REG - NatWest Group plc - NWG H1 23 Interim Management Statement-Part 1 of 2
28/07/2023 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230728:nRSb4900Ha&default-theme=true
RNS Number : 4900H NatWest Group plc 28 July 2023
NatWest Group
Interim Results 2023
natwestgroup.com
NatWest Group Interim Results 2023 Page
Highlights 3
Our Purpose in action 4
Business performance summary 5
Chief Financial Officer review 6
Retail Banking 8
Private Banking 9
Commercial & Institutional 10
Central items & other 11
Segment performance 12
Risk and capital management
Credit risk 18
Credit risk - banking activities 29
Credit risk - trading activities 58
Capital, liquidity and funding risk 61
Market risk 71
Other risks 76
Condensed consolidated financial statements 77
Notes to the financial statements 83
Independent review report to NatWest Group plc 102
Summary of Principal Risks and Uncertainties 103
Statement of directors' responsibilities 105
Additional information 106
Appendix - Non-IFRS financial measures 109
NatWest Group plc
Interim results for the period ended 30 June 2023
Chief Financial Officer, Katie Murray, commented
"NatWest Group's strong performance for the first half of the year is
underpinned by our robust balance sheet, with a high-quality deposit base,
high levels of liquidity and a well-diversified loan book. As a result, we are
able to continue lending to our customers and delivering sustainable returns
and distributions to our shareholders, even in the current uncertain economic
environment.
Although arrears remain low, we know that people, families and businesses are
anxious about their finances and many are really struggling. We are being
proactive in our support for those who are hardest hit, helping to build the
financial resilience of the customers and communities we serve."
Group Chief Executive Officer
On 25 July 2023, Alison Rose stepped down as Chief Executive Officer and as a
Director of NatWest Group plc. Paul Thwaite was appointed as Chief Executive
Officer and as a Director of NatWest Group plc for an initial period of 12
months, subject to regulatory approval.
Strong H1 2023 performance
- H1 2023 attributable profit of £2,299 million and a return on tangible
equity of 18.2%.
- Total income, excluding notable items((1)), increased by £1,485
million, or 25.2%, compared with H1 2022 principally reflecting the impact of
lending growth and yield curve movements.
- Bank net interest margin (NIM) of 3.20% in H1 2023 compared with 2.58%
in H1 2022 with the increase reflecting favourable yield curve movements. Q2
2023 Bank NIM of 3.13% was 14 basis points lower than Q1 2023 principally
reflecting asset margin pressure and changes in deposit mix from non-interest
bearing to interest bearing balances.
- Other operating expenses were £323 million, or 9.3%, higher than H1
2022. The cost:income ratio (excl. litigation and conduct) was 49.3% for the
first half of the year compared with 56.0% in H1 2022.
- A net impairment charge of £223 million in H1 2023, or 12 basis points
of gross customer loans, principally reflects an increase in post model
adjustments driven by increased economic uncertainty notwithstanding a £98
million modelled release. Defaults remain stable and at low levels across the
portfolio.
Robust balance sheet underpinning growth
- Net loans to customers excluding central items increased by £6.0
billion to £352.7 billion during H1 2023 primarily reflecting £5.9 billion
of mortgage growth in Retail Banking.
- Up to 30 June 2023 we have provided £48.6 billion against our target to
provide £100 billion climate and sustainable funding and financing between 1
July 2021 and the end of 2025.
- Customer deposit balances were stable in the second quarter following
the outflows in the first quarter. Customer deposits excluding central items
decreased by £11.8 billion to £421.1 billion during H1 2023.
- The loan:deposit ratio (LDR) (excl. repos and reverse repos) was 83%,
with customer deposits exceeding net loans to customers by around £71
billion.
- The liquidity coverage ratio (LCR) of 141%, representing £45.3 billion
headroom above 100% minimum requirement, increased by 2 percentage points
compared with Q1 2023 primarily due to increased wholesale funding and UBIDAC
asset sale offset by capital distributions.
Shareholder return supported by strong capital generation
- We are pleased to announce an interim dividend of 5.5 pence per share
and intend to commence an on-market buyback programme of up to £500 million
in the second half of 2023 in addition to the £1.3 billion directed buyback
completed in Q2 2023 bringing total distributions deducted from capital to
£2.5 billion for H1 2023.
- Common Equity Tier (CET1) ratio of 13.5% was 70 basis points lower than
at 31 December 2022 principally reflecting distributions deducted from capital
of c.140 basis points and an increase in RWAs, partially offset by the
attributable profit.
- RWAs increased by £1.4 billion during the first half of the year to
£177.5 billion.
Outlook((2))
We retain the guidance provided in the 2022 Annual Report and Accounts with
the exception of full year 2023 Bank NIM which is now expected to be less than
3.20%, with a current view of around 3.15%. This remains subject to market
conditions including the assumption of a Bank of England base rate of 5.50%
from Q3 2023 through to the end of the year.
(1) Refer to the Non-IFRS financial measures appendix for details of
notable items.
(2) The guidance, targets, expectations, and trends discussed in this
section represent NatWest Group plc management's current expectations and are
subject to change, including as a result of the factors described in the
NatWest Group plc Risk Factors section in the 2022 Annual Report and Accounts
and Form 20-F and the Summary Risk Factors in this announcement. These
statements constitute forward-looking statements. Refer to Forward-looking
statements in this announcement.
Our Purpose in action
We champion potential, helping people, families, and businesses to thrive. By
working to benefit our customers, colleagues, and communities, we will deliver
long-term value and drive sustainable returns to our shareholders. Some key
achievements in H1 2023 include:
People and families
- We announced a new ambition to support 10 million people with their
financial wellbeing every year by the end of 2027; starting with 6.5 million
people in 2023 and increasing on an annual basis between 2024 and 2027, to
reach 10 million a year by 2027. In H1 2023, we carried out c.341,000
financial health checks and extended our free Know Your Credit Score tool to
everyone in the UK.
- From the end of April 2023, we stopped all fees and charges for
personal mortgage customers in persistent financial difficulty who are
receiving help from our specialist Financial Health and Support teams.
- We announced our collaboration with Places for People, British Gas
Centrica and Schneider Electric - coordinated by Pineapple Sustainable
Partnerships - to show that retrofitting homes at scale can be an achievable
and affordable goal.
Businesses
- We announced our aim to provide an additional £1 billion of lending
to the UK manufacturing sector by the end of 2030, aiming to stimulate growth
and help manufacturers invest in cleaner, more efficient forms of energy
generation and use((1)).
- We announced strategic partnerships with WWF-UK to mobilise investment
in climate and nature-friendly farming, and with food manufacturer McCain to
reduce financial barriers for farmers transitioning to sustainable
agricultural practices.
- As part of our ambition to remove the barriers for women in business,
in March 2023 we became the first bank in Europe to issue a bond with the
intention to use the net proceeds to lend to businesses identified as
women-led. The nominal amount of the bond is €500 million (£446 million),
as at 7 March 2023.
Colleagues
- With the National Youth Agency, we announced a new employee
volunteering programme, which will enable our colleagues to deliver NatWest
Thrive in their local youth clubs.
- We launched our new Women in Entrepreneurship learning programme, open
to all colleagues across the bank, to help them offer practical advice and
support to women entrepreneurs.
- We were included in The Times 2023 Top 50 Employers for Gender
Equality list, run by business network, Business in the Community.
Communities
- We announced £5.7 million in cost of living donations to charities
and strategic partners, including £1 million to the Trussell Trust to further
support the Help through Hardship scheme and over £1.6 million to the debt
advice sector.
- With the University of Edinburgh, we launched the Centre for
Purpose-Driven Innovation in Banking, which will use business insights from
NatWest Group to improve how data is used to benefit customers, researchers
and policymakers.
- We launched the Royal Bank Regenerate Fund with giving platform,
Neighbourly, to support schools, charities and community groups based in
Scotland to deliver sustainability projects.
Driving targeted growth
We're driving our strategy forward through three areas of growth:
Delivering personalised solutions throughout our customers' lifecycle
- We're focused on customer lifetime value to deliver growth: c.20% of
youth accounts are held with NatWest Group((2)) and in H1 2023 we attracted
c.93,000 new NatWest Rooster card holders.
- According to a survey by Savanta, we have a 17.7% share of the
start-up market, up from 13.0% at the same time last year, with c.55,000 new
accounts opened in H1 2023((3)).
Supporting our customers' sustainability transitions
- During H1 2023 we provided £16.0 billion climate and sustainable
funding and financing, bringing the cumulative contribution to £48.6 billion
at 30 June 2023 against our target to provide £100 billion between 1 July
2021 and the end of 2025((4)).
- As part of this, we aim to provide at least £10 billion in lending
for residential properties with Energy Performance Certificate (EPC) ratings A
and B between 1 January 2023 and the end of 2025. During H1 2023, we provided
£2.3 billion in lending for residential properties with EPC ratings A and B.
Embedding our services in our customers' digital lives
- We're scaling up digital and payment offerings for our business
customers: Mettle has grown its customer base to almost 100,000 with c.17,000
new accounts opened in H1 2023; £2.2 billion transactions were processed by
Tyl by NatWest, a 64% year-on-year increase, and c.8,000 new merchants
onboarded.
- We launched a whole-of-market((5)) credit card offering: our credit
card share is 9.6%((6)), up from 5.7% this time last year, with c.309,000
cards issued in the year to date and c.76,000 new-to-bank customers.
(1) The £1 billion manufacturing fund lending package will be deployed
through a variety of routes, including loans, asset finance and increased
overdrafts.
(2) As at April 2023. Source: CACI - UK youth flow share max age 18,
cash card and no overdraft and Rooster 11+ overlay (12 months rolling).
(3) Based on the % of 771 businesses, less than 2 years old, that name
a NatWest Group brand as their main bank. Compared to other banks with a
presence on the high street. Source: MarketVue Business Banking from Savanta
at Q2 2023. Excludes those using personal bank accounts.
(4) NatWest Group uses its climate and sustainable funding and
financing inclusion criteria to determine the assets, activities and companies
that are eligible to be included within its climate and sustainable funding
and financing targets. This includes both provision of committed (on and
off-balance sheet) funding and financing, including provision of services for
underwriting issuances and private placements.
(5) Whole-of-market primarily comprises retail customers who do not
currently hold a current account with NatWest Group.
(6) Source: eBenchmarkers 3 month rolling average to end May.
Business performance summary
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2023 2022 2023 2023 2022
Summary consolidated income statement £m £m £m £m £m
Net interest income 5,726 4,334 2,824 2,902 2,307
Non-interest income 2,001 1,885 1,027 974 904
Total income 7,727 6,219 3,851 3,876 3,211
Litigation and conduct costs (108) (169) (52) (56) (67)
Other operating expenses (3,807) (3,484) (1,875) (1,932) (1,766)
Operating expenses (3,915) (3,653) (1,927) (1,988) (1,833)
Profit before impairment losses/releases 3,812 2,566 1,924 1,888 1,378
Impairment (losses)/releases (223) 54 (153) (70) 18
Operating profit before tax 3,589 2,620 1,771 1,818 1,396
Tax charge (1,061) (795) (549) (512) (409)
Profit from continuing operations 2,528 1,825 1,222 1,306 987
(Loss)/profit from discontinued operations, net of tax (108) 190 (143) 35 127
Profit for the period 2,420 2,015 1,079 1,341 1,114
Performance key metrics and ratios
Notable items within total income (1) £344m £321m £288m £56m £97m
Total income excluding notable items (1) £7,383m £5,898m £3,563m £3,820m £3,114m
Bank net interest margin (1) 3.20% 2.58% 3.13% 3.27% 2.71%
Bank average interest earning assets (1) £361bn £338bn £362bn £360bn £342bn
Cost:income ratio (excl. litigation and conduct) (1) 49.3% 56.0% 48.7% 49.8% 55.0%
Loan impairment rate (1) 12bps (3bps) 16bps 7bps (2bps)
Profit attributable to ordinary shareholders £2,299m £1,891m £1,020m £1,279m £1,050m
Total earnings per share attributable to ordinary shareholders - basic (2) 24.3p 18.7p 11.0p 13.2p 10.8p
Return on tangible equity (RoTE) (1) 18.2% 13.1% 16.4% 19.8% 15.2%
Climate and sustainable funding and financing (3) £16.0bn £11.9bn £8.4bn £7.6bn £6.4bn
As at
30 June 31 March 31 December
2023 2023 2022
Balance sheet £bn £bn £bn
Total assets 702.6 695.6 720.1
Net loans to customers - amortised cost 373.9 374.2 366.3
Net loans to customers excluding central items (1) 352.7 352.4 346.7
Loans to customers and banks - amortised cost and FVOCI 385.2 385.8 377.1
Total impairment provisions (4) 3.4 3.4 3.4
Expected credit loss (ECL) coverage ratio 0.9% 0.9% 0.9%
Assets under management and administration (AUMAs) (1) 37.9 35.2 33.4
Customer deposits 432.5 430.5 450.3
Customer deposits excluding central items (1,5) 421.1 421.8 432.9
Liquidity and funding
Liquidity coverage ratio (LCR) 141% 139% 145%
Liquidity portfolio 227 210 226
Net stable funding ratio (NSFR) 138% 141% 145%
Loan:deposit ratio (excl. repos and reverse repos) (1) 83% 83% 79%
Total wholesale funding 81 79 74
Short-term wholesale funding 28 25 21
Capital and leverage
Common Equity Tier (CET1) ratio (6) 13.5% 14.4% 14.2%
Total capital ratio (6) 18.8% 19.6% 19.3%
Pro forma CET1 ratio (excl. foreseeable items) (7) 14.2% 15.7% 15.4%
Risk-weighted assets (RWAs) 177.5 178.1 176.1
UK leverage ratio 5.0% 5.4% 5.4%
Tangible net asset value (TNAV) per ordinary share (1,8) 262p 278p 264p
Number of ordinary shares in issue (millions) (8) 8,929 9,581 9,659
(1) Refer to the Non-IFRS financial measures appendix for details of the basis of
preparation and reconciliation of non-IFRS financial measures and performance
metrics.
(2) On 30 August 2022 issued ordinary share capital was consolidated in the ratio
of 14 existing shares for 13 new shares. The average number of shares for
earnings per share has been adjusted retrospectively.
(3) NatWest Group uses its climate and sustainable funding and financing inclusion
criteria to determine the assets, activities and companies that are eligible
to be included within its climate and sustainable funding and financing
targets. This includes both provision of committed (on and off-balance sheet)
funding and financing, including provision of services for underwriting
issuances and private placements. Up to 30 June 2023 we have provided £48.6
billion against our target to provide £100 billion climate and sustainable
funding and financing between 1 July 2021 and the end of 2025. As part of
this, we aim to provide at least £10 billion in lending for residential
properties with Energy Performance Certificate (EPC) ratings A and B between 1
January 2023 and the end of 2025. During H1 2023 we provided £16.0 billion
climate and sustainable funding and financing, which included £2.3 billion in
lending for residential properties with EPC ratings A and B.
(4) Includes £0.1 billion relating to off-balance sheet exposures (31 March 2023
- £0.1 billion; 31 December 2022 - £0.1 billion).
(5) Central items includes Treasury repo activity and Ulster Bank Republic of
Ireland.
(6) Refer to the Capital, liquidity and funding risk section for details of the
basis of preparation.
(7) The pro forma CET1 ratio at 30 June 2023 excludes foreseeable items of £1,280
million: £780 million for ordinary dividends and £500 million foreseeable
charges. (31 March 2023 excludes foreseeable items of £2,351 million: £1,479
million for ordinary dividends and £872 million foreseeable charges. 31
December 2022 excludes foreseeable charges of £2,132 million: £967 million
for ordinary dividends and £1,165 million foreseeable charges).
(8) The number of ordinary shares in issue excludes own shares held. Comparatives
for the number of shares in issue and TNAV per ordinary share have not been
adjusted for the effect of the share consolidation referred to in footnote 2
above.
Business performance summary
Chief Financial Officer review
We delivered a strong operating performance in the first half of the year with
a RoTE of 18.2%. Total Income, excluding notable items, of £7.4 billion, was
up by 25.2% on prior year and levels of default remain low across our
portfolio.
The strength of our balance sheet has allowed us to continue to lend to our
personal and business customers and we have seen customer deposit balances
stabilise in the second quarter following the reduction in quarter one. We
remain in a strong liquidity position, with an LCR of 141%, representing
£45.3 billion headroom above 100% minimum requirement, and an LDR of 83%.
Our CET1 ratio remains strong at 13.5% with total distributions from capital
of £2.5 billion.
We are pleased to announce an interim dividend of 5.5 pence per share and
intend to commence an on-market buyback programme of up to £500 million in
the second half of 2023. We have announced distributions of £2.3 billion to
shareholders in the first half of the year and accrued a further £0.3 billion
towards the final dividend payment in Q2 2023, bringing total distributions
deducted from capital to £2.5 billion for H1 2023.
Financial performance
Total income increased by 24.2% to £7,727 million compared with H1 2022.
Total income, excluding notable items, was 25.2% higher than H1 2022
principally driven by lending growth and favourable yield curve movements
partially offset by the change in mix of deposits from non-interest bearing to
interest bearing and lower deposit balances. These factors continued to impact
in the quarter where net interest income fell by 2.7% compared with Q1 2023
driven by the ongoing change in mix of customer deposits, lower average
balances and the impact of higher pass-through rates coupled with mortgage
income reductions. We expect these factors to continue to be a feature of our
results largely offsetting the positive gains of interest rate rises
throughout 2023.
Bank NIM of 3.20% in H1 2023 compared with 2.58% in H1 2022 with the increase
reflecting favourable yield curve movements. Q2 2023 Bank NIM of 3.13% was 14
basis points lower than Q1 2023 principally reflecting asset margin pressure
of 9 basis points, changes in deposit mix from non-interest bearing to
interest bearing balances and the impact and timing of pass-through of rate
rises on deposits, 5 basis points.
In line with our expectations, other operating expenses were £323 million, or
9.3%, higher than H1 2022 principally reflecting increased staff costs due to
inflation and a one-off cost of living payment, increased strategic investment
costs, such as Financial Crime and Data, and a property impairment. We remain
committed to delivering on our full year cost guidance.
A net impairment charge of £223 million principally reflects an increase in
post model adjustments driven by increased economic uncertainty
notwithstanding a £98 million modelled release. Defaults remain stable and at
low levels across the portfolio. Compared with Q1 2023, our ECL provision
increased by £0.1 billion to £3.6 billion and our ECL coverage ratio has
increased from 0.89% to 0.92%. We retain post model adjustments of £0.5
billion related to economic uncertainty, or 13% of total impairment
provisions. Whilst we are comfortable with the strong credit performance of
our book, we will continue to assess this position regularly and are closely
monitoring the impacts of inflationary pressures on the UK economy and our
customers.
As a result, we are pleased to report an attributable profit for H1 2023 of
£2,299 million, with earnings per share of 24.3 pence and a RoTE of 18.2%.
Net loans to customers excluding central items increased by £6.0 billion over
the first half of the year. Retail Banking mortgage lending increased by £5.9
billion and unsecured lending increased by £1.0 billion due to strong
customer demand. Gross new mortgage lending was £17.1 billion in H1 2023
compared with £18.9 billion in H1 2022 and £22.5 billion in H2 2022.
Commercial & Institutional net loans to customers decreased by £0.7
billion which was primarily driven by UK Government scheme repayments of £1.4
billion and subdued activity in funds lending, partially offset by an increase
in term loan facilities.
Up to 30 June 2023 we have provided £48.6 billion against our target to
provide £100 billion climate and sustainable funding and financing between 1
July 2021 and the end of 2025. As part of this we aim to provide at least £10
billion in lending for residential properties with Energy Performance
Certificate (EPC) ratings A and B between 1 January 2023 and the end of 2025.
During H1 2023 we provided £16.0 billion climate and sustainable funding and
financing, which included £2.3 billion in lending for residential properties
with EPC ratings A and B.
During Q2 2023 customer deposits were stable following the outflows
experienced in the first quarter. Customer deposits excluding central items
reduced by £11.8 billion during H1 2023 reflecting customer tax payments
which were significantly higher than previous years, competition for deposits
and an overall market liquidity contraction.
TNAV per share reduced by 2 pence in H1 2023 to 262 pence primarily reflecting
the full year ordinary dividend payment, movements in cash flow hedging
reserves and other reserves partially offset by the attributable profit for
the period.
Business performance summary
Chief Financial Officer review continued
Capital
The CET1 ratio remains strong at 13.5%, or 13.4% excluding IFRS 9 transitional
relief. The 70 basis points reduction compared with Q4 2022 principally
reflects total distributions deducted from capital of £2.5 billion and
increased RWAs of £1.4 billion, partially offset by the attributable profit.
NatWest Group's minimum requirement for own funds and eligible liabilities
(MREL) ratio was 31.2%.
We have completed the £800 million share buyback programme announced as part
of our 2022 annual results. In Q2 2023 we completed a £1.3 billion directed
buyback and we intend to commence an on-market buyback programme of up to
£500 million in the remainder of the year which, including the ordinary
dividend accrual, brings total distributions deducted from capital to £2.5
billion for H1 2023.
We have continued to make good progress with our withdrawal from the Republic
of Ireland with a €800 million dividend from Ulster Bank Ireland DAC
declared in Q2 2023.
RWAs increased by £1.4 billion in H1 2023 to £177.5 billion largely
reflecting lending growth and a £1.1 billion increase associated with the
annual update to operational risk balances partially offset by reductions
associated with our exit from the Republic of Ireland.
Funding and liquidity
The LCR increased by 2 percentage points to 141% in the quarter, representing
£45.3 billion headroom above 100% minimum requirement, primarily due to
increased wholesale funding and UBIDAC asset sale offset by capital
distributions. Our primary liquidity as at 30 June 2023 was £147.5 billion
and £119.6 billion or 81% of this was cash at central banks. Total wholesale
funding increased by £1.8 billion in the quarter to £81.2 billion.
Business performance summary
Retail Banking
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2023 2022 2023 2023 2022
£m £m £m £m £m
Total income 3,120 2,554 1,516 1,604 1,337
Operating expenses (1,367) (1,242) (671) (696) (597)
of which: Other operating expenses (1,343) (1,184) (650) (693) (593)
Impairment losses (193) (26) (79) (114) (21)
Operating profit 1,560 1,286 766 794 719
Return on equity (1) 29.1% 26.3% 28.2% 30.0% 29.5%
Net interest margin (1) 2.88% 2.53% 2.78% 2.99% 2.62%
Cost:income ratio (excl. litigation and conduct) (1) 43.0% 46.4% 42.9% 43.2% 44.4%
Loan impairment rate (1) 19bps 3bps 15bps 22bps 4bps
As at
30 June 31 March 31 December
2023 2023 2022
£bn £bn £bn
Net loans to customers (amortised cost) 204.4 201.7 197.6
Customer deposits 183.1 184.0 188.4
RWAs 57.3 55.6 54.7
(1) Refer to the Non-IFRS financial measures appendix for details of
the basis of preparation and reconciliation of non-IFRS financial measures and
performance metrics.
During H1 2023, Retail Banking continued to pursue sustainable growth with an
intelligent approach to risk, delivering a return on equity of 29.1% and an
operating profit of £1,560 million.
Retail Banking provided £2.2 billion of climate and sustainable funding and
financing in H1 2023.
H1 2023 performance
- Total income was £566 million, or 22.2%, higher than H1 2022
reflecting continued strong loan growth and higher deposit income supported by
interest rate rises, partially offset by a reduction in mortgage margins,
lower deposit balances with mix shift from non-interest bearing to interest
bearing balances, as well as increased capital issuance and funding costs.
- Net interest margin was 35 basis points higher than H1 2022 reflecting
higher deposit income supported by interest rate rises, partially offset by a
reduction in mortgage margins, lower deposit balances with mix shift from
non-interest bearing to interest bearing balances, as well as higher treasury
funding costs.
- Other operating expenses were £159 million, or 13.4%, higher than H1
2022 reflecting continued investment in the business and higher pay awards to
support our colleagues with cost of living challenges, increased data costs
and increased restructuring costs. This was partly offset by a 3.0% headcount
reduction as a result of continued digitalisation, automation and improvement
of end-to-end customer journeys.
- A net impairment charge of £193 million in H1 2023 largely reflects
Stage 3 defaults, which remain stable, as well as good book charges driven by
strong unsecured lending growth, partly offset by the benefits from the
updated economic outlook.
- Net loans to customers increased by £6.8 billion, or 3.4%, in H1 2023
mainly reflecting continued mortgage growth of £5.9 billion, or 3.2%, with
gross new mortgage lending of £17.1 billion, representing flow share of
around 16%. Cards balances increased by £0.7 billion, or 15.9%, and personal
advances increased by £0.3 billion, or 3.9%, in H1 2023 with strong customer
demand.
- Customer deposits decreased by £5.3 billion, or 2.8%, in H1 2023
reflecting the impact of customer tax payments which were higher than previous
years, lower household liquidity and increased competition for savings
balances. Personal current account balances decreased by £5.5 billion,
partially offset by an increase in personal savings of £0.2 billion in H1
2023. We have seen strong growth in our fixed term savings products in H1
2023.
- RWAs increased by £2.6 billion, or 4.8%, primarily reflecting lending
volume growth.
Q2 2023 performance
- Total income was £88 million, or 5.5%, lower than Q1 2023 reflecting
a reduction in mortgage margins and lower deposit balances with mix shift from
non-interest bearing to interest bearing balances, partly offset by lending
growth and benefit of higher rates on deposit income.
- Net interest margin was 21 basis points lower than Q1 2023 reflecting
lower mortgage margins and lower deposit balances with mix shift from
non-interest bearing to interest bearing balances, partly offset by the impact
of rate rises on deposit income.
- Other operating expenses were £43 million, or 6.2%, lower than Q1
2023 reflecting non repeat of Q1 2023 one-off cost of living payment, and
lower restructuring costs, partially offset by the impact of April 2023 pay
award and timing of investment and other non-staff costs.
- A net impairment charge of £79 million in Q2 2023 largely reflects
Stage 3 defaults, which remain stable, as well as good book charges driven by
strong unsecured lending growth, partly offset by benefits from the updated
economic outlook.
- Net loans to customers increased by £2.7 billion, or 1.3%, in Q2 2023
mainly reflecting continued mortgage growth of £2.0 billion, or 1.0%, with
gross new mortgage lending of £7.6 billion, representing flow share of around
15%. Cards balances increased by £0.5 billion, or 10.9%, and personal
advances increased by £0.2 billion, or 2.6%, reflecting strong customer
demand.
- Customer deposits decreased by £0.9 billion, or 0.5%, in Q2 2023 as
growth in fixed term savings deposits was offset by lower instant access
savings and current accounts.
- RWAs increased by £1.7 billion, or 3.1%, in Q2 2023 primarily
reflecting strong lending volume growth and a small increase in risk
parameters.
Business performance summary
Private Banking
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2023 2022 2023 2023 2022
£m £m £m £m £m
Total income 567 461 271 296 245
Operating expenses (322) (285) (167) (155) (146)
of which: Other operating expenses (311) (284) (159) (152) (146)
Impairment (losses)/releases (11) 11 (3) (8) 6
Operating profit 234 187 101 133 105
Return on equity (1) 24.7% 20.9% 20.8% 28.5% 23.5%
Net interest margin (1) 4.50% 3.34% 4.17% 4.83% 3.60%
Cost:income ratio (excl. litigation and conduct) (1) 54.9% 61.6% 58.7% 51.4% 59.6%
Loan impairment rate (1) 11bps (12)bps 6bps 17bps (13)bps
Net new money (£bn) (1) 1.0 1.4 0.4 0.6 0.6
As at
30 June 31 March 31 December
2023 2023 2022
£bn £bn £bn
Net loans to customers (amortised cost) 19.1 19.2 19.2
Customer deposits 36.5 37.3 41.2
RWAs 11.5 11.4 11.2
Assets under management (AUMs) (1) 30.0 29.6 28.3
Assets under administration (AUAs) (1) 7.9 5.6 5.1
Total assets under management and administration (AUMAs) (1) 37.9 35.2 33.4
(1) Refer to the Non-IFRS financial measures appendix for details of
basis of preparation and reconciliation of non-IFRS financial measures and
performance metrics.
During H1 2023, Private Banking delivered a strong return on equity of 24.7%,
and an operating profit of £234 million.
NatWest Group completed the acquisition of a majority shareholding in Cushon
on 1 June 2023. The acquisition of the workplace savings and pensions fintech
resulted in a £1.9 billion increase to the NatWest Group AUMAs on the date of
acquisition.
Private Banking provided £0.1 billion of climate and sustainable funding and
financing in H1 2023.
H1 2023 performance
- Total income was £106 million, or 23.0%, higher than H1 2022 reflecting
increased deposit income supported by interest rate rises, partially offset by
a reduction in mortgage margins.
- Net interest margin was 116 basis points higher than H1 2022 reflecting higher
deposit income, supported by interest rate rises, partially offset by a
reduction in lending margins, lower deposit balances, as well as increased
capital issuance and funding costs.
- Other operating expenses were £27 million, or 9.5% higher than H1 2022 due to
the impact of pay awards to support colleagues with cost of living challenges
and the impact of one-offs including a £7 million property revaluation and an
£8 million technology cost.
- A net impairment charge of £11 million in H1 2023 reflected higher good book
charges and a small level of Stage 3 defaults.
- Net loans to customers decreased by £0.1 billion in H1 2023 as gross new
lending of £1.4 billion, of which £0.9 billion related to mortgages, was
offset by higher repayments.
- Customer deposits decreased by £4.7 billion, or 11.4% in H1 2023 reflecting
the impact of customer tax payments which were higher than previous years, as
well as increased competition for savings balances. Current account and
instant access savings account balances decreased by £7.0 billion partially
offset by an increase in term savings products.
- AUMAs increased by £4.5 billion, or 13.5%, in H1 2023 primarily reflecting
AUM net new money of £1.0 billion, which represents 6.0% of opening AUMA
balances, positive market movements, and acquisition of Cushon which
contributes £2.0 billion(()(1)()).
Q2 2023 performance
- Total income was £25 million, or 8.4%, lower than Q1 2023 reflecting lower
deposit balances and higher pass-through of rate rises on customer deposits
partially offset by the benefit of higher interest rates.
- Net interest margin was 66 basis points lower than Q1 2023 reflecting lower
deposit volumes, changes in deposit mix from non-interest bearing to interest
bearing balances and increased funding costs.
- A net impairment charge of £3 million in Q2 2023 reflected benefits from the
updated economic outlook with Stage 3 defaults remaining stable.
- Customer deposits decreased by £0.8 billion, or 2.1% in Q2 2023 as growth in
fixed term savings deposits was offset by lower instant access savings and
current accounts combined with repayment of debt.
- AUMAs increased by £2.7 billion, or 7.7%, in Q2 2023 primarily reflecting AUM
net new money of £0.4 billion and positive investment market movements. The
acquisition of Cushon contributes £2.0 billion((1)) to the increase in AUMAs.
(1) Cushon AUMAs at 30 June 2023 were £2.0 billion and £1.9 billion
as at date of acquisition. AUMAs are reported within the Private Banking
segment as the Investment Centre of Expertise, and the financials are within
Central items & other.
Business performance summary
Commercial & Institutional
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2023 2022 2023 2023 2022
£m £m £m £m £m
Net interest income 2,504 1,764 1,243 1,261 961
Non-interest income 1,244 1,173 552 692 601
Total income 3,748 2,937 1,795 1,953 1,562
Operating expenses (1,987) (1,820) (984) (1,003) (898)
of which: Other operating expenses (1,893) (1,734) (934) (959) (854)
Impairment (losses)/releases (20) 59 (64) 44 48
Operating profit 1,741 1,176 747 994 712
Return on equity (1) 16.9% 11.4% 14.3% 19.5% 14.0%
Net interest margin (1) 3.84% 2.84% 3.79% 3.90% 3.09%
Cost:income ratio (excl. litigation and conduct) (1) 50.5% 59.0% 52.0% 49.1% 54.7%
Loan impairment rate (1) 3bps (9)bps 20bps (13)bps (15)bps
As at
30 June 31 March 31 December
2023 2023 2022
£bn £bn £bn
Net loans to customers (amortised cost) 129.2 131.5 129.9
Customer deposits 201.5 200.5 203.3
Funded assets (1) 320.6 320.4 306.3
RWAs 103.6 104.8 103.2
(1) Refer to the Non-IFRS financial measures appendix for details of
the basis of preparation and reconciliation of non-IFRS financial measures and
performance metrics.
During H1 2023, Commercial & Institutional delivered a strong performance
with a return on equity of 16.9% and operating profit of £1,741 million.
Commercial & Institutional provided £13.8 billion of climate and
sustainable funding and financing in H1 2023.
H1 2023 performance
- Total income was £811 million, or 27.6%, higher than H1 2022 primarily
reflecting higher deposit returns from an improved interest rate environment,
credit and debit card fees and higher markets income((1)).
- Net interest margin was 100 basis points higher than H1 2022 reflecting higher
deposit returns supported by interest rate rises, partly offset by lower
deposits balances, evolving deposit and lending mix impacts and higher
treasury funding costs.
- Other operating expenses were £159 million, or 9.2%, higher than H1 2022 due
to higher pay awards to support our colleagues with cost of living challenges
and continued investment in the business.
- An impairment charge of £20 million in H1 2023 compared with an impairment
release of £59 million in H1 2022 driven by an increase in post model
adjustments to reflect increased inflationary and liquidity risk impacts to
our customers offset by benefits of modelled releases to reflect benefits
from the revised economic outlook. Stage 3 charges remain low.
- Net loans to customers decreased by £0.7 billion, or 0.5%, in H1 2023 due to
UK Government scheme repayments of £1.4 billion and subdued activity within
funds lending, partly offset by an increase in term loan facilities including
revolving credit facilities and asset finance.
- Customer deposits decreased by £1.8 billion, or 0.9%, in H1 2023 primarily
due to overall market liquidity contraction, particularly sight deposits with
strong growth in term deposit balances.
- RWAs increased by £0.4 billion, or 0.4%, in H1 2023 primarily reflecting an
evolving book mix of lending growth and UK Government scheme repayments,
partially offset by foreign exchange benefits and lower market risk.
Q2 2023 performance
- Total income was £158 million, or 8.1%, lower than Q1 2023 largely reflecting
lower markets income((1)) mainly driven by challenging market conditions and
additional treasury costs.
- Net interest margin was 11 basis points lower than Q1 2023 reflecting
increased treasury costs and lower deposit balances, partly offset by higher
deposit margins.
- Other operating expenses were £25 million, or 2.6%, lower than Q1 2023
reflecting non-repeat of the Q1 2023 one-off cost of living payments partly
offset by continued investment in the business.
- A net impairment charge of £64 million in Q2 2023 reflected an increase in
post model adjustments to reflect inflationary and liquidity risk impacts to
our customers offset by benefits of modelled releases to reflect benefits from
the revised economic outlook. Stage 3 charges remain low.
- Net loans to customers decreased by £2.3 billion, or 1.7%, in Q2 2023 largely
due to lower funds activity and UK Government scheme repayments of £0.7
billion.
- Customer deposits increased by £1.0 billion, or 0.5%, in Q2 2023 primarily
due to growth in the Corporate & Institutions business. We have seen
continued strong growth in term deposit balances.
- RWAs decreased by £1.2 billion, or 1.1%, in Q2 2023 primarily reflecting
foreign exchange benefits and lower lending balances.
(1) Markets income excludes own credit risk adjustments and central
items.
Business performance summary
Central items & other
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2023 2022 2023 2023 2022
£m £m £m £m £m
Continuing operations
Total income 292 267 269 23 67
Operating expenses (1) (239) (306) (105) (134) (192)
of which: Other operating expenses (260) (282) (132) (128) (173)
of which: Ulster Bank RoI direct expenses (163) (145) (63) (100) (81)
Impairment releases/(losses) 1 10 (7) 8 (15)
Operating profit/(loss) 54 (29) 157 (103) (140)
of which: Ulster Bank RoI (295) (213) (136) (159) (150)
As at
30 June 31 March 31 December
2023 2023 2022
£bn £bn £bn
Net loans to customers (amortised cost) (2) 21.2 21.8 19.6
Customer deposits 11.4 8.7 17.4
RWAs 5.1 6.3 7.0
(1) Includes withdrawal-related direct program costs of £64 million
for the half year ended 30 June 2023 (30 June 2022 - £26 million) and £15
million for the quarter ended 30 June 2023 (31 March 2023 - £49 million; 30
June 2022 - £16 million).
(2) Excludes £0.4 billion of loans to customers held at fair value
through profit or loss (31 March 2023 - £0.5 billion; 31 December 2022 -
£0.5 billion).
H1 2023 performance
- Total income was £25 million higher than H1 2022 reflecting one-off
items that broadly offset including foreign exchange recycling gains,
partially offset by lower gains on interest and foreign exchange risk
management derivatives not in hedge accounting relationships, gains on
liquidity asset bond sales in the prior year and the effect of the continued
withdrawal of our operations from the Republic of Ireland.
- Customer deposits decreased by £6.0 billion in H1 2023 primarily
reflecting the continued withdrawal of our operations from the Republic of
Ireland. Ulster Bank RoI customer deposit balances were £0.4 billion as at H1
2023.
- Net loans to customers increased £1.6 billion in H1 2023 mainly due
to reverse repo activity in Treasury.
Q2 2023 performance
- Customer deposits increased by £2.7 billion during Q2 2023 primarily
reflecting repo activity in Treasury partially offset by the continued
withdrawal of our operations from the Republic of Ireland.
Segment performance
Half year ended 30 June 2023
Central Total
Retail Private Commercial & items & NatWest
Banking Banking Institutional other Group
£m £m £m £m £m
Continuing operations
Income statement
Net interest income 2,908 428 2,504 (114) 5,726
Own credit adjustments - - 9 - 9
Other non-interest income 212 139 1,235 406 1,992
Total income 3,120 567 3,748 292 7,727
Direct expenses (394) (109) (737) (2,567) (3,807)
Indirect expenses (949) (202) (1,156) 2,307 -
Other operating expenses (1,343) (311) (1,893) (260) (3,807)
Litigation and conduct costs (24) (11) (94) 21 (108)
Operating expenses (1,367) (322) (1,987) (239) (3,915)
Operating profit before impairment losses/releases (1) 1,753 245 1,761 53 3,812
Impairment (losses)/releases (193) (11) (20) 1 (223)
Operating profit (1) 1,560 234 1,741 54 3,589
Income excluding notable items (1) 3,120 567 3,739 (43) 7,383
Additional information
Return on tangible equity (1) na na na na 18.2%
Return on equity (1) 29.1% 24.7% 16.9% nm na
Cost:income ratio (excl. litigation and conduct) (1) 43.0% 54.9% 50.5% nm 49.3%
Total assets (£bn) 229.1 27.3 401.5 44.7 702.6
Funded assets (£bn) (1) 229.1 27.3 320.6 43.7 620.7
Net loans to customers - amortised cost (£bn) 204.4 19.1 129.2 21.2 373.9
Loan impairment rate (1) 19bps 11bps 3bps nm 12bps
Impairment provisions (£bn) (1.7) (0.1) (1.5) (0.1) (3.4)
Impairment provisions - stage 3 (£bn) (1.0) - (0.8) (0.1) (1.9)
Customer deposits (£bn) 183.1 36.5 201.5 11.4 432.5
Risk-weighted assets (RWAs) (£bn) 57.3 11.5 103.6 5.1 177.5
RWA equivalent (RWAe) (£bn) 57.3 11.5 104.9 5.8 179.5
Employee numbers (FTEs - thousands) 13.5 2.2 12.5 33.3 61.5
Third party customer asset rate (1) 3.03% 4.24% 5.61% nm nm
Third party customer funding rate (1) (1.02%) (1.43%) (1.03%) nm nm
Bank average interest earning assets (£bn) (1) 203.4 19.2 131.4 na 361.1
Bank net interest margin (1) 2.88% 4.50% 3.84% na 3.20%
nm = not meaningful, na = not applicable.
(1) Refer to the Non-IFRS financial measures appendix for details of
the basis of preparation and reconciliation of non-IFRS financial measures and
performance metrics.
Segment performance
Half year ended 30 June 2022
Central Total
Retail Private Commercial & items & NatWest
Banking Banking Institutional other Group
£m £m £m £m £m
Continuing operations
Income statement
Net interest income 2,340 315 1,764 (85) 4,334
Own credit adjustments - - 52 - 52
Other non-interest income 214 146 1,121 352 1,833
Total income 2,554 461 2,937 267 6,219
Direct expenses (320) (102) (736) (2,326) (3,484)
Indirect expenses (864) (182) (998) 2,044 -
Other operating expenses (1,184) (284) (1,734) (282) (3,484)
Litigation and conduct costs (58) (1) (86) (24) (169)
Operating expenses (1,242) (285) (1,820) (306) (3,653)
Operating profit/(loss) before impairment losses/releases (1) 1,312 176 1,117 (39) 2,566
Impairment (losses)/releases (26) 11 59 10 54
Operating profit/(loss) (1) 1,286 187 1,176 (29) 2,620
Income excluding notable items (1) 2,554 461 2,930 (47) 5,898
Additional information
Return on tangible equity (1) na na na na 13.1%
Return on equity (1) 26.3% 20.9% 11.4% nm na
Cost:income ratio (excl. litigation and conduct) (1) 46.4% 61.6% 59.0% nm 56.0%
Total assets (£bn) 216.2 30.0 451.5 108.8 806.5
Funded assets (£bn) (1) 216.2 30.0 343.4 107.5 697.1
Net loans to customers - amortised cost (£bn) 188.7 18.8 127.3 27.8 362.6
Loan impairment rate (1) 3bps (12)bps (9)bps nm (3)bps
Impairment provisions (£bn) (1.5) (0.1) (1.4) (0.4) (3.4)
Impairment provisions - stage 3 (£bn) (0.9) - (0.7) (0.4) (2.0)
Customer deposits (£bn) 190.5 41.6 223.2 36.8 492.1
Risk-weighted assets (RWAs) (£bn) 53.0 11.3 103.0 12.5 179.8
RWA equivalent (RWAe) (£bn) 53.0 11.3 101.4 13.0 178.7
Employee numbers (FTEs - thousands) 13.9 2.0 11.8 31.2 58.9
Third party customer asset rate (1) 2.59% 2.65% 3.01% nm nm
Third party customer funding rate (1) (0.07%) (0.07%) (0.06%) nm nm
Bank average interest earning assets (£bn) (1) 186.8 19.0 125.2 na 338.5
Bank net interest margin (1) 2.53% 3.34% 2.84% na 2.58%
nm = not meaningful, na = not applicable.
(1) Refer to the Non-IFRS financial measures appendix for details of
the basis of preparation and reconciliation of non-IFRS financial measures and
performance metrics.
Segment performance
Quarter ended 30 June 2023
Central Total
Retail Private Commercial & items & NatWest
Banking Banking Institutional other Group
£m £m £m £m £m
Continuing operations
Income statement
Net interest income 1,416 199 1,243 (34) 2,824
Own credit adjustments - - 3 - 3
Other non-interest income 100 72 549 303 1,024
Total income 1,516 271 1,795 269 3,851
Direct expenses (185) (53) (379) (1,258) (1,875)
Indirect expenses (465) (106) (555) 1,126 -
Other operating expenses (650) (159) (934) (132) (1,875)
Litigation and conduct costs (21) (8) (50) 27 (52)
Operating expenses (671) (167) (984) (105) (1,927)
Operating profit before impairment losses/releases (1) 845 104 811 164 1,924
Impairment (losses) (79) (3) (64) (7) (153)
Operating profit (1) 766 101 747 157 1,771
Income excluding notable items (1) 1,516 271 1,792 (16) 3,563
Additional information
Return on tangible equity (1) na na na na 16.4%
Return on equity (1) 28.2% 20.8% 14.3% nm na
Cost:income ratio (excl. litigation and conduct) (1) 42.9% 58.7% 52.0% nm 48.7%
Total assets (£bn) 229.1 27.3 401.5 44.7 702.6
Funded assets (£bn) (1) 229.1 27.3 320.6 43.7 620.7
Net loans to customers - amortised cost (£bn) 204.4 19.1 129.2 21.2 373.9
Loan impairment rate (1) 15bps 6bps 20bps nm 16bps
Impairment provisions (£bn) (1.7) (0.1) (1.5) (0.1) (3.4)
Impairment provisions - stage 3 (£bn) (1.0) - (0.8) (0.1) (1.9)
Customer deposits (£bn) 183.1 36.5 201.5 11.4 432.5
Risk-weighted assets (RWAs) (£bn) 57.3 11.5 103.6 5.1 177.5
RWA equivalent (RWAe) (£bn) 57.3 11.5 104.9 5.8 179.5
Employee numbers (FTEs - thousands) 13.5 2.2 12.5 33.3 61.5
Third party customer asset rate (1) 3.11% 4.41% 5.84% nm nm
Third party customer funding rate (1) (1.20%) (1.71%) (1.18%) nm nm
Bank average interest earning assets (£bn) (1) 204.6 19.2 131.4 na 362.3
Bank net interest margin (1) 2.78% 4.17% 3.79% na 3.13%
nm = not meaningful, na = not applicable.
(1) Refer to the Non-IFRS financial measures appendix for
details of the basis of preparation and reconciliation of non-IFRS financial
measures and performance metrics.
Segment performance
Quarter ended 31 March 2023
Central Total
Retail Private Commercial & items & NatWest
Banking Banking Institutional other Group
£m £m £m £m £m
Continuing operations
Income statement
Net interest income 1,492 229 1,261 (80) 2,902
Own credit adjustments - - 6 - 6
Other non-interest income 112 67 686 103 968
Total income 1,604 296 1,953 23 3,876
Direct expenses (209) (56) (358) (1,309) (1,932)
Indirect expenses (484) (96) (601) 1,181 -
Other operating expenses (693) (152) (959) (128) (1,932)
Litigation and conduct costs (3) (3) (44) (6) (56)
Operating expenses (696) (155) (1,003) (134) (1,988)
Operating profit/(loss) before impairment losses/releases (1) 908 141 950 (111) 1,888
Impairment (losses)/releases (114) (8) 44 8 (70)
Operating profit/(loss) (1) 794 133 994 (103) 1,818
Income excluding notable items (1) 1,604 296 1,947 (27) 3,820
Additional information
Return on tangible equity (1) na na na na 19.8%
Return on equity (1) 30.0% 28.5% 19.5% nm na
Cost:income ratio (excl. litigation and conduct) (1) 43.2% 51.4% 49.1% nm 49.8%
Total assets (£bn) 227.2 28.1 399.0 41.3 695.6
Funded assets (£bn) (1) 227.2 28.1 320.4 40.5 616.2
Net loans to customers - amortised cost (£bn) 201.7 19.2 131.5 21.8 374.2
Loan impairment rate (1) 22bps 17bps (13)bps nm 7bps
Impairment provisions (£bn) (1.7) (0.1) (1.5) (0.1) (3.4)
Impairment provisions - stage 3 (£bn) (1.0) - (0.7) (0.1) (1.8)
Customer deposits (£bn) 184.0 37.3 200.5 8.7 430.5
Risk-weighted assets (RWAs) (£bn) 55.6 11.4 104.8 6.3 178.1
RWA equivalent (RWAe) (£bn) 56.4 11.4 106.2 6.9 180.9
Employee numbers (FTEs - thousands) 13.9 2.2 12.4 33.3 61.8
Third party customer asset rate (1) 2.94% 4.07% 5.38% nm nm
Third party customer funding rate (1) (0.83%) (1.15%) (0.87%) nm nm
Bank average interest earning assets (£bn) (1) 202.1 19.2 131.3 na 360.0
Bank net interest margin (1) 2.99% 4.83% 3.90% na 3.27%
nm = not meaningful, na = not applicable.
(1) Refer to the Non-IFRS financial measures appendix for details of
the basis of preparation and reconciliation of non-IFRS financial measures and
performance metrics.
Segment performance
Quarter ended 30 June 2022
Central Total
Retail Private Commercial & items & NatWest
Banking Banking Institutional other Group
£m £m £m £m £m
Continuing operations
Income statement
Net interest income 1,228 172 961 (54) 2,307
Own credit adjustments - - 34 - 34
Other non-interest income 109 73 567 121 870
Total income 1,337 245 1,562 67 3,211
Direct expenses (159) (53) (329) (1,225) (1,766)
Indirect expenses (434) (93) (525) 1,052 -
Other operating expenses (593) (146) (854) (173) (1,766)
Litigation and conduct costs (4) - (44) (19) (67)
Operating expenses (597) (146) (898) (192) (1,833)
Operating profit/(loss) before impairment losses/releases (1) 740 99 664 (125) 1,378
Impairment (losses)/releases (21) 6 48 (15) 18
Operating profit/(loss) (1) 719 105 712 (140) 1,396
Income excluding notable items (1) 1,337 245 1,573 (41) 3,114
Additional information
Return on tangible equity (1) na na na na 15.2%
Return on equity (1) 29.5% 23.5% 14.0% nm na
Cost:income ratio (excl. litigation and conduct) (1) 44.4% 59.6% 54.7% nm 55.0%
Total assets (£bn) 216.2 30.0 451.5 108.8 806.5
Funded assets (£bn) (1) 216.2 30.0 343.4 107.5 697.1
Net loans to customers - amortised cost (£bn) 188.7 18.8 127.3 27.8 362.6
Loan impairment rate (1) 4bps (13)bps (15)bps nm (2)bps
Impairment provisions (£bn) (1.5) (0.1) (1.4) (0.4) (3.4)
Impairment provisions - stage 3 (£bn) (0.9) - (0.7) (0.4) (2.0)
Customer deposits (£bn) 190.5 41.6 223.2 36.8 492.1
Risk-weighted assets (RWAs) (£bn) 53.0 11.3 103.0 12.5 179.8
RWA equivalent (RWAe) (£bn) 53.0 11.3 101.4 13.0 178.7
Employee numbers (FTEs - thousands) 13.9 2.0 11.8 31.2 58.9
Third party customer asset rate (1) 2.59% 2.77% 3.19% nm nm
Third party customer funding rate (1) (0.10%) (0.13%) (0.09%) nm nm
Bank average interest earning assets (£bn) (1) 188.1 19.1 124.9 na 341.5
Bank net interest margin (1) 2.62% 3.60% 3.09% na 2.71%
nm - not meaningful, na - not applicable
(1) Refer to the Non-IFRS financial measures appendix for details of the basis of
preparation and reconciliation of non-IFRS financial measurements and
performance metrics.
Risk and capital management
Page
Credit risk
Economic loss drivers 18
UK economic uncertainty 23
Wholesale support schemes 25
Measurement uncertainty and ECL sensitivity analysis 26
Measurement uncertainty and ECL adequacy 28
Credit risk - Banking activities
Financial instruments within the scope of the IFRS 9 ECL framework 29
Segment analysis 30
Segment loans and impairment metrics 33
Sector analysis 34
Wholesale forbearance 39
Personal portfolio 40
Commercial real estate 42
Flow statements 44
Stage 2 decomposition by a significant increase in credit risk trigger 52
Asset quality 54
Credit risk - Trading activities 58
Capital, liquidity and funding risk 61
Market risk
Non-traded 71
Traded 75
Other risks 76
Certain disclosures in the Risk and capital management section are within the
scope of EY's review report and are marked as reviewed in the section header.
Risk and capital management
Credit risk
Economic loss drivers (reviewed)
Introduction
The portfolio segmentation and selection of economic loss drivers for IFRS 9
follows the approach used in stress testing. To enable robust modelling the
forecasting models for each portfolio segment (defined by product or asset
class and, where relevant, industry sector and region) are based on a
selected, small number of economic variables (typically three to four) that
best explain the temporal variations in portfolio loss rates. The process to
select economic loss drivers involves empirical analysis and expert judgement.
The most significant economic loss drivers for the most material portfolios
are shown in the table below:
Portfolio Economic loss drivers
UK Personal mortgages UK unemployment rate, sterling swap rate, UK house price index, UK household
debt to income
UK Personal unsecured UK unemployment rate, sterling swap rate, UK household debt to income
UK corporates UK stock price index, UK gross domestic product (GDP), Bank of England base
rate
UK commercial real estate UK stock price index, UK commercial property price index, UK GDP, Bank of
England base rate
Economic scenarios
At 30 June 2023, the range of anticipated future economic conditions was
defined by a set of four internally developed scenarios and their respective
probabilities. In addition to the base case, they comprised upside, downside
and extreme downside scenarios. The scenarios primarily reflected the current
risks faced by the economy, particularly related to persistently high
inflation and interest rate environment, resulting in a fall in real household
income, economic slowdown, a rise in unemployment and asset price declines.
For 30 June 2023, the four scenarios were deemed appropriate in capturing the
uncertainty in economic forecasts and the non-linearity in outcomes under
different scenarios. These four scenarios were developed to provide sufficient
coverage across potential rises in unemployment, inflation, asset price
declines and the degree of permanent damage to the economy, around which there
remains pronounced levels of uncertainty.
Upside - This scenario assumes robust growth as inflation falls sharply and
rates are lowered. Consumer spending is supported by savings built up since
COVID-19 and further helped by fiscal support and strong business investment.
The labour market remains resilient, with the unemployment rate remaining
below pre-COVID-19 levels. The housing market slows down compared to the
previous year but remains robust.
Base case - In the midst of high inflation and significant monetary policy
tightening, the economic growth remains muted. However, recession is avoided
as only a small proportion of households are directly affected by the rise in
the mortgage costs. The unemployment rate rises modestly but job losses are
contained. Inflation moderates over the medium-term and falls to target level
of 2%. The housing market experiences price decline and lower activity but the
extent of the decline is lower than that experienced during prior stresses.
Since 31 December 2022, the economic outlook has improved as energy prices
fell sharply and the labour market remained resilient. However, the inflation
outlook remains elevated due to higher core inflation pressure. As a result,
interest rates need to rise higher than assumed previously. The base case now
assumes muted growth in 2023 as opposed to a mild recession assumed
previously. The unemployment rate still rises but the peak is lower,
reflecting the labour market's recent resilience. The peak to trough house
price correction remains broadly similar to the previous assumption.
Downside - Inflation remains persistently high. The economy experiences a
recession as consumer confidence weakens due to a fall in real income.
Interest rates are raised higher than the base case and remain elevated for
longer. High rates are assumed to have a more significant impact on the labour
market. Unemployment is higher than the base case scenario while house prices
experience declines comparable to previous episodes of stress.
The previous year's downside scenario also included a deep recession, labour
market deterioration and asset price falls, but the current downside scenario
explores these risks in a persistently high inflation, high rates environment.
Extreme downside - This scenario assumes high and persistent inflation.
Households see the highest recorded decline in real income. Interest rates
rise to levels last observed in early 2000. Resulting economic recession is
deep and leads to widespread job losses. House prices lose approximately a
third of their value while the unemployment rate rises to a level above that
observed during the 2008 financial crisis.
The main macroeconomic variables for each of the four scenarios used for
expected credit loss (ECL) modelling are set out in the main macroeconomic
variables table below.
Risk and capital management
Credit risk continued
Economic loss drivers (reviewed)
Main macroeconomic variables 30 June 2023 31 December 2022
Extreme Weighted Extreme Weighted
Upside Base case Downside downside average Upside Base case Downside downside average
Five-year summary % % % % % % % % % %
GDP 1.8 0.9 0.4 (0.2) 0.8 2.2 1.3 0.8 0.4 1.2
Unemployment 3.5 4.2 4.9 6.6 4.6 3.9 4.5 4.9 6.7 4.8
House price index 3.8 0.3 (0.8) (6.0) - 5.1 0.8 (0.7) (4.4) 0.6
Commercial real estate price 3.3 0.2 (2.7) (7.6) (0.7) 1.2 (1.9) (2.8) (9.1) (2.5)
Consumer price index 1.7 2.3 4.2 3.7 2.8 3.6 4.2 4.4 8.2 4.8
Bank of England base rate 2.6 4.2 5.0 5.1 4.2 2.4 3.1 1.5 4.5 2.8
UK stock price index 5.8 4.3 1.8 0.1 3.5 3.0 1.4 (1.1) (3.7) 0.5
World GDP 3.7 3.1 2.7 1.0 2.8 3.7 3.3 1.7 1.1 2.7
Probability weight 19.5 45.0 21.5 14.0 18.6 45.0 20.8 15.6
(1) The five-year summary runs from 2023-2027 for 30 June 2023.
(2) The table shows five calendar year CAGR for GDP, average for
unemployment and Bank of England base rate and 20-quarter CAGR for other
parameters.
(3) Comparatives have been aligned with the current calculation
approach.
Probability weightings of scenarios
NatWest Group's quantitative approach to IFRS 9 multiple economic scenarios
(MES) involves selecting a suitable set of discrete scenarios to characterise
the distribution of risks in the economic outlook and assigning appropriate
probability weights. This quantitative approach is used for 30 June 2023.
The approach involves comparing UK GDP paths for NatWest Group's scenarios
against a set of 1,000 model runs, following which, a percentile in the
distribution is established that most closely corresponded to the scenario.
Probability weight for base case is set first based on judgement, while
probability weights for the alternate scenarios are assigned based on these
percentiles scores.
The assigned probability weights were judged to be aligned with the subjective
assessment of balance of the risks in the economy. The weights were broadly
comparable to those used at 31 December 2022. Since then, the outlook has
improved across key areas of the economy. However, the risks still remain
elevated and there is considerable uncertainty in the economic outlook,
particularly with respect to persistence and the range of outcomes on
inflation. Given that backdrop, NatWest Group judges it appropriate that
downside-biased scenarios have higher probability weights than the
upside-biased scenario. It presents good coverage to the range of outcomes
assumed in the scenarios, including the potential for a robust recovery on the
upside and exceptionally challenging outcomes on the downside. A 19.5%
weighting was applied to the upside scenario, a 45.0% weighting applied to the
base case scenario, a 21.5% weighting applied to the downside scenario and a
14.0% weighting applied to the extreme downside scenario.
Risk and capital management
Credit risk continued
Climate transition
During 2023, NatWest Group continued to align its financial planning process
with the climate transition planning process. This included adding climate
policy and technology related transition assumptions into NatWest Group's base
case macroeconomic scenario used for financial planning and assessment of ECL
in this IFRS 9 reporting period. This resulted in an increase in ECL of £4
million.
As in the initial iteration of the Climate transition plan, included in
NatWest Group's 2022 Climate-related Disclosures Report, NatWest Group
assesses the effects of climate transition policies within the base case
macroeconomic scenario, using the UK Climate Change Committee (CCC) Balanced
Net Zero (BNZ) scenario, aligned with the UK CCC sixth carbon budget, as a
starting point. In addition, NatWest Group included estimated average policy
delay into the climate economic assumptions for IFRS 9 purposes, based on the
credibility ratings for sectoral policies provided by the UK CCC 2022 Progress
Report to Parliament, to reflect estimated time delays based on credibility
ratings as follows:
- Credible policies - estimated zero years of delayed adjustment to the
BNZ pathway for the associated policy.
- Policies with some or significant risk - estimated three and five
years of delay respectively for the associated policy.
- Policies with insufficient plans - estimated ten years of delay for
the associated policy.
The base case macroeconomic scenario now explicitly includes assumptions about
the changes in transition policy expressed as an additional implicit carbon
price. Implicit carbon price is an additional cost related to greenhouse gas
emissions as a result of climate transition policy. NatWest Group assumes that
between now and 2028, the transition policy will change slowly, and the
implicit carbon price will increase modestly by £10.5/tCO2e, which is
consistent with the UK CCC BNZ scenario. The base case macroeconomic scenario
also included assumptions about abatement technology development and specific
sectors' transition, for example, the switch from fossil fuels to renewable
energy sources. NatWest Group will continue to enhance this analysis,
including updates in the UK CCC 2023 Progress Report to Parliament published
in June 2023.
While previous NatWest Group IFRS 9 base case scenarios included some climate
transition considerations, they were based on all enacted policies and
available technologies. The new approach described here applies to explicitly
identifying the effect of additional climate transition policy.
NatWest Group and its customers have a dependency on timely and appropriate
government policies to provide the necessary impetus for technology
development and customer behaviour changes, to enable the UK's successful
transition to net zero. Policy delays and risks outlined in the UK CCC 2022
and 2023 Progress Reports, if not adequately addressed in a timely manner, put
at risk the UK's net zero transition and in turn that of NatWest Group and its
customers.
For this first iteration of climate economic assumptions included within the
base case macroeconomic scenario, NatWest Group focused on policy and
technology related transition risks. It is assumed that in more extreme
scenarios it is likely that climate policy changes would offset adverse/benign
economic conditions. NatWest Group's tools, methodologies and assessment of
climate risks will continue to evolve to further align financial planning and
climate transition planning processes.
Risk and capital management
Credit risk continued
Economic loss drivers (reviewed)
Annual figures
Extreme Weighted
Upside Base case Downside downside average
GDP - annual growth % % % % %
2023 1.4 0.3 - (0.3) 0.3
2024 3.8 0.8 (1.4) (4.1) 0.3
2025 1.4 1.0 1.0 0.9 1.1
2026 1.2 1.3 1.2 1.2 1.2
2027 1.2 1.4 1.3 1.2 1.3
2028 1.2 1.4 1.3 1.2 1.3
Extreme Weighted
Upside Base case Downside downside average
Unemployment rate - annual average % % % % %
2023 3.9 3.9 4.1 4.3 4.0
2024 3.3 4.2 5.1 7.3 4.7
2025 3.3 4.4 5.3 7.7 4.8
2026 3.4 4.3 5.1 7.1 4.7
2027 3.4 4.3 4.9 6.5 4.6
2028 3.4 4.3 4.7 6.0 4.4
Extreme Weighted
Upside Base case Downside downside average
House price index - four quarter change % % % % %
2023 (3.3) (6.9) (6.2) (8.2) (6.2)
2024 10.4 (1.0) (13.2) (14.1) (3.1)
2025 6.1 2.9 0.9 (16.4) 0.9
2026 3.1 3.4 8.5 4.3 4.4
2027 3.5 3.4 7.9 6.8 4.7
2028 3.4 3.4 5.5 5.0 4.0
Extreme Weighted
Upside Base case Downside downside average
Commercial real estate price - four quarter change % % % % %
2023 1.1 (5.8) (7.8) (10.7) (5.6)
2024 5.5 0.5 (13.4) (35.3) (6.1)
2025 4.6 2.5 2.5 2.5 3.0
2026 3.8 2.5 3.6 6.3 3.4
2027 1.8 1.3 3.0 6.9 2.3
2028 1.5 1.3 2.2 4.2 1.8
Extreme Weighted
Upside Base case Downside downside average
Consumer price index - four quarter change % % % % %
2023 1.6 3.4 5.5 7.0 4.0
2024 1.1 2.3 4.3 6.8 3.2
2025 1.8 1.9 3.9 1.7 2.3
2026 1.9 1.9 3.8 1.2 2.2
2027 1.9 1.9 3.7 2.1 2.3
2028 1.9 1.9 3.2 2.1 2.2
Extreme Weighted
Upside Base case Downside downside average
Bank of England base rate - annual average % % % % %
2023 4.3 4.8 4.7 4.8 4.7
2024 3.0 5.0 5.5 6.0 4.9
2025 2.3 4.2 5.0 5.7 4.2
2026 2.0 3.7 4.9 4.9 3.8
2027 1.6 3.3 4.7 4.1 3.4
2028 1.5 3.2 4.5 3.4 3.2
Extreme Weighted
Upside Base case Downside downside average
UK stock price index - four quarter change % % % % %
2023 13.0 9.1 (9.2) (26.6) 0.9
2024 5.7 3.1 (1.9) (9.4) 1.4
2025 4.1 3.1 9.7 21.2 6.2
2026 3.6 3.1 6.5 12.9 4.9
2027 3.2 3.1 5.3 10.2 4.3
2028 3.0 3.1 5.3 6.4 3.9
Risk and capital management
Credit risk continued
Economic loss drivers (reviewed)
Worst points
30 June 2023 31 December 2022
Extreme Weighted Extreme Weighted
Downside downside average Downside downside average
% Quarter % Quarter % % Quarter % Quarter %
GDP (1.7) Q2 2024 (4.9) Q2 2024 0.1 (3.2) Q4 2023 (4.7) Q4 2023 (0.8)
Unemployment rate - peak 5.4 Q1 2025 8.0 Q4 2024 4.9 6.0 Q1 2024 8.5 Q3 2024 5.4
House price index (18.9) Q1 2025 (34.3) Q1 2026 (9.2) (15.0) Q1 2025 (26.2) Q3 2025 (3.4)
Commercial real estate price (20.1) Q4 2024 (42.6) Q1 2025 (11.3) (21.8) Q4 2023 (46.8) Q3 2024 (16.4)
Consumer price index
- highest four quarter change 10.1 Q1 2023 10.1 Q1 2023 10.1 15.7 Q1 2023 17.0 Q4 2023 11.7
Bank of England base rate
- extreme level 5.8 Q1 2024 6.0 Q1 2024 5.3 4.0 Q1 2023 6.0 Q1 2024 4.1
UK stock price index (15.5) Q2 2024 (40.9) Q2 2024 (1.1) (26.0) Q4 2023 (48.7) Q4 2023 (14.1)
(1) Unless specified otherwise, the figures show falls relative to the
starting period. The calculations are performed over five years, with a
starting point of Q4 2022 for 30 June 2023 scenarios.
(2) Comparatives have been aligned with the current calculation
approach.
Use of the scenarios in Personal lending
Personal lending follows a discrete scenario approach. The probability of
default (PD), exposure at default (EAD), loss given default (LGD) and
resultant ECL for each discrete scenario is calculated using product specific
economic response models. Probability weighted averages across the suite of
economic scenarios are then calculated for each of the model outputs, with the
weighted PD being used for staging purposes.
Business Banking utilises the Personal lending methodology rather than the
Wholesale lending methodology.
Use of the scenarios in Wholesale lending
The Wholesale lending scenario methodology is based on the concept of credit
cycle indices (CCIs). The CCIs represent, similar to the exogenous component
in Personal, all relevant economic drivers for a region/industry segment
aggregated into a single index value that describes the credit conditions in
the respective segment relative to its long-run average. A CCI value of zero
corresponds to credit conditions at long-run average levels, a positive CCI
value corresponds to credit conditions below long run average levels and a
negative CCI value corresponds to credit conditions above long-run average
levels.
The individual economic scenarios are translated into forward-looking
projections of CCIs using a set of econometric models. Subsequently the CCI
projections for the individual scenarios are averaged into a single central
CCI projection according to the given scenario probabilities. The central CCI
projection is then extended with an additional mean reversion assumption to
gradually revert to the long-run average CCI value of zero in the outer years
of the projection horizon.
Finally, ECL is calculated using a Monte Carlo approach by averaging PD and
LGD values arising from many CCI paths simulated around the central CCI
projection.
UK economic uncertainty
The high inflation environment alongside rapidly rising interest rates and
supply chain disruption are presenting significant headwinds for some
businesses and consumers. These are a result of various factors and in many
cases are compounding and look set to remain a feature of the economic
environment into 2024. NatWest Group has considered where these are most
likely to affect the customer base, with the rising cost of borrowing during
2023 for both businesses and consumers presenting an additional affordability
challenge for many borrowers in recent months.
The effects of these risks are not expected to be fully captured by
forward-looking credit modelling, particularly given the high inflation
environment, low unemployment base case outlook. Any incremental ECL effects
for these risks will be captured via post model adjustments and are detailed
further in the Governance and post model adjustments section.
Risk and capital management
Credit risk continued
UK economic uncertainty
Governance and post model adjustments (reviewed)
The IFRS 9 PD, EAD and LGD models are subject to NatWest Group's model risk
policy that stipulates periodic model monitoring, periodic re-validation and
defines approval procedures and authorities according to model materiality.
Various post model adjustments were applied where management judged they were
necessary to ensure an adequate level of overall ECL provision. All post model
adjustments were subject to formal approval through provisioning governance,
and were categorised as follows (business level commentary is provided below):
- Deferred model calibrations - ECL adjustments where model monitoring
and similar analyses indicates that model adjustments will be required to
ensure ECL adequacy. As a consequence, an estimate of the ECL impact is
recorded on the balance sheet until modelled ECL levels are affirmed by new
model parallel runs or similar analyses.
- Economic uncertainty - ECL adjustments primarily arising from
uncertainties associated with high inflation and rapidly rising interest rates
as well as supply chain disruption, along with the residual effects from
COVID-19 Government support schemes. In all cases, management judged that
additional ECL was required until further credit performance data became
available as the observable effects of these issues crystallise.
- Other adjustments - ECL adjustments where it was judged that the
modelled ECL required amendment.
Post model adjustments will remain a key focus area of NatWest Group's ongoing
ECL adequacy assessment process. A holistic framework has been established
including reviewing a range of economic data, external benchmark information
and portfolio performance trends with a particular focus on segments of the
portfolio (both commercial and consumer) that are likely to be more
susceptible to high inflation, rapidly rising interest rates and supply chain
disruption.
ECL post model adjustments
The table below shows ECL post model adjustments.
Retail Banking Private Commercial & Central items
Mortgages Other Banking Institutional & other Total
30 June 2023 £m £m £m £m £m £m
Deferred model calibrations - - 1 22 - 23
Economic uncertainty 116 43 12 289 2 462
Other adjustments 7 - - 12 36 55
Total 123 43 13 323 38 540
Of which:
- Stage 1 74 19 6 113 20 232
- Stage 2 34 24 7 206 17 288
- Stage 3 15 - - 4 1 20
31 December 2022
Economic uncertainty 102 51 6 191 2 352
Other adjustments 8 20 - 16 15 59
Total 110 71 6 207 17 411
Of which:
- Stage 1 62 27 3 63 - 155
- Stage 2 32 44 3 139 16 234
- Stage 3 16 - - 5 1 22
Risk and capital management
Credit risk continued
UK economic uncertainty
Post model adjustments increased since 31 December 2022, with a notable shift
in economic uncertainty reflecting rapidly rising interest rates and high
inflation.
- Retail Banking - The post model adjustment for economic uncertainty
increased from £153 million at 31 December 2022 to £159 million at 30 June
2023, with recent interest rate rises resulting in higher levels of mortgage
customers at risk of financial difficulties and prompting an uplift in the
cost of living post model adjustment (up from £127 million to £134 million).
The cost of living post model adjustment captures the risk on segments in the
Retail Banking portfolio that are more susceptible to the effects of cost of
living rises, focusing on key affordability lenses, including customers with
lower incomes in fuel poverty, over-indebted borrowers and customers
vulnerable to a potential mortgage rate shock effect on their affordability.
- The £20 million other judgemental overlay for EAD modelling dynamics
in credit cards was no longer required.
- Commercial & Institutional - The post model adjustment for
economic uncertainty increased from £191 million at 31 December 2022 to £289
million at 30 June 2023. It still includes an overlay of £79 million to cover
the residual risks from COVID-19, including the risk that government support
schemes could affect future recoveries and concerns surrounding associated
debt, to customers that have utilised government support schemes. The
inflation and supply chain post model adjustment has been maintained with a
mechanistic adjustment, via a sector-level downgrade, being applied to the
sectors that were considered most at risk from these headwinds. A number of
additional sectors have been included in the sector-level downgrade reflecting
the pressures from inflation plus broader concerns around liquidity and
reducing cash reserves across many sectors. The impact of the sector-level
downgrades is a post model adjustment increase from £83 million at 31
December 2022 to £210 million at 30 June 2023, reflecting the significant
headwinds for a number of sectors which are not fully captured in the models.
- The £22 million judgemental overlay for deferred model calibrations
relates to refinance risk with the existing mechanistic modelling approach not
fully capturing the risk on deteriorated exposures.
- Other adjustments includes an overlay of £10 million to mitigate the
effect of operational timing delays in the identification and flagging of a
SICR.
- Other - The post model adjustments in Central items & other
increased from £17 million at 31 December 2022 to £38 million at 30 June
2023 with the rise attributable to the divestment risk of the phased
withdrawal of Ulster Bank RoI from the Republic of Ireland.
Risk and capital management
Credit risk continued
Wholesale support schemes
The table below shows the sector split for the Bounce Back Loan Scheme (BBLS)
as well as associated debt split by stage. Associated debt refers to non-BBLS
lending to customers who also have BBLS lending.
Gross carrying amount
BBL Associated debt ECL on associated debt
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3
30 June 2023 £m £m £m £m £m £m £m £m £m £m £m
Wholesale
Property 864 173 40 1,077 805 225 71 1,101 9 17 25
Financial institutions 20 3 - 23 8 2 - 10 - - -
Sovereign 4 1 - 5 1 - - 1 - - -
Corporate 2,638 550 334 3,522 2,169 879 153 3,201 26 56 91
Of which:
Agriculture 184 68 4 256 762 338 21 1,121 6 15 9
Airlines and aerospace 3 1 - 4 2 1 - 3 - - -
Automotive 185 30 8 223 103 29 7 139 2 3 4
Chemicals 5 1 - 6 8 1 - 9 - - -
Health 139 20 4 163 255 84 14 353 2 4 6
Industrials 109 18 5 132 72 23 5 100 1 1 3
Land transport and logistics 101 22 6 129 43 24 4 71 1 2 3
Leisure 386 94 24 504 322 143 23 488 5 12 16
Mining and metals 4 1 - 5 6 - - 6 - - -
Oil and gas 5 1 - 6 4 1 - 5 - - -
Power utilities 3 1 - 4 3 3 1 7 - - -
Retail 460 88 22 570 256 104 17 377 4 8 12
Shipping 2 - - 2 1 - - 1 - - -
Water and waste 12 2 1 15 9 2 2 13 - - 1
Total 3,526 727 374 4,627 2,983 1,106 224 4,313 35 73 116
31 December 2022
Wholesale
Property 1,029 197 51 1,277 908 217 61 1,186 10 15 27
Financial institutions 24 4 - 28 9 2 - 11 - - 1
Sovereign 5 1 1 7 2 - - 2 - - -
Corporate 3,165 629 338 4,132 2,302 872 116 3,290 26 56 69
Of which:
Agriculture 221 74 4 299 819 297 22 1,138 6 14 11
Airlines and aerospace 3 1 - 4 - 1 - 1 - - -
Automotive 221 34 10 265 100 37 5 142 1 2 3
Chemicals 6 1 - 7 9 1 - 10 - - -
Health 165 23 4 192 271 92 9 372 2 4 4
Industrials 131 21 5 157 77 20 4 101 1 2 2
Land transport and logistics 122 25 8 155 51 16 4 71 1 2 3
Leisure 471 108 28 607 336 161 27 524 5 12 16
Mining and metals 5 1 - 6 5 1 - 6 - - -
Oil and gas 6 1 - 7 2 2 - 4 - - -
Power utilities 3 1 - 4 3 4 - 7 - - -
Retail 554 102 26 682 283 94 14 391 4 7 10
Shipping 2 - - 2 1 3 - 4 - - -
Water and waste 15 2 1 18 10 3 - 13 - - -
Total 4,223 831 390 5,444 3,221 1,091 177 4,489 36 71 97
Risk and capital management
Credit risk continued
Measurement uncertainty and ECL sensitivity analysis (reviewed)
The recognition and measurement of ECL is complex and involves the use of
significant judgment and estimation, particularly in times of economic
volatility and uncertainty. This includes the formulation and incorporation of
multiple forward-looking economic conditions into ECL to meet the measurement
objective of IFRS 9. The ECL provision is sensitive to the model inputs and
economic assumptions underlying the estimate.
The impact arising from the base case, upside, downside and extreme downside
scenarios was simulated. These scenarios are used in the methodology for
Personal multiple economic scenarios as described in the Economic loss drivers
section. In the simulations, NatWest Group has assumed that the economic macro
variables associated with these scenarios replace the existing base case
economic assumptions, giving them a 100% probability weighting and therefore
serving as a single economic scenario.
These scenarios were applied to all modelled portfolios in the analysis below,
with the simulation impacting both PDs and LGDs. Post model adjustments
included in the ECL estimates that were modelled were sensitised in line with
the modelled ECL movements, but those that were judgmental in nature,
primarily those for deferred model calibrations and economic uncertainty, were
not (refer to the Governance and post model adjustments section). As expected,
the scenarios create differing impacts on ECL by portfolio and the impacts are
deemed reasonable. In this simulation, it is assumed that existing modelled
relationships between key economic variables and loss drivers hold, but in
practice other factors would also have an impact, for example, potential
customer behaviour changes and policy changes by lenders that might impact on
the wider availability of credit.
The focus of the simulations is on ECL provisioning requirements on performing
exposures in Stage 1 and Stage 2. The simulations are run on a stand-alone
basis and are independent of each other; the potential ECL impacts reflect the
simulated impact at 30 June 2023. Scenario impacts on SICR should be
considered when evaluating the ECL movements of Stage 1 and Stage 2. In all
scenarios the total exposure was the same but exposure by stage varied in each
scenario.
Stage 3 provisions are not subject to the same level of measurement
uncertainty - default is an observed event as at the balance sheet date. Stage
3 provisions therefore were not considered in this analysis.
NatWest Group's core criterion to identify a SICR is founded on PD
deterioration. Under the simulations, PDs change and result in exposures
moving between Stage 1 and Stage 2 contributing to the ECL impact.
Risk and capital management
Credit risk continued
Measurement uncertainty and ECL sensitivity analysis (reviewed)
Moderate Moderate Extreme
Base upside downside downside
30 June 2023 Actual scenario scenario scenario scenario
Stage 1 modelled loans (£m)
Retail Banking - mortgages 168,723 168,198 169,272 168,676 160,339
Retail Banking - unsecured 8,256 8,296 8,562 8,102 7,393
Wholesale - property 27,157 27,445 27,594 26,830 17,541
Wholesale - non-property 110,583 112,316 113,020 109,447 84,290
314,719 316,255 318,448 313,055 269,563
Stage 1 modelled ECL (£m)
Retail Banking - mortgages 85 84 81 87 83
Retail Banking - unsecured 191 193 192 191 169
Wholesale - property 98 76 60 128 131
Wholesale - non-property 250 220 193 305 310
624 573 526 711 693
Stage 2 modelled loans (£m)
Retail Banking - mortgages 19,653 20,178 19,104 19,700 28,037
Retail Banking - unsecured 3,400 3,360 3,094 3,554 4,263
Wholesale - property 3,942 3,654 3,505 4,269 13,558
Wholesale - non-property 16,854 15,121 14,417 17,990 43,147
43,849 42,313 40,120 45,513 89,005
Stage 2 modelled ECL (£m)
Retail Banking - mortgages 64 64 44 64 114
Retail Banking - unsecured 376 369 304 404 515
Wholesale - property 113 92 74 134 584
Wholesale - non-property 405 336 279 483 1,234
958 861 701 1,085 2,447
Stage 1 and Stage 2 modelled loans (£m)
Retail Banking - mortgages 188,376 188,376 188,376 188,376 188,376
Retail Banking - unsecured 11,656 11,656 11,656 11,656 11,656
Wholesale - property 31,099 31,099 31,099 31,099 31,099
Wholesale - non-property 127,437 127,437 127,437 127,437 127,437
358,568 358,568 358,568 358,568 358,568
Stage 1 and Stage 2 modelled ECL (£m)
Retail Banking - mortgages 149 148 125 151 197
Retail Banking - unsecured 567 562 496 595 684
Wholesale - property 211 168 134 262 715
Wholesale - non-property 655 556 472 788 1,544
1,582 1,434 1,227 1,796 3,140
Stage 1 and Stage 2 coverage (%)
Retail Banking - mortgages 0.08 0.08 0.07 0.08 0.10
Retail Banking - unsecured 4.86 4.82 4.26 5.10 5.87
Wholesale - property 0.68 0.54 0.43 0.84 2.30
Wholesale - non-property 0.51 0.44 0.37 0.62 1.21
0.44 0.40 0.34 0.50 0.88
Reconciliation to Stage 1 and Stage 2 ECL (£m)
ECL on modelled exposures 1,582 1,434 1,227 1,796 3,140
ECL on UBIDAC modelled exposures 32 32 32 32 32
ECL on non-modelled exposures 38 38 38 38 38
Total Stage 1 and Stage 2 ECL 1,652 1,504 1,297 1,866 3,210
Variance to actual total Stage 1 and Stage 2 ECL (148) (355) 214 1,558
Risk and capital management
Credit risk continued
Measurement uncertainty and ECL sensitivity analysis (reviewed)
Moderate Moderate Extreme
Base upside downside downside
30 June 2023 Actual scenario scenario scenario scenario
Reconciliation to Stage 1 and Stage 2 flow exposure (£m)
Modelled loans 358,568 358,568 358,568 358,568 358,568
UBIDAC loans 565 565 565 565 565
Non-modelled loans 20,993 20,993 20,993 20,993 20,993
Other asset classes 145,405 145,405 145,405 145,405 145,405
(1) Variations in future undrawn exposure values across the scenarios
are modelled, however the exposure position reported is that used to calculate
modelled ECL as at 30 June 2023 and therefore does not include variation in
future undrawn exposure values.
(2) Reflects ECL for all modelled exposure in scope for IFRS 9. The
analysis excludes non-modelled portfolios.
(3) Exposures related to Ulster Bank RoI continuing operations have
not been included in the simulations. The current Ulster Bank RoI ECL has been
included across all scenarios to enable reconciliation to other disclosures.
(4) All simulations are run on a stand-alone basis and are independent
of each other, with the potential ECL impact reflecting the simulated impact
as at 30 June 2023. The simulations change the composition of Stage 1 and
Stage 2 exposure but total exposure is unchanged under each scenario as the
loan population is static.
(5) Refer to the Economic loss drivers section for details of economic
scenarios.
(6) Refer to the NatWest Group 2022 Annual Report and Accounts for 31
December 2022 comparatives.
Measurement uncertainty and ECL adequacy (reviewed)
- During H1 2023, overall modelled ECL remained stable reflecting
portfolio growth coupled with stable portfolio performance offset by the H1
2023 economics update ECL reduction at 30 June 2023. Judgemental ECL post
model adjustments, increased from 31 December 2022, reflecting the increased
economic uncertainty and the expectation of increased defaults in H2 2023 and
beyond, and represented 15% of total ECL (31 December 2022 - 12%).
- If the economics were as negative as observed in the extreme downside,
total Stage 1 and Stage 2 ECL was simulated to increase by £1.6 billion
(approximately 94%). In this scenario, Stage 2 exposure increased
significantly and was the key driver of the simulated ECL rise. The movement
in Stage 2 balances in the other simulations was less significant.
- In the Wholesale portfolio, there was a significant increase in ECL
under both a moderate and extreme downside scenario. The Wholesale property
ECL increase was mainly due to commercial real estate prices which show
negative growth until 2024 and significant deterioration in the stock index.
The non-property increase was mainly due to GDP contraction and significant
deterioration in the stock index.
- The changes in the economic outlook and scenarios used in the IFRS 9
MES framework at 30 June 2023 resulted in a decrease in modelled ECL. Given
that continued uncertainty remains due to high inflation, rapidly rising
interest rates and supply chain disruption, NatWest Group utilised a framework
of quantitative and qualitative measures to support the levels of ECL
coverage, including economic data, credit performance insights, supply chain
contagion analysis and problem debt trends. This was particularly important
for consideration of post model adjustments.
- As the effects of high inflation, rapidly rising interest rates and
supply chain disruption evolve during 2023 and into 2024, there is a risk of
credit deterioration. However, the income statement effect of this should have
been mitigated by the forward-looking provisions retained on the balance sheet
at 30 June 2023.
- There are a number of key factors that could drive further downside to
impairments, through deteriorating economic and credit metrics and increased
stage migration as credit risk increases for more customers. Such factors
which could impact the IFRS 9 models, include an adverse deterioration in GDP
and unemployment in the economies in which NatWest Group operates.
Movement in ECL provision
The table below shows the main ECL provision movements during H1 2023.
ECL provision
£m
At 1 January 2023 3,434
Changes in economic forecasts (98)
Changes in risk metrics and exposure: Stage 1 and Stage 2 (48)
Changes in risk metrics and exposure: Stage 3 263
Judgemental changes: changes in post model adjustments for Stage 1, Stage 2 129
and Stage 3
Write-offs and other (123)
At 30 June 2023 3,557
- ECL increased during H1 2023, reflecting a stable level of good book
ECL alongside increases in Stage 3 ECL levels.
- Stage 3 default flows in the Personal portfolios remained stable,
although there were modest increases in line with growth and post-COVID-19
lending strategy. For the Wholesale portfolios, with the exception of BBLS,
default levels were lower than historic trends as the effects of high
inflation, rapidly rising interest rates and supply chain disruption has to
date not led to a significant change in defaults.
- Stage 3 balances increased due to default flows, as described above,
alongside reduced write-off activity in H1 2023.
- The update to the economic scenarios at 30 June 2023 resulted in a
modelled decrease in ECL of £98 million. While broader portfolio performance
continued to be stable, the additional uncertainty due to high inflation and
rapidly rising interest rates led to an increase in post model adjustments
being required to ensure provision adequacy.
Risk and capital management
Credit risk - Banking activities
Introduction
This section details the credit risk profile of NatWest Group's banking
activities.
Financial instruments within the scope of the IFRS 9 ECL framework (reviewed)
Refer to Note 8 for balance sheet analysis of financial assets that are
classified as amortised cost or fair value through other comprehensive income
(FVOCI), the starting point for IFRS 9 ECL framework assessment. The table
below excludes loans in disposal groups of £0.6 billion (31 December 2022 -
£1.5 billion).
Financial assets
30 June 2023 31 December 2022
Gross ECL Net Gross ECL Net
£bn £bn £bn £bn £bn £bn
Balance sheet total gross amortised cost and FVOCI 554.3 554.3
In scope of IFRS 9 ECL framework 541.7 550.3
% in scope 98% 99%
Loans to customers - in scope - amortised cost 377.9 3.5 374.4 370.1 3.3 366.8
Loans to customers - in scope - FVOCI 0.1 - 0.1 0.1 - 0.1
Loans to banks - in scope - amortised cost 7.2 - 7.2 6.9 - 6.9
Total loans - in scope 385.2 3.5 381.7 377.1 3.3 373.8
Stage 1 336.4 0.6 335.8 325.2 0.6 324.6
Stage 2 43.4 1.0 42.4 46.8 0.9 45.9
Stage 3 5.4 1.9 3.5 5.1 1.8 3.3
Other financial assets - in scope - amortised cost 138.5 - 138.5 156.4 - 156.4
Other financial assets - in scope - FVOCI 18.0 - 18.0 16.8 - 16.8
Total other financial assets - in scope 156.5 - 156.5 173.2 - 173.2
Stage 1 156.4 - 156.4 172.4 - 172.4
Stage 2 0.1 - 0.1 0.8 - 0.8
Out of scope of IFRS 9 ECL framework 12.6 na 12.6 4.0 na 4.0
Loans to customers - out of scope - amortised cost (0.6) na (0.6) (0.4) na (0.4)
Loans to banks - out of scope - amortised cost 0.1 na 0.1 0.2 na 0.2
Other financial assets - out of scope - amortised cost 13.0 na 13.0 4.1 na 4.1
Other financial assets - out of scope - FVOCI 0.1 na 0.1 0.1 na 0.1
na = not applicable
The assets outside the IFRS 9 ECL framework were as follows:
- Settlement balances, items in the course of collection, cash balances and
other non-credit risk assets of £12.5 billion (31 December 2022 - £4.3
billion). These were assessed as having no ECL unless there was evidence that
they were defaulted.
- Equity shares of £0.3 billion (31 December 2022 - £0.4 billion) as not
within the IFRS 9 ECL framework by definition.
- Fair value adjustments on loans hedged by interest rate swaps, where the
underlying loan was within the IFRS 9 ECL scope of £0.9 billion (31 December
2022 - £(0.6) billion).
Contingent liabilities and commitments
In addition to contingent liabilities and commitments disclosed in Note 13,
reputationally-committed limits were also included in the scope of the IFRS 9
ECL framework. These were offset by £0.1 billion (31 December 2022 - £(0.1)
billion) out of scope balances primarily related to facilities that, if drawn,
would not be classified as amortised cost or FVOCI, or undrawn limits relating
to financial assets exclusions. Total contingent liabilities (including
financial guarantees) and commitments within IFRS 9 ECL scope of £136.2
billion (31 December 2022 - £137.2 billion) comprised Stage 1 £123.1 billion
(31 December 2022 - £119.2 billion); Stage 2 £12.5 billion (31 December 2022
- £17.3 billion); and Stage 3 £0.7 billion (31 December 2022 - £0.7
billion).
The ECL relating to off-balance sheet exposures was £0.1 billion (31 December
2022 - £0.1 billion). The total ECL in the remainder of the Credit risk
section of £3.6 billion (31 December 2022 - £3.4 billion) included ECL for
both on and off-balance sheet exposures for non-disposal groups.
Risk and capital management
Credit risk - Banking activities continued
Segment analysis - portfolio summary (reviewed)
The table below shows gross loans and ECL, by segment and stage, within the
scope of the IFRS 9 ECL framework.
Retail Private Commercial & Central items
Banking Banking Institutional & other Total
30 June 2023 £m £m £m £m £m
Loans - amortised cost and FVOCI (1)
Stage 1 180,293 18,075 112,341 25,653 336,362
Stage 2 22,686 988 19,676 90 43,440
Stage 3 2,826 254 2,246 124 5,450
Of which: individual - 203 1,017 27 1,247
Of which: collective 2,826 51 1,229 97 4,203
Subtotal excluding disposal group loans 205,805 19,317 134,263 25,867 385,252
Disposal group loans 573 573
Total 26,440 385,825
ECL provisions (2)
Stage 1 282 23 333 23 661
Stage 2 439 17 507 28 991
Stage 3 1,038 31 765 71 1,905
Of which: individual - 31 260 4 295
Of which: collective 1,038 - 505 67 1,610
Subtotal excluding ECL provisions on disposal group loans 1,759 71 1,605 122 3,557
ECL provisions on disposal group loans 31 31
Total 153 3,588
ECL provisions coverage (3)
Stage 1 (%) 0.16 0.13 0.30 0.09 0.20
Stage 2 (%) 1.94 1.72 2.58 31.11 2.28
Stage 3 (%) 36.73 12.20 34.06 57.26 34.95
ECL provisions coverage excluding disposal group loans 0.85 0.37 1.20 0.47 0.92
ECL provisions coverage on disposal group loans 5.41 5.41
Total 0.58 0.93
Impairment (releases)/losses (4)
ECL (release)/charge 193 11 20 (1) 223
Stage 1 (88) (1) (124) 4 (209)
Stage 2 188 8 98 2 296
Stage 3 93 4 46 (7) 136
Of which: individual - 4 13 (4) 13
Of which: collective 93 - 33 (3) 123
Continuing operations 193 11 20 (1) 223
Discontinued operations (1) (1)
Total (2) 222
Amounts written-off 63 1 50 8 122
Of which: individual - 1 19 2 22
Of which: collective 63 - 31 6 100
For the notes to this table refer to the following page.
Risk and capital management
Credit risk - Banking activities continued
Segment analysis - portfolio summary (reviewed)
Retail Private Commercial & Central items
Banking Banking Institutional & other Total
31 December 2022 £m £m £m £m £m
Loans - amortised cost and FVOCI (1)
Stage 1 174,727 18,367 108,791 23,339 325,224
Stage 2 21,561 801 24,226 245 46,833
Stage 3 2,565 242 2,166 123 5,096
Of which: individual - 168 905 48 1,121
Of which: collective 2,565 74 1,261 75 3,975
Subtotal excluding disposal group loans 198,853 19,410 135,183 23,707 377,153
Disposal group loans 1,502 1,502
Total 25,209 378,655
ECL provisions (2)
Stage 1 251 21 342 18 632
Stage 2 450 14 534 45 1,043
Stage 3 917 26 747 69 1,759
Of which: individual - 26 251 10 287
Of which: collective 917 - 496 59 1,472
Subtotal excluding ECL provisions on disposal group loans 1,618 61 1,623 132 3,434
ECL provisions on disposal group loans 53 53
Total 185 3,487
ECL provisions coverage (3)
Stage 1 (%) 0.14 0.11 0.31 0.08 0.19
Stage 2 (%) 2.09 1.75 2.20 18.37 2.23
Stage 3 (%) 35.75 10.74 34.49 56.10 34.52
ECL provisions coverage excluding disposal group loans 0.81 0.31 1.20 0.56 0.91
ECL provisions coverage on disposal group loans 3.53 3.53
Total 0.73 0.92
Half year ended 30 June 2022
Impairment (releases)/losses (4)
ECL (release)/charge 26 (11) (59) (10) (54)
Stage 1 (125) (6) (204) (7) (342)
Stage 2 86 (7) 108 18 205
Stage 3 65 2 37 (21) 83
Of which: individual - 2 - (3) (1)
Of which: collective 65 - 37 (18) 84
Continuing operations 26 (11) (59) (10) (54)
Discontinued operations (62) (62)
Total (70) (116)
Amounts written-off 106 1 94 14 215
Of which: individual - 1 57 - 58
Of which: collective 106 - 37 14 157
(1) Includes loans to customers and banks.
(2) Includes £4 million (31 December 2022 - £3 million) related
to assets classified as FVOCI and £0.1 billion (31 December 2022 - £0.1
billion) related to off-balance sheet exposures.
(3) ECL provisions coverage is calculated as ECL provisions
divided by loans - amortised cost and FVOCI. It is calculated on third party
loans and total ECL provisions.
(4) Includes a £5 million release (30 June 2022 - £2 million
release) related to other financial assets, of which £1 million (30 June 2022
- nil) related to assets classified as FVOCI; and £3 million release (30 June
2022 - £3 million release) related to contingent liabilities.
(5) The table shows gross loans only and excludes amounts that
were outside the scope of the ECL framework. Refer to Financial instruments
within the scope of the IFRS 9 ECL framework for further details. Other
financial assets within the scope of the IFRS 9 ECL framework were cash and
balances at central banks totalling £121.9 billion (31 December 2022 -
£143.3 billion) and debt securities of £34.7 billion (31 December 2022 -
£29.9 billion).
- Stage 1 and Stage 2 modelled ECL remained broadly unchanged with
stable portfolio performance and latest MES scenario update modelled ECL
reduction being offset by increased post model adjustments to reflect growing
economic uncertainty due to high inflation and rapidly rising interest rates.
- Stage 2 loans decreased during H1 2023, primarily within Wholesale
portfolios, in line with the modelled ECL reduction, linked to the update of
MES forward-looking economics at H1 2023. The latest MES scenario update
captures a lower unemployment peak and better GDP outlook, offset by higher
inflation and interest rates.
- Stage 3 loans increased, primarily due to reduced write-off activity
in H1 2023.
- As previously mentioned, in Personal, the flows into default remained
relatively stable and broadly in-line with post-COVID-19 lending strategy
expectations and for Wholesale portfolios, with the exception of BBLS, default
levels were lower than historic trends. However, it is expected that defaults
will increase as growing inflationary pressures on businesses, consumers and
the broader economy continue to evolve, particularly given the rapid rise in
interest rates.
Risk and capital management
Credit risk - Banking activities continued
Segment analysis - portfolio summary (reviewed)
The table below shows Ulster Bank RoI disposal groups for Personal and
Wholesale, by stage, for gross loans, off-balance sheet exposures and ECL. The
tables in the rest of the Credit risk section are shown on a continuing basis
and therefore exclude these exposures.
Off-balance sheet
Loans - amortised cost and FVOCI Loan Contingent ECL provisions
Stage 1 Stage 2 Stage 3 Total commitments liabilities Stage 1 Stage 2 Stage 3 Total
30 June 2023 £m £m £m £m £m £m £m £m £m £m
Personal - - - - - - - - - -
Wholesale 517 49 7 573 87 10 17 9 5 31
Total 517 49 7 573 87 10 17 9 5 31
31 December 2022
Personal - - - - - - - - - -
Wholesale 1,269 193 40 1,502 413 19 17 19 17 53
Total 1,269 193 40 1,502 413 19 17 19 17 53
Segment loans and impairment metrics (reviewed)
The table below shows gross loans and ECL provisions, by days past due, by
segment and stage, within the scope of the ECL framework.
Gross loans ECL provisions (2)
Stage 2 (1) Stage 2 (1)
Not Not
past 1-30 >30 past 1-30 >30
Stage 1 due DPD DPD Total Stage 3 Total Stage 1 due DPD DPD Total Stage 3 Total
30 June 2023 £m £m £m £m £m £m £m £m £m £m £m £m £m £m
Retail Banking 180,293 21,610 709 367 22,686 2,826 205,805 282 394 14 31 439 1,038 1,759
Private Banking 18,075 913 46 29 988 254 19,317 23 17 - - 17 31 71
Personal 14,929 118 43 16 177 198 15,304 7 2 - - 2 19 28
Wholesale 3,146 795 3 13 811 56 4,013 16 15 - - 15 12 43
Commercial
& Institutional 112,341 17,808 957 911 19,676 2,246 134,263 333 456 33 18 507 765 1,605
Personal 2,374 16 16 10 42 46 2,462 3 - - 1 1 13 17
Wholesale 109,967 17,792 941 901 19,634 2,200 131,801 330 456 33 17 506 752 1,588
Central items
& other 25,653 80 4 6 90 124 25,867 23 24 2 2 28 71 122
Personal 10 57 2 5 64 19 93 1 11 - 2 13 16 30
Wholesale 25,643 23 2 1 26 105 25,774 22 13 2 - 15 55 92
Total loans 336,362 40,411 1,716 1,313 43,440 5,450 385,252 661 891 49 51 991 1,905 3,557
Of which:
Personal 197,606 21,801 770 398 22,969 3,089 223,664 293 407 14 34 455 1,086 1,834
Wholesale 138,756 18,610 946 915 20,471 2,361 161,588 368 484 35 17 536 819 1,723
31 December 2022
Retail Banking 174,727 20,653 605 303 21,561 2,565 198,853 251 406 14 30 450 917 1,618
Private Banking 18,367 730 39 32 801 242 19,410 21 14 - - 14 26 61
Personal 15,182 122 35 16 173 207 15,562 5 1 - - 1 17 23
Wholesale 3,185 608 4 16 628 35 3,848 16 13 - - 13 9 38
Commercial
& Institutional 108,791 22,520 956 750 24,226 2,166 135,183 342 491 26 17 534 747 1,623
Personal 2,475 17 17 7 41 46 2,562 3 1 - - 1 12 16
Wholesale 106,316 22,503 939 743 24,185 2,120 132,621 339 490 26 17 533 735 1,607
Central items
& other 23,339 234 4 7 245 123 23,707 18 42 1 2 45 69 132
Personal 54 70 3 6 79 13 146 1 11 1 2 14 11 26
Wholesale 23,285 164 1 1 166 110 23,561 17 31 - - 31 58 106
Total loans 325,224 44,137 1,604 1,092 46,833 5,096 377,153 632 953 41 49 1,043 1,759 3,434
Of which:
Personal 192,438 20,862 660 332 21,854 2,831 217,123 260 419 15 32 466 957 1,683
Wholesale 132,786 23,275 944 760 24,979 2,265 160,030 372 534 26 17 577 802 1,751
For the notes to this table refer to the following page.
Risk and capital management
Credit risk - Banking activities continued
Segment loans and impairment metrics (reviewed)
The table below shows ECL and ECL provisions coverage, by days past due, by
segment and stage, within the scope of the ECL framework.
ECL provisions coverage Half year ended 30 June 2023
Stage 2 (1,2) ECL
Not past Total Amounts
Stage 1 due 1-30 DPD >30 DPD Total Stage 3 Total (release)/charge written-off
30 June 2023 % % % % % % % £m £m
Retail Banking 0.16 1.82 1.97 8.45 1.94 36.73 0.85 193 63
Private Banking 0.13 1.86 - - 1.72 12.20 0.37 11 1
Personal 0.05 1.69 - - 1.13 9.60 0.18 4 1
Wholesale 0.51 1.89 - - 1.85 21.43 1.07 7 -
Commercial & Institutional 0.30 2.56 3.45 1.98 2.58 34.06 1.20 20 50
Personal 0.13 - - 10.00 2.38 28.26 0.69 1 1
Wholesale 0.30 2.56 3.51 1.89 2.58 34.18 1.20 19 49
Central items & other 0.09 30.00 50.00 33.33 31.11 57.26 0.47 (1) 8
Personal 10.00 19.30 - 40.00 20.31 84.21 32.26 5 1
Wholesale 0.09 56.52 100.00 - 57.69 52.38 0.36 (6) 7
Total loans 0.20 2.20 2.86 3.88 2.28 34.95 0.92 223 122
Of which:
Personal 0.15 1.87 1.82 8.54 1.98 35.16 0.82 203 66
Wholesale 0.27 2.60 3.70 1.86 2.62 34.69 1.07 20 56
31 December 2022
Retail Banking 0.14 1.97 2.31 9.90 2.09 35.75 0.81 26 106
Private Banking 0.11 1.92 - - 1.75 10.74 0.31 (11) 1
Personal 0.03 0.82 - - 0.58 8.21 0.15 (2) 1
Wholesale 0.50 2.14 - - 2.07 25.71 0.99 (9) -
Commercial & Institutional 0.31 2.18 2.72 2.27 2.20 34.49 1.20 (59) 94
Personal 0.12 5.88 - - 2.44 26.09 0.62 1 1
Wholesale 0.32 2.18 2.77 2.29 2.20 34.67 1.21 (60) 93
Central items & other 0.08 17.95 25.00 28.57 18.37 56.10 0.56 (10) 14
Personal 1.85 15.71 33.33 33.33 17.72 84.62 17.81 (7) 6
Wholesale 0.07 18.90 - - 18.67 52.73 0.45 (3) 8
Total loans 0.19 2.16 2.56 4.49 2.23 34.52 0.91 (54) 215
Of which:
Personal 0.14 2.01 2.27 9.64 2.13 33.80 0.78 18 116
Wholesale 0.28 2.29 2.75 2.24 2.31 35.41 1.09 (72) 99
(1) 30 DPD - 30 days past due, the mandatory 30 days past due backstop
as prescribed by IFRS 9 for a SICR.
(2) ECL provisions on contingent liabilities and commitments are
included within the Financial assets section so as not to distort ECL coverage
ratios.
- Retail Banking - Balance sheet growth during H1 2023 mainly reflected
continued mortgage growth. Unsecured balances growth, primarily in credit
cards, was mainly a result of strong customer demand alongside disciplined
credit risk appetite. Total ECL coverage increased. The increase in coverage
was reflective of increased Stage 3 ECL on unsecured portfolios, mainly due to
reduced write-off activity. Stable good book coverage reflected continued
stable portfolio performance alongside the ECL release from the H1 2023 MES
update. This was counterbalanced by an increased level of post model
adjustments to capture increased affordability pressures on customers due to
high inflation and rapidly rising interest rates. Stage 2 balances increased
during H1 2023 as a result of the forecast rise in unemployment, therefore
increasing IFRS 9 probability of defaults on a forward-looking basis during H1
2023. The expected peak in unemployment rate reduced as a result of the latest
MES update at 30 June 2023, dampening the levels of PD SICR deterioration, but
Stage 2 balance levels were maintained through three month PD persistence
rules.
Commercial & Institutional - The balance sheet was broadly stable. Sector
appetite continues to be reviewed regularly, with particular focus on sector
clusters and sub-sectors that are vulnerable to cost of living, supply chain
or inflationary pressures, or deemed to represent a heightened risk. Total
coverage remained broadly stable with reductions in ECL and exposure. Stage 1
and Stage 2 ECL decreased due to improvements in forward-looking economics and
some positive portfolio performance more than offsetting increases in post
model adjustments.
- Central items & other - The balance sheet increase in H1 2023 was
due to an increase in central items held in the course of treasury related
management activities.
Risk and capital management
Credit risk - Banking activities continued
Sector analysis - portfolio summary (reviewed)
The table below shows financial assets and off-balance sheet exposures gross
of ECL and related ECL provisions, impairment and past due by sector, asset
quality and geographical region.
Personal Wholesale Total
Credit Other
Mortgages (1) cards personal Total Property Corporate FI Sovereign Total
30 June 2023 £m £m £m £m £m £m £m £m £m £m
Loans by geography 208,689 5,150 9,825 223,664 32,925 73,975 49,199 5,489 161,588 385,252
- UK 208,689 5,134 9,748 223,571 32,482 62,026 33,498 4,105 132,111 355,682
- RoI - 16 77 93 32 1,009 48 - 1,089 1,182
- Other Europe - - - - 269 4,907 6,433 473 12,082 12,082
- RoW - - - - 142 6,033 9,220 911 16,306 16,306
Loans by stage 208,689 5,150 9,825 223,664 32,925 73,975 49,199 5,489 161,588 385,252
- Stage 1 186,983 3,526 7,097 197,606 28,183 56,770 48,468 5,335 138,756 336,362
- Stage 2 19,653 1,501 1,815 22,969 3,990 15,660 695 126 20,471 43,440
- Stage 3 2,053 123 913 3,089 752 1,545 36 28 2,361 5,450
- Of which: individual 177 - 15 192 398 606 24 27 1,055 1,247
- Of which: collective 1,876 123 898 2,897 354 939 12 1 1,306 4,203
Loans - past due analysis (2) 208,689 5,150 9,825 223,664 32,925 73,975 49,199 5,489 161,588 385,252
- Not past due 206,026 5,014 8,838 219,878 31,818 70,389 48,516 5,416 156,139 376,017
- Past due 1-30 days 1,091 31 91 1,213 404 2,370 620 71 3,465 4,678
- Past due 31-90 days 633 35 106 774 361 572 35 2 970 1,744
- Past due 90-180 days 376 27 96 499 56 47 3 - 106 605
- Past due >180 days 563 43 694 1,300 286 597 25 - 908 2,208
Loans - Stage 2 19,653 1,501 1,815 22,969 3,990 15,660 695 126 20,471 43,440
- Not past due 18,648 1,460 1,693 21,801 3,541 14,292 653 124 18,610 40,411
- Past due 1-30 days 694 19 57 770 112 827 7 - 946 1,716
- Past due 31-90 days 311 22 65 398 337 541 35 2 915 1,313
Weighted average life (4)
- ECL measurement (years) 9 3 6 6 5 6 2 2 5 6
Weighted average 12 months
PDs (4)
- IFRS 9 (%) 0.50 3.09 4.96 0.74 1.46 1.67 0.20 0.20 1.13 0.90
- Basel (%) 0.66 3.29 3.24 0.82 1.02 1.33 0.18 0.20 0.87 0.84
ECL provisions by geography 413 293 1,128 1,834 445 1,200 60 18 1,723 3,557
- UK 413 288 1,103 1,804 415 988 32 11 1,446 3,250
- RoI - 5 25 30 14 57 1 - 72 102
- Other Europe - - - - 9 95 8 2 114 114
- RoW - - - - 7 60 19 5 91 91
ECL provisions by stage 413 293 1,128 1,834 445 1,200 60 18 1,723 3,557
- Stage 1 92 60 141 293 99 220 36 13 368 661
- Stage 2 65 148 242 455 115 410 10 1 536 991
- Stage 3 256 85 745 1,086 231 570 14 4 819 1,905
- Of which: individual 23 - 10 33 79 169 10 4 262 295
- Of which: collective 233 85 735 1,053 152 401 4 - 557 1,610
ECL provisions coverage (%) 0.20 5.69 11.48 0.82 1.35 1.62 0.12 0.33 1.07 0.92
- Stage 1 (%) 0.05 1.70 1.99 0.15 0.35 0.39 0.07 0.24 0.27 0.20
- Stage 2 (%) 0.33 9.86 13.33 1.98 2.88 2.62 1.44 0.79 2.62 2.28
- Stage 3 (%) 12.47 69.11 81.60 35.16 30.72 36.89 38.89 14.29 34.69 34.95
ECL (release)/charge 23 70 110 203 29 (2) (6) (1) 20 223
- UK 23 68 107 198 29 28 (11) (1) 45 243
- RoI - 2 3 5 5 (5) - - - 5
- Other Europe - - - - (5) 16 1 - 12 12
- RoW - - - - - (41) 4 - (37) (37)
Amounts written-off 8 34 24 66 20 36 - - 56 122
For the notes to this table refer to page 37.
Risk and capital management
Credit risk - Banking activities continued
Sector analysis - portfolio summary (reviewed)
Personal Wholesale Total
Credit Other
Mortgages (1) cards personal Total Property Corporate FI Sovereign Total
30 June 2023 £m £m £m £m £m £m £m £m £m £m
Loans by residual maturity 208,689 5,150 9,825 223,664 32,925 73,975 49,199 5,489 161,588 385,252
- <1 year 3,349 2,867 3,261 9,477 7,359 23,585 37,554 2,898 71,396 80,873
- 1-5 year 10,383 2,283 5,534 18,200 17,164 31,815 9,927 1,670 60,576 78,776
- 5 year 194,957 - 1,030 195,987 8,402 18,575 1,718 921 29,616 225,603
Other financial assets by
asset quality (3) - - - - 39 90 16,985 139,464 156,578 156,578
- AQ1-AQ4 - - - - - 12 16,452 139,464 155,928 155,928
- AQ5-AQ8 - - - - 39 78 533 - 650 650
Off-balance sheet 15,474 16,572 8,688 40,734 16,048 58,800 19,898 724 95,470 136,204
- Loan commitments 15,474 16,572 8,643 40,689 15,604 56,181 18,610 570 90,965 131,654
- Financial guarantees - - 45 45 444 2,619 1,288 154 4,505 4,550
Off-balance sheet by
asset quality (3) 15,474 16,572 8,688 40,734 16,048 58,800 19,898 724 95,470 136,204
- AQ1-AQ4 14,791 536 7,403 22,730 12,486 36,034 18,318 644 67,482 90,212
- AQ5-AQ8 666 15,732 1,255 17,653 3,532 22,475 1,580 63 27,650 45,303
- AQ9 1 6 6 13 5 9 - - 14 27
- AQ10 16 298 24 338 25 282 - 17 324 662
For the notes to this table refer to page 37.
Risk and capital management
Credit risk - Banking activities continued
Sector analysis - portfolio summary (reviewed)
Personal Wholesale Total
Credit Other
Mortgages (1) cards personal Total Property Corporate FI Sovereign Total
31 December 2022 £m £m £m £m £m £m £m £m £m £m
Loans by geography 202,957 4,460 9,706 217,123 32,574 73,677 48,138 5,641 160,030 377,153
- UK 202,957 4,420 9,602 216,979 31,452 62,318 32,480 4,285 130,535 347,514
- RoI - 40 104 144 34 1,102 74 - 1,210 1,354
- Other Europe - - - - 623 4,670 6,967 475 12,735 12,735
- RoW - - - - 465 5,587 8,617 881 15,550 15,550
Loans by stage 202,957 4,460 9,706 217,123 32,574 73,677 48,138 5,641 160,030 377,153
- Stage 1 182,245 3,275 6,918 192,438 27,542 53,048 46,738 5,458 132,786 325,224
- Stage 2 18,787 1,076 1,991 21,854 4,316 19,153 1,353 157 24,979 46,833
- Stage 3 1,925 109 797 2,831 716 1,476 47 26 2,265 5,096
- Of which: individual 172 - 13 185 314 564 33 25 936 1,121
- Of which: collective 1,753 109 784 2,646 402 912 14 1 1,329 3,975
Loans - past due analysis (2) 202,957 4,460 9,706 217,123 32,574 73,677 48,138 5,641 160,030 377,153
- Not past due 200,634 4,335 8,825 213,794 31,366 70,034 47,824 5,633 154,857 368,651
- Past due 1-30 days 916 33 86 1,035 608 2,490 278 1 3,377 4,412
- Past due 31-90 days 510 29 104 643 302 551 5 7 865 1,508
- Past due 90-180 days 380 24 79 483 49 34 24 - 107 590
- Past due >180 days 517 39 612 1,168 249 568 7 - 824 1,992
Loans - Stage 2 18,787 1,076 1,991 21,854 4,316 19,153 1,353 157 24,979 46,833
- Not past due 17,951 1,039 1,872 20,862 3,866 17,915 1,344 150 23,275 44,137
- Past due 1-30 days 588 19 53 660 185 754 5 - 944 1,604
- Past due 31-90 days 248 18 66 332 265 484 4 7 760 1,092
Weighted average life (4)
- ECL measurement (years) 8 2 6 5 4 6 3 1 5 5
Weighted average 12 months PDs (4)
- IFRS 9 (%) 0.50 2.62 4.78 0.71 1.88 2.11 0.23 0.19 1.41 1.01
- Basel (%) 0.65 2.97 3.11 0.79 1.03 1.44 0.16 0.19 0.92 0.85
ECL provisions by geography 376 257 1,050 1,683 441 1,228 63 19 1,751 3,434
- UK 376 254 1,027 1,657 404 985 42 14 1,445 3,102
- RoI - 3 23 26 13 66 1 - 80 106
- Other Europe - - - - 16 72 7 1 96 96
- RoW - - - - 8 105 13 4 130 130
ECL provisions by stage 376 257 1,050 1,683 441 1,228 63 19 1,751 3,434
- Stage 1 81 62 117 260 107 218 32 15 372 632
- Stage 2 62 122 282 466 105 457 14 1 577 1,043
- Stage 3 233 73 651 957 229 553 17 3 802 1,759
- Of which: individual 18 - 10 28 80 163 13 3 259 287
- Of which: collective 215 73 641 929 149 390 4 - 543 1,472
ECL provisions coverage (%) 0.19 5.76 10.82 0.78 1.35 1.67 0.13 0.34 1.09 0.91
- Stage 1 (%) 0.04 1.89 1.69 0.14 0.39 0.41 0.07 0.27 0.28 0.19
- Stage 2 (%) 0.33 11.34 14.16 2.13 2.43 2.39 1.03 0.64 2.31 2.23
- Stage 3 (%) 12.10 66.97 81.68 33.80 31.98 37.47 36.17 11.54 35.41 34.52
Half year ended 30 June 2022
ECL (release)/charge (80) 20 78 18 21 (61) (31) (1) (72) (54)
- UK (75) 20 78 23 30 (66) (34) (1) (71) (48)
- RoI (5) - - (5) 2 (7) (3) - (8) (13)
- Other Europe - - - - (12) 10 1 - (1) (1)
- RoW - - - - 1 2 5 - 8 8
Amounts written-off 27 33 54 114 17 84 - - 101 215
For the notes to this table refer to the following page.
Risk and capital management
Credit risk - Banking activities continued
Sector analysis - portfolio summary (reviewed)
Personal Wholesale Total
Credit Other
Mortgages (1) cards personal Total Property Corporate FI Sovereign Total
31 December 2022 £m £m £m £m £m £m £m £m £m £m
Loans by residual maturity 202,957 4,460 9,706 217,123 32,574 73,677 48,138 5,641 160,030 377,153
- <1 year 3,347 2,655 3,368 9,370 6,740 24,297 36,192 2,958 70,187 79,557
- 1-5 year 10,968 1,805 5,387 18,160 17,523 32,127 10,380 1,819 61,849 80,009
- 5 year 188,642 - 951 189,593 8,311 17,253 1,566 864 27,994 217,587
Other financial assets by
asset quality (3) - - - - 49 25 14,704 158,416 173,194 173,194
- AQ1-AQ4 - - - - - 11 14,156 158,416 172,583 172,583
- AQ5-AQ8 - - - - 49 14 548 - 611 611
Off-balance sheet 18,782 15,848 8,547 43,177 15,793 57,791 19,555 710 93,849 137,026
- Loan commitments 18,782 15,848 8,496 43,126 15,302 54,651 18,223 710 88,886 132,012
- Financial guarantees - - 51 51 491 3,140 1,332 - 4,963 5,014
Off-balance sheet by
asset quality (3) 18,782 15,848 8,547 43,177 15,793 57,791 19,555 710 93,849 137,026
- AQ1-AQ4 17,676 436 7,353 25,465 12,477 35,960 17,899 606 66,942 92,407
- AQ5-AQ8 1,089 15,048 1,170 17,307 3,282 21,496 1,655 84 26,517 43,824
- AQ9 2 74 4 80 5 24 - - 29 109
- AQ10 15 290 20 325 29 311 1 20 361 686
(1) Includes a portion of Private Banking lending secured against residential real
estate, in line with ECL calculation methodology. Private Banking and RBS
International mortgages are reported in UK reflecting the country of lending
origination, and includes crown dependencies.
(2) 30 DPD - 30 days past due, the mandatory 30 days past due backstop as
prescribed by the IFRS 9 guidance for a SICR.
(3) AQ bandings are based on Basel PDs and the mapping is as follows:
Internal asset quality band Probability of default range Indicative S&P rating
AQ1 0% - 0.034% AAA to AA
AQ2 0.034% - 0.048% AA to AA-
AQ3 0.048% - 0.095% A+ to A
AQ4 0.095% - 0.381% BBB+ to BBB-
AQ5 0.381% - 1.076% BB+ to BB
AQ6 1.076% - 2.153% BB- to B+
AQ7 2.153% - 6.089% B+ to B
AQ8 6.089% - 17.222% B- to CCC+
AQ9 17.222% - 100% CCC to C
AQ10 100% D
£0.3 billion (31 December 2022 - £0.3 billion) of AQ10 Personal balances
primarily relate to loan commitments, the drawdown of which is effectively
prohibited.
(4) Not within the scope of EY's review report.
£0.3 billion (31 December 2022 - £0.3 billion) of AQ10 Personal balances
primarily relate to loan commitments, the drawdown of which is effectively
prohibited.
(4)
Not within the scope of EY's review report.
Risk and capital management
Credit risk - Banking activities continued
Sector analysis - portfolio summary (reviewed)
The table below shows ECL by stage, for the Personal portfolios and selected
sectors of the Wholesale portfolios.
Loans - amortised cost and FVOCI Off-balance sheet ECL provisions
Loan Contingent
Stage 1 Stage 2 Stage 3 Total commitments liabilities Stage 1 Stage 2 Stage 3 Total
30 June 2023 £m £m £m £m £m £m £m £m £m £m
Personal 197,606 22,969 3,089 223,664 40,689 45 293 455 1,086 1,834
Mortgages (1) 186,983 19,653 2,053 208,689 15,474 - 92 65 256 413
Credit cards 3,526 1,501 123 5,150 16,572 - 60 148 85 293
Other personal 7,097 1,815 913 9,825 8,643 45 141 242 745 1,128
Wholesale 138,756 20,471 2,361 161,588 90,965 4,505 368 536 819 1,723
Property 28,183 3,990 752 32,925 15,604 444 99 115 231 445
Financial institutions 48,468 695 36 49,199 18,610 1,288 36 10 14 60
Sovereigns 5,335 126 28 5,489 570 154.0 13 1 4 18
Corporate 56,770 15,660 1,545 73,975 56,181 2,619 220 410 570 1,200
Of which:
Agriculture 3,707 1,169 112 4,988 922 23 16 35 43 94
Airlines and aerospace 1,262 596 13 1,871 1,609 251 4 11 7 22
Automotive 6,642 837 30 7,509 4,120 86 21 18 12 51
Chemicals 390 55 1 446 806 12 2 1 1 4
Health 3,831 995 138 4,964 528 10 17 33 48 98
Industrials 2,407 811 79 3,297 3,080 182 9 20 21 50
Land transport and logistics 4,163 942 68 5,173 3,299 182 12 19 19 50
Leisure 3,973 3,145 240 7,358 2,021 171 30 109 91 230
Mining and metals 433 39 5 477 404 5 1 - 4 5
Oil and gas 915 94 29 1,038 1,912 258 3 2 28 33
Power utilities 4,597 355 46 4,998 8,979 528 11 14 7 32
Retail 5,505 1,797 232 7,533 4,515 358 22 39 87 148
Shipping 181 93 3 277 78 28 - 3 3 6
Water and waste 3,425 406 15 3,846 2,012 96 4 5 4 13
Total 336,362 43,440 5,450 385,252 131,654 4,550 661 991 1,905 3,557
31 December 2022
Personal 192,438 21,854 2,831 217,123 43,126 51 260 466 957 1,683
Mortgages (1) 182,245 18,787 1,925 202,957 18,782 - 81 62 233 376
Credit cards 3,275 1,076 109 4,460 15,848 - 62 122 73 257
Other personal 6,918 1,991 797 9,706 8,496 51 117 282 651 1,050
Wholesale 132,786 24,979 2,265 160,030 88,886 4,963 372 577 802 1,751
Property 27,542 4,316 716 32,574 15,302 491 107 105 229 441
Financial institutions 46,738 1,353 47 48,138 18,223 1,332 32 14 17 63
Sovereigns 5,458 157 26 5,641 710 - 15 1 3 19
Corporate 53,048 19,153 1,476 73,677 54,651 3,140 218 457 553 1,228
Of which:
Agriculture 3,646 1,034 93 4,773 968 24 21 31 43 95
Airlines and aerospace 483 1,232 19 1,734 1,715 174 2 40 8 50
Automotive 5,776 1,498 30 7,304 4,009 99 18 18 11 47
Chemicals 384 117 1 502 650 12 1 2 1 4
Health 3,974 1,008 141 5,123 475 8 19 30 48 97
Industrials 2,148 1,037 82 3,267 3,135 195 10 16 24 50
Land transport and logistics 3,788 1,288 66 5,142 3,367 190 13 33 17 63
Leisure 3,416 3,787 260 7,463 1,907 102 27 147 115 289
Mining and metals 173 230 5 408 545 5 - 1 5 6
Oil and gas 953 159 60 1,172 2,157 248 3 3 31 37
Power utilities 4,228 406 6 4,640 6,960 1,182 9 11 1 21
Retail 6,497 1,746 150 8,393 4,682 416 21 29 68 118
Shipping 161 151 14 326 110 22 - 7 6 13
Water and waste 3,026 335 7 3,368 2,143 101 4 4 4 12
Total 325,224 46,833 5,096 377,153 132,012 5,014 632 1,043 1,759 3,434
(1) As at 30 June 2023, £143.5 billion, 69%, of the total residential
mortgages portfolio had Energy Performance Certificate (EPC) data available
(31 December 2022 - £138.8 billion, 68%). Of which, 43% were rated as EPC A
to C (31 December 2022 - 42%).
Risk and capital management
Credit risk - Banking activities continued
Wholesale forbearance (reviewed)
The table below shows Wholesale forbearance, Heightened Monitoring and Risk of
Credit Loss by sector. Personal forbearance is disclosed in the Personal
portfolio section. This table shows current exposure but reflects risk
transfers where there is a guarantee by another customer.
Financial Other
Property institution Sovereign corporate Total
30 June 2023 £m £m £m £m £m
Forbearance (flow) 843 82 24 1,614 2,563
Forbearance (stock) 1,077 122 24 3,704 4,927
Heightened Monitoring and Risk of Credit Loss 1,198 304 - 4,183 5,685
31 December 2022
Forbearance (flow) 746 105 - 2,575 3,426
Forbearance (stock) 933 107 - 4,709 5,749
Heightened Monitoring and Risk of Credit Loss 976 112 - 3,445 4,533
- Loans by geography - In line with NatWest Group's strategic focus, exposures
continued to be mainly in the UK. Exposure to the Republic of Ireland
continued to reduce during H1 2023 as part of the phased withdrawal of Ulster
Bank RoI.
- Loans by stage - There was an increase in Stage 1 exposure due to mortgage
growth in Personal. An improvement in forward-looking economics meant a
smaller proportion of Wholesale accounts exhibited a SICR compared to 2022,
resulting in a migration of exposures from Stage 2 into Stage 1 during H1
2023.
- Loans - Past due analysis - In Personal, the value of arrears increased during
H1 2023 as expected with portfolio growth and subsequent adjustments to
lending criteria following the COVID-19 pandemic. In Wholesale, overall the
past due profile remained broadly stable.
- Weighted average 12 months PDs - Basel II PDs remained relatively unchanged
during H1 2023, reflecting stable credit performance in the portfolios. IFRS 9
PDs also remained broadly stable overall, with some modest increases in
Personal portfolios, most notably in credit cards which had a PD model update.
In Wholesale, some reductions were observed in PDs in corporate and property
portfolios, linked to the economic scenario update at 30 June 2023.
- ECL provision by geography - In line with loans by geography, the vast
majority of ECL related to exposures in the UK.
- ECL provisions by stage - Stage 2 provisions reduced during H1 2023,
reflecting continued strong credit performance of the portfolios and the
effect of H1 2023 MES scenario updates. Book growth was the key driver behind
an increase in Stage 1 provisions. As outlined above, Stage 3 provisions have
yet to be materially affected by the customer affordability risks linked to
the current economic uncertainty prevalent in the UK. However, there has been
an increase in Stage 3 linked to a modest rise in default levels and reduced
write-off activity.
- ECL provisions coverage - Overall provisions coverage remained broadly
consistent with 31 December 2022, mainly a result of continued stable
portfolio performance and MES economics-driven modelled ECL releases
contrasted with increased economic uncertainty, captured in ECL through post
model adjustments.
- The ECL charge and loss rate - The impairment charge for H1 2023 of £223
million primarily reflected the underlying Stage 3 charges as good book ECL
levels remaining broadly stable since 31 December 2022. The annualised loss
rate at 30 June 2023 was 12bps with the expectation that this will rise in H2
2023 due to increased customer defaults.
- Loans by residual maturity - The maturity profile of the portfolios remained
consistent with prior periods. In mortgages, as expected, the vast majority of
exposures were greater than five years. In unsecured lending - cards and other
- exposures were concentrated in less than five years. In Wholesale, financial
institutions and sovereigns lending was concentrated in less than one year.
For the rest of Wholesale, most of the lending was residual maturity of one to
five years.
- Other financial assets by asset quality - Consisting almost entirely of cash
and balances at central banks and debt securities held in the course of
treasury related management activities, these assets were mainly within the
AQ1-AQ4 bands.
- Off-balance sheet exposures by asset quality - In Personal, undrawn exposures
were reflective of available credit lines in credit cards and current
accounts. Additionally, the mortgage portfolio had undrawn exposures, where a
formal offer had been made to a customer but had not yet drawn down; the value
decreased in line with the pipeline of offers. There was also a legacy
portfolio of flexible mortgages where a customer had the right and ability to
draw down further funds. The asset quality was aligned to the wider portfolio.
In Wholesale, growth was primarily loan commitments to corporates in the
AQ5-AQ8 bands.
- Wholesale forbearance - Forbearance flow and stock decreased in H1 2023. The
retail and leisure, property and services sectors continued to represent the
largest share of forbearance. The high inflation environment, cost of living,
and supply chain issues continue to weigh on these sectors. Payment holidays
and covenant waivers were the most common forms of forbearance granted.
- Heightened Monitoring and Risk of Credit Loss - Economic headwinds continued
to drive an uncertain outlook. Heightened Monitoring and Risk of Credit Loss
stock increased in H1 2023. The sector breakdown of exposures within the
framework remained consistent with prior periods.
-
Loans by residual maturity - The maturity profile of the portfolios remained
consistent with prior periods. In mortgages, as expected, the vast majority of
exposures were greater than five years. In unsecured lending - cards and other
- exposures were concentrated in less than five years. In Wholesale, financial
institutions and sovereigns lending was concentrated in less than one year.
For the rest of Wholesale, most of the lending was residual maturity of one to
five years.
-
Other financial assets by asset quality - Consisting almost entirely of cash
and balances at central banks and debt securities held in the course of
treasury related management activities, these assets were mainly within the
AQ1-AQ4 bands.
-
Off-balance sheet exposures by asset quality - In Personal, undrawn exposures
were reflective of available credit lines in credit cards and current
accounts. Additionally, the mortgage portfolio had undrawn exposures, where a
formal offer had been made to a customer but had not yet drawn down; the value
decreased in line with the pipeline of offers. There was also a legacy
portfolio of flexible mortgages where a customer had the right and ability to
draw down further funds. The asset quality was aligned to the wider portfolio.
In Wholesale, growth was primarily loan commitments to corporates in the
AQ5-AQ8 bands.
-
Wholesale forbearance - Forbearance flow and stock decreased in H1 2023. The
retail and leisure, property and services sectors continued to represent the
largest share of forbearance. The high inflation environment, cost of living,
and supply chain issues continue to weigh on these sectors. Payment holidays
and covenant waivers were the most common forms of forbearance granted.
-
Heightened Monitoring and Risk of Credit Loss - Economic headwinds continued
to drive an uncertain outlook. Heightened Monitoring and Risk of Credit Loss
stock increased in H1 2023. The sector breakdown of exposures within the
framework remained consistent with prior periods.
Risk and capital management
Credit risk - Banking activities continued
Personal portfolio (reviewed)
Disclosures in the Personal portfolio section include drawn exposure (gross of
provisions).
30 June 2023 31 December 2022
Central Central
Retail Private Commercial & items Retail Private Commercial & items
Banking Banking Institutional & other Total Banking Banking Institutional & other Total
Personal lending £m £m £m £m £m £m £m £m £m £m
Mortgages 192,924 13,542 2,281 - 208,747 186,891 13,709 2,357 - 202,957
Of which:
Owner occupied 174,247 11,948 1,504 - 187,699 168,790 12,096 1,541 - 182,427
Buy-to-let 18,677 1,594 777 - 21,048 18,101 1,613 816 - 20,530
Interest only - variable 3,534 3,508 239 - 7,281 3,515 3,286 258 - 7,059
Interest only - fixed 18,217 8,404 249 - 26,870 17,954 8,591 261 - 26,806
Mixed (1) 10,160 1 12 - 10,173 9,768 1 16 - 9,785
ECL provisions (2) 388 8 8 - 404 355 9 6 - 370
Other personal lending (3) 12,915 1,761 251 93 15,020 11,935 1,853 267 143 14,198
ECL provisions (2) 1,365 21 2 30 1,418 1,257 15 3 26 1,301
Total personal lending 205,839 15,303 2,532 93 223,767 198,826 15,562 2,624 143 217,155
Mortgage LTV ratios
Total portfolio 55% 59% 56% - 55% 52% 59% 56% - 53%
- Stage 1 55% 59% 55% - 55% 52% 59% 56% - 53%
- Stage 2 56% 61% 59% - 56% 52% 61% 60% - 52%
- Stage 3 48% 60% 72% - 49% 45% 59% 74% - 47%
Buy-to-let 53% 59% 53% - 53% 50% 59% 53% - 51%
- Stage 1 53% 59% 52% - 53% 51% 59% 53% - 52%
- Stage 2 52% 56% 50% - 52% 49% 53% 48% - 49%
- Stage 3 49% 55% 56% - 51% 47% 55% 57% - 50%
Gross new mortgage lending 17,348 812 89 - 18,249 41,227 2,968 327 - 44,522
Of which:
Owner occupied 16,171 738 66 - 16,975 36,305 2,701 221 - 39,227
Weighted average LTV (4) 69% 64% 68% - 69% 69% 65% 65% - 69%
Buy-to-let 1,177 74 23 - 1,274 4,922 267 106 - 5,295
Weighted average LTV (4) 58% 65% 55% - 58% 64% 66% 60% - 64%
Interest only - variable rate 130 335 7 - 472 24 329 11 - 364
Interest only - fixed rate 1,334 366 7 - 1,707 5,299 2,335 51 - 7,685
Mixed (1) 912 - - - 912 2,309 - 2 - 2,311
Mortgage forbearance
Forbearance flow (5) 111 11 6 - 128 182 7 4 - 193
Forbearance stock 1,032 17 13 - 1,062 1,015 16 8 - 1,039
Current 623 6 7 - 636 649 8 6 - 663
1-3 months in arrears 171 8 3 - 182 133 - 2 - 135
> 3 months in arrears 238 4 3 - 245 233 8 - - 241
(1) Includes accounts which have an interest only sub-account and a capital and
interest sub-account to provide a more comprehensive view of interest only
exposures.
(2) Retail Banking excludes a non-material amount of provisions held on relatively
small legacy portfolios.
(3) Comprises unsecured lending except for Private Banking, which includes both
secured and unsecured lending. It excludes loans that are commercial in
nature.
(4) New mortgage lending LTV reflects the LTV at the time of lending.
(5) Forbearance flows only include an account once per year, although some
accounts may be subject to multiple forbearance deals. Forbearance deals post
default are excluded from these flows.
- Overall, mortgage portfolio growth continued in H1 2023, although new business
volumes fluctuated in line with uncertainty regarding interest rate
environment and product availability across the market.
- Portfolio LTV increased, partly due to the higher relative proportion of new
business from recent years' strong lending performance, but also, specifically
in H1 2023, easing of house prices reflected in house price indices.
- Credit quality of new business was maintained. Lending criteria and
affordability calculations and assumptions for new lending were adjusted
during H1 2023, considering inflationary pressure and interest rate rises, to
maintain credit quality in line with appetite and ensure customers are
assessed fairly.
- The existing mortgage stock and new business were closely monitored against
agreed risk appetite parameters. These included loan-to-value ratios,
buy-to-let concentrations, new-build concentrations and credit quality.
- Other personal lending balances increased in H1 2023 mainly a result of credit
card new business. Lending criteria were carefully managed and the credit
quality (based on new business PD) of the new business written in H1 2023
improved.
- Flows into forbearance increased gradually in H1 2023 as NatWest Group
continues to support customers, with portfolio growth also being a driver of
increased forbearance flows overall.
- As noted previously, ECL increased. For further details on the movements in
ECL provisions at product level, refer to the Flow statements section.
Risk and capital management
Credit risk - Banking activities continued
Personal portfolio (reviewed)
Mortgage LTV distribution by stage
The table below shows gross mortgage lending and related ECL by LTV band for
the Retail Banking portfolio. Mortgage lending not within the scope of
Governance and post-model adjustments reflected portfolios carried at fair
value.
Retail banking
Mortgages ECL provisions ECL provisions coverage (2)
Not Of
within which:
Stage Stage Stage IFRS 9 gross new Stage Stage Stage Total Stage Stage Stage
1 2 3 ECL scope Total lending 1 2 3 (1) 1 2 3 Total
30 June 2023 £m £m £m £m £m £m £m £m £m £m % % % %
≤50% 66,183 7,523 1,019 53 74,778 2,809 26 18 122 166 0.0 0.2 12.0 0.2
>50% and ≤70% 66,810 7,816 704 7 75,337 4,854 35 28 81 144 0.1 0.4 11.5 0.2
>70% and ≤80% 22,503 2,181 105 - 24,789 4,018 12 8 15 35 0.1 0.4 14.3 0.1
>80% and ≤90% 11,464 1,448 31 1 12,944 3,199 9 7 6 22 0.1 0.5 19.4 0.2
>90% and ≤100% 4,434 513 12 - 4,959 2,461 5 3 3 11 0.1 0.6 25.0 0.2
>100% 45 7 13 - 65 7 2 - 6 8 4.4 - 46.2 12.3
Total with LTVs 171,439 19,488 1,884 61 192,872 17,348 89 64 233 386 0.1 0.3 12.4 0.2
Other 110 1 1 - 112 - 2 - 1 3 1.8 - 100.0 2.7
Total 171,549 19,489 1,885 61 192,984 17,348 91 64 234 389 0.1 0.3 12.4 0.2
31 December 2022
≤50% 71,321 8,257 1,036 61 80,675 7,467 26 20 121 167 - 0.2 11.7 0.2
>50% and ≤70% 68,178 7,792 616 7 76,593 14,088 32 30 71 133 - 0.4 11.5 0.2
>70% and ≤80% 17,602 1,602 62 1 19,267 11,154 7 6 11 24 - 0.4 17.7 0.1
>80% and ≤90% 7,918 944 17 1 8,880 7,127 6 5 5 16 0.1 0.5 29.4 0.2
>90% and ≤100% 1,409 18 6 - 1,433 1,389 3 - 2 5 0.2 - 33.3 0.3
>100% 35 7 10 - 52 2 2 - 4 6 5.7 - 40.0 11.5
Total with LTVs 166,463 18,620 1,747 70 186,900 41,227 76 61 214 351 - 0.3 12.3 0.2
Other 59 1 1 - 61 - 3 - 1 4 5.1 - 100.0 6.6
Total 166,522 18,621 1,748 70 186,961 41,227 79 61 215 355 - 0.3 12.3 0.2
(1) Excludes a non-material amount of provisions held on relatively small legacy
portfolios.
(2) ECL provisions coverage is ECL provisions divided by mortgages
(3) LTVs used in this table reflect the LTV at the reporting date, including
changes in LTV after the date of new business due to repayments and indexation
of property.
- Overall LTV for the portfolio increased during H1 2023, reflecting the
easing of UK house prices, which was reflected in the increased exposure in
the higher LTV bands. ECL coverage levels were maintained across the LTV
bands.
Risk and capital management
Credit risk - Banking activities continued
Commercial real estate (CRE)
The CRE portfolio comprises exposures to entities involved in the development
of, or investment in, commercial and residential properties (including house
builders but excluding housing associations, construction and the building
materials sub-sector).
30 June 2023 31 December 2022
UK RoI Other Total UK RoI Other Total
By geography and sub-sector (1) £m £m £m £m £m £m £m £m
Investment
Residential (2) 4,698 4 6 4,708 4,583 2 13 4,598
Office (3) 2,682 4 - 2,686 2,781 10 - 2,791
Retail (4) 3,582 1 - 3,583 3,754 - - 3,754
Industrial (5) 3,137 - 128 3,265 2,939 - 184 3,123
Mixed/other (6) 919 7 44 970 876 7 46 929
15,018 16 178 15,212 14,933 19 243 15,195
Development
Residential (2) 1,752 2 - 1,754 1,693 7 - 1,700
Office (3) 46 - - 46 81 - - 81
Retail (4) 58 - - 58 56 - - 56
Industrial (5) 56 - - 56 90 - - 90
Mixed/other (6) 12 1 - 13 14 1 - 15
1,924 3 - 1,927 1,934 8 - 1,942
Total 16,942 19 178 17,139 16,867 27 243 17,137
(1) Geographical splits are based on country of collateral risk.
(2) Properties including houses, flats and student accommodation.
(3) Properties including offices in central business districts, regional
headquarters and business parks.
(4) Properties including high street retail, shopping centres, restaurants, bars
and gyms.
(5) Properties including distribution centres, manufacturing and warehouses.
(6) Properties that do not fall within the other categories above. Mixed generally
relates to a mixture of retail/office with residential.
Risk and capital management
Credit risk - Banking activities continued
Commercial real estate (reviewed)
CRE LTV distribution by stage
The table below shows CRE current exposure and related ECL by LTV band.
Gross loans ECL provisions ECL provisions coverage (2)
Not within
IFRS 9
Stage Stage Stage ECL Stage Stage Stage Stage Stage Stage
1 2 3 scope (1) Total 1 2 3 Total 1 2 3 Total
30 June 2023 £m £m £m £m £m £m £m £m £m % % % %
≤50% 7,136 951 61 3 8,151 34 14 12 60 0.5 1.5 19.7 0.7
>50% and ≤70% 3,399 582 66 2 4,049 20 26 18 64 0.6 4.5 27.3 1.6
>70% and ≤100% 182 114 200 2 498 2 3 31 36 1.1 2.6 15.5 7.2
>100% 216 17 41 - 274 1 1 14 16 0.5 5.9 34.1 5.8
Total with LTVs 10,933 1,664 368 7 12,972 57 44 75 176 0.5 2.6 20.4 1.4
Total portfolio
average LTV% 47% 50% 80% 50% 48%
Other (3) 1,703 493 51 64 2,311 7 18 22 47 0.4 3.7 43.1 2.0
Development (4) 1,733 141 53 3 1,930 14 4 24 42 0.8 2.8 45.3 2.2
Total 14,369 2,298 472 74 17,213 78 66 121 265 0.5 2.9 25.6 1.5
31 December 2022
≤50% 7,010 658 57 67 7,792 36 12 16 64 0.5 1.8 28.1 0.8
>50% and ≤70% 3,515 798 43 19 4,375 23 18 12 53 0.7 2.3 27.9 1.2
>70% and ≤100% 259 82 156 7 504 1 3 42 46 0.4 3.7 26.9 9.1
>100% 102 10 23 1 136 1 1 14 16 1.0 10.0 60.9 11.8
Total with LTVs 10,886 1,548 279 94 12,807 61 34 84 179 0.6 2.2 30.1 1.4
Total portfolio
average LTV% 45% 52% 75% 44% 47%
Other (3) 1,800 627 55 86 2,568 9 15 27 51 0.5 2.4 49.1 2.0
Development (4) 1,553 332 57 7 1,949 13 8 28 49 0.8 2.4 49.1 2.5
Total 14,239 2,507 391 187 17,324 83 57 139 279 0.6 2.3 35.6 1.6
(1) Includes exposures relating to non-modelled portfolios and other exposures
carried at fair value.
(2) ECL provisions coverage is ECL provisions divided by gross loans.
(3) Relates mainly to business banking, rate risk management products and
unsecured corporate lending.
(4) Relates to the development of commercial and residential properties. LTV is
not a meaningful measure for this type of lending activity.
- Overall - The majority of the CRE portfolio was located and managed
in the UK. Business appetite and strategy is aligned across NatWest Group.
- 2023 trends - H1 commenced with a fairly positive outlook as
commercial property markets had observed a relatively quick repricing in late
2022 with investors keen to commence purchase and sale activity. However, as
the economic outlook deteriorated over Q1 with higher interest rates, investor
sentiment weakened. This resulted in very limited market activity, with
residential build-to-rent being the exception.
- Credit quality - The CRE portfolio has been resilient to date
despite the fall in capital values and increase in rates, with no significant
increase to movements onto the Risk of Credit Loss framework.
- Risk appetite - Lending appetite is subject to regular review and is
adjusted to prevailing and projected market conditions. Following recent
market re-pricing, appetite increased for certain specific sub-sectors. As a
cashflow lender in the current interest rate environment, leverage is
typically capped by interest cover considerations.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
The flow statements that follow show the main ECL and related income statement
movements. They also show the changes in ECL as well as the changes in related
financial assets used in determining ECL. Due to differences in scope,
exposures may differ from those reported in other tables, principally in
relation to exposures in Stage 1 and Stage 2. These differences do not have a
material ECL effect. Other points to note:
- Financial assets include treasury liquidity portfolios, comprising
balances at central banks and debt securities, as well as loans. Both modelled
and non-modelled portfolios are included.
- Stage transfers (for example, exposures moving from Stage 1 into Stage
2) are a key feature of the ECL movements, with the net re-measurement cost of
transitioning to a worse stage being a primary driver of income statement
charges. Similarly, there is an ECL benefit for accounts improving stage.
- Changes in risk parameters shows the reassessment of the ECL within a
given stage, including any ECL overlays and residual income statement gains or
losses at the point of write-off or accounting write-down.
- Other (P&L only items) includes any subsequent changes in the
value of written-down assets (for example, fortuitous recoveries) along with
other direct write-off items such as direct recovery costs. Other (P&L
only items) affects the income statement but does not affect balance sheet ECL
movements.
- Amounts written-off represent the gross asset written-down against
accounts with ECL, including the net asset write-down for any debt sale
activity.
- There were flows from Stage 1 into Stage 3 including transfers due to
unexpected default events.
- The effect of any change in post model adjustments during the year is
typically reported under changes in risk parameters, as are any effects
arising from changes to the underlying models. Refer to the section on
Governance and post model adjustments for further details.
All movements are captured monthly and aggregated. Interest suspended post
default is included within Stage 3 ECL with the movement in the value of
suspended interest during the year reported under currency translation and
other adjustments.
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
NatWest Group total £m £m £m £m £m £m £m £m
At 1 January 2023 507,539 632 48,482 1,043 5,231 1,759 561,252 3,434
Currency translation and other adjustments (3,085) 4 (259) (4) 52 67 (3,292) 67
Transfers from Stage 1 to Stage 2 (25,420) (161) 25,420 161 - - - -
Transfers from Stage 2 to Stage 1 23,485 380 (23,485) (380) - - - -
Transfers to Stage 3 (156) (3) (1,723) (146) 1,879 149 - -
Transfers from Stage 3 185 18 320 27 (505) (45) - -
Net re-measurement of ECL on stage transfer (277) 406 129 258
Changes in risk parameters (model inputs) (33) (14) 123 76
Other changes in net exposure (21,643) 101 (4,134) (96) (1,003) (94) (26,780) (89)
Other (P&L only items) - - (22) (22)
Income statement (releases)/charges (209) 296 136 223
Transfers to disposal groups 11 - (4) (4) 11 4 18 -
Amounts written-off - - (2) (2) (120) (120) (122) (122)
Unwinding of discount - - (67) (67)
At 30 June 2023 480,916 661 44,615 991 5,545 1,905 531,076 3,557
Net carrying amount 480,255 43,624 3,640 527,519
At 1 January 2022 546,178 302 35,557 1,478 5,238 2,026 586,973 3,806
2022 movements (2,063) 106 (6,017) (356) 769 (41) (7,311) (291)
At 30 June 2022 544,115 408 29,540 1,122 6,007 1,985 579,662 3,515
Net carrying amount 543,707 - 28,418 - 4,022 - 576,147 -
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Retail Banking - mortgages £m £m £m £m £m £m £m £m
At 1 January 2023 165,264 79 18,831 61 1,762 215 185,857 355
Currency translation and other adjustments - - - - 34 34 34 34
Transfers from Stage 1 to Stage 2 (9,502) (7) 9,502 7 - - - -
Transfers from Stage 2 to Stage 1 7,105 15 (7,105) (15) - - - -
Transfers to Stage 3 (20) - (467) (3) 487 3 - -
Transfers from Stage 3 22 1 149 3 (171) (4) - -
Net re-measurement of ECL on stage transfer (10) 14 3 7
Changes in risk parameters (model inputs) 18 (1) 36 53
Other changes in net exposure 6,922 (5) (1,245) (2) (258) (24) 5,419 (31)
Other (P&L only items) - (1) (7) (8)
Income statement (releases)/charges 3 10 8 21
Amounts written-off - - - - (7) (7) (7) (7)
Unwinding of discount - - (22) (22)
At 30 June 2023 169,791 91 19,665 64 1,847 234 191,303 389
Net carrying amount 169,700 19,601 1,613 190,914
At 1 January 2022 159,966 24 10,748 155 1,267 250 171,981 429
2022 movements 6,169 33 (1,763) (79) 501 (38) 4,907 (84)
At 30 June 2022 166,135 57 8,985 76 1,768 212 176,888 345
Net carrying amount 166,078 - 8,909 - 1,556 - 176,543 -
- ECL levels for mortgages increased during H1 2023, reflecting
continued strong growth. While portfolio performance remained stable,
increased economic uncertainty is captured through ECL post model adjustments
(reflected in changes in risk parameters).
- There were net flows into Stage 2 from Stage 1 as PDs increased due to
moving closer to the forecasted unemployment peak, noting the latest MES
update reduction in unemployment peak will not result in exits from Stage 2
until Q3 2023 (due to the three month PD persistence rule in stage
allocation).
- The increase in the cost of living post model adjustment at 30 June
2023 proportionately allocated more ECL to Stage 1 given the forward-looking
nature of the cost of living and inflation threat. Refer to the Governance and
post model adjustments section for more information.
- The Stage 3 inflows remained broadly stable but there was a modest
increase in Stage 3 ECL overall, partly linked to recent house price index
deterioration. The relatively small ECL cost for net re-measurement on stage
transfer included the effect of risk targeted ECL adjustments, when previously
in the good book. Refer to the Governance and post model adjustments section
for further details.
- Write-off occurs once the repossessed property has been sold and there
is a residual shortfall balance remaining outstanding. This would typically be
within five years from default but can be longer. Given repossession activity
remains subdued relative to pre-COVID-19 levels, write-offs remained at a
lower level.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Retail Banking - credit cards £m £m £m £m £m £m £m £m
At 1 January 2023 3,062 61 1,098 120 113 71 4,273 252
Currency translation and other adjustments - - - - 2 3 2 3
Transfers from Stage 1 to Stage 2 (862) (21) 862 21 - - - -
Transfers from Stage 2 to Stage 1 330 24 (330) (24) - - - -
Transfers to Stage 3 (11) - (54) (23) 65 23 - -
Transfers from Stage 3 1 1 3 1 (4) (2) - -
Net re-measurement of ECL on stage transfer (15) 77 17 79
Changes in risk parameters (model inputs) 6 (2) 8 12
Other changes in net exposure 660 3 (59) (25) (17) (1) 584 (23)
Other (P&L only items) - 1 (1) -
Income statement (releases)/charges (6) 51 23 68
Amounts written-off - - - - (33) (33) (33) (33)
Unwinding of discount - - (3) (3)
At 30 June 2023 3,180 59 1,520 145 126 83 4,826 287
Net carrying amount 3,121 1,375 43 4,539
At 1 January 2022 2,740 58 947 141 91 60 3,778 259
2022 movements 64 6 77 (28) 17 8 158 (14)
At 30 June 2022 2,804 64 1,024 113 108 68 3,936 245
Net carrying amount 2,740 - 911 - 40 - 3,691 -
- The overall increase in ECL was mainly due to the increase in Stage 2
ECL.
- While portfolio performance remained stable, a net flow into Stage 2
from Stage 1 is observed as PDs increase as the forecasted unemployment peak
moves closer and PD modelling updates capture more economic downside.
- Credit card balances have continued to grow since the 2022 year end,
in line with industry trends in the UK, reflecting strong customer demand,
while sustaining robust risk appetite.
- Reflecting the strong credit performance observed during H1 2023,
Stage 3 inflows remained stable and therefore Stage 3 ECL movement was modest
in H1 2023.
- Charge-off (analogous to partial write-off) typically occurs after 12
missed payments.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Retail Banking - other personal unsecured £m £m £m £m £m £m £m £m
At 1 January 2023 4,784 111 2,028 269 779 631 7,591 1,011
Currency translation and other adjustments - (1) - - 12 12 12 11
Transfers from Stage 1 to Stage 2 (1,450) (59) 1,450 59 - - - -
Transfers from Stage 2 to Stage 1 1,178 165 (1,178) (165) - - - -
Transfers to Stage 3 (25) (1) (162) (64) 187 65 - -
Transfers from Stage 3 3 2 11 4 (14) (6) - -
Net re-measurement of ECL on stage transfer (118) 165 26 73
Changes in risk parameters (model inputs) (22) (10) 49 17
Other changes in net exposure 586 55 (268) (28) (51) (18) 267 9
Other (P&L only items) - - 5 5
Income statement (releases)/charges (85) 127 62 104
Amounts written-off - - - - (23) (23) (23) (23)
Unwinding of discount - - (15) (15)
At 30 June 2023 5,076 132 1,881 230 890 721 7,847 1,083
Net carrying amount 4,944 1,651 169 6,764
At 1 January 2022 4,548 52 1,967 294 629 540 7,144 886
2022 movements 272 11 (194) (64) 104 75 182 22
At 30 June 2022 4,820 63 1,773 230 733 615 7,326 908
Net carrying amount 4,757 - 1,543 - 118 - 6,418 -
- Total ECL increased mainly in Stage 3. While default levels were
stable, they were higher than in 2022 in absolute terms. This increase was in
line with post-COVID-19 portfolio growth alongside robust risk appetite and,
given write-off levels are lower during 2023 so far, ECL levels have also
risen.
- While portfolio performance remains stable, a net flow into Stage 2
from Stage 1 is observed as PDs increase as the forecasted unemployment peak
moves closer. The lower forecast unemployment peak in the latest MES economics
dampened the net effect of stage migrations on ECL, primarily through reducing
PDs on existing Stage 2 cases.
- Unsecured retail balances have grown since the 2022 year end, in line
with industry trends in the UK, as unsecured borrowing demand continues.
- Write-off occurs once recovery activity with the customer has been
concluded or there are no further recoveries expected, but no later than six
years after default.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Commercial & Institutional total £m £m £m £m £m £m £m £m
At 1 January 2023 160,352 342 24,711 534 2,198 747 187,261 1,623
Currency translation and other adjustments (2,069) 2 (249) (2) 9 18 (2,309) 18
Inter-group transfers - - - - - - - -
Transfers from Stage 1 to Stage 2 (12,526) (69) 12,526 69 - - - -
Transfers from Stage 2 to Stage 1 13,546 167 (13,546) (167) - - - -
Transfers to Stage 3 (45) (1) (900) (40) 945 41 - -
Transfers from Stage 3 111 16 147 16 (258) (32) - -
Net re-measurement of ECL on stage transfer (128) 136 76 84
Changes in risk parameters (model inputs) (41) (11) 31 (21)
Other changes in net exposure 2,802 45 (2,345) (27) (572) (43) (115) (25)
Other (P&L only items) - - (18) (18)
Income statement releases (124) 98 46 20
Amounts written-off - - (1) (1) (49) (49) (50) (50)
Unwinding of discount - - (24) (24)
At 30 June 2023 162,171 333 20,343 507 2,273 765 184,787 1,605
Net carrying amount 161,838 19,836 1,508 183,182
At 1 January 2022 152,224 129 19,731 785 2,155 750 174,110 1,664
2022 movements 10,103 56 (2,962) (154) 199 (44) 7,340 (142)
At 30 June 2022 162,327 185 16,769 631 2,354 706 181,450 1,522
Net carrying amount 162,142 - 16,138 - 1,648 - 179,928 -
- There was a modest decrease in ECL levels during H1 2023, with
reductions in modelled ECL from improving economic variables and risk metrics
offset by increases in post model adjustments to capture increased economic
uncertainty.
- Stage 2 exposure and ECL reduced, reflecting improving economic
variables and risk metrics which lowered PDs and led to significant transfers
of exposure and ECL from Stage 2 into Stage 1. The ECL reduction was partially
offset by charges, the majority of which were from increases in post model
adjustments, with the PD downgrade adjustment resulting in transfers from
Stage 1 into Stage 2 and increased ECL on stage transfer, from moving from a
12 month ECL to a lifetime ECL.
- Stage 3 inflows remained stable. There was a modest increase in Stage
3 ECL overall with increases from transfers and charges largely offset by
write-offs.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Commercial & Institutional - corporate £m £m £m £m £m £m £m £m
At 1 January 2023 49,288 210 18,779 423 1,397 497 69,464 1,130
Currency translation and other adjustments (455) 3 (198) (3) 11 10 (642) 10
Inter-group transfers 3 - (17) - (7) (1) (21) (1)
Transfers from Stage 1 to Stage 2 (9,015) (52) 9,015 52 - - - -
Transfers from Stage 2 to Stage 1 9,322 127 (9,322) (127) - - - -
Transfers to Stage 3 (35) (1) (642) (31) 677 32 - -
Transfers from Stage 3 74 12 112 12 (186) (24) - -
Net re-measurement of ECL on stage transfer (99) 98 58 57
Changes in risk parameters (model inputs) (21) (20) 22 (19)
Other changes in net exposure 5,386 32 (2,179) (18) (433) (35) 2,774 (21)
Other (P&L only items) - (1) (18) (19)
Income statement (releases)/charges (88) 59 27 (2)
Amounts written-off - - (1) (1) (26) (26) (27) (27)
Unwinding of discount - - (18) (18)
At 30 June 2023 54,568 211 15,547 385 1,433 515 71,548 1,111
Net carrying amount 54,357 15,162 918 70,437
- There was a modest decrease in ECL levels during H1 2023, with
reductions in modelled ECL from improving economic variables and risk metrics
offset by increases in post model adjustments to capture increased economic
uncertainty.
- Stage 2 exposure and ECL reduced, reflecting improving economic
variables and risk metrics which lowered PDs, with the net effect of stage
transfers leading to a reduction in ECL. The ECL reduction was partially
offset by charges, the majority of which, were from increases in post model
adjustments.
- Stage 3 inflows remained stable with the small increase in exposure
largely attributable to government scheme lending. There was a modest increase
in Stage 3 ECL overall with increases from transfers and charges partially
offset by write-offs.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Commercial & Institutional - property £m £m £m £m £m £m £m £m
At 1 January 2023 26,134 100 4,301 96 642 220 31,077 416
Currency translation and other adjustments (8) - (10) - - 7 (18) 7
Inter-group transfers 2 - 12 - 7 1 21 1
Transfers from Stage 1 to Stage 2 (2,567) (15) 2,567 15 - - - -
Transfers from Stage 2 to Stage 1 2,290 30 (2,290) (30) - - - -
Transfers to Stage 3 (9) (1) (248) (9) 257 10 - -
Transfers from Stage 3 27 3 32 4 (59) (7) - -
Net re-measurement of ECL on stage transfer (21) 33 17 29
Changes in risk parameters (model inputs) (16) 9 3 (4)
Other changes in net exposure 440 11 (454) (7) (97) (7) (111) (3)
Other (P&L only items) - - 1 1
Income statement (releases)/charges (26) 35 14 23
Amounts written-off - - - - (19) (19) (19) (19)
Unwinding of discount - - (5) (5)
At 30 June 2023 26,309 91 3,910 111 731 220 30,950 422
Net carrying amount 26,218 3,799 511 30,528
- There was a modest increase in ECL levels during H1 2023, with
reductions in modelled ECL from improving economic variables and risk metrics
offset by increases in post model adjustments to capture increased economic
uncertainty.
- Stage 2 exposure reduced reflecting improving economic variables and
risk metrics which lowered PDs, with the net effect of stage transfers leading
to a reduction in ECL.
- Stage 2 ECL increased due to economic uncertainty post model
adjustments which more than offset reductions from stage transfers.
- Stage 3 inflows increased due to an uptick in defaults but this did
not lead to a change in ECL with increases from transfers and charges offset
by write-offs.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Commercial & Institutional - other £m £m £m £m £m £m £m £m
At 1 January 2023 84,930 32 1,631 15 159 30 86,720 77
Currency translation and other adjustments (1,606) - (40) - (2) 2 (1,648) 2
Inter-group transfers (5) - 5 - - - - -
Transfers from Stage 1 to Stage 2 (944) (2) 944 2 - - - -
Transfers from Stage 2 to Stage 1 1,934 10 (1,934) (10) - - - -
Transfers to Stage 3 - - (11) - 11 - - -
Transfers from Stage 3 10 1 3 - (13) (1) - -
Net re-measurement of ECL on stage transfer (9) 5 1 (3)
Changes in risk parameters (model inputs) (3) - 5 2
Other changes in net exposure (3,025) 2 288 (1) (41) (1) (2,778) -
Other (P&L only items) - - - -
Income statement (releases)/charges (10) 4 5 (1)
Amounts written-off - - - - (5) (5) (5) (5)
Unwinding of discount - - (1) (1)
At 30 June 2023 81,294 31 886 11 109 30 82,289 72
Net carrying amount 81,263 875 79 82,217
- There was a modest decrease in ECL levels during H1 2023, with
reductions in modelled ECL from improving economic variables and risk metrics
partially offset by increases in post model adjustments to capture increased
economic uncertainty.
- Stage 2 exposure and ECL reduced, reflecting improving economic
variables and risk metrics which lowered PDs and led to significant transfers
of exposure and ECL from Stage 2 into Stage 1.
Risk and capital management
Credit risk - Banking activities continued
Stage 2 decomposition by a significant increase in credit risk trigger
The tables that follow show decomposition for the Personal and Wholesale
portfolios.
UK mortgages Credit cards Other Total
30 June 2023 £m % £m % £m % £m %
Personal trigger (1)
PD movement 9,799 49.9 1,163 77.4 937 51.6 11,899 51.8
PD persistence 8,349 42.5 265 17.7 417 23.0 9,031 39.3
Adverse credit bureau recorded with
credit reference agency 935 4.8 49 3.3 89 4.9 1,073 4.7
Forbearance support provided 98 0.5 1 0.1 12 0.7 111 0.5
Customers in collections 185 0.9 2 0.1 6 0.3 193 0.8
Collective SICR and other reasons (2) 183 0.9 21 1.4 337 18.6 541 2.4
Days past due >30 104 0.5 - - 17 0.9 121 0.5
19,653 100 1,501 100 1,815 100 22,969 100
31 December 2022
Personal trigger (1)
PD movement 16,477 87.7 814 75.7 1,129 56.7 18,420 84.3
PD persistence 866 4.6 200 18.6 186 9.3 1,252 5.7
Adverse credit bureau recorded with
credit reference agency 929 4.9 52 4.8 96 4.8 1,077 4.9
Forbearance support provided 101 0.5 1 0.1 17 0.9 119 0.5
Customers in collections 153 0.8 2 0.2 4 0.2 159 0.7
Collective SICR and other reasons (2) 195 1.0 7 0.7 546 27.4 748 3.4
Days past due >30 66 0.4 - - 13 0.7 79 0.4
18,787 100 1,076 100 1,991 100 21,854 100
For the notes to the table refer to the following page.
- The levels of PD driven deterioration decreased in H1 2023, mainly in
the mortgage portfolio. The economic scenario update at H1 2023 resulted in a
reduction in lifetime PDs for the mortgage and personal loan portfolios, which
has driven a segment of lower risk cases out of PD SICR deterioration (and now
captured in three month PD persistence).
- The PD modelling update on the credit card portfolio resulted in more
downside risk captured through modelled ECL and lead to more PD SICR
deterioration being captured at 30 June 2023.
Risk and capital management
Credit risk - Banking activities continued
Stage 2 decomposition by a significant increase in credit risk trigger
Property Corporate Financial institutions Sovereign Total
30 June 2023 £m % £m % £m % £m % £m %
Wholesale trigger (1)
PD movement 2,633 65.9 11,733 74.9 406 58.4 1 0.8 14,773 72.3
PD persistence 119 3.0 329 2.1 5 0.7 - - 453 2.2
Risk of credit loss 722 18.1 2,016 12.9 146 21.0 104 82.5 2,988 14.6
Forbearance support provided 40 1.0 418 2.7 - - - - 458 2.2
Customers in collections 8 0.2 35 0.2 - - - - 43 0.2
Collective SICR and other
reasons (2) 198 5.0 751 4.8 84 12.1 19 15.1 1,052 5.1
Days past due >30 270 6.8 378 2.4 54 7.8 2 1.6 704 3.4
3,990 100 15,660 100 695 100 126 100 20,471 100
31 December 2022
Wholesale trigger (1)
PD movement 2,807 65.0 15,645 81.7 1,231 91.0 79 50.3 19,762 79.2
PD persistence 88 2.0 263 1.4 5 0.4 - - 356 1.4
Risk of credit loss 618 14.4 1,587 8.3 32 2.4 55 35.0 2,292 9.2
Forbearance support provided 44 1.0 473 2.5 19 1.4 - - 536 2.1
Customers in collections 13 0.3 44 0.2 - - - - 57 0.2
Collective SICR and other
reasons (2) 575 13.3 946 4.9 64 4.7 16 10.2 1,601 6.4
Days past due >30 171 4.0 195 1.0 2 0.1 7 4.5 375 1.5
4,316 100 19,153 100 1,353 100 157 100 24,979 100
(1) The table is prepared on a hierarchical basis from top to bottom,
for example, accounts with PD deterioration may also trigger backstop(s) but
are only reported under PD deterioration.
(2) Includes cases where a PD assessment cannot be made and accounts
where the PD has deteriorated beyond a prescribed backstop threshold aligned
to risk management practices.
- PD deterioration continued to be the primary trigger of migration of
exposures from Stage 1 into Stage 2. There was a reduction in cases triggering
PD deterioration reflecting the economic scenario update at H1 2023 and
positive portfolio performance which lowered PDs. Customers that triggered
SICR due to post model adjustments for sector-level downgrades were also
captured in the PD movement category.
- Moving exposures on to the Risk of Credit Loss framework remained an
important backstop indicator of a SICR. The exposures classified under the
Stage 2 Risk of Credit Loss framework increased over the period reflecting
economic headwinds and the lower capture in PD deterioration category.
- There was an increase in customers meeting the >30 days past due
trigger where since the regulatory definition of default changes all customer
borrowing was categorised as past due.
Risk and capital management
Credit risk - Banking activities continued
Asset quality (reviewed)
The table below shows asset quality bands of gross loans and ECL, by stage,
for the Personal portfolio.
Gross loans ECL provisions ECL provisions coverage
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
30 June 2023 £m £m £m £m £m £m £m £m % % % %
UK mortgages
AQ1-AQ4 116,722 8,845 - 125,567 54 24 - 78 0.05 0.27 - 0.06
AQ5-AQ8 70,112 10,114 - 80,226 38 37 - 75 0.05 0.37 - 0.09
AQ9 149 694 - 843 - 4 - 4 - 0.58 - 0.47
AQ10 - - 2,053 2,053 - - 256 256 - - 12.47 12.47
186,983 19,653 2,053 208,689 92 65 256 413 0.05 0.33 12.47 0.20
Credit cards
AQ1-AQ4 143 - - 143 1 - - 1 0.70 - - 0.70
AQ5-AQ8 3,375 1,454 - 4,829 58 137 - 195 1.72 9.42 - 4.04
AQ9 8 47 - 55 1 11 - 12 12.50 23.40 - 21.82
AQ10 - - 123 123 - - 85 85 - - 69.11 69.11
3,526 1,501 123 5,150 60 148 85 293 1.70 9.86 69.11 5.69
Other personal
AQ1-AQ4 966 118 - 1,084 12 17 - 29 1.24 14.41 - 2.68
AQ5-AQ8 6,090 1,564 - 7,654 125 185 - 310 2.05 11.83 - 4.05
AQ9 41 133 - 174 4 40 - 44 9.76 30.08 - 25.29
AQ10 - - 913 913 - - 745 745 - - 81.60 81.60
7,097 1,815 913 9,825 141 242 745 1,128 1.99 13.33 81.60 11.48
Total
AQ1-AQ4 117,831 8,963 - 126,794 67 41 - 108 0.06 0.46 - 0.09
AQ5-AQ8 79,577 13,132 - 92,709 221 359 - 580 0.28 2.73 - 0.63
AQ9 198 874 - 1,072 5 55 - 60 2.53 6.29 - 5.60
AQ10 - - 3,089 3,089 - - 1,086 1,086 - - 35.16 35.16
197,606 22,969 3,089 223,664 293 455 1,086 1,834 0.15 1.98 35.16 0.82
Risk and capital management
Credit risk - Banking activities continued
Asset quality (reviewed)
Gross loans ECL provisions ECL provisions coverage
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
31 December 2022 £m £m £m £m £m £m £m £m % % % %
UK mortgages
AQ1-AQ4 116,559 9,208 - 125,767 45 24 - 69 0.04 0.26 - 0.05
AQ5-AQ8 65,510 8,962 - 74,472 36 34 - 70 0.05 0.38 - 0.09
AQ9 176 617 - 793 - 4 - 4 - 0.65 - 0.50
AQ10 - - 1,925 1,925 - - 233 233 - - 12.10 12.10
182,245 18,787 1,925 202,957 81 62 233 376 0.04 0.33 12.10 0.19
Credit cards
AQ1-AQ4 98 - - 98 - - - - - - - -
AQ5-AQ8 3,172 1,036 - 4,208 61 112 - 173 1.92 10.81 - 4.11
AQ9 5 40 - 45 1 10 - 11 20.00 25.00 - 24.44
AQ10 - - 109 109 - - 73 73 - - 66.97 66.97
3,275 1,076 109 4,460 62 122 73 257 1.89 11.34 66.97 5.76
Other personal
AQ1-AQ4 1,047 128 - 1,175 11 17 - 28 1.05 13.28 - 2.38
AQ5-AQ8 5,843 1,732 - 7,575 104 224 - 328 1.78 12.93 - 4.33
AQ9 28 131 - 159 2 41 - 43 7.14 31.30 - 27.04
AQ10 - - 797 797 - - 651 651 - - 81.68 81.68
6,918 1,991 797 9,706 117 282 651 1,050 1.69 14.16 81.68 10.82
Total
AQ1-AQ4 117,704 9,336 - 127,040 56 41 - 97 0.05 0.44 - 0.08
AQ5-AQ8 74,525 11,730 - 86,255 201 370 - 571 0.27 3.15 - 0.66
AQ9 209 788 - 997 3 55 - 58 1.44 6.98 - 5.82
AQ10 - - 2,831 2,831 - - 957 957 - - 33.80 33.80
192,438 21,854 2,831 217,123 260 466 957 1,683 0.14 2.13 33.80 0.78
- In the Personal portfolio, the majority of exposures were in AQ4 and AQ5
within mortgages. The higher proportion of UK mortgage loans in bands AQ5-AQ8
was reflected in the overall average Basel PD for mortgages marginally
increasing from 0.65% to 0.66%. AQ band distributions for unsecured lending
remained stable.
- In other personal, the relatively high level of exposures in AQ10 reflected
that impaired assets can be held on the balance sheet, with commensurate ECL
provision, for up to six years after default.
Risk and capital management
Credit risk - Banking activities continued
Asset quality (reviewed)
The table below shows asset quality bands of gross loans and ECL, by stage,
for the Wholesale portfolio.
Gross loans ECL provisions ECL provisions coverage
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
30 June 2023 £m £m £m £m £m £m £m £m % % % %
Property
AQ1-AQ4 14,402 655 - 15,057 13 6 - 19 0.09 0.92 - 0.13
AQ5-AQ8 13,770 3,223 - 16,993 86 100 - 186 0.62 3.10 - 1.09
AQ9 11 112 - 123 - 9 - 9 - 8.04 - 7.32
AQ10 - - 752 752 - - 231 231 - - 30.72 30.72
28,183 3,990 752 32,925 99 115 231 445 0.35 2.88 30.72 1.35
Corporate
AQ1-AQ4 20,919 2,963 - 23,882 26 24 - 50 0.12 0.81 - 0.21
AQ5-AQ8 35,818 12,450 - 48,268 194 368 - 562 0.54 2.96 - 1.16
AQ9 33 247 - 280 - 18 - 18 - 7.29 - 6.43
AQ10 - - 1,545 1,545 - - 570 570 - - 36.89 36.89
56,770 15,660 1,545 73,975 220 410 570 1,200 0.39 2.62 36.89 1.62
Financial institutions
AQ1-AQ4 45,714 332 - 46,046 23 1 - 24 0.05 0.30 - 0.05
AQ5-AQ8 2,746 353 - 3,099 13 9 - 22 0.47 2.55 - 0.71
AQ9 8 10 - 18 - - - - - - - -
AQ10 - - 36 36 - - 14 14 - - 38.89 38.89
48,468 695 36 49,199 36 10 14 60 0.07 1.44 38.89 0.12
Sovereign
AQ1-AQ4 5,115 123 - 5,238 13 1 - 14 0.25 0.81 - 0.27
AQ5-AQ8 220 3 - 223 - - - - - - - -
AQ 9 - - - - - - - - - - - -
AQ10 - - 28 28 - - 4 4 - - 14.29 14.29
5,335 126 28 5,489 13 1 4 18 0.24 0.79 14.29 0.33
Total
AQ1-AQ4 86,150 4,073 - 90,223 75 32 - 107 0.09 0.79 - 0.12
AQ5-AQ8 52,554 16,029 - 68,583 293 477 - 770 0.56 2.98 - 1.12
AQ9 52 369 - 421 - 27 - 27 - 7.32 - 6.41
AQ10 - - 2,361 2,361 - - 819 819 - - 34.69 34.69
138,756 20,471 2,361 161,588 368 536 819 1,723 0.27 2.62 34.69 1.07
Risk and capital management
Credit risk - Banking activities continued
Asset quality (reviewed)
Gross loans ECL provisions ECL provisions coverage
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
31 December 2022 £m £m £m £m £m £m £m £m % % % %
Property
AQ1-AQ4 14,818 600 - 15,418 17 4 - 21 0.11 0.67 - 0.14
AQ5-AQ8 12,712 3,618 - 16,330 90 95 - 185 0.71 2.63 - 1.13
AQ9 12 98 - 110 - 6 - 6 - 6.12 - 5.45
AQ10 - - 716 716 - - 229 229 - - 31.98 31.98
27,542 4,316 716 32,574 107 105 229 441 0.39 2.43 31.98 1.35
Corporate
AQ1-AQ4 17,447 5,184 - 22,631 23 37 - 60 0.13 0.71 - 0.27
AQ5-AQ8 35,567 13,643 - 49,210 195 398 - 593 0.55 2.92 - 1.21
AQ9 34 326 - 360 - 22 - 22 - 6.75 - 6.11
AQ10 - - 1,476 1,476 - - 553 553 - - 37.47 37.47
53,048 19,153 1,476 73,677 218 457 553 1,228 0.41 2.39 37.47 1.67
Financial institutions
AQ1-AQ4 44,257 914 - 45,171 18 5 - 23 0.04 0.55 - 0.05
AQ5-AQ8 2,479 429 - 2,908 14 9 - 23 0.56 2.10 - 0.79
AQ9 2 10 - 12 - - - - - - - -
AQ10 - - 47 47 - - 17 17 - - 36.17 36.17
46,738 1,353 47 48,138 32 14 17 63 0.07 1.03 36.17 0.13
Sovereign
AQ1-AQ4 5,319 75 - 5,394 15 1 - 16 0.28 1.33 - 0.30
AQ5-AQ8 139 82 - 221 - - - - - - - -
AQ9 - - - - - - - - - - - -
AQ10 - - 26 26 - - 3 3 - - 11.54 11.54
5,458 157 26 5,641 15 1 3 19 0.27 0.64 11.54 0.34
Total
AQ1-AQ4 81,841 6,773 - 88,614 73 47 - 120 0.09 0.69 - 0.14
AQ5-AQ8 50,897 17,772 - 68,669 299 502 - 801 0.59 2.82 - 1.17
AQ9 48 434 - 482 - 28 - 28 - 6.45 - 5.81
AQ10 - - 2,265 2,265 - - 802 802 - - 35.41 35.41
132,786 24,979 2,265 160,030 372 577 802 1,751 0.28 2.31 35.41 1.09
- Across the Wholesale portfolio, asset quality remained stable. The
majority of the portfolio is within the AQ1-AQ4, and AQ5-AQ8 bands.
Distribution differs across segments reflective of the underlying quality of
counterparties, with financial institutions and sovereigns mostly in the
AQ1-AQ4 bands, and property and corporates mostly in the AQ5-AQ8 bands.
- Customer credit grades were reassessed as and when a request for
financing was made, a scheduled customer credit review was performed or a
material credit event specific to that customer occurred. Credit grades are
reassessed for all customers at least annually.
- ECL provisions coverage showed the expected trend, with increased
coverage in the weaker asset quality bands within Stage 2 compared to Stage 1,
and again within Stage 3 compared to Stage 2.
Risk and capital management
Credit risk - Trading activities
This section details the credit risk profile of NatWest Group's trading
activities.
Securities financing transactions and collateral (reviewed)
The table below shows securities financing transactions in Commercial &
Institutional and Central items & Other. Balance sheet captions include
balances held at all classifications under IFRS.
Reverse repos Repos
Of which: Outside Of which: Outside
can be netting can be netting
Total offset arrangements Total offset arrangements
30 June 2023 £m £m £m £m £m £m
Gross 76,144 75,855 289 72,458 71,945 513
IFRS offset (33,097) (33,097) - (33,097) (33,097) -
Carrying value 43,047 42,758 289 39,361 38,848 513
Master netting arrangements (2,045) (2,045) - (2,045) (2,045) -
Securities collateral (39,091) (39,091) - (36,803) (36,803) -
Potential for offset not recognised under IFRS (41,136) (41,136) - (38,848) (38,848) -
Net 1,911 1,622 289 513 - 513
31 December 2022
Gross 61,775 61,241 534 55,226 50,743 4,483
IFRS offset (20,211) (20,211) - (20,211) (20,211) -
Carrying value 41,564 41,030 534 35,015 30,532 4,483
Master netting arrangements (2,445) (2,445) - (2,445) (2,445) -
Securities collateral (38,387) (38,387) - (28,087) (28,087) -
Potential for offset not recognised under IFRS (40,832) (40,832) - (30,532) (30,532) -
Net 732 198 534 4,483 - 4,483
Risk and capital management
Credit risk - Trading activities continued
Derivatives (reviewed)
The table below shows derivatives by type of contract. The master netting
agreements and collateral shown do not result in a net presentation on the
balance sheet under IFRS. A significant proportion of the derivatives relate
to trading activities in Commercial & Institutional. The table also
includes hedging derivatives in Central items & Other.
30 June 2023 31 December 2022
Notional
GBP USD EUR Other Total Assets Liabilities Notional Assets Liabilities
£bn £bn £bn £bn £bn £m £m £bn £m £m
Gross exposure 104,122 102,983 118,275 116,158
IFRS offset (22,249) (25,737) (18,730) (22,111)
Carrying value 3,194 3,728 5,773 1,121 13,816 81,873 77,246 13,925 99,545 94,047
Of which:
Interest rate (1) 2,900 2,373 5,277 261 10,811 50,730 46,895 10,742 53,480 48,535
Exchange rate 292 1,352 488 860 2,992 30,938 30,106 3,168 45,829 45,237
Credit 2 3 8 - 13 205 245 15 236 275
Carrying value 13,816 81,873 77,246 13,925 99,545 94,047
Counterparty mark-to-market netting (62,547) (62,547) (77,365) (77,365)
Cash collateral (12,380) (7,580) (14,079) (9,761)
Securities collateral (4,465) (1,540) (4,571) (1,185)
Net exposure 2,481 5,579 3,530 5,736
Banks (2) 263 806 648 711
Other financial institutions (3) 1,252 1,899 1,732 1,969
Corporate (4) 910 2,840 1,068 2,969
Government (5) 56 34 82 87
Net exposure 2,481 5,579 3,530 5,736
UK 1,111 3,150 1,271 2,878
Europe 672 1,690 1,196 2,015
US 592 546 753 626
RoW 106 193 310 217
Net exposure 2,481 5,579 3,530 5,736
Asset quality of uncollateralised
derivative assets
AQ1-AQ4 2,056 3,014
AQ5-AQ8 422 500
AQ9-AQ10 3 16
Net exposure 2,481 3,530
(1) The notional amount of interest rate derivatives included £8,006
billion (31 December 2022 - £8,065 billion) in respect of contracts cleared
through central clearing counterparties
(2) Transactions with certain counterparties with whom NatWest Group
has netting arrangements but collateral is not posted on a daily basis;
certain transactions with specific terms that may not fall within netting and
collateral arrangements; derivative positions in certain jurisdictions where
the collateral agreements are not deemed to be legally enforceable.
(3) Includes transactions with securitisation vehicles and funds where
collateral posting is contingent on NatWest Group's external rating.
(4) Mainly large corporates with whom NatWest Group may have netting
arrangements in place, but operational capability does not support collateral
posting.
(5) Sovereigns and supranational entities with no collateral
arrangements, collateral arrangements that are not considered enforceable, or
one-way collateral agreements in their favour.
Risk and capital management
Credit risk - Trading activities continued
Debt securities (reviewed)
The table below shows debt securities held at mandatory fair value through
profit or loss by issuer as well as ratings based on the lowest of Standard
& Poor's, Moody's and Fitch.
Central and local government Financial
UK US Other institutions Corporate Total
30 June 2023 £m £m £m £m £m £m
AAA - - 1,452 936 - 2,388
AA to AA+ - 5,478 1,596 1,290 3 8,367
A to AA- 2,703 - 382 511 102 3,698
BBB- to A- - - 1,415 227 645 2,287
Non-investment grade - - - 58 61 119
Unrated - - - 1 - 1
Total 2,703 5,478 4,845 3,023 811 16,860
Short positions (2,377) (2,493) (4,293) (1,911) (137) (11,211)
31 December 2022
AAA - - 469 766 3 1,238
AA to AA+ - 2,345 1,042 1,114 21 4,522
A to AA- 2,205 - 372 77 29 2,683
BBB- to A- - - 916 149 296 1,361
Non-investment grade - - - 65 49 114
Unrated - - - 1 3 4
Total 2,205 2,345 2,799 2,172 401 9,922
Short positions (2,313) (1,293) (3,936) (1,875) (107) (9,524)
Risk and capital management
Capital, liquidity and funding risk
Introduction
NatWest Group takes a comprehensive approach to the management of capital,
liquidity and funding, underpinned by frameworks, risk appetite and policies,
to manage and mitigate capital, liquidity and funding risks. The framework
ensures the tools and capability are in place to facilitate the management and
mitigation of risk ensuring that NatWest Group operates within its regulatory
requirements and risk appetite.
Key developments since 31 December 2022
CET1 ratio The CET1 ratio decreased by 70 basis points to 13.5%. The decrease in CET1
ratio was due to a £1.0 billion decrease in CET1 capital and a £1.4 billion
increase in RWAs.
The CET1 decrease is mainly driven by:
- the directed buyback of £1.3 billion;
- a foreseeable ordinary dividend accrual of £0.8 billion;
- a foreseeable charge for the on-market ordinary share buyback
programme of £0.5 billion;
- a £0.1 billion decrease in the IFRS 9 transitional adjustment,
primarily due to the annual update in the dynamic stage transition percentage
and the end of transition on the static and historic stages;
- an increase in the intangible assets deduction of £0.3 billion; and
- other movements on reserves and regulatory adjustments of £0.3
billion.
These reductions were partially offset by the £2.3 billion attributable
profit in the period.
MREL MREL ratio as a percentage of risk-weighted assets decreased to 31.2% from
31.5% due to a £1.4 billion increase in RWAs and £0.2 billion decrease in
MREL resources. The ratio remains well above the minimum of 22%, calculated as
2 x (Pillar 1 + Pillar 2A).
In the first half of 2023 there were new issues of $3.3 billion and €1.5
billion senior unsecured debt and €0.7 billion Tier 2 instruments. These
were partially offset by redemptions of $2.6 billion senior unsecured debt and
£0.2 billion Tier 2 instruments.
Total RWAs Total RWAs increased by £1.4 billion to £177.5 billion during H1 2023
reflecting:
- an increase in operational risk RWAs of £1.1 billion following the
annual recalculation.
- an increase in counterparty credit risk RWAs of £1.0 billion,
primarily due to the removal of credit risk mitigation for a particular trade
in Q2 2023.
- an increase in credit risk RWAs of £0.7 billion, primarily due to
increased exposures within Retail Banking and Commercial & Institutional,
in addition to model adjustments applied as a result of new regulations
applied to IRB models. This was partially offset by reduced exposures within
Ulster Bank RoI as a result of the phased withdrawal from the Irish market.
- a reduction in market risk RWAs of £1.3 billion, primarily due to
lower volatility than in Q4 2022, and further reductions in the capital
multiplier for NWM Plc in Q2, driven by a fall in the VaR back-testing
exception count.
UK leverage ratio The leverage ratio decreased by 40 basis points to 5.0%. The decrease was due
to a £1.0 billion decrease in Tier 1 capital and an £18.0 billion increase
in leverage exposure. The key driver of the increase in leverage exposure was
an increase in other financial assets, central bank exposures and other off
balance sheet items.
Liquidity portfolio The liquidity portfolio increased by £1.4 billion to £226.9 billion. Primary
liquidity decreased by £14.1 billion to £147.5 billion, driven by a
reduction in customer deposits, increased lending and capital distributions,
partially
offset by increase in wholesale funding. Secondary liquidity increased £15.5
billion due to an increase in 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% 3.0%
Minimum Capital Requirements 6.2% 8.3% 11.0%
Capital conservation buffer 2.5% 2.5% 2.5%
Countercyclical capital buffer (1,2) 0.9% 0.9% 0.9%
MDA threshold (3) 9.6% n/a n/a
Overall capital requirement 9.6% 11.7% 14.4%
Capital ratios at 30 June 2023 13.5% 15.7% 18.8%
Headroom (4) 3.9% 4.0% 4.4%
(1) The Financial Policy Committee announced an increase in the UK
CCyB rate from 1% to 2% effective from 5 July 2023.
(2) The Central Bank of Ireland (CBI) announced the CCyB on Irish
exposures will increase from 0.5% to 1.0% from 24 November 2023. A further
increase to 1.5% will be effective June 2024.
(3) Pillar 2A requirements for NatWest Group are set as a variable
amount with the exception of some fixed add-ons.
(4) The headroom does not reflect excess distributable capital and may
vary over time.
Leverage ratios
The table below summarises the minimum ratios of capital to leverage exposure
under the binding PRA UK leverage framework applicable for NatWest Group.
Type CET1 Total Tier 1
Minimum ratio 2.44% 3.25%
Countercyclical leverage ratio buffer (1) 0.3% 0.3%
Total 2.74% 3.55%
(1) The countercyclical leverage ratio buffer is set at 35% of NatWest
Group's CCyB. As noted above the UK CCyB will increase from 1% to 2% from 5
July 2023. Foreign exposure may be subject to different CCyB rates depending
on the rates set in those jurisdictions.
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. NatWest Group is
subject to the requirements set out in the UK CRR therefore the capital and
leverage ratios are presented under these frameworks on a transitional basis.
30 June 31 December
2023 2022
Capital adequacy ratios (1) % %
CET1 13.5 14.2
Tier 1 15.7 16.4
Total 18.8 19.3
Capital £m £m
Tangible equity 23,415 25,482
Prudential valuation adjustment (271) (275)
Deferred tax assets (742) (912)
Own credit adjustments (49) (58)
Pension fund assets (243) (227)
Cash flow hedging reserve 3,344 2,771
Foreseeable ordinary dividends (780) (967)
Adjustment for trust assets (2) (365) (365)
Foreseeable charges - on-market ordinary share buyback programme (500) (800)
Adjustments under IFRS 9 transitional arrangements 223 361
Insufficient coverage for non-performing exposures (19) (18)
Total regulatory adjustments 598 (490)
CET1 capital 24,013 24,992
Additional AT1 capital 3,875 3,875
Tier 1 capital 27,888 28,867
End-point Tier 2 capital 5,364 4,978
Grandfathered instrument transitional arrangements 73 75
Tier 2 capital 5,437 5,053
Total regulatory capital 33,325 33,920
Risk-weighted assets
Credit risk 142,704 141,963
Counterparty credit risk 7,680 6,723
Market risk 6,962 8,300
Operational risk 20,198 19,115
Total RWAs 177,544 176,101
(1) 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 2023 was £0.2 billion for CET1 capital, £35 million
for total capital and £37 million RWAs (31 December 2022 - £0.4 billion CET1
capital, £36 million total capital and £71 million RWAs). Excluding these
adjustments, the CET1 ratio would be 13.4% (31 December 2022 14.0%). The
transitional relief on grandfathered instruments at 30 June 2023 was £0.1
billion (31 December 2022 - £0.1 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 15.6% (31 December 2022 - 16.2%) and
the end-point Total capital ratio would be 18.8% (31 December 2022 - 19.2%).
(2) Prudent deduction in respect of agreement with the pension fund to
establish new legal structure.
Risk and capital management
Capital, liquidity and funding risk continued
Capital and leverage ratios continued
30 June 31 December
2023 2022
Leverage £m £m
Cash and balances at central banks 123,022 144,832
Trading assets 48,893 45,577
Derivatives 81,873 99,545
Financial assets 416,739 404,374
Other assets 27,499 18,864
Assets of disposal groups 4,575 6,861
Total assets 702,601 720,053
Derivatives
- netting and variation margin (82,798) (100,356)
- potential future exposures 16,654 18,327
Securities financing transactions gross up 2,013 4,147
Other off balance sheet items 48,668 46,144
Regulatory deductions and other adjustments (15,663) (7,114)
Claims on central banks (114,253) (141,144)
Exclusion of bounce back loans (4,627) (5,444)
UK leverage exposure 552,595 534,613
UK leverage ratio (%) (1) 5.0 5.4
(1) Excluding the IFRS 9 transitional adjustment, the UK leverage ratio
would be 5.0% (31 December 2022 - 5.3%).
Capital flow statement
The table below analyses the movement in CET1, AT1 and Tier 2 capital for the
half year ended 30 June 2023. It is presented on a transitional basis based on
current PRA rules.
CET1 AT1 Tier 2 Total
£m £m £m £m
At 31 December 2022 24,992 3,875 5,053 33,920
Attributable profit for the period 2,299 - - 2,299
Directed buyback (1,259) - - (1,259)
Foreseeable ordinary dividends (780) - - (780)
Foreseeable charges - on-market share buyback (500) - - (500)
Foreign exchange reserve (492) - - (492)
FVOCI reserve 60 - - 60
Own credit 9 - - 9
Share capital and reserve movements in respect of employee share
schemes 62 - - 62
Goodwill and intangibles deduction (337) - - (337)
Deferred tax assets 170 - - 170
Prudential valuation adjustments 4 - - 4
Net dated subordinated debt instruments - - 348 348
Foreign exchange movements - - (121) (121)
Adjustment under IFRS 9 transitional arrangements (138) - - (138)
Other movements (77) - 157 80
At 30 June 2023 24,013 3,875 5,437 33,325
- The CET1 decrease is mainly driven by the directed buyback of £1.3 billion, a
foreseeable ordinary dividend accrual of £0.8 billion, a foreseeable charge
for additional on-market ordinary share buyback programme of £0.5 billion, a
£0.1 billion decrease in the IFRS 9 transitional adjustment, an increase in
the intangible assets deduction of £0.3 billion and other movements in
reserves and regulatory adjustments of £0.3 billion, partially offset by an
attributable profit in the period of £2.3 billion.
- The Tier 2 movements include €700 million 5.763% Fixed to Fixed Reset Tier 2
Notes 2034 issued in February 2023, the derecognition of the £0.2 billion in
respect of the cash tender offer for the outstanding 5.125% Subordinated Tier
2 Notes 2024 announced in March 2023 and maturity of Subordinated Notes with
minimum regulatory value. Within Tier 2, there was also a £0.2 billion
increase 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 CRR to determine the strength of its capital
base. This note shows a reconciliation of shareholders' equity to regulatory
capital.
30 June 31 December
2023 2022
£m £m
Shareholders' equity (excluding non-controlling interests)
Shareholders' equity 34,758 36,488
Preference shares - equity - -
Other equity instruments (3,890) (3,890)
30,868 32,598
Regulatory adjustments and deductions
Own credit (49) (58)
Defined benefit pension fund adjustment (243) (227)
Cash flow hedging reserve 3,344 2,771
Deferred tax assets (742) (912)
Prudential valuation adjustments (271) (275)
Goodwill and other intangible assets (7,453) (7,116)
Foreseeable ordinary dividends (780) (967)
Adjustment for trust assets (1) (365) (365)
Foreseeable charges - on-market share buyback programme (500) (800)
Adjustment under IFRS 9 transitional arrangements 223 361
Insufficient coverage for non-performing exposures (19) (18)
(6,855) (7,606)
CET1 capital 24,013 24,992
Additional Tier (AT1) capital
Qualifying instruments and related share premium 3,875 3,875
Qualifying instruments and related share premium subject to phase out - -
AT1 capital 3,875 3,875
Tier 1 capital 27,888 28,867
Qualifying Tier 2 capital
Qualifying instruments and related share premium 5,189 4,953
Qualifying instruments issued by subsidiaries and held by third parties 73 82
Other regulatory adjustments 175 18
Tier 2 capital 5,437 5,053
Total regulatory capital 33,325 33,920
(1) Prudent deduction in respect of agreement with the pension fund
to establish new legal structure.
Risk and capital management
Capital, liquidity and funding risk continued
Minimum requirements of own funds and eligible liabilities (MREL)
The following table illustrates the components of estimated Minimum
requirements of own funds and eligible liabilities (MREL) in NatWest Group and
operating subsidiaries and includes external issuances only.
30 June 2023 31 December 2022
Balance Balance
Par sheet Regulatory MREL Par sheet Regulatory MREL
value (1) value value (2,5) value (3) value value value value
£bn £bn £bn £bn £bn £bn £bn £bn
CET1 capital (4) 24.0 24.0 24.0 24.0 25.0 25.0 25.0 25.0
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 - - - - - - - -
of which: opcos 0.1 0.1 - - 0.1 0.1 - -
0.1 0.1 - - 0.1 0.1 - -
Tier 2 capital: end-point CRR
compliant
of which: holdco 5.7 5.2 5.1 5.1 6.0 5.5 4.9 5.4
of which: opcos - - - - 0.1 0.1 - -
5.7 5.2 5.1 5.1 6.1 5.6 4.9 5.4
Tier 2 capital:
end-point CRR non-compliant (6)
of which: holdco 0.4 0.4 - - - - - -
of which: opcos 0.2 0.3 0.1 - 0.3 0.5 0.1 -
0.6 0.7 0.1 - 0.3 0.5 0.1 -
Senior unsecured debt securities
of which: holdco 23.0 21.8 - 22.1 23.4 22.3 - 21.2
of which: opcos 34.0 30.7 - - 26.1 22.9 - -
57.0 52.5 - 22.1 49.5 45.2 - 21.2
Tier 2 capital
Other regulatory adjustments - - 0.2 0.2 - - - -
- - 0.2 0.2 - - - -
Total 91.3 86.4 33.3 55.3 84.9 80.3 33.9 55.5
RWAs 177.5 176.1
UK leverage exposure 552.6 534.6
MREL as a ratio of RWAs 31.2% 31.5%
MREL as a ratio of UK leverage exposure 10.0% 10.4%
(1) Par value reflects the nominal value of securities issued.
(2) 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).
(3) MREL 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).
Liabilities excluded from MREL 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 MREL calculation
includes Tier 1 and Tier 2 securities before the application of any regulatory
caps or adjustments.
(4) Corresponding shareholders' equity was £34.8 billion (31 December 2022 -
£36.5 billion).
(5) Regulatory amount includes grandfathered instrument from operating companies
as per the transitional provisions allowed under CRR2 (until 28 June 2025). On
30 June 2023, only 3 Tier 2 instruments from UBIDAC were classified as
grandfathered.
(6) CRR2 non-compliant instruments - 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
Minimum requirements of own funds and eligible liabilities (MREL)
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
Additional Tier 1 Externally issued 3.9 - 0.1 - - - - - -
Additional Tier 1 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 5.6 - - - 0.1 - 0.2 - -
Tier 2 Internally issued - 5.1 3.4 1.4 - 1.0 0.1 0.3 -
5.6 5.1 3.4 1.4 0.1 1.0 0.3 0.3 -
Senior unsecured Externally issued 21.8 - - - - - - - -
Senior unsecured Internally issued - 10.2 6.3 1.4 0.5 3.0 - - 0.3
21.8 10.2 6.3 1.4 0.5 3.0 - - 0.3
Total outstanding issuance 31.3 19.0 12.3 3.8 0.6 4.9 0.5 0.3 0.6
(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) The above table 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 2022 142.0 6.7 8.3 19.1 176.1
Foreign exchange movement (1.0) (0.1) - - (1.1)
Business movement 3.7 0.2 (1.3) 1.1 3.7
Risk parameter changes (2.2) - - - (2.2)
Methodology changes 0.5 - - - 0.5
Model updates 0.6 - - - 0.6
Other changes - 0.9 - - 0.9
Acquisitions and disposals (1.0) - - - (1.0)
At 30 June 2023 142.6 7.7 7.0 20.2 177.5
The table below analyses segmental RWAs.
Total
Retail Private Commercial & Central items NatWest
Banking Banking Institutional & other (1) Group
Total RWAs £bn £bn £bn £bn £bn
At 31 December 2022 54.7 11.2 103.2 7.0 176.1
Foreign exchange movement - - (1.0) (0.1) (1.1)
Business movement 2.1 0.3 2.1 (0.8) 3.7
Risk parameter changes (0.3) - (1.9) - (2.2)
Methodology changes 0.2 - 0.3 - 0.5
Model updates 0.6 - - - 0.6
Other changes - - 0.9 - 0.9
Acquisitions and disposals - - - (1.0) (1.0)
At 30 June 2023 57.3 11.5 103.6 5.1 177.5
Credit risk 49.7 10.1 78.5 4.3 142.6
Counterparty credit risk 0.2 - 7.5 - 7.7
Market risk 0.2 - 6.8 - 7.0
Operational risk 7.2 1.4 10.8 0.8 20.2
Total RWAs 57.3 11.5 103.6 5.1 177.5
(1) £3.5 billion of Central items & other relates to Ulster Bank
RoI.
Total RWAs increased by £1.4 billion to £177.5 billion during the period
mainly reflecting:
- Business movements totalling £3.7 billion, driven by increased credit
risk exposures within Retail Banking and Commercial & Institutional and
the impact of the operational risk recalculation.
- An increase in other changes of £0.9 billion, driven by the early
termination of portfolio credit default swap resulting in a decrease to the
CRM benefit.
- Model update increase of £0.6 billion, driven by model adjustments as
a result of new regulations applied to IRB models within Retail Banking.
- Methodology changes totalling £0.5 billion, driven by revised LGD
approach for non UK covered bonds.
- A decrease in risk parameters of £2.2 billion, primarily reflecting
improved risk metrics within Commercial & Institutional in addition to
changes in regulatory treatment for certain structured transactions.
- Disposals relating to the phased withdrawal from the Republic of
Ireland, reducing RWAs by £1.0 billion.
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 2023 31 December 2022
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 2,231 - 2,231 1,446 - 1,446
Other bank deposits (1) 6,181 13,309 19,490 6,353 12,642 18,995
8,412 13,309 21,721 7,799 12,642 20,441
Customer deposits
Repos 9,083 239 9,322 9,575 254 9,829
Non-bank financial institutions 50,733 59 50,792 50,226 9 50,235
Personal 212,486 4,111 216,597 224,706 1,209 225,915
Corporate 155,735 86 155,821 164,314 25 164,339
428,037 4,495 432,532 448,821 1,497 450,318
Trading liabilities (2)
Repos (3) 27,554 254 27,808 23,740 - 23,740
Derivative collateral 15,234 - 15,234 17,680 - 17,680
Other bank customer deposits 775 440 1,215 413 654 1,067
Debt securities in issue - Medium term notes 353 361 714 54 743 797
43,916 1,055 44,971 41,887 1,397 43,284
Other financial liabilities
Customer deposits 144 940 1,084 253 797 1,050
Debt securities in issue:
Commercial paper and certificates of deposit 13,195 141 13,336 5,587 85 5,672
Medium term notes 5,170 33,258 38,428 6,934 31,750 38,684
Covered bonds 2,043 - 2,043 804 2,038 2,842
Securitisation (5) - 857 857 - 859 859
20,552 35,196 55,748 13,578 35,529 49,107
Subordinated liabilities 968 5,052 6,020 974 5,286 6,260
Total funding 501,885 59,107 560,992 513,059 56,351 569,410
Of which: available in resolution (4) 25,634 24,899
(1) Includes £12.0 billion (31 December 2022 - £12.0 billion) relating to Term
Funding Scheme with additional incentives for Small and Medium-sized
Enterprises participation.
(2) Excludes short positions of £11.2 billion (31 December 2022 - £9.5 billion).
(3) Comprises central & other bank repos of £2.5 billion (31 December 2022 -
£1.6 billion), other financial institution repos of £22.7 billion (31
December 2022 - £19.4 billion) and other corporate repos of £2.6 billion (31
December 2022 - £2.7 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 £21.0 billion (31 December 2022
- £20.0 billion) under debt securities in issue (senior MREL) and £4.6
billion (31 December 2022 - £4.9 billion) under subordinated liabilities.
(5) NatWest Group transfers credit risk on originated loans and mortgages without
the transfer of assets to a structured entity, whereby it enters credit
derivative and financial guarantee contracts with consolidated structured
entities and they in turn issue debt securities to investors. This funding is
legally ringfenced in the structured entity and is restricted to specifically
cover investor credit protection claim payments in respect of the associated
loans and mortgages.
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. In addition, a reconciliation has been
provided between the liquidity portfolio for internal stressed outflow
coverage and high quality liquid assets on a regulatory LCR basis.
Liquidity value
30 June 2023 31 December 2022
NatWest NWH UK DoL NatWest NWH UK DoL
Group (1) Group (2) Sub Group Group Sub
£m £m £m £m £m £m
Cash and balances at central banks 119,612 79,423 78,916 140,820 106,869 103,708
AAA to AA- rated governments 23,813 15,872 15,872 18,589 9,843 9,843
A+ and lower rated governments 1,172 187 187 317 - -
Government guaranteed issuers, public sector entities
and government sponsored entities 229 229 208 134 120 100
International organisations and multilateral
development banks 2,674 1,521 1,437 1,734 1,112 1,021
LCR level 1 bonds 27,888 17,809 17,704 20,774 11,075 10,964
LCR level 1 assets 147,500 97,232 96,620 161,594 117,944 114,672
LCR level 2 assets - - - - - -
Non-LCR eligible assets - - - - - -
Primary liquidity 147,500 97,232 96,620 161,594 117,944 114,672
Secondary liquidity (3) 79,424 79,389 79,388 63,917 63,849 63,849
Total liquidity value 226,924 176,621 176,008 225,511 181,793 178,521
30 June 2023
NatWest NWH UK DoL
Stressed outflow coverage (SOC) to liquidity Group (1) Group (2) Sub
coverage ratio (LCR) reconciliation* £m £m £m
SOC primary liquidity (from table above) 147,500 97,232 96,620
Level 1 assets excluded (4) 4,180 3,467 3,447
Level 2 assets excluded (5) 3,133 2,951 2,721
Methodology difference (6) 960 1,135 1,081
Total LCR high quality liquid assets 155,773 104,785 103,869
* Table not within the scope of EY's review report.
(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 and NatWest
Bank Europe GmbH who hold managed portfolios that comply with local
regulations that may differ from PRA rules.
(3) Comprises assets eligible for discounting at the Bank of England
and other central banks.
(4) LCR level 1 assets include extremely high quality covered bonds,
government guaranteed bonds, and other LCR level 1 assets, which are not
included as primary liquidity, but included as inflows in stressed outflow
coverage.
(5) LCR level 2 assets include high quality covered bonds, asset
backed securities and other level 2 assets which are not included as primary
liquidity but included as inflows in stressed outflow coverage.
(6) Methodology differences include cash in tills which is classified
as LCR level 1 but not included in stressed outflow coverage, JPY bonds which
are classified as level 1 for stressed outflow coverage but level 2 for LCR
and weighting differences between stressed outflow coverage and LCR.
(7) 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 rose from 3.5% at 31 December 2022 to 5.0% at
30 June 2023 as inflation pressures persisted.
- The five-year sterling swap rate increased to 5.09% at the end of June
2023 from 4.10% at the end of December 2022. The ten-year sterling swap rate
also increased, to 4.36% from 3.75%.
- The structural hedge notional decreased by £6 billion from £231
billion to £225 billion, due to lower current account and instant access
savings deposits. The structural hedge yield rose over the same period to
1.38% from 1.14% as maturing hedges were replaced with new hedges at higher
rates.
- The sensitivity of net interest earnings to parallel shifts in the
yield curve reduced in H1 2023. Sensitivity to an upward 25-basis-point
parallel shift in all rates was £135 million at 30 June 2023 compared to
£198 million at 31 December 2022.
- The main driver was reduced sensitivity to managed margin products.
This resulted from lower managed rate savings volumes - including the impact
of migration from instant access accounts to term savings accounts - and from
greater pass-through of future rate rises to depositors.
- Sterling strengthened against both the US dollar and the euro over the
period. Against the dollar, sterling was 1.27 at 30 June 2023 compared to 1.21
at 31 December 2022. Against the euro, it was 1.17 at 30 June 2023 compared to
1.13 at 31 December 2022.
- Net investments in foreign operations decreased by £1.4 billion over
the period, mainly reflecting the UBIDAC wind-down. However, residual
structural foreign currency exposures after hedging were broadly stable,
decreasing, in sterling equivalent terms, by £0.2 billion over the period.
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 2023 30 June 2022 31 December 2022
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 40.5 63.2 30.1 63.2 17.0 37.8 7.6 37.8 43.8 60.7 34.2 37.7
Credit spread 23.6 29.7 20.9 29.7 48.8 86.6 33.4 34.6 23.8 29.1 19.9 20.3
Structural foreign
exchange rate 11.3 13.6 8.4 12.3 8.8 10.9 5.4 7.0 9.1 11.3 7.4 11.3
Equity 16.7 19.0 13.0 13.0 18.9 22.2 13.7 18.8 17.4 19.3 14.7 14.7
Pipeline risk (1) 3.1 4.4 1.4 3.4 1.0 2.9 0.3 2.9 1.9 4.5 0.6 2.4
Diversification (2) (35.3) (38.1) (33.4) (48.1) (40.4) (34.9)
Total 59.9 83.5 52.1 83.5 61.1 91.2 52.3 53.0 55.6 66.3 45.5 51.5
(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.
- On an average basis, total non-traded VaR for H1 2023 was broadly
similar to H1 2022 and H2 2022.
- Total non-traded VaR increased during H1 2023, driven by an increase
in interest rate risk VaR. This reflects further interest rate volatility
compared to H2 2022, particularly in sterling.
- Credit spread VaR was slightly higher than in H2 2022, driven by an
increase in the holding of bonds in the liquidity portfolio. However, the
holding of bonds in this portfolio is still considerably lower than in H1
2022.
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, current accounts and instant
access savings. A proportion of these balances are hedged, either by investing
directly in longer-term fixed-rate assets (usually fixed-rate mortgages) 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, 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, particularly to products such as current accounts
and instant access savings. The programme aims to track a time series of
medium-term swap rates, so that at any point in time the total yield may be
higher or lower than the current market yield. Additionally, the closeness of
the yield to average swap rates in recent years is also affected by changes in
the composition of the hedge caused by changes in product volumes or equity
capital resources.
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 2023 30 June 2022 31 December 2022
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 (246) 204 23 22 1.83 111 182 21 21 1.71 (48) 189 23 22 1.72
Product (2,773) 1,362 202 205 1.33 61 662 204 188 0.70 (1,135) 1,118 208 206 1.08
Total (3,019) 1,566 225 227 1.38 172 844 225 209 0.81 (1,183) 1,307 231 228 1.14
(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.
(2) The basis of preparation of the table above has changed since December 2022.
UBIDAC is no longer included. In addition, the 'Other' category is no longer
used: hedges booked in Coutts & Co. have now been allocated between
product hedges and equity hedges, while hedges booked in RBS International
have been allocated to product hedges.
Equity structural hedges refer to income allocated primarily to equity and
reserves. At 30 June 2023, the equity structural hedge notional was allocated
between NWH Group and NWM Group in a ratio of approximately 77%/23%
respectively.
Product structural hedges refer to income allocated to customer products,
mainly current accounts and customer deposits in Commercial &
Institutional, Retail Banking and Private Banking.
At 30 June 2023, approximately 94% 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
2023 2022 2022
£m £m £m
Retail Banking (1,156) 12 (475)
Commercial & Institutional (1,415) 39 (576)
Private Banking & Other (202) 10 (84)
Total (2,773) 61 (1,135)
- The structural hedge notional fell, mainly due to lower deposit
volume.
- The five-year sterling swap rate rose to 5.09% at 30 June 2023 from
4.10% at 31 December 2022. The ten-year sterling swap rate also rose, to 4.36%
from 3.75%. The structural hedge yield also rose to 1.38% in H1 2023 from
1.14% in H2 2022.
- Despite the increase in total yield, incremental income fell. This
highlights the relative stability of the total yield of the structural hedge
compared to an unhedged portfolio that would earn short-term cash rates.
Compared to the 24-basis-point increase in the structural hedge total yield,
SONIA increased 150 basis points to 4.93% at 30 June 2023 from 3.43% at 31
December 2022.
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 2023 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.
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.
+25 basis points upward shift -25 basis points downward shift
Year 1 Year 2 Year 3 Year 1 Year 2 Year 3
30 June 2023 £m £m £m £m £m £m
Structural hedges 49 151 249 (49) (151) (248)
Managed margin 86 76 157 (121) (75) (168)
Total 135 227 406 (170) (226) (416)
31 December 2022
Structural hedges 50 158 260 (50) (158) (260)
Managed margin 148 141 136 (170) (140) (129)
Total 198 299 396 (220) (298) (389)
(1) Earnings sensitivity considers only the main drivers, namely
structural hedging and margin management, and excludes UBIDAC.
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 and
downward shift in all interest rates.
Shifts in yield curve
30 June 2023 31 December 2022
+25 basis -25 basis +100 basis -100 basis +25 basis -25 basis +100 basis -100 basis
points points points points points points points points
£m £m £m £m £m £m £m £m
Euro 13 (15) 56 (57) 13 (12) 48 (50)
Sterling 108 (137) 431 (574) 172 (194) 698 (784)
US dollar 8 (13) 37 (47) 10 (11) 42 (53)
Other 6 (5) 23 (15) 3 (3) 13 (16)
Total 135 (170) 547 (693) 198 (220) 801 (903)
(1) The table excludes UBIDAC.
- The overall reduction in net interest income sensitivity in all
scenarios reflects lower managed rate deposit volumes. This includes changes
to the deposit mix, where customers have moved balances into fixed-term
savings from managed rate savings accounts.
- Changes in pass-through assumptions for managed rate savings products
also contributed to the lower sensitivity.
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 2023 £m £m £m £m £m
US dollar 1,215 (287) 928 (928) -
Euro 4,913 (3,101) 1,812 - 1,812
Other non-sterling 938 (406) 532 - 532
Total 7,066 (3,794) 3,272 (928) 2,344
31 December 2022
US dollar 1,278 (303) 975 (975) -
Euro 6,189 (4,164) 2,025 - 2,025
Other non-sterling 996 (431) 565 - 565
Total 8,463 (4,898) 3,565 (975) 2,590
(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.
- Euro net investments in foreign operations and euro net investment hedges fell
in H1 2023, mainly due to the wind-down of UBIDAC. Overall, residual
structural foreign currency exposures fell.
- 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 2023 30 June 2022 31 December 2022
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 9.0 19.3 4.3 16.5 7.4 12.6 4.1 6.0 7.3 12.5 4.5 9.0
Credit spread 5.9 6.9 4.9 6.1 8.5 12.0 6.5 6.9 7.2 8.6 6.0 6.4
Currency 2.1 4.9 1.0 1.5 2.8 8.0 1.2 2.3 3.3 6.9 1.5 1.5
Equity - 0.1 - - 0.1 0.3 - - - 0.3 - -
Commodity - - - - - - - - - - - -
Diversification (1) (6.8) (6.3) (8.3) (6.0) (7.0) (6.8)
Total 10.2 17.8 6.6 17.8 10.5 15.1 7.2 9.2 10.8 13.7 8.3 10.1
(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.
- On an average basis, total traded VaR remained at similar levels in H1 2023
compared to 2022.
- The increase in average interest rate VaR, compared to 2022, reflected an
increase in yield curve risk in sterling and euro flow trading.
- The decrease in average credit spread VaR reflected lower credit spread
volatility in H1 2023.
Risk and capital management
Other risks
Operational risk
Risk management continued to focus on material risk areas. Key focus over the
period has been the management of the large change portfolio, in particular
the regulatory change initiatives relating to preparedness for Consumer Duty
and ISO 20022, as well as addressing vulnerabilities in relation to the
infrastructure requiring remediation. Linked to the focus on remediation,
security, data and outsourcing remain key pillars for the ongoing management
of the risk profile, operational integrity and continuity of service.
Compliance & conduct risk
The ring-fencing attestation was completed and submitted to the PRA on 31
March 2023. Implementation of Consumer Duty has been a key focus, with
customer journeys being enhanced in line with the new standard which
complements our purpose 'to champion potential, helping people, families, and
businesses to thrive' and aligns with our strategy 'supporting customers at
every stage of their lives'. NatWest Markets has a program in place to review,
remediate, and enhance certain areas of its business. Resources were agreed in
February 2023. The results of this work will be shared with the Department of
Justice Monitor and other regulators, with the ongoing work plan continuing to
be assessed for potential impact.
The cost of living challenge continues to be a key priority for the conduct
and regulatory compliance agenda as mortgage interest rates continue to
increase in the UK. There has been continued oversight of delivery of the
mandatory and regulatory change programmes, including the Mortgage Charter - a
set of measures aimed at supporting residential mortgage customers concerned
by rising interest rates.
Climate risk
NatWest Group continued to embed climate considerations in its risk management
framework throughout the reporting period. This is focused on making iterative
advancements in capabilities towards quantitative techniques in risk
assessment. Particular attention continues to be paid to developing the next
version of the NatWest Group Climate Transition Plan. Work is also underway to
evolve NatWest Group's customer-level climate risk assessments, including
development of capability to assess customer climate plans. In-house modelling
and scenario analysis capabilities continue to be developed to support the
assessment of NatWest Group's exposure to physical and transition risks.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END IR DZGZNFNMGFZZRecent news on Natwest
See all newsREG - UK Govt. Invs. Ltd - UK Government Completes Exit from NatWest Group
AnnouncementREG - NatWest Group plc - Holding(s) in Company - HMT
AnnouncementREG - NatWest Group plc - Total Voting Rights
AnnouncementREG - Natwest Markets PLC - Publication of Pricing Supplement
AnnouncementREG - Rabobank Intl London - Post Stabilisation Notice
Announcement