REG - NatWest Group plc - NWG plc Q1 2022 Interim Management Statement
29/04/2022 07:00
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RNS Number : 7884J NatWest Group plc 29 April 2022
Q1 2022
Interim Management Statement
natwestgroup.com
NatWest Group plc
Q1 2022 Interim Management Statement
Chief Executive, Alison Rose, commented:
"The world has changed considerably during the last three months. Our thoughts
are with everyone affected by the invasion of Ukraine and we are doing all
that we can to support them. We are also very aware of the challenges and
concerns the cost-of-living crisis is causing for many of our customers up and
down the country. NatWest Group is focused on providing practical help and
support for the people, families and businesses we serve.
Despite the challenging environment, I am pleased with our performance as we
continue to execute well against our strategy, driving sustainable growth and
returns. Income and profits are substantially up, costs are down and we remain
well capitalised as we build long-term value and deliver a simpler and better
banking experience for our customers.
Government ownership also reduced to around 48% in Q1; the first time it has
fallen below 50% since the financial crisis. This was an important milestone
for our bank and a further demonstration of the progress we are making as we
continue to deliver for our customers and shareholders."
Strong Q1 2022 operating performance
- Q1 2022 attributable profit of £841 million and a return on
tangible equity of 11.3%.
- Go-forward group((1)) income excluding notable items increased by
£219 million, or 8.6%, compared with Q1 2021 principally reflecting volume
growth and favourable yield curve movements.
- Bank net interest margin (NIM) of 2.46% was 15 basis points higher
than Q4 2021 principally reflecting the impact of recent base rate rises.
- Other operating expenses in the Go-forward group were £78
million, or 4.6%, lower than Q1 2021.
- A total net impairment release of £38 million, £7 million in the
Go-forward group, reflected the low levels of realised losses we continue to
see across our portfolio, although the economic outlook remains uncertain.
Robust balance sheet with strong capital and liquidity levels
- Net lending for the Go-forward group increased by £6.7 billion to
£359.0 billion in comparison to Q4 2021 principally reflecting Retail Banking
mortgage growth of £2.6 billion and a £2.4 billion increase across
Commercial & Institutional.
- Customer deposits for the Go-forward group increased by £4.2
billion in the quarter to £465.6 billon driven by treasury repo activity and
continued growth across the segments.
- RWAs increased by £0.5 billion to £176.8 billion compared with 1
January 2022.
- CET1 ratio of 15.2% was 70 basis points lower than 1 January 2022,
principally reflecting the impact of the directed buyback.
- The liquidity coverage ratio (LCR) of 167%, representing £83.3
billion above 100%, decreased by 5 percentage points compared with Q4 2021.
Outlook((2))
- We retain the outlook guidance provided in the 2021 Annual Report
and Accounts, although we now expect 2022 income excluding notable items to be
comfortably above £11.0 billion in the Go-forward group.
(1) Go-forward group excludes Ulster Bank RoI and discontinued
operations.
(2) The guidance, targets, expectations and trends discussed in this
section represent NatWest Group plc management's current expectations and are
subject to change, including as a result of the factors described in the
NatWest Group plc Risk Factors section on pages 406 to 426 of the 2021 Annual
Report and Accounts. These statements constitute forward-looking statements.
Refer to Forward-looking statements in this announcement.
Our Purpose in action
We champion potential, helping people, families and businesses to thrive. As a
relationship bank for a digital world, we are breaking down barriers, building
financial confidence and delivering sustainable growth and sustainable returns
by living up to our purpose. Some key achievements from Q1 2022:
People and families
- We supported customers with 2.8 million financial capability
interactions in Q1 2022, with 0.2 million financial health checks carried out.
- Alongside footballer and campaigner Marcus Rashford MBE, we have
created a programme designed to support young people in communities across the
UK to learn about and develop a positive relationship with money.
- Our new Credit Score Predictor allows customers to simulate different
scenarios to see the impact these could have on their credit score, supporting
them to improve their financial health.
- The new Round Ups feature in our mobile banking app helps our
customers save their small change every time they use their debit card or
contactless device. Since its launch in Q1 2022, 644,000 customers have
switched the feature on, saving more than £10 million as a result.
- We are the first UK high street bank to launch a bill-splitting
function - Split Bill - in our banking app using Open Banking, making it
simple to split bills with friends and family.
- From 1 February 2022, the Personal Portfolio Funds (PPF), available
through NatWest Invest, Royal Bank Invest and Coutts Invest, include a
commitment that a minimum of 50% of assets by value in each fund will be on a
Net Zero Trajectory((1)).
Businesses
- £5.6 billion of climate and sustainable funding and financing was
completed in Q1 2022, bringing the cumulative contribution to £13.6 billion
against our target to provide £100 billion between 1 July 2021 and the end of
2025.
- Collaborating with CoGo, we launched the pilot of an app to selected
manufacturing and transport business banking customers to track their carbon
footprint using their transaction data.
- We announced a collaboration with Workplace owner Meta to offer female
business owners training and support, as well as opportunities to expand
business connections and networks.
- As part of our commitment to help businesses benefit from the
transition to net zero, we announced a new Clean Transport Accelerator hub in
collaboration with the Warwick Manufacturing Group (WMG) at the University of
Warwick, providing coaching, workspace and access to clean-energy,
manufacturing and automotive experts at WMG.
- We also announced a new Accelerator hub facility offering specialist
support to scale-up businesses across London.
Colleagues
- We have worked with over 11,000 colleagues, customers and community
partners to introduce a refreshed set of values that will guide and inspire us
in everything we do.
- The Ignite leadership development programmes were launched for female
and Black, Asian and Minority Ethnic colleagues, with 90 places available on
both programmes.
- We have recently been ranked in the top 50 of the Top 100 Employers in
Stonewall's Workplace Equality Index, rewarding our commitment to being an
LGBT+ inclusive employer.
Communities
- In response to the Russian invasion of Ukraine, NatWest Group
colleagues and customers have donated £7.9 million (as at the end of Q1 2022)
to the Disasters Emergency Committee's Ukraine Humanitarian Appeal, which
includes NatWest Group matching of £2.5 million.
- As the cost of living rises, we are doing more to help customers in
vulnerable situations. Through our partnership with Citizens Advice, 2,100
customers have been referred by the bank and helped with complex advice needs
in the last year alone.
- We announced that we are giving our shareholders their say on climate
through the bank's first climate resolution. The resolution is intended to
promote transparency about the bank's climate ambitions and strategic
direction.
- In Retail Banking, we completed £234 million of Green Mortgages in Q1
2022, rewarding customers for choosing an energy efficient home.
- We have installed electric vehicle (EV) chargers in 325 parking spaces
across our Gogarburn, Liverpool, Bristol and Belfast offices - the early
actions of our goal to have EV charging available for 15% of our car parking
spaces by 2025.
- NatWest Group and NatWest Markets Group won four titles in the 2022
Environmental Finance Bond Awards. The awards won reflect the bank's impactful
role as both an issuer and intermediary.
(1) Net Zero Trajectory is a commitment, credible plan or action taken
to achieve net zero greenhouse gas emissions by 2050.
Business performance summary
Quarter ended
31 March 31 December 31 March
2022 2021 2021
£m £m £m
Continuing operations
Total income 3,027 2,622 2,591
Operating expenses (1,820) (2,328) (1,804)
Profit before impairment releases 1,207 294 787
Operating profit before tax 1,245 635 885
Profit attributable to ordinary shareholders 841 434 620
Excluding notable items within total income (1)
Total income excluding notable items (2) 2,803 2,560 2,600
Operating expenses (1,820) (2,328) (1,804)
Profit before impairment releases and excluding notable items 983 232 796
Operating profit before tax and excluding notable items 1,021 573 894
Go-forward group (3)
Total income (2) 2,987 2,579 2,535
Total income excluding notable items (2) 2,763 2,517 2,544
Other operating expenses (1,605) (2,034) (1,683)
Return on tangible equity 11.9% 5.6% 8.5%
Performance key metrics and ratios
Bank net interest margin (2,4) 2.46% 2.31% 2.32%
Bank average interest earning assets (2,4) £333bn £329bn £321bn
Cost:income ratio (2) 59.7% 88.6% 69.2%
Loan impairment rate (2) (1bps) (38bps) (11bps)
Total earnings per share attributable to ordinary
shareholders - basic 7.5p 3.8p 5.1p
Return on tangible equity (2) 11.3% 5.6% 7.9%
£bn £bn £bn
Balance sheet
Total assets 785.4 782.0 769.8
Funded assets (2) 685.4 675.9 646.8
Loans to customers - amortised cost 365.3 359.0 358.7
Loans to customers and banks - amortised cost and FVOCI 375.7 369.8 371.0
Go-forward group net lending 359.0 352.3 341.8
Impairment provisions - amortised cost 3.6 3.8 5.6
Total impairment provisions 3.7 3.8 5.8
Expected credit loss (ECL) coverage ratio 0.98% 1.03% 1.56%
Assets under management and administration (AUMA) (2) 35.0 35.6 32.6
Go-forward group customer deposits (2) 465.6 461.4 434.9
Customer deposits 482.9 479.8 453.3
Liquidity and funding
Liquidity coverage ratio (LCR) 167% 172% 158%
Liquidity portfolio 275 286 263
Net stable funding ratio (NSFR) (5) 152% 157% 153%
Loan:deposit ratio (2) 73% 72% 77%
Total wholesale funding 76 77 61
Short-term wholesale funding 22 23 20
Capital and leverage
Common Equity Tier (CET1) ratio (6) 15.2% 18.2% 18.2%
Total capital ratio (6) 20.4% 24.7% 24.8%
Pro forma CET1 ratio, pre dividend accrual (7) 16.1% 19.5% 18.6%
Risk-weighted assets (RWAs) 176.8 157.0 164.7
UK leverage ratio (8) 5.5% 5.9% 6.4%
Tangible net asset value (TNAV) per ordinary share 269p 272p 261p
Number of ordinary shares in issue (millions) (9) 10,622 11,272 11,560
(1) Refer to the following page for details of notable items within total income.
(2) Refer to the Non-IFRS financial measures appendix for details of basis of
preparation and reconciliation of non-IFRS financial measures and performance
metrics.
(3) Go-forward group excludes Ulster Bank RoI and discontinued operations.
(4) NatWest Group excluding Ulster Bank RoI and liquid asset buffer.
(5) NSFR reported in line with PRA Rulebook. Comparative historic numbers
calculated in line with CRR2 regulations finalised in June 2019.
(6) Based on the PRA Rulebook Instrument transitional arrangements, therefore
includes transitional relief on grandfathered capital instruments and
transitional arrangements for the capital impact of IFRS 9 expected credit
loss (ECL) accounting. For additional information, refer to page 23. As
already announced in the Q4 2021 results, on 1 January 2022 the proforma CET1
ratio was 15.9% following regulatory changes.
(7) The pro forma CET1 ratio at 31 March 2022 excludes foreseeable items of
£1,623 million, £1,096 million for ordinary dividends and £527 million
foreseeable charges (31 December 2021 excludes foreseeable charges of £2,036
million, £846 million for ordinary dividends and £1,190 million foreseeable
charges and pension contributions; 31 March 2021 excludes foreseeable charges
of £547 million for ordinary dividends).
(8) The UK leverage exposure is calculated in accordance with the Leverage Ratio
(CRR) part of the PRA Rulebook, and transitional Tier 1 capital is calculated
in accordance with the PRA Rulebook. For additional information, refer to page
23.
(9) The number of ordinary shares in issue excludes own shares held.
Summary consolidated income statement for the period ended 31 March 2022
Quarter ended
31 March 31 December 31 March
2022 2021 2021
£m £m £m
Net interest income 2,045 1,942 1,864
Non-interest income 982 680 727
Total income 3,027 2,622 2,591
Litigation and conduct costs (102) (190) (16)
Other operating expenses (1,718) (2,138) (1,788)
Operating expenses (1,820) (2,328) (1,804)
Profit before impairment releases 1,207 294 787
Impairment releases 38 341 98
Operating profit before tax 1,245 635 885
Tax charge (386) (234) (233)
Profit from continuing operations 859 401 652
Profit from discontinued operations, net of tax 42 97 61
Profit for the period 901 498 713
Attributable to:
Ordinary shareholders 841 434 620
Preference shareholders - 5 5
Paid-in equity holders 59 58 87
Non-controlling interests 1 1 1
901 498 713
Notable items within total income (1)
Private Banking
Consideration on the sale of Adam & Company
investment management business - 54 -
Commercial & Institutional
Fair value and disposal losses and asset disposals/strategic risk - (16) (18)
reduction (2)
Own credit adjustments (OCA) 18 3 2
Central items & other
Share of associate profits for Business Growth Fund 23 11 121
Loss on redemption of own debt (24) - (118)
Liquidity Asset Bond sale gains 41 50 5
Property strategy update - (44) -
IFRS volatility in Central items & other (3) 166 3 (1)
Own credit adjustments (OCA) - 1 -
Total 224 62 (9)
(1) Refer to page 1 of the Non-IFRS financial measures appendix.
(2) As previously reported Q4 2021 includes fair value and disposal
losses in the banking book of £4 million (Q1 2021 - £14 million) and £12
million (Q1 2021 - £4 million) of asset disposals/strategic risk reduction
relating to the costs of exiting positions, which includes changes in carrying
value to align to the expected exit valuation, and the impact of risk
reduction transactions entered into, in respect of the strategic announcements
of 14 February 2020.
(3) IFRS volatility relates to derivatives used for risk
management not in IFRS hedge accounting relationships.
Non-IFRS financial measures
This document contains a number of non-IFRS financial measures and performance
metrics not defined under IFRS. For details of the basis of preparation and
reconciliations, where applicable, refer to the appendix.
Business performance summary
Chief Financial Officer review
In the first quarter of 2022 we have made good progress against our strategic
objectives and have delivered a strong financial performance, with a RoTE of
11.3%. We remain on track to achieve the targets we announced as part of our
full year results in February and our capital and liquidity position remains
robust. We continue to monitor the evolving economic outlook, including any
indirect impacts on NatWest Group and our customers from the Russian invasion
of Ukraine, which is having consequences for geopolitical stability, energy
supply and prices, and cross-border financial transactions, including as a
result of economic sanctions.
Financial performance
Total income increased by 16.8% to £3,027 million compared with Q1 2021.
Excluding notable items, Go-forward group income was 8.6% higher than Q1 2021
driven by volume growth, principally in our mortgage book, and favourable
yield curve movements. We have also seen increased fee income in Retail
Banking, as consumer spending levels recover, and higher transactional banking
fee income in Commercial & Institutional.
Bank NIM of 2.46% was 15 basis points higher than Q4 2021 principally
reflecting the beneficial impact of recent base rate rises. Mortgage
completion margins of 66 basis points decreased from 107 basis points in Q4
2021, and were lower than the back book margin of 158 basis points. Mortgage
application margins declined from 67 basis points in Q4 2021 to 44 basis
points, reflecting a steep rise in swap rates not fully matched by the
increases made to our new business pricing.
Other operating expenses in the Go-forward group were £78 million, or 4.6%,
lower than Q1 2021 largely reflecting ongoing cost discipline and some one-off
items in the prior period. We remain on track to achieve our full year cost
reduction target of around 3%, although savings will not be linear across the
remaining quarters.
We have reported a total £38 million impairment release, £7 million in the
Go-forward group. ECL provisions have reduced to £3.7 billion and ECL
coverage ratio decreased to 0.98%. This impairment release reflects a
decrease in underlying exposures, continued positive trends in portfolio
performance and write-off activity. We recognise the significant uncertainty
in the economic outlook and whilst we are comfortable with the strong credit
performance of our book, our economic uncertainty post model adjustments (PMA)
of £0.7 billion includes an increase of £0.1 billion to reflect the
increased concerns arising from the Russian invasion of Ukraine and rising
inflation. This level is 18.9% of total impairment provisions. We will
continue to assess this position regularly.
As a result, we are pleased to report a Q1 2022 attributable profit of £841
million, with earnings per share of 7.5 pence and a RoTE of 11.3%.
Go-forward group net lending increased by £6.7 billion over the quarter
including £2.6 billion of mortgage lending growth in Retail Banking and £2.4
billion of growth in Commercial & Institutional. Unsecured balances in
Retail Banking continued to grow in the quarter, with increased demand for
unsecured lending and increased consumer spending, partly offset by expected
seasonal paydowns. Retail Banking gross new mortgage lending was £9.1
billion in the quarter, compared with £8.4 billion in Q4 2021 and £9.6
billion in Q1 2021.
Go-forward group customer deposits increased by £4.2 billion compared with Q4
2021 as a result of treasury repo activity and continued growth across the
franchises.
TNAV per share decreased by 3 pence in the quarter to 269 pence principally
reflected movements in the cashflow hedging and other reserves, partially
offset by the attributable profit for the period.
Capital and leverage
Following the successful directed buyback in March 2022, the CET1 ratio
remains strong at 15.2%, or 15.0% excluding IFRS 9 transitional relief. The
70 basis points reduction compared with 1 January 2022 principally reflected
the directed buyback and other distribution accruals partially offset by the
attributable profit. RWAs of £176.8 billion were £0.5 billion higher than
1 January 2022.
Funding and liquidity
The LCR reduced by 5 percentage points to 167%, representing £83.3 billion
headroom above 100% minimum requirement primarily due to an increase in
customer lending which outstripped growth in customer deposits, and share
buyback. Total wholesale funding decreased by £1 billion in the quarter to
£76 billion.
Business performance summary
Retail Banking
Quarter ended
31 March 31 December 31 March
2022 2021 2021
£m £m £m
Total income 1,217 1,164 1,056
Operating expenses (645) (774) (587)
of which: Other operating expenses (591) (722) (585)
Impairment losses (5) (5) (34)
Operating profit 567 385 435
Return on equity 23.1% 19.7% 23.0%
Net interest margin 2.43% 2.28% 2.25%
Cost:income ratio 53.0% 66.5% 55.6%
Loan impairment rate 1bps 1bps 8bps
As at
31 March 31 December
2022 2021
£bn £bn
Net loans to customers - amortised cost 184.9 182.2
Customer deposits 189.7 188.9
RWAs 52.2 36.7
During Q1 2022, Retail Banking continued to pursue sustainable growth with a
measured approach to risk, delivering an operating profit of £567 million.
Retail Banking completed £0.7 billion of climate and sustainable funding and
financing in Q1 2022 which will contribute towards the NatWest Group target of
£100 billion between 1 July 2021 and the end of 2025.
- Total income was £161 million, or 15.2%, higher than Q1 2021 reflecting
higher deposit income, supported by recent base rate rises, combined with
higher mortgage balances and higher transactional-related fee income,
partially offset by lower mortgage margins.
- Net interest margin was 15 basis points higher than Q4 2021 reflecting higher
deposit returns partly offset by mortgage margin pressure. Mortgage completion
margins of 59 basis points were lower than the back book margin of 155 basis
points, with application margins of 37 basis points in the quarter, reflecting
a steep rise in swap rates not fully matched by the increases made to our new
business pricing.
- Other operating expenses were £6 million, or 1.0%, higher than Q1 2021 with
higher technology and investment spend partly offset by an 11.4% reduction in
operational headcount, as a result of continued customer digital adoption and
automation of end-to-end customer journeys.
- Impairment losses of £5 million in Q1 2022 continue to reflect a low level of
stage 3 defaults, largely offset by provision releases in stage 1 and 2.
- Net loans to customers increased by £2.7 billion, or 1.5% compared with Q4
2021 reflecting continued mortgage growth of £2.6 billion, with gross new
mortgage lending of £9.1 billion representing flow share of around 12%.
Personal advances increased by £0.1 billion as customer demand continued to
increase.
- Customer deposits increased by £0.8 billion, or 0.4%, compared with Q4 2021
as growth normalised towards pre-pandemic levels.
- RWAs were £15.5 billion higher than Q4 2021 primarily reflecting 1 January
2022 regulatory changes.
Business performance summary
Private Banking
Quarter ended
31 March 31 December 31 March
2022 2021 2021
£m £m £m
Total income 216 253 185
Operating expenses (139) (155) (121)
of which: Other operating expenses (138) (150) (126)
Impairment releases 5 12 -
Operating profit 82 110 64
Return on equity 18.2% 21.3% 12.4%
Net interest margin 3.07% 2.67% 2.64%
Cost:income ratio 64.4% 61.3% 65.4%
Loan impairment rate (11)bps (26)bps -
Net new money (£bn) (1) 0.8 0.7 0.6
As at
31 March 31 December
2022 2021
£bn £bn
Net loans to customers - amortised cost 18.7 18.4
Customer deposits 40.3 39.3
RWAs 11.5 11.3
Assets under management (AUMs) (2) 29.6 30.2
Assets under administration (AUAs) (2) 5.4 5.4
Total assets under management and administration (AUMA) (2) 35.0 35.6
(1) Net new money refers to client cash inflows and outflows relating to
investment products (this can include transfers from saving accounts). Net new
money excludes the impact of EEA resident client outflows following the UK's
exit from the EU.
(2) AUMA comprises both assets under management (AUMs) and assets under
administration (AUAs) serviced through the Private Banking franchise. For
further details refer to the non-IFRS financial measures appendix.
Private Banking return on equity of 18.2% and operating profit of £82 million
in Q1 2022 was supported by a strong operating performance and continued
lending and deposit balance growth.
- Total income was £31 million, or 16.8%, higher than Q1 2021 primarily due to
higher deposit income, supported by recent base rate rises, partially offset
by higher cost of lending. Net interest margin of 3.07% was 40 basis points
higher than Q4 2021 reflecting higher deposit returns.
- Other operating expenses were £12 million, or 9.5%, higher than Q1 2021
principally due to increased headcount and investment to enhance AUMA growth
propositions.
- A net impairment release of £5 million in Q1 2022 reflected continued low
levels of credit risk in the portfolio.
- Net loans to customers increased by £0.3 billion, or 1.6%, compared with Q4
2021 due to continued strong mortgage lending growth, whilst RWAs increased by
£0.2 billion, or 1.8%.
- Net new money of £0.8 billion represents 9.1% of opening AUMAs annualised and
has increased by 33.3% compared with Q1 2021. AUMA balances have reduced by
£0.6 billion, or 1.7%, compared with Q4 2021 as a result of adverse market
movements.
(1) Net new money refers to client cash inflows and outflows relating to
investment products (this can include transfers from saving accounts). Net new
money excludes the impact of EEA resident client outflows following the UK's
exit from the EU.
(2) AUMA comprises both assets under management (AUMs) and assets under
administration (AUAs) serviced through the Private Banking franchise. For
further details refer to the non-IFRS financial measures appendix.
Private Banking return on equity of 18.2% and operating profit of £82 million
in Q1 2022 was supported by a strong operating performance and continued
lending and deposit balance growth.
-
Total income was £31 million, or 16.8%, higher than Q1 2021 primarily due to
higher deposit income, supported by recent base rate rises, partially offset
by higher cost of lending. Net interest margin of 3.07% was 40 basis points
higher than Q4 2021 reflecting higher deposit returns.
-
Other operating expenses were £12 million, or 9.5%, higher than Q1 2021
principally due to increased headcount and investment to enhance AUMA growth
propositions.
-
A net impairment release of £5 million in Q1 2022 reflected continued low
levels of credit risk in the portfolio.
-
Net loans to customers increased by £0.3 billion, or 1.6%, compared with Q4
2021 due to continued strong mortgage lending growth, whilst RWAs increased by
£0.2 billion, or 1.8%.
-
Net new money of £0.8 billion represents 9.1% of opening AUMAs annualised and
has increased by 33.3% compared with Q1 2021. AUMA balances have reduced by
£0.6 billion, or 1.7%, compared with Q4 2021 as a result of adverse market
movements.
Business performance summary
Commercial & Institutional
Quarter ended
31 March 31 December 31 March
2022 2021 2021
£m £m £m
Net interest income 803 764 725
Non-interest income 572 404 528
Total income 1,375 1,168 1,253
Operating expenses (922) (1,059) (915)
of which: Other operating expenses (880) (1,012) (915)
Impairment releases 11 317 125
Operating profit 464 426 463
Return on equity 8.8% 8.3% 8.5%
Net interest margin 2.69% 2.52% 2.40%
Cost:income ratio 66.3% 90.4% 72.3%
Loan impairment rate (3)bps (101)bps (38)bps
As at
31 March 31 December
2022 2021
£bn £bn
Net loans to customers - amortised cost 126.6 124.2
Customer deposits 217.9 217.5
Funded assets 334.6 321.3
RWAs 100.3 98.1
Depositary assets (1) 455.8 479.4
(1) Assets held by Commercial & Institutional as an independent
trustee and in a depositary service capacity.
As previously announced, we have brought together our Commercial Banking,
NatWest Markets and RBS International businesses to form a single franchise,
Commercial & Institutional, with common management and objectives to best
support our customers across the full non-personal customer lifecycle.
During Q1 2022 Commercial & Institutional delivered a resilient
performance with a return on equity of 8.8% and operating profit of £464
million.
Commercial & Institutional completed £4.9 billion of climate and
sustainable funding and financing in Q1 2022 delivering a cumulative £11.8
billion since 1 July 2021, contributing toward the NatWest Group target of
£100 billion between 1 July 2021 and the end of 2025.
- Total income was £122 million, or 9.7%, higher than Q1 2021 due to higher
deposit returns from an improved interest rate environment, increased
transactional banking fees and higher trading income. Total income was £207
million, or 17.7%, higher than Q4 2021 principally reflecting an uplift in
trading income compared to a weak Q4 2021 and improved yield curve supporting
deposit income.
- Net interest margin was 17 basis points higher than Q4 2021 mainly due to
improved deposit returns.
- Other operating expenses were £35 million, or 3.8%, lower than Q1 2021
primarily reflecting reductions in front office restructuring costs and back
office operational costs, and lower staff costs as a result of an 11%
reduction in headcount.
- An impairment release of £11 million reflects the continued low levels of
realised losses seen across the portfolio.
- Net loans to customers increased by £2.4 billion, or 1.9%, in Q1 2022 with
Business Banking and Commercial Mid-market stable excluding continued UK
Government financial support scheme repayments. Net lending grew in the
Corporate & Institutions business driven by increased capital markets
activity and growth in facility utilisation, and invoice and asset finance
balances within our Commercial Mid-market business increased by £0.5 billion.
- Customer deposits increased by £0.4 billion, or 0.2%, in Q1 2022 due to
overall increased customer liquidity.
- RWAs increased by £2.2 billion primarily due to regulatory changes from 1
January 2022 and higher levels of market risk and counterparty credit risk.
This is partly offset by lower operational risk RWAs.
(1) Assets held by Commercial & Institutional as an independent
trustee and in a depositary service capacity.
As previously announced, we have brought together our Commercial Banking,
NatWest Markets and RBS International businesses to form a single franchise,
Commercial & Institutional, with common management and objectives to best
support our customers across the full non-personal customer lifecycle.
During Q1 2022 Commercial & Institutional delivered a resilient
performance with a return on equity of 8.8% and operating profit of £464
million.
Commercial & Institutional completed £4.9 billion of climate and
sustainable funding and financing in Q1 2022 delivering a cumulative £11.8
billion since 1 July 2021, contributing toward the NatWest Group target of
£100 billion between 1 July 2021 and the end of 2025.
-
Total income was £122 million, or 9.7%, higher than Q1 2021 due to higher
deposit returns from an improved interest rate environment, increased
transactional banking fees and higher trading income. Total income was £207
million, or 17.7%, higher than Q4 2021 principally reflecting an uplift in
trading income compared to a weak Q4 2021 and improved yield curve supporting
deposit income.
-
Net interest margin was 17 basis points higher than Q4 2021 mainly due to
improved deposit returns.
-
Other operating expenses were £35 million, or 3.8%, lower than Q1 2021
primarily reflecting reductions in front office restructuring costs and back
office operational costs, and lower staff costs as a result of an 11%
reduction in headcount.
-
An impairment release of £11 million reflects the continued low levels of
realised losses seen across the portfolio.
-
Net loans to customers increased by £2.4 billion, or 1.9%, in Q1 2022 with
Business Banking and Commercial Mid-market stable excluding continued UK
Government financial support scheme repayments. Net lending grew in the
Corporate & Institutions business driven by increased capital markets
activity and growth in facility utilisation, and invoice and asset finance
balances within our Commercial Mid-market business increased by £0.5 billion.
-
Customer deposits increased by £0.4 billion, or 0.2%, in Q1 2022 due to
overall increased customer liquidity.
-
RWAs increased by £2.2 billion primarily due to regulatory changes from 1
January 2022 and higher levels of market risk and counterparty credit risk.
This is partly offset by lower operational risk RWAs.
Business performance summary
Ulster Bank RoI
Continuing operations Quarter ended
31 March 31 December 31 March
2022 2021 2021
€m €m €m
Total income 46 50 64
Operating expenses (134) (153) (130)
of which: Other operating expenses (134) (122) (120)
Impairment releases 37 15 10
Operating loss (51) (88) (56)
As at
31 March 31 December
2022 2021
€bn €bn
Net loans to customers - amortised cost 7.5 7.9
Customer deposits 20.4 21.9
RWAs 13.2 10.9
Ulster Bank RoI continues to make progress on its phased withdrawal from the
Republic of Ireland.
- During April 2022, notice of formal account closure has been
served to the first tranche of customers, with six months' notice to 'Choose,
Move, Close' their current and deposit accounts.
- The sale agreement made in 2021 to Allied Irish Banks, p.l.c.
(AIB) for the sale of the Ulster Bank RoI commercial lending portfolio has
received approval from the Irish competition authority (the CCPC).
- NatWest Group has also entered into exclusive discussions with AIB
for the sale of the Ulster Bank RoI performing tracker (and linked) mortgage
portfolio.
- The sale agreement made in 2021 to Permanent TSB p.l.c. (PTSB)
remains subject to competition, regulatory and other approvals, including
PTSB's holding company shareholder approval, and other conditions being
satisfied.
The loan sales agreed in 2021 are expected to occur in phases between Q4 2022
and Q1 2023 with the majority of loans still expected to transfer by Q4 2022.
Discussions are also ongoing with other counterparties about their potential
interest in other parts of the bank.
- Total income was €18 million, or 28.1%, lower than Q1 2021 reflecting lower
lending levels and fee income as a result of decision to withdraw from the RoI
market.
- Other operating expenses were €14 million, or 11.7% higher than Q1 2021 with
higher withdrawal-related programme costs and higher VAT costs being partially
offset by lower regulatory levies and a 5.3% reduction in headcount. Ulster
Bank RoI incurred €12 million of withdrawal-related direct costs in Q1 2022.
- A net impairment release of €37 million in Q1 2022 reflects improvements in
the reducing portfolio.
- Net loans to customers decreased by €0.4 billion or 5.1% compared with Q4
2021 as repayments continue to exceed gross new lending and a further €0.3
billion of loans were reclassified as Assets Held for Sale.
- Customer deposits decreased by €1.5 billion, or 6.8%, compared with Q4 2021
due to one-off commercial placements at Q4 2021 and reducing personal deposits
as customers begin to close accounts.
- RWAs were €2.3 billion higher than Q4 2021 primarily reflecting model
updates which were mainly due to overlays as a result of new regulations
applicable to IRB models from 1 January 2022.
Total Ulster Bank RoI including discontinued operations Quarter ended
31 March 31 December 31 March
2022 2021 2021
€m €m €m
Total income 118 128 142
Operating expenses (148) (166) (143)
of which: Other operating expenses (148) (135) (133)
Impairment releases 30 67 14
Operating profit - 29 13
As at
31 March 31 December
2022 2021
€bn €bn
Net loans to customers (amortised cost) 18.4 18.6
Customer deposits 20.4 21.9
RWAs 13.2 10.9
Business performance summary
Central items & other
Quarter ended
31 March 31 December 31 March
2022 2021 2021
£m £m £m
Central items not allocated 174 (211) (27)
- A £174 million operating profit within central items not allocated
principally reflects IFRS volatility gains of £166 million.
Segment performance
Quarter ended 31 March 2022
Go-forward group
Total excluding
Retail Private Commercial & Central items Ulster Bank Ulster Total NatWest
Banking Banking Institutional & other RoI Bank RoI Group
£m £m £m £m £m £m £m
Continuing operations
Income statement
Net interest income 1,112 143 803 (35) 2,023 22 2,045
Non-interest income 105 73 572 214 964 18 982
Total income 1,217 216 1,375 179 2,987 40 3,027
Direct expenses (161) (49) (407) (1,037) (1,654) (64) (1,718)
Indirect expenses (430) (89) (473) 1,041 49 (49) -
Other operating expenses (591) (138) (880) 4 (1,605) (113) (1,718)
Litigation and conduct costs (54) (1) (42) (5) (102) - (102)
Operating expenses (645) (139) (922) (1) (1,707) (113) (1,820)
Operating profit/(loss) before impairment losses/releases 572 77 453 178 1,280 (73) 1,207
Impairment (losses)/releases (5) 5 11 (4) 7 31 38
Operating profit/(loss) 567 82 464 174 1,287 (42) 1,245
Income excluding notable items 1,217 216 1,357 (27) 2,763 40 2,803
Additional information
Return on tangible equity (1) na na na na 11.9% na 11.3%
Return on equity (1) 23.1% 18.2% 8.8% nm nm nm na
Cost:income ratio (1) 53.0% 64.4% 66.3% nm 56.7% nm 59.7%
Total assets (£bn) 210.7 29.6 433.5 89.3 763.1 22.3 785.4
Funded assets (£bn) (1) 210.7 29.6 334.6 88.2 663.1 22.3 685.4
Net loans to customers - amortised cost (£bn) 184.9 18.7 126.6 28.8 359.0 6.3 365.3
Loan impairment rate (1) 1bps (11)bps (3)bps nm - nm (1)bps
Impairment provisions (£bn) (1.5) (0.1) (1.6) - (3.2) (0.4) (3.6)
Impairment provisions - stage 3 (£bn) (0.9) - (0.7) - (1.6) (0.4) (2.0)
Customer deposits (£bn) 189.7 40.3 217.9 17.7 465.6 17.3 482.9
Risk-weighted assets (RWAs) (£bn) 52.2 11.5 100.3 1.6 165.6 11.2 176.8
RWA equivalent (RWAe) (£bn) 52.2 11.5 102.6 1.9 168.2 11.2 179.4
Employee numbers (FTEs - thousands) 14.0 1.9 11.8 28.7 56.4 1.8 58.2
Third party customer asset rate (2) 2.59% 2.53% 2.83% nm nm nm nm
Third party customer funding rate (2) (0.05%) (0.01%) (0.02%) nm nm 0.06% nm
Bank average interest earning assets (£bn) (1) 185.5 18.9 121.0 nm 333.3 na 333.3
Bank net interest margin (1) 2.43% 3.07% 2.69% nm 2.46% na 2.46%
nm = not meaningful, na = not applicable.
Refer to page 13 for the notes to this table.
Segment performance
Quarter ended 31 December 2021
Go-forward group
Total excluding
Retail Private Commercial & Central items Ulster Bank Ulster Total NatWest
Banking Banking Institutional & other RoI Bank RoI Group
£m £m £m £m £m £m £m
Continuing operations
Income statement
Net interest income 1,057 126 764 (28) 1,919 23 1,942
Non-interest income 107 127 404 22 660 20 680
Total income 1,164 253 1,168 (6) 2,579 43 2,622
Direct expenses (281) (61) (482) (1,236) (2,060) (78) (2,138)
Indirect expenses (441) (89) (530) 1,086 26 (26) -
Other operating expenses (722) (150) (1,012) (150) (2,034) (104) (2,138)
Litigation and conduct costs (52) (5) (47) (59) (163) (27) (190)
Operating expenses (774) (155) (1,059) (209) (2,197) (131) (2,328)
Operating profit/(loss) before impairment losses/releases 390 98 109 (215) 382 (88) 294
Impairment releases/(losses) (5) 12 317 4 328 13 341
Operating profit/(loss) 385 110 426 (211) 710 (75) 635
Income excluding notable items 1,164 199 1,181 (27) 2,517 43 2,560
Additional information
Return on tangible equity (1) na na na na 5.6% na 5.6%
Return on equity (1) 19.7% 21.3% 8.3% nm nm nm na
Cost:income ratio (1) 66.5% 61.3% 90.4% nm 85.0% nm 88.6%
Total assets (£bn) 210.0 29.9 425.9 93.4 759.2 22.8 782.0
Funded assets (£bn) (1) 210.0 29.8 321.3 92.0 653.1 22.8 675.9
Net loans to customers - amortised cost (£bn) 182.2 18.4 124.2 27.5 352.3 6.7 359.0
Loan impairment rate (1) 1bps (26)bps (101)bps nm (37)bps nm (38)bps
Impairment provisions (£bn) (1.5) (0.1) (1.7) - (3.3) (0.5) (3.8)
Impairment provisions - stage 3 (£bn) (0.9) - (0.7) - (1.6) (0.4) (2.0)
Customer deposits (£bn) 188.9 39.3 217.5 15.7 461.4 18.4 479.8
Risk-weighted assets (RWAs) (£bn) 36.7 11.3 98.1 1.8 147.9 9.1 157.0
RWA equivalent (RWAe) (£bn) 36.7 11.3 99.9 2.1 150.0 9.1 159.1
Employee numbers (FTEs - thousands) 14.6 1.9 11.8 27.9 56.2 1.7 57.9
Third party customer asset rate (2) 2.58% 2.34% 2.75% nm nm nm nm
Third party customer funding rate (2) (0.05%) 0.00% (0.01%) nm nm 0.05% nm
Bank average interest earning assets (£bn) (1) 183.5 18.7 120.4 nm 329.5 na 329.5
Bank net interest margin (1) 2.28% 2.67% 2.52% nm 2.31% na 2.31%
nm = not meaningful, na = not applicable.
Refer to page 13 for the notes to this table.
Segment performance
Quarter ended 31 March 2021
Go-forward group
Total excluding
Retail Private Commercial & Central items Ulster Bank Ulster Total NatWest
Banking Banking Institutional & other RoI Bank RoI Group
£m £m £m £m £m £m £m
Continuing operations
Income statement
Net interest income 973 115 725 24 1,837 27 1,864
Non-interest income 83 70 528 17 698 29 727
Total income 1,056 185 1,253 41 2,535 56 2,591
Direct expenses (188) (43) (446) (1,052) (1,729) (59) (1,788)
Indirect expenses (397) (83) (469) 995 46 (46) -
Other operating expenses (585) (126) (915) (57) (1,683) (105) (1,788)
Litigation and conduct costs (2) 5 - (10) (7) (9) (16)
Operating expenses (587) (121) (915) (67) (1,690) (114) (1,804)
Operating profit/(loss) before impairment losses/releases 469 64 338 (26) 845 (58) 787
Impairment (losses)/releases (34) - 125 (1) 90 8 98
Operating profit/(loss) 435 64 463 (27) 935 (50) 885
Income excluding notable items 1,056 185 1,269 34 2,544 56 2,600
Additional information
Return on tangible equity (1) na na na na 8.5% na 7.9%
Return on equity (1) 23.0% 12.4% 8.5% nm nm nm na
Cost:income ratio (1) 55.6% 65.4% 72.3% nm 66.2% nm 69.2%
Total assets (£bn) 199.2 26.9 450.6 67.2 743.9 25.9 769.8
Funded assets (£bn) (1) 199.2 26.9 329.5 65.3 620.9 25.9 646.8
Net loans to customers - amortised cost (£bn) 174.8 17.5 128.8 20.7 341.8 16.9 358.7
Loan impairment rate (1) 8bps - (38)bps nm (10)bps nm (11)bps
Impairment provisions (£bn) (1.8) (0.1) (2.9) (0.1) (4.9) (0.7) (5.6)
Impairment provisions - stage 3 (£bn) (0.8) - (1.0) (0.1) (1.9) (0.5) (2.4)
Customer deposits (£bn) 179.1 33.5 205.1 17.2 434.9 18.4 453.3
Risk-weighted assets (RWAs) (£bn) 35.0 11.2 105.8 1.6 153.6 11.1 164.7
RWA equivalent (RWAe) (£bn) 35.0 11.2 108.6 1.7 156.5 11.1 167.6
Employee numbers (FTEs - thousands) 15.8 1.9 13.2 26.0 56.9 1.9 58.8
Third party customer asset rate (2) 2.73% 2.36% 2.62% nm nm nm nm
Third party customer funding rate (2) (0.08%) 0.00% (0.01%) nm nm 0.00% nm
Bank average interest earning assets (£bn) (1) 175.3 17.7 122.6 nm 320.9 na 320.9
Bank net interest margin (1) 2.25% 2.64% 2.40% nm 2.32% na 2.32%
nm = not meaningful, na = not applicable.
(1) Refer to the appendix for details of basis of preparation and
reconciliation of non-IFRS performance measures where relevant.
(2) Third party customer asset rate is calculated as annualised
interest receivable on third-party loans to customers as a percentage of
third-party loans to customers. This excludes assets of disposal groups,
intragroup items, loans to banks and liquid asset portfolios. Third party
customer funding rate reflects interest payable or receivable on third-party
customer deposits, including interest bearing and non-interest bearing
customer deposits. Intragroup items, bank deposits, debt securities in issue
and subordinated liabilities are excluded for customer funding rate
calculation. Net interest margin is calculated as net interest income as a
percentage of the average interest-earning assets, and only excludes liquid
asset buffer and assets of disposal groups.
Risk and capital management
Page
Credit risk
Segment analysis - portfolio summary 14
Segment analysis - loans 16
Movement in ECL provision 16
ECL post model adjustments 17
Sector analysis - portfolio summary 18
Capital, liquidity and funding risk 20
Credit risk
Segment analysis - portfolio summary
The table below shows gross loans and expected credit loss (ECL), by segment
and stage, within the scope of the IFRS 9 ECL framework.
Go-forward group
Total
Central excluding Ulster
Retail Private Commercial & items & Ulster Bank
Banking Banking Institutional other Bank RoI RoI Total
31 March 2022 £m £m £m £m £m £m £m
Loans - amortised cost and FVOCI (1)
Stage 1 171,357 18,050 112,118 33,303 334,828 5,295 340,123
Stage 2 12,217 876 15,742 87 28,922 706 29,628
Stage 3 2,603 256 2,286 - 5,145 756 5,901
Of which: individual - 256 882 - 1,138 76 1,214
Of which: collective 2,603 - 1,404 - 4,007 680 4,687
Subtotal excluding disposal group loans 186,177 19,182 130,146 33,390 368,895 6,757 375,652
Disposal group loans 9,320 9,320
Total 16,077 384,972
ECL provisions (2)
Stage 1 141 13 158 18 330 8 338
Stage 2 514 22 742 14 1,292 55 1,347
Stage 3 879 38 733 - 1,650 358 2,008
Of which: individual - 38 305 - 343 12 355
Of which: collective 879 - 428 - 1,307 346 1,653
Subtotal excluding ECL provisions on disposal group loans 1,534 73 1,633 32 3,272 421 3,693
ECL provisions on disposal group loans 121 121
Total 542 3,814
ECL provisions coverage (3)
Stage 1 (%) 0.08 0.07 0.14 0.05 0.10 0.15 0.10
Stage 2 (%) 4.21 2.51 4.71 16.09 4.47 7.79 4.55
Stage 3 (%) 33.77 14.84 32.06 - 32.07 47.35 34.03
ECL provisions coverage excluding disposal group loans 0.82 0.38 1.25 0.10 0.89 6.23 0.98
ECL provisions coverage on disposal group loans 1.30 1.30
Total 3.37 0.99
For the notes to this table refer to the following page.
Risk and capital management
Credit risk continued
Segment analysis - portfolio summary continued
Go-forward group
Total
Central excluding Ulster
Retail Private Commercial & items & Ulster Bank
Banking Banking Institutional other Bank RoI RoI Total
31 December 2021 £m £m £m £m £m £m £m
Loans - amortised cost and FVOCI (1)
Stage 1 168,013 17,600 107,368 32,283 325,264 5,560 330,824
Stage 2 13,594 967 18,477 90 33,128 853 33,981
Stage 3 1,884 270 2,081 - 4,235 787 5,022
Of which: individual - 270 884 - 1,154 61 1,215
Of which: collective 1,884 - 1,197 - 3,081 726 3,807
Subtotal excluding disposal group loans 183,491 18,837 127,926 32,373 362,627 7,200 369,827
Disposal group loans 9,084 9,084
Total 16,284 378,911
ECL provisions (2)
Stage 1 134 12 129 17 292 10 302
Stage 2 590 29 784 11 1,414 64 1,478
Stage 3 850 37 751 - 1,638 388 2,026
Of which: individual - 37 313 - 350 13 363
Of which: collective 850 - 438 - 1,288 375 1,663
Subtotal excluding ECL provisions on disposal group loans 1,574 78 1,664 28 3,344 462 3,806
ECL provisions on disposal group loans 109 109
Total 571 3,915
ECL provisions coverage (3)
Stage 1 (%) 0.08 0.07 0.12 0.05 0.09 0.18 0.09
Stage 2 (%) 4.34 3.00 4.24 12.22 4.27 7.50 4.35
Stage 3 (%) 45.12 13.70 36.09 - 38.68 49.30 40.34
ECL provisions coverage excluding disposal group loans 0.86 0.41 1.30 0.09 0.92 6.42 1.03
ECL provisions coverage on disposal group loans 1.20 1.20
Total 3.51 1.03
(1) Fair value through other comprehensive income (FVOCI).
(2) Includes £4 million (31 December 2021 - £5 million) related to
assets classified as FVOCI.
(3) ECL provisions coverage is calculated as ECL provisions divided by
loans - amortised cost and FVOCI. It is calculated on third party loans and
total ECL provisions.
(4) 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 £167.7 billion (31 December 2021 - £176.3 billion) and debt
securities of £42.9 billion (31 December 2021 - £44.9 billion).
- Stage 3 loans increased, as write-offs and repayments were more than
offset by the effect of the new regulatory definition of default, which in
isolation led to an increase of approximately £0.7 billion in Stage 3
balances, mostly in Retail mortgages, and an increase in defaults on
government support schemes.
- Underlying flows into default remained subdued during Q1 2022. However,
it is expected that defaults will increase as the year progresses and growing
inflationary pressures on businesses, consumers and the broader economy
continue to evolve.
- Stage 2 loans and ECL reduced further during the first quarter of 2022,
with positive trends in underlying risk metrics maintained since 31 December
2021 and migration of exposures into Stage 3.
- The economic scenarios driving the ECL requirement, as well as model
performance considerations, were consistent with those described in the 2021
Annual Report and Accounts.
Risk and capital management
Credit risk continued
Segment analysis - loans
- Retail Banking - Balance sheet growth continued during Q1 2022. This was
primarily in mortgages, where new lending remained strong. Unsecured lending
balances increased slightly during Q1 2022, with increased demand for loans
and, following the easing of COVID-19 restrictions, increased consumer
spending maintaining credit card balances. Total ECL coverage reduced during
the first quarter of 2022, reflective of low unemployment and stable portfolio
performance, whilst maintaining sufficient ECL coverage for key portfolios
above pre-COVID-19 levels, given the persisting sources of uncertainty in
relation to inflation and cost of living pressures. Stage 3 ECL increased
overall, mainly because of the IFRS 9 alignment to the new regulatory default
definition, implemented on 1 January 2022. This change resulted in an increase
in Stage 3 exposures of approximately £0.7 billion, mostly in mortgages and
driven by a more expansive suite of default definition guidelines, including
probation treatments. Stage 2 balances decreased during the quarter,
reflecting continued stability in IFRS 9 probability of default (PD) estimates
and also the consequence of the migration of balances into Stage 3 under the
new regulatory default definition. The implementation of new mortgage IFRS 9
models resulted in lower Stage 3 ECL coverage due to reduced loss estimates
for cases where the customer was not subject to repossession activity. This
mortgage reduction was the primary driver for the change in overall Retail
Stage 3 coverage during the quarter.
- Commercial & Institutional - The balance sheet reduction observed in
2021 stabilised in Q1 2022, with repayments during the quarter largely offset
by additional lending across the portfolio. Sector appetite is regularly
reviewed with continued focus on appetite to high oversight sectors. Strategic
reductions and right sizing of appetite limits continued to be
achieved. Stage 2 balances continued to fall reflecting positive portfolio
performance which lowered PDs and resulted in exposure migrating back into
Stage 1. PD deterioration remained the primary driver of cases moving into
Stage 2. The ECL release was largely due to improvements in underlying PDs and
reduced Stage 2 balances, as assets migrated back into Stage 1, partly offset
by net post model adjustment increases. There was a small increase in Stage 3
balances as write-offs were more than offset by increases due to the new
regulatory default definition and an increase in defaults on government
support schemes.
Movement in ECL provision
The table below shows the main ECL provision movements.
ECL provision
£m
At 1 January 2022 3,806
Transfers to disposal groups (3)
Changes in risk metrics and exposure: Stage 1 and Stage 2 (128)
Changes in risk metrics and exposure: Stage 3 142
Judgemental changes: changes in post model adjustments for Stage 1, Stage 2 (2)
and Stage 3
Write-offs and other (122)
At 31 March 2022 3,693
- ECL reduced during Q1 2022. This reflected a decrease in underlying
exposures, continued positive trends in portfolio performance and write-off
activity.
- Stage 3 new defaults remained low during the quarter. Stage 3 ECL
balances remained broadly stable, mainly due to write-offs and repayments of
defaulted debt largely offsetting the effect of the new regulatory default
definition.
- Additionally, broader portfolio deterioration continued to be subdued
and resulted in favourable movements in IFRS 9 risk metrics, which led to some
additional post model adjustments being required to ensure provision adequacy
in the face of growing uncertainty.
Risk and capital management
Credit risk continued
ECL post model adjustments
The table below shows ECL post model adjustments.
Retail Banking Private Commercial & Ulster Bank RoI
Mortgages Other Banking Institutional Mortgages Other Total
31 March 2022 £m £m £m £m £m £m £m
Deferred model calibrations - 112 - 64 - 2 178
Economic uncertainty 111 70 7 435 10 20 653
Other adjustments 29 - - 8 131 - 168
Total 140 182 7 507 141 22 999
Of which:
- Stage 1 13 8 1 42 2 - 66
- Stage 2 104 174 6 464 11 21 780
- Stage 3 23 - - 1 128 1 153
31 December 2021
Deferred model calibrations 58 97 - 62 - 2 219
Economic uncertainty 60 99 5 391 6 23 584
Other adjustments 37 - - 5 156 - 198
Total 155 196 5 458 162 25 1,001
Of which:
- Stage 1 9 5 - 15 4 1 34
- Stage 2 126 164 5 443 7 26 771
- Stage 3 20 27 - - 151 (2) 196
(1) Excludes £61 million (31 December 2021 - £49 million) of post
model adjustments (mortgages - £5 million; other - £56 million (31 December
2021 - mortgages £4 million; other - £45 million)) for Ulster Bank RoI
disclosed as transfers to disposal groups.
- Retail Banking - The post model adjustment for deferred model
calibrations decreased to £112 million from £155 million at 31 December
2021. This was due to the removal of the mortgage element of the post model
adjustment because of the implementation of a new IFRS 9 PD model during the
quarter. The remaining amount, reflected management's continued judgement that
the implied ECL decreases that continued to manifest through the standard PD
model monitoring process since 2020, were not fully supportable. Management
retained this view on the basis that underlying portfolio performance is
believed to be underpinned by government support schemes over the past two
years and further outcome data is required on the level of default
suppression, particularly with the backdrop of new sources of economic
uncertainty and geopolitical risk.
- The post model adjustment for economic uncertainty increased from £159
million to £181 million, reflecting the increased level of uncertainty since
31 December 2021, because of inflation and cost of living pressures as well as
the Russian invasion of Ukraine, and the expected effect on the economy. This
demonstrated management's view of a net increase in uncertainty,
notwithstanding the dissipating risk of economic effects from COVID-19.
- Other judgmental overlays included a post model adjustment of £16
million to capture the effect of potential cladding risk in the portfolio.
- Commercial & Institutional - The post model adjustment for economic
uncertainty increased to £435 million from £391 million at 31 December 2021.
This reflected the increased uncertainty due to rising inflation as well as
the Russian invasion of Ukraine, again partially counter-balanced by the
dissipated risks of COVID-19. The majority of the increase in the quarter,
£44 million, was to offset underlying Q1 modelled ECL releases which were not
considered reflective of the current uncertainty.
- Deferred model calibrations and other adjustments remain broadly
consistent with 31 December 2021.
- Ulster Bank RoI - Other adjustments decreased to £131 million from
£156 million at 31 December 2021 due to improved portfolio performance and
balance sheet reduction.
- Deferred model calibrations and economic uncertainty adjustments remain
broadly consistent with 31 December 2021.
Risk and capital management
Credit risk continued
Sector analysis - portfolio summary
The table below shows ECL by stage, for the Personal portfolio and key sectors
of the Wholesale portfolio, that continue to be affected by COVID-19.
Off-balance sheet
Loans - amortised cost & FVOCI Loan Contingent ECL provisions
Stage 1 Stage 2 Stage 3 Total commitments liabilities Stage 1 Stage 2 Stage 3 Total
31 March 2022 £m £m £m £m £m £m £m £m £m £m
Personal 193,562 13,058 3,446 210,066 41,642 56 157 541 1,185 1,883
Mortgages 183,259 10,657 2,616 196,532 17,660 - 38 136 503 677
Credit cards 2,914 931 102 3,947 15,696 - 57 137 67 261
Other personal 7,389 1,470 728 9,587 8,286 56 62 268 615 945
Wholesale 146,561 16,570 2,455 165,586 82,962 4,497 181 806 823 1,810
Property 29,045 2,913 736 32,694 15,570 461 31 125 221 377
Financial institutions 55,164 530 33 55,727 16,771 1,134 17 23 5 45
Sovereign 5,958 222 9 6,189 1,166 - 19 1 2 22
Corporate 56,394 12,905 1,677 70,976 49,455 2,902 114 657 595 1,366
Of which:
Airlines and aerospace 900 649 54 1,603 1,552 219 1 35 8 44
Automotive 5,556 934 47 6,537 3,828 63 10 27 11 48
Health 4,351 819 127 5,297 740 9 12 42 39 93
Land transport and logistics 4,124 701 57 4,882 3,310 165 5 60 16 81
Leisure 3,789 3,690 376 7,855 1,831 109 13 250 138 401
Oil and gas 949 186 54 1,189 1,538 454 1 21 29 51
Retail 6,581 1,098 225 7,904 4,738 414 10 26 84 120
Total 340,123 29,628 5,901 375,652 124,604 4,553 338 1,347 2,008 3,693
31 December 2021
Personal 190,175 14,423 2,782 207,380 40,351 60 149 614 1,179 1,942
Mortgages 180,418 11,543 2,050 194,011 16,827 - 32 174 562 768
Credit cards 2,924 933 90 3,947 15,354 - 59 141 60 260
Other personal 6,833 1,947 642 9,422 8,170 60 58 299 557 914
Wholesale 140,649 19,558 2,240 162,447 83,231 4,254 153 864 847 1,864
Property 28,679 3,101 742 32,522 15,882 460 24 111 239 374
Financial institutions 52,263 732 46 53,041 16,906 992 14 39 4 57
Sovereign 5,904 121 8 6,033 1,212 - 19 1 2 22
Corporate 53,803 15,604 1,444 70,851 49,231 2,802 96 713 602 1,411
Of which:
Airlines and aerospace 779 668 44 1,491 1,528 221 1 39 15 55
Automotive 5,133 1,304 38 6,475 3,507 65 9 32 10 51
Health 3,818 1,235 133 5,186 799 9 9 58 48 115
Land transport and logistics 3,721 833 39 4,593 3,069 188 4 53 12 69
Leisure 3,712 4,050 340 8,102 1,874 107 11 247 133 391
Oil and gas 1,482 141 52 1,675 1,126 453 1 14 28 43
Retail 6,380 1,342 180 7,902 4,872 410 8 29 66 103
Total 330,824 33,981 5,022 369,827 123,582 4,314 302 1,478 2,026 3,806
Risk and capital management
Credit risk continued
Sector analysis - portfolio summary continued
- Personal - Retail Banking was the main driver of balance sheet growth
during the quarter. As noted earlier, growth was primarily in mortgages.
Unsecured lending balances rose slightly in the quarter with higher demand for
loans and increased consumer spending maintaining credit card balances during
the quarter, although new business was still below pre-COVID-19 levels. As
noted earlier, ECL in Stage 2 decreased due to continued subdued levels of
portfolio deterioration, maintaining the reduced PD levels observed in Q4
2021. Furthermore, the new regulatory default definition implementation on 1
January 2022 resulted in a migration of Stage 2 assets into Stage 3. Overall
ECL coverage requirements remained stable during Q1 2022 reflecting the
balance of positive portfolio performance and economic uncertainty in the
outlook due to inflation and cost of living pressures which may affect the
affordability of NatWest Group customers. Affordability assumptions in lending
criteria were refreshed during the quarter.
- Wholesale - In Wholesale, exposures were mainly in the UK. Balance sheet
reduction due to repayments of both COVID-19 government support schemes and
conventional borrowing during 2021 stabilised, with further reductions largely
offset by additional lending across the portfolio.
- Scheduled repayment activity for government support schemes continued
with the volumes of missed payments remaining in line with the average rate
for scheme participants.
- When the government support schemes closed in 2021, approximately
317,000 applications across all schemes were approved, totalling £14.7
billion in new lending, of which, £13.4 billion was drawdown. £2.6 billion
has been repaid to date.
- Oil and Gas reduction in drawn balances (Stage 1) reflected strategic
exits aligned to NatWest Group's climate change purpose and aims. Increases in
off-balance sheet exposures reflected selective support for customers with
climate change transition plans.
- Increases within Financial Institutions reflected fluctuations in
treasury related management activities.
- Wholesale credit risk performance metrics continue to improve,
contributing to a reduction in Stage 2 balances, but headwinds remain. The
combination of supply chain, energy price and general inflationary pressures
already in existence towards the end of 2021 have been exacerbated by the
Russian invasion of Ukraine and point to a potentially more challenging
outlook. Sector appetite continues to be regularly reviewed and, where
appropriate, adjusted for those sectors most affected by current economic and
geopolitical conditions.
Risk and capital management
Capital, liquidity and funding risk
Introduction
NatWest Group continually ensures a comprehensive approach is taken to the
management of capital, liquidity and funding,
underpinned by frameworks, risk appetite and policies, to manage and mitigate
capital, liquidity and funding risks. The framework ensures the tools and
capability are in place to facilitate the management and mitigation of risk
ensuring that NatWest Group operates within its regulatory requirements and
risk appetite.
Key developments since December 2021
CET1 ratio The CET1 ratio decreased by 300 basis points to 15.2%. The decrease is
primarily due to a £19.8 billion increase in RWAs and a £1.7 billion
decrease in CET1 capital.
The CET1 decrease is mainly driven by:
- the directed buyback of £1.2 billion;
- foreseeable dividend accrual of £0.3 billion;
- a £0.2 billion decrease in the IFRS 9 transitional adjustment;
- the removal of adjustment for prudential amortisation on software
development costs of £0.4 billion;
- a £0.3 billion decrease due to FX loss on retranslation on the
redemption of a USD instrument; and
- other reserve movements.
- These reductions were partially offset by the £0.8 billion
attributable profit in the period.
Total RWAs Total RWAs increased by £19.8 billion to £176.8 billion during the period
mainly reflecting:
- An increase in credit risk RWAs of £20.3 billion due to model
adjustments applied as a result of new regulation applicable to IRB models
from 1 January 2022 and increased exposures within Commercial &
Institutional and Retail Banking. This was partially offset by improved risk
metrics in Retail Banking and Commercial & Institutional.
- Operational risk RWAs reduced by £1.9 billion following the
annual recalculation.
- Market risk RWAs increased by £0.6 billion driven by an increase
in the capital multiplier for NWM Plc impacting VaR and SVaR calculations.
- Counterparty credit risk RWAs increased by £0.9 billion mainly
driven by the implementation of SA-CCR impacting the RWA calculation for the
non-internal modelled exposure.
UK leverage ratio The UK leverage ratio decreased c.40 basis points to 5.5% driven by a £2.3
billion decrease in Tier 1 capital.
Liquidity portfolio The liquidity portfolio decreased by £11.9 billion during Q1 2022 to £274.5
billion. Primary liquidity decreased by £7.4 billion to £201.1 billion
primarily due to an increase in customer lending and share buyback. Secondary
liquidity reduced by £4.5 billion mainly driven by mortgage redemptions and
repayments.
Risk and capital management
Capital, liquidity and funding risk continued
Maximum Distributable Amount (MDA) and Minimum Capital Requirements
NatWest Group is subject to minimum capital requirements relative to RWAs. The
table below summarises the minimum capital requirements (the sum of Pillar 1
and Pillar 2A), and the additional capital buffers which are held in excess of
the regulatory minimum requirements and are usable in stress.
Where the CET1 ratio falls below the sum of the minimum capital and the
combined buffer requirement, there is a subsequent automatic restriction on
the amount available to service discretionary payments (including AT1
coupons), known as the MDA. Note that different 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 our
minimum requirements and our 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) - - -
MDA threshold (2) 8.8% n/a n/a
Subtotal 8.8% 10.9% 13.7%
Capital ratios at 31 March 2022 15.2% 17.4% 20.4%
Headroom (3) 6.4% 6.5% 6.7%
(1) In response to COVID-19, many countries reduced their CCyB rates.
In December 2021, the Financial Policy Committee announced an increase in the
UK CCyB rate from 0% to 1%. This rate will come into effect from December 2022
in line with the 12 month implementation period. In March 2022, the Central
Bank of Ireland announced that the countercyclical buffer on Irish exposures
is to be maintained at 0%. Previously, the CBI did note that it expected a
gradual rebuilding of the CCyB to commence in 2022 and, while this guidance
remains, it notes that the current macro-financial outlook is subject to
considerable uncertainty therefore will continue to be monitored closely.
(2) Pillar 2A requirements for NatWest Group are set on a nominal
capital basis. The PRA has confirmed that from Q4 2022 Pillar 2A will be set
as a variable amount with the exception of some fixed add-ons.
(3) The headroom does not reflect excess distributable capital and may
vary over time.
Risk and capital management
Capital, liquidity and funding risk continued
Capital and leverage ratios
The table below sets out the key capital and leverage ratios. From 1 January
2022, NatWest Group are subject to the requirements set out in the PRA
Rulebook, therefore going forward the capital and leverage ratios are being
presented under these frameworks on a transitional basis.
31 March 31 December 31 March
2022 2021 2021
Capital adequacy ratios (1) % % %
CET1 15.2 18.2 18.2
Tier 1 17.4 21.0 21.9
Total 20.4 24.7 24.8
Capital £m £m £m
Tangible equity 28,571 30,689 30,126
Prudential valuation adjustment (297) (274) (436)
Deferred tax assets (769) (761) (750)
Own credit adjustments (27) 21 6
Pension fund assets (476) (465) (570)
Cash flow hedging reserve 1,113 395 38
Foreseeable ordinary dividends (1,096) (846) (547)
Foreseeable charges - on-market ordinary share buyback programme (527) (825) -
Foreseeable pension contributions - (365) -
Prudential amortisation of software development costs - 411 524
Adjustments under IFRS 9 transitional arrangements 403 621 1,655
Insufficient coverage for non-performing exposures (6) (5) -
Total deductions (1,682) (2,093) (80)
CET1 capital 26,889 28,596 30,046
End-point AT1 capital 3,875 3,875 5,380
Grandfathered instrument transitional arrangements - 571 710
Transitional AT1 capital 3,875 4,446 6,090
Tier 1 capital 30,764 33,042 36,136
End-point T2 capital 5,067 5,402 4,118
Grandfathered instrument transitional arrangements 213 304 673
Transitional Tier 2 capital 5,280 5,706 4,791
Total regulatory capital 36,044 38,748 40,927
Risk-weighted assets
Credit risk 140,377 120,116 125,131
Counterparty credit risk 8,776 7,907 8,579
Market risk 8,550 7,917 9,962
Operational risk 19,115 21,031 21,031
Total RWAs 176,818 156,971 164,703
Leverage
Cash and balances at central banks 168,783 177,757 140,347
Trading assets 64,950 59,158 65,558
Derivatives 100,013 106,139 122,955
Financial assets 416,677 412,817 418,290
Other assets 25,750 17,106 22,626
Assets of disposal groups 9,225 9,015 -
Total assets 785,398 781,992 769,776
Derivatives
- netting and variation margin (100,386) (110,204) (126,250)
- potential future exposures 21,412 35,035 38,279
Securities financing transactions gross up 2,838 1,397 3,249
Other off balance sheet items 43,986 44,240 43,734
Regulatory deductions and other adjustments (16,310) (8,980) (14,535)
Claims on central banks (165,408) (174,148) (137,685)
Exclusion of bounce back loans (7,112) (7,474) (8,609)
UK leverage exposure 564,418 561,858 567,959
UK leverage ratio (%) (2) 5.5 5.9 6.4
For the notes to this table refer to the following page.
Risk and capital management
Capital, liquidity and funding risk continued
(1) Based on current PRA rules, therefore includes the transitional
relief on grandfathered capital instruments and the transitional arrangements
for the capital impact of IFRS 9 expected credit loss (ECL) accounting. The
impact of the IFRS 9 transitional adjustments at 31 March 2022 was £0.4
billion for CET1 capital, £44 million for total capital and £28 million RWAs
(31 December 2021 - £0.6 billion CET1 capital, £0.5 billion total capital
and £36 million RWAs, 31 March 2021 - £1.7 billion CET1 capital, £1.4
billion total capital and £135 million RWAs). Excluding these adjustments,
the CET1 ratio would be 15.0% (31 December 2021 - 17.8%, 31 March 2021 -
17.2%). The transitional relief on grandfathered instruments at 31 March 2022
was £0.2 billion (31 December 2021 - £0.9 billion, 31 March 2021 - £1.4
billion). Excluding both the transitional relief on grandfathered capital
instruments and the transitional arrangements for the capital impact of IFRS 9
expected credit loss (ECL) accounting, the end-point Tier 1 capital ratio
would be 17.2% (31 December 2021 - 20.3%, 31 March 2021 - 20.5%) and the
end-point Total capital ratio would be 20.2% (31 December 2021 - 23.8%, 31
March 2021 - 23.2%).
(2) The UK leverage exposure is calculated in accordance with the
Leverage Ratio (CRR) part of the PRA Rulebook, and transitional Tier 1 capital
is calculated in accordance with the PRA Rulebook as explained in note 1
above. Excluding the IFRS 9 transitional adjustment, the UK leverage ratio
would be 5.4% (31 December 2021 - 5.8%, 31 March 2021 - 6.1%).
Capital flow statement
The table below analyses the movement in CET1, AT1 and Tier 2 capital for the
three months ended 31 March 2022. Previously the NatWest Group capital flow
statement was presented based on end-point CRR rules. It is being presented on
a transitional basis as calculated under the PRA Rulebook Instrument
requirements going forward.
CET1 AT1 Tier 2 Total
£m £m £m £m
At 31 December 2021 28,596 4,446 5,706 38,748
Attributable profit for the period 841 - - 841
Directed buyback (1,212) - - (1,212)
Foreseeable ordinary dividends (250) - - (250)
Foreign exchange reserve 37 - - 37
FVOCI reserve (162) - - (162)
Own credit (48) - - (48)
Share capital and reserve movements in respect of employee
share schemes 55 - - 55
Goodwill and intangibles deduction (462) - - (462)
Deferred tax assets (8) - - (8)
Prudential valuation adjustments (23) - - (23)
End of 2021 transitional relief on grandfathered instruments - (571) (232) (803)
Net dated subordinated debt instruments - - (158) (158)
Foreign exchange movements (254) - 50 (204)
Adjustment under IFRS 9 transitional arrangements (218) - - (218)
Other movements (3) - (86) (89)
At 31 March 2022 26,889 3,875 5,280 36,044
- The decrease in CET1 capital is primarily due to the directed buyback
of £1.2 billion, foreseeable dividend accrual of £0.3 billion, a £0.2
billion decrease in the IFRS 9 transitional adjustment, the removal of
adjustment for prudential amortisation on software development costs of £0.4
billion, £0.3 billion due to FX loss on retranslation on the redemption of a
USD instrument and other reserve movements in the period, partially offset by
an attributable profit in the period of £0.8 billion.
- The AT1 and Tier 2 movements are primarily due to the end of the 2021
transitional relief on grandfathered instruments.
Risk and capital management
Capital, liquidity and funding risk continued
Risk-weighted assets
The table below analyses the movement in RWAs during the period, by key
drivers.
Counterparty Operational
Credit risk credit risk Market risk risk Total
£bn £bn £bn £bn £bn
At 31 December 2021 120.2 7.9 7.9 21.0 157.0
Foreign exchange movement 0.3 0.1 - - 0.4
Business movement 1.6 0.4 0.9 (1.9) 1.0
Risk parameter changes (1.1) - - - (1.1)
Methodology changes 0.2 0.4 - - 0.6
Model updates 19.2 - (0.3) - 18.9
At 31 March 2022 140.4 8.8 8.5 19.1 176.8
The table below analyses segmental RWAs.
Go-forward group
Total excluding Total
Retail Private Commercial & Central items Ulster Bank Ulster NatWest
Banking Banking Institutional & other RoI Bank RoI Group
Total RWAs £m £m £m £m £m £m £m
At 31 December 2021 36.7 11.3 98.1 1.8 147.9 9.1 157.0
Foreign exchange movement - - 0.4 - 0.4 - 0.4
Business movement 0.9 0.2 0.3 (0.2) 1.2 (0.2) 1.0
Risk parameter changes (0.7) - (0.4) - (1.1) - (1.1)
Methodology changes - - 0.4 - 0.4 0.2 0.6
Model updates 15.3 - 1.5 - 16.8 2.1 18.9
At 31 March 2022 52.2 11.5 100.3 1.6 165.6 11.2 176.8
Credit risk 45.3 10.2 73.1 1.5 130.1 10.3 140.4
Counterparty credit risk 0.1 0.1 8.6 - 8.8 - 8.8
Market risk 0.1 - 8.4 - 8.5 - 8.5
Operational risk 6.7 1.2 10.2 0.1 18.2 0.9 19.1
Total RWAs 52.2 11.5 100.3 1.6 165.6 11.2 176.8
- Total RWAs increased to £176.8 billion during the period due to the
following:
o Credit risk RWAs increased £20.3 billion due to model adjustments applied
as a result of new regulation applicable to IRB models from 1 January 2022 in
addition to increased exposures within Commercial & Institutional and
Retail Banking. This was partially offset by improved risk metrics in Retail
Banking and Commercial & Institutional.
o Operational risk RWAs reduced by £1.9 billion following the annual
recalculation.
o Market risk RWAs increased by £0.6 billion driven by an increase in the
capital multiplier for NWM Plc impacting VaR and SVaR calculations.
o Counterparty credit risk RWAs increased by £0.9 billion mainly driven by
the implementation of SA-CCR impacting the RWA calculation for the
non-internal modelled exposure.
Risk and capital management
Capital, liquidity and funding risk continued
Liquidity portfolio
The table below shows the liquidity portfolio by product, with primary
liquidity aligned to internal stressed outflow coverage and regulatory
liquidity coverage ratio (LCR) categorisation. Secondary liquidity comprises
assets eligible for discount at central banks, which do not form part of the
liquid asset portfolio for LCR or internal stressed outflow coverage purposes.
Liquidity value
31 March 2022 31 December 2021 31 March 2021
NatWest NatWest NatWest
Group (1) Group Group
£m £m £m
Cash and balances at central banks 166,176 174,328 137,410
AAA to AA- rated governments 31,385 31,073 29,406
A+ and lower rated governments 105 25 7
Government guaranteed issuers, public sector entities and
government sponsored entities 266 307 250
International organisations and multilateral development banks 3,087 2,720 2,825
LCR level 1 bonds 34,843 34,125 32,488
LCR level 1 assets 201,019 208,453 169,898
LCR level 2 assets 121 117 114
Non-LCR eligible assets - - -
Primary liquidity 201,140 208,570 170,012
Secondary liquidity (2) 73,370 77,849 92,665
Total liquidity value 274,510 286,419 262,677
(1) NatWest Group includes the UK Domestic Liquidity Sub-Group (NWB Plc, RBS plc
and Coutts & Co), NatWest Markets Plc and other significant operating
subsidiaries that hold liquidity portfolios. These include The Royal Bank of
Scotland International Limited, NWM N.V. and Ulster Bank Ireland DAC who hold
managed portfolios that comply with local regulations that may differ from PRA
rules.
(2) Comprises assets eligible for discounting at the Bank of England and other
central banks.
Condensed consolidated income statement for the period ended 31 March
2022 (unaudited)
Quarter ended
31 March 31 December 31 March
2022 2021 2021
£m £m £m
Interest receivable 2,448 2,345 2,282
Interest payable (403) (403) (418)
Net interest income 2,045 1,942 1,864
Fees and commissions receivable 694 724 644
Fees and commissions payable (149) (149) (141)
Income from trading activities 362 (3) 160
Other operating income 75 108 64
Non-interest income 982 680 727
Total income 3,027 2,622 2,591
Staff costs (901) (915) (974)
Premises and equipment (251) (368) (248)
Other administrative expenses (471) (735) (377)
Depreciation and amortisation (197) (310) (205)
Operating expenses (1,820) (2,328) (1,804)
Profit before impairment releases 1,207 294 787
Impairment releases 38 341 98
Operating profit before tax 1,245 635 885
Tax charge (386) (234) (233)
Profit from continuing operations 859 401 652
Profit from discontinued operations, net of tax 42 97 61
Profit for the period 901 498 713
Attributable to:
Ordinary shareholders 841 434 620
Preference shareholders - 5 5
Paid-in equity holders 59 58 87
Non-controlling interests 1 1 1
901 498 713
Earnings per ordinary share - continuing operations 7.1p 3.0p 4.6p
Earnings per ordinary share - discontinued operations 0.4p 0.8p 0.5p
Total earnings per share attributable to ordinary shareholders - basic 7.5p 3.8p 5.1p
Earnings per ordinary share - fully diluted continuing operations 7.1p 3.0p 4.6p
Earnings per ordinary share - fully diluted discontinued operations 0.4p 0.8p 0.5p
Total earnings per share attributable to ordinary shareholders - fully diluted 7.5p 3.8p 5.1p
Condensed consolidated statement of comprehensive income
for the period ended 31 March 2022 (unaudited)
Quarter ended
31 March 31 December 31 March
2022 2021 2021
£m £m £m
Profit for the period 901 498 713
Items that do not qualify for reclassification
Remeasurement of retirement benefit schemes (1) (508) 71 (508)
Changes in fair value of credit in financial liabilities
designated at fair value through profit or loss (FVTPL) due to own credit 39 - (7)
risk
Fair value through other comprehensive income (FVOCI)
financial assets 9 2 1
Tax (1) 122 (21) 137
(338) 52 (377)
Items that do qualify for reclassification
FVOCI financial assets (238) 45 (118)
Cash flow hedges (983) (238) (358)
Currency translation 35 (115) (343)
Tax 339 83 113
(847) (225) (706)
Other comprehensive loss after tax (1,185) (173) (1,083)
Total comprehensive (loss)/income for the period (284) 325 (370)
Attributable to:
Ordinary shareholders (345) 261 (463)
Preference shareholders - 5 5
Paid-in equity holders 59 58 87
Non-controlling interests 2 1 1
(284) 325 (370)
(1) Following the purchase of ordinary shares in Q1
2022, NatWest Group plc contributed £500 million to its
main pension scheme in line with the memorandum of
understanding announced on 17 April 2018. After tax relief, this contribution
reduced total equity by £365 million.
Condensed consolidated balance sheet as at 31 March 2022 (unaudited)
31 March 31 December
2022 2021
£m £m
Assets
Cash and balances at central banks 168,783 177,757
Trading assets 64,950 59,158
Derivatives 100,013 106,139
Settlement balances 10,505 2,141
Loans to banks - amortised cost 7,063 7,682
Loans to customers - amortised cost 365,340 358,990
Other financial assets 44,274 46,145
Intangible assets 6,774 6,723
Other assets 8,471 8,242
Assets of disposal groups 9,225 9,015
Total assets 785,398 781,992
Liabilities
Bank deposits 21,975 26,279
Customer deposits 482,887 479,810
Settlement balances 9,602 2,068
Trading liabilities 71,559 64,598
Derivatives 95,310 100,835
Other financial liabilities 47,809 49,326
Subordinated liabilities 8,216 8,429
Notes in circulation 2,999 3,047
Other liabilities 5,797 5,797
Total liabilities 746,154 740,189
Equity
Ordinary shareholders' interests 35,345 37,412
Other owners' interests 3,890 4,384
Owners' equity 39,235 41,796
Non-controlling interests 9 7
Total equity 39,244 41,803
Total liabilities and equity 785,398 781,992
Condensed consolidated statement of changes in equity
for the period ended 31 March 2022 (unaudited)
Share
capital and Total Non
statutory Paid-in Retained Other owners' controlling Total
reserves (1) equity earnings reserves* equity interests equity
£m £m £m £m £m £m £m
At 1 January 2022 12,980 3,890 12,966 11,960 41,796 7 41,803
Profit attributable to ordinary shareholders
and other equity owners
- continuing operations 858 858 1 859
- discontinued operations 42 42 42
Other comprehensive income
- Realised gains in period
on FVOCI equity shares 1 (1) - -
- Remeasurement of retirement
benefit schemes (2) (508) (508) (508)
- Changes in fair value of credit in financial
liabilities designated at FVTPL due
to own credit risk 39 39 39
- Unrealised losses: FVOCI (187) (187) (187)
- Amounts recognised in equity: cash flow hedges (911) (911) (911)
- Foreign exchange reserve movement 34 34 1 35
- Amount transferred from equity to earnings (113) (113) (113)
- Tax 126 335 461 461
Paid-in equity dividends paid (59) (59) (59)
Shares repurchased during the period (3,4) - (1,522) (1,522) (1,522)
Shares and securities issued during the
period - 3 3 3
Reclassification of preference shares (5) (750) (750) (750)
Share-based payments (15) (15) (15)
Movement in own shares held 67 67 67
At 31 March 2022 13,047 3,890 11,181 11,117 39,235 9 39,244
31 March
2022
Attributable to: £m
Ordinary shareholders 35,345
Preference shareholders -
Paid-in equity holders 3,890
Non-controlling interests 9
39,244
*Other reserves consists of:
Merger reserve 10,881
FVOCI reserve 107
Cash flow hedging reserve (1,113)
Foreign exchange reserve 1,242
11,117
(1) Share capital and statutory reserves
includes share capital, share premium, capital redemption reserve and own
shares held.
(2) Following the purchase of ordinary shares in Q1 2022,
NatWest Group plc contributed £500 million to its main pension
scheme in line with the memorandum of understanding announced on 17 April
2018. After tax relief, this contribution reduced total equity by £365
million.
(3) In March 2022, there was an agreement with HM Treasury to buy 549.9 million
ordinary shares in NatWest Group plc from UK Government Investments Ltd, at
220.5 pence per share for the total consideration of £1.22 billion. NatWest
Group cancelled all 549.9 million of the purchased ordinary shares. The
nominal value of the share cancellation has been transferred to the capital
redemption reserve.
(4) NatWest Group plc repurchased and cancelled 150.7 million shares for total
consideration of £337.7 million excluding fees in Q1 2022, as part of the On
Market Share Buyback Programme. Of the 150.7 million shares bought back, 15.9
million shares were settled and cancelled in April 2022. The nominal value of
the share cancellations has been transferred to the capital redemption
reserve.
(5) Following an announcement of a Regulatory Call in February 2022, the Series U
preference shares were reclassified to liabilities. A £254 million loss was
recognised in P&L reserves as a result of FX unlocking.
Notes
1. Presentation of condensed consolidated financial statements
The condensed consolidated financial statements should be read in conjunction
with NatWest Group plc's 2021 Annual Report and
Accounts which has been prepared in accordance with UK-adopted International
Accounting Standards (IAS), International Financial Reporting Standards (IFRS)
as issued by the International Accounting Standards Board (IASB) and IFRS as
adopted by the
European Union.
Going concern
Having reviewed NatWest Group's principal risks, forecasts, projections and
other relevant evidence, the directors have a
reasonable expectation that NatWest Group will continue in operational
existence for a period of twelve months from the date the
condensed consolidated financial statements are approved. Accordingly, the
results for the period ended 31 March 2022 have been prepared on a going
concern basis.
2. Accounting policies
NatWest Group's principal accounting policies are as set out on pages 307 to
312 of NatWest Group plc's 2021 Annual Report and Accounts. Amendments to IFRS
effective from 1 January 2022 had no material effect on the condensed
consolidated financial statements.
Critical accounting policies and key sources of estimation uncertainty
The judgments and assumptions that are considered to be the most important to
the portrayal of NatWest Group's financial
condition are those relating to deferred tax, fair value of financial
instruments, loan impairment provisions, goodwill and provisions
for liabilities and charges. These critical accounting policies and judgments
are noted on page 311 of NatWest Group plc's 2021
Annual Report and Accounts. Management's consideration of uncertainty is
outlined in the relevant sections of NatWest Group plc's 2021 Annual Report
and Accounts, including the ECL estimate for the period in the Risk and
capital management section contained in NatWest Group plc's 2021 Annual Report
and Accounts.
Information used for significant estimates
Uncertainty with respect to the prolonged financial effect of the COVID-19
pandemic and the Russian invasion of Ukraine continues to cause significant
economic and social disruption. Specifically, there continues to be
uncertainty as to the indirect impacts on NatWest Group due to the Russian
invasion of Ukraine and related consequences for geopolitical stability,
energy supply and prices, and cross-border financial transactions, including
as a result of economic sanctions. Key financial estimates are based on
management's latest five-year revenue and cost forecasts. Measurement of
goodwill, deferred tax and expected credit losses are highly sensitive to
reasonably possible changes in those anticipated conditions. Other reasonably
possible assumptions about the future include a prolonged financial effect of
the COVID-19 pandemic on the economy of the UK and other countries or greater
economic effect as countries and companies implement plans to counter climate
risks. Changes in judgments and assumptions could result in a material
adjustment to those estimates in future reporting periods. (Refer to the Risk
factors in NatWest Group plc's 2021 Annual Report and Accounts).
Notes
3. Discontinued operations and assets and liabilities of disposal groups
Two legally binding agreements for the sale of UBIDAC business were announced
in 2021 as part of the phased withdrawal from the Republic of Ireland:
On 28 June 2021 NatWest Group announced it had agreed a binding sale agreement
with Allied Irish Banks, p.l.c. for the transfer of c.€4.2 billion (plus up
to €2.8 billion of undrawn exposures), of performing commercial loans as
well as those c.280 colleagues who are wholly or mainly assigned to supporting
that part of the business, with the final number of roles to be confirmed as
the deal completes. On 28 April 2022, approval was received from the Irish
competition authority (the CCPC) in relation to this sale, which is expected
to be completed in a series of transactions during 2022 and Q1 2023.
On the 17 December 2021 NatWest Group signed a legally binding agreement with
Permanent TSB p.l.c. (PTSB). The proposed sale will include performing
non-tracker mortgages, the performing loans in the micro-SME business; the
UBIDAC Asset Finance business, including its Lombard digital platform, and 25
Ulster Bank branch locations in the Republic of Ireland. The majority of
loans are expected to transfer by Q4 2022. As part of the transaction it is
anticipated that c.450 colleagues will have the right to transfer under the
TUPE regulations, with the final number of roles to be confirmed as the deal
completes. This sale remains subject to obtaining competition, regulatory and
other approvals, including PTSB's holding company shareholder approval, and
other conditions being satisfied.
The business activities relating to these sales that meet the requirements of
IFRS 5 are presented as a discontinued operation and as a disposal group at 31
March 2022. Comparative results for the quarter ended 31 March 2021 have been
re-presented from those previously published to reclassify certain items as
discontinued operations. The Ulster Bank RoI operating segment continues to be
reported separately and reflects the results and balance sheet position of its
continuing operations.
(a) Profit from discontinued operations, net of tax
Quarter ended
31 March 31 December 31 March
2022 2021 2021
£m £m £m
Net interest income 60 62 67
Non-interest income (1) 4 1
Total income 59 66 68
Operating expenses (11) (14) (11)
Profit before impairment (losses)/releases 48 52 57
Impairment (losses)/releases (6) 45 4
Operating profit before tax 42 97 61
Tax charge - - -
Profit from discontinued operations, net of tax 42 97 61
(b) Assets and liabilities of disposal groups
As at
31 March 31 December
2022 2021
£m £m
Assets of disposal groups
Loans to customers - amortised cost 9,215 9,002
Derivatives 2 5
Other assets 8 8
9,225 9,015
Liabilities of disposal groups
Other liabilities 5 5
5 5
Net assets of disposal groups 9,220 9,010
Notes
4. Litigation and regulatory matters
NatWest Group plc's 2021 Annual Report and Accounts, issued on 18 February
2022, included disclosures about NatWest Group's litigation and regulatory
matters in Note 27. Set out below are the material developments in those
matters (which have all been previously disclosed) since publication of the
2021 Annual Report and Accounts.
Litigation
Residential mortgage-backed securities (RMBS) litigation in the US
NWMSI agreed to settle a purported RMBS class action entitled New Jersey
Carpenters Health Fund v. Novastar Mortgage Inc. et al. for US$55.3 million.
This was paid into escrow pending court approval of the settlement, which was
granted in March 2019, but which then became the subject of an appeal by a
class member who wanted to exit the settlement. On 14 March 2022, the United
States Court of Appeals for the Second Circuit rejected that class member's
appeal.
London Interbank Offered Rate (LIBOR) and other rates litigation
NatWest Group plc is a defendant in a class action pending in the United
States District Court for the Southern District of New York (SDNY) on behalf
of lender plaintiffs who allege that NatWest Group plc and other defendants
engaged in fraud by artificially suppressing USD LIBOR. On 25 February 2022,
the United States Court of Appeals for the Second Circuit reversed the SDNY's
prior dismissal of the case, holding that the plaintiffs have adequately
alleged the court's jurisdiction over the defendants. The claim will now
proceed in the SDNY.
NatWest Group companies are defendants in class actions pending in the SDNY
relating to alleged manipulation of the Singapore Interbank Offered Rate and
Singapore Swap Offer Rate ('SIBOR / SOR') and the Australian Bank Bill Swap
Reference Rate. In March 2022, agreements in principle were reached to settle
both cases. The amounts of the settlements, which remain subject to final
documentation and court approval, are covered by existing provisions.
FX litigation
An FX-related class action, on behalf of 'consumers and end-user businesses',
is pending in the SDNY against NWM Plc and others. On 18 March 2022, the SDNY
denied the plaintiffs' motion for class certification. Plaintiffs are seeking
to appeal the decision.
Two separate FX-related applications seeking opt-out collective proceedings
orders were filed in the UK Competition Appeal Tribunal (CAT) against NatWest
Group plc, NWM Plc and other banks. On 31 March 2022, the CAT declined to
certify as collective proceedings either of the applications, ruling that the
opt-out basis on which they were brought was inappropriate. The CAT granted
each applicant three months to revise their application for certification on
an opt-in basis, if they wish to proceed. The applicants have stated that they
intend to appeal the judgment.
Government securities antitrust litigation
NWMSI and certain other US broker-dealers are defendants in a consolidated
antitrust class action in the SDNY on behalf of persons who transacted in US
Treasury securities or derivatives based on such instruments, including
futures and options. The plaintiffs allege that defendants rigged the US
Treasury securities auction bidding process to deflate the prices at which
they bought such securities and colluded to increase the prices at which they
sold such securities to plaintiffs. On 31 March 2022, the SDNY dismissed the
operative complaint, without leave to re-plead. The dismissal is subject to
appeal.
NWM Plc, NWMSI and other banks are defendants in a class action antitrust case
in the SDNY in respect of Euro-denominated bonds issued by European central
banks (EGBs). The complaint alleges a conspiracy among dealers of EGBs,
between 2007 and 2012, to widen the bid-ask spreads they quoted to customers,
thereby increasing the prices customers paid for the EGBs or decreasing the
prices at which customers sold the bonds. On 14 March 2022, the SDNY dismissed
the claims against NWM Plc and NWMSI in the operative complaint on the ground
that the complaint's conspiracy allegations are insufficient. The plaintiffs
have indicated that they intend to file an amended complaint.
Regulatory matters
Systematic Anti-Money Laundering Programme assessment
In January 2022, NatWest Group received the Skilled Person's final report in
connection with governance arrangements for two financial crime change
programmes in respect of which the Skilled Person had been appointed under
section 166 of the Financial Services and Markets Act 2000 to provide
assurance. The FCA confirmed in March 2022 that the section 166 review has now
concluded.
5. Post balance sheet events
On 28 April 2022, approval was received from the Irish competition authority
(the CCPC) in relation to the agreement with AIB for the sale of UBIDAC's
commercial lending portfolio.
Additionally, we have entered into exclusive discussions with AIB for the sale
of UBIDAC's performing tracker (and linked) mortgage portfolio.
Other than as disclosed there have been no significant events between 31 March
2022 and the date of approval of these accounts that would require a change to
or additional disclosure in the condensed consolidated financial statements.
Additional information
Presentation of information
'Parent company' refers to NatWest Group plc and 'NatWest Group' and 'we'
refers to NatWest Group plc and its subsidiary and
associated undertakings. The term 'NWH Group' refers to NatWest Holdings
Limited ('NWH') and its subsidiary and associated
undertakings. The term 'NatWest Markets Group' or 'NWM Group' refers to
NatWest Markets Plc ('NWM Plc') and its subsidiary and associated
undertakings. The term 'NWM N.V.' refers to NatWest Markets N.V. The term
'NWMSI' refers to NatWest Markets Securities, Inc. The term 'RBS plc' refers
to The Royal Bank of Scotland plc. The term 'NWB Plc' refers to National
Westminster Bank Plc. The term 'UBIDAC' refers to Ulster Bank Ireland DAC.
'Go-forward group' excludes Ulster Bank RoI and discontinued operations.
NatWest Group publishes its financial statements in pounds sterling ('£' or
'sterling'). The abbreviations '£m' and '£bn' represent
millions and thousands of millions of pounds sterling, respectively, and
references to 'pence' or 'p' represent pence where the amounts are denominated
in pounds sterling ('GBP'). Reference to 'dollars' or '$' are to United States
of America ('US') dollars. The
abbreviations '$m' and '$bn' represent millions and thousands of millions of
dollars, respectively. The abbreviation '€' represents
the 'euro', and the abbreviations '€m' and '€bn' represent millions and
thousands of millions of euros, respectively.
Statutory results
Financial information contained in this document does not constitute statutory
accounts within the meaning of section 434 of the Companies Act 2006 ('the
Act'). The statutory accounts for the year ended 31 December 2021 will be
filed with the Registrar of Companies. The report of the auditor on those
statutory accounts was unqualified, did not draw attention to any matters by
way of emphasis and did not contain a statement under section 498(2) or (3) of
the Act.
Q1 2022 segmental re-organisation
On 27 January 2022, NatWest Group announced that a new franchise, Commercial
& Institutional, would be created, bringing together the Commercial,
NatWest Markets and RBSI businesses to form a single franchise, with common
management and objectives, to best support our customers across the full
non-personal customer lifecycle. Comparatives have been re-presented in this
document. Refer to the re-segmentation document published on 22 April 2022 for
further details. The re-presentation of operating segments does not change the
consolidated financial results of NatWest Group.
Ulster Bank RoI
Continuing operations
Two legally binding agreements for the sale of the UBIDAC business were
announced in 2021 as part of the phased withdrawal
from the Republic of Ireland: the sale of commercial lending to Allied Irish
Banks p.l.c. (AIB) and the performing non-tracker
mortgages, performing micro-SME loans, UBIDAC's asset finance business and 25
of its branch locations to Permanent TSB plc.
(PTSB). The business activities relating to these sales that meet the
requirements of IFRS 5 are presented as a discontinued
operation and as a disposal group on 31 March 2022. Comparative results for
the quarter ended 31 March 2021 have been re-presented from those previously
published to reclassify certain items as discontinued operations. The Business
performance summary presents the results of the Group's continuing operations.
For further details refer to Note 3 on page 31.
MAR - Inside Information
This announcement contains information that qualified or may have qualified as
inside information for NatWest Group plc, for the purposes of Article 7 of the
Market Abuse Regulation (EU) 596/2014 (MAR) as it forms part of domestic law
by virtue of the European Union (Withdrawal) Act 2018. This announcement is
made by Alexander Holcroft, Head of Investor Relations for NatWest Group plc.
Contacts
Analyst enquiries: Alexander Holcroft, Investor Relations
Media enquiries: NatWest Group Press Office
Management presentation
Date: 29 April 2022
Time: 9am UK time
Zoom ID: 913 9426 3599
Available on www.natwestgroup.com/results
(http://www.natwestgroup.com/results)
- Q1 2022 Interim Management Statement and slides.
- A financial supplement containing income statement, balance sheet and
segment performance for the quarter ended 31 March 2022.
- NatWest Group and NWH Group Pillar 3 supplements.
- Segmental Reporting Re-segmentation Financial Supplement (published 22
April 2022).
Forward looking statements
This document contains forward-looking statements within the meaning of the
United States Private Securities Litigation Reform Act of 1995, such as
statements that include, without limitation, the words 'expect', 'estimate',
'project', 'anticipate', 'commit', 'believe', 'should', 'intend', 'will',
'plan', 'could', 'probability', 'risk', 'Value-at-Risk (VaR)', 'target',
'goal', 'objective', 'may', 'endeavour', 'outlook', 'optimistic', 'prospects'
and similar expressions or variations on these expressions. These statements
concern or may affect future matters, such as NatWest Group's future economic
results, business plans and strategies. In particular, this document may
include forward-looking statements relating to NatWest Group plc in respect
of, but not limited to: the impact of the COVID-19 pandemic, its regulatory
capital position and related requirements, its financial position,
profitability and financial performance (including financial, capital, cost
savings and operational targets), the implementation of its purpose-led
strategy, its ESG and climate-related targets, its access to adequate sources
of liquidity and funding, increasing competition from new incumbents and
disruptive technologies, its exposure to third party risks, its ongoing
compliance with the UK ring-fencing regime and ensuring operational continuity
in resolution, its impairment losses and credit exposures under certain
specified scenarios, substantial regulation and oversight, ongoing legal,
regulatory and governmental actions and investigations, the transition of
LIBOR and IBOR rates to alternative risk free rates and NatWest Group's
exposure to economic and political risks (including with respect to terms
surrounding Brexit and climate change), operational risk, conduct risk, cyber,
data and IT risk, financial crime risk, key person risk and credit rating
risk. Forward-looking statements are subject to a number of risks and
uncertainties that might cause actual results and performance to differ
materially from any expected future results or performance expressed or
implied by the forward-looking statements. Factors that could cause or
contribute to differences in current expectations include, but are not limited
to, the impact of the COVID-19 pandemic, future growth initiatives (including
acquisitions, joint ventures and strategic partnerships), the outcome of
legal, regulatory and governmental actions and investigations, the level and
extent of future impairments and write-downs (including with respect to
goodwill), legislative, political, fiscal and regulatory developments,
accounting standards, competitive conditions, technological developments,
interest and exchange rate fluctuations, general economic and political
conditions and the impact of climate-related risks and the transitioning to a
net zero economy. These and other factors, risks and uncertainties that may
impact any forward-looking statement or NatWest Group plc's actual results are
discussed in NatWest Group plc's UK 2021 Annual Report and Accounts (ARA),
NatWest Group plc's Interim Results for Q1 2022 and NatWest Group plc's
filings with the US Securities and Exchange Commission, including, but not
limited to, NatWest Group plc's most recent Annual Report on Form 20-F and
Reports on Form 6-K. The forward-looking statements contained in this document
speak only as of the date of this document and NatWest Group plc does not
assume or undertake any obligation or responsibility to update any of the
forward-looking statements contained in this document, whether as a result of
new information, future events or otherwise, except to the extent legally
required.
Legal Entity Identifier: 2138005O9XJIJN4JPN90
Appendix
Non-IFRS financial measures
Non-IFRS financial measures
NatWest Group prepares its financial statements in accordance with generally
accepted accounting principles (GAAP). This document contains a number of
adjusted or alternative performance measures, also known as non-GAAP or
non-IFRS performance measures. These measures are adjusted for notable and
other defined items which management believes are not representative of the
underlying performance of the business and which distort period-on-period
comparison. The non-IFRS measures provide users of the financial statements
with a consistent basis for comparing business performance between financial
periods and information on elements of performance that are one-off in nature.
The non-IFRS measures also include the calculation of metrics that are used
throughout the banking industry. These non-IFRS measures are not measures
within the scope of IFRS and are not a substitute for IFRS measures.
Non-IFRS financial measures
1. Adjustment for notable items
Go-forward group income excluding notable items is calculated as total income
excluding Ulster Bank RoI total income and excluding notable items.
The exclusion of notable items aims to remove the impact of one-offs which may
distort period-on-period comparisons.
Refer to pages 3, 4 and 11 to 13 for further details.
Quarter ended
31 March 31 December 31 March
2022 2021 2021
£m £m £m
Continuing operations
Total income 3,027 2,622 2,591
Less Ulster Bank RoI total income (40) (43) (56)
Go-forward group income 2,987 2,579 2,535
Less notable items (224) (62) 9
Go-forward group income excluding notable items 2,763 2,517 2,544
2. Other operating expenses
Other operating expenses is calculated as total operating expenses less
litigation and conduct costs. Other operating expenses of the Go-forward group
excludes Ulster Bank RoI.
Our cost target for 2022 is based on this measure and we track progress
against it.
Refer to pages 3, 4 and 11 to 13 for further details.
Quarter ended
31 March 31 December 31 March
2022 2021 2021
£m £m £m
Continuing operations
Total operating expenses 1,820 2,328 1,804
Less litigation and conduct costs (102) (190) (16)
Other operating expenses 1,718 2,138 1,788
Less Ulster Bank RoI other operating expenses (113) (104) (105)
Go-forward group other operating expenses 1,605 2,034 1,683
.
Non-IFRS financial measures
3. Operating expenses - management view
The management analysis of operating expenses shows litigation and conduct
costs on a separate line. These amounts are included within staff costs and
other administrative expenses in the statutory analysis.
Other operating expenses excludes litigation and conduct costs, which are more
volatile and may distort comparisons with prior periods.
Refer to page 26 for further details.
Non-statutory analysis
Quarter ended
31 March 2022
Litigation and Other Statutory
conduct operating operating
costs expenses expenses
Operating expenses £m £m £m
Continuing operations
Staff costs 7 894 901
Premises and equipment - 251 251
Other administrative expenses 95 376 471
Depreciation and amortisation - 197 197
Total 102 1,718 1,820
Quarter ended
31 December 2021
Litigation and Other Statutory
conduct operating operating
costs expenses expenses
Operating expenses £m £m £m
Continuing operations
Staff costs - 915 915
Premises and equipment - 368 368
Other administrative expenses 190 545 735
Depreciation and amortisation - 310 310
Total 190 2,138 2,328
Quarter ended
31 March 2021
Litigation and Other Statutory
conduct operating operating
costs expenses expenses
Operating expenses £m £m £m
Continuing operations
Staff costs - 974 974
Premises and equipment - 248 248
Other administrative expenses 16 361 377
Depreciation and amortisation - 205 205
Total 16 1,788 1,804
Non-IFRS financial measures
4. Cost:income ratio
The cost:income ratio is calculated as total operating expenses less operating
lease depreciation divided by total income less operating lease depreciation.
This is a common metric used to compare profitability across the banking
industry.
Refer to pages 3, 6 to 8 and 11 to 13 for further details.
Go-forward group
Central Total excluding Ulster Total
Retail Private Commercial & items Ulster Bank NatWest
Banking Banking Institutional & other Bank RoI RoI Group
Quarter ended 31 March 2022 £m £m £m £m £m £m £m
Continuing operations
Operating expenses (645) (139) (922) (1) (1,707) (113) (1,820)
Operating lease depreciation - - 32 - 32 - 32
Adjusted operating expenses (645) (139) (890) (1) (1,675) (113) (1,788)
Total income 1,217 216 1,375 179 2,987 40 3,027
Operating lease depreciation - - (32) - (32) - (32)
Adjusted total income 1,217 216 1,343 179 2,955 40 2,995
Cost:income ratio 53.0% 64.4% 66.3% nm 56.7% nm 59.7%
Quarter ended 31 December 2021
Continuing operations
Operating expenses (774) (155) (1,059) (209) (2,197) (131) (2,328)
Operating lease depreciation - - 34 - 34 - 34
Adjusted operating expenses (774) (155) (1,025) (209) (2,163) (131) (2,294)
Total income 1,164 253 1,168 (6) 2,579 43 2,622
Operating lease depreciation - - (34) - (34) - (34)
Adjusted total income 1,164 253 1,134 (6) 2,545 43 2,588
Cost:income ratio 66.5% 61.3% 90.4% nm 85.0% nm 88.6%
Quarter ended 31 March 2021
Continuing operations
Operating expenses (587) (121) (915) (67) (1,690) (114) (1,804)
Operating lease depreciation - - 35 - 35 - 35
Adjusted operating expenses (587) (121) (880) (67) (1,655) (114) (1,769)
Total income 1,056 185 1,253 41 2,535 56 2,591
Operating lease depreciation - - (35) - (35) - (35)
Adjusted total income 1,056 185 1,218 41 2,500 56 2,556
Cost:income ratio 55.6% 65.4% 72.3% nm 66.2% nm 69.2%
Non-IFRS financial measures
5. NatWest Group return on tangible equity
Return on tangible equity comprises annualised profit or loss for the period
attributable to ordinary shareholders divided by average tangible equity.
Average tangible equity is average total equity excluding average
non-controlling interests, average other owners equity and average intangible
assets.
Go-forward group return on tangible equity is calculated as annualised profit
for the period less Ulster Bank RoI divided by Go-forward group total tangible
equity. Go forward RWAe applying factor is the Go- forward group average RWAe
as a percentage of total Natwest Group average RWAe.
This measure shows the return NatWest Group generates on tangible equity
deployed. It is used to determine relative performance of banks and used
widely across the sector, although different banks may calculate the rate
differently.
Refer to pages 3 and 11 to 13 for further details.
Quarter ended or as at
31 March 31 December 31 March
2022 2021 2021
NatWest Group return on tangible equity £m £m £m
Profit attributable to ordinary shareholders 841 434 620
Annualised profit attributable to ordinary shareholders 3,364 1,736 2,480
Average total equity 40,934 41,887 43,566
Adjustment for other owners' equity and intangibles (11,067) (10,719) (12,333)
Adjusted total tangible equity 29,867 31,168 31,233
Return on tangible equity 11.3% 5.6% 7.9%
Go-forward group return on tangible equity
Profit attributable to ordinary shareholders 841 434 620
Less Ulster Bank RoI loss from continuing operations, net of tax 42 73 59
Less profit from discontinued operations (42) (97) (61)
Go-forward group profit attributable to ordinary shareholders 841 410 618
Annualised go-forward group profit attributable to ordinary shareholders 3,364 1,640 2,472
Average total equity 40,934 41,887 43,566
Adjustment for other owners' equity and intangibles (11,067) (10,719) (12,333)
Adjusted total tangible equity 29,867 31,168 31,233
Go-forward group RWAe applying factor 95% 94% 93%
Go-forward group total tangible equity 28,374 29,298 29,047
Go-forward group return on tangible equity 11.9% 5.6% 8.5%
Non-IFRS financial measures
6. Segmental return on equity
Segmental return on equity comprises segmental operating profit or loss,
adjusted for preference share dividends and tax, divided by average notional
tangible equity. Average RWAe is defined as average segmental RWAs
incorporating the effect of capital deductions. This is multiplied by an
allocated equity factor for each segment to calculate the average notional
tangible equity.
This measure shows the return generated by operating segments on equity
deployed.
Refer to pages 6 to 8 and 11 to 13 for further details.
Retail Private Commercial &
Quarter ended 31 March 2022 Banking Banking Institutional
Operating profit (£m) 567 82 464
Preference share cost allocation (£m) (20) (3) (46)
Adjustment for tax (£m) (153) (22) (105)
Adjusted attributable profit (£m) 394 57 314
Annualised adjusted attributable profit (£m) 1,576 228 1,256
Average RWAe (£bn) 52.6 11.4 102.0
Equity factor (%) 13.0% 11.0% 14.0%
RWAe applying equity factor (£bn) 6.8 1.3 14.3
Return on equity (%) 23.1% 18.2% 8.8%
Quarter ended 31 December 2021
Operating profit (£m) 385 110 426
Preference share cost allocation (£m) (20) (5) (59)
Adjustment for tax (£m) (102) (29) (92)
Adjusted attributable profit (£m) 263 76 275
Annualised adjusted attributable profit (£m) 1,052 302 1,100
Average RWAe (£bn) 36.9 11.3 101.0
Equity factor (%) 14.5% 12.5% 13.0%
RWAe applying equity factor (£bn) 5.3 1.4 13.1
Return on equity (%) 19.7% 21.3% 8.3%
Quarter ended 31 March 2021
Operating profit (£m) 435 64 463
Preference share cost allocation (£m) (20) (5) (59)
Adjustment for tax (£m) (116) (17) (101)
Adjusted attributable profit (£m) 299 42 303
Annualised adjusted attributable profit (£m) 1,196 170 1,212
Average RWAe (£bn) 35.8 11.0 110.2
Equity factor (%) 14.5% 12.5% 13.0%
RWAe applying equity factor (£bn) 5.2 1.4 14.3
Return on equity (%) 23.0% 12.4% 8.5%
7. Tangible equity
Tangible equity is ordinary shareholders' interest less intangible assets.
TNAV per ordinary share is calculated as tangible equity divided by the number
of ordinary shares in issue.
This is a measure used by external analysts in valuing the bank and the
starting point for calculating regulatory capital.
Refer to page 3 for further details.
Year ended or as at
31 March 31 December 31 March
2022 2021 2021
Ordinary shareholders' interests (£m) 35,345 37,412 36,792
Less intangible assets (£m) (6,774) (6,723) (6,666)
Tangible equity (£m) 28,571 30,689 30,126
Ordinary shares in issue (millions) 10,622 11,272 11,560
TNAV per ordinary share (pence) 269p 272p 261p
Non-IFRS financial measures
8. Bank net interest margin
Bank net interest margin is defined as annualised net interest income of the
Go-forward group, as a percentage of bank average interest-earning assets.
Bank average interest earning assets are the average interest earning assets
of the banking business of the Go-forward group excluding liquid asset buffer.
Liquid asset buffer consists of assets held by NatWest Group, such as cash and
balances at central banks and debt securities in issue, that can be used to
ensure repayment of financial obligations as they fall due. The exclusion of
liquid asset buffer has been introduced as a way to present net interest
margin on a basis more comparable with UK peers and exclude the impact of
regulatory driven factors.
Refer to pages 3, 6 to 8 and 11 to 13 for further details.
Quarter ended or as at
31 March 31 December 31 March
2022 2021 2021
Go-forward group £m £m £m
Continuing operations
NatWest Group net interest income 2,045 1,942 1,864
Less Ulster Bank RoI net interest income (22) (23) (27)
Bank net interest income 2,023 1,919 1,837
Annualised NatWest Group net interest income 8,294 7,705 7,560
Annualised Bank net interest income 8,204 7,613 7,450
Average interest earning assets (IEA) 549,298 551,577 502,515
Less Ulster Bank RoI average IEA (7,185) (7,672) (7,958)
Less liquid asset buffer average IEA (208,764) (214,412) (173,694)
Bank average IEA 333,349 329,493 320,863
Bank net interest margin 2.46% 2.31% 2.32%
Quarter ended or as at
31 March 31 December 31 March
2022 2021 2021
Retail Banking £m £m £m
Net interest income 1,112 1,057 973
Annualised net interest income 4,510 4,194 3,946
Retail Banking average IEA 185,531 183,541 175,346
Less liquid asset buffer average IEA - - -
Adjusted Retail Banking average IEA 185,531 183,541 175,346
Retail Banking net interest margin 2.43% 2.28% 2.25%
Private Banking
Net interest income 143 126 115
Annualised net interest income 580 500 466
Private Banking average IEA 18,867 18,721 17,689
Less liquid asset buffer average IEA - - -
Adjusted Private Banking average IEA 18,867 18,721 17,689
Private Banking net interest margin 3.07% 2.67% 2.64%
Commercial & Institutional
Net interest income 803 764 725
Annualised adjusted net interest income 3,257 3,031 2,940
Commercial & Institutional average IEA 164,487 168,047 163,594
Less liquid asset buffer average IEA (43,502) (47,668) (41,040)
Adjusted Commercial & Institutional average IEA 120,985 120,379 122,554
Commercial & Institutional net interest margin 2.69% 2.52% 2.40%
Non-IFRS financial measures
9. Net lending
NatWest Group net lending is calculated as total loans to customers less loan
impairment provisions. Go-forward group net lending is calculated as net loans
to customers less Ulster Bank RoI net loans to customers.
Refer to page 3 for further details.
As at
31 March 31 December 31 March
2022 2021 2021
£bn £bn £bn
Total loans to customers (amortised cost) 368.9 362.8 364.3
Less loan impairment provisions (3.6) (3.8) (5.6)
Net loans to customers (amortised cost) 365.3 359.0 358.7
Less Ulster Bank RoI net loans to customers (amortised cost) (6.3) (6.7) (16.9)
Go-forward group net lending 359.0 352.3 341.8
10. Customer deposits
Go-forward group customer deposits is calculated as total customer deposits
less Ulster Bank RoI customer deposits.
Refer to page 3 for further details.
As at
31 March 31 December 31 March
2022 2021 2021
£bn £bn £bn
Total customer deposits 482.9 479.8 453.3
Less Ulster Bank RoI customer deposits (17.3) (18.4) (18.4)
Go-forward group customer deposits 465.6 461.4 434.9
Performance metrics not defined under IFRS
Metrics based on GAAP measures, included as not defined under IFRS and
reported for compliance with the European Securities and Markets Authority
(ESMA) adjusted performance measure rules.
1. Loan:deposit ratio
Loan:deposit ratio is calculated as net customer loans held at amortised cost
excluding reverse repos divided by total customer deposits excluding repos.
Prior periods have been re-presented.
This is a common metric used to assess liquidity. The removal of repos and
reverse repos reduces volatility and presents the ratio on a basis that is
comparable to UK peers.
Refer to page 3 for further details.
As at
31 March 31 December 31 March
2022 2021 2021
£m £m £m
Loans to customers - amortised cost 365,340 358,990 358,728
Less reverse repos (26,780) (25,962) (20,548)
338,560 333,028 338,180
Customer deposits 482,887 479,810 453,308
Less repos (16,166) (14,541) (16,141)
466,721 465,269 437,167
Loan:deposit ratio (%) 73% 72% 77%
2. Loan impairment rate
Loan impairment rate is the annualised loan impairment charge divided by gross
customer loans.
Refer to pages 3, 6 to 8 and 11 to 13 for further details.
3. Funded assets
Funded assets is calculated as total assets less derivative assets.
This measure allows review of balance sheet trends exclusive of the volatility
associated with derivative fair values.
Refer to pages 3, 8 and 11 to 13 for further details.
4. AUMAs
AUMA comprises both assets under management (AUMs) and assets under
administration (AUAs) serviced through the Private Banking franchise. AUMs
comprise assets where the investment management is undertaken by Private
Banking on behalf of Private Banking, Retail Banking and Commercial &
Institutional customers. AUAs comprise third party assets held on an
execution-only basis in custody by Private Banking, Retail Banking and
Commercial & Institutional for their customers, for which the execution
services are supported by Private Banking. Private Banking receives a fee for
providing investment management and execution services to Retail Banking and
Commercial & Institutional franchises.
Private Banking is the centre of expertise for asset management across
NatWest Group servicing all client segments across Retail, Premier and Private
Banking.
Refer to pages 3 and 7 for further details.
5. Depositary assets
Assets held by Commercial & Institutional as an independent trustee and in
a depositary service capacity.
Depositary assets are a closely monitored KPI for the Commercial &
Institutional business and its inclusion in commentary highlights the services
provided.
Refer to page 8 for further details.
6. Wholesale funding
Wholesale funding comprises deposits by banks, debt securities in issue and
subordinated liabilities.
This is a closely monitored metric used across the banking industry to ensure
capital requirements are being met.
Refer to page 3 for further details.
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