REG - NatWest Group plc - NWG H1 23 Interim Management Statement-Part 2 of 2
28/07/2023 07:00
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RNS Number : 4914H NatWest Group plc 28 July 2023
Condensed consolidated income statement
for the period ended 30 June 2023 (unaudited)
Half year ended
30 June 30 June
2023 2022
£m £m
Interest receivable 9,482 5,250
Interest payable (3,756) (916)
Net interest income 5,726 4,334
Fees and commissions receivable 1,459 1,424
Fees and commissions payable (315) (300)
Income from trading activities 418 709
Other operating income 439 52
Non-interest income 2,001 1,885
Total income 7,727 6,219
Staff costs (2,005) (1,808)
Premises and equipment (570) (534)
Other administrative expenses (871) (898)
Depreciation and amortisation (469) (413)
Operating expenses (3,915) (3,653)
Profit before impairment losses/releases 3,812 2,566
Impairment (losses)/releases (223) 54
Operating profit before tax 3,589 2,620
Tax charge (1,061) (795)
Profit from continuing operations 2,528 1,825
(Loss)/profit from discontinued operations, net of tax (2) (108) 190
Profit for the period 2,420 2,015
Attributable to:
Ordinary shareholders 2,299 1,891
Paid-in equity holders 121 121
Non-controlling interests - 3
2,420 2,015
Earnings per ordinary share - continuing operations 25.4p 16.8p
Earnings per ordinary share - discontinued operations (1.1p) 1.9p
Total earnings per share attributable to ordinary shareholders - basic 24.3p 18.7p
Earnings per ordinary share - fully diluted continuing operations 25.2p 16.7p
Earnings per ordinary share - fully diluted discontinued operations (1.1p) 1.9p
Total earnings per share attributable to ordinary shareholders - fully diluted 24.1p 18.6p
(1) At the General Meeting and Class Meeting on 25 August 2022, the shareholders
approved the proposed special dividend and share consolidation. On 30 August
the issued ordinary share capital was consolidated in the ratio of 14 existing
shares for 13 new shares. The average number of shares and earnings per share
have been adjusted retrospectively.
(2) The results of discontinued operations, comprising the post-tax profit, is
shown as a single amount on the face of the income statement. An analysis of
this amount is presented in Note 7 to the consolidated financial statements.
Condensed consolidated statement of comprehensive income
for the period ended 30 June 2023 (unaudited)
Half year ended
30 June 30 June
2023 2022
£m £m
Profit for the period 2,420 2,015
Items that do not qualify for reclassification
Remeasurement of retirement benefit schemes (64) (517)
Changes in fair value of credit in financial liabilities designated at FVTPL (4) 91
FVOCI financial assets 30 3
Tax 7 123
(31) (300)
Items that do qualify for reclassification
FVOCI financial assets 53 (458)
Cash flow hedges (1) (734) (1,557)
Currency translation (469) 185
Tax 127 566
(1,023) (1,264)
Other comprehensive losses after tax (1,054) (1,564)
Total comprehensive income for the period 1,366 451
Attributable to:
Ordinary shareholders 1,245 327
Paid-in equity holders 121 121
Non-controlling interests - 3
1,366 451
(1) The unrealised losses on cash flow hedge reserves are mainly
driven by deferral of losses on GBP net received fixed swaps as interest rates
have increased.
Condensed consolidated balance sheet as at 30 June 2023 (unaudited)
30 June 31 December
2023 2022
£m £m
Assets
Cash and balances at central banks 123,022 144,832
Trading assets 48,893 45,577
Derivatives 81,873 99,545
Settlement balances 11,298 2,572
Loans to banks - amortised cost 7,338 7,139
Loans to customers - amortised cost 373,885 366,340
Other financial assets 35,516 30,895
Intangible assets 7,453 7,116
Other assets 8,748 9,176
Assets of disposal groups 4,575 6,861
Total assets 702,601 720,053
Liabilities
Bank deposits 21,721 20,441
Customer deposits 432,532 450,318
Settlement balances 10,282 2,012
Trading liabilities 56,182 52,808
Derivatives 77,246 94,047
Other financial liabilities 55,748 49,107
Subordinated liabilities 6,020 6,260
Notes in circulation 3,159 3,218
Other liabilities 4,913 5,346
Total liabilities 667,803 683,557
Equity
Ordinary shareholders' interests 30,868 32,598
Other owners' interests 3,890 3,890
Owners' equity 34,758 36,488
Non-controlling interests 40 8
Total equity 34,798 36,496
Total liabilities and equity 702,601 720,053
Condensed consolidated statement of changes in equity
for the period ended 30 June 2023 (unaudited)
Half year ended
30 June 30 June
2023 2022
£m £m
Called-up share capital - at beginning of period 10,539 11,468
Share cancellation (1,2) (687) (885)
At end of period 9,852 10,583
Paid-in equity - at beginning and end of period 3,890 3,890
Share premium account - at beginning and end of period 1,161 1,161
Merger reserve - at beginning and end of period 10,881 10,881
FVOCI reserve - at beginning of period (102) 269
Unrealised gains/(losses) (3) 60 (444)
Realised losses/(gains) 16 (17)
Tax (16) 125
At end of period (42) (67)
Cash flow hedging reserve - at beginning of period (2,771) (395)
Amount recognised in equity (4) (948) (1,386)
Amount transferred from equity to earnings 214 (171)
Tax 161 426
At end of period (3,344) (1,526)
Foreign exchange reserve - at beginning of period 1,478 1,205
Retranslation of net assets (308) 307
Foreign currency gains/(losses) on hedges of net assets 162 (122)
Tax (23) 14
Recycled to profit or loss (6) (323) -
At end of period 986 1,404
Capital redemption reserve - at beginning of period 1,651 722
Share cancellation (1,2) 687 885
At end of period 2,338 1,607
Retained earnings - at beginning of period 10,019 12,966
Profit/(loss) attributable to ordinary shareholders and other equity owners
- continuing 2,528 1,822
- discontinued (108) 190
Paid-in equity dividends paid (121) (121)
Ordinary dividends paid (965) (841)
Shares repurchased (1,2) (1,713) (1,958)
Redemption of preference shares (5) - (750)
Tax on redemption/reclassification of paid-in equity - (21)
Realised gains in period on FVOCI equity shares
- gross 7 6
- tax (3) -
Remeasurement of the retirement benefit schemes
- gross (64) (517)
- tax 15 133
Changes in fair value of credit in financial liabilities designated at FVTPL
- gross (4) 91
- tax - (9)
Employee share schemes 17 5
Share-based payments
- gross (32) (30)
- tax - (3)
At end of period 9,576 10,963
Condensed consolidated statement of changes in equity
for the period ended 30 June 2023 continued (unaudited)
Half year ended
30 June 30 June
2023 2022
£m £m
Own shares held - at beginning of period (258) (371)
Shares vested under employee share schemes 77 92
Own shares acquired (1) (359) -
At end of period (540) (279)
Owners' equity at end of period 34,758 38,617
Non-controlling interests - at beginning of period 8 7
Profit attributable to non-controlling interests - 3
New minority interest holding 32 -
At end of period 40 10
Total equity at end of period 34,798 38,627
Attributable to:
Ordinary shareholders 30,868 34,727
Paid-in equity holders 3,890 3,890
Non-controlling interests 40 10
34,798 38,627
(1) In May 2023, there was an agreement with HM Treasury to buy 469.2
million (2022 - 549.9 million) ordinary shares in NatWest Group plc from UK
Government Investments Ltd, at 268.4 pence per share (2022 - 220.5 pence per
share) for the total consideration of £1.27 billion (2022 - £1.22 billion).
NatWest Group cancelled 336.2 million of the purchased ordinary shares,
amounting to £0.91 billion excluding fees and held the remaining 133 million
shares as Own Shares Held, amounting to £0.36 billion excluding fees. The
nominal value of the share cancellation has been transferred to the capital
redemption reserve.
(2) NatWest Group plc repurchased and cancelled 301.4 million (30 June
2022 - 345.6 million) shares for total consideration of £804.2 million (30
June 2022 - £756.7 million) excluding fees as part of the On Market Share
Buyback Programme which has now concluded. The nominal value of the share
cancellations has been transferred to the capital redemption reserve.
(3) Certain assets within this category have been hedged with
derivatives which are not in an accounting hedge relationship. The effect of
this creates a temporary difference between other comprehensive income and the
income statement due to the difference in recognition criteria. This temporary
difference is expected to reverse through the income statement over the
duration of the hedge.
(4) The unrealised losses on cash flow hedge reserves are mainly
driven by deferral of losses on GBP net received fixed swaps as interest rates
have increased.
(5) Following an announcement of a Regulatory Call in February 2022,
the Series U preference shares were reclassified to liabilities. A £254
million loss was recognised in retained earnings as a result of FX unlocking.
(6) Includes £305 million FX recycled to profit or loss upon
completion of a capital repayment by UBIDAC.
Condensed consolidated cash flow statement
for the period ended 30 June 2023 (unaudited)
Half year ended
30 June 30 June
2023 2022
£m £m
Operating activities
Operating profit before tax from continuing operations 3,589 2,620
Operating (loss)/profit before tax from discontinued operations (108) 190
Adjustments for non-cash and other items 2,133 355
Net cash flows from trading activities 5,614 3,165
Changes in operating assets and liabilities (17,376) 7,966
Net cash flows from operating activities before tax (11,762) 11,131
Income taxes paid (631) (575)
Net cash flows from operating activities (12,393) 10,556
Net cash flows from investing activities (2,833) 5,713
Net cash flows from financing activities (3,260) (6,970)
Effects of exchange rate changes on cash and cash equivalents (1,801) 2,224
Net (decrease)/increase in cash and cash equivalents (20,287) 11,523
Cash and cash equivalents at beginning of period 158,449 190,706
Cash and cash equivalents at end of period 138,162 202,229
Notes
1. Presentation of condensed consolidated financial statements
The condensed consolidated financial statements should be read in conjunction
with NatWest Group plc's 2022 Annual Report and Accounts. The accounting
policies are the same as those applied in the consolidated financial
statements.
The directors have prepared the condensed consolidated financial statements on
a going concern basis after assessing the principal risks, forecasts,
projections and other relevant evidence over the twelve months from the date
they are approved and in accordance with IAS 34 Interim Financial Reporting,
as adopted by the UK and as issued by the International Accounting Standards
Board (IASB), and the Disclosure Guidance and Transparency Rules sourcebook of
the UK's Financial Conduct Authority.
Amendments to IFRS effective from 1 January 2023 had no material effect on the
condensed consolidated financial statements.
2. Net interest income
Half year ended
30 June 30 June
2023 2022
Continuing operations £m £m
Balances at central banks and loans to banks - amortised cost 1,722 582
Loans to customers - amortised cost 7,130 4,483
Other financial assets 630 185
Interest receivable 9,482 5,250
Bank deposits 402 157
Customer deposits 1,695 179
Other financial liabilities 1,345 433
Subordinated liabilities 221 141
Internal funding of trading businesses 93 6
Interest payable 3,756 916
Net interest income 5,726 4,334
3. Non-interest income
Half year ended
30 June 30 June
2023 2022
Continuing operations £m £m
Net fees and commissions (1) 1,144 1,124
Foreign exchange 125 258
Interest rate (2) 315 364
Credit (34) 33
Changes in fair value of own debt and derivative liabilities attributable to
own credit risk
- debt securities in issue 9 52
Equity, commodities and other 3 2
Income from trading activities 418 709
Profit/(loss) on redemption of own debt 2 (24)
Rental income on operating lease assets and investment property 118 114
Changes in fair value of financial assets and liabilities designated at fair
value through profit or
loss (3) (3) 21
Hedge ineffectiveness 49 (22)
Loss on disposal of amortised cost assets and liabilities (2) (16)
(Loss)/profit on disposal of fair value through other comprehensive income (24) 10
assets
Share of losses of associated entities (17) (20)
Other income (4) 316 (11)
Other operating income 439 52
Non-interest income 2,001 1,885
(1) Refer to Note 5 for further analysis.
(2) Includes fair value changes on derivatives which have not been
designated in a hedge accounting relationship and gains and losses from the
management of the NatWest Group's funding requirements involving the use of
derivatives including FX. These are aimed at managing the interest rate and
foreign exchange risk that NatWest Group is exposed to.
(3) Includes related derivatives.
(4) Includes £305 million FX recycled to profit or loss upon
completion of a capital repayment by UBIDAC. Also included are instruments
that have failed solely payments of principal and interest testing under IFRS
9.
Notes
4. Operating expenses
Half year ended
30 June 30 June
2023 2022
Continuing operations £m £m
Salaries 1,252 1,103
Bonus awards 217 195
Temporary and contract costs 106 116
Social security costs 180 163
Pension costs 151 184
- defined benefit schemes 60 108
- defined contribution schemes 91 76
Other 99 47
Staff costs 2,005 1,808
Premises and equipment 570 534
Depreciation and amortisation (1) 469 413
Other administrative expenses 871 898
Administrative expenses 1,910 1,845
Operating expenses 3,915 3,653
(1) Includes depreciation on right of use assets of £53 million (30 June 2022
- £58 million).
5. Segmental analysis
The business is organised into the following reportable segments: Retail
Banking, Private Banking, Commercial & Institutional and Central items
& other.
Analysis of operating profit/(loss) before tax
The following tables provide a segmental analysis of operating profit/(loss)
before tax by the main income statement captions.
Retail Private Commercial & Central items
Banking Banking Institutional & other Total
Half year ended 30 June 2023 £m £m £m £m £m
Continuing operations
Net interest income 2,908 428 2,504 (114) 5,726
Net fees and commissions 206 125 821 (8) 1,144
Other non-interest income 6 14 423 414 857
Total income 3,120 567 3,748 292 7,727
Depreciation and amortisation - - (78) (391) (469)
Other operating expenses (1,367) (322) (1,909) 152 (3,446)
Impairment (losses)/releases (193) (11) (20) 1 (223)
Operating profit/(loss) 1,560 234 1,741 54 3,589
Half year ended 30 June 2022
Continuing operations
Net interest income 2,340 315 1,764 (85) 4,334
Net fees and commissions 219 131 753 21 1,124
Other non-interest income (5) 15 420 331 761
Total income 2,554 461 2,937 267 6,219
Depreciation and amortisation - - (82) (331) (413)
Other operating expenses (1,242) (285) (1,738) 25 (3,240)
Impairment releases/(losses) (26) 11 59 10 54
Operating profit/(loss) 1,286 187 1,176 (29) 2,620
Notes
5. Segmental analysis continued
Total revenue ((1))
Retail Private Commercial & Central items
Banking Banking Institutional & other Total
Half year ended 30 June 2023 £m £m £m £m £m
Continuing operations
External 3,419 550 5,734 2,095 11,798
Inter-segmental 1 418 (720) 301 -
Total 3,420 968 5,014 2,396 11,798
Half year ended 30 June 2022
Continuing operations
External 2,766 407 3,020 1,242 7,435
Inter-segmental - 106 76 (182) -
Total 2,766 513 3,096 1,060 7,435
(1) Total revenue comprises interest receivable, fees and commissions receivable,
income from trading activities and other operating income.
Analysis of net fees and commissions
Retail Private Commercial & Central items
Banking Banking Institutional & other Total
Half year ended 30 June 2023 £m £m £m £m £m
Continuing operations
Fees and commissions receivable
- Payment services 159 16 332 3 510
- Credit and debit card fees 197 6 129 2 334
- Lending and financing 8 3 335 1 347
- Brokerage 18 3 21 - 42
- Investment management,
trustee and fiduciary services 1 105 22 - 128
- Underwriting fees - - 71 - 71
- Other 1 2 31 (7) 27
Total 384 135 941 (1) 1,459
Fees and commissions payable (178) (10) (120) (7) (315)
Net fees and commissions 206 125 821 (8) 1,144
Half year ended 30 June 2022
Continuing operations
Fees and commissions receivable
- Payment services 152 17 308 26 503
- Credit and debit card fees 203 8 102 10 323
- Lending and financing 8 4 327 1 340
- Brokerage 27 3 21 - 51
- Investment management,
trustee and fiduciary services 1 114 22 - 137
- Underwriting fees - - 65 - 65
- Other - - 56 (51) 5
Total 391 146 901 (14) 1,424
Fees and commissions payable (172) (15) (148) 35 (300)
Net fees and commissions 219 131 753 21 1,124
Total assets and liabilities
Retail Private Commercial & Central items
Banking Banking Institutional & other Total
30 June 2023 £m £m £m £m £m
Assets 229,150 27,295 401,548 44,608 702,601
Liabilities 186,971 36,755 378,498 65,579 667,803
31 December 2022
Assets 226,375 29,867 404,817 58,994 720,053
Liabilities 192,282 41,491 383,768 66,016 683,557
Notes
6. Tax
The actual tax charge differs from the expected tax charge computed by
applying the standard UK corporation tax rate of 23.5% (2022 - 19%), as
analysed below:
Half year ended
30 June 30 June
2023 2022
Continuing operations £m £m
Profit before tax 3,589 2,620
Expected tax charge (843) (498)
Losses and temporary differences in period where no deferred tax assets (38) (51)
recognised
Foreign profits taxed at other rates (21) (39)
Items not allowed for tax:
- losses on disposals and write-downs (1) (4)
- UK bank levy (12) (9)
- regulatory and legal actions (3) (13)
- other disallowable items (18) (12)
Non-taxable items:
- FX recycling on UBIDAC capital reduction 75 -
- other non-taxable items 14 8
Taxable foreign exchange movements 6 (7)
Losses bought forward and utilised 8 -
Increase/(decrease) in the carrying value of deferred tax assets in respect
of:
- UK losses - 10
- Ireland losses - (1)
Banking surcharge (144) (207)
Tax on paid-in equity 22 22
UK tax rate change impact - (31)
Adjustments in respect of prior periods (106) 37
Actual tax charge (1,061) (795)
At 30 June 2023, NatWest Group has recognised a deferred tax asset of £2,171
million (31 December 2022 - £2,178 million) and a deferred tax liability of
£210 million (31 December 2022 - £227 million). These amounts include
deferred tax assets recognised in respect of trading losses of £773 million
(31 December 2022 - £952 million). NatWest Group has considered the carrying
value of these assets as at 30 June 2023 and concluded that they are
recoverable.
7. Discontinued operations and assets and liabilities of disposal groups
Three legally binding agreements for the sale of UBIDAC business have been
announced as part of the phased withdrawal from the Republic of Ireland.
Material developments since the end of Q1 2023 are set out below.
Agreement with Allied Irish Banks, p.l.c. (AIB) for the transfer of performing
commercial loans.
In July 2023, UBIDAC completed the sale of commercial loans to AIB, with a
cumulative €3.1 billion of gross performing loans being fully migrated. The
transfer of the final cohort of colleagues to AIB who were wholly or mainly
assigned to supporting this part of the business under Transfer of
Undertakings, Protection of Employment (TUPE) arrangements has also materially
completed. Losses on disposal of €55 million have been recognised in respect
of the migrations completed during H1 2023 (30 June 2022: €5 million).
Agreement with Permanent TSB Group Holdings p.l.c. (PTSB) for the sale of
performing non-tracker mortgages, the performing loans in the micro-SME
business, the UBIDAC Asset Finance business, including its Lombard digital
platform, and 25 Ulster Bank branch locations in the Republic of Ireland.
During Q2 2023, the remaining performing non-tracker mortgage and micro-SME
balances were transferred to PTSB, with a cumulative €6.3 billion of gross
performing loans being fully migrated. In July 2023, the Lombard Asset Finance
business which included balances of c. €500 million migrated to PTSB and the
transfer of remaining colleagues who were eligible to move to PTSB under TUPE
regulations has also materially completed. The 25 Ulster Bank branches had
already been transferred to PTSB during Q1 2023.
Agreement with AIB for the sale of performing tracker and linked mortgages.
In July 2023, UBIDAC completed the migration of €4.0 billion of performing
tracker and linked mortgages to AIB. The remaining migrations are expected to
occur in H2 2023.
The business activities relating to these sales that meet the requirements of
IFRS 5 are presented as a discontinued operation and as a disposal group.
Ulster Bank RoI continuing operations are reported within NatWest Group
Central items & other.
Notes
7. Discontinued operations and assets and liabilities of disposal groups
continued
(a) Profit from discontinued operations, net of tax
30 June 30 June
2023 2022
£m £m
Interest receivable 26 156
Net interest income 26 156
Non-interest income (14) (4)
Total income 12 152
Operating expenses (122) (24)
(Loss)/profit before impairment releases (110) 128
Impairment releases 2 62
Operating (loss)/profit before tax (108) 190
Tax charge - -
(Loss)/profit from discontinued operations, net of tax (108) 190
(b) Assets and liabilities of disposal groups
30 June 31 December
2023 2022
£m £m
Assets of disposal groups
Loans to customers - amortised cost 549 1,458
Other financial assets - loans to customers 4,025 5,397
Other assets 1 6
4,575 6,861
Liabilities of disposal groups
Other liabilities 5 15
5 15
Net assets of disposal groups 4,570 6,846
(c) Operating cash flows attributable to discontinued operations
30 June 30 June
2023 2022
£m £m
Net cash flows from operating activities 577 402
Net cash flows from investing activities 1,591 150
Net increase in cash and cash equivalents 2,168 552
Notes
8. Financial instruments - classification
The following tables analyse financial assets and liabilities in accordance
with the categories of financial instruments in IFRS 9.
Amortised Other
MFVTPL FVOCI cost assets Total
£m £m £m £m £m
Assets
Cash and balances at central banks 123,022 123,022
Trading assets 48,893 48,893
Derivatives (1) 81,873 81,873
Settlement balances 11,298 11,298
Loans to banks - amortised cost (2) 7,338 7,338
Loans to customers - amortised cost (3) 373,885 373,885
Other financial assets (4) 714 18,176 16,626 35,516
Intangible assets 7,453 7,453
Other assets 8,748 8,748
Assets of disposal groups (5) 4,575 4,575
30 June 2023 131,480 18,176 532,169 20,776 702,601
Cash and balances at central banks 144,832 144,832
Trading assets 45,577 45,577
Derivatives (1) 99,545 99,545
Settlement balances 2,572 2,572
Loans to banks - amortised cost (2) 7,139 7,139
Loans to customers - amortised cost (3) 366,340 366,340
Other financial assets (4) 787 16,973 13,135 30,895
Intangible assets 7,116 7,116
Other assets 9,176 9,176
Assets of disposal groups (5) 6,861 6,861
31 December 2022 145,909 16,973 534,018 23,153 720,053
Held-for- Amortised Other
trading DFV cost liabilities Total
£m £m £m £m £m
Liabilities
Bank deposits (6) 21,721 21,721
Customer deposits 432,532 432,532
Settlement balances 10,282 10,282
Trading liabilities 56,182 56,182
Derivatives (1) 77,246 77,246
Other financial liabilities (7) 2,408 53,340 55,748
Subordinated liabilities 217 5,803 6,020
Notes in circulation 3,159 3,159
Other liabilities (8) 1,032 3,881 4,913
30 June 2023 133,428 2,625 527,869 3,881 667,803
Bank deposits (6) 20,441 20,441
Customer deposits 450,318 450,318
Settlement balances 2,012 2,012
Trading liabilities 52,808 52,808
Derivatives (1) 94,047 94,047
Other financial liabilities (7) 2,377 46,730 49,107
Subordinated liabilities 345 5,915 6,260
Notes in circulation 3,218 3,218
Other liabilities (8) 1,205 4,141 5,346
31 December 2022 146,855 2,722 529,839 4,141 683,557
(1) Includes net hedging derivative assets of £103 million (31
December 2022 - £143 million) and net hedging derivative liabilities of £359
million (31 December 2022 - £132 million).
(2) Includes items in the course of collection from other banks of
£140 million (31 December 2022 - £229 million).
(3) Includes finance lease receivables of £8,741 million (31 December
2022 - £8,402 million).
(4) Includes amounts reclassified from amortised cost to FVTPL in
relation to a mortgage portfolio in the prior year. Refer to Note 7 for
further information.
(5) Includes £4,025 million (31 December 2022 - £5,397 million) of
assets of disposal groups held at FVTPL. The portfolio is classified as level
3 in the fair value hierarchy.
(6) Includes items in the course of transmission to other banks of
£49 million (31 December 2022 - £242 million).
(7) The carrying amount of other customer accounts designated at fair
value through profit or loss is the same as the principal amount for both
periods. No amounts have been recognised in the profit or loss for changes in
credit risk associated with these liabilities as the changes are immaterial
both during the period and cumulatively.
(8) Includes lease liabilities of £948 million (31 December 2022 -
£1,118 million), held at amortised cost.
Notes
8. Financial instruments - classification continued
30 June 31 December
2023 2022
£m £m
Reverse repos
Trading assets 21,347 21,537
Loans to banks - amortised cost 280 277
Loans to customers - amortised cost 21,420 19,750
Repos
Bank deposits 2,231 1,446
Customer deposits 9,322 9,829
Trading liabilities 27,808 23,740
8. Financial instruments - valuation
Disclosures relating to the control environment, valuation techniques and
related aspects pertaining to financial instruments measured at fair value are
included in NatWest Group plc's 2022 Annual Report and Accounts. Valuation,
sensitivity methodologies and inputs at 30 June 2023 are consistent with those
described in Note 11 to NatWest Group plc's 2022 Annual Report and Accounts.
Fair value hierarchy
The table below shows the assets and liabilities held by NatWest Group split
by fair value hierarchy level. Level 1 are considered the most liquid
instruments, and level 3 the most illiquid, valued using expert judgment and
hence carry the most significant price uncertainty.
30 June 2023 31 December 2022
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
£m £m £m £m £m £m £m £m
Assets
Trading assets
Loans - 31,756 277 32,033 - 35,260 395 35,655
Securities 13,099 3,761 - 16,860 7,463 2,458 1 9,922
Derivatives 1 80,942 930 81,873 5 98,533 1,007 99,545
Other financial assets
Loans - 119 684 803 - 172 727 899
Securities 10,488 7,385 214 18,087 10,380 6,278 203 16,861
Total financial assets held at fair value 23,588 123,963 2,105 149,656 17,848 142,701 2,333 162,882
As a % of total value assets 16% 83% 1% 11% 88% 1%
Liabilities
Trading liabilities
Deposits - 44,256 1 44,257 - 42,486 1 42,487
Debt securities in issue - 713 1 714 - 797 - 797
Short positions 9,142 2,069 - 11,211 7,462 2,062 - 9,524
Derivatives 1 76,350 895 77,246 2 93,070 975 94,047
Other financial liabilities
Debt securities in issue - 1,323 - 1,323 - 1,327 - 1,327
Other deposits - 1,085 - 1,085 - 1,050 - 1,050
Subordinated liabilities - 217 - 217 - 345 - 345
Total financial liabilities held at fair value 9,143 126,013 897 136,053 7,464 141,137 976 149,577
As a % of total value assets 7% 92% 1% 5% 94% 1%
(1) Level 1 - Instruments valued using unadjusted quoted prices in active and
liquid markets, for identical financial instruments. Examples include
government bonds, listed equity shares and certain exchange-traded
derivatives.
Level 2 - Instruments valued using valuation techniques that have observable
inputs. Observable inputs are those that are readily available with limited
adjustments required. Examples include most government agency securities,
investment-grade corporate bonds, certain mortgage products - including CLOs,
most bank loans, repos and reverse repos, state and municipal obligations,
most notes issued, certain money market securities, loan commitments and most
OTC derivatives.
Level 3 - Instruments valued using a valuation technique where at least one
input which could have a significant effect on the instrument's valuation, is
not based on observable market data. Examples include non-derivative
instruments which trade infrequently, certain syndicated and commercial
mortgage loans, private equity, and derivatives with unobservable model
inputs.
(2) Transfers between levels are deemed to have occurred at the beginning of the
quarter in which the instrument was transferred.
(3) For an analysis of debt securities held at mandatorily fair value through
profit or loss by issuer as well as ratings and derivatives, by type and
contract, refer to Risk and capital management - Credit risk.
Notes
8. Financial instruments - valuation continued
Valuation adjustments
When valuing financial instruments in the trading book, adjustments are made
to mid-market valuations to cover bid-offer spread, funding and credit risk.
These adjustments are presented in the table below. For further information
refer to the descriptions of valuation adjustments within 'Financial
instruments - valuation' on page 343 of NatWest Group plc's 2022 Annual Report
and Accounts.
30 June 31 December
2023 2022
£m £m
Funding - FVA 126 173
Credit - CVA 253 300
Bid - Offer 89 130
Product and deal specific 117 141
Total 585 744
- Valuation reserves comprising credit valuation adjustments (CVA),
funding valuation adjustment (FVA), bid-offer and product and deal specific
reserves, decreased to £585 million at 30 June 2023 (31 December 2022 - £744
million).
- The decrease in FVA was primarily driven by increases in interest
rates. The decrease in CVA is driven by a combination of tighter credit
spreads and increases in interest rates. The decrease in bid-offer was driven
by risk reduction over the period.
Level 3 sensitivities
The table below shows the high and low range of fair value of the level 3
assets and liabilities.
30 June 2023 31 December 2022
Level 3 Favourable Unfavourable Level 3 Favourable Unfavourable
£m £m £m £m £m £m
Assets
Trading assets
Loans 277 - - 395 10 (10)
Securities - - - 1 - -
Derivatives 930 30 (40) 1,007 50 (50)
Other financial assets
Loans 684 - (30) 727 - (10)
Securities 214 30 (30) 203 20 (30)
Total financial assets held at fair value 2,105 60 (100) 2,333 80 (100)
Liabilities
Trading liabilities
Deposits 1 - - 1 - -
Debt securities in issue 1 - - - - -
Derivatives 895 30 (30) 975 30 (30)
Total financial liabilities held at fair value 897 30 (30) 976 30 (30)
Alternative assumptions
Reasonably plausible alternative assumptions of unobservable inputs are
determined based on a specified target level of certainty of 90%. Alternative
assumptions are determined with reference to all available evidence including
consideration of the following: quality of independent pricing information
considering consistency between different sources, variation over time,
perceived tradability or otherwise of available quotes; consensus service
dispersion ranges; volume of trading activity and market bias (e.g. one-way
inventory); day 1 profit or loss arising on new trades; number and nature of
market participants; market conditions; modelling consistency in the market;
size and nature of risk; length of holding of position; and market
intelligence.
Notes
8. Financial instruments - valuation continued
Movement in level 3 assets and liabilities
The following table shows the movement in level 3 assets and liabilities.
Half year ended 30 June 2023 Half year ended 30 June 2022
Other Other
Trading financial Total Total Trading financial Total Total
assets (1) assets (2) assets liabilities assets (1) assets (2) assets liabilities
£m £m £m £m £m £m £m £m
At 1 January 1,403 930 2,333 976 1,659 393 2,052 609
Amounts recorded in the income
statement (3) (80) - (80) (84) 134 (20) 114 139
Amount recorded in the statement of
comprehensive income - 12 12 - - (19) (19) -
Level 3 transfers in 4 (72) (68) 7 143 - 143 31
Level 3 transfers out (34) - (34) (5) (101) (1) (102) (36)
Purchases/originations 92 68 160 89 352 67 419 154
Settlements/other decreases (24) - (24) (27) (28) - (28) (15)
Sales (150) (25) (175) (54) (526) - (526) (133)
Foreign exchange and other
adjustments (4) (15) (19) (5) 4 2 6 2
At 30 June 1,207 898 2,105 897 1,637 422 2,059 751
Amounts recorded in the income statement
in respect of balances held at period end
- unrealised (80) (1) (81) (84) 134 (20) 114 139
(1) Trading assets comprise assets held at fair value in trading portfolios.
(2) Other financial assets comprise fair value through other comprehensive income,
designated at fair value through profit or loss and other fair value through
profit or loss.
(3) Net gains of £4 million on trading assets and liabilities (30 June 2022 - £5
million net losses) were recorded in income from trading activities. Net
losses on other instruments of nil (30 June 2022 - £20 million) were recorded
in other operating income and interest income as appropriate.
Notes
8. Financial instruments - valuation continued
Fair value of financial instruments measured at amortised cost on the balance
sheet
The following table shows the carrying value and fair value of financial
instruments carried at amortised cost on the balance sheet.
Items where
fair value
approximates Carrying Fair value hierarchy level
carrying value value Fair value Level 1 Level 2 Level 3
30 June 2023 £bn £bn £bn £bn £bn £bn
Financial Assets
Cash and balances at central banks 123.0
Settlement balances 11.3
Loans to banks 0.2 7.1 7.2 - 4.7 2.5
Loans to customers 373.9 359.3 - 21.7 337.6
Other financial assets - securities 16.6 16.3 5.2 3.7 7.4
31 December 2022
Financial Assets
Cash and balances at central banks 144.8
Settlement balances 2.6
Loans to banks 0.1 7.0 7.0 - 4.2 2.8
Loans to customers 366.3 354.5 - 20.3 334.2
Other financial assets - securities 13.1 12.8 3.6 3.2 6.0
30 June 2023
Financial Liabilities
Bank deposits 4.6 17.1 16.9 - 14.1 2.8
Customer deposits 373.4 59.1 59.3 - 18.4 40.9
Settlement balances 10.3
Other financial liabilities - debt securities in issue 53.3 52.8 - 40.5 12.3
Subordinated liabilities 5.8 5.5 - 5.4 0.1
Notes in circulation 3.2
31 December 2022
Financial Liabilities
Bank deposits 4.7 15.7 15.3 - 13.1 2.2
Customer deposits 407.0 43.3 43.3 - 12.7 30.6
Settlement balances 2.0
Other financial liabilities - debt securities in issue 46.7 46.1 - 40.7 5.4
Subordinated liabilities 5.9 5.6 - 5.5 0.1
Notes in circulation 3.2
The assumptions and methodologies underlying the calculation of fair values of
financial instruments at the balance sheet date are as follows:
Short-term financial instruments
For certain short-term financial instruments: cash and balances at central
banks, items in the course of collection from other banks, settlement
balances, items in the course of transmission to other banks, customer demand
deposits and notes in circulation, carrying value is deemed a reasonable
approximation of fair value.
Loans to banks and customers
In estimating the fair value of net loans to customers and banks measured at
amortised cost, NatWest Group's loans are segregated into appropriate
portfolios reflecting the characteristics of the constituent loans. Two
principal methods are used to estimate fair value; contractual cash flows and
expected cash flows.
Debt securities and subordinated liabilities
Most debt securities are valued using quoted prices in active markets or from
quoted prices of similar financial instruments in active markets. For the
remaining population, fair values are determined using market standard
valuation techniques, such as discounted cash flows.
Bank and customer deposits
Fair value of deposits are estimated using discounted cash flow valuation
techniques.
Notes
9. Trading assets and liabilities
Trading assets and liabilities comprise assets and liabilities held at fair
value in trading portfolios.
30 June 31 December
2023 2022
£m £m
Assets
Loans
Reverse repos 21,347 21,537
Collateral given 10,027 13,005
Other loans 659 1,113
Total loans 32,033 35,655
Securities
Central and local government
- UK 2,703 2,205
- US 5,478 2,345
- Other 4,845 2,799
Financial institutions and Corporate 3,834 2,573
Total securities 16,860 9,922
Total 48,893 45,577
Liabilities
Deposits
Repos 27,808 23,740
Collateral received 15,234 17,680
Other deposits 1,215 1,067
Total deposits 44,257 42,487
Debt securities in issue 714 797
Short positions 11,211 9,524
Total 56,182 52,808
Notes
10. Loan impairment provisions
Loan exposure and impairment metrics
The table below summarises loans and related credit impairment measures on an
IFRS 9 basis.
30 June 31 December
2023 2022
£m £m
Loans - amortised cost and FVOCI (1)
Stage 1 336,362 325,224
Stage 2 43,440 46,833
Stage 3 5,450 5,096
Of which: individual 1,247 1,121
Of which: collective 4,203 3,975
385,252 377,153
ECL provisions (2)
Stage 1 661 632
Stage 2 991 1043
Stage 3 1,905 1,759
Of which: individual 295 287
Of which: collective 1,610 1,472
3,557 3,434
ECL provisions coverage (3)
Stage 1 (%) 0.20 0.19
Stage 2 (%) 2.28 2.23
Stage 3 (%) 34.95 34.52
0.92 0.91
Half year ended
30 June 30 June
2023 2022
£m £m
Impairment losses (4)
ECL (release)/charge 223 (54)
Stage 1 (209) (342)
Stage 2 296 205
Stage 3 136 83
Of which: individual 13 (1)
Of which: collective 123 84
Amounts written off 122 215
Of which: individual 22 58
Of which: collective 100 157
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).
Notes
11. Provisions for liabilities and charges
Financial
Customer Litigation and commitments
redress other regulatory Property and guarantees Other (1) Total
£m £m £m £m £m £m
At 1 January 2023 431 240 154 87 226 1,138
Expected credit losses impairment release - - - (2) - (2)
Currency translation and other movements (8) (8) (1) - (7) (24)
Charge to income statement 145 5 27 - 60 237
Release to income statement (5) (33) (26) - (13) (77)
Provisions utilised (104) (63) (9) - (70) (246)
At 30 June 2023 459 141 145 85 196 1,026
(1) Other materially comprises provisions relating to restructuring
costs.
Provisions are liabilities of uncertain timing or amount and are recognised
when there is a present obligation as a result of a past event, the outflow of
economic benefit is probable and the outflow can be estimated reliably. Any
difference between the final outcome and the amounts provided will affect the
reported results in the period when the matter is resolved.
12. Dividends
The 2022 final dividend was approved by shareholders at the Annual General
Meeting on 25 April 2023 and the payment made on 2 May 2023 to shareholders on
the register at the close of business on 17 March 2023.
NatWest Group plc announces an interim dividend for 2023 of £492 million, or
5.5 pence per ordinary share. The interim dividend will be paid on 15
September 2023 to shareholders on the register at close of business on 11
August 2023. The ex-dividend date will be 10 August 2023.
13. Contingent liabilities and commitments
The amounts shown in the table below are intended only to provide an
indication of the volume of business outstanding at 30 June 2023. Although
NatWest Group is exposed to credit risk in the event of a customer's failure
to meet its obligations, the amounts shown do not, and are not intended to,
provide any indication of NatWest Group's expectation of future losses.
30 June 31 December
2023 2022
£m £m
Contingent liabilities and commitments
Guarantees 2,846 3,150
Other contingent liabilities 1,531 1,855
Standby facilities, credit lines and other commitments 120,262 121,576
Total 124,639 126,581
Commitments and contingent obligations are subject to NatWest Group's normal
credit approval processes.
Notes
14. Litigation and regulatory matters
NatWest Group plc and certain members of NatWest Group are party to legal
proceedings and involved in regulatory matters, including as the subject of
investigations and other regulatory and governmental action (Matters) in the
United Kingdom (UK), the United States (US), the European Union (EU) and other
jurisdictions.
NatWest Group recognises a provision for a liability in relation to these
Matters when it is probable that an outflow of economic benefits will be
required to settle an obligation resulting from past events, and a reliable
estimate can be made of the amount of the obligation.
In many of these Matters, it is not possible to determine whether any loss is
probable, or to estimate reliably the amount of any loss, either as a direct
consequence of the relevant proceedings and regulatory matters or as a result
of adverse impacts or restrictions on NatWest Group's reputation, businesses
and operations. Numerous legal and factual issues may need to be resolved,
including through potentially lengthy discovery and document production
exercises and determination of important factual matters, and by addressing
novel or unsettled legal questions relevant to the proceedings in question,
before a liability can reasonably be estimated for any claim. NatWest Group
cannot predict if, how, or when such claims will be resolved or what the
eventual settlement, damages, fine, penalty or other relief, if any, may be,
particularly for claims that are at an early stage in their development or
where claimants seek substantial or indeterminate damages.
There are situations where NatWest Group may pursue an approach that in some
instances leads to a settlement agreement. This may occur in order to avoid
the expense, management distraction or reputational implications of continuing
to contest liability, or in order to take account of the risks inherent in
defending claims or regulatory matters, even for those Matters for which
NatWest Group believes it has credible defences and should prevail on the
merits. The uncertainties inherent in all such Matters affect the amount and
timing of any potential outflows for both Matters with respect to which
provisions have been established and other contingent liabilities in respect
of any such Matter.
It is not practicable to provide an aggregate estimate of potential liability
for our legal proceedings and regulatory matters as a class of contingent
liabilities.
The future outflow of resources in respect of any Matter may ultimately prove
to be substantially greater than or less than the aggregate provision that
NatWest Group has recognised. Where (and as far as) liability cannot be
reasonably estimated, no provision has been recognised. NatWest Group expects
that in future periods, additional provisions, settlement amounts and customer
redress payments will be necessary, in amounts that are expected to be
substantial in some instances. Please refer to Note 11 for information on
material provisions.
Matters which are, or could be material, having regard to NatWest Group,
considered as a whole, in which NatWest Group is currently involved are set
out below. We have provided information on the procedural history of certain
Matters, where we believe appropriate, to aid the understanding of the Matter.
For a discussion of certain risks associated with NatWest Group's litigation
and regulatory matters, see the Risk Factor relating to legal, regulatory and
governmental actions and investigations set out on page 424 of NatWest Group
plc's 2022 Annual Report and Accounts.
Litigation
Residential mortgage-backed securities (RMBS) litigation in the US
NWMSI was defending an RMBS-related claim in the US in which the plaintiff,
the Federal Deposit Insurance Corporation (FDIC), alleged that certain
disclosures made in connection with the relevant offerings of RMBS contained
materially false or misleading statements and/or omissions regarding the
underwriting standards pursuant to which the mortgage loans underlying the
RMBS were issued. In June 2023, NWMSI entered into an agreement to resolve
that claim. The settlement amount paid by NWMSI was covered by an existing
provision.
London Interbank Offered Rate (LIBOR) and other rates litigation
NWM Plc and certain other members of NatWest Group, including NatWest Group
plc, are defendants in a number of class actions and individual claims pending
in the United States District Court for the Southern District of New York
(SDNY) with respect to the setting of LIBOR and certain other benchmark
interest rates. The complaints allege that certain members of NatWest Group
and other panel banks violated various federal laws, including the US
commodities and antitrust laws, and state statutory and common law, as well as
contracts, by manipulating LIBOR and prices of LIBOR-based derivatives in
various markets through various means.
Several purported class actions relating to USD LIBOR, as well as more than
two dozen non-class actions concerning USD LIBOR, are part of a co-ordinated
proceeding in the SDNY. The class actions include claims on behalf of persons
who purchased LIBOR-linked instruments from defendants, bonds issued by
defendants, persons who transacted futures and options on exchanges, and
lenders who made LIBOR-based loans. The coordinated proceeding is currently in
the discovery phase. In March 2020, NatWest Group companies finalised a
settlement resolving the class action on behalf of bondholder plaintiffs
(those who held bonds issued by non-defendants on which interest was paid from
2007 to 2010 at a rate expressly tied to USD LIBOR). The amount of the
settlement (which was covered by an existing provision) was paid into escrow
pending court approval of the settlement.
The non-class claims filed in the SDNY include claims that the FDIC is
asserting on behalf of certain failed US banks. In July 2017, the FDIC, on
behalf of 39 of those failed US banks, commenced substantially similar claims
against NatWest Group companies and others in the High Court of Justice of
England and Wales. The action alleges collusion with regard to the setting of
USD LIBOR and that the defendants breached UK and European competition law, as
well as asserting common law claims of fraud under US law. The defendant banks
consented to a request by the FDIC for discontinuance of the claim in respect
of 20 failed US banks, leaving 19 failed US banks as claimants. The trial is
currently anticipated to take place in Q4 2025.
Notes
14. Litigation and regulatory matters continued
In addition to the USD LIBOR cases described above, there are two class
actions relating to JPY LIBOR and Euroyen TIBOR. The first class action, which
relates to Euroyen TIBOR futures contracts, was dismissed by the SDNY in
September 2020 on jurisdictional and other grounds, and that decision was
affirmed by the United States Court of Appeals for the Second Circuit (US
Court of Appeals) in October 2022. The plaintiffs petitioned the court for a
rehearing of their appeal and that petition was denied. The second class
action, which relates to other derivatives allegedly tied to JPY LIBOR and
Euroyen TIBOR, was dismissed by the SDNY in relation to NWM Plc and other
NatWest Group companies in September 2021. That dismissal may be the subject
of a future appeal.
Two other IBOR-related class actions, concerning alleged manipulation of
Euribor and Pound Sterling LIBOR, were previously dismissed by the SDNY for
various reasons. The plaintiffs' appeals in those two cases remain pending.
In June 2021, NWM Plc and the plaintiffs in the Swiss Franc LIBOR class action
finalised a settlement resolving that case. The amount of that settlement has
been paid into escrow pending final court approval of the settlement.
In August 2020, a complaint was filed in the United States District Court for
the Northern District of California by several United States retail borrowers
against the USD ICE LIBOR panel banks and their affiliates (including NatWest
Group plc, NWM Plc, NWMSI and NWB Plc), alleging (i) that the very process of
setting USD ICE LIBOR amounts to illegal price-fixing; and (ii) that banks in
the United States have illegally agreed to use LIBOR as a component of price
in variable retail loans. In September 2022, the district court dismissed the
complaint, subject to re-pleading by the plaintiffs. The plaintiffs filed an
amended complaint in October 2022, which the defendants are again seeking to
have dismissed.
NWM Plc is also named as a defendant in a motion to certify a class action
relating to LIBOR in the Tel Aviv District Court in Israel. NWM Plc filed a
motion for cancellation of service outside the jurisdiction, which was granted
in July 2020. The claimants appealed that decision and in November 2020 the
appeal was refused and the claim dismissed by the Appellate Court. The claim
could in future be recommenced depending on the outcome of an appeal to
Israel's Supreme Court in respect of the dismissal of the substantive case
against banks that had a presence in Israel.
FX litigation
NWM Plc, NWMSI and/or NatWest Group plc are defendants in several cases
relating to NWM Plc's foreign exchange (FX) business. In 2015, NWM Plc paid
US$255 million to settle the consolidated antitrust class action filed in the
SDNY on behalf of persons who entered into over-the-counter FX transactions
with defendants or who traded FX instruments on exchanges. In 2018, some
members of the settlement class who opted out of that class action settlement
filed their own non-class complaint in the SDNY asserting antitrust claims
against NWM Plc, NWMSI and other banks.
In April 2019, some of the claimants in the opt-out case described above, as
well as others, served proceedings in the High Court of Justice of England and
Wales, asserting competition claims against NWM Plc and several other banks.
The claim was transferred from the High Court of Justice of England and Wales
in December 2021 and registered in the UK Competition Appeal Tribunal (CAT) in
January 2022. In March 2023, NWM Plc entered into an agreement to resolve both
the SDNY and CAT cases. The settlement amount paid by NWM Plc was covered by
an existing provision.
An FX-related class action, on behalf of 'consumers and end-user businesses',
was proceeding in the SDNY against NWM Plc and others. In March 2023, the
court granted summary judgment in favour of the defendants, dismissing the
plaintiffs' claims. The plaintiffs have commenced an appeal of that decision
as well as a prior decision denying class certification in the case.
In May 2019, a cartel class action was filed in the Federal Court of Australia
against NWM Plc and four other banks on behalf of persons who bought or sold
currency through FX spots or forwards between 1 January 2008 and 15 October
2013 with a total transaction value exceeding AUD $0.5 million. The claimant
has alleged that the banks, including NWM Plc, contravened Australian
competition law by sharing information, coordinating conduct, widening spreads
and manipulating FX rates for certain currency pairs during this period.
NatWest Group plc and NWMSI have been named in the action as 'other cartel
participants', but are not respondents. The claim was served in June 2019 and
NWM Plc filed its defence in March 2022.
In July and December 2019, two separate applications seeking opt-out
collective proceedings orders were filed in the CAT against NatWest Group plc,
NWM Plc and other banks. Both applications were brought on behalf of persons
who, between 18 December 2007 and 31 January 2013, entered into a relevant FX
spot or outright forward transaction in the EEA with a relevant financial
institution or on an electronic communications network. In March 2022, the CAT
declined to certify as collective proceedings either of the applications,
which was appealed by the applicants, and the subject of an application for
judicial review. In July 2023, the Court of Appeal allowed the appeal and
decided that the claims should proceed on an opt-out basis. Separately, the
court determined which of the two competing applicants can proceed as class
representative, and dismissed the application for judicial review of the CAT's
decision. Subject to any potential appeal to the UK Supreme Court, the case
will be remitted to the CAT for further case management.
Two motions to certify FX-related class actions were filed in the Tel Aviv
District Court in Israel in September and October 2018, and were subsequently
consolidated into one motion. The consolidated motion to certify, which names
The Royal Bank of Scotland plc (now NWM Plc) and several other banks as
defendants, was served on NWM Plc in May 2020. The applicants have sought the
court's permission to amend their motions to certify the class actions. NWM
Plc has filed a motion challenging the permission granted by the court for the
applicants to serve the consolidated motion outside the Israeli jurisdiction.
That NWM Plc motion remains pending.
Notes
14. Litigation and regulatory matters continued
In December 2021, a claim was filed in the Netherlands against NatWest Group
plc, NWM Plc and NWM N.V. by Stichting FX Claims on behalf of a number of
claimants, seeking a declaration from the court that anti-competitive FX
market conduct described in decisions of the European Commission (EC) of 16
May 2019 is unlawful, along with unspecified damages. The claimants amended
their claim to also refer to a December 2021 decision by the EC, which
described anti-competitive FX market conduct. The defendants contested the
jurisdiction of the Dutch court. In March 2023, the district court in
Amsterdam accepted that it has jurisdiction to hear claims against NWM N.V.
but refused jurisdiction to hear any claims against the other defendant banks
(including NatWest Group plc and NWM Plc) unless the claimants are domiciled
in the Netherlands. Certain of the claimants are so domiciled and are
therefore permitted to continue with their claims against all defendants,
including NatWest Group plc and NWM Plc. The claimants are appealing that
decision. In June 2023, a new group of claimants indicated their intention to
join Stichting FX Claims to pursue similar claims against the defendants.
Certain other foreign exchange transaction related claims have been or may be
threatened. NatWest Group cannot predict whether all or any of these claims
will be pursued.
Government securities antitrust litigation
NWMSI and certain other US broker-dealers are defendants in a consolidated
antitrust class action in the SDNY on behalf of persons who transacted in US
Treasury securities or derivatives based on such instruments, including
futures and options. The plaintiffs allege that the defendants rigged the US
Treasury securities auction bidding process to deflate prices at which they
bought such securities and colluded to increase the prices at which they sold
such securities to the plaintiffs. In March 2022, the SDNY dismissed the
complaint, without leave to re-plead. The plaintiffs are appealing the
dismissal.
Class action antitrust claims commenced in March 2019 are pending in the SDNY
against NWM Plc, NWMSI and other banks in respect of Euro-denominated bonds
issued by European central banks (EGBs). The complaint alleges a conspiracy
among dealers of EGBs to widen the bid-ask spreads they quoted to customers,
thereby increasing the prices customers paid for the EGBs or decreasing the
prices at which customers sold the bonds. The class consists of those who
purchased or sold EGBs in the US between 2007 and 2012. In March 2022, the
SDNY dismissed the claims against NWM Plc and NWMSI on the ground that the
complaint's conspiracy allegations are insufficient. The plaintiffs have filed
a motion for permission to file an amended complaint.
Swaps antitrust litigation
NWM Plc and other members of NatWest Group, including NatWest Group plc, as
well as a number of other interest rate swap dealers, are defendants in
several cases pending in the SDNY alleging violations of the US antitrust laws
in the market for interest rate swaps. There is a consolidated class action
complaint on behalf of persons who entered into interest rate swaps with the
defendants, as well as non-class action claims by three swap execution
facilities (TeraExchange, Javelin, and trueEx). The plaintiffs allege that the
swap execution facilities would have successfully established exchange-like
trading of interest rate swaps if the defendants had not unlawfully conspired
to prevent that from happening through boycotts and other means. Discovery in
these cases is complete, and the plaintiffs' motion for class certification
remains pending.
In June 2021, a class action antitrust complaint was filed against a number of
credit default swap dealers, in New Mexico federal court on behalf of persons
who, from 2005 onwards, settled credit default swaps in the United States by
reference to the ISDA credit default swap auction protocol. The complaint
alleges that the defendants conspired to manipulate that benchmark through
various means in violation of the antitrust laws and the Commodity Exchange
Act. The defendants filed a motion to dismiss the complaint and, in June 2023,
such motion was denied as regards NWMSI and other financial institutions, but
granted as regards to NWM Plc on the ground that the court lacks jurisdiction
over that entity. As a result, the case is now expected to enter the discovery
phase as against the non-dismissed defendants.
Odd lot corporate bond trading antitrust litigation
In October 2021, the SDNY granted the defendants' motion to dismiss the class
action antitrust complaint alleging that from August 2006 onwards various
securities dealers, including NWMSI, conspired artificially to widen spreads
for odd lots of corporate bonds bought or sold in the United States secondary
market and to boycott electronic trading platforms that would have allegedly
promoted pricing competition in the market for such bonds. The plaintiffs have
filed an appeal.
Spoofing litigation
In December 2021, three substantially similar class actions complaints were
filed in federal court in the United States against NWM Plc and NWMSI alleging
Commodity Exchange Act and common law unjust enrichment claims arising from
manipulative trading known as spoofing. The complaints refer to NWM Plc's
December 2021 spoofing-related guilty plea (described below under "US
investigations relating to fixed-income securities") and purport to assert
claims on behalf of those who transacted in US Treasury securities and futures
and options on US Treasury securities between 2008 and 2018. In July 2022,
defendants filed a motion to dismiss these claims, which have been
consolidated into one matter in the United States District Court for the
Northern District of Illinois.
Notes
14. Litigation and regulatory matters continued
Madoff
NWM N.V. was named as a defendant in two actions filed by the trustee for the
bankrupt estates of Bernard L. Madoff and Bernard L. Madoff Investment
Securities LLC, in bankruptcy court in New York, which together seek to
clawback more than US$298 million that NWM N.V. allegedly received from
certain Madoff feeder funds and certain swap counterparties. The claims were
previously dismissed, but as a result of an August 2021 decision by the US
Court of Appeals, they will now proceed in the bankruptcy court, where they
have been consolidated into one action, subject to NWM N.V.'s legal and
factual defences. In May 2022, NWM N.V. filed a motion to dismiss the amended
complaint in the consolidated action and such motion was denied in March 2023.
As a result, the case is now expected to enter the discovery phase.
EUA trading litigation
NWM Plc was a named defendant in civil proceedings before the High Court of
Justice of England and Wales brought in 2015 by ten companies (all in
liquidation) (the 'Liquidated Companies') and their respective liquidators
(together, 'the Claimants'). The Liquidated Companies previously traded in
European Union Allowances (EUAs) in 2009 and were alleged to be VAT defaulting
traders within (or otherwise connected to) EUA supply chains of which NWM Plc
was a party. In March 2020, the court held that NWM Plc and Mercuria Energy
Europe Trading Limited ('Mercuria') were liable for dishonestly assisting and
knowingly being a party to fraudulent trading during a seven business day
period in 2009.
In October 2020, the High Court quantified total damages against NWM Plc and
Mercuria at £45 million plus interest and costs, and permitted the defendants
to appeal to the Court of Appeal. In May 2021 the Court of Appeal set aside
the High Court's judgment and ordered that a retrial take place before a
different High Court judge. The claimants have been denied permission by the
Supreme Court to appeal that decision and the retrial is therefore expected to
proceed on a date to be scheduled. Mercuria has also been denied permission by
the Supreme Court to appeal the High Court's finding that NWM Plc and Mercuria
were both vicariously liable.
Offshoring VAT assessments
HMRC issued protective tax assessments in 2018 against NatWest Group plc
totalling £143 million relating to unpaid VAT in respect of the UK branches
of two NatWest Group companies registered in India. NatWest Group formally
requested reconsideration by HMRC of their assessments, and this process was
completed in November 2020. HMRC upheld their original decision and, as a
result, NatWest Group plc lodged an appeal with the Tax Tribunal and an
application for judicial review with the High Court of Justice of England and
Wales, both in December 2020. In order to lodge the appeal with the Tax
Tribunal, NatWest Group plc was required to pay £143 million to HMRC, and
payment was made in December 2020. The appeal and the application for judicial
review have both been stayed pending resolution of a separate case involving
another bank.
US Anti-Terrorism Act litigation
NWM N.V. and certain other financial institutions are defendants in several
actions filed by a number of US nationals (or their estates, survivors, or
heirs), most of whom are or were US military personnel, who were killed or
injured in attacks in Iraq between 2003 and 2011. NWM Plc is also a defendant
in some of these cases.
According to the plaintiffs' allegations, the defendants are liable for
damages arising from the attacks because they allegedly conspired with and/or
aided and abetted Iran and certain Iranian banks to assist Iran in
transferring money to Hezbollah and the Iraqi terror cells that committed the
attacks, in violation of the US Anti-Terrorism Act, by agreeing to engage in
'stripping' of transactions initiated by the Iranian banks so that the Iranian
nexus to the transactions would not be detected.
The first of these actions, alleging conspiracy claims but not aiding and
abetting claims, was filed in the United States District Court for the Eastern
District of New York in November 2014. In September 2019, the district court
dismissed the case, finding that the claims were deficient for several
reasons, including lack of sufficient allegations as to the alleged conspiracy
and causation. In January 2023, the US Court of Appeals affirmed the district
court's dismissal of this case. It is anticipated that the plaintiffs will
file a motion to re-open the case to assert aiding and abetting claims that
they previously did not assert. Another action, filed in the SDNY in 2017,
which asserted both conspiracy and aiding and abetting claims, was dismissed
by the SDNY in March 2019 on similar grounds as the first case, but remains
subject to appeal to the US Court of Appeals. Other follow-on actions that are
substantially similar to those described above are pending in the same courts.
1MDB litigation
A Malaysian court claim was served in Switzerland in November 2022 by 1MDB, a
Sovereign Wealth Fund, in which Coutts & Co Ltd was named, along with six
others, as a defendant in respect of losses allegedly incurred by 1MDB. It is
claimed that Coutts & Co Ltd is liable as a constructive trustee for
having dishonestly assisted the directors of 1MDB in the breach of their
fiduciary duties by failing (amongst other alleged claims) to undertake due
diligence in relation to a customer of Coutts & Co Ltd, through which
funds totalling c.US$1 billion were received and paid out between 2009 and
2011. The claimant seeks the return of that amount plus interest. Coutts &
Co Ltd filed an application in January 2023 challenging the validity of
service and the Malaysian court's jurisdiction to hear the claim.
In April 2023, the claimant filed a notice of discontinuance of its claim
against certain defendants including Coutts & Co Ltd. The claimant
subsequently indicated that it intends to issue further replacement
proceedings. Coutts & Co Ltd is challenging the claimant's ability to take
that step and a hearing took place in the Malaysian Court in June 2023 to
consider the validity of any new proceedings. Judgment is awaited.
Coutts & Co Ltd is a company registered in Switzerland and is in wind-down
following the announced sale of its business assets in 2015.
Notes
14. Litigation and regulatory matters continued
Regulatory matters (including investigations and customer redress programmes)
NatWest Group's businesses and financial condition can be affected by the
actions of various governmental and regulatory authorities in the UK, the US,
the EU and elsewhere. NatWest Group has engaged, and will continue to engage,
in discussions with relevant governmental and regulatory authorities,
including in the UK, the US, the EU and elsewhere, on an ongoing and regular
basis, and in response to informal and formal inquiries or investigations,
regarding operational, systems and control evaluations and issues including
those related to compliance with applicable laws and regulations, including
consumer protection, investment advice, business conduct,
competition/anti-trust, VAT recovery, anti-bribery, anti-money laundering and
sanctions regimes. NatWest Group expects government and regulatory
intervention in financial services to be high for the foreseeable future,
including increased scrutiny from competition and other regulators in the
retail and SME business sectors.
Any matters discussed or identified during such discussions and inquiries may
result in, among other things, further inquiry or investigation, other action
being taken by governmental and regulatory authorities, increased costs being
incurred by NatWest Group, remediation of systems and controls, public or
private censure, restriction of NatWest Group's business activities and/or
fines. Any of the events or circumstances mentioned in this paragraph or below
could have a material adverse effect on NatWest Group, its business,
authorisations and licences, reputation, results of operations or the price of
securities issued by it, or lead to material additional provisions being
taken.
NatWest Group is co-operating fully with the matters described below.
US investigations relating to fixed-income securities
In December 2021, NWM Plc pled guilty in the United States District Court for
the District of Connecticut to one count of wire fraud and one count of
securities fraud in connection with historical spoofing conduct by former
employees in US Treasuries markets between January 2008 and May 2014 and,
separately, during approximately three months in 2018. The 2018 trading
occurred during the term of a non-prosecution agreement (NPA) between NWMSI
and the United States Attorney's Office for the District of Connecticut (USAO
CT), under which non-prosecution was conditioned on NWMSI and affiliated
companies not engaging in criminal conduct during the term of the NPA. The
relevant trading in 2018 was conducted by two NWM traders in Singapore and
breached that NPA. The plea agreement reached with the US Department of
Justice and the USAO CT resolved both the spoofing conduct and the breach of
the NPA.
As required by the resolution and sentence imposed by the court, NWM Plc is
subject to a three-year period of probation. The plea agreement also imposes
an independent corporate monitor. In addition, NWM Plc has committed to
compliance programme reviews and improvements and agreed to reporting and
co-operation obligations.
Other material adverse collateral consequences may occur as a result of this
matter, as further described in the Risk Factor relating to legal, regulatory
and governmental actions and investigations set out on page 424 of NatWest
Group plc's 2022 Annual Report and Accounts.
RBSI inspection report and referral to enforcement
The Isle of Man Financial Services Authority (IoMFSA) undertook an inspection
at The Royal Bank of Scotland International Limited (RBSI), Isle of Man, in
2021, following which it issued an inspection report. The inspection was in
relation to anti-money laundering and counter-terrorist financing controls and
procedures relating to specific RBSI customers. In May 2022, the IoMFSA
notified RBSI that it had been referred to its Enforcement Division in
relation to certain issues identified in the inspection report. The
enforcement referral does not relate to counter-terrorist financing.
RBSI reliance regime and referral to enforcement
In January 2023, the Jersey Financial Services Commission notified RBSI that
it had been referred to its Enforcement Division in relation to RBSI's
operation of the reliance regime. The reliance regime is specific to certain
Crown Dependencies and enables the bank to rely on regulated third parties for
specific due diligence information.
Investment advice review
In October 2019, the FCA notified NatWest Group of its intention to appoint a
Skilled Person under section 166 of the Financial Services and Markets Act
2000 to conduct a review of whether NatWest Group's past business review of
investment advice provided during 2010 to 2015 was subject to appropriate
governance and accountability and led to appropriate customer outcomes. The
Skilled Person's review has concluded and, after discussion with the FCA,
NatWest Group has now commenced additional review / remediation work.
Review and investigation of treatment of tracker mortgage customers in Ulster
Bank Ireland DAC
In December 2015, correspondence was received from the Central Bank of Ireland
setting out an industry examination framework in respect of the sale of
tracker mortgages from approximately 2001 until the end of 2015. The redress
and compensation process has now largely concluded, although certain cases
remain outstanding.
UBIDAC customers have lodged tracker mortgage complaints with the Financial
Services and Pensions Ombudsman (FSPO). UBIDAC challenged three FSPO
adjudications in the Irish High Court. In June 2023, the High Court found in
favour of the FSPO in all matters and a provision has been recognised. UBIDAC
has been granted leave to appeal that decision.
Other customer remediation in Ulster Bank Ireland DAC
UBIDAC has previously identified other legacy business issues leading to the
establishment of remediation programmes. The majority of these remediation
programmes have concluded with one programme currently under management.
Notes
15. Related party transactions
UK Government
The UK Government through HM Treasury is the ultimate controlling party of
NatWest Group plc. The UK Government's shareholding is managed by UK
Government Investments Limited, a company wholly owned by the UK Government.
As a result the UK Government and UK Government controlled bodies are related
parties of the Group.
At 30 June 2023 HM Treasury's holding in the company's ordinary shares was
38.53%.
NatWest Group enters into transactions with many of these bodies. Transactions
include the payment of: taxes - principally UK corporation tax and value added
tax; national insurance contributions; local authority rates; regulatory fees
and levies; together with banking transactions such as loans and deposits
undertaken in the normal course of banker customer relationships.
Bank of England facilities
In the ordinary course of business, NatWest Group may from time to time access
market-wide facilities provided by the Bank of England.
Other related parties
(a) In their roles as providers of finance, NatWest Group companies provide
development and other types of capital support to businesses. These
investments are made in the normal course of business.
(b) To further strategic partnerships, NatWest Group may seek to invest in
third parties or allow third parties to hold a minority interest in a
subsidiary of NatWest Group. We disclose as related parties where stakes of 10
per cent or more are held. Ongoing business transactions with these entities
are on normal commercial terms.
(c) NatWest Group recharges the NatWest Group Pension Fund with the cost of
administration services incurred by it. The amounts involved are not material
to NatWest Group.
(d) In accordance with IAS 24, transactions or balances between NatWest Group
entities that have been eliminated on consolidation are not reported.
Full details of NatWest Group's related party transactions for the year ended
31 December 2022 are included in NatWest Group plc's 2022 Annual Report and
Accounts.
16. Post balance sheet events
On 25 July 2023, UBIDAC agreed the sale of a portfolio of performing and
non-performing exposures which consists mostly of non-performing mortgages;
unsecured personal loans and commercial facilities with a gross value of c.
€690 million at 31 December 2022.
Migrations of UBIDAC business to AIB and PTSB during July 2023 have been
included in Note 7. Discontinued operations and assets and liabilities of
disposal groups.
Other than as disclosed in this document, there have been no significant
events between 30 June 2023 and the date of approval of this announcement
which would require a change to, or additional disclosure, in the
announcement.
17. Date of approval
This announcement was approved by the Board of Directors on 27 July 2023.
Independent review report to NatWest Group plc
Conclusion
We have been engaged by NatWest Group ("the Group") to review the condensed
set of financial statements in the half-yearly financial report for the six
months ended 30 June 2023 which comprises of the condensed consolidated income
statement, the condensed consolidated statement of comprehensive income, the
condensed consolidated balance sheet, the condensed consolidated statement of
changes in equity, the condensed consolidated cash flow statement, related
Notes 1 to 17 and the Risk and capital management disclosures for those
identified as within the scope of our review (together "the condensed
consolidated financial statements"). We have read the other information
contained in the half yearly financial report and considered whether it
contains any apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2023 is not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK) "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" (ISRE) issued by the Financial
Reporting Council. A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in Note 1, the annual financial statements of the Group are
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusions relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the Group's ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the Group
or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Group a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the Group in accordance with guidance contained
in International Standard on Review Engagements 2410 (UK) "Review of Interim
Financial Information Performed by the Independent Auditor of the Entity"
issued by the Financial Reporting Council. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than the Group,
for our work, for this report, or for the conclusions we have formed.
Ernst & Young LLP
London, United Kingdom
27 July 2023
NatWest Group plc Summary Risk Factors
Summary of Principal Risks and Uncertainties
Set out below is a summary of the principal risks and uncertainties for the
remaining six months of the financial year which could adversely affect
NatWest Group. This summary should not be regarded as a complete and
comprehensive statement of all potential risks and uncertainties; a fuller
description of these and other risk factors is included on pages 404 to 425 of
the NatWest Group plc 2022 Annual Report and Accounts and pages 127 to 148 of
NatWest Group plc's 2022 Form 20-F. Any of the risks identified may have a
material adverse effect on NatWest Group's business, operations, financial
condition or prospects.
Economic and political risk
- NatWest Group, its customers and its counterparties face continued
economic and political risks and uncertainties in the UK and global markets,
including as a result of high inflation and rising interest rates, supply
chain disruption and the Russian invasion of Ukraine.
- Changes in interest rates have significantly affected, and will
continue to affect, NatWest Group's business and results.
- Fluctuations in currency exchange rates may adversely affect NatWest
Group's results and financial condition.
- Continuing uncertainty regarding the effects and extent of the UK's
post Brexit divergence from EU laws and regulation, and NatWest Group's post
Brexit EU operating model may adversely affect NatWest Group and its operating
environment.
- HM Treasury (or UKGI on its behalf) could exercise a significant
degree of influence over NatWest Group and further offers or sales of NatWest
Group's shares held by HM Treasury may affect the price of NatWest Group
securities.
Strategic risk
- NatWest Group continues to implement its purpose-led strategy, which
carries significant execution and operational risks and may not achieve its
stated aims and targeted outcomes.
- Future acquisitions or divestments by NatWest Group may not be
successful, and consolidation or fragmentation of the financial services
industry may adversely affect NatWest Group.
- NatWest Group's phased withdrawal from the Republic of Ireland present
various risks.
- The transfer of NatWest Group's Western European corporate portfolio
involves certain risks.
Financial resilience risk
- NatWest Group may not meet the targets it communicates or be in a
position to continue to make discretionary capital distributions (including
dividends to shareholders).
- NatWest Group operates in markets that are highly competitive, with
increasing competitive pressures and technology disruption.
- NatWest Group has significant exposure to counterparty and borrower
risk.
- NatWest Group may not meet the prudential regulatory requirements for
regulatory capital and MREL, or manage its capital effectively, which could
trigger the execution of certain management actions or recovery options.
- NatWest Group may not be able to adequately access sources of
liquidity and funding.
- Any reduction in the credit rating and/or outlooks assigned to NatWest
Group plc, any of its subsidiaries or any of their respective debt securities
could adversely affect the availability of funding for NatWest Group, reduce
NatWest Group's liquidity position and increase the cost of funding.
- NatWest Group may be adversely affected if it fails to meet the
requirements of regulatory stress tests.
- NatWest Group could incur losses or be required to maintain higher
levels of capital as a result of limitations or failure of various models.
- NatWest Group's financial statements are sensitive to underlying
accounting policies, judgments, estimates and assumptions.
- Changes in accounting standards may materially impact NatWest Group's
financial results.
- The value or effectiveness of any credit protection that NatWest Group
has purchased depends on the value of the underlying assets and the financial
condition of the insurers and counterparties.
- NatWest Group is subject to Bank of England and PRA oversight in
respect of resolution, and NatWest Group could be adversely affected should
the Bank of England in the future deem NatWest Group's preparations to be
inadequate.
- NatWest Group may become subject to the application of UK statutory
stabilisation or resolution powers which may result in, for example, the
cancellation, transfer or dilution of ordinary shares, or the write-down or
conversion of certain other of NatWest Group's securities.
Climate and sustainability-related risks
- NatWest Group and its customers, suppliers and counterparties face
significant climate and sustainability-related risks, which may adversely
affect NatWest Group.
- NatWest Group's climate change related strategy, ambitions, targets
and transition plan entail significant execution and reputational risk and are
unlikely to be achieved without significant and timely government policy,
technology and customer behavioural changes.
- There are significant limitations related to accessing reliable,
verifiable and comparable climate and other sustainability-related data,
including as a result of lack of standardisation, consistency and completeness
which, alongside other factors, contribute to substantial uncertainties in
accurately modelling and reporting on climate and sustainability information,
as well as making appropriate important internal decisions.
- A failure to implement effective climate change resilient governance,
procedures, systems and controls in compliance with legal and regulatory
expectations to manage climate and sustainability-related risks and
opportunities could adversely affect NatWest Group's ability to manage those
risks.
- Increasing levels of climate, environmental, human rights and other
sustainability-related laws, regulation and oversight which are constantly
evolving may adversely affect NatWest Group.
- NatWest Group may be subject to potential climate, environmental,
human rights and other sustainability-related litigation, enforcement
proceedings, investigations and conduct risk.
- A reduction in the ESG ratings of NatWest Group could have a negative
impact on NatWest Group's reputation and on investors' risk appetite and
customers' willingness to deal with NatWest Group.
NatWest Group plc Summary Risk Factors
Summary of Principal Risks and Uncertainties continued
Operational and IT resilience risk
- Operational risks (including reliance on third party suppliers and
outsourcing of certain activities) are inherent in NatWest Group's businesses.
- NatWest Group is subject to increasingly sophisticated and frequent
cyberattacks.
- NatWest Group operations and strategy are highly dependent on the
accuracy and effective use of data.
- NatWest Group's operations are highly dependent on its complex IT
systems and any IT failure could adversely affect NatWest Group.
- NatWest Group relies on attracting, retaining and developing diverse
senior management and skilled personnel, and is required to maintain good
employee relations.
- A failure in NatWest Group's risk management framework could adversely
affect NatWest Group, including its ability to achieve its strategic
objectives.
- NatWest Group's operations are subject to inherent reputational risk.
Legal, regulatory and conduct risk
- NatWest Group's businesses are subject to substantial regulation and
oversight, which are constantly evolving and may adversely affect NatWest
Group.
- NatWest Group is exposed to the risks of various litigation matters,
regulatory and governmental actions and investigations as well as remedial
undertakings, including conduct-related reviews, anti-money laundering and
redress projects, the outcomes of which are inherently difficult to predict,
and which could have an adverse effect on NatWest Group.
- NatWest Group may not effectively manage the transition of LIBOR and
other IBOR rates to replacement risk-free rates.
- Changes in tax legislation or failure to generate future taxable
profits may impact the recoverability of certain deferred tax assets
recognised by NatWest Group.
Statement of directors' responsibilities
We, the directors listed below, confirm that to the best of our knowledge:
- the condensed financial statements have been prepared in accordance
with IAS 34 'Interim Financial Reporting', as adopted by the UK and as issued
by the International Accounting Standards Board (IASB);
- the interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events during the
first six months and description of principal risks and uncertainties for the
remaining six months of the year); and
- the interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein).
By order of the Board
Howard Davies Katie Murray
Chairman Group Chief Financial Officer
27 July 2023
Board of directors
Chairman Executive directors Non-executive directors
Howard Davies John-Paul Thwaite Frank Dangeard
Katie Murray Roisin Donnelly
Patrick Flynn
Morten Friis
Yasmin Jetha
Mark Seligman
Lena Wilson
Stuart Lewis
Presentation of information
'Parent company' refers to NatWest Group plc and 'NatWest Group' and 'we'
refers to NatWest Group plc and its subsidiary and associated undertakings.
The term 'NWH Group' refers to NatWest Holdings Limited ('NWH') and its
subsidiary and associated undertakings. The term 'NWM Group' refers to NatWest
Markets Plc ('NWM Plc') and its subsidiary and associated undertakings. The
term 'NWM N.V.' refers to NatWest Markets N.V. The term 'NWMSI' refers to
NatWest Markets Securities, Inc. The term 'RBS plc' refers to The Royal Bank
of Scotland plc. The term 'NWB Plc' refers to National Westminster Bank Plc.
The term 'UBIDAC' refers to Ulster Bank Ireland DAC.
NatWest Group publishes its financial statements in pounds sterling ('£' or
'sterling'). The abbreviations '£m' and '£bn' represent millions and
thousands of millions of pounds sterling, respectively, and references to
'pence' or 'p' represent pence where the amounts are denominated in pounds
sterling ('GBP'). Reference to 'dollars' or '$' are to United States of
America ('US') dollars. The abbreviations '$m' and '$bn' represent millions
and thousands of millions of dollars, respectively. The abbreviation '€'
represents the 'euro', and the abbreviations '€m' and '€bn' represent
millions and thousands of millions of euros, respectively.
Statutory accounts
Financial information contained in this document does not constitute statutory
accounts within the meaning of section 434 of the Companies Act 2006 ('the
Act'). The statutory accounts for the year ended 31 December 2022 have been
filed with the Registrar of Companies. The report of the auditor on those
statutory accounts was unqualified, did not draw attention to any matters by
way of emphasis and did not contain a statement under section 498(2) or (3) of
the Act.
MAR - Inside Information
This announcement contains information that qualified or may have qualified as
inside information for NatWest Group plc, for the purposes of Article 7 of the
Market Abuse Regulation (EU) 596/2014 (MAR) as it forms part of domestic law
by virtue of the European Union (Withdrawal) Act 2018 for NatWest Group plc.
This announcement is made by Alexander Holcroft, Head of Investor Relations
for NatWest Group plc.
Forward-looking statements
This document may include forward-looking statements within the meaning of the
United States Private Securities Litigation Reform Act of 1995, such as
statements that include, without limitation, the words 'expect', 'estimate',
'project', 'anticipate', 'commit', 'believe', 'should', 'intend', 'will',
'plan', 'could', 'probability', 'risk', 'Value-at-Risk (VaR)', 'target',
'goal', 'objective', 'may', 'endeavour', 'outlook', 'optimistic', 'prospects'
and similar expressions or variations on these expressions. These statements
concern or may affect future matters, such as NatWest Group's future economic
results, business plans and strategies. In particular, this document may
include forward-looking statements relating to NatWest Group plc in respect
of, but not limited to: its economic and political risks, its regulatory
capital position and related requirements, its financial position,
profitability and financial performance (including financial, capital, cost
savings and operational targets), the implementation of its purpose-led
strategy, its environmental, social and governance and climate related
targets, its access to adequate sources of liquidity and funding, increasing
competition from new incumbents and disruptive technologies, its exposure to
third party risks, its ongoing compliance with the UK ring-fencing regime and
ensuring operational continuity in resolution, its impairment losses and
credit exposures under certain specified scenarios, substantial regulation and
oversight, ongoing legal, regulatory and governmental actions and
investigations, the transition of LIBOR and IBOR rates to replacement risk
free rates and NatWest Group's exposure to operational risk, conduct risk,
cyber, data and IT risk, financial crime risk, key person risk and credit
rating risk. Forward-looking statements are subject to a number of risks and
uncertainties that might cause actual results and performance to differ
materially from any expected future results or performance expressed or
implied by the forward-looking statements. Factors that could cause or
contribute to differences in current expectations include, but are not limited
to, future growth initiatives (including acquisitions, joint ventures and
strategic partnerships), the outcome of legal, regulatory and governmental
actions and investigations, the level and extent of future impairments and
write-downs, legislative, political, fiscal and regulatory developments,
accounting standards, competitive conditions, technological developments,
interest and exchange rate fluctuations, general economic and political
conditions and the impact of climate-related risks and the transitioning to a
net zero economy. These and other factors, risks and uncertainties that may
impact any forward-looking statement or NatWest Group plc's actual results are
discussed in NatWest Group plc's 2022 Annual Report on Form 20-F, NatWest
Group plc's Interim Management Statement for Q1 and H1 2023 on Form 6-K and
its other filings with the US Securities and Exchange Commission. The
forward-looking statements contained in this document speak only as of the
date of this document and NatWest Group plc does not assume or undertake any
obligation or responsibility to update any of the forward-looking statements
contained in this document, whether as a result of new information, future
events or otherwise, except to the extent legally required.
Additional information
Share information
30 June 31 March 31 December
2023 2023 2022
Ordinary share price 241 264 265
(pence)
Number of ordinary shares in issue (millions) 8,929 9,581 9,659
Financial calendar
2023 third quarter interim management statement 27 October 2023
Contacts
Analyst enquiries: Alexander Holcroft, Investor
Relations +44 (0) 20 7672 1758
Media enquiries: NatWest Group Press
Office +44 (0) 131 523 4205
Management presentation Fixed income call
Date: 28 July 2023 28 July 2023
Time: 9:30am 1:00pm
Zoom ID: 938 7023 1393 959 9561 3509
Available on natwestgroup.com/results (http://www.rbs.com/results)
Interim Results 2023 and background slides.
A financial supplement containing income statement, balance sheet and segment
performance information for the nine quarters ended 30 June 2023.
NatWest Group Pillar 3 at 30 June 2023.
Appendix
Non-IFRS financial measures
Non-IFRS financial measures
NatWest Group prepares its financial statements in accordance with UK-adopted
International Accounting Standards (IAS) and International Financial Reporting
Standards (IFRS). This document contains a number of non-IFRS measures, also
known as alternative performance measures, defined under the European
Securities and Markets Authority guidance or non-GAAP financial measures in
accordance with SEC regulations. These measures are adjusted for notable and
other defined items which management believes are not representative of the
underlying performance of the business and which distort period-on-period
comparison.
The non-IFRS measures provide users of the financial statements with a
consistent basis for comparing business performance between financial periods
and information on elements of performance that are one-off in nature. The
non-IFRS measures also include a calculation of metrics that are used
throughout the banking industry.
These non-IFRS measures are not a substitute for IFRS measures and a
reconciliation to the closest IFRS measure is presented where appropriate.
1. Total income excluding notable items
Total income excluding notable items is calculated as total income less
notable items.
The exclusion of notable items aims to remove the impact of one-offs and other
items which may distort period-on-period comparisons.
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 7,727 6,219 3,851 3,876 3,211
Less notable items:
Commercial & Institutional
Fair value, disposal losses and asset
disposals/strategic risk reduction - (45) - - (45)
Own credit adjustments (OCA) 9 52 3 6 34
Central items & other
Loss on redemption of own debt - (24) - - -
Liquidity Asset Bond sale (losses)/gains (24) 36 (11) (13) (5)
Share of associate (losses) for Business
Growth Fund (15) (13) (3) (12) (36)
Interest and FX management derivatives not in
hedge accounting relationships 52 315 (23) 75 149
FX recycling gains 322 - 322 - -
344 321 288 56 97
Total income excluding notable items 7,383 5,898 3,563 3,820 3,114
Non-IFRS financial measures continued
2. Operating expenses - management view
The management analysis of operating expenses shows litigation and conduct
costs on a separate line. These amounts are included within staff costs and
other administrative expenses in the statutory analysis. Other operating
expenses excludes litigation and conduct costs, which are more volatile and
may distort period-on-period comparisons.
Half year ended
30 June 2023
Litigation and Other operating Statutory operating
conduct costs expenses expenses
£m £m £m
Continuing operations
Staff costs 31 1,974 2,005
Premises and equipment - 570 570
Depreciation and amortisation - 469 469
Other administrative expenses 77 794 871
Total 108 3,807 3,915
Half year ended
30 June 2022
Litigation and Other operating Statutory operating
conduct costs expenses expenses
£m £m £m
Continuing operations
Staff costs 18 1,790 1,808
Premises and equipment - 534 534
Depreciation and amortisation - 413 413
Other administrative expenses 151 747 898
Total 169 3,484 3,653
Quarter ended
30 June 2023
Litigation and Other operating Statutory operating
conduct costs expenses expenses
£m £m £m
Continuing operations
Staff costs 17 948 965
Premises and equipment - 284 284
Depreciation and amortisation - 257 257
Other administrative expenses 35 386 421
Total 52 1,875 1,927
Quarter ended
31 March 2023
Litigation and Other operating Statutory operating
conduct costs expenses expenses
£m £m £m
Continuing operations
Staff costs 14 1,026 1,040
Premises and equipment - 286 286
Depreciation and amortisation - 212 212
Other administrative expenses 42 408 450
Total 56 1,932 1,988
Quarter ended
30 June 2022
Litigation and Other operating Statutory operating
conduct costs expenses expenses
£m £m £m
Continuing operations
Staff costs 11 896 907
Premises and equipment - 283 283
Depreciation and amortisation - 216 216
Other administrative expenses 56 371 427
Total 67 1,766 1,833
Non-IFRS financial measures continued
3. Cost:income ratio (excl. litigation and conduct)
NatWest Group uses the cost:income ratio (excl. litigation and conduct) in the
Outlook guidance. This is calculated as other operating expenses (operating
expenses less litigation and conduct costs) divided by total income.
Litigation and conduct costs are excluded as they are one-off in nature,
difficult to forecast for Outlook purposes and distort period-on-period
comparisons.
The calculation of the cost:income ratio (excl. litigation and conduct) is
shown below, along with a comparison to cost:income ratio using total
operating expenses.
Central Total
Retail Private Commercial & items NatWest
Banking Banking Institutional & other Group
Half year ended 30 June 2023 £m £m £m £m £m
Continuing operations
Operating expenses 1,367 322 1,987 239 3,915
Less litigation and conduct costs (24) (11) (94) 21 (108)
Other operating expenses 1,343 311 1,893 260 3,807
Total income 3,120 567 3,748 292 7,727
Cost:income ratio 43.8% 56.8% 53.0% nm 50.7%
Cost:income ratio (excl. litigation and conduct) 43.0% 54.9% 50.5% nm 49.3%
Half year ended 30 June 2022
Continuing operations
Operating expenses 1,242 285 1,820 306 3,653
Less litigation and conduct costs (58) (1) (86) (24) (169)
Other operating expenses 1,184 284 1,734 282 3,484
Total income 2,554 461 2,937 267 6,219
Cost:income ratio 48.6% 61.8% 62.0% nm 58.7%
Cost:income ratio (excl. litigation and conduct) 46.4% 61.6% 59.0% nm 56.0%
Quarter ended 30 June 2023
Continuing operations
Operating expenses 671 167 984 105 1,927
Less litigation and conduct costs (21) (8) (50) 27 (52)
Other operating expenses 650 159 934 132 1,875
Total income 1,516 271 1,795 269 3,851
Cost:income ratio 44.3% 61.6% 54.8% nm 50.0%
Cost:income ratio (excl. litigation and conduct) 42.9% 58.7% 52.0% nm 48.7%
Quarter ended 31 March 2023
Continuing operations
Operating expenses 696 155 1,003 134 1,988
Less litigation and conduct costs (3) (3) (44) (6) (56)
Other operating expenses 693 152 959 128 1,932
Total income 1,604 296 1,953 23 3,876
Cost:income ratio 43.4% 52.4% 51.4% nm 51.3%
Cost:income ratio (excl. litigation and conduct) 43.2% 51.4% 49.1% nm 49.8%
Quarter ended 30 June 2022
Continuing operations
Operating expenses 597 146 898 192 1,833
Less litigation and conduct costs (4) - (44) (19) (67)
Other operating expenses 593 146 854 173 1,766
Total income 1,337 245 1,562 67 3,211
Cost:income ratio 44.7% 59.6% 57.5% nm 57.1%
Cost:income ratio (excl. litigation and conduct) 44.4% 59.6% 54.7% nm 55.0%
nm = not meaningful
Non-IFRS financial measures continued
4. NatWest Group return on tangible equity
Return on tangible equity comprises annualised profit or loss for the period
attributable to ordinary shareholders divided by average tangible equity.
Average tangible equity is average total equity excluding average
non-controlling interests, average other owners' equity and average intangible
assets.
This measure shows the return NatWest Group generates on tangible equity
deployed. It is used to determine relative performance of banks and used
widely across the sector, although different banks may calculate the rate
differently. A reconciliation is shown below including a comparison to the
nearest GAAP measure, return on equity. This comprises profit attributable to
ordinary shareholders divided by average total equity.
Half year ended and as at Quarter ended and as at
30 June 30 June 30 June 31 March 30 June
2023 2022 2023 2023 2022
NatWest Group return on tangible equity £m £m £m £m £m
Profit attributable to ordinary shareholders 2,299 1,891 1,020 1,279 1,050
Annualised profit attributable to ordinary shareholders 4,598 3,782 4,080 5,116 4,200
Average total equity 36,562 39,857 36,216 37,195 38,625
Adjustment for other owners' equity and intangibles (11,352) (11,037) (11,378) (11,319) (10,944)
Adjusted average total tangible equity 25,210 28,820 24,838 25,876 27,681
Return on equity 12.6% 9.5% 11.3% 13.8% 10.9%
Return on tangible equity 18.2% 13.1% 16.4% 19.8% 15.2%
Non-IFRS financial measures continued
5. Segmental return on equity
Segmental return on equity comprises segmental operating profit or loss,
adjusted for paid-in equity and preference share cost allocation and tax,
divided by average notional equity. Average RWAe is defined as average
segmental RWAs incorporating the effect of capital deductions. This is
multiplied by an allocated equity factor for each segment to calculate the
average notional equity.
This measure shows the return generated by operating segments on equity
deployed.
Retail Private Commercial &
Half year ended 30 June 2023 Banking Banking Institutional
Operating profit (£m) 1,560 234 1,741
Paid-in equity cost allocation (£m) (30) (11) (86)
Adjustment for tax (£m) (428) (62) (414)
Adjusted attributable profit (£m) 1,102 161 1,241
Annualised adjusted attributable profit (£m) 2,203 321 2,483
Average RWAe (£bn) 56.1 11.3 105.1
Equity factor 13.5% 11.5% 14.0%
Average notional equity (£bn) 7.6 1.3 14.7
Return on equity (%) 29.1% 24.7% 16.9%
Half year ended 30 June 2022
Operating profit (£m) 1,286 187 1,176
Preference share and paid-in equity cost allocation (£m) (40) (6) (93)
Adjustment for tax (£m) (349) (51) (271)
Adjusted attributable profit (£m) 897 130 812
Annualised adjusted attributable profit (£m) 1,794 261 1,624
Average RWAe (£bn) 52.5 11.3 101.7
Equity factor 13.0% 11.0% 14.0%
Average notional equity (£bn) 6.8 1.2 14.2
Return on equity (%) 26.3% 20.9% 11.4%
Quarter ended 30 June 2023
Operating profit (£m) 766 101 747
Paid-in equity cost allocation (£m) (15) (6) (42)
Adjustment for tax (£m) (210) (27) (176)
Adjusted attributable profit (£m) 541 68 529
Annualised adjusted attributable profit (£m) 2,163 274 2,115
Average RWAe (£bn) 56.8 11.4 106.0
Equity factor 13.5% 11.5% 14.0%
Average notional equity (£bn) 7.7 1.3 14.8
Return on equity (%) 28.2% 20.8% 14.3%
Quarter ended 31 March 2023
Operating profit (£m) 794 133 994
Paid-in equity cost allocation (£m) (15) (5) (44)
Adjustment for tax (£m) (218) (36) (238)
Adjusted attributable profit (£m) 561 92 713
Annualised adjusted attributable profit (£m) 2,244 369 2,850
Average RWAe (£bn) 55.4 11.2 104.0
Equity factor 13.5% 11.5% 14.0%
Average notional equity (£bn) 7.5 1.3 14.6
Return on equity (%) 30.0% 28.5% 19.5%
Quarter ended 30 June 2022
Operating profit (£m) 719 105 712
Preference share and paid-in equity cost allocation (£m) (20) (3) (47)
Adjustment for tax (£m) (196) (29) (166)
Adjusted attributable profit (£m) 503 73 499
Annualised adjusted attributable profit (£m) 2,012 293 1,996
Average RWAe (£bn) 52.4 11.3 101.0
Equity factor 13.0% 11.0% 14.0%
Average notional equity (£bn) 6.8 1.2 14.1
Return on equity (%) 29.5% 23.5% 14.0%
Non-IFRS financial measures continued
6. Bank net interest margin
Bank net interest margin is defined as annualised net interest income, as a
percentage of bank average interest-earning assets. Bank average interest
earning assets are the average interest earning assets of the banking business
of NatWest Group excluding liquid asset buffer.
Liquid asset buffer consists of assets held by NatWest Group, such as cash and
balances at central banks and debt securities in issue, that can be used to
ensure repayment of financial obligations as they fall due. The exclusion of
liquid asset buffer has been introduced as a way to present net interest
margin on a basis more comparable with UK peers and exclude the impact of
regulatory driven factors. A reconciliation is shown below including a
comparison to the nearest GAAP measure, net interest margin. This is net
interest income as a percentage of average interest earning assets.
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
NatWest Group net interest income 5,726 4,334 2,824 2,902 2,307
Annualised NatWest Group net interest income 11,547 8,740 11,327 11,769 9,253
Average interest earning assets (IEA) 518,359 546,045 514,459 522,393 548,371
Less liquid asset buffer average IEA (157,271) (207,583) (152,133) (162,409) (206,843)
Bank average IEA 361,088 338,462 362,326 359,984 341,528
Net interest margin 2.23% 1.60% 2.20% 2.25% 1.69%
Bank net interest margin 3.20% 2.58% 3.13% 3.27% 2.71%
Retail Banking
Net interest income 2,908 2,340 1,416 1,492 1,228
Annualised net interest income 5,864 4,719 5,680 6,051 4,925
Retail Banking average IEA 220,898 205,749 221,468 220,323 207,408
Less liquid asset buffer average IEA (17,535) (18,936) (16,820) (18,259) (19,327)
Adjusted Retail Banking average IEA 203,363 186,813 204,648 202,064 188,081
Retail Banking net interest margin 2.88% 2.53% 2.78% 2.99% 2.62%
Private Banking
Net interest income 428 315 199 229 172
Annualised net interest income 863 635 798 929 690
Private Banking average IEA 27,613 29,395 27,140 28,091 29,595
Less liquid asset buffer average IEA (8,425) (10,389) (7,976) (8,878) (10,451)
Adjusted Private Banking average IEA 19,188 19,006 19,164 19,213 19,144
Private Banking net interest margin 4.50% 3.34% 4.17% 4.83% 3.60%
Commercial & Institutional
Net interest income 2,504 1,764 1,243 1,261 961
Annualised net interest income 5,050 3,557 4,986 5,114 3,855
Commercial & Institutional average IEA 197,796 202,551 196,735 198,872 203,093
Less liquid asset buffer average IEA (66,438) (77,363) (65,288) (67,601) (78,153)
Adjusted Commercial & Institutional average IEA 131,358 125,188 131,447 131,271 124,940
Commercial & Institutional net interest margin 3.84% 2.84% 3.79% 3.90% 3.09%
Non-IFRS financial measures continued
7. Tangible net asset value (TNAV) per ordinary share
TNAV per ordinary share is calculated as tangible equity divided by the number
of ordinary shares in issue.
This is a measure used by external analysts to value the bank and allows for
comparison with other per ordinary share metrics including the share price.
As at
30 June 31 March 31 December
2023 2023 2022
Ordinary shareholders' interests (£m) 30,868 33,817 32,598
Less intangible assets (£m) (7,453) (7,171) (7,116)
Tangible equity (£m) 23,415 26,646 25,482
Ordinary shares in issue (millions) (1) 8,929 9,581 9,659
TNAV per ordinary share (pence) 262p 278p 264p
(1) The number of ordinary shares in issue excludes own shares held.
8. Customer deposits excluding central items
Customer deposits excluding central items is calculated as total NatWest Group
customer deposits excluding Central items & other customer deposits.
Central items & other includes Treasury repo activity and Ulster Bank RoI.
The exclusion of Central items & other removes the volatility relating
to Treasury repo activity and the expected reduction of deposits as part of
our withdrawal from the Republic of Ireland. These items may distort
period-on-period comparisons and their removal gives the user of the financial
statements a better understanding of the movements in customer deposits.
As at
30 June 31 March 31 December
2023 2023 2022
£bn £bn £bn
Customer deposits 432.5 430.5 450.3
Less Central items & other (11.4) (8.7) (17.4)
Customer deposits excluding central items 421.1 421.8 432.9
9. Net loans to customers excluding central items
Net loans to customers excluding central items is calculated as total NatWest
Group net loans to customers excluding Central items & other net loans to
customers.
Central items & other includes Treasury reverse repo activity and Ulster
Bank RoI. The exclusion of Central items & other removes the volatility
relating to Treasury reverse repo activity and the reduction of loans to
customers over 2022 as part of our withdrawal from the Republic of Ireland.
This allows for better period-on-period comparisons and gives the user of the
financial statements a better understanding of the movements in net loans to
customers.
As at
30 June 31 March 31 December
2023 2023 2022
£bn £bn £bn
Net loans to customers (amortised cost) 373.9 374.2 366.3
Less Central items & other (21.2) (21.8) (19.6)
Net loans to customers excluding central items 352.7 352.4 346.7
Non-IFRS financial measures continued
10. Loan:deposit ratio (excl. repos and reverse repos)
Loan:deposit ratio (excl. repos and reverse repos) is calculated as net
customer loans held at amortised cost excluding reverse repos divided by total
customer deposits excluding repos. This is a common metric used to assess
liquidity.
The removal of repos and reverse repos reduces volatility and presents the
ratio on a basis that is comparable to UK peers. A reconciliation is shown
below including a comparison to the nearest GAAP measure, loan:deposit ratio.
This is calculated as net loans to customers held at amortised cost divided by
customer deposits.
As at
30 June 31 March 30 June
2023 2023 2022
£m £m £m
Loans to customers - amortised cost 373,885 374,214 362,551
Less reverse repos (21,420) (21,743) (25,084)
352,465 352,471 337,467
Customer deposits 432,532 430,537 492,075
Less repos (9,322) (5,989) (19,195)
423,210 424,548 472,880
Loan:deposit ratio (%) 86% 87% 74%
Loan:deposit ratio (excl. repos and reverse repos) (%) 83% 83% 71%
11. Loan impairment rate
Loan impairment rate is the annualised loan impairment charge divided by gross
customer loans. This measure is used to assess the credit quality of the loan
book.
Half year ended Quarter ended
30 June 30 June 30 June 31 March 31 December
2023 2022 2023 2023 2022
Loan impairment charge/(release) (£m) 223 (54) 153 70 144
Annualised loan impairment charge/(release) (£m) 446 (108) 612 280 576
Gross customer loans (£bn) 377.3 366.0 377.3 377.6 369.7
Loan impairment rate 12bps (3bps) 16bps 7bps 16bps
12. Funded assets
Funded assets are calculated as total assets less derivative assets. This
measure allows review of balance sheet trends exclusive of the volatility
associated with derivative fair values.
As at
30 June 31 March 31 December
2023 2023 2022
£m £m £m
Total assets 702,601 695,624 720,053
Less derivative assets (81,873) (79,420) (99,545)
Funded assets 620,728 616,204 620,508
13. AUMAs
AUMAs comprises both assets under management (AUMs) and assets under
administration (AUAs) serviced through the Private Banking segment.
AUMs comprise assets where the investment management is undertaken by Private
Banking on behalf of Private Banking, Retail Banking and Commercial &
Institutional customers.
AUAs comprise i) third party assets held on an execution-only basis in custody
by Private Banking, Retail Banking and Commercial & Institutional for
their customers, for which the execution services are supported by Private
Banking, and for which Private Banking receives a fee for providing investment
management and execution services to Retail Banking and Commercial &
Institutional business segments ii) AUA of Cushon, acquired on 1 June 2023,
which are supported by Private Banking and held and managed by third parties.
This measure is tracked and reported as the amount of funds that we manage or
administer, and directly impacts the level of investment income that we
receive.
Non-IFRS financial measures continued
14. Net new money
Net new money refers to client cash inflows and outflows relating to
investment products (this can include transfers from savings accounts). Net
new money excludes the impact of European Economic Area (EEA) resident client
outflows following the UK's exit from the EU and Russian client outflows since
Q1 2022.
Net new money is reported and tracked to monitor the business performance of
new business inflows and management of existing client withdrawals across
Private Banking, Retail Banking and Commercial & Institutional.
15. Wholesale funding
Wholesale funding comprises deposits by banks (excluding repos), debt
securities in issue and subordinated liabilities.
Funding risk is the risk of not maintaining a diversified, stable and
cost-effective funding base. The disclosure of wholesale funding highlights
the extent of our diversification and how we mitigate funding risk.
16. Third party rates
Third party customer asset rate is calculated as annualised interest
receivable on third-party loans to customers as a percentage of third-party
loans to customers. This excludes assets of disposal groups, intragroup items,
loans to banks and liquid asset portfolios. Third party customer funding rate
reflects interest payable or receivable on third-party customer deposits,
including interest bearing and non-interest bearing customer deposits.
Intragroup items, bank deposits, debt securities in issue and subordinated
liabilities are excluded for customer funding rate calculation.
These metrics help investors better understand our net interest margin and
interest rate sensitivity.
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