (645) (600)
of which: Other operating expenses (1,184) (1,178) (593) (591) (593)
Impairment (losses)/releases (26) 57 (21) (5) 91
Operating profit 1,286 1,020 719 567 585
Return on equity 26.3% 27.5% 29.5% 23.1% 32.0%
Net interest margin 2.53% 2.26% 2.62% 2.43% 2.27%
Cost:income ratio 48.6% 55.2% 44.7% 53.0% 54.8%
Loan impairment rate 3bps (6)bps 4bps 1bps (20)bps
As at
30 June 31 March 31 December
2022 2022 2021
£bn £bn £bn
Net loans to customers (amortised cost) 188.7 184.9 182.2
Customer deposits 190.5 189.7 188.9
RWAs 53.0 52.2 36.7
During H1 2022, Retail Banking continued to pursue sustainable growth with an
intelligent approach to risk, delivering a return on equity of 26% and an
operating profit of £1,286 million.
To support our customers, we launched a new Cost of Living hub, online and in
app, which provides tools and support including Financial Health Checks,
budget planner, top 10 tips to save, advice on what to do if customers think
they are going to miss a payment and links to third parties, including PayPlan
and Citizens Advice. In addition, for our younger customers we launched
NatWest Rooster Money aimed at building their money confidence and developing
positive money habits around earning, saving, and spending. This complements
our existing MoneySense education programme which has recently recommenced
in-school workshops.
Retail Banking completed £1.5 billion of climate and sustainable funding and
financing in H1 2022 which will contribute towards the NatWest Group target of
£100 billion between 1 July 2021 and the end of 2025.
H1 2022 performance
- Total income was £404 million, or 18.8%, higher than H1 2021
reflecting higher deposit income, supported by recent base rate rises,
combined with strong mortgage balance growth, higher unsecured balances and
higher transactional-related fee income, partially offset by lower mortgage
margins.
- Other operating expenses were £6 million, or 0.5%, higher than H1
2021 due to higher investment spend and increased costs for financial crime
and fraud prevention. This was partly offset by a 9.2% reduction in
operational headcount, as a result of continued customer digital adoption and
automation of end-to-end customer journeys. Cost income ratio of 48.6 percent
in H1 2022.
- Impairment losses of £26 million in H1 2022 continue to reflect a low
level of stage 3 defaults, partly offset by provision releases in stage 2. ECL
provision includes post model adjustments of £179 million relating to
economic uncertainty, as at 30 June 2022.
- Net loans to customers increased by £6.5 billion, or 3.6%, in H1 2022
reflecting continued mortgage growth of £5.9 billion, with gross new mortgage
lending of £18.9 billion representing flow share of around 13%. Cards
balances increased by £0.3 billion and personal advances increased by £0.3
billion in H1 2022 from improving customer demand.
- Customer deposits increased by £1.6 billion, or 0.8%, in H1 2022 with
growth slowing towards pre-COVID-19 levels, reflecting higher customer spend
levels.
- RWAs increased by £16.3 billion in H1 2022 primarily reflecting 1
January 2022 regulatory changes of £15.3 billion, higher lending partially
offset by quality improvements.
Q2 2022 performance
- Total income was £120 million, or 9.9%, higher than Q1 2022
reflecting higher deposit income, supported by recent base rate rises, higher
mortgage balances, higher unsecured balances and higher transactional-related
fee income, partially offset by the non-repeat of an insurance profit share
and lower mortgage margins.
- Net interest margin was 19 basis points higher than Q1 2022 reflecting
higher deposit returns, partly offset by mortgage margin pressure. Mortgage
back book margin was 148 basis points in the period and application margins
increased to around 60 basis points at the end of the quarter.
- Other operating expenses were £2 million, or 0.3%, higher than Q1
2022 primarily due to higher property related provision costs.
- Impairment losses of £21 million in Q2 2022 continue to reflect a low
level of stage 3 defaults, partly offset by provision releases in stage 2.
- Net loans to customers increased by £3.8 billion, or 2.1% compared
with Q1 2022 reflecting continued mortgage growth of £3.3 billion, with gross
new mortgage lending of £9.8 billion representing flow share of around 13%.
Cards balances increased by £0.3 billion and personal advances increased by
£0.2 billion in Q2 2022 as customer demand and spend levels continued to
improve.
- Customer deposits increased by £0.8 billion, or 0.4% in Q2 2022 with
growth slowing towards pre-COVID-19 levels, reflecting higher customer spend
levels.
- RWAs increased by £0.8 billion, or 1.5%, in Q2 2022 primarily
reflecting lending growth partially offset by quality improvements.
Business performance summary
Private Banking
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2022 2021 2022 2022 2021
£m £m £m £m £m
Total income 461 368 245 216 183
Operating expenses (285) (249) (146) (139) (128)
of which: Other operating expenses (284) (254) (146) (138) (128)
Impairment releases 11 27 6 5 27
Operating profit 187 146 105 82 82
Return on equity 20.9% 14.2% 23.5% 18.2% 15.9%
Net interest margin 3.34% 2.62% 3.60% 3.07% 2.60%
Cost:income ratio 61.8% 67.7% 59.6% 64.4% 69.9%
Loan impairment rate (12)bps (30)bps (13)bps (11)bps (60)bps
Net new money (£bn) (1) 1.4 1.6 0.6 0.8 1.0
As at
30 June 31 March 31 December
2022 2022 2021
£bn £bn £bn
Net loans to customers (amortised cost) 18.8 18.7 18.4
Customer deposits 41.6 40.3 39.3
RWAs 11.3 11.5 11.3
Assets under management (AUMs) (1) 28.1 29.6 30.2
Assets under administration (AUAs) (1) 4.8 5.4 5.4
Total assets under management and administration (AUMA) (1) 32.9 35.0 35.6
(1) Refer to the Non-IFRS financial measures appendix for details of
basis of preparation and reconciliation of non-IFRS financial measures and
performance metrics.
Private Banking operating profit of £187 million in H1 2022 was supported by
robust deposit and lending growth with strong net new money despite volatile
investment market conditions. Return on equity of 20.9% represents an
increase of 7 percentage points compared with H1 2021.
Coutts achieved B Corp Certification in July 2021, and since then we've
engaged with over 60 clients and 10 suppliers to support them in achieving B
Corp status. We have also worked with NatWest Group's 'Purpose Led
Accelerator' to provide a deep dive on the B Corp Certification journey to 130
entrepreneurs and business leaders.
H1 2022 performance
- Total income was £93 million, or 25.3%, higher than H1 2021 reflecting strong
balance growth and higher deposit income, supported by recent interest rate
rises and higher card and payment related fee income as transactional volumes
continued to improve. Net interest margin was 72 basis points higher than H1
2021 reflecting higher deposit income.
- Other operating expenses were £30 million, or 11.8%, higher than H1 2021
principally due to continued investment in people and technology to enhance
our AUMA growth propositions and increased costs for financial crime and
fraud.
- A net impairment release of £11 million in H1 2022 reflects the continued low
levels of credit risk in the portfolio.
- Net loans to customers increased by £0.4 billion, or 2.2%, in H1 2022 due to
continued strong mortgage lending growth, whilst RWAs were broadly in line
with Q4 2021.
- Customer deposits increased by £2.3 billion, or 5.9%, in H1 2022 as customers
continue to build and retain liquidity.
- AUMA balances decreased by £2.7 billion, or 7.6%, in H1 2022 largely driven
by lower global investment markets. Net new money was £1.4 billion in H1
2022, which was £0.2 billion less than H1 2021, and represented 7.9% of
opening AUMA balances on an annualised basis representing a strong performance
given volatile investment market conditions.
Q2 2022 performance
- Total income was £29 million, or 13.4%, higher than Q1 2022 reflecting higher
deposit income, supported by further interest rate rises and continued balance
growth. Net interest margin increased by 53 basis points compared with Q1 2022
reflecting higher deposit returns.
- Net loans to customers increased by £0.1 billion, or 0.5%, compared with Q1
2022 supported by continued mortgage lending growth.
- AUMA balances reduced by £2.1 billion, or 6.0%, in the quarter as growth was
more than offset by lower global investment markets. Net new money was £0.6
billion, which was £0.2bn lower than Q1 2022, and represented 8.0% of opening
AUMA balances on an annualised basis.
Business performance summary
Commercial & Institutional
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2022 2021 2022 2022 2021
£m £m £m £m £m
Net interest income 1,764 1,487 961 803 762
Non-interest income 1,173 987 601 572 459
Total income 2,937 2,474 1,562 1,375 1,221
Operating expenses (1,820) (1,824) (898) (922) (909)
of which: Other operating expenses (1,734) (1,789) (854) (880) (874)
Impairment releases 59 613 48 11 488
Operating profit 1,176 1,263 712 464 800
Return on equity 11.4% 12.1% 14.0% 8.8% 15.9%
Net interest margin 2.84% 2.49% 3.09% 2.69% 2.52%
Cost:income ratio 61.1% 73.0% 56.6% 66.3% 73.7%
Loan impairment rate (9)bps (96)bps (15)bps (3)bps (153)bps
As at
30 June 31 March 31 December
2022 2022 2021
£bn £bn £bn
Net loans to customers (amortised cost) 127.3 126.6 124.2
Customer deposits 223.2 217.9 217.5
Funded assets 343.4 334.6 321.3
RWAs 103.0 100.3 98.1
During H1 2022 Commercial & Institutional delivered a strong performance
with a return on equity of 11.4% and operating profit of £1,176 million.
Commercial & Institutional remains well positioned to support its
customers in the current macro-economic environment. Our balance sheet
strength means we are able to meet our customers' financing requirements and
our product suite allows us to support customers' risk management during times
of macroeconomic volatility. Our specialist Relationship Managers and business
hubs located across the UK offer advice and support to those facing a cost of
business, as well as living, crisis. We continually monitor all sectors to
proactively identify the most vulnerable. As a result, for example, we have
developed a tailored support package for our agricultural customer base who
are facing extreme impacts on supply costs and profit margins.
Commercial & Institutional completed £10.3 billion of climate and
sustainable funding and financing in H1 2022 delivering a cumulative £17.3
billion since 1 July 2021, contributing toward the NatWest Group target of
£100 billion between 1 July 2021 and the end of 2025. To ensure that as many
SMEs as possible can realise benefits from their carbon-reduction efforts and
innovation, we have reduced the lower threshold for our Green Loans offering
for SMEs from £50,000 to £25,000.
H1 2022 performance
- Total income was £463 million, or 18.7%, higher than H1 2021 primarily
reflecting strong balance sheet growth, higher interest rates supporting
deposit returns, improved markets and card payment fees. Markets income((1))
of £427 million, was £98 million, or 29.8%, higher than H1 2021 with good
performance across the product suite.
- Net interest margin was 35 basis points higher than H1 2021 reflecting higher
deposit returns.
- Other operating expenses were £55 million, or 3.1%, lower than H1 2021 due to
ongoing cost management, and non-repeat of H1 2021 restructuring costs, partly
offset by continued investment in the business.
- An impairment release of £59 million in H1 2022 compared with an impairment
release of £613 million in H1 2021, reflecting a continued low level of stage
3 defaults more than offset by good book provision releases. ECL provision
includes post model adjustments of £388 million relating to economic
uncertainty, as at 30 June 2022.
- Net loans to customers increased by £3.1 billion, or 2.5%, in H1 2022 with
growth in facility utilisation and funds activity within Corporate &
Institutions, partly offset by continued UK Government financial support
scheme repayments. Invoice and asset finance balances within the Commercial
Mid-market business increased by £0.8 billion.
- Customer deposits increased by £5.7 billion, or 2.6%, in H1 2022 due to
overall increased customer liquidity and strong growth in the funds business.
- RWAs increased by £4.9 billion, or 5.0%, in H1 2022 primarily reflecting 1
January 2022 regulatory changes, business and FX movements, partly offset by
risk parameter improvements.
Q2 2022 performance
- Total income was £187 million, or 13.6%, higher than Q1 2022 due to continued
balance sheet growth, higher deposit returns from an improved interest rate
environment and increased card payment fees.
- Net interest margin was 40 basis points higher than Q1 2022 reflecting higher
deposit returns.
- Other operating expenses were £26 million, or 3.0%, lower than Q1 2022
primarily reflecting increased capitalisation of certain investment costs,
business efficiencies partly offset by the annual pay revision.
- Net loans to customers increased by £0.7 billion, or 0.6%, in Q2 2022 due to
increased funds activity and facility utilisation within Corporate &
Institutions partly offset by UK Government scheme repayments, primarily in
the Commercial Mid-market business.
- Customer deposits increased by £5.3 billion, or 2.4%, in Q2 2022 reflecting
continued customer liquidity and increased fund inflows.
- RWAs increased by £2.7 billion, or 2.7%, in Q2 2022 mainly reflecting
business movements and model updates.
(1) Markets income excludes asset disposals/strategic risk reduction,
own credit risk adjustments and central items.
Business performance summary
Ulster Bank RoI
Continuing operations Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2022 2021 2022 2022 2021
€m €m €m €m €m
Total income 38 74 13 25 34
Operating expenses (301) (273) (167) (134) (143)
of which: Other operating expenses (288) (258) (154) (134) (138)
Impairment releases/(losses) 9 (15) (26) 35 (11)
Operating loss (254) (214) (180) (74) (120)
As at
30 June 31 March 31 December
2022 2022 2021
€bn €bn €bn
Net loans to customers - amortised cost 1.2 7.5 7.9
Customer deposits 18.4 20.4 21.9
RWAs 12.6 13.2 10.9
Ulster Bank ROI continues to make progress on its phased withdrawal from the
Republic of Ireland.
- A significant milestone was reached with the successful completion of a
migration of an initial tranche of commercial customers to Allied Irish Banks,
p.l.c. (AIB). Remaining migrations of the c.€4.2 billion of gross performing
commercial loans will be completed in phases mainly over H2 2022, with the
final cohorts in H1 2023.
- Confirmation was received from the Irish competition authority (the CCPC) that
it had cleared the sale of c.€7.6 billion of gross performing non-tracker
mortgages, the Lombard asset finance business, the business direct loan book,
and 25 branches to Permanent TSB p.l.c. (PTSB). Shareholders of PTSB's holding
company have also approved this transaction.
- A legally binding agreement was reached with AIB for the sale of a c.€6
billion portfolio of gross performing tracker and linked mortgages. Completion
of this sale, which is subject to obtaining any relevant regulatory approvals
and satisfying the conditions of the legally binding agreement, is expected to
occur in Q2 2023. UBIDAC now has binding agreements in place for c.90% of its
total gross customer lending portfolio.
- In other transactions, UBIDAC also announced that it will transfer its
existing life assurance intermediary activities to Irish Life Financial
Services Ltd and its Home and Car Insurance renewal rights to Aviva Direct.
- 'Choose, Move & Close' letters have been sent to customers since April
with tranches of letters being sent out on a weekly basis. Customers have six
months to choose a new provider, move their banking relationship and close
their account with Ulster Bank.
- Work continues on managing the residual activities of the bank, including
remaining asset sales.
H1 2022 performance
- Total income was €36 million, or 48.6%, lower than H1 2021 reflecting
reduced business levels following the decision to withdraw, coupled with the
cost of an inter-group liquidity facility that was put in place as part of the
arrangements to manage deposit outflows.
- Other operating expenses were €30 million, or 11.6%, higher than H1 2021,
due to higher withdrawal-related programme costs and a one-off pension charge
being partially offset by lower regulatory levies and a 5.3% reduction in
headcount. Ulster Bank RoI incurred €31 million of withdrawal-related direct
costs in H1 2022.
- A net impairment release of €9 million in H1 2022 reflects improvements in
the reducing portfolio and releases of COVID-related post-model adjustments,
partially offset by new post-model adjustments for current macro-economic and
divestment risks.
- Net loans to customers decreased by €6.7 billion, or 84.8%, in H1 2022 as
€5.9 billion of tracker loans were reclassified as Assets held for sale and
as repayments continue to exceed gross new lending.
- Customer deposits decreased by €3.5 billion, or 16.0%, in H1 2022 due to
reducing personal deposits as customers continue to close their accounts.
- RWAs increased by €1.7 billion in H1 2022 due to temporary model adjustments
as a result of new regulations applicable to IRB models, partially offset by
asset sales, other repayments and facility maturities in the context of the
phased withdrawal.
Q2 2022 performance
- Total income was €12 million, or 48.0%, lower than Q1 2022 reflecting
reduced business levels and the cost of the inter-group liquidity facility.
- Other operating expenses were €20 million, or 14.9%, higher than Q1 2022 due
to higher withdrawal-related programme costs and a one-off pension charge.
- Impairment losses of €26 million in Q2 2022 reflect post-model adjustments
for current macro-economic and divestment risks.
- RWAs reduced by €0.6 billion in Q2 2022 due to asset sales, other repayments
and facility maturities in the context of the phased withdrawal.
Business performance summary
Ulster Bank RoI continued
Total Ulster Bank RoI including discontinued operations
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2022 2021 2022 2022 2021
€m €m €m €m €m
Total income 219 279 101 118 137
Operating expenses (330) (299) (182) (148) (156)
of which: Other operating expenses (317) (284) (169) (148) (151)
Impairment releases/(losses) 83 13 53 30 (1)
Operating loss (28) (7) (28) - (20)
As at
30 June 31 March 31 December
2022 2022 2021
€bn €bn €bn
Net loans to customers - amortised cost 17.7 18.4 18.6
Customer deposits 18.4 20.4 21.9
RWAs 12.6 13.2 10.9
Central items & other
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2022 2021 2022 2022 2021
£m £m £m £m £m
Central items not allocated 184 83 10 174 110
An operating profit of £184 million within central items not allocated
includes gains resulting from risk management derivatives not in hedge
accounting relationships of £315 million.
Segment performance
Half year ended 30 June 2022
Go-forward group
Total
Central excluding Total
Retail Private Commercial & items & Ulster Ulster NatWest
Banking Banking Institutional other Bank RoI Bank RoI Group
£m £m £m £m £m £m £m
Continuing operations
Income statement
Net interest income 2,340 315 1,764 (91) 4,328 6 4,334
Own credit adjustments - - 52 - 52 - 52
Other non-interest income 214 146 1,121 325 1,806 27 1,833
Total income 2,554 461 2,937 234 6,186 33 6,219
Direct expenses (320) (102) (736) (2,181) (3,339) (145) (3,484)
Indirect expenses (864) (182) (998) 2,142 98 (98) -
Other operating expenses (1,184) (284) (1,734) (39) (3,241) (243) (3,484)
Litigation and conduct costs (58) (1) (86) (13) (158) (11) (169)
Operating expenses (1,242) (285) (1,820) (52) (3,399) (254) (3,653)
Operating profit/(loss) before
impairment (losses)/releases 1,312 176 1,117 182 2,787 (221) 2,566
Impairment (losses)/releases (26) 11 59 2 46 8 54
Operating profit/(loss) 1,286 187 1,176 184 2,833 (213) 2,620
Income excluding notable items 2,554 461 2,930 (80) 5,865 33 5,898
Additional information
Return on tangible equity (1) na na na na 14.1% na 13.1%
Return on equity (1) 26.3% 20.9% 11.4% nm nm nm na
Cost:income ratio (1) 48.6% 61.8% 61.1% nm 54.5% nm 58.3%
Total assets (£bn) 216.2 30.0 451.5 87.1 784.8 21.7 806.5
Funded assets (£bn) (1) 216.2 30.0 343.4 85.8 675.4 21.7 697.1
Net loans to customers - amortised cost (£bn) 188.7 18.8 127.3 26.8 361.6 1.0 362.6
Loan impairment rate (1) 3bps (12)bps (9)bps nm (3)bps nm (3)bps
Impairment provisions (£bn) (1.5) (0.1) (1.4) - (3.0) (0.4) (3.4)
Impairment provisions - stage 3 (£bn) (0.9) - (0.7) - (1.6) (0.4) (2.0)
Customer deposits (£bn) 190.5 41.6 223.2 20.9 476.2 15.9 492.1
Risk-weighted assets (RWAs) (£bn) 53.0 11.3 103.0 1.7 169.0 10.8 179.8
RWA equivalent (RWAe) (£bn) 53.0 11.3 101.4 2.2 167.9 10.8 178.7
Employee numbers (FTEs - thousands) 13.9 2.0 11.8 29.4 57.1 1.8 58.9
Third party customer asset rate (2) 2.59% 2.65% 3.01% nm nm nm nm
Third party customer funding rate (2) (0.07%) (0.07%) (0.06%) nm nm 0.05% nm
Bank average interest earning assets (£bn) (1) 186.8 19.0 125.2 nm 336.9 na 336.9
Bank net interest margin (1) 2.53% 3.34% 2.84% nm 2.59% na 2.59%
nm = not meaningful, na = not applicable.
For the notes to this table, refer to page 18.
Segment performance
Half year ended 30 June 2021
Go-forward group
Total
Central excluding Total
Retail Private Commercial & items & Ulster Ulster NatWest
Banking Banking Institutional other Bank RoI Bank RoI Group
£m £m £m £m £m £m £m
Continuing operations
Income statement
Net interest income 1,976 232 1,487 34 3,729 15 3,744
Own credit adjustments - - 1 (1) - - -
Other non-interest income 174 136 986 51 1,347 50 1,397
Total income 2,150 368 2,474 84 5,076 65 5,141
Direct expenses (359) (92) (874) (2,051) (3,376) (141) (3,517)
Indirect expenses (819) (162) (915) 1,981 85 (85) -
Other operating expenses (1,178) (254) (1,789) (70) (3,291) (226) (3,517)
Litigation and conduct costs (9) 5 (35) 70 31 (13) 18
Operating expenses (1,187) (249) (1,824) - (3,260) (239) (3,499)
Operating profit/(loss) before
impairment releases/(losses) 963 119 650 84 1,816 (174) 1,642
Impairment releases/(losses) 57 27 613 (1) 696 (13) 683
Operating profit/(loss) 1,020 146 1,263 83 2,512 (187) 2,325
Income excluding notable items 2,150 368 2,503 25 5,046 65 5,111
Additional information
Return on tangible equity (1) na na na na 12.8% na 11.7%
Return on equity (1) 27.5% 14.2% 12.1% nm nm nm na
Cost:income ratio (1) 55.2% 67.7% 73.0% nm 63.7% nm 67.6%
Total assets (£bn) 204.2 27.7 442.2 76.4 750.5 25.4 775.9
Funded assets (£bn) (1) 204.2 27.7 334.5 74.5 640.9 25.4 666.3
Net loans to customers - amortised cost (£bn) 178.1 18.0 125.2 24.7 346.0 16.7 362.7
Loan impairment rate (1) (6)bps (30)bps (96)bps nm (40)bps nm (37)bps
Impairment provisions (£bn) (1.6) (0.1) (2.3) - (4.0) (0.7) (4.7)
Impairment provisions - stage 3 (£bn) (0.8) - (1.0) - (1.8) (0.4) (2.2)
Customer deposits (£bn) 184.1 34.7 212.4 17.5 448.7 18.5 467.2
Risk-weighted assets (RWAs) (£bn) 35.6 11.2 104.0 1.7 152.5 10.5 163.0
RWA equivalent (RWAe) (£bn) 35.6 11.3 105.8 1.8 154.5 10.5 165.0
Employee numbers (FTEs - thousands) 15.3 1.9 12.3 27.1 56.6 1.9 58.5
Third party customer asset rate (2) 2.70% 2.36% 2.71% nm nm nm nm
Third party customer funding rate (2) (0.07%) - (0.02%) nm nm 0.01% nm
Bank average interest earning assets (£bn) (1) 176.3 17.9 120.5 nm 320.6 na 320.6
Bank net interest margin (1) 2.26% 2.62% 2.49% nm 2.35% na 2.35%
nm = not meaningful, na = not applicable.
For the notes to this table, refer to page 18.
Segment performance
Quarter ended 30 June 2022
Go-forward group
Total
Central excluding Total
Retail Private Commercial & items & Ulster Ulster NatWest
Banking Banking Institutional other Bank RoI Bank RoI Group
£m £m £m £m £m £m £m
Continuing operations
Income statement
Net interest income 1,228 172 961 (56) 2,305 2 2,307
Own credit adjustments - - 34 - 34 - 34
Other non-interest income 109 73 567 111 860 10 870
Total income 1,337 245 1,562 55 3,199 12 3,211
Direct expenses (159) (53) (329) (1,144) (1,685) (81) (1,766)
Indirect expenses (434) (93) (525) 1,101 49 (49) -
Other operating expenses (593) (146) (854) (43) (1,636) (130) (1,766)
Litigation and conduct costs (4) - (44) (8) (56) (11) (67)
Operating expenses (597) (146) (898) (51) (1,692) (141) (1,833)
Operating profit/(loss) before
Impairment (losses)/releases 740 99 664 4 1,507 (129) 1,378
Impairment (losses)/releases (21) 6 48 6 39 (21) 18
Operating profit/(loss) 719 105 712 10 1,546 (150) 1,396
Income excluding notable items 1,337 245 1,573 (53) 3,102 12 3,114
Additional information
Return on tangible equity (1) na na na na 16.5% na 15.2%
Return on equity (1) 29.5% 23.5% 14.0% nm nm nm na
Cost:income ratio (1) 44.7% 59.6% 56.6% nm 52.4% nm 56.7%
Total assets (£bn) 216.2 30.0 451.5 87.1 784.8 21.7 806.5
Funded assets (£bn) (1) 216.2 30.0 343.4 85.8 675.4 21.7 697.1
Net loans to customers - amortised cost (£bn) 188.7 18.8 127.3 26.8 361.6 1.0 362.6
Loan impairment rate (1) 4bps (13)bps (15)bps nm (4)bps nm (2)bps
Impairment provisions (£bn) (1.5) (0.1) (1.4) - (3.0) (0.4) (3.4)
Impairment provisions - stage 3 (£bn) (0.9) - (0.7) - (1.6) (0.4) (2.0)
Customer deposits (£bn) 190.5 41.6 223.2 20.9 476.2 15.9 492.1
Risk-weighted assets (RWAs) (£bn) 53.0 11.3 103.0 1.7 169.0 10.8 179.8
RWA equivalent (RWAe) (£bn) 53.0 11.3 101.4 2.2 167.9 10.8 178.7
Employee numbers (FTEs - thousands) 13.9 2.0 11.8 29.4 57.1 1.8 58.9
Third party customer asset rate (2) 2.59% 2.77% 3.19% nm nm nm nm
Third party customer funding rate (2) (0.10%) (0.13%) (0.09%) nm nm 0.04% nm
Bank average interest earning assets (£bn) (1) 188.1 19.1 124.9 nm 340.0 na 340.0
Bank net interest margin (1) 2.62% 3.60% 3.09% nm 2.72% na 2.72%
nm = not meaningful, na = not applicable.
For the notes to this table, refer to page 18.
Segment performance
Quarter ended 31 March 2022
Go-forward group
Total
Central excluding Total
Retail Private Commercial & items & Ulster Ulster NatWest
Banking Banking Institutional other Bank RoI Bank RoI Group
£m £m £m £m £m £m £m
Continuing operations
Income statement
Net interest income 1,112 143 803 (35) 2,023 4 2,027
Own credit adjustments - - 18 - 18 - 18
Other non-interest income 105 73 554 214 946 17 963
Total income 1,217 216 1,375 179 2,987 21 3,008
Direct expenses (161) (49) (407) (1,037) (1,654) (64) (1,718)
Indirect expenses (430) (89) (473) 1,041 49 (49) -
Other operating expenses (591) (138) (880) 4 (1,605) (113) (1,718)
Litigation and conduct costs (54) (1) (42) (5) (102) - (102)
Operating expenses (645) (139) (922) (1) (1,707) (113) (1,820)
Operating profit/(loss) before
impairment (losses)/releases 572 77 453 178 1,280 (92) 1,188
Impairment (losses)/releases (5) 5 11 (4) 7 29 36
Operating profit/(loss) 567 82 464 174 1,287 (63) 1,224
Income excluding notable items 1,217 216 1,357 (27) 2,763 21 2,784
Additional information
Return on tangible equity (1) na na na na 11.9% na 11.3%
Return on equity (1) 23.1% 18.2% 8.8% nm nm nm na
Cost:income ratio (1) 53.0% 64.4% 66.3% nm 56.7% nm 60.1%
Total assets (£bn) 210.7 29.6 433.5 89.3 763.1 22.3 785.4
Funded assets (£bn) (1) 210.7 29.6 334.6 88.2 663.1 22.3 685.4
Net loans to customers - amortised cost (£bn) 184.9 18.7 126.6 28.8 359.0 6.3 365.3
Loan impairment rate (1) 1bp (11)bps (3)bps nm - nm (1)bp
Impairment provisions (£bn) (1.5) (0.1) (1.6) - (3.2) (0.4) (3.6)
Impairment provisions - stage 3 (£bn) (0.9) - (0.7) - (1.6) (0.4) (2.0)
Customer deposits (£bn) 189.7 40.3 217.9 17.7 465.6 17.3 482.9
Risk-weighted assets (RWAs) (£bn) 52.2 11.5 100.3 1.6 165.6 11.2 176.8
RWA equivalent (RWAe) (£bn) 52.2 11.5 102.6 1.9 168.2 11.2 179.4
Employee numbers (FTEs - thousands) 14.0 1.9 11.8 28.7 56.4 1.8 58.2
Third party customer asset rate (2) 2.59% 2.53% 2.83% nm nm nm nm
Third party customer funding rate (2) (0.05%) (0.01%) (0.02%) nm nm 0.06% nm
Bank average interest earning assets (£bn) (1) 185.5 18.9 121.0 nm 333.3 na 333.3
Bank net interest margin (1) 2.43% 3.07% 2.69% nm 2.46% na 2.46%
nm = not meaningful, na = not applicable.
For the notes to this table, refer to the following page.
Segment performance
Quarter ended 30 June 2021
Go-forward group
Total
Central excluding Total
Retail Private Commercial & items & Ulster Ulster NatWest
Banking Banking Institutional other Bank RoI Bank RoI Group
£m £m £m £m £m £m £m
Continuing operations
Income statement
Net interest income 1,003 117 762 10 1,892 8 1,900
Own credit adjustments - - (1) (1) (2) - (2)
Other non-interest income 91 66 460 34 651 22 673
Total income 1,094 183 1,221 43 2,541 30 2,571
Direct expenses (171) (49) (428) (999) (1,647) (82) (1,729)
Indirect expenses (422) (79) (446) 986 39 (39) -
Other operating expenses (593) (128) (874) (13) (1,608) (121) (1,729)
Litigation and conduct costs (7) - (35) 80 38 (4) 34
Operating expenses (600) (128) (909) 67 (1,570) (125) (1,695)
Operating profit/(loss) before
impairment releases/(losses) 494 55 312 110 971 (95) 876
Impairment releases/(losses) 91 27 488 - 606 (9) 597
Operating profit/(loss) 585 82 800 110 1,577 (104) 1,473
Income excluding notable items 1,094 183 1,234 (9) 2,502 30 2,532
Additional information
Return on tangible equity (1) na na na na 17.3% na 15.6%
Return on equity (1) 32.0% 15.9% 15.9% nm nm nm na
Cost:income ratio (1) 54.8% 69.9% 73.7% nm 61.3% nm 65.5%
Total assets (£bn) 204.2 27.7 442.2 76.4 750.5 25.4 775.9
Funded assets (£bn) (1) 204.2 27.7 334.5 74.5 640.9 25.4 666.3
Net loans to customers - amortised cost (£bn) 178.1 18.0 125.2 24.7 346.0 16.7 362.7
Loan impairment rate (1) (20)bps (60)bps (153)bps nm (69)bps nm (65)bps
Impairment provisions (£bn) (1.6) (0.1) (2.3) - (4.0) (0.7) (4.7)
Impairment provisions - stage 3 (£bn) (0.8) - (1.0) - (1.8) (0.4) (2.2)
Customer deposits (£bn) 184.1 34.7 212.4 17.5 448.7 18.5 467.2
Risk-weighted assets (RWAs) (£bn) 35.6 11.2 104.0 1.7 152.5 10.5 163.0
RWA equivalent (RWAe) (£bn) 35.6 11.3 105.8 1.8 154.5 10.5 165.0
Employee numbers (FTEs - thousands) 15.3 1.9 12.3 27.1 56.6 1.9 58.5
Third party customer asset rate (2) 2.67% 2.36% 2.81% nm nm nm nm
Third party customer funding rate (2) (0.06%) - (0.04%) nm nm 0.01% nm
Bank average interest earning assets (£bn) (1) 177.3 18.1 121.0 nm 323.0 na 323.0
Bank net interest margin (1) 2.27% 2.60% 2.52% nm 2.35% na 2.35%
nm = not meaningful, na = not applicable.
(1) Refer to the appendix for details of basis of preparation and
reconciliation of non-IFRS performance measures where relevant.
(2) Third party customer asset rate is calculated as annualised
interest receivable on third-party loans to customers as a percentage of
third-party loans to customers. This excludes assets of disposal groups,
intragroup items, loans to banks and liquid asset portfolios. Third party
customer funding rate reflects interest payable or receivable on third-party
customer deposits, including interest bearing and non-interest bearing
customer deposits. Intragroup items, bank deposits, debt securities in issue
and subordinated liabilities are excluded for customer funding rate
calculation.
Risk and capital management
Page
Credit risk
Economic loss drivers 20
UK economic uncertainty 23
Measurement uncertainty and ECL sensitivity analysis 26
Measurement uncertainty and ECL adequacy 28
Credit risk - Banking activities
Financial instruments within the scope of the IFRS 9 ECL framework 29
Segment analysis 30
Segment loans and impairment metrics 33
Sector analysis 34
Wholesale forbearance 39
Personal portfolio 41
Commercial real estate 44
Flow statements 46
Stage 2 decomposition by a significant increase in credit risk 55
trigger
Asset quality 57
Credit risk - Trading activities 61
Capital, liquidity and funding risk 64
Market risk
Non-traded 74
Traded 78
Other risks 79
Certain disclosures in the Risk and capital management section are within the
scope of EY's review report and are marked as reviewed in the section header.
Risk and capital management
Credit risk
Economic loss drivers (reviewed)
Introduction
The portfolio segmentation and selection of economic loss drivers for IFRS 9
follow closely the approach used in stress testing. To enable robust
modelling, the forecasting models for each portfolio segment (defined by
product or asset class and, where relevant, industry sector and region) are
based on a selected, small number of economic factors (typically three to
four) that best explain the temporal variations in portfolio loss rates. The
process to select economic loss drivers involves empirical analysis and expert
judgment.
The most material economic loss drivers are shown in the table below.
Portfolio Economic loss drivers
UK retail mortgages UK unemployment rate, sterling swap rate, UK house price index, UK household
debt to income
UK retail unsecured UK unemployment rate, sterling swap rate, UK household debt to income
UK large corporates World GDP, UK unemployment rate, sterling swap rate, stock price index
UK commercial UK GDP, UK unemployment rate, sterling swap rate
UK commercial real estate UK GDP, UK commercial property price index, sterling swap rate, stock price
index
RoI retail mortgages RoI unemployment rate, European Central Bank base rate, RoI house price index
(1) This is not an exhaustive list of economic loss drivers but shows
the most material drivers for the most significant portfolios.
Economic scenarios
At 30 June 2022, the range of anticipated future economic conditions was
defined by a set of four internally developed scenarios and their respective
probabilities. In addition to the base case, they comprised upside, downside
and extreme downside scenarios. The scenarios primarily reflected a range of
outcomes associated with the most prominent risks facing the economy, and the
associated effects on labour and asset markets.
The four economic scenarios are translated into forward-looking projections of
credit cycle indices (CCIs) using a set of econometric models. Subsequently
the CCI projections for the individual scenarios are averaged into a single
central CCI projection according to the given scenario probabilities. The
central CCI projection is then overlaid with an additional mean reversion
assumption, i.e. after reaching their worst forecast position the CCIs start
to gradually revert to their long-run average of zero.
Upside - This scenario assumes a very strong recovery through 2022 as
consumers dip into excess savings built up since amidst COVID-19. The labour
market remains resilient, with the unemployment rate falling substantially
below pre-COVID-19 levels. Inflation is marginally higher than the base case
but eventually retreats close to the target without substantial tightening and
with no major effect on growth. The housing market shows a strong performance.
Base case - After a strong recovery in 2021, growth moderates in 2022 as real
incomes decline and consumer confidence falls. The unemployment rate decreases
initially but subsequently increases above pre-COVID-19 levels, although
remains low by historical standards. Inflation remains elevated at close to
current levels through to early 2023 before retreating. Interest rates are
raised to 2% to control price pressures. There is a gradual cooling in the
housing market, but activity remains firm. As inflation retreats, economic
growth returns to its pre-COVID-19 pace over the course of 2023, remaining
steady through the forecast period.
Downside - This scenario assumes that inflation accelerates to 15%, triggered
by further escalation in geopolitical tensions and an associated rise in
energy prices. This undermines the recovery, harming business and consumer
confidence and pushing the economy into recession. Unemployment rate rises
above the levels seen during COVID-19 and there is a modest decline in house
prices. Inflation subsequently normalises, paving the way for cuts to interest
rates and recovery.
Extreme downside - The trigger for the extreme downside is similar to the
downside scenario. However, in this scenario, inflation remains more
persistent, necessitating a significant degree of rate tightening. This
tighter policy and fall in real income leads to a deep recession. There is
widespread job shedding in the labour market while asset prices see deep
corrections, with housing market falls higher than those seen during previous
episodes. The recovery is tepid throughout the five-year period, meaning only
a gradual decline in joblessness.
For June 2022, the four scenarios were deemed appropriate in capturing the
uncertainty in economic forecasts and the non-linearity in outcomes under
different scenarios. These four scenarios were developed to provide sufficient
coverage across potential rises in unemployment, inflation and asset price
falls around which there are pronounced levels of uncertainty.
The tables below provide details of the key economic loss drivers under the
four scenarios.
The main macroeconomic variables for each of the four scenarios used for
expected credit loss (ECL) modelling are set out in the main macroeconomic
variables table below. The compound annual growth rate (CAGR) for GDP is
shown. It also shows the five-year average for unemployment and the Bank of
England base rate. The house price index and commercial real estate figures
show the total change in each asset over five years.
Risk and capital management
Credit risk continued
Economic loss drivers (reviewed)
Main macroeconomic variables 30 June 2022 31 December 2021
Extreme Extreme
Upside Base case Downside downside Upside Base case Downside downside
Five-year summary % % % % % % % %
UK
GDP - CAGR 1.7 1.1 0.8 (0.1) 2.4 1.7 1.4 0.6
Unemployment - average 3.3 4.0 4.5 6.3 3.5 4.2 4.8 6.7
House price index - total change 24.4 13.7 (0.9) (10.5) 22.7 12.1 4.3 (5.3)
Commercial real estate price - total change 7.5 (2.6) (6.8) (14.5) 18.2 7.2 5.5 (6.4)
Bank of England base rate - average 1.5 1.8 0.6 2.7 1.5 0.8 0.7 (0.5)
Consumer price index - CAGR 2.7 2.9 3.9 7.2 2.7 2.5 3.1 1.5
Republic of Ireland
GDP - CAGR 4.6 3.9 2.9 2.1 4.4 3.7 2.9 1.6
Unemployment - average 3.8 4.9 6.5 7.7 4.2 5.2 6.8 9.3
House price index - total change 28.9 22.2 6.3 (1.9) 30.3 23.4 16.3 4.6
European Central Bank base rate - average 1.3 2.0 0.1 1.4 0.8 0.1 0.2 -
World GDP - CAGR 3.8 3.4 2.0 1.0 3.5 3.2 2.6 0.6
Probability weight 21.0 45.0 20.0 14.0 30.0 45.0 20.0 5.0
(3) The five year period starts after Q1 2022 for 30 June 2022 and
Q3 2021 for 31 December 2021.
(4) CAGR and total change figures are not comparable with 31
December 2021 data, as the starting quarters are different.
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. The scale of the economic effect of COVID-19 and the
range of recovery paths had necessitated subjective assignment of probability
weights. However, for June 2022, NatWest Group resurrected the quantitative
approach used pre-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. The probability weight for the base case is set based on
judgement while probability weights for the alternate scenarios are assigned
based on these percentile scores.
A 21% weighting was applied to the upside scenario (compared to 30% at 31
December 2021), a 45% weighting applied to the base case scenario (unchanged
from 31 December 2021), a 20% weighting applied to the downside scenario
(unchanged from 31 December 2021) and a 14% weighting applied to the extreme
downside scenario (compared to 5% at 31 December 2021).
The assigned probability weights reflect the outputs of NatWest Group's
quantitative approach and were judged to be aligned with subjective assessment
of balance of the risks in the economy, presenting good coverage to the range
of outcomes assumed in the central scenarios, including the potential for a
robust recovery on the upside and exceptionally challenging outcomes on the
downside. The current geopolitical tensions pose considerable uncertainty to
the economic outlook, with respect to their persistence, range of outcomes and
subsequent impacts on inflation and economic activity. Given that backdrop,
and the higher possibility of a more challenging economic backdrop than
assumed in the base case, NatWest Group judged it appropriate to apply a lower
probability weight to the upside scenario and a higher probability to
downside-biased scenarios, than at 31 December 2021.
Risk and capital management
Credit risk continued
Economic loss drivers (reviewed)
Annual figures
GDP - annual growth
Extreme Extreme
Upside Base case Downside downside Upside Base case Downside downside
UK % % % % Republic of Ireland % % % %
2022 4.8 3.5 2.7 2.7 2022 6.9 6.1 5.8 5.6
2023 2.9 0.8 (2.4) (5.1) 2023 7.1 4.8 (0.2) (3.8)
2024 1.7 1.4 2.1 0.3 2024 4.4 3.6 2.5 1.5
2025 1.3 1.1 2.1 2.4 2025 3.1 3.5 4.5 5.1
2026 1.1 1.3 2.0 2.2 2026 2.8 2.8 2.8 2.7
Unemployment rate - annual average
Extreme Extreme
Upside Base case Downside downside Upside Base case Downside downside
UK % % % % Republic of Ireland % % % %
2022 3.4 3.6 3.8 3.8 2022 4.8 5.2 5.9 5.8
2023 3.0 3.8 4.9 5.9 2023 3.6 4.9 8.1 9.3
2024 3.3 4.0 4.8 8.7 2024 3.7 4.8 6.8 8.4
2025 3.4 4.2 4.5 7.5 2025 3.7 4.7 5.9 7.4
2026 3.5 4.3 4.4 5.5 2026 3.7 4.7 5.6 7.0
House price index - four quarter growth
Extreme Extreme
Upside Base case Downside downside Upside Base case Downside downside
UK % % % % Republic of Ireland % % % %
2022 9.7 5.1 2.4 2.4 2022 10.0 7.3 4.0 3.4
2023 5.5 2.0 (11.7) (20.4) 2023 9.6 4.3 (5.7) (20.0)
2024 2.9 1.9 0.4 (4.6) 2024 1.6 3.5 1.0 (3.4)
2025 3.0 2.7 5.0 12.3 2025 2.6 3.1 3.4 15.1
2026 3.5 3.2 6.0 4.4 2026 4.1 4.0 5.4 8.4
Commercial real estate price - four quarter growth Bank of England base rate - annual average
Extreme Extreme
Upside Base case Downside downside Upside Base case Downside downside
UK % % % % UK % % % %
2022 9.5 6.8 (3.3) (3.2) 2022 1.05 1.28 1.05 1.05
2023 3.9 0.2 (10.8) (27.6) 2023 1.63 2.00 1.12 2.31
2024 1.4 (0.1) 4.5 8.5 2024 1.69 2.00 0.10 4.00
2025 - (1.5) 4.6 13.1 2025 1.50 1.75 0.18 3.38
2026 (1.4) (2.1) 4.6 5.3 2026 1.44 1.73 0.44 2.25
Consumer price index - four quarter growth
Extreme
Upside Base case Downside downside
UK % % % %
2022 9.5 8.4 9.3 9.3
2023 (0.9) 1.1 8.1 13.7
2024 2.0 2.0 0.4 6.4
2025 2.0 2.0 1.4 4.2
2026 2.0 2.0 1.7 3.6
Worst points 30 June 2022 31 December 2021
Extreme Extreme
Downside downside Downside downside
UK % Quarter % Quarter % Quarter % Quarter
GDP (3.6) Q1 2023 (7.4) Q3 2023 (1.8) Q1 2022 (7.9) Q1 2022
Unemployment rate (peak) 5.1 Q3 2023 9.0 Q2 2024 5.4 Q1 2023 9.4 Q4 2022
House price index (12.9) Q2 2024 (28.0) Q2 2024 (3.0) Q3 2023 (26.0) Q2 2023
Commercial real estate price (20.7) Q2 2023 (34.7) Q1 2024 (2.5) Q1 2022 (29.8) Q3 2022
Bank of England base rate 1.5 Q4 2022 4.0 Q1 2024 1.5 Q4 2022 (0.5) Q2 2022
Consumer price index 14.8 Q2 2023 14.8 Q2 2023 7.9 Q4 2022 4.3 Q4 2021
Republic of Ireland
GDP - Q2 2023 (2.9) Q3 2023 (0.7) Q1 2022 (8.9) Q2 2022
Unemployment rate (peak) 8.6 Q3 2023 10.5 Q3 2023 9.4 Q2 2022 15.1 Q2 2022
House price index (4.4) Q2 2024 (26.5) Q2 2024 (0.1) Q4 2022 (25.1) Q2 2023
(1) For the unemployment rate, the figures show the peak levels. For
the Bank of England base rate, the figures show highest or lowest levels. For
other parameters, the figures show falls relative to the starting period. The
calculations are performed over five years, with a starting point of Q1 2022
for 30 June 2022 scenarios.
Risk and capital management
Credit risk continued
Economic loss drivers (reviewed)
Use of the scenarios in Personal lending
Personal lending follows a discrete scenario approach. The probability of
default (PD) and loss given default (LGD) values for each discrete scenario
are calculated using product-specific econometric models. Each account has a
PD and LGD calculated as probability weighted-averages across the suite of
economic scenarios.
Use of the scenarios in Wholesale lending
The Wholesale lending ECL methodology is based on the concept of CCIs. The
CCIs represent, similar to the exogenous component in Personal, all relevant
economic loss drivers for a region/industry segment aggregated into a single
index value that describes the loss rate conditions in the respective segment
relative to its long-run average. A CCI value of zero corresponds to loss
rates at long-run average levels, a positive CCI value corresponds to loss
rates below long-run average levels and a negative CCI value corresponds to
loss rates above long-run average levels.
Finally, ECL is calculated using a Monte Carlo approach by averaging PD and
LGD values arising from many CCI paths simulated around the central CCI
projection.
The rationale for the Wholesale approach is the long-standing observation that
loss rates in Wholesale portfolios tend to follow regular cycles. This allows
NatWest Group to enrich the range and depth of future economic conditions
embedded in the final ECL beyond what would be obtained from using the
discrete macro-economic scenarios alone.
Business banking, while part of the Wholesale segment, for reporting purposes,
utilises the Personal lending rather than the Wholesale lending methodology.
UK economic uncertainty
Businesses are still trying to recover fully from the effects of COVID-19 and
to service additional debt which was accessed during the period. New headwinds
on inflation, cost of living and supply chain disruption have arisen.
Inflation and supply chain issues are presenting significant headwinds for
some businesses and sectors. These are a result of various factors and in many
cases are compounding and look set to remain a feature of the economic
environment into 2023. NatWest Group has considered where these are most
likely to affect the customer base, including assessing which businesses that
NatWest Group does not believe will fully pass the costs onto the consumer and
those that can, driving further cost of living risks. In addition, while a
direct impact from the Russian invasion of Ukraine is limited, the contagion
events of supply chain disruption is still anticipated with European economies
being dependent on Russia, Ukraine and Belarus for a number of commodities.
The effects of these risks are not expected to be fully captured by
forward-looking credit modelling, particularly given the unique high
inflation, low unemployment base-case outlook. Any incremental ECL effects for
these risks will be captured via post-model adjustments and are detailed
further in the Governance and post-model adjustments section.
Personal customers who had accessed payment holiday support, and where their
risk profile was identified as relatively high risk are no longer collectively
migrated into Stage 2, given the lack of observable default emergence from
these segments and with the focus of high-risk segment monitoring now shifting
to the effects of inflation and the growing cost of living effect on
customers.
Model monitoring and enhancement
As of January 2022, a new regulatory definition of default for was introduced
in line with PRA and EBA guidance. This definition of default was also adopted
for IFRS 9. Underlying observed one-year default rates (after isolating
one-off effects from the new definition of default) across all portfolios
still trend at or below pre-COVID-19 levels. As a result, most recent
back-testing of forward-looking IFRS 9 PDs continues to show some
overprediction in some portfolios. As in previous quarters, model
recalibrations to adjust for this overprediction have been deferred based on
the judgment that low default rate actuals during COVID-19 were distorted, due
to government support.
Going forward, NatWest Group expects potential increases in default emergence
to come primarily from forward-looking risks like high inflation and rising
interest rates, rather than from delayed COVID-19 effects. Therefore,
previously applied lags to the projections from the economic forecasting
models of up to 12 months have been discontinued.
For Personal mortgages, new fully redeveloped PD and LGD models were
implemented in Q1, which removed the need for several model adjustments. In
addition, newly approved IFRS 9 models for Personal unsecured portfolios are
at a parallel run stage awaiting implementation in Q3 2022, with expected
effects on staging and ECL captured at 30 June 2022 used to support the
reported ECL estimates.
Scenario sensitivity - Personal only
For the unsecured Personal lending portfolios, the ECL sensitivity analyses
now leverage the newly approved PD models.
Risk and capital management
Credit risk continued
UK economic uncertainty
Governance and post model adjustments (reviewed)
The IFRS 9 PD, EAD and LGD models are subject to NatWest Group's model risk
policy that stipulates periodic model monitoring, periodic re-validation and
defines approval procedures and authorities according to model materiality.
Various post model adjustments were applied where management judged they were
necessary to ensure an adequate level of overall ECL provision. All post model
adjustments were subject to formal approval through provisioning governance,
and were categorised as follows (business level commentary is provided below):
- Deferred model calibrations - ECL adjustments where PD model
monitoring indicated that actual defaults were below estimated levels but
where it was judged that an implied ECL release was not supportable due to the
influence of government support schemes on default levels in the past two
years. As a consequence, any potential ECL release was deferred and retained
on the balance sheet until modelled ECL levels are affirmed by new model
parallel runs or similar analyses.
- Economic uncertainty - ECL adjustments primarily arising from
uncertainties associated with increased inflation and cost of living risks as
well as supply chain disruption, along with the residual effect of COVID-19
and government support schemes. In all cases, management judged that
additional ECL was required until further credit performance data became
available as the full effects of these issues matures.
- Other adjustments - ECL adjustments where it was judged that the
modelled ECL required to be amended.
Post-model adjustments will remain a key focus area of NatWest Group's ongoing
ECL adequacy assessment process. A holistic framework has been established
including reviewing a range of economic data, external benchmark information
and portfolio performance trends with a particular focus on segments of the
portfolio (both commercial and consumer) that are likely to be more
susceptible to inflation, cost of living and supply chain risks.
ECL post model adjustments Retail Banking Private Commercial & Ulster Bank RoI (1)
Mortgages Other Banking Institutional Mortgages Other Total
30 June 2022 £m £m £m £m £m £m £m
Deferred model calibrations - - - 64 - 2 66
Economic uncertainty 97 82 11 388 - 5 583
Other adjustments 28 (26) - 12 160 18 192
Total 125 56 11 464 160 25 841
Of which:
- Stage 1 39 20 2 58 5 2 126
- Stage 2 63 36 9 404 9 22 543
- Stage 3 23 - - 2 146 1 172
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 £34 million (31 December 2021 - £49 million) of
post model adjustments (mortgages - £0.4 million; other - £33.6 million (31
December 2021 - mortgages £4 million; other - £45 million)) for Ulster Bank
RoI disclosed as transfers to disposal groups.
Risk and capital management
Credit risk continued
- Retail Banking - The judgemental post-model adjustment for deferred
model calibrations of £155 million at 31 December 2021 was no longer
required. This was due, firstly, to the removal of the mortgage element of
this post model adjustment because of the implementation of a new IFRS 9 PD
model in Q1 2022. In addition, the effects of new PD models on loan and
overdraft portfolios are now captured in the staging and ECL estimates at 30
June 2022, negating the need for further management judgement on PD
calibration adjustments.
- The post-model adjustment for economic uncertainty increased from £159
million to £179 million, reflecting the increased level of uncertainty since
31 December 2021 as a result of sharply rising inflation, cost of living
pressures and the expected effect on consumers and the broader economy. The
primary element of these economic uncertainty adjustments was a new £152
million ECL uplift, to capture the risk on segments of the Retail portfolio
that are more susceptible to the effects of cost of living rises, focusing on
key affordability lenses, including customers with lower incomes in fuel
poverty and over-indebted borrowers. This adjustment has superseded the
previously held £26 million for COVID-19 payment holiday high-risk customers
and the £69 million judgemental ECL release holdback at 31 December 2021.
This demonstrated management's view of a dissipating risk of economic effects
from COVID-19 with the focus now on risks associated with cost of living and
affordability. The introduction of the new cost of living post-model
adjustment at 30 June 2022 allocated more ECL to Stage 1 given the
forward-looking nature of the cost of living and inflation threat, whereas the
previous COVID-19 post-model adjustments were focused on Stage 2 (for example,
high-risk payment holiday cases migrated into Stage 2).
- Other judgmental overlays included a post model adjustment of £16
million to capture the effect of potential cladding risk in the portfolio. In
addition, a temporary £26 million ECL reduction adjustment was in place to
reflect, on a forward-looking basis, the associated effects of a new credit
card PD model that is pending implementation.
- Commercial & Institutional - The post-model adjustment for economic
uncertainty remained broadly stable at £388 million (31 December 2021 - £391
million.) It included an overlay of £336 million to cover the residual risks
from COVID-19, including the risk that government support schemes, during
COVID-19 could have suppressed defaults that may materialise in future periods
above expected default levels, concerns surrounding associated debt to
customers that have utilised government support schemes and a new risk from
inflation and supply chain issues which will present significant new headwinds
for a number of sectors. The amount relating to the new inflation and supply
chain risk was £107 million and is a mechanistic adjustment, where a
sector-level downgrade was applied to the sectors that were considered most at
risk from these headwinds.
- The post-model adjustment for deferred model calibrations on the
business banking portfolio was broadly unchanged at £64 million (31 December
2021 - £62 million). This reflected management's judgment that the modelled
ECL reduction remained unsupportable while portfolio performance was being
underpinned by the various support schemes. New business banking models are
currently being developed in H2 2022 in part to address this concern.
- Other adjustments included an overlay of £9 million to mitigate the
effect of operational timing delays in the identification and flagging of a
significant increase in credit risk (SICR). This increased from £2 million at
31 December 2021, mainly as a result of increased Stage 1 balances and an
increase in Stage 1 into Stage 3 flows.
- Ulster Bank RoI - The post model adjustment for economic uncertainty
reduced to £5 million from £29 million owing to a decrease in the amount of
COVID-19 related adjustments. Other adjustments increased to £178 million
from £156 million reflecting management opinion that continuing actions on
the phased withdrawal of Ulster Bank RoI from the Republic of Ireland market
will lead to higher, and/or earlier, crystallisation of losses.
Risk and capital management
Credit risk continued
Wholesale support schemes
The table below shows the sector split for the Bounce Back Loan Scheme (BBLS)
as well as associated debt split by stage. Associated debt refers to the
non-BBLS lending to customers who also have BBLS lending.
Gross carrying amount
BBL Associated debt ECL on associated debt
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3
30 June 2022 £m £m £m £m £m £m £m £m £m £m £m
Wholesale
Property 1,240 200 150 1,590 1,078 171 64 1,313 4 16 23
Financial institutions 29 4 1 34 26 2 - 28 - - -
Sovereign 6 1 1 8 2 - - 2 - - -
Corporate 3,829 635 689 5,153 2,704 700 109 3,513 10 66 52
Of which:
Agriculture 258 81 11 350 959 256 16 1,231 4 21 7
Airlines and aerospace 4 1 1 6 1 - - 1 - - -
Automotive 264 34 31 329 116 25 4 145 1 2 2
Health 197 24 11 232 320 75 16 411 1 4 4
Land transport and logistics 148 26 27 201 62 11 2 75 - 2 2
Leisure 578 113 84 775 373 154 25 552 1 16 11
Oil and gas 7 2 1 10 4 1 - 5 - - -
Retail 670 99 77 846 347 63 14 424 1 7 8
Total 5,104 840 841 6,785 3,810 873 173 4,856 14 82 75
31 December 2021
Wholesale
Property 1,480 218 99 1,797 1,232 165 55 1,452 3 13 18
Financial institutions 33 5 1 39 9 20 3 32 - 1 -
Sovereign 7 1 - 8 2 - - 2 - - -
Corporate 4,593 703 334 5,630 2,481 1,087 84 3,652 10 66 34
Of which:
Agriculture 302 86 6 394 827 396 14 1,237 3 16 4
Airlines and aerospace 5 1 1 7 1 1 - 2 - - -
Automotive 309 43 21 373 119 39 2 160 1 2 1
Health 233 26 7 266 287 131 13 431 1 7 3
Land transport and logistics 180 32 19 231 57 26 2 85 - 2 1
Leisure 706 122 55 883 367 208 25 600 1 15 9
Oil and gas 8 2 1 11 3 1 - 4 - - -
Retail 800 109 47 956 310 127 8 445 2 7 4
Total 6,113 927 434 7,474 3,724 1,272 142 5,138 13 80 52
Measurement uncertainty and ECL sensitivity analysis (reviewed)
The recognition and measurement of ECL is complex and involves the use of
significant judgment and estimation, particularly in times of economic
volatility and uncertainty. This includes the formulation and incorporation of
multiple forward-looking economic scenarios into ECL to meet the measurement
objective of IFRS 9. The ECL provision is sensitive to the model inputs and
economic assumptions underlying the estimate.
The focus of the simulations is on ECL provisioning requirements on performing
exposures in Stage 1 and Stage 2. The simulations are run on a stand-alone
basis and are independent of each other; the potential ECL impacts reflect the
simulated impact at 30 June 2022. Scenario impacts on a SICR should be
considered when evaluating the ECL movements of Stage 1 and Stage 2. In all
scenarios the total exposure was the same but exposure by stage varied in each
scenario.
Stage 3 provisions are not subject to the same level of measurement
uncertainty - default is an observed event as at the balance sheet date. Stage
3 provisions therefore have not been considered in this analysis.
The impact arising from the base case, upside, downside and extreme downside
scenarios has been simulated. These scenarios are used in the methodology for
Personal multiple economic scenarios as described in the Economic loss drivers
section. In the simulations, NatWest Group has assumed that the economic macro
variables associated with these scenarios replace the existing base case
economic assumptions, giving them a 100% probability weighting and therefore
serving as a single economic scenario.
These scenarios have been applied to all modelled portfolios in the analysis
below, with the simulation impacting both PDs and LGDs. Modelled post model
adjustments present in the underlying ECL estimates are also sensitised in
line with the modelled ECL movements, but those that were judgmental in
nature, primarily those for deferred model calibrations and economic
uncertainty, are not (refer to the Governance and post model adjustments
section). As expected, the scenarios create differing impacts on ECL by
portfolio and the impacts are deemed reasonable. In this simulation, it is
assumed that existing modelled relationships between key economic variables
and loss drivers hold, but in practice other factors would also have an
impact, for example, potential customer behaviour changes and policy changes
by lenders that might impact on the wider availability of credit.
NatWest Group's core criterion to identify a SICR is founded on PD
deterioration, as discussed above. Under the simulations, PDs change and
result in exposures moving between Stage 1 and Stage 2 contributing to the ECL
impact.
Risk and capital management
Credit risk continued
Measurement uncertainty and ECL sensitivity analysis (reviewed)
Extreme
30 June 2022 Actual Base case Upside Downside downside
Stage 1 modelled exposure (£m)
Retail Banking - mortgages 164,607 164,315 165,182 164,514 162,356
Retail Banking - unsecured 7,714 7,769 7,942 7,662 7,053
Wholesale - property 28,433 28,747 28,878 27,461 23,382
Wholesale - non-property 112,900 116,027 116,679 109,232 94,138
313,654 316,858 318,681 308,869 286,929
Stage 1 modelled ECL (£m)
Retail Banking - mortgages 45 46 42 50 51
Retail Banking - unsecured 131 157 152 160 141
Wholesale - property 39 33 28 50 83
Wholesale - non-property 155 162 160 171 149
370 398 382 431 424
Stage 2 modelled exposure (£m)
Retail Banking - mortgages 8,965 9,257 8,390 9,058 11,216
Retail Banking - unsecured 2,829 2,774 2,601 2,881 3,490
Wholesale - property 2,902 2,588 2,457 3,874 7,953
Wholesale - non-property 14,043 10,916 10,264 17,711 32,805
28,739 25,535 23,712 33,524 55,464
Stage 2 modelled ECL (£m)
Retail Banking - mortgages 76 75 69 76 86
Retail Banking - unsecured 345 302 265 325 424
Wholesale - property 101 78 69 121 300
Wholesale - non-property 543 463 420 616 1,170
1,065 918 823 1,138 1,980
Stage 1 and Stage 2 modelled exposure (£m)
Retail Banking - mortgages 173,572 173,572 173,572 173,572 173,572
Retail Banking - unsecured 10,543 10,543 10,543 10,543 10,543
Wholesale - property 31,335 31,335 31,335 31,335 31,335
Wholesale - non-property 126,943 126,943 126,943 126,943 126,943
342,393 342,393 342,393 342,393 342,393
Stage 1 and Stage 2 modelled ECL (£m)
Retail Banking - mortgages 121 121 111 126 137
Retail Banking - unsecured 476 459 417 485 565
Wholesale - property 140 111 97 171 383
Wholesale - non-property 698 625 580 787 1,319
1,435 1,316 1,205 1,569 2,404
Stage 1 and Stage 2 coverage (%)
Retail Banking - mortgages 0.07 0.07 0.06 0.07 0.08
Retail Banking - unsecured 4.51 4.35 3.96 4.60 5.36
Wholesale - property 0.45 0.35 0.31 0.54 1.22
Wholesale - non-property 0.55 0.49 0.46 0.62 1.04
0.42 0.38 0.35 0.46 0.70
Reconciliation to Stage 1 and Stage 2 ECL (£m)
ECL on modelled exposures 1,435 1,316 1,205 1,569 2,404
ECL on Ulster Bank RoI modelled exposures 56 56 56 56 56
ECL on non-modelled exposures 39 39 39 39 39
Total Stage 1 and Stage 2 ECL 1,530 1,411 1,300 1,664 2,499
Variance - (lower)/higher to actual total Stage 1 and Stage 2 ECL - (119) (230) 134 969
(1) Variations in future undrawn exposure values across the scenarios
are modelled, however the exposure position reported is that used to calculate
modelled ECL as at 30 June 2022 and therefore does not include variation in
future undrawn exposure values.
(2) Reflects ECL for all modelled exposure in scope for IFRS 9. The
analysis excludes non-modelled portfolios and exposure relating to bonds and
cash.
(3) Exposures related to Ulster Bank RoI continuing operations have
not been included in the simulations, the current Ulster Bank RoI ECL has been
included across all scenarios to enable reconciliation to other disclosures.
(4) All simulations are run on a stand-alone basis and are independent
of each other, with the potential ECL impact reflecting the simulated impact
as at 30 June 2022. The simulations change the composition of Stage 1 and
Stage 2 exposure but total exposure is unchanged under each scenario as the
loan population is static.
(5) Refer to the Economic loss drivers section for details of economic
scenarios.
(6) Refer to the NatWest Group 2021 Annual Report and Accounts for 31
December 2021 comparatives.
(1) Variations in future undrawn exposure values across the scenarios
are modelled, however the exposure position reported is that used to calculate
modelled ECL as at 30 June 2022 and therefore does not include variation in
future undrawn exposure values.
(2) Reflects ECL for all modelled exposure in scope for IFRS 9. The
analysis excludes non-modelled portfolios and exposure relating to bonds and
cash.
(3) Exposures related to Ulster Bank RoI continuing operations have
not been included in the simulations, the current Ulster Bank RoI ECL has been
included across all scenarios to enable reconciliation to other disclosures.
(4) All simulations are run on a stand-alone basis and are independent
of each other, with the potential ECL impact reflecting the simulated impact
as at 30 June 2022. The simulations change the composition of Stage 1 and
Stage 2 exposure but total exposure is unchanged under each scenario as the
loan population is static.
(5) Refer to the Economic loss drivers section for details of economic
scenarios.
(6) Refer to the NatWest Group 2021 Annual Report and Accounts for 31
December 2021 comparatives.
Risk and capital management
Credit risk continued
Measurement uncertainty and ECL adequacy (reviewed)
- During the first half of 2022, both the Stage 2 size and overall
modelled ECL reduced in line with stable portfolio performance and underlying
ECL driver trends. Judgmental ECL post-model adjustments, although reduced in
value terms from 31 December 2021, continue to reflect economic uncertainty
with the expectation of increased defaults later in 2022 and beyond, still
represents 24% of total ECL (31 December 2021 - 26%). These combined factors,
in conjunction with the new regulatory definition of default moving riskier
Stage 2 assets to Stage 3 and a new suite of Personal IFRS 9 models,
contributed to a smaller range of ECL sensitivities at 30 June 2022 compared
to the 2021 year end.
- If the economics were as negative as observed in the extreme downside,
total Stage 1 and Stage 2 ECL was simulated to increase by £1.0 billion
(approximately 63%). In this scenario, Stage 2 exposure increased
significantly and was the key driver of the simulated ECL rise. The movement
in Stage 2 balances in the other simulations was less significant.
- In the Wholesale portfolio, there was a significant increase to ECL
under both a moderate and extreme downside scenario. The Wholesale property
ECL increase under a moderate and extreme downside scenario was driven by
commercial real estate prices which show negative growth for 2022 and 2023 and
significant deterioration in the stock index. The non-property increase under
a moderate and extreme downside scenario was driven by GDP contraction,
unemployment growth and interest rate changes.
The changes in the economic outlook and scenarios used in the IFRS 9 MES
framework at 30 June 2022 to capture the increased risks of inflation, cost of
living and supply chain had a minimal effect on modelled ECL. Given that
uncertainty has increased due to these risks, NatWest Group utilised a
framework of quantitative and qualitative measures to support the directional
change and levels of ECL coverage, including economic data, credit performance
insights on higher risk portfolio segments and problem debt trends. This was
particularly important for consideration of post-model adjustments.
As the effects of inflation, cost of living and supply chain risks evolve
during 2022 and into 2023 and government support schemes have to be
serviced, there is a risk of credit deterioration. However, the income
statement effect of this will be mitigated by the forward-looking provisions
retained on the balance sheet at 30 June 2022.
There are a number of key factors that could drive further downside to
impairments, through deteriorating economic and credit metrics and increased
stage migration as credit risk increases for more customers. Such factors
would include an adverse deterioration in GDP and unemployment in the
economies in which NatWest Group operates.
Movement in ECL provision
The table below shows the main ECL provision movements during H1 2022.
ECL provision
£m
At 1 January 2022 3,806
Transfers to disposal groups (50)
Changes in economic forecasts 41
Changes in risk metrics and exposure: Stage 1 and Stage 2 (120)
Changes in risk metrics and exposure: Stage 3 261
Judgemental changes: changes in post model adjustments for Stage 1, Stage 2 (159)
and Stage 3
Write-offs and other (264)
At 30 June 2022 3,515
- ECL reduced during H1 2022 reflecting continued positive trends in
portfolio performance alongside a related net release of judgemental post
model adjustments and write-off activity.
- Stage 3 defaults continued to be subdued on an underlying basis. Stage
3 ECL balances remained broadly stable during the quarter, mainly due to
write-offs and repayments of defaulted debt largely offsetting the effect of
the new regulatory default definition.
- The update to the economic scenarios at 30 June 2022 resulted in a
modest modelled £41 million increase in ECL. Additionally, broader portfolio
performance continued to be stable, which led to some additional post model
adjustments being required to ensure provision adequacy in the face of growing
uncertainty due to inflation, cost of living threat and supply chain
challenges.
- As described in the Governance and post model adjustments section
above, the new cost of living focused post model adjustments were more than
offset by the retirement of previously held COVID-19 related adjustments and
also significant reduction in the requirement for deferred model calibrations
due to impending new model implementations in Q3 2022.
- The £50 million ECL reduction due to transfer to discontinued
operations relates to the phased withdrawal of Ulster Bank RoI from the
Republic of Ireland.
Risk and capital management
Credit risk - Banking activities
Introduction
This section details the credit risk profile of NatWest Group's banking
activities.
Financial instruments within the scope of the IFRS 9 ECL framework (reviewed)
Refer to Note 9 for balance sheet analysis of financial assets that are
classified as amortised cost or fair value through other comprehensive income
(FVOCI), the starting point for IFRS 9 ECL framework assessment. The table
below excludes loans in disposal group of £14.3 billion (31 December 2021 -
£9.1 billion).
Financial assets
30 June 2022 31 December 2021
Gross ECL Net Gross ECL Net
£bn £bn £bn £bn £bn £bn
Balance sheet total gross amortised cost and FVOCI 605.1 596.1
In scope of IFRS 9 ECL framework 593.4 590.9
%in scope 98% 99%
Loans to customers - in scope - amortised cost 365.9 3.4 362.5 361.9 3.7 358.2
Loans to customers - in scope - FVOCI 0.1 - 0.1 0.3 - 0.3
Loans to banks - in scope - amortised cost 10.4 - 10.4 7.6 - 7.6
Total loans - in scope 376.4 3.4 373.0 369.8 3.7 366.1
Stage 1 342.1 0.4 341.7 330.8 0.3 330.5
Stage 2 28.5 1.0 27.5 34.0 1.4 32.6
Stage 3 5.8 2.0 3.8 5.0 2.0 3.0
Other financial assets - in scope - amortised cost 190.4 - 190.4 184.4 - 184.4
Other financial assets - in scope - FVOCI 26.6 - 26.6 36.7 - 36.7
Total other financial assets - in scope 217.0 - 217.0 221.1 - 221.1
Stage 1 217.0 - 217.0 220.8 - 220.8
Stage 2 - - - 0.3 - 0.3
Out of scope of IFRS 9 ECL framework 11.7 na 11.7 5.2 na 5.2
Loans to customers - out of scope - amortised cost - na - 0.8 na 0.8
Loans to banks - out of scope - amortised cost 0.3 na 0.3 0.1 na 0.1
Other financial assets - out of scope - amortised cost 11.4 na 11.4 4.0 na 4.0
Other financial assets - out of scope - FVOCI - na - 0.3 na 0.3
na = not applicable
The assets outside the IFRS 9 ECL framework were as follows:
- Settlement balances, items in the course of collection, cash balances and
other non-credit risk assets of £11.4 billion (31 December 2021 - £3.7
billion). These were assessed as having no ECL unless there was evidence that
they were defaulted.
- Equity shares of £0.3 billion (31 December 2021 - £0.3 billion) as not
within the IFRS 9 ECL framework by definition.
- Fair value adjustments on loans hedged by interest rate swaps, where the
underlying loan was within the IFRS 9 ECL scope of nil (31 December 2021 -
£0.8 billion).
- NatWest Group originated securitisations, where ECL was captured on the
underlying loans of nil (31 December 2021 - £0.4 billion).
Contingent liabilities and commitments
In addition to contingent liabilities and commitments disclosed in Note 14,
reputationally-committed limits, were also included in the scope of the IFRS 9
ECL framework. These were offset by £1.4 billion (31 December 2021 - £0.8
billion) out of scope balances primarily related to facilities that, if drawn,
would not be classified as amortised cost or FVOCI, or undrawn limits relating
to financial assets exclusions. Total contingent liabilities (including
financial guarantees) and commitments within IFRS 9 ECL scope of £133.3
billion (31 December 2021 - £127.9 billion) comprised Stage 1 £122.7 billion
(31 December 2021 - £119.5 billion); Stage 2 £9.9 billion (31 December 2021
- £7.8 billion); and Stage 3 £0.7 billion (31 December 2021 - £0.6
billion).
The ECL relating to off-balance sheet exposures was £0.1 billion (31 December
2021 - £0.1 billion). The total ECL in the remainder of the Credit risk
section of £3.5 billion (31 December 2021 - £3.8 billion) included ECL for
both on and off-balance sheet exposures for non-disposal groups.
na = not applicable
The assets outside the IFRS 9 ECL framework were as follows:
- Settlement balances, items in the course of collection, cash balances and
other non-credit risk assets of £11.4 billion (31 December 2021 - £3.7
billion). These were assessed as having no ECL unless there was evidence that
they were defaulted.
- Equity shares of £0.3 billion (31 December 2021 - £0.3 billion) as not
within the IFRS 9 ECL framework by definition.
- Fair value adjustments on loans hedged by interest rate swaps, where the
underlying loan was within the IFRS 9 ECL scope of nil (31 December 2021 -
£0.8 billion).
- NatWest Group originated securitisations, where ECL was captured on the
underlying loans of nil (31 December 2021 - £0.4 billion).
Contingent liabilities and commitments
In addition to contingent liabilities and commitments disclosed in Note 14,
reputationally-committed limits, were also included in the scope of the IFRS 9
ECL framework. These were offset by £1.4 billion (31 December 2021 - £0.8
billion) out of scope balances primarily related to facilities that, if drawn,
would not be classified as amortised cost or FVOCI, or undrawn limits relating
to financial assets exclusions. Total contingent liabilities (including
financial guarantees) and commitments within IFRS 9 ECL scope of £133.3
billion (31 December 2021 - £127.9 billion) comprised Stage 1 £122.7 billion
(31 December 2021 - £119.5 billion); Stage 2 £9.9 billion (31 December 2021
- £7.8 billion); and Stage 3 £0.7 billion (31 December 2021 - £0.6
billion).
The ECL relating to off-balance sheet exposures was £0.1 billion (31 December
2021 - £0.1 billion). The total ECL in the remainder of the Credit risk
section of £3.5 billion (31 December 2021 - £3.8 billion) included ECL for
both on and off-balance sheet exposures for non-disposal groups.
Risk and capital management
Credit risk - Banking activities continued
Segment analysis - portfolio summary (reviewed)
The table below shows gross loans and ECL, by segment and stage, within the
scope of the IFRS 9 ECL framework.
Go-forward group
Central Total Ulster
Retail Private Commercial & items & excluding Bank
Banking Banking Institutional other Ulster Bank RoI RoI Total
30 June 2022 £m £m £m £m £m £m £m
Loans - amortised cost and FVOCI
Stage 1 175,867 18,428 114,675 32,481 341,451 670 342,121
Stage 2 11,508 628 16,047 83 28,266 239 28,505
Stage 3 2,493 353 2,336 - 5,182 634 5,816
Of which: individual - 225 857 - 1,082 80 1,162
Of which: collective 2,493 128 1,479 - 4,100 554 4,654
Subtotal excluding disposal group loans 189,868 19,409 133,058 32,564 374,899 1,543 376,442
Disposal group loans 14,254 14,254
Total 15,797 390,696
ECL provisions (1)
Stage 1 184 12 185 17 398 10 408
Stage 2 419 17 631 9 1,076 46 1,122
Stage 3 895 34 706 - 1,635 350 1,985
Of which: individual - 33 260 - 293 11 304
Of which: collective 895 1 446 - 1,342 339 1,681
Subtotal excluding ECL provisions
on disposal group loans 1,498 63 1,522 26 3,109 406 3,515
ECL provisions on disposal group loans 95 95
Total 501 3,610
ECL provisions coverage (2)
Stage 1 (%) 0.10 0.07 0.16 0.05 0.12 1.49 0.12
Stage 2 (%) 3.64 2.71 3.93 10.84 3.81 19.25 3.94
Stage 3 (%) 35.90 9.63 30.22 - 31.55 55.21 34.13
ECL provisions coverage excluding
disposal group loans 0.79 0.32 1.14 0.08 0.83 26.31 0.93
ECL provisions coverage on
disposal group loans 0.67 0.67
Total 3.17 0.92
Impairment (releases)/losses
ECL (release)/charge (3) 26 (11) (59) (2) (46) (8) (54)
Stage 1 (125) (6) (204) (9) (344) 2 (342)
Stage 2 86 (7) 108 8 195 10 205
Stage 3 65 2 37 (1) 103 (20) 83
Of which: individual - 2 - (1) 1 (2) (1)
Of which: collective 65 - 37 - 102 (18) 84
Continuing operations 26 (11) (59) (2) (46) (8) (54)
Discontinued operations (62) (62)
Total (70) (116)
Amounts written-off 106 1 94 - 201 14 215
Of which: individual - 1 57 - 58 - 58
Of which: collective 106 - 37 - 143 14 157
For the notes to this table refer to the following page.
For the notes to this table refer to the following page.
Risk and capital management
Credit risk - Banking activities continued
Segment analysis - portfolio summary (reviewed)
Go-forward group
Central Total Ulster
Retail Private Commercial & items & excluding Bank
Banking Banking Institutional other Ulster Bank RoI RoI Total
31 December 2021 £m £m £m £m £m £m £m
Loans - amortised cost and FVOCI
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 (1)
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 (2)
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
Half year ended 30 June 2021
Impairment (releases)/losses
ECL (release)/charge (3) (57) (27) (613) 1 (696) 13 (683)
Stage 1 (195) (27) (436) - (658) (4) (662)
Stage 2 45 (4) (150) 1 (108) (6) (114)
Stage 3 93 4 (27) - 70 23 93
Of which: individual - 4 (30) - (26) 1 (25)
Of which: collective 93 - 3 - 96 22 118
Continuing operations (57) (27) (613) 1 (696) 13 (683)
Discontinued operations (24) (24)
Total (11) (707)
Amounts written-off 138 5 298 - 441 76 517
Of which: individual - 5 251 - 256 - 256
Of which: collective 138 - 47 - 185 76 261
(1) Includes £3 million (31 December 2021 - £5 million) related
to assets classified as FVOCI.
(2) 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.
(3) Includes a £2 million release (30 June 2021 - £4 million
charge) related to other financial assets, of which nil (30 June 2021 - nil)
related to assets classified as FVOCI; and £3 million (30 June 2021 - £2
million release) related to contingent liabilities.
(4) The table shows gross loans only and excludes amounts that
were outside the scope of the ECL framework. Refer to Financial instruments
within the scope of the IFRS 9 ECL framework for further details. Other
financial assets within the scope of the IFRS 9 ECL framework were cash and
balances at central banks totalling £178.4 billion (31 December 2021 -
£176.3 billion) and debt securities of £38.6 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 new Wholesale defaults on government
scheme lending.
- Underlying flows into default remained subdued during H1 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 half of 2022,
with positive trends in underlying risk metrics maintained since 31 December
2021 and migration of exposures into Stage 3 because of the new regulatory
default definition mentioned previously.
- Reflecting the stable portfolio performance and resultant ECL
releases, there was a net impairment release of £54 million for the first
half of the year for continued operations.
(1) Includes £3 million (31 December 2021 - £5 million) related
to assets classified as FVOCI.
(2) 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.
(3) Includes a £2 million release (30 June 2021 - £4 million
charge) related to other financial assets, of which nil (30 June 2021 - nil)
related to assets classified as FVOCI; and £3 million (30 June 2021 - £2
million release) related to contingent liabilities.
(4) The table shows gross loans only and excludes amounts that
were outside the scope of the ECL framework. Refer to Financial instruments
within the scope of the IFRS 9 ECL framework for further details. Other
financial assets within the scope of the IFRS 9 ECL framework were cash and
balances at central banks totalling £178.4 billion (31 December 2021 -
£176.3 billion) and debt securities of £38.6 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 new Wholesale defaults on government
scheme lending.
- Underlying flows into default remained subdued during H1 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 half of 2022,
with positive trends in underlying risk metrics maintained since 31 December
2021 and migration of exposures into Stage 3 because of the new regulatory
default definition mentioned previously.
- Reflecting the stable portfolio performance and resultant ECL
releases, there was a net impairment release of £54 million for the first
half of the year for continued operations.
Risk and capital management
Credit risk - Banking activities continued
Segment analysis - portfolio summary (reviewed)
The table below shows Ulster Bank RoI disposal groups for Personal and
Wholesale, by stage, for gross loans, off-balance sheet exposures and ECL. The
tables in the rest of the Credit risk section are shown on a continuing basis
and therefore exclude these exposures.
Off-balance sheet
Loans - amortised cost and FVOCI Loan Contingent ECL provisions
Stage 1 Stage 2 Stage 3 Total commitments liabilities Stage 1 Stage 2 Stage 3 Total
30 June 2022 £m £m £m £m £m £m £m £m £m £m
Personal 9,988 640 82 10,710 - - 4 10 12 26
Wholesale 2,835 678 31 3,544 1,906 217 17 37 15 69
Total 12,823 1,318 113 14,254 1,906 217 21 47 27 95
31 December 2021
Personal 5,547 210 34 5,791 - - 4 6 7 17
Wholesale 2,647 639 7 3,293 1,665 115 10 78 4 92
Total 8,194 849 41 9,084 1,665 115 14 84 11 109
Segment loans and impairment metrics (reviewed)
The table below shows gross loans and ECL provisions, by days past due, by
segment and stage, within the scope of the ECL framework.
Gross loans ECL provisions (2)
Stage 2 (1) Stage 2 (1)
Not past 1-30 >30 Not past 1-30 >30
Stage 1 due DPD DPD Total Stage 3 Total Stage 1 due DPD DPD Total Stage 3 Total
30 June 2022 £m £m £m £m £m £m £m £m £m £m £m £m £m £m
Retail Banking 175,867 10,623 605 280 11,508 2,493 189,868 184 382 16 21 419 895 1,498
Private Banking 18,428 548 63 17 628 353 19,409 12 16 1 - 17 34 63
Personal 14,813 100 43 16 159 307 15,279 6 2 1 - 3 17 26
Wholesale 3,615 448 20 1 469 46 4,130 6 14 - - 14 17 37
Commercial
& Institutional 114,675 14,080 804 1,163 16,047 2,336 133,058 185 569 33 29 631 706 1,522
Personal 2,352 15 18 5 38 49 2,439 3 1 - 1 2 9 14
Wholesale 112,323 14,065 786 1,158 16,009 2,287 130,619 182 568 33 28 629 697 1,508
Central items
& other 32,481 83 - - 83 - 32,564 17 9 - - 9 - 26
Ulster Bank RoI 670 218 4 17 239 634 1,543 10 42 1 3 46 350 406
Personal 470 103 4 16 123 471 1,064 6 12 1 3 16 278 300
Wholesale 200 115 - 1 116 163 479 4 30 - - 30 72 106
Total loans 342,121 25,552 1,476 1,477 28,505 5,816 376,442 408 1,018 51 53 1,122 1,985 3,515
Of which:
Personal 193,502 10,841 670 317 11,828 3,320 208,650 199 397 18 25 440 1,199 1,838
Wholesale 148,619 14,711 806 1,160 16,677 2,496 167,792 209 621 33 28 682 786 1,677
31 December 2021
Retail Banking 168,013 12,275 863 456 13,594 1,884 183,491 134 516 38 36 590 850 1,574
Private Banking 17,600 902 27 38 967 270 18,837 12 29 - - 29 37 78
Personal 14,350 137 24 11 172 232 14,754 6 2 - - 2 18 26
Wholesale 3,250 765 3 27 795 38 4,083 6 27 - - 27 19 52
Commercial
& Institutional 107,368 17,352 455 670 18,477 2,081 127,926 129 750 23 11 784 751 1,664
Personal 2,647 21 17 11 49 57 2,753 2 1 - - 1 10 13
Wholesale 104,721 17,331 438 659 18,428 2,024 125,173 127 749 23 11 783 741 1,651
Central items
& other 32,283 90 - - 90 - 32,373 17 11 - - 11 - 28
Ulster Bank RoI 5,560 747 58 48 853 787 7,200 10 58 3 3 64 388 462
Personal 5,165 510 52 46 608 609 6,382 7 15 3 3 21 301 329
Wholesale 395 237 6 2 245 178 818 3 43 - - 43 87 133
Total loans 330,824 31,366 1,403 1,212 33,981 5,022 369,827 302 1,364 64 50 1,478 2,026 3,806
Of which:
Personal 190,175 12,943 956 524 14,423 2,782 207,380 149 534 41 39 614 1,179 1,942
Wholesale 140,649 18,423 447 688 19,558 2,240 162,447 153 830 23 11 864 847 1,864
For the notes to this table refer to the following page.
Risk and capital management
Credit risk - Banking activities continued
Segment loans and impairment metrics (reviewed)
The table below shows ECL and ECL provisions coverage, by days past due, by
segment and stage, within the scope of the ECL framework.
ECL provisions coverage Half year ended 30 June 2022
Stage 2 (1,2) ECL
Not past Total Amounts
Stage 1 due 1-30 DPD >30 DPD Total Stage 3 Total (release)/charge written-off
30 June 2022 % % % % % % % £m £m
Retail Banking 0.10 3.60 2.64 7.50 3.64 35.90 0.79 26 106
Private Banking 0.07 2.92 1.59 - 2.71 9.63 0.32 (11) 1
Personal 0.04 2.00 2.33 - 1.89 5.54 0.17 (2) 1
Wholesale 0.17 3.13 - - 2.99 36.96 0.90 (9) -
Commercial & Institutional 0.16 4.04 4.10 2.49 3.93 30.22 1.14 (59) 94
Personal 0.13 6.67 - 20.00 5.26 18.37 0.57 1 1
Wholesale 0.16 4.04 4.20 2.42 3.93 30.48 1.15 (60) 93
Central items & other 0.05 10.84 - - 10.84 - 0.08 (2) -
Ulster Bank RoI 1.49 19.27 25.00 17.65 19.25 55.21 26.31 (8) 14
Personal 1.28 11.65 25.00 18.75 13.01 59.02 28.20 (7) 6
Wholesale 2.00 26.09 - - 25.86 44.17 22.13 (1) 8
Total loans 0.12 3.98 3.46 3.59 3.94 34.13 0.93 (54) 215
Of which:
Personal 0.10 3.66 2.69 7.89 3.72 36.11 0.88 18 116
Wholesale 0.14 4.22 4.09 2.41 4.09 31.49 1.00 (72) 99
ECL provisions coverage Half year ended 30 June 2021
Stage 2 (1,2) ECL
Not past Total Amounts
Stage 1 due 1-30 DPD >30 DPD Total Stage 3 Total (release)/charge written-off
31 December 2021 % % % % % % % £m £m
Retail Banking 0.08 4.20 4.40 7.89 4.34 45.12 0.86 (57) 138
Private Banking 0.07 3.22 - - 3.00 13.70 0.41 (27) 5
Personal 0.04 1.46 - - 1.16 7.76 0.18 (4) (1)
Wholesale 0.18 3.53 - - 3.40 50.00 1.27 (23) 6
Commercial & Institutional 0.12 4.32 5.05 1.64 4.24 36.09 1.30 (613) 298
Personal 0.08 4.76 - - 2.04 17.54 0.47 - -
Wholesale 0.12 4.32 5.25 1.67 4.25 36.61 1.32 (613) 298
Central items & other 0.05 12.22 - - 12.22 - 0.09 1 -
Ulster Bank RoI 0.18 7.76 5.17 6.25 7.50 49.30 6.42 13 76
Personal 0.14 2.94 5.77 6.52 3.45 49.43 5.16 19 71
Wholesale 0.76 18.14 - - 17.55 48.88 16.26 (6) 5
Total loans 0.09 4.35 4.56 4.13 4.35 40.34 1.03 (683) 517
Of which:
Personal 0.08 4.13 4.29 7.44 4.26 42.38 0.94 (42) 208
Wholesale 0.11 4.51 5.15 1.60 4.42 37.81 1.15 (641) 309
(1) 30 DPD - 30 days past due, the mandatory 30 days past due backstop
as prescribed by IFRS 9 for a SICR.
(2) ECL provisions on contingent liabilities and commitments are
included within the Financial assets section so as not to distort ECL coverage
ratios.
Segment loans and impairment metrics (reviewed)
- Retail Banking - Balance sheet growth continued during H1 2022,
primarily in mortgages, where new lending remained strong. Unsecured lending
balances increased during H1 2022, following the easing of COVID-19
restrictions. Total ECL coverage reduced slightly during 2022, reflective of
low unemployment and stable portfolio performance, while maintaining
sufficient ECL coverage for key portfolios above 2019 levels, given increased
inflationary 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.
Stage 2 balances decreased during the first half of the year, reflecting
continued stability in IFRS 9 PD estimates and 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 and was the primary driver
for the change in overall Retail Stage 3 coverage during H1 2022.
- Commercial & Institutional - The balance sheet increased during H1
2022, mainly attributable to growth in exposure to financial institutions.
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 mainly reflecting
positive portfolio performance which lowered PDs and resulted in exposure
migrating back into Stage 1. In addition, some deterioration in government
scheme lending resulted in exposure moving from Stage 2 into Stage 3. 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.
Risk and capital management
Credit risk - Banking activities continued
Sector analysis - portfolio summary (reviewed)
The table below shows financial assets and off-balance sheet exposures gross
of ECL and related ECL provisions, impairment and past due by sector, asset
quality and geographical region.
Personal Wholesale Total
Mortgages Credit Other
(1) cards personal Total Property Corporate FI Sovereign Total
30 June 2022 £m £m £m £m £m £m £m £m £m £m
Loans by geography 194,938 4,201 9,511 208,650 32,884 71,071 57,453 6,384 167,792 376,442
- UK 194,055 4,142 9,389 207,586 31,950 62,433 38,741 4,538 137,662 345,248
- RoI 883 59 122 1,064 64 1,003 62 - 1,129 2,193
- Other Europe - - - - 506 3,560 7,485 1,136 12,687 12,687
- RoW - - - - 364 4,075 11,165 710 16,314 16,314
Loans by stage (2) 194,938 4,201 9,511 208,650 32,884 71,071 57,453 6,384 167,792 376,442
- Stage 1 183,414 3,059 7,029 193,502 29,231 56,068 57,107 6,213 148,619 342,121
- Stage 2 9,076 1,037 1,715 11,828 2,920 13,328 271 158 16,677 28,505
- Stage 3 2,448 105 767 3,320 733 1,675 75 13 2,496 5,816
- Of which: individual 219 - 20 239 316 533 66 8 923 1,162
- Of which: collective 2,229 105 747 3,081 417 1,142 9 5 1,573 4,654
Loans - past due analysis (3,4) 194,938 4,201 9,511 208,650 32,884 71,071 57,453 6,384 167,792 376,442
- Not past due 192,129 4,092 8,672 204,893 31,503 67,128 56,409 6,227 161,267 366,160
- Past due 1-30 days 987 25 75 1,087 669 2,369 1,033 156 4,227 5,314
- Past due 31-89 days 505 25 89 619 382 825 5 - 1,212 1,831
- Past due 90-180 days 457 21 81 559 49 88 1 - 138 697
- Past due >180 days 860 38 594 1,492 281 661 5 1 948 2,440
Loans - Stage 2 9,076 1,037 1,715 11,828 2,920 13,328 271 158 16,677 28,505
- Not past due 8,224 1,007 1,610 10,841 2,403 11,887 263 158 14,711 25,552
- Past due 1-30 days 611 15 44 670 150 652 4 - 806 1,476
- Past due 31-89 days 241 15 61 317 367 789 4 - 1,160 1,477
Weighted average life*
- ECL measurement (years) 8 2 5 5 5 6 3 2 5 5
Weighted average 12 months
PDs*
- IFRS 9 (%) 0.25 3.78 2.24 0.40 0.98 1.27 0.12 0.17 0.77 0.57
- Basel (%) 0.67 3.16 3.01 0.82 1.11 1.55 0.14 0.17 0.92 0.86
ECL provisions by geography 650 250 938 1,838 358 1,250 48 21 1,677 3,515
- UK 364 246 928 1,538 322 1,012 29 16 1,379 2,917
- RoI 286 4 10 300 15 80 1 1 97 397
- Other Europe - - - - 16 87 6 2 111 111
- RoW - - - - 5 71 12 2 90 90
ECL provisions by stage 650 250 938 1,838 358 1,250 48 21 1,677 3,515
- Stage 1 61 65 73 199 40 134 17 18 209 408
- Stage 2 89 117 234 440 101 571 9 1 682 1,122
- Stage 3 500 68 631 1,199 217 545 22 2 786 1,985
- Of which: individual 16 - 10 26 75 183 18 2 278 304
- Of which: collective 484 68 621 1,173 142 362 4 - 508 1,681
ECL provisions coverage (%) 0.33 5.95 9.86 0.88 1.09 1.76 0.08 0.33 1.00 0.93
- Stage 1 (%) 0.03 2.12 1.04 0.10 0.14 0.24 0.03 0.29 0.14 0.12
- Stage 2 (%) 0.98 11.28 13.64 3.72 3.46 4.28 3.32 0.63 4.09 3.94
- Stage 3 (%) 20.42 64.76 82.27 36.11 29.60 32.54 29.33 15.38 31.49 34.13
ECL (release)/charge (80) 20 78 18 21 (61) (31) (1) (72) (54)
- UK (75) 20 78 23 30 (66) (34) (1) (71) (48)
- RoI (5) - - (5) 2 (7) (3) - (8) (13)
- Other Europe - - - - (12) 10 1 - (1) (1)
- RoW - - - - 1 2 5 - 8 8
Amounts written-off 27 33 54 114 17 84 - - 101 215
*Not within the scope of EY's review report.
For the notes to this table refer to page 37.
*Not within the scope of EY's review report.
For the notes to this table refer to page 37.
Risk and capital management
Credit risk - Banking activities continued
Sector analysis - portfolio summary (reviewed)
Personal Wholesale Total
Mortgages Credit Other
(1) cards personal Total Property Corporate FI Sovereign Total
30 June 2022 £m £m £m £m £m £m £m £m £m £m
Loans by residual maturity 194,938 4,201 9,511 208,650 32,884 71,071 57,453 6,384 167,792 376,442
- <1 year 3,589 2,490 3,187 9,266 7,892 23,283 43,697 4,152 79,024 88,290
- 1-5 year 11,760 1,711 5,448 18,919 16,551 32,808 12,682 786 62,827 81,746
- 5 year 179,589 - 876 180,465 8,441 14,980 1,074 1,446 25,941 206,406
Other financial assets by
asset quality (5) - - - - 47 9 13,864 203,094 217,014 217,014
- AQ1-AQ4 - - - - - 9 13,510 203,094 216,613 216,613
- AQ5-AQ8 - - - - 47 - 352 - 399 399
Off-balance sheet 19,535 15,816 8,253 43,604 15,712 53,452 19,617 913 89,694 133,298
- Loan commitments 19,535 15,816 8,197 43,548 15,184 50,711 18,525 913 85,333 128,881
- Financial guarantees - - 56 56 528 2,741 1,092 - 4,361 4,417
Off-balance sheet by
asset quality (5) 19,535 15,816 8,253 43,604 15,712 53,452 19,617 913 89,694 133,298
- AQ1-AQ4 18,510 442 7,161 26,113 12,389 32,070 18,114 781 63,354 89,467
- AQ5-AQ8 1,008 15,055 1,062 17,125 3,285 21,023 1,503 132 25,943 43,068
- AQ9 2 17 8 27 5 52 - - 57 84
- AQ10 15 302 22 339 33 307 - - 340 679
For the notes to this table refer to page 37.
For the notes to this table refer to page 37.
Risk and capital management
Credit risk - Banking activities continued
Sector analysis - portfolio summary (reviewed)
Personal Wholesale Total
Credit Other
Mortgages (1) cards personal Total Property Corporate FI Sovereign Total
31 December 2021 £m £m £m £m £m £m £m £m £m £m
Loans by geography 194,011 3,947 9,422 207,380 32,522 70,851 53,041 6,033 162,447 369,827
- UK 187,847 3,877 9,253 200,977 31,574 62,952 39,086 4,542 138,154 339,131
- RoI 6,164 70 147 6,381 130 1,222 116 4 1,472 7,853
- Other Europe - - - - 439 3,831 5,066 840 10,176 10,176
- RoW - - 22 22 379 2,846 8,773 647 12,645 12,667
Loans by stage 194,011 3,947 9,422 207,380 32,522 70,851 53,041 6,033 162,447 369,827
- Stage 1 180,418 2,924 6,833 190,175 28,679 53,803 52,263 5,904 140,649 330,824
- Stage 2 11,543 933 1,947 14,423 3,101 15,604 732 121 19,558 33,981
- Stage 3 2,050 90 642 2,782 742 1,444 46 8 2,240 5,022
- Of which: individual 269 - 19 288 329 583 7 8 927 1,215
- Of which: collective 1,781 90 623 2,494 413 861 39 - 1,313 3,807
Loans - past due analysis (3,4) 194,011 3,947 9,422 207,380 32,522 70,851 53,041 6,033 162,447 369,827
- Not past due 190,834 3,834 8,619 203,287 31,391 68,630 52,285 6,030 158,336 361,623
- Past due 1-30 days 1,217 28 124 1,369 521 1,081 732 2 2,336 3,705
- Past due 31-89 days 592 25 73 690 256 448 19 1 724 1,414
- Past due 90-180 days 367 22 61 450 91 215 1 - 307 757
- Past due >180 days 1,001 38 545 1,584 263 477 4 - 744 2,328
Loans - Stage 2 11,543 933 1,947 14,423 3,101 15,604 732 121 19,558 33,981
- Not past due 10,259 899 1,785 12,943 2,725 14,870 708 120 18,423 31,366
- Past due 1-30 days 843 16 97 956 125 318 4 - 447 1,403
- Past due 31-89 days 441 18 65 524 251 416 20 1 688 1,212
Weighted average life*
- ECL measurement (years) 8 2 5 5 5 6 3 1 6 6
Weighted average 12 months
PDs*
- IFRS 9 (%) 0.16 4.84 2.73 0.36 0.76 1.85 0.14 0.14 1.00 0.65
- Basel (%) 0.76 3.31 3.22 0.91 1.20 1.74 0.14 0.16 1.04 0.97
ECL provisions by geography 768 260 914 1,942 374 1,411 57 22 1,864 3,806
- UK 449 258 904 1,611 331 1,124 47 18 1,520 3,131
- RoI 319 2 10 331 19 107 3 1 130 461
- Other Europe - - - - 20 77 4 1 102 102
- RoW - - - - 4 103 3 2 112 112
ECL provisions by stage 768 260 914 1,942 374 1,411 57 22 1,864 3,806
- Stage 1 32 59 58 149 24 96 14 19 153 302
- Stage 2 174 141 299 614 111 713 39 1 864 1,478
- Stage 3 562 60 557 1,179 239 602 4 2 847 2,026
- Of which: individual 19 - 12 31 69 261 - 2 332 363
- Of which: collective 543 60 545 1,148 170 341 4 - 515 1,663
ECL provisions coverage (%) 0.40 6.59 9.70 0.94 1.15 1.99 0.11 0.36 1.15 1.03
- Stage 1 (%) 0.02 2.02 0.85 0.08 0.08 0.18 0.03 0.32 0.11 0.09
- Stage 2 (%) 1.51 15.11 15.36 4.26 3.58 4.57 5.33 0.83 4.42 4.35
- Stage 3 (%) 27.41 66.67 86.76 42.38 32.21 41.69 8.70 25.00 37.81 40.34
Half year ended 30 June 2021
ECL (release)/charge (23) (17) (2) (42) (197) (469) 22 3 (641) (683)
- UK (40) (17) (3) (60) (224) (373) 28 2 (567) (627)
- RoI 17 - 1 18 38 (53) 9 1 (5) 13
- Other Europe - - - - (20) (10) (8) - (38) (38)
- RoW - - - - 9 (33) (7) - (31) (31)
Amounts written-off 74 45 89 208 120 187 2 - 309 517
*Not within the scope of EY's review report.
For the notes to this table refer to the following page.
Risk and capital management
Credit risk - Banking activities continued
Sector analysis - portfolio summary (reviewed)
Personal Wholesale Total
Credit Other
Mortgages (1) cards personal Total Property Corporate FI Sovereign Total
31 December 2021 £m £m £m £m £m £m £m £m £m £m
Loans by residual maturity 194,011 3,947 9,422 207,380 32,522 70,851 53,041 6,033 162,447 369,827
- <1 year 3,611 2,532 3,197 9,340 7,497 22,593 41,195 2,809 74,094 83,434
- 1-5 year 12,160 1,415 5,393 18,968 16,293 33,301 10,969 1,967 62,530 81,498
- 5 year 178,240 - 832 179,072 8,732 14,957 877 1,257 25,823 204,895
Other financial assets by
asset quality (5) - - - - 55 11 11,516 209,553 221,135 221,135
- AQ1-AQ4 - - - - - 11 10,974 209,551 220,536 220,536
- AQ5-AQ8 - - - - 55 - 542 2 599 599
Off-balance sheet 16,827 15,354 8,230 40,411 16,342 52,033 17,898 1,212 87,485 127,896
- Loan commitments 16,827 15,354 8,170 40,351 15,882 49,231 16,906 1,212 83,231 123,582
- Financial guarantees - - 60 60 460 2,802 992 - 4,254 4,314
Off-balance sheet by
asset quality (5) 16,827 15,354 8,230 40,411 16,342 52,033 17,898 1,212 87,485 127,896
- AQ1-AQ4 14,792 248 6,591 21,631 12,550 30,417 16,192 1,064 60,223 81,854
- AQ5-AQ8 2,028 14,804 1,625 18,457 3,757 21,262 1,703 148 26,870 45,327
- AQ9 - 9 3 12 6 48 1 - 55 67
- AQ10 7 293 11 311 29 306 2 - 337 648
(1) Includes a portion of Private Banking lending secured against residential real
estate, in line with ECL calculation methodology. Private Banking and RBS
International mortgages are reported in UK, which includes crown dependencies,
reflecting the country of lending origination.
(2) At 30 June 2022, Stage 3 included £330 million in respect of mortgages and
£451 million of total lending for cases in default due to probation.
(3) 30 DPD - 30 days past due, the mandatory 30 days past due backstop as
prescribed by the IFRS 9 guidance for a SICR.
(4) Days past due - Personal products: at a high level, for amortising products,
the number of days past due is derived from the arrears amount outstanding and
the monthly repayment instalment. For credit cards, it is based on payments
missed, and for current accounts the number of continual days in excess of
borrowing limit. Wholesale products: the number of days past due for all
products is the number of continual days in excess of borrowing limit.
(5) AQ bandings are based on Basel PDs and the mapping is as follows:
Internal asset quality band Probability of default range Indicative S&P rating
AQ1 0% - 0.034% AAA to AA
AQ2 0.034% - 0.048% AA to AA-
AQ3 0.048% - 0.095% A+ to A
AQ4 0.095% - 0.381% BBB+ to BBB-
AQ5 0.381% - 1.076% BB+ to BB
AQ6 1.076% - 2.153% BB- to B+
AQ7 2.153% - 6.089% B+ to B
AQ8 6.089% - 17.222% B- to CCC+
AQ9 17.222% - 100% CCC to C
AQ10 100% D
£0.3 billion (31 December 2021 - £0.3 billion) of AQ10 Personal balances
primarily relate to loan commitments, the drawdown of which is effectively
prohibited.
£0.3 billion (31 December 2021 - £0.3 billion) of AQ10 Personal balances
primarily relate to loan commitments, the drawdown of which is effectively
prohibited.
£0.3 billion (31 December 2021 - £0.3 billion) of AQ10 Personal balances
primarily relate to loan commitments, the drawdown of which is effectively
prohibited.
Risk and capital management
Credit risk - Banking activities continued
Sector analysis - portfolio summary (reviewed)
The table below shows ECL by stage, for the Personal portfolios and selected
sectors of the Wholesale portfolios.
Off-balance sheet
Loans - amortised cost and FVOCI Loan Contingent ECL provisions
Stage 1 Stage 2 Stage 3 Total commitments liabilities Stage 1 Stage 2 Stage 3 Total
30 June 2022 £m £m £m £m £m £m £m £m £m £m
Personal 193,502 11,828 3,320 208,650 43,548 56 199 440 1,199 1,838
Mortgages 183,414 9,076 2,448 194,938 19,535 - 61 89 500 650
Credit cards 3,059 1,037 105 4,201 15,816 - 65 117 68 250
Other personal 7,029 1,715 767 9,511 8,197 56 73 234 631 938
Wholesale 148,619 16,677 2,496 167,792 85,333 4,361 209 682 786 1,677
Property 29,231 2,920 733 32,884 15,184 528 40 101 217 358
Financial institutions 57,107 271 75 57,453 18,525 1,092 17 9 22 48
Sovereigns 6,213 158 13 6,384 913 - 18 1 2 21
Corporate 56,068 13,328 1,675 71,071 50,711 2,741 134 571 545 1,250
Of which:
Agriculture 4,129 831 92 5,052 827 21 13 46 43 102
Airlines and aerospace 868 700 40 1,608 1,491 221 2 38 8 48
Automotive 4,704 1,455 46 6,205 4,148 54 11 24 12 47
Health 4,434 592 135 5,161 535 9 8 30 42 80
Land transport and logistics 3,885 797 43 4,725 3,242 154 5 30 12 47
Leisure 3,877 3,429 360 7,666 1,830 110 22 231 133 386
Oil and gas 966 179 57 1,202 1,565 465 2 5 31 38
Retail 6,573 1,283 190 8,046 4,501 404 13 27 67 107
Total 342,121 28,505 5,816 376,442 128,881 4,417 408 1,122 1,985 3,515
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
Sovereigns 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:
Agriculture 3,722 1,229 133 5,084 993 24 11 39 78 128
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
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
Sovereigns 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:
Agriculture 3,722 1,229 133 5,084 993 24 11 39 78 128
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 - Banking activities continued
Wholesale forbearance (reviewed)
The table below shows Wholesale forbearance, Heightened Monitoring and Risk of
Credit Loss by sector. Personal forbearance is disclosed in the Personal
portfolio section on page 41. This table show current exposure but reflects
risk transfers where there is a guarantee by another customer.
Property Financial institution Other corporate Total
30 June 2022 £m £m £m £m
Forbearance (flow) 453 100 1,749 2,302
Forbearance (stock) 1,024 119 4,967 6,110
Heightened Monitoring and Risk of Credit Loss 985 149 3,654 4,788
31 December 2021
Forbearance (flow) 709 27 3,894 4,630
Forbearance (stock) 1,033 35 5,659 6,727
Heightened Monitoring and Risk of Credit Loss 1,225 83 4,492 5,800
- Loans by geography - In Personal, exposures continued to be concentrated in
the UK and heavily weighted to mortgages and the vast majority of exposure in
the Republic of Ireland was also in mortgages. Balance sheet growth during the
year was mainly in mortgages. Unsecured lending balances grew slightly as
noted previously. In Wholesale, exposures were mainly in the UK. Balance sheet
growth was primarily due to increased lending to financial institutions.
Wholesale exposure to high oversight sectors reduced in leisure and oil and
gas, largely offset by an increase in retail. Agriculture was added to the
disclosure due to the effect on the sector from inflation and supply chain
issues.
- Loans by stage - In both Wholesale and Personal, continued strong credit
performance resulted in a smaller proportion of accounts exhibiting a SICR and
there was, therefore, an associated migration of exposures from Stage 2 into
Stage 1. Personal customers who had accessed payment holiday support, and
where their risk profile was identified as relatively high, are no longer
collectively migrated into Stage 2. The relevance of this collective SICR
identification is no longer considered as pertinent in the context of the
current inflation and cost of living related economic uncertainty. Stage 3
loans increased due to the effect of the new regulatory definition of default,
mostly impacting mortgages and new Wholesale defaults on government scheme
lending.
- Loans - Past due analysis - Despite the risks of inflation, cost of living
pressures and supply chain issues, the past due profile of the key portfolios
remained stable, reflecting the broader observations on portfolio performance.
The implementation of the new regulatory default definition for Wholesale
included refinements to the days past due calculations, which explains the
uplift in early arrears, with the largest increase in corporates.
- Weighted average 12 months PDs - In Personal, the Basel II point-in-time PDs
improved slightly during 2022 due to stable credit performance in the
portfolios. For IFRS 9 PDs, there were decreases across the product groups,
with the exception of mortgages, as a result of new IFRS 9 PD model
implementation in Q1 2022. In Wholesale, the Basel II PDs were based on a
through-the-cycle approach and decreased less than the forward-looking IFRS 9
PDs which reduced, reflecting positive portfolio performance. For further
details refer to the Asset quality section.
- ECL provision by geography - In line with the loans by geography, the vast
majority of ECL related to exposures in the UK, noting the reduction in RoI
mostly due to the phased withdrawal of Ulster Bank RoI from the Republic of
Ireland and moving of assets to discontinued operations.
- ECL provisions by stage - Stage 2 provisions reduced during H1 2022 reflecting
continued strong credit performance of the portfolios, this along with
increased lending led to an increase in Stage 1 provisions. As outlined above,
Stage 3 provisions have yet to be materially affected by the risks of
inflation, cost of living and supply chain, with increases relating to the
introduction of the new regulatory definition of default more than offset by
write offs.
- ECL provisions coverage - Overall provisions coverage reduced, driven by a
combination of robust underlying portfolio performance reflecting recent
strong growth in the portfolio within risk appetite and continued stable
portfolio performance.
- The ECL charge and loss rate - Reflecting the continued stable portfolio
performance and default trends, the impairment charge was a release for H1
2022, mainly as a result of releases in Wholesale portfolios.
Risk and capital management
Credit risk - Banking activities continued (reviewed)
- Loans by residual maturity - The maturity profile of the portfolios remained
consistent with prior periods. In mortgages, as expected, the vast majority of
exposures were greater than five years. In unsecured lending - cards and other
- exposures were concentrated in less than five years. In Wholesale, with the
exception of financial institutions where lending was concentrated in less
than one year, the majority of lending was for residual maturity of one to
five years, with some greater than five years in line with lending under the
government support schemes.
- Other financial assets by asset quality - Consisting almost entirely of cash
and balances at central banks and debt securities, held in the course of
treasury related management activities, these assets were mainly within the
AQ1-AQ4 bands.
- Off-balance sheet exposures by asset quality - In Personal, undrawn exposures
were reflective of available credit lines in credit cards and current
accounts. Additionally, the mortgage portfolio had undrawn exposures, where a
formal offer had been made to a customer but had not yet drawn down; the value
increased in line with the pipeline of offers. There was also a legacy
portfolio of flexible mortgages where a customer had the right and ability to
draw down further funds. The asset quality was aligned to the wider portfolio.
- Wholesale forbearance - Forbearance flow continued to decrease in the first
half of 2022. The leisure sector continued to represent the largest share of
forbearance flow as it continued to experience disruption beyond the COVID-19
restrictions evident throughout 2021. Labour shortages, airport capacity
issues, rising fuel costs and consumer uncertainty continue to weigh on the
sector recovery. Payment holidays and covenant waivers were the most common
forms of forbearance granted.
- Heightened Monitoring and Risk of Credit Loss - Risk of Credit Loss framework
exposures continued to reduce and were below pre-COVID-19 levels. Inflows were
also trending lower. The sector breakdown of exposures remained consistent
with prior periods.
Risk and capital management
Credit risk - Banking activities continued
Personal portfolio (reviewed)
Disclosures in the Personal portfolio section include drawn exposure (gross of
provisions).
30 June 2022 31 December 2021
Retail Private Commercial & Ulster Retail Private Commercial & Ulster
Banking Banking Institutional Bank RoI Total Banking Banking Institutional Bank RoI Total
Personal lending £m £m £m £m £m £m £m £m £m £m
Mortgages 178,490 12,715 2,398 906 194,509 172,707 12,781 2,444 6,164 194,096
Of which:
Owner occupied 161,930 11,271 1,561 867 175,629 158,059 11,219 1,597 5,563 176,438
Buy-to-let 16,560 1,444 837 39 18,880 14,648 1,562 847 601 17,658
Interest only - variable 3,774 3,665 330 6 7,775 4,348 4,889 346 120 9,703
Interest only - fixed 16,468 7,211 214 1 23,894 14,255 5,957 209 3 20,424
Mixed (1) 9,202 1 16 5 9,224 8,616 1 17 34 8,668
ECL provisions (2) 344 7 6 286 643 429 7 8 318 762
Other personal lending (3) 11,445 1,797 314 182 13,738 10,829 1,974 305 218 13,326
ECL provisions (2) 1,156 17 2 14 1,189 1,140 19 2 11 1,172
Total personal lending 189,935 14,512 2,712 1,088 208,247 183,536 14,755 2,749 6,382 207,422
Mortgage LTV ratios
Total portfolio 53% 59% 56% 45% 53% 54% 59% 57% 50% 54%
- Stage 1 54% 59% 56% 37% 54% 54% 59% 56% 48% 54%
- Stage 2 49% 63% 64% 45% 49% 52% 59% 62% 57% 52%
- Stage 3 47% 60% 72% 52% 50% 49% 64% 77% 56% 53%
Buy-to-let 51% 58% 53% 60% 52% 50% 57% 53% 52% 51%
- Stage 1 51% 58% 53% 31% 52% 50% 58% 53% 51% 51%
- Stage 2 48% 57% 51% 47% 48% 52% 55% 50% 56% 52%
- Stage 3 48% 53% 57% 61% 52% 51% 53% 60% 66% 56%
Gross new mortgage lending 18,872 1,528 138 - 20,538 35,290 2,874 340 40 38,544
Of which:
Owner occupied 16,242 1,395 89 - 17,726 33,630 2,583 206 40 36,459
Weighted average LTV (4) 68% 65% 66% - 68% 69% 65% 67% 62% 68%
Buy-to-let 2,630 133 49 - 2,812 1,660 292 134 - 2,086
Weighted average LTV (4) 63% 68% 62% - 63% 63% 65% 63% 60% 64%
Interest only - variable rate 12 274 5 - 291 25 832 37 - 894
Interest only - fixed rate 2,821 1,102 22 - 3,945 2,388 1,563 36 - 3,987
Mixed (1) 1,088 - 1 - 1,089 2,256 - 7 - 2,263
Mortgage forbearance
Forbearance flow 52 7 3 3 65 316 19 4 50 389
Forbearance stock 1,024 29 9 425 1,487 1,156 3 8 944 2,111
Current 689 17 6 149 861 727 - 5 616 1,348
1-3 months in arrears 108 2 1 34 145 146 2 1 58 207
> 3 months in arrears 227 10 2 242 481 283 1 2 270 556
(1) Includes accounts which have an interest only sub-account and a
capital and interest sub-account to provide a more comprehensive view of
interest only exposures.
(2) Retail Banking excludes a non-material amount of provisions held
on relatively small legacy portfolios.
(3) Comprises unsecured lending except for Private Banking, which
includes both secured and unsecured lending. It excludes loans that are
commercial in nature.
(4) The new lending LTV in the comparative has been amended to reflect
LTV at time of lending origination rather than LTV at reporting period.
- The mortgage portfolio grew steadily in H1 2022, benefiting from buoyant
housing market activity and customers re-mortgaging ahead of anticipated Bank
of England interest rate rises.
- LTV ratios continued to improve as house prices increased as a result of
housing market demand.
- The existing mortgage stock and new business were closely monitored against
agreed risk appetite parameters. These included loan-to-value ratios,
buy-to-let concentrations, new-build concentrations and credit quality.
Affordability assessments and assumptions were continuously reviewed
considering inflationary pressure, interest rate rises and taxation changes.
- The buy-to-let portfolio grew in H1 2022. This growth was expected and within
risk appetite following strategy and customer journey simplification
implemented in H2 2021.
- Forbearance flows were subdued in H1 2022 compared to historical norms after
an increase in forbearance in H2 2021, following the end of COVID-19 payment
holidays.
- Unsecured lending increased during H1 2022, with resilient customer demand
after the easing of COVID-19 restrictions.
- As set out above ECL has reduced, for further detail of movements in ECL
provisions at product level refer to the Flow statements section.
- As at 30 June 2022, £121.8 billion, 63%, of the total residential mortgages
portfolio had Energy Performance Certificate (EPC) data available (31 December
2021 - £116.2 billion, 62%). Of which, 40% of UK properties were rated as EPC
C or above (31 December 2021 - 38%). In addition to the Retail Banking
portfolio, during Q2 2022 EPC data became available for the Private Banking
portfolio for all periods*. EPC data source and limitations are provided on
page 60 of the 2021 NatWest Group Climate-related Disclosures Report.
(1) Includes accounts which have an interest only sub-account and a
capital and interest sub-account to provide a more comprehensive view of
interest only exposures.
(2) Retail Banking excludes a non-material amount of provisions held
on relatively small legacy portfolios.
(3) Comprises unsecured lending except for Private Banking, which
includes both secured and unsecured lending. It excludes loans that are
commercial in nature.
(4) The new lending LTV in the comparative has been amended to reflect
LTV at time of lending origination rather than LTV at reporting period.
- The mortgage portfolio grew steadily in H1 2022, benefiting from buoyant
housing market activity and customers re-mortgaging ahead of anticipated Bank
of England interest rate rises.
- LTV ratios continued to improve as house prices increased as a result of
housing market demand.
- The existing mortgage stock and new business were closely monitored against
agreed risk appetite parameters. These included loan-to-value ratios,
buy-to-let concentrations, new-build concentrations and credit quality.
Affordability assessments and assumptions were continuously reviewed
considering inflationary pressure, interest rate rises and taxation changes.
- The buy-to-let portfolio grew in H1 2022. This growth was expected and within
risk appetite following strategy and customer journey simplification
implemented in H2 2021.
- Forbearance flows were subdued in H1 2022 compared to historical norms after
an increase in forbearance in H2 2021, following the end of COVID-19 payment
holidays.
- Unsecured lending increased during H1 2022, with resilient customer demand
after the easing of COVID-19 restrictions.
- As set out above ECL has reduced, for further detail of movements in ECL
provisions at product level refer to the Flow statements section.
- As at 30 June 2022, £121.8 billion, 63%, of the total residential mortgages
portfolio had Energy Performance Certificate (EPC) data available (31 December
2021 - £116.2 billion, 62%). Of which, 40% of UK properties were rated as EPC
C or above (31 December 2021 - 38%). In addition to the Retail Banking
portfolio, during Q2 2022 EPC data became available for the Private Banking
portfolio for all periods*. EPC data source and limitations are provided on
page 60 of the 2021 NatWest Group Climate-related Disclosures Report.
*Not within the scope of EY's review report.
Risk and capital management
Credit risk - Banking activities continued
Personal portfolio (reviewed)
Mortgage LTV distribution by stage
The table below shows gross mortgage lending and related ECL by LTV band.
Mortgage lending not within the scope of Governance and post-model adjustments
reflected portfolios carried at fair value.
Mortgages ECL provisions ECL provisions coverage (2)
Retail Banking Not within Of which:
IFRS 9 gross new
Stage 1 Stage 2 Stage 3 ECL scope Total lending Stage 1 Stage 2 Stage 3 Total (1) Stage 1 Stage 2 Stage 3 Total
30 June 2022 £m £m £m £m £m £m £m £m £m £m % % % %
≤50% 66,690 4,283 950 62 71,985 3,250 17 32 107 156 - 0.7 11.3 0.2
>50% and ≤70% 71,128 3,861 654 9 75,652 5,511 24 34 78 136 - 0.9 11.9 0.2
>70% and ≤80% 20,758 600 104 1 21,463 5,348 7 7 15 29 - 1.2 14.4 0.1
>80% and ≤90% 7,976 90 15 - 8,081 3,827 3 1 5 9 - 1.1 33.3 0.1
>90% and ≤100% 1,241 20 7 - 1,268 934 1 - 3 4 0.1 - 42.9 0.3
>100% 54 6 7 - 67 2 - 1 4 5 - 16.7 57.1 7.5
Total with LTVs 167,847 8,860 1,737 72 178,516 18,872 52 75 212 339 - 0.8 12.2 0.2
Other 43 1 2 - 46 - 3 - 1 4 7.0 - 50.0 8.7
Total 167,890 8,861 1,739 72 178,562 18,872 55 75 213 343 - 0.8 12.2 0.2
31 December 2021
≤50% 61,233 4,548 644 63 66,488 5,845 7 60 140 207 - 1.3 21.7 0.3
>50% and ≤70% 68,271 4,674 483 9 73,437 12,397 10 64 84 158 - 1.4 17.4 0.2
>70% and ≤80% 24,004 1,255 93 1 25,353 10,964 3 18 15 36 - 1.4 16.1 0.1
>80% and ≤90% 5,983 250 22 1 6,256 4,985 1 8 5 14 - 3.2 22.7 0.2
>90% and ≤100% 1,125 58 10 - 1,193 1,098 - 5 3 8 - 8.6 30.0 0.7
>100% 14 18 6 - 38 - - 1 2 3 - 5.6 33.3 7.9
Total with LTVs 160,630 10,803 1,258 74 172,765 35,289 21 156 249 426 - 1.4 19.8 0.2
Other 14 1 1 - 16 1 - - - - - - - -
Total 160,644 10,804 1,259 74 172,781 35,290 21 156 249 426 - 1.4 19.8 0.2
For the notes to this table refer to the following page.
For the notes to this table refer to the following page.
Risk and capital management
Credit risk - Banking activities continued
Personal portfolio (reviewed)
Mortgages ECL provisions ECL provisions coverage (2)
Ulster Bank RoI Not within Of which:
IFRS 9 gross new
Stage 1 Stage 2 Stage 3 ECL scope Total lending Stage 1 Stage 2 Stage 3 Total (1) Stage 1 Stage 2 Stage 3 Total
30 June 2022 £m £m £m £m £m £m £m £m £m £m % % % %
≤50% 275 43 233 - 551 - 6 9 146 161 2.2 20.9 62.7 29.2
>50% and ≤70% 76 21 100 - 197 - 2 7 61 70 2.6 33.3 61.0 35.5
>70% and ≤80% 6 5 48 - 59 - 1 3 29 33 16.7 60.0 60.4 55.9
>80% and ≤90% 1 1 33 - 35 - - 1 20 21 - 100.0 60.6 60.0
>90% and ≤100% - 1 22 - 23 - - 1 13 14 - 100.0 59.1 60.9
>100% - - 23 - 23 - - - 13 13 - - 56.5 56.5
Total 358 71 459 - 888 - 9 21 282 312 2.5 29.6 61.4 35.1
Other 17 - 1 - 18 - - - - - - - - -
Total 375 71 460 - 906 - 9 21 282 312 2.4 29.6 61.3 34.4
31 December 2021
≤50% 2,660 221 274 - 3,155 13 4 6 138 148 0.2 2.7 50.4 4.7
>50% and ≤70% 1,497 172 128 - 1,797 16 2 5 59 66 0.1 2.9 46.1 3.7
>70% and ≤80% 484 67 60 - 611 9 1 2 28 31 0.2 3.0 46.7 5.1
>80% and ≤90% 231 51 55 - 337 1 1 2 26 29 0.4 3.9 47.3 8.6
>90% and ≤100% 82 26 37 - 145 1 - 1 19 20 - 3.8 51.4 13.8
>100% 33 16 41 - 90 - - 1 23 24 - 6.3 56.1 26.7
Total with LTVs 4,987 553 595 - 6,135 40 8 17 293 318 0.2 3.1 49.2 5.2
Other 25 - 4 - 29 - - - - - - - - -
Total 5,012 553 599 - 6,164 40 8 17 293 318 0.2 3.1 48.9 5.2
(1) Excludes a non-material amount of provisions held on relatively small legacy
portfolios.
(2) ECL provisions coverage is ECL provisions divided by mortgages.
- ECL coverage rates for each Stage increased through the LTV bands with both
Retail Banking and Ulster Bank RoI having only limited exposures in the
highest LTV bands. The reduced coverage level in the lower LTV bands for
Retail Banking reflects the implementation of new IFRS 9 LGD model with a
modelling approach that now captures a reduced loss expectation from
non-repossession recovery action.
- Continued stable portfolio performance alongside the new IFRS 9 PD and LGD
model implementations have resulted in reduced coverage across most LTV bands
in Stage 2 and Stage 3. The increased ECL across Stage 1 LTV bands was driven
by higher Stage 1 PDs as a result of the new PD model implementation and also
the proportionate allocation of the new cost of living post model adjustment
to Stage 1.
(1) Excludes a non-material amount of provisions held on relatively small legacy
portfolios.
(2) ECL provisions coverage is ECL provisions divided by mortgages.
- ECL coverage rates for each Stage increased through the LTV bands with both
Retail Banking and Ulster Bank RoI having only limited exposures in the
highest LTV bands. The reduced coverage level in the lower LTV bands for
Retail Banking reflects the implementation of new IFRS 9 LGD model with a
modelling approach that now captures a reduced loss expectation from
non-repossession recovery action.
- Continued stable portfolio performance alongside the new IFRS 9 PD and LGD
model implementations have resulted in reduced coverage across most LTV bands
in Stage 2 and Stage 3. The increased ECL across Stage 1 LTV bands was driven
by higher Stage 1 PDs as a result of the new PD model implementation and also
the proportionate allocation of the new cost of living post model adjustment
to Stage 1.
Risk and capital management
Credit risk - Banking activities continued
Commercial real estate (CRE)
The CRE portfolio comprises exposures to entities involved in the development
of, or investment in, commercial and residential properties (including house
builders but excluding housing associations, construction and the building
materials sub-sector). The sector is reviewed regularly by senior executive
committees. Reviews include portfolio credit quality, capital consumption and
control frameworks. The CRE tables in this section include information on
exposures which are out of scope of ECL calculations or part of disposal
groups.
30 June 2022 31 December 2021
UK RoI Other Total UK RoI Other Total
By geography and sub-sector (1) £m £m £m £m £m £m £m £m
Investment
Residential (2) 4,497 253 14 4,764 4,422 341 19 4,782
Office (3) 3,087 228 - 3,315 3,037 190 10 3,237
Retail (4) 4,071 78 1 4,150 4,207 81 - 4,288
Industrial (5) 2,942 12 144 3,098 2,760 13 106 2,879
Mixed/other (6) 935 105 49 1,089 1,185 113 50 1,348
15,532 676 208 16,416 15,611 738 185 16,534
Development
Residential (2) 1,959 117 1 2,077 1,775 76 2 1,853
Office (3) 85 - - 85 79 33 - 112
Retail (4) 57 - - 57 48 - - 48
Industrial (5) 81 1 - 82 67 1 - 68
Mixed/other (6) 17 1 - 18 20 2 - 22
2,199 119 1 2,319 1,989 112 2 2,103
Total 17,731 795 209 18,735 17,600 850 187 18,637
(1) Geographical splits are based on country of collateral risk.
(2) Properties including houses, flats and student accommodation.
(3) Properties including offices in central business districts, regional
headquarters and business parks.
(4) Properties including high street retail, shopping centres, restaurants, bars
and gyms.
(5) Properties including distribution centres, manufacturing and warehouses.
(6) Properties that do not fall within the other categories above. Mixed generally
relates to a mixture of retail/office with residential.
Risk and capital management
Credit risk - Banking activities continued
Commercial real estate (reviewed)
CRE LTV distribution by stage
The table below shows CRE current exposure and related ECL by LTV band.
Gross loans ECL provisions ECL provisions coverage (2)
Not within
IFRS 9
ECL
Stage 1 Stage 2 Stage 3 scope (1) Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
30 June 2022 £m £m £m £m £m £m £m £m £m % % % %
≤50% 7,113 253 37 240 7,643 10 7 11 28 0.1 2.8 29.7 0.4
>50% and ≤70% 4,249 384 41 470 5,144 7 8 20 35 0.2 2.1 48.8 0.7
>70% and ≤100% 299 265 57 11 632 - 10 26 36 - 3.8 45.6 5.7
>100% 159 9 86 4 258 - 2 31 33 - 22.2 36.0 12.8
Total with LTVs 11,820 911 221 725 13,677 17 27 88 132 0.1 3.0 39.8 1.0
Total portfolio
average LTV% 46% 61% 87% 49% 48%
Other (5) 2,299 332 57 51 2,739 5 23 27 55 0.2 6.9 47.4 2.0
Development (6) 1,947 196 66 110 2,319 5 7 30 42 0.3 3.6 45.5 1.8
Total 16,066 1,439 344 886 18,735 27 57 145 229 0.2 4.0 42.2 1.2
31 December 2021
≤50% 6,767 388 34 268 7,457 5 7 9 21 0.1 1.8 26.5 0.3
>50% and ≤70% 4,367 470 46 469 5,352 3 13 20 36 0.1 2.8 43.5 0.7
>70% and ≤100% 377 192 127 9 705 - 9 32 41 - 4.7 25.2 5.8
>100% 215 7 86 4 312 - 2 28 30 - 28.6 32.6 9.6
Total with LTVs 11,726 1,057 293 750 13,826 8 31 89 128 0.1 2.9 30.4 0.9
Total portfolio
average LTV% 48% 58% 88% 52% 50%
Other (3) 2,271 293 61 83 2,708 4 13 28 45 0.2 4.4 45.9 1.7
Development (4) 1,736 228 62 77 2,103 3 6 34 43 0.2 2.6 54.8 2.0
Total 15,733 1,578 416 910 18,637 15 50 151 216 0.1 3.2 36.3 1.2
(1) Includes exposures relating to non-modelled portfolios and other
exposures carried at fair value.
(2) ECL provisions coverage is ECL provisions divided by current
exposure.
(3) Relates mainly to business banking, rate risk management products
and unsecured corporate lending.
(4) Relates to the development of commercial and residential
properties. LTV is not a meaningful measure for this type of lending activity.
Overall - The majority of the CRE portfolio was located and managed in the UK.
Business appetite and strategy was aligned across NatWest Group.
2022 trends - H1 2022 saw a relatively flat performance, as the growth noted
in Q1 began to subside due to deterioration in the wider economic outlook. The
residential sector continued to perform well, although, with . house price
growth coupled with rising borrowing costs the outlook is uncertain.
Uncertainty in the office sector remained, with the full consequences of the
limited return to work, still to flow through to the sector. The industrial
sector continued to perform strongly reflecting the structural change in
retail. The retail sector continued to exhibit mixed performance based on
changing consumer habits.
Credit quality - NatWest Group entered 2022 with a conservatively positioned
CRE portfolio. The majority of the defaults experienced during 2021 were in
the retail sector, particularly in the fashion-led shopping centre sub-sector.
NatWest Group completed a strategic sale of a portfolio of these loans during
2021, achieving a rebalance of the portfolio at that stage. Rental payments
have now normalised, but uncertainty still remains and the portfolio continues
to be actively reviewed and managed.
During H1 2022, Heightened Monitoring stock reduced by both volume and value,
most materially within the investment sub-sector (retail, residential and
office).
Risk appetite - Lending appetite continued to be gradually and selectively
increased by sub-sector aligned to our purpose led approach.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
The flow statements that follow show the main ECL and related income statement
movements. They also show the changes in ECL as well as the changes in related
financial assets used in determining ECL. Due to differences in scope,
exposures may differ from those reported in other tables, principally in
relation to exposures in Stage 1 and Stage 2. These differences do not have a
material ECL affect. Other points to note:
- Financial assets include treasury liquidity portfolios, comprising
balances at central banks and debt securities, as well as loans. Both modelled
and non-modelled portfolios are included.
- Stage transfers (for example, exposures moving from Stage 1 into Stage
2) are a key feature of the ECL movements, with the net re-measurement cost of
transitioning to a worse stage being a primary driver of income statement
charges. Similarly, there is an ECL benefit for accounts improving stage.
- Changes in risk parameters shows the reassessment of the ECL within a
given stage, including any ECL overlays and residual income statement gains or
losses at the point of write-off or accounting write-down.
- Other (P&L only items) includes any subsequent changes in the
value of written-down assets (for example, fortuitous recoveries) along with
other direct write-off items such as direct recovery costs. Other (P&L
only items) affects the income statement but does not affect balance sheet ECL
movements.
- Amounts written-off represent the gross asset written-down against
accounts with ECL, including the net asset write-down for any debt sale
activity.
- There were flows from Stage 1 into Stage 3 including transfers due to
unexpected default events. The small number of write-offs in Stage 1 and Stage
2 reflected the effect of portfolio debt sales and also staging at the start
of the analysis period.
- The effect of any change in PMAs during the year is typically reported
under changes in risk parameters, as are any effects arising from changes to
the underlying models. Refer to the section on Governance and post model
adjustments for further details.
- All movements are captured monthly and aggregated. Interest suspended
post default is included within Stage 3 ECL with the movement in the value of
suspended interest during the year reported under currency translation and
other adjustments.
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
NatWest Group total £m £m £m £m £m £m £m £m
At 1 January 2022 546,178 302 35,557 1,478 5,238 2,026 586,973 3,806
Currency translation and other adjustments 4,259 (3) 131 - 38 2 4,428 (1)
Transfers from Stage 1 to Stage 2 (18,211) (68) 18,211 68 - - - -
Transfers from Stage 2 to Stage 1 18,567 512 (18,567) (512) - - - -
Transfers to Stage 3 (319) (1) (1,992) (135) 2,311 136 - -
Transfers from Stage 3 143 11 448 42 (591) (53) - -
Net re-measurement of ECL on stage transfer (443) 483 155 195
Changes in risk parameters (model inputs) 72 (119) 34 (13)
Other changes in net exposure (1,560) 31 (3,645) (155) (640) (29) (5,845) (153)
Other (P&L only items) (2) (4) (77) (83)
Income statement (releases)/charges (342) 205 83 (54)
Transfers to disposal groups (4,942) (5) (603) (28) (134) (17) (5,679) (50)
Amounts written-off - - - - (215) (215) (215) (215)
Unwinding of discount - - (54) (54)
At 30 June 2022 544,115 408 29,540 1,122 6,007 1,985 579,662 3,515
Net carrying amount 543,707 28,418 4,022 576,147
At 1 January 2021 446,666 519 81,667 3,081 6,524 2,586 534,857 6,186
2021 movements 46,032 (86) (26,169) (781) (666) (394) 19,197 (1,261)
At 30 June 2021 492,698 433 55,498 2,300 5,858 2,192 554,054 4,925
Net carrying amount 492,265 53,198 3,666 549,129
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Retail Banking - mortgages £m £m £m £m £m £m £m £m
At 1 January 2022 159,966 24 10,748 155 1,267 250 171,981 429
Currency translation and other adjustments - - - - 3 2 3 2
Transfers from Stage 1 to Stage 2 (5,576) (3) 5,576 3 - - - -
Transfers from Stage 2 to Stage 1 5,869 53 (5,869) (53) - - - -
Transfers to Stage 3 (37) - (910) (28) 947 28 - -
Transfers from Stage 3 14 1 241 11 (255) (12) - -
Net re-measurement of ECL on stage transfer (50) 47 (13) (16)
Changes in risk parameters (model inputs) 32 (49) 3 (14)
Other changes in net exposure 5,899 - (801) (10) (174) (7) 4,924 (17)
Other (P&L only items) (2) (1) (26) (29)
Income statement (releases)/charges (20) (13) (43) (76)
Amounts written-off - - - - (20) (20) (20) (20)
Unwinding of discount - - (19) (19)
At 30 June 2022 166,135 57 8,985 76 1,768 212 176,888 345
Net carrying amount 166,078 8,909 1,556 176,543
At 1 January 2021 132,390 23 28,079 227 1,291 236 161,760 486
2021 movements 16,915 (4) (12,510) (47) 61 14 4,466 (37)
At 30 June 2021 149,305 19 15,569 180 1,352 250 166,226 449
Net carrying amount 149,286 15,389 1,102 165,777
- Despite the strong portfolio growth during 2022 so far, ECL levels for
mortgages reduced during the same period. The decrease in ECL was primarily a
result of stable portfolio performance alongside the implementation of new
IFRS 9 models in Q1 2022. Collectively, this resulted in lower levels of ECL
requirement.
- More specifically, strong credit performance resulted in the migration
of assets from Stage 2 into Stage 1, with an associated decrease from lifetime
ECL to a 12 month ECL. In addition, the introduction of the new cost of living
post model adjustment at 30 June 2022 allocated more ECL to Stage 1 given the
forward-looking nature of the cost of living and inflation threat, whereas the
previous COVID-19 post model adjustments were focused on Stage 2 (for example,
high risk payment holiday cases migrated into Stage 2). Refer to the
Governance and post model adjustments section for more information.
- The Stage 3 inflow relates to the IFRS 9 adoption of the new
regulatory definition of default in January 2022. However, the Stage 3 ECL
levels reduced since 31 December 2021 primarily due to reduced LGD estimates
as a result of the new model implementation in Q1 2022 alongside stable
underlying default levels. The relatively small ECL cost for net
re-measurement on stage transfer included the effect of risk targeted ECL
adjustments, when previously in Stage 2. Refer to the Governance and post
model adjustments section for further details.
- Write-off occurs once the repossessed property has been sold and there
is a residual shortfall balance remaining outstanding. This would typically be
within five years from default but can be longer. Given repossession activity
remains subdued relative to pre-COVID-19 levels, write-offs remained at a
lower level.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Retail Banking - credit cards £m £m £m £m £m £m £m £m
At 1 January 2022 2,740 58 947 141 91 60 3,778 259
Currency translation and other adjustments - - - - - - - -
Transfers from Stage 1 to Stage 2 (626) (23) 626 23 - - - -
Transfers from Stage 2 to Stage 1 450 59 (450) (59) - - - -
Transfers to Stage 3 (12) - (54) (22) 66 22 - -
Transfers from Stage 3 - - 4 2 (4) (2) - -
Net re-measurement of ECL on stage transfer (35) 90 16 71
Changes in risk parameters (model inputs) (2) (34) 7 (29)
Other changes in net exposure 252 7 (49) (28) (12) 1 191 (20)
Other (P&L only items) - - (2) (2)
Income statement (releases)/charges (30) 28 22 20
Amounts written-off - - - - (33) (33) (33) (33)
Unwinding of discount - - (3) (3)
At 30 June 2022 2,804 64 1,024 113 108 68 3,936 245
Net carrying amount 2,740 911 40 3,691
At 1 January 2021 2,250 52 1,384 220 114 75 3,748 347
2021 movements 92 (6) (293) (39) (25) (18) (226) (63)
At 30 June 2021 2,342 46 1,091 181 89 57 3,522 284
Net carrying amount 2,296 910 32 3,238
- The overall decrease in ECL was mainly due to the reduction in Stage 2
ECL reflecting the stable portfolio performance, causing PDs to decrease. This
resulted in reduced levels of SICR identification and ECL requirement.
- In addition, a temporary adjustment for an ECL release is in place to
reflect, on a forward-looking basis, the associated effects of a new credit
card PD model that is pending implementation in Q3 2022. This is captured in
changes in risk parameters for Stage 1 and Stage 2.
- Cards balances have grown since the 2021 year end, in line with
industry trends in the UK, as unsecured borrowing demand increased.
- Reflecting the strong credit performance observed during 2022, Stage 3
inflows remained subdued and the effect of the IFRS 9 adoption of the new
regulatory definition of default was minimal for Cards, therefore Stage 3 ECL
movement was low in H1 2022.
- Charge-off (analogous to partial write-off) typically occurs after 12
missed payments.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Retail Banking - other personal unsecured £m £m £m £m £m £m £m £m
At 1 January 2022 4,548 52 1,967 294 629 540 7,144 886
Currency translation and other adjustments - (3) - - 6 - 6 (3)
Transfers from Stage 1 to Stage 2 (1,019) (18) 1,019 18 - - - -
Transfers from Stage 2 to Stage 1 788 105 (788) (105) - - - -
Transfers to Stage 3 (16) - (198) (56) 214 56 - -
Transfers from Stage 3 1 2 14 8 (15) (10) - -
Net re-measurement of ECL on stage transfer (94) 119 65 90
Changes in risk parameters (model inputs) 13 (14) 33 32
Other changes in net exposure 518 6 (241) (34) (48) (12) 229 (40)
Other (P&L only items) - - - -
Income statement (releases)/charges (75) 71 86 82
Amounts written-off - - - - (53) (53) (53) (53)
Unwinding of discount - - (4) (4)
At 30 June 2022 4,820 63 1,773 230 733 615 7,326 908
Net carrying amount 4,757 1,543 118 - 6,418
At 1 January 2021 3,385 59 3,487 450 596 495 7,468 1,004
2021 movements 435 (4) (963) (102) (3) 9 (531) (97)
At 30 June 2021 3,820 55 2,524 348 593 504 6,937 907
Net carrying amount 3,765 2,176 89 6,030
- Overall ECL has remained stable, with a modest increase driven by
Stage 3 ECL linked to the IFRS 9 adoption of the new regulatory definition of
default in January 2022, with underlying Stage 3 inflows remaining stable,
reflecting the strong credit performance observed during 2022.
- More specifically, the reduced PDs alongside muted portfolio
deterioration, resulted in migration of assets from Stage 2 into Stage 1, with
an associated decrease from lifetime ECL to a 12 month ECL and kept Stage 2
levels stable.
- Unsecured retail balances have grown since the 2021 year end, in line
with industry trends in the UK, as unsecured borrowing demand increased.
- Write-off occurs once recovery activity with the customer has been
concluded or there are no further recoveries expected, but no later than six
years after default.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Commercial & Institutional total £m £m £m £m £m £m £m £m
At 1 January 2022 152,224 129 19,731 785 2,155 750 174,110 1,664
Currency translation and other adjustments 2,455 (1) 124 - 14 2 2,593 1
Inter-group transfers (660) - - - - - (660) -
Transfers from Stage 1 to Stage 2 (10,291) (21) 10,291 21 - - - -
Transfers from Stage 2 to Stage 1 10,378 273 (10,378) (273) - - - -
Transfers to Stage 3 (102) - (682) (25) 784 25 - -
Transfers from Stage 3 100 8 92 14 (192) (22) - -
Net re-measurement of ECL on stage transfer (248) 214 83 49
Changes in risk parameters (model inputs) 27 (31) 5 1
Other changes in net exposure 8,223 18 (2,409) (74) (313) (17) 5,501 (73)
Other (P&L only items) (1) (1) (34) (36)
Income statement releases (204) 108 37 (59)
Amounts written-off - - - - (94) (94) (94) (94)
Unwinding of discount - - (26) (26)
At 30 June 2022 162,327 185 16,769 631 2,354 706 181,450 1,522
Net carrying amount 162,142 - 16,138 - 1,648 - 179,928 -
At 1 January 2021 131,307 296 42,290 1,836 2,998 1,249 176,595 3,381
2021 movements 221 (63) (11,194) (532) (452) (302) (11,425) (897)
At 30 June 2021 131,528 233 31,096 1,304 2,546 947 165,170 2,484
Net carrying amount 131,295 29,792 1,599 162,686
- There was an uplift in Stage 1 exposure from new and increased lending
specifically to financial institutions along with movements in currency
translations. Stage 1 ECL increased due to an uplift in post model
adjustments, the largest adjustment being a new adjustment for inflation and
supply chain issues and additional ECL on loans that migrated from Stage 2 and
Stage 3.
- Stage 2 exposure and ECL reduced reflecting positive portfolio
performance which lowered PDs, with net effect of stage transfers leading to a
significant reduction in ECL. In addition, a reduction in the Stage 2 economic
uncertainty adjustment further reduced ECL.
- Flows into Stage 3 increased due to defaults on government scheme
lending, but the government guarantee has meant this has not led to an
increase in ECL. In addition, write-offs led to an overall reduction in Stage
3 ECL.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
Commercial & Institutional assets ECL assets ECL assets ECL assets ECL
- business banking £m £m £m £m £m £m £m £m
At 1 January 2022 6,673 11 1,376 60 44 10 8,093 81
Currency translation and other adjustments - - - - - - - -
Transfers from Stage 1 to Stage 2 (866) (3) 866 3 - - - -
Transfers from Stage 2 to Stage 1 491 21 (491) (21) - - - -
Transfers to Stage 3 (12) - (69) (4) 81 4 - -
Transfers from Stage 3 16 1 15 2 (31) (3) - -
Net re-measurement of ECL on stage transfer (20) 35 11 26
Changes in risk parameters (model inputs) 7 22 2 31
Other changes in net exposure (442) 2 (382) (9) (46) (6) (870) (13)
Other (P&L only items) (2) 1 (1) (2)
Income statement (releases)/charges (13) 49 6 42
Amounts written-off - - - - (1) (1) (1) (1)
Unwinding of discount - - (1) (1)
At 30 June 2022 5,860 19 1,315 88 47 16 7,222 123
Net carrying amount 5,841 1,227 31 7,099
- At a total level, exposure reduced mainly due to the repayment of
government scheme debt.
- Exposure moved from Stage 1 into Stage 2 due to a deterioration in
some government scheme lending. ECL increased, reflecting a higher probability
of default on additional lending to customers that had government scheme
lending.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Commercial & Institutional - corporate £m £m £m £m £m £m £m £m
At 1 January 2022 44,089 83 14,296 599 1,350 521 59,735 1,203
Currency translation and other adjustments 537 (1) 102 - 11 3 650 2
Inter-group transfers (11) - (84) (4) 1 - (94) (4)
Transfers from Stage 1 to Stage 2 (6,425) (14) 6,425 14 - - - -
Transfers from Stage 2 to Stage 1 6,742 189 (6,742) (189) - - - -
Transfers to Stage 3 (55) - (419) (16) 474 16 - -
Transfers from Stage 3 21 5 49 9 (70) (14) - -
Net re-measurement of ECL on stage transfer (170) - 142 49 21
Changes in risk parameters (model inputs) 12 (44) (12) (44)
Other changes in net exposure 4,389 10 (1,099) (47) (200) (4) 3,090 (41)
Other (P&L only items) (1) (2) (31) (34)
Income statement (releases)/charges (149) 49 2 (98)
Amounts written-off - - - - (77) (77) (77) (77)
Unwinding of discount - - (18) (18)
At 30 June 2022 49,287 114 12,528 464 1,489 464 63,304 1,042
Net carrying amount 49,173 12,064 1,025 62,262
- There was a rise in Stage 1 exposure from new and increased lending
along with movements in currency translations. ECL increased due to a rise in
post model adjustments with a new adjustment for inflation and supply chain
issues and additional ECL on loans that migrated from Stage 2 and Stage 3.
- Stage 2 exposure and ECL reduced reflecting positive portfolio
performance which lowered PDs. The net effect of stage transfers led to a
significant reduction in Stage 2 ECL, and there were further reductions due to
a decrease in the economic uncertainty adjustment.
- Flows into Stage 3 increased due to defaults on government scheme
lending, but the government guarantee has meant this has not led to an
increase in ECL. In addition, write-offs have led to an overall reduction in
Stage 3 ECL.
- The portfolio benefit from cash recoveries post write-off, which are
reported as other (P&L only items). Write-off occurs once recovery
activity with the customer has been concluded or there are no further
recoveries expected, but no later than five years after default.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Commercial & Institutional - property £m £m £m £m £m £m £m £m
At 1 January 2022 25,352 20 2,777 84 661 204 28,790 308
Currency translation and other adjustments 10 - 1 - 1 (4) 12 (4)
Inter-group transfers 7 - (17) - (1) - (11) -
Transfers from Stage 1 to Stage 2 (1,612) (3) 1,612 3 - - - -
Transfers from Stage 2 to Stage 1 1,310 23 (1,310) (23) - - - -
Transfers to Stage 3 (19) - (137) (5) 156 5 - -
Transfers from Stage 3 22 2 25 2 (47) (4) - -
Net re-measurement of ECL on stage transfer (23) 28 12 17
Changes in risk parameters (model inputs) 11 (6) 9 14
Other changes in net exposure 986 3 (468) (14) (64) (8) 454 (19)
Other (P&L only items) - - - -
Income statement (releases)/charges (9) 8 13 12
Amounts written-off - - - - (15) (15) (15) (15)
Unwinding of discount - - (6) (6)
At 30 June 2022 26,056 33 2,483 69 691 193 29,230 295
Net carrying amount 26,023 2,414 498 28,935
- There was a rise in Stage 1 exposure from new and increased lending
along with movements in currency translations. ECL increased due to a rise in
post model adjustments with a new adjustment for inflation and supply chain
issues and additional ECL on loans that migrated from Stage 2 and Stage 3.
- Stage 2 exposure and ECL reduced reflecting positive portfolio
performance which lowered PDs and a reduction in the economic uncertainty
adjustment.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Commercial & Institutional - other £m £m £m £m £m £m £m £m
At 1 January 2022 76,109 15 1,282 43 100 15 77,491 73
Currency translation and other adjustments 1,908 - 21 - 2 2 1,931 2
Inter-group transfers (655) - 101 4 - (1) (554) 3
Transfers from Stage 1 to Stage 2 (1,387) (1) 1,387 1 - - - -
Transfers from Stage 2 to Stage 1 1,835 39 (1,835) (39) - - - -
Transfers to Stage 3 (17) - (57) - 74 - - -
Transfers from Stage 3 41 - 4 - (45) - - -
Net re-measurement of ECL on stage transfer (34) 8 10 (16)
Changes in risk parameters (model inputs) (4) (3) 8 1
Other changes in net exposure 3,290 4 (460) (4) (3) - 2,827 -
Other (P&L only items) - - (1) (1)
Income statement (releases)/charges (34) 1 17 (16)
Amounts written-off - - - - (1) (1) (1) (1)
Unwinding of discount - - - -
At 30 June 2022 81,124 19 443 10 127 33 81,694 62
Net carrying amount 81,105 433 94 81,632
- There was an uplift in Stage 1 exposure from new and increased lending
along with movements in currency translations and an increase from exposures
moving from Stage 2. Stage 1 ECL was broadly unchanged as the exposures that
returned to Stage 1 are now subject to 12 months ECL , generating a
significant ECL release on re-measurement.
- Stage 2 exposure and ECL reduced reflecting positive portfolio
performance which lowered PDs, this led to large exposure transfers to Stage 1
and a significant reduction in ECL.
- Stage 3 exposure increased due to stage transfers. There was also a
significant increase in Stage 3 ECL and charge due to two individual cases.
Risk and capital management
Credit risk - Banking activities continued
Stage 2 decomposition by a significant increase in credit risk trigger
UK mortgages RoI mortgages Credit cards Other Total
30 June 2022 £m % £m % £m % £m % £m %
Personal trigger (1)
PD movement 5,158 57.3 23 32.0 565 54.5 808 47.0 6,554 55.4
PD persistence 1,228 13.6 5 7.0 329 31.7 369 21.5 1,931 16.3
Adverse credit bureau recorded with
credit reference agency 1,936 21.5 - - 49 4.7 85 5.0 2,070 17.5
Forbearance support provided 140 1.6 1 1.0 1 0.1 22 1.3 164 1.4
Customers in collections 269 3.0 3 4.0 2 0.2 17 1.0 291 2.5
Collective SICR and other reasons (2) 163 1.8 39 55.0 91 8.8 404 23.6 697 5.9
Days past due >30 111 1.2 - - - - 10 0.6 121 1.0
9,005 100 71 100 1,037 100 1,715 100 11,828 100
31 December 2021
Personal trigger (1)
PD movement 2,707 24.6 83 14.9 560 60.1 1,008 51.8 4,358 30.2
PD persistence 3,103 28.2 21 3.8 270 28.9 771 39.6 4,165 28.9
Adverse credit bureau recorded with
credit reference agency 3,657 33.3 - - 60 6.4 73 3.7 3,790 26.3
Forbearance support provided 178 1.6 6 1.1 2 0.2 28 1.4 214 1.5
Customers in collections 82 0.8 33 6.0 3 0.3 15 0.8 133 0.9
Collective SICR and other reasons (2) 1,197 10.9 409 74.0 38 4.1 46 2.4 1,690 11.7
Days past due >30 66 0.6 1 0.2 - - 6 0.3 73 0.5
10,990 100 553 100 933 100 1,947 100 14,423 100
For the notes to the table refer to the following page.
- The strong credit performance of the portfolio resulted in either
decreased or stable account level IFRS 9 PDs during the year so far for most
products. UK mortgages was the exception, where the implementation of a new
IFRS 9 PD model in Q1 2022 increased the proportion of accounts exhibiting
significant PD deterioration.
- Personal customers who had accessed COVID-19 payment holiday support,
and where their risk profile was identified as relatively high risk are no
longer collectively migrated into Stage 2, given the lack of default emergence
from these segments and with the focus of high risk segment monitoring now
shifting to the effects of inflation and the growing cost of living effect on
customers. In UK mortgages at 31 December 2021, approximately £0.8 billion of
exposures were previously collectively migrated from Stage 1 into Stage 2.
- In the other lending category, there was an increase in 'Collective
SICR and other reasons' as a result of the net migration of assets into Stage
2 of £0.5 billion reflecting, on a forward-looking basis, the staging effect
of new retail unsecured PD models that are pending implementation in Q3 2022.
Risk and capital management
Credit risk - Banking activities continued
Stage 2 decomposition by a significant increase in credit risk trigger
Property Corporate Financial institution Other Total
Loans ECL Loans ECL Loans ECL Loans ECL Loans ECL
30 June 2022 £m % £m % £m % £m % £m %
Wholesale trigger (1)
PD movement 1,202 41.2 8,752 65.6 130 47.9 86 54.4 10,170 61.1
PD persistence 69 2.4 215 1.6 3 1.1 - - 287 1.7
Risk of Credit Loss 810 27.7 2,141 16.1 64 23.6 57 36.1 3,072 18.4
Forbearance support provided 105 3.6 682 5.1 4 1.5 - - 791 4.7
Customers in collections 29 1.0 102 0.8 1 0.4 - - 132 0.8
Collective SICR and other reasons (2) 497 17.0 894 6.7 66 24.4 15 9.5 1,472 8.8
Days past due >30 208 7.1 542 4.1 3 1.1 - - 753 4.5
2,920 100 13,328 100 271 100 158 100 16,677 100
31 December 2021
Wholesale trigger (1)
PD movement 942 30.3 10,553 67.7 595 81.3 84 69.4 12,174 62.2
PD persistence 139 4.5 553 3.5 6 0.8 1 0.8 699 3.6
Risk of Credit Loss 962 31.0 2,626 16.8 71 9.7 34 28.1 3,693 18.9
Forbearance support provided 101 3.3 489 3.1 6 0.8 - - 596 3.0
Customers in collections 27 0.9 88 0.6 1 0.1 - - 116 0.6
Collective SICR and other reasons (2) 762 24.6 1,189 7.6 35 4.8 2 1.7 1,988 10.2
Days past due >30 168 5.4 106 0.7 18 2.5 - - 292 1.5
3,101 100 15,604 100 732 100 121 100 19,558 100
(1) The table is prepared on a hierarchical basis from top to bottom,
for example, accounts with PD deterioration may also trigger backstop(s) but
are only reported under PD deterioration.
(2) Includes customers where a PD assessment cannot be undertaken due
to missing PDs.
- PD deterioration continued to be the primary trigger of migration of
exposures from Stage 1 into Stage 2. There was a reduction in cases triggering
PD deterioration reflecting positive portfolio performance which is lowering
PDs.
- Moving exposures on to the Risk of Credit Loss framework remained an
important backstop indicator of a SICR. The exposures classified under the
Stage 2 Risk of Credit Loss framework decreased over the period again
reflecting positive portfolio performance.
- PD persistence related to the Business Banking portfolio only. A
reduction in PDs in Q4 2021 meant that some Business Banking customers were
only in Stage 2 because of persistence and with PDs marginally improving in
2022, they have now returned to Stage 1.
- There was an increase in customers meeting the >30 days past due
trigger as a result of regulatory definition of default changes where all
customer borrowing is now categorised as past due, previously it was assessed
at a facility level.
Risk and capital management
Credit risk - Banking activities continued
Asset quality (reviewed)
The table below shows asset quality bands of gross loans and ECL, by stage,
for the Personal portfolio.
Gross loans ECL provisions ECL provisions coverage
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
30 June 2022 £m £m £m £m £m £m £m £m % % % %
UK mortgages
AQ1-AQ4 111,137 3,478 - 114,615 28 24 - 52 0.03 0.69 - 0.05
AQ5-AQ8 71,779 4,951 - 76,730 27 47 - 74 0.04 0.95 - 0.10
AQ9 146 576 - 722 - 7 - 7 - 1.22 - 0.97
AQ10 - - 1,988 1,988 - - 231 231 - - 11.62 11.62
183,062 9,005 1,988 194,055 55 78 231 364 0.03 0.87 11.62 0.19
RoI mortgages
AQ1-AQ4 236 21 - 257 5 2 - 7 2.12 9.52 - 2.72
AQ5-AQ8 116 39 - 155 1 8 - 9 0.86 20.51 - 5.81
AQ9 - 11 - 11 - 1 - 1 - 9.09 - 9.09
AQ10 - - 460 460 - - 269 269 - - 58.48 58.48
352 71 460 883 6 11 269 286 1.70 15.49 58.48 32.39
Credit cards
AQ1-AQ4 90 1 - 91 2 - - 2 2.22 - - 2.20
AQ5-AQ8 2,964 1,002 - 3,966 62 106 - 168 2.09 10.58 - 4.24
AQ9 5 34 - 39 1 11 - 12 20.00 32.35 - 30.77
AQ10 - - 105 105 - - 68 68 - - 64.76 64.76
3,059 1,037 105 4,201 65 117 68 250 2.12 11.28 64.76 5.95
Other personal
AQ1-AQ4 1,096 121 - 1,217 7 21 - 28 0.64 17.36 - 2.30
AQ5-AQ8 5,895 1,485 - 7,380 65 191 - 256 1.10 12.86 - 3.47
AQ9 38 109 - 147 1 22 - 23 2.63 20.18 - 15.65
AQ10 - - 767 767 - - 631 631 - - 82.27 82.27
7,029 1,715 767 9,511 73 234 631 938 1.04 13.64 82.27 9.86
Total
AQ1-AQ4 112,559 3,621 - 116,180 42 47 - 89 0.04 1.30 - 0.08
AQ5-AQ8 80,754 7,477 - 88,231 155 352 - 507 0.19 4.71 - 0.57
AQ9 189 730 - 919 2 41 - 43 1.06 5.62 - 4.68
AQ10 - - 3,320 3,320 - - 1,199 1,199 - - 36.11 36.11
193,502 11,828 3,320 208,650 199 440 1,199 1,838 0.10 3.72 36.11 0.88
Risk and capital management
Credit risk - Banking activities continued
Asset quality (reviewed)
Gross loans ECL provisions ECL provisions coverage
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
31 December 2021 £m £m £m £m £m £m £m £m % % % %
UK mortgages
AQ1-AQ4 93,956 3,157 - 97,113 8 40 - 48 0.01 1.27 - 0.05
AQ5-AQ8 81,160 7,325 - 88,485 17 103 - 120 0.02 1.41 - 0.14
AQ9 290 508 - 798 - 14 - 14 - 2.76 - 1.75
AQ10 - - 1,451 1,451 - - 269 269 - - 18.54 18.54
175,406 10,990 1,451 187,847 25 157 269 451 0.01 1.43 18.54 0.24
RoI mortgages
AQ1-AQ4 3,669 226 - 3,895 5 5 - 10 0.14 2.21 - 0.26
AQ5-AQ8 1,335 176 - 1,511 2 6 - 8 0.15 3.41 - 0.53
AQ9 8 151 - 159 - 6 - 6 - 3.97 - 3.77
AQ10 - - 599 599 - - 293 293 - - 48.91 48.91
5,012 553 599 6,164 7 17 293 317 0.14 3.07 48.91 5.14
Credit cards
AQ1-AQ4 44 1 - 45 1 - - 1 2.27 - - 2.22
AQ5-AQ8 2,874 894 - 3,768 58 130 - 188 2.02 14.54 - 4.99
AQ9 6 38 - 44 - 11 - 11 - 28.95 - 25.00
AQ10 - - 90 90 - - 60 60 - - 66.67 66.67
2,924 933 90 3,947 59 141 60 260 2.02 15.11 66.67 6.59
Other personal
AQ1-AQ4 831 88 - 919 6 19 - 25 0.72 21.59 - 2.72
AQ5-AQ8 5,950 1,723 - 7,673 51 243 - 294 0.86 14.10 - 3.83
AQ9 52 136 - 188 1 37 - 38 1.92 27.21 - 20.21
AQ10 - - 642 642 - - 557 557 - - 86.76 86.76
6,833 1,947 642 9,422 58 299 557 914 0.85 15.36 86.76 9.70
Total
AQ1-AQ4 98,500 3,472 - 101,972 20 64 - 84 0.02 1.84 - 0.08
AQ5-AQ8 91,319 10,118 - 101,437 128 482 - 610 0.14 4.76 - 0.60
AQ9 356 833 - 1,189 1 68 - 69 0.28 8.16 - 5.80
AQ10 - - 2,782 2,782 - - 1,179 1,179 - - 42.38 42.38
190,175 14,423 2,782 207,380 149 614 1,179 1,942 0.08 4.26 42.38 0.94
- In the Personal portfolio, the asset quality distribution improved overall
with high quality new business written during H1 2022 and existing portfolio
quality being maintained.
- The majority of exposures were in AQ1-AQ4, with a significant proportion in
AQ5-AQ8. As expected, mortgage exposures have a higher proportion in AQ1-AQ4
than unsecured borrowing.
- The increase in AQ10/Stage 3 balances was 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.
- In other Personal, the relatively high level of exposures in AQ10 reflected
that impaired assets can be held on the balance sheet, with commensurate ECL
provision for up to six years after default.
- ECL provisions coverage shows the expected trend with increased coverage in
the poorer asset quality bands, and also by stage.
- As noted previously, across all asset quality bands, migration from Stage 2
into Stage 1 was observed as the effect of improved economic scenarios
enhanced IFRS 9 PDs and therefore reduced Stage 2 exposure.
- In the Personal portfolio, the asset quality distribution improved overall
with high quality new business written during H1 2022 and existing portfolio
quality being maintained.
- The majority of exposures were in AQ1-AQ4, with a significant proportion in
AQ5-AQ8. As expected, mortgage exposures have a higher proportion in AQ1-AQ4
than unsecured borrowing.
- The increase in AQ10/Stage 3 balances was 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.
- In other Personal, the relatively high level of exposures in AQ10 reflected
that impaired assets can be held on the balance sheet, with commensurate ECL
provision for up to six years after default.
- ECL provisions coverage shows the expected trend with increased coverage in
the poorer asset quality bands, and also by stage.
- As noted previously, across all asset quality bands, migration from Stage 2
into Stage 1 was observed as the effect of improved economic scenarios
enhanced IFRS 9 PDs and therefore reduced Stage 2 exposure.
Risk and capital management
Credit risk - Banking activities continued
Asset quality (reviewed)
The table below shows asset quality bands of gross loans and ECL, by stage,
for the Wholesale portfolio.
Gross loans ECL provisions ECL provisions coverage
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
30 June 2022 £m £m £m £m £m £m £m £m % % % %
Property
AQ1-AQ4 15,014 242 - 15,256 6 2 - 8 0.04 0.83 - 0.05
AQ5-AQ8 14,204 2,435 - 16,639 34 82 - 116 0.24 3.37 - 0.70
AQ9 13 243 - 256 - 17 - 17 - 7.00 - 6.64
AQ10 - - 733 733 - - 217 217 - - 29.60 29.60
29,231 2,920 733 32,884 40 101 217 358 0.14 3.46 29.60 1.09
Corporate
AQ1-AQ4 18,734 1,750 - 20,484 11 20 - 31 0.06 1.14 - 0.15
AQ5-AQ8 37,288 11,169 - 48,457 122 511 - 633 0.33 4.58 - 1.31
AQ9 46 409 - 455 1 40 - 41 2.17 9.78 - 9.01
AQ10 - - 1,675 1,675 - - 545 545 - - 32.54 32.54
56,068 13,328 1,675 71,071 134 571 545 1,250 0.24 4.28 32.54 1.76
Financial institutions
AQ1-AQ4 54,185 86 - 54,271 10 - - 10 0.02 - - 0.02
AQ5-AQ8 2,921 183 - 3,104 7 9 - 16 0.24 4.92 - 0.52
AQ9 1 2 - 3 - - - - - - - -
AQ10 - - 75 75 - - 22 22 - - 29.33 29.33
57,107 271 75 57,453 17 9 22 48 0.03 3.32 29.33 0.08
Sovereign
AQ1-AQ4 6,082 71 - 6,153 18 1 - 19 0.30 1.41 - 0.31
AQ5-AQ8 131 86 - 217 - - - - - - - -
AQ 9 - 1 - 1 - - - - - - - -
AQ10 - - 13 13 - - 2 2 - - 15.38 15.38
6,213 158 13 6,384 18 1 2 21 0.29 0.63 15.38 0.33
Total
AQ1-AQ4 94,015 2,149 - 96,164 45 23 - 68 0.05 1.07 - 0.07
AQ5-AQ8 54,544 13,873 - 68,417 163 602 - 765 0.30 4.34 - 1.12
AQ9 60 655 - 715 1 57 - 58 1.67 8.70 - 8.11
AQ10 - - 2,496 2,496 - - 786 786 - - 31.49 31.49
148,619 16,677 2,496 167,792 209 682 786 1,677 0.14 4.09 31.49 1.00
Risk and capital management
Credit risk - Banking activities continued
Asset quality (reviewed)
Gross loans ECL provisions ECL provisions coverage
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
31 December 2021 £m £m £m £m £m £m £m £m % % % %
Property
AQ1-AQ4 13,529 223 - 13,752 3 7 - 10 0.02 3.14 - 0.07
AQ5-AQ8 15,126 2,742 - 17,868 21 94 - 115 0.14 3.43 - 0.64
AQ9 24 136 - 160 - 10 - 10 - 7.35 - 6.25
AQ10 - - 742 742 - - 239 239 - - 32.21 32.21
28,679 3,101 742 32,522 24 111 239 374 0.08 3.58 32.21 1.15
Corporate
AQ1-AQ4 18,378 1,027 - 19,405 8 48 - 56 0.04 4.67 - 0.29
AQ5-AQ8 35,351 13,922 - 49,273 88 621 - 709 0.25 4.46 - 1.44
AQ9 74 655 - 729 - 44 - 44 - 6.72 - 6.04
AQ10 - - 1,444 1,444 - - 602 602 - - 41.69 41.69
53,803 15,604 1,444 70,851 96 713 602 1,411 0.18 4.57 41.69 1.99
Financial institutions
AQ1-AQ4 50,121 63 - 50,184 7 1 - 8 0.01 1.59 - 0.02
AQ5-AQ8 2,138 667 - 2,805 7 38 - 45 0.33 5.70 - 1.60
AQ9 4 2 - 6 - - - - - - - -
AQ10 - - 46 46 - - 4 4 - - 8.70 8.70
52,263 732 46 53,041 14 39 4 57 0.03 5.33 8.70 0.11
Sovereign
AQ1-AQ4 5,787 35 - 5,822 19 1 - 20 0.33 2.86 - 0.34
AQ5-AQ8 117 86 - 203 - - - - - - - -
AQ9 - - - - - - - - - - - -
AQ10 - - 8 8 - - 2 2 - - 25.00 25.00
5,904 121 8 6,033 19 1 2 22 0.32 0.83 25.00 0.36
Total
AQ1-AQ4 87,815 1,348 - 89,163 37 57 - 94 0.04 4.23 - 0.11
AQ5-AQ8 52,732 17,417 - 70,149 116 753 - 869 0.22 4.32 - 1.24
AQ9 102 793 - 895 - 54 - 54 - 6.81 - 6.03
AQ10 - - 2,240 2,240 - - 847 847 - - 37.81 37.81
140,649 19,558 2,240 162,447 153 864 847 1,864 0.11 4.42 37.81 1.15
- Across the Wholesale portfolio, the asset quality band distribution
differed, reflective of the underlying quality of counterparties within each
segment.
- Asset quality improvement was observed across most segments as the
economy recovered from the effects of COVID-19.
- Within the Wholesale portfolio, customer credit grades were reassessed
as and when a request for financing was made, a scheduled customer credit
review was undertaken or a material event specific to that customer occurred.
- ECL provisions coverage showed the expected trend with increased
coverage in the poorer asset quality bands, and also by stage.
- The low provision coverage for Stage 3 loans in financial institutions
for 2021 reflected the secured nature of one exposure classified AQ10.
Risk and capital management
Credit risk - Trading activities
This section details the credit risk profile of NatWest Group's trading
activities.
Securities financing transactions and collateral (reviewed)
The table below shows securities financing transactions in NatWest Markets and
Treasury. Balance sheet captions include balances held at all classifications
under IFRS 9.
Reverse repos Repos
Outside Outside
Of which: netting Of which: netting
Total can be offset arrangements Total can be offset arrangements
30 June 2022 £m £m £m £m £m £m
Gross 83,381 82,631 750 85,717 84,295 1,422
IFRS offset (32,396) (32,396) - (32,396) (32,396) -
Carrying value 50,985 50,235 750 53,321 51,899 1,422
Master netting arrangements (2,540) (2,540) - (2,540) (2,540) -
Securities collateral (47,449) (47,449) - (49,338) (49,338) -
Potential for offset not recognised under IFRS (49,989) (49,989) - (51,878) (51,878) -
Net 996 246 750 1,443 21 1,422
31 December 2021
Gross 78,909 78,259 650 73,858 72,712 1,146
IFRS offset (32,016) (32,016) - (32,016) (32,016) -
Carrying value 46,893 46,243 650 41,842 40,696 1,146
Master netting arrangements (900) (900) - (900) (900) -
Securities collateral (45,271) (45,271) - (39,794) (39,794) -
Potential for offset not recognised under IFRS (46,171) (46,171) - (40,694) (40,694) -
Net 722 72 650 1,148 2 1,146
- Reverse repos and repos increased on both gross and carrying value
basis when compared to 2021. These trends are consistent with trading assets
and liabilities having been managed within limits at 31 December 2021.
- Reverse repo and repo transactions are primarily backed by
highly-rated sovereign, supranational and agency collateral.
Risk and capital management
Credit risk - Trading activities continued
Derivatives (reviewed)
The table below shows derivatives by type of contract. The master netting
agreements and collateral shown do not result in a net presentation on the
balance sheet under IFRS. A significant proportion (more than 90%) of the
derivatives relate to trading activities in NatWest Markets. The table also
includes hedging derivatives in Treasury.
30 June 2022 31 December 2021
Notional
GBP USD Euro Other Total Assets Liabilities Notional Assets Liabilities
£bn £bn £bn £bn £bn £m £m £bn £m £m
Gross exposure 119,935 115,208 114,100 109,403
IFRS offset (10,592) (12,488) (7,961) (8,568)
Carrying value 3,128 4,338 5,167 1,303 13,936 109,343 102,720 12,100 106,139 100,835
Of which:
Interest rate (1) 2,794 2,764 4,561 290 10,409 54,590 48,653 8,919 67,458 61,206
Exchange rate 332 1,570 596 1,013 3,511 54,504 53,762 3,167 38,517 39,286
Credit 2 4 10 - 16 249 289 14 154 343
Equity and commodity - - - - - - 16 - 10 -
Carrying value 13,936 109,343 102,720 12,100 106,139 100,835
Counterparty mark-to-market netting (85,072) (85,072) (85,006) (85,006)
Cash collateral (14,499) (10,545) (15,035) (9,909)
Securities collateral (4,468) (918) (2,428) (2,913)
Net exposure 5,304 6,185 3,670 3,007
Banks (2) 546 992 393 413
Other financial institutions (3) 3,292 2,793 1,490 1,584
Corporate (4) 1,386 2,253 1,716 938
Government (5) 80 147 71 72
Net exposure 5,304 6,185 3,670 3,007
UK 2,050 2,333 1,990 1,122
Europe 1,297 2,069 714 1,028
US 1,573 1,440 645 653
RoW 384 343 321 204
Net exposure 5,304 6,185 3,670 3,007
Asset quality of uncollateralised
derivative assets
AQ1-AQ4 4,611 2,939
AQ5-AQ8 648 674
AQ9-AQ10 45 57
Net exposure 5,304 3,670
(1) The notional amount of interest rate derivatives included £7,730
billion (31 December 2021 - £6,173 billion) in respect of contracts cleared
through central clearing counterparties.
(2) Transactions with certain counterparties with whom NatWest Group
has netting arrangements but collateral is not posted on a daily basis;
certain transactions with specific terms that may not fall within netting and
collateral arrangements; derivative positions in certain jurisdictions, for
example China, where the collateral agreements are not deemed to be legally
enforceable.
(3) Includes transactions with securitisation vehicles and funds where
collateral posting is contingent on NatWest Group's external rating.
(4) Mainly large corporates with whom NatWest Group may have netting
arrangements in place, but operational capability does not support collateral
posting.
(5) Sovereigns and supranational entities with no collateral
arrangements, collateral arrangements that are not considered enforceable, or
one-way collateral agreements in their favour.
(1) The notional amount of interest rate derivatives included £7,730
billion (31 December 2021 - £6,173 billion) in respect of contracts cleared
through central clearing counterparties.
(2) Transactions with certain counterparties with whom NatWest Group
has netting arrangements but collateral is not posted on a daily basis;
certain transactions with specific terms that may not fall within netting and
collateral arrangements; derivative positions in certain jurisdictions, for
example China, where the collateral agreements are not deemed to be legally
enforceable.
(3) Includes transactions with securitisation vehicles and funds where
collateral posting is contingent on NatWest Group's external rating.
(4) Mainly large corporates with whom NatWest Group may have netting
arrangements in place, but operational capability does not support collateral
posting.
(5) Sovereigns and supranational entities with no collateral
arrangements, collateral arrangements that are not considered enforceable, or
one-way collateral agreements in their favour.
Risk and capital management
Credit risk - Trading activities continued
Debt securities (reviewed)
The table below shows debt securities held at mandatory fair value through
profit or loss by issuer as well as ratings based on the lowest of Standard
& Poor's, Moody's and Fitch.
Central and local government Financial
UK US Other institutions Corporate Total
30 June 2022 £m £m £m £m £m £m
AAA - - 2,395 1,209 - 3,604
AA to AA+ - 3,840 3,091 1,635 16 8,582
Ato AA- 7,074 - 1,445 214 66 8,799
BBB- to A- - - 2,433 302 424 3,159
Non-investment grade - - - 51 43 94
Unrated - - - 1 1 2
Total 7,074 3,840 9,364 3,412 550 24,240
Short positions (7,363) (2,915) (12,323) (2,000) (160) (24,761)
31 December 2021
AAA - - 2,011 838 - 2,849
AA to AA+ - 3,329 3,145 1,401 62 7,937
Ato AA- 6,919 - 1,950 308 57 9,234
BBB- to A- - - 3,792 346 517 4,655
Non-investment grade - - 31 163 82 276
Unrated - - - 3 3 6
Total 6,919 3,329 10,929 3,059 721 24,957
Short positions (9,790) (56) (12,907) (2,074) (137) (24,964)
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