REG - NatWest Group plc - NWG plc Q3 2023 Interim Management Statement
27/10/2023 07:15
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RNS Number : 4728R NatWest Group plc 27 October 2023
NatWest Group
Q3 2023
Interim Management Statement
NatWest Group
plc
natwestgroup.com
NatWest Group Q3 2023 Page
Results
Highlights 1
Business performance summary 3
Chief Financial Officer review 4
Retail Banking 6
Private Banking 7
Commercial & Institutional 8
Central items & other 9
Segment performance 10
Risk and capital management
Credit risk 15
Capital, liquidity and funding risk 22
Condensed consolidated financial statements 28
Notes to the financial statements 32
Additional information 35
Appendix - Non-IFRS financial measures 37
NatWest Group plc
Q3 2023 Interim Management Statement
Chief Executive, Paul Thwaite, commented:
"Today's Q3 2023 results show that NatWest is a strong bank which is
performing well, generating sustainable profits and returns. This performance
is built on the foundations of strong customer franchises and a robust balance
sheet with high levels of liquidity and a well-diversified loan book. As a
result, credit losses and impairments remain low and we are ready and able to
stand by our customers and businesses through the current economic
uncertainty.
Our leadership team has come together to ensure we all keep our eyes on the
things that matter most - the 19 million people, families, and businesses we
serve. Across the bank, we are resolutely focused on meeting their needs
today, whilst getting ahead of what they will need from us tomorrow. This is
at the core of what we do. It is how we will build long-term value in our bank
and deliver sustainable growth."
Strong Q3 2023 performance
- Q3 2023 attributable profit of £866 million and a return on tangible
equity (RoTE) of 14.7%. Attributable profit of £3,165 million for the year to
date and a RoTE of 17.1%.
- Total income excluding notable items((1)), increased by £117 million,
or 3.4%, compared with Q3 2022 principally reflecting the impact of volume
growth and favourable yield curve movements. For the nine months ended 30
September 2023, total income excluding notable items, was £10,897 million,
£1,602 million higher than prior year.
- Bank net interest margin (NIM) of 2.94% was 19 basis points lower than
Q2 2023 with the reduction largely due to changes in deposit mix as customers
shifted balances from non-interest bearing current accounts to interest
bearing savings accounts, particularly term, as well as the continued impact
on mortgage margins as the higher margin Covid-era book rolls off and is
replaced at lower margins. Bank NIM was 3.11% for the year to date.
- Other operating expenses increased by £22 million, or 1.2%, compared
with Q3 2022. For the nine months ended 30 September 2023, other operating
expenses of £5.6 billion were £345 million, or 6.6%, higher than prior year.
The cost:income ratio (excl. litigation and conduct) was 49.9% for the nine
months ended 30 September 2023 compared with 55.6% for the same period in
2022.
- The net impairment charge was £229 million in Q3 2023, or 24 basis
points of gross customer loans, which reflects continued low and stable levels
of stage 3 defaults across the portfolio and good book charges related to
unsecured lending.
Robust balance sheet underpinning growth
- Net loans to customers excluding central items increased by £1.8
billion to £354.5 billion during Q3 2023 including a £1.3 billion uplift in
Commercial & Institutional as term loan facilities increased. Retail
Banking gross new mortgage lending was £7.5 billion in the quarter compared
with £7.6 billion in Q2 2023.
- Up to 30 September 2023 we have provided £53.2 billion against our
target to provide £100 billion climate and sustainable funding and financing
between 1 July 2021 and the end of 2025.
- Customer deposits excluding central items of £423.5 billion were
£2.4 billion higher than Q2 2023. Term balances now account for 15% of our
book, up from 11% at the end of the second quarter.
- The loan:deposit ratio (LDR) (excl. repos and reverse repos) was 83%,
in line with Q2 2023, with customer deposits exceeding net loans to customers
by around £71 billion.
- The liquidity coverage ratio (LCR) increased by 4 percentage points to
145% in the quarter, representing £49.6 billion headroom above 100% minimum
requirement, primarily due to UBIDAC asset sales along with increased deposits
offset by increased customer lending.
- TNAV per share increased by 9 pence in Q3 2023 to 271 pence primarily
reflecting the attributable profit for the period and movements in cash flow
hedging reserves, offset by the impact of dividend payments.
Shareholder return supported by strong capital generation
- Common Equity Tier 1 (CET1) ratio of 13.5% was in line with the
position at 30 June 2023 principally reflecting the attributable profit offset
by the ordinary dividend accrual and increase in RWAs.
- RWAs increased by £4.1 billion during the quarter to £181.6 billion
principally reflecting increased market risk and lending growth in Commercial
& Institutional partially offset by a £1.9 billion reduction as we
continue our exit from the Republic of Ireland.
(1) Refer to the Non-IFRS financial measures appendix for details of
notable items.
Outlook((1))
The economic outlook and consequent customer behaviours remain uncertain. The
following statements are based on our latest economic forecasts and expected
customer behaviours.
Outlook 2023
- We continue to expect to achieve a return on tangible equity for the
Group of 14-16%.
- We expect total income excluding notable items to be around £14.3
billion and full year Bank NIM to be greater than 3% based on our latest
expectations for the mix of our deposit book and the assumption that Bank of
England base rates remain flat at 5.25% for the remainder of the year.
- We continue to expect to deliver a Group cost:income ratio (excl.
litigation and conduct) below 52% or around £7.6 billion of Group operating
costs, excluding litigation and conduct costs.
- We expect our impairment loss rate for 2023 to be below our through
the cycle range of 20-30 basis points.
- We expect CRD IV model updates to increase RWAs by around £3 billion
in Q4 2023. The models remain subject to further development and final
approval by the PRA.
Medium term
- We continue to target a sustainable return on tangible equity for the
group of 14-16% over the medium term.
- We continue to expect to deliver a Group cost:income ratio (excl.
litigation and conduct) of less than 50%, by 2025.
- We currently expect RWAs to be around £200 billion at the end of
2025, including the impact of Basel 3.1, however this remains subject to final
rules and approval.
- We expect to continue to generate and return significant capital via
ordinary dividends and buybacks to shareholders over the medium term and
continue to expect that the CET1 ratio will be in the range of 13-14%.
The guidance remains subject to market conditions. We will monitor and react
to market conditions and refine our internal forecasts as the economic
position and customer behaviours evolve.
(1) The guidance, targets, expectations, and trends discussed in
this section represent NatWest Group plc management's current expectations and
are subject to change, including as a result of the factors described in the
NatWest Group plc Risk Factors section in the 2022 Annual Report and Accounts
and Form 20-F and the Summary Risk Factors in the 2023 NatWest Group plc
Interim Results announcement. These statements constitute forward-looking
statements. Refer to Forward-looking statements in this announcement.
Business performance summary
Nine months ended Quarter ended
30 September 30 September 30 September 30 June 30 September
2023 2022 2023 2023 2022
Summary consolidated income statement £m £m £m £m £m
Net interest income 8,411 6,974 2,685 2,824 2,640
Non-interest income 2,804 2,474 803 1,027 589
Total income 11,215 9,448 3,488 3,851 3,229
Litigation and conduct costs (242) (294) (134) (52) (125)
Other operating expenses (5,600) (5,255) (1,793) (1,875) (1,771)
Operating expenses (5,842) (5,549) (1,927) (1,927) (1,896)
Profit before impairment losses 5,373 3,899 1,561 1,924 1,333
Impairment losses (452) (193) (229) (153) (247)
Operating profit before tax 4,921 3,706 1,332 1,771 1,086
Tax charge (1,439) (1,229) (378) (549) (434)
Profit from continuing operations 3,482 2,477 954 1,222 652
Loss from discontinued operations, net of tax (138) (206) (30) (143) (396)
Profit for the period 3,344 2,271 924 1,079 256
Performance key metrics and ratios
Notable items within total income (1) £318m £153m (£26m) £288m (£168m)
Total income excluding notable items (1) £10,897m £9,295m £3,514m £3,563m £3,397m
Bank net interest margin (1) 3.11% 2.72% 2.94% 3.13% 2.99%
Bank average interest earning assets (1) £362bn £343bn £363bn £362bn £351bn
Cost:income ratio (excl. litigation and conduct) (1) 49.9% 55.6% 51.4% 48.7% 54.8%
Loan impairment rate (1) 16bps 7bps 24bps 16bps 26bps
Profit attributable to ordinary shareholders £3,165m £2,078m £866m £1,020m £187m
Total earnings per share attributable to ordinary
shareholders - basic 34.1p 20.9p 9.8p 11.0p 1.9p
Return on tangible equity (RoTE) (1) 17.1% 10.0% 14.7% 16.4% 2.9%
Climate and sustainable funding and financing (2) £20.6bn £18.1bn £4.6bn £8.4bn £6.2bn
As at
30 September 30 June 31 December
2023 2023 2022
£bn £bn £bn
Balance sheet
Total assets 717.1 702.6 720.1
Loans to customers - amortised cost 377.3 373.9 366.3
Loans to customers excluding central items (1) 354.5 352.7 346.7
Loans to customers and banks - amortised cost and FVOCI 389.5 385.2 377.1
Total impairment provisions (3) 3.5 3.4 3.4
Expected credit loss (ECL) coverage ratio 0.94% 0.92% 0.91%
Assets under management and administration (AUMA) (1) 38.2 37.9 33.4
Customer deposits 435.9 432.5 450.3
Customer deposits excluding central items (1,4) 423.5 421.1 432.9
Liquidity and funding
Liquidity coverage ratio (LCR) 145% 141% 145%
Liquidity portfolio 225 227 226
Net stable funding ratio (NSFR) 138% 138% 145%
Loan:deposit ratio (excl. repos and reverse repos) (1) 83% 83% 79%
Total wholesale funding 82 81 74
Short-term wholesale funding 29 28 21
Capital and leverage
Common Equity Tier 1 (CET1) ratio (5) 13.5% 13.5% 14.2%
Total capital ratio (5) 18.7% 18.8% 19.3%
Pro forma CET1 ratio (excl. foreseeable items) (6) 14.1% 14.2% 15.4%
Risk-weighted assets (RWAs) 181.6 177.5 176.1
UK leverage ratio 5.1% 5.0% 5.4%
Tangible net asset value (TNAV) per ordinary share (1,7) 271p 262p 264p
Number of ordinary shares in issue (millions) (7) 8,871 8,929 9,659
(1) Refer to the Non-IFRS financial measures appendix for details of
basis of preparation and reconciliation of non-IFRS financial measures and
performance metrics.
(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 of committed (on and
off-balance sheet) funding and financing, including provision of services for
underwriting issuances and private placements. Up to 30 September 2023 we have
provided £53.2 billion against our target to provide £100 billion climate
and sustainable funding and financing between 1 July 2021 and end of 2025. As
part of this, we aim to provide at least £10 billion in lending for
residential properties with Energy Performance Certificate (EPC) ratings A and
B between 1 January 2023 and the end of end of 2025. During Q3 2023 we
provided £4.6 billion climate and sustainable funding and financing, which
included £0.9 billion in lending for residential properties with EPC ratings
A and B.
(3) Includes £0.1 billion relating to off-balance sheet exposures (30
June 2023 - £0.1 billion; 31 December 2022 - £0.1 billion).
(4) Central items includes Treasury repo activity and Ulster Bank
Republic of Ireland.
(5) Refer to the Capital, liquidity and funding risk section for
details of the basis of preparation.
(6) The pro forma CET1 ratio at 30 September 2023 excludes foreseeable
items of £1,004 million: £643 million for ordinary dividends and £361
million foreseeable charges. (30 June 2023 excludes foreseeable items of
£1,280 million: £780 million for ordinary dividends and £500 million
foreseeable charges. 31 December 2022 excludes foreseeable items of £2,132
million: £967 million for ordinary dividends and £1,165 million foreseeable
charges).
(7) The number of ordinary shares in issue excludes own shares held.
Business performance summary
Chief Financial Officer review
We delivered a strong operating performance in Q3 2023 with a RoTE of 14.7%
and 17.1% for the year to date. Total income excluding notable items, of £3.5
billion, was up by 3.4% on prior year and levels of default remain stable
across our portfolio.
Our robust balance sheet has allowed us to continue to lend to our personal
and business customers and customer deposits excluding central items have
increased £2.4 billion in the quarter. We retain strong liquidity and capital
positions with an LCR of 145%, representing £49.6 billion headroom above 100%
minimum requirement, an LDR (excl. repos and reverse repos) of 83% and a
strong CET1 ratio of 13.5%.
Financial performance
Total income increased by 8.0% to £3,488 million compared with Q3 2022. Total
income excluding notable items, was 3.4% higher than Q3 2022 principally
driven by increased lending, higher markets income and yield curve movements
partially offset by the continued change in deposit mix from non-interest
bearing to interest bearing and lower deposit balances. For the nine months
ended 30 September 2023, total income, excluding notable items, was £10,897
million, £1,602 million higher than prior year. Total income excluding
notable items, was £49 million lower than Q2 2023 reflecting asset margin
pressure and changes in deposit mix partially offset by higher markets income
in Commercial & Institutional.
Bank NIM of 2.94% was 19 basis points lower than Q2 2023 principally
reflecting lending margin pressure of 12 basis points and 14 basis points due
to continued changes in deposit mix as customers shift to lower margin fixed
term accounts, and we expect some further pressure on Bank NIM as this shift
continues, albeit at a slower rate. Bank NIM was 3.11% for the year to date.
In line with our expectations, other operating expenses were £345 million, or
6.6% higher for the year to date due to increased staff costs, and a one-off
cost of living payment, inflationary pressures on utility and contract costs,
and a property impairment. We remain committed to delivering on our full year
cost guidance.
A net impairment charge of £229 million primarily reflects continued low and
stable levels of stage 3 defaults across the portfolio and good book charges
related to unsecured lending. Compared with Q2 2023, our ECL provision
increased by £0.1 billion to £3.6 billion and our ECL coverage ratio has
increased from 0.92% to 0.94%. We retain post model adjustments of £0.5
billion related to economic uncertainty, or 12% 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. The impairment charge for the year to date was £452 million, or 16
basis points of gross customer loans.
As a result, we are pleased to report an attributable profit for Q3 2023 of
£866 million, with earnings per share of 9.8 pence and a RoTE of 14.7%.
Net loans to customers excluding central items increased by £1.8 billion over
the quarter primarily driven by £1.3 billion growth in Commercial &
Institutional due to an increase in term loan facilities and private financing
within Corporate & Institutions, net of £0.7 billion of UK Government
scheme repayments. Retail Banking mortgage lending increased by £0.4
billion and unsecured lending increased by £0.6 billion with gross new
mortgage lending of £7.5 billion in Q3 2023 compared with £7.6 billion in Q2
2023 and £11.0 billion in Q3 2022. Private Banking net loans to customers
decreased by £0.3 billion driven by higher repayments and weaker demand for
new lending.
Up to 30 September 2023 we have provided £53.2 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 residential properties with Energy Performance
Certificate (EPC) ratings A and B between 1 January 2023 and the end of 2025.
During Q3 2023 we provided £4.6 billion climate and sustainable funding and
financing, which included £0.9 billion in lending for residential properties
with EPC ratings A and B.
Customer deposits excluding central items increased by £2.4 billion in the
quarter to £423.5 billion, driven by term balance growth partially offset by
reductions in instant access and current accounts. Growth of £1.4 billion in
Retail Banking and £0.7 billion in Private Banking reflected increased term
account balances offset by reductions in instant access savings and current
accounts. Commercial & Institutional customer deposits increased by £0.3
billion primarily due to growth in Corporate & Institutions, specifically
term balances, partially offset with a reduction in Commercial Mid-market
non-interest bearing balances reflecting the market contraction. The mix of
our deposit book has continued to change in the third quarter, with term
balances now accounting for 15% of the book compared with 11% at the end of
the second quarter. The shift to term balances was seen across the business
but was strongest in Private Banking and parts of our Corporate &
Institutional business within Commercial & Institutional.
TNAV per share increased by 9 pence in Q3 2023 to 271 pence primarily
reflecting the attributable profit for the period and movements in cash flow
hedging reserves, offset by the impact of dividend payments.
Business performance summary
Chief Financial Officer review continued
Capital
The CET1 ratio remains strong at 13.5%, or 13.4% excluding IFRS 9 transitional
relief. This is in line with Q2 2023 principally reflecting the attributable
profit, 50 basis points, offset with distributions deducted from capital of 20
basis points and the increase in RWAs, 30 basis points. NatWest Group's
minimum requirement for own funds and eligible liabilities (MREL) ratio was
31.2%.
RWAs increased by £4.1 billion in Q3 2023 to £181.6 billion principally
reflecting increased market risk and lending growth in Commercial &
Institutional partially offset by a £1.9 billion reduction as we continue our
exit from the Republic of Ireland.
Funding and liquidity
The LCR increased by 4 percentage points to 145% in the quarter, representing
£49.6 billion headroom above 100% minimum requirement, primarily due to
UBIDAC asset sales along with increased deposits offset by increased customer
lending. Our primary liquidity as at 30 September 2023 was £148.9 billion and
£116.2 billion or 78% of this was cash at central banks. Total wholesale
funding increased by £1.0 billion in the quarter to £82.2 billion.
Business performance summary
Retail Banking
Quarter ended
30 September 30 June 30 September
2023 2023 2022
£m £m £m
Total income 1,442 1,516 1,475
Operating expenses (780) (671) (693)
of which: Other operating expenses (721) (650) (630)
Impairment losses (169) (79) (116)
Operating profit 493 766 666
Return on equity (1) 17.5% 28.2% 27.0%
Net interest margin (1) 2.56% 2.78% 2.85%
Cost:income ratio (excl. litigation and conduct) (1) 50.0% 42.9% 42.7%
Loan impairment rate (1) 33bps 15bps 24bps
As at
30 September 30 June 31 December
2023 2023 2022
£bn £bn £bn
Net loans to customers (amortised cost) 205.2 204.4 197.6
Customer deposits 184.5 183.1 188.4
RWAs 58.9 57.3 54.7
(1) Refer to the Non-IFRS financial measures appendix for details of
the basis of preparation and reconciliation of non-IFRS financial measures and
performance metrics.
During Q3 2023, Retail Banking continued to pursue sustainable growth whilst
taking a measured approach to risk. Retail Banking delivered a return on
equity of 17.5%, reflecting the impact of a more challenging operating
environment and higher cost impacts.
Retail Banking provided £0.9 billion of climate and sustainable funding and
financing in Q3 2023.
Q3 2023 performance
- Total income was £33 million, or 2.2%, lower than Q3 2022 reflecting lower
deposit balances with mix shift from non-interest bearing to interest bearing
balances, as customers continue to migrate to higher interest rate savings
products, and continued mortgage margin dilution, as well as higher treasury
costs, partly offset by continued strong loan growth and the impact of rate
rises on deposit income.
- Net interest margin was 22 basis points lower than Q2 2023 largely reflecting
deposit mix shift from non-interest bearing to interest bearing balances and
lower mortgage margins reflecting the roll-off of higher margin business.
These impacts are partly offset by the impact of rate rises on deposit income.
- Other operating expenses were £91 million, or 14.4%, higher than Q3 2022
reflecting property lease termination losses, continued investment in the
business, higher pay awards to support our colleagues with cost of living
challenges and increased data costs. This was partly offset by savings from a
3% headcount reduction.
- An impairment charge of £169 million in Q3 2023 largely reflects stage 3
defaults, which remain broadly stable, good book charges driven by unsecured
PD increases, linked to economic modelling inputs, and unsecured lending
growth.
- Net loans to customers increased by £0.8 billion in Q3 2023 reflecting
mortgage growth of £0.4 billion, with gross new mortgage lending of £7.5
billion, representing flow share of around 13%. Cards balances increased by
£0.5 billion and personal advances increased by £0.1 billion in Q3 2023 with
continued strong customer demand.
- Customer deposits increased by £1.4 billion in Q3 2023 reflecting strong
growth in fixed term savings, partially offset by lower current account and
instant access savings balances.
- RWAs increased by £1.6 billion, or 2.8%, in Q3 2023 due to IRB model
adjustments and continued asset growth in the period.
Business performance summary
Private Banking
Quarter ended
30 September 30 June 30 September
2023 2023 2022
£m £m £m
Total income 214 271 285
Operating expenses (157) (167) (139)
of which: Other operating expenses (157) (159) (138)
Impairment releases/(losses) 2 (3) (7)
Operating profit 59 101 139
Return on equity (1) 11.7% 20.8% 31.8%
Net interest margin (1) 3.02% 4.17% 4.37%
Cost:income ratio (excl. litigation and conduct) (1) 73.4% 58.7% 48.4%
Loan impairment rate (1) (4)bps 6bps 15bps
AUM net flows (£bn) (1) - 0.4 0.3
As at
30 September 30 June 31 December
2023 2023 2022
£bn £bn £bn
Net loans to customers (amortised cost) 18.8 19.1 19.2
Customer deposits 37.2 36.5 41.2
RWAs 11.6 11.5 11.2
Assets under management (AUMs) (1) 29.8 30.0 28.3
Assets under administration (AUAs) (1) 8.4 7.9 5.1
Total assets under management and administration (AUMAs) (1) 38.2 37.9 33.4
(1) Refer to the Non-IFRS financial measures appendix for details of
the basis of preparation and reconciliation of non-IFRS financial measures and
performance metrics.
During Q3 2023, Private Banking delivered a return on equity of 11.7%,
reflecting the impact of a more challenging operating environment with
competitive pressure and a change in customer behaviour leading to an adverse
deposit book mix.
Private Banking provided £0.1 billion of climate and sustainable funding and
financing in Q3 2023.
Q3 2023 performance
- Total income was £71 million, or 24.9%, lower than Q3 2022 reflecting lower
deposit balances with mix shift from non-interest bearing to interest bearing
balances, as customers continue to migrate to higher interest rate savings
products, higher pass through of interest rate increases to customers, reduced
lending volumes and mortgage margin pressure, partially offset by the deposit
benefits from higher interest rates.
- Net interest margin was 115 basis points lower than Q2 2023 largely reflecting
a change in the deposit book mix and the impact of the Q2 2023 deposit
repricing. Higher margin current accounts reduced by £1.3 billion in the
quarter whilst lower margin savings accounts increased £2.0 billion.
- Other operating expenses were £19 million, or 13.8%, higher than Q3 2022
reflecting continued investment in the business and planned increased
headcount for consumer duty and Coutts 24, our customer help centre.
- A net impairment release of £2 million in Q3 2023 largely reflects a small
release in good book provision whilst stage 3 defaults remain at low levels.
- Net loans to customers decreased by £0.3 billion, or 1.6%, in Q3 2023 driven
by higher repayments and weaker demand for new lending.
- Customer deposits increased by £0.7 billion, or 1.9%, compared with Q2 2023
driven by the continued strong term and notice balance growth, partially
offset by lower instant access savings and current accounts.
- AUMAs increased by £0.3 billion to £38.2 billion, in Q3 2023 primarily
reflecting AUA net inflows of £0.2 billion and muted
market movements. AUM net inflows for the year to date reflects 4% of opening
AUM balances.
Business performance summary
Commercial & Institutional
Quarter ended
30 September 30 June 30 September
2023 2023 2022
£m £m £m
Net interest income 1,271 1,243 1,131
Non-interest income 570 552 526
Total income 1,841 1,795 1,657
Operating expenses (1,012) (984) (893)
of which: Other operating expenses (960) (934) (840)
Impairment losses (59) (64) (119)
Operating profit 770 747 645
Return on equity (1) 14.7% 14.3% 12.2%
Net interest margin (1) 3.88% 3.79% 3.46%
Cost:income ratio (excl. litigation and conduct) (1) 52.1% 52.0% 50.7%
Loan impairment rate (1) 18bps 20bps 36bps
As at
30 September 30 June 31 December
2023 2023 2022
£bn £bn £bn
Net loans to customers (amortised cost) 130.5 129.2 129.9
Customer deposits 201.8 201.5 203.3
Funded assets (1) 325.2 320.6 306.3
RWAs 107.9 103.6 103.2
(1) Refer to the Non-IFRS financial measures appendix for details of
the basis of preparation and reconciliation of non-IFRS financial measures and
performance metrics.
During Q3 2023, Commercial & Institutional delivered another strong
performance with growth in revenues and operating profit supporting a return
on equity of 14.7%.
Commercial & Institutional provided £3.6 billion of climate and
sustainable funding and financing in Q3 2023.
Q3 2023 performance
- Total income was £184 million, or 11.1%, higher than Q3 2022 largely
reflecting higher deposit income supported by interest rate rises and higher
markets income partly offset by higher funding costs.
- Net interest margin was 9 basis points higher than Q2 2023 largely reflecting
one-off items. The benefit of rate rises on deposit income is more than offset
by deposit mix shifts from non-interest bearing to interest bearing balances.
- Other operating expenses were £120 million, or 14.3%, higher than Q3 2022
reflecting higher pay awards to support our colleagues with cost of living
challenges, continued investment in the business, including an increase in
headcount, and property lease termination losses.
- An impairment charge of £59 million in Q3 2023 reflects continued low stage 3
default charges.
- Net loans to customers increased by £1.3 billion, or 1.0%, in Q3 2023 largely
due to an increase in term loan facilities including an increase in revolving
credit utilisations and private financing growth within Corporate &
Institutions, partly offset by UK Government scheme repayments of £0.7
billion.
- Customer deposits increased by £0.3 billion, or 0.1%, in Q3 2023 due to
growth in Corporate & Institutions, specifically term balances, partly
offset by a continued market contraction of non-interest bearing balances in
Commercial Mid-market. The deposit mix continues to evolve with transition
from non-interest bearing and instant access to term balances.
- RWAs increased by £4.3 billion, or 4.2%, in Q3 2023 primarily due to
increased market risk through the quarter following heightened market
volatility and lending volume growth.
(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 Q3 2023, Commercial & Institutional delivered another strong
performance with growth in revenues and operating profit supporting a return
on equity of 14.7%.
Commercial & Institutional provided £3.6 billion of climate and
sustainable funding and financing in Q3 2023.
Q3 2023 performance
-
Total income was £184 million, or 11.1%, higher than Q3 2022 largely
reflecting higher deposit income supported by interest rate rises and higher
markets income partly offset by higher funding costs.
-
Net interest margin was 9 basis points higher than Q2 2023 largely reflecting
one-off items. The benefit of rate rises on deposit income is more than offset
by deposit mix shifts from non-interest bearing to interest bearing balances.
-
Other operating expenses were £120 million, or 14.3%, higher than Q3 2022
reflecting higher pay awards to support our colleagues with cost of living
challenges, continued investment in the business, including an increase in
headcount, and property lease termination losses.
-
An impairment charge of £59 million in Q3 2023 reflects continued low stage 3
default charges.
-
Net loans to customers increased by £1.3 billion, or 1.0%, in Q3 2023 largely
due to an increase in term loan facilities including an increase in revolving
credit utilisations and private financing growth within Corporate &
Institutions, partly offset by UK Government scheme repayments of £0.7
billion.
-
Customer deposits increased by £0.3 billion, or 0.1%, in Q3 2023 due to
growth in Corporate & Institutions, specifically term balances, partly
offset by a continued market contraction of non-interest bearing balances in
Commercial Mid-market. The deposit mix continues to evolve with transition
from non-interest bearing and instant access to term balances.
-
RWAs increased by £4.3 billion, or 4.2%, in Q3 2023 primarily due to
increased market risk through the quarter following heightened market
volatility and lending volume growth.
Business performance summary
Central items & other
Quarter ended
30 September 30 June 30 September
2023 2023 2022
£m £m £m
Continuing operations
Total income (9) 269 (188)
Operating expenses (1) 22 (105) (171)
of which: Other operating expenses 45 (132) (163)
of which: Ulster Bank RoI direct expenses (43) (63) (75)
Impairment losses (3) (7) (5)
Operating profit/(loss) 10 157 (364)
of which: Ulster Bank RoI (54) (136) (156)
As at
30 September 30 June 31 December
2023 2023 2022
£bn £bn £bn
Net loans to customers (amortised cost) (2) 22.8 21.2 19.6
Customer deposits 12.4 11.4 17.4
RWAs 3.2 5.1 7.0
(1) Includes withdrawal-related direct program costs of £10 million for the
quarter ended 30 September 2023 (30 June 2023 - £15 million, 30 September
2022 - £24 million).
(2) Excluded £0.3 billion of loans to customers held at fair value through profit
or loss (30 June 2023 - £0.4 billion, 31 December 2022 - £0.5 billion).
Q3 2023 performance
- Total income was £179 million higher than Q3 2022 reflecting one-off
items including lower losses on liquidity asset bond sales, business growth
fund gains and lower losses on redemption of own debt partially offset by
lower gains on interest and FX risk management derivatives not in accounting
hedge relationships and losses associated with property lease terminations.
- Net loans to customers increased by £1.6 billion in Q3 2023 mainly
due to reverse repo activity in Treasury.
- Customer deposits increased by £1.0 billion in Q3 2023 primarily
reflecting repo activity in Treasury. Ulster Bank RoI customer deposit
balances were £0.2 billion as at Q3 2023.
Segment performance
Nine months ended 30 September 2023
Central Total
Retail Private Commercial & & items NatWest
Banking Banking Institutional other Group
£m £m £m £m £m
Continuing operations
Income statement
Net interest income 4,242 572 3,775 (178) 8,411
Non-interest income 320 209 1,814 461 2,804
Total income 4,562 781 5,589 283 11,215
Direct expenses (604) (181) (1,118) (3,697) (5,600)
Indirect expenses (1,460) (287) (1,735) 3,482 -
Other operating expenses (2,064) (468) (2,853) (215) (5,600)
Litigation and conduct costs (83) (11) (146) (2) (242)
Operating expenses (2,147) (479) (2,999) (217) (5,842)
Operating profit before impairment losses (1) 2,415 302 2,590 66 5,373
Impairment losses (1) (362) (9) (79) (2) (452)
Operating profit 2,053 293 2,511 64 4,921
Income excluding notable items (1) 4,562 781 5,586 (32) 10,897
Additional information
Return on tangible equity (1) na na na na 17.1%
Return on equity (1) 25.1% 20.3% 16.1% nm na
Cost:income ratio (excl. litigation and conduct) (1) 45.2% 59.9% 51.0% nm 49.9%
Total assets (£bn) 229.1 26.8 411.6 49.6 717.1
Funded assets (£bn) (1) 229.1 26.8 325.2 48.5 629.6
Net loans to customers - amortised cost (£bn) 205.2 18.8 130.5 22.8 377.3
Loan impairment rate (1) 23bps 6bps 8bps nm 16bps
Impairment provisions (£bn) (1.9) (0.1) (1.5) - (3.5)
Impairment provisions - stage 3 (£bn) (1.1) - (0.8) - (1.9)
Customer deposits (£bn) 184.5 37.2 201.8 12.4 435.9
Risk-weighted assets (RWAs) (£bn) 58.9 11.6 107.9 3.2 181.6
RWA equivalent (RWAe) (£bn) 58.9 11.6 109.1 3.9 183.5
Employee numbers (FTEs - thousands) 13.4 2.4 12.6 33.3 61.7
Third party customer asset rate (1) 3.13% 4.43% 5.98% nm nm
Third party customer funding rate (1) (1.24%) (1.88%) (1.23%) nm nm
Bank average interest earning assets (£bn) (1) 204.6 19.1 130.9 na 361.7
Bank net interest margin (1) 2.77% 4.00% 3.86% na 3.11%
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
Nine months ended 30 September 2022
Central Total
Retail Private Commercial & & items NatWest
Banking Banking Institutional other Group
£m £m £m £m £m
Continuing operations
Income statement
Net interest income 3,719 526 2,895 (166) 6,974
Non-interest income 310 220 1,699 245 2,474
Total income 4,029 746 4,594 79 9,448
Direct expenses (505) (169) (1,109) (3,472) (5,255)
Indirect expenses (1,309) (253) (1,465) 3,027 -
Other operating expenses (1,814) (422) (2,574) (445) (5,255)
Litigation and conduct costs (121) (2) (139) (32) (294)
Operating expenses (1,935) (424) (2,713) (477) (5,549)
Operating profit/(loss) before impairment losses/releases (1) 2,094 322 1,881 (398) 3,899
Impairment (losses)/releases (1) (142) 4 (60) 5 (193)
Operating profit/(loss) 1,952 326 1,821 (393) 3,706
Income excluding notable items (1) 4,029 746 4,578 (58) 9,295
Additional information
Return on tangible equity (1) na na na na 10.0%
Return on equity (1) 26.5% 24.5% 11.7% nm na
Cost:income ratio (excl. litigation and conduct) (1) 45.0% 56.6% 56.0% nm 55.6%
Total assets (£bn) 221.3 29.8 465.3 85.1 801.5
Funded assets (£bn) (1) 221.3 29.8 325.5 83.9 660.5
Net loans to customers - amortised cost (£bn) 192.8 19.1 131.9 28.0 371.8
Loan impairment rate (1) 10bps (3)bps 6bps nm 7bps
Impairment provisions (£bn) (1.5) (0.1) (1.6) (0.1) (3.3)
Impairment provisions - stage 3 (£bn) (0.9) - (0.7) (0.1) (1.7)
Customer deposits (£bn) 190.9 42.2 215.2 24.7 473.0
Risk-weighted assets (RWAs) (£bn) 53.0 11.1 104.8 9.6 178.5
RWA equivalent (RWAe) (£bn) 53.0 11.1 106.5 10.1 180.7
Employee numbers (FTEs - thousands) 13.8 2.2 12.2 31.8 60.0
Third party customer asset rate (1) 2.61% 2.80% 3.19% nm nm
Third party customer funding rate (1) (0.11%) (0.15%) (0.10%) nm nm
Bank average interest earning assets (£bn) (1) 188.6 19.1 125.4 na 342.7
Bank net interest margin (1) 2.64% 3.69% 3.09% na 2.72%
nm = not meaningful, na = not applicable.
(1) Refer to the Non-IFRS financial measures appendix for details of
the basis of preparation and reconciliation of non-IFRS financial measures and
performance metrics.
Segment performance
Quarter ended 30 September 2023
Central Total
Retail Private Commercial & & items NatWest
Banking Banking Institutional other Group
£m £m £m £m £m
Continuing operations
Income statement
Net interest income 1,334 144 1,271 (64) 2,685
Non-interest income 108 70 570 55 803
Total income 1,442 214 1,841 (9) 3,488
Direct expenses (206) (63) (377) (1,147) (1,793)
Indirect expenses (515) (94) (583) 1,192 -
Other operating expenses (721) (157) (960) 45 (1,793)
Litigation and conduct costs (59) - (52) (23) (134)
Operating expenses (780) (157) (1,012) 22 (1,927)
Operating profit before impairment losses/releases (1) 662 57 829 13 1,561
Impairment (losses)/releases (1) (169) 2 (59) (3) (229)
Operating profit 493 59 770 10 1,332
Income excluding notable items (1) 1,442 214 1,847 11 3,514
Additional information
Return on tangible equity (1) na na na na 14.7%
Return on equity (1) 17.5% 11.7% 14.7% nm na
Cost:income ratio (excl. litigation and conduct) (1) 50.0% 73.4% 52.1% nm 51.4%
Total assets (£bn) 229.1 26.8 411.6 49.6 717.1
Funded assets (£bn) (1) 229.1 26.8 325.2 48.5 629.6
Net loans to customers - amortised cost (£bn) 205.2 18.8 130.5 22.8 377.3
Loan impairment rate (1) 33bps (4)bps 18bps nm 24bps
Impairment provisions (£bn) (1.9) (0.1) (1.5) - (3.5)
Impairment provisions - stage 3 (£bn) (1.1) - (0.8) - (1.9)
Customer deposits (£bn) 184.5 37.2 201.8 12.4 435.9
Risk-weighted assets (RWAs) (£bn) 58.9 11.6 107.9 3.2 181.6
RWA equivalent (RWAe) (£bn) 58.9 11.6 109.1 3.9 183.5
Employee numbers (FTEs - thousands) 13.4 2.4 12.6 33.3 61.7
Third party customer asset rate (1) 3.34% 4.80% 6.72% nm nm
Third party customer funding rate (1) (1.69%) (2.80%) (1.65%) nm nm
Bank average interest earning assets (£bn) (1) 206.9 18.9 129.8 na 362.8
Bank net interest margin (1) 2.56% 3.02% 3.88% na 2.94%
nm = not meaningful, na = not applicable
(1) Refer to the Non-IFRS financial measures appendix for details of
the basis of preparation and reconciliation of non-IFRS financial measures and
performance metrics.
Segment performance
Quarter ended 30 June 2023
Central Total
Retail Private Commercial & & items NatWest
Banking Banking Institutional other Group
£m £m £m £m £m
Continuing operations
Income statement
Net interest income 1,416 199 1,243 (34) 2,824
Non-interest income 100 72 552 303 1,027
Total income 1,516 271 1,795 269 3,851
Direct expenses (187) (58) (381) (1,249) (1,875)
Indirect expenses (463) (101) (553) 1,117 -
Other operating expenses (650) (159) (934) (132) (1,875)
Litigation and conduct costs (21) (8) (50) 27 (52)
Operating expenses (671) (167) (984) (105) (1,927)
Operating profit before impairment losses (1) 845 104 811 164 1,924
Impairment losses (1) (79) (3) (64) (7) (153)
Operating profit 766 101 747 157 1,771
Income excluding notable items (1) 1,516 271 1,792 (16) 3,563
Additional information
Return on tangible equity (1) na na na na 16.4%
Return on equity (1) 28.2% 20.8% 14.3% nm na
Cost:income ratio (excl. litigation and conduct) (1) 42.9% 58.7% 52.0% nm 48.7%
Total assets (£bn) 229.1 27.3 401.5 44.7 702.6
Funded assets (£bn) (1) 229.1 27.3 320.6 43.7 620.7
Net loans to customers - amortised cost (£bn) 204.4 19.1 129.2 21.2 373.9
Loan impairment rate (1) 15bps 6bps 20bps nm 16bps
Impairment provisions (£bn) (1.7) (0.1) (1.5) (0.1) (3.4)
Impairment provisions - stage 3 (£bn) (1.0) - (0.8) (0.1) (1.9)
Customer deposits (£bn) 183.1 36.5 201.5 11.4 432.5
Risk-weighted assets (RWAs) (£bn) 57.3 11.5 103.6 5.1 177.5
RWA equivalent (RWAe) (£bn) 57.3 11.5 104.9 5.8 179.5
Employee numbers (FTEs - thousands) 13.7 2.3 12.6 32.9 61.5
Third party customer asset rate (1) 3.11% 4.41% 5.84% nm nm
Third party customer funding rate (1) (1.20%) (1.71%) (1.18%) nm nm
Bank average interest earning assets (£bn) (1) 204.6 19.2 131.4 na 362.3
Bank net interest margin (1) 2.78% 4.17% 3.79% na 3.13%
nm = not meaningful, na = not applicable
(1) Refer to the Non-IFRS financial measures appendix for details of
the basis of preparation and reconciliation of non-IFRS financial measures and
performance metrics.
Segment performance
Quarter ended 30 September 2022
Central Total
Retail Private Commercial & & items NatWest
Banking Banking Institutional other Group
£m £m £m £m £m
Continuing operations
Income statement
Net interest income 1,379 211 1,131 (81) 2,640
Non-interest income 96 74 526 (107) 589
Total income 1,475 285 1,657 (188) 3,229
Direct expenses (180) (59) (367) (1,165) (1,771)
Indirect expenses (450) (79) (473) 1,002 -
Other operating expenses (630) (138) (840) (163) (1,771)
Litigation and conduct costs (63) (1) (53) (8) (125)
Operating expenses (693) (139) (893) (171) (1,896)
Operating profit/(loss) before impairment losses (1) 782 146 764 (359) 1,333
Impairment losses (1) (116) (7) (119) (5) (247)
Operating profit/(loss) 666 139 645 (364) 1,086
Income excluding notable items (1) 1,475 285 1,648 (11) 3,397
Additional information
Return on tangible equity (1) na na na na 2.9%
Return on equity (1) 27.0% 31.8% 12.2% nm na
Cost:income ratio (excl. litigation and conduct) (1) 42.7% 48.4% 50.7% nm 54.8%
Total assets (£bn) 221.3 29.8 465.3 85.1 801.5
Funded assets (£bn) (1) 221.3 29.8 325.5 83.9 660.5
Net loans to customers - amortised cost (£bn) 192.8 19.1 131.9 28.0 371.8
Loan impairment rate (1) 24bps 15bps 36bps nm 26bps
Impairment provisions (£bn) (1.5) (0.1) (1.6) (0.1) (3.3)
Impairment provisions - stage 3 (£bn) (0.9) - (0.7) (0.1) (1.7)
Customer deposits (£bn) 190.9 42.2 215.2 24.7 473.0
Risk-weighted assets (RWAs) (£bn) 53.0 11.1 104.8 9.6 178.5
RWA equivalent (RWAe) (£bn) 53.0 11.1 106.5 10.1 180.7
Employee numbers (FTEs - thousands) 13.8 2.2 12.2 31.8 60.0
Third party customer asset rate (1) 2.64% 3.09% 3.53% nm nm
Third party customer funding rate (1) (0.17%) (0.29%) (0.19%) nm nm
Bank average interest earning assets (£bn) (1) 192.1 19.2 129.8 na 350.7
Bank net interest margin (1) 2.85% 4.37% 3.46% na 2.99%
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 16
Segment analysis - loans 18
Movement in ECL provision 18
ECL post model adjustments 19
Sector analysis - portfolio summary 20
Wholesale support schemes 21
Capital, liquidity and funding risk 22
Risk and capital management
Credit risk
Segment analysis - portfolio summary
The table below shows gross loans and expected credit loss (ECL), by segment
and stage, within the scope of the IFRS 9 ECL framework.
Retail Private Commercial Central items
Banking Banking & Institutional & other Total
30 September 2023 £m £m £m £m £m
Loans - amortised cost and FVOCI (1)
Stage 1 185,826 17,831 114,918 27,866 346,441
Stage 2 17,963 943 18,721 19 37,646
Stage 3 2,965 258 2,224 18 5,465
Of which: individual - 209 1,041 - 1,250
Of which: collective 2,965 49 1,183 18 4,215
Subtotal excluding disposal group loans 206,754 19,032 135,863 27,903 389,552
Disposal group loans 136 136
Total 28,039 389,688
ECL provisions (2)
Stage 1 304 20 340 23 687
Stage 2 481 17 509 25 1,032
Stage 3 1,096 33 785 16 1,930
Of which: individual - 33 287 - 320
Of which: collective 1,096 - 498 16 1,610
Subtotal excluding ECL provisions on disposal group loans 1,881 70 1,634 64 3,649
ECL provisions on disposal group loans 61 61
Total 125 3,710
ECL provisions coverage (3)
Stage 1 (%) 0.16 0.11 0.30 0.08 0.20
Stage 2 (%) 2.68 1.80 2.72 nm 2.74
Stage 3 (%) 36.96 12.79 35.30 88.89 35.32
ECL provisions coverage excluding disposal group loans 0.91 0.37 1.20 0.23 0.94
ECL provisions coverage on disposal group loans 44.85 44.85
Total 0.45 0.95
30 June 2023
Loans - amortised cost and FVOCI (1)
Stage 1 180,293 18,075 112,341 25,653 336,362
Stage 2 22,686 988 19,676 90 43,440
Stage 3 2,826 254 2,246 124 5,450
Of which: individual - 203 1,017 27 1,247
Of which: collective 2,826 51 1,229 97 4,203
Subtotal excluding disposal group loans 205,805 19,317 134,263 25,867 385,252
Disposal group loans 573 573
Total 26,440 385,825
ECL provisions (2)
Stage 1 282 23 333 23 661
Stage 2 439 17 507 28 991
Stage 3 1,038 31 765 71 1,905
Of which: individual - 31 260 4 295
Of which: collective 1,038 - 505 67 1,610
Subtotal excluding ECL provisions on disposal group loans 1,759 71 1,605 122 3,557
ECL provisions on disposal group loans 31 31
Total 153 3,588
ECL provisions coverage (3)
Stage 1 (%) 0.16 0.13 0.30 0.09 0.20
Stage 2 (%) 1.94 1.72 2.58 31.11 2.28
Stage 3 (%) 36.73 12.20 34.06 57.26 34.95
ECL provisions coverage excluding disposal group loans 0.85 0.37 1.20 0.47 0.92
ECL provisions coverage on disposal group loans 5.41 5.41
Total 0.58 0.93
nm = not meaningful
For the notes to this table refer to the following page.
Risk and capital management
Credit risk continued
Segment analysis - portfolio summary continued
Retail Private Commercial Central items
Banking Banking & Institutional & other Total
31 December 2022 £m £m £m £m £m
Loans - amortised cost and FVOCI (1)
Stage 1 174,727 18,367 108,791 23,339 325,224
Stage 2 21,561 801 24,226 245 46,833
Stage 3 2,565 242 2,166 123 5,096
Of which: individual - 168 905 48 1,121
Of which: collective 2,565 74 1,261 75 3,975
Subtotal excluding disposal group loans 198,853 19,410 135,183 23,707 377,153
Disposal group loans 1,502 1,502
Total 25,209 378,655
ECL provisions (2)
Stage 1 251 21 342 18 632
Stage 2 450 14 534 45 1,043
Stage 3 917 26 747 69 1,759
Of which: individual - 26 251 10 287
Of which: collective 917 - 496 59 1,472
Subtotal excluding ECL provisions on disposal group loans 1,618 61 1,623 132 3,434
ECL provisions on disposal group loans 53 53
Total 185 3,487
ECL provisions coverage (3)
Stage 1 (%) 0.14 0.11 0.31 0.08 0.19
Stage 2 (%) 2.09 1.75 2.20 18.37 2.23
Stage 3 (%) 35.75 10.74 34.49 56.10 34.52
ECL provisions coverage excluding disposal group loans 0.81 0.31 1.20 0.56 0.91
ECL provisions coverage on disposal group loans 3.53 3.53
Total 0.73 0.92
(1) Includes loans to customers and banks.
(2) Includes £9 million (30 June 2023 - £4 million; 31 December 2022
- £3 million) related to assets classified as FVOCI; and £0.1 billion (30
June 2023 - £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. Some segments with a high proportion of debt securities
or unutilised exposure may result in a not meaningful coverage ratio.
(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 £118.6 billion (30 June 2023 - £121.9 billion; 31 December 2022 -
£143.3 billion) and debt securities of £45.3 billion (30 June 2023 - £34.7
billion; 31 December 2022 - £29.9 billion).
Risk and capital management
Credit risk continued
Segment analysis - loans
- Retail Banking - Balance sheet growth continued during Q3 2023, but at
a reduced pace compared to Q2 2023, reflecting UK mortgage market trends.
Unsecured balances growth, primarily in credit cards, was a continuation of
the strong customer demand seen in the first half of the year. Lending
criteria and affordability assumptions continue to be reviewed to ensure new
business is assessed appropriately in the higher interest rate and
inflationary environment. While portfolio performance continued to remain
stable, total ECL coverage increased. The rise in coverage was reflective of
increased Stage 3 ECL on unsecured portfolios, mainly due to reduced write-off
activity. The modest increase in good book coverage reflected slightly
increased probability of defaults in unsecured portfolios, linked to economic
modelling inputs, and unsecured lending growth. Post model adjustments to
capture increased affordability pressures on customers due to high inflation
and rising interest rates remained broadly stable. Stage 2 balances decreased
during Q3 2023, driven by mortgages, as a lagged effect of the multiple
economic scenarios update at 30 June 2023. This scenario update reduced levels
of probability of default significant increase in credit risk deterioration,
with the three-month probability of default persistence rules expiring, which
resulted in some migration back into Stage 1. Increased probability of
defaults in unsecured portfolios, as described above, resulted in increased
Stage 2 balances, primarily in credit cards.
- Commercial & Institutional - There was balance sheet growth during
Q3 2023. Growth since Q4 2022 was primarily in financial institutions and
other wholesale. Sector appetite continues to be reviewed regularly, with
particular focus on sector clusters and sub-sectors that are deemed to
represent a heightened risk, including due to cost of living, supply chain and
inflationary pressures. Coverage remained stable with small increases in ECL
alongside balance growth. Stage 1 and Stage 2 ECL increased marginally during
the quarter with increases from changes in risk parameters largely offset by
the continued unwind of Covid post model adjustments. Stage 3 individual ECL
increased due to some flows into Stage 3 as well as ECL increases on a small
number of previously defaulted exposures.
- Central items & other - Disposal group loans continue to reduce as
portfolios are sold, with Q3 2023 sales comprised primarily of non-defaulted
loans. ECL for the remaining loans was updated to reflect the expected outcome
from future portfolio sales. This has resulted in higher coverage rates on
these remaining loans.
Movement in ECL provision
The table below shows the main ECL provision movements during the year.
ECL provision
£m
At 1 January 2023 3,434
Transfers to disposal groups and reclassifications (69)
Changes in economic forecasts (98)
Changes in risk metrics and exposure: Stage 1 and Stage 2 45
Changes in risk metrics and exposure: Stage 3 424
Judgemental changes: changes in post model adjustments for Stage 1, Stage 2 118
and Stage 3
Write-offs and other (205)
At 30 September 2023 3,649
- ECL increased during 2023, reflecting a relatively stable level of
good book ECL coverage alongside increases in Stage 3 ECL.
- Stage 3 default flows in the Retail portfolios remained stable,
although there were modest increases in line with growth and post-Covid
lending strategy. For the Wholesale portfolios, default levels were lower than
historic trends as the effects of high inflation, rising interest rates and
supply chain disruption has, to date, not led to a significant increase in
defaults.
- Stage 3 balances increased, primarily driven by retail portfolios,
linked to reduced write-off activity this year.
- There were no changes to economic forecasts in the quarter and minimal
changes from post model adjustments which have been largely retained
reflecting a continued uncertain economic outlook.
- A £69 million ECL reduction was due to the transfer to disposal
groups and reclassifications related to the phased withdrawal of Ulster Bank
RoI from the Republic of Ireland.
Risk and capital management
Credit risk continued
ECL post model adjustments
The table below shows ECL post model adjustments.
Retail Banking Private Commercial & Central items &
Mortgages Other Banking Institutional other Total
30 September 2023 £m £m £m £m £m £m
Deferred model calibrations - - 1 21 - 22
Economic uncertainty 115 46 11 279 2 453
Other adjustments 7 - - 14 33 54
Total 122 46 12 314 35 529
Of which:
- Stage 1 79 19 6 117 11 232
- Stage 2 29 27 6 193 21 276
- Stage 3 14 - - 4 3 21
30 June 2023
Deferred model calibrations - - 1 22 - 23
Economic uncertainty 116 43 12 289 2 462
Other adjustments 7 - - 12 36 55
Total 123 43 13 323 38 540
Of which:
- Stage 1 74 19 6 113 20 232
- Stage 2 34 24 7 206 17 288
- Stage 3 15 - - 4 1 20
31 December 2022
Economic uncertainty 102 51 6 191 2 352
Other adjustments 8 20 - 16 15 59
Total 110 71 6 207 17 411
Of which:
- Stage 1 62 27 3 63 - 155
- Stage 2 32 44 3 139 16 234
- Stage 3 16 - - 5 1 22
- Retail Banking - The post model adjustments for economic uncertainty
increased slightly to £161 million at 30 September 2023, from £159 million
at 30 June 2023. Continued consumer affordability risks, as a result of higher
interest rates and sustained inflation, prompted an uplift in the cost of
living post model adjustment (up from £134 million to £138 million). The
cost of living post model adjustment captures the risk on segments in the
Retail Banking portfolio that are more susceptible to the effects of cost of
living rises. It focuses on key affordability lenses, including customers with
lower income in fuel poverty, over-indebted borrowers and customers vulnerable
to a potential mortgage rate shock.
- Commercial & Institutional - The post model adjustments for
economic uncertainty decreased slightly to £279 million at 30 September 2023,
from £289 million at 30 June 2023. It included an overlay of £62 million,
down from £79 million, to cover the residual risks from Covid, to address
concerns about the associated debt of customers who have used government
support schemes. A mechanistic post model adjustment via a sector level
downgrade remained in place to account for the pressures from inflation and
supply chains, plus broader concerns around liquidity and reducing cash
reserves across many sectors. The post model adjustment increased to £217
million at 30 September 2023 from £210 million at 30 June 2023, reflecting
the significant headwinds for a number of sectors which are not fully captured
in the models.
Risk and capital management
Credit risk continued
Sector analysis - portfolio summary
The table below shows ECL by stage, for the Personal portfolios and selected
sectors of the Wholesale portfolios.
Off-balance sheet
Loans - amortised cost and FVOCI Loan Contingent ECL provisions
Stage 1 Stage 2 Stage 3 Total commitments liabilities Stage 1 Stage 2 Stage 3 Total
30 September 2023 £m £m £m £m £m £m £m £m £m £m
Personal 202,724 18,233 3,218 224,175 36,965 46 317 493 1,139 1,949
Mortgages (1) 192,083 14,629 2,170 208,882 11,007 - 96 56 264 416
Credit cards 3,569 1,825 132 5,526 17,267 - 70 175 95 340
Other personal 7,072 1,779 916 9,767 8,691 46 151 262 780 1,193
Wholesale 143,717 19,413 2,247 165,377 92,220 4,540 370 539 791 1,700
Property 27,083 3,510 661 31,254 14,372 359 99 114 197 410
Financial institutions 52,414 437 34 52,885 19,697 1,553 32 15 10 57
Sovereign 2,669 1 22 2,692 231 - 12 - 1 13
Other wholesale 61,551 15,465 1,530 78,546 57,920 2,628 227 410 583 1,220
Of which:
Agriculture 3,719 1,119 104 4,942 998 20 18 37 35 90
Airlines and aerospace 1,382 596 3 1,981 1,636 181 4 9 2 15
Automotive 6,844 868 63 7,775 4,097 84 20 16 19 55
Building materials 1,309 305 15 1,629 1,471 73 7 10 8 25
Chemicals 339 69 1 409 822 11 1 5 1 7
Industrials 2,303 674 73 3,050 3,059 156 10 20 19 49
Land transport and logistics 4,314 766 65 5,145 3,193 162 12 19 18 49
Leisure 4,146 2,678 289 7,113 1,979 161 30 85 88 203
Mining and metals 359 36 5 400 488 7 1 1 4 6
Oil and gas 760 147 28 935 1,977 236 3 3 27 33
Power utilities 5,023 446 45 5,514 8,608 623 12 13 9 34
Retail 5,594 1,899 224 7,717 4,566 389 21 44 116 181
Shipping 199 72 3 274 66 31 - 2 2 4
Water and waste 3,389 386 14 3,789 1,812 97 4 4 4 12
Total 346,441 37,646 5,465 389,552 129,185 4,586 687 1,032 1,930 3,649
31 December 2022 (2)
Personal 192,438 21,854 2,831 217,123 43,126 51 260 466 957 1,683
Mortgages (1) 182,245 18,787 1,925 202,957 18,782 - 81 62 233 376
Credit cards 3,275 1,076 109 4,460 15,848 - 62 122 73 257
Other personal 6,918 1,991 797 9,706 8,496 51 117 282 651 1,050
Wholesale 132,786 24,979 2,265 160,030 88,886 4,963 372 577 802 1,751
Property 26,300 4,035 701 31,036 13,895 413 99 98 223 420
Financial institutions 46,738 1,353 47 48,138 18,223 1,332 32 14 17 63
Sovereign 2,793 1 2 2,796 269 - 15 - 2 17
Other wholesale 56,955 19,590 1,515 78,060 56,499 3,218 226 465 560 1,251
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
Building materials 1,244 284 15 1,543 1,407 78 7 7 7 21
Chemicals 384 117 1 502 650 12 1 2 1 4
Industrials 2,148 1,037 82 3,267 3,135 195 10 16 24 50
Land transport and logistics 3,863 1,304 72 5,239 3,373 190 13 34 18 65
Leisure 3,416 3,787 260 7,463 1,907 102 27 147 115 289
Mining and metals 173 230 5 408 545 5 - 1 5 6
Oil and gas 953 159 60 1,172 2,157 248 3 3 31 37
Power utilities 4,228 406 6 4,640 6,960 1,182 9 11 1 21
Retail 6,497 1,746 150 8,393 4,682 416 21 29 68 118
Shipping 161 151 14 326 110 22 - 7 6 13
Water and waste 3,026 335 7 3,368 2,143 101 4 4 4 12
Total 325,224 46,833 5,096 377,153 132,012 5,014 632 1,043 1,759 3,434
(1) As at 30 September 2023, £144.2 billion, 70%, of the total
residential mortgages portfolio had Energy Performance Certificate (EPC) data
available (31 December 2022 - £138.8 billion, 68%), of which, 43% were rated
as EPC A to C (31 December 2022 - 42%).
(2) Previously published sector splits for the Wholesale portfolio
have been re-presented to reflect updated internal sector reporting splits.
Risk and capital management
Credit risk continued
Wholesale support schemes
The table below shows the sector split for the Bounce Back Loan Scheme (BBLS)
as well as associated debt split by stage. Associated debt refers to 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
30 September 2023 £m £m £m £m £m £m £m £m £m £m £m
Wholesale
Property 699 191 32 922 702 222 78 1,002 9 18 29
Financial institutions 18 4 - 22 8 2 - 10 - - -
Other 2,346 628 280 3,254 2,062 954 161 3,177 26 64 89
Total 3,063 823 312 4,198 2,772 1,178 239 4,189 35 82 118
31 December 2022 (1)
Wholesale
Property 966 186 48 1,200 874 205 60 1,139 10 14 26
Financial institutions 24 4 - 28 9 2 - 11 - - 1
Other 3,233 641 342 4,216 2,338 884 117 3,339 26 57 70
Total 4,223 831 390 5,444 3,221 1,091 177 4,489 36 71 97
(1) Previously published sector splits for the Wholesale portfolio
have been re-presented to reflect updated internal sector reporting splits.
Risk and capital management
Capital, liquidity and funding risk
Introduction
NatWest Group takes a comprehensive approach to the management of capital,
liquidity and funding, underpinned by frameworks, risk appetite and policies,
to manage and mitigate capital, liquidity and funding risks. The framework
ensures the tools and capability are in place to facilitate the management and
mitigation of risk ensuring that NatWest Group operates within its regulatory
requirements and risk appetite.
Key developments since 31 December 2022
CET1 ratio The CET1 ratio decreased by 70 basis points to 13.5%. The reduction in CET1
ratio was due to a £0.4 billion decrease in CET1 capital and a £5.5 billion
increase in RWAs.
The CET1 decrease was mainly driven by:
- the directed buyback of £1.3 billion;
- a foreseeable dividend accrual of £0.6 billion;
- a £0.5 billion decrease for the on-market ordinary share buyback
programme, of which £0.4 billion is reported as a foreseeable charge;
- a £0.1 billion decrease in the IFRS 9 transitional adjustment,
primarily due to the annual update in the dynamic stage transition percentage
and the end of transition on the static and historic stages;
- an increase in the intangible assets deduction of £0.4 billion; and
- other movements on reserves and regulatory adjustments of £0.2
billion.
These reductions were partially offset by the £2.7 billion attributable
profit in the period (net of ordinary interim dividend paid).
Total RWAs Total RWAs increased by £5.5 billion to £181.6 billion, mainly reflecting:
- an increase in credit risk RWAs of £2.0 billion, primarily due to
£0.9 billion of IRB model adjustments within Retail Banking, in addition to
increased exposures within Commercial & Institutional and Retail Banking.
This was partially offset by reduced exposures within Ulster Bank RoI as a
result of the phased withdrawal from the Republic of Ireland.
- an increase in counterparty credit risk RWAs of £1.3 billion,
primarily due to the call of a credit default swap trade in Q2 2023 and the
subsequent removal of credit risk mitigation, this is in addition to increased
trades during Q3 2023.
- an increase in operational risk RWAs of £1.1 billion following the
annual recalculation.
- an increase in market risk RWAs of £1.1 billion, driven by market
volatility during Q3 2023.
UK leverage ratio The leverage ratio decreased by 30 basis points to 5.1%. The decrease was due
to a £0.4 billion reduction in Tier 1 capital and a £28.9 billion increase
in leverage exposure. The key driver in leverage exposure was an increase in
other financial assets.
Liquidity portfolio The liquidity portfolio decreased by £0.5 billion to £225.0 billion. Primary
liquidity decreased by £12.7 billion to £148.9 billion, driven by a
reduction in customer deposits, increased lending and capital distributions,
partially offset by the UBIDAC asset sales and wholesale funding. Secondary
liquidity increased by £12.2 billion due to an increase in pre-positioned
collateral at the Bank of England.
Risk and capital management
Capital, liquidity and funding risk continued
Maximum Distributable Amount (MDA) and Minimum Capital Requirements
NatWest Group is subject to minimum capital requirements relative to RWAs. The
table below summarises the minimum capital requirements (the sum of Pillar 1
and Pillar 2A), and the additional capital buffers which are held in excess of
the regulatory minimum requirements and are usable in stress.
Where the CET1 ratio falls below the sum of the minimum capital and the
combined buffer requirement, there is a subsequent automatic restriction on
the amount available to service discretionary payments (including AT1
coupons), known as the MDA. Note that different 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) 1.7% 1.7% 1.7%
MDA threshold (2) 10.4% n/a n/a
Overall capital requirement 10.4% 12.5% 15.2%
Capital ratios at 30 September 2023 13.5% 15.7% 18.7%
Headroom (3) 3.1% 3.2% 3.5%
(1) The UK CCyB rate is being maintained at 2%. The rate may vary in either
direction in the future depending on how risks develop. The CCyB on Irish
exposures will increase from 0.5% to 1.0% from 24 November 2023. A further
increase to 1.5% will be effective June 2024.
(2) Pillar 2A requirements for NatWest Group are set as a variable amount with the
exception of some fixed add-ons.
(3) The headroom does not reflect excess distributable capital and may vary over
time.
Leverage ratios
The table below summarises the minimum ratios of capital to leverage exposure
under the binding PRA UK leverage framework applicable for NatWest Group.
Type CET1 Total Tier 1
Minimum ratio 2.44% 3.25%
Countercyclical leverage ratio buffer (1) 0.6% 0.6%
Total 3.04% 3.85%
(1) The countercyclical leverage ratio buffer is set at 35% of NatWest Group's
CCyB. The UK CCyB increased from 1% to 2% from 5 July 2023. Foreign exposure
may be subject to different CCyB rates depending on the rates set in those
jurisdictions.
Risk and capital management
Capital, liquidity and funding risk continued
Capital and leverage ratios
The table below sets out the key capital and leverage ratios and measures.
These are calculated on current PRA rules and presented on a transitional
basis for the remaining IFRS 9 transitional relief in respect to ECL. The
remaining Tier 2 instruments subject to CRR2 grandfathering provisions were
derecognised during Q3 2023 following regulatory approvals.
30 September 30 June 31 December
2023 2023 2022
Capital adequacy ratios (1) % % %
CET1 13.5 13.5 14.2
Tier 1 15.7 15.7 16.4
Total 18.7 18.8 19.3
Capital £m £m £m
Tangible equity 24,015 23,415 25,482
Prudential valuation adjustment (272) (271) (275)
Deferred tax assets (688) (742) (912)
Own credit adjustments (24) (49) (58)
Pension fund assets (246) (243) (227)
Cash flow hedging reserve 2,967 3,344 2,771
Foreseeable ordinary dividends (643) (780) (967)
Adjustment for trust assets (2) (365) (365) (365)
Foreseeable charges - on-market ordinary share buyback programme (361) (500) (800)
Adjustments under IFRS 9 transitional arrangements 223 223 361
Insufficient coverage for non-performing exposures (21) (19) (18)
Total regulatory adjustments 570 598 (490)
CET1 capital 24,585 24,013 24,992
Additional AT1 capital 3,875 3,875 3,875
Tier 1 capital 28,460 27,888 28,867
End-point Tier 2 capital 5,485 5,364 4,978
Grandfathered instrument transitional arrangements - 73 75
Tier 2 capital 5,485 5,437 5,053
Total regulatory capital 33,945 33,325 33,920
Risk-weighted assets
Credit risk 143,974 142,704 141,963
Counterparty credit risk 8,001 7,680 6,723
Market risk 9,380 6,962 8,300
Operational risk 20,198 20,198 19,115
Total RWAs 181,553 177,544 176,101
(1) 30 September 2023 includes the transitional arrangements for the
capital impact of IFRS 9 expected credit loss (ECL) accounting and prior
periods also include the transitional relief on grandfathered capital
instruments. The impact of the IFRS 9 transitional adjustments at 30 September
2023 was £0.2 billion for CET1 capital, £48 million for total capital and
£28 million RWAs (30 June 2023 - £0.2 billion CET1 capital, £35 million
total capital and £37 million RWAs; 31 December 2022 - £0.4 billion CET1
capital, £36 million total capital and £71 million RWAs). Excluding these
adjustments, the CET1 ratio would be 13.4% (30 June 2023 - 13.4%; 31 December
2022 - 14.0%). The transitional relief on grandfathered instruments at 30
September 2023 was nil (30 June 2023 - £0.1 billion; 31 December 2022 - £0.1
billion). Excluding both the transitional relief on grandfathered capital
instruments and the transitional arrangements for the capital impact of IFRS 9
expected credit loss (ECL) accounting, the end-point Tier 1 capital ratio
would be 15.6% (30 June 2023 - 15.6%; 31 December 2022 - 16.2%) and the
end-point Total capital ratio would be 18.7% (30 June 2023 - 18.8%; 31
December 2022 - 19.2%)
(2) Prudent deduction in respect of agreement with the pension fund to
establish new legal structure to remove dividend linked contribution.
Risk and capital management
Capital, liquidity and funding risk continued
Capital and leverage ratios continued
30 September 30 June 31 December
2023 2023 2022
Leverage £m £m £m
Cash and balances at central banks 119,590 123,022 144,832
Trading assets 49,621 48,893 45,577
Derivatives 87,504 81,873 99,545
Financial assets 432,451 416,739 404,374
Other assets 26,891 27,499 18,864
Assets of disposal groups 1,084 4,575 6,861
Total assets 717,141 702,601 720,053
Derivatives
- netting and variation margin (86,657) (82,798) (100,356)
- potential future exposures 17,226 16,654 18,327
Securities financing transactions gross up 2,245 2,013 4,147
Other off-balance sheet items 50,528 48,668 46,144
Regulatory deductions and other adjustments (16,647) (15,663) (7,114)
Claims on central banks (116,157) (114,253) (141,144)
Exclusion of bounce back loans (4,198) (4,627) (5,444)
UK leverage exposure 563,481 552,595 534,613
UK leverage ratio (%) (1) 5.1 5.0 5.4
(1) Excluding the IFRS 9 transitional adjustment, the UK leverage
ratio would be 5.0% (30 June 2023 - 5.0%; 31 December 2022 - 5.3%).
Capital flow statement
The table below analyses the movement in CET1, AT1 and Tier 2 capital for the
nine months ended 30 September 2023. It is being 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 3,165 - - 3,165
Ordinary interim dividend paid (491) - - (491)
Directed buyback (1,259) - - (1,259)
Foreseeable ordinary dividends (643) - - (643)
On-market share buyback (500) - - (500)
Foreign exchange reserve (419) - - (419)
FVOCI reserve 82 - - 82
Own credit 34 - - 34
Share capital and reserve movements in respect of employee
share schemes 70 - - 70
Goodwill and intangibles deduction (399) - - (399)
Deferred tax assets 224 - - 224
Prudential valuation adjustments 3 - - 3
Net dated subordinated debt instruments - - 303 303
Foreign exchange movements - - (50) (50)
Adjustment under IFRS 9 transitional arrangements (138) - - (138)
Other movements (136) - 179 43
At 30 September 2023 24,585 3,875 5,485 33,945
- The CET1 decrease is mainly driven by the directed buyback of £1.3
billion, a foreseeable ordinary dividend accrual of £0.6 billion, a £0.5
billion decrease for the on-market ordinary share buyback programme, a £0.1
billion decrease in the IFRS 9 transitional adjustment, an increase in the
intangible assets deduction of £0.4 billion and other movements in reserves
and regulatory adjustments of £0.2 billion, partially offset by an
attributable profit in the period (net of ordinary interim dividend paid) of
£2.7 billion.
- The Tier 2 movement of £0.3 billion includes €700 million 5.763%
Fixed to Fixed Reset Tier 2 Notes 2034 issued in February 2023 offset by the
£0.1 billion derecognition of the UBIDAC subordinated notes as eligible Tier
2 capital instruments, partial redemption of 5.125% Subordinated Tier 2 Notes
2024, maturities with minimum regulatory value and an increase in regulatory
amortisation £0.1 billion. Within Tier 2, there was also a £0.2 billion
increase in the Tier 2 surplus provisions.
Risk and capital management
Capital, liquidity and funding risk continued
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) (0.1) - - (0.5)
Business movement 6.5 0.5 1.2 1.1 9.3
Risk parameter changes (2.1) - - - (2.1)
Methodology changes - - - - -
Model updates 0.8 - (0.1) - 0.7
Other charges - 0.9 - - 0.9
Acquisitions and disposals (2.8) - - - (2.8)
At 30 September 2023 144.0 8.0 9.4 20.2 181.6
The table below analyses segmental RWAs.
Retail Private Commercial Central items Total 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) (0.1) (0.5)
Business movement 3.5 0.4 6.3 (0.9) 9.3
Risk parameter changes (0.2) - (1.9) - (2.1)
Methodology changes - - - - -
Model updates 0.9 - (0.2) - 0.7
Other charges - - 0.9 - 0.9
Acquisitions and disposals - - - (2.8) (2.8)
At 30 September 2023 58.9 11.6 107.9 3.2 181.6
Credit risk 51.2 10.2 80.2 2.4 144.0
Counterparty credit risk 0.3 - 7.7 - 8.0
Market risk 0.2 - 9.2 - 9.4
Operational risk 7.2 1.4 10.8 0.8 20.2
Total RWAs 58.9 11.6 107.9 3.2 181.6
(1) £1.6 billion of Central items & other relates to Ulster Bank
RoI.
Total RWAs increased by £5.5 billion to £181.6 billion during the period
mainly reflecting:
- Business movements totalling £9.3 billion, driven by increased credit
risk exposures within Retail Banking and Commercial & Institutional,
increased market risk RWAs of £1.1 billion reflecting heightened market
volatility in Q3 and increased RWAs following the annual recalculation of
operational risk.
- An increase in other changes of £0.9 billion, driven by the
termination of portfolio credit default swap resulting in a decrease to the
CRM benefit.
- Model update increase of £0.7 billion, mainly driven by IRB model
adjustments within Retail Banking.
- A decrease in risk parameters of £2.1 billion, primarily reflecting
changes in regulatory treatment for certain structured transactions.
- Disposals relating to the phased withdrawal from the Republic of
Ireland, reducing RWAs by £2.8 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 LCR
categorisation. Secondary liquidity comprises assets eligible for discount at
central banks, which do not form part of the liquid asset portfolio for LCR or
internal stressed outflow purposes. In addition, a reconciliation has been
provided between the liquidity portfolio for internal stressed outflow
coverage and high-quality liquid assets on a regulatory LCR basis.
Liquidity value
30 September 2023 30 June 2023 31 December 2022
NatWest NatWest NatWest
Group (1) Group Group
£m £m £m
Cash and balances at central banks 116,231 119,612 140,820
AAA to AA- rated governments 25,214 23,813 18,589
A+ and lower rated governments 4,223 1,172 317
Government guaranteed issuers, public sector entities and
government sponsored entities 455 229 134
International organisations
and multilateral development banks 2,821 2,674 1,734
LCR level 1 bonds 32,713 27,888 20,774
LCR level 1 assets 148,944 147,500 161,594
LCR level 2 assets - - -
Non-LCR eligible assets - - -
Primary liquidity 148,944 147,500 161,594
Secondary liquidity (2) 76,097 79,424 63,917
Total liquidity value 225,041 226,924 225,511
30 September 2023 30 June 2023
NatWest NatWest
Stressed outflow coverage (SOC) to liquidity coverage ratio (LCR) Group (1) Group
reconciliation £m £m
SOC primary liquidity (from table above) 148,944 147,500
Level 1 assets excluded (3) 6,175 4,180
Level 2 assets excluded (4) 4,173 3,133
Methodology difference (5) 628 960
Total LCR high quality liquid assets 159,920 155,773
(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.
(3) LCR level 1 assets include extremely high-quality covered bonds, government
guaranteed bonds, and other LCR level 1 assets, which are not included as
primary liquidity, but
included as inflows in stressed outflow coverage.
(4) LCR level 2 assets include high-quality covered bonds, asset-backed securities
and other level 2 assets which are not included as primary liquidity but
included as inflows in stressed outflow coverage.
(5) Methodology differences include cash in tills which is classified as LCR level
1 but not included in stressed outflow coverage, JPY bonds which are
classified as level 1 for stressed
outflow coverage but level 2 for LCR and weighting differences between
stressed outflow coverage and LCR.
Condensed consolidated income statement
for the period ended 30 September 2023 (unaudited)
Nine months ended Quarter ended
30 September 30 September 30 September 30 June 30 September
2023 2022 2023 2023 2022
£m £m £m £m £m
Interest receivable 15,071 8,591 5,589 4,981 3,341
Interest payable (6,660) (1,617) (2,904) (2,157) (701)
Net interest income 8,411 6,974 2,685 2,824 2,640
Fees and commissions receivable 2,213 2,145 754 719 721
Fees and commissions payable (484) (468) (169) (158) (168)
Trading income 609 969 191 85 260
Other operating income 466 (172) 27 381 (224)
Non-interest income 2,804 2,474 803 1,027 589
Total income 11,215 9,448 3,488 3,851 3,229
Staff costs (2,924) (2,687) (919) (965) (879)
Premises and equipment (845) (820) (275) (284) (286)
Other administrative expenses (1,390) (1,429) (519) (421) (531)
Depreciation and amortisation (683) (613) (214) (257) (200)
Operating expenses (5,842) (5,549) (1,927) (1,927) (1,896)
Profit before impairment losses 5,373 3,899 1,561 1,924 1,333
Impairment losses (452) (193) (229) (153) (247)
Operating profit before tax 4,921 3,706 1,332 1,771 1,086
Tax charge (1,439) (1,229) (378) (549) (434)
Profit from continuing operations 3,482 2,477 954 1,222 652
Loss from discontinued operations, net of tax (1) (138) (206) (30) (143) (396)
Profit for the period 3,344 2,271 924 1,079 256
Attributable to:
Ordinary shareholders 3,165 2,078 866 1,020 187
Paid-in equity holders 182 188 61 60 67
Non-controlling interests (3) 5 (3) (1) 2
3,344 2,271 924 1,079 256
Earnings per ordinary share - continuing operations 35.6p 23.0p 10.1p 12.5p 6.0p
Earnings per ordinary share - discontinued operations (1.5p) (2.1p) (0.3p) (1.5p) (4.1p)
Total earnings per share attributable to ordinary
shareholders - basic 34.1p 20.9p 9.8p 11.0p 1.9p
Earnings per ordinary share - fully diluted continuing
operations 35.4p 22.9p 10.1p 12.4p 6.0p
Earnings per ordinary share - fully diluted discontinued
operations (1.5p) (2.1p) (0.3p) (1.5p) (4.1p)
Total earnings per share attributable to ordinary
shareholders - fully diluted 33.9p 20.8p 9.8p 10.9p 1.9p
(1) The results of discontinued operations, comprising the post-tax
loss, is shown as a single amount on the face of the income statement. An
analysis of this amount is presented in Note 2 to the condensed consolidated
financial statements.
Condensed consolidated statement of comprehensive income
for the period ended 30 September 2023 (unaudited)
Nine months ended Quarter ended
30 September 30 September 30 September 30 June 30 September
2023 2022 2023 2023 2022
£m £m £m £m £m
Profit for the period 3,344 2,271 924 1,079 256
Items that do not qualify for reclassification
Remeasurement of retirement benefit schemes (105) (682) (41) (25) (165)
Changes in fair value of credit in financial liabilities
designated at fair value through profit or loss
(FVTPL) (27) 102 (23) 2 11
Fair value through other comprehensive income
(FVOCI) financial assets 36 42 6 (13) 39
Tax 20 136 13 9 13
(76) (402) (45) (27) (102)
Items that do qualify for reclassification
FVOCI financial assets 65 (451) 12 13 7
Cash flow hedges (208) (3,978) 526 (1,032) (2,421)
Currency translation (401) 358 68 (410) 173
Tax (16) 1,259 (143) 225 693
(560) (2,812) 463 (1,204) (1,548)
Other comprehensive (loss)/income after tax (636) (3,214) 418 (1,231) (1,650)
Total comprehensive income/(loss) for the period 2,708 (943) 1,342 (152) (1,394)
Attributable to:
Ordinary shareholders 2,529 (1,136) 1,284 (211) (1,463)
Paid-in equity holders 182 188 61 60 67
Non-controlling interests (3) 5 (3) (1) 2
2,708 (943) 1,342 (152) (1,394)
Condensed consolidated balance sheet as at 30 September 2023 (unaudited)
30 September 31 December
2023 2022
£m £m
Assets
Cash and balances at central banks 119,590 144,832
Trading assets 49,621 45,577
Derivatives 87,504 99,545
Settlement balances 10,644 2,572
Loans to banks - amortised cost 8,454 7,139
Loans to customers - amortised cost 377,268 366,340
Other financial assets 46,729 30,895
Intangible assets 7,515 7,116
Other assets 8,732 9,176
Assets of disposal groups 1,084 6,861
Total assets 717,141 720,053
Liabilities
Bank deposits 24,354 20,441
Customer deposits 435,867 450,318
Settlement balances 11,585 2,012
Trading liabilities 58,495 52,808
Derivatives 81,135 94,047
Other financial liabilities 56,302 49,107
Subordinated liabilities 6,210 6,260
Notes in circulation 3,144 3,218
Other liabilities 4,592 5,346
Total liabilities 681,684 683,557
Equity
Ordinary shareholders' interests 31,530 32,598
Other owners' interests 3,890 3,890
Owners' equity 35,420 36,488
Non-controlling interests 37 8
Total equity 35,457 36,496
Total liabilities and equity 717,141 720,053
Condensed consolidated statement of changes in equity
for the period ended 30 September 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/(loss) attributable to ordinary
shareholders and other equity owners
- continuing operations 3,485 3,485 (3) 3,482
- discontinued operations (138) (138) (138)
Other comprehensive income
- Realised gains/(losses) in period
on FVOCI equity shares 2 (2) - -
- Remeasurement of retirement
benefit schemes (105) (105) (105)
- Changes in fair value of credit in financial
liabilities designated at FVTPL due
to own credit risk (27) (27) (27)
- Unrealised gains: FVOCI 68 68 68
- Amounts recognised in equity: cash flow
hedges (821) (821) (821)
- Foreign exchange reserve movement (4) (401) (401) (401)
- Amount transferred from equity to earnings 646 646 646
- Tax 27 (23) 4 4
Ordinary dividends paid (1,456) (1,456) (1,456)
Paid-in equity dividends paid (182) (182) (182)
Shares repurchased during the period (2,3) - (1,852) (1,852) (1,852)
Shares issued under employee share schemes during the period - 21 21 21
Share-based payments (31) (31) (31)
Movement in own shares held (279) (279) (279)
Acquisition of subsidiary 32 32
At 30 September 2023 12,814 3,890 9,763 8,953 35,420 37 35,457
30 September
2023
Attributable to: £m
Ordinary shareholders 31,530
Paid-in equity holders 3,890
Non-controlling interests 37
35,457
*Other reserves consist of:
Merger reserve 10,881
FVOCI reserve (20)
Cash flow hedging reserve (2,967)
Foreign exchange reserve 1,059
8,953
(1) Share capital and statutory reserves includes share capital, share
premium, capital redemption reserve and own shares held.
(2) In May 2023, there was an agreement to buy 469.2 million ordinary
shares in NatWest Group plc from UK Government Investments Ltd (UKGI) at
268.4p per share for the total consideration of £1,265.6 million. NatWest
Group cancelled 336.2 million of the purchased ordinary shares, amounting to
£906.9 million excluding fees and held the remaining 133.0 million shares as
own shares held, amounting to £358.8 million excluding fees. The nominal
value of the share cancellation has been transferred to the capital redemption
reserve.
(3) NatWest Group plc repurchased and cancelled 364.3 million shares
for total consideration of £951.0 million excluding fees in 2023 so far, as
part of the On Market Share Buyback Programmes. Out of total number of shares
bought back, 2.93 million shares were settled and cancelled in October 2023
amounting to £6.9 million. The nominal value of the share cancellations
amounting to £389.2 million has been transferred to the capital redemption
reserve.
(4) Includes £305 million FX recycled to profit or loss upon
completion of a capital repayment by UBIDAC.
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.
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
Four 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 in Q3 2023 are set out below.
Agreement with Allied Irish Banks, p.l.c. (AIB) for the transfer of performing
commercial loans
In Q3 2023, UBIDAC completed the sale of commercial loans to AIB, with a
cumulative €3.1 billion of gross performing loans being fully migrated. The
transfer of the final cohort of colleagues to AIB who were wholly or mainly
assigned to supporting this part of the business under Transfer of
Undertakings, Protection of Employment (TUPE) arrangements has also completed.
Losses on disposal of €30 million have been recognised in respect of the
migrations completed during Q3 2023.
Agreement with Permanent TSB 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.
In Q3 2023, the Lombard Asset Finance business which included balances of
c.€500 million migrated to PTSB and the transfer of remaining colleagues who
were eligible to move to PTSB under TUPE regulations also completed. This was
the final phase of the transaction with PTSB, which also included c.€6.3
billion of gross performing non-tracker mortgage and micro-SME balances as
well as 25 Ulster Bank branches.
Agreement with AIB for the sale of performing tracker and linked mortgages
In Q3 2023, UBIDAC completed the migration of €4.0 billion of performing
tracker and linked mortgages to AIB. The remaining migrations are expected to
occur by H1 2024.
Agreement with Elmscott Property Finance DAC / AB CarVal (CarVal) for the sale
of a portfolio of performing and non-performing exposures
In Q3 2023, UBIDAC agreed the sale of a portfolio of performing and
non-performing exposures to CarVal, which consists mostly of non-performing
mortgages, unsecured personal loans and commercial facilities with a gross
value of c. €690 million at 31 December 2022. Pepper Finance Corporation
(Ireland) DAC will become the legal owner and servicer of the facilities. The
majority of these migrations are expected to occur in Q4 2023.
The business activities relating to these sales that meet the requirements of
IFRS 5 are presented as a discontinued operation and as a disposal group.
Ulster Bank RoI continuing operations are reported within Central items &
other.
(a) Loss from discontinued operations, net of tax
Nine months ended Quarter ended
30 September 30 September 30 September 30 June 30 September
2023 2022 2023 2023 2022
£m £m £m £m £m
Interest receivable 22 160 (4) 11 4
Net interest income 22 160 (4) 11 4
Non-interest income (42) (409) (28) (31) (405)
Total income (20) (249) (32) (20) (401)
Operating expenses (124) (35) (2) (118) (11)
Loss before impairment releases/losses (144) (284) (34) (138) (412)
Impairment releases/(losses) 6 78 4 (5) 16
Operating loss before tax (138) (206) (30) (143) (396)
Tax charge - - - - -
Loss from discontinued operations, net of tax (138) (206) (30) (143) (396)
Notes
2. Discontinued operations and assets and liabilities of disposal groups
continued
(b) Assets and liabilities of disposal groups
As at
30 September 31 December
2023 2022
£m £m
Assets of disposal groups
Loans to customers - amortised cost 75 1,458
Other financial assets - loans to customers at fair value through profit or 1,001 5,397
loss
Other assets 8 6
1,084 6,861
Liabilities of disposal groups
Other liabilities 5 15
5 15
Net assets of disposal groups 1,079 6,846
3. Litigation and other matters
NatWest Group plc's Interim Results 2023, issued on 28 July 2023, included
disclosures about NatWest Group's litigation and regulatory matters in Note
14. Set out below are the material developments in those matters, and an
update on an internal investigation by independent counsel, since publication
of the Interim Results 2023.
Litigation
London Interbank Offered Rate (LIBOR) and other rates litigation
In August 2020, a complaint was filed in the United States District Court for
the Northern District of California by several United States retail borrowers
against the USD ICE LIBOR panel banks and their affiliates (including NatWest
Group plc, NWM Plc, NWMSI and NWB Plc), alleging (i) that the very process of
setting USD ICE LIBOR amounts to illegal price-fixing; and (ii) that banks in
the United States have illegally agreed to use LIBOR as a component of price
in variable retail loans. In September 2022, the district court dismissed the
complaint. The plaintiffs filed an amended complaint, but in October 2023, the
district court dismissed that complaint as well, and indicated that further
amendment would not be permitted. The district court's decision is subject to
appeal by the plaintiffs.
FX litigation
In September 2023, second summonses were served by Stichting FX Claims on NWM
N.V., NatWest Group plc and NWM Plc, for claims on behalf of a new group of
parties. The summonses seek declarations from the Dutch court concerning
liability for anti-competitive FX market conduct described in decisions of the
European Commission (EC) of 16 May 2019 and 2 December 2021, along with
unspecified damages.
Government securities antitrust litigation
Class action antitrust claims commenced in March 2019 are pending in the
United States District Court for the Southern District of New York (SDNY)
against NWM Plc, NWMSI and other banks in respect of Euro-denominated bonds
issued by various European central banks (European government bonds or EGBs).
The complaint alleges a conspiracy among dealers of EGBs to widen the bid-ask
spreads they quoted to customers, thereby increasing the prices customers paid
for the EGBs or decreasing the prices at which customers sold EGBs. The class
consists of those who purchased or sold EGBs in the US between 2007 and 2012.
Previously, in March 2022, the SDNY dismissed the claims against NWM Plc and
NWMSI on the ground that the complaint's conspiracy allegations were
insufficient. However, in September 2023, the SDNY ruled that new allegations
which plaintiffs have included in an amended complaint are sufficient to bring
those NatWest entities back into the case as defendants.
1MDB litigation
A Malaysian court claim was served in Switzerland in November 2022 by 1MDB, a
Sovereign Wealth Fund, in which Coutts & Co Ltd was named, along with six
others, as a defendant in respect of losses allegedly incurred by 1MDB. It is
claimed that Coutts & Co Ltd is liable as a constructive trustee for
having dishonestly assisted the directors of 1MDB in the breach of their
fiduciary duties by failing (amongst other alleged claims) to undertake due
diligence in relation to a customer of Coutts & Co Ltd, through which
funds totalling c.US$1 billion were received and paid out between 2009 and
2011. The claimant seeks the return of that amount plus interest. Coutts &
Co Ltd filed an application in January 2023 challenging the validity of
service and the Malaysian court's jurisdiction to hear the claim.
In April 2023, the claimant filed a notice of discontinuance of its claim
against certain defendants including Coutts & Co Ltd. The claimant
subsequently indicated that it intended to issue further replacement
proceedings. Coutts & Co Ltd challenged the claimant's ability to take
that step and a hearing took place in the Malaysian High Court in June 2023.
In August 2023, the court disallowed the discontinuation of the claim by the
claimant and directed that the application by Coutts & Co Ltd challenging
the validity of the proceedings should proceed to a hearing. In September
2023, the claimant filed a notice to appeal that decision.
Coutts & Co Ltd (a subsidiary of RBS Netherlands Holdings B.V., which in
turn is a subsidiary of NatWest Markets Plc) is a company registered in
Switzerland and is in wind-down following the announced sale of its business
assets in 2015.
Notes
3. Litigation and other matters continued
Other
Reviews into customer account closures
In July 2023, NatWest Group plc commissioned an independent review by the law
firm Travers Smith LLP into issues that had arisen in connection with a recent
account closure and treatment of the customer that attracted significant
public attention and certain related interactions with the media. NatWest
Group plc has received reports in connection with those reviews (and has today
published a summary of the key findings and recommendations) and expects to
receive a further report in due course.
In addition, NatWest Group plc is conducting internal reviews with respect to
certain governance processes, policies, systems and controls of NatWest Group
entities, including with respect to customer account closures.
The subject matter giving rise to these independent reviews and related
developments, or the outcomes of any of the independent or internal reviews,
could increase the risk of greater regulatory or third-party scrutiny and
result in future legal or regulatory actions, which could have financial,
reputational or collateral consequences for NatWest Group's business.
4. Post balance sheet events
On 28 July 2023, the Group announced that it had appointed Travers Smith LLP
to undertake a thorough and independent review into account closure
arrangements at Coutts and the circumstances surrounding an article including
if there was a leak of confidential information. Phase 1 of this review is now
complete.
Other than as disclosed in this document, there have been no significant
events between 30 September 2023 and the date of approval of this announcement
which would require a change to, or additional disclosure, in the
announcement.
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 accounts
Financial information contained in this document does not constitute statutory
accounts within the meaning of section 434 of the Companies Act 2006 ('the
Act'). The statutory accounts for the year ended 31 December 2022 have been
filed with the Registrar of Companies. The report of the auditor on those
statutory accounts was unqualified, did not draw attention to any matters by
way of emphasis and did not contain a statement under section 498(2) or (3) of
the Act.
MAR - Inside Information
This announcement contains information that qualified or may have qualified as
inside information for NatWest Group plc, for the purposes of Article 7 of the
Market Abuse Regulation (EU) 596/2014 (MAR) as it forms part of domestic law
by virtue of the European Union (Withdrawal) Act 2018. This announcement is
made by Alexander Holcroft, Head of Investor Relations for NatWest Group plc.
Contacts
Analyst enquiries: Alexander Holcroft, Investor Relations
Media enquiries: NatWest Group Press Office
Management presentation
Date: Friday 27 October 2023
Time: 9am UK time
Zoom ID: 919 9900 1956
Available on natwestgroup.com/results (http://www.natwestgroup.com/results)
- Q3 2023 Interim Management Statement and background slides.
- A financial supplement containing income statement, balance sheet and
segment performance for the nine quarters ended 30 September 2023.
- NatWest Group Pillar 3 at 30 September 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 2022 Annual Report on Form 20-F, NatWest
Group plc's Interim Results for H1 2023 on Form 6-K, Natwest Group plc's
Interim Management Statement for Q1 and Q3 2023 on Form 6-K, 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
RBS\Finance\
Non-IFRS financial measures
Non-IFRS financial measures
NatWest Group prepares its financial statements in accordance with UK-adopted International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS). This document contains a number of non-IFRS measures, also known as alternative performance measures, defined under the European Securities and Markets Authority guidance or non-GAAP financial measures in accordance with SEC regulations. These measures are adjusted for notable and other defined items which management believes are not representative of the underlying performance of the business and which distort period-on-period comparison.
The non-IFRS measures provide users of the financial statements with a consistent basis for comparing business performance between financial periods and information on elements of performance that are one-off in nature. The non-IFRS measures also include a calculation of metrics that are used throughout the banking industry.
These non-IFRS measures are not a substitute for IFRS measures and a reconciliation to the closest IFRS measure is presented where appropriate.
1. Total income excluding notable items
Total income excluding notable items is calculated as total income less
notable items.
The exclusion of notable items aims to remove the impact of one-offs and other
items which may distort period-on-period comparisons.
Nine months ended Quarter ended
30 September 30 September 30 September 30 June 30 September
2023 2022 2023 2023 2022
£m £m £m £m £m
Continuing operations
Total income 11,215 9,448 3,488 3,851 3,229
Less notable items:
Commercial & Institutional
Fair value, disposal losses and asset
disposals/strategic risk reduction - (45) - - -
Own credit adjustments (OCA) 3 61 (6) 3 9
Central items & other
Loss on redemption of own debt - (161) - - (137)
Liquidity Asset Bond sale (losses)/gains (33) (88) (9) (11) (124)
Share of associate (losses)/profits for Business
Growth Fund (5) (29) 10 (3) (16)
Property lease termination losses (69) - (69) - -
Interest and FX management derivatives not in
hedge accounting relationships 100 415 48 (23) 100
FX recycling gains 322 - - 322 -
318 153 (26) 288 (168)
Total income excluding notable items 10,897 9,295 3,514 3,563 3,397
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 comparisons with prior periods.
Nine months ended
30 September 2023
Litigation and Other operating Statutory operating
conduct costs expenses expenses
£m £m £m
Continuing operations
Staff costs 46 2,878 2,924
Premises and equipment - 845 845
Depreciation and amortisation - 683 683
Other administrative expenses 196 1,194 1,390
Total 242 5,600 5,842
Nine months ended
30 September 2022
Litigation and Other operating Statutory operating
conduct costs expenses expenses
£m £m £m
Continuing operations
Staff costs 29 2,658 2,687
Premises and equipment - 820 820
Depreciation and amortisation - 613 613
Other administrative expenses 265 1,164 1,429
Total 294 5,255 5,549
Quarter ended
30 September 2023
Litigation and Other operating Statutory operating
conduct costs expenses expenses
£m £m £m
Continuing operations
Staff costs 15 904 919
Premises and equipment - 275 275
Depreciation and amortisation - 214 214
Other administrative expenses 119 400 519
Total 134 1,793 1,927
Quarter ended
30 June 2023
Litigation and Other operating Statutory operating
conduct costs expenses expenses
£m £m £m
Continuing operations
Staff costs 17 948 965
Premises and equipment - 284 284
Depreciation and amortisation - 257 257
Other administrative expenses 35 386 421
Total 52 1,875 1,927
Quarter ended
30 September 2022
Litigation and Other operating Statutory operating
conduct costs expenses expenses
£m £m £m
Continuing operations
Staff costs 11 868 879
Premises and equipment - 286 286
Depreciation and amortisation - 200 200
Other administrative expenses 114 417 531
Total 125 1,771 1,896
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 its
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.
Retail Private Commercial & Central items Total
Banking Banking Institutional and other NatWest Group
Nine months ended 30 September 2023 £m £m £m £m £m
Continuing operations
Operating expenses 2,147 479 2,999 217 5,842
Less litigation and conduct costs (83) (11) (146) (2) (242)
Other operating expenses 2,064 468 2,853 215 5,600
Total income 4,562 781 5,589 283 11,215
Cost:income ratio 47.1% 61.3% 53.7% nm 52.1%
Cost:income ratio (excl. litigation and conduct) 45.2% 59.9% 51.0% nm 49.9%
Nine months ended 30 September 2022
Continuing operations
Operating expenses 1,935 424 2,713 477 5,549
Less litigation and conduct costs (121) (2) (139) (32) (294)
Other operating expenses 1,814 422 2,574 445 5,255
Total income 4,029 746 4,594 79 9,448
Cost:income ratio 48.0% 56.8% 59.1% nm 58.7%
Cost:income ratio (excl. litigation and conduct) 45.0% 56.6% 56.0% nm 55.6%
Quarter ended 30 September 2023
Continuing operations
Operating expenses 780 157 1,012 (22) 1,927
Less litigation and conduct costs (59) - (52) (23) (134)
Other operating expenses 721 157 960 (45) 1,793
Total income 1,442 214 1,841 (9) 3,488
Cost:income ratio 54.1% 73.4% 55.0% nm 55.2%
Cost:income ratio (excl. litigation and conduct) 50.0% 73.4% 52.1% nm 51.4%
Quarter ended 30 June 2023
Continuing operations
Operating expenses 671 167 984 105 1,927
Less litigation and conduct costs (21) (8) (50) 27 (52)
Other operating expenses 650 159 934 132 1,875
Total income 1,516 271 1,795 269 3,851
Cost:income ratio 44.3% 61.6% 54.8% nm 50.0%
Cost:income ratio (excl. litigation and conduct) 42.9% 58.7% 52.0% nm 48.7%
Quarter ended 30 September 2022
Continuing operations
Operating expenses 693 139 893 171 1,896
Less litigation and conduct costs (63) (1) (53) (8) (125)
Other operating expenses 630 138 840 163 1,771
Total income 1,475 285 1,657 188 3,229
Cost:income ratio 47.0% 48.8% 53.9% nm 58.7%
Cost:income ratio (excl. litigation and conduct) 42.7% 48.4% 50.7% nm 54.8%
Non-IFRS financial measures continued
4. NatWest Group return on tangible equity
Return on tangible equity comprises annualised profit or loss for the period
attributable to ordinary shareholders divided by average tangible equity.
Average tangible equity is average total equity excluding average
non-controlling interests, average other owners' equity and average intangible
assets.
This measure shows the return NatWest Group generates on tangible equity
deployed. It is used to determine relative performance of banks and used
widely across the sector, although different banks may calculate the rate
differently. A reconciliation is shown below including a comparison to the
nearest GAAP measure, return on equity. This comprises profit attributable to
ordinary shareholders divided by average total equity.
Nine months ended Quarter ended or as at
30 September 30 September 30 September 30 June 30 September
2023 2022 2023 2023 2022
NatWest Group return on tangible equity £m £m £m £m £m
Profit attributable to ordinary shareholders 3,165 2,078 866 1,020 187
Annualised profit attributable to ordinary shareholders 4,220 2,771 3,464 4,080 748
Average total equity 36,150 38,821 35,081 36,216 36,956
Adjustment for other owners' equity and intangibles (11,427) (11,099) (11,583) (11,378) (11,200)
Adjusted total tangible equity 24,723 27,722 23,498 24,838 25,756
Return on equity 11.7% 7.1% 9.9% 11.3% 2.0%
Return on tangible equity 17.1% 10.0% 14.7% 16.4% 2.9%
Non-IFRS financial measures continued
5. Segmental return on equity
Segmental return on equity comprises segmental operating profit or loss,
adjusted for preference share dividends and tax, divided by average notional
tangible equity. Average RWAe is defined as average segmental RWAs
incorporating the effect of capital deductions. This is multiplied by an
allocated equity factor for each segment to calculate the average notional
tangible equity.
This measure shows the return generated by operating segments on equity
deployed.
Retail Private Commercial &
Nine months ended 30 September 2023 Banking Banking Institutional
Operating profit (£m) 2,053 293 2,511
Paid-in equity cost allocation (£m) (43) (17) (125)
Adjustment for tax (£m) (563) (77) (597)
Adjusted attributable profit (£m) 1,447 199 1,790
Annualised adjusted attributable profit (£m) 1,930 265 2,386
Average RWAe (£bn) 56.9 11.4 105.6
Equity factor (%) 13.5% 11.5% 14.0%
Average notional equity (£bn) 7.7 1.3 14.8
Return on equity (%) 25.1% 20.3% 16.1%
Nine months ended 30 September 2022
Operating profit (£m) 1,952 326 1,821
Preference share and paid-in equity cost allocation (£m) (60) (9) (141)
Adjustment for tax (£m) (530) (89) (420)
Adjusted attributable profit (£m) 1,362 228 1,260
Annualised adjusted attributable profit (£m) 1,816 304 1,680
Average RWAe (£bn) 52.7 11.3 102.9
Equity factor (%) 13.0% 11.0% 14.0%
Average notional equity (£bn) 6.8 1.2 14.4
Return on equity (%) 26.5% 24.5% 11.7%
Quarter ended 30 September 2023
Operating profit (£m) 493 59 770
Paid-in equity cost allocation (£m) (13) (6) (39)
Adjustment for tax (£m) (134) (15) (183)
Adjusted attributable profit (£m) 346 38 548
Annualised adjusted attributable profit (£m) 1,382 153 2,193
Average RWAe (£bn) 58.5 11.4 106.7
Equity factor (%) 13.5% 11.5% 14.0%
Average notional equity (£bn) 7.9 1.3 14.9
Return on equity (%) 17.5% 11.7% 14.7%
Quarter ended 30 June 2023
Operating profit (£m) 766 101 747
Paid-in equity cost allocation (£m) (15) (6) (42)
Adjustment for tax (£m) (210) (27) (176)
Adjusted attributable profit (£m) 541 68 529
Annualised adjusted attributable profit (£m) 2,163 274 2,115
Average RWAe (£bn) 56.8 11.4 106.0
Equity factor (%) 13.5% 11.5% 14.0%
Average notional equity (£bn) 7.7 1.3 14.8
Return on equity (%) 28.2% 20.8% 14.3%
Quarter ended 30 September 2022
Operating profit (£m) 666 139 645
Preference share and paid-in equity cost allocation (£m) (20) (3) (48)
Adjustment for tax (£m) (181) (38) (149)
Adjusted attributable profit (£m) 465 98 448
Annualised adjusted attributable profit (£m) 1,860 392 1,792
Average RWAe (£bn) 53.0 11.2 105.0
Equity factor (%) 13.0% 11.0% 14.0%
Average notional equity (£bn) 6.9 1.2 14.7
Return on equity (%) 27.0% 31.8% 12.2%
Non-IFRS financial measures continued
6. Bank net interest margin
Bank net interest margin is defined as annualised net interest income, as a
percentage of bank average interest-earning assets. Bank average interest
earning assets are the average interest earning assets of the banking business
of NatWest Group excluding liquid asset buffer.
Liquid asset buffer consists of assets held by NatWest Group, such as cash and
balances at central banks and debt securities in issue, that can be used to
ensure repayment of financial obligations as they fall due. The exclusion of
liquid asset buffer has been introduced as a way to present net interest
margin on a basis more comparable with UK peers and exclude the impact of
regulatory driven factors. A reconciliation is shown below including a
comparison to the nearest GAAP measure, net interest margin. This is net
interest income as a percentage of average interest earning assets.
Nine months ended Quarter ended
30 September 30 September 30 September 30 June 30 September
2023 2022 2023 2023 2022
£m £m £m £m £m
Continuing operations
NatWest Group net interest income 8,411 6,974 2,685 2,824 2,640
Annualised NatWest Group net interest income 11,245 9,324 10,652 11,327 10,474
Average interest earning assets (IEA) 519,199 546,918 520,815 514,459 548,008
Less liquid asset buffer average IEA (157,505) (204,224) (157,972) (152,133) (197,304)
Bank average IEA 361,694 342,694 362,843 362,326 350,704
Net interest margin 2.17% 1.70% 2.05% 2.20% 1.91%
Bank net interest margin 3.11% 2.72% 2.94% 3.13% 2.99%
Nine months ended Quarter ended
30 September 30 September 30 September 30 June 30 September
2023 2022 2023 2023 2022
Retail Banking £m £m £m £m £m
Net interest income 4,242 3,719 1,334 1,416 1,379
Annualised net interest income 5,672 4,972 5,293 5,680 5,471
Retail Banking average IEA 221,838 207,915 223,686 221,468 212,179
Less liquid asset buffer average IEA (17,269) (19,311) (16,745) (16,820) (20,050)
Adjusted Retail Banking average IEA 204,569 188,604 206,941 204,648 192,129
Retail Banking net interest margin 2.77% 2.64% 2.56% 2.78% 2.85%
Private Banking
Net interest income 572 526 144 199 211
Annualised net interest income 765 703 571 798 837
Private Banking average IEA 27,270 29,366 26,595 27,140 29,309
Less liquid asset buffer average IEA (8,174) (10,310) (7,680) (7,976) (10,155)
Adjusted Private Banking average IEA 19,096 19,056 18,915 19,164 19,154
Private Banking net interest margin 4.00% 3.69% 3.02% 4.17% 4.37%
Commercial & Institutional
Net interest income 3,775 2,895 1,271 1,243 1,131
Annualised adjusted net interest income 5,047 3,871 5,043 4,986 4,487
Commercial & Institutional average IEA 196,457 202,061 193,793 196,735 205,021
Less liquid asset buffer average IEA (65,598) (76,639) (63,944) (65,288) (75,216)
Adjusted Commercial & Institutional average IEA 130,859 125,422 129,849 131,447 129,805
Commercial & Institutional net interest margin 3.86% 3.09% 3.88% 3.79% 3.46%
Non-IFRS financial measures continued
7. Tangible net asset value (TNAV) per ordinary share
TNAV per ordinary share is calculated as tangible equity divided by the number
of ordinary shares in issue.
This is a measure used by external analysts in valuing the bank and allows for
comparison with other per ordinary share metrics including the share price.
As at
30 September 30 June 31 December
2023 2023 2022
Ordinary shareholders' interests (£m) 31,530 30,868 32,598
Less intangible assets (£m) (7,515) (7,453) (7,116)
Tangible equity (£m) 24,015 23,415 25,482
Ordinary shares in issue (millions) (1) 8,871 8,929 9,659
TNAV per ordinary share (pence) 271p 262p 264p
(1) The number of ordinary shares in issue excludes own shares held.
8. Customer deposits excluding central items
Customer deposits excluding central items is calculated as total NatWest Group
customer deposits excluding Central items & other customer deposits.
Central items & other includes Treasury repo activity and Ulster Bank RoI.
The exclusion of Central items & other removes the volatility relating to
Treasury repo activity and the expected reduction of deposits as part of our
withdrawal from the Republic of Ireland. These items may distort
period-on-period comparisons and their removal gives the user of the financial
statements a better understanding of the movements in customer deposits.
As at
30 September 30 June 31 December
2023 2023 2022
£bn £bn £bn
Total customer deposits 435.9 432.5 450.3
Less Central items & other (12.4) (11.4) (17.4)
Customer deposits excluding central items 423.5 421.1 432.9
9. Net loans to customers excluding central items
Net loans to customers excluding central items is calculated as total NatWest
Group net loans to customers excluding Central items & other net loans to
customers.
Central items & other includes Treasury reverse repo activity and Ulster
Bank RoI. The exclusion of Central items & other removes the volatility
relating to Treasury reverse repo activity and the reduction of loans to
customers over 2022 as part of our withdrawal from the Republic of Ireland.
This allows for better period-on-period comparisons and gives the user of the
financial statements a better understanding of the movements in net loans to
customers.
As at
30 September 30 June 31 December
2023 2023 2022
£bn £bn £bn
Net loans to customers (amortised cost) 377.3 373.9 366.3
Less Central items & other (22.8) (21.2) (19.6)
Net loans to customers excluding central items 354.5 352.7 346.7
Non-IFRS financial measures continued
10. Loan:deposit ratio (excl. repos and reverse repos)
Loan:deposit ratio (excl. repos and reverse repos) is calculated as net
customer loans held at amortised cost excluding reverse repos divided by total
customer deposits excluding repos. This is a common metric used to assess
liquidity.
The removal of repos and reverse repos reduces volatility and presents the
ratio on a basis that is comparable to UK peers. A reconciliation is shown
below including a comparison to the nearest GAAP measure, loan:deposit ratio.
This is calculated as net loans to customers held at amortised cost divided by
customer deposits.
As at
30 September 30 June 31 December
2023 2023 2022
£m £m £m
Loans to customers - amortised cost 377,268 373,885 366,340
Less reverse repos (23,095) (21,420) (19,749)
Loans to customers - amortised cost (excl. reverse repos) 354,173 352,465 346,591
Customer deposits 435,867 432,532 450,318
Less repos (10,692) (9,322) (9,828)
Customer deposits (excl. repos) 425,175 423,210 440,490
Loan:deposit ratio (%) 87% 86% 81%
Loan:deposit ratio (excl. repos and reverse repos) (%) 83% 83% 79%
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.
Nine months ended Quarter ended
30 September 30 September 30 September 30 June 30 September
2023 2022 2023 2023 2022
Loan impairment charge (£m) 452 193 229 153 247
Annualised loan impairment charge (£m) 603 257 916 612 988
Gross customer loans (£bn) 380.8 375.1 380.8 377.3 375.1
Loan impairment rate 16bps 7bps 24bps 16bps 26bps
12. Funded assets
Funded assets are calculated as total assets less derivative assets. This
measure allows review of balance sheet trends exclusive of the volatility
associated with derivative fair values.
As at
30 September 30 June 31 December
2023 2023 2022
£m £m £m
Total assets 717,141 702,601 720,053
Less derivative assets (87,504) (81,873) (99,545)
Funded assets 629,637 620,728 620,508
13. Assets under management and administration (AUMA)
AUMA comprises both assets under management (AUM) and assets under administration (AUA) serviced through the Private Banking segment.
AUM comprise assets where the investment management is undertaken by Private Banking on behalf of Private Banking, Retail Banking and Commercial & Institutional customers.
AUA comprise i) third party assets held on an execution-only basis in custody by Private Banking, Retail Banking and Commercial & Institutional for their customers, for which the execution services are supported by Private Banking, and for which Private Banking receives a fee for providing investment management and execution services to Retail Banking and Commercial & Institutional business segments ii) AUA of Cushon, acquired on 1 June 2023, which are supported by Private Banking and held and managed by third parties.
This measure is tracked and reported as the amount of funds that we manage or administer, and directly impacts the level of investment income that we receive.
Non-IFRS financial measures continued
14. AUM net flows
AUM net flows refers to client cash inflows and outflows relating to investment products (this can include transfers from savings accounts). AUM net flows 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.
AUM net flows 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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