REG - NatWest Group plc - Interim Results - NatWest Group (Part 2 of 2)
29/07/2022 07:15
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RNS Number : 1757U NatWest Group plc 29 July 2022
Risk and capital management
Capital, liquidity and funding risk
Introduction
NatWest Group continually ensures a comprehensive approach is taken to the
management of capital, liquidity and funding, underpinned by frameworks, risk
appetite and policies, to manage and mitigate capital, liquidity and funding
risks. The framework ensures the tools and capability are in place to
facilitate the management and mitigation of risk ensuring that NatWest Group
operates within its regulatory requirements and risk appetite.
Key developments
CET1 The CET1 ratio decreased by 390 basis points to 14.3%. The decrease is
primarily due to a £22.8 billion increase in RWAs and a £2.9 billion
decrease in CET1 capital.
The CET1 decrease is mainly driven by:
- the directed buyback of £1.2 billion;
- foreseeable dividend accrual of £2.3 billion (special dividend will
be paid on 16 September 2022, subject to approval at a General Meeting, with
the notice and circular publication on 9 August 2022 and the General Meeting
scheduled for 25 August 2022);
- a £0.3 billion decrease in the IFRS 9 transitional adjustment;
- the removal of adjustment for prudential amortisation on software
development costs of £0.4 billion;
- a £0.3 billion decrease due to FX loss on retranslation on the
redemption of a USD instrument; and
- other reserve movements.
These reductions were partially offset by the £1.9 billion attributable
profit in the period.
MREL (LAC) MREL (LAC) ratio as a percentage of risk-weighted assets decreased to 31.7%
from 39.8% due to a £22.8 billion increase in RWAs and £5.4 billion decrease
in MREL resources. The ratio remains well above the minimum of 22.2%,
calculated as 2 x (Pillar 1 + Pillar 2A).
In the first half of 2022 there were redemptions of $3 billion and €1.5
billion Senior debt, and $1 billion Tier 1 instruments. These were partially
offset by new issuances of $1 billion and £0.75 billion Senior debt.
Total RWAs Total RWAs increased by £22.8 billion to £179.8 billion during H1 2022
reflecting:
- An increase in credit risk RWAs of £23.6 billion, primarily due to
£19.4 billion of model adjustments applied as a result of new regulation
applicable to IRB models from 1 January 2022, in addition to increased
exposure in Commercial & Institutional and Retail Banking. This was
partially offset by improved risk metrics in Commercial & Institutional
and Retail Banking.
- An increase in market risk RWAs of £0.6 billion, driven by a raised
capital multiplier for NWM Plc affecting VaR and SVaR calculations.
- An increase in counterparty credit risk RWAs of £0.4 billion, mainly
driven by the implementation of SA-CCR affecting the RWA calculation for
non-internally modelled exposure.
- A decrease in operational risk RWAs of £1.9 billion following the
annual recalculation.
UK leverage ratio The leverage ratio at 30 June 2022 is 5.2% and has been calculated in
accordance with changes to the UK's leverage ratio framework which were
introduced by the PRA and came into effect from 1 January 2022. As at 31
December 2021, the UK leverage ratio was 5.9%, which was calculated under the
prior year's UK leverage methodology. The key driver of the decrease is a
£3.5 billion decrease in Tier 1 capital.
Liquidity portfolio The liquidity portfolio decreased by £18.0 billion to £268.4 billion, with
primary liquidity decreasing by £10.3 billion to £198.3 billion. The
decrease in primary liquidity is driven by shareholder distributions (share
buyback and dividends), redemption of Senior debt, maturing commercial papers
and certificates of deposit and a marginal increase in lending outstripping
growth in deposits. The reduction in secondary liquidity is due to a reduction
in the pre-positioned collateral at the Bank of England.
Risk and capital management
Capital, liquidity and funding risk continued
Maximum Distributable Amount (MDA) and Minimum Capital Requirements
NatWest Group is subject to minimum capital requirements relative to RWAs. The
table below summarises the minimum capital requirements (the sum of Pillar 1
and Pillar 2A), and the additional capital buffers which are held in excess of
the regulatory minimum requirements and are usable in stress.
Where the CET1 ratio falls below the sum of the minimum capital and the
combined buffer requirement, there is a subsequent automatic restriction on
the amount available to service discretionary payments (including AT1
coupons), known as the MDA. Note that different capital requirements apply to
individual legal entities or sub-groups and that the table shown does not
reflect any incremental PRA buffer requirements, which are not disclosable.
The current capital position provides significant headroom above both NatWest
Group's minimum requirements and its MDA threshold requirements.
Type CET1 Total Tier 1 Total capital
Pillar 1 requirements 4.5% 6.0% 8.0%
Pillar 2A requirements 1.7% 2.3% 3.1%
Minimum Capital Requirements 6.2% 8.3% 11.1%
Capital conservation buffer 2.5% 2.5% 2.5%
Countercyclical capital buffer (1) - - -
MDA threshold (2) 8.7% n/a n/a
Subtotal 8.7% 10.8% 13.6%
Capital ratios at 30 June 2022 14.3% 16.4% 19.3%
Headroom (3) 5.6% 5.6% 5.7%
(1) In response to COVID-19 many countries reduced their CCyB rates.
In December 2021, the Financial Policy Committee announced an increase in the
UK CCyB rate from 0% to 1% effective from 13 December 2022. A further
increase from 1% to 2% was announced on 5 July 2022, effective 5 July 2023.
In June 2022, the Central Bank of Ireland announced that the CCyB on Irish
exposures will increase from 0% to 0.5%, applicable from 15 June 2023. This
is the first step towards a gradual increase which, conditional on
macro-financial developments, would see a CCyB of 1.5% announced by mid-2023,
which is expected to be applicable from June 2024.
(2) Pillar 2A requirements for NatWest Group are set on a nominal
capital basis. The PRA has confirmed that from Q4 2022 Pillar 2A will be set
as a variable amount with the exception of some fixed add-ons.
(3) The headroom does not reflect excess distributable capital and may
vary over time.
Risk and capital management
Capital, liquidity and funding risk continued
Capital and leverage ratios
The table below sets out the key capital and leverage ratios. From 1 January
2022, NatWest Group is subject to the requirements set out in the PRA
Rulebook. Therefore, going forward the capital and leverage ratios are being
presented under these frameworks on a transitional basis.
30 June 31 December
2022 2021
Capital adequacy ratios (1) % %
CET1 14.3 18.2
Tier 1 16.4 21.0
Total 19.3 24.7
Capital £m £m
Tangible equity 27,858 30,689
Prudential valuation adjustment (316) (274)
Deferred tax assets (738) (761)
Own credit adjustments (99) 21
Pension fund assets (471) (465)
Cash flow hedging reserve 1,526 395
Foreseeable dividends and pension contributions (2,250) (1,211)
Foreseeable charges - on-market ordinary share buyback programme (91) (825)
Prudential amortisation of software development costs - 411
Adjustments under IFRS 9 transitional arrangements 284 621
Insufficient coverage for non-performing exposures (10) (5)
Total deductions (2,165) (2,093)
CET1 capital 25,693 28,596
End-point AT1 capital 3,875 3,875
Grandfathered instrument transitional arrangements - 571
Transitional AT1 capital 3,875 4,446
Tier 1 capital 29,568 33,042
End-point Tier 2 capital 5,011 5,402
Grandfathered instrument transitional arrangements 172 304
Transitional Tier 2 capital 5,183 5,706
Total regulatory capital 34,751 38,748
Risk-weighted assets
Credit risk 143,765 120,116
Counterparty credit risk 8,352 7,907
Market risk 8,563 7,917
Operational risk 19,115 21,031
Total RWAs 179,795 156,971
(1) Based on current PRA rules, therefore includes the transitional
relief on grandfathered capital instruments and the transitional arrangements
for the capital impact of IFRS 9 expected credit loss (ECL) accounting. The
impact of the IFRS 9 transitional adjustments at 30 June 2022 was £0.3
billion for CET1 capital, £62 million for total capital and £32 million RWAs
(31 December 2021 - £0.6 billion CET1 capital, £0.5 billion total capital
and £36 million RWAs). Excluding these adjustments, the CET1 ratio would be
14.1% (31 December 2021 - 17.8%). The transitional relief on grandfathered
instruments at 30 June 2022 was £0.2 billion (31 December 2021 - £0.9
billion). Excluding both the transitional relief on grandfathered capital
instruments and the transitional arrangements for the capital impact of IFRS 9
expected credit loss (ECL) accounting, the end-point Tier 1 capital ratio
would be 16.3% (31 December 2021 - 20.3%) and the end-point Total capital
ratio would be 19.3% (31 December 2021 - 23.8%).
Risk and capital management
Capital, liquidity and funding risk continued
Capital and leverage ratios continued
30 June 31 December
2022 2021
Leverage £m £m
Cash and balances at central banks 179,525 177,757
Trading assets 65,604 59,158
Derivatives 109,342 106,139
Financial assets 412,115 412,817
Other assets 25,705 17,106
Assets of disposal groups 14,187 9,015
Total assets 806,478 781,992
Derivatives
- netting and variation margin (107,295) (110,204)
- potential future exposures 20,552 35,035
Securities financing transactions gross up 5,184 1,397
Other off balance sheet items 45,095 44,240
Regulatory deductions and other adjustments (16,314) (8,980)
Claims on central banks (176,163) (174,148)
Exclusion of bounce back loans (6,785) (7,474)
UK leverage exposure 570,752 561,858
UK leverage ratio (%) (1) 5.2 5.9
(1) 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. Excluding the IFRS 9
transitional adjustment, the UK leverage ratio would be 5.1% (31 December 2021
- 5.8%).
Capital flow statement
The table below analyses the movement in CET1, AT1 and Tier 2 capital for the
half year ended 30 June 2022. It is being presented on a transitional basis as
calculated under the PRA Rulebook Instrument requirements.
CET1 AT1 Tier 2 Total
£m £m £m £m
At 31 December 2021 28,596 4,446 5,706 38,748
Attributable profit for the period 1,891 - - 1,891
Directed buyback (1,212) - - (1,212)
Foreseeable dividends (2,250) - - (2,250)
Foreign exchange reserve 199 - - 199
FVOCI reserve (336) - - (336)
Own credit (120) - - (120)
Share capital and reserve movements in respect of employee share schemes 64 - - 64
Goodwill and intangibles deduction (557) - - (557)
Deferred tax assets 23 - - 23
Prudential valuation adjustments (42) - - (42)
End of 2021 transitional relief on grandfathered instruments - (571) (232) (803)
Net dated subordinated debt instruments - - (605) (605)
Foreign exchange movements (254) - 509 255
Adjustment under IFRS 9 transitional arrangements (337) - - (337)
Other movements 28 - (195) (167)
At 30 June 2022 25,693 3,875 5,183 34,751
- The CET1 decrease is primarily due to the directed buyback of £1.2 billion,
foreseeable dividend accrual of £2.3 billion, a £0.3 billion decrease in the
IFRS 9 transitional adjustment, the removal of adjustment for prudential
amortisation on software development costs of £0.4 billion, £0.3 billion due
to FX loss on retranslation on the redemption of a USD instrument and other
reserve movements in the period, partially offset by an attributable profit in
the period of £1.9 billion.
- The AT1 and Tier 2 movements are due to the end of the 2021 transitional
relief on grandfathered instruments. In Tier 2 there was also a £0.2 billion
decrease in the Tier 2 surplus provisions.
Risk and capital management
Capital, liquidity and funding risk continued
Capital resources (reviewed)
NatWest Group's regulatory capital is assessed against minimum requirements
that are set out under the UK Capital Requirements Regulation to determine the
strength of its capital base. This note shows a reconciliation of
shareholders' equity to regulatory capital.
PRA transitional basis
30 June 31 December
2022 2021
£m £m
Shareholders' equity (excluding non-controlling interests)
Shareholders' equity 38,617 41,796
Preference shares - equity - (494)
Other equity instruments (3,890) (3,890)
34,727 37,412
Regulatory adjustments and deductions
Own credit (99) 21
Defined benefit pension fund adjustment (471) (465)
Cash flow hedging reserve 1,526 395
Deferred tax assets (738) (761)
Prudential valuation adjustments (316) (274)
Goodwill and other intangible assets (6,869) (6,312)
Foreseeable dividends and pension contributions (2,250) (1,211)
Foreseeable charges - on-market share buyback programme (91) (825)
Adjustment under IFRS 9 transitional arrangements 284 621
Insufficient coverage for non-performing exposures (10) (5)
(9,034) (8,816)
CET1 capital 25,693 28,596
Additional Tier (AT1) capital
Qualifying instruments and related share premium 3,875 3,875
Qualifying instruments and related share premium to phase out - 571
AT1 capital 3,875 4,446
Tier 1 capital 29,568 33,042
Qualifying Tier 2 capital
Qualifying instruments and related share premium 4,848 4,935
Qualifying instruments issued by subsidiaries and held by third parties 73 314
Other regulatory adjustments 262 457
Tier 2 capital 5,183 5,706
Total regulatory capital 34,751 38,748
Risk and capital management
Capital, liquidity and funding risk continued
Loss absorbing capital
The following table illustrates the components of estimated loss absorbing
capital (LAC) in NatWest Group plc and operating subsidiaries and includes
external issuances only. The table is prepared on a transitional basis,
including the benefit of regulatory capital instruments issued from operating
companies, to the extent they meet the current MREL criteria.
30 June 2022 31 December 2021
Balance Balance
Par sheet Regulatory LAC Par sheet Regulatory LAC
value (1) value value (2,5) value (3) value value value value
£bn £bn £bn £bn £bn £bn £bn £bn
CET1 capital (4) 25.7 25.7 25.7 25.7 28.6 28.6 28.6 28.6
Tier 1 capital: end-point CRR compliant AT1
of which: NatWest Group plc (holdco) 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9
of which: NatWest Group plc operating
subsidiaries (opcos) - - - - - - - -
3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9
Tier 1 capital: end-point CRR non-compliant (6)
of which: holdco - - - - 0.6 0.6 0.5 0.5
of which: opcos 0.1 0.1 - - 0.1 0.1 - -
0.1 0.1 - - 0.7 0.7 0.5 0.5
Tier 2 capital: end-point CRR compliant
of which: holdco 6.5 6.2 4.7 6.1 7.1 7.1 4.9 6.0
of which: opcos - - - - 0.3 0.3 - -
6.5 6.2 4.7 6.1 7.4 7.4 4.9 6.0
Tier 2 capital: end-point CRR non-compliant (6)
of which: holdco 1.1 1.1 0.1 - - - - -
of which: opcos 0.6 0.8 0.1 - 0.6 0.9 0.3 0.1
1.7 1.9 0.2 - 0.6 0.9 0.3 0.1
Senior unsecured debt securities
of which: holdco 22.3 21.7 - 21.0 22.8 23.4 - 22.8
of which: opcos 25.6 22.6 - - 22.7 22.6 - -
47.9 44.3 - 21.0 45.5 46.0 - 22.8
Tier 2 capital
Other regulatory adjustments - - 0.3 0.3 - - 0.5 0.5
- - 0.3 0.3 - - 0.5 0.5
Total 85.8 82.1 34.8 57.0 86.7 87.5 38.7 62.4
RWAs 179.8 157.0
UK leverage exposure 570.8 561.9
LAC as a ratio of RWAs 31.7% 39.8%
LAC as a ratio of UK leverage exposure 10.0% 11.1%
(1) Par value reflects the nominal value of securities issued.
(2) Regulatory capital instruments issued from operating companies are
included in the transitional LAC calculation, to the extent they meet the
current MREL criteria.
(3) LAC value reflects NatWest Group's interpretation of the Bank of
England's approach to setting a minimum requirement for own funds and eligible
liabilities (MREL), published in December 2021 (updating June 2018). MREL
policy and requirements remain subject to further potential development, as
such NatWest Group's estimated position remains subject to potential change.
Liabilities excluded from LAC include instruments with less than one year
remaining to maturity, structured debt, operating company senior debt, and
other instruments that do not meet the MREL criteria. The LAC calculation
includes Tier 1 and Tier 2 securities before the application of any regulatory
caps or adjustments.
(4) Corresponding shareholders' equity was £38.6 billion (31 December
2021 - £41.8 billion).
(5) Regulatory amounts reported for AT1, Tier 1 and Tier 2 instruments
incudes grandfathered instruments as per the transitional provisions allowed
under CRR2 (until 28 June 2025).
(6) (i) CRR1 non-compliant instruments (2021) - All Tier 1 and Tier 2
instruments that were grandfathered under CRR1 compliance have lost their
regulatory value and no longer form part of our regulatory capital resources
from 1 January 2022. As at 31 December 2021, these are reported under the
"Tier 1 capital: end-point CRR non-compliant" and "Tier 2 capital: end-point
CRR non-compliant"
categories.
(ii) CRR2 non-compliant instruments (2022) - From January 2022, All Tier 1 and
Tier 2 instruments that were grandfathered under CRR2 compliance (until 28
June 2025) are reported under "Tier 1 capital: end-point CRR non-compliant"
and "Tier 2 capital: end-point CRR non-compliant" category.
Risk and capital management
Capital, liquidity and funding risk continued
Loss absorbing capital
The following table illustrates the components of the stock of outstanding
issuance in NatWest Group plc and its operating subsidiaries including
external and internal issuances.
NatWest NatWest NWM RBS
NatWest Holdings NWB RBS UBI NWM Markets Securities International
Group plc Limited Plc plc DAC Plc N.V. Inc. Limited
£bn £bn £bn £bn £bn £bn £bn £bn £bn
Tier 1 (Inclusive of AT1) Externally issued 3.9 - 0.1 - - - - - -
Tier 1 (Inclusive of AT1) Internally issued - 3.7 2.5 1.0 - 0.9 0.2 - 0.3
3.9 3.7 2.6 1.0 - 0.9 0.2 - 0.3
Tier 2 Externally issued 7.2 - 0.1 - 0.1 0.1 0.5 - -
Tier 2 Internally issued - 4.7 3.0 1.5 0.4 1.5 0.1 0.3 -
7.2 4.7 3.1 1.5 0.5 1.6 0.6 0.3 -
Senior unsecured Externally issued 21.7 - - - - - - - -
Senior unsecured Internally issued - 11.8 6.5 0.4 0.5 3.1 - - -
21.7 11.8 6.5 0.4 0.5 3.1 - - -
Total outstanding issuance 32.8 20.2 12.2 2.9 1.0 5.6 0.8 0.3 0.3
(1) The balances are the IFRS balance sheet carrying amounts, which
may differ from the amount which the instrument contributes to regulatory
capital. Regulatory balances exclude, for example, issuance costs and fair
value movements, while dated capital is required to be amortised on a
straight-line basis over the final five years of maturity.
(2) Balance sheet amounts reported for AT1, Tier 1 and Tier 2
instruments are before grandfathering restrictions imposed by CRR.
(3) Internal issuance for NWB Plc, RBS plc and UBIDAC represents AT1,
Tier 2 or Senior unsecured issuance to NatWest Holdings Limited and for NWM
N.V. and NWM SI to NWM Plc.
(4) Senior unsecured debt does not include CP, CD and short/medium
term notes issued from NatWest Group operating subsidiaries.
(5) Tier 1 (inclusive of AT1) does not include CET1 numbers.
Risk and capital management
Capital, liquidity and funding risk continued
Risk-weighted assets
The table below analyses the movement in RWAs during the half year, by key
drivers.
Counterparty Operational
Credit risk credit risk Market risk risk Total
£bn £bn £bn £bn £bn
At 31 December 2021 120.2 7.9 7.9 21.0 157.0
Foreign exchange movement 1.2 - - - 1.2
Business movement 3.7 - 1.0 (1.9) 2.8
Risk parameter changes (2.8) - - - (2.8)
Methodology changes 0.2 0.4 - - 0.6
Model updates 21.4 - (0.3) - 21.1
Acquisitions and disposals (0.1) - - - (0.1)
At 30 June 2022 143.8 8.3 8.6 19.1 179.8
The table below analyses segmental RWAs.
Go-forward group
Total excluding Total
Retail Private Commercial & Central items Ulster Bank Ulster NatWest
Banking Banking Institutional & other ROI Bank RoI Group
Total RWAs £bn £bn £bn £bn £bn £bn £bn
At 31 December 2021 36.7 11.3 98.1 1.8 147.9 9.1 157.0
Foreign exchange movement - - 1.0 - 1.0 0.2 1.2
Business movement 2.4 - 1.2 (0.1) 3.5 (0.7) 2.8
Risk parameter changes (1.4) - (1.4) - (2.8) - (2.8)
Methodology changes - - 0.4 - 0.4 0.2 0.6
Model updates 15.3 - 3.7 - 19.0 2.1 21.1
Acquisitions and disposals - - - - - (0.1) (0.1)
At 30 June 2022 53.0 11.3 103.0 1.7 169.0 10.8 179.8
Credit risk 46.0 10.0 76.3 1.6 133.9 9.9 143.8
Counterparty credit risk 0.2 0.1 8.0 - 8.3 - 8.3
Market risk 0.1 - 8.5 - 8.6 - 8.6
Operational risk 6.7 1.2 10.2 0.1 18.2 0.9 19.1
Total RWAs 53.0 11.3 103.0 1.7 169.0 10.8 179.8
Total RWAs increased by £22.8 billion to £179.8 billion during the period
mainly reflecting:
- Model updates totalling £21.1 billion primarily due to model
adjustments applied as a result of new regulation applicable to IRB models
from 1 January 2022 within Retail Banking, Commercial & Institutional and
Ulster Bank ROI.
- Business movements totalling £2.8 billion driven by increased credit
risk exposures within Retail Banking and Commercial & Institutional,
partially offset by a reduction in credit risk exposures within Ulster Bank
ROI.
- There was a partially offsetting decrease of approximately £2.8
billion RWAs due to improved risk metrics within Commercial &
Institutional and Retail Banking.
Risk and capital management
Capital, liquidity and funding risk continued
Funding sources (reviewed)
The table below shows the carrying values of the principal funding sources
based on contractual maturity. Balance sheet captions include balances held at
all classifications under IFRS 9.
30 June 2022 31 December 2021
Short-term Long-term Short-term Long-term
less than more than less than more than
1 year 1 year Total 1 year 1 year Total
£m £m £m £m £m £m
Bank deposits
Repos 4,720 - 4,720 7,912 - 7,912
Other bank deposits (1) 7,588 12,554 20,142 5,803 12,564 18,367
12,308 12,554 24,862 13,715 12,564 26,279
Customer deposits
Repos 19,195 - 19,195 14,541 - 14,541
Non-bank financial institutions 62,291 525 62,816 57,885 67 57,952
Personal 232,686 714 233,400 230,525 829 231,354
Corporate 176,331 333 176,664 175,850 113 175,963
490,503 1,572 492,075 478,801 1,009 479,810
Trading liabilities (2)
Repos (3) 29,406 - 29,406 19,389 - 19,389
Derivative collateral 18,276 - 18,276 17,718 - 17,718
Other bank customer deposits 442 657 1,099 849 704 1,553
Debt securities in issue - Medium term notes 60 743 803 178 796 974
48,184 1,400 49,584 38,134 1,500 39,634
Other financial liabilities
Customer deposits 542 - 542 568 - 568
Debt securities in issue:
Commercial papers and certificates of deposit 6,214 127 6,341 9,038 115 9,153
Medium term notes 7,007 30,173 37,180 6,401 29,451 35,852
Covered bonds 775 2,044 2,819 53 2,833 2,886
Securitisation - 862 862 - 867 867
14,538 33,206 47,744 16,060 33,266 49,326
Subordinated liabilities 1,804 6,306 8,110 1,375 7,054 8,429
Total funding 567,337 55,038 622,375 548,085 55,393 603,478
Of which: available in resolution (4) 26,173 29,624
(1) Includes £12.0 billion (31 December 2021 - £12.0 billion)
relating to Term Funding Scheme with additional incentives for Small and
Medium-sized Enterprises participation.
(2) Excludes short positions of £24.8 billion (31 December 2021 -
£25.0 billion).
(3) Comprises central & other bank repos of £3.1 billion (31
December 2021 - £0.8 billion), other financial institution repos of £23.4
billion (31 December 2021 - £17.0 billion) and other corporate repos of £2.9
billion (31 December 2021 - £1.6 billion).
(4) Eligible liabilities (as defined in the Banking Act 2009 as
amended from time to time) that meet the eligibility criteria set out in the
regulations, rules, policies, guidelines, or statements of the Bank of England
including the Statement of Policy published by the Bank of England in December
2021 (updating June 2018). The balance consists of £20.4 billion (31 December
2021 - £23.4 billion) under debt securities in issue (senior MREL) and £5.8
billion (31 December 2021 - £6.2 billion) under subordinated liabilities.
(1) Includes £12.0 billion (31 December 2021 - £12.0 billion)
relating to Term Funding Scheme with additional incentives for Small and
Medium-sized Enterprises participation.
(2) Excludes short positions of £24.8 billion (31 December 2021 -
£25.0 billion).
(3) Comprises central & other bank repos of £3.1 billion (31
December 2021 - £0.8 billion), other financial institution repos of £23.4
billion (31 December 2021 - £17.0 billion) and other corporate repos of £2.9
billion (31 December 2021 - £1.6 billion).
(4) Eligible liabilities (as defined in the Banking Act 2009 as
amended from time to time) that meet the eligibility criteria set out in the
regulations, rules, policies, guidelines, or statements of the Bank of England
including the Statement of Policy published by the Bank of England in December
2021 (updating June 2018). The balance consists of £20.4 billion (31 December
2021 - £23.4 billion) under debt securities in issue (senior MREL) and £5.8
billion (31 December 2021 - £6.2 billion) under subordinated liabilities.
Risk and capital management
Capital, liquidity and funding risk continued
Liquidity portfolio (reviewed)
The table below shows the liquidity portfolio by product, with primary
liquidity aligned to internal stressed outflow coverage and regulatory LCR
categorisation. Secondary liquidity comprises assets eligible for discount at
central banks, which do not form part of the liquid asset portfolio for LCR or
internal stressed outflow purposes.
Liquidity value
30 June 2022 31 December 2021
NatWest NWH UK DoL NatWest NWH UK DoL
Group (1) Group (2) Sub (3) Group Group Sub
£m £m £m £m £m £m
Cash and balances at central banks 176,976 143,463 139,230 174,328 140,562 136,154
AAA to AA- rated governments 18,458 8,656 7,998 31,073 21,710 21,123
A+ and lower rated governments 3 - - 25 - -
Government guaranteed issuers, public sector entities
and government sponsored entities 236 222 102 307 295 174
International organisations and multilateral
development banks 2,589 1,849 1,574 2,720 1,807 1,466
LCR level 1 bonds 21,286 10,727 9,674 34,125 23,812 22,763
LCR level 1 assets 198,262 154,190 148,904 208,453 164,374 158,917
LCR level 2 assets - - - 117 - -
Non-LCR eligible assets - - - - - -
Primary liquidity 198,262 154,190 148,904 208,570 164,374 158,917
Secondary liquidity (4) 70,186 70,046 69,980 77,849 77,660 76,573
Total liquidity value 268,448 224,236 218,884 286,419 242,034 235,490
(1) NatWest Group includes the UK Domestic Liquidity Sub-Group (UK DoLSub),
NatWest Markets Plc and other significant operating subsidiaries that hold
liquidity portfolios. These include The Royal Bank of Scotland International
Limited, NWM N.V. and Ulster Bank Ireland DAC who hold managed portfolios that
comply with local regulations that may differ from PRA rules.
(2) NWH Group comprises UK DoLSub & Ulster Bank Ireland DAC who hold managed
portfolios that comply with local regulations that may differ from PRA rules.
(3) UK DoLSub comprises NatWest Group's three licensed deposit-taking UK banks
within the ring-fenced bank: NWB Plc, RBS plc and Coutts & Company. Ulster
Bank Limited was previously a member of the UK DoLSub and was removed from the
UK DoLSub effective 1 January 2022.
(4) Comprises assets eligible for discounting at the Bank of England and other
central banks.
(5) NatWest Markets Plc liquidity portfolio is reported in the NatWest Markets Plc
Company Announcement.
(1) NatWest Group includes the UK Domestic Liquidity Sub-Group (UK DoLSub),
NatWest Markets Plc and other significant operating subsidiaries that hold
liquidity portfolios. These include The Royal Bank of Scotland International
Limited, NWM N.V. and Ulster Bank Ireland DAC who hold managed portfolios that
comply with local regulations that may differ from PRA rules.
(2) NWH Group comprises UK DoLSub & Ulster Bank Ireland DAC who hold managed
portfolios that comply with local regulations that may differ from PRA rules.
(3) UK DoLSub comprises NatWest Group's three licensed deposit-taking UK banks
within the ring-fenced bank: NWB Plc, RBS plc and Coutts & Company. Ulster
Bank Limited was previously a member of the UK DoLSub and was removed from the
UK DoLSub effective 1 January 2022.
(4) Comprises assets eligible for discounting at the Bank of England and other
central banks.
(5) NatWest Markets Plc liquidity portfolio is reported in the NatWest Markets Plc
Company Announcement.
Risk and capital management
Non-traded market risk
Non-traded market risk is the risk to the value of assets or liabilities
outside the trading book, or the risk to income, that arises from changes in
market prices such as interest rates, foreign exchange rates and equity
prices, or from changes in managed rates.
Key developments
- In the UK, the base rate has risen from 0.25% at 31 December 2021 to 1.25% at
30 June 2022. Market concerns increasingly centred on the speed and extent to
which central banks will raise their policy rates and use other monetary
policy tightening measures to manage inflation.
- The five-year sterling swap rate increased to 2.48% at the end of June 2022
from 1.05% at the end of December 2021. The ten-year sterling swap rate also
increased, to 2.33% from 0.95%.
- The structural hedge notional increased by £24 billion from £206 billion to
£230 billion, mainly due to increased hedging of higher deposit volumes
realised through the pandemic. The structural hedge yield rose over the same
period to 0.78% from 0.71% as new hedges were booked at current market rates
and maturing hedges were replaced.
- Sterling weakened against both the US dollar and the euro over the period.
Against the dollar, sterling was 1.21 at 30 June 2022 compared to 1.35 at 31
December 2021. Against the euro, it was 1.16 at 30 June 2022 compared to 1.19
at 31 December 2021. Structural foreign currency exposure decreased, in
sterling equivalent terms, by £267 million over the period, mainly due to
increased hedging of euro exposure.
- The structural hedge notional increased by £24 billion from £206 billion to
£230 billion, mainly due to increased hedging of higher deposit volumes
realised through the pandemic. The structural hedge yield rose over the same
period to 0.78% from 0.71% as new hedges were booked at current market rates
and maturing hedges were replaced.
- Sterling weakened against both the US dollar and the euro over the period.
Against the dollar, sterling was 1.21 at 30 June 2022 compared to 1.35 at 31
December 2021. Against the euro, it was 1.16 at 30 June 2022 compared to 1.19
at 31 December 2021. Structural foreign currency exposure decreased, in
sterling equivalent terms, by £267 million over the period, mainly due to
increased hedging of euro exposure.
Non-traded internal VaR (1-day 99%) (reviewed)
The following table shows one-day internal banking book Value-at-Risk (VaR) at
a 99% confidence level, split by risk type.
Half year ended
30 June 2022 30 June 2021 31 December 2021
Period Period Period
Average Maximum Minimum end Average Maximum Minimum end Average Maximum Minimum end
£m £m £m £m £m £m £m £m £m £m £m £m
Interest rate 17.0 37.8 7.6 37.8 11.7 13.0 9.2 12.8 8.4 9.5 6.4 8.6
Credit spread 48.8 86.6 33.4 34.6 103.6 113.5 99.6 99.6 100.9 108.5 92.4 100.9
Structural foreign
exchange rate 8.8 10.9 5.4 7.0 11.0 12.8 9.2 12.8 11.9 13.2 10.3 12.0
Equity 18.9 22.2 13.7 18.8 11.3 11.7 11.1 11.7 13.6 14.6 11.6 14.3
Pipeline risk (1) 1.0 2.9 0.3 2.9 0.3 0.4 0.3 0.4 0.7 1.2 0.5 1.2
Diversification (2) (33.4) (48.1) (3.4) (8.5) (20.9) (35.6)
Total 61.1 91.2 52.3 53.0 134.5 147.1 128.8 128.8 114.6 128.3 101.4 101.4
(1) Pipeline risk is the risk of loss arising from Personal customers owning an
option to draw down a loan - typically a mortgage - at a committed rate, where
interest rate changes may result in greater or fewer customers than
anticipated taking up the committed offer.
(2) NatWest Group benefits from diversification across various financial
instrument types, currencies and markets. The extent of the diversification
benefit depends on the correlation between the assets and risk factors in the
portfolio at a particular time. The diversification factor is the sum of the
VaR on individual risk types less the total portfolio VaR.
(1) Pipeline risk is the risk of loss arising from Personal customers owning an
option to draw down a loan - typically a mortgage - at a committed rate, where
interest rate changes may result in greater or fewer customers than
anticipated taking up the committed offer.
(2) NatWest Group benefits from diversification across various financial
instrument types, currencies and markets. The extent of the diversification
benefit depends on the correlation between the assets and risk factors in the
portfolio at a particular time. The diversification factor is the sum of the
VaR on individual risk types less the total portfolio VaR.
- Credit spread VaR decreased in H1 2022 reflecting bond disposals in
the period. In addition, the heightened market volatility in March 2020,
resulting from the onset of the COVID-19 crisis, dropped out of the rolling
window for VaR calculation during H1 2022.
- The credit spread VaR decrease was the main driver of the reduction in
total non-traded VaR.
- Interest rate VaR rose on an average basis, reflecting an increase in
hedging undertaken to reduce the sensitivity of interest income to downward
interest rate shocks.
- The increase in equity VaR reflects the agreement to invest in
Permanent TSB as part of the UBIDAC withdrawal strategy.
Risk and capital management
Non-traded market risk continued
Structural hedging
NatWest Group has a significant pool of stable, non and low interest-bearing
liabilities, principally comprising equity and money transmission accounts.
These balances are usually hedged, either by investing directly in longer-term
fixed-rate assets (such as fixed-rate mortgages or UK government gilts) or by
using interest rate swaps, which are generally booked as cash flow hedges of
floating-rate assets, in order to provide a consistent and predictable revenue
stream.
After hedging the net interest rate exposure externally, NatWest Group
allocates income to equity or products in structural hedges by reference to
the relevant interest rate swap curve. Over time, this approach has provided a
basis for stable income attribution to products and interest rate returns. The
programme aims to track a time series of medium-term swap rates, but the yield
will be affected by changes in product volumes and NatWest Group's capital
composition.
The table below shows the total income and total yield, incremental income
relative to short-term cash rates, and the period-end and average notional
balances allocated to equity and products in respect of the structural hedges
managed by NatWest Group.
Half year ended
30 June 2022 30 June 2021 31 December 2021
Period Period Period
Incremental Total -end Average Total Incremental Total -end Average Total Incremental Total -end Average Total
income income notional notional yield income income notional notional yield income income notional notional yield
£m £m £bn £bn % £m £m £bn £bn % £m £m £bn £bn %
Equity 111 178 20 20 1.77 235 244 23 23 2.13 190 204 21 21 1.96
Product 42 585 182 168 0.70 360 412 146 135 0.61 383 450 161 155 0.58
Other 29 76 28 27 0.57 74 62 21 22 0.56 65 52 24 23 0.45
Total 182 839 230 215 0.78 669 718 190 180 0.80 638 706 206 199 0.71
(1) Incremental income represents the difference between total income
(i.e. hedged income) and an unhedged return that is based on short-term cash
rates. For example, the sterling overnight index average (SONIA) is used to
estimate incremental income from sterling structural hedges.
Equity structural hedges refer to income allocated primarily to equity and
reserves. At 30 June 2022, the equity structural hedge notional was allocated
between NWH Group and NWM Plc in a ratio of approximately 83%/17%
respectively.
Product structural hedges refer to income allocated to customer products by
NWH Group Treasury, mainly current accounts and customer deposits in
Commercial & Institutional and Retail Banking. Other structural hedges
refer to hedges managed by UBIDAC, Coutts & Co and RBS International legal
entities.
At 30 June 2022, approximately 93% by notional of total structural hedges were
sterling-denominated.
The following table presents the incremental income associated with product
structural hedges at segment level.
Half year ended
30 June 30 June 31 December
2022 2021 2021
£m £m £m
Retail Banking 12 168 178
Commercial & Institutional 30 192 206
Total 42 360 384
- The increase in the structural hedge notional mainly resulted from
hedging of Retail and Commercial deposits.
- The five-year sterling swap rate rose to 2.48% at 30 June 2022 from
1.05% at 31 December 2021. The ten-year sterling swap rate also rose, to 2.33%
from 0.95%. Higher swap rates resulted in the total yield of the structural
hedge rising to 0.78% from 0.71% in H1 2022.
- Despite the increase in total yield, incremental income fell. This
reflects the relative stability of the total yield of the structural hedge
compared to an unhedged portfolio earning short-term cash rates. Compared to
the 7-basis-point increase in the structural hedge total yield, SONIA
increased 100 basis points to 1.19% at 30 June 2022 from 0.19% at 31 December
2021.
Risk and capital management
Non-traded market risk continued
Sensitivity of net interest earnings
Net interest earnings are sensitive to changes in the level of interest rates,
mainly because maturing structural hedges are replaced at higher or lower
rates and changes to coupons on managed rate customer products do not always
match changes in market rates of interest or central bank policy rates.
Earnings sensitivity is derived from a market-implied forward rate curve,
which will incorporate expected changes in central bank policy rates such as
the Bank of England base rate. A simple scenario is shown that projects
forward earnings based on the 30 June 2022 balance sheet, which is assumed to
remain constant. An earnings projection is derived from the market-implied
curve, which is then subject to interest rate shocks. The difference between
the market-implied projection and the shock gives an indication of underlying
sensitivity to interest rate movements.
Reported sensitivities should not be considered a forecast of future
performance in these rate scenarios. Actions that could reduce interest
earnings sensitivity include changes in pricing strategies on customer loans
and deposits as well as hedging. Management action may also be taken to
stabilise total income also taking into account non-interest income.
Three-year 25 basis point sensitivity table
The table below shows the sensitivity of net interest earnings - for both
structural hedges and managed rate accounts - on a one, two and three-year
forward-looking basis to an upward or downward interest rate shift of 25 basis
points.
In the upward rate scenarios, yield curves were assumed to move in parallel.
The downward rate scenarios allow interest rates to fall to negative rates. At
30 June 2022, negative rates affected only euro earnings sensitivity.
+25 basis points upward shift -25 basis points downward shift
Year 1 Year 2 (1) Year 3 (1) Year 1 Year 2 (1) Year 3 (1)
30 June 2022 £m £m £m £m £m £m
Structural hedges 45 150 253 (45) (150) (253)
Managed margin 231 227 223 (219) (205) (227)
Total 276 377 476 (264) (355) (480)
31 December 2021
Structural hedges 40 132 224 (40) (132) (224)
Managed margin 269 203 239 (245) (199) (177)
Total 309 335 463 (285) (331) (401)
(1) Earnings sensitivity considers only the main drivers, namely
structural hedging and margin management.
(2) Following a change in the basis of preparation of this table, it
now excludes UBIDAC. Including UBIDAC would increase Year 1 sensitivity by
4-5%.
The following table analyses the one-year scenarios by currency and, in
addition, shows the impact over one year of a 100-basis-point upward shift in
all interest rates.
Shifts in yield curve
30 June 2022 31 December 2021
+25 basis -25 basis +100 basis +25 basis -25 basis +100 basis
points points points points points points
£m £m £m £m £m £m
Euro 7 6 47 7 15 64
Sterling 255 (253) 980 260 (265) 950
US dollar 13 (16) 56 40 (33) 143
Other 1 (1) 6 2 (2) 11
Total 276 (264) 1,089 309 (285) 1,168
(1) Following a change in the basis of preparation of this table, it
now excludes UBIDAC.
Risk and capital management
Non-traded market risk continued
Foreign exchange risk (reviewed)
The table below shows structural foreign currency exposures.
Structural
Net foreign currency Residual
investments Net exposures structural
in foreign investment pre-economic Economic foreign currency
operations hedges hedges hedges (1) exposures
30 June 2022 £m £m £m £m £m
US dollar 1,332 (206) 1,126 (1,126) -
Euro 7,051 (3,898) 3,153 - 3,153
Other non-sterling 1,011 (420) 591 - 591
Total 9,394 (4,524) 4,870 (1,126) 3,744
31 December 2021
US dollar 1,275 (260) 1,015 (1,015) -
Euro 6,222 (2,669) 3,553 - 3,553
Other non-sterling 990 (421) 569 - 569
Total 8,487 (3,350) 5,137 (1,015) 4,122
(1) Economic hedges of US dollar net investments in foreign operations
represent US dollar equity securities that do not qualify as net investment
hedges for accounting purposes. They provide an offset to structural foreign
exchange exposures to the extent that there are net assets in overseas
operations available.
- The increase in net investments in foreign operations resulted from increased
investment in European operations. Sterling weakening against other currencies
over the period also contributed to the increase.
- The increase in net investment hedges notably reflected increased hedging of
European operations as well as the sterling weakening.
- Changes in foreign currency exchange rates affect equity in proportion to
structural foreign currency exposure. For example, a 5% strengthening or
weakening in foreign currencies against sterling would result in a gain or
loss of £0.2 billion in equity respectively.
(1) Economic hedges of US dollar net investments in foreign operations
represent US dollar equity securities that do not qualify as net investment
hedges for accounting purposes. They provide an offset to structural foreign
exchange exposures to the extent that there are net assets in overseas
operations available.
- The increase in net investments in foreign operations resulted from increased
investment in European operations. Sterling weakening against other currencies
over the period also contributed to the increase.
- The increase in net investment hedges notably reflected increased hedging of
European operations as well as the sterling weakening.
- Changes in foreign currency exchange rates affect equity in proportion to
structural foreign currency exposure. For example, a 5% strengthening or
weakening in foreign currencies against sterling would result in a gain or
loss of £0.2 billion in equity respectively.
Risk and capital management
Traded market risk
Traded market risk is the risk arising from changes in fair value on
positions, assets, liabilities or commitments in trading portfolios as a
result of fluctuations in market prices.
Traded VaR (1-day 99%) (reviewed)
The table below shows one-day internal value-at-risk (VaR) for NatWest Group's
trading portfolios, split by exposure type.
Half year ended
30 June 2022 30 June 2021 31 December 2021
Period Period Period
Average Maximum Minimum end Average Maximum Minimum end Average Maximum Minimum end
£m £m £m £m £m £m £m £m £m £m £m £m
Interest rate 7.4 12.6 4.1 6.0 11.3 19.0 4.5 17.4 9.6 25.3 4.7 8.9
Credit spread 8.5 12.0 6.5 6.9 11.0 13.4 9.4 11.2 11.6 13.2 10.0 10.7
Currency 2.8 8.0 1.2 2.3 3.9 9.4 2.0 2.4 3.0 8.6 1.7 2.2
Equity 0.1 0.3 - - 0.5 0.8 0.2 0.2 0.2 0.5 - 0.2
Commodity - - - - 0.2 0.5 - - - 0.1 - -
Diversification (1) (8.3) (6.0) (13.5) (15.5) (11.1) (10.5)
Total 10.5 15.1 7.2 9.2 13.4 23.9 9.5 15.7 13.3 21.1 9.3 11.5
(1) NatWest Group benefits from diversification across various financial
instrument types, currencies and markets. The extent of the diversification
benefit depends on the correlation between the assets and risk factors in the
portfolio at a particular time. The diversification factor is the sum of the
VaR on individual risk types less the total portfolio VaR.
(1) NatWest Group benefits from diversification across various financial
instrument types, currencies and markets. The extent of the diversification
benefit depends on the correlation between the assets and risk factors in the
portfolio at a particular time. The diversification factor is the sum of the
VaR on individual risk types less the total portfolio VaR.
- The decrease in average interest rate VaR, compared to both H1 2021 and H2
2021, reflected a reduction in tenor basis risk in sterling flow trading. This
followed a regulator-approved update to the VaR model, which was applied in Q3
2021 to address the impact of the transition from LIBOR to alternative
risk-free rates.
- Average credit spread VaR also declined because the heightened market
volatility in March 2020, resulting from the onset of the COVID-19 crisis,
dropped out of the rolling window for VaR calculation during H1 2022.
Risk and capital management
Other risks
Operational risk
Risk management continued to focus on delivering strong operational resilience
and a robust supply chain, with particular emphasis on internal change
programmes aimed at enhancing customer experience, ensuring NatWest Group's
operations and external suppliers continue to be resilient against disruption
and developing technology solutions to mitigate operational risks.
The security threat and the potential for cyber-attacks on NatWest Group and
its supply chain continued to be closely monitored and timely remediation of
any identified control gaps. NatWest Group continued to focus heavily on its
defences during the reporting period as well as on the security of its supply
chain.
Conduct & compliance risk
The impact of the cost of living challenge remained a key priority for the
conduct and regulatory compliance agenda. NatWest Group continues to review
forbearance and treatment for customers, recognising differing needs and
support required where appropriate to provide good outcomes for all.
There was continued oversight of delivery of the mandatory and regulatory
change programmes, with a particular focus on the impact of proposed
regulation to enhance customer care.
In addition, there was a sustained emphasis on compliance with the UK's
ring-fencing legislation as NatWest Group continued to review and update
organisational designs to best serve its customers.
Climate risk
NatWest Group continued to embed climate considerations within its risk
management framework throughout the reporting period, with work focused on
making iterative advancements in capabilities towards quantitative techniques
in risk assessment.
Particular attention continues to be paid to developing a NatWest Group
transition plan for which the identification, assessment and management of
transition risk is a critical component.
NatWest Group has also continued to develop its data, modelling and scenario
analysis capabilities to support the assessment of customers' physical and
transition risks.
The Bank of England's findings following its Climate Biennial Exploratory
Scenario - in which NatWest Group participated - were released to the industry
in Q2 2022. These provided helpful insights for the continued maturing of
NatWest Group's climate risk activity for H2 2022 and beyond; NatWest Group
will seek alignment with the 'observed examples of good practice' published by
the Bank of England as appropriate.
Condensed consolidated income statement for the period ended 30 June 2022
(unaudited)
Half year ended
30 June 30 June
2022 2021
£m £m
Interest receivable 5,250 4,610
Interest payable (916) (866)
Net interest income 4,334 3,744
Fees and commissions receivable 1,424 1,304
Fees and commissions payable (300) (285)
Income from trading activities 709 231
Other operating income 52 147
Non-interest income 1,885 1,397
Total income 6,219 5,141
Staff costs (1,808) (1,880)
Premises and equipment (534) (502)
Other administrative expenses (898) (703)
Depreciation and amortisation (413) (414)
Operating expenses (3,653) (3,499)
Profit before impairment releases 2,566 1,642
Impairment releases 54 683
Operating profit before tax 2,620 2,325
Tax charge (795) (432)
Profit from continuing operations 1,825 1,893
Profit from discontinued operations, net of tax 190 177
Profit for the period 2,015 2,070
Attributable to:
Ordinary shareholders 1,891 1,842
Preference shareholders - 9
Paid-in equity holders 121 178
Non-controlling interests 3 41
2,015 2,070
Earnings per ordinary share - continuing operations 15.7p 14.1p
Earnings per ordinary share - discontinued operations 1.7p 1.5p
Total earnings per share attributable to ordinary shareholders - basic 17.4p 15.6p
Earnings per ordinary share - fully diluted continuing operations 15.6p 14.0p
Earnings per ordinary share - fully diluted discontinued operations 1.7p 1.5p
Total earnings per share attributable to ordinary shareholders - fully diluted 17.3p 15.5p
Condensed consolidated statement of comprehensive income for the period ended
30 June 2022 (unaudited)
Half year ended
30 June 30 June
2022 2021
£m £m
Profit for the period 2,015 2,070
Items that do not qualify for reclassification
Remeasurement of retirement benefit schemes (1) (517) (734)
Changes in fair value of credit in financial liabilities designated at fair
value through profit or loss
(FVTPL) due to own credit risk 91 (25)
Fair value through other comprehensive income (FVOCI) financial assets 3 8
Tax 123 182
(300) (569)
Items that do qualify for reclassification
FVOCI financial assets (458) (145)
Cash flow hedges (1,557) (365)
Currency translation 185 (288)
Tax 566 65
(1,264) (733)
Other comprehensive losses after tax (1,564) (1,302)
Total comprehensive income for the period 451 768
Attributable to:
Ordinary shareholders 327 535
Preference shareholders - 9
Paid-in equity holders 121 178
Non-controlling interests 3 46
451 768
(1) Following the purchase of ordinary shares from UKGI in March 2021,
NatWest Group contributed £500 million to its main pension scheme in line
with the memorandum of understanding announced on 17 April 2018. After tax
relief, this contribution reduced total equity by £365 million. In line with
our policy, the present value of defined benefit obligations and the fair
value of plan assets at the end of the interim reporting period are assessed
to identity significant market fluctuations and one-off events since the end
of the prior financial year.
Condensed consolidated balance sheet as at 30 June 2022 (unaudited)
30 June 31 December
2022 2021
£m £m
Assets
Cash and balances at central banks 179,525 177,757
Trading assets 65,604 59,158
Derivatives 109,342 106,139
Settlement balances 10,294 2,141
Loans to banks - amortised cost 10,668 7,682
Loans to customers - amortised cost 362,551 358,990
Other financial assets 38,896 46,145
Intangible assets 6,869 6,723
Other assets 8,542 8,242
Assets of disposal groups 14,187 9,015
Total assets 806,478 781,992
Liabilities
Bank deposits 24,862 26,279
Customer deposits 492,075 479,810
Settlement balances 9,779 2,068
Trading liabilities 74,345 64,598
Derivatives 102,719 100,835
Other financial liabilities 47,744 49,326
Subordinated liabilities 8,110 8,429
Notes in circulation 2,947 3,047
Other liabilities 5,270 5,797
Total liabilities 767,851 740,189
Equity
Ordinary shareholders' interests 34,727 37,412
Other owners' interests 3,890 4,384
Owners' equity 38,617 41,796
Non-controlling interests 10 7
Total equity 38,627 41,803
Total liabilities and equity 806,478 781,992
Condensed consolidated statement of changes in equity for the period ended 30
June 2022 (unaudited)
Half year ended
30 June 30 June
2022 2021
£m £m
Called-up share capital - at beginning of period 11,468 12,129
Ordinary shares issued - 38
Share cancellation (1,4) (885) (391)
At end of period 10,583 11,776
Paid-in equity - at beginning of period 3,890 4,999
Securities issued during the period (2) - 937
At end of period 3,890 5,936
Share premium account - at beginning of period 1,161 1,111
Ordinary shares issued - 50
At end of period 1,161 1,161
Merger reserve - at beginning and end of period 10,881 10,881
FVOCI reserve - at beginning of period 269 360
Unrealised losses (444) (113)
Realised gains (17) (23)
Tax 125 15
At end of period (67) 239
Cash flow hedging reserve - at beginning of period (395) 229
Amount recognised in equity (1,386) (323)
Amount transferred from equity to earnings (171) (42)
Tax 426 59
At end of period (1,526) (77)
Foreign exchange reserve - at beginning of period 1,205 1,608
Retranslation of net assets 307 (336)
Foreign currency (losses)/gains on hedges of net assets (122) 43
Tax 14 (11)
At end of period 1,404 1,304
Capital redemption reserve - at beginning of period 722 -
Share cancellation (1,4) 885 390
Redemption of preference shares - 24
At end of period 1,607 414
Retained earnings - at beginning of period 12,966 12,567
Profit attributable to ordinary shareholders and other equity owners
- continuing 1,822 1,855
- discontinued 190 174
Equity preference dividends paid - (9)
Paid-in equity dividends paid (121) (178)
Ordinary dividends paid (841) (347)
Shares repurchased during the year (1,4) (1,958) (748)
Redemption of preference shares (5) (750) (24)
Tax on redemption/reclassification of paid-in equity (21) -
Realised losses/(gains) in period on FVOCI equity shares 6 (1)
Remeasurement of the retirement benefit schemes (3)
- gross (517) (734)
- tax 133 182
Changes in fair value of credit in financial liabilities designated at fair
value through profit or loss
- gross 91 (25)
- tax (9) 2
Shares issued under employee share schemes 5 -
Share-based payments (33) (82)
At end of period 10,963 12,632
Condensed consolidated statement of changes in equity for the period ended 30
June 2022 continued (unaudited)
Half year ended
30 June 30 June
2022 2021
£m £m
Own shares held - at beginning of period (371) (24)
Shares issued under employee share schemes 92 17
Own shares acquired - (384)
At end of period (279) (391)
Owners' equity at end of period 38,617 43,875
Non-controlling interests - at beginning of period 7 (36)
Currency translation adjustments and other movements - 5
Profit attributable to non-controlling interests 3 41
At end of period 10 10
Total equity at end of period 38,627 43,885
Attributable to:
Ordinary shareholders 34,727 37,445
Preference shareholders - 494
Paid-in equity holders 3,890 5,936
Non-controlling interests 10 10
38,627 43,885
(1) In March 2022, there was an agreement with HM Treasury to buy
549.9 million ordinary shares in the Company from UK Government Investments
Ltd (UKGI), at 220.5p per share for the total consideration of £1.22 billion.
NatWest Group cancelled 549.9 million of the purchased ordinary shares. The
nominal value of the share cancellation has been transferred to the capital
redemption reserve.
(2) In June 2021, AT1 capital notes totalling US$750 million less
fees were issued.
(3) Following the purchase of ordinary shares from UKGI in Q1
2022, NatWest Group contributed £500 million (2021 - £500 million) to its
main pension scheme in line with the memorandum of understanding announced on
17 April 2018. After tax relief, this contribution reduced total equity by
£365 million (2021 - £354 million). In line with our policy, the present
value of defined benefit obligations and the fair value of plan assets at the
end of the interim reporting period, are assessed to identity significant
market fluctuations and one-off events since the end of the prior financial
year.
(4) NatWest Group plc repurchased and cancelled 345.6 million
shares for total consideration of £756.7 million excluding fees in H1 2022,
as part of the On Market Share Buyback Programme. Of the 345.6 million shares
bought back, 10.7 million shares were settled and cancelled in July 2022. The
nominal value of the share cancellations has been transferred to the capital
redemption reserve.
(5) Following an announcement of a Regulatory Call in February
2022, the Series U preference shares were reclassified to liabilities. A £254
million loss was recognised in P&L reserves due to FX unlocking.
Condensed consolidated cash flow statement for the period ended 30 June 2022
(unaudited)
Half year ended
30 June 30 June
2022 2021
£m £m
Operating activities
Operating profit before tax from continuing operations 2,620 2,325
Operating profit before tax from discontinued operations 190 180
Adjustments for non-cash items 355 2,635
Net cash flows from trading activities 3,165 5,140
Changes in operating assets and liabilities 7,966 25,745
Net cash flows from operating activities before tax 11,131 30,885
Income taxes paid (575) (259)
Net cash flows from operating activities 10,556 30,626
Net cash flows from investing activities 5,713 (790)
Net cash flows from financing activities (6,970) (359)
Effects of exchange rate changes on cash and cash equivalents 2,224 (1,935)
Net increase in cash and cash equivalents 11,523 27,542
Cash and cash equivalents at beginning of period 190,706 139,199
Cash and cash equivalents at end of period 202,229 166,741
Notes
1. Presentation of condensed consolidated financial statements
The condensed consolidated financial statements are set out on pages 80 to 104
and the reviewed sections of Risk and capital management on pages 19 to 79.
The directors have prepared these on a going concern basis after assessing the
principal risks, forecasts, projections and other relevant evidence over the
twelve months from the date they are approved and in accordance with IAS 34
'Interim Financial Reporting', as adopted by the UK and as issued by the
International Accounting Standards Board (IASB), and the Disclosure Guidance
and Transparency Rules sourcebook of the UK's Financial Conduct Authority.
They should be read in conjunction with NatWest Group plc's 2021 Annual Report
and Accounts.
Comparative period results have been re-presented from those previously
published to reclassify certain items as discontinued operations. For further
details refer to Note 8 on page 90.
2. Accounting policies
NatWest Group's principal accounting policies are as set out on pages 307 to
312 of NatWest Group plc's 2021 Annual Report and Accounts. Amendments to IFRS
effective from 1 January 2022 had no material effect on the condensed
consolidated financial statements.
Critical accounting policies and key sources of estimation uncertainty
The judgments and assumptions that are considered to be the most important to
the portrayal of NatWest Group's financial condition are those relating to
deferred tax, fair value of financial instruments, loan impairment provisions,
goodwill and provisions for liabilities and charges. These critical accounting
policies and judgments are noted on page 311 of NatWest Group plc's 2021
Annual Report and Accounts. Management's consideration of uncertainty is
outlined in the relevant sections of NatWest Group plc's 2021 Annual Report
and Accounts, including the ECL estimate for the period in the Risk and
capital management section contained in NatWest Group plc's 2021 Annual Report
and Accounts.
Information used for significant estimates
Key financial estimates are based on management's latest five-year revenue and
cost forecasts. Measurement of goodwill, deferred tax and expected credit
losses are highly sensitive to reasonably possible changes in those
anticipated conditions. Changes in judgments and assumptions could result in a
material adjustment to those estimates in future reporting periods. (Refer to
the Summary Risk Factors on page 106 which should be read in conjunction with
the Risk factors included in NatWest Group plc's 2021 Annual Report and
Accounts).
Notes
3. Net interest income
Half year ended
30 June 30 June
2022 2021
Continuing operations £m £m
Loans to customers - amortised cost 4,483 4,261
Loans to banks - amortised cost 582 217
Other financial assets 185 132
Interest receivable 5,250 4,610
Deposits by banks 157 99
Customer deposits 179 319
Other financial liabilities 433 314
Subordinated liabilities 141 130
Internal funding of trading businesses 6 4
Interest payable 916 866
Net interest income 4,334 3,744
4. Non-interest income
Half year ended
30 June 30 June
2022 2021
Continuing operations £m £m
Net fees and commissions (1) 1,124 1,019
Foreign exchange 258 183
Interest rate 416 (6)
Credit 33 54
Equity, commodities and other 2 -
Income from trading activities 709 231
Loss on redemption of own debt (24) (138)
Operating lease and other rental income 114 108
Changes in fair value of financial liabilities designated at fair value 21 (4)
through profit or loss (2)
Hedge ineffectiveness (22) 13
Loss on disposal of amortised cost assets (16) (6)
Profit on disposal of fair value through other comprehensive income assets 10 24
Share of profit of associated entities (20) 129
Other income (3) (11) 21
Other operating income 52 147
Non-interest income 1,885 1,397
(1) Refer to Note 6 for further analysis.
(2) Includes related derivatives.
(3) Includes income from activities other than banking.
5. Operating expenses
Half year ended
30 June 30 June
2022 2021
Continuing operations £m £m
Salaries 1,103 1,172
Bonus awards 195 142
Temporary and contract costs 116 114
Social security costs 163 150
Pension costs 184 177
- defined benefit schemes 108 110
- defined contribution schemes 76 67
Other 47 125
Staff costs 1,808 1,880
Premises and equipment 534 502
Depreciation and amortisation 413 414
Other administrative expenses 898 703
Administrative expenses 1,845 1,619
Operating expenses 3,653 3,499
Notes
6. Segmental analysis
On 27 January 2022, NatWest Group announced that a new franchise, Commercial
& Institutional, would be created, bringing together the Commercial,
NatWest Markets and RBSI businesses to form a single franchise, with common
management and objectives, to best support our customers across the full
non-personal customer lifecycle. Comparatives have been re-presented. The
re-presentation of operating segments does not change the consolidated
financial results of NatWest Group.
The business is organised into the following reportable segments: Retail
Banking, Private Banking, Commercial & Institutional, Central items &
other and Ulster Bank RoI.
Analysis of operating profit/(loss) before tax
The following tables provide a segmental analysis of operating profit/(loss)
before tax by the main income statement captions.
Go-forward group
Total
Central excluding Ulster
Retail Private Commercial & items & Ulster Bank
Banking Banking Institutional other Bank RoI RoI Total
Half year ended 30 June 2022 £m £m £m £m £m £m £m
Continuing operations
Net interest income 2,340 315 1,764 (91) 4,328 6 4,334
Net fees and commissions 219 131 753 7 1,110 14 1,124
Other non-interest income (5) 15 420 318 748 13 761
Total income 2,554 461 2,937 234 6,186 33 6,219
Depreciation and amortisation - - (82) (331) (413) - (413)
Other operating expenses (1,242) (285) (1,738) 279 (2,986) (254) (3,240)
Impairment (losses)/releases (26) 11 59 2 46 8 54
Operating profit/(loss) 1,286 187 1,176 184 2,833 (213) 2,620
Half year ended 30 June 2021
Continuing operations
Net interest income 1,976 232 1,487 34 3,729 15 3,744
Net fees and commissions 173 124 702 (10) 989 30 1,019
Other non-interest income 1 12 285 60 358 20 378
Total income 2,150 368 2,474 84 5,076 65 5,141
Depreciation and amortisation - - (85) (329) (414) - (414)
Other operating expenses (1,187) (249) (1,739) 329 (2,846) (239) (3,085)
Impairment releases/(losses) 57 27 613 (1) 696 (13) 683
Operating profit/(loss) 1,020 146 1,263 83 2,512 (187) 2,325
Total revenue ((1))
Go-forward group
Total
Central excluding Ulster
Retail Private Commercial & items & Ulster Bank
Banking Banking Institutional other Bank RoI RoI Total
Half year ended 30 June 2022 £m £m £m £m £m £m £m
Continuing operations
External 2,766 407 3,020 1,167 7,360 75 7,435
Inter-segmental - 106 76 (182) - - -
Total 2,766 513 3,096 985 7,360 75 7,435
Half year ended 30 June 2021
Continuing operations
External 2,667 358 2,662 508 6,195 97 6,292
Inter-segmental 14 60 63 (137) - - -
Total 2,681 418 2,725 371 6,195 97 6,292
(1) Total revenue comprises interest receivable, fees and commissions receivable,
income from trading activities and other operating income.
Notes
6. Segmental analysis continued
Analysis of net fees and commissions
Go-forward group
Total
Central excluding Ulster
Retail Private Commercial & items & Ulster Bank
Banking Banking Institutional other Bank RoI RoI Total
Half year ended 30 June 2022 £m £m £m £m £m £m £m
Continuing operations
Fees and commissions receivable
- Payment services 152 17 308 - 477 26 503
- Credit and debit card fees 203 8 102 - 313 10 323
- Lending and financing 8 4 327 - 339 1 340
- Brokerage 27 3 21 - 51 - 51
- Investment management,
trustee and fiduciary services 1 114 22 - 137 - 137
- Underwriting fees - - 65 - 65 - 65
- Other - - 56 (51) 5 - 5
Total 391 146 901 (51) 1,387 37 1,424
Fees and commissions payable (172) (15) (148) 58 (277) (23) (300)
Net fees and commissions 219 131 753 7 1,110 14 1,124
Half year ended 30 June 2021
Continuing operations
Fees and commissions receivable
- Payment services 145 16 271 - 432 26 458
- Credit and debit card fees 149 4 70 - 223 8 231
- Lending and financing 6 4 304 - 314 1 315
- Brokerage 32 3 25 - 60 - 60
- Investment management,
trustee and fiduciary services 1 113 22 - 136 1 137
- Underwriting fees - - 77 - 77 - 77
- Other - 16 66 (56) 26 - 26
Total 333 156 835 (56) 1,268 36 1,304
Fees and commissions payable (160) (32) (133) 46 (279) (6) (285)
Net fees and commissions 173 124 702 (10) 989 30 1,019
Total assets and liabilities
Go-forward group
Total
Central excluding Ulster
Retail Private Commercial & items & Ulster Bank
Banking Banking Institutional other Bank RoI RoI Total
30 June 2022 £m £m £m £m £m £m £m
Assets 216,174 30,045 451,530 87,050 784,799 21,679 806,478
Liabilities 194,182 41,720 441,393 74,359 751,654 16,197 767,851
31 December 2021
Assets 209,973 29,854 425,718 93,614 759,159 22,833 781,992
Liabilities 192,715 39,388 411,757 77,308 721,168 19,021 740,189
Notes
7. Tax
The actual tax charge differs from the expected tax charge computed by
applying the standard UK corporation tax rate of 19% (2021 - 19%), as analysed
below:
Half year ended
30 June 30 June
2022 2021
Continuing operations £m £m
Profit before tax 2,620 2,325
Expected tax charge (498) (442)
Losses and temporary differences in period where no deferred tax assets (51) (28)
recognised
Foreign profits taxed at other rates (39) (8)
Items not allowed for tax:
- losses on disposals and write-downs (4) (3)
- UK bank levy (9) (11)
- regulatory and legal actions (13) 3
- other disallowable items (12) (10)
Non-taxable items 8 25
Taxable foreign exchange movements (7) -
Losses bought forward and utilised - 6
Increase/(decrease) in the carrying value of deferred tax assets in respect
of:
- UK losses 10 (5)
- Ireland losses (1) (32)
Banking surcharge (207) (173)
Tax on paid-in equity 22 32
UK tax rate change impact (31) 206
Adjustments in respect of prior periods 37 8
Actual tax charge (795) (432)
At 30 June 2022, NatWest Group has recognised a deferred tax asset of £1,637
million (31 December 2021 - £1,195 million) and a deferred tax liability of
£286 million (31 December 2021 - £359 million). These amounts include
deferred tax assets recognised in respect of trading losses of £801 million
(31 December 2021 - £899 million). NatWest Group has considered the carrying
value of these assets as at 30 June 2022 and concluded that they are
recoverable.
It was announced in the UK Government's Budget on 27 October 2021 that the UK
banking surcharge will decrease from 8% to 3% from 1 April 2023. This
legislative change was substantively enacted on 2 February 2022. NatWest
Group's closing deferred tax assets and liabilities have therefore been
recalculated taking into account this change of rate and the applicable period
the deferred tax assets and liabilities are expected to crystallise.
8. Discontinued operations and assets and liabilities of disposal groups
Three legally binding agreements for the sale of UBIDAC business have been
announced as part of the phased withdrawal from the Republic of Ireland:
On 28 June 2021 NatWest Group announced it had agreed a binding sale agreement
with Allied Irish Banks, p.l.c. for the transfer of c.€4.2 billion (plus up
to €2.8 billion of undrawn exposures), of gross performing commercial loans
as well as those c.280 colleagues who are wholly or mainly assigned to
supporting that part of the business, with the final number of roles to be
confirmed as the deal completes. On 28 April 2022, approval was received from
the Irish competition authority (the CCPC) in relation to this sale, which is
expected to be completed in a series of transactions during 2022 and H1 2023.
On 17 December 2021 NatWest Group signed a legally binding agreement with
Permanent TSB p.l.c. (PTSB) for the sale of approximately €7.6bn of gross
performing non-tracker mortgages (as at 30 June 2021), the performing loans in
the micro-SME business; the UBIDAC Asset Finance business, including its
Lombard digital platform, and 25 Ulster Bank branch locations in the Republic
of Ireland. The majority of loans are expected to transfer by Q4 2022. As part
of the transaction it is anticipated that c.450 colleagues will have the right
to transfer under the TUPE regulations, with the final number of roles to be
confirmed as the deal completes. On 22 July 2022, confirmation was received
from the CCPC that it had cleared this sale. Shareholders of PTSB's holding
company have also approved this transaction.
On 1 June 2022 a legally binding agreement was reached with Allied Irish
Banks, p.l.c. for the sale of 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.
The business activities relating to these sales that meet the requirements of
IFRS 5 are presented as a discontinued operation and as a disposal group at 30
June 2022. Comparatives have been re-presented from those previously published
to reclassify certain items as discontinued operations. The Ulster Bank RoI
operating segment continues to be reported separately and reflects the results
and balance sheet position of its continuing operations.
Notes
8. Discontinued operations and assets and liabilities of disposal groups
continued
Further to the announced sales of the majority of mortgage loans held, in June
2022 UBIDAC announced the cessation of new mortgage business to its customers.
This decision represents a change to the IFRS9 business model on mortgage
financial assets in UBIDAC. We will reclassify these assets to fair value
through profit and loss from 1 July 2022 as required by IFRS9. We anticipate a
c.€350 million reduction in mortgage financial assets moving from an
amortised cost basis to a fair value basis. This reclassification applies to
all mortgage financial assets in UBIDAC across both our continuing and
discontinued operations.
(a) Profit from discontinued operations, net of tax
30 June 30 June
2022 2021
£m £m
Interest receivable 156 172
Net interest income 156 172
Non-interest income (4) 6
Total income 152 178
Operating expenses (24) (22)
Profit before impairment releases 128 156
Impairment releases 62 24
Operating profit before tax 190 180
Tax charge - (3)
Profit from discontinued operations, net of tax 190 177
(b) Assets and liabilities of disposal groups
30 June 31 December
2022 2021
£m £m
Assets of disposal groups
Loans to customers - amortised cost 14,178 9,002
Derivatives 1 5
Other assets 8 8
14,187 9,015
Liabilities of disposal groups
Other liabilities 8 5
8 5
Net assets of disposal groups 14,179 9,010
(c) Operating cash flows attributable to discontinued operations
30 June 30 June
2022 2021
£m £m
Net cash flows from operating activities 402 857
Net cash flows from investing activities 150 -
Net increase in cash and cash equivalents 552 857
Notes
9. Financial instruments - classification
The following tables analyse financial assets and liabilities in accordance
with the categories of financial instruments in IFRS 9.
Amortised Other
MFVTPL FVOCI cost assets Total
Assets £m £m £m £m £m
Cash and balances at central banks 179,525 179,525
Trading assets 65,604 65,604
Derivatives (1) 109,342 109,342
Settlement balances 10,294 10,294
Loans to banks - amortised cost 10,668 10,668
Loans to customers - amortised cost (2) 362,551 362,551
Other financial assets 242 26,691 11,963 38,896
Intangible assets 6,869 6,869
Other assets 8,542 8,542
Assets of disposal groups 14,187 14,187
30 June 2022 175,188 26,691 575,001 29,598 806,478
Cash and balances at central banks 177,757 177,757
Trading assets 59,158 59,158
Derivatives (1) 106,139 106,139
Settlement balances 2,141 2,141
Loans to banks - amortised cost 7,682 7,682
Loans to customers - amortised cost (2) 358,990 358,990
Other financial assets 317 37,266 8,562 46,145
Intangible assets 6,723 6,723
Other assets 8,242 8,242
Assets of disposal groups 9,015 9,015
31 December 2021 165,614 37,266 555,132 23,980 781,992
Held-for- Amortised Other
trading DFV cost liabilities Total
Liabilities £m £m £m £m £m
Bank deposits 24,862 24,862
Customer deposits 492,075 492,075
Settlement balances 9,779 9,779
Trading liabilities 74,345 74,345
Derivatives (1) 102,719 102,719
Other financial liabilities 1,779 45,965 47,744
Subordinated liabilities 340 7,770 8,110
Notes in circulation 2,947 2,947
Other liabilities (3) 1,275 3,995 5,270
30 June 2022 177,064 2,119 584,673 3,995 767,851
Bank deposits 26,279 26,279
Customer deposits 479,810 479,810
Settlement balances 2,068 2,068
Trading liabilities 64,598 64,598
Derivatives (1) 100,835 100,835
Other financial liabilities 1,671 47,655 49,326
Subordinated liabilities 703 7,726 8,429
Notes in circulation 3,047 3,047
Other liabilities (3) 1,356 4,441 5,797
31 December 2021 165,433 2,374 567,941 4,441 740,189
(1) Includes net hedging derivatives assets of £136 million (31 December 2021 -
£44 million) and net hedging derivatives liabilities of £166 million (31
December 2021 - £120 million).
(2) Includes finance lease receivables of £8,113 million (31 December 2021 -
£8,531 million).
(3) Includes lease liabilities of £1,189 million (31 December 2021 - £1,263
million) in amortised cost.
30 June 31 December
2022 2021
£m £m
Reverse repos
Trading assets 25,893 20,742
Loans to banks - amortised cost 8 189
Loans to customers - amortised cost 25,084 25,962
Repos
Bank deposits 4,720 7,912
Customer deposits 19,195 14,541
Trading liabilities 29,406 19,389
Notes
9. Financial instruments - valuation
Disclosures relating to the control environment, valuation techniques and
related aspects pertaining to financial instruments measured at fair value are
included in the NatWest Group plc 2021 Annual Report and Accounts. Valuation,
sensitivity methodologies and inputs at 30 June 2022 are consistent with those
described in Note 11 to the NatWest Group plc 2021 Annual Report and Accounts.
Fair value hierarchy
The table below shows the assets and liabilities held by NatWest Group split
by fair value hierarchy level. Level 1 are considered the most liquid
instruments, and level 3 the most illiquid, valued using expert judgment and
hence carry the most significant price uncertainty.
30 June 2022 31 December 2021
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
£m £m £m £m £m £m £m £m
Assets
Trading assets
Loans - 40,722 642 41,364 - 33,482 721 34,203
Securities 20,032 4,206 2 24,240 19,563 5,371 21 24,955
Derivatives - 108,349 993 109,342 - 105,222 917 106,139
Other financial assets
Loans - 111 230 341 - 359 207 566
Securities 18,879 7,521 192 26,592 28,880 7,951 186 37,017
Total financial assets held at fair value 38,911 160,909 2,059 201,879 48,443 152,385 2,052 202,880
As a % of total fair value assets 19% 80% 1% 24% 75% 1%
Liabilities
Trading liabilities
Deposits - 48,780 1 48,781 - 38,658 2 38,660
Debt securities in issue - 801 2 803 - 974 - 974
Short positions 22,022 2,738 1 24,761 20,507 4,456 1 24,964
Derivatives - 101,972 747 102,719 - 100,229 606 100,835
Other financial liabilities
Debt securities in issue - 1,237 - 1,237 - 1,103 - 1,103
Other deposits - 542 - 542 - 568 - 568
Subordinated liabilities - 340 - 340 - 703 - 703
Total financial liabilities held at fair value 22,022 156,410 751 179,183 20,507 146,691 609 167,807
As a % of total fair value liabilities 12% 88% 0% 12% 88% 0%
(1) Level 1 - Instruments valued using unadjusted quoted prices in active and
liquid markets, for identical financial instruments. Examples include
government bonds, listed equity shares and certain exchange-traded
derivatives.
Level 2 - Instruments valued using valuation techniques that have observable
inputs. Observable inputs are those that are readily available with limited
adjustments required. Examples include most government agency securities,
investment-grade corporate bonds, certain mortgage products - including CLOs,
most bank loans, repos and reverse repos, state and municipal obligations,
most notes issued, certain money market securities, loan commitments and most
OTC derivatives.
Level 3 - Instruments valued using a valuation technique where at least one
input which could have a significant effect on the instrument's valuation, is
not based on observable market data. Examples include non-derivative
instruments which trade infrequently, certain syndicated and commercial
mortgage loans, private equity, and derivatives with unobservable model
inputs.
(2) Transfers between levels are deemed to have occurred at the beginning of the
quarter in which the instrument was transferred.
(3) For an analysis of debt securities held at mandatorily fair value through
profit or loss by issuer as well as ratings and derivatives, by type and
contract, refer to Risk and capital management - Credit risk.
Valuation adjustments
When valuing financial instruments in the trading book, adjustments are made
to mid-market valuations to cover bid-offer spread, funding and credit risk.
These adjustments are presented in the table below. For further information
refer to the descriptions of valuation adjustments within 'Financial
instruments - valuation' on page 341 of the NatWest Group plc 2021 Annual
Report and Accounts.
30 June 31 December
2022 2021
£m £m
Funding - FVA 121 90
Credit - CVA 365 390
Bid - Offer 120 113
Product and deal specific 128 119
734 712
- Valuation reserves comprising of credit valuation adjustments (CVA), funding
valuation adjustment (FVA), bid-offer and product and deal specific reserves,
increased to £734 million at 30 June 2022 (31 December 2021 - £712 million).
- The net increase in FVA was driven by a net increase in the underlying
derivative exposure, driven by an increase in interest rates. The increase in
bid-offer was driven by an increase in risk and wider bid-offer spreads. The
decrease in CVA was driven by a reduction in exposures, primarily due to
increases in interest rates and trade exit activity, partially offset by the
net impact of credit spreads widening and specific counterparty activity.
Notes
9. Financial instruments - valuation continued
Level 3 sensitivities
The table below shows the high and low range of fair value of the level 3
assets and liabilities.
30 June 2022 31 December 2021
Level 3 Favourable Unfavourable Level 3 Favourable Unfavourable
£m £m £m £m £m £m
Assets
Trading assets
Loans 642 10 (10) 721 10 (10)
Securities 2 - - 21 - -
Derivatives 993 60 (60) 917 60 (70)
Other financial assets
Loans 230 10 (10) 207 10 (10)
Securities 192 30 (30) 186 20 (20)
Total financial assets held at fair value 2,059 110 (110) 2,052 100 (110)
Liabilities
Trading liabilities
Deposits 1 - - 2 - -
Debt securities in issue 2 - - - - -
Short positions 1 - - 1 - -
Derivatives 747 30 (30) 606 30 (30)
Total financial liabilities held at fair value 751 30 (30) 609 30 (30)
Alternative assumptions
Reasonably plausible alternative assumptions of unobservable inputs are
determined based on a specified target level of certainty of 90%. Alternative
assumptions are determined with reference to all available evidence including
consideration of the following: quality of independent pricing information
considering consistency between different sources, variation over time,
perceived tradability or otherwise of available quotes; consensus service
dispersion ranges; volume of trading activity and market bias (e.g. one-way
inventory); day 1 profit or loss arising on new trades; number and nature of
market participants; market conditions; modelling consistency in the market;
size and nature of risk; length of holding of position; and market
intelligence.
Movement in level 3 assets and liabilities
The following table shows the movement in level 3 assets and liabilities.
Half year ended 30 June 2022 Half year ended 30 June 2021
Other Other
Trading financial Total Total Trading financial Total Total
assets (1) assets (2) assets liabilities assets (1) assets (2) assets liabilities
£m £m £m £m £m £m £m £m
At 1 January 1,659 393 2,052 609 1,388 335 1,723 894
Amount recorded in the income statement (3) 134 (20) 114 139 (125) 3 (122) (98)
Amount recorded in the statement of
comprehensive income - (19) (19) - - 17 17 -
Level 3 transfers in 143 - 143 31 42 428 470 15
Level 3 transfers out (101) (1) (102) (36) (68) - (68) (116)
Purchases/originations 352 67 419 154 168 10 178 114
Settlements/other decreases (28) - (28) (15) (36) (4) (40) (15)
Sales (526) - (526) (133) (156) (4) (160) (107)
Foreign exchange and other 4 2 6 2 (1) (3) (4) (2)
At 30 June 1,637 422 2,059 751 1,212 782 1,994 685
Amounts recorded in the income statement
in respect of balances held at year end
- unrealised 134 (20) 114 139 (125) 3 (122) (98)
(1) Trading assets comprise assets held at fair value in trading portfolios.
(2) Other financial assets comprise fair value through other comprehensive income,
designated at fair value through profit or loss and other fair value through
profit or loss.
(3) Net losses of £5 million on trading assets and liabilities (30 June 2021 -
£27 million) were recorded in income from trading activities. Net losses on
other instruments of £20 million (30 June 2021 - £3 million gains) were
recorded in other operating income and interest income as appropriate.
Notes
9. Financial instruments - valuation continued
Fair value of financial instruments measured at amortised cost on the balance
sheet
The following table shows the carrying value and fair value of financial
instruments carried at amortised cost on the balance sheet.
Items where
fair value
approximates Carrying Fair value hierarchy level
carrying value value Fair value Level 1 Level 2 Level 3
30 June 2022 £bn £bn £bn £bn £bn £bn
Financial assets
Cash and balances at central banks 179.5
Settlement balances 10.3
Loans to banks 0.7 10.0 10.0 - 5.9 4.1
Loans to customers 362.6 355.4 - 27.2 328.2
Other financial assets - securities 12.0 11.7 4.7 2.1 4.9
31 December 2021
Financial assets
Cash and balances at central banks 177.8
Settlement balances 2.1
Loans to banks 0.1 7.5 7.5 - 5.0 2.5
Loans to customers 359.0 354.1 - 28.0 326.1
Other financial assets - securities 8.6 8.6 4.4 0.7 3.5
30 June 2022
Financial liabilities
Bank deposits 6.2 18.7 17.6 - 15.1 2.5
Customer deposits 444.1 47.9 47.9 - 22.1 25.8
Settlement balances 9.8
Other financial liabilities - debt securities in issue 46.0 45.9 - 39.3 6.6
Subordinated liabilities 7.8 7.9 - 7.8 0.1
Notes in circulation 2.9
31 December 2021
Financial liabilities
Bank deposits 4.9 21.4 21.0 - 18.7 2.3
Customer deposits 442.4 37.4 37.6 - 18.1 19.5
Settlement balances 2.1
Other financial liabilities - debt securities in issue 47.7 48.6 - 41.4 7.2
Subordinated liabilities 7.7 8.3 - 8.2 0.1
Notes in circulation 3.0
Short-term financial instruments
For certain short-term financial instruments: cash and balances at central
banks, items in the course of collection from other banks, settlement
balances, items in the course of transmission to other banks, customer demand
deposits and notes in circulation, carrying value is deemed a reasonable
approximation of fair value.
Loans to banks and customers
In estimating the fair value of net loans to customers and banks measured at
amortised cost, NatWest Group's loans are segregated into appropriate
portfolios reflecting the characteristics of the constituent loans. Two
principal methods are used to estimate fair value; contractual cash flows and
expected cash flows.
Debt securities and subordinated liabilities
Most debt securities are valued using quoted prices in active markets or from
quoted prices of similar financial instruments in active markets. For the
remaining population, fair values are determined using market standard
valuation techniques, such as discounted cash flows.
Bank and customer deposits
Fair value of deposits are estimated using discounted cash flow valuation
techniques.
Notes
10. Trading assets and liabilities
Trading assets and liabilities comprise assets and liabilities held at fair
value in trading portfolios.
30 June 31 December
2022 2021
Assets £m £m
Loans
Reverse repos 25,893 20,742
Collateral given 14,378 12,047
Other loans 1,093 1,414
Total loans 41,364 34,203
Securities
Central and local government
- UK 7,075 6,919
- US 3,840 3,329
- other 9,364 10,929
Financial institutions and corporate 3,961 3,778
Total securities 24,240 24,955
Total 65,604 59,158
Liabilities
Deposits
Repos 29,406 19,389
Collateral received 18,276 17,718
Other deposits 1,099 1,553
Total deposits 48,781 38,660
Debt securities in issue 803 974
Short positions 24,761 24,964
Total 74,345 64,598
Notes
11. Loan impairment provisions
Loan exposure and impairment metrics
The table below summarises loans and related credit impairment measures on an
IFRS 9 basis.
30 June 31 December
2022 2021
£m £m
Loans - amortised cost and FVOCI
Stage 1 342,121 330,824
Stage 2 28,505 33,981
Stage 3 5,816 5,022
Of which: individual 1,162 1,215
Of which: collective 4,654 3,807
376,442 369,827
ECL provisions (1)
Stage 1 408 302
Stage 2 1,122 1478
Stage 3 1,985 2,026
Of which: individual 304 363
Of which: collective 1,681 1,663
3,515 3,806
ECL provisions coverage (2)
Stage 1 (%) 0.12 0.09
Stage 2 (%) 3.94 4.35
Stage 3 (%) 34.13 40.34
0.93 1.03
Half year ended
30 June 30 June
2022 2021
£m £m
Impairment losses
ECL (release)/charge (3) (54) (683)
Stage 1 (342) (662)
Stage 2 205 (114)
Stage 3 83 93
Of which: individual (1) (25)
Of which: collective 84 118
Amounts written off 215 517
Of which: individual 58 256
Of which: collective 157 261
(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. 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) related to
contingent liabilities.
(4) The table shows gross loans only and excludes amounts that are outside the
scope of the ECL framework. Refer to page 29 for 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).
Notes
12. Provisions for liabilities and charges
Financial
Customer Litigation and commitments
redress (1) other regulatory (2) Property and guarantees Other (3) Total
£m £m £m £m £m £m
At 1 January 2022 474 277 231 93 193 1,268
Expected credit losses impairment release - - - (6) - (6)
Currency translation and other movements 1 18 - - 3 22
Charge to income statement 88 6 10 - 33 137
Release to income statement (19) (5) (5) - (27) (56)
Provisions utilised (76) (71) (16) - (63) (226)
At 30 June 2022 468 225 220 87 139 1,139
(1) Includes payment protection insurance provision which reflects the estimated
cost of PPI redress attributable to claims prior to the Financial Conduct
Authority (FCA) complaint deadline of 29 August 2019. All pre-deadline
complaints have been processed which removes complaint volume estimation
uncertainty from the provision estimate. NatWest Group continues to conclude
remaining bank-identified closure work and conclude cases with the Financial
Ombudsmen Service.
(2) Majority of utilisation of litigation provisions relates to resolutions of the
FX-related investigation by the European Commission and the spoofing-related
investigation by the US Department of Justice.
(3) Other materially comprises provisions relating to restructuring costs.
Provisions are liabilities of uncertain timing or amount and are recognised
when there is a present obligation as a result of a past event, the outflow of
economic benefit is probable and the outflow can be estimated reliably. Any
difference between the final outcome and the amounts provided will affect the
reported results in the period when the matter is resolved.
13. Dividends
The 2021 final dividend was approved by shareholders at the Annual General
Meeting on 28 April 2022 and the payment made on 4 May 2022 to shareholders on
the register at the close of business on 18 March 2022.
NatWest Group plc announces an interim dividend for 2022 of £364 million, or
3.5 pence per ordinary share. The interim dividend will be paid on 16
September 2022 to shareholders on the register at close of business on 26
August 2022. The ex-dividend date will be 25 August 2022.
NatWest Group plc also announces that the directors have recommended a special
dividend of £1,750 million, or 16.8 pence per share, and associated share
consolidation, each will be subject to shareholder approval at a General
Meeting on 25 August 2022. A circular containing details of the special
dividend and share consolidation, as well as a notice convening a General
Meeting of shareholders and a class meeting of ordinary shareholders and
details of the resolutions to be considered at that General Meeting and class
meeting, is expected to be published shortly. If approved by shareholders,
assuming that all other conditions are satisfied, the special dividend is
expected to be paid on 16 September 2022 to shareholders on the register on 26
August 2022. The ex-entitlement date for the special dividend will be 30
August 2022.
14. Contingent liabilities and commitments
The amounts shown in the table below are intended only to provide an
indication of the volume of business outstanding at 30 June 2022. Although
NatWest Group is exposed to credit risk in the event of a customer's failure
to meet its obligations, the amounts shown do not, and are not intended to,
provide any indication of NatWest Group's expectation of future losses.
30 June 31 December
2022 2021
£m £m
Guarantees 2,436 2,055
Other contingent liabilities 1,863 2,004
Standby facilities, credit lines and other commitments 129,293 121,308
Contingent liabilities and commitments 133,592 125,367
Commitments and contingent obligations are subject to NatWest Group's normal
credit approval processes.
Notes
15. Litigation and regulatory matters
NatWest Group plc and certain members of NatWest Group are party to legal
proceedings and involved in regulatory matters, including as the subject of
investigations and other regulatory and governmental action (Matters) in the
United Kingdom (UK), the United States (US), the European Union (EU) and other
jurisdictions.
NatWest Group recognises a provision for a liability in relation to these
Matters when it is probable that an outflow of economic benefits will be
required to settle an obligation resulting from past events, and a reliable
estimate can be made of the amount of the obligation.
In many of these Matters, it is not possible to determine whether any loss is
probable, or to estimate reliably the amount of any loss, either as a direct
consequence of the relevant proceedings and regulatory matters or as a result
of adverse impacts or restrictions on NatWest Group's reputation, businesses
and operations. Numerous legal and factual issues may need to be resolved,
including through potentially lengthy discovery and document production
exercises and determination of important factual matters, and by addressing
novel or unsettled legal questions relevant to the proceedings in question,
before a liability can reasonably be estimated for any claim. NatWest Group
cannot predict if, how, or when such claims will be resolved or what the
eventual settlement, damages, fine, penalty or other relief, if any, may be,
particularly for claims that are at an early stage in their development or
where claimants seek substantial or indeterminate damages.
There are situations where NatWest Group may pursue an approach that in some
instances leads to a settlement agreement. This may occur in order to avoid
the expense, management distraction or reputational implications of continuing
to contest liability, or in order to take account of the risks inherent in
defending claims or regulatory matters, even for those Matters for which
NatWest Group believes it has credible defences and should prevail on the
merits. The uncertainties inherent in all such Matters affect the amount and
timing of any potential outflows for both Matters with respect to which
provisions have been established and other contingent liabilities.
It is not practicable to provide an aggregate estimate of potential liability
for our legal proceedings and regulatory matters as a class of contingent
liabilities.
The future outflow of resources in respect of any Matter may ultimately prove
to be substantially greater than or less than the aggregate provision that
NatWest Group has recognised. Where (and as far as) liability cannot be
reasonably estimated, no provision has been recognised. NatWest Group expects
that in future periods, additional provisions, settlement amounts and customer
redress payments will be necessary, in amounts that are expected to be
substantial in some instances. Please refer to Note 12 for information on
material provisions.
Material Matters in which NatWest Group is currently involved are set out
below. We have provided information on the procedural history of certain
Matters, where we believe appropriate, to aid the understanding of the Matter.
For a discussion of certain risks associated with NatWest Group's litigation
and regulatory matters, see the Risk factor relating to legal, regulatory and
governmental actions and investigations set out on page 425 of NatWest Group
plc's 2021 Annual Report and Accounts.
Litigation
Residential mortgage-backed securities (RMBS) litigation in the US
NatWest Group companies continue to defend RMBS-related claims in the US in
which the plaintiff, the Federal Deposit Insurance Corporation (FDIC), alleges
that certain disclosures made in connection with the relevant offerings of
RMBS contained materially false or misleading statements and/or omissions
regarding the underwriting standards pursuant to which the mortgage loans
underlying the RMBS were issued.
London Interbank Offered Rate (LIBOR) and other rates litigation
NWM Plc and certain other members of NatWest Group, including NatWest Group
plc, are defendants in a number of class actions and individual claims pending
in the United States District Court for the Southern District of New York
(SDNY) with respect to the setting of LIBOR and certain other benchmark
interest rates. The complaints allege that certain members of NatWest Group
and other panel banks violated various federal laws, including the US
commodities and antitrust laws, and state statutory and common law, as well as
contracts, by manipulating LIBOR and prices of LIBOR-based derivatives in
various markets through various means.
Several class actions relating to USD LIBOR, as well as more than two dozen
non-class actions concerning USD LIBOR, are part of a co-ordinated proceeding
in the SDNY. In December 2021, the United States Court of Appeals for the
Second Circuit (US Court of Appeals) affirmed the SDNY's prior decision that
plaintiffs who purchased LIBOR-based instruments from third parties (as
opposed to the defendants) lack antitrust standing to pursue such claims. In
addition, the appellate court, reversing a December 2016 decision of the SDNY,
held that plaintiffs in these cases have adequately asserted the court's
personal jurisdiction over NWM Plc and other non-US banks, including with
respect to antitrust class action claims on behalf of over-the-counter
plaintiffs and exchange-based purchaser plaintiffs. In February 2022, the US
Court of Appeals, on similar grounds, reversed the SDNY's prior dismissal of a
fraud class action on behalf of lender plaintiffs. The appellate court
remanded these matters to the SDNY for further proceedings in light of its
rulings. In March 2020, NatWest Group companies finalised a settlement
resolving the class action on behalf of bondholder plaintiffs (those who held
bonds issued by non-defendants on which interest was paid from 2007 to 2010 at
a rate expressly tied to USD LIBOR). The amount of the settlement (which was
covered by an existing provision) has been paid into escrow pending court
approval of the settlement.
Notes
15. Litigation and regulatory matters continued
The non-class claims filed in the SDNY include claims that the FDIC is
asserting on behalf of certain failed US banks. In July 2017, the FDIC, on
behalf of 39 of those failed US banks, commenced substantially similar claims
against NatWest Group companies and others in the High Court of Justice of
England and Wales. The action alleges collusion with regard to the setting of
USD LIBOR and that the defendants breached UK and European competition law, as
well as asserting common law claims of fraud under US law. The defendant banks
consented to a request by the FDIC for discontinuance of the claim in respect
of 20 failed US banks, leaving 19 failed US banks as claimants. The UK
proceedings are at the disclosure stage but have been stayed until 31 July
2022.
In addition, there are two class actions relating to JPY LIBOR and Euroyen
TIBOR. The first class action, which relates to Euroyen TIBOR futures
contracts, was dismissed by the SDNY in September 2020 on jurisdictional and
other grounds, and the plaintiffs have commenced an appeal to the US Court of
Appeals. The second class action, which relates to other derivatives allegedly
tied to JPY LIBOR and Euroyen TIBOR, was dismissed by the SDNY in relation to
NWM Plc and other NatWest Group companies in September 2021. That dismissal
may be the subject of a future appeal.
In addition to the above, five other class action complaints were filed
against NatWest Group companies in the SDNY, each relating to a different
reference rate. In February 2017, the SDNY dismissed the case relating to
Euribor for lack of personal jurisdiction and in August 2019, the SDNY
dismissed the case relating to Pound Sterling for various reasons. Plaintiffs'
appeals in those two cases remain pending.
In May 2022, NatWest Group companies and the plaintiffs in the class action
relating to the Singapore Interbank Offered Rate and Singapore Swap Offer Rate
('SIBOR / SOR') finalised a settlement resolving that case. In April 2022,
NatWest Group companies and the plaintiffs in the class action relating to the
Australian Bank Bill Swap Reference Rate finalised a settlement resolving that
case. In June 2021, NWM Plc and the plaintiffs in the Swiss Franc LIBOR class
action finalised a settlement resolving that case. The amounts of the three
settlements have been paid into escrow pending final court approval of the
settlements.
NWM Plc is also named as a defendant in a motion to certify a class action
relating to LIBOR in the Tel Aviv District Court in Israel. NWM Plc filed a
motion for cancellation of service outside the jurisdiction, which was granted
in July 2020. The claimants appealed that decision and in November 2020 the
appeal was refused and the claim dismissed by the Appellate Court. The claim
could in future be recommenced depending on the outcome of an appeal to
Israel's Supreme Court in respect of dismissal of the substantive case against
banks that had a presence in Israel.
In August 2020, a complaint was filed in the United States District Court for
the Northern District of California by several United States consumer
borrowers against the USD ICE LIBOR panel banks and their affiliates, alleging
that the normal process of setting USD ICE LIBOR amounts to illegal
price-fixing, and also that banks in the United States have illegally agreed
to use LIBOR as a component of price in variable consumer loans. The NatWest
Group defendants are NatWest Group plc, NWM Plc, NWMSI and NWB Plc. The
plaintiffs seek damages and to prevent the enforcement of LIBOR-based
instruments through injunction. Defendants have filed a motion to dismiss,
which remains pending.
FX litigation
NWM Plc, NWMSI and/or NatWest Group plc are defendants in several cases
relating to NWM Plc's foreign exchange (FX) business. In 2015, NWM Plc paid
US$255 million to settle the consolidated antitrust class action filed in the
SDNY on behalf of persons who entered into over-the-counter FX transactions
with defendants or who traded FX instruments on exchanges. In 2018, some
members of the settlement class who opted out of that class action settlement
filed their own non-class complaint in the SDNY asserting antitrust claims
against NWM Plc, NWMSI and other banks. Those opt-out claims are proceeding in
discovery.
In April 2019, some of the same claimants in the opt-out case described above,
as well as others, served proceedings (which are ongoing) in the High Court of
Justice of England and Wales, asserting competition claims against NWM Plc and
several other banks. The claim was transferred from the High Court of Justice
of England and Wales in December 2021 and registered in the UK Competition
Appeal Tribunal (CAT) in January 2022.
An FX-related class action, on behalf of 'consumers and end-user businesses',
is proceeding in the SDNY against NWM Plc and others. In March 2022, the SDNY
denied the plaintiffs' motion for class certification. Plaintiffs are seeking
to appeal the decision.
In May 2019, a cartel class action was filed in the Federal Court of Australia
against NWM Plc and four other banks on behalf of persons who bought or sold
currency through FX spots or forwards between 1 January 2008 and 15 October
2013 with a total transaction value exceeding AUD $0.5 million. The claimant
has alleged that the banks, including NWM Plc, contravened Australian
competition law by sharing information, coordinating conduct, widening spreads
and manipulating FX rates for certain currency pairs during this period.
NatWest Group plc and NWMSI have been named in the action as 'other cartel
participants', but are not respondents. The claim was served in June 2019 and,
after a number of interlocutory pleading disputes, NWM Plc filed its defence
in March 2022.
Notes
15. Litigation and regulatory matters continued
In July and December 2019, two separate applications seeking opt-out
collective proceedings orders were filed in the CAT against NatWest Group plc,
NWM Plc and other banks. Both applications were brought on behalf of persons
who, between 18 December 2007 and 31 January 2013, entered into a relevant FX
spot or outright forward transaction in the EEA with a relevant financial
institution or on an electronic communications network. A hearing to determine
class certification took place in July 2021. In March 2022, the CAT declined
to certify as collective proceedings either of the applications, ruling that
the opt-out basis on which they were brought was inappropriate. The CAT
granted each applicant three months to revise their application for
certification on an opt-in basis, if they wished to proceed. Neither applicant
did so. The applicants have served judicial review proceedings, which are
currently stayed. Separately, the applicants have applied for permission to
appeal the CAT's judgment.
Two motions to certify FX-related class actions were filed in the Tel Aviv
District Court in Israel in September and October 2018, and were subsequently
consolidated into one motion. The consolidated motion to certify, which names
The Royal Bank of Scotland plc (now NWM Plc) and several other banks as
defendants, was served on NWM Plc in May 2020. NWM Plc has filed a motion
challenging the permission to serve the consolidated motion outside the
Israeli jurisdiction, which remains pending.
In December 2021, a claim was issued in the Netherlands against NatWest Group
plc, NWM Plc and NWM N.V. by Stichting FX Claims, seeking a declaration from
the court that anti-competitive FX market conduct described in decisions of
the European Commission (EC) of 16 May 2019 is unlawful, along with
unspecified damages. The claimant has requested the court's permission to
amend its claim to also refer to a December 2021 decision by the EC, which
also described anti-competitive FX market conduct.
Certain other foreign exchange transaction related claims have been or may be
threatened. NatWest Group cannot predict whether all or any of these claims
will be pursued.
Government securities antitrust litigation
NWMSI and certain other US broker-dealers are defendants in a consolidated
antitrust class action in the SDNY on behalf of persons who transacted in US
Treasury securities or derivatives based on such instruments, including
futures and options. The plaintiffs allege that defendants rigged the US
Treasury securities auction bidding process to deflate prices at which they
bought such securities and colluded to increase the prices at which they sold
such securities to plaintiffs. In March 2022, the SDNY dismissed the operative
complaint, without leave to re-plead. The dismissal is subject to appeal.
Class action antitrust claims commenced in March 2019 are pending in the SDNY
against NWM Plc, NWMSI and other banks in respect of Euro-denominated bonds
issued by European central banks (EGBs). The complaint alleges a conspiracy
among dealers of EGBs to widen the bid-ask spreads they quoted to customers,
thereby increasing the prices customers paid for the EGBs or decreasing the
prices at which customers sold the bonds. The class consists of those who
purchased or sold EGBs in the US between 2007 and 2012. In March 2022, the
SDNY dismissed the claims against NWM Plc and NWMSI in the operative complaint
on the ground that the complaint's conspiracy allegations are insufficient.
The plaintiffs have indicated that they intend to file an amended complaint.
Swaps antitrust litigation
NWM Plc and other members of NatWest Group, including NatWest Group plc, as
well as a number of other interest rate swap dealers, are defendants in
several cases pending in the SDNY alleging violations of the US antitrust laws
in the market for interest rate swaps. There is a consolidated class action
complaint on behalf of persons who entered into interest rate swaps with the
defendants, as well as non-class action claims by three swap execution
facilities (TeraExchange, Javelin, and trueEx). The plaintiffs allege that the
swap execution facilities would have successfully established exchange-like
trading of interest rate swaps if the defendants had not unlawfully conspired
to prevent that from happening through boycotts and other means. Discovery in
these cases is complete, and the plaintiffs' motion for class certification
remains pending.
In June 2021, a class action antitrust complaint was filed against a number of
credit default swap dealers in New Mexico federal court on behalf of persons
who, from 2005 onwards, settled credit default swaps in the United States by
reference to the ISDA credit default swap auction protocol. The complaint
alleges that the defendants conspired to manipulate that benchmark through
various means in violation of the antitrust laws and the Commodity Exchange
Act. The defendants include several NatWest Group companies, including NatWest
Group plc. Defendants are seeking dismissal.
Odd lot corporate bond trading antitrust litigation
In October 2021, the SDNY granted defendants' motion to dismiss the class
action antitrust complaint alleging that from August 2006 onwards various
securities dealers, including NWMSI, conspired artificially to widen spreads
for odd lots of corporate bonds bought or sold in the United States secondary
market and to boycott electronic trading platforms that would have allegedly
promoted pricing competition in the market for such bonds. Plaintiffs have
commenced an appeal of the dismissal.
Spoofing litigation
In December 2021, three substantially similar class actions complaints were
filed in federal court in the United States against NWM Plc and NWMSI alleging
Commodity Exchange Act and common law unjust enrichment claims arising from
manipulative trading known as spoofing. The complaints refer to NWM Plc's
December 2021 spoofing-related guilty plea (described below under "US
investigations relating to fixed-income securities") and purport to assert
claims on behalf of those who transacted in US Treasury securities and futures
and options on US Treasury securities between 2008 and 2018. In July 2022,
defendants filed a motion to dismiss these claims, which have been
consolidated into one matter in the United States District Court for the
Northern District of Illinois.
Notes
15. Litigation and regulatory matters continued
Madoff
NWM N.V. was named as a defendant in two actions filed by the trustee for the bankruptcy estates of Bernard L. Madoff and Bernard L. Madoff Investment Securities LLC, in bankruptcy court in New York, which together seek to clawback more than US$298 million that NWM N.V. allegedly received from certain Madoff feeder funds and certain swap counterparties. The claims were previously dismissed, but as a result of an August 2021 decision by the US Court of Appeals, they will now proceed in the bankruptcy court, where they have now been consolidated into one action, subject to NWM N.V.'s legal and factual defences. In May 2022, NWM N.V. filed a motion to dismiss the amended complaint in the consolidated action.
EUA trading litigation
NWM Plc was a named defendant in civil proceedings before the High Court of Justice of England and Wales brought in 2015 by ten companies (all in liquidation) (the 'Liquidated Companies') and their respective liquidators (together, 'the Claimants'). The Liquidated Companies previously traded in European Union Allowances (EUAs) in 2009 and were alleged to be VAT defaulting traders within (or otherwise connected to) EUA supply chains of which NWM Plc was a party. In March 2020, the court held that NWM Plc and Mercuria Energy Europe Trading Limited ('Mercuria') were liable for dishonestly assisting and knowingly being a party to fraudulent trading during a seven business day period in 2009.
In October 2020, the High Court quantified total damages against NWM Plc and
Mercuria at £45 million plus interest and costs, and permitted the defendants
to appeal to the Court of Appeal. In May 2021 the Court of Appeal set aside
the High Court's judgment and ordered that a retrial take place before a
different High Court judge. The claimants have been denied permission by the
Supreme Court to appeal that decision and the retrial will therefore proceed
on a date to be scheduled. Mercuria has also been denied permission by the
Supreme Court to appeal the High Court's finding that NWM Plc and Mercuria
were both vicariously liable.
Offshoring VAT assessments
HMRC issued protective tax assessments in 2018 against NatWest Group plc
totalling £143 million relating to unpaid VAT in respect of the UK branches
of two NatWest Group companies registered in India. NatWest Group formally
requested reconsideration by HMRC of their assessments, and this process was
completed in November 2020. HMRC upheld their original decision and, as a
result, NatWest Group plc lodged an appeal with the Tax Tribunal and an
application for judicial review with the High Court of Justice of England and
Wales, both in December 2020. In order to lodge the appeal with the Tax
Tribunal, NatWest Group plc was required to pay the £143 million to HMRC, and
payment was made in December 2020. The appeal and the application for judicial
review have both been stayed pending resolution of a separate case involving
another bank.
US Anti-Terrorism Act litigation
In March 2019, the trial court granted summary judgment in favour of NWB Plc
in connection with lawsuits filed in the United States District Court for the
Eastern District of New York by a number of US nationals (or their estates,
survivors, or heirs) who were victims of terrorist attacks in Israel. In April
2021, the US Court of Appeals affirmed the trial court's judgment in favour of
NWB Plc. In September 2021, the plaintiffs filed a petition seeking
discretionary review by the United States Supreme Court, and that petition was
denied in June 2022, bringing the matter to an end.
NWM N.V. and certain other financial institutions are defendants in several
actions filed by a number of US nationals (or their estates, survivors, or
heirs), most of whom are or were US military personnel, who were killed or
injured in attacks in Iraq between 2003 and 2011. NWM Plc is also a defendant
in some of these cases.
According to the plaintiffs' allegations, the defendants are liable for
damages arising from the attacks because they allegedly conspired with Iran
and certain Iranian banks to assist Iran in transferring money to Hezbollah
and the Iraqi terror cells that committed the attacks, in violation of the US
Anti-Terrorism Act, by agreeing to engage in 'stripping' of transactions
initiated by the Iranian banks so that the Iranian nexus to the transactions
would not be detected.
The first of these actions was filed in the United States District Court for
the Eastern District of New York in November 2014. In September 2019, the
district court dismissed the case, finding that the claims were deficient for
several reasons, including lack of sufficient allegations as to the alleged
conspiracy and causation. The plaintiffs are appealing the decision to the US
Court of Appeals. Another action, filed in the SDNY in 2017, was dismissed in
March 2019 on similar grounds, but remains subject to appeal to the US Court
of Appeals. Other follow-on actions that are substantially similar to the two
that have now been dismissed are pending in the same courts.
Securities underwriting litigation
NWMSI is an underwriter defendant in securities class actions in the US in
which plaintiffs generally allege that an issuer of public securities, as well
as the underwriters of the securities (including NWMSI), are liable to
purchasers for misrepresentations and omissions made in connection with the
offering of such securities.
1MDB litigation
A claim for a material sum was issued, but not served, in Malaysia in 2021
by 1MDB against Coutts & Co Ltd for alleged losses in connection with the
1MDB fund. Coutts & Co Ltd is a company registered in Switzerland and is
in wind-down following the announced sale of its business assets in 2015.
Notes
15. Litigation and regulatory matters continued
Regulatory matters (including investigations and customer redress programmes)
NatWest Group's businesses and financial condition can be affected by the
actions of various governmental and regulatory authorities in the UK, the US,
the EU and elsewhere. NatWest Group has engaged, and will continue to engage,
in discussions with relevant governmental and regulatory authorities,
including in the UK, the US, the EU and elsewhere, on an ongoing and regular
basis, and in response to informal and formal inquiries or investigations,
regarding operational, systems and control evaluations and issues including
those related to compliance with applicable laws and regulations, including
consumer protection, investment advice, business conduct,
competition/anti-trust, VAT recovery, anti-bribery, anti-money laundering and
sanctions regimes. NatWest Group expects government and regulatory
intervention in financial services to be high for the foreseeable future,
including increased scrutiny from competition and other regulators in the
retail and SME business sectors.
NWM Group in particular has been providing information regarding a variety of
matters, including, for example, offering of securities, the setting of
benchmark rates and related derivatives trading, conduct in the foreign
exchange market, product mis-selling and various issues relating to the
issuance, underwriting, and sales and trading of fixed-income securities,
including structured products and government securities, some of which have
resulted, and others of which may result, in investigations or proceedings.
Any matters discussed or identified during such discussions and inquiries may
result in, among other things, further inquiry or investigation, other action
being taken by governmental and regulatory authorities, increased costs being
incurred by NatWest Group, remediation of systems and controls, public or
private censure, restriction of NatWest Group's business activities and/or
fines. Any of the events or circumstances mentioned in this paragraph or below
could have a material adverse effect on NatWest Group, its business,
authorisations and licences, reputation, results of operations or the price of
securities issued by it, or lead to material additional provisions being
taken.
NatWest Group is co-operating fully with the matters described below.
US investigations relating to fixed-income securities
In December 2021, NWM Plc pled guilty in the United States District Court for
the District of Connecticut to one count of wire fraud and one count of
securities fraud in connection with historical spoofing conduct by former
employees in US Treasuries markets between January 2008 and May 2014 and,
separately, during approximately three months in 2018. The 2018 trading
occurred during the term of a non-prosecution agreement (NPA) between NWMSI
and the United States Attorney's Office for the District of Connecticut (USAO
CT), under which non-prosecution was conditioned on NWMSI and affiliated
companies not engaging in criminal conduct during the term of the NPA. The
relevant trading in 2018 was conducted by two NWM traders in Singapore and
breached that NPA. The plea agreement reached with the US Department of
Justice and the USAO CT resolves both the spoofing conduct and the breach of
the NPA.
As required by the resolution and sentence imposed by the court, NWM Plc is
subject to a three-year period of probation and has paid a US$25.2 million
criminal fine, approximately US$2.8 million in criminal forfeiture and
approximately US$6.8 million in restitution out of existing provisions. The
plea agreement also imposes an independent corporate monitor. In addition, NWM
Plc has committed to compliance programme reviews and improvements and agreed
to reporting and co-operation obligations.
Other material adverse collateral consequences may occur as a result of this
matter, as further described in the Risk factor relating to legal, regulatory
and governmental actions and investigations set out on page 425 of NatWest
Group plc's 2021 Annual Report & Accounts.
RBSI inspection report and referral to enforcement
The Isle of Man Financial Services Authority undertook an inspection at The
Royal Bank of Scotland International Limited (RBSI), Isle of Man, in 2021,
following which it issued an inspection report. The inspection was in relation
to anti-money laundering and counter-terrorist financing controls and
procedures relating to specific RBSI customers. In May 2022, the FSA notified
RBSI that it had been referred to its Enforcement Division in relation to
certain issues identified in the inspection report.
Investment advice review
In October 2019, the FCA notified NatWest Group of its intention to appoint a
Skilled Person under section 166 of the Financial Services and Markets Act
2000 to conduct a review of whether NatWest Group's past business review of
investment advice provided during 2010 to 2015 was subject to appropriate
governance and accountability and led to appropriate customer outcomes. The
Skilled Person's review has concluded and, after discussion with the FCA,
NatWest Group is now conducting additional review / remediation work.
Review and investigation of treatment of tracker mortgage customers in Ulster
Bank Ireland DAC
In December 2015, correspondence was received from the CBI setting out an
industry examination framework in respect of the sale of tracker mortgages
from approximately 2001 until the end of 2015. The redress and compensation
phase has concluded, although an appeals process is currently anticipated to
run until the end of 2022. NatWest Group has made provisions totalling €358
million (£308 million), of which €339 million (£292 million) had been
utilised by 30 June 2022.
UBIDAC customers have lodged tracker mortgage complaints with the Financial
Services and Pensions Ombudsman (FSPO). UBIDAC is challenging three FSPO
adjudications in the Irish High Court. The outcome and impact of that
challenge on those and related complaints is uncertain but may be material.
UBIDAC has identified further legacy business issues and these remediation
programmes are ongoing. NatWest Group has made provisions of €201 million
(£173 million), of which €158 million (£136 million) had been utilised by
30 June 2022 for these programmes.
Notes
16. Related party transactions
UK Government
The UK Government and bodies controlled or jointly controlled by the UK
Government and bodies over which it has significant influence are related
parties of NatWest Group. NatWest Group's other transactions with the UK
Government include the payment of taxes, principally UK corporation tax and
value added tax; national insurance contributions; local authority rates; and
regulatory fees and levies (including the bank levy and FSCS levy).
Bank of England facilities
In the ordinary course of business, NatWest Group may from time to time access
market-wide facilities provided by the Bank of England.
Other related parties
(a) In their roles as providers of finance, NatWest Group companies provide
development and other types of capital support to businesses. In some
instances, the investment may extend to ownership or control over 20% or more
of the voting rights of the investee company.
(b) NatWest Group recharges The NatWest Group Pension Fund with the cost of
administration services incurred by it. The amounts involved are not material
to NatWest Group.
Full details of NatWest Group's related party transactions for the year ended
31 December 2021 are included in NatWest Group plc's 2021 Annual Report and
Accounts.
17. Post balance sheet events
On 22 July 2022, approval was received from the Irish competition authority
(the CCPC) in relation to the agreement with PTSB for the sale of UBIDAC's
performing non-tracker mortgage portfolio, asset finance business, business
direct loan book and 25 branches.
The successful completion of a second tranche of commercial customers to
Allied Irish Banks, p.l.c (AIB) was finalised in July 2022.
Other than as disclosed in this document, there have been no significant
events between 30 June 2022 and the date of approval of this announcement
which would require a change to, or additional disclosure, in the
announcement.
18. Date of approval
This announcement was approved by the Board of Directors on 28 July 2022.
Independent review report to NatWest Group plc
Conclusion
We have been engaged by NatWest Group ("the Group") to review the condensed
set of financial statements in the half-yearly financial report for the six
months ended 30 June 2022 which comprises of the condensed consolidated income
statement, the condensed consolidated statement of comprehensive income, the
condensed consolidated balance sheet, the condensed consolidated statement of
changes in equity, the condensed consolidated cash flow statement, related
Notes 1 to 18 and the Risk and capital management disclosures for those
identified as within the scope of our review (together "the condensed
consolidated financial statements"). We have read the other information
contained in the half yearly financial report and considered whether it
contains any apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2022 is not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK) "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance with
International Standards on Auditing (UK) and consequently does not enable us
to obtain assurance that we would become aware of all significant matters that
might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in Note 1, the annual financial statements of the Group are
prepared in accordance with UK adopted International Accounting Standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusions relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this International Standard on Review Engagements 2410 (UK), however future
events or conditions may cause the entity to cease to continue as a going
concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the Group's ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the Group
or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Group a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion, including our Conclusions
relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for conclusion paragraph of
this report.
Use of our report
This report is made solely to the Group in accordance with guidance contained
in International Standard on Review Engagements 2410 (UK) "Review of Interim
Financial Information Performed by the Independent Auditor of the Entity"
issued by the Financial Reporting Council. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than the Group,
for our work, for this report, or for the conclusions we have formed.
Ernst & Young LLP
London, United Kingdom
28 July 2022
NatWest Group plc Summary Risk Factors
Summary of Principal Risks and Uncertainties
Set out below is a summary of the principal risks and uncertainties for the
remaining six months of the financial year which could adversely affect
NatWest Group. This summary should not be regarded as a complete and
comprehensive statement of all potential risks and uncertainties; a fuller
description of these and other risk factors is included on pages 406 to 426 of
the NatWest Group plc 2021 Annual Report and Accounts and pages 136 to 157 of
NatWest Group plc's 2021 Form 20-F. Any of the risks identified may have a
material adverse effect on NatWest Group's business, operations, financial
condition or prospects.
Economic and political risk
- NatWest Group faces continued economic and political risks and
uncertainty in the UK and global markets, including as a result of high
inflation, rising interest rates, supply chain disruption and the Russian
invasion of Ukraine.
- The impact of the COVID-19 pandemic and related uncertainties
continue to affect the UK, global economies and financial markets and NatWest
Group's customers, as well as its competitive environment, which may continue
to have an adverse effect on NatWest Group.
- Continuing uncertainty regarding the effects and extent of the
UK's post Brexit divergence from EU laws and regulation, and NatWest Group's
post Brexit EU operating model may continue to adversely affect NatWest Group
and its operating environment.
- Changes in interest rates have significantly affected and will
continue to affect NatWest Group's business and results.
- Changes in foreign currency exchange rates may affect NatWest
Group's results and financial position.
- HM Treasury (or UKGI on its behalf) could exercise a significant
degree of influence over NatWest Group and further offers or sales of NatWest
Group's shares held by HM Treasury may affect the price of NatWest Group
securities.
Strategic risk
- NatWest Group continues to implement its purpose-led strategy,
which carries significant execution and operational risks and may not achieve
its stated aims and targeted outcomes.
- NatWest Group continues to refocus its NWM franchise, which
entails material execution, commercial and operational risks and the intended
benefits for NatWest Group may not be realised within the timeline and in the
manner currently contemplated.
- Trends relating to the COVID-19 pandemic may adversely affect
NatWest Group's strategy and impair its ability to meet its targets and
strategic objectives.
Financial resilience risk
- NatWest Group may not meet the targets it communicates or be in a
position to continue to make discretionary capital distributions (including
dividends to shareholders).
- NatWest Group operates in markets that are highly competitive,
with increasing competitive pressures and technology disruption.
- The impact of the COVID-19 pandemic on the credit quality of
NatWest Group's counterparties may negatively impact NatWest Group.
- NatWest Group has significant exposure to counterparty and
borrower risk.
- NatWest Group may not meet the prudential regulatory requirements
for capital and MREL, or manage its capital effectively, which could trigger
the execution of certain management actions or recovery options.
- NatWest Group is subject to Bank of England and PRA oversight in
respect of resolution. Following submission of a biennial assessment of
NatWest Group's preparations for resolution to the PRA, the Bank of England
has not identified any shortcomings, deficiencies or substantive impediments
associated with NatWest Group's ability to achieve resolvability outcomes, but
has highlighted two areas as requiring further enhancements. NatWest Group
could be adversely affected should future Bank of England assessments deem
NatWest Group's preparations to be inadequate.
- NatWest Group may not be able to adequately access sources of
liquidity and funding.
- Any reduction in the credit rating and/or outlooks assigned to
NatWest Group plc, any of its subsidiaries or any of their respective debt
securities could adversely affect the availability of funding for NatWest
Group, reduce NatWest Group's liquidity position and increase the cost of
funding.
- NatWest Group may be adversely affected if it fails to meet the
requirements of regulatory stress tests.
- NatWest Group's results could be adversely affected if an event
triggers the recognition of a goodwill impairment. NatWest Group capitalises
goodwill, which is calculated as the excess of the cost of an acquisition over
the net fair value of the identifiable assets, liabilities and contingent
liabilities acquired. Acquired goodwill is recognised at cost less any
accumulated impairment losses. As required by IFRS, NatWest Group tests
goodwill for impairment at least annually, or more frequently when events or
circumstances indicate that it might be impaired.
- NatWest Group could incur losses or be required to maintain higher
levels of capital as a result of limitations or failure of various models.
- NatWest Group's financial statements are sensitive to the
underlying accounting policies, judgments, estimates and assumptions
NatWest Group plc Summary Risk Factors
Summary of Principal Risks and Uncertainties continued
- Changes in accounting standards may materially impact NatWest
Group's financial results.
- The value or effectiveness of any credit protection that NatWest
Group has purchased depends on the value of the underlying assets and the
financial condition of the insurers and counterparties.
- NatWest Group may become subject to the application of UK
statutory stabilisation or resolution powers which may result in, among other
actions, the cancellation, transfer or dilution of ordinary shares, or the
write-down or conversion of certain other of NatWest Group's securities.
Climate and sustainability-related risks
- NatWest Group and its customers, suppliers and counterparties face
significant climate-related risks, including in transitioning to a net zero
economy, which may adversely impact NatWest Group.
- NatWest Group's purpose-led strategy includes climate change as
one of its three areas of focus and, following the passing of a 'Say on
Climate' resolution by NatWest Group's shareholders in April 2022, NatWest
Group is required to publish an initial climate transition plan in 2023.
NatWest Group's climate strategy and transition plan entails significant
execution and reputational risk and is unlikely to be achieved without
internal and external actions including significant government policy,
technology and customer changes.
- Any failure by NatWest Group to prepare or execute a credible
transition plan or implement effective and compliant climate change resilient
systems, controls and procedures could adversely affect NatWest Group's
reputation or its ability to manage climate-related risks.
- There are significant challenges in relation to climate-related
data due to quality and other limitations, lack of standardisation,
consistency and incompleteness which amongst other factors contribute to the
significant uncertainties inherent in accurately modelling the impact of
climate-related risks.
- A failure to adapt NatWest Group's business strategy, governance,
procedures, systems and controls to manage emerging sustainability-related
risks and opportunities may have a material adverse effect on NatWest Group,
its reputation, business, results of operations and outlook.
- Any reduction in the ESG ratings of NatWest Group could have a
negative impact on NatWest Group's reputation and on investors' risk appetite
and customers' willingness to deal with NatWest Group.
- Increasing levels of climate, environmental and
sustainability-related laws, regulation and oversight may adversely affect
NatWest Group's business and expose NatWest Group to increased costs of
compliance, regulatory sanction and reputational damage.
- NatWest Group may be subject to potential climate, environmental
and other sustainability-related litigation, enforcement proceedings,
investigations and conduct risk.
Operational and IT resilience risk
- Operational risks (including reliance on third party suppliers and
outsourcing of certain activities) are inherent in NatWest Group's businesses.
- NatWest Group is subject to increasingly sophisticated and
frequent cyberattacks.
- NatWest Group operations and strategy are highly dependent on the
accuracy and effective use of data.
- NatWest Group's operations are highly dependent on its complex IT
systems (including those that enable remote working) and any IT failure could
adversely affect NatWest Group.
- Remote working may adversely affect NatWest Group's ability to
maintain effective internal controls.
- NatWest Group relies on attracting, retaining and developing
diverse senior management and skilled personnel, and is required to maintain
good employee relations.
- A failure in NatWest Group's risk management framework could
adversely affect NatWest Group, including its ability to achieve its strategic
objectives.
- NatWest Group's operations are subject to inherent reputational
risk.
Legal, regulatory and conduct risk
- NatWest Group's businesses are subject to substantial regulation
and oversight, which are constantly evolving and may adversely affect NatWest
Group.
- NatWest Group is exposed to the risks of various litigation
matters, regulatory and governmental actions and investigations as well as
remedial undertakings, including conduct-related reviews, anti-money
laundering and redress projects, the outcomes of which are inherently
difficult to predict, and which could have an adverse effect on NatWest Group.
- NatWest Group may not effectively manage the transition of LIBOR
and other IBOR rates to alternative risk-free rates.
- Changes in tax legislation or failure to generate future taxable
profits may impact the recoverability of certain deferred tax assets
recognised by NatWest Group.
Statement of directors' responsibilities
We, the directors listed below, confirm that to the best of our knowledge:
- the condensed financial statements have been prepared in accordance
with IAS 34 'Interim Financial Reporting', as adopted by the UK and as issued
by the International Accounting Standards Board (IASB);
- the interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events during the
first six months and description of principal risks and uncertainties for the
remaining six months of the year); and
- the interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein).
By order of the Board
Howard Davies Alison Rose-Slade Katie Murray
Chairman Group Chief Executive Officer Group Chief Financial Officer
28 July 2022
Board of directors
Chairman Executive directors Non-executive directors
Howard Davies Alison Rose-Slade Frank Dangeard
Katie Murray Patrick Flynn
Morten Friis
Robert Gillespie
Yasmin Jetha
Mike Rogers
Mark Seligman
Lena Wilson
Presentation of information
In this document, 'parent company' refers to the NatWest Group plc, and
'NatWest Group' or the 'Group' refers to NatWest Group plc and its
subsidiaries. The term 'NWH Group' refers to NatWest Holdings Limited ('NWH')
and its subsidiary and associated undertakings. The term 'NWM Group' refers
to NatWest Markets Plc ('NWM Plc') and its subsidiary and associated
undertakings. The term 'NWM N.V.' refers to NatWest Markets N.V. The term
'NWMSI' refers to NatWest Markets Securities, Inc. The term 'RBS plc' refers
to The Royal Bank of Scotland plc. The term 'NWB Plc' refers to National
Westminster Bank Plc. The term 'UBIDAC' refers to Ulster Bank Ireland
DAC. 'Go-forward group' excludes Ulster Bank RoI and discontinued operations.
NatWest Group publishes its financial statements in pounds sterling ('£' or
'sterling'). The abbreviations '£m' and '£bn' represent millions and
thousands of millions of pounds sterling, respectively, and references to
'pence' or 'p' represent pence where the amounts are denominated in pounds
sterling ('GBP'). Reference to 'dollars' or '$' are to United States of
America ('US') dollars. The abbreviations '$m' and '$bn' represent millions
and thousands of millions of dollars, respectively. The abbreviation '€'
represents the 'euro', and the abbreviations '€m' and '€bn' represent
millions and thousands of millions of euros, respectively.
On 27 January 2022, NatWest Group announced that a new franchise, Commercial
& Institutional, would be created, bringing
together the Commercial, NatWest Markets and RBSI businesses to form a single
franchise, with common management and
objectives, to best support our customers across the full non-personal
customer lifecycle. Comparatives have been re-presented in
this document. Refer to the re-segmentation document published on 22 April
2022 for further details. The re-presentation of
operating segments does not change the consolidated financial results of
NatWest Group.
Statutory accounts
Financial information contained in this document does not constitute statutory
accounts within the meaning of section 434 of the Companies Act 2006 ('the
Act'). The statutory accounts for the year ended 31 December 2021 have been
filed with the Registrar of Companies. The report of the auditor on those
statutory accounts was unqualified, did not draw attention to any matters by
way of emphasis and did not contain a statement under section 498(2) or (3) of
the Act.
MAR - Inside Information
This announcement contains information that qualified or may have qualified as
inside information for NatWest Group plc, for the purposes of Article 7 of the
Market Abuse Regulation (EU) 596/2014 (MAR) as it forms part of domestic law
by virtue of the European Union (Withdrawal) Act 2018 for NatWest Group plc.
This announcement is made by Alexander Holcroft, Head of Investor Relations
for NatWest Group plc.
Forward-looking statements
This document contains forward-looking statements within the meaning of the
United States Private Securities Litigation Reform Act of 1995, such as
statements that include, without limitation, the words 'expect', 'estimate',
'project', 'anticipate', 'commit', 'believe', 'should', 'intend', 'will',
'plan', 'could', 'probability', 'risk', 'Value-at-Risk (VaR)', 'target',
'goal', 'objective', 'may', 'endeavour', 'outlook', 'optimistic', 'prospects'
and similar expressions or variations on these expressions. These statements
concern or may affect future matters, such as NatWest Group's future economic
results, business plans and strategies. In particular, this document may
include forward-looking statements relating to NatWest Group plc in respect
of, but not limited to: its economic and political risks, its regulatory
capital position and related requirements, its financial position,
profitability and financial performance (including financial, capital, cost
savings and operational targets), the implementation of its purpose-led
strategy, its ESG and climate related targets, its access to adequate sources
of liquidity and funding, increasing competition from new incumbents and
disruptive technologies, the impact of the COVID-19 pandemic, its exposure to
third party risks, its ongoing compliance with the UK ring-fencing regime and
ensuring operational continuity in resolution, its impairment losses and
credit exposures under certain specified scenarios, substantial regulation and
oversight, ongoing legal, regulatory and governmental actions and
investigations, the transition of LIBOR and IBOR rates to alternative risk
free rates and NatWest Group's exposure to operational risk, conduct risk,
cyber, data and IT risk, financial crime risk, key person risk and credit
rating risk. Forward-looking statements are subject to a number of risks and
uncertainties that might cause actual results and performance to differ
materially from any expected future results or performance expressed or
implied by the forward-looking statements. Factors that could cause or
contribute to differences in current expectations include, but are not limited
to, future growth initiatives (including acquisitions, joint ventures and
strategic partnerships), the outcome of legal, regulatory and governmental
actions and investigations, the level and extent of future impairments and
write-downs (including with respect to goodwill), legislative, political,
fiscal and regulatory developments, accounting standards, competitive
conditions, technological developments, interest and exchange rate
fluctuations, general economic and political conditions, the impact of
climate-related risks and the transitioning to a net zero economy and the
impact of the COVID-19 pandemic. These and other factors, risks and
uncertainties that may impact any forward-looking statement or NatWest Group
plc's actual results are discussed in NatWest Group plc's UK 2021 Annual
Report and Accounts (ARA), NatWest Group plc's Interim Results for Q1 2022 and
H1 2022 and NatWest Group plc's filings with the US Securities and Exchange
Commission, including, but not limited to, NatWest Group plc's most recent
Annual Report on Form 20-F and Reports on Form 6-K. The forward-looking
statements contained in this document speak only as of the date of this
document and NatWest Group plc does not assume or undertake any obligation or
responsibility to update any of the forward-looking statements contained in
this document, whether as a result of new information, future events or
otherwise, except to the extent legally required.
Additional information
Share information
30 June 31 March 31 December
2022 2022 2021
Ordinary share price (pence) 218.30 215.90 225.70
Number of ordinary shares in issue (millions) 10,583 10,783 11,468
Financial calendar
2022 third quarter interim management statement 28 October 2022
Contacts
Analyst enquiries: Alexander Holcroft, Investor
Relations +44 (0) 20 7672 1758
Media enquiries: NatWest Group Press
Office +44 (0) 131 523 4205
Management presentation Fixed income call
Date: Friday 29 July 2022 Friday 29 July 2022
Time: 9.30am 1.00pm
Zoom ID: 958 4410 8428 939 1342 1434
Available on natwestgroup.com/results (http://www.rbs.com/results)
- Interim Results 2022 and background slides.
- A financial supplement containing income statement, balance sheet and segment
performance information for the nine quarters ended 30 June 2022.
- NatWest Group Pillar 3 supplement at 30 June 2022.
Appendix
Non-IFRS financial measures
Non-IFRS financial measures
NatWest Group prepares its financial statements in accordance with generally
accepted accounting principles (GAAP). This document contains a number of
adjusted or alternative performance measures, also known as non-GAAP or
non-IFRS performance measures. These measures are adjusted for notable and
other defined items which management believes are not representative of the
underlying performance of the business and which distort period-on-period
comparison. The non-IFRS measures provide users of the financial statements
with a consistent basis for comparing business performance between financial
periods and information on elements of performance that are one-off in nature.
The non-IFRS measures also include the calculation of metrics that are used
throughout the banking industry. These non-IFRS measures are not measures
within the scope of IFRS and are not a substitute for IFRS measures.
Non-IFRS financial measures
1. Go-forward group income excluding notable items
Go-forward group income excluding notable items is calculated as total income
excluding Ulster Bank RoI total income and excluding notable items.
The exclusion of notable items aims to remove the impact of one-offs which may
distort period-on-period comparisons.
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
Less Ulster Bank RoI total income (33) (65) (12) (21) (30)
Go-forward group income 6,186 5,076 3,199 2,987 2,541
Less notable items (321) (30) (97) (224) (39)
Go-forward group income excluding notable items 5,865 5,046 3,102 2,763 2,502
2. Go-forward group other operating expenses
Other operating expenses is calculated as total operating expenses less
litigation and conduct costs. Other operating expenses of the Go-forward group
excludes Ulster Bank RoI.
Our cost target for 2022 is based on this measure and we track progress
against it.
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 operating expenses 3,653 3,499 1,833 1,820 1,695
Less litigation and conduct costs (169) 18 (67) (102) 34
Other operating expenses 3,484 3,517 1,766 1,718 1,729
Less Ulster Bank RoI other operating expenses (243) (226) (130) (113) (121)
Go-forward group other operating expenses 3,241 3,291 1,636 1,605 1,608
3. Go-forward group profit before impairment releases/(losses)
Go-forward group profit before impairment releases/(losses) is calculated as
total profit before impairment releases/(losses) less Ulster Bank RoI loss
before impairment (losses)/releases.
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
Profit before impairment releases/(losses) 2,566 1,642 1,378 1,188 876
Less Ulster Bank RoI loss before
impairment (losses)/releases 221 174 129 92 95
Go-forward group profit before impairment
releases/(losses) 2,787 1,816 1,507 1,280 971
.
Non-IFRS financial measures
4. Operating expenses - management view
The management analysis of operating expenses shows litigation and conduct
costs on a separate line. These amounts are included within staff costs and
other administrative expenses in the statutory analysis. Other operating
expenses excludes litigation and conduct costs, which are more volatile and
may distort comparisons with prior periods.
Half year ended
30 June 2022
Litigation and Other operating Statutory operating
conduct costs expenses expenses
Operating expenses £m £m £m
Continuing operations
Staff costs 18 1,790 1,808
Premises and equipment - 534 534
Depreciation and amortisation - 413 413
Other administrative expenses 151 747 898
Total 169 3,484 3,653
Half year ended
30 June 2021
Litigation and Other operating Statutory operating
conduct costs expenses expenses
Operating expenses £m £m £m
Continuing operations
Staff costs - 1,880 1,880
Premises and equipment - 502 502
Depreciation and amortisation - 414 414
Other administrative expenses (18) 721 703
Total (18) 3,517 3,499
Quarter ended
30 June 2022
Litigation and Other operating Statutory operating
conduct costs expenses expenses
Operating expenses £m £m £m
Continuing operations
Staff costs 11 896 907
Premises and equipment - 283 283
Depreciation and amortisation - 216 216
Other administrative expenses 56 371 427
Total 67 1,766 1,833
Quarter ended
31 March 2022
Litigation and Other operating Statutory operating
conduct costs expenses expenses
Operating expenses £m £m £m
Continuing operations
Staff costs 7 894 901
Premises and equipment - 251 251
Depreciation and amortisation - 197 197
Other administrative expenses 95 376 471
Total 102 1,718 1,820
Quarter ended
30 June 2021
Litigation and Other operating Statutory operating
conduct costs expenses expenses
Operating expenses £m £m £m
Continuing operations
Staff costs - 906 906
Premises and equipment - 254 254
Depreciation and amortisation - 209 209
Other administrative expenses (34) 360 326
Total (34) 1,729 1,695
Non-IFRS financial measures
5. Cost:income ratio
The cost:income ratio is calculated as total operating expenses less operating
lease depreciation divided by total income less operating lease depreciation.
This is a common metric used to compare profitability across the banking
industry.
Go-forward group
Central Total excluding Total
Retail Private Commercial & items Ulster Ulster NatWest
Banking Banking Institutional & other Bank RoI Bank RoI Group
Half year ended 30 June 2022 £m £m £m £m £m £m £m
Continuing operations
Operating expenses (1,242) (285) (1,820) (52) (3,399) (254) (3,653)
Operating lease depreciation - - 64 - 64 - 64
Adjusted operating expenses (1,242) (285) (1,756) (52) (3,335) (254) (3,589)
Total income 2,554 461 2,937 234 6,186 33 6,219
Operating lease depreciation - - (64) - (64) - (64)
Adjusted total income 2,554 461 2,873 234 6,122 33 6,155
Cost:income ratio 48.6% 61.8% 61.1% nm 54.5% nm 58.3%
Half year ended 30 June 2021
Continuing operations
Operating expenses (1,187) (249) (1,824) - (3,260) (239) (3,499)
Operating lease depreciation - - 70 - 70 - 70
Adjusted operating expenses (1,187) (249) (1,754) - (3,190) (239) (3,429)
Total income 2,150 368 2,474 84 5,076 65 5,141
Operating lease depreciation - - (70) - (70) - (70)
Adjusted total income 2,150 368 2,404 84 5,006 65 5,071
Cost:income ratio 55.2% 67.7% 73.0% nm 63.7% nm 67.6%
Quarter ended 30 June 2022
Continuing operations
Operating expenses (597) (146) (898) (51) (1,692) (141) (1,833)
Operating lease depreciation - - 32 - 32 - 32
Adjusted operating expenses (597) (146) (866) (51) (1,660) (141) (1,801)
Total income 1,337 245 1,562 55 3,199 12 3,211
Operating lease depreciation - - (32) - (32) - (32)
Adjusted total income 1,337 245 1,530 55 3,167 12 3,179
Cost:income ratio 44.7% 59.6% 56.6% nm 52.4% nm 56.7%
Quarter ended 31 March 2022
Continuing operations
Operating expenses (645) (139) (922) (1) (1,707) (113) (1,820)
Operating lease depreciation - - 32 - 32 - 32
Adjusted operating expenses (645) (139) (890) (1) (1,675) (113) (1,788)
Total income 1,217 216 1,375 179 2,987 21 3,008
Operating lease depreciation - - (32) - (32) - (32)
Adjusted total income 1,217 216 1,343 179 2,955 21 2,976
Cost:income ratio 53.0% 64.4% 66.3% nm 56.7% nm 60.1%
Quarter ended 30 June 2021
Continuing operations
Operating expenses (600) (128) (909) 67 (1,570) (125) (1,695)
Operating lease depreciation - - 35 - 35 - 35
Adjusted operating expenses (600) (128) (874) 67 (1,535) (125) (1,660)
Total income 1,094 183 1,221 43 2,541 30 2,571
Operating lease depreciation - - (35) - (35) - (35)
Adjusted total income 1,094 183 1,186 43 2,506 30 2,536
Cost:income ratio 54.8% 69.9% 73.7% nm 61.3% nm 65.5%
Non-IFRS financial measures
6. NatWest Group return on tangible equity
Return on tangible equity comprises annualised profit or loss for the period
attributable to ordinary shareholders divided by average tangible equity.
Average tangible equity is average total equity excluding average
non-controlling interests, average other owners equity and average intangible
assets.
Go-forward group return on tangible equity is calculated as annualised profit
for the period less Ulster Bank RoI divided by Go-forward group total tangible
equity. Go forward RWAe applying factor is the Go- forward group average RWAe
as a percentage of total Natwest Group average RWAe.
This measure shows the return NatWest Group generates on tangible equity
deployed. It is used to determine relative performance of banks and used
widely across the sector, although different banks may calculate the rate
differently.
Half year ended
and as at Quarter ended and as at
30 June 30 June 30 June 31 March 30 June
2022 2021 2022 2022 2021
NatWest Group return on tangible equity £m £m £m £m £m
Profit attributable to ordinary shareholders 1,891 1,842 1,050 841 1,222
Annualised profit attributable to ordinary shareholders 3,782 3,684 4,200 3,364 4,888
Average total equity 39,857 43,375 38,625 40,934 43,011
Adjustment for other owners' equity and intangibles (11,037) (11,934) (10,944) (11,067) (11,712)
Adjusted total tangible equity 28,820 31,441 27,681 29,867 31,299
Return on tangible equity 13.1% 11.7% 15.2% 11.3% 15.6%
Go-forward group return on tangible equity
Profit attributable to ordinary shareholders 1,891 1,842 1,050 841 1,222
Less Ulster Bank RoI loss from continuing operations, net of tax 212 218 149 63 126
Less profit from discontinued operations (190) (177) (127) (63) (83)
Go-forward group profit attributable to ordinary shareholders 1,913 1,883 1,072 841 1,265
Annualised go-forward group profit attributable
to ordinary shareholders 3,826 3,766 4,288 3,364 5,060
Average total equity 39,857 43,375 38,625 40,934 43,011
Adjustment for other owners' equity and intangibles (11,037) (11,934) (10,944) (11,067) (11,712)
Adjusted total tangible equity 28,820 31,441 27,681 29,867 31,299
Go-forward group RWAe applying factor 94% 93% 94% 95% 93%
Go-forward group total tangible equity 27,091 29,240 26,020 28,374 29,108
Go-forward group return on tangible equity 14.1% 12.8% 16.5% 11.9% 17.3%
Non-IFRS financial measures
7. Segmental return on equity
Segmental return on equity comprises segmental operating profit or loss,
adjusted for preference share dividends and tax, divided by average notional
equity. Average RWAe is defined as average segmental RWAs incorporating the
effect of capital deductions. This is multiplied by an allocated equity factor
for each segment to calculate the average notional tangible equity.
This measure shows the return generated by operating segments on equity
deployed.
Retail Private Commercial &
Half year ended 30 June 2022 Banking Banking Institutional
Operating profit (£m) 1,286 187 1,176
Paid-in equity cost allocation (£m) (40) (6) (93)
Adjustment for tax (£m) (349) (51) (271)
Adjusted attributable profit (£m) 897 130 812
Annualised adjusted attributable profit (£m) 1,794 261 1,624
Average RWAe (£bn) 52.5 11.3 101.7
Equity factor 13.0% 11.0% 14.0%
Average notional equity (£bn) 6.8 1.2 14.2
Return on equity (%) 26.3% 20.9% 11.4%
Half year ended 30 June 2021
Operating profit (£m) 1,020 146 1,263
Preference share and paid-in equity cost allocation (£m) (40) (10) (118)
Adjustment for tax (£m) (274) (38) (286)
Adjusted attributable profit (£m) 706 98 859
Annualised adjusted attributable profit (£m) 1,412 196 1,718
Average RWAe (£bn) 35.4 11.0 108.9
Equity factor 14.5% 12.5% 13.0%
Average notional equity (£bn) 5.1 1.4 14.2
Return on equity (%) 27.5% 14.2% 12.1%
Retail Private Commercial &
Quarter ended 30 June 2022 Banking Banking Institutional
Operating profit (£m) 719 105 712
Paid-in equity cost allocation (£m) (20) (3) (47)
Adjustment for tax (£m) (196) (29) (166)
Adjusted attributable profit (£m) 503 73 499
Annualised adjusted attributable profit (£m) 2,012 293 1,996
Average RWAe (£bn) 52.4 11.3 101.0
Equity factor 13.0% 11.0% 14.0%
Average notional equity (£bn) 6.8 1.2 14.1
Return on equity (%) 29.5% 23.5% 14.0%
Quarter ended 31 March 2022
Operating profit (£m) 567 82 464
Paid-in equity cost allocation (£m) (20) (3) (46)
Adjustment for tax (£m) (153) (22) (105)
Adjusted attributable profit (£m) 394 57 314
Annualised adjusted attributable profit (£m) 1,576 228 1,256
Average RWAe (£bn) 52.6 11.4 102.0
Equity factor 13.0% 11.0% 14.0%
Average notional equity (£bn) 6.8 1.3 14.3
Return on equity (%) 23.1% 18.2% 8.8%
Quarter ended 30 June 2021
Operating profit (£m) 585 82 800
Preference share and paid-in equity cost allocation (£m) (20) (5) (59)
Adjustment for tax (£m) (158) (22) (185)
Adjusted attributable profit (£m) 407 55 556
Annualised adjusted attributable profit (£m) 1,628 220 2,223
Average RWAe (£bn) 35.1 11.1 107.6
Equity factor 14.5% 12.5% 13.0%
Average notional equity (£bn) 5.1 1.4 14.0
Return on equity (%) 32.0% 15.9% 15.9%
Non-IFRS financial measures
8. Bank net interest margin
Bank net interest margin is defined as annualised net interest income of the
Go-forward group, as a percentage of bank average interest-earning assets.
Bank average interest earning assets are the average interest earning assets
of the banking business of the Go-forward group excluding liquid asset buffer.
Liquid asset buffer consists of assets held by NatWest Group, such as cash and
balances at central banks and debt securities in issue, that can be used to
ensure repayment of financial obligations as they fall due. The exclusion of
liquid asset buffer presents net interest margin on a basis more comparable
with UK peers and excludes the impact of regulatory driven factors.
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2022 2021 2022 2022 2021
Go-forward group £m £m £m £m £m
Continuing operations
NatWest Group net interest income 4,334 3,744 2,307 2,027 1,900
Less Ulster Bank RoI net interest income (6) (15) (2) (4) (8)
Bank net interest income 4,328 3,729 2,305 2,023 1,892
Annualised NatWest Group net interest income 8,740 7,550 9,253 8,221 7,621
Annualised bank net interest income 8,728 7,520 9,245 8,204 7,589
Average interest earning assets (IEA) 546,045 503,624 548,371 543,697 510,517
Less Ulster Bank RoI average IEA (1,564) (2,216) (1,544) (1,584) (2,336)
Less liquid asset buffer average IEA (207,583) (180,791) (206,843) (208,764) (185,210)
Bank average IEA 336,898 320,617 339,984 333,349 322,971
Bank net interest margin 2.59% 2.35% 2.72% 2.46% 2.35%
Retail Banking
Net interest income 2,340 1,976 1,228 1,112 1,003
Annualised net interest income 4,719 3,985 4,925 4,510 4,023
Retail Banking average IEA 186,813 176,327 188,081 185,531 177,297
Less liquid asset buffer average IEA - - - - -
Adjusted Retail Banking average IEA 186,813 176,327 188,081 185,531 177,297
Retail Banking net interest margin 2.53% 2.26% 2.62% 2.43% 2.27%
Private Banking
Net interest income 315 232 172 143 117
Annualised net interest income 635 468 690 580 469
Private Banking average IEA 19,006 17,886 19,144 18,867 18,081
Less liquid asset buffer average IEA - - - - -
Adjusted Private Banking average IEA 19,006 17,886 19,144 18,867 18,081
Private Banking net interest margin 3.34% 2.62% 3.60% 3.07% 2.60%
Commercial & Institutional
Net interest income 1,764 1,487 961 803 762
Annualised net interest income 3,557 2,999 3,855 3,257 3,056
Commercial & Institutional average IEA 125,188 120,462 124,940 120,985 121,049
Less liquid asset buffer average IEA - - - - -
Adjusted Commercial & Institutional average IEA 125,188 120,462 124,940 120,985 121,049
Commercial & Institutional net interest margin 2.84% 2.49% 3.09% 2.69% 2.52%
Non-IFRS financial measures
9. Tangible net asset value (TNAV) per ordinary share
TNAV per ordinary share is calculated as tangible equity divided by the number
of ordinary shares in issue.
This is a measure used by external analysts in valuing the bank and allows for
comparison with other per ordinary share metrics including the share price.
As at
30 June 31 March 31 December
2022 2022 2021
£bn £bn £bn
Ordinary shareholders' interests (£m) 34,727 35,345 37,412
Less intangible assets (£m) (6,869) (6,774) (6,723)
Tangible equity (£m) 27,858 28,571 30,689
Ordinary shares in issue (millions) 10,436 10,622 11,272
TNAV per ordinary share (pence) 267p 269p 272p
10. Go-forward group net lending
NatWest Group net lending is calculated as total loans to customers less loan
impairment provisions. Go-forward group net lending is calculated as net loans
to customers less Ulster Bank RoI net loans to customers.
As at
30 June 31 March 31 December
2022 2022 2021
£bn £bn £bn
Total loans to customers (amortised cost) 366.0 368.9 362.8
Less loan impairment provisions (3.4) (3.6) (3.8)
Net loans to customers (amortised cost) 362.6 365.3 359.0
Less Ulster Bank RoI net loans to customers (amortised cost) (1.0) (6.3) (6.7)
Go-forward group net lending 361.6 359.0 352.3
11. Go-forward group customer deposits
Go-forward group customer deposits is calculated as total customer deposits
less Ulster Bank RoI customer deposits.
As at
30 June 31 March 31 December
2022 2022 2021
£bn £bn £bn
Total customer deposits 492.1 482.9 479.8
Less Ulster Bank RoI customer deposits (15.9) (17.3) (18.4)
Go-forward group customer deposits 476.2 465.6 461.4
Performance metrics not defined under IFRS
Metrics based on GAAP measures, included as not defined under IFRS and
reported for compliance with the European Securities and Markets Authority
(ESMA) adjusted performance measure rules.
1. Loan:deposit ratio
Loan:deposit ratio is calculated as net customer loans held at amortised cost
excluding reverse repos divided by total customer deposits excluding repos.
Prior periods have been re-presented.
This is a common metric used to assess liquidity. The removal of repos and
reverse repos reduces volatility and presents the ratio on a basis that is
comparable to UK peers.
As at
30 June 31 March 30 June
2022 2022 2021
£bn £bn £bn
Loans to customers - amortised cost 362,551 365,340 362,711
Less reverse repos (25,084) (26,780) (22,706)
337,467 338,560 340,005
Customer deposits 492,075 482,887 467,214
Less repos (19,195) (16,166) (16,751)
472,880 466,721 450,463
Loan:deposit ratio (%) 71% 73% 75%
2. Loan impairment rate
Loan impairment rate is the annualised loan impairment charge divided by gross
customer loans.
3. Funded assets
Funded assets is calculated as total assets less derivative assets.
This measure allows review of balance sheet trends exclusive of the volatility
associated with derivative fair values.
4. AUMAs
AUMA comprises both assets under management (AUMs) and assets under
administration (AUAs) serviced through the Private Banking franchise. AUMs
comprise assets where the investment management is undertaken by Private
Banking on behalf of Private Banking, Retail Banking and Commercial &
Institutional customers. AUAs comprise third party assets held on an
execution-only basis in custody by Private Banking, Retail Banking and
Commercial & Institutional for their customers, for which the execution
services are supported by Private Banking. Private Banking receives a fee for
providing investment management and execution services to Retail Banking and
Commercial & Institutional franchises.
Private Banking is the centre of expertise for asset management across
NatWest Group servicing all client segments across Retail Banking, Private
Banking and Commercial & Institutional Banking.
5. Net new money
Net new money refers to client cash inflows and outflows relating to
investment products (this can include transfers from saving accounts). Net new
money excludes the impact of EEA resident client outflows following the UK's
exit from the EU.
Net new money is reported and tracked to monitor the business performance of
new business inflows and management of existing client withdrawals across
Retail Banking, Private Banking and Commercial & Institutional Banking.
6. Wholesale funding
Wholesale funding comprises deposits by banks (excluding repos), debt
securities in issue and subordinated liabilities.
Funding risk is the risk of not maintaining a diversified, stable and
cost-effective funding base. The disclosure of wholesale funding highlights
the extent of our diversification and how we mitigate funding risk.
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