REG - NatWest Group plc - NWG plc 2024 Interim Results
26/07/2024 07:15
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RNS Number : 9469X NatWest Group plc 26 July 2024
Inside this report
Business performance summary
2 H1 2024 performance summary
4 Performance key metrics and ratios
6 Chief Financial Officer review
8 Retail Banking
9 Private Banking
10 Commercial & Institutional
11 Central items & other
12 Segment performance
Risk and capital management
17 Credit risk
17 Economic loss drivers
21 Governance and post model adjustments
23 Measurement uncertainty and ECL
sensitivity analysis
25 Measurement uncertainty and ECL
adequacy
26 Credit risk - Banking activities
26 Financial instruments within the scope of the
IFRS 9 ECL framework
27 Segment analysis - portfolio summary
30 Segment loans and impairment metrics
31 Sector analysis - portfolio summary
37 Wholesale forbearance
39 Personal portfolio
42 Commercial real estate
43 Flow statements
Risk and capital management continued
51 Stage 2 decomposition by a significant
increase in credit risk trigger
53 Asset quality
57 Credit risk - Trading activities
60 Capital, liquidity and funding risk
71 Non-traded market risk
76 Traded market risk
76 Pension risk
76 Compliance and conduct risk
Financial statements and notes
77 Condensed consolidated income statement
78 Condensed consolidated statement of
comprehensive income
79 Condensed consolidated balance sheet
80 Condensed consolidated statement of
changes in equity
82 Condensed consolidated cash flow statement
83 Presentation of condensed consolidated
financial statements
83 Net interest income
84 Non-interest income
85 Operating expenses
86 Segmental analysis
89 Tax
90 Financial instruments - classification
92 Financial instruments - valuation
Financial statements and notes continued
97 Trading assets and liabilities
98 Loan impairment provisions
99 Provisions for liabilities and charges
99 Dividends
99 Contingent liabilities and commitments
100 Litigation and regulatory matters
106 Related party transactions
106 Acquisitions
106 Post balance sheet events
106 Date of approval
107 Independent review report to NatWest
Group plc
Additional information
108 NatWest Group plc summary risk factors
110 Statement of directors' responsibilities
111 Presentation of information
111 Statutory accounts
111 Forward-looking statements
112 Share information and contacts
Appendix
113 Non-IFRS financial measures
118 Performance measures not defined
under IFRS
H1 2024 performance summary
Chief Executive, Paul Thwaite, commented:
"As the UK's leading business bank, and one of the largest retail banks,
NatWest Group's strong performance is grounded in the vital role we play in
the UK economy and in the lives of our 19 million customers. In the first half
of the year, we have delivered an operating profit of £3 billion, a return on
tangible equity of 16.4% and a 6 pence interim dividend, up 9% on last year's
dividend. We are also pleased with the continued reduction of the Government's
stake, which has almost halved this year.
We have made good progress against our strategic priorities, taking decisive
action to grow and simplify our business and to manage our capital and costs
more efficiently. There has been growth across all three of our businesses, we
have attracted over 200,000 new customers and our acquisition from Sainsbury's
Bank is expected to add around one million customer accounts on completion. We
have also agreed to acquire £2.5 billion of UK prime residential mortgages
from Metro Bank plc, adding further scale to our Retail Banking business.
The positive momentum and progress in the first half reflect the ambition
across the bank to deliver its full potential. Our customers are beginning to
feel more confident, with activity increasing and asset quality remaining
strong, and we are well positioned to help unlock growth across the UK through
our unrivalled regional network. Fundamentally, if we succeed with our
customers, we will succeed for our shareholders and the wider economy."
Strong H1 2024 and Q2 performance
- H1 2024 attributable profit of £2,099 million and a return on tangible
equity (RoTE) of 16.4%.
- Q2 2024 total income excluding notable items((1)) of £3,590 million was
£176 million, or 5.2%, higher than Q1 2024 primarily reflecting increased
deposit income whilst H1 2024 was £379 million lower than H1 2023 due to
lower average deposit balances and mix changes and lending margin pressure.
- Net interest margin (NIM) of 2.10% was 5 basis points higher than Q1
2024 primarily due to improved deposit margins.
- Q2 2024 other operating expenses were £100 million lower than Q1 2024,
or £21 million lower excluding costs in relation to bank levies of £87
million and the potential retail share offering. H1 2024 other operating
expenses were £149 million higher than H1 2023, or £42 million, 1.1%, higher
excluding costs in relation to the potential retail share offering of £24
million and additional bank levies of £83 million.
- Net impairment charge of £48 million in H1 2024, or 3 basis points of
gross customer loans. Levels of default remain stable and at low levels across
the portfolio.
Robust balance sheet with strong capital and liquidity levels
- Net loans to customers excluding central items decreased by £1.7
billion in the quarter and decreased £0.3 billion in the first half as growth
in Commercial & Institutional was offset by UK Government scheme
repayments and lower mortgage balances as customer redemptions offset new
lending.
- Up to 30 June 2024 we have provided £78.3 billion against our target to
provide £100 billion climate and sustainable funding and financing between 1
July 2021 and the end of 2025.
- Customer deposits excluding central items were up by £6.1 billion in
the first half of the year and increased £5.2 billion in Q2 2024. Term
balances remained consistent in the quarter at 17% of our book and up from 16%
at the end of 2023.
- The loan:deposit ratio (LDR) (excl. repos and reverse repos) was 83% at
Q2 2024, with customer deposits exceeding net loans to customers by around
£72 billion.
- The liquidity coverage ratio (LCR) of 151%, representing £54.5 billion
headroom above 100% minimum requirement was unchanged compared with Q1 2024.
- TNAV per share increased by 12 pence in H1 2024 to 304 pence primarily
reflecting the profit for the period, partially offset by the 2023 final
ordinary dividend of 11.5 pence.
(1) Refer to the Non-IFRS financial measures appendix for details of
notable items.
H1 2024 performance summary continued
Shareholder return supported by strong capital generation
- We are pleased to announce an interim dividend of 6 pence per share
which, including the £1.2 billion directed buyback completed in May, brings
total distributions announced to £1.7 billion for H1 2024.
- Common Equity Tier 1 (CET1) ratio of 13.6% was 10 basis points higher
than Q1 2024 reflecting the attributable profit and reduction in RWAs,
partially offset by capital distributions.
- During Q2 2024 we agreed to acquire the outstanding credit card,
unsecured personal loans and savings balances of Sainsbury's Bank, subject to
court and regulatory approvals. On completion we expect this acquisition to
add around one million customer accounts to our Retail Banking business.
- RWAs of £180.8 billion reduced by £5.5 billion in Q2 2024 largely
reflecting RWA management of £3.9 billion.
Outlook((1))
We continue to assess the economic outlook and will monitor and react to
market conditions and refine our internal forecasts as the economic position
evolves. The following statements are based on our current expectations for
interest rates and economic activity.
In 2024 we now expect:
- to achieve a return on tangible equity above 14%.
- income excluding notable items to be around £14.0 billion.
- Group operating costs, excluding litigation and conduct costs, to
be broadly stable compared with 2023 excluding around £0.1 billion increase
in bank levies and £24 million of costs in relation to the potential retail
share offering by HM Treasury.
- our loan impairment rate for 2024 to be below 15 basis points.
In 2026 we continue to expect:
- to achieve a return on tangible equity for the Group of greater
than 13%.
Capital - we continue to:
- target a CET1 ratio in the range of 13-14%.
- expect RWAs to be around £200 billion at the end of 2025, including
the impact of Basel 3.1, however this remains subject to final rules and
approval.
- expect to pay ordinary dividends of around 40% of attributable profit
and maintain capacity to participate in directed buybacks from the UK
Government, recognising that any exercise of this authority would be dependent
upon HMT's intentions. We will also consider further on-market buybacks as
appropriate.
(1) The guidance, targets, expectations, and trends discussed in
this section represent NatWest Group plc management's current expectations and
are subject to change, including as a result of the factors described in the
NatWest Group plc Risk Factors section in the 2023 Annual Report and Accounts
and Form 20-F and the Summary Risk Factors in this announcement. These
statements constitute forward-looking statements. Refer to Forward-looking
statements in this announcement.
Business performance summary
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2024 2023 Variance 2024 2024 Variance 2023 Variance
Summary consolidated income statement £m £m % £m £m % £m %
Net interest income 5,408 5,726 (5.6%) 2,757 2,651 4.0% 2,824 (2.4%)
Non-interest income 1,726 2,001 (13.7%) 902 824 9.5% 1,027 (12.2%)
Total income 7,134 7,727 (7.7%) 3,659 3,475 5.3% 3,851 (5.0%)
Litigation and conduct costs (101) (108) (6.5%) (77) (24) nm (52) 48.1%
Other operating expenses (3,956) (3,807) 3.9% (1,928) (2,028) (4.9%) (1,875) 2.8%
Operating expenses (4,057) (3,915) 3.6% (2,005) (2,052) (2.3%) (1,927) 4.0%
Profit before impairment losses/releases 3,077 3,812 (19.3%) 1,654 1,423 16.2% 1,924 (14.0%)
Impairment (losses)/releases (48) (223) (78.5%) 45 (93) (148.4%) (153) (129.4%)
Operating profit before tax 3,029 3,589 (15.6%) 1,699 1,330 27.7% 1,771 (4.1%)
Tax charge (801) (1,061) (24.5%) (462) (339) 36.3% (549) (15.8%)
Profit from continuing operations 2,228 2,528 (11.9%) 1,237 991 24.8% 1,222 1.2%
Profit/(loss) from discontinued operations, net of tax 11 (108) (110.2%) 15 (4) nm (143) (110.5%)
Profit for the period 2,239 2,420 (7.5%) 1,252 987 26.8% 1,079 16.0%
Performance key metrics and ratios
Notable items within total income (1) £130m £344m nm £69m £61m nm £288m nm
Total income excluding notable items (1) £7,004m £7,383m (5.1%) £3,590m £3,414m 5.2% £3,563m 0.8%
Net interest margin (1) 2.07% 2.23% (16bps) 2.10% 2.05% 5bps 2.20% (10bps)
Average interest earning assets (1) £524bn £518bn 1.2% £528bn £521bn 1.3% £514bn 2.7%
Cost:income ratio (excl. litigation and conduct) (1) 55.5% 49.3% 6.2% 52.7% 58.4% (5.7%) 48.7% 4.0%
Loan impairment rate (1) 3bps 12bps (9bps) (5bps) 10bps (15bps) 16bps (21bps)
Profit attributable to ordinary shareholders £2,099m £2,299m (8.7%) £1,181m £918m 28.6% £1,020m 15.8%
Total earnings per share attributable to ordinary shareholders - basic 24.2p 24.3p (0.1p) 13.7p 10.5p 3.2p 11.0p 2.7p
Return on tangible equity (RoTE) (1) 16.4% 18.2% (1.8%) 18.5% 14.2% 4.3% 16.4% 2.1%
Climate and sustainable funding and financing (2) £16.3bn £16.0bn 1.9% £9.7bn £6.6bn 47.0% £8.4bn 15.5%
nm = not meaningful.
For the footnotes to this table refer to the following page.
Business performance summary continued
As at
30 June 31 March 31 December
2024 2024 Variance 2023 Variance
Balance sheet £bn £bn % £bn %
Total assets 690.3 697.5 (1.0%) 692.7 (0.3%)
Loans to customers - amortised cost 379.3 378.0 0.3% 381.4 (0.6%)
Loans to customers excluding central items (1,3) 355.3 357.0 (0.5%) 355.6 (0.1%)
Loans to customers and banks - amortised cost and FVOCI 388.9 387.7 0.3% 392.0 (0.8%)
Total impairment provisions (4) 3.3 3.6 (8.3%) 3.6 (8.3%)
Expected credit loss (ECL) coverage ratio 0.86% 0.94% (8bps) 0.93% (7bps)
Assets under management and administration (AUMA) (1) 45.1 43.1 4.6% 40.8 10.5%
Customer deposits 433.0 432.8 0.0% 431.4 0.4%
Customer deposits excluding central items (1,3) 425.2 420.0 1.2% 419.1 1.5%
Liquidity and funding
Liquidity coverage ratio (LCR) 151% 151% 0.0% 144% 7.0%
Liquidity portfolio 227 229 (1.0%) 223 1.8%
Net stable funding ratio (NSFR) 139% 136% 3.0% 133% 6.0%
Loan:deposit ratio (excl. repos and reverse repos) (1) 83% 84% (1%) 84% (1%)
Total wholesale funding 83 87 (4.6%) 80 3.8%
Short-term wholesale funding 27 31 (12.9%) 28 (3.6%)
Capital and leverage
Common Equity Tier 1 (CET1) ratio (5) 13.6% 13.5% 10bps 13.4% 20bps
Total capital ratio (5) 19.5% 18.8% 70bps 18.4% 110bps
Pro forma CET1 ratio (excl. foreseeable items) (6) 14.1% 14.3% (20bps) 14.2% (10bps)
Risk-weighted assets (RWAs) 180.8 186.3 (3.0%) 183.0 (1.2%)
UK leverage ratio 5.2% 5.1% 0.1% 5.0% 0.2%
Tangible net asset value (TNAV) per ordinary share (1,7) 304p 302p 2p 292p 12p
Number of ordinary shares in issue (millions) (7) 8,307 8,727 (4.8%) 8,792 (5.5%)
(1) Refer to the Non-IFRS financial measures appendix for details
of the basis of preparation and reconciliation of non-IFRS financial measures
and performance metrics.
(2) NatWest Group uses its climate and sustainable funding and
financing inclusion (CSFFI) criteria to determine the assets, activities and
companies that are eligible to be included within its climate and sustainable
funding and financing target. This includes both provision of committed (on
and off-balance sheet) funding and financing, including provision of services
for underwriting issuances and private placements.
(3) Central items includes Treasury repo activity and Ulster Bank
Republic of Ireland.
(4) Includes £0.1 billion relating to off-balance sheet exposures
(31 March 2024 - £0.1 billion; 31 December 2023 - £0.1 billion).
(5) Refer to the Capital, liquidity and funding risk section for
details of the basis of preparation.
(6) The pro forma CET1 ratio at 30 June 2024 excludes foreseeable
items of £889 million: £839 million for ordinary dividends and £50 million
foreseeable charges (31 March 2024 excludes foreseeable items of £1,633
million: £1,380 million for ordinary dividends and £253 million foreseeable
charges; 31 December 2023 excludes foreseeable items of £1,538 million:
£1,013 million for ordinary dividends and £525 million foreseeable charges).
(7) The number of ordinary shares in issue excludes own shares
held.
Chief Financial Officer review
We delivered an operating profit of £3,029 million in the first half of the
year with a RoTE of 16.4%. Total income excluding notable items of £7.0
billion in H1 2024 was down by 5.1% on the prior year but Q2 2024 was up 5.2%
on Q1 2024. We continue to see low levels of default across our portfolio,
with a net impairment charge of 3 basis points of gross customer loans for the
first half of the year.
In the first half of the year net lending excluding central items decreased by
£0.3 billion. Excluding repayment of UK Government schemes of £1.0 billion
net lending increased by £0.8 billion, driven by Commercial &
Institutional customers which offset lower mortgage balances. Customer deposit
balances excluding central items increased by £6.1 billion in the first half.
Our robust balance sheet means that we remain in a strong liquidity position,
with an LCR of 151% representing £54.5 billion headroom above 100% minimum
requirement, and an LDR (excl. repos and reverse repos) of 83%.
Our CET1 ratio remains within our targeted range at 13.6%, with total
distributions announced of £1.7 billion in H1 2024. An interim dividend of 6
pence per share compares with 5.5 pence in the prior year.
Strong H1 and Q2 2024 performance
- Total income increased by 5.3% in Q2 2024 to £3,659 million compared
with Q1 2024 and decreased 7.7% in H1 2024 compared with H1 2023, impacted by
FX recycling gains in the prior year. Total income excluding notable items was
£176 million higher than Q1 2024 primarily reflecting increased deposit
income and decreased £379 million, or 5.1%, in the first half compared with
H1 2023 due to lower average deposit balances and mix changes throughout 2023,
as customers moved towards interest bearing and term accounts, and lending
margin pressure, which has eased in Q2 2024.
- Q2 2024 NIM of 2.10% was 5 basis points higher than Q1 2024 primarily
due to improved deposit margins. H1 2024 NIM was 16 basis points lower than H1
2023 principally reflecting mortgage margin pressure and deposit mix changes,
as customers move from non-interest bearing to interest bearing accounts.
- Total operating expenses for Q2 2024 were £47 million lower than Q1
2024 and £142 million higher in the first half of the year compared with H1
2023. Q2 2024 other operating expenses were £100 million lower than Q1 2024,
or £21 million lower excluding costs in relation to bank levies of £87
million and the potential retail share offering. H1 2024 other operating
expenses were £149 million higher than H1 2023, or £42 million, 1.1%, higher
excluding costs in relation to the potential retail share offering of £24
million and additional bank levies of £83 million, reflecting increased staff
costs due to inflation and severance costs, partially offset by ongoing
simplification of our business and lower costs in relation to our withdrawal
from the Republic of Ireland.
We remain committed to deliver on our full year cost guidance, excluding the
impact of increased bank levies and costs in relation to the potential retail
share offering.
- A net impairment charge of £48 million in H1 2024 principally reflected
broadly stable Stage 3 inflows partly offset by good book releases, including
post model adjustments. Levels of default remain stable and at low levels
across the portfolio despite inflationary pressures and the higher interest
rate environment. Compared with Q1 2024, our ECL provision decreased by £0.3
billion to £3.3 billion and our ECL coverage ratio has decreased from 0.94%
to 0.86%. We retain post model adjustments of £0.3 billion related to
economic uncertainty, or 9.0% of total impairment provisions. Whilst we are
comfortable with the strong credit performance of our book, we will continue
to assess this position regularly and are closely monitoring the impacts of
inflationary pressures, which have eased in the first half, on the UK economy
and our customers.
- As a result, we are pleased to report an attributable profit for H1 2024
of £2,099 million, with earnings per share of 24.2 pence and a RoTE of 16.4%.
Q2 2024 RoTE was 18.5%.
Robust balance sheet with strong capital and liquidity levels
- Net loans to customers excluding central items decreased by £1.7
billion in the quarter and decreased by £0.3 billion in the first half to
£355.3 billion. Growth in Commercial Mid-market and Corporate &
Institutions, net of UK Government scheme repayments of £1.0 billion in the
first half, largely offset lower mortgage balances.
- Up to 30 June 2024 we have provided £78.3 billion against our target to
provide £100 billion climate and sustainable funding and financing between 1
July 2021 and the end of 2025. As part of this we aim to provide at least £10
billion in lending for EPC A and B rated residential properties between 1
January 2023 and the end of 2025. During H1 2024 we provided £16.3 billion
climate and sustainable funding and financing, which included £1.4 billion in
lending for EPC A and B rated residential properties.
- Customer deposits excluding central items increased £5.2 billion in Q2
2024 and £6.1 billion in the first half of the year reflecting £3.5 billion
growth in Retail Banking and £1.8 billion in Private Banking, largely in
savings and other interest-bearing balances, and a £0.8 billion increase in
Commercial & Institutional primarily within Commercial Mid-market. Term
balances remained consistent in the quarter at 17% of our book and up from 16%
at the end of 2023.
Chief Financial Officer review continued
- The LCR was unchanged compared with Q1 2024 at 151%, representing £54.5
billion headroom above 100% minimum requirements primarily due to increased
customer deposits offset by reduced wholesale funding and capital
distributions (share buyback and dividends). Our primary liquidity at H1 2024
was £160.4 billion and £111.8 billion, or 70%, of this was cash and balances
at central banks. Total wholesale funding decreased by £3.6 billion in the
quarter to £83.0 billion.
- TNAV per share increased by 12 pence in H1 2024 to 304 pence primarily
reflecting the profit for the period partially offset by the 2023 final
ordinary dividend of 11.5 pence.
Shareholder return supported strong capital generation
- The CET1 ratio of 13.6% was 10 basis points higher than Q1 2024
principally reflecting the attributable profit for the quarter, c.60 basis
points and a decrease in RWAs c.40 basis points, partially offset by
distributions deducted from capital of c.90 basis points. CET1 was 20 basis
points higher than 31 December 2023 largely reflecting the attributable profit
and a £2.2 billion decrease in RWAs, partially offset by distributions.
NatWest Group's minimum requirement for own funds and eligible liabilities
(MREL) was 31.7%.
- RWAs reduced by £5.5 billion in the second quarter of the year to
£180.8 billion largely reflecting RWA management of £3.9 billion and
decreased by £2.2 billion in the first half primarily due to RWA management
of £4.3 billion, partially offset by the annual update to operational risk.
Business performance summary
Retail Banking
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2024 2023 2024 2024 2023
£m £m £m £m £m
Total income 2,690 3,120 1,365 1,325 1,516
Operating expenses (1,470) (1,367) (697) (773) (671)
of which: Other operating expenses (1,457) (1,343) (690) (767) (650)
Impairment losses (122) (193) (59) (63) (79)
Operating profit 1,098 1,560 609 489 766
Return on equity (1) 18.4% 29.1% 20.3% 16.5% 28.2%
Net interest margin (1) 2.26% 2.65% 2.31% 2.22% 2.56%
Cost:income ratio
(excl. litigation and conduct) (1) 54.2% 43.0% 50.5% 57.9% 42.9%
Loan impairment rate (1) 12bps 19bps 12bps 12bps 15bps
As at
30 June 31 March 31 December
2024 2024 2023
£bn £bn £bn
Net loans to customers (amortised cost) 203.3 203.5 205.2
Customer deposits 191.5 190.0 188.0
RWAs 62.3 62.5 61.6
(1) Refer to the Non-IFRS financial measures appendix for details of
the basis of preparation and reconciliation of non-IFRS financial measures and
performance metrics.
During H1 2024, Retail Banking delivered an operating profit of £1.1 billion
and a return on equity of 18.4%. Q2 2024 showed positive income momentum with
increased net interest margin from deposit margin expansion supporting
improved profitability.
Retail Banking provided £1.3 billion of climate and sustainable funding and
financing in H1 2024 from lending on properties with an EPC rating of A or B.
H1 2024 performance
- Total income was £430 million, or 13.8%, lower than H1 2023 due to
mortgage margin compression and the impact of the deposit balance mix shift
from non-interest bearing to interest bearing balances, partly offset by
lending growth and the impact of one more day in H1 2024.
- Net interest margin was 39 basis points lower than H1 2023, largely
reflecting mortgage margin compression and the impact of deposit balance mix
shift.
- Other operating expenses were £114 million, or 8.5%, higher than H1
2023 reflecting the Bank of England Levy, increased severance costs, and
branch and property exit costs partly offset by savings from an 8.0% reduction
in headcount.
- An impairment charge of £122 million in H1 2024 was £71 million
lower than H1 2023. The H1 2024 charge reflects a broadly stable Stage 3
charge, with the good book benefitting from post model adjustment releases.
- Net loans to customers decreased £1.9 billion, or 0.9%, in H1 2024.
Mortgage balances decreased by £2.5 billion as customer redemptions more than
offset gross new lending. Personal advances decreased by £0.3 billion whilst
cards balances increased by £0.7 billion in H1 2024 benefitting from new card
issuance, as well as higher customer spend.
- Customer deposits increased by £3.5 billion, or 1.9%, in H1 2024
reflecting growth in savings partly offset by lower current account balances.
- RWAs increased by £0.7 billion, or 1.1%, in H1 2024 primarily due to
the annual update for operational risk calculation, book movements and
movement in risk parameters.
Q2 2024 performance
- Total income was £40 million, or 3.0%, higher than Q1 2024 reflecting
deposit margin expansion partly offset by the impact of the deposit balance
mix shift from non-interest bearing to interest bearing balances and asset
margin compression.
- Net interest margin was 9 basis points higher than Q1 2024, largely
reflecting improved deposit hedge income, partly offset by the impact of the
deposit balance mix shift and asset margin compression.
- Other operating expenses were £77 million, or 10.0%, lower than Q1
2024 reflecting the Bank of England Levy in Q1 2024 and lower strategic costs
as well as savings from a 3.8% reduction in headcount.
- An impairment charge of £59 million in Q2 2024, reflecting a Stage 3
charge broadly in line with Q1 2024, with the good book benefitting from post
model adjustment releases.
- Net loans to customers decreased by £0.2 billion, or 0.1%, lower than
Q1 2024, driven by £0.7 billion lower mortgage balances, as redemptions more
than offset stronger gross new lending, and personal advances decreased by
£0.1 billion in Q2 2024; whilst cards balances increased by £0.4 billion in
Q2 2024.
- Customer deposits increased by £1.5 billion, or 0.8%, in Q2 2024
reflecting growth in savings partly offset by lower current account balances.
- RWAs decreased by £0.2 billion, or 0.3%, in Q2 2024 primarily due to
book movements.
Business performance summary continued
Private Banking
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2024 2023 2024 2024 2023
£m £m £m £m £m
Total income 444 567 236 208 271
Operating expenses (356) (322) (175) (181) (167)
of which: Other operating expenses (355) (311) (175) (180) (159)
Impairment releases/(losses) 11 (11) 5 6 (3)
Operating profit 99 234 66 33 101
Return on equity (1) 10.5% 24.7% 14.4% 6.7% 20.8%
Net interest margin (1) 2.18% 3.13% 2.30% 2.06% 2.94%
Cost:income ratio
(excl. litigation and conduct) (1) 80.0% 54.9% 74.2% 86.5% 58.7%
Loan impairment rate (1) (12)bps 11bps (11)bps (13)bps 6bps
AUM net flows (£bn) (1) 1.0 1.0 0.6 0.4 0.4
As at
30 June 31 March 31 December
2024 2024 2023
£bn £bn £bn
Net loans to customers (amortised cost) 18.1 18.2 18.5
Customer deposits 39.5 37.8 37.7
RWAs 11.0 11.3 11.2
Assets under management (AUMs) (1) 34.7 33.6 31.7
Assets under administration (AUAs) (1) 10.4 9.5 9.1
Total assets under management and administration (AUMA) (1) 45.1 43.1 40.8
(1) Refer to the Non-IFRS financial measures appendix for details of
basis of preparation and reconciliation of non-IFRS financial measures and
performance metrics.
During H1 2024, Private Banking delivered a return on equity of 10.5% and an
operating profit of £99 million. Q2 2024 continued to see a positive
performance in deposits and AUMA growth supporting improved profitability.
Private Banking provided £0.2 billion of climate and sustainable funding and
financing in H1 2024, principally in relation to mortgages on residential
properties with an EPC rating of A or B.
H1 2024 performance
- Total income was £123 million, or 21.7% lower than H1 2023
reflecting the change in deposit mix, primarily during the second half of
2023, as customers migrated to savings products offering higher returns
combined with a reduction in lending volumes. This was partly offset by an
increase in investment income due to higher AUMA balances reflecting net
inflows and favourable market movements.
- Net interest margin was 95 basis points lower than H1 2023,
largely reflecting a change in deposit mix.
- Other operating expenses were £44 million, or 14.1%, higher than
H1 2023 primarily reflecting increased technology and severance costs along
with the Bank of England Levy. Staff costs have increased also due to
inflationary pressure.
- A net impairment release of £11 million, compared with an £11
million charge in H1 2023, largely reflects good book releases including
benefits from post model adjustments with the Stage 3 charge broadly flat and
remaining at low levels.
- Net loans to customers decreased by £0.4 billion, or 2.2%, in H1
2024 driven by lower mortgage balances.
- Customer deposits increased by £1.8 billion, or 4.8%, in H1 2024
reflecting strong above-market savings growth and short-term transitory
inflows in Q2 2024 offsetting tax outflows in Q1 2024.
- AUMA increased by £4.3 billion in H1 2024 to £45.1 billion,
primarily driven by £2.9 billion positive market movements, and £1.0 billion
AUM and £0.3 billion AUA net inflows.
Q2 2024 performance
- Total income was £28 million, or 13.5%, higher than Q1 2024
primarily due to higher average deposit and AUMA balances, driving an increase
in investment fee income and improved deposit income, partly offset by lower
average lending balances.
- Net interest margin was 24 basis points higher than Q1 2024
reflecting higher average deposit balances and improvement in deposit margin.
- Other operating expenses were £5 million, or 2.8%, lower than Q1
2024 primarily due to the non-repeat of higher technology costs and the Bank
of England Levy incurred in Q1 2024.
- Net loans to customers decreased by £0.1 billion, or 0.5%, in Q2
2024 primarily due to lower mortgage balances.
- Customer deposits increased by £1.7 billion, or 4.5%, compared
with Q1 2024 driven by a strong performance on instant access savings,
including short-term transitory inflows, partly offset by a small reduction on
current accounts.
- AUMA increased by £2.0 billion in Q2 2024, reflecting positive
market movements of £0.9 billion supported by AUM net inflows of £0.6
billion and AUA inflows of £0.4 billion.
Business performance summary continued
Commercial & Institutional
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2024 2023 2024 2024 2023
£m £m £m £m £m
Net interest income 2,543 2,504 1,297 1,246 1,243
Non-interest income 1,257 1,244 644 613 552
Total income 3,800 3,748 1,941 1,859 1,795
Operating expenses (2,150) (1,987) (1,099) (1,051) (984)
of which: Other operating expenses (2,073) (1,893) (1,053) (1,020) (934)
Impairment releases/(losses) 57 (20) 96 (39) (64)
Operating profit 1,707 1,741 938 769 747
Return on equity (1) 16.2% 16.9% 17.8% 14.6% 14.3%
Net interest margin (1) 2.10% 2.06% 2.12% 2.07% 2.05%
Cost:income ratio
(excl. litigation and conduct) (1) 54.6% 50.5% 54.3% 54.9% 52.0%
Loan impairment rate (1) (8)bps 3bps (28)bps 11bps 20bps
As at
30 June 31 March 31 December
2024 2024 2023
£bn £bn £bn
Net loans to customers (amortised cost) 133.9 135.3 131.9
Customer deposits 194.2 192.2 193.4
Funded assets (1) 315.5 321.7 306.9
RWAs 104.9 109.9 107.4
(1) Refer to the Non-IFRS financial measures appendix for details of
the basis of preparation and reconciliation of non-IFRS financial measures and
performance metrics.
In H1 2024, Commercial & Institutional continued to support customers with
an increase in lending of 1.5% and delivered a strong performance in income
and operating profit supporting a return on equity of 16.2%. Q2 2024 continued
to see good client demand for lending, an increase in customer deposits
supported by an improving UK deposit market and disciplined capital management
delivering strong income and net interest margin growth supporting overall
improved profitability.
Commercial & Institutional provided £14.9 billion of climate and
sustainable funding and financing in H1 2024 to support customers investing in
the transition to net zero.
H1 2024 performance
- Total income was £52 million, or 1.4%, higher than H1 2023 due to
strong client-driven capital markets activity, lending growth in Corporate
& Institutions and Commercial Mid-market, partially offset by lower
deposit returns reflecting the impact of the lower average volumes and balance
mix shift.
- Net interest margin was 4 basis points higher than H1 2023,
largely reflecting one-off items partly offset by lower deposit returns.
- Other operating expenses were £180 million, or 9.5%, higher than
H1 2023 reflecting increased severance costs, the Bank of England Levy, and
increased headcount as we continue to invest in the business.
- An impairment release of £57 million in H1 2024 reflecting good
book releases with benefits from the revised economic outlook, post model
adjustment releases, and benefits from capital management activity. Stage 3
charge remains at a low level.
- Net loans to customers increased by £2.0 billion, or 1.5%, in H1
2024 largely reflecting a strong performance within Commercial Mid-market and
Corporate & Institutions, partly offset by continued UK Government scheme
repayments of £1.0 billion.
- Customer deposits increased by £0.8 billion, or 0.4%, in H1 2024
reflecting an increase in Commercial Mid-market.
- RWAs decreased by £2.5 billion, or 2.3%, in H1 2024 primarily due
to RWA management of £3.7 billion, decreases in market risk and counterparty
credit risk, partially offset by lending book growth and the annual update for
operational risk.
Q2 2024 performance
- Total income was £82 million, or 4.4%, higher than Q1 2024
primarily reflecting higher deposit income, average lending growth, and higher
lending and payment fees.
- Net interest margin was 5 basis points higher than Q1 2024
reflecting higher deposit returns.
- Other operating expenses were £33 million, or 3.2%, higher than
Q1 2024 reflecting increased severance costs, partially offset by the Bank of
England Levy in Q1 2024.
- An impairment release of £96 million compared with a £39 million
charge in Q1 2024, largely reflecting good book releases driven by benefits
from the revised economic outlook, post model adjustment releases, and
benefits from capital management activity.
- Net loans to customers decreased by £1.4 billion, or 1.0%, in Q2
2024 as continued growth in Commercial Mid-Market was offset by lower balances
in large Corporate & Institutions, with some customers taking advantage of
stronger capital markets as well as continued UK Government scheme repayments
of £0.5 billion.
- Customer deposits increased by £2.0 billion, or 1.0%, in Q2 2024
reflecting an increase in Commercial Mid-market and Business Banking.
- RWAs decreased by £5.0 billion, or 4.5%, compared with Q1 2024
primarily due to strong RWA management of £3.5 billion, decreases in market
risk and counterparty credit risk, partially offset by lending book growth.
Business performance summary continued
Central items & other
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2024 2023 2024 2024 2023
£m £m £m £m £m
Continuing operations
Total income 200 292 117 83 269
Operating expenses (81) (239) (34) (47) (105)
of which: Other operating expenses (71) (260) (10) (61) (132)
of which: Ulster Bank RoI direct expenses (55) (163) (30) (25) (63)
Impairment releases/(losses) 6 1 3 3 (7)
Operating profit 125 54 86 39 157
As at
30 June 31 March 31 December
2024 2024 2023
£bn £bn £bn
Net loans to customers (amortised cost) 24.0 21.0 25.8
Customer deposits 7.8 12.8 12.3
RWAs 2.6 2.6 2.8
H1 2024 performance
- Total income was £92 million lower than H1 2023 primarily reflecting
£198 million lower notable items which included foreign exchange recycling
gains in H1 2023 not repeated in H1 2024 and higher gains on interest and
foreign exchange risk management derivatives not in accounting hedge
relationships, partially offset with income in relation to our Ulster RoI
business.
- Other operating expenses were £189 million, or 72.7%, lower than H1
2023 primarily reflecting lower costs in relation to withdrawal from the
Republic of Ireland.
- Customer deposits decreased by £4.5 billion, or 36.6%, compared with
Q4 2023 primarily reflecting repo activity in Treasury.
- Net loans to customers decreased £1.8 billion to £24.0 billion in H1
2024 mainly due to reverse repo activity in Treasury.
Q2 2024 performance
- Total income was £34 million higher than Q1 2024 primarily reflecting
treasury income, a gain on surrender of a property, and income in relation to
our Ulster RoI business.
- Customer deposits decreased by £5.0 billion, or 39.1%, in Q2 2024
primarily reflecting repo activity in Treasury.
- Net loans to customers increased by £3.0 billion in Q2 2024 mainly
due to reverse repo activity in Treasury.
Segment performance
Half year ended 30 June 2024
Retail Private Commercial & Central items Total NatWest
Banking Banking Institutional & other Group
£m £m £m £m £m
Continuing operations
Income statement
Net interest income 2,475 285 2,543 105 5,408
Own credit adjustments - - (7) - (7)
Other non-interest income 215 159 1,264 95 1,733
Total income 2,690 444 3,800 200 7,134
Direct expenses (381) (126) (764) (2,685) (3,956)
Indirect expenses (1,076) (229) (1,309) 2,614 -
Other operating expenses (1,457) (355) (2,073) (71) (3,956)
Litigation and conduct costs (13) (1) (77) (10) (101)
Operating expenses (1,470) (356) (2,150) (81) (4,057)
Operating profit before impairment losses/releases 1,220 88 1,650 119 3,077
Impairment (losses)/releases (122) 11 57 6 (48)
Operating profit 1,098 99 1,707 125 3,029
Income excluding notable items (1) 2,690 444 3,807 63 7,004
Additional information
Return on tangible equity (1) na na na na 16.4%
Return on equity (1) 18.4% 10.5% 16.2% nm na
Cost:income ratio (excl. litigation and conduct) (1) 54.2% 80.0% 54.6% nm 55.5%
Total assets (£bn) 226.5 27.2 381.9 54.7 690.3
Funded assets (£bn) (1) 226.5 27.2 315.5 53.6 622.8
Net loans to customers - amortised cost (£bn) 203.3 18.1 133.9 24.0 379.3
Loan impairment rate (1) 12bps (12)bps (8)bps nm 3bps
Impairment provisions (£bn) (1.7) (0.1) (1.5) - (3.3)
Impairment provisions - Stage 3 (£bn) (1.0) - (0.9) (0.1) (2.0)
Customer deposits (£bn) 191.5 39.5 194.2 7.8 433.0
Risk-weighted assets (RWAs) (£bn) 62.3 11.0 104.9 2.6 180.8
RWA equivalent (RWAe) (£bn) 63.1 11.0 106.7 3.1 183.9
Employee numbers (FTEs - thousands) 12.6 2.2 12.8 33.0 60.6
Third party customer asset rate (1) 3.88% 4.99% 6.77% nm nm
Third party customer funding rate (1) (2.08%) (3.14%) (1.93%) nm nm
Average interest earning assets (£bn) (1) 220.1 26.3 244.0 na 524.4
Net interest margin (1) 2.26% 2.18% 2.10% na 2.07%
nm = not meaningful, na = not applicable.
(1) Refer to the Non-IFRS financial measures appendix for details of
the basis of preparation and reconciliation of non-IFRS financial measures and
performance metrics.
Segment performance continued
Half year ended 30 June 2023
Retail Private Commercial & Central items Total NatWest
Banking Banking Institutional & other Group
£m £m £m £m £m
Continuing operations
Income statement
Net interest income 2,908 428 2,504 (114) 5,726
Own credit adjustments - - 9 - 9
Other non-interest income 212 139 1,235 406 1,992
Total income 3,120 567 3,748 292 7,727
Direct expenses (398) (118) (741) (2,550) (3,807)
Indirect expenses (945) (193) (1,152) 2,290 -
Other operating expenses (1,343) (311) (1,893) (260) (3,807)
Litigation and conduct costs (24) (11) (94) 21 (108)
Operating expenses (1,367) (322) (1,987) (239) (3,915)
Operating profit before impairment losses/releases 1,753 245 1,761 53 3,812
Impairment (losses)/releases (193) (11) (20) 1 (223)
Operating profit 1,560 234 1,741 54 3,589
Income excluding notable items (1) 3,120 567 3,739 (43) 7,383
Additional information
Return on tangible equity (1) na na na na 18.2%
Return on equity (1) 29.1% 24.7% 16.9% nm na
Cost:income ratio (excl. litigation and conduct) (1) 43.0% 54.9% 50.5% nm 49.3%
Total assets (£bn) 229.1 27.3 401.5 44.7 702.6
Funded assets (£bn) (1) 229.1 27.3 320.6 43.7 620.7
Net loans to customers - amortised cost (£bn) 204.4 19.1 129.2 21.2 373.9
Loan impairment rate (1) 19bps 11bps 3bps nm 12bps
Impairment provisions (£bn) (1.7) (0.1) (1.5) (0.1) (3.4)
Impairment provisions - Stage 3 (£bn) (1.0) - (0.8) (0.1) (1.9)
Customer deposits (£bn) 183.1 36.5 201.5 11.4 432.5
Risk-weighted assets (RWAs) (£bn) 57.3 11.5 103.6 5.1 177.5
RWA equivalent (RWAe) (£bn) 57.3 11.5 104.9 5.8 179.5
Employee numbers (FTEs - thousands) 13.7 2.3 12.6 32.9 61.5
Third party customer asset rate (1) 3.03% 4.24% 5.61% nm nm
Third party customer funding rate (1) (1.02%) (1.43%) (1.03%) nm nm
Average interest earning assets (£bn) (1) 220.9 27.6 244.6 na 518.4
Net interest margin (1) 2.65% 3.13% 2.06% na 2.23%
nm = not meaningful, na = not applicable.
(1) Refer to the Non-IFRS financial measures appendix for details of
the basis of preparation and reconciliation of non-IFRS financial measures and
performance metrics.
Segment performance continued
Quarter ended 30 June 2024
Retail Private Commercial & Central items Total NatWest
Banking Banking Institutional & other Group
£m £m £m £m £m
Continuing operations
Income statement
Net interest income 1,259 151 1,297 50 2,757
Own credit adjustments - - (2) - (2)
Other non-interest income 106 85 646 67 904
Total income 1,365 236 1,941 117 3,659
Direct expenses (192) (65) (380) (1,291) (1,928)
Indirect expenses (498) (110) (673) 1,281 -
Other operating expenses (690) (175) (1,053) (10) (1,928)
Litigation and conduct costs (7) - (46) (24) (77)
Operating expenses (697) (175) (1,099) (34) (2,005)
Operating profit before impairment losses/releases 668 61 842 83 1,654
Impairment (losses)/releases (59) 5 96 3 45
Operating profit 609 66 938 86 1,699
Income excluding notable items (1) 1,365 236 1,943 46 3,590
Additional information
Return on tangible equity (1) na na na na 18.5%
Return on equity (1) 20.3% 14.4% 17.8% nm na
Cost:income ratio (excl. litigation and conduct) (1) 50.5% 74.2% 54.3% nm 52.7%
Total assets (£bn) 226.5 27.2 381.9 54.7 690.3
Funded assets (£bn) (1) 226.5 27.2 315.5 53.6 622.8
Net loans to customers - amortised cost (£bn) 203.3 18.1 133.9 24.0 379.3
Loan impairment rate (1) 12bps (11)bps (28)bps nm (5)bps
Impairment provisions (£bn) (1.7) (0.1) (1.5) - (3.3)
Impairment provisions - Stage 3 (£bn) (1.0) - (0.9) (0.1) (2.0)
Customer deposits (£bn) 191.5 39.5 194.2 7.8 433.0
Risk-weighted assets (RWAs) (£bn) 62.3 11.0 104.9 2.6 180.8
RWA equivalent (RWAe) (£bn) 63.1 11.0 106.7 3.1 183.9
Employee numbers (FTEs - thousands) 12.6 2.2 12.8 33.0 60.6
Third party customer asset rate (1) 3.97% 5.01% 6.73% nm nm
Third party customer funding rate (1) (2.10%) (3.15%) (1.93%) nm nm
Average interest earning assets (£bn) (1) 219.6 26.5 246.0 na 527.6
Net interest margin (1) 2.31% 2.30% 2.12% na 2.10%
nm = not meaningful, na = not applicable.
(1) Refer to the Non-IFRS financial measures appendix for
details of the basis of preparation and reconciliation of non-IFRS financial
measures and performance metrics.
Segment performance continued
Quarter ended 31 March 2024
Retail Private Commercial & Central items Total NatWest
Banking Banking Institutional & other Group
£m £m £m £m £m
Continuing operations
Income statement
Net interest income 1,216 134 1,246 55 2,651
Own credit adjustments - - (5) - (5)
Other non-interest income 109 74 618 28 829
Total income 1,325 208 1,859 83 3,475
Direct expenses (189) (61) (384) (1,394) (2,028)
Indirect expenses (578) (119) (636) 1,333 -
Other operating expenses (767) (180) (1,020) (61) (2,028)
Litigation and conduct costs (6) (1) (31) 14 (24)
Operating expenses (773) (181) (1,051) (47) (2,052)
Operating profit before impairment losses/releases 552 27 808 36 1,423
Impairment (losses)/releases (63) 6 (39) 3 (93)
Operating profit 489 33 769 39 1,330
Income excluding notable items (1) 1,325 208 1,864 17 3,414
Additional information
Return on tangible equity (1) na na na na 14.2%
Return on equity (1) 16.5% 6.7% 14.6% nm na
Cost:income ratio (excl. litigation and conduct) (1) 57.9% 86.5% 54.9% nm 58.4%
Total assets (£bn) 226.4 26.5 388.8 55.8 697.5
Funded assets (£bn) (1) 226.4 26.5 321.7 54.7 629.3
Net loans to customers - amortised cost (£bn) 203.5 18.2 135.3 21.0 378.0
Loan impairment rate (1) 12bps (13)bps 11bps nm 10bps
Impairment provisions (£bn) (1.9) (0.1) (1.5) (0.1) (3.6)
Impairment provisions - Stage 3 (£bn) (1.2) - (0.8) - (2.0)
Customer deposits (£bn) 190.0 37.8 192.2 12.8 432.8
Risk-weighted assets (RWAs) (£bn) 62.5 11.3 109.9 2.6 186.3
RWA equivalent (RWAe) (£bn) 62.6 11.3 111.1 3.1 188.1
Employee numbers (FTEs - thousands) 13.1 2.2 12.7 33.3 61.3
Third party customer asset rate (1) 3.79% 4.97% 6.81% nm nm
Third party customer funding rate (1) (2.05%) (3.14%) (1.93%) nm nm
Average interest earning assets (£bn) (1) 220.6 26.2 241.9 na 521.1
Net interest margin (1) 2.22% 2.06% 2.07% na 2.05%
nm = not meaningful, na = not applicable.
(1) Refer to the Non-IFRS financial measures appendix for details of
the basis of preparation and reconciliation of non-IFRS financial measures and
performance metrics.
Segment performance continued
Quarter ended 30 June 2023
Retail Private Commercial & Central items Total NatWest
Banking Banking Institutional & other Group
£m £m £m £m £m
Continuing operations
Income statement
Net interest income 1,416 199 1,243 (34) 2,824
Own credit adjustments - - 3 - 3
Other non-interest income 100 72 549 303 1,024
Total income 1,516 271 1,795 269 3,851
Direct expenses (187) (58) (381) (1,249) (1,875)
Indirect expenses (463) (101) (553) 1,117 -
Other operating expenses (650) (159) (934) (132) (1,875)
Litigation and conduct costs (21) (8) (50) 27 (52)
Operating expenses (671) (167) (984) (105) (1,927)
Operating profit before impairment losses 845 104 811 164 1,924
Impairment losses (79) (3) (64) (7) (153)
Operating profit 766 101 747 157 1,771
Income excluding notable items (1) 1,516 271 1,792 (16) 3,563
Additional information
Return on tangible equity (1) na na na na 16.4%
Return on equity (1) 28.2% 20.8% 14.3% nm na
Cost:income ratio (excl. litigation and conduct) (1) 42.9% 58.7% 52.0% nm 48.7%
Total assets (£bn) 229.1 27.3 401.5 44.7 702.6
Funded assets (£bn) (1) 229.1 27.3 320.6 43.7 620.7
Net loans to customers - amortised cost (£bn) 204.4 19.1 129.2 21.2 373.9
Loan impairment rate (1) 15bps 6bps 20bps nm 16bps
Impairment provisions (£bn) (1.7) (0.1) (1.5) (0.1) (3.4)
Impairment provisions - Stage 3 (£bn) (1.0) - (0.8) (0.1) (1.9)
Customer deposits (£bn) 183.1 36.5 201.5 11.4 432.5
Risk-weighted assets (RWAs) (£bn) 57.3 11.5 103.6 5.1 177.5
RWA equivalent (RWAe) (£bn) 57.3 11.5 104.9 5.8 179.5
Employee numbers (FTEs - thousands) 13.7 2.3 12.6 32.9 61.5
Third party customer asset rate (1) 3.11% 4.41% 5.84% nm nm
Third party customer funding rate (1) (1.20%) (1.71%) (1.18%) nm nm
Average interest earning assets (£bn) (1) 221.5 27.1 243.2 na 514.5
Net interest margin (1) 2.56% 2.94% 2.05% na 2.20%
nm - not meaningful, na - not applicable
(1) Refer to the Non-IFRS financial measures appendix for details
of the basis of preparation and reconciliation of non-IFRS financial measures
and performance metrics.
Risk and capital management
Certain disclosures in the Risk and capital management section are within the
scope of EY's review report and are marked as 'reviewed' in the section
header.
Credit risk
Economic loss drivers (reviewed)
Introduction
The portfolio segmentation and selection of economic loss drivers for IFRS 9
follows the approach used in stress testing. To enable robust modelling, the
forecasting models for each portfolio segment (defined by product or asset
class and where relevant, industry sector and region) are based on a selected,
small number of economic variables (typically three to four) that best explain
the movements in portfolio loss rates. The process to select economic loss
drivers involves empirical analysis and expert judgement.
The most significant economic loss drivers for the most material portfolios
are shown in the table below:
UK Personal mortgages Unemployment rate, sterling swap rate, house price index, real wage
UK Personal unsecured Unemployment rate, sterling swap rate, real wage
UK corporates Stock price index, gross domestic product (GDP)
UK commercial real estate Stock price index, commercial property price index, GDP
Economic scenarios
At 30 June 2024, the range of anticipated future economic conditions was
defined by a set of four internally developed scenarios and their respective
probabilities. In addition to the base case, they comprised upside, downside
and extreme downside scenarios. The scenarios primarily reflected the current
risks faced by the economy, particularly in relation to the path of inflation
and interest rates.
For 30 June 2024, the four scenarios were deemed appropriate in capturing the
uncertainty in economic forecasts and the non-linearity in outcomes under
different scenarios. These four scenarios were developed to provide sufficient
coverage across potential rises in unemployment, inflation, asset price
declines and the degree of permanent damage to the economy, around which there
remains pronounced levels of uncertainty.
Upside - This scenario assumes robust growth as inflation falls sharply and
rates are lowered quicker than expected. Consumer spending is supported by
quicker recovery in household income, and further helped by higher consumer
confidence, fiscal support and strong business investment. The labour market
remains resilient with the unemployment rate falling. The housing market shows
robust growth.
Compared to 31 December 2023, the upside scenario remains similarly
configured, exploring a more benign set of economic outcomes, including a
stronger performing stock market, real estate prices, and supported by a
stronger global growth backdrop, relative to the base case view.
Base case - Continued declining inflation allows an easing cycle to start in
the second half of 2024. The unemployment rate rises modestly over 2024 but
there are no wide-spread job losses. Inflation remains very close to the
current level of 2% through the forecast period. Economic output also
experiences modest but stable growth in contrast to the stagnation of recent
years. The housing market experiences modest nominal price increase. Housing
market activity gradually strengthens as interest rates fall and real incomes
recover.
Since 31 December 2023, the economic outlook has improved as household income
continued to recover, and the labour market remained resilient. The declining
inflation trend has continued, albeit the progress was slower than expected.
As a result, rates are expected to remain higher-for-longer than previously
expected. The unemployment rate still rises but the peak is marginally lower
and is underpinned by a resilient labour market. House prices were assumed to
decline previously in 2024, but there has been a better-than-expected recovery
in early 2024 and prices are now expected to show a modest increase.
Downside - Core inflation remains persistently high leading to resurgent
inflation. The economy experiences a recession as consumer confidence weakens
due to a fall in real incomes. Interest rates are raised higher than the base
case and remain higher-for-longer. High rates are assumed to have a more
significant impact on the labour market. Unemployment is higher than the base
case scenario while house prices lose approximately ten percent of their
value.
Compared to 31 December 2023, the downside scenario is similarly configured
and explores risks associated with high inflation and significantly higher
interest rates across the period.
Extreme downside - This scenario assumes a significant economic downturn with
a loss of consumer confidence leading to a deep economic recession. This
results in widespread job losses with the unemployment rate rising above the
levels seen during the 2008 financial crisis, further compounding consumer
weakness. Rates are cut sharply in response to the demand shock, leading to
some support to the recovery. House prices lose approximately a third of their
value.
Compared to 31 December 2023, the extreme downside is similarly configured
with an extreme set of economic outcomes, low interest rates, very sharp falls
in asset prices and a marked deterioration in the labour market.
Risk and capital management continued
Credit risk continued
Economic loss drivers (reviewed)
The main macroeconomic variables for each of the four scenarios used for
expected credit loss (ECL) modelling are set out in the main macroeconomic
variables table below.
Main macroeconomic variables 30 June 2024 31 December 2023
Extreme Weighted Extreme Weighted
Upside Base case Downside downside average Upside Base case Downside downside average
Five-year summary % % % % % % % % % %
GDP 1.9 1.2 0.6 (0.2) 1.1 1.8 1.0 0.5 (0.3) 0.9
Unemployment rate 3.5 4.3 5.4 7.1 4.7 3.5 4.6 5.2 6.8 4.8
House price index 5.3 3.3 1.0 (4.2) 2.5 3.9 0.3 (0.4) (5.7) 0.3
Commercial real estate price 4.4 1.2 (0.7) (5.1) 0.8 3.1 (0.2) (2.0) (6.8) (0.6)
Consumer price index 1.1 2.1 4.8 1.3 2.3 1.7 2.6 5.2 1.8 2.8
Bank of England base rate 3.3 3.7 5.7 2.6 3.8 3.8 3.7 5.6 2.9 4.0
Stock price index 4.7 3.3 1.3 0.2 2.8 4.8 3.3 1.2 (0.4) 2.8
World GDP 3.7 3.1 2.7 1.8 3.0 3.7 3.2 2.7 1.8 3.0
Probability weight 22.0 45.0 19.4 13.6 21.2 45.0 20.4 13.4
(1) The five-year summary runs from 2024-2028 for 30 June 2024 and
from 2023-27 for 31 December 2023.
(2) The table shows compound annual growth rate (CAGR) for GDP,
average levels for the unemployment rate and Bank of England base rate and Q4
to Q4 CAGR for other parameters.
Risk and capital management continued
Credit risk continued
Economic loss drivers (reviewed)
Climate transition
In 2023, NatWest Group for the first time explicitly included assumptions
about the changes in transition policy, in the base case macroeconomic
scenario. Last year, an economy-wide implicit carbon price, consistent with
the CCC Balanced Net Zero Scenario, was applied to all sectors. During the
first half of 2024, NatWest Group continued to add climate policy and
technology related transition assumptions into its base case macroeconomic
scenario used for financial planning. As in 2023, this process included an
assessment of ECL in this IFRS 9 reporting period. This resulted in climate
transition policy contributing £5.4 million to total ECL, compared with an
increase in ECL of less than £1 million at the end of 2023.
In 2024, NatWest Group refined the approach. In this reporting period, NatWest
Group calculated expected implicit carbon prices associated with specific
climate transition policies. NatWest Group has individually assessed 46 active
and potential transition policies that will have a significant impact on the
cost of emissions and converted them into equivalent sectoral carbon prices,
calculated as the cost per tonne of the emissions abated, as a result of each
policy. This approach enables NatWest Group to estimate an aggregate
macroeconomic impact of the transition policies, and as a result, ECL.
NatWest Group and its customers have a dependency on timely and appropriate
government policies to provide the necessary impetus for technology
development and customer behaviour changes, to enable the UK's successful
transition to net zero. Policy delays and the risks outlined in the UK CCC
2022 and 2023 Progress Reports, if not adequately addressed in a timely
manner, put at risk the UK's net zero transition and in turn, that of NatWest
Group and its customers.
Probability weightings of scenarios
NatWest Group's quantitative approach to IFRS 9 multiple economic scenarios
(MES) involves selecting a suitable set of discrete scenarios to characterise
the distribution of risks in the economic outlook and assigning appropriate
probability weights. This quantitative approach is used for 30 June 2024.
The approach involves comparing GDP paths for NatWest Group's scenarios
against a set of 1,000 model runs, following which, a percentile in the
distribution is established that most closely corresponded to the scenario.
Probability weight for base case is set first based on judgement, while
probability weights for the alternate scenarios are assigned based on these
percentiles scores.
The assigned probability weights were judged to be aligned with the subjective
assessment of balance of the risks in the economy. The weights were broadly
comparable to those used at 31 December 2023 but with slightly less downside
skew. This is reasonable as the inflation outturn since then has been
encouraging, with inflation continuing to decline and a reduced risk of
stagflation. However, the risks of persistent inflation remain elevated and
there is considerable uncertainty in the economic outlook, particularly with
respect to persistence and the range of outcomes on inflation. Given that
backdrop, NatWest Group judges it appropriate that downside-biased scenarios
have higher combined probability weights than the upside-biased scenario. It
presents good coverage to the range of outcomes assumed in the scenarios,
including the potential for a robust recovery on the upside and exceptionally
challenging outcomes on the downside. A 22% weighting was applied to the
upside scenario, a 45% weighting applied to the base case scenario, a 19.4%
weighting applied to the downside scenario and a 13.6% weighting applied to
the extreme downside scenario.
Risk and capital management continued
Credit risk continued
Economic loss drivers (reviewed)
Annual figures
Extreme Weighted
Upside Base case Downside downside average
GDP - annual growth % % % % %
2024 1.7 0.7 0.1 - 0.7
2025 3.9 1.2 (0.9) (4.0) 0.7
2026 1.4 1.4 1.1 0.9 1.3
2027 1.2 1.4 1.3 1.2 1.3
2028 1.2 1.4 1.3 1.2 1.3
2029 1.3 1.4 1.3 1.3 1.3
Unemployment rate
- annual average
2024 4.2 4.4 4.6 4.8 4.4
2025 3.4 4.4 5.7 7.8 4.9
2026 3.2 4.3 5.7 8.3 4.9
2027 3.3 4.3 5.5 7.7 4.7
2028 3.3 4.2 5.4 7.1 4.6
2029 3.3 4.2 5.3 6.8 4.6
House price index
- four quarter change
2024 6.8 3.1 (1.2) (3.3) 2.2
2025 8.9 3.1 (6.0) (13.2) 0.6
2026 4.5 3.4 1.0 (14.5) 1.3
2027 3.1 3.4 6.6 5.4 4.1
2028 3.5 3.4 5.2 6.8 4.1
2029 3.4 3.4 3.4 3.4 3.4
Commercial real estate price
- four quarter change
2024 6.2 (1.3) (4.2) (7.7) (1.1)
2025 5.5 1.7 (8.0) (30.8) (3.4)
2026 4.6 2.0 3.1 3.3 3.0
2027 3.8 2.2 3.4 7.8 3.3
2028 1.8 1.5 3.0 8.5 2.5
2029 1.4 1.4 1.4 1.4 1.4
Extreme Weighted
Consumer price index Upside Base case Downside downside average
- four quarter change % % % % %
2024 1.4 2.1 5.7 0.1 2.4
2025 0.5 2.1 6.7 0.5 2.5
2026 1.3 2.0 4.4 2.0 2.4
2027 1.2 2.0 3.8 2.0 2.2
2028 1.1 2.0 3.7 2.0 2.2
2029 2.0 2.0 2.0 2.0 2.0
Bank of England base rate
- annual average
2024 4.83 5.10 5.50 4.69 5.06
2025 3.46 4.06 6.35 2.38 4.14
2026 2.85 3.08 5.83 2.00 3.42
2027 2.75 3.00 5.50 2.00 3.29
2028 2.75 3.00 5.19 2.06 3.24
2029 2.75 3.00 5.00 2.25 3.23
Stock price index
- four quarter change
2024 6.8 3.3 (11.0) (27.7) (2.9)
2025 5.7 3.3 (1.5) (7.4) 1.9
2026 4.1 3.3 8.6 21.2 6.0
2027 3.6 3.3 6.5 12.9 4.9
2028 3.2 3.3 5.3 10.2 4.4
2029 3.3 3.3 3.3 3.3 3.3
Risk and capital management continued
Credit risk continued
Economic loss drivers (reviewed)
Worst points
Extreme Weighted
Downside downside average
30 June 2024 % Quarter % Quarter %
GDP (0.9) Q1 2025 (4.2) Q2 2025 0.6
Unemployment rate - peak 5.8 Q3 2025 8.5 Q4 2025 5.0
House price index (8.0) Q2 2026 (28.2) Q4 2026 1.1
Commercial real estate price (11.9) Q3 2025 (36.5) Q1 2026 (4.4)
Consumer price index
- highest four quarter change 8.5 Q2 2025 3.5 Q1 2024 3.5
Bank of England base rate
- extreme level 6.5 Q2 2025 5.3 Q1 2024 5.3
Stock price index (16.0) Q2 2025 (40.5) Q2 2025 (4.2)
31 December 2023
GDP (1.2) Q3 2024 (4.5) Q4 2024 0.3
Unemployment rate - peak 5.8 Q1 2025 8.5 Q2 2025 5.2
House price index (12.5) Q4 2025 (31.7) Q2 2026 (6.5)
Commercial real estate price (16.6) Q1 2025 (39.9) Q3 2025 (10.2)
Consumer price index
- highest four quarter change 10.3 Q1 2023 10.3 Q1 2023 10.3
Bank of England base rate
- extreme level 6.5 Q4 2024 5.3 Q4 2023 5.3
Stock price index (14.3) Q4 2024 (39.3) Q4 2024 (2.4)
(1) Unless specified otherwise, the figures show falls relative to the
starting period. The calculations are performed over five years, with a
starting point of Q4 2023 for 30 June 2024 scenarios and Q4 2022 for 31
December 2023 scenarios.
Use of the scenarios in Personal lending
Personal lending follows a discrete scenario approach. The probability of
default (PD), exposure at default (EAD), loss given default (LGD) and
resultant ECL for each discrete scenario is calculated using product specific
economic response models. Probability weighted averages across the suite of
economic scenarios are then calculated for each of the model outputs, with the
weighted PD being used for staging purposes.
Business Banking utilises the Personal lending methodology rather than the
Wholesale lending methodology.
Use of the scenarios in Wholesale lending
Wholesale lending follows a continuous scenario approach to calculate ECL. PD
and LGD values arising from multiple economic forecasts (based on the concept
of credit cycle indices) are simulated around the central projection. The
central projection is a weighted average of economic scenarios with the
scenarios translated into credit cycle indices using the Wholesale economic
response models.
UK economic uncertainty
The high inflation environment alongside high interest rates are presenting
significant headwinds for some businesses and consumers, in many cases
compounding. These cost pressures remain a feature of the economic
environment, though they are expected to moderate over 2024 and 2025 in the
base case scenario. NatWest Group has considered where these are most likely
to affect the customer base, with the cost of borrowing during 2023 and 2024
for both businesses and consumers presenting an additional affordability
challenge.
The effects of these risks are not expected to be fully captured by
forward-looking credit modelling, particularly given the high inflation
environment, low unemployment base case outlook. Any incremental ECL effects
for these risks will be captured via post model adjustments and are detailed
further in the Governance and post model adjustments section.
Governance and post model adjustments (reviewed)
The IFRS 9 PD, EAD and LGD models are subject to NatWest Group's model risk
policy that stipulates periodic model monitoring, periodic re-validation and
defines approval procedures and authorities according to model materiality.
Various post model adjustments were applied where management judged they were
necessary to ensure an adequate level of overall ECL provision. All post model
adjustments were subject to review, challenge and approval through model or
provisioning committees.
Post model adjustments will remain a key focus area of NatWest Group's ongoing
ECL adequacy assessment process. A holistic framework has been established
including reviewing a range of economic data, external benchmark information
and portfolio performance trends with a particular focus on segments of the
portfolio (both commercial and consumer) that are likely to be more
susceptible to high inflation, high interest rates and supply chain
disruption.
Risk and capital management continued
Credit risk continued
Economic loss drivers (reviewed)
ECL post model adjustments
The table below shows ECL post model adjustments.
Retail Banking Private Commercial & Central items
Mortgages Other Banking Institutional & other Total
30 June 2024 £m £m £m £m £m £m
Deferred model calibrations - - 1 16 - 17
Economic uncertainty 79 43 8 168 4 302
Other adjustments - - - 3 - 3
Total 79 43 9 187 4 322
Of which:
- Stage 1 36 18 5 78 4 141
- Stage 2 33 25 4 107 - 169
- Stage 3 10 - - 2 - 12
31 December 2023
Deferred model calibrations - - 1 23 - 24
Economic uncertainty 118 39 13 256 3 429
Other adjustments 1 - - 8 23 32
Total 119 39 14 287 26 485
Of which:
- Stage 1 75 14 6 115 10 220
- Stage 2 31 25 8 167 9 240
- Stage 3 13 - - 5 7 25
Risk and capital management continued
Credit risk continued
ECL post model adjustments
Post model adjustments decreased significantly since 31 December 2023,
reflecting reduced economic uncertainty from inflation, higher-for-longer
interest rates and liquidity.
- Retail Banking - The post model adjustment for economic uncertainty
decreased to £122 million (31 December 2023 - £157 million). This reduction
primarily reflected a revision to the cost of living post model adjustment to
£111 million (31 December 2023 - £144 million), supported by back-testing of
default outcomes for higher risk segments. The cost of living post model
adjustment captures the risk on segments in the Retail Banking portfolio that
are more susceptible to the effects of cost of living rises. It focuses on key
affordability lenses, including customers with lower income in fuel poverty,
over-indebted borrowers and customers vulnerable to a potential mortgage rate
shock.
- Commercial & Institutional - The post model adjustment for
economic uncertainty decreased to £168 million (31 December 2023 - £256
million). The inflation, supply chain and liquidity post model adjustment of
£136 million (31 December 2023 - £206 million) was maintained for lending
prior to 1 January 2024, with a sector-level downgrade being applied to the
sectors that were considered most at risk from the ongoing pressures from
inflation and ongoing concerns around reducing cash reserves across many
sectors. The £70 million reduction reflected the reduced risk along with
portfolio improvements and exposure reduction.
- A £32 million (31 December 2023 - £50 million) post model adjustment
to cover the residual risks from COVID-19 remains for the risks surrounding
associated debt to customers that have utilised government support schemes.
This adjustment is reducing as customers default or repay.
- The £16 million (31 December 2023 - £23 million) judgemental overlay
for deferred model calibrations relates to refinance risk, with the existing
mechanistic modelling approach not fully capturing the risk on deteriorated
exposures.
- Central items & other - A £23 million post model adjustment in
other adjustments was removed in the period, reflecting the withdrawal from
the Republic of Ireland.
Measurement uncertainty and ECL sensitivity analysis (reviewed)
The recognition and measurement of ECL is complex and involves the use of
significant judgment and estimation, particularly in times of economic
volatility and uncertainty. This includes the formulation and incorporation of
multiple forward-looking economic conditions into ECL to meet the measurement
objective of IFRS 9. The ECL provision is sensitive to the model inputs and
economic assumptions underlying the estimate.
The impact arising from the base case, upside, downside and extreme downside
scenarios was simulated. These scenarios are used in the methodology for
Personal multiple economic scenarios as described in the Economic loss drivers
section. In the simulations, NatWest Group has assumed that the economic macro
variables associated with these scenarios replace the existing base case
economic assumptions, giving them a 100% probability weighting and therefore
serving as a single economic scenario.
These scenarios were applied to all modelled portfolios in the analysis below,
with the simulation impacting both PDs and LGDs. Post model adjustments
included in the ECL estimates that were modelled were sensitised in line with
the modelled ECL movements, but those that were judgmental in nature,
primarily those for deferred model calibrations and economic uncertainty, were
not (refer to the Governance and post model adjustments section) on the basis
these would be re-evaluated by management through ECL governance for any new
economic scenario outlook and not be subject to an automated calculation. As
expected, the scenarios create differing impacts on ECL by portfolio and the
impacts are deemed reasonable. In this simulation, it is assumed that existing
modelled relationships between key economic variables and loss drivers hold,
but in practice other factors would also have an impact, for example,
potential customer behaviour changes and policy changes by lenders that might
impact on the wider availability of credit.
The focus of the simulations is on ECL provisioning requirements on performing
exposures in Stage 1 and Stage 2. The simulations are run on a stand-alone
basis and are independent of each other; the potential ECL impacts reflect the
simulated impact at 30 June 2024. Scenario impacts on SICR should be
considered when evaluating the ECL movements of Stage 1 and Stage 2. In all
scenarios the total exposure was the same but exposure by stage varied in each
scenario.
Stage 3 provisions are not subject to the same level of measurement
uncertainty - default is an observed event as at the balance sheet date. Stage
3 provisions therefore were not considered in this analysis.
NatWest Group's core criterion to identify a SICR is founded on PD
deterioration. Under the simulations, PDs change and result in exposures
moving between Stage 1 and Stage 2 contributing to the ECL impact.
Risk and capital management continued
Credit risk continued
Measurement uncertainty and ECL sensitivity analysis (reviewed)
Moderate Moderate Extreme
Base upside downside downside
30 June 2024 Actual scenario scenario scenario scenario
Stage 1 modelled loans (£m)
Retail Banking - mortgages 166,944 167,405 167,829 164,061 157,458
Retail Banking - unsecured 9,941 10,025 10,142 9,696 9,019
Wholesale - property 27,589 27,635 27,769 27,277 23,732
Wholesale - non-property 130,655 131,355 131,829 128,798 109,550
335,129 336,420 337,569 329,832 299,759
Stage 1 modelled ECL (£m)
Retail Banking - mortgages 47 45 44 46 44
Retail Banking - unsecured 228 219 202 250 243
Wholesale - property 73 54 41 99 148
Wholesale - non-property 219 189 158 268 337
567 507 445 663 772
Stage 1 coverage
Retail Banking - mortgages 0.03% 0.03% 0.03% 0.03% 0.03%
Retail Banking - unsecured 2.29% 2.18% 1.99% 2.58% 2.69%
Wholesale - property 0.26% 0.20% 0.15% 0.36% 0.62%
Wholesale - non-property 0.17% 0.14% 0.12% 0.21% 0.31%
0.17% 0.15% 0.13% 0.20% 0.26%
Stage 2 modelled loans (£m)
Retail Banking - mortgages 20,315 19,854 19,430 23,198 29,801
Retail Banking - unsecured 3,097 3,013 2,896 3,342 4,019
Wholesale - property 3,052 3,006 2,872 3,364 6,909
Wholesale - non-property 10,983 10,283 9,809 12,840 32,088
37,447 36,156 35,007 42,744 72,817
Stage 2 modelled ECL (£m)
Retail Banking - mortgages 68 61 55 82 123
Retail Banking - unsecured 390 361 315 455 596
Wholesale - property 64 56 49 80 186
Wholesale - non-property 269 233 202 343 641
791 711 621 960 1,546
Stage 2 coverage
Retail Banking - mortgages 0.33% 0.31% 0.28% 0.35% 0.41%
Retail Banking - unsecured 12.59% 11.98% 10.88% 13.61% 14.83%
Wholesale - property 2.10% 1.86% 1.71% 2.38% 2.69%
Wholesale - non-property 2.45% 2.27% 2.06% 2.67% 2.00%
2.11% 1.97% 1.77% 2.25% 2.12%
Stage 1 and Stage 2 modelled loans (£m)
Retail Banking - mortgages 187,259 187,259 187,259 187,259 187,259
Retail Banking - unsecured 13,038 13,038 13,038 13,038 13,038
Wholesale - property 30,641 30,641 30,641 30,641 30,641
Wholesale - non-property 141,638 141,638 141,638 141,638 141,638
372,576 372,576 372,576 372,576 372,576
Moderate Moderate Extreme
Base upside downside downside
30 June 2024 Actual scenario scenario scenario scenario
Stage 1 and Stage 2 modelled ECL (£m)
Retail Banking - mortgages 115 106 99 128 167
Retail Banking - unsecured 618 580 517 705 839
Wholesale - property 137 110 90 179 334
Wholesale - non-property 488 422 360 611 978
1,358 1,218 1,066 1,623 2,318
Stage 1 and Stage 2 coverage
Retail Banking - mortgages 0.06% 0.06% 0.05% 0.07% 0.09%
Retail Banking - unsecured 4.74% 4.45% 3.97% 5.41% 6.44%
Wholesale - property 0.45% 0.36% 0.29% 0.58% 1.09%
Wholesale - non-property 0.34% 0.30% 0.25% 0.43% 0.69%
0.36% 0.33% 0.29% 0.44% 0.62%
Reconciliation to Stage 1 and
Stage 2 ECL (£m)
ECL on modelled exposures 1,358 1,218 1,066 1,623 2,318
ECL on UBIDAC modelled exposures - - - - -
ECL on non-modelled exposures 29 29 29 29 29
Total Stage 1 and Stage 2 ECL (£m) 1,387 1,247 1,095 1,652 2,347
Variance to actual total Stage 1 and
Stage 2 ECL (£m) (140) (292) 265 960
Reconciliation to Stage 1 and
Stage 2 flow exposure (£m)
Modelled loans 372,576 372,576 372,576 372,576 372,576
UBIDAC loans 69 69 69 69 69
Non-modelled loans 18,881 18,881 18,881 18,881 18,881
Other asset classes 145,136 145,136 145,136 145,136 145,136
(1) Variations in future undrawn exposure values across the scenarios
are modelled, however, the exposure position reported is that used to
calculate modelled ECL as at 30 June 2024 and therefore does not include
variation in future undrawn exposure values.
(2) Reflects ECL for all modelled exposure in scope for IFRS 9. The
analysis excludes non-modelled portfolios and exposure relating to bonds and
cash.
(3) Exposures related to Ulster Bank RoI continuing operations were
not included in the simulations, the current Ulster Bank RoI ECL was included
across all scenarios to enable reconciliation to other disclosures.
(4) All simulations were run on a stand-alone basis and are
independent of each other, with the potential ECL impact reflecting the
simulated impact as at 30 June 2024. The simulations change the composition of
Stage 1 and Stage 2 exposure but total exposure is unchanged under each
scenario as the loan population is static.
(5) Refer to the Economic loss drivers section for details of economic
scenarios.
(6) Refer to the NatWest Group plc 2023 Annual Report and Accounts for
31 December 2023 comparatives.
Risk and capital management continued
Credit risk continued
Measurement uncertainty and ECL adequacy (reviewed)
- If the economics were as negative as observed in the extreme downside
(i.e. 100% probability weighting), total Stage 1 and Stage 2 ECL was simulated
to increase by around £1.0 billion (approximately 69%). In this scenario,
Stage 2 exposure nearly doubled and was the key driver of the simulated ECL
rise. The movement in Stage 2 balances in the other simulations was far less
significant and the impact to ECL less material.
- In the Wholesale portfolio, there was a significant increase in ECL
under the extreme downside scenario. The Wholesale property ECL increase was
mainly due to commercial real estate prices which showed negative growth
particularly in 2025 and significant deterioration in the stock index in 2024
and 2025. The non-property increase was mainly due to GDP contraction in 2025
and significant deterioration in the stock index.
- Given that continued uncertainty remained due to persistent inflation,
high interest rates and liquidity concerns at H1 2024, NatWest Group utilised
a framework of quantitative and qualitative measures to support the levels of
ECL coverage. This included economic data, credit performance insights, supply
chain contagion analysis and problem debt trends. This was particularly
important for consideration of post model adjustments.
- As the effects of these economic risks evolve during 2024, there is a
risk of further credit deterioration. However, the income statement effect of
this should have been mitigated by the forward-looking provisions retained on
the balance sheet at 30 June 2024.
- There are a number of key factors that could drive further downside to
impairments, through deteriorating economic and credit metrics and increased
stage migration as credit risk increases for more customers. Such factors
which could impact the IFRS 9 models, include an adverse deterioration in
unemployment and GDP in the economies in which NatWest Group operates.
Movement in ECL provision
The table below shows the main ECL provision movements during H1 2024.
ECL provision
£m
At 1 January 2024 3,645
Transfers to disposal groups and reclassifications (18)
Changes in economic forecasts (17)
Changes in risk metrics and exposure: Stage 1 and Stage 2 (147)
Changes in risk metrics and exposure: Stage 3 370
Judgemental changes: changes in post model adjustments for Stage 1,
Stage 2 and Stage 3 (140)
Write-offs and other (350)
At 30 June 2024 3,343
- During the first half of the year, overall ECL decreased with
increases from Stage 3 inflows more than offset by write-offs, including debt
sale activity on Personal unsecured assets (£0.2 billion), reductions in
economic uncertainty post-model adjustments, as well as reflecting balance
reductions and positive portfolio performance across NatWest Group.
- In the Personal portfolios, Stage 3 default rates reduced during H1
2024 relative to H2 2023 with trends on PDs and Stage 2 either stable or
improving.
- For the Wholesale portfolio, Stage 3 defaults increased but are still
below historic trends.
- Judgemental ECL post model adjustments, decreased from 31 December
2023 and now representing 10% of total ECL (31 December 2023 - 13%). Refer to
the Governance and post model adjustments section for further details.
Risk and capital management continued
Credit risk - Banking activities
Introduction
This section details the credit risk profile of NatWest Group's banking
activities.
Financial instruments within the scope of the IFRS 9 ECL framework (reviewed)
Refer to Note 8 to the consolidated financial statements for balance sheet
analysis of financial assets that are classified as amortised cost or fair
value through other comprehensive income (FVOCI), the starting point for IFRS
9 ECL framework assessment.
30 June 2024 31 December 2023
Gross ECL Net Gross ECL Net
£bn £bn £bn £bn £bn £bn
Balance sheet total gross amortised cost and FVOCI 562.6 553.8
In scope of IFRS 9 ECL framework 555.1 545.3
% in scope 99% 98%
Loans to customers - in scope - amortised cost 383.1 3.2 379.9 385.3 3.6 381.7
Loans to customers - in scope - FVOCI 0.1 - 0.1 0.1 - 0.1
Loans to banks - in scope - amortised cost 5.7 - 5.7 6.7 - 6.7
Total loans - in scope 388.9 3.2 385.7 392.1 3.6 388.5
Stage 1 345.8 0.5 345.3 348.6 0.7 347.9
Stage 2 37.3 0.8 36.5 37.9 0.9 37.0
Stage 3 5.8 1.9 3.9 5.6 2.0 3.6
Other financial assets - in scope - amortised cost 138.5 - 138.5 124.9 - 124.9
Other financial assets - in scope - FVOCI 27.7 - 27.7 28.3 - 28.3
Total other financial assets - in scope 166.2 - 166.2 153.2 - 153.2
Stage 1 165.6 - 165.6 152.0 - 152.0
Stage 2 0.6 - 0.6 1.2 - 1.2
Out of scope of IFRS 9 ECL framework 7.5 na 7.5 8.5 na 8.5
Loans to customers - out of scope - amortised cost (0.6) na (0.6) (0.4) na (0.4)
Loans to banks - out of scope - amortised cost 0.3 na 0.3 0.3 na 0.3
Other financial assets - out of scope - amortised cost 7.5 na 7.5 8.3 na 8.3
Other financial assets - out of scope - FVOCI 0.3 na 0.3 0.3 na 0.3
na = not applicable
The assets outside the scope of the IFRS 9 ECL framework were as follows:
- Settlement balances, items in the course of collection, cash balances
and other non-credit risk assets of £7.4 billion (31 December 2023 - £8.6
billion). These were assessed as having no ECL unless there was evidence that
they were defaulted.
- Equity shares of £0.3 billion (31 December 2023 - £0.3 billion) as
not within the IFRS 9 ECL framework by definition.
- Fair value adjustments on loans hedged by interest rate swaps, where
the underlying loan was within the IFRS 9 ECL scope of £(0.4) billion (31
December 2023 - £(0.3) billion).
Contingent liabilities and commitments
In addition to contingent liabilities and commitments disclosed in Note 13 to
the consolidated financial statements, reputationally-committed limits were
also included in the scope of the IFRS 9 ECL framework. These were offset by
£0.4 billion (31 December 2023 - £0.1 billion) out of scope balances
primarily related to facilities that, if drawn, would not be classified as
amortised cost or FVOCI, or undrawn limits relating to financial assets
exclusions. Total contingent liabilities (including financial guarantees) and
commitments within IFRS 9 ECL scope of £136.2 billion (31 December 2023 -
£132.0 billion) comprised Stage 1 £126.3 billion (31 December 2023 - £120.6
billion); Stage 2 £9.2 billion (31 December 2023 - £10.7 billion); and Stage
3 £0.7 billion (31 December 2023 - £0.7 billion).
The ECL relating to off-balance sheet exposures was £0.1 billion (31 December
2023 - £0.1 billion). The total ECL in the remainder of the Credit risk
section of £3.3 billion (31 December 2023 - £3.6 billion) included ECL for
both on and off-balance sheet exposures for non-disposal groups.
Risk and capital management continued
Credit risk - Banking activities continued
Segment analysis - portfolio summary (reviewed)
The table below shows gross loans and ECL, by segment and stage, within the
scope of the IFRS 9 ECL framework.
Retail Private Commercial & Central items
Banking Banking Institutional & other Total
30 June 2024 £m £m £m £m £m
Loans - amortised cost and FVOCI (1,2)
Stage 1 178,508 17,209 123,433 26,697 345,847
Stage 2 23,091 744 13,453 - 37,288
Stage 3 3,205 294 2,313 - 5,812
Of which: individual - 252 964 - 1,216
Of which: collective 3,205 42 1,349 - 4,596
Subtotal excluding disposal group loans 204,804 18,247 139,199 26,697 388,947
Disposal group loans - -
Total 26,697 388,947
ECL provisions (3)
Stage 1 275 16 275 19 585
Stage 2 456 11 334 1 802
Stage 3 1,026 38 892 - 1,956
Of which: individual - 38 328 - 366
Of which: collective 1,026 - 564 - 1,590
Subtotal excluding ECL provisions on disposal group loans 1,757 65 1,501 20 3,343
ECL provisions on disposal group loans - -
Total 20 3,343
ECL provisions coverage (4)
Stage 1 (%) 0.15 0.09 0.22 0.07 0.17
Stage 2 (%) 1.97 1.48 2.48 nm 2.15
Stage 3 (%) 32.01 12.93 38.56 - 33.65
ECL provisions coverage excluding disposal group loans 0.86 0.36 1.08 0.07 0.86
ECL provisions coverage on disposal group loans - - - - -
Total - - - 0.07 0.86
Impairment (releases)/losses
ECL charge/(release) (5) 122 (11) (57) (6) 48
Stage 1 (166) (9) (182) (7) (364)
Stage 2 178 (3) 14 1 190
Stage 3 110 1 111 - 222
Of which: individual - 1 79 - 80
Of which: collective 110 - 32 - 142
Continuing operations 122 (11) (57) (6) 48
Discontinued operations - -
Total (6) 48
Amounts written-off 270 - 99 - 369
Of which: individual - - 64 - 64
Of which: collective 270 - 35 - 305
For the notes to this table refer to the following page.
Risk and capital management continued
Credit risk - Banking activities continued
Segment analysis - portfolio summary (reviewed)
Retail Private Commercial & Central items
Banking Banking Institutional & other Total
31 December 2023 £m £m £m £m £m
Loans - amortised cost and FVOCI (1,2)
Stage 1 182,297 17,565 119,047 29,677 348,586
Stage 2 21,208 906 15,771 6 37,891
Stage 3 3,133 258 2,162 10 5,563
Of which: individual - 186 845 - 1,031
Of which: collective 3,133 72 1,317 10 4,532
Subtotal excluding disposal group loans 206,638 18,729 136,980 29,693 392,040
Disposal group loans 67 67
Total 29,760 392,107
ECL provisions (3)
Stage 1 306 20 356 27 709
Stage 2 502 20 447 7 976
Stage 3 1,097 34 819 10 1,960
Of which: individual - 34 298 - 332
Of which: collective 1,097 - 521 10 1,628
Subtotal excluding ECL provisions on disposal group loans 1,905 74 1,622 44 3,645
ECL provisions on disposal group loans 36 36
Total 80 3,681
ECL provisions coverage (4)
Stage 1 (%) 0.17 0.11 0.30 0.09 0.20
Stage 2 (%) 2.37 2.21 2.83 nm 2.58
Stage 3 (%) 35.01 13.18 37.88 100.00 35.23
ECL provisions coverage excluding disposal group loans 0.92 0.40 1.18 0.15 0.93
ECL provisions coverage on disposal group loans 53.73 53.73
Total 0.27 0.94
Half year ended 30 June 2023
Impairment (releases)/losses
ECL (release)/charge (5) 193 11 20 (1) 223
Stage 1 (88) (1) (124) 4 (209)
Stage 2 188 8 98 2 296
Stage 3 93 4 46 (7) 136
Of which: individual - 4 13 (4) 13
Of which: collective 93 - 33 (3) 123
Continuing operations 193 11 20 (1) 223
Discontinued operations (1) (1)
Total (2) 222
Amounts written-off 63 1 50 8 122
Of which: individual - 1 19 2 22
Of which: collective 63 - 31 6 100
nm = not meaningful
(1) The table shows gross loans only and excludes amounts that
were outside the scope of the ECL framework. Other financial assets within the
scope of the IFRS 9 ECL framework were cash and balances at central banks
totalling £114.8 billion (31 December 2023 - £103.1 billion) and debt
securities of £51.4 billion (31 December 2023 - £50.1 billion).
(2) Fair value through other comprehensive income (FVOCI).
Includes loans to customers and banks.
(3) Includes £4 million (31 December 2023 - £9 million) related
to assets classified as FVOCI and £0.1 billion (31 December 2023 - £0.1
billion) related to off-balance sheet exposures.
(4) ECL provisions coverage is calculated as ECL provisions
divided by loans - amortised cost and FVOCI. It is calculated on loans and
total ECL provisions, including ECL for other (non-loan) assets and unutilised
exposure. Some segments with a high proportion of debt securities or
unutilised exposure may result in a not meaningful (nm) coverage ratio.
(5) Includes a £6 million release (30 June 2023 - £5 million
release) related to other financial assets, of which £5 million release (30
June 2023 - £1 million charge) related to assets classified as FVOCI and
includes a £4 million charge (30 June 2023 - £3 million release) related to
contingent liabilities.
Risk and capital management continued
Credit risk - Banking activities continued
Segment loans and impairment metrics (reviewed)
The table below shows gross loans and ECL provisions, by days past due, by
segment and stage, within the scope of the ECL framework.
Gross loans ECL provisions (2)
Stage 2 (1) Stage 2 (1)
Not past 1-30 >30 Not past 1-30 >30
Stage 1 due DPD DPD Total Stage 3 Total Stage 1 due DPD DPD Total Stage 3 Total
30 June 2024 £m £m £m £m £m £m £m £m £m £m £m £m £m £m
Retail Banking 178,508 21,836 816 439 23,091 3,205 204,804 275 398 15 43 456 1,026 1,757
Private Banking 17,209 653 45 46 744 294 18,247 16 11 - - 11 38 65
Personal 13,865 160 45 30 235 210 14,310 3 1 - - 1 23 27
Wholesale 3,344 493 - 16 509 84 3,937 13 10 - - 10 15 38
Commercial & Institutional 123,433 12,475 649 329 13,453 2,313 139,199 275 302 21 11 334 892 1,501
Personal 2,238 12 24 10 46 46 2,330 2 - - - - 14 16
Wholesale 121,195 12,463 625 319 13,407 2,267 136,869 273 302 21 11 334 878 1,485
Central items & other 26,697 - - - - - 26,697 19 1 - - 1 - 20
Personal - - - - - - - - - - - - - -
Wholesale 26,697 - - - - - 26,697 19 1 - - 1 - 20
Total loans 345,847 34,964 1,510 814 37,288 5,812 388,947 585 712 36 54 802 1,956 3,343
Of which:
Personal 194,611 22,008 885 479 23,372 3,461 221,444 280 399 15 43 457 1,063 1,800
Wholesale 151,236 12,956 625 335 13,916 2,351 167,503 305 313 21 11 345 893 1,543
31 December 2023
Retail Banking 182,297 20,128 738 342 21,208 3,133 206,638 306 453 15 34 502 1,097 1,905
Private Banking 17,565 772 77 57 906 258 18,729 20 18 1 1 20 34 74
Personal 14,296 158 73 24 255 209 14,760 3 2 - - 2 20 25
Wholesale 3,269 614 4 33 651 49 3,969 17 16 1 1 18 14 49
Commercial & Institutional 119,047 14,689 657 425 15,771 2,162 136,980 356 415 21 11 447 819 1,622
Personal 2,268 15 21 7 43 52 2,363 2 - - - - 16 18
Wholesale 116,779 14,674 636 418 15,728 2,110 134,617 354 415 21 11 447 803 1,604
Central items & other 29,677 5 - 1 6 10 29,693 27 6 - 1 7 10 44
Personal 4 2 - 1 3 6 13 5 1 - 1 2 9 16
Wholesale 29,673 3 - - 3 4 29,680 22 5 - - 5 1 28
Total loans 348,586 35,594 1,472 825 37,891 5,563 392,040 709 892 37 47 976 1,960 3,645
Of which:
Personal 198,865 20,303 832 374 21,509 3,400 223,774 316 456 15 35 506 1,142 1,964
Wholesale 149,721 15,291 640 451 16,382 2,163 168,266 393 436 22 12 470 818 1,681
For the notes to this table refer to the following page.
Risk and capital management continued
Credit risk - Banking activities continued
Segment loans and impairment metrics (reviewed)
The table below shows ECL and ECL provisions coverage, by days past due, by
segment and stage, within the scope of the ECL framework.
ECL provisions coverage Half year ended 30 June 2024
Stage 2 (1,2) ECL
Not past Total Amounts
Stage 1 due 1-30 DPD >30 DPD Total Stage 3 Total (release)/charge written-off
30 June 2024 % % % % % % % £m £m
Retail Banking 0.15 1.82 1.84 9.79 1.97 32.01 0.86 122 270
Private Banking 0.09 1.68 - - 1.48 12.93 0.36 (11) -
Personal 0.02 0.63 - - 0.43 10.95 0.19 1 -
Wholesale 0.39 2.03 - - 1.96 17.86 0.97 (12) -
Commercial &
Institutional 0.22 2.42 3.24 3.34 2.48 38.56 1.08 (57) 99
Personal 0.09 - - - - 30.43 0.69 - 1
Wholesale 0.23 2.42 3.36 3.45 2.49 38.73 1.08 (57) 98
Central items
& other 0.07 nm - - nm - 0.07 (6) -
Personal - - - - - - - - -
Wholesale 0.07 nm - - nm - 0.07 (6) -
Total loans 0.17 2.04 2.38 6.63 2.15 33.65 0.86 48 369
Of which:
Personal 0.14 1.81 1.69 8.98 1.96 30.71 0.81 123 271
Wholesale 0.20 2.42 3.36 3.28 2.48 37.98 0.92 (75) 98
31 December 2023 Half year ended 30 June 2023
Retail Banking 0.17 2.25 2.03 9.94 2.37 35.01 0.92 193 63
Private Banking 0.11 2.33 1.30 1.75 2.21 13.18 0.40 11 1
Personal 0.02 1.27 - - 0.78 9.57 0.17 4 1
Wholesale 0.52 2.61 25.00 3.03 2.76 28.57 1.23 7 -
Commercial &
Institutional 0.30 2.83 3.20 2.59 2.83 37.88 1.18 20 50
Personal 0.09 - - - - 30.77 0.76 1 1
Wholesale 0.30 2.83 3.30 2.63 2.84 38.06 1.19 19 49
Central items
& other 0.09 nm - nm nm nm 0.15 (1) 8
Personal nm nm - nm nm nm nm 5 1
Wholesale 0.07 nm - - nm 25.00 0.09 (6) 7
Total loans 0.20 2.51 2.51 5.70 2.58 35.23 0.93 223 122
Of which:
Personal 0.16 2.25 1.80 9.36 2.35 33.59 0.88 203 66
Wholesale 0.26 2.85 3.44 2.66 2.87 37.82 1.00 20 56
- Retail Banking - Loans to customers were lower than Q4 2023, mainly
due to a reduction in mortgage balances where higher redemptions were only
partly offset by new mortgage lending. Unsecured lending grew overall, driven
by growth in credit cards. New lending and portfolio credit quality was
maintained with limited increases in arrears in line with expectations. Total
ECL coverage decreased during H1 2024 reflective of Q2 2024 debt sale activity
on unsecured portfolios (£0.2 billion of assets), reductions in economic
uncertainty post model adjustments, and stable underlying portfolio
performance. The reduction in good book coverage in the first half of the year
was also a result of unsecured probability of default modelling updates
alongside an improved view on forward looking economics, underpinning a
reduction in Stage 2 balances. Post model adjustments to capture increased
affordability pressures on customers due to high inflation and interest rates
decreased since Q4 2023, reflecting a revision of portfolio subsegments deemed
most at risk, supported by back-testing of default outcomes. Flow rates into
Stage 3 reduced during H1 2024.
- Commercial & Institutional - Growth in exposure in Commercial
& Institutional was driven by increased exposure to financial institutions
and property, and partially offset by an overall reduction to corporate
sectors. Sector appetite continues to be reviewed regularly, with particular
focus on sector clusters deemed to represent a heightened risk. Total ECL
reduced in H1 2024 due to releases in post model adjustments, positive
portfolio performance and improved economic scenarios. This was partially
offset by an increase in Stage 3 ECL, from flows into default on individually
assessed customers. The ECL decrease resulted in a reduction in coverage
levels, but coverage on Stage 1 and Stage 2 was still significantly above
pre-COVID-19 levels, reflecting that a degree of economic uncertainty remains.
nm = not meaningful
(1) 30 DPD - 30 days past due, the mandatory 30 days past due backstop
as prescribed by IFRS 9 for a SICR.
(2) Some segments with a high proportion of debt securities or
unutilised exposure may result in a not meaningful (nm) coverage ratio.
Risk and capital management continued
Credit risk - Banking activities continued
Sector analysis - portfolio summary (reviewed)
The table below shows financial assets and off-balance sheet exposures gross
of ECL and related ECL provisions, impairment and past due by sector, asset
quality and geographical region.
Personal Wholesale Total
Credit Other Financial
Mortgages (1) cards personal Total Property Corporate institution Sovereign Total
30 June 2024 £m £m £m £m £m £m £m £m £m £m
Loans by geography 205,486 6,381 9,577 221,444 32,618 76,588 56,725 1,572 167,503 388,947
- UK 205,486 6,381 9,577 221,444 32,200 63,611 38,600 552 134,963 356,407
- RoI - - - - 10 983 529 - 1,522 1,522
- Other Europe - - - - 289 5,100 8,669 701 14,759 14,759
- RoW - - - - 119 6,894 8,927 319 16,259 16,259
Loans by stage 205,486 6,381 9,577 221,444 32,618 76,588 56,725 1,572 167,503 388,947
- Stage 1 182,672 4,431 7,508 194,611 28,872 64,974 56,103 1,287 151,236 345,847
- Stage 2 20,368 1,792 1,212 23,372 3,018 10,087 548 263 13,916 37,288
- Stage 3 2,446 158 857 3,461 728 1,527 74 22 2,351 5,812
- Of which: individual 150 - 22 172 290 666 66 22 1,044 1,216
- Of which: collective 2,296 158 835 3,289 438 861 8 - 1,307 4,596
Loans - past due analysis (2) 205,486 6,381 9,577 221,444 32,618 76,588 56,725 1,572 167,503 388,947
- Not past due 202,398 6,198 8,677 217,273 31,937 74,187 56,442 1,550 164,116 381,389
- Past due 1-30 days 1,199 44 68 1,311 296 1,494 275 - 2,065 3,376
- Past due 31-90 days 735 44 119 898 86 287 3 - 376 1,274
- Past due 90-180 days 388 38 101 527 37 33 - 22 92 619
- Past due >180 days 766 57 612 1,435 262 587 5 - 854 2,289
Loans - Stage 2 20,368 1,792 1,212 23,372 3,018 10,087 548 263 13,916 37,288
- Not past due 19,171 1,737 1,100 22,008 2,820 9,331 542 263 12,956 34,964
- Past due 1-30 days 822 27 36 885 116 506 3 - 625 1,510
- Past due 31-90 days 375 28 76 479 82 250 3 - 335 814
Weighted average life
- ECL measurement (years) 9 4 6 5 6 6 2 2 6 6
Weighted average 12 months PDs
- IFRS 9 (%) 0.51 2.99 4.63 0.74 1.14 1.36 0.17 4.38 0.94 0.83
- Basel (%) 0.67 3.51 3.32 0.85 0.90 1.22 0.16 4.38 0.82 0.84
ECL provisions by geography 420 376 1,004 1,800 371 1,063 90 19 1,543 3,343
- UK 420 376 1,004 1,800 361 926 34 13 1,334 3,134
- RoI - - - - - 3 1 - 4 4
- Other Europe - - - - 3 87 8 - 98 98
- RoW - - - - 7 47 47 6 107 107
ECL provisions by stage 420 376 1,004 1,800 371 1,063 90 19 1,543 3,343
- Stage 1 49 82 149 280 73 180 39 13 305 585
- Stage 2 69 189 199 457 66 270 7 2 345 802
- Stage 3 302 105 656 1,063 232 613 44 4 893 1,956
- Of which: individual 13 - 14 27 85 211 39 4 339 366
- Of which: collective 289 105 642 1,036 147 402 5 - 554 1,590
For the notes to this table refer to page 34.
Risk and capital management continued
Credit risk - Banking activities continued
Sector analysis - portfolio summary (reviewed)
Personal Wholesale Total
Credit Other Financial
Mortgages (1) cards personal Total Property Corporate institution Sovereign Total
30 June 2024 £m £m £m £m £m £m £m £m £m £m
ECL provisions coverage (%) 0.20 5.89 10.48 0.81 1.14 1.39 0.16 1.21 0.92 0.86
- Stage 1 (%) 0.03 1.85 1.98 0.14 0.25 0.28 0.07 1.01 0.20 0.17
- Stage 2 (%) 0.34 10.55 16.42 1.96 2.19 2.68 1.28 0.76 2.48 2.15
- Stage 3 (%) 12.35 66.46 76.55 30.71 31.87 40.14 59.46 18.18 37.98 33.65
ECL (release)/charge (19) 51 91 123 (12) (83) 19 1 (75) 48
- UK (19) 51 91 123 (12) (70) (4) - (86) 37
- RoI - - - - 1 - - - 1 1
- Other Europe - - - - (1) (7) (6) - (14) (14)
- RoW - - - - - (6) 29 1 24 24
Amounts written-off 9 38 224 271 10 88 - - 98 369
Loans by residual maturity 205,486 6,381 9,577 221,444 32,618 76,588 56,725 1,572 167,503 388,947
- <1 year 3,366 3,618 3,080 10,064 6,665 25,856 43,220 780 76,521 86,585
- 1-5 year 9,469 2,763 5,482 17,714 17,687 30,632 11,242 483 60,044 77,758
- >5<15 year 45,488 - 1,009 46,497 5,782 14,925 2,229 309 23,245 69,742
- >15 year 147,163 - 6 147,169 2,484 5,175 34 - 7,693 154,862
Other financial assets by asset quality (3) - - - - 1 2,583 27,058 136,516 166,158 166,158
- AQ1-AQ4 - - - - 1 2,581 26,507 136,516 165,605 165,605
- AQ5-AQ8 - - - - - 2 551 - 553 553
Off-balance sheet 12,478 18,494 8,207 39,179 14,159 61,113 21,516 254 97,042 136,221
- Loan commitments 12,478 18,494 8,165 39,137 13,843 58,410 19,909 254 92,416 131,553
- Financial guarantees - - 42 42 316 2,703 1,607 - 4,626 4,668
Off-balance sheet by asset quality (3) 12,478 18,494 8,207 39,179 14,159 61,113 21,516 254 97,042 136,221
- AQ1-AQ4 11,659 486 6,869 19,014 10,970 37,302 19,902 164 68,338 87,352
- AQ5-AQ8 797 17,681 1,301 19,779 3,170 23,497 1,575 27 28,269 48,048
- AQ9 7 9 9 25 2 25 1 63 91 116
- AQ10 15 318 28 361 17 289 38 - 344 705
For the notes to this table refer to page 34.
Risk and capital management continued
Credit risk - Banking activities continued
Sector analysis - portfolio summary (reviewed)
Personal Wholesale Total
Credit Other Financial
Mortgages (1) cards personal Total Property Corporate institution Sovereign Total
31 December 2023 £m £m £m £m £m £m £m £m £m £m
Loans by geography 208,275 5,904 9,595 223,774 31,207 77,339 57,087 2,633 168,266 392,040
- UK 208,275 5,893 9,592 223,760 30,703 65,033 39,906 2,016 137,658 361,418
- RoI - 11 3 14 9 888 279 - 1,176 1,190
- Other Europe - - - - 375 5,096 7,865 399 13,735 13,735
- RoW - - - - 120 6,322 9,037 218 15,697 15,697
Loans by stage 208,275 5,904 9,595 223,774 31,207 77,339 57,087 2,633 168,266 392,040
- Stage 1 188,140 3,742 6,983 198,865 27,316 63,690 56,105 2,610 149,721 348,586
- Stage 2 17,854 2,022 1,633 21,509 3,270 12,145 966 1 16,382 37,891
- Stage 3 2,281 140 979 3,400 621 1,504 16 22 2,163 5,563
- Of which: individual 122 - 20 142 240 625 2 22 889 1,031
- Of which: collective 2,159 140 959 3,258 381 879 14 - 1,274 4,532
Loans - past due analysis (2) 208,275 5,904 9,595 223,774 31,207 77,339 57,087 2,633 168,266 392,040
- Not past due 205,405 5,743 8,578 219,726 30,264 74,052 56,735 2,633 163,684 383,410
- Past due 1-30 days 1,178 41 71 1,290 491 2,222 332 - 3,045 4,335
- Past due 31-90 days 518 38 112 668 179 437 12 - 628 1,296
- Past due 90-180 days 445 32 103 580 42 71 2 - 115 695
- Past due >180 days 729 50 731 1,510 231 557 6 - 794 2,304
Loans - Stage 2 17,854 2,022 1,633 21,509 3,270 12,145 966 1 16,382 37,891
- Not past due 16,803 1,971 1,529 20,303 3,071 11,287 932 1 15,291 35,594
- Past due 1-30 days 765 27 40 832 100 516 24 - 640 1,472
- Past due 31-90 days 286 24 64 374 99 342 10 - 451 825
Weighted average life
- ECL measurement (years) 9 3 6 6 6 6 2 - 6 6
Weighted average 12 months PDs
- IFRS 9 (%) 0.50 3.45 5.29 0.75 1.45 1.59 0.19 0.37 1.07 0.89
- Basel (%) 0.67 3.37 3.15 0.84 0.94 1.25 0.17 0.37 0.81 0.83
ECL provisions by geography 420 376 1,168 1,964 398 1,201 66 16 1,681 3,645
- UK 420 365 1,163 1,948 384 999 38 13 1,434 3,382
- RoI - 11 5 16 - 6 1 - 7 23
- Other Europe - - - - 7 146 12 - 165 165
- RoW - - - - 7 50 15 3 75 75
ECL provisions by stage 420 376 1,168 1,964 398 1,201 66 16 1,681 3,645
- Stage 1 88 76 152 316 102 234 44 13 393 709
- Stage 2 61 207 238 506 98 356 15 1 470 976
- Stage 3 271 93 778 1,142 198 611 7 2 818 1,960
- Of which: individual 12 - 14 26 60 242 2 2 306 332
- Of which: collective 259 93 764 1,116 138 369 5 - 512 1,628
For the notes to this table refer to the following page.
Risk and capital management continued
Credit risk - Banking activities continued
Sector analysis - portfolio summary (reviewed)
Personal Wholesale Total
Credit Other Financial
Mortgages (1) cards personal Total Property Corporate institution Sovereign Total
31 December 2023 £m £m £m £m £m £m £m £m £m £m
ECL provisions coverage (%) 0.20 6.37 12.17 0.88 1.28 1.55 0.12 0.61 1.00 0.93
- Stage 1 (%) 0.05 2.03 2.18 0.16 0.37 0.37 0.08 0.50 0.26 0.20
- Stage 2 (%) 0.34 10.24 14.57 2.35 3.00 2.93 1.55 100.00 2.87 2.58
- Stage 3 (%) 11.88 66.43 79.47 33.59 31.88 40.63 43.75 9.09 37.82 35.23
Half year ended 30 June 2023
ECL (release)/charge (4) 23 70 110 203 21 7 (6) (2) 20 223
- UK 23 68 107 198 21 37 (11) (2) 45 243
- RoI - 2 3 5 5 (5) - - - 5
- Other Europe - - - - (5) 16 1 - 12 12
- RoW - - - - - (41) 4 - (37) (37)
Amounts written-off (4) 8 34 24 66 19 37 - - 56 122
31 December 2023
Loans by residual maturity 208,275 5,904 9,595 223,774 31,207 77,339 57,087 2,633 168,266 392,040
- <1 year 3,375 3,398 3,169 9,942 5,696 25,312 43,497 489 74,994 84,936
- 1-5 year 9,508 2,506 5,431 17,445 17,216 32,573 11616 1,872 63,277 80,722
- >5<15 year 46,453 - 993 47,446 5,701 14,167 1,939 199 22,006 69,452
- >15 year 148,939 - 2 148,941 2,594 5,287 35 73 7,989 156,930
Other financial assets by asset quality (3) - - - - 1 2,689 26,816 123,683 153,189 153,189
- AQ1-AQ4 - - - - 1.0 2,689 26,084 123,683 152,457 152,457
- AQ5-AQ8 - - - - - - 732 - 732 732
Off-balance sheet 9,843 17,284 8,462 35,589 14,205 59,716 22,221 227 96,369 131,958
- Loan commitments 9,843 17,284 8,417 35,544 13,861 57,081 20,765 227 91,934 127,478
- Financial guarantees - - 45 45 344 2,635 1,456 - 4,435 4,480
Off-balance sheet by asset quality (3) 9,843 17,284 8,462 35,589 14,205 59,716 22,221 227 96,369 131,958
- AQ1-AQ4 9,099 448 7,271 16,818 10,916 36,380 20,644 165 68,105 84,923
- AQ5-AQ8 721 16,518 1,162 18,401 3,266 23,030 1,574 45 27,915 46,316
- AQ9 7 6 4 17 3 12 - - 15 32
- AQ10 16 312 25 353 20 294 3 17 334 687
(1) Includes a portion of Private Banking lending secured against
residential real estate, in line with ECL calculation methodology. Private
Banking and RBS International mortgages are reported in the UK, reflecting the
country of lending origination and includes crown dependencies.
(2) 30 DPD - 30 days past due, the mandatory 30 days past due
backstop as prescribed by the IFRS 9 guidance for a SICR (significant increase
in credit risk).
(3) AQ bandings are based on Basel PDs and mapping is as follows:
Internal asset quality band Probability of default range Indicative S&P rating Internal asset quality band Probability of default range Indicative S&P rating
AQ1 0% - 0.034% AAA to AA AQ6 1.076% - 2.153% BB- to B+
AQ2 0.034% - 0.048% AA to AA- AQ7 2.153% - 6.089% B+ to B
AQ3 0.048% - 0.095% A+ to A AQ8 6.089% - 17.222% B- to CCC+
AQ4 0.095% - 0.381% BBB+ to BBB- AQ9 17.222% - 100% CCC to C
AQ5 0.381% - 1.076% BB+ to BB AQ10 100% D
£0.3 billion (31 December 2023 - £0.3 billion) of AQ10 Personal balances
primarily relate to loan commitments, the drawdown of which is effectively
prohibited.
(4) Previously published sectors for the Wholesale portfolio have
been re-presented to reflect updated internal sector reporting.
Risk and capital management continued
Credit risk - Banking activities continued
Sector analysis - portfolio summary (reviewed)
The table below shows ECL by stage, for the Personal portfolio and selected
sectors of the Wholesale portfolio including those that contain an element of
exposure classified as heightened climate-related risk.
Loans - amortised cost and FVOCI Off-balance sheet ECL provisions
Loan Contingent
Stage 1 Stage 2 Stage 3 Total commitments liabilities Stage 1 Stage 2 Stage 3 Total
30 June 2024 £m £m £m £m £m £m £m £m £m £m
Personal 194,611 23,372 3,461 221,444 39,137 42 280 457 1,063 1,800
Mortgages (1) 182,672 20,368 2,446 205,486 12,478 - 49 69 302 420
Credit cards 4,431 1,792 158 6,381 18,494 - 82 189 105 376
Other personal 7,508 1,212 857 9,577 8,165 42 149 199 656 1,004
Wholesale 151,236 13,916 2,351 167,503 92,416 4,626 305 345 893 1,543
Property 28,872 3,018 728 32,618 13,843 316 73 66 232 371
Financial institutions (2) 56,103 548 74 56,725 19,909 1,607 39 7 44 90
Sovereigns 1,287 263 22 1,572 254 - 13 2 4 19
Corporate 64,974 10,087 1,527 76,588 58,410 2,703 180 270 613 1,063
Of which:
Agriculture 3,933 873 122 4,928 947 21 13 29 37 79
Airlines and aerospace 2,103 286 4 2,393 2,087 232 3 3 3 9
Automotive 7,041 653 55 7,749 4,090 136 14 12 18 44
Building materials 1,447 257 18 1,722 1,441 64 4 7 7 18
Chemicals 362 76 1 439 722 14 1 1 1 3
Industrials 2,066 405 74 2,545 2,725 140 7 12 29 48
Land transport and logistics 4,485 300 85 4,870 3,033 253 8 11 22 41
Leisure 4,576 1,866 284 6,726 2,140 116 24 60 98 182
Mining and metals 296 23 4 323 315 6 - - 4 4
Oil and gas 626 26 70 722 1,932 189 2 1 49 52
Power utilities 5,811 301 79 6,191 7,757 585 12 7 32 51
Retail 6,083 1,119 164 7,366 4,522 385 14 25 72 111
Shipping 205 10 25 240 76 27 - 1 9 10
Water and waste 3,513 362 20 3,895 1,813 121 3 3 6 12
Total 345,847 37,288 5,812 388,947 131,553 4,668 585 802 1,956 3,343
For the notes to this table refer to the following page.
Risk and capital management continued
Credit risk - Banking activities continued
Sector analysis - portfolio summary (reviewed)
Loans - amortised cost and FVOCI Off-balance sheet ECL provisions
Loan Contingent
Stage 1 Stage 2 Stage 3 Total commitments liabilities Stage 1 Stage 2 Stage 3 Total
31 December 2023 £m £m £m £m £m £m £m £m £m £m
Personal 198,865 21,509 3,400 223,774 35,544 45 316 506 1,142 1,964
Mortgages (1) 188,140 17,854 2,281 208,275 9,843 - 88 61 271 420
Credit cards 3,742 2,022 140 5,904 17,284 - 76 207 93 376
Other personal 6,983 1,633 979 9,595 8,417 45 152 238 778 1,168
Wholesale 149,721 16,382 2,163 168,266 91,934 4,435 393 470 818 1,681
Property 27,316 3,270 621 31,207 13,861 344 102 98 198 398
Financial institutions (2) 56,105 966 16 57,087 20,765 1,456 44 15 7 66
Sovereigns 2,610 1 22 2,633 227 - 13 1 2 16
Corporate 63,690 12,145 1,504 77,339 57,081 2,635 234 356 611 1,201
Of which:
Agriculture 3,851 1,011 90 4,952 950 21 19 35 34 88
Airlines and aerospace 1,525 454 3 1,982 1,788 178 4 7 2 13
Automotive 7,223 1,008 76 8,307 3,844 103 18 18 26 62
Building materials 1,204 282 72 1,558 1,475 72 6 9 8 23
Chemicals 354 62 4 420 785 13 1 9 1 11
Industrials 2,269 543 70 2,882 2,896 148 10 18 23 51
Land transport and logistics 4,231 578 61 4,870 3,025 184 11 14 18 43
Leisure 4,394 2,245 288 6,927 1,887 145 31 74 91 196
Mining and metals 241 32 4 277 545 7 - - 4 4
Oil and gas 915 125 27 1,067 1,959 237 3 2 29 34
Power utilities 5,604 418 40 6,062 8,257 554 13 13 24 50
Retail 5,846 1,318 224 7,388 4,717 429 23 35 118 176
Shipping 207 35 3 245 71 31 - 1 2 3
Water and waste 3,536 173 13 3,722 1,904 84 4 5 4 13
Total 348,586 37,891 5,563 392,040 127,478 4,480 709 976 1,960 3,645
(1) As at 30 June 2024, £136.5 billion, 66.4%, of the total
residential mortgages portfolio had Energy Performance Certificate (EPC) data
available (31 December 2023 - £140.8 billion, 67.6%). Of which, 45.2% were
rated as EPC A to C (31 December 2023 - 44.1%).
(2) Includes transactions, such as securitisations, where the
underlying risk may be in other sectors.
Risk and capital management continued
Credit risk - Banking activities continued
Wholesale forbearance (reviewed)
The table below shows Wholesale forbearance, Heightened Monitoring and Risk of
Credit Loss by sector. This table shows current exposure but reflects risk
transfers where there is a guarantee by another customer.
Financial Other
Property institution Sovereign corporate Total
30 June 2024 £m £m £m £m £m
Forbearance (flow) 495 101 - 1,876 2,472
Forbearance (stock) 1,081 122 20 3,751 4,974
Heightened Monitoring and Risk of Credit Loss 1,231 183 - 4,299 5,713
31 December 2023
Forbearance (flow) 916 56 22 2,568 3,562
Forbearance (stock) 1,071 70 22 3,752 4,915
Heightened Monitoring and Risk of Credit Loss 1,089 276 - 4,119 5,484
Risk and capital management continued
Credit risk - Banking activities continued
- Loans by geography and sector - In line with NatWest Group's
strategic focus, exposures continued to be mainly in the UK.
- Loans by stage - The reduction in Stage 1 mirrored the reduction
in balances since Q4 2023, primarily driven by personal mortgages. The
reduction in Stage 2 was reflective of portfolio performance and PD modelling
updates in Personal unsecured portfolios. The modest increase in Stage 3
balance was mitigated by debt sale activity on Personal unsecured assets.
- Loans - Past due analysis - In Personal, there were limited
increases in the value of arrears during H1 2024. The increases were in line
with expectations, mainly in mortgages given the higher interest rate
environment, following portfolio growth in recent years and adjustments to
lending criteria following COVID-19. The reduction in arrears in unsecured
portfolios was due to Q2 2024 debt sale activity. In Wholesale, past due
profile was stable.
- Weighted average 12 months PDs - Both IFRS 9 and Basel PDs
remained broadly stable in the first half of the year overall. In Personal
portfolios, there was a notable reduction in unsecured portfolios due to PD
modelling updates. In Wholesale, some reductions were observed in PDs in the
corporate and property portfolios due to economic and portfolio improvements.
PDs in sovereigns increased significantly due to lending backed by government
guarantees.
- ECL provisions by stage and ECL provisions coverage - Overall
provisions coverage reduced since 31 December 2023. On the performing book,
this was mainly a result of positive portfolio performance, reduced economic
uncertainty post model adjustments and PD reductions across a number of
portfolios. Furthermore, Stage 3 and total book coverage reduced supported by
the reduction of balances from debt sale activity on Personal unsecured
portfolios.
- The ECL charge - The year-to-date impairment charge for 2024 of
£48 million primarily reflected impairment releases on Wholesale portfolios
driven by the reduction in economic uncertainty post model adjustments
alongside positive portfolio performance and reduced PD levels.
- Loans by residual maturity - The maturity profile of the
portfolios remained consistent with prior periods. In mortgages, as expected,
the vast majority of exposures were greater than five years. In unsecured
lending, cards and other, exposures were concentrated in less than five years.
In Wholesale, more than 80% of the exposures mature in less than five years.
- Other financial assets by asset quality - Consisting almost
entirely of cash and balances at central banks and debt securities held in the
course of treasury related management activities, these assets were mainly
within the AQ1-AQ4 bands.
- Off-balance sheet exposures by asset quality - In Personal,
undrawn exposures were reflective of available credit lines in credit cards
and current accounts. Additionally, the mortgage portfolio had undrawn
exposures, where a formal offer had been made to a customer but had not yet
drawn down; the value increased in line with the pipeline of offers. There was
also a legacy portfolio of flexible mortgages where a customer had the right
and ability to draw down further funds. The asset quality was aligned to the
wider portfolio. In Wholesale, off-balance sheet exposures increased in
sovereigns, and in the asset quality band AQ9. In general, asset quality was
stable, and in line with the overall portfolio.
- Wholesale problem debt - Exposures classified as Heightened
Monitoring and Risk of Credit Loss within the Wholesale Problem Debt
Management framework (formerly known as the Aligned Risk of Credit Loss and
Viability framework) increased in H1 2024, driven by a small volume of
customers. NatWest Group continued to closely monitor this portfolio and no
sector themes or concerns were observed during H1 2024. Retail SME customers
do not form part of this framework, customers in financial difficulty within
this group are managed by specialist problem debt management teams. For these
customers inflows slowed in H1 2024, collections were stable and recoveries
balances continued to be driven by BBLs.
- Wholesale forbearance - Decreased levels of new forbearance were
observed in H1 2024 compared to H1 2023, by both value and volume. The CRE
sector cluster was the largest beneficiary by value in H1 2024, closely
followed by the consumer industries sector cluster. Payment holidays and
covenant waivers were the most common forms of forbearance granted.
Risk and capital management continued
Credit risk - Banking activities continued
Personal portfolio (reviewed)
Disclosures in the Personal portfolio section include drawn exposure (gross of
provisions).
30 June 2024 31 December 2023
Central Central
Retail Private Commercial & items Retail Private Commercial & items
Banking Banking Institutional & other Total Banking Banking Institutional & other Total
Personal lending £m £m £m £m £m £m £m £m £m £m
Mortgages 190,510 12,873 2,169 - 205,552 192,915 13,222 2,200 - 208,337
Of which:
Owner occupied 172,220 11,370 1,458 - 185,048 174,167 11,629 1,464 - 187,260
Buy-to-let 18,290 1,503 711 - 20,504 18,748 1,593 736 - 21,077
Interest only 22,487 11,276 439 - 34,202 25,805 11,631 461 - 37,897
Mixed (1) 10,191 33 8 - 10,232 10,068 25 10 - 10,103
ECL provisions (2) 398 14 8 - 420 397 12 6 - 415
Other personal lending (3) 14,334 1,293 253 - 15,880 13,758 1,395 222 13 15,388
ECL provisions (2) 1,360 14 3 - 1,377 1,508 12 2 16 1,538
Total personal lending 204,844 14,166 2,422 - 221,432 206,673 14,617 2,422 13 223,725
Mortgage LTV ratios
Owner occupied 57% 59% 55% - 57% 55% 59% 56% - 55%
- Stage 1 57% 59% 55% - 57% 55% 59% 54% - 55%
- Stage 2 57% 61% 56% - 57% 54% 63% 54% - 54%
- Stage 3 50% 64% 76% - 51% 48% 61% 72% - 49%
Buy-to-let 55% 59% 52% - 55% 52% 59% 52% - 53%
- Stage 1 55% 60% 51% - 55% 52% 60% 52% - 53%
- Stage 2 53% 59% 53% - 53% 50% 57% 49% - 50%
- Stage 3 52% 53% 60% - 53% 50% 53% 58% - 51%
Gross new mortgage lending 11,026 675 114 - 11,815 29,664 1,400 180 - 31,244
Of which:
Owner occupied 10,655 607 86 - 11,348 27,718 1,267 136 - 29,121
- LTV > 90% 364 - - - 364 1,173 - - - 1,173
Weighted average LTV (4) 69% 63% 71% - 69% 70% 63% 69% - 70%
Buy-to-let 371 68 28 - 467 1,946 133 44 - 2,123
Weighted average LTV (4) 59% 60% 55% - 59% 58% 65% 52% - 58%
Interest only 633 613 15 - 1,261 2,680 1,224 23 - 3,927
Mixed (1) 574 - - - 574 1,568 2 - - 1,570
For the notes to this table refer to the following page.
Risk and capital management continued
Credit risk - Banking activities continued
Personal portfolio (reviewed) continued
30 June 2024 31 December 2023
Central Central
Retail Private Commercial & items Retail Private Commercial & items
Banking Banking Institutional & other Total Banking Banking Institutional & other Total
Mortgage forbearance £m £m £m £m £m £m £m £m £m £m
Forbearance flow (5) 280 21 3 - 304 569 22 9 - 600
Forbearance stock 1,584 34 14 - 1,632 1,416 28 15 - 1,459
Current 1,066 22 5 - 1,093 950 10 6 - 966
1-3 months in arrears 175 3 - - 178 116 2 2 - 120
> 3 months in arrears 343 9 9 - 361 350 16 7 - 373
(1) Includes accounts which have an interest only sub-account and
a capital and interest sub-account to provide a more comprehensive view of
interest only exposures.
(2) Retail Banking excludes a non-material amount of lending and
provisions held on relatively small legacy portfolios.
(3) Comprises unsecured lending except for Private Banking, which
includes both secured and unsecured lending. It excludes loans that are
commercial in nature.
(4) New mortgage lending LTV reflects the LTV at the time of
lending.
(5) Forbearance flows only include an account once per year,
although some accounts may be subject to multiple forbearance deals.
Forbearance deals post default are excluded from these flows.
- Mortgage balances reduced during H1 2024 where higher redemptions were
only partly offset by new mortgage lending. Unsecured lending grew overall,
driven by growth in credit cards.
- Mortgage portfolio LTV increased in H1 2024, as a result of easing of
house prices reflected in the Office for National Statistics house price
indices.
- The proportion of overall interest only mortgage balances decreased in
H1 2024. Higher levels of interest only at year end 2023 were driven by the
implementation of the Mortgage Charter, however, applications for Mortgage
Charter support decreased during H1 2024 and customers have rolled-off from
interest only periods.
- Portfolios and new business were closely monitored against agreed
operating limits. These included loan-to-value ratios, buy-to-let
concentrations, new-build concentrations and credit quality. Lending criteria,
affordability calculations and assumptions for new lending were adjusted
during the year, to maintain credit quality in line with appetite and to
ensure customers are assessed fairly as economic conditions change.
- The flow of mortgage forbearance was stable in H1 2024 compared to H2
2023. The reported forbearance values included customers who used Mortgage
Charter support if indicators of financial stress were already present before
Mortgage Charter support was taken.
- Other personal lending balances increased in H1 2024 with continued
growth in credit card new business. Lending criteria were carefully managed
and the credit quality (based on new business PD) of the new business written
remained stable.
- As noted previously, ECL provisions decreased. For further details on
the movements in ECL provisions at product level, refer to the Flow statements
section.
Risk and capital management continued
Credit risk - Banking activities continued
Personal portfolio (reviewed)
Mortgage LTV distribution by stage
The table below shows gross mortgage lending and related ECL by LTV band for
the Retail Banking portfolio.
Mortgages ECL provisions ECL provisions coverage
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
30 June 2024 £m £m £m £m £m £m £m £m % % % %
≤50% 60,006 7,459 1,112 68,577 12 17 136 165 0.0 0.2 12.2 0.2
>50% and ≤70% 60,845 7,727 856 69,428 18 26 99 143 0.0 0.3 11.6 0.2
>70% and ≤80% 25,290 2,341 173 27,804 8 10 21 39 0.0 0.4 12.1 0.1
>80% and ≤90% 14,951 1,613 86 16,650 6 9 12 27 0.0 0.6 14.0 0.2
>90% and ≤100% 6,661 968 29 7,658 3 6 5 14 0.0 0.6 17.2 0.2
>100% 69 27 14 110 - - 6 6 - - 42.9 5.5
Total with LTVs 167,822 20,135 2,270 190,227 47 68 279 394 0.0 0.3 12.3 0.2
Other 279 1 3 283 1 - 1 2 0.4 - 33.3 0.7
Total 168,101 20,136 2,273 190,510 48 68 280 396 0.0 0.3 12.3 0.2
31 December 2023
≤50% 68,092 7,447 1,145 76,684 27 18 134 179 0.0 0.2 11.7 0.2
>50% and ≤70% 65,777 7,011 767 73,555 35 26 85 146 0.1 0.4 11.1 0.2
>70% and ≤80% 22,537 1,633 113 24,283 13 7 15 35 0.1 0.4 13.3 0.1
>80% and ≤90% 13,583 1,143 47 14,773 9 6 7 22 0.1 0.5 14.9 0.1
>90% and ≤100% 3,008 370 14 3,392 2 3.0 3 8 0.1 0.8 21.4 0.2
>100% 22 6 11 39 - - 5 5 - - 45.5 12.8
Total with LTVs 173,019 17,610 2,097 192,726 86 60 249 395 0.1 0.3 11.9 0.2
Other 186 1 2 189 1 - 1 2 0.5 - 50.0 1.1
Total 173,205 17,611 2,099 192,915 87 60 250 397 0.1 0.3 11.9 0.2
Retail Banking fixed rate mortgages by roll-off date
The table below shows gross fixed rate mortgage lending for Retail Banking, by
roll-off date.
30 June 2024 31 December 2023
Retail Banking mortgages - gross exposure Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
£m £m £m £m £m £m £m £m
Fixed rate roll-off
<=1 year 30,357 3,882 306 34,545 30,867 3,670 295 34,832
>1<=2 years 43,204 4,766 359 48,329 39,013 3,513 290 42,816
>2 years 81,501 8,640 688 90,829 87,402 7,461 590 95,453
Total 155,062 17,288 1,353 173,703 157,282 14,644 1,175 173,101
Risk and capital management continued
Credit risk - Banking activities continued
Commercial real estate (CRE) (reviewed)
CRE LTV distribution by stage
The table below shows CRE current exposure and related ECL by LTV band.
Gross loans ECL provisions ECL provisions coverage
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
30 June 2024 £m £m £m £m £m £m £m £m % % % %
≤50% 7,899 275 45 8,219 25 7 8 40 0.3 2.5 17.8 0.5
>50% and ≤70% 3,692 496 120 4,308 18 15 24 57 0.5 3.0 20.0 1.3
>70% and ≤100% 319 45 87 451 2 2 26 30 0.6 4.4 29.9 6.7
>100% 205 3 65 273 1 - 38 39 0.5 - 58.5 14.3
Total with LTVs 12,115 819 317 13,251 46 24 96 166 0.4 2.9 30.3 1.3
Total portfolio
average LTV 46% 52% 98% 48%
Other (1) 2,205 295 39 2,539 5 6 16 27 0.2 2.0 41.0 1.1
Investment 14,320 1,114 356 15,790 51 30 112 193 0.4 2.7 31.5 1.2
Development (2) 1,825 201 50 2,076 8 2 25 35 0.4 1.0 50.0 1.7
Total 16,145 1,315 406 17,866 59 32 137 228 0.4 2.4 33.7 1.3
31 December 2023
≤50% 7,173 664 61 7,898 38 15 9 62 0.5 2.3 14.8 0.8
>50% and ≤70% 3,165 619 94 3,878 22 21 18 61 0.7 3.4 19.1 1.6
>70% and ≤100% 319 112 84 515 3 6 21 30 0.9 5.4 25.0 5.8
>100% 241 6 26 273 1 1 16 18 0.4 16.7 61.5 6.6
Total with LTVs 10,898 1,401 265 12,564 64 43 64 171 0.6 3.1 24.2 1.4
Total portfolio
average LTV 47% 51% 72% 48%
Other (1) 2,189 390 45 2,624 10 7 19 36 0.5 1.8 42.2 1.4
Investment 13,087 1,791 310 15,188 74 50 83 207 0.6 2.8 26.8 1.4
Development (2) 1,717 147 49 1,913 12 5 25 42 0.7 3.4 51.0 2.2
Total 14,804 1,938 359 17,101 86 55 108 249 0.6 2.8 30.1 1.5
- Overall - The majority of the CRE portfolio was located and managed in
the UK. Business appetite and strategy was aligned across NatWest Group.
- 2024 trends - In H1 2024, conditions enabled growth, particularly in
Q1 2024, as investors/customers gained more confidence in the economic
outlook. Key growth was in the favoured sectors of residential and industrial.
The office sector remains challenging. NatWest Group remains comfortable with
exposures held in this sub-sector but continues to subject them to detailed
scrutiny.
- Credit quality - Credit quality remained stable with very limited
instances of specific cases deteriorating.
- Risk appetite - Lending appetite is subject to regular review.
(1) Relates mainly to business banking and unsecured corporate lending.
(2) Relates to the development of commercial and residential properties. LTV is
not a meaningful measure for this type of lending activity.
Risk and capital management continued
Credit risk - Banking activities continued
Flow statements (reviewed)
The flow statements that follow show the main ECL and related income statement
movements. They also show the changes in ECL as well as the changes in related
financial assets used in determining ECL. Due to differences in scope,
exposures may differ from those reported in other tables, principally in
relation to exposures in Stage 1 and Stage 2. These differences do not have a
material ECL effect. Other points to note:
- Financial assets include treasury liquidity portfolios, comprising
balances at central banks and debt securities, as well as loans. Both modelled
and non-modelled portfolios are included.
- Stage transfers (for example, exposures moving from Stage 1 into Stage
2) are a key feature of the ECL movements, with the net re-measurement cost of
transitioning to a worse stage being a primary driver of income statement
charges. Similarly, there is an ECL benefit for accounts improving stage.
- Changes in risk parameters shows the reassessment of the ECL within a
given stage, including any ECL overlays and residual income statement gains or
losses at the point of write-off or accounting write-down.
- Other (P&L only items) includes any subsequent changes in the
value of written-down assets (for example, fortuitous recoveries) along with
other direct write-off items such as direct recovery costs. Other (P&L
only items) affects the income statement but does not affect balance sheet ECL
movements.
- Amounts written-off represent the gross asset written-down against
accounts with ECL, including the net asset write-down for any debt sale
activity.
- There were some flows from Stage 1 into Stage 3 including transfers
due to unexpected default events with a post model adjustment in place for
Commercial & Institutional to account for this risk.
- The effect of any change in post model adjustments during the year is
typically reported under changes in risk parameters, as are any effects
arising from changes to the underlying models. Refer to the section on
Governance and post model adjustments for further details.
- All movements are captured monthly and aggregated. Interest suspended
post default is included within Stage 3 ECL, with the movement in the value of
suspended interest during the year reported under currency translation and
other adjustments.
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
NatWest Group total £m £m £m £m £m £m £m £m
At 1 January 2024 504,345 709 40,294 976 5,621 1,960 550,260 3,645
Currency translation and other adjustments (907) - (29) - 73 93 (863) 93
Transfers from Stage 1 to Stage 2 (20,089) (104) 20,089 104 - - - -
Transfers from Stage 2 to Stage 1 15,305 341 (15,305) (341) - - - -
Transfers to Stage 3 (126) (2) (1,643) (145) 1,769 147 - -
Transfers from Stage 3 175 9 277 18 (452) (27) - -
Net re-measurement of ECL on stage transfer (242) 328 157 243
Changes in risk parameters (195) (46) 165 (76)
Other changes in net exposure (396) 74 (5,024) (89) (918) (85) (6,338) (100)
Other (P&L only items) (1) (3) (15) (19)
Income statement (releases)/charges (364) 190 222 48
Transfers to disposal groups and fair value (296) (5) (8) (3) (13) (10) (317) (18)
Amounts written-off - - - - (369) (369) (369) (369)
Unwinding of discount - - - (75) (75)
At 30 June 2024 498,011 585 38,651 802 5,711 1,956 542,373 3,343
Net carrying amount 497,426 37,849 3,755 539,030
At 1 January 2023 507,539 632 48,482 1,043 5,231 1,759 561,252 3,434
2023 movements (26,623) 29 (3,867) (52) 314 146 (30,176) 123
At 30 June 2023 480,916 661 44,615 991 5,545 1,905 531,076 3,557
Net carrying amount 480,255 43,624 3,640 527,519
Risk and capital management continued
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Retail Banking - mortgages £m £m £m £m £m £m £m £m
At 1 January 2024 174,038 87 17,827 60 2,068 250 193,933 397
Currency translation and other adjustments - 1 - (1) 53 53 53 53
Transfers from Stage 1 to Stage 2 (9,955) (12) 9,955 12 - - - -
Transfers from Stage 2 to Stage 1 5,702 12 (5,702) (12) - - - -
Transfers to Stage 3 (33) - (531) (4) 564 4 - -
Transfers from Stage 3 16 - 155 4 (171) (4) - -
Net re-measurement of ECL on stage transfer (7) 14 3 10
Changes in risk parameters (28) (1) 48 19
Other changes in net exposure (2,775) (4) (1,387) (4) (265) (35) (4,427) (43)
Other (P&L only items) (1) - (2) (3)
Income statement (releases)/charges (40) 9 14 (17)
Amounts written-off - - - - (8) (8) (8) (8)
Unwinding of discount - - (31) (31)
At 30 June 2024 166,993 49 20,317 68 2,241 280 189,551 397
Net carrying amount 166,944 20,249 1,961 189,154
At 1 January 2023 165,264 79 18,831 61 1,762 215 185,857 355
2023 movements 4,527 12 834 3 85 19 5,446 34
At 30 June 2023 169,791 91 19,665 64 1,847 234 191,303 389
Net carrying amount 169,700 19,601 1,613 190,914
- ECL levels for mortgages remained stable overall during H1 2024, with growth
in Stage 3 ECL offset by a reduction in good book ECL, primarily driven by the
reduction in economic uncertainty post model adjustment levels.
- As well as a net reduction in book size, aligned to trends in the UK mortgage
market, the decrease in Stage 1 ECL was also driven by the cost of living post
model adjustment reduction, which proportionately allocated more ECL to Stage
1 given the forward-looking nature of the affordability threat. Refer to the
Governance and post model adjustments section for further details.
- The Stage 3 inflows remained broadly stable, with signs of improvement in
default rates in recent months. Default rates had been increasing during 2023
reflecting slightly poorer arrears performance on mortgages recently
rolled-off onto higher product rates. The increase in Stage 3 ECL primarily
reflected increases in ECL for post-default interest alongside lower levels of
write-offs.
- There were net flows into Stage 2 from Stage 1 with an upward trend in early
arrears coupled with the collective migration into Stage 2 of higher risk
customers utilising new Mortgage Charter treatments (approximately £0.9
billion exposure).
- The relatively small ECL cost for net re-measurement on stage transfer
included the effect of risk targeted ECL adjustments, when previously in the
good book. Refer to the Governance and post model adjustments section for
further details.
-
Risk and capital management continued
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Retail Banking - credit cards £m £m £m £m £m £m £m £m
At 1 January 2024 3,475 70 2,046 204 146 89 5,667 363
Currency translation and other adjustments - - - - 2 2 2 2
Transfers from Stage 1 to Stage 2 (814) (16) 814 16 - - - -
Transfers from Stage 2 to Stage 1 746 52 (746) (52) - - - -
Transfers to Stage 3 (11) - (77) (29) 88 29 - -
Transfers from Stage 3 1 - 4 2 (5) (2) - -
Net re-measurement of ECL on stage transfer (31) 74 21 64
Changes in risk parameters 1 3 9 13
Other changes in net exposure 726 5 (219) (30) (24) (1) 483 (26)
Other (P&L only items) - 1 - 1
Income statement (releases)/charges (25) 48 29 52
Amounts written-off - - - - (38) (38) (38) (38)
Unwinding of discount - - (4) (4)
At 30 June 2024 4,123 81 1,822 188 169 105 6,114 374
Net carrying amount 4,042 1,634 64 5,740
At 1 January 2023 3,062 61 1,098 120 113 71 4,273 252
2023 movements 118 (2) 422 25 13 12 553 35
At 30 June 2023 3,180 59 1,520 145 126 83 4,826 287
Net carrying amount 3,121 1,375 43 4,539
- Overall ECL for cards remained broadly in-line with the 2023 year-end,
with portfolio growth mitigated by stable portfolio performance and PD trends.
- While portfolio performance remained stable, a net flow into Stage 2
from Stage 1 was observed in Q1 2024 with the typical maturation of lending
after a period of strong growth in recent years albeit Stage 2 reduced during
the second quarter as PDs reduced after PD modelling updates.
- Credit card balances continued to grow during 2024, reflecting
continued customer demand whilst remaining within risk appetite.
- Flow rates into Stage 3 reduced in H1 2024, in line with broader
portfolio performance.
Risk and capital management continued
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Retail Banking - other personal unsecured £m £m £m £m £m £m £m £m
At 1 January 2024 5,240 149 1,657 238 963 758 7,860 1,145
Currency translation and other adjustments - - - 1 8 8 8 9
Transfers from Stage 1 to Stage 2 (854) (40) 854 40 - - - -
Transfers from Stage 2 to Stage 1 953 137 (953) (137) - - - -
Transfers to Stage 3 (37) (1) (157) (68) 194 69 - -
Transfers from Stage 3 4 1 12 5 (16) (6) - -
Net re-measurement of ECL on stage transfer (99) 133 13 47
Changes in risk parameters (42) 7 63 28
Other changes in net exposure 411 40 (188) (19) (80) (22) 143 (1)
Other (P&L only items) - (1) 14 13
Income statement (releases)/charges (101) 120 68 87
Amounts written-off - - - - (224) (224) (224) (224)
Unwinding of discount - - (18) (18)
At 30 June 2024 5,717 145 1,225 200 845 641 7,787 986
Net carrying amount 5,572 1,025 204 6,801
At 1 January 2023 4,784 111 2,028 269 779 631 7,591 1,011
2023 movements 292 21 (147) (39) 111 90 256 72
At 30 June 2023 5,076 132 1,881 230 890 721 7,847 1,083
Net carrying amount 4,944 1,651 169 6,764
- Total ECL decreased, mainly in Stage 3 due to the reduction of
balances from debt sale activity on Personal unsecured portfolios of £0.2
billion.
- Stable portfolio performance and updates to PD modelling resulted in a
net migration from Stage 2 into Stage 1 with performing book ECL and coverage
levels showing a modest reduction since the 2023 year-end, supported by an
improved economic outlook.
- Flow rates into Stage 3 reduced in H1 2024, in line with broader
portfolio performance.
- Unsecured retail performing balances grew steadily during H1 2024,
largely in line with industry trends.
Risk and capital management continued
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Commercial & Institutional total £m £m £m £m £m £m £m £m
At 1 January 2024 176,302 356 17,029 447 2,161 819 195,492 1,622
Currency translation and other adjustments (436) (1) (29) 1 12 27 (453) 27
Inter-group transfers - - - - - - - -
Transfers from Stage 1 to Stage 2 (7,758) (35) 7,758 35 - - - -
Transfers from Stage 2 to Stage 1 6,940 130 (6,940) (130) - - - -
Transfers to Stage 3 (34) - (761) (44) 795 44 - -
Transfers from Stage 3 125 7 93 8 (218) (15) - -
Net re-measurement of ECL on stage transfer (98) 102 121 125
Changes in risk parameters (114) (49) 42 (121)
Other changes in net exposure 4,452 30 (3,109) (36) (493) (28) 850 (34)
Other (P&L only items) - (3) (24) (27)
Income statement (releases)/charges (182) 14 111 (57)
Amounts written-off - - - - (99) (99) (99) (99)
Unwinding of discount - - (19) (19)
At 30 June 2024 179,591 275 14,041 334 2,158 892 195,790 1,501
Net carrying amount 179,316 13,707 1,266 194,289
At 1 January 2023 160,352 342 24,711 534 2,198 747 187,261 1,623
2023 movements 1,819 (9) (4,368) (27) 75 18 (2,474) (18)
At 30 June 2023 162,171 333 20,343 507 2,273 765 184,787 1,605
Net carrying amount 161,838 19,836 1,508 183,182
- ECL levels decreased during H1 2024 with significant reductions in
Stage 1 and Stage 2 partially offset by increases in Stage 3. Improved
economic variables and risk metrics reduced Stage 1 and Stage 2 ECL, with
lower PDs contributing to reductions in modelled ECL and post model
adjustments.
- A reduction in post model adjustments led to a £97 million reduction
across Stage 1 and Stage 2.
- Stage 3 ECL and exposure increased, mainly due to transfers into Stage
3 and the re-measurement of ECL at the point of transfer. This was partially
offset by write-offs.
- Exposure levels in Stage 1 and 2 remained broadly consistent with new
exposures captured in Stage 1 offset by repayments in Stage 2.
Risk and capital management continued
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Commercial & Institutional - corporate £m £m £m £m £m £m £m £m
At 1 January 2024 61,402 226 12,275 344 1,454 602 75,131 1,172
Currency translation and other adjustments (88) (1) (21) 1 11 22 (98) 22
Inter-group transfers 86 - 35 2 2 1 123 3
Transfers from Stage 1 to Stage 2 (5,045) (26) 5,045 26 - - - -
Transfers from Stage 2 to Stage 1 4,772 98 (4,772) (98) - - - -
Transfers to Stage 3 (30) - (530) (30) 560 30 - -
Transfers from Stage 3 100 5 66 6 (166) (11) - -
Net re-measurement of ECL on stage transfer (75) 76 60 61
Changes in risk parameters (67) (39) 28 (78)
Other changes in net exposure 2,119 14 (2,003) (25) (313) (20) (197) (31)
Other (P&L only items) - (4) (21) (25)
Income statement (releases)/charges (128) 8 47 (73)
Amounts written-off - - - - (88) (88) (88) (88)
Unwinding of discount - - (13) (13)
At 30 June 2024 63,316 174 10,095 263 1,460 611 74,871 1,048
Net carrying amount 63,142 9,832 849 73,823
- ECL levels decreased during H1 2024 with significant reductions in
Stage 1 and Stage 2. Improved economic variables and risk metrics reduced
Stage 1 and Stage 2 ECL, with lower PDs contributing to reductions in modelled
ECL and post model adjustments.
- Stage 3 exposure increased due to transfers into Stage 3, partially
offset by repayments and write-offs. Stage 3 ECL marginally increased with the
impact from transfers and the re-measurement of ECL at the point of transfer,
largely offset by write-offs.
- Exposure levels in the performing portfolio, Stage 1 and Stage 2,
remained broadly consistent with new exposures captured in Stage 1 offset by
repayments in Stage 2.
Risk and capital management continued
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Commercial & Institutional - property £m £m £m £m £m £m £m £m
At 1 January 2024 26,040 94 3,155 89 606 195 29,801 378
Currency translation and other adjustments (5) - (2) (1) - 7 (7) 6
Inter-group transfers (30) - (23) (2) (2) - (55) (2)
Transfers from Stage 1 to Stage 2 (1,869) (7) 1,869 7 - - - -
Transfers from Stage 2 to Stage 1 1,622 27 (1,622) (27) - - - -
Transfers to Stage 3 (4) - (160) (9) 164 9 - -
Transfers from Stage 3 21 2 24 2 (45) (4) - -
Net re-measurement of ECL on stage transfer (19) 22 30 33
Changes in risk parameters (38) (12) 11 (39)
Other changes in net exposure 751 9 (266) (7) (150) (6) 335 (4)
Other (P&L only items) - - - -
Income statement (releases)/charges (48) 3 35 (10)
Amounts written-off - - - - (10) (10) (10) (10)
Unwinding of discount - - (5) (5)
At 30 June 2024 26,526 68 2,975 62 563 227 30,064 357
Net carrying amount 26,458 2,913 336 29,707
- There was a small reduction in ECL during H1 2024 with decreases in
Stage 1 and Stage 2 partially offset by increases in Stage 3.
- Improved economic variables and risk metrics reduced Stage 1 and Stage
2 ECL, with lower PDs contributing to reductions in modelled ECL and post
model adjustments.
- Stage 3 exposure reduced with the primary driver being repayments on
the collective portfolio. The increase in Stage 3 ECL was largely attributable
to one commercial real estate customer.
- Exposure levels in the performing portfolio, Stage 1 and Stage 2,
increased with new exposures captured in Stage 1 more than offsetting
repayments in Stage 2.
Risk and capital management continued
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Commercial & Institutional - other £m £m £m £m £m £m £m £m
At 1 January 2024 88,860 36 1,599 14 101 22 90,560 72
Currency translation and other adjustments (344) - (5) 1 1 (1) (348) -
Inter-group transfers (56) - (12) - - - (68) -
Transfers from Stage 1 to Stage 2 (844) (2) 844 2 - - - -
Transfers from Stage 2 to Stage 1 547 5 (547) (5) - - - -
Transfers to Stage 3 - - (71) (6) 71 6 - -
Transfers from Stage 3 4 - 3 - (7) - - -
Net re-measurement of ECL on stage transfer (3) 4 30 31
Changes in risk parameters (8) 2 2 (4)
Other changes in net exposure 1,582 5 (840) (3) (30) (1) 712 1
Other (P&L only items) - - (2) (2)
Income statement (releases)/charges (6) 3 29 26
Amounts written-off - - - - (1) (1) (1) (1)
Unwinding of discount - - (1) (1)
At 30 June 2024 89,749 33 971 9 135 54 90,855 96
Net carrying amount 89,716 962 81 90,759
- ECL levels increased during H1 2024 with a rise in Stage 3 only
partially offset by reductions in Stage 1 and Stage 2.
- Stage 3 exposure and ECL increased mainly related to an increase in
ECL on newly defaulted individually assessed customers. These defaults also
contributed to a reduction in Stage 2 as the ECL was transferred to Stage 3 at
the point of default.
Risk and capital management continued
Credit risk - Banking activities continued
Stage 2 decomposition by a significant increase in credit risk trigger
The tables that follow show decomposition for the Personal and Wholesale
portfolios.
UK mortgages Credit cards Other Total
30 June 2024 £m % £m % £m % £m %
Personal trigger (1)
PD movement 13,825 67.8 1,303 72.6 623 51.3 15,751 67.5
PD persistence 3,964 19.5 406 22.7 230 19.0 4,600 19.7
Adverse credit bureau recorded with credit reference agency 969 4.8 64 3.6 121 10.0 1,154 4.9
Forbearance support provided 162 0.8 1 0.1 11 0.9 174 0.7
Customers in collections 173 0.8 2 0.1 14 1.2 189 0.8
Collective SICR and other reasons (2) 1,141 5.6 16 0.9 200 16.5 1,357 5.8
Days past due >30 134 0.7 - - 13 1.1 147 0.6
20,368 100.0 1,792 100.0 1,212 100.0 23,372 100.0
31 December 2023
Personal trigger (1)
PD movement 12,969 72.5 1,469 72.7 866 52.9 15,304 71.1
PD persistence 2,317 13.0 481 23.8 374 22.9 3,172 14.7
Adverse credit bureau recorded with credit reference agency 1,047 5.9 49 2.4 99 6.1 1,195 5.6
Forbearance support provided 137 0.8 1 - 11 0.7 149 0.7
Customers in collections 178 1.0 2 0.1 8 0.5 188 0.9
Collective SICR and other reasons (2) 1,087 6.1 20 1.0 266 16.3 1,373 6.4
Days past due >30 119 0.7 - - 9 0.6 128 0.6
17,854 100.0 2,022 100.0 1,633 100.0 21,509 100.0
For the notes to the table refer to the following page.
- The level of PD driven deterioration increased in the first half of
2024, mainly in the mortgage portfolio, reflecting some increases in the early
arrears level and PD modelling updates. The modelling updates on unsecured
portfolios at Q1 2024 resulted in a reduction in lifetime PDs. This drove a
segment of lower risk cases out of PD deterioration at Q1 2024, with many now
exited from Stage 2 after the PD persistence period of three months.
- Higher risk mortgage customers who utilised the new Mortgage Charter
measures continue to be collectively migrated into Stage 2, approximately
£0.9 billion of exposures, and were captured in the collective SICR and other
reasons category.
- Accounts that were less than 30 days past due continued to represent
the vast majority of the Stage 2 population.
Risk and capital management continued
Credit risk - Banking activities continued
Stage 2 decomposition by a significant increase in credit risk trigger
Property Corporate Financial institutions Sovereign Total
30 June 2024 £m % £m % £m % £m % £m %
Wholesale trigger (1)
PD movement 1,742 57.6 6,664 66.1 422 77.0 - - 8,828 63.5
PD persistence 68 2.3 248 2.5 3 0.5 - - 319 2.3
Heightened Monitoring and Risk of Credit Loss 1,008 33.4 2,116 21.0 109 19.9 262 99.6 3,495 25.1
Forbearance support provided 45 1.5 386 3.8 6 1.1 - - 437 3.1
Customers in collections 8 0.3 25 0.2 - - - - 33 0.2
Collective SICR and other reasons (2) 112 3.7 522 5.2 7 1.3 1 0.4 642 4.6
Days past due >30 35 1.2 126 1.2 1 0.2 - - 162 1.2
3,018 100.0 10,087 100.0 548 100.0 263 100.0 13,916 100.0
31 December 2023
Wholesale trigger (1)
PD movement 2,211 67.6 7,611 62.5 760 78.7 - - 10,582 64.6
PD persistence 223 6.8 847 7.0 13 1.3 - - 1,083 6.6
Heightened Monitoring and Risk of Credit Loss 563 17.2 2,630 21.7 120 12.4 - - 3,313 20.2
Forbearance support provided 49 1.6 373 3.1 - - - - 422 2.6
Customers in collections 7 0.2 23 0.2 - - - - 30 0.2
Collective SICR and other reasons (2) 70 2.1 457 3.8 72 7.5 1 100.0 600 3.7
Days past due >30 147 4.5 204 1.7 1 0.1 - - 352 2.1
3,270 100.0 12,145 100.0 966 100.0 1 100.0 16,382 100.0
(1) The table is prepared on a hierarchical basis from top to bottom,
for example, accounts with PD deterioration may also trigger backstop(s) but
are only reported under PD deterioration.
(2) Includes cases where a PD assessment cannot be made and accounts
where the PD has deteriorated beyond a prescribed backstop threshold aligned
to risk management practices.
- PD deterioration continued to be the primary trigger of migration of
exposures from Stage 1 into Stage 2. As the economic outlook improved, there
was a reduction in cases triggering Stage 2.
- Moving exposures to Heightened Monitoring or Risk of Credit Loss
remains an important backstop indicator of a significant increase in credit
risk. The exposures classified under this Stage 2 trigger increased over the
year, mainly in property, where improved PDs meant less exposures were
captured under the PD deterioration Stage 2 trigger.
Risk and capital management continued
Credit risk - Banking activities continued
Asset quality (reviewed)
The table below shows asset quality bands of gross loans and ECL, by stage,
for the Personal portfolio.
Gross loans ECL provisions ECL provisions coverage
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
30 June 2024 £m £m £m £m £m £m £m £m % % % %
UK mortgages
AQ1-AQ4 100,746 8,061 - 108,807 20 20 - 40 0.0 0.3 - 0.0
AQ5-AQ8 81,760 11,399 - 93,159 29 43 - 72 0.0 0.4 - 0.1
AQ9 166 908 - 1,074 - 6 - 6 - 0.7 - 0.6
AQ10 - - 2,446 2,446 - - 302 302 - - 12.4 12.4
182,672 20,368 2,446 205,486 49 69 302 420 0.0 0.3 12.4 0.2
Credit cards
AQ1-AQ4 126 - - 126 1 - - 1 0.8 - - 0.8
AQ5-AQ8 4,292 1,718 - 6,010 80 173 - 253 1.9 10.1 - 4.2
AQ9 13 74 - 87 1 16 - 17 7.7 21.6 - 19.5
AQ10 - - 158 158 - - 105 105 - - 66.5 66.5
4,431 1,792 158 6,381 82 189 105 376 1.9 10.6 66.5 5.9
Other personal
AQ1-AQ4 708 107 - 815 8 14 - 22 1.1 13.1 - 2.7
AQ5-AQ8 6,729 972 - 7,701 135 140 - 275 2.0 14.4 - 3.6
AQ9 71 133 - 204 6 45 - 51 8.5 33.8 - 25.0
AQ10 - - 857 857 - - 656 656 - - 76.6 76.6
7,508 1,212 857 9,577 149 199 656 1,004 2.0 16.4 76.6 10.5
Total
AQ1-AQ4 101,580 8,168 - 109,748 29 34 - 63 0.0 0.4 - 0.1
AQ5-AQ8 92,781 14,089 - 106,870 244 356 - 600 0.3 2.5 - 0.6
AQ9 250 1,115 - 1,365 7 67 - 74 2.8 6.0 - 5.4
AQ10 - - 3,461 3,461 - - 1,063 1,063 - - 30.7 30.7
194,611 23,372 3,461 221,444 280 457 1,063 1,800 0.1 2.0 30.7 0.8
Risk and capital management continued
Credit risk - Banking activities continued
Asset quality (reviewed)
Gross loans ECL provisions ECL provisions coverage
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
31 December 2023 £m £m £m £m £m £m £m £m % % % %
UK mortgages
AQ1-AQ4 110,694 7,572 - 118,266 51 20 - 71 0.1 0.3 - 0.1
AQ5-AQ8 77,290 9,578 - 86,868 37 37 - 74 0.1 0.4 - 0.1
AQ9 156 704 - 860 - 4 - 4 - 0.6 - 0.5
AQ10 - - 2,281 2,281 - - 271 271 - - 11.9 11.9
188,140 17,854 2,281 208,275 88 61 271 420 0.1 0.3 11.9 0.2
Credit cards
AQ1-AQ4 124 - - 124 1 - - 1 0.8 - - 0.8
AQ5-AQ8 3,612 1,965 - 5,577 75 193 - 268 2.1 9.8 - 4.8
AQ9 6 57 - 63 - 14 - 14 - 24.6 - 22.2
AQ10 - - 140 140 - - 93 93 - - 66.4 66.4
3,742 2,022 140 5,904 76 207 93 376 2.0 10.2 66.4 6.4
Other personal
AQ1-AQ4 764 150 - 914 11 23 - 34 1.4 15.3 - 3.7
AQ5-AQ8 6,178 1,374 - 7,552 138 180 - 318 2.2 13.1 - 4.2
AQ9 41 109 - 150 3 35 - 38 7.3 32.1 - 25.3
AQ10 - - 979 979 - - 778 778 - - 79.5 79.5
6,983 1,633 979 9,595 152 238 778 1,168 2.2 14.6 79.5 12.2
Total
AQ1-AQ4 111,582 7,722 - 119,304 63 43 - 106 0.1 0.6 - 0.1
AQ5-AQ8 87,080 12,917 - 99,997 250 410 - 660 0.3 3.2 - 0.7
AQ9 203 870 - 1,073 3 53 - 56 1.5 6.1 - 5.2
AQ10 - - 3,400 3,400 - - 1,142 1,142 - - 33.6 33.6
198,865 21,509 3,400 223,774 316 506 1,142 1,964 0.2 2.4 33.6 0.9
- In the Personal portfolio, the majority of exposures were in the AQ4
and AQ5 bands and were within mortgages.
- In other personal, the relatively high level of exposures in AQ10
reflected that impaired assets can be held on the balance sheet, with
commensurate ECL provision, for up to six years.
Risk and capital management continued
Credit risk - Banking activities continued
Asset quality (reviewed)
The table below shows asset quality bands of gross loans and ECL, by stage,
for the Wholesale portfolio.
Gross loans ECL provisions ECL provisions coverage
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
30 June 2024 £m £m £m £m £m £m £m £m % % % %
Property
AQ1-AQ4 15,257 1,000 - 16,257 13 8 - 21 0.1 0.8 - 0.1
AQ5-AQ8 13,607 1,955 - 15,562 60 54 - 114 0.4 2.8 - 0.7
AQ9 8 63 - 71 - 4 - 4 - 6.4 - 5.6
AQ10 - - 728 728 - - 232 232 - - 31.9 31.9
28,872 3,018 728 32,618 73 66 232 371 0.3 2.2 31.9 1.1
Corporate
AQ1-AQ4 25,616 1,040 - 26,656 18 12 - 30 0.1 1.2 - 0.1
AQ5-AQ8 39,331 8,797 - 48,128 162 239 - 401 0.4 2.7 - 0.8
AQ9 27 250 - 277 - 19 - 19 - 7.6 - 6.9
AQ10 - - 1,527 1,527 - - 613 613 - - 40.1 40.1
64,974 10,087 1,527 76,588 180 270 613 1,063 0.3 2.7 40.1 1.4
Financial institutions
AQ1-AQ4 52,008 413 - 52,421 24 1 - 25 0.1 0.2 - 0.1
AQ5-AQ8 4,093 123 - 4,216 15 5 - 20 0.4 4.1 - 0.5
AQ9 2 12 - 14 - 1 - 1 - 8.3 - 7.1
AQ10 - - 74 74 - - 44 44 - - 59.5 59.5
56,103 548 74 56,725 39 7 44 90 0.1 1.3 59.5 0.2
Sovereign
AQ1-AQ4 1,287 1 - 1,288 13 1 - 14 1.0 100.0 - 1.1
AQ5-AQ8 - 130 - 130 - 1 - 1 - 0.8 - 0.8
AQ 9 - 132 - 132 - - - - - - - -
AQ10 - - 22 22 - - 4 4 - - 18.2 18.2
1,287 263 22 1,572 13 2 4 19 1.0 0.8 18.2 1.2
Total
AQ1-AQ4 94,168 2,454 - 96,622 68 22 - 90 0.1 0.9 - 0.1
AQ5-AQ8 57,031 11,005 - 68,036 237 299 - 536 0.4 2.7 - 0.8
AQ9 37 457 - 494 - 24 - 24 - 5.3 - 4.9
AQ10 - - 2,351 2,351 - - 893 893 - - 38.0 38.0
151,236 13,916 2,351 167,503 305 345 893 1,543 0.2 2.5 38.0 0.9
- Asset quality was stable in property, other wholesale and financial
institutions. There was a deterioration in sovereigns.
- Customer credit grades are reassessed as and when a request for
financing is made, a scheduled customer credit review performed or a material
credit event specific to that customer occurred. Credit grades are reassessed
for all customers at least annually.
Risk and capital management continued
Credit risk - Banking activities continued
Asset quality (reviewed)
Gross loans ECL provisions ECL provisions coverage
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
31 December 2023 £m £m £m £m £m £m £m £m % % % %
Property
AQ1-AQ4 14,961 405 - 15,366 16 5 - 21 0.1 1.2 - 0.1
AQ5-AQ8 12,346 2,799 - 15,145 86 88 - 174 0.7 3.1 - 1.2
AQ9 9 66 - 75 - 5 - 5 - 7.6 - 6.7
AQ10 - - 621 621 - - 198 198 - - 31.9 31.9
27,316 3,270 621 31,207 102 98 198 398 0.4 3.0 31.9 1.3
Corporate
AQ1-AQ4 25,914 937 - 26,851 27 13 - 40 0.1 1.4 - 0.2
AQ5-AQ8 37,738 10,935 - 48,673 207 323 - 530 0.6 3.0 - 1.1
AQ9 38 273 - 311 - 20 - 20 - 7.3 - 6.4
AQ10 - - 1,504 1,504 - - 611 611 - - 40.6 40.6
63,690 12,145 1,504 77,339 234 356 611 1,201 0.4 2.9 40.6 1.6
Financial institutions
AQ1-AQ4 52,702 665 - 53,367 28 6 - 34 0.1 0.9 - 0.1
AQ5-AQ8 3,402 284 - 3,686 16 9 - 25 0.5 3.2 - 0.7
AQ9 1 17 - 18 - - - - - - - -
AQ10 - - 16 16 - - 7 7 - - 43.8 43.8
56,105 966 16 57,087 44 15 7 66 0.1 1.6 43.8 0.1
Sovereign
AQ1-AQ4 2,487 1 - 2,488 13 1 - 14 0.5 nm - 0.6
AQ5-AQ8 123 - - 123 - - - - - - - -
AQ9 - - - - - - - - - - - -
AQ10 - - 22 22 - - 2 2 - - 9.1 9.1
2,610 1 22 2,633 13 1 2 16 0.5 nm 9.1 0.6
Total
AQ1-AQ4 96,064 2,008 - 98,072 84 25 - 109 0.1 1.3 - 0.1
AQ5-AQ8 53,609 14,018 - 67,627 309 420 - 729 0.6 3.0 - 1.1
AQ9 48 356 - 404 - 25 - 25 - 7.0 - 6.2
AQ10 - - 2,163 2,163 - - 818 818 - - 37.8 37.8
149,721 16,382 2,163 168,266 393 470 818 1,681 0.3 2.9 37.8 1.0
Risk and capital management continued
Credit risk - Trading activities
This section details the credit risk profile of NatWest Group's trading
activities.
Securities financing transactions and collateral (reviewed)
The table below shows securities financing transactions in Commercial &
Institutional and Central items & other. Balance sheet captions include
balances held at all classifications under IFRS.
Reverse repos Repos
Of which: Outside netting Of which: Outside netting
Total can be offset arrangements Total can be offset arrangements
30 June 2024 £m £m £m £m £m £m
Gross 77,085 77,000 85 74,623 73,535 1,088
IFRS offset (32,309) (32,309) - (32,309) (32,309) -
Carrying value 44,776 44,691 85 42,314 41,226 1,088
Master netting arrangements (1,454) (1,454) - (1,454) (1,454) -
Securities collateral (42,965) (42,965) - (39,772) (39,772) -
Potential for offset not recognised under IFRS (44,419) (44,419) - (41,226) (41,226) -
Net 357 272 85 1,088 - 1,088
31 December 2023
Gross 77,508 77,050 458 66,767 66,047 720
IFRS offset (25,903) (25,903) - (25,903) (25,903) -
Carrying value 51,605 51,147 458 40,864 40,144 720
Master netting arrangements (669) (669) - (669) (669) -
Securities collateral (50,287) (50,287) - (39,475) (39,475) -
Potential for offset not recognised under IFRS (50,956) (50,956) - (40,144) (40,144) -
Net 649 191 458 720 - 720
Risk and capital management continued
Credit risk - Trading activities continued
Derivatives (reviewed)
The table below shows derivatives by type of contract. The master netting
agreements and collateral shown do not result in a net presentation on the
balance sheet under IFRS. A significant proportion of the derivatives relate
to trading activities in Commercial & Institutional. The table also
includes hedging derivatives in Central items & other.
30 June 2024 31 December 2023
Notional
GBP USD EUR Other Total Assets Liabilities Notional Assets Liabilities
£bn £bn £bn £bn £bn £m £m £bn £m £m
Gross exposure 86,136 82,013 99,501 96,264
IFRS offset (18,622) (21,164) (20,597) (23,869)
Carrying value 3,378 3,188 5,651 1,191 13,408 67,514 60,849 13,403 78,904 72,395
Of which:
Interest rate (1) 3,046 1,705 5,004 268 10,023 40,925 35,137 10,268 44,563 38,483
Exchange rate 331 1,478 637 923 3,369 26,446 25,442 3,120 34,161 33,586
Credit 1 5 10 - 16 143 270 15 180 326
Carrying value 13,408 67,514 60,849 13,403 78,904 72,395
Counterparty mark-to-market netting (50,530) (50,530) (60,355) (60,355)
Cash collateral (11,296) (5,650) (12,284) (6,788)
Securities collateral (3,503) (1,142) (3,408) (1,664)
Net exposure 2,185 3,527 2,857 3,588
Banks (2) 217 441 335 555
Other financial institutions (3) 1,117 1,260 1,422 1,304
Corporate (4) 815 1,808 1,063 1,690
Government (5) 36 18 37 39
Net exposure 2,185 3,527 2,857 3,588
UK 1,148 1,871 1,283 1,912
Europe 551 1,085 800 1,209
US 404 383 607 381
RoW 82 188 167 86
Net exposure 2,185 3,527 2,857 3,588
Asset quality of uncollateralised derivative assets
AQ1-AQ4 1,871 2,382
AQ5-AQ8 312 471
AQ9-AQ10 2 4
Net exposure 2,185 2,857
(1) The notional amount of interest rate derivatives included
£6,950 billion (31 December 2023 - £7,280 billion) in respect of contracts
cleared through central clearing counterparties.
(2) Transactions with certain counterparties with whom NatWest
Group has netting arrangements but collateral is not posted on a daily basis;
certain transactions with specific terms that may not fall within netting and
collateral arrangements; derivative positions in certain jurisdictions where
the collateral agreements are not deemed to be legally enforceable.
(3) Includes transactions with securitisation vehicles and funds
where collateral posting is contingent on NatWest Group's external rating.
(4) Mainly large corporates with whom NatWest Group may have
netting arrangements in place, but operational capability does not support
collateral posting.
(5) Sovereigns and supranational entities with no collateral
arrangements, collateral arrangements that are not considered enforceable, or
one-way collateral agreements in their favour.
Risk and capital management continued
Credit risk - Trading activities continued
Debt securities (reviewed)
The table below shows debt securities held at mandatory fair value through
profit or loss by issuer as well as ratings based on the lowest of Standard
& Poor's, Moody's and Fitch. Refer to Note 9 Trading assets and
liabilities for details on short positions.
Central and local government Financial
UK US Other institutions Corporate Total
30 June 2024 £m £m £m £m £m £m
AAA - - 1,302 1,406 - 2,708
AA to AA+ - 5,507 45 672 12 6,236
A to AA- 5,170 - 2,049 504 378 8,101
BBB- to A- - - 1,250 465 645 2,360
Non-investment grade - - - 153 178 331
Total 5,170 5,507 4,646 3,200 1,213 19,736
31 December 2023
AAA - - 1,333 1,132 - 2,465
AA to AA+ - 2,600 19 762 4 3,385
A to AA- 2,729 - 1,017 251 283 4,280
BBB- to A- - - 693 295 489 1,477
Non-investment grade - - - 198 149 347
Total 2,729 2,600 3,062 2,638 925 11,954
Risk and capital management continued
Capital, liquidity and funding risk
Introduction
NatWest Group takes a comprehensive approach to the management of capital,
liquidity and funding, underpinned by frameworks, risk appetite and policies,
to manage and mitigate capital, liquidity and funding risks. The framework
ensures the tools and capability are in place to facilitate the management and
mitigation of risk ensuring that NatWest Group operates within its regulatory
requirements and risk appetite.
Key developments since 31 December 2023
CET1 ratio MREL RWAs
13.6% £57.3bn £180.8bn
(as at 31 December 2023 - 13.4%) (as at 31 December 2023 - £55.8bn) (as at 31 December 2023 - £183.0bn)
The CET1 ratio increased by 20 basis points to 13.6%. The increase in the CET1 Minimum Requirements of own funds and Eligible Liabilities increased by £1.5 Total RWAs decreased by £2.2 billion to £180.8 billion during H1 2024
ratio was due to a £2.2 billion decrease in RWAs and a £0.2 billion increase billion to £57.3 billion driven by a £1.0 billion increase in Tier 1 capital reflecting:
in CET1 capital. and a £0.6 billion increase in MREL eligible Tier 2 capital. The increase in
capital was driven by issuance of $1.0 billion Additional Tier 1 capital and
The CET1 capital increase was mainly driven by an attributable profit to $1.0 billion Tier 2 capital in the period. There was an immaterial decrease in
ordinary shareholders of £2.1 billion and other movements on reserves and senior unsecured debt following redemption of a €0.8 billion debt instrument - a decrease in credit risk RWAs of £2.7 billion, primarily due to
regulatory adjustments of £0.1 billion partially offset by a directed buyback and a $2 billion debt instrument offset by the issuance of USD debt active RWA management partially offset by drawdowns and new facilities within
of £1.2 billion and a foreseeable ordinary dividend accrual of £0.8 billion. instruments totalling $2.8 billion. Commercial & Institutional.
- a decrease of £0.7 billion in counterparty credit risk driven by
reduced over-the-counter exposures and securities financing transactions.
- a decrease in market risk RWAs of £0.4 billion, predominantly
driven by risk reduction activity.
- an increase of £1.6 billion in operational risk RWAs following
the annual recalculation as a result of higher income compared to 2020.
UK leverage ratio Liquidity portfolio LCR NSFR
5.2% £227.0bn 151% 139%
(as at 31 December 2023 - 5.0%) (as at 31 December 2023 - £222.8bn) (as at 31 December 2023 - 144%) (as at 31 December 2023 - 133%)
The leverage ratio increased by 20 basis points to 5.2%, driven by a £1.0 The liquidity portfolio increased by £4.2 billion to £227.0 billion. Primary The Liquidity Coverage Ratio (LCR) increased by 7 percentage points to 151%, The Net Stable Funding Ratio (NSFR) increased 6% to 139% driven by increased
billion increase in Tier 1 capital partially offset by a £2.9 billion liquidity increased by £12.3 billion to £160.4 billion, driven by an during H1 2024, driven by an increase in customer deposits partly offset by customer deposits and increased wholesale funding.
increase in leverage exposure. The key drivers in the leverage exposure were increase in customer deposits and wholesale funding partly offset by capital capital distributions (share buyback and dividends).
an increase in other off- balance sheet items partially offset by a decrease distributions (share buyback and dividends). Secondary liquidity decreased
in other financial assets. £8.1 billion due to a decrease in pre-positioned collateral at the Bank of
England.
Risk and capital management continued
Capital, liquidity and funding risk continued
Maximum Distributable Amount (MDA) and Minimum Capital Requirements
NatWest Group is subject to minimum capital requirements relative to RWAs. The
table below summarises the minimum capital requirements (the sum of Pillar 1
and Pillar 2A), and the additional capital buffers which are held in excess of
the regulatory minimum requirements and are usable in stress.
Where the CET1 ratio falls below the sum of the minimum capital and the
combined buffer requirement, there is a subsequent automatic restriction on
the amount available to service discretionary payments (including AT1
coupons), known as the MDA. Note that different capital requirements apply to
individual legal entities or sub-groups and that the table shown does not
reflect any incremental PRA buffer requirements, which are not disclosable.
The current capital position provides significant headroom above both NatWest
Group's minimum requirements and its MDA threshold requirements.
Type CET1 Total Tier 1 Total capital
Pillar 1 requirements 4.5% 6.0% 8.0%
Pillar 2A requirements 1.8% 2.4% 3.2%
Minimum Capital Requirements 6.3% 8.4% 11.2%
Capital conservation buffer 2.5% 2.5% 2.5%
Countercyclical capital buffer (1) 1.7% 1.7% 1.7%
MDA threshold (2) 10.5% n/a n/a
Overall capital requirement 10.5% 12.6% 15.4%
Capital ratios at 30 June 2024 13.6% 16.2% 19.5%
Headroom (3,4) 3.1% 3.6% 4.1%
(1) The UK countercyclical buffer (CCyB) rate is currently being
maintained at 2%. This may vary in either direction in the future subject to
how risks develop. Foreign exposures may be subject to different CCyB rates
depending on the rate set in those jurisdictions.
(2) Pillar 2A requirements for NatWest Group are set as a variable
amount with the exception of some fixed add-ons.
(3) The headroom does not reflect excess distributable capital and may
vary over time.
(4) Headroom as at 31 December 2023 was CET1 2.9%, Total Tier 1 2.9%
and Total Capital 3.0%.
Leverage ratios
The table below summarises the minimum ratios of capital to leverage exposure
under the binding PRA UK leverage framework applicable for NatWest Group.
Type CET1 Total Tier 1
Minimum ratio 2.44% 3.25%
Countercyclical leverage ratio buffer (1) 0.6% 0.6%
Total 3.04% 3.85%
(1) The countercyclical leverage ratio buffer is set at 35% of
NatWest Group's CCyB.
Risk and capital management continued
Capital, liquidity and funding risk continued
Capital and leverage ratios
The table below sets out the key capital and leverage ratios. NatWest Group is
subject to the requirements set out in the UK CRR therefore the capital and
leverage ratios are presented under these frameworks on a transitional basis.
30 June 31 December
2024 2023
Capital adequacy ratios (1) % %
CET1 13.6 13.4
Tier 1 16.2 15.5
Total 19.5 18.4
Capital £m £m
Tangible equity 25,241 25,653
Expected loss less impairment (34) -
Prudential valuation adjustment (233) (279)
Deferred tax assets (822) (979)
Own credit adjustments 19 (10)
Pension fund assets (161) (143)
Cash flow hedging reserve 1,812 1,899
Foreseeable ordinary dividends (839) (1,013)
Adjustment for trust assets (2) (365) (365)
Foreseeable charges (50) (525)
Adjustments under IFRS 9 transitional arrangements 39 202
Total regulatory adjustments (634) (1,213)
CET1 capital 24,607 24,440
Additional AT1 capital 4,670 3,875
Tier 1 capital 29,277 28,315
End-point Tier 2 capital 5,924 5,317
Tier 2 capital 5,924 5,317
Total regulatory capital 35,201 33,632
Risk-weighted assets
Credit risk 144,852 147,598
Counterparty credit risk 7,139 7,830
Market risk 6,956 7,363
Operational risk 21,821 20,198
Total RWAs 180,768 182,989
(1) Based on current PRA rules, includes the transitional
arrangements for the capital impact of IFRS 9 expected credit loss (ECL)
accounting. The impact of the IFRS 9 transitional adjustments at 30 June 2024
was £39 million for CET1 capital, £39 million for total capital and £1
million RWAs (31 December 2023 - £0.2 billion CET1 capital, £54 million
total capital and £17 million RWAs). Excluding this adjustment, the CET1
ratio would be 13.6% (31 December 2023 - 13.2%). Tier 1 capital ratio would be
16.2% (31 December 2023 - 15.4%) and the Total capital ratio would be 19.5%
(31 December 2023 - 18.4%).
(2) Prudent deduction in respect of agreement with the pension
fund.
Risk and capital management continued
Capital, liquidity and funding risk continued
Capital and leverage ratios continued
30 June 31 December
2024 2023
Leverage £m £m
Cash and balances at central banks 115,833 104,262
Trading assets 45,974 45,551
Derivatives 67,514 78,904
Financial assets 437,909 439,449
Other assets 22,116 23,605
Assets of disposal groups 992 902
Total assets 690,338 692,673
Derivatives
- netting and variation margin (66,846) (79,299)
- potential future exposures 16,829 17,212
Securities financing transactions gross up 1,645 1,868
Other off balance sheet items 55,003 50,961
Regulatory deductions and other adjustments (15,782) (16,043)
Claims on central banks (112,377) (100,735)
Exclusion of bounce back loans (3,084) (3,794)
UK leverage exposure 565,726 562,843
UK leverage ratio (%) (1) 5.2 5.0
(1) The UK leverage exposure and transitional Tier 1 capital are
calculated in accordance with current PRA rules. Excluding the IFRS 9
transitional adjustment, the UK leverage ratio would be 5.2% (31 December 2023
- 5.0%).
Risk and capital management continued
Capital, liquidity and funding risk continued
Capital flow statement
The table below analyses the movement in CET1, AT1 and Tier 2 capital for the
half year ended 30 June 2024. It is presented on a transitional basis based on
current PRA rules.
CET1 AT1 Tier 2 Total
£m £m £m £m
At 31 December 2023 24,440 3,875 5,317 33,632
Attributable profit for the period 2,099 - - 2,099
Directed buyback (1,241) - - (1,241)
Foreseeable ordinary dividends (839) - - (839)
Foreign exchange reserve (53) - - (53)
FVOCI reserve 6 - - 6
Own credit 29 - - 29
Share capital and reserve movements in respect of employee share schemes 143 - - 143
Goodwill and intangibles deduction 24 - - 24
Deferred tax assets 157 - - 157
Prudential valuation adjustments 46 - - 46
New issues of capital instruments - 795 788 1,583
Redemption of capital instruments - - (34) (34)
Foreign exchange movements - - (19) (19)
Adjustment under IFRS 9 transitional arrangements (163) (163)
Expected loss less impairment (34) (34)
Other movements (7) - (128) (135)
At 30 June 2024 24,607 4,670 5,924 35,201
- For CET1 movements refer to the key points on page 60.
- AT1 movements reflects the £0.8 billion in relation to $1.0
billion 8.125% Reset Perpetual Subordinated Contingent Convertible Notes
issued in May 2024.
- Tier 2 instrument movements include £0.8 billion in relation to
$1.0 billion 6.475% Fixed to Fixed Reset Tier 2 Notes 2034 issued in March
2024, partially offset by the £0.1 billion redemption of 5.125% Subordinated
Tier 2 Notes 2024 in May 2024 and foreign exchange movements.
- Within Tier 2, there was also a decrease in the Tier 2 surplus
provisions.
Risk and capital management continued
Capital, liquidity and funding risk
Capital resources (reviewed)
NatWest Group's regulatory capital is assessed against minimum requirements
that are set out under the UK CRR to determine the strength of its capital
base. This note shows a reconciliation of shareholders' equity to regulatory
capital.
30 June 31 December
2024 2023
£m £m
Shareholders' equity (excluding non-controlling interests)
Shareholders' equity 37,521 37,157
Other equity instruments (4,690) (3,890)
32,831 33,267
Regulatory adjustments and deductions
Own credit 19 (10)
Defined benefit pension fund adjustment (161) (143)
Cash flow hedging reserve 1,812 1,899
Deferred tax assets (822) (979)
Prudential valuation adjustments (233) (279)
Goodwill and other intangible assets (7,590) (7,614)
Foreseeable ordinary dividends (839) (1,013)
Adjustment for trust assets (1) (365) (365)
Foreseeable charges (50) (525)
Adjustment under IFRS 9 transitional arrangements 39 202
Expected loss less impairment (34) -
(8,224) (8,827)
CET1 capital 24,607 24,440
Additional Tier 1 (AT1) capital
Qualifying instruments and related share premium 4,670 3,875
AT1 capital 4,670 3,875
Tier 1 capital 29,277 28,315
Qualifying Tier 2 capital
Qualifying instruments and related share premium 5,924 5,189
Other regulatory adjustments - 128
Tier 2 capital 5,924 5,317
Total regulatory capital 35,201 33,632
(1) Prudent deduction in respect of agreement with the pension
fund to establish legal structure to remove dividend linked contribution.
Risk and capital management continued
Capital, liquidity and funding risk continued
Minimum requirements of own funds and eligible liabilities (MREL)
The following table illustrates the components of estimated MREL in NatWest
Group and operating subsidiaries and includes external issuances only.
30 June 2024 31 December 2023
Balance Regulatory MREL Balance Regulatory MREL
Par value (1) sheet value value value (2) Par value sheet value value value
£bn £bn £bn £bn £bn £bn £bn £bn
CET1 capital (3) 24.6 24.6 24.6 24.6 24.4 24.4 24.4 24.4
Tier 1 capital: end-point CRR compliant AT1
of which: NatWest Group plc (holdco) 4.7 4.7 4.7 4.7 3.9 3.9 3.9 3.9
of which: NatWest Group plc operating subsidiaries (opcos) - - - - - - - -
4.7 4.7 4.7 4.7 3.9 3.9 3.9 3.9
Tier 1 capital: end-point CRR non-compliant
of which: holdco - - - - - - - -
of which: opcos 0.1 0.1 - - 0.1 0.1 - -
0.1 0.1 - - 0.1 0.1 - -
Tier 2 capital: end-point CRR compliant
of which: holdco 5.9 5.6 5.9 5.9 5.6 5.3 5.2 5.2
of which: opcos - - - - - - - -
5.9 5.6 5.9 5.9 5.6 5.3 5.2 5.2
Tier 2 capital: end-point CRR non-compliant
of which: holdco - - - - - - - -
of which: opcos 0.2 0.3 - - 0.2 0.3 - -
0.2 0.3 - - 0.2 0.3 - -
Senior unsecured debt securities
of which: holdco 22.1 21.4 - 22.1 22.2 21.7 - 22.2
of which: opcos (4) 34.0 33.5 - - 33.4 29.9 - -
56.1 54.9 - 22.1 55.6 51.6 - 22.2
Tier 2 capital
Other regulatory adjustments - - - - - - 0.1 0.1
Total 91.6 90.2 35.2 57.3 89.8 85.6 33.6 55.8
RWAs 180.8 183.0
UK leverage exposure 565.7 562.8
MREL as a ratio of RWAs 31.7% 30.5%
MREL as a ratio of UK leverage exposure 10.1% 9.9%
(1) Par value reflects the nominal value of securities issued.
(2) MREL value reflects NatWest Group's interpretation of the Bank of England's
approach to setting a MREL, published in December 2021 (Updating June 2018).
Liabilities excluded from MREL include instruments with less than one year
remaining to maturity, structured debt, operating company senior debt, and
other instruments that do not meet the MREL criteria. The MREL calculation
includes Tier 1 and Tier 2 securities before the application of any regulatory
caps or adjustments.
(3) Shareholders' equity was £37.5 billion (2023 - £37.2 billion).
(4) As per 2023, Intra group issuances were reported in "Par value" but on further
clarification from Bank of England, it has been excluded from reporting in
2024.
Risk and capital management continued
Capital, liquidity and funding risk continued
Minimum requirements of own funds and eligible liabilities (MREL)
The following table illustrates the components of the stock of outstanding
issuance in NatWest Group plc and its operating subsidiaries including
external and internal issuances.
NatWest NatWest NWM RBS
NatWest Holdings NWB RBS NWM Markets Securities International
Group plc Limited Plc plc Plc N.V. Inc. Limited
£bn £bn £bn £bn £bn £bn £bn £bn
Additional Tier 1 Externally issued 4.7 - 0.1 - - - - -
Additional Tier 1 Internally issued - 3.9 3.3 0.5 0.9 0.2 - 0.3
4.7 3.9 3.4 0.5 0.9 0.2 - 0.3
Tier 2 Externally issued 5.6 - - - 0.0 0.2 - -
Tier 2 Internally issued 0.0 5.2 3.6 0.9 1.1 0.1 0.3 -
5.6 5.2 3.6 0.9 1.1 0.3 0.3 -
Senior unsecured Externally issued 21.4 - - - - - - -
Senior unsecured Internally issued - 11.0 6.5 1.1 3.5 - - 0.3
21.4 11.0 6.5 1.1 3.5 - - 0.3
Total outstanding issuance 31.7 20.1 13.5 2.5 5.5 0.5 0.3 0.6
(1) For AT1 and Tier 2, the balances are the IFRS balance sheet
carrying amounts, which may differ from the amount which the instrument
contributes to regulatory capital. Regulatory balances exclude, for example,
issuance costs and fair value movements, while dated capital is required to be
amortised on a straight-line basis over the final five years of maturity.
(2) Balance sheet amounts reported for AT1 and Tier 2 instruments are
before grandfathering restrictions imposed by CRR.
(3) Internal issuance for NWB Plc and RBS plc represents AT1, Tier 2
or Senior unsecured issuance to NWH Ltd and for NWM N.V. and NWM SI to NWM
Plc.
(4) The balances are the IFRS balance sheet carrying amounts for
Senior unsecured debt category and it does not include CP, CD and short
term/medium notes issued from NatWest Group operating subsidiaries.
(5) The above table does not include CET 1 numbers.
(6) NWM Securities Inc is regulated under US broker dealer rules.
(7) RBSI Ltd - MREL resolution rules are under development in Jersey.
Risk and capital management continued
Capital, liquidity and funding risk continued
Risk-weighted assets
The table below analyses the movement in RWAs during the half year, by key
drivers.
Counterparty Operational
Credit risk credit risk Market risk risk Total
£bn £bn £bn £bn £bn
At 31 December 2023 147.6 7.8 7.4 20.2 183.0
Foreign exchange movement (0.2) - - - (0.2)
Business movement (2.2) (0.6) (0.4) 1.6 (1.6)
Risk parameter changes (0.1) (0.1) - - (0.2)
Model updates (0.2) - - - (0.2)
Other changes - - - - -
At 30 June 2024 144.9 7.1 7.0 21.8 180.8
The table below analyses segmental RWAs.
Total
Retail Private Commercial & Central items NatWest
Banking Banking Institutional & other (1) Group
Total RWAs £bn £bn £bn £bn £bn
At 31 December 2023 61.6 11.2 107.4 2.8 183.0
Foreign exchange movement - - (0.2) - (0.2)
Business movement 0.7 (0.2) (1.9) (0.2) (1.6)
Risk parameter changes 0.2 - (0.4) - (0.2)
Model updates (0.2) - - - (0.2)
At 30 June 2024 62.3 11.0 104.9 2.6 180.8
- - - - -
Credit risk 53.9 9.5 79.4 2.1 144.9
Counterparty credit risk 0.2 - 6.9 - 7.1
Market risk 0.1 - 6.9 - 7.0
Operational risk 8.1 1.5 11.7 0.5 21.8
Total RWAs 62.3 11.0 104.9 2.6 180.8
(1) £0.9 billion of Central items & other relates to Ulster Bank
RoI.
Total RWAs decreased by £2.2 billion to £180.8 billion during the period
mainly reflecting:
- A decrease in Business movements totalling £1.6 billion, primarily
driven by active RWA management of £4.3 billion partially offset by increased
RWAs following annual recalculation of operational risk as a result of higher
income when compared to 2020 and an increase in drawdowns and new facilities
within Commercial & Institutional.
- A decrease in Risk parameters of £0.2 billion, primarily driven by
customers moving into default within Commercial & Institutional.
- A decrease in model updates of £0.2 billion, driven by IRB Temporary
Model Adjustment related to mortgages within Retail Banking.
Risk and capital management continued
Capital, liquidity and funding risk continued
Funding sources (reviewed)
The table below shows the carrying values of the principal funding sources
based on contractual maturity. Balance sheet captions include balances held at
all classifications under IFRS 9.
30 June 2024 31 December 2023
Short-term Long-term Short-term Long-term
less than more than less than more than
1 year 1 year Total 1 year 1 year Total
£m £m £m £m £m £m
Bank deposits
Repos 5,897 - 5,897 3,118 - 3,118
Other bank deposits (1) 5,965 13,764 19,729 5,836 13,236 19,072
11,862 13,764 25,626 8,954 13,236 22,190
Customer deposits
Repos 6,846 - 6,846 10,844 - 10,844
Non-bank financial institutions 48,784 34 48,818 46,875 13 46,888
Personal 221,498 6,255 227,753 216,456 6,436 222,892
Corporate 149,448 110 149,558 150,718 35 150,753
426,576 6,399 432,975 424,893 6,484 431,377
Trading liabilities (2)
Repos (3) 29,021 300 29,321 26,634 268 26,902
Derivative collateral 14,030 - 14,030 15,075 - 15,075
Other bank customer deposits 478 322 800 768 382 1,150
Debt securities in issue - Medium term notes 80 227 307 418 288 706
43,609 849 44,458 42,895 938 43,833
Other financial liabilities
Customer deposits 461 1,188 1,649 194 1,086 1,280
Debt securities in issue: - - -
Commercial paper and certificates of deposit 12,023 362 12,385 11,116 205 11,321
Medium term notes 6,811 35,459 42,270 6,878 32,625 39,503
Covered bonds - 749 749 2,122 - 2,122
Securitisation (5) - 1,222 1,222 - 863 863
19,295 38,980 58,275 20,310 34,779 55,089
Subordinated liabilities 1,593 4,439 6,032 1,047 4,667 5,714
Total funding 502,935 64,431 567,366 498,099 60,104 558,203
Of which: available in resolution (4) 27,061 26,561
(1) Includes £12.0 billion (31 December 2023 - £12.0 billion)
relating to Term Funding Scheme with additional incentives for Small and
Medium-sized Enterprises participation.
(2) Excludes short positions of £9.7 billion (31 December 2023 -
£9.8 billion).
(3) Comprises central & other bank repos of £6.4 billion (31
December 2023 - £4.0 billion), other financial institution repos of £20.0
billion (31 December 2023 - £20.4 billion) and other corporate repos of £2.9
billion (31 December 2023 - £2.5 billion).
(4) Eligible liabilities (as defined in the Banking Act 2009 as
amended from time to time) that meet the eligibility criteria set out in the
regulations, rules, policies, guidelines, or statements of the Bank of England
including the Statement of Policy published by the Bank of England in December
2021 (updating June 2018). The balance consists of £21.4 billion (31 December
2023 - £21.7 billion) under debt securities in issue (senior MREL) and £5.6
billion (31 December 2023 - £4.9 billion) under subordinated liabilities.
(5) NatWest Group transfers credit risk on originated loans and
mortgages without the transfer of assets to a structured entity, whereby it
enters credit derivative and financial guarantee contracts with consolidated
structured entities and they in turn issue debt securities to investors. This
funding is legally ringfenced in the structured entity and is restricted to
specifically cover investor credit protection claim payments in respect of the
associated loans and mortgages.
Risk and capital management continued
Capital, liquidity and funding risk continued
Liquidity portfolio (reviewed)
The table below shows the composition of the liquidity portfolio with primary
liquidity aligned to high-quality liquid assets on a regulatory LCR basis.
Secondary liquidity comprises of assets which are eligible as collateral for
local central bank liquidity facilities and do not form part of the LCR
eligible high-quality liquid assets.
Liquidity value
30 June 2024 31 December 2023
NatWest NWH UK DoL NatWest NWH UK DoL
Group (1) Group (2) Sub Group (1) Group (2) Sub
£m £m £m £m £m £m
Cash and balances at central banks 111,763 73,408 72,895 99,855 68,495 67,954
High quality government/MDB/PSE and GSE bonds (4) 35,616 26,253 26,253 36,250 26,510 26,510
Extremely high quality covered bonds 3,892 3,892 3,892 4,164 4,164 4,164
LCR level 1 assets 151,271 103,553 103,040 140,269 99,169 98,628
LCR level 2 Eligible Assets (5) 9,124 7,897 7,897 7,796 7,320 7,320
Primary liquidity (HQLA) (6) 160,395 111,450 110,937 148,065 106,489 105,948
Secondary liquidity 66,589 66,559 66,559 74,722 74,683 74,683
Total liquidity value 226,984 178,009 177,496 222,787 181,172 180,631
(1) NatWest Group includes the UK Domestic Liquidity Sub-Group (UK
DoLSub), NatWest Markets Plc and other significant operating subsidiaries that
hold liquidity portfolios. These include The RBSI Ltd and NWM N.V. who hold
managed portfolios that comply with local regulations that may differ from PRA
rules.
(2) NWH Group comprises UK DoLSub and NatWest Bank Europe GmbH who
hold managed portfolios that comply with local regulations that may differ
from PRA rules.
(3) NatWest Markets Plc liquidity portfolio is reported in the NatWest
Markets Plc 2023 Annual Report and Accounts.
(4) Multilateral development bank abbreviated to MDB, public sector
entities abbreviated to PSE and government sponsored entities abbreviated to
GSE.
(5) Includes Level 2A and Level 2B.
(6) High-quality liquid assets abbreviated to HQLA.
Risk and capital management continued
Non-traded market risk
Non-traded market risk is the risk to the value of assets or liabilities
outside the trading book, or the risk to income, that arises from changes in
market prices such as interest rates, foreign exchange rates and equity
prices, or from changes in managed rates.
Key developments
- In the UK, the base rate remained unchanged at 5.25% between 31
December 2023 and 30 June 2024.
- At 30 June 2024, longer-term interest rates continued to anticipate
future reductions in the UK base rate, but by less than expected at 31
December 2023. As a result, the five-year sterling swap rate increased to
3.99% at the end of June 2024 from 3.38% at the end of December 2023. The
ten-year sterling swap rate also increased, to 3.88% from 3.29%.
- The structural hedge notional decreased by £10 billion to £197
billion from £207 billion, partly reflecting recent changes in the deposit
mix with higher volumes of term deposits and lower volumes of sight deposits.
- The one-year positive sensitivity of net interest earnings to an
upward 25-basis-point parallel shift in all yield curves reduced slightly, to
£135 million at 30 June 2024 from £164 million at 31 December 2023, partly
reflecting changes to customer pass-through assumptions. The adverse
sensitivity to a downward 25-basis-point parallel shift was broadly stable at
£167 million at 30 June 2024 compared to £169 million at 31 December 2023.
- Sterling was broadly stable against both the US dollar and the euro
over the period. Against the dollar, sterling was 1.26 at 30 June 2024
compared to 1.27 at 31 December 2023. Against the euro, it was 1.18 at 30 June
2024 compared to 1.15 at 31 December 2023. Structural foreign currency
exposures (excluding additional tier 1 economic hedges) were stable, in
sterling-equivalent nominal terms, at £3,375 million at 30 June 2024 compared
to £3,381 million at 31 December 2023.
Non-traded internal VaR (1-day 99%) (reviewed)
The following table shows one-day internal banking book Value-at-Risk (VaR) at
a 99% confidence level, split by risk type.
Half year ended
30 June 2024 30 June 2023 31 December 2023
Period Period Period
Average Maximum Minimum end Average Maximum Minimum end Average Maximum Minimum end
£m £m £m £m £m £m £m £m £m £m £m £m
Interest rate 24.1 28.2 17.6 17.6 40.5 63.2 30.1 63.2 38.0 63.2 24.6 24.6
Credit spread 55.6 60.2 50.7 50.7 23.6 29.7 20.9 29.7 33.1 54.2 20.9 54.2
Structural foreign
exchange rate 9.2 12.3 7.1 12.3 11.3 13.6 8.4 12.3 11.2 13.6 8.4 12.1
Equity 9.3 10.3 8.2 8.2 16.7 19.0 13.0 13.0 14.2 19.0 10.4 10.4
Pipeline risk (1) 5.9 12.7 3.4 12.7 3.1 4.4 1.4 3.4 3.3 7.1 1.4 7.1
Diversification (2) (41.1) (39.7) (35.3) (38.1) (34.4) (29.9)
Total 63.0 73.8 52.9 61.8 59.9 83.5 52.1 83.5 65.4 83.4 52.1 78.5
(1) Pipeline risk is the risk of loss arising from Personal
customers owning an option to draw down a loan - typically a mortgage - at a
committed rate, where interest rate changes may result in greater or fewer
customers than anticipated taking up the committed offer.
(2) NatWest Group benefits from diversification across various
financial instrument types, currencies and markets. The extent of the
diversification benefit depends on the correlation between the assets and risk
factors in the portfolio at a particular time. The diversification factor is
the sum of the VaR on individual risk types less the total portfolio VaR.
- On an average basis, total non-traded VaR for H1 2024 was broadly
similar to H1 2023 and H2 2023.
- Interest rate VaR fell at the end of H1 2024, reflecting action taken
to manage down interest rate repricing mismatches across customer products.
- After increasing significantly during H2 2023, credit spread VaR
reduced towards the end of H1 2024. This was mainly driven by earlier loss
events falling out of the VaR calculation window.
- Pipeline VaR increased, partly reflecting hedging modifications
related to recent changes in customer behaviour through the fixed-rate
mortgage application process.
Risk and capital management continued
Non-traded market risk continued
Structural hedging
NatWest Group has a significant pool of stable, non and low interest-bearing
liabilities, principally comprising current accounts and instant access
savings, as well as its equity and reserves. A proportion of these balances
are hedged, either by investing directly in longer-term fixed-rate assets
(such as fixed-rate mortgages) or by using interest rate swaps, which are
generally booked as cash flow hedges of floating-rate assets, in order to
provide a consistent and predictable revenue stream.
After hedging the net interest rate exposure, NatWest Group allocates income
to equity or products in structural hedges by reference to the relevant
interest rate swap curve. Over time, this approach has provided a basis for
stable income attribution for management purposes, to products and interest
rate returns. The programme aims to track a time series of medium-term swap
rates, but the yield will be affected by changes in NatWest Group's equity
capital.
The table below shows hedge income, total yield, incremental income and the
period-end and average notional balances allocated to equity and products in
respect of the structural hedges managed by NatWest Group. Hedge income
represents the fixed leg of the hedge. Incremental income represents the
difference between hedge income and short-term cash rates. For example, the
sterling overnight index average (SONIA) is used to estimate incremental
income from sterling structural hedges.
Half year ended
30 June 2024 30 June 2023 31 December 2023
Period Period Period
Incremental Hedge -end Average Total Incremental Hedge -end Average Total Incremental Hedge -end Average Total
income income notional notional yield income income notional notional yield income income notional notional yield
£m £m £bn £bn % £m £m £bn £bn % £m £m £bn £bn %
Equity (364) 218 22 22 1.95 (246) 204 23 22 1.83 (365) 214 22 23 1.91
Product (3,184) 1,392 175 176 1.58 (2,773) 1,362 202 205 1.33 (3,548) 1,460 185 193 1.51
Total (3,548) 1,610 197 198 1.62 (3,019) 1,566 225 227 1.38 (3,913) 1,674 207 216 1.56
For commentary, refer to the following page.
Equity structural hedges refer to income allocated primarily to equity and
reserves. At 30 June 2024, the equity structural hedge notional was allocated
between NWH Group and NWM Group in a ratio of approximately 78/22
respectively.
Product structural hedges refer to income allocated to customer products,
mainly current accounts and customer deposits in Commercial &
Institutional, Retail Banking and Private Banking.
At 30 June 2024, approximately 94% by notional of total structural hedges were
sterling-denominated.
Risk and capital management continued
Non-traded market risk continued
The following table presents the incremental income associated with product
structural hedges at segment level.
Half year ended
30 June 30 June 31 December
2024 2023 2023
£m £m £m
Retail Banking (1,354) (1,156) (1,488)
Commercial & Institutional (1,617) (1,415) (1,798)
Private Banking & Other (212) (202) (262)
Total (3,184) (2,773) (3,548)
- The structural hedge notional fell, mainly reflecting recent changes
in the deposit mix, including migration to term deposits.
- The five-year sterling swap rate rose to 3.99% at 30 June 2024 from
3.38% at 31 December 2023. The ten-year sterling swap rate also rose, to 3.88%
from 3.29%. The structural hedge yield also rose to 1.62% in H1 2024 from
1.56% in H2 2023 and from 1.38% in H1 2023.
- Incremental income remained negative in H1 2024. Compared to the total
yield of 1.62% in H1 2024, the sterling overnight cash rate (i.e. SONIA) in H1
2024 was 5.19% on average.
Sensitivity of net interest earnings
Net interest earnings are sensitive to changes in the level of interest rates,
mainly because maturing structural hedges are replaced at higher or lower
rates and changes to coupons on managed rate customer products do not always
match changes in market rates of interest or central bank policy rates.
Earnings sensitivity is derived from a market-implied forward rate curve,
which will incorporate expected changes in central bank policy rates such as
the Bank of England base rate. A simple scenario is shown that projects
forward earnings based on the 30 June 2024 balance sheet, which is assumed to
remain constant. An earnings projection is derived from the market-implied
curve, which is then subject to interest rate shocks. The difference between
the market-implied projection and the shock gives an indication of underlying
sensitivity to interest rate movements.
Reported sensitivities should not be considered a forecast of future
performance in these rate scenarios. Actions that could reduce interest
earnings sensitivity include changes in pricing strategies on customer loans
and deposits as well as hedging. Management action may also be taken to
stabilise total income also taking into account non-interest income.
Risk and capital management continued
Non-traded market risk continued
The table below shows the sensitivity of net interest earnings - for both
structural hedges and managed rate accounts - on a one, two and three-year
forward-looking basis to an upward or downward interest rate shift of 25 basis
points.
+25 basis points upward shift -25 basis points downward shift
Year 1 Year 2 Year 3 Year 1 Year 2 Year 3
30 June 2024 £m £m £m £m £m £m
Structural hedges 42 129 216 (42) (129) (216)
Managed margin 93 97 110 (125) (107) (110)
Total 135 226 326 (167) (236) (326)
31 December 2023
Structural hedges 44 138 227 (44) (138) (227)
Managed margin 120 117 114 (125) (121) (105)
Total 164 255 341 (169) (259) (332)
(1) Earnings sensitivity considers only the main drivers, namely structural
hedging and margin management.
The following table presents the one-year sensitivity to upward and downward
25-basis-point and 100-basis-point shifts in the yield curve, analysed by
currency.
Shifts in yield curve
30 June 2024 31 December 2023
+25 basis -25 basis +100 basis -100 basis +25 basis -25 basis +100 basis -100 basis
points points points points points points points points
£m £m £m £m £m £m £m £m
Euro 1 (5) 5 (16) 7 (11) 38 (45)
Sterling 121 (149) 487 (614) 138 (139) 504 (577)
US dollar 10 (9) 46 (47) 14 (14) 54 (56)
Other 3 (4) 13 (15) 5 (5) 21 (22)
Total 135 (167) 551 (692) 164 (169) 617 (700)
- Changes in pass-through assumptions for managed-rate savings products
contributed to the reduced sensitivity.
Risk and capital management continued
Non-traded market risk continued
Foreign exchange risk (reviewed)
The table below shows structural foreign currency exposures.
Structural foreign Residual
Net investments in Net investment currency exposures Economic structural foreign
foreign operations in hedges pre-economic hedges hedges (1) currency exposures
30 June 2024 £m £m £m £m £m
US dollar 1,201 - 1,201 (1,201) -
Euro 4,345 (2,649) 1,696 - 1,696
Other non-sterling 864 (386) 478 - 478
Total 6,410 (3,035) 3,375 (1,201) 2,174
31 December 2023
US dollar 1,185 (228) 957 (957) -
Euro 4,475 (2,585) 1,890 - 1,890
Other non-sterling 963 (429) 534 - 534
Total 6,623 (3,242) 3,381 (957) 2,424
(1) Economic hedges of US dollar net investments in foreign
operations represent US dollar equity securities that do not qualify as net
investment hedges for accounting purposes. They provide an offset to
structural foreign exchange exposures to the extent that there are net assets
in overseas operations available.
- Changes in foreign currency exchange rates affect equity in
proportion to structural foreign currency exposure. For example, a 5%
strengthening or weakening in foreign currencies against sterling would result
in a gain or loss of £159 million in equity, respectively.
Risk and capital management continued
Traded market risk
Traded market risk is the risk arising from changes in fair value on
positions, assets, liabilities or commitments in trading portfolios as a
result of fluctuations in market prices.
Traded VaR (1-day 99%) (reviewed)
The table below shows one-day internal value-at-risk (VaR) for NatWest Group's
trading portfolios, split by exposure type.
Half year ended
30 June 2024 30 June 2023 31 December 2023
Period Period Period
Average Maximum Minimum end Average Maximum Minimum end Average Maximum Minimum end
£m £m £m £m £m £m £m £m £m £m £m £m
Interest rate 6.7 12.0 3.6 6.6 9.0 19.3 4.3 16.5 10.5 17.3 4.4 7.4
Credit spread 8.1 10.1 6.7 7.6 5.9 6.9 4.9 6.1 6.4 7.1 5.3 6.8
Currency 2.1 6.7 0.8 1.9 2.1 4.9 1.0 1.5 2.4 7.0 0.9 1.8
Equity 0.1 0.1 0.1 0.1 - 0.1 - - - 0.1 - 0.1
Diversification (1) (6.8) (5.5) (6.8) (6.3) (6.9) (7.2)
Total 10.2 16.2 7.0 10.7 10.2 17.8 6.6 17.8 12.4 20.0 8.4 8.9
(1) NatWest Group benefits from diversification across various
financial instrument types, currencies and markets. The extent of the
diversification benefit depends on the correlation between the assets and risk
factors in the portfolio at a particular time. The diversification factor is
the sum of the VaR on individual risk types less the total portfolio VaR.
- The decrease in average interest rate VaR and total VaR, compared
to 2023, reflected a decrease in yield curve risk in sterling and euro flow
trading.
- The increase in average credit spread VaR mainly reflected a net
longer credit profile over the period.
Pension risk
On 31 May 2024, the Trustee of the Group Pension Fund entered into a buy-in
transaction with a third-party insurer for some of the liabilities of the Main
section. This is an insurance policy that gives the Fund protection against
demographic and investment risks, so improves the security of member benefits.
The transaction has not affected the 2024 statement of comprehensive income
because the net pension asset is limited to zero due to the impact of the
asset ceiling.
Compliance and conduct risk
A ring-fencing attestation was completed and submitted to the PRA on 29 March
2024. The annual Board Consumer Duty assessment concluded that NatWest Group
is meeting its obligations. Following the second phase of Consumer Duty rules
coming into force on 31 July 2024, planning is centred around embedding and
enhancing ongoing work, including reporting on good customer outcomes, and
Group-wide communications.
NatWest Markets has a programme in place to review, remediate and enhance
certain areas of its business. The results of this will be shared with the
Department of Justice Monitor and other regulators, with the ongoing work plan
continuing to be assessed for potential impact.
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