REG - NatWest Group plc - NWG plc Q1 2023 Interim Management Statement
28/04/2023 07:15
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RNS Number : 7892X NatWest Group plc 28 April 2023
Q1 2023
Interim Management Statement
natwestgroup.com
NatWest Group Q1 2023 Results
Page
Highlights 2
Business performance summary
Chief Financial Officer review 4
Retail Banking 5
Private Banking 6
Commercial & Institutional 7
Central items & other 8
Segment performance Error! Bookmark not defined.
Risk and capital management
Credit risk 12
Capital, liquidity and funding risk 19
Condensed consolidated financial statements Error! Bookmark not defined.
Notes to the financial statements 29
Additional information 31
Appendix - Non-IFRS financial measures 34
NatWest Group plc
Q1 2023 Interim Management Statement
Chief Executive, Alison Rose, commented:
"NatWest Group's strong performance in Q1 2023 is underpinned by our robust
balance sheet, our high levels of capital and liquidity and our
well-diversified loan book. Through a period of significant macro disruption
and uncertainty, we continue to stand alongside the people, families and
businesses we serve, providing targeted support and growing our lending
responsibly.
Our disciplined and consistent approach to risk management means that arrears
and impairments remain low. By monitoring customer behaviour and looking
closely for signs of financial distress, we are able to put in place proactive
measures to help those who are struggling right now and those who are worried
about the future.
As we continue to make progress against our strategic priorities, NatWest
Group is well positioned to navigate this challenging operating environment
and to deliver sustainable growth and returns by responding to new and
emerging trends that are shaping the lives of our customers."
Strong Q1 2023 performance
- Q1 2023 attributable profit of £1,279 million and a return on
tangible equity of 19.8%.
- Total income, excluding notable items, increased by £1,036 million,
or 37.2%, compared with Q1 2022 principally reflecting the impact of volume
growth and yield curve movements.
- Bank net interest margin (NIM) of 3.27% was 7 basis points higher than
Q4 2022.
- Other operating expenses were £214 million, or 12.5%, higher than Q1
2022 driven by increased staff costs due to a one-off cost of living payment
of around £60 million, increased costs in areas of strategic investment and
costs in relation to our withdrawal from the Republic of Ireland. The
cost:income ratio (excl. litigation and conduct) was 49.8% at Q1 2023.
- A net impairment charge of £70 million, or 7 basis points of gross
customer loans, principally reflected the continued strong performance of our
lending book. Levels of default remain stable and at low levels across the
portfolio.
Robust balance sheet with strong capital and liquidity levels
- Net loans to customers excluding central items increased by £5.7
billion to £352.4 billion, or 1.6%, primarily reflecting £3.9 billion of
mortgage growth in Retail Banking and a £1.6 billion increase in Commercial
& Institutional.
- Customer deposits excluding central items reduced by £11.1 billion,
or 2.6%, in the quarter reflecting around £8 billion higher customer tax
payments, competition for deposits and an overall market liquidity
contraction.
- The loan:deposit ratio (LDR) (excl. repos and reverse repos) was 83%
at Q1 2023, with customer deposits exceeding net loans to customers by around
£55 billion.
- The liquidity coverage ratio (LCR) of 139%, representing £43.4
billion headroom above 100% minimum requirement, decreased by 6 percentage
points compared with Q4 2022 primarily due to reduced customer deposits and
lending growth.
- Common Equity Tier (CET1) ratio of 14.4% was 20 basis points higher
than Q4 2022 principally reflecting the attributable profit partially offset
by a £2.0 billion increase in risk-weighted assets (RWAs) and a £0.5 billion
ordinary dividend accrual.
- As at 26 April 2023 we had completed £458 million of the £800
million share buyback programme announced as part of our year end 2022
results.
- RWAs increased by £2.0 billion in the quarter to £178.1 billion
largely reflecting lending growth and a £1.1 billion increase associated with
the annual update to operational risk balances.
Outlook ((1))
- We retain the outlook guidance provided in the 2022 Annual Report
and Accounts.
(1) The guidance, targets, expectations and trends discussed in this
section represent NatWest Group plc management's current expectations and are
subject to change, including as a result of the factors described in the
NatWest Group plc Risk Factors in the 2022 Annual Report and Accounts and Form
20-F. These statements constitute forward-looking statements. Refer to
Forward-looking statements in this announcement.
Business performance summary
Quarter ended
31 March 31 December 31 March
2023 2022 2022
Summary consolidated income statement £m £m £m
Net interest income 2,902 2,868 2,027
Non-interest income 974 840 981
Total income 3,876 3,708 3,008
Litigation and conduct costs (56) (91) (102)
Other operating expenses (1,932) (2,047) (1,718)
Operating expenses (1,988) (2,138) (1,820)
Profit before impairment losses/releases 1,888 1,570 1,188
Impairment (losses)/releases (70) (144) 36
Operating profit before tax 1,818 1,426 1,224
Tax charge (512) (46) (386)
Profit from continuing operations 1,306 1,380 838
Profit/(loss) from discontinued operations, net of tax 35 (56) 63
Profit for the period 1,341 1,324 901
Performance key metrics and ratios
Notable items within income (1) £56m £(58)m £224m
Total income excluding notable items (1) £3,820m £3,766m £2,784m
Climate and sustainable funding and financing (2) £7.6bn £6.4bn £5.6bn
Bank net interest margin (1) 3.27% 3.20% 2.45%
Bank average interest earning assets (1) £360bn £356bn £335bn
Cost:income ratio (excl. litigation and conduct) (1) 49.8% 55.2% 57.1%
Loan impairment rate (1) 7bps 16bps (4)bps
Profit attributable to ordinary shareholders £1,279m £1,262m £841m
Total earnings per share attributable to ordinary shareholders - basic (3) 13.2p 13.1p 8.1p
Return on tangible equity (RoTE) (1) 19.8% 20.6% 11.3%
As at
31 March 31 December 31 March
2023 2022 2022
Balance sheet £bn £bn £bn
Total assets 695.6 720.1 785.4
Net loans to customers - amortised cost 374.2 366.3 365.3
Net loans to customers excluding central items (1) 352.4 346.7 330.2
Loans to customers and banks - amortised cost and FVOCI 385.8 377.1 375.7
Total impairment provisions (4) 3.4 3.4 3.6
Expected credit loss (ECL) coverage ratio 0.9% 0.9% 1.0%
Assets under management and administration (AUMA) (1) 35.2 33.4 35.0
Customer deposits 430.5 450.3 482.9
Customer deposits excluding central items (1,5) 421.8 432.9 447.9
Liquidity and funding
Liquidity coverage ratio (LCR) 139% 145% 167%
Liquidity portfolio 210 226 275
Net stable funding ratio (NSFR) 141% 145% 152%
Loan:deposit ratio (excl. repos and reverse repos) (1) 83% 79% 73%
Total wholesale funding 79 74 76
Short-term wholesale funding 25 21 22
Capital and leverage
Common Equity Tier (CET1) ratio (6) 14.4% 14.2% 15.2%
Total capital ratio (6) 19.6% 19.3% 20.4%
Pro forma CET1 ratio (excl. foreseeable items) (7) 15.7% 15.4% 16.1%
Risk-weighted assets (RWAs) 178.1 176.1 176.8
UK leverage ratio 5.4% 5.4% 5.5%
Tangible net asset value (TNAV) per ordinary share (8) 278p 264p 269p
Number of ordinary shares in issue (millions) (8) 9,581 9,659 10,622
(1) Refer to the Non-IFRS financial measures appendix for details of the basis of
preparation and reconciliation of non-IFRS financial measures and performance
metrics.
(2) NatWest Group uses its climate and sustainable funding and financing inclusion
criteria to determine the assets, activities and companies that are eligible
to be included within its climate and sustainable funding and financing
targets. This includes both provision for funding and financing, including
provision of services for underwriting issuances and private placements. Up to
31 March 2023 we have provided £40.2 billion against our target to provide
£100 billion climate and sustainable funding and financing between 1 July
2021 and the end of 2025. As part of this, we aim to provide at least £10
billion in lending for EPC A- and B-rated residential properties between 1
January 2023 and the end of 2025. During Q1 2023 we provided £7.6 billion
climate and sustainable funding and financing, which included £1.3 billion in
lending for EPC A- and B-rated residential properties.
(3) On 30 August 2022 the issued ordinary share capital was consolidated in the
ratio of 14 existing shares for 13 new shares. The average number of shares
for earnings per share has been adjusted retrospectively.
(4) Includes £0.1 billion relating to off-balance sheet exposures (31 December
2022 - £0.1 billion; 31 March 2022 - £0.1 billion).
(5) Central items includes Treasury repo activity and Ulster Bank Republic of
Ireland.
(6) Refer to the capital, liquidity and funding risk section for details of basis
of preparation.
(7) The pro forma CET1 ratio at 31 March 2023 excludes foreseeable items of
£2,351 million; £1,479 million for ordinary dividends and £872 million
foreseeable charges (31 December 2022 excludes foreseeable items of £2,132
million; £967 million for ordinary dividends and £1,165 million foreseeable
charges; 31 March 2022 excludes foreseeable charges of £1,623 million,
£1,096 million for ordinary dividends and £527 million foreseeable charges).
(8) The number of ordinary shares in issue excludes own shares held. Comparatives
for the number of shares in issue and TNAV per ordinary share have not been
adjusted for the effect of the share consolidation referred to in footnote 3
above.
Business performance summary
Chief Financial Officer review
We delivered a strong operating performance in the first quarter with a RoTE
of 19.8%. Total income, excluding notable items, was up by 37.2% on the prior
year and we continue to see low levels of default across our portfolio. We
have seen strong lending growth in the first quarter balanced across the book
and, whilst we have seen outflows in customer deposits as a result of tax
payments, market movements and customer behaviour, we remain in a strong
liquidity position, with a LCR of 139%, representing £43.4 billion headroom
above 100% minimum requirement, and an LDR of 83%. Our CET1 ratio remains
strong at 14.4%. We remain on track to achieve the targets we announced as
part of the full year results in February 2023.
Financial performance
Total income increased by 28.9% to £3,876 million compared with Q1 2022.
Total income, excluding notable items, was £1,036 million, or 37.2%, higher
than Q1 2022 driven by volume growth, favourable yield curve movements and a
strong performance in Commercial & Institutional trading income.
Bank NIM of 3.27% was 7 basis points higher than Q4 2022, principally
reflecting the beneficial impact of recent base rate rises partially offset by
reduced mortgage margins.
In line with our expectations, other operating expenses were £214 million, or
12.5%, higher than Q1 2022 principally driven by increased staff costs due to
a one-off cost of living payment of around £60 million, increased strategic
investment costs, such as Financial Crime and Data, and exit costs in relation
to our withdrawal from the Republic of Ireland. We remain on track to deliver
on our full year cost guidance.
A net impairment charge of £70 million principally reflects a £114 million
charge in Retail Banking partially offset by modelled good book releases in
Commercial & Institutional. Levels of default remain stable and at low
levels across the portfolio. Compared with Q4 2022, our ECL provision remained
flat at £3.4 billion and our ECL coverage ratio has decreased from 0.91% to
0.89%. We retain post model adjustments of £0.3 billion related to economic
uncertainty, or 9.7% of total impairment provisions. Whilst we are comfortable
with the strong credit performance of our book, we will continue to assess
this position regularly and are closely monitoring the impacts of inflationary
pressures on the UK economy and our customers.
As a result, we are pleased to report an attributable profit for Q1 2023 of
£1,279 million, with earnings per share of 13.2 pence and a RoTE of 19.8%.
Net loans to customers increased by £7.9 billion in Q1 2023 primarily
reflecting £3.9 billion of mortgage lending growth in Retail Banking, a £1.6
billion increase in Commercial & Institutional and a £2.3 billion
increase in Treasury reverse repo balances. Retail Banking gross new mortgage
lending was £9.5 billion in the quarter compared with £9.1 billion in Q1
2022 and £11.5 billion in Q4 2022. Within Commercial & Institutional,
growth was largely in Corporate & Institutions partly offset by UK
Government Scheme repayments of £0.7 billion in the quarter.
Up to 31 March 2023 we have provided £40.2 billion against our target to
provide £100 billion climate and sustainable funding and financing between 1
July 2021 and the end of 2025. As part of this we aim to provide at least £10
billion in lending for EPC A- and B-rated residential properties between 1
January 2023 and the end of 2025. During Q1 2023 we provided £7.6 billion
climate and sustainable funding and financing, which included £1.3 billion in
lending for EPC A- and B-rated residential properties.
Customer deposits decreased by £19.8 billion in the quarter, including an
£8.7 billion reduction in Central items & other related to our exit from
the Republic of Ireland and Treasury repo activity. Customer deposits
excluding central items reduced by £11.1 billion reflecting customer tax
payments which were higher than previous years, competition for deposits and
an overall market liquidity contraction. 68% of personal((1)) deposits and 39%
of total customer deposits were insured at the end of Q1 2023. Looking ahead,
we now expect full year 2023 customer deposits excluding central items to be
stable to modestly lower than the £432.9 billion reported at full year 2022,
although we recognise that balance movements are challenging to predict with
significant uncertainties around macroeconomic factors, customer behaviour and
market dynamics.
TNAV per share increased by 14 pence in the quarter to 278 pence primarily
reflecting the attributable profit.
Capital and leverage
The CET1 ratio remains robust at 14.4%, or 14.3% excluding IFRS 9 transitional
relief, and increased by 20 basis points in the quarter principally reflecting
the attributable profit, partially offset by a £2.0 billion increase in RWAs
and an £0.5 billion ordinary dividend accrual. NatWest Group's total loss
absorbing capacity ratio was 32.4%.
We have made good progress on the £800 million share buyback programme
announced as part of our 2022 year end results, with £458 million completed
as at 26 April 2023.
RWAs increased by £2.0 billion in the quarter to £178.1 billion largely
reflecting lending growth and a £1.1 billion increase associated with the
annual update to operational risk balances.
Funding and liquidity
The LCR decreased by 6 percentage points to 139%, representing £43.4 billion
headroom above 100% minimum requirements primarily due to reduced customer
deposits and lending growth, partially offset by new issuances during the
quarter. Our primary liquidity at Q1 2023 was £149 billion and £120 billion,
or 81%, of this was cash at central banks. Total wholesale funding increased
by £5.0 billion in the quarter to £79.5 billion.
(1) Personal deposits are ring fenced bank deposits attributable to
individuals and sole traders, and excludes Ulster Bank RoI.
Business performance summary
Retail Banking
Quarter ended
31 March 31 December 31 March
2023 2022 2022
£m £m £m
Total income 1,604 1,617 1,217
Operating expenses (696) (658) (645)
of which: Other operating expenses (693) (670) (591)
Impairment losses (114) (87) (5)
Operating profit 794 872 567
Return on equity (1) 30.0% 34.7% 23.1%
Net interest margin (1) 2.99% 3.02% 2.43%
Cost:income ratio (excl. litigation and conduct) (1) 43.2% 41.4% 48.6%
Loan impairment rate (1) 22bps 17bps 1bp
As at
31 March 31 December 31 March
2023 2022 2022
£bn £bn £bn
Net loans to customers (amortised cost) 201.7 197.6 184.9
Customer deposits 184.0 188.4 189.7
RWAs 55.6 54.7 52.2
(1) Refer to the Non-IFRS financial measures appendix for details of the basis of
preparation and reconciliation of non-IFRS financial measures and performance
metrics.
In Q1 2023, Retail Banking continued to pursue sustainable growth with an
intelligent approach to risk, delivering a return on equity of 30.0% and an
operating profit of £794 million.
Retail Banking provided £1.2 billion of climate and sustainable funding and
financing in Q1 2023.
- Total income was £387 million, or 31.8%, higher than Q1 2022 reflecting
continued strong loan growth and higher deposit income supported by interest
rate rises, partially offset by a reduction in mortgage margins, lower deposit
balances and non-repeat of insurance profit share from Q1 2022.
- Net interest margin was 3 basis points lower than Q4 2022 reflecting lower
mortgage margins, largely offset by higher deposit returns and non-repeat of
the Q4 2022 review of mortgage customer repayment behaviour.
- Other operating expenses were £102 million, or 17.3%, higher than Q1 2022
reflecting continued investment in the business and higher pay awards to
support our colleagues with cost of living challenges, increased investment in
financial crime prevention, increased data costs and increased restructuring
costs.
- A net impairment charge of £114 million in Q1 2023 as stage 3 defaults remain
stable.
- Customer deposits decreased by £4.4 billion, or 2.3%, in Q1 2023 reflecting
the impact of customer tax payments which were higher than previous years,
lower household liquidity and increased competition for savings balances.
Personal current account balances decreased by £2.6 billion and personal
savings decreased by £1.8 billion in Q1 2023. We have seen growth in our
fixed term savings products in Q1 2023.
- Net loans to customers increased by £4.1 billion, or 2.1%, in Q1 2023 mainly
reflecting continued mortgage growth of £3.9 billion, or 2.1% with gross new
mortgage lending of £9.5 billion, representing flow share of around 16%,
particularly benefitting from elevated application volumes received in
September and October 2022. Cards balances increased by £0.2 billion, or
4.5%, and personal advances increased by £0.1 billion, or 1.3% in Q1 2023
with strong customer demand and disciplined credit risk appetite.
- RWAs increased by £0.9 billion or 1.6% primarily reflecting lending volume
growth and an increase associated with the annual update to operational risk
balances.
Business performance summary
Private Banking
Quarter ended
31 March 31 December 31 March
2023 2022 2022
£m £m £m
Total income 296 310 216
Operating expenses (155) (198) (139)
of which: Other operating expenses (152) (188) (138)
Impairment (losses)/releases (8) (2) 5
Operating profit 133 110 82
Return on equity (1) 28.5% 24.2% 18.2%
Net interest margin (1) 4.83% 5.19% 3.07%
Cost:income ratio (excl. litigation and conduct) (1) 51.4% 60.6% 63.9%
Loan impairment rate (1) 17bps 4bps (11)bps
Net new money (£bn) (1) 0.6 0.3 0.8
As at
31 March 31 December 31 March
2023 2022 2022
£bn £bn £bn
Net loans to customers (amortised cost) 19.2 19.2 18.7
Customer deposits 37.3 41.2 40.3
RWAs 11.4 11.2 11.5
Assets under management (AUMs) (1) 29.6 28.3 29.6
Assets under administration (AUAs) (1) 5.6 5.1 5.4
Total assets under management and administration (AUMAs) (1) 35.2 33.4 35.0
(1) Refer to the Non-IFRS financial measures appendix for details of the basis of
preparation and reconciliation of non-IFRS financial measures and performance
metrics.
In Q1 2023, Private Banking provided a strong operating performance,
delivering a return on equity of 28.5%, and an operating profit of £133
million.
Private Banking provided £0.1 billion of climate and sustainable funding and
financing in Q1 2023.
- Total income was £80 million, or 37.0%, higher than Q1 2022 reflecting higher
deposit income supported by interest rate rises, partially offset by a
reduction in mortgage margins and lower deposit balances.
- Net interest margin was 36 basis points lower than Q4 2022 reflecting lower
mortgage margins, lower deposit volumes and increased capital issuance and
funding costs.
- Other operating expenses were £14 million, or 10.1%, higher than Q1 2022 due
to the impact of pay awards to support colleagues with cost of living
challenges, and increased investment in technology and FTE to support AUMA
growth propositions.
- A net impairment charge of £8 million in Q1 2023 reflects good book increases
predominantly generated from probability of default movements.
- AUMAs increased by £1.8 billion, or 5.4%, in Q1 2023 primarily reflecting AUM
net new money of £0.6 billion, representing 7.3% of opening AUMA balances and
positive investment market movements.
- Customer deposits decreased by £3.9 billion, or 9.5% in Q1 2023 driven by tax
outflows which were higher than previous years, as well as increased
competition for savings balances. We have seen growth in our fixed term
savings products in Q1 2023.
- Net loans to customers remained flat in Q1 2023.
Business performance summary
Commercial & Institutional
Quarter ended
31 March 31 December 31 March
2023 2022 2022
£m £m £m
Net interest income 1,261 1,276 803
Non-interest income 692 543 572
Total income 1,953 1,819 1,375
Operating expenses (1,003) (1,031) (922)
of which: Other operating expenses (959) (989) (880)
Impairment releases/(losses) 44 (62) 11
Operating profit 994 726 464
Return on equity (1) 19.5% 13.7% 8.8%
Net interest margin (1) 3.90% 3.89% 2.69%
Cost:income ratio (excl. litigation and conduct) (1) 49.1% 54.4% 64.0%
Loan impairment rate (1) (13)bps 19bps (3)bps
As at
31 March 31 December 31 March
2023 2022 2022
£bn £bn £bn
Net loans to customers (amortised cost) 131.5 129.9 126.6
Customer deposits 200.5 203.3 217.9
Funded assets (1) 320.4 306.3 334.6
RWAs 104.8 103.2 100.3
(1) Refer to the Non-IFRS financial measures appendix for details of the basis of
preparation and reconciliation of non-IFRS financial measures and performance
metrics.
During Q1 2023, Commercial & Institutional delivered a strong performance
with a return on equity of 19.5% and an operating profit of £994 million.
Commercial & Institutional provided £6.3 billion of climate and
sustainable funding and financing in Q1 2023.
- Total income was £578 million, or 42.0%, higher than Q1 2022 reflecting
higher deposit returns from an improved interest rate environment, lending
volume growth, credit and debit card fees and higher markets income.
- Net interest margin was 1 basis point higher than Q4 2022 driven by higher
deposit returns partly offset by increased capital issuance and funding costs.
- Other operating expenses were £79 million, or 9.0%, higher than Q1 2022 as
expected reflecting continued investment in the business and ongoing support
to our colleagues with cost of living challenges.
- A net impairment release of £44 million in Q1 2023 reflecting modelled good
book releases. Stage 3 defaults remain stable and at low levels.
- Customer deposits decreased by £2.8 billion, or 1.4% in Q1 2023 primarily due
to overall market liquidity contraction. The impact was mainly in Business
Banking and Commercial Mid-market, partly offset by growth in Corporate &
Institutions balances.
- Net loans to customers increased by £1.6 billion, or 1.2%, in Q1 2023 due to
strong performance from origination deals and private financing activity
within Corporate & Institutions and Commercial Mid-market growth in
revolving credit facility utilisation, partly offset by UK Government scheme
repayments of £0.7 billion.
- RWAs increased by £1.6 billion, or 1.6%, in Q1 2023 primarily reflecting
increased client lending facilities, partly offset by a reduction in market
risk RWAs.
Business performance summary
Central items & other
Quarter ended
31 March 31 December 31 March
2023 2022 2022
£m £m £m
Continuing operations
Total income 23 (38) 200
Operating expenses (1) (134) (251) (114)
of which: Other operating expenses (128) (200) (109)
of which: Ulster Bank RoI (145) (310) (113)
Impairment releases 8 7 25
Operating (loss)/profit (103) (282) 111
of which: Ulster Bank RoI (159) (354) (63)
As at
31 March 31 December 31 March
2023 2022 2022
£bn £bn £bn
Net loans to customers (amortised cost) (2) 21.8 19.6 35.1
Customer deposits 8.7 17.4 35.0
RWAs 6.3 7.0 12.8
(1) Includes withdrawal-related direct program costs of £49 million for the
quarter ended 31 March 2023 (31 December 2022 - £151 million; 31 March 2022 -
£10 million).
(2) Excludes £0.5 billion of loans to customers held at fair value through profit
or loss (31 December 2022 - £0.5 billion; 31 March 2022 - nil).
- Total income was £177 million lower than Q1 2022 primarily reflecting lower
gains on interest and FX risk management derivatives not in accounting hedge
relationships, reduced Business Growth Fund gains, lower gains on liquidity
asset bond sales, and the effect of withdrawing operations from the Republic
of Ireland.
- Other operating expenses were £19 million, or 17.4%, higher than Q1 2022
primarily reflecting higher costs in relation to programme withdrawal costs in
the Republic of Ireland.
- Customer deposits decreased by £8.7 billion, or 50.0%, in Q1 2023 primarily
reflecting the continued withdrawal of our operations from the Republic of
Ireland and Treasury repo activity. Ulster Bank RoI customer deposit balances
were £1.8 billion as at Q1 2023.
- Net loans to customers increased £2.2 billion in Q1 2023 mainly due to
reverse repo activity in Treasury.
Segment performance
Quarter ended 31 March 2023
Retail Private Commercial & Central items Total NatWest
Banking Banking Institutional & other Group
£m £m £m £m £m
Continuing operations
Income statement
Net interest income 1,492 229 1,261 (80) 2,902
Non-interest income 112 67 692 103 974
Total income 1,604 296 1,953 23 3,876
Direct expenses (209) (56) (358) (1,309) (1,932)
Indirect expenses (484) (96) (601) 1,181 -
Other operating expenses (693) (152) (959) (128) (1,932)
Litigation and conduct costs (3) (3) (44) (6) (56)
Operating expenses (696) (155) (1,003) (134) (1,988)
Operating profit/(loss) before impairment losses/releases 908 141 950 (111) 1,888
Impairment (losses)/releases (114) (8) 44 8 (70)
Operating profit/(loss) 794 133 994 (103) 1,818
Total income excluding notable items (1) 1,604 296 1,947 (27) 3,820
Additional information
Return on tangible equity (1) na na na na 19.8%
Return on equity (1) 30.0% 28.5% 19.5% nm na
Cost:income ratio (excl. litigation and conduct) (1) 43.2% 51.4% 49.1% nm 49.8%
Total assets (£bn) 227.2 28.1 399.0 41.3 695.6
Funded assets (£bn) (1) 227.2 28.1 320.4 40.5 616.2
Net loans to customers - amortised cost (£bn) 201.7 19.2 131.5 21.8 374.2
Loan impairment rate (1) 22bps 17bps (13)bps nm 7bps
Impairment provisions (£bn) (1.7) (0.1) (1.5) (0.1) (3.4)
Impairment provisions - stage 3 (£bn) (1.0) - (0.7) (0.1) (1.8)
Customer deposits (£bn) 184.0 37.3 200.5 8.7 430.5
Risk-weighted assets (RWAs) (£bn) 55.6 11.4 104.8 6.3 178.1
RWA equivalent (RWAe) (£bn) 56.4 11.4 106.2 6.9 180.9
Employee numbers (FTEs - thousands) 13.9 2.2 12.4 33.3 61.8
Third party customer asset rate (1) 2.94% 4.07% 5.38% nm nm
Third party customer funding rate (1) (0.83%) (1.15%) (0.87%) nm nm
Bank average interest earning assets (£bn) (1) 202.1 19.2 131.3 na 360.0
Bank net interest margin (1) 2.99% 4.83% 3.90% na 3.27%
nm = not meaningful, na = not applicable
(1) Refer to the Non-IFRS financial measures appendix for details of the basis of
preparation and reconciliation of non-IFRS financial measures and performance
metrics.
Segment performance
Quarter ended 31 December 2022
Retail Private Commercial & Central items Total NatWest
Banking Banking Institutional & other Group
£m £m £m £m £m
Continuing operations
Income statement
Net interest income 1,505 251 1,276 (164) 2,868
Non-interest income 112 59 543 126 840
Total income 1,617 310 1,819 (38) 3,708
Direct expenses (202) (62) (396) (1,387) (2,047)
Indirect expenses (468) (126) (593) 1,187 -
Other operating expenses (670) (188) (989) (200) (2,047)
Litigation and conduct costs 12 (10) (42) (51) (91)
Operating expenses (658) (198) (1,031) (251) (2,138)
Operating profit/(loss) before impairment losses/releases 959 112 788 (289) 1,570
Impairment (losses)/releases (87) (2) (62) 7 (144)
Operating profit/(loss) 872 110 726 (282) 1,426
Total income excluding notable items (1) 1,617 310 1,838 1 3,766
Additional information
Return on tangible equity (1) na na na na 20.6%
Return on equity (1) 34.7% 24.2% 13.7% nm na
Cost:income ratio (excl. litigation and conduct) (1) 41.4% 60.6% 54.4% nm 55.2%
Total assets (£bn) 226.4 29.9 404.8 59.0 720.1
Funded assets (£bn) (1) 226.4 29.9 306.3 57.9 620.5
Net loans to customers - amortised cost (£bn) 197.6 19.2 129.9 19.6 366.3
Loan impairment rate (1) 17bps 4bps 19bps nm 16bps
Impairment provisions (£bn) (1.6) (0.1) (1.6) (0.1) (3.4)
Impairment provisions - stage 3 (£bn) (0.9) - (0.7) (0.1) (1.7)
Customer deposits (£bn) 188.4 41.2 203.3 17.4 450.3
Risk-weighted assets (RWAs) (£bn) 54.7 11.2 103.2 7.0 176.1
RWA equivalent (RWAe) (£bn) 54.7 11.2 104.6 7.5 178.0
Employee numbers (FTEs - thousands) 14.0 2.1 12.3 33.1 61.5
Third party customer asset rate (1) 2.72% 3.62% 4.44% nm nm
Third party customer funding rate (1) (0.49%) (0.65%) (0.53%) nm nm
Bank average interest earning assets (£bn) (1) 197.4 19.2 130.3 na 355.8
Bank net interest margin (1) 3.02% 5.19% 3.89% na 3.20%
nm = not meaningful, na = not applicable
(1) Refer to the Non-IFRS financial measures appendix for details of the basis of
preparation and reconciliation of non-IFRS financial measures and performance
metrics.
Segment performance
Quarter ended 31 March 2022
Retail Private Commercial & Central items Total NatWest
Banking Banking Institutional & other Group
£m £m £m £m £m
Continuing operations
Income statement
Net interest income 1,112 143 803 (31) 2,027
Non-interest income 105 73 572 231 981
Total income 1,217 216 1,375 200 3,008
Direct expenses (161) (49) (407) (1,101) (1,718)
Indirect expenses (430) (89) (473) 992 -
Other operating expenses (591) (138) (880) (109) (1,718)
Litigation and conduct costs (54) (1) (42) (5) (102)
Operating expenses (645) (139) (922) (114) (1,820)
Operating profit before impairment losses/releases 572 77 453 86 1,188
Impairment (losses)/releases (5) 5 11 25 36
Operating profit 567 82 464 111 1,224
Total income excluding notable items (1) 1,217 216 1,357 (6) 2,784
Additional information
Return on tangible equity (1) na na na na 11.3%
Return on equity (1) 23.1% 18.2% 8.8% nm na
Cost:income ratio (excl. litigation and conduct) (1) 48.6% 63.9% 64.0% nm 57.1%
Total assets (£bn) 210.7 29.6 433.5 111.6 785.4
Funded assets (£bn) (1) 210.7 29.6 334.6 110.5 685.4
Net loans to customers - amortised cost (£bn) 184.9 18.7 126.6 35.1 365.3
Loan impairment rate (1) 1bp (11)bps (3)bps nm (4)bps
Impairment provisions (£bn) (1.5) (0.1) (1.6) (0.4) (3.6)
Impairment provisions - stage 3 (£bn) (0.9) - (0.7) (0.4) (2.0)
Customer deposits (£bn) 189.7 40.3 217.9 35.0 482.9
Risk-weighted assets (RWAs) (£bn) 52.2 11.5 100.3 12.8 176.8
RWA equivalent (RWAe) (£bn) 52.2 11.5 102.6 13.1 179.4
Employee numbers (FTEs - thousands) 14.0 1.9 11.8 30.5 58.2
Third party customer asset rate (1) 2.59% 2.53% 2.83% nm nm
Third party customer funding rate (1) (0.05%) (0.01%) (0.02%) nm nm
Bank average interest earning assets (£bn) (1) 185.5 18.9 121.0 na 334.9
Bank net interest margin (1) 2.43% 3.07% 2.69% na 2.45%
nm = not meaningful, na = not applicable
(1) Refer to the Non-IFRS financial measures appendix for details of the basis of
preparation and reconciliation of non-IFRS financial measures and performance
metrics.
Risk and capital management
Page
Credit risk
Segment analysis - portfolio summary 13
Segment analysis - loans 14
Movement in ECL provision 14
ECL post model adjustments 15
Sector analysis - portfolio summary 16
Wholesale support schemes 17
Capital, liquidity and funding risk 19
Risk and capital management
Credit risk
Segment analysis - portfolio summary
The table below shows gross loans and ECL, by segment and stage, within the
scope of the IFRS 9 ECL framework.
Retail Private Commercial & Central items
Banking Banking Institutional & other Total
31 March 2023 £m £m £m £m £m
Loans - amortised cost and FVOCI (1)
Stage 1 174,806 18,468 114,862 25,750 333,886
Stage 2 25,636 735 20,241 178 46,790
Stage 3 2,666 223 2,117 109 5,115
Of which: individual - 175 855 35 1,065
Of which: collective 2,666 48 1,262 74 4,050
Subtotal excluding disposal group loans 203,108 19,426 137,220 26,037 385,791
Disposal group loans 1,195 1,195
Total 27,232 386,986
ECL provisions (2)
Stage 1 243 27 395 16 681
Stage 2 498 14 444 28 984
Stage 3 971 28 719 64 1,782
Of which: individual - 28 237 8 273
Of which: collective 971 - 482 56 1,509
Subtotal excluding ECL provisions on disposal group loans 1,712 69 1,558 108 3,447
ECL provisions on disposal group loans 49 49
Total 157 3,496
ECL provisions coverage (3)
Stage 1 (%) 0.14 0.15 0.34 0.06 0.20
Stage 2 (%) 1.94 1.90 2.19 15.73 2.10
Stage 3 (%) 36.42 12.56 33.96 58.72 34.84
ECL provisions coverage excluding disposal group loans 0.84 0.36 1.14 0.41 0.89
ECL provisions coverage on disposal group loans 4.10 4.10
Total 0.58 0.90
31 December 2022
Loans - amortised cost and FVOCI (1)
Stage 1 174,727 18,367 108,791 23,339 325,224
Stage 2 21,561 801 24,226 245 46,833
Stage 3 2,565 242 2,166 123 5,096
Of which: individual - 168 905 48 1,121
Of which: collective 2,565 74 1,261 75 3,975
Subtotal excluding disposal group loans 198,853 19,410 135,183 23,707 377,153
Disposal group loans 1,502 1,502
Total 25,209 378,655
ECL provisions (2)
Stage 1 251 21 342 18 632
Stage 2 450 14 534 45 1,043
Stage 3 917 26 747 69 1,759
Of which: individual - 26 251 10 287
Of which: collective 917 - 496 59 1,472
Subtotal excluding ECL provisions on disposal group loans 1,618 61 1,623 132 3,434
ECL provisions on disposal group loans 53 53
Total 185 3,487
ECL provisions coverage (3)
Stage 1 (%) 0.14 0.11 0.31 0.08 0.19
Stage 2 (%) 2.09 1.75 2.20 18.37 2.23
Stage 3 (%) 35.75 10.74 34.49 56.10 34.52
ECL provisions coverage excluding disposal group loans 0.81 0.31 1.20 0.56 0.91
ECL provisions coverage on disposal group loans 3.53 3.53
Total 0.73 0.92
(1) Fair value through other comprehensive income (FVOCI). Includes loans to
customers and banks.
(2) Includes £5 million (31 December 2022 - £3 million) related to assets
classified as FVOCI and £0.1 billion (31 December 2022 - £0.1 billion)
related to off-balance sheet exposures.
(3) ECL provisions coverage is calculated as ECL provisions divided by loans -
amortised cost and FVOCI. It is calculated on third party loans and total ECL
provisions.
(4) 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 £122.2
billion (31 December 2022 - £143.3 billion) and debt securities of £30.9
billion (31 December 2022 - £29.9 billion).
Risk and capital management
Credit risk continued
Segment analysis - loans
- Total ECL coverage reduced to 0.89% in Q1 2023, from 0.91% in Q4 2022
reflecting growth in exposures to financial institutions where coverage is
significantly lower and some positive trends in underlying risk metrics in
Commercial & Institutional. This was partially offset by an increase in
Retail Banking coverage as a result of increased ECL on unsecured portfolios
and reduced write-off activity in the quarter.
- The economic scenarios driving the ECL requirement, as well as model
performance considerations, were consistent with those described in the
NatWest Group plc 2022 Annual Report and Accounts.
- Retail Banking - Balance sheet growth during Q1 2023 mainly reflected
continued mortgage growth. Unsecured balances increased by £0.3 billion,
primarily in credit cards, as a result of customer demand alongside
disciplined credit risk appetite. Total ECL coverage increased from 0.81% to
0.84% during the quarter. The increase in coverage was reflective of increased
Stage 3 ECL on unsecured portfolios, mainly due to reduced write-off activity
in the quarter. Stable good book coverage captures continued stable portfolio
performance, while maintaining sufficient ECL coverage given the increased
inflationary and economic pressures on customers. Stage 2 balances increased
as a result of the predicted rise in unemployment, therefore increasing IFRS 9
probability of defaults on a forward-looking basis.
- Commercial & Institutional - Balance sheet growth in Q1 2023 was
driven by a number of corporate and financial institutions sectors. Sector
appetite continues to be reviewed regularly, with particular focus on sector
clusters and sub-sectors that are vulnerable to inflationary pressures or
deemed to represent a heightened risk.
- Total ECL coverage reduced, reflecting some positive trends in
underlying risk metrics and a decrease in COVID-19 post model adjustments
resulting in ECL releases. The coverage remains sufficient for the expected
increase in charges from inflationary pressures and increases in early problem
debt trends. Stage 2 ECL reduced significantly as a number of customers
migrated back into Stage 1 due to the positive trends in underlying risk
metrics which also resulted in an increase in Stage 1 ECL. Stage 3 ECL
decreased with write-offs and releases more than offsetting flows into
default.
Movement in ECL provision
The table below shows the main ECL provision movements during the quarter.
ECL provision
£m
At 1 January 2023 3,434
Transfers to disposal groups and reclassifications (10)
Changes in risk metrics and exposure: Stage 1 and Stage 2 15
Changes in risk metrics and exposure: Stage 3 81
Judgemental changes: changes in post model adjustments for Stage 1, Stage 2 (17)
and Stage 3
Write-offs and other (56)
At 31 March 2023 3,447
- ECL marginally increased in Q1 2023, with increases in Stage 3 largely
offset by write-offs and reductions in post model adjustments.
- Stage 3 new defaults remained low during the quarter. Stage 3 ECL
balances in Retail Banking and Business Banking portfolios have increased,
mainly due to reduced write-off activity.
Risk and capital management
Credit risk continued
ECL post model adjustments
The table below shows ECL post model adjustments.
Retail Banking Private Commercial & Central
Mortgages Other Banking Institutional items & other Total
31 March 2023 £m £m £m £m £m £m
Economic uncertainty 96 53 6 173 5 333
Other adjustments 7 21 - 17 16 61
Total 103 74 6 190 21 394
Of which:
- Stage 1 42 26 3 67 5 143
- Stage 2 46 48 3 119 16 232
- Stage 3 15 - - 4 - 19
31 December 2022
Economic uncertainty 102 51 6 191 2 352
Other adjustments 8 20 - 16 15 59
Total 110 71 6 207 17 411
Of which:
- Stage 1 62 27 3 63 - 155
- Stage 2 32 44 3 139 16 234
- Stage 3 16 - - 5 1 22
(1) Excludes £0.3 million (31 December 2022 - £18 million) of post model
adjustments for Ulster Bank RoI disclosed as transfers to disposal groups.
- Retail Banking - The post model adjustments for economic uncertainty
were held at a broadly consistent level since 31 December 2022, totalling
£149 million (31 December 2022 - £153 million). The primary element of the
economic uncertainty adjustment was a £123 million ECL uplift (31 December
2022 - £127 million) to capture the risk on segments of the portfolio that
are more susceptible to the effects of a high-inflation environment and the
effects on affordability. This focuses on key affordability lenses, including
customers with lower incomes in fuel poverty, over-indebted borrowers, and
customers vulnerable to a potential mortgage rate shock effect on their
affordability. The small reduction in post model adjustments is supported by
underlying high-risk population movements, notably in fuel poverty. Other
judgmental overlays included a £20 million uplift for EAD modelling dynamics
in credit cards.
- Commercial & Institutional - The post model adjustments for economic
uncertainty have seen small decreases since 31 December 2022, now totalling
£173 million (31 December 2022 - £191 million). It included an adjustment of
£91 million, a £16 million reduction, to cover the residual risks from
COVID-19, including the risk that UK Government support schemes could affect
future recoveries and concerns surrounding associated debt, to customers that
have utilised UK Government support schemes. Inflation and supply chain issues
continue to present significant headwinds for a number of sectors which are
not fully captured in the models. An £82 million mechanistic adjustment, via
a sector-level downgrade, was applied to the sectors that were considered most
at risk from these headwinds.
Risk and capital management
Credit risk continued
Sector analysis - portfolio summary
The table below shows ECL by stage, for the Personal portfolio and selected
sectors of the Wholesale portfolio.
Off-balance sheet
Loans - amortised cost and FVOCI Loan Contingent ECL provisions
Stage 1 Stage 2 Stage 3 Total commitments liabilities Stage 1 Stage 2 Stage 3 Total
31 March 2023 £m £m £m £m £m £m £m £m £m £m
Personal 192,382 25,953 2,910 221,245 39,072 47 256 516 1,013 1,785
Mortgages 182,239 22,652 1,944 206,835 14,300 - 58 77 242 377
Credit cards 3,310 1,242 114 4,666 16,243 - 63 144 79 286
Other personal 6,833 2,059 852 9,744 8,529 47 135 295 692 1,122
Wholesale 141,504 20,837 2,205 164,546 88,863 4,526 425 468 769 1,662
Property 28,172 3,644 717 32,533 15,729 481 110 94 225 429
Financial institutions 49,684 2,207 36 51,927 17,387 1,511 40 16 12 68
Sovereign 5,341 115 28 5,484 652 - 13 1 4 18
Corporate 58,307 14,871 1,424 74,602 55,095 2,534 262 357 528 1,147
Of which:
Agriculture 3,897 947 114 4,958 949 25 22 30 50 102
Airlines and aerospace 1,030 786 17 1,833 1,544 67 7 15 7 29
Automotive 6,334 992 44 7,370 4,053 85 19 13 12 44
Chemicals 368 75 1 444 887 12 2 1 1 4
Health 4,068 878 120 5,066 589 10 21 27 44 92
Industrials 2,390 758 57 3,205 3,128 191 12 15 18 45
Land transport & logistics 4,435 659 67 5,161 3,325 189 18 17 17 52
Leisure 3,971 3,198 247 7,416 1,773 98 34 113 97 244
Mining & metals 217 226 5 448 418 5 - 1 5 6
Oil and gas 898 109 30 1,037 1,969 291 4 3 29 36
Power utilities 4,532 438 2 4,972 8,003 755 14 18 1 33
Retail 6,595 1,192 143 7,930 4,552 370 23 27 68 118
Shipping 205 58 4 267 98 26 1 3 2 6
Water & waste 3,286 554 15 3,855 1,793 98 5 5 4 14
Total 333,886 46,790 5,115 385,791 127,935 4,573 681 984 1,782 3,447
31 December 2022
Personal 192,438 21,854 2,831 217,123 43,126 51 260 466 957 1,683
Mortgages 182,245 18,787 1,925 202,957 18,782 - 81 62 233 376
Credit cards 3,275 1,076 109 4,460 15,848 - 62 122 73 257
Other personal 6,918 1,991 797 9,706 8,496 51 117 282 651 1,050
Wholesale 132,786 24,979 2,265 160,030 88,886 4,963 372 577 802 1,751
Property 27,542 4,316 716 32,574 15,302 491 107 105 229 441
Financial institutions 46,738 1,353 47 48,138 18,223 1,332 32 14 17 63
Sovereign 5,458 157 26 5,641 710 - 15 1 3 19
Corporate 53,048 19,153 1,476 73,677 54,651 3,140 218 457 553 1,228
Of which:
Agriculture 3,646 1,034 93 4,773 968 24 21 31 43 95
Airlines and aerospace 483 1,232 19 1,734 1,715 174 2 40 8 50
Automotive 5,776 1,498 30 7,304 4,009 99 18 18 11 47
Chemicals 384 117 1 502 650 12 1 2 1 4
Health 3,974 1,008 141 5,123 475 8 19 30 48 97
Industrials 2,148 1,037 82 3,267 3,135 195 10 16 24 50
Land transport & logistics 3,788 1,288 66 5,142 3,367 190 13 33 17 63
Leisure 3,416 3,787 260 7,463 1,907 102 27 147 115 289
Mining & metals 173 230 5 408 545 5 - 1 5 6
Oil and gas 953 159 60 1,172 2,157 248 3 3 31 37
Power utilities 4,228 406 6 4,640 6,960 1,182 9 11 1 21
Retail 6,497 1,746 150 8,393 4,682 416 21 29 68 118
Shipping 161 151 14 326 110 22 - 7 6 13
Water & waste 3,026 335 7 3,368 2,143 101 4 4 4 12
Total 325,224 46,833 5,096 377,153 132,012 5,014 632 1,043 1,759 3,434
(1) As at 31 March 2023, £142.5 billion, 69%, of the total residential mortgages
portfolio had Energy Performance Certificate (EPC) data available (31 December
2022 - £138.8 billion, 68%). Of which, 42% were rated as EPC A to C (31
December 2022 - 42%). EPC data source and limitations are provided on page 69
of the 2022 NatWest Group plc Climate-related Disclosures Report.
Risk and capital management
Credit risk continued
Wholesale support schemes
The table below shows the sector split for the Bounce Bank Loan Scheme (BBLS)
as well as associated debt split by stage. Associated debt refers to the
non-BBLS lending to customers who also have BBLS lending.
Gross carrying amount
BBL Associated debt ECL on associated debt
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3
31 March 2023 £m £m £m £m £m £m £m £m £m £m £m
Wholesale
Property 946 185 44 1,175 881 209 66 1,156 10 15 25
Financial institutions 22 4 - 26 9 2 - 11 - - 1
Sovereign 5 1 - 6 1 - - 1 - - -
Corporate 2,904 587 354 3,845 2,316 809 129 3,254 26 55 71
Of which:
Agriculture 205 68 4 277 826 278 26 1,130 7 13 10
Airlines and aerospace 3 1 - 4 2 - - 2 - - -
Automotive 204 31 9 244 101 32 6 139 1 3 3
Chemicals 6 1 - 7 9 - - 9 - - -
Health 153 21 4 178 278 77 12 367 2 4 4
Industrials 120 19 5 144 79 18 4 101 1 2 3
Land transport & logistics 112 23 7 142 50 17 4 71 1 2 3
Leisure 427 101 26 554 329 154 24 507 5 12 13
Mining & metals 4 1 - 5 6 1 - 7 - - -
Oil and gas 5 2 - 7 3 1 - 4 - - -
Power utilities 3 1 - 4 3 3 1 7 - - -
Retail 507 94 24 625 282 90 15 387 4 8 10
Shipping 2 - - 2 1 3 - 4 - - -
Water & waste 14 2 1 17 10 1 2 13 - - -
Total 3,877 777 398 5,052 3,207 1,020 195 4,422 36 70 97
31 December 2022
Wholesale
Property 1,029 197 51 1,277 908 217 61 1,186 10 15 27
Financial institutions 24 4 - 28 9 2 - 11 - - 1
Sovereign 5 1 1 7 2 - - 2 - - -
Corporate 3,165 629 338 4,132 2,302 872 116 3,290 26 56 69
Of which:
Agriculture 221 74 4 299 819 297 22 1,138 6 14 11
Airlines and aerospace 3 1 - 4 - 1 - 1 - - -
Automotive 221 34 10 265 100 37 5 142 1 2 3
Chemicals 6 1 - 7 9 1 - 10 - - -
Health 165 23 4 192 271 92 9 372 2 4 4
Industrials 131 21 5 157 77 20 4 101 1 2 2
Land transport & logistics 122 25 8 155 51 16 4 71 1 2 3
Leisure 471 108 28 607 336 161 27 524 5 12 16
Mining & metals 5 1 - 6 5 1 - 6 - - -
Oil and gas 6 1 - 7 2 2 - 4 - - -
Power utilities 3 1 - 4 3 4 - 7 - - -
Retail 554 102 26 682 283 94 14 391 4 7 10
Shipping 2 - - 2 1 3 - 4 - - -
Water & waste 15 2 1 18 10 3 - 13 - - -
Total 4,223 831 390 5,444 3,221 1,091 177 4,489 36 71 97
Risk and capital management
Credit risk continued
- Personal - Balance sheet growth during Q1 2023 mainly reflected
continued mortgage growth. Unsecured balances growth, primarily in credit
cards, was driven by strong customer demand alongside disciplined credit risk
appetite. Total ECL coverage increased. The increase in coverage was
reflective of increased Stage 3 ECL on unsecured portfolios, mainly due to
reduced write-off activity in the quarter. Stable good book coverage captures
continued stable portfolio performance, while maintaining sufficient ECL
coverage given increased inflationary and economic pressures on customers.
Stage 2 balances increased as a result of the predicted rise in unemployment,
therefore increasing IFRS 9 probability of defaults on a forward-looking
basis.
- Wholesale - Balance sheet growth was driven by an increase in exposure
to corporate and financial institutions sectors. Sector appetite continues to
be reviewed regularly, with particular focus on sector clusters and
sub-sectors that are vulnerable to inflationary pressures or deemed to
represent a heightened risk. Repayment performance under COVID-19 UK
Government lending schemes is closely tracked and the value of open accounts
reduced in Q1 2023 driven by scheduled repayment activity and account
closures. Exposures under the BBLS that benefit from the 100% UK Government
guarantee account for the majority of remaining UK Government scheme
exposures. BBLS customers with missed payments continued to rise during the
quarter, and there was also a modest increase in Stage 3 exposures. Stage 2
ECL reduced significantly as a number of customers migrated back into Stage 1
due to the positive trends in underlying risk metrics, also leading to an
increase in Stage 1 ECL. Stage 3 ECL reduced with write-offs and releases more
than offsetting flows into default.
Risk and capital management
Capital, liquidity and funding risk
Introduction
Recent banking sector events (including those resulting from the rapid rise in
global interest rates) have caused macroeconomic and market uncertainty. The
future impact remains uncertain. NatWest Group takes a comprehensive approach
to the management of capital, liquidity and funding, underpinned by
frameworks, risk appetite and policies, to manage and mitigate capital,
liquidity and funding risks. The framework ensures the tools and capability
are in place to facilitate the management and mitigation of risk ensuring that
NatWest Group operates within its regulatory requirements and risk appetite.
Key developments since 31 December 2022
CET1 ratio The CET1 ratio increased by 20 basis points to 14.4%. The increase in CET1
ratio was due to a £0.7 billion increase in CET1 capital, partially offset by
a £2.0 billion increase in RWAs.
The CET1 increase was mainly driven by an attributable profit for ordinary
shareholders of £1.3 billion offset by:
- a foreseeable ordinary dividend accrual of £0.5 billion;
- a £0.1 billion decrease in the IFRS 9 transitional adjustment,
primarily due to the annual update in the dynamic stage transition percentage
and the end of transition on the static and historic stages; and
- other movements on reserves and regulatory adjustments.
Total RWAs Total RWAs increased by £2.0 billion to £178.1 billion mainly reflecting:
- an increase in credit risk RWAs of £1.7 billion, primarily due to
drawdowns and new facilities within Commercial & Institutional. This was
partially offset by improved risk metrics within Commercial &
Institutional.
- an increase in operational risk RWAs of £1.1 billion following the
annual recalculation.
- a reduction in market risk RWAs of £0.8 billion primarily due to
lower volatility than in Q4 2022, combined with the prospective adjustment of
the VaR model that makes it more sensitive to recent market conditions and is
capitalised as Risks Not In VaR (RNIV) RWAs.
UK leverage ratio The leverage ratio remained static at 5.4%. There was a £0.7 billion increase
in Tier 1 capital offset by a £8.9 billion increase in leverage exposure. The
key driver in the leverage exposure was an increase in other financial assets.
Liquidity portfolio The liquidity portfolio decreased by £15.6 billion to £209.9 billion, with
primary liquidity decreasing by £12.9 billion to £148.7 billion. The
reduction in primary liquidity is driven by a decrease in deposits, share
buybacks and an increase in lending. The reduction in secondary liquidity is
due to a decrease in the pre-positioned collateral at the Bank of England.
Risk and capital management
Capital, liquidity and funding risk continued
Maximum Distributable Amount (MDA) and Minimum Capital Requirements
NatWest Group is subject to minimum capital requirements relative to RWAs. The
table below summarises the minimum capital requirements (the sum of Pillar 1
and Pillar 2A), and the additional capital buffers which are held in excess of
the regulatory minimum requirements and are usable in stress.
Where the CET1 ratio falls below the sum of the minimum capital and the
combined buffer requirement, there is a subsequent automatic restriction on
the amount available to service discretionary payments (including AT1
coupons), known as the MDA. Note that different 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 1.7% 2.3% 3.0%
Minimum Capital Requirements 6.2% 8.3% 11.0%
Capital conservation buffer 2.5% 2.5% 2.5%
Countercyclical capital buffer (1,2) 0.8% 0.8% 0.8%
MDA threshold (3) 9.5% n/a n/a
Overall capital requirement 9.5% 11.6% 14.3%
Capital ratios at 31 March 2023 14.4% 16.6% 19.6%
Headroom (4) 4.9% 5.0% 5.3%
(1) The Financial Policy Committee announced an increase in the UK CCyB rate from
1% to 2% effective from 5 July 2023.
(2) The Central Bank of Ireland (CBI) announced the CCyB on Irish exposures will
increase from 0% to 0.5%, applicable from 15 June 2023 with a further increase
to 1.0% from 24 November 2023. The CBI has been looking to gradually build-up
the CCyB to a level of 1.5% when risk conditions are deemed to be neither
elevated nor subdued.
(3) Pillar 2A requirements for NatWest Group are set as a variable amount with the
exception of some fixed add-ons.
(4) The headroom does not reflect excess distributable capital and may vary over
time.
Leverage ratios
The table below summarises the minimum ratios of capital to leverage exposure
under the binding PRA UK leverage framework applicable for NatWest Group.
Type CET1 Total Tier 1
Minimum ratio 2.44% 3.25%
Countercyclical leverage ratio buffer (1) 0.3% 0.3%
Total 2.74% 3.55%
(1) The countercyclical leverage ratio buffer is set at 35% of NatWest Group's
CCyB. As noted above the UK CCyB is anticipated to increase from 1% to 2% from
5 July 2023. Foreign exposures may be subject to different CCyB rates
depending on the rates set in those jurisdictions.
Risk and capital management
Capital, liquidity and funding risk continued
Capital and leverage ratios
The tables below set out the key capital and leverage ratios. NatWest Group is
subject to the requirements set out in the UK CRR therefore capital and
leverage ratios are being presented under these frameworks on a transitional
basis.
31 March 31 December 31 March
2023 2022 2022
Capital adequacy ratios (1) % % %
CET1 14.4 14.2 15.2
Tier 1 16.6 16.4 17.4
Total 19.6 19.3 20.4
Capital £m £m £m
Tangible equity 26,646 25,482 28,571
Prudential valuation adjustment (284) (275) (297)
Deferred tax assets (835) (912) (769)
Own credit adjustments (45) (58) (27)
Pension fund assets (235) (227) (476)
Cash flow hedging reserve 2,556 2,771 1,113
Foreseeable ordinary dividends (1,479) (967) (1,096)
Adjustment for trust assets (2) (365) (365) -
Foreseeable charges - on-market ordinary share buyback programme (507) (800) (527)
Adjustments under IFRS 9 transitional arrangements 220 361 403
Insufficient coverage for non-performing exposures (22) (18) (6)
Total deductions (996) (490) (1,682)
CET1 capital 25,650 24,992 26,889
Additional Tier 1 Capital 3,875 3,875 3,875
Tier 1 capital 29,525 28,867 30,764
End-point Tier 2 capital 5,402 4,978 5,067
Grandfathered instrument transitional arrangements 75 75 213
Tier 2 capital 5,477 5,053 5,280
Total regulatory capital 35,002 33,920 36,044
Risk-weighted assets
Credit risk 143,729 141,963 140,377
Counterparty credit risk 6,661 6,723 8,776
Market risk 7,547 8,300 8,550
Operational risk 20,198 19,115 19,115
Total RWAs 178,135 176,101 176,818
(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 2023 was £0.2 billion for
CET1 capital, £29 million for total capital and £37 million RWAs (31
December 2022 - £0.4 billion CET1 capital, £36 million total capital and
£71 million RWAs; 31 March 2022 - £0.4 billion CET1 capital, £44 billion
total capital and £28 million RWAs). Excluding these adjustments, the CET1
ratio would be 14.3% (31 December 2022 - 14.0%; 31 March 2022 - 15.0%). The
transitional relief on grandfathered instruments at 31 March 2023 was £0.1
billion (31 December 2022 - £0.1 billion; 31 March 2022 - £0.2 billion).
Excluding both the transitional relief on grandfathered capital instruments
and the transitional arrangements for the capital impact of IFRS 9 expected
credit loss (ECL) accounting, the end-point Tier 1 capital ratio would be
16.5% (31 December 2022 - 16.2%; 31 March 2022 - 17.2%) and the end-point
Total capital ratio would be 19.6% (31 December 2022 - 19.2%, 31 March 2022 -
20.2%).
(2) Prudent deduction in respect of agreement with the pension fund to establish
new legal structure.
Risk and capital management
Capital, liquidity and funding risk continued
Capital and leverage ratios continued
31 March 31 December 31 March
2023 2022 2022
Leverage £m £m £m
Cash and balances at central banks 123,399 144,832 168,783
Trading assets 50,457 45,577 64,950
Derivatives 79,420 99,545 100,013
Financial assets 413,998 404,374 416,677
Other assets 22,067 18,864 25,750
Assets of disposal groups 6,283 6,861 9,225
Total assets 695,624 720,053 785,398
Derivatives
- netting and variation margin (79,252) (100,356) (100,386)
- potential future exposures 16,981 18,327 21,412
Securities financing transactions gross up 1,880 4,147 2,838
Other off balance sheet items 45,178 46,144 43,986
Regulatory deductions and other adjustments (11,865) (7,114) (16,310)
Claims on central banks (119,981) (141,144) (165,408)
Exclusion of bounce back loans (5,052) (5,444) (7,112)
UK leverage exposure 543,513 534,613 564,418
UK leverage ratio (%) (1) 5.4 5.4 5.5
(1) The UK leverage exposure and transitional Tier 1 capital are calculated in
accordance with current PRA rules. Excluding the IFRS 9 transitional
adjustment, the UK leverage ratio would be 5.4% (31 December 2022 - 5.3%; 31
March 2022 - 5.4%).
Capital flow statement
The table below analyses the movement in CET1, AT1 and Tier 2 capital for the
three months ended 31 March 2023. It is presented on a transitional basis
based on current PRA rules.
CET1 AT1 Tier 2 Total
£m £m £m £m
At 31 December 2022 24,992 3,875 5,053 33,920
Attributable profit for the period 1,279 - - 1,279
Foreseeable ordinary dividends (512) - - (512)
Foreign exchange reserve (66) - - (66)
FVOCI reserve 64 - - 64
Own credit 13 - - 13
Share capital and reserve movements in respect of employee
share schemes 56 - - 56
Goodwill and intangibles deduction (55) - - (55)
Deferred tax assets 77 - - 77
Prudential valuation adjustments (9) - - (9)
Net dated subordinated debt instruments - - 386 386
Foreign exchange movements - - (60) (60)
Adjustment under IFRS 9 transitional arrangements (141) - - (141)
Other movements (48) - 98 50
At 31 March 2023 25,650 3,875 5,477 35,002
- The CET1 increase was primarily due to the attributable profit of
£1.3 billion, offset by foreseeable ordinary dividend of £0.5 billion, a
£0.1 billion decrease in the IFRS 9 transitional adjustment and other
movements in reserves and regulatory adjustments in the period.
- The Tier 2 movements include €700 million 5.763% Fixed to Fixed
Reset Tier 2 Notes 2034 issued in February 2023 and the derecognition of the
£0.2 billion in respect of the cash tender offer for the outstanding 5.125%
Subordinated Tier 2 Notes 2024 announced in March 2023. Within Tier 2, there
was also a £0.1 billion increase in the Tier 2 surplus provisions.
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 2022 142.0 6.7 8.3 19.1 176.1
Foreign exchange movement (0.4) - - - (0.4)
Business movement 2.9 - (0.8) 1.1 3.2
Risk parameter changes (0.3) - - - (0.3)
Methodology changes - - - - -
Model updates (0.3) - - - (0.3)
Acquisitions and disposals (0.2) - - - (0.2)
At 31 March 2023 143.7 6.7 7.5 20.2 178.1
The table below analyses segmental RWAs.
Total
Retail Private Commercial & Central items NatWest
Banking Banking Institutional & other (1) Group
Total RWAs £bn £bn £bn £bn £bn
At 31 December 2022 54.7 11.2 103.2 7.0 176.1
Foreign exchange movement - - (0.4) - (0.4)
Business movement 0.9 0.2 2.6 (0.5) 3.2
Risk parameter changes - - (0.3) - (0.3)
Methodology changes - - - - -
Model updates - - (0.3) - (0.3)
Acquisitions and disposals - - - (0.2) (0.2)
At 31 March 2023 55.6 11.4 104.8 6.3 178.1
Credit risk 48.0 10.0 80.2 5.5 143.7
Counterparty credit risk 0.2 - 6.5 - 6.7
Market risk 0.2 - 7.3 - 7.5
Operational risk 7.2 1.4 10.8 0.8 20.2
Total RWAs 55.6 11.4 104.8 6.3 178.1
(1) £4.6 billion of Central items & other relates to Ulster Bank RoI.
Total RWAs increased by £2.0 billion to £178.1 billion during the period
mainly reflecting:
- An increase in business movements totalling £3.2 billion, primarily
driven by increased drawdowns and new facilities within Commercial &
Institutional in addition to increased RWAs following the annual recalculation
of operational risk. This is partially offset by a reduction in market risk
driven by reduced market volatility.
- A decrease in risk parameters of £0.3 billion, reflecting improved
risk metrics within Commercial & Institutional.
- A decrease in model updates of £0.3 billion, primarily reflecting a
reduction in the IRB model adjustments following the new regulations at 1
January 2022.
- Disposals relating to the phased withdrawal from the Republic of
Ireland, reducing RWAs by £0.2 billion.
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 2023 31 December 2022 31 March 2022
NatWest NatWest NatWest
Group (1) Group Group
£m £m £m
Cash and balances at central banks 120,136 140,820 166,176
AAA to AA- rated governments 25,454 18,589 31,385
A+ and lower rated governments 935 317 105
Government guaranteed issuers, public sector entities and
government sponsored entities 174 134 266
International organisations and multilateral development banks 1,995 1,734 3,087
LCR level 1 bonds 28,558 20,774 34,843
LCR level 1 assets 148,694 161,594 201,019
LCR level 2 assets - - 121
Non-LCR eligible assets - - -
Primary liquidity 148,694 161,594 201,140
Secondary liquidity (2) 61,196 63,917 73,370
Total liquidity value 209,890 225,511 274,510
(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 2023 (unaudited)
Quarter ended
31 March 31 December 31 March
2023 2022 2022
£m £m £m
Interest receivable 4,501 4,046 2,430
Interest payable (1,599) (1,178) (403)
Net interest income 2,902 2,868 2,027
Fees and commissions receivable 740 770 693
Fees and commissions payable (157) (155) (149)
Income from trading activities 333 164 362
Other operating income 58 61 75
Non-interest income 974 840 981
Total income 3,876 3,708 3,008
Staff costs (1,040) (1,029) (901)
Premises and equipment (286) (292) (251)
Other administrative expenses (450) (597) (471)
Depreciation and amortisation (212) (220) (197)
Operating expenses (1,988) (2,138) (1,820)
Profit before impairment losses/releases 1,888 1,570 1,188
Impairment (losses)/releases (70) (144) 36
Operating profit before tax 1,818 1,426 1,224
Tax charge (512) (46) (386)
Profit from continuing operations 1,306 1,380 838
Profit/(loss) from discontinued operations, net of tax (1) 35 (56) 63
Profit for the period 1,341 1,324 901
Attributable to:
Ordinary shareholders 1,279 1,262 841
Paid-in equity holders 61 61 59
Non-controlling interests 1 1 1
1,341 1,324 901
Earnings per ordinary share - continuing operations 12.8p 13.7p 7.5p
Earnings per ordinary share - discontinued operations 0.4p (0.6p) 0.6p
Total earnings per share attributable to ordinary shareholders - basic 13.2p 13.1p 8.1p
Earnings per ordinary share - fully diluted continuing operations 12.8p 13.6p 7.4p
Earnings per ordinary share - fully diluted discontinued operations 0.4p (0.6p) 0.6p
Total earnings per share attributable to ordinary shareholders - fully diluted 13.2p 13.0p 8.0p
(1) The results of discontinued operations, comprising the post-tax profit, are
shown as a single amount on the face of the income statement. An analysis of
this amount is presented in Note 2 on page 29.
(2) On 30 August 2022 the issued ordinary share capital was consolidated in the
ratio of 14 existing shares for 13 new shares. The number of shares for
earnings per share has been adjusted retrospectively.
Condensed consolidated statement of comprehensive income
for the period ended 31 March 2023 (unaudited)
Quarter ended
31 March 31 December 31 March
2023 2022 2022
£m £m £m
Profit for the period 1,341 1,324 901
Items that do not qualify for reclassification
Remeasurement of retirement benefit schemes (1) (39) (158) (508)
Changes in fair value of credit in financial liabilities designated at fair
value through
profit or loss (FVTPL) (6) (52) 39
Fair value through other comprehensive income (FVOCI) financial assets 43 17 9
Tax (1) (2) 51 122
(4) (142) (338)
Items that do qualify for reclassification
FVOCI financial assets 40 (6) (238)
Cash flow hedges 298 701 (983)
Currency translation (59) (117) 35
Tax (98) (192) 339
181 386 (847)
Other comprehensive income/(loss) after tax 177 244 (1,185)
Total comprehensive income/(loss) for the period 1,518 1,568 (284)
Attributable to:
Ordinary shareholders 1,456 1,506 (345)
Paid-in equity holders 61 61 59
Non-controlling interests 1 1 2
1,518 1,568 (284)
(1) Following the purchase of ordinary shares from UKGI in Q1 2022, NatWest Group
contributed £500 million to its main pension scheme in line with the
memorandum of understanding announced on 17 April 2018. After tax relief, this
contribution reduced total equity by £365 million.
Condensed consolidated balance sheet as at 31 March 2023 (unaudited)
31 March 31 December
2023 2022
£m £m
Assets
Cash and balances at central banks 123,399 144,832
Trading assets 50,457 45,577
Derivatives 79,420 99,545
Settlement balances 6,057 2,572
Loans to banks - amortised cost 7,893 7,139
Loans to customers - amortised cost 374,214 366,340
Other financial assets 31,891 30,895
Intangible assets 7,171 7,116
Other assets 8,839 9,176
Assets of disposal groups 6,283 6,861
Total assets 695,624 720,053
Liabilities
Bank deposits 20,880 20,441
Customer deposits 430,537 450,318
Settlement balances 6,674 2,012
Trading liabilities 57,724 52,808
Derivatives 73,770 94,047
Other financial liabilities 52,926 49,107
Subordinated liabilities 6,854 6,260
Notes in circulation 3,206 3,218
Other liabilities 5,337 5,346
Total liabilities 657,908 683,557
Equity
Ordinary shareholders' interests 33,817 32,598
Other owners' interests 3,890 3,890
Owners' equity 37,707 36,488
Non-controlling interests 9 8
Total equity 37,716 36,496
Total liabilities and equity 695,624 720,053
Condensed consolidated statement of changes in equity
for the period ended 31 March 2023 (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 2023 13,093 3,890 10,019 9,486 36,488 8 36,496
Profit attributable to ordinary shareholders
and other equity owners
- continuing operations 1,305 1,305 1 1,306
- discontinued operations 35 35 - 35
Other comprehensive income
- Remeasurement of retirement
benefit schemes (39) (39) (39)
- Changes in fair value of credit in financial
liabilities designated at FVTPL due
to own credit risk (6) (6) (6)
- Unrealised gains: FVOCI 70 70 70
- Amounts recognised in equity: cash flow hedges 230 230 230
- Foreign exchange reserve movement (59) (59) - (59)
- Amount transferred from equity to earnings 81 81 81
- Tax 9 (109) (100) (100)
Paid-in equity dividends paid (61) (61) (61)
Shares repurchased during the period (2) - (293) (293) (293)
Shares issued under employee share schemes
during the period - 7 7 7
Share-based payments (5) (5) (5)
Movement in own shares held 54 54 54
At 31 March 2023 13,147 3,890 10,971 9,699 37,707 9 37,716
31 March
2023
Attributable to: £m
Ordinary shareholders 33,817
Paid-in equity holders 3,890
Non-controlling interests 9
37,716
*Other reserves consist of:
Merger reserve 10,881
FVOCI reserve (38)
Cash flow hedging reserve (2,556)
Foreign exchange reserve 1,412
9,699
(1) Share capital and statutory reserves includes share capital, share premium,
capital redemption reserve and own shares held.
(2) NatWest Group plc repurchased and cancelled 114.0 million shares for total
consideration of £306.7 million excluding fees in Q1 2023 as part of the
on-market share buyback programme. Of the 114.0 million shares bought back,
7.4 million shares were settled and cancelled in April 2023.
Notes
1. Presentation of condensed consolidated financial statements
The condensed consolidated financial statements should be read in conjunction
with NatWest Group plc's 2022 Annual Report and Accounts. The accounting
policies are the same as those applied in the consolidated financial
statements.
The directors have prepared the condensed consolidated financial statements on
a going concern basis after assessing the principal risks, forecasts,
projections and other relevant evidence over the twelve months from the date
they are approved.
Comparative period results have been re-presented from those previously
published to reclassify certain items as discontinued operations. For further
details refer to Note 2 below.
Amendments to IFRS effective from 1 January 2023 had no material effect on the
condensed consolidated financial statements.
2. Discontinued operations and assets and liabilities of disposal groups
Three legally binding agreements for the sale of UBIDAC business have been
announced as part of the phased withdrawal from the Republic of Ireland.
Material developments since year end 2022 are set out below.
Agreement with Allied Irish Banks, p.l.c. (AIB) for the transfer of performing
commercial loans.
Successful migration of a further two tranches of performing commercial loans
to AIB was completed during Q1 2023, with a cumulative €2.3 billion of gross
performing loans being fully migrated by the end of the quarter. It is
expected that remaining migrations will be materially completed by the end of
H1 2023. Colleagues who are wholly or mainly assigned to supporting this part
of the business have continued to transfer to AIB under Transfer of
Undertakings, Protection of Employment (TUPE) arrangements. Losses on disposal
of €13 million have been recognised in respect of the migrations completed
during Q1 2023 (Q4 2022 - €47 million; Q1 2022 - nil).
Agreement with Permanent TSB Group Holdings p.l.c. (PTSB) for the sale of
performing non-tracker mortgages, the performing loans in the micro-SME
business, the UBIDAC Asset Finance business, including its Lombard digital
platform, and 25 Ulster Bank branch locations in the Republic of Ireland.
During Q1 2023, c.€160 million of performing micro-SME loans and 25 branches
were transferred to PTSB. The remaining performing non-tracker mortgages,
micro-SME loans, Lombard Asset Finance business and all remaining eligible
colleagues who will move under TUPE regulations, are also expected to transfer
during 2023.
Agreement with AIB for the sale of performing tracker and linked mortgages.
In January 2023 the Competition and Consumer Protection Commission (CCPC)
granted approval for the portfolio sale of performing tracker and linked
mortgages to AIB. Completion of this sale is still expected to occur in Q2
2023.
The business activities relating to these sales that meet the requirements of
IFRS 5 are presented as a discontinued operation and as a disposal group.
Comparatives have been re-presented from those previously published to
reclassify certain items as discontinued operations. This has resulted in a
re-presentation of Q1 2022 comparatives: a reduction in operating profit
before tax from continuing operations of £21 million and an increase in
profit from discontinued operations of £21 million. Total profit for the
period remains unchanged. Ulster Bank RoI continuing operations are now
reported within NatWest Group Central items & other.
(a) Profit/(loss) from discontinued operations, net of tax
Quarter ended
31 March 31 December 31 March
2023 2022 2022
£m £m £m
Interest receivable 15 17 78
Net interest income 15 17 78
Non-interest income 17 (63) -
Total income 32 (46) 78
Operating expenses (4) (3) (11)
Profit/(loss) before impairment releases/losses 28 (49) 67
Impairment releases/(losses) 7 (7) (4)
Operating profit/(loss) before tax 35 (56) 63
Tax charge - - -
Profit/(loss) from discontinued operations, net of tax 35 (56) 63
Notes
2. Discontinued operations and assets and liabilities of disposal groups
continued
(b) Assets and liabilities of disposal groups
As at
31 March 31 December
2023 2022
£m £m
Assets of disposal groups
Loans to customers - amortised cost 1,152 1,458
Other financial assets - loans to customers at fair value through profit or 5,131 5,397
loss
Other assets - 6
6,283 6,861
Liabilities of disposal groups
Other liabilities 9 15
9 15
Net assets of disposal groups 6,274 6,846
3. Litigation and regulatory matters
NatWest Group plc's 2022 Annual Report and Accounts, issued on 17 February
2023, included disclosures about NatWest Group's litigation and regulatory
matters in Note 26. Set out below are the material developments in those
matters (all of which have been previously disclosed) since publication of the
2022 Annual Report and Accounts.
Litigation
FX litigation
NWM Plc, NWMSI and/or NatWest Group plc are defendants in several cases
relating to NWM Plc's foreign exchange (FX) business. In 2015, NWM Plc paid
US$255 million to settle the consolidated antitrust class action filed in the
United States District Court for the Southern District of New York (SDNY) on
behalf of persons who entered into over-the-counter FX transactions with
defendants or who traded FX instruments on exchanges. In 2018, some members of
the settlement class who opted out of that class action settlement filed their
own non-class complaint in the SDNY asserting antitrust claims against NWM
Plc, NWMSI and other banks.
In April 2019, some of the claimants in the opt-out case described above, as
well as others, served proceedings in the High Court of Justice of England and
Wales, asserting competition claims against NWM Plc and several other banks.
The claim was transferred from the High Court of Justice of England and Wales
in December 2021 and registered in the UK Competition Appeal Tribunal (CAT) in
January 2022. In March 2023, NWM Plc entered into an agreement to resolve both
the SDNY and CAT cases. The settlement amount paid by NWM Plc was covered by
an existing provision.
In the FX-related class action in the SDNY on behalf of 'consumers and
end-user businesses', the court granted the defendants' motion for summary
judgment on 30 March 2023, dismissing the plaintiffs' claims. The court's
decision granting summary judgment, as well as a prior decision denying class
certification in the case, are subject to appeal by the plaintiffs.
In December 2021, a claim was issued in the Netherlands against NatWest Group
plc, NWM Plc and NWM N.V. by Stichting FX Claims on behalf of a number of
claimants, seeking a declaration from the court that anti-competitive FX
market conduct described in decisions of the European Commission (EC) of 16
May 2019 is unlawful, along with unspecified damages. The claimants amended
their claim to also refer to a December 2021 decision by the EC, which also
described anti-competitive FX market conduct. The defendants contested the
jurisdiction of the Dutch court. In March 2023, the district court in
Amsterdam accepted that it has jurisdiction to hear claims against NWM N.V.
but refused jurisdiction to hear any claims against the other defendant banks
(including NatWest Group plc and NWM Plc) unless the claimants are domiciled
in the Netherlands. Only certain of the claimants are so domiciled and are
therefore permitted to continue with their claims against all defendants,
including NatWest Group plc and NWM Plc. The claimants have until the end of
June 2023 to appeal that decision.
Madoff
NWM N.V. was named as a defendant in two actions filed by the trustee for the
bankrupt estates of Bernard L. Madoff and Bernard L. Madoff Investment
Securities LLC, in bankruptcy court in New York, which together seek to
clawback more than US$298 million that NWM N.V. allegedly received from
certain Madoff feeder funds and certain swap counterparties. The claims were
previously dismissed, but as a result of an August 2021 decision by the United
States Court of Appeals for the Second Circuit, they will now proceed in the
bankruptcy court, where they have been consolidated into one action, subject
to NWM N.V.'s legal and factual defences. In May 2022, NWM N.V. filed a motion
to dismiss the amended complaint in the consolidated action and such motion
was denied in March 2023. As a result, the claims will now enter the discovery
phase.
Notes
3. Litigation and regulatory matters continued
1MDB litigation
A Malaysian court claim was served in Switzerland in November 2022 by 1MDB, a
Sovereign Wealth Fund, in which Coutts & Co Ltd was named, along with six
others, as a defendant in respect of losses allegedly incurred by 1MDB. It was
claimed that Coutts & Co Ltd is liable as a constructive trustee for
having dishonestly assisted the directors of 1MDB in the breach of their
fiduciary duties by failing (amongst other alleged claims) to undertake due
diligence in relation to a customer of Coutts & Co Ltd, through which
funds totalling c.US$1 billion were received and paid out between 2009 and
2011. The claimant sought the return of that amount plus interest. Coutts
& Co Ltd filed an application in January 2023 challenging the validity of
service and the Malaysian court's jurisdiction to hear the claim.
On 20 April 2023, the claimant filed a notice of discontinuance of its claim
against certain defendants including Coutts & Co Ltd. The claimant has
subsequently indicated that it intends to issue further replacement
proceedings. In that event, Coutts & Co Ltd will challenge the claimant's
ability to take that step and the Malaysian Court has provisionally scheduled
a hearing on 15 June 2023 to consider the validity of any new proceedings.
Coutts & Co Ltd is a company registered in Switzerland and is in wind-down
following the announced sale of its business assets in 2015.
4. Post balance sheet events
Other than as disclosed there have been no significant events between 31 March
2023 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 'NWM Group' refers to NatWest
Markets Plc ('NWM Plc') and its subsidiary and associated undertakings. The
term 'NWM N.V.' refers to NatWest Markets N.V. The term 'NWMSI' refers to
NatWest Markets Securities, Inc. The term 'RBS plc' refers to The Royal Bank
of Scotland plc. The term 'NWB Plc' refers to National Westminster Bank Plc.
The term 'UBIDAC' refers to Ulster Bank Ireland DAC.
NatWest Group publishes its financial statements in pounds sterling ('£' or
'sterling'). The abbreviations '£m' and '£bn' represent millions and
thousands of millions of pounds sterling, respectively, and references to
'pence' or 'p' represent pence where the amounts are denominated in pounds
sterling ('GBP'). Reference to 'dollars' or '$' are to United States of
America ('US') dollars. The abbreviations '$m' and '$bn' represent millions
and thousands of millions of dollars, respectively. The abbreviation '€'
represents the 'euro', and the abbreviations '€m' and '€bn' represent
millions and thousands of millions of euros, respectively.
Statutory 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 2022 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.
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 Fixed income presentation
Date: 28 April 2023 28 April 2023
Time: 9:00AM UK time 1:00PM UK time
Zoom ID: 983 2997 1468 979 5240 9903
Available on natwestgroup.com/results (http://www.natwestgroup.com/results)
- Q1 2023 Interim Management Statement and background slides.
- A financial supplement containing income statement, balance sheet and
segment performance for the nine quarters ended 31 March 2023.
- NatWest Group Pillar 3 supplement at 31 March 2023.
Forward looking statements
This document may include forward-looking statements within the meaning of the
United States Private Securities Litigation Reform Act of 1995, such as
statements that include, without limitation, the words 'expect', 'estimate',
'project', 'anticipate', 'commit', 'believe', 'should', 'intend', 'will',
'plan', 'could', 'probability', 'risk', 'Value-at-Risk (VaR)', 'target',
'goal', 'objective', 'may', 'endeavour', 'outlook', 'optimistic', 'prospects'
and similar expressions or variations on these expressions. These statements
concern or may affect future matters, such as NatWest Group's future economic
results, business plans and strategies. In particular, this document may
include forward-looking statements relating to NatWest Group plc in respect
of, but not limited to: its economic and political risks, its regulatory
capital position and related requirements, its financial position,
profitability and financial performance (including financial, capital, cost
savings and operational targets), the implementation of its purpose-led
strategy, its environmental, social and governance and climate related
targets, its access to adequate sources of liquidity and funding, increasing
competition from new incumbents and disruptive technologies, its exposure to
third party risks, its ongoing compliance with the UK ring-fencing regime and
ensuring operational continuity in resolution, its impairment losses and
credit exposures under certain specified scenarios, substantial regulation and
oversight, ongoing legal, regulatory and governmental actions and
investigations, the transition of LIBOR and IBOR rates to replacement risk
free rates and NatWest Group's exposure to operational risk, conduct risk,
cyber, data and IT risk, financial crime risk, key person risk and credit
rating risk. Forward-looking statements are subject to a number of risks and
uncertainties that might cause actual results and performance to differ
materially from any expected future results or performance expressed or
implied by the forward-looking statements. Factors that could cause or
contribute to differences in current expectations include, but are not limited
to, future growth initiatives (including acquisitions, joint ventures and
strategic partnerships), the outcome of legal, regulatory and governmental
actions and investigations, the level and extent of future impairments and
write-downs, legislative, political, fiscal and regulatory developments,
accounting standards, competitive conditions, technological developments,
interest and exchange rate fluctuations, general economic and political
conditions and the impact of climate-related risks and the transitioning to a
net zero economy. These and other factors, risks and uncertainties that may
impact any forward-looking statement or NatWest Group plc's actual results are
discussed in NatWest Group plc's UK 2022 Annual Report and Accounts (ARA),
NatWest Group plc's Interim Management Statement for Q1 2023 and its other
public filings. 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.
Appendix
Non-IFRS financial measures
Non-IFRS financial measures
NatWest Group prepares its financial statements in accordance with UK-adopted
International Accounting Standards (IAS) and International Financial Reporting
Standards (IFRS). This document contains a number of non-IFRS measures, also
known as alternative performance measures, defined under the European
Securities and Markets Authority guidance or non-GAAP financial measures in
accordance with SEC regulations. These measures are adjusted for notable and
other defined items which management believes are not representative of the
underlying performance of the business and which distort period-on-period
comparison.
The non-IFRS measures provide users of the financial statements with a
consistent basis for comparing business performance between financial periods
and information on elements of performance that are one-off in nature. The
non-IFRS measures also include a calculation of metrics that are used
throughout the banking industry.
These non-IFRS measures are not a substitute for IFRS measures and a
reconciliation to the closest IFRS measure is presented where appropriate.
1. Income excluding notable items
Income excluding notable items is calculated as total income less notable
items.
The exclusion of notable items aims to remove the impact of one-offs and other
items which may distort period-on-period comparisons.
Quarter ended
31 March 31 December 31 March
2023 2022 2022
£m £m £m
Continuing operations
Total income 3,876 3,708 3,008
Less notable items
Commercial & Institutional
Own credit adjustments (OCA) 6 (19) 18
Central items & other
Loss on redemption of own debt - - (24)
Effective interest rate adjustment as a result of redemption of - (41) -
own debt
Profit from insurance liabilities - 92 -
Liquidity Asset Bond sale (losses)/gains (13) - 41
Share of associate (losses)/profits for Business Growth Fund (12) 7 23
Interest and FX risk management derivatives not in accounting
hedge
relationships 75 (46) 166
Ulster Bank RoI mortgage fair value adjustments - (51) -
56 (58) 224
Income excluding notable items 3,820 3,766 2,784
Non-IFRS financial measures continued
2. Operating expenses - management view
The management analysis of operating expenses shows litigation and conduct
costs on a separate line. These amounts are included within staff costs and
other administrative expenses in the statutory analysis. Other operating
expenses excludes litigation and conduct costs, which are more volatile and
may distort period-on-period comparisons.
Quarter ended
31 March 2023
Litigation and Other Statutory
conduct operating operating
costs expenses expenses
£m £m £m
Continuing operations
Staff costs 14 1,026 1,040
Premises and equipment - 286 286
Other administrative expenses 42 408 450
Depreciation and amortisation - 212 212
Total 56 1,932 1,988
Quarter ended
31 December 2022
Litigation and Other Statutory
conduct operating operating
costs expenses expenses
£m £m £m
Continuing operations
Staff costs 16 1,013 1,029
Premises and equipment - 292 292
Other administrative expenses 75 522 597
Depreciation and amortisation - 220 220
Total 91 2,047 2,138
Quarter ended
31 March 2022
Litigation and Other Statutory
conduct operating operating
costs expenses 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
Non-IFRS financial measures continued
3. Cost:income ratio (excl. litigation and conduct)
NatWest Group uses the cost:income ratio (excl. litigation and conduct) in the
Outlook guidance. This is calculated as other operating expenses (operating
expenses less litigation and conduct costs) divided by total income.
Litigation and conduct costs are excluded as they are one-off in nature,
difficult to forecast for Outlook purposes and distort period-on-period
comparisons.
The calculation of the cost:income ratio (excl. litigation and conduct) is
shown below, along with a comparison to cost:income ratio using total
operating expenses.
Total
Retail Private Commercial & Central items NatWest
Banking Banking Institutional & other Group
Quarter ended 31 March 2023 £m £m £m £m £m
Continuing operations
Operating expenses 696 155 1,003 134 1,988
Less litigation and conduct costs (3) (3) (44) (6) (56)
Other operating expenses 693 152 959 128 1,932
Total income 1,604 296 1,953 23 3,876
Cost:income ratio 43.4% 52.4% 51.4% nm 51.3%
Cost:income ratio (excl. litigation and conduct) 43.2% 51.4% 49.1% nm 49.8%
Quarter ended 31 December 2022
Continuing operations
Operating expenses 658 198 1,031 251 2,138
Less litigation and conduct costs 12 (10) (42) (51) (91)
Other operating expenses 670 188 989 200 2,047
Total income 1,617 310 1,819 (38) 3,708
Cost:income ratio 40.7% 63.9% 56.7% nm 57.7%
Cost:income ratio (excl. litigation and conduct) 41.4% 60.6% 54.4% nm 55.2%
Quarter ended 31 March 2022
Continuing operations
Operating expenses 645 139 922 114 1,820
Less litigation and conduct costs (54) (1) (42) (5) (102)
Other operating expenses 591 138 880 109 1,718
Total income 1,217 216 1,375 200 3,008
Cost:income ratio 53.0% 64.4% 67.1% nm 60.5%
Cost:income ratio (excl. litigation and conduct) 48.6% 63.9% 64.0% nm 57.1%
4. NatWest Group return on tangible equity
Return on tangible equity comprises annualised profit or loss for the period
attributable to ordinary shareholders divided by average tangible equity.
Average tangible equity is average total equity excluding average
non-controlling interests, average other owners' equity and average intangible
assets.
This measure shows the return NatWest Group generates on tangible equity
deployed. It is used to determine relative performance of banks and used
widely across the sector, although different banks may calculate the rate
differently. A reconciliation is shown below including a comparison to the
nearest GAAP measure, return on equity. This comprises profit attributable to
ordinary shareholders divided by average total equity.
Quarter ended or as at
31 March 31 December 31 March
2023 2022 2022
NatWest Group return on tangible equity £m £m £m
Profit attributable to ordinary shareholders 1,279 1,262 841
Annualised profit attributable to ordinary shareholders 5,116 5,048 3,364
Average total equity 37,195 35,866 40,934
Adjustment for average other owners' equity and intangible assets (11,319) (11,350) (11,067)
Adjusted total tangible equity 25,876 24,516 29,867
Return on equity 13.8% 14.1% 8.2%
Return on tangible equity 19.8% 20.6% 11.3%
Non-IFRS financial measures continued
5. Segmental return on equity
Segmental return on equity comprises segmental operating profit or loss,
adjusted for paid-in equity and preference share cost allocation and tax,
divided by average notional equity. Average RWAe is defined as average
segmental RWAs incorporating the effect of capital deductions. This is
multiplied by an allocated equity factor for each segment to calculate the
average notional equity.
This measure shows the return generated by operating segments on equity
deployed.
Quarter ended or as at
Retail Private Commercial &
Quarter ended 31 March 2023 Banking Banking Institutional
Operating profit (£m) 794 133 994
Paid-in equity cost allocation (£m) (15) (5) (44)
Adjustment for tax (£m) (218) (36) (238)
Adjusted attributable profit (£m) 561 92 713
Annualised adjusted attributable profit (£m) 2,244 369 2,850
Average RWAe (£bn) 55.4 11.2 104.0
Equity factor 13.5% 11.5% 14.0%
Average notional equity (£bn) 7.5 1.3 14.6
Return on equity 30.0% 28.5% 19.5%
Quarter ended 31 December 2022
Operating profit (£m) 872 110 726
Paid-in equity cost allocation (£m) (20) (6) (46)
Adjustment for tax (£m) (239) (29) (170)
Adjusted attributable profit (£m) 613 75 510
Annualised adjusted attributable profit (£m) 2,454 300 2,040
Average RWAe (£bn) 54.4 11.2 106.0
Equity factor 13.0% 11.0% 14.0%
Average notional equity (£bn) 7.1 1.2 14.8
Return on equity 34.7% 24.2% 13.7%
Quarter ended 31 March 2022
Operating profit (£m) 567 82 464
Preference share and paid-in equity cost allocation (£m) (20) (3) (46)
Adjustment for tax (£m) (153) (22) (105)
Adjusted attributable profit (£m) 394 57 314
Annualised adjusted attributable profit (£m) 1,575 228 1,254
Average RWAe (£bn) 52.6 11.4 102.0
Equity factor 13.0% 11.0% 14.0%
Average notional equity (£bn) 6.8 1.3 14.3
Return on equity 23.1% 18.2% 8.8%
6. Bank net interest margin
Bank net interest margin is defined as annualised net interest income, as a
percentage of bank average interest-earning assets. Bank average interest
earning assets are the average interest earning assets of the banking business
of NatWest Group excluding liquid asset buffer.
Liquid asset buffer consists of assets held by NatWest Group, such as cash and
balances at central banks and debt securities in issue, that can be used to
ensure repayment of financial obligations as they fall due. The exclusion of
liquid asset buffer has been introduced as a way to present net interest
margin on a basis more comparable with UK peers and exclude the impact of
regulatory driven factors. A reconciliation is shown below including a
comparison to the nearest GAAP measure, net interest margin. This is net
interest income as a percentage of average interest earning assets.
Quarter ended
31 March 31 December 31 March
2023 2022 2022
£m £m £m
Continuing operations
NatWest Group net interest income 2,902 2,868 2,027
Annualised NatWest Group net interest income 11,769 11,378 8,221
Average interest earning assets (IEA) 522,393 538,584 543,697
Less liquid asset buffer average IEA (162,409) (182,797) (208,764)
Bank average IEA 359,984 355,787 334,933
Net interest margin 2.25% 2.11% 1.51%
Bank net interest margin 3.27% 3.20% 2.45%
Non-IFRS financial measures continued
6. Bank net interest margin continued
Quarter ended
31 March 31 December 31 March
2023 2022 2022
Retail Banking £m £m £m
Net interest income 1,492 1,505 1,112
Annualised net interest income 6,051 5,971 4,510
Retail Banking average IEA 220,323 217,790 204,071
Less liquid asset buffer average IEA (18,259) (20,383) (18,540)
Adjusted Retail Banking average IEA 202,064 197,407 185,531
Retail Banking net interest margin 2.99% 3.02% 2.43%
Private Banking
Net interest income 229 251 143
Annualised net interest income 929 996 580
Private Banking average IEA 28,091 29,140 29,192
Less liquid asset buffer average IEA (8,878) (9,956) (10,325)
Adjusted Private Banking average IEA 19,213 19,184 18,867
Private Banking net interest margin 4.83% 5.19% 3.07%
Commercial & Institutional
Net interest income 1,261 1,276 803
Annualised adjusted net interest income 5,114 5,062 3,257
Commercial & Institutional average IEA 198,872 201,329 197,548
Less liquid asset buffer average IEA (67,601) (71,039) (76,563)
Adjusted Commercial & Institutional average IEA 131,271 130,290 120,985
Commercial & Institutional net interest margin 3.90% 3.89% 2.69%
7. Tangible net asset value (TNAV) per ordinary share
TNAV per ordinary share is calculated as tangible equity divided by the number
of ordinary shares in issue.
This is a measure used by external analysts in valuing the bank and allows for
comparison with other per ordinary share metrics including the share price.
As at
31 March 31 December 31 March
2023 2022 2022
Ordinary shareholders' interests (£m) 33,817 32,598 35,345
Less intangible assets (£m) (7,171) (7,116) (6,774)
Tangible equity (£m) 26,646 25,482 28,571
Ordinary shares in issue (millions) (1) 9,581 9,659 10,622
TNAV per ordinary share (pence) 278p 264p 269p
(1) The number of ordinary shares in issue excludes own shares held.
Non-IFRS financial measures continued
8. Customer deposits excluding central items
Customer deposits excluding central items is calculated as total NatWest Group
customer deposits excluding Central items & other customer deposits.
Central items & other includes Treasury repo activity and Ulster Bank RoI.
The exclusion of Central items & other removes the volatility relating
to Treasury repo activity and the expected reduction of deposits as part of
our withdrawal from the Republic of Ireland. These items may distort
period-on-period comparisons and their removal gives the user of the financial
statements a better understanding of the movements in customer deposits.
As at
31 March 31 December 31 March
2023 2022 2022
£bn £bn £bn
Customer deposits 430.5 450.3 482.9
Less Central items & other (8.7) (17.4) (35.0)
Customer deposits excluding central items 421.8 432.9 447.9
9. Net loans to customers excluding central items
Net loans to customers excluding central items is calculated as total NatWest
Group net loans to customers excluding Central items & other net loans to
customers.
Central items & other includes Treasury reverse repo activity and Ulster
Bank RoI. The exclusion of Central items & other removes the volatility
relating to Treasury reverse repo activity and the reduction of loans to
customers over 2022 as part of our withdrawal from the Republic of Ireland.
This allows for better period-on-period comparisons and gives the user of the
financial statements a better understanding of the movements in net loans to
customers.
As at
31 March 31 December 31 March
2023 2022 2022
£bn £bn £bn
Net loans to customers (amortised cost) 374.2 366.3 365.3
Less Central items & other (21.8) (19.6) (35.1)
Net loans to customers excluding central items 352.4 346.7 330.2
10. Loan:deposit ratio (excl. repos and reverse repos)
Loan:deposit ratio (excl. repos and reverse repos) is calculated as net
customer loans held at amortised cost excluding reverse repos divided by total
customer deposits excluding repos. This is a common metric used to assess
liquidity.
The removal of repos and reverse repos reduces volatility and presents the
ratio on a basis that is comparable to UK peers. A reconciliation is shown
below including a comparison to the nearest GAAP measure, loan:deposit ratio.
This is calculated as net loans to customers held at amortised cost divided by
customer deposits.
As at
31 March 31 December 31 March
2023 2022 2022 (1)
£m £m £m
Loans to customers - amortised cost 374,214 366,340 365,340
Less reverse repos (21,743) (19,749) (26,780)
352,471 346,591 338,560
Customer deposits 430,537 450,318 482,887
Less repos (5,989) (9,828) (16,166)
424,548 440,490 466,721
Loan:deposit ratio 87% 81% 76%
Loan:deposit ratio (excl. repos and reverse repos) 83% 79% 73%
(1) Re-presented.
Non-IFRS financial measures continued
11. Loan impairment rate
Loan impairment rate is the annualised loan impairment charge divided by gross
customer loans. This measure is used to assess the credit quality of the loan
book.
Quarter ended or as at
31 March 31 December 31 March
2023 2022 2022
Loan impairment charge/(release) (£m) 70 144 (36)
Annualised loan impairment charge/(release) (£m) 280 576 (144)
Gross customer loans (£bn) 377.6 369.7 368.9
Loan impairment rate 7bps 16bps (4)bps
12. Funded assets
Funded assets are calculated as total assets less derivative assets. This
measure allows review of balance sheet trends exclusive of the volatility
associated with derivative fair values.
As at
31 March 31 December 31 March
2023 2022 2022
£m £m £m
Total assets 695,624 720,053 785,398
Less derivative assets (79,420) (99,545) (100,013)
Funded assets 616,204 620,508 685,385
13. AUMAs
AUMAs comprises both assets under management (AUMs) and assets under
administration (AUAs) serviced through the Private Banking segment. AUMs
comprise assets where the investment management is undertaken by Private
Banking on behalf of Private Banking, Retail Banking and Commercial &
Institutional customers. AUAs comprise 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 business segments.
This measure is tracked and reported as the amount of funds that we manage or administer, directly impacts the level of investment income that we receive.
14. Net new money
Net new money refers to client cash inflows and outflows relating to
investment products (this can include transfers from savings accounts). Net
new money excludes the impact of European Economic Area (EEA) resident client
outflows following the UK's exit from the EU and Russian client outflows since
Q1 2022.
Net new money is reported and tracked to monitor the business performance of
new business inflows and management of existing client withdrawals across
Private Banking, Retail Banking and Commercial & Institutional.
15. Wholesale funding
Wholesale funding comprises deposits by banks (excluding repos), debt
securities in issue and subordinated liabilities.
Funding risk is the risk of not maintaining a diversified, stable and
cost-effective funding base. The disclosure of wholesale funding highlights
the extent of our diversification and how we mitigate funding risk.
16. Third party rates
Third party customer asset rate is calculated as annualised interest
receivable on third-party loans to customers as a percentage of third-party
loans to customers. This excludes assets of disposal groups, intragroup items,
loans to banks and liquid asset portfolios. Third party customer funding rate
reflects interest payable or receivable on third-party customer deposits,
including interest bearing and non-interest bearing customer deposits.
Intragroup items, bank deposits, debt securities in issue and subordinated
liabilities are excluded for customer funding rate calculation.
These metrics help investors better understand our net interest margin and
interest rate sensitivity.
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