REG - NatWest Group plc - NWG Q3 IMS Interim Management Statement 2022
28/10/2022 07:00
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RNS Number : 4141E NatWest Group plc 28 October 2022
NatWest Group
Q3 2022
Interim Management Statement
NatWest Group
plc
natwestgroup.com
NatWest Group Q3 2022 Page
Results
Highlights 1
Our Purpose in action 2
Business performance summary 3
CFO Review 6
Retail Banking 7
Private Banking 8
Commercial & Institutional 9
Ulster Bank RoI 10
Central items & other 11
Segment performance 12
Risk and capital management
Credit risk 17
Capital, liquidity and funding risk 25
Condensed consolidated financial statements 31
Notes to the financial statements 35
Additional information 38
Appendix - Non-IFRS financial measures 41
NatWest Group plc
Q3 2022 Interim Management Statement
Chief Executive, Alison Rose, commented:
"In a challenging environment, NatWest Group continues to deliver a strong
financial performance; supporting our customers, responsibly growing our
lending and making significant investments to transform the bank.
At a time of increased economic uncertainty, we are acutely aware of the
challenges that people, families and businesses are facing up and down the
country. Although we are not yet seeing signs of heightened financial
distress, we are very conscious of the growing concerns of our customers and
we are closely monitoring any changes to their finances or behaviours.
The bank's strong capital and liquidity mean we are able to help those who are
likely to need it the most, through support for our community partners,
proactive outreach to our customers or targeted lending packages for the most
impacted sectors."
Strong Q3 2022 performance
- Q3 2022 attributable profit of £187 million and a return on
tangible equity of 2.9% and 12.1% excluding Ulster Bank RoI.
- Excluding notable items, income in the Go-forward group increased
by £923 million, or 36.8%, compared with Q3 2021 principally reflecting the
impact of volume growth, increased transactional related fees and yield curve
movements.
- Bank net interest margin (NIM) of 2.99% was 27 basis points higher
than Q2 2022 driven by the impact of base rate rises.
- Other operating expenses in the Go-forward group were £87
million, or 1.8%, higher for the year to date. We do, however, remain on track
to achieve our 2022 cost reduction target of around 3%.
- A net impairment charge of £242 million in the Go-forward group
in Q3 2022 principally reflects revision of scenario weightings, with more
weight being placed on the downside scenario, and not due to underlying book
performance where conditions continue to be benign.
- Total Ulster Bank RoI including discontinued operations reported a
loss of €652 million in the quarter, which included a €419 million loss
associated with the reclassification of UBIDAC mortgages to fair value.
Robust balance sheet with strong capital and liquidity levels
- Net lending balances for the Go-forward group increased by £9.9
billion during Q3 2022 to £371.5 billion, with growth balanced across the
business.
- Go-forward group customer deposits decreased by £14.5 billion to
£461.7 billion compared with Q2 2022, primarily driven by a reduction in
Treasury repo activity of £7.6 billion and an £8.0 billion reduction in
Commercial & Institutional reflecting reversal of short term inflows in Q2
2022 and general seasonal fluctuations in liquidity.
- The liquidity coverage ratio (LCR) of 156%, representing £67.8
billion headroom above 100% minimum requirement, decreased by 3 percentage
points compared with Q2 2022, reflecting shareholder distributions, redemption
of senior debt and maturing commercial papers and certificates of deposit.
- CET1 ratio of 14.3% was flat on Q2 2022 as the attributable profit
and reduction in RWAs was offset by accruals for foreseeable dividends and
pension contributions.
- RWAs reduced by £1.3 billion in the quarter to £178.5 billion.
Outlook 2023((2))
In 2023, we continue to expect to achieve our planned return on tangible
equity in the range of 14-16%.
However, reflecting changes in the economic outlook since H1 2022, the
composition of those returns will be different:
- Income will be higher supported by higher interest rates.
- We no longer expect costs to be broadly stable given increased
inflationary pressures.
- Our loan book is performing well, and while we expect impairments
to increase, we remain comfortable with our through the cycle impairment loss
rate guidance of 20-30 basis points, including in 2023.
Outlook 2022((2))
- At today's Bank of England base rate of 2.25% we expect 2022
income excluding notable items to be around £12.8 billion in the Go-forward
group. We expect NIM to be greater than 2.80% for full year 2022 in the
Go-forward group.
Other than as stated above, we retain the outlook guidance provided in the
2022 Interim Results.
(1) Go-forward group excludes Ulster Bank RoI and discontinued
operations.
(2) The guidance, targets, expectations and trends discussed in this
section represent NatWest Group plc management's current expectations and are
subject to change, including as a result of the factors described in the
NatWest Group plc Risk Factors in the 2021 Annual Report and Accounts and Form
20-F and the Summary Risk Factors in the NatWest Group plc 2022 Interim
Results. These statements constitute forward-looking statements. Refer to
Forward-looking statements in this announcement.
Our Purpose in action
We champion potential, helping people, families and businesses to thrive. We
are doing this by breaking down barriers, building financial confidence and
delivering sustainable growth and returns by living up to our purpose. Some
key achievements include:
People and families
- 8.3 million proactive contacts to our retail customers with
support and information on the cost of living so far in 2022.
- Helped c.0.6 million customers with financial health checks so far
in 2022, allowing them to organise their finances.
- Launched benefits calculator((1)) as part of the Cost of Living
Hub and increased the interest paid on our Digital Regular Saver to 5%.
- We extended our mortgage early refinance window from four months
to six months, providing some eligible customers that refinanced in Q3 2022
with a saving of around 2% on their next mortgage rate.
- In Retail Banking, we have completed £2.1 billion of green
mortgages((2)), which give a discounted interest rate to energy efficient
properties, since they were launched in Q4 2020, including £668 million in Q3
2022.
Businesses
- Contacted c.0.8 million business customers, providing support and
advice with the cost of doing business through c.3 million pieces of proactive
communication.
- Continue to look at ways to support SMEs, for example through the
freezing of fees on Business Current accounts for 12 months, and through our
dedicated SME ecosystem with access to specialist relationship managers and
business hubs.
- Working with the UK's largest debt charity, Step Change, donating
£2 million to help fund an independent debt advice service for SMEs.
- Completed £6.2 billion of climate and sustainable funding and
financing in Q3 2022, bringing the cumulative contribution to £26.2 billion
against our target of £100 billion between 1 July 2021 and the end of 2025.
- Lowered the application threshold for our Green Loan offering for
SMEs, from £50,000 to £25,000, helping more businesses transition to net
zero.
- Launched the NatWest Carbon Planner in August 2022, a free to use
digital platform designed to help UK businesses reduce their carbon footprint.
Colleagues
- Our new Partner Leave Policy((3)) will provide the same pay and
leave entitlement to all eligible new parents, regardless of gender, helping
to support wider cultural change by promoting a shared approach to childcare
responsibilities early on.
- Launched the Peppy Health App, a brand-new digital product
providing colleagues and their partners with online support on the menopause
as well as access to specialist clinicians. The Peppy App provides support for
colleagues at any stage of the menopause, from as early as having initial
symptoms to post-menopause.
- Targeted action to provide long-term support through a permanent
increase in base pay for our lowest paid colleagues, globally. c.22,000
colleagues received a pay rise, effective from 1 September 2022. In the UK, a
4% salary rise for those earning less than £32,000.
- 246 apprentices have joined the bank so far in 2022((4)), with a
further c.50 due to join before the end of the year.
Communities
- Launched our Greener Homes Retrofit Project with our Sustainable
Homes and Buildings Coalition partners. This involves supporting households to
improve the energy efficiency of their homes.
- The DEC Ukraine Humanitarian Appeal has exceeded £10 million in
donations from NatWest Group colleagues and customers. This includes £2.5
million matching from the bank, over £2.3 million in Reward donations
(including Gift Aid) and £284,000 (including Gift Aid) donated by colleagues
through our SponsorMe page.
- MoneySense has helped almost c.0.9 million young people learn
about money in 2022 so far, and is used in 58% of schools. Our CareerSense
programme has reached over 7,700 young people, through workshops in schools,
paid placements/insight weeks and Find Your Path programme.
- Since 1 January 2022, our colleagues have given back c.48,000
hours of volunteering leave within work time and fundraised c.£2.4 million
for charitable causes.
(1) Benefits calculator launched in October 2022.
(2) Green mortgages are available to all intermediaries for all
residential and Buy to Let properties with an energy performance rating of A
or B and specific new build developer properties. Available for Purchase,
Porting & Re-mortgage applications.
(3) Our Partner Leave policies will replace existing Paternity Leave
policies from 1 January 2023 in the UK, Guernsey, Jersey, Gibraltar, Republic
of Ireland, India and Poland.
(4) Apprentices who have joined the bank as at 25 October 2022.
Business performance summary
Nine months ended Quarter ended
30 September 30 September 30 September 30 June 30 September
2022 2021 2022 2022 2021
£m £m £m £m £m
Continuing operations
Total income 9,448 7,827 3,229 3,211 2,686
Operating expenses (5,549) (5,430) (1,896) (1,833) (1,931)
Profit before impairment (losses)/releases 3,899 2,397 1,333 1,378 755
Operating profit before tax 3,706 3,301 1,086 1,396 976
Excluding notable items within total income (1)
Total income excluding notable items (2) 9,295 7,679 3,397 3,114 2,568
Operating expenses (5,549) (5,430) (1,896) (1,833) (1,931)
Profit before impairment (losses)/releases and
excluding notable items 3,746 2,249 1,501 1,281 637
Operating profit before tax and excluding notable items 3,553 3,153 1,254 1,299 858
Go-forward group (3)
Total income (2) 9,452 7,705 3,266 3,199 2,629
Total income excluding notable items (2) 9,299 7,557 3,434 3,102 2,511
Other operating expenses (4,902) (4,815) (1,661) (1,636) (1,524)
Profit before impairment (losses)/releases (2) 4,271 2,626 1,484 1,507 810
Return on tangible equity (2) 13.5% 11.4% 12.1% 16.5% 8.6%
Cost:income ratio (2) 54.4% 65.4% 54.1% 52.4% 68.8%
Performance key metrics and ratios
Bank net interest margin (2,4) 2.73% 2.32% 2.99% 2.72% 2.28%
Bank average interest earning assets (2,4) £341bn £323bn £350bn £340bn £325bn
Cost:income ratio (2) 58.3% 69.0% 58.3% 56.7% 71.5%
Loan impairment rate (2) 7bps (33bps) 26bps (2bps) (24bps)
Profit attributable to ordinary shareholders 2,078 2,516 187 1,050 674
Total earnings per share attributable to ordinary
shareholders - basic (5) 20.9p 23.1p 1.9p 10.8p 6.3p
Return on tangible equity (2) 10.0% 10.7% 2.9% 15.2% 8.5%
(1) Refer to page 5 for details of notable items within total income.
(2) Refer to the Non-IFRS financial measures appendix for details of basis of
preparation and reconciliation of non-IFRS financial measures and performance
metrics.
(3) Go-forward group excludes Ulster Bank RoI and discontinued operations.
(4) NatWest Group excluding Ulster Bank RoI and liquid asset buffer.
(5) At the General Meeting and Class Meeting on 25 August 2022, the shareholders
approved the proposed special dividend and share consolidation. On 30 August
2022 the issued ordinary share capital was consolidated in the ratio of 14
existing shares for 13 new shares. The average number of shares for earnings
per share has been adjusted retrospectively.
Business performance summary continued
30 September 30 June 31 December
2022 2022 2021
£bn £bn £bn
Balance sheet
Total assets 801.5 806.5 782.0
Funded assets (1) 660.5 697.1 675.9
Loans to customers - amortised cost 371.8 362.6 359.0
Loans to customers and banks - amortised cost and FVOCI 384.5 376.4 369.8
Go-forward group net lending (1) 371.5 361.6 352.3
Total impairment provisions (2) 3.4 3.5 3.8
Expected credit loss (ECL) coverage ratio 0.88% 0.93% 1.03%
Assets under management and administration (AUMA) (1) 32.3 32.9 35.6
Go-forward group customer deposits (1) 461.7 476.2 461.4
Customer deposits 473.0 492.1 479.8
Liquidity and funding
Liquidity coverage ratio (LCR) 156% 159% 172%
Liquidity portfolio 251 268 286
Net stable funding ratio (NSFR) (3) 148% 153% 157%
Loan:deposit ratio (1) 75% 71% 72%
Total wholesale funding 75 76 77
Short-term wholesale funding 24 24 23
Capital and leverage
Common Equity Tier (CET1) ratio (4) 14.3% 14.3% 18.2%
Total capital ratio (4) 19.2% 19.3% 24.7%
Pro forma CET1 ratio, pre foreseeable items (5) 14.7% 15.6% 19.5%
Risk-weighted assets (RWAs) 178.5 179.8 157.0
UK leverage ratio (4) 5.2% 5.2% 5.9%
Tangible net asset value (TNAV) per ordinary share (6) 250p 267p 272p
Number of ordinary shares in issue (millions) (6) 9,650 10,436 11,272
(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) Includes £0.1 billion relating to off-balance sheet exposures (30 June 2022 -
£0.1 billion; 31 December 2021 - £0.1 billion).
(3) The NSFR is presented on a spot basis.
(4) Refer to the Capital, liquidity and funding risk section for details of basis
of preparation. On 1 January 2022 the proforma CET1 ratio was 15.9% following
regulatory changes.
(5) The pro forma CET1 ratio at 30 September 2022 excludes foreseeable items of
£668 million; £386 million for ordinary dividends and £282 million
foreseeable charges (30 June 2022 excludes foreseeable items of £2,341
million: £500 million for ordinary dividends, £1,750 million for special
dividends and £91 million foreseeable charges; 31 December 2021 excludes
foreseeable charges of £2,036 million: £846 million for ordinary dividends
and £1,190 million foreseeable charges and pension contributions).
(6) The number of ordinary shares in issue excludes own shares held. Comparatives
for the number of shares in issue and TNAV per ordinary share have not been
adjusted for the effect of the share consolidation referred to in footnote 5
on the previous page.
Summary consolidated income statement for the period ended 30 September 2022
Nine months ended Quarter ended
30 September 30 September 30 September 30 June 30 September
2022 2021 2022 2022 2021
£m £m £m £m £m
Net interest income 6,974 5,613 2,640 2,307 1,869
Non-interest income 2,474 2,214 589 904 817
Total income 9,448 7,827 3,229 3,211 2,686
Litigation and conduct costs (294) (276) (125) (67) (294)
Other operating expenses (5,255) (5,154) (1,771) (1,766) (1,637)
Operating expenses (5,549) (5,430) (1,896) (1,833) (1,931)
Profit before impairment (losses)/releases 3,899 2,397 1,333 1,378 755
Impairment (losses)/releases (193) 904 (247) 18 221
Operating profit before tax 3,706 3,301 1,086 1,396 976
Tax charge (1,229) (762) (434) (409) (330)
Profit from continuing operations 2,477 2,539 652 987 646
(Loss)/profit from discontinued operations, net of tax (206) 275 (396) 127 98
Profit for the period 2,271 2,814 256 1,114 744
Attributable to:
Ordinary shareholders 2,078 2,516 187 1,050 674
Preference shareholders - 14 - - 5
Paid-in equity holders 188 241 67 62 63
Non-controlling interests 5 43 2 2 2
2,271 2,814 256 1,114 744
Notable items within total income (1)
Commercial & Institutional
Fair value, disposal losses and asset disposals/
strategic risk reduction (45) (70) - (45) (8)
Tax variable lease repricing - 32 - - -
Own credit adjustments (OCA) 61 3 9 34 2
Central items & other
Share of associate (losses)/profits for Business
Growth Fund (29) 208 (16) (36) 79
Loss on redemption of own debt (161) (138) (137) - -
Liquidity Asset Bond sale (losses)/gains (88) 70 (124) (5) 45
Interest and FX risk management derivatives not
in accounting hedge relationships 415 44 100 149 -
Own credit adjustments (OCA) - (1) - - -
Total 153 148 (168) 97 118
(1) Refer to page 41 of the Non-IFRS financial measures appendix.
Non-IFRS financial measures
This document contains a number of non-IFRS financial measures and performance
metrics not defined under IFRS. For details of the basis of preparation and
reconciliations, where applicable, refer to the appendix.
Business performance summary
Chief Financial Officer review
The results for the quarter have been impacted by a significant loss in Ulster
Bank RoI as we continue our withdrawal from the Republic of Ireland, however
operating performance in the Go-forward group was strong, delivering a RoTE of
12.1%. We continue to monitor the evolving economic outlook, particularly
any impacts on NatWest Group and our customers from higher interest rates and
inflationary pressures and recent pressure on sterling, gilts and pension fund
liabilities. NatWest Group's capital and liquidity position remains robust.
Financial performance
Total income in the Go-forward group increased by 24.2% to £3,266 million
compared with Q3 2021. Excluding notable items, income was £923 million, or
36.8%, higher than Q3 2021 driven by volume growth, increased transactional
related fees, higher trading income and favourable yield curve movements.
Bank NIM of 2.99% was 27 basis points higher than Q2 2022 principally
reflecting the impact of recent base rate increases.
Other operating expenses in the Go-forward group were £137 million, or 9.0%,
higher than Q3 2021 principally driven by strategic investment in key areas,
including data and financial crime, resulting in an increase of £87 million,
or 1.8%, for the year to date.
A net impairment charge of £242 million for the Go-forward group for Q3 2022
principally reflects an increase in the charge relating to good book
exposures, driven by revision of scenario weightings with more weight being
placed on the downside scenarios. We continue to see low levels of Stage 3
defaults. Compared with Q2 2022, our ECL provisions have reduced by £0.1
billion to £3.4 billion, and our ECL coverage ratio has decreased from 0.93%
to 0.88%. The element of our economic uncertainty post model adjustments (PMA)
that relates to COVID-19 risks has been reduced, which, when combined with
revising our scenario weightings, has allowed us to reduce the amount we hold
as economic uncertainty PMA to £0.5 billion, or 16.1% 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.
After including a charge of €419 million in relation to the reclassification
of UBIDAC mortgages to fair value, we report a Q3 2022 attributable profit of
£187 million, with earnings per share of 1.9 pence and a RoTE of 2.9% for
NatWest Group.
Retail Banking gross new mortgage lending was £11.0 billion in Q3 2022,
compared with £8.3 billion in Q3 2021 and £9.8 billion in Q2 2022, bringing
gross new lending for the year to £29.9 billion. Unsecured balances in Retail
Banking grew £0.2 billion in the quarter as customer demand remained strong.
Go-forward group net lending increased by £9.9 billion, or 2.7%, in the
quarter including £3.9 billion of mortgage lending growth in Retail Banking
and £4.6 billion of growth in Commercial & Institutional. Wholesale
lending was strong across the whole book, with most activity in Commercial
& Institutional. Government Scheme lending continues to reduce, with £0.6
billion repaid in the quarter.
Customer deposits in the Go-forward group decreased by £14.5 billion, or
3.0%, in the quarter. Retail Banking deposits remained stable, with the
decrease primarily driven by an £8.0 billion reduction in Commercial &
Institutional reflecting the reversal of short term inflows in Q2 2022 and
general seasonal fluctuations in liquidity and a reduction in Treasury repo
activity of £7.6 billion. In the Go-forward group around 60% of our customer
deposits are interest bearing and the bank has passed on 25-30% of the 215
basis point UK base rate rises since Q4 2021.
TNAV per share decreased by 17 pence in the quarter to 250 pence principally
reflecting movements in cashflow hedging reserves and dividend payments,
offset by the impact of the share consolidation.
Capital and leverage
The Group Pension Fund is holding sufficient collateral and cash for current
market levels and the robust risk management of the Fund has negated any need
to sell assets to meet collateral calls to date. The Fund remains in surplus
and funding levels have improved since the last valuation. The NatWest Group's
exposure to LDI funds through secured lending (repo) or derivatives is
collateralised on a daily basis.
The CET1 ratio remains robust at 14.3%, or 14.1% excluding IFRS 9 transitional
relief, and was flat on Q2 2022 as the attributable profit and reduction in
RWAs was offset by accruals for foreseeable dividends and pension
contributions. The total capital ratio decreased by 10 basis points to 19.2%.
RWAs reduced by £1.3 billion in the quarter to £178.5 billion reflecting
disposal activity in Ulster Bank RoI, partially offset by lending growth, FX
movements and market risk.
Funding and liquidity
The LCR decreased by 3 percentage points to 156%, representing £67.8 billion
headroom above 100% minimum requirement. The main drivers of this include
shareholder distributions, redemption of Senior debt and maturing commercial
papers and certificates of deposit, coupled with a reduction in customers
deposits and increased lending to our customers. Total wholesale funding
reduced by £1.4 billion in the quarter to £75.0 billion. Short term
wholesale funding increased by £0.2 billion in the quarter to £23.8 billion.
Business performance summary
Retail Banking
Quarter ended
30 September 30 June 30 September
2022 2022 2021
£m £m £m
Total income 1,475 1,337 1,131
Operating expenses (693) (597) (552)
of which: Other operating expenses (630) (593) (537)
Impairment losses (116) (21) (16)
Operating profit 666 719 563
Return on equity 27.0% 29.5% 29.9%
Net interest margin 2.85% 2.62% 2.29%
Cost:income ratio 47.0% 44.7% 48.8%
Loan impairment rate 24bps 4bps 4bps
As at
30 September 30 June 31 December
2022 2022 2021
£bn £bn £bn
Net loans to customers (amortised cost) 192.8 188.7 182.2
Customer deposits 190.9 190.5 188.9
RWAs 53.0 53.0 36.7
During Q3 2022, Retail Banking continued to pursue sustainable growth with an
intelligent approach to risk, delivering a return on equity of 27.0% and an
operating profit of £666 million.
We continue to support our customers facing the rising cost of living
financial challenges during Q3 2022. In addition to the measures taken
during H1 2022, we have increased the support available to our mortgage
customers during their roll-off period by extending the roll-off window from 4
to 6 months, giving customers more time to select their follow on product and
secure rates in advance. We have also proactively engaged with those customers
identified as potentially income stretched to make them aware of the support
available, and offered pre-screening toolkits and soft scoring to help
customers understand what borrowing they are eligible for and what their
repayments would be.
Retail Banking completed £1.1 billion of climate and sustainable funding and
financing in Q3 2022.
Q3 2022 performance
- Total income was £344 million, or 30.4%, higher than Q3 2021 reflecting
higher deposit income, supported by interest rate rises, strong loan growth
and higher transactional-related fee income, partially offset by lower
mortgage margins and the impact of the summer fee-free overseas spending
offer.
- Net interest margin was 23 basis points higher than Q2 2022 reflecting higher
deposit returns, partly offset by mortgage margin pressure. Mortgage back book
margin was 138 basis points in the period.
- Other operating expenses were £93 million, or 17.3%, higher than Q3 2021
primarily due to higher marketing spend, higher fraud losses and increased
investment in financial crime prevention, combined with the impact of pay
awards to support colleague cost of living challenges. This was partly offset
by a 9.3% headcount reduction as a result of the continued digitalisation,
automation and improvement of end-to-end customer journeys.
- Impairment losses of £116 million in Q3 2022 reflect a revision of the
economic scenario weightings, with more weight being placed on the downside,
and continued low level of stage 3 defaults.
- Customer deposits increased by £0.4 billion, or 0.2%, in Q3 2022 including
the impact of customers utilising savings balances over the summer period.
- Net loans to customers increased by £4.1 billion, or 2.2%, in Q3 2022 mainly
reflecting continued mortgage growth of £3.9 billion, with gross new mortgage
lending of £11.0 billion representing flow share of around 13%. Personal
advances increased by £0.1 billion and cards balances increased by £0.1
billion in Q3 2022 reflecting continued strong customer demand.
- RWAs remained broadly in line with Q2 2022 at £53.0 billion with lending
growth offset by quality improvements.
Business performance summary
Private Banking
Quarter ended
30 September 30 June 30 September
2022 2022 2021
£m £m £m
Total income 285 245 195
Operating expenses (139) (146) (116)
of which: Other operating expenses (138) (146) (119)
Impairment (losses)/releases (7) 6 15
Operating profit 139 105 94
Return on equity 31.8% 23.5% 18.1%
Net interest margin 4.37% 3.60% 2.60%
Cost:income ratio 48.8% 59.6% 59.5%
Loan impairment rate 15bps (13)bps (32)bps
Net new money (£bn) (1) 0.3 0.6 0.7
As at
30 September 30 June 31 December
2022 2022 2021
£bn £bn £bn
Net loans to customers (amortised cost) 19.1 18.8 18.4
Customer deposits 42.2 41.6 39.3
RWAs 11.1 11.3 11.3
Assets under management (AUMs) (1) 27.6 28.1 30.2
Assets under administration (AUAs) (1) 4.7 4.8 5.4
Total assets under management and administration (AUMA) (1) 32.3 32.9 35.6
(1) Refer to page 48 of the Non-IFRS financial measures appendix.
During Q3 2022, Private Banking provided a strong operating performance with
continued balance growth, delivering a return on equity of 31.8% and operating
profit of £139 million.
We have continued to support our clients in helping them deal with financial
challenges as a result of rising inflation and the volatile market environment
through financial health checks and fraud and scams workshops. Despite
volatile markets throughout the year, our year to date AUM net new money of
£1.7 billion represents a strong performance relative to the overall UK
investment market.
Private Banking completed £0.1 billion of climate and sustainable funding and
financing during Q3 2022.
Q3 2022 performance
- Total income was £90 million, or 46.2%, higher than Q3 2021 driven by higher
deposit and lending balances, and improved deposit returns, supported by
interest rate rises.
- Net interest margin was 77 basis points higher than Q2 2022 reflecting higher
deposit income.
- Other operating expenses were £19 million, or 16.0%, higher than Q3 2021 due
to continued investment in people and technology to enhance AUMA growth
propositions.
- Impairment losses of £7 million in Q3 2022 are primarily due to an increase
in the impairment charge relating to good book exposures, driven by revision
of scenario weightings, with more weight being placed on the downside
scenario.
- AUM net new money was £0.3 billion during Q3 2022 and £1.7 billion in the
year to date, which represented 6.4% of opening AUMA balances on an annualised
basis, demonstrating a strong performance given volatile investment market
conditions. AUMAs decreased by £0.6 billion, or 1.8%, in Q3 2022 primarily
reflecting investment market movements of £0.8 billion.
- Customer deposits increased by £0.6 billion, or 1.4%, in Q3 2022 with
continued savings growth.
- Net loans to customers increased by £0.3 billion, or 1.6%, in Q3 2022 due to
continued strong mortgage lending growth, whilst RWAs decreased by £0.2
billion, or 1.8%.
(1) Refer to page 48 of the Non-IFRS financial measures appendix.
During Q3 2022, Private Banking provided a strong operating performance with
continued balance growth, delivering a return on equity of 31.8% and operating
profit of £139 million.
We have continued to support our clients in helping them deal with financial
challenges as a result of rising inflation and the volatile market environment
through financial health checks and fraud and scams workshops. Despite
volatile markets throughout the year, our year to date AUM net new money of
£1.7 billion represents a strong performance relative to the overall UK
investment market.
Private Banking completed £0.1 billion of climate and sustainable funding and
financing during Q3 2022.
Q3 2022 performance
-
Total income was £90 million, or 46.2%, higher than Q3 2021 driven by higher
deposit and lending balances, and improved deposit returns, supported by
interest rate rises.
-
Net interest margin was 77 basis points higher than Q2 2022 reflecting higher
deposit income.
-
Other operating expenses were £19 million, or 16.0%, higher than Q3 2021 due
to continued investment in people and technology to enhance AUMA growth
propositions.
-
Impairment losses of £7 million in Q3 2022 are primarily due to an increase
in the impairment charge relating to good book exposures, driven by revision
of scenario weightings, with more weight being placed on the downside
scenario.
-
AUM net new money was £0.3 billion during Q3 2022 and £1.7 billion in the
year to date, which represented 6.4% of opening AUMA balances on an annualised
basis, demonstrating a strong performance given volatile investment market
conditions. AUMAs decreased by £0.6 billion, or 1.8%, in Q3 2022 primarily
reflecting investment market movements of £0.8 billion.
-
Customer deposits increased by £0.6 billion, or 1.4%, in Q3 2022 with
continued savings growth.
-
Net loans to customers increased by £0.3 billion, or 1.6%, in Q3 2022 due to
continued strong mortgage lending growth, whilst RWAs decreased by £0.2
billion, or 1.8%.
Business performance summary
Commercial & Institutional
Quarter ended
30 September 30 June 30 September
2022 2022 2021
£m £m £m
Net interest income 1,131 961 723
Non-interest income 526 601 473
Total income 1,657 1,562 1,196
Operating expenses (893) (898) (874)
of which: Other operating expenses (840) (854) (845)
Impairment (losses)/releases (119) 48 230
Operating profit 645 712 552
Return on equity 12.2% 14.0% 11.0%
Net interest margin 3.46% 3.09% 2.39%
Cost:income ratio 53.0% 56.6% 72.2%
Loan impairment rate 36bps (15)bps (72)bps
As at
30 September 30 June 31 December
2022 2022 2021
£bn £bn £bn
Net loans to customers (amortised cost) 131.9 127.3 124.2
Customer deposits 215.2 223.2 217.5
Funded assets (1) 325.5 343.4 321.3
RWAs 104.8 103.0 98.1
(1) Refer to page 48 of the Non-IFRS financial measures appendix.
During Q3 2022, Commercial & Institutional delivered a strong performance
with a return on equity of 12.2% and an operating profit of £645 million.
As our customers are facing a volatile external macroeconomic environment, we
continue to proactively provide support through our Relationship Manager-led
model, alongside a 12-month freeze in SME fees, the launch of the Cost of
Trading internet hub and launching Carbon Planner which enables businesses to
accurately plan how they can reduce their energy and fuel costs with a bespoke
strategy.
Commercial & Institutional completed £4.9 billion of climate and
sustainable funding and financing in Q3 2022.
Q3 2022 performance
- Total income was £461 million, or 38.5%, higher than Q3 2021 reflecting
higher deposit returns from an improved interest rate environment, net loan
growth and improved card payment fees. Markets income((1)) of £136 million,
was £31 million, or 29.5%, higher than Q3 2021 reflecting stronger
performance in Currencies.
- Net interest margin was 37 basis points higher than Q2 2022 reflecting higher
deposit income.
- Other operating expenses were £5 million, or 0.6%, lower than Q3 2021 due to
the non-repeat of Q3 2021 restructuring costs partly offset by continued
investment in the business including higher back office operational costs.
- A net impairment charge of £119 million in Q3 2022 was predominantly driven
by the revision of scenario weightings, with more weight being placed on the
downside scenarios.
- Customer deposits decreased by £8.0 billion, or 3.6%, in Q3 2022 reflecting
the reversal of short term inflows in Q2 and general seasonal fluctuations in
liquidity. Overall customer liquidity levels remain at heightened levels.
- Net loans to customers increased by £4.6 billion, or 3.6%, in Q3 2022 due to
increased facility utilisation and funds activity within Corporate &
Institutions partly offset by UK Government scheme repayments of £0.6 billion
across Commercial Mid-market and Business Banking.
- RWAs increased by £1.8 billion, or 1.7%, in Q3 2022 driven by lending growth,
counterparty credit risk and market risk, partly offset by risk parameter
improvements and continued benefits from capital actions.
(1) Refer to page 48 of the Non-IFRS financial measures appendix.
During Q3 2022, Commercial & Institutional delivered a strong performance
with a return on equity of 12.2% and an operating profit of £645 million.
As our customers are facing a volatile external macroeconomic environment, we
continue to proactively provide support through our Relationship Manager-led
model, alongside a 12-month freeze in SME fees, the launch of the Cost of
Trading internet hub and launching Carbon Planner which enables businesses to
accurately plan how they can reduce their energy and fuel costs with a bespoke
strategy.
Commercial & Institutional completed £4.9 billion of climate and
sustainable funding and financing in Q3 2022.
Q3 2022 performance
-
Total income was £461 million, or 38.5%, higher than Q3 2021 reflecting
higher deposit returns from an improved interest rate environment, net loan
growth and improved card payment fees. Markets income((1)) of £136 million,
was £31 million, or 29.5%, higher than Q3 2021 reflecting stronger
performance in Currencies.
-
Net interest margin was 37 basis points higher than Q2 2022 reflecting higher
deposit income.
-
Other operating expenses were £5 million, or 0.6%, lower than Q3 2021 due to
the non-repeat of Q3 2021 restructuring costs partly offset by continued
investment in the business including higher back office operational costs.
-
A net impairment charge of £119 million in Q3 2022 was predominantly driven
by the revision of scenario weightings, with more weight being placed on the
downside scenarios.
-
Customer deposits decreased by £8.0 billion, or 3.6%, in Q3 2022 reflecting
the reversal of short term inflows in Q2 and general seasonal fluctuations in
liquidity. Overall customer liquidity levels remain at heightened levels.
-
Net loans to customers increased by £4.6 billion, or 3.6%, in Q3 2022 due to
increased facility utilisation and funds activity within Corporate &
Institutions partly offset by UK Government scheme repayments of £0.6 billion
across Commercial Mid-market and Business Banking.
-
RWAs increased by £1.8 billion, or 1.7%, in Q3 2022 driven by lending growth,
counterparty credit risk and market risk, partly offset by risk parameter
improvements and continued benefits from capital actions.
(1) Markets income excludes asset disposals/strategic risk reduction,
own credit risk adjustments and central items.
Business performance summary
Ulster Bank RoI
Ulster Bank RoI continues to make progress on its phased withdrawal from the
Republic of Ireland.
- Successful migration of a further three tranches of gross performing
commercial loans to Allied Irish Banks, p.l.c. (AIB) was completed during Q3
2022. Remaining migrations of commercial customers will be completed in phases
over Q4 2022 and H1 2023. Colleagues who are wholly or mainly assigned to
supporting this part of the business have begun to transfer to AIB under TUPE
arrangements.
- The planned migration of gross performing non-tracker mortgages to Permanent
TSB p.l.c. (PTSB) is progressing and execution of the live migration is
expected to commence before the end of the year. The transfer of the Lombard
asset finance business, the business direct loan book and 25 branches to PTSB
is still expected to be completed in H1 2023.
- Migration of the portfolio of gross performing tracker and linked mortgages is
still on track for delivery in Q2 2023. UBIDAC and AIB remain actively engaged
with the Irish Competition and Consumer Protection Commission (CCPC) as it
continues its review of the transaction.
- There has been continued momentum on deposit outflows, with a significant
level of customers reducing their balances and moving their active banking
relationship in advance of closing their accounts.
- Work continues on managing the residual activities of the bank, including
remaining asset disposals.
Continuing operations Quarter ended
30 September 30 June 30 September
2022 2022 2021
€m €m €m
Total income (44) 13 68
Operating expenses (1) (135) (167) (131)
of which: Other operating expenses (130) (154) (132)
Impairment losses (5) (26) (5)
Operating loss (184) (180) (68)
As at
30 September 30 June 31 December
2022 2022 2021
€bn €bn €bn
Net loans to customers - amortised cost (2) 0.4 1.2 7.9
Customer deposits 12.8 18.4 21.9
RWAs 9.1 12.6 10.9
(1) Includes withdrawal-related direct programme costs of €24
million for the quarter ended 30 September 2022 (€19 million - 30 June 2022
and nil - 30 September 2021).
(2) This excludes €0.7 billion of loans to customers held at fair
value through profit or loss (nil - 30 June 2022 and nil - 30 September 2021).
Q3 2022 performance
- Total income was €112 million lower than Q3 2021 reflecting reduced business
levels, the continued cost of an inter-group liquidity facility that was put
in place as part of the arrangements to manage deposit outflows and the cost
of restructuring UBIDAC's hedging portfolio.
- Other operating expenses were €2 million, or 1.5%, lower than Q3 2021 due to
lower regulatory levies and reduced staff costs being partially offset by
higher withdrawal-related programme costs.
- Net loans to customers decreased by €0.8 billion, or 66.7%, in Q3 2022 due
to the reclassification of mortgages to loans at fair value and repayments on
the remaining portfolio.
- Customer deposits decreased by €5.6 billion, or 30.4%, in Q3 2022 due to
reducing personal and commercial deposits as momentum continues in account
closures.
- RWAs decreased by €3.5 billion, or 27.8%, in Q3 2022 driven by asset sales
and the move to the standardised approach to measuring risk weightings. The
move to the standardised approach was part of simplifying processes arising
from the phased withdrawal strategy.
Business performance summary
Ulster Bank RoI continued
Total Ulster Bank RoI including discontinued operations Quarter ended
30 September 30 June 30 September
2022 2022 2021
€m €m €m
Total income (518) 101 171
Operating expenses (148) (182) (144)
of which: Other operating expenses (143) (169) (145)
Impairment releases 14 53 19
Operating (loss)/profit (652) (28) 46
As at
30 September 30 June 30 December
2022 2022 2021
€bn €bn €bn
Net loans to customers (amortised cost) (1) 2.8 17.7 18.6
Customer deposits 12.8 18.4 21.9
RWAs 9.1 12.6 10.9
(1) This excludes €12.1 billion of loans to customers held at fair
value through profit or loss (nil - 30 June 2022 and nil - 30 September 2021).
Central items & other
Quarter ended
30 September 30 June 30 September
2022 2022 2021
£m £m £m
Central items not allocated (208) 10 (173)
An operating loss of £208 million within central items not allocated
principally reflects losses on redemption of own debt and further bond
disposals, offset by gains from risk management derivatives not in hedge
accounting relationships.
Segment performance
Nine months ended 30 September 2022
Go-forward group
Retail Private Commercial & Central items Total excluding Ulster Total NatWest
Banking Banking Institutional & other Ulster Bank RoI Bank RoI Group
£m £m £m £m £m £m £m
Continuing operations
Income statement
Net interest income 3,719 526 2,895 (178) 6,962 12 6,974
Non-interest income 310 220 1,699 261 2,490 (16) 2,474
Total income 4,029 746 4,594 83 9,452 (4) 9,448
Direct expenses (498) (157) (1,101) (3,279) (5,035) (220) (5,255)
Indirect expenses (1,316) (265) (1,473) 3,187 133 (133) -
Other operating expenses (1,814) (422) (2,574) (92) (4,902) (353) (5,255)
Litigation and conduct costs (121) (2) (139) (17) (279) (15) (294)
Operating expenses (1,935) (424) (2,713) (109) (5,181) (368) (5,549)
Operating profit/(loss) before impairment
(losses)/releases 2,094 322 1,881 (26) 4,271 (372) 3,899
Impairment (losses)/releases (142) 4 (60) 2 (196) 3 (193)
Operating profit/(loss) 1,952 326 1,821 (24) 4,075 (369) 3,706
Income excluding notable items 4,029 746 4,578 (54) 9,299 (4) 9,295
Additional information
Return on tangible equity (1) na na na na 13.5% na 10.0%
Return on equity (1) 26.5% 24.5% 11.7% nm nm nm na
Cost:income ratio (1) 48.0% 56.8% 58.2% nm 54.4% nm 58.3%
Total assets (£bn) 221.3 29.8 465.3 67.8 784.2 17.3 801.5
Funded assets (£bn) (1) 221.3 29.8 325.5 66.6 643.2 17.3 660.5
Net loans to customers - amortised cost (£bn) 192.8 19.1 131.9 27.7 371.5 0.3 371.8
Loan impairment rate (1) 10bps (3)bps 6bps nm 7bps nm 7bps
Impairment provisions (£bn) (1.5) (0.1) (1.6) - (3.2) (0.1) (3.3)
Impairment provisions - stage 3 (£bn) (0.9) - (0.7) - (1.6) (0.1) (1.7)
Customer deposits (£bn) 190.9 42.2 215.2 13.4 461.7 11.3 473.0
Risk-weighted assets (RWAs) (£bn) 53.0 11.1 104.8 1.6 170.5 8.0 178.5
RWA equivalent (RWAe) (£bn) 53.0 11.1 106.5 2.1 172.7 8.0 180.7
Employee numbers (FTEs - thousands) 13.6 2.1 12.1 30.3 58.1 1.9 60.0
Third party customer asset rate (2) 2.61% 2.80% 3.19% nm nm nm nm
Third party customer funding rate (2) (0.11%) (0.15%) (0.10%) nm nm 0.05% nm
Bank average interest earning assets (£bn) (1) 188.6 19.1 125.4 nm 341.3 na 341.3
Bank net interest margin (1) 2.64% 3.69% 3.09% nm 2.73% na 2.73%
nm = not meaningful, na = not applicable.
Refer to page 16 for the notes to this table.
Segment performance
Nine months ended 30 September 2021
Go-forward group
Retail Private Commercial & Central items Total excluding Ulster Total NatWest
Banking Banking Institutional & other Ulster Bank RoI Bank RoI Group
£m £m £m £m £m £m £m
Continuing operations
Income statement
Net interest income 3,017 354 2,210 14 5,595 18 5,613
Non-interest income 264 209 1,460 177 2,110 104 2,214
Total income 3,281 563 3,670 191 7,705 122 7,827
Direct expenses (524) (139) (1,291) (2,986) (4,940) (214) (5,154)
Indirect expenses (1,191) (234) (1,343) 2,893 125 (125) -
Other operating expenses (1,715) (373) (2,634) (93) (4,815) (339) (5,154)
Litigation and conduct costs (24) 8 (64) (184) (264) (12) (276)
Operating expenses (1,739) (365) (2,698) (277) (5,079) (351) (5,430)
Operating profit/(loss) before impairment
(losses)/releases 1,542 198 972 (86) 2,626 (229) 2,397
Impairment releases/(losses) 41 42 843 (4) 922 (18) 904
Operating profit/(loss) 1,583 240 1,815 (90) 3,548 (247) 3,301
Income excluding notable items 3,281 563 3,705 8 7,557 122 7,679
Additional information
Return on tangible equity (1) na na na na 11.4% na 10.7%
Return on equity (1) 28.3% 15.5% 11.8% nm nm nm na
Cost:income ratio (1) 53.0% 64.8% 72.7% nm 65.4% nm 69.0%
Total assets (£bn) 207.6 28.2 436.0 81.3 753.1 25.2 778.3
Funded assets (£bn) (1) 207.6 28.2 333.9 79.6 649.3 25.2 674.5
Net loans to customers - amortised cost (£bn) 180.5 18.4 125.4 23.5 347.8 13.2 361.0
Loan impairment rate (1) (3)bps (30)bps (88)bps nm (35)bps nm (33)bps
Impairment provisions (£bn) (1.6) (0.1) (2.1) - (3.8) (0.5) (4.3)
Impairment provisions - stage 3 (£bn) (0.8) - (1.0) - (1.8) (0.4) (2.2)
Customer deposits (£bn) 186.3 35.7 217.4 18.4 457.8 18.5 476.3
Risk-weighted assets (RWAs) (£bn) 36.6 11.4 99.9 1.9 149.8 10.0 159.8
RWA equivalent (RWAe) (£bn) 36.6 11.4 101.6 2.1 151.7 10.0 161.7
Employee numbers (FTEs - thousands) 15.0 1.9 12.0 27.5 56.4 1.8 58.2
Third party customer asset rate (2) 2.68% 2.36% 2.70% nm nm nm nm
Third party customer funding rate (2) (0.06%) 0.00% (0.02%) nm nm 0.01% nm
Bank average interest earning assets (£bn) (1) 177.6 18.1 121.1 nm 323.1 na 323.1
Bank net interest margin (1) 2.27% 2.61% 2.44% nm 2.32% na 2.32%
nm = not meaningful, na = not applicable.
Refer to page 16 for the notes to this table.
Segment performance
Quarter ended 30 September 2022
Go-forward group
Retail Private Commercial & Central items Total excluding Ulster Total NatWest
Banking Banking Institutional & other Ulster bank RoI Bank RoI Group
£m £m £m £m £m £m £m
Continuing operations
Income statement
Net interest income 1,379 211 1,131 (87) 2,634 6 2,640
Non-interest income 96 74 526 (64) 632 (43) 589
Total income 1,475 285 1,657 (151) 3,266 (37) 3,229
Direct expenses (178) (55) (365) (1,098) (1,696) (75) (1,771)
Indirect expenses (452) (83) (475) 1,045 35 (35) -
Other operating expenses (630) (138) (840) (53) (1,661) (110) (1,771)
Litigation and conduct costs (63) (1) (53) (4) (121) (4) (125)
Operating expenses (693) (139) (893) (57) (1,782) (114) (1,896)
Operating profit/(loss) before impairment
(losses)/releases 782 146 764 (208) 1,484 (151) 1,333
Impairment (losses)/releases (116) (7) (119) - (242) (5) (247)
Operating profit/(loss) 666 139 645 (208) 1,242 (156) 1,086
Income excluding notable items 1,475 285 1,648 26 3,434 (37) 3,397
Additional information
Return on tangible equity (1) na na na na 12.1% na 2.9%
Return on equity (1) 27.0% 31.8% 12.2% nm nm nm na
Cost:income ratio (1) 47.0% 48.8% 53.0% nm 54.1% nm 58.3%
Total assets (£bn) 221.3 29.8 465.3 67.8 784.2 17.3 801.5
Funded assets (£bn) (1) 221.3 29.8 325.5 66.6 643.2 17.3 660.5
Net loans to customers - amortised cost (£bn) 192.8 19.1 131.9 27.7 371.5 0.3 371.8
Loan impairment rate (1) 24bps 15bps 36bps nm 26bps nm 26bps
Impairment provisions (£bn) (1.5) (0.1) (1.6) - (3.2) (0.1) (3.3)
Impairment provisions - stage 3 (£bn) (0.9) - (0.7) - (1.6) (0.1) (1.7)
Customer deposits (£bn) 190.9 42.2 215.2 13.4 461.7 11.3 473.0
Risk-weighted assets (RWAs) (£bn) 53.0 11.1 104.8 1.6 170.5 8.0 178.5
RWA equivalent (RWAe) (£bn) 53.0 11.1 106.5 2.1 172.7 8.0 180.7
Employee numbers (FTEs - thousands) 13.6 2.1 12.1 30.3 58.1 1.9 60.0
Third party customer asset rate (2) 2.64% 3.09% 3.53% nm nm nm nm
Third party customer funding rate (2) (0.17%) (0.29%) (0.19%) nm nm 0.05% nm
Bank average interest earning assets (£bn) (1) 192.1 19.2 129.8 nm 349.9 na 349.9
Bank net interest margin (1) 2.85% 4.37% 3.46% nm 2.99% na 2.99%
nm = not meaningful, na = not applicable
Refer to page 16 for notes to this table.
Segment performance
Quarter ended 30 June 2022
Go-forward group
Retail Private Commercial & Central items Total excluding Ulster Total NatWest
Banking Banking Institutional & other Ulster Bank RoI Bank RoI Group
£m £m £m £m £m £m £m
Continuing operations
Income statement
Net interest income 1,228 172 961 (56) 2,305 2 2,307
Non-interest income 109 73 601 111 894 10 904
Total income 1,337 245 1,562 55 3,199 12 3,211
Direct expenses (159) (53) (329) (1,144) (1,685) (81) (1,766)
Indirect expenses (434) (93) (525) 1,101 49 (49) -
Other operating expenses (593) (146) (854) (43) (1,636) (130) (1,766)
Litigation and conduct costs (4) - (44) (8) (56) (11) (67)
Operating expenses (597) (146) (898) (51) (1,692) (141) (1,833)
Operating profit/(loss) before impairment
(losses)/releases 740 99 664 4 1,507 (129) 1,378
Impairment (losses)/releases (21) 6 48 6 39 (21) 18
Operating profit/(loss) 719 105 712 10 1,546 (150) 1,396
Income excluding notable items 1,337 245 1,573 (53) 3,102 12 3,114
Additional information
Return on tangible equity (1) na na na na 16.5% na 15.2%
Return on equity (1) 29.5% 23.5% 14.0% nm nm nm na
Cost:income ratio (1) 44.7% 59.6% 56.6% nm 52.4% nm 56.7%
Total assets (£bn) 216.2 30.0 451.5 87.1 784.8 21.7 806.5
Funded assets (£bn) (1) 216.2 30.0 343.4 85.8 675.4 21.7 697.1
Net loans to customers - amortised cost (£bn) 188.7 18.8 127.3 26.8 361.6 1.0 362.6
Loan impairment rate (1) 4bps (13)bps (15)bps nm (4)bps nm (2)bps
Impairment provisions (£bn) (1.5) (0.1) (1.4) - (3.0) (0.4) (3.4)
Impairment provisions - stage 3 (£bn) (0.9) - (0.7) - (1.6) (0.4) (2.0)
Customer deposits (£bn) 190.5 41.6 223.2 20.9 476.2 15.9 492.1
Risk-weighted assets (RWAs) (£bn) 53.0 11.3 103.0 1.7 169.0 10.8 179.8
RWA equivalent (RWAe) (£bn) 53.0 11.3 101.4 2.2 167.9 10.8 178.7
Employee numbers (FTEs - thousands) 13.9 2.0 11.8 29.4 57.1 1.8 58.9
Third party customer asset rate (2) 2.59% 2.77% 3.19% nm nm nm nm
Third party customer funding rate (2) (0.10%) (0.13%) (0.09%) nm nm 0.04% nm
Bank average interest earning assets (£bn) (1) 188.1 19.1 124.9 nm 340.0 na 340.0
Bank net interest margin (1) 2.62% 3.60% 3.09% nm 2.72% na 2.72%
nm = not meaningful, na = not applicable
Refer to the following page for notes to this table.
Segment performance
Quarter ended 30 September 2021
Go-forward group
Retail Private Commercial & Central items Total excluding Ulster Total NatWest
Banking Banking Institutional & other Ulster Bank RoI Bank RoI Group
£m £m £m £m £m £m £m
Continuing operations
Income statement
Net interest income 1,041 122 723 (20) 1,866 3 1,869
Non-interest income 90 73 473 127 763 54 817
Total income 1,131 195 1,196 107 2,629 57 2,686
Direct expenses (165) (47) (417) (935) (1,564) (73) (1,637)
Indirect expenses (372) (72) (428) 912 40 (40) -
Other operating expenses (537) (119) (845) (23) (1,524) (113) (1,637)
Litigation and conduct costs (15) 3 (29) (254) (295) 1 (294)
Operating expenses (552) (116) (874) (277) (1,819) (112) (1,931)
Operating profit/(loss) before impairment
(losses)/releases 579 79 322 (170) 810 (55) 755
Impairment (losses)/releases (16) 15 230 (3) 226 (5) 221
Operating profit/(loss) 563 94 552 (173) 1,036 (60) 976
Income excluding notable items 1,131 195 1,202 (17) 2,511 57 2,568
Additional information
Return on tangible equity (1) na na na na 8.6% na 8.5%
Return on equity (1) 29.9% 18.1% 11.0% nm nm nm na
Cost:income ratio (1) 48.8% 59.5% 72.2% nm 68.8% nm 71.5%
Total assets (£bn) 207.6 28.2 436.0 81.3 753.1 25.2 778.3
Funded assets (£bn) (1) 207.6 28.2 333.9 79.6 649.3 25.2 674.5
Net loans to customers - amortised cost (£bn) 180.5 18.4 125.4 23.5 347.8 13.2 361.0
Loan impairment rate (1) 4bps (32)bps (72)bps nm (26)bps nm (24)bps
Impairment provisions (£bn) (1.6) (0.1) (2.1) - (3.8) (0.5) (4.3)
Impairment provisions - stage 3 (£bn) (0.8) - (1.0) - (1.8) (0.4) (2.2)
Customer deposits (£bn) 186.3 35.7 217.4 18.4 457.8 18.5 476.3
Risk-weighted assets (RWAs) (£bn) 36.6 11.4 99.9 1.9 149.8 10.0 159.8
RWA equivalent (RWAe) (£bn) 36.6 11.4 101.6 2.1 151.7 10.0 161.7
Employee numbers (FTEs - thousands) 15.0 1.9 12.0 27.5 56.4 1.8 58.2
Third party customer asset rate (2) 2.64% 2.36% 2.67% nm nm nm nm
Third party customer funding rate (2) (0.05%) 0.00% (0.02%) nm nm 0.02% nm
Bank average interest earning assets (£bn) (1) 180.2 18.6 119.9 nm 325.4 na 325.4
Bank net interest margin (1) 2.29% 2.60% 2.39% nm 2.28% na 2.28%
nm = not meaningful, na = not applicable
(1) Refer to the appendix for details of basis of preparation and
reconciliation of non-IFRS performance measures where relevant.
(2) Third party customer asset rate is calculated as annualised
interest receivable on third-party loans to customers as a percentage of
third-party loans to customers. This excludes assets of disposal groups,
intragroup items, loans to banks and liquid asset portfolios. Third party
customer funding rate reflects interest payable or receivable on third-party
customer deposits, including interest bearing and non-interest bearing
customer deposits. Intragroup items, bank deposits, debt securities in issue
and subordinated liabilities are excluded for customer funding rate
calculation. Net interest margin is calculated as net interest income as a
percentage of the average interest-earning assets, and only excludes liquid
asset buffer and assets of disposal groups.
Risk and capital management
Page
Credit risk
Economic loss drivers 17
Segment analysis - portfolio summary 18
Segment analysis - loans 20
Movement in ECL provision 20
ECL post model adjustments 21
Sector analysis - portfolio summary 22
Wholesale support schemes 23
Capital, liquidity and funding risk 25
Credit risk
Economic loss drivers
Main macroeconomic variables
30 September 2022 30 June 2022
Base Extreme Weighted Base Extreme Weighted
case downside average case downside average
Five-year summary % % % % % %
GDP - CAGR 1.2 0.1 0.9 1.1 (0.1) 1.0
Unemployment - average 4.0 6.4 4.7 4.0 6.3 4.3
House price index - total change 13.1 (11.0) 3.8 13.7 (10.5) 8.9
Bank of England base rate - average 1.8 2.7 1.6 1.8 2.7 1.6
Commercial real estate price - total change (3.6) (15.4) (6.8) (2.6) (14.5) (3.2)
Consumer price index - CAGR 2.2 6.5 3.6 2.9 7.2 3.7
World GDP - CAGR 3.5 1.1 2.6 3.2 0.6 2.9
Probability weight 35 25 45 14
Probability weightings of scenarios
NatWest Group's approach to IFRS 9 multiple economic scenarios (MES) involves
selecting a suitable set of discrete scenarios to characterise the
distribution of risks in the economic outlook and assigning appropriate
probability weights. For June 2022, NatWest Group reverted to using a
quantitative approach, which was used prior to COVID-19. The approach involves
comparing UK GDP paths for NatWest Group's scenarios against a set of 1,000
model runs, following which, a percentile in the distribution is established
that most closely corresponded to the scenario.
NatWest Group has not updated the scenarios from those used at H1 2022, as is
consistent with the approach used in prior years. However, since June 2022,
the domestic and global economic outlook has deteriorated, reflecting the
effect of higher inflation and interest rates. Forecasts for the expected
future path of the economy have been revised lower. To reflect the weaker
environment and greater risks to the outlook, NatWest Group made a qualitative
adjustment to its H1 2022 scenario weightings. Specifically, NatWest Group
moved weights from the upside and base case scenarios into the downside and
extreme downside scenarios. The updated weights give a weaker weighted-average
outcome for key macro variables, which NatWest Group judge to be consistent
with prevailing outlook.
A 10% weighting was applied to the upside scenario (30 June 2022 - 21%), a 35%
weighting applied to the base case scenario (30 June 2022 - 45%), a 30%
weighting applied to the downside scenario (30 June 2022 - 20%) and a 25%
weighting applied to the extreme downside scenario (30 June 2022 - 14%).
NatWest Group continues to believe a range of reasonable scenarios is fully
articulated between the upside and extreme downside scenarios. NatWest Group
undertakes sensitivity analysis on the scenarios and possible variations in
those scenarios as part of its assessment of overall scenario suitability and
as an input to the assessment of adequacy. The effect of high inflation,
ongoing monetary tightening and current geopolitical tensions pose
considerable uncertainty to the economic outlook, with respect to the
persistence of their effects and the degree to which they weigh down on
economic activity, the labour market and asset prices.
Risk and capital management
Credit risk continued
Segment analysis - portfolio summary
The table below shows gross loans and expected credit loss (ECL), by segment
and stage, within the scope of the IFRS 9 ECL framework.
Go-forward group
Total
excluding
Central Ulster Ulster
Retail Private Commercial & items & Bank Bank
Banking Banking Institutional other RoI RoI Total
30 September 2022 £m £m £m £m £m £m £m
Loans - amortised cost and FVOCI (1)
Stage 1 178,590 18,428 114,857 32,788 344,663 196 344,859
Stage 2 12,983 649 20,167 80 33,879 154 34,033
Stage 3 2,491 303 2,579 - 5,373 148 5,521
Of which: individual - 181 848 - 1,029 66 1,095
Of which: collective 2,491 122 1,731 - 4,344 82 4,426
Subtotal excluding disposal group loans 194,064 19,380 137,603 32,868 383,915 498 384,413
Disposal group loans 2,216 2,216
Total 2,714 386,629
ECL provisions (2)
Stage 1 234 17 252 16 519 4 523
Stage 2 420 17 637 10 1,084 37 1,121
Stage 3 911 25 741 - 1,677 68 1,745
Of which: individual - 25 270 - 295 8 303
Of which: collective 911 - 471 - 1,382 60 1,442
Subtotal excluding ECL provisions on disposal group loans 1,565 59 1,630 26 3,280 109 3,389
ECL provisions on disposal group loans 58 58
Total 167 3,447
ECL provisions coverage (3)
Stage 1 (%) 0.13 0.09 0.22 0.05 0.15 2.04 0.15
Stage 2 (%) 3.23 2.62 3.16 12.50 3.20 24.03 3.29
Stage 3 (%) 36.57 8.25 28.73 - 31.21 45.95 31.61
ECL provisions coverage excluding disposal group loans 0.81 0.30 1.18 0.08 0.85 21.89 0.88
ECL provisions coverage on disposal group loans 2.62 2.62
Total 6.15 0.89
30 June 2022
Loans - amortised cost and FVOCI (1)
Stage 1 175,867 18,428 114,675 32,481 341,451 670 342,121
Stage 2 11,508 628 16,047 83 28,266 239 28,505
Stage 3 2,493 353 2,336 - 5,182 634 5,816
Of which: individual - 225 857 - 1,082 80 1,162
Of which: collective 2,493 128 1,479 - 4,100 554 4,654
Subtotal excluding disposal group loans 189,868 19,409 133,058 32,564 374,899 1,543 376,442
Disposal group loans 14,254 14,254
Total 15,797 390,696
ECL provisions (2)
Stage 1 184 12 185 17 398 10 408
Stage 2 419 17 631 9 1,076 46 1,122
Stage 3 895 34 706 - 1,635 350 1,985
Of which: individual - 33 260 - 293 11 304
Of which: collective 895 1 446 - 1,342 339 1,681
Subtotal excluding ECL provisions on disposal group loans 1,498 63 1,522 26 3,109 406 3,515
ECL provisions on disposal group loans 95 95
Total 501 3,610
ECL provisions coverage (3)
Stage 1 (%) 0.10 0.07 0.16 0.05 0.12 1.49 0.12
Stage 2 (%) 3.64 2.71 3.93 10.84 3.81 19.25 3.94
Stage 3 (%) 35.90 9.63 30.22 - 31.55 55.21 34.13
ECL provisions coverage excluding disposal group loans 0.79 0.32 1.14 0.08 0.83 26.31 0.93
ECL provisions coverage on disposal group loans 0.67 0.67
Total 3.17 0.92
For the notes to this table refer to the following page.
Risk and capital management
Credit risk continued
Segment analysis - portfolio summary continued
Go-forward group
Total
excluding
Central Ulster Ulster
Retail Private Commercial & items & Bank Bank
Banking Banking Institutional other RoI RoI Total
31 December 2021 £m £m £m £m £m £m £m
Loans - amortised cost and FVOCI (1)
Stage 1 168,013 17,600 107,368 32,283 325,264 5,560 330,824
Stage 2 13,594 967 18,477 90 33,128 853 33,981
Stage 3 1,884 270 2,081 - 4,235 787 5,022
Of which: individual - 270 884 - 1,154 61 1,215
Of which: collective 1,884 - 1,197 - 3,081 726 3,807
Subtotal excluding disposal group loans 183,491 18,837 127,926 32,373 362,627 7,200 369,827
Disposal group loans 9,084 9,084
Total 16,284 378,911
ECL provisions (2)
Stage 1 134 12 129 17 292 10 302
Stage 2 590 29 784 11 1,414 64 1,478
Stage 3 850 37 751 - 1,638 388 2,026
Of which: individual - 37 313 - 350 13 363
Of which: collective 850 - 438 - 1,288 375 1,663
Subtotal excluding ECL provisions on disposal group loans 1,574 78 1,664 28 3,344 462 3,806
ECL provisions on disposal group loans 109 109
Total 571 3,915
ECL provisions coverage (3)
Stage 1 (%) 0.08 0.07 0.12 0.05 0.09 0.18 0.09
Stage 2 (%) 4.34 3.00 4.24 12.22 4.27 7.50 4.35
Stage 3 (%) 45.12 13.70 36.09 - 38.68 49.30 40.34
ECL provisions coverage excluding disposal group loans 0.86 0.41 1.30 0.09 0.92 6.42 1.03
ECL provisions coverage on disposal group loans 1.20 1.20
Total 3.51 1.03
(1) Fair value through other comprehensive income (FVOCI). Includes
loans to customers and banks.
(2) Includes £3 million (30 June 2022 - £3 million; 31 December 2021
- £5 million) related to assets classified as FVOCI; and £0.1 billion (30
June 2022 - £0.1 billion; 31 December 2021 - £0.1billion) related to
off-balance sheet exposures.
(3) ECL provisions coverage is calculated as ECL provisions divided by
loans - amortised cost and FVOCI. It is calculated on third party loans and
total ECL provisions.
(4) The table shows gross loans only and excludes amounts that were
outside the scope of the ECL framework. Other financial assets within the
scope of the IFRS 9 ECL framework were cash and balances at central banks
totalling £154.1 billion (30 June 2022 - £178.4 billion; 31 December 2021 -
£176.3 million) and debt securities of £29.4 billion (30 June 2022 - £38.6
billion; 31 December 2021 - £44.9 million).
Risk and capital management
Credit risk continued
Segment analysis - loans
- Retail Banking - Balance sheet growth continued during Q3 2022,
primarily in mortgages, where new lending remained strong. Unsecured lending
balances also increased, in line with continued demand following the easing of
COVID-19 restrictions and selective lending criteria relaxation from Q2 2021.
Total ECL coverage reduced during the first half of the year reflective of low
unemployment and stable portfolio performance. However, total coverage
increased this quarter as a result of the downside shift in MES weightings,
given the amplified risk and uncertainty due to inflation and cost of living
pressures. This economics impact was reflected in the increase in Stage 2
balances in Q3 2022, which had previously been reducing during the first half
of the year with stable portfolio performance. Stage 3 ECL remained broadly
stable in the quarter with default levels remaining steady. Stage 3 ECL was
higher overall since the start of the year, mainly because of IFRS 9 alignment
to the new regulatory default definition, implemented on 1 January 2022. This
change resulted in an increase in Stage 3 exposures of approximately £0.7
billion, mostly in mortgages.
- Commercial & Institutional - The balance sheet increased during Q3
2022, attributable to growth in exposure to financial institutions and various
sectors in corporate Wholesale. Sector appetite continues to be regularly
reviewed, with continued focus on high oversight sector clusters. Stage 2
balances increased significantly in the quarter due to the downside shift in
MES weightings leading to PD deterioration, with exposures moving from Stage 1
into Stage 2. Stage 2 ECL increased by a much smaller amount due to the
release of COVID-19 related post model adjustments largely offsetting the
increased ECL from the MES weightings. Stage 1 ECL increased due to the change
in MES weightings and some additional flows into Stage 3 resulted in increased
ECL requirements on defaulted exposures.
- Ulster Bank RoI - The ECL reduction in Ulster Bank RoI from 30 June 2022
related to the mortgage book being reclassified, in Q3 2022, from amortised
cost to fair value through profit or loss (FVTPL).
Movement in ECL provision
The table below shows the main ECL provision movements during the year.
ECL provision
£m
At 1 January 2022 3,806
Transfer to disposal groups and reclassifications (338)
Changes in economic forecast 170
Changes in risk metrics and exposure: Stage 1 and Stage 2 (139)
Changes in risk metrics and exposure: Stage 3 399
Judgemental changes: changes in post model adjustments for Stage 1, Stage 2 (137)
and Stage 3
Write-offs and other (372)
At 30 September 2022 3,389
- ECL reduced during 2022, reflecting continued positive trends in
portfolio performance alongside a related net release of judgemental post
model adjustments and write-off activity.
- Stage 3 ECL balances remained broadly stable during the year, mainly due
to write-offs and repayments of defaulted debt, largely offsetting new inflows
and the effect of the new regulatory default definition.
- The weaker economic outlook resulted in increased charges throughout the
year with an additional £127 million in Q3 2022 as a result of the
re-weighted scenarios. Additionally, broader portfolio performance continued
to be stable, which led to some additional post model adjustments being
required to ensure provision adequacy in the face of growing uncertainty due
to inflation, cost of living pressures and supply chain challenges.
- Post model adjustments decreased in total, with the effect of new
adjustments more than offset by the retirement of previously held COVID-19
related adjustments and also significant reduction in the requirement for
deferred model calibrations, due to new model implementations in Q3 2022.
- A £338 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. The largest part of this reduction, £286 million,
related to the Ulster Bank RoI mortgage book being reclassified, in Q3 2022,
from amortised cost to FVTPL.
Risk and capital management
Credit risk continued
ECL post model adjustments
The table below shows ECL post model adjustments.
Retail Banking Private Commercial & Ulster Bank RoI (1)
Mortgages Other Banking Institutional Mortgages Other Total
30 September 2022 £m £m £m £m £m £m £m
Deferred model calibrations - - - 64 - - 64
Economic uncertainty 97 83 7 355 - 3 545
Other adjustments 28 36 - 13 - 17 94
Total 125 119 7 432 - 20 703
Of which:
- Stage 1 39 38 2 69 - (1) 147
- Stage 2 63 81 5 362 - 20 531
- Stage 3 23 - - 1 - 1 25
30 June 2022
Deferred model calibrations - - - 64 - 2 66
Economic uncertainty 97 82 11 388 - 5 583
Other adjustments 28 (26) - 12 160 18 192
Total 125 56 11 464 160 25 841
Of which:
- Stage 1 39 20 2 58 5 2 126
- Stage 2 63 36 9 404 9 22 543
- Stage 3 23 - - 2 146 1 172
31 December 2021
Deferred model calibrations 58 97 - 62 - 2 219
Economic uncertainty 60 99 5 391 6 23 584
Other adjustments 37 - - 5 156 - 198
Total 155 196 5 458 162 25 1,001
Of which:
- Stage 1 9 5 - 15 4 1 34
- Stage 2 126 164 5 443 7 26 771
- Stage 3 20 27 - - 151 (2) 196
(1) Excludes £24 million (30 June 2022 - £34 million; 31 December
2021 - £49 million) of post model adjustments (mortgages - £nil; other -
£24 million (30 June 2022 - mortgages £0.4 million; other - £33.6 million;
31 December 2021 - mortgages £4 million; other - £45 million)) for Ulster
Bank RoI disclosed as transfers to disposal groups.
- Retail Banking - Post model adjustments remained stable in mortgages. In
unsecured products, the economic uncertainty adjustment also remained stable,
there was, however, a £62 million uplift in other adjustments for unsecured
products following the implementation of a new credit card PD model and the
release of the previously held ECL reduction adjustment. Associated with the
new model implementation, a £36 million post model adjustment was retained in
relation to cards EAD modelling.
- Commercial & Institutional - The post model adjustment for economic
uncertainty reduced by £33 million in the quarter, reflecting a reduction in
COVID-19 related adjustments, partially offset by an increase in the inflation
and supply chain adjustment that was introduced in H1 2022. Deferred model
calibrations and other adjustments remained stable.
- Ulster Bank RoI - The removal of post model adjustments in the mortgage
portfolio reflected the reclassification of mortgage loans to FVTPL. Other
post model adjustments reduced in line with the decrease in gross loans in the
period.
Risk and capital management
Credit risk continued
Sector analysis - portfolio summary
The table below shows ECL by stage, for the Personal portfolio and selected
sectors of the Wholesale portfolio.
Off-balance sheet
Loans - amortised cost and FVOCI Loan Contingent ECL provisions
Stage 1 Stage 2 Stage 3 Total commitments liabilities Stage 1 Stage 2 Stage 3 Total
30 September 2022 £m £m £m £m £m £m £m £m £m £m
Personal 196,162 13,247 2,821 212,230 45,579 51 242 426 944 1,612
Mortgages 185,782 10,551 1,972 198,305 21,194 - 57 81 237 375
Credit cards 3,156 999 105 4,260 16,079 - 65 122 70 257
Other personal 7,224 1,697 744 9,665 8,306 51 120 223 637 980
Wholesale 148,697 20,786 2,700 172,183 86,914 4,565 281 695 801 1,777
Property 28,213 3,668 751 32,632 15,707 511 77 116 213 406
Financial institutions 59,277 261 82 59,620 18,975 1,317 19 10 57 86
Sovereign 6,157 151 9 6,317 808 - 17 1 2 20
Corporate 55,050 16,706 1,858 73,614 51,424 2,737 168 568 529 1,265
Of which:
Agriculture 3,891 873 105 4,869 883 26 14 44 53 111
Airlines and aerospace 852 695 41 1,588 1,406 227 2 31 8 41
Automotive 4,104 2,343 46 6,493 4,099 56 11 25 11 47
Health 4,514 729 133 5,376 496 8 10 34 43 87
Land transport and logistics 3,632 1,355 38 5,025 2,934 130 7 29 12 48
Leisure 3,613 3,494 350 7,457 1,803 105 23 218 113 354
Oil and gas 923 240 61 1,224 2,202 385 3 3 35 41
Retail 6,214 1,625 187 8,026 4,240 420 14 31 65 110
Total 344,859 34,033 5,521 384,413 132,493 4,616 523 1,121 1,745 3,389
31 December 2021
Personal 190,175 14,423 2,782 207,380 40,351 60 149 614 1,179 1,942
Mortgages 180,418 11,543 2,050 194,011 16,827 - 32 174 562 768
Credit cards 2,924 933 90 3,947 15,354 - 59 141 60 260
Other personal 6,833 1,947 642 9,422 8,170 60 58 299 557 914
Wholesale 140,649 19,558 2,240 162,447 83,231 4,254 153 864 847 1,864
Property 28,679 3,101 742 32,522 15,882 460 24 111 239 374
Financial institutions 52,263 732 46 53,041 16,906 992 14 39 4 57
Sovereign 5,904 121 8 6,033 1,212 - 19 1 2 22
Corporate 53,803 15,604 1,444 70,851 49,231 2,802 96 713 602 1,411
Of which:
Agriculture 3,722 1,229 133 5,084 993 24 11 39 78 128
Airlines and aerospace 779 668 44 1,491 1,528 221 1 39 15 55
Automotive 5,133 1,304 38 6,475 3,507 65 9 32 10 51
Health 3,818 1,235 133 5,186 799 9 9 58 48 115
Land transport and logistics 3,721 833 39 4,593 3,069 188 4 53 12 69
Leisure 3,712 4,050 340 8,102 1,874 107 11 247 133 391
Oil and gas 1,482 141 52 1,675 1,126 453 1 14 28 43
Retail 6,380 1,342 180 7,902 4,872 410 8 29 66 103
Total 330,824 33,981 5,022 369,827 123,582 4,314 302 1,478 2,026 3,806
Risk and capital management
Credit risk continued
Wholesale support schemes
The table below shows the sector split for the 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 2022 £m £m £m £m £m £m £m £m £m £m £m
Wholesale
Property 1,125 204 137 1,466 991 194 71 1,256 7 18 26
Financial institutions 26 4 1 31 9 2 - 11 - - 1
Sovereign 6 1 1 8 1 - - 1 - - -
Corporate 3,474 647 836 4,957 2,569 744 127 3,440 19 67 62
Of which:
Agriculture 239 78 11 328 897 270 22 1,189 4 20 8
Airlines and aerospace 3 1 1 5 1 - - 1 - - -
Automotive 241 36 28 305 113 28 4 145 1 3 2
Health 181 23 10 214 291 79 18 388 1 5 4
Land transport and logistics 134 27 23 184 58 15 4 77 - 2 3
Leisure 521 114 75 710 366 150 28 544 4 14 15
Oil and gas 6 2 1 9 3 1 - 4 - - -
Retail 610 101 71 782 325 74 16 415 3 8 9
Total 4,631 856 975 6,462 3,570 940 198 4,708 26 85 89
31 December 2021
Wholesale
Property 1,480 218 99 1,797 1,232 165 55 1,452 3 13 18
Financial institutions 33 5 1 39 9 20 3 32 - 1 -
Sovereign 7 1 - 8 2 - - 2 - - -
Corporate 4,593 703 334 5,630 2,481 1,087 84 3,652 10 66 34
Of which:
Agriculture 302 86 6 394 827 396 14 1,237 3 16 4
Airlines and aerospace 5 1 1 7 1 1 - 2 - - -
Automotive 309 43 21 373 119 39 2 160 1 2 1
Health 233 26 7 266 287 131 13 431 1 7 3
Land transport and logistics 180 32 19 231 57 26 2 85 - 2 1
Leisure 706 122 55 883 367 208 25 600 1 15 9
Oil and gas 8 2 1 11 3 1 - 4 - - -
Retail 800 109 47 956 310 127 8 445 2 7 4
Total 6,113 927 434 7,474 3,724 1,272 142 5,138 13 80 52
Risk and capital management
Credit risk continued
- Personal - Mortgage balances continued to increase during 2022 with
strong purchase and remortgage demand in the UK. Unsecured lending balances
have increased in 2022 after COVID-19 restrictions eased and lending criteria
were selectively relaxed. The ECL levels in Stage 2 were lower than at 2021
year end, due to migrations back into Stage 1 following continued stable
portfolio performance supporting improved risk metrics. The total ECL coverage
requirements reduced since the start of the year but increased in Q3 2022 due
to the downside shift in MES weightings.
- As at 30 September 2022, £134.8 billion, 68%, of the total residential
mortgages portfolio had Energy Performance Certificate (EPC) data available
(31 December 2021 - £116.2 billion, 62%). Of which, 41% of UK properties were
rated as EPC A to C (31 December 2021 - 38%). In addition to the Retail
Banking portfolio, during Q2 2022, EPC data became available for the Private
Banking portfolio for all periods. EPC data source and limitations are
provided on page 60 of the 2021 NatWest Group Climate-related Disclosures
Report.
- Wholesale - Exposures were mainly in the UK. The balance sheet reduction
noted at the end of 2021, principally due to repayments of both COVID-19
government support schemes and conventional borrowing, was reversed in 2022.
This was due to additional lending across the portfolio, principally
concentrated in financial institutions and other corporates. Increases within
financial institutions year-to-date, reflected fluctuations in treasury
related management activities and strategic growth in the leveraged funds
sector in the non-ring fenced bank. Other corporates sector growth was focused
on lending aligned to lower risk sectors.
- When the government support schemes closed in 2021, approximately
317,000 applications across all schemes were approved, £13.4 billion was
drawn down, of which, £4.4 billion has been repaid.
- Repayment performance under government lending schemes continues to be
closely tracked. Overall exposure continued to decrease. Missed payment rates
marginally increased but volumes remained broadly in line with the wider
market. Exposures under the Business Banking Loan Scheme (BBLS) that benefit
from the 100% government guarantee account for approximately 70% of remaining
exposures.
- The Wholesale credit profile remained stable, but the outlook is
uncertain. NatWest Group has yet to see inflationary pressure materially
affect risk of credit loss framework inflows or curtail outflows. Government
intervention on rising energy costs is expected to mitigate some of the effect
of higher energy costs for customers. Inflationary effects on customers
continues to be assessed. Sector appetite is regularly reviewed and where
appropriate adjusted for those sectors most affected by current economic and
geopolitical conditions.
Risk and capital management
Capital, liquidity and funding risk
Introduction
NatWest Group continually ensures a comprehensive approach is taken to the
management of capital, liquidity and funding, underpinned by frameworks, risk
appetite and policies, to manage and mitigate capital, liquidity and funding
risks. The framework ensures the tools and capability are in place to
facilitate the management and mitigation of risk ensuring that NatWest Group
operates within its regulatory requirements and risk appetite.
Key developments (YTD)
CET1 The CET1 ratio decreased by 390 basis points to 14.3%. The decrease was
primarily due to a £21.5 billion increase in RWAs and a £3.0 billion
decrease in CET1 capital.
The CET1 decrease was mainly driven by:
- the directed buyback of £1.2 billion;
- a foreseeable dividend accrual of £0.4 billion and foreseeable
charges of £0.3 billion;
- a £0.3 billion decrease in the IFRS 9 transitional adjustment;
- the removal of the adjustment for prudential amortisation on software
development costs of £0.4 billion;
- a £0.3 billion decrease due to FX loss on retranslation on the
redemption of a US dollar instrument; and
- other reserve movements.
Attributable profit, in the nine month period, of £2.1 billion was offset by
an ordinary dividend of £0.4 billion and a special dividend of £1.7 billion
paid to shareholders.
Total RWAs Total RWAs increased by £21.5 billion to £178.5 billion, mainly reflecting:
- An increase in credit risk RWAs of £21.4 billion, primarily due to
model adjustments applied as a result of new regulation applicable to IRB
models from 1 January 2022, in addition to increased exposure in Commercial
& Institutional and Retail Banking. This was partially offset by a
reduction in the Ulster ROI portfolio in addition to improved risk metrics in
Retail Banking and Commercial & Institutional.
- An increase in market risk RWAs of £1.4 billion, primarily driven by
an increase in the capital multiplier for NWM Plc affecting VaR and SVaR
calculations. In addition, a prospective adjustment to make the VaR model more
sensitive to recent market conditions is currently being capitalised as a new
RNIV.
- An increase in counterparty credit risk RWAs of £0.6 billion, mainly
driven by the implementation of SA-CCR impacting the RWA calculation for the
non-internally modelled exposure, in addition to increased exposure following
market volatility.
- A reduction in operational risk RWAs of £1.9 billion following the
annual recalculation.
UK leverage ratio The leverage ratio at 30 September 2022 is 5.2% and has been calculated in
accordance with changes to the UK's leverage ratio framework which were
introduced by the PRA and came into effect from 1 January 2022. As at 31
December 2021, the UK leverage ratio was 5.9%, which was calculated under the
prior year's UK leverage methodology. The key driver of the decrease is a
£3.6 billion decrease in Tier 1 capital.
Liquidity portfolio The liquidity portfolio decreased by £35.2 billion to £251.2 billion, with
primary liquidity decreasing by £24.4 billion to £184.2 billion. The
decrease in primary liquidity is driven by an increase in lending, shareholder
distributions (share buyback and dividends), redemption of senior debt and
maturing commercial paper and certificates of deposit. The reduction in
secondary liquidity is due to a reduction in the pre-positioned collateral.
Risk and capital management
Capital, liquidity and funding risk continued
Maximum Distributable Amount (MDA) and Minimum Capital Requirements
NatWest Group is subject to minimum capital requirements relative to RWAs. The
table below summarises the minimum capital requirements (the sum of Pillar 1
and Pillar 2A), and the additional capital buffers which are held in excess of
the regulatory minimum requirements and are usable in stress.
Where the CET1 ratio falls below the sum of the minimum capital and the
combined buffer requirement, there is a subsequent automatic restriction on
the amount available to service discretionary payments (including AT1
coupons), known as the MDA. Note that different requirements apply to
individual legal entities or sub-groups and that the table shown does not
reflect any incremental PRA buffer requirements, which are not disclosable.
The current capital position provides significant headroom above both our
minimum requirements and our MDA threshold requirements.
Type CET1 Total Tier 1 Total capital
Pillar 1 requirements 4.5 % 6.0 % 8.0 %
Pillar 2A requirements 1.8 % 2.3 % 3.1 %
Minimum Capital Requirements 6.3 % 8.3 % 11.1 %
Capital conservation buffer 2.5 % 2.5 % 2.5 %
Countercyclical capital buffer (1) 0.0 % 0.0 % 0.0 %
MDA threshold (2) 8.8 % n/a n/a
Overall capital requirement 8.8 % 10.8 % 13.6 %
Capital ratios at 30 September 2022 14.3 % 16.5 % 19.2 %
Headroom (3) 5.5 % 5.7 % 5.6 %
(1) In response to COVID-19, many countries reduced their CCyB rates. In December
2021, the Financial Policy Committee announced an increase in the UK CCyB rate
from 0% to 1% effective from 13 December 2022. A further increase from 1% to
2% was announced on 5 July 2022, effective 5 July 2023. In June 2022, the
Central Bank of Ireland announced that the CCyB on Irish exposures will
increase from 0% to 0.5% applicable from 15 June 2023. This is the first step
towards a gradual increase which, conditional on macro-financial developments,
would see a CCyB of 1.5% announced by mid-2023, which is expected to be
applicable from June 2024.
(2) Pillar 2A requirements for NatWest Group are set on a nominal capital basis.
The PRA has confirmed that from Q4 2022 Pillar 2A will be set as a variable
amount with the exception of some fixed add-ons.
(3) The headroom does not reflect excess distributable capital and may vary over
time.
Risk and capital management
Capital, liquidity and funding risk continued
Capital and leverage ratios
The table below sets out the key capital and leverage ratios. From 1 January
2022, NatWest Group is subject to the requirements set out in the PRA
Rulebook. Therefore, going forward the capital and leverage ratios are being
presented under these frameworks on a transitional basis.
30 September 30 June 31 December
2022 2022 2021
Capital adequacy ratios (1) % % %
CET1 14.3 14.3 18.2
Tier 1 16.5 16.4 21.0
Total 19.2 19.3 24.7
Capital £m £m £m
Tangible equity 24,093 27,858 30,689
Prudential valuation adjustment (319) (316) (274)
Deferred tax assets (687) (738) (761)
Own credit adjustments (116) (99) 21
Pension fund assets (360) (471) (465)
Cash flow hedging reserve 3,274 1,526 395
Foreseeable dividends and pension contributions (668) (2,250) (1,211)
Foreseeable charges - on-market ordinary share buyback programme - (91) (825)
Prudential amortisation of software development costs - - 411
Adjustments under IFRS 9 transitional arrangements 358 284 621
Insufficient coverage for non-performing exposures (19) (10) (5)
Total deductions 1,463 (2,165) (2,093)
CET1 capital 25,556 25,693 28,596
End-point AT1 capital 3,875 3,875 3,875
Grandfathered instrument transitional arrangements - - 571
Transitional AT1 capital 3,875 3,875 4,446
Tier 1 capital 29,431 29,568 33,042
End-point Tier 2 capital 4,691 5,011 5,402
Grandfathered instrument transitional arrangements 108 172 304
Transitional Tier 2 capital 4,799 5,183 5,706
Total regulatory capital 34,230 34,751 38,748
Risk-weighted assets
Credit risk 141,530 143,765 120,116
Counterparty credit risk 8,500 8,352 7,907
Market risk 9,349 8,563 7,917
Operational risk 19,115 19,115 21,031
Total RWAs 178,494 179,795 156,971
(1) Based on current PRA rules, therefore includes the transitional
relief on grandfathered capital instruments and the transitional arrangements
for the capital impact of IFRS 9 expected credit loss (ECL) accounting. The
impact of the IFRS 9 transitional adjustments at 30 September 2022 was £0.4
billion for CET1 capital, £23 million for total capital and £80 million RWAs
(30 June 2022 - £0.3 billion CET1 capital, £62 million total capital and
£32 million RWAs, 31 December 2021 - £0.6 billion CET1 capital, £0.5
billion total capital and £36 million RWAs). Excluding these adjustments, the
CET1 ratio would be 14.1% (30 June 2022 - 14.1%, 31 December 2021 - 17.8%).
The transitional relief on grandfathered instruments at 30 September 2022 was
£0.1 billion (30 June 2022 - £0.2 billion, 31 December 2021 - £0.9
billion). Excluding both the transitional relief on grandfathered capital
instruments and the transitional arrangements for the capital impact of IFRS 9
expected credit loss (ECL) accounting, the end-point Tier 1 capital ratio
would be 16.3% (30 June 2022 - 16.3%, 31 December 2021 - 20.3%) and the
end-point Total capital ratio would be 19.1% (30 June 2022 - 19.3%, 31
December 2021 - 23.8%).
Risk and capital management
Capital, liquidity and funding risk continued
Capital and leverage ratios continued
30 September 30 June 31 December
2022 2022 2021
Leverage £m £m £m
Cash and balances at central banks 155,266 179,525 177,757
Trading assets 57,833 65,604 59,158
Derivatives 141,002 109,342 106,139
Financial assets 411,623 412,115 412,817
Other assets 23,560 25,705 17,106
Assets of disposal groups 12,209 14,187 9,015
Total assets 801,493 806,478 781,992
Derivatives
- netting and variation margin (139,383) (107,295) (110,204)
- potential future exposures 20,466 20,552 35,035
Securities financing transactions gross up 6,155 5,184 1,397
Other off balance sheet items 45,862 45,095 44,240
Regulatory deductions and other adjustments (11,540) (16,314) (8,980)
Claims on central banks (151,725) (176,163) (174,148)
Exclusion of bounce back loans (6,462) (6,785) (7,474)
UK leverage exposure 564,866 570,752 561,858
UK leverage ratio (%) (1) 5.2 5.2 5.9
(1) The UK leverage exposure and transitional Tier 1 capital are
calculated in accordance with current PRA rules. Excluding the IFRS 9
transitional adjustment, the UK leverage ratio would be 5.2% (30 June 2022 -
5.1%, 31 December 2021 - 5.8%).
Capital flow statement
The table below analyses the movement in CET1, AT1 and Tier 2 capital for the
nine months ended 30 September 2022. It is being presented on a transitional
basis as calculated under the PRA Rulebook Instrument requirements.
CET1 AT1 Tier 2 Total
£m £m £m £m
At 31 December 2021 28,596 4,446 5,706 38,748
Attributable profit for the period 2,078 - - 2,078
Ordinary interim dividend paid (364) - - (364)
Special dividend paid (1,746) - - (1,746)
Directed buyback (1,212) - - (1,212)
Foreseeable dividends (386) - - (386)
Foreseeable pension contributions (282) - - (282)
Foreign exchange reserve 384 - - 384
FVOCI reserve (374) - - (374)
Own credit (137) - - (137)
Share capital and reserve movements in respect of employee
share schemes 75 - - 75
Goodwill and intangibles deduction (649) - - (649)
Deferred tax assets 74 - - 74
Prudential valuation adjustments (45) - - (45)
End of 2021 transitional relief on grandfathered instruments - (571) (232) (803)
Net dated subordinated debt instruments - - (1,043) (1,043)
Foreign exchange movements (254) - 632 378
Adjustment under IFRS 9 transitional arrangements (263) - - (263)
Other movements 61 - (264) (203)
At 30 September 2022 25,556 3,875 4,799 34,230
- The CET1 decrease was primarily due to the directed buyback of £1.2
billion, foreseeable dividend and pension contribution accruals of £0.7
billion, a £0.3 billion decrease in the IFRS 9 transitional adjustment, the
removal of the adjustment for prudential amortisation on software development
costs of £0.4 billion, £0.3 billion due to FX loss on retranslation on the
redemption of a US dollar instrument and other reserve movements in the
period. Attributable profit of £2.1 billion was offset by an ordinary
dividend of £0.4 billion and a special dividend of £1.7 billion paid to
shareholders.
- The AT1 and Tier 2 movements are due to the end of the 2021
transitional relief on grandfathered instruments, impact of liability
management exercise in August and FX movements. In Tier 2 there was also a
£0.3 billion decrease 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 2021 120.2 7.9 7.9 21.0 157.0
Foreign exchange movement 2.1 - - - 2.1
Business movement 3.8 0.3 1.2 (1.9) 3.4
Risk parameter changes (3.5) - - - (3.5)
Methodology changes 0.2 0.4 - - 0.6
Model updates 20.1 (0.1) 0.2 - 20.2
Acquisitions and disposals (1.3) - - - (1.3)
At 30 September 2022 141.6 8.5 9.3 19.1 178.5
The table below analyses segmental RWAs.
Go-forward group
Total
Retail Private Commercial & Central items Total excluding Ulster NatWest
Banking Banking Institutional & other Ulster Bank RoI Bank RoI Group
Total RWAs £bn £bn £bn £bn £bn £bn £bn
At 31 December 2021 36.7 11.3 98.1 1.8 147.9 9.1 157.0
Foreign exchange movement - - 1.9 - 1.9 0.2 2.1
Business movement 2.5 (0.2) 2.5 (0.2) 4.6 (1.2) 3.4
Risk parameter changes (1.5) - (2.0) - (3.5) - (3.5)
Methodology changes - - 0.4 - 0.4 0.2 0.6
Model updates 15.3 - 3.9 - 19.2 1.0 20.2
Acquisitions and disposals - - - - - (1.3) (1.3)
At 30 September 2022 53.0 11.1 104.8 1.6 170.5 8.0 178.5
Credit risk 46.0 9.9 77.1 1.5 134.5 7.1 141.6
Counterparty credit risk 0.1 - 8.4 - 8.5 - 8.5
Market risk 0.2 - 9.1 - 9.3 - 9.3
Operational risk 6.7 1.2 10.2 0.1 18.2 0.9 19.1
Total RWAs 53.0 11.1 104.8 1.6 170.5 8.0 178.5
Total RWAs increased by £21.5 billion to £178.5 billion during the period
mainly reflecting:
- An increase in model updates totalling £20.2 billion, primarily due
to model adjustments applied as a result of new regulation applicable to IRB
models from 1 January 2022 within Retail Banking and Commercial &
Institutional.
- An increase in business movements totalling £3.4 billion, driven by
increased credit risk exposures within Retail Banking and Commercial &
Institutional, partially offset by a reduction in credit risk exposures within
Ulster Bank ROI.
- A partially offsetting reduction of £3.5 billion RWAs due to improved
risk metrics within Commercial & Institutional and Retail Banking.
- An increase in disposals leading to a £1.3 billion reduction in RWAs
relating to the phased withdrawal from the Republic of Ireland.
Risk and capital management
Capital, liquidity and funding risk continued
Liquidity portfolio
The table below shows the liquidity portfolio by product, with primary
liquidity aligned to internal stressed outflow coverage and regulatory
liquidity coverage ratio (LCR) categorisation. Secondary liquidity comprises
assets eligible for discount at central banks, which do not form part of the
liquid asset portfolio for LCR or internal stressed outflow coverage purposes.
Liquidity value
30 September 2022 30 June 2022 31 December 2021
NatWest NatWest NatWest
Group (1) Group Group
£m £m £m
Cash and balances at central banks 155,173 176,976 174,328
AAA to AA- rated governments 26,237 18,458 31,073
A+ and lower rated governments 35 3 25
Government guaranteed issuers, public sector entities and
government sponsored entities 247 236 307
International organisations and multilateral development banks 2,490 2,589 2,720
LCR level 1 bonds 29,009 21,286 34,125
LCR level 1 assets 184,182 198,262 208,453
LCR level 2 assets - - 117
Non-LCR eligible assets - - -
Primary liquidity 184,182 198,262 208,570
Secondary liquidity (2) 67,004 70,186 77,849
Total liquidity value 251,186 268,448 286,419
(1) NatWest Group includes the UK Domestic Liquidity Sub-Group (NWB Plc, RBS plc
and Coutts & Co), NatWest Markets Plc and other significant operating
subsidiaries that hold liquidity portfolios. These include The Royal Bank of
Scotland International Limited, NWM N.V. and Ulster Bank Ireland DAC who hold
managed portfolios that comply with local regulations that may differ from PRA
rules.
(2) Comprises assets eligible for discounting at the Bank of England and other
central banks.
Condensed consolidated income statement for the period ended 30 September 2022
(unaudited)
Nine months ended Quarter ended
30 September 30 September 30 September 30 June 30 September
2022 2021 2022 2022 2021
£m £m £m £m £m
Interest receivable 8,591 6,909 3,341 2,820 2,299
Interest payable (1,617) (1,296) (701) (513) (430)
Net interest income 6,974 5,613 2,640 2,307 1,869
Fees and commissions receivable 2,145 1,970 721 731 666
Fees and commissions payable (468) (425) (168) (151) (140)
Income from trading activities 969 326 260 347 95
Other operating income (172) 343 (224) (23) 196
Non-interest income 2,474 2,214 589 904 817
Total income 9,448 7,827 3,229 3,211 2,686
Staff costs (2,687) (2,761) (879) (907) (881)
Premises and equipment (820) (765) (286) (283) (263)
Other administrative expenses (1,429) (1,291) (531) (427) (588)
Depreciation and amortisation (613) (613) (200) (216) (199)
Operating expenses (5,549) (5,430) (1,896) (1,833) (1,931)
Profit before impairment (losses)/releases 3,899 2,397 1,333 1,378 755
Impairment (losses)/releases (193) 904 (247) 18 221
Operating profit before tax 3,706 3,301 1,086 1,396 976
Tax charge (1,229) (762) (434) (409) (330)
Profit from continuing operations 2,477 2,539 652 987 646
(Loss)/profit from discontinued operations, net of tax (206) 275 (396) 127 98
Profit for the period 2,271 2,814 256 1,114 744
Attributable to:
Ordinary shareholders 2,078 2,516 187 1,050 674
Preference shareholders - 14 - - 5
Paid-in equity holders 188 241 67 62 63
Non-controlling interests 5 43 2 2 2
2,271 2,814 256 1,114 744
Earnings per ordinary share - continuing operations 23.0p 20.6p 6.0p 9.5p 5.4p
Earnings per ordinary share - discontinued operations (2.1p) 2.5p (4.1p) 1.3p 0.9p
Total earnings per share attributable to ordinary
shareholders - basic 20.9p 23.1p 1.9p 10.8p 6.3p
Earnings per ordinary share - fully diluted continuing
operations 22.9p 20.5p 6.0p 9.4p 5.4p
Earnings per ordinary share - fully diluted discontinued
operations (2.1p) 2.5p (4.1p) 1.3p 0.9p
Total earnings per share attributable to ordinary
shareholders - fully diluted 20.8p 23.0p 1.9p 10.7p 6.3p
(1) At the General Meeting and Class Meeting on 25 August 2022, the
shareholders approved the proposed special dividend and share consolidation.
On 30 August 2022 the issued ordinary share capital was consolidated in the
ratio of 14 existing shares for 13 new shares. The number of shares for
earnings per share has been adjusted retrospectively.
Condensed consolidated statement of comprehensive income
for the period ended 30 September 2022 (unaudited)
Nine months ended Quarter ended
30 September 30 September 30 September 30 June 30 September
2022 2021 2022 2022 2021
£m £m £m £m £m
Profit for the period 2,271 2,814 256 1,114 744
Items that do not qualify for reclassification
Remeasurement of retirement benefit schemes (1) (682) (740) (165) (9) (6)
Changes in fair value of credit in financial liabilities
designated at fair value through profit or loss
(FVTPL) due to own credit risk 102 (29) 11 52 (4)
Fair value through other comprehensive
income (FVOCI) financial assets 42 11 39 (6) 3
Tax (1) 136 185 13 1 3
(402) (573) (102) 38 (4)
Items that do qualify for reclassification
FVOCI financial assets (451) (145) 7 (220) -
Cash flow hedges (2) (3,978) (610) (2,421) (574) (245)
Currency translation 358 (267) 173 150 21
Tax (2) 1,259 130 693 227 65
(2,812) (892) (1,548) (417) (159)
Other comprehensive loss after tax (3,214) (1,465) (1,650) (379) (163)
Total comprehensive (loss)/income for the period (943) 1,349 (1,394) 735 581
Attributable to:
Ordinary shareholders (1,136) 1,047 (1,463) 672 512
Preference shareholders - 14 - - 5
Paid-in equity holders 188 241 67 62 63
Non-controlling interests 5 47 2 1 1
(943) 1,349 (1,394) 735 581
(1) Following the purchase of ordinary shares from UKGI in Q1 2022,
NatWest Group contributed £500 million to its main pension scheme in line
with the memorandum of understanding announced on 17 April 2018. After tax
relief, this contribution reduced total equity by £365 million. In line with
our policy, the present value of defined benefit obligations and the fair
value of plan assets at the end of the interim reporting period are assessed
to identity significant market fluctuations and one-off events since the end
of the prior financial year. Following this assessment, a remeasurement loss
of £150 million offset by tax of £15 million was recorded in OCI in relation
to a material movement on valuation of a non-UK scheme. The movement from the
year end has primarily arisen due to changes in underlying interest and
inflation rates, and changes in asset values.
(2) The unrealised losses on cash flow hedge reserves is mainly driven
by deferment of losses on GBP net received fixed swaps as interest rates have
increased, with an offsetting impact of £1 billion included within the tax
movement.
Condensed consolidated balance sheet as at 30 September 2022 (unaudited)
30 September 31 December
2022 2021
£m £m
Assets
Cash and balances at central banks 155,266 177,757
Trading assets 57,833 59,158
Derivatives 141,002 106,139
Settlement balances 7,587 2,141
Loans to banks - amortised cost 9,554 7,682
Loans to customers - amortised cost 371,812 358,990
Other financial assets 30,257 46,145
Intangible assets 6,961 6,723
Other assets 9,012 8,242
Assets of disposal groups 12,209 9,015
Total assets 801,493 781,992
Liabilities
Bank deposits 24,713 26,279
Customer deposits 473,026 479,810
Settlement balances 7,220 2,068
Trading liabilities 64,754 64,598
Derivatives 134,958 100,835
Other financial liabilities 46,895 49,326
Subordinated liabilities 6,592 8,429
Notes in circulation 3,077 3,047
Other liabilities 5,302 5,797
Total liabilities 766,537 740,189
Equity
Ordinary shareholders' interests 31,054 37,412
Other owners' interests 3,890 4,384
Owners' equity 34,944 41,796
Non-controlling interests 12 7
Total equity 34,956 41,803
Total liabilities and equity 801,493 781,992
Condensed consolidated statement of changes in equity
for the period ended 30 September 2022 (unaudited)
Share
capital and Total Non
statutory Paid-in Retained Other owners' controlling Total
reserves (1) equity earnings reserves* equity interests equity
£m £m £m £m £m £m £m
At 1 January 2022 12,980 3,890 12,966 11,960 41,796 7 41,803
Profit attributable to ordinary shareholders
and other equity owners
- continuing operations 2,472 2,472 5 2,477
- discontinued operations (206) (206) (206)
Other comprehensive income
- Realised gains in period
on FVOCI equity shares 113 (113) - -
- Remeasurement of retirement
benefit schemes (2) (682) (682) (682)
- Changes in fair value of credit in financial
liabilities designated at FVTPL due
to own credit risk 102 102 102
- Unrealised losses: FVOCI (7) (567) (567) (567)
- Amounts recognised in equity: cash flow hedges (6) (3,707) (3,707) (3,707)
- Foreign exchange reserve movement 358 358 - 358
- Amount transferred from equity to earnings (113) (113) (113)
- Tax (2, 6) 121 1,274 1,395 1,395
Ordinary share dividends paid (1,205) (1,205) (1,205)
Special dividends paid (1,746) (1,746) (1,746)
Paid-in equity dividends paid (188) (188) (188)
Shares repurchased during the period (3,4) - (2,054) (2,054) (2,054)
Shares and securities issued during the
period - 8 8 8
Tax on reclassification of paid-in equity (36) (36) (36)
Redemption of preference shares (5) (750) (750) (750)
Share-based payments (29) (29) (29)
Movement in own shares held 96 96 96
At 30 September 2022 13,076 3,890 8,886 9,092 34,944 12 34,956
30 September
2022
Attributable to: £m
Ordinary shareholders 31,054
Paid-in equity holders 3,890
Non-controlling interests 12
34,956
*Other reserves consist of:
Merger reserve 10,881
FVOCI reserve (105)
Cash flow hedging reserve (3,273)
Foreign exchange reserve 1,589
9,092
(1) Share capital and statutory reserves includes share capital, share premium,
capital redemption reserve and own shares held.
(2) Following the purchase of ordinary shares from UKGI in Q1 2022, NatWest Group
contributed £500 million to its main pension scheme in line with the
memorandum of understanding announced on 17 April 2018. After tax relief, this
contribution reduced total equity by £365 million. In line with our policy,
the present value of defined benefit obligations and the fair value of plan
assets at the end of the interim reporting period are assessed to identity
significant market fluctuations and one-off events since the end of the prior
financial year. Following this assessment, a remeasurement loss of £150
million offset by tax of £15 million was recorded in OCI in relation to a
material movement on valuation of a non-UK scheme. The movement from the year
end has primarily arisen due to changes in underlying interest and inflation
rates, and changes in asset values.
(3) In March 2022, there was an agreement with HM Treasury to buy 549.9 million
ordinary shares in NatWest Group plc from UK Government Investments Ltd, at
220.5 pence per share for the total consideration of £1.22 billion. NatWest
Group cancelled all 549.9 million of the purchased ordinary shares. The
nominal value of the share cancellation has been transferred to the capital
redemption reserve.
(4) NatWest Group plc repurchased and cancelled 379.3 million shares for total
consideration of £829.3 million excluding fees to Q3 2022 as part of the On
Market Share Buyback Programme which has now concluded. The nominal value of
the share cancellations has been transferred to the capital redemption
reserve.
(5) Following an announcement of a Regulatory Call in February 2022, the Series U
preference shares were reclassified to liabilities. A £254 million loss was
recognised in P&L reserves as a result of FX unlocking.
(6) The unrealised losses on cash flow hedge reserves is mainly driven by
deferment of losses on GBP net received fixed swaps as interest rates have
increased, with an offsetting impact of £1 billion included within the tax
movement.
(7) Certain assets within this category have been subject to economic hedges
(refer to notable items on page 5). The effect of those creates a temporary
difference between Other Comprehensive income and the income statement due to
the difference in recognition criteria. This temporary difference is expected
to reverse through the income statement over the duration of the hedge.
Notes
1. Presentation of condensed consolidated financial statements
The condensed consolidated financial statements should be read in conjunction
with NatWest Group plc's 2021 Annual Report and Accounts. The directors have
prepared these on a going concern basis after assessing the principal risks,
forecasts, projections and other relevant evidence over the twelve months from
the date they are approved.
Comparative period results have been re-presented from those previously
published to reclassify certain items as discontinued operations. For further
details refer to Note 4 on page 36.
2. Accounting policies
NatWest Group's principal accounting policies are as set out on pages 307 to
312 of NatWest Group plc's 2021 Annual Report and Accounts. Amendments to IFRS
effective from 1 January 2022 had no material effect on the condensed
consolidated financial statements.
Critical accounting policies and key sources of estimation uncertainty
The judgments and assumptions that are considered to be the most important to
the portrayal of NatWest Group's financial condition are those relating to
deferred tax, fair value of financial instruments, loan impairment provisions,
goodwill and provisions for liabilities and charges. These critical accounting
policies and judgments are noted on pages 311 and 312 of NatWest Group plc's
2021 Annual Report and Accounts. Management's consideration of uncertainty is
outlined in the relevant sections of NatWest Group plc's 2021 Annual Report
and Accounts, including the ECL estimate for the period in the Risk and
capital management section contained in NatWest Group plc's 2021 Annual Report
and Accounts.
Information used for significant estimates
Key financial estimates are based on management's latest five-year revenue and
cost forecasts. Measurement of goodwill, deferred tax and expected credit
losses are highly sensitive to reasonably possible changes in those
anticipated conditions. Changes in judgments and assumptions could result in a
material adjustment to those estimates in future reporting periods. (Refer to
the Summary Risk Factors included in NatWest Group plc's Interim Results 2022
and the Risk Factors included in the 2021 Annual Report and Accounts and Form
20-F).
On 17 October 2022, the Chancellor of the Exchequer confirmed that in line
with the previously enacted legislation, the UK corporation tax rate will
increase to 25% from 1 April 2023. HM Treasury are expected to confirm the
future bank corporation tax surcharge rate at the Autumn Statement scheduled
for 17th November 2022. Based on the current enacted legislation, the Bank
Corporation Tax Surcharge rate will reduce from 8% to 3% from 1 April 2023. In
line with the requirements of IAS 12, enacted tax rates have been used to
determine the deferred tax balances.
3. Effect of reclassification
In June 2022 UBIDAC announced the cessation of new mortgage business to its
customers. On 1 July 2022 UBIDAC mortgages in both its continuing and
discontinued businesses were reclassified from amortised cost to fair value
through profit or loss, reflecting the change in business model. We fair value
these assets using a discounted cash flow method. Key inputs include
assumptions around cash flows from legally binding sales agreements for those
mortgage assets that form part of the assets of disposal groups. The effect of
this is shown below:
Continuing Discontinued
Ulster Bank RoI operations operations Total
Gross loans to customers (€bn) (1 July 2022) 1.0 12.5 13.5
Loan impairment provisions (€bn) (1 July 2022) (0.3) (0.1) (0.4)
Net book value (€bn) (1 July 2022) 0.7 12.4 13.1
Q3 2022 income statement movement (€m) 14 (433) (419)
Of which: reclassification effect (1 July 2022) (€m) 22 (364) (342)
Notes
4. Discontinued operations and assets and liabilities of disposal groups
Three legally binding agreements for the sale of UBIDAC business have been
announced as part of the phased withdrawal from the Republic of Ireland.
Material developments since the publication of the Interim results on 29 July
2022 are set out below.
Agreement with Allied Irish Banks, p.l.c. (AIB) for the transfer of c.€4.2
billion (plus up to €2.8 billion of undrawn exposures), of gross performing
commercial loans (as at 31 December 2020).
Successful migration of a further three tranches of gross performing
commercial loans to AIB was completed during Q3 2022. Remaining migrations of
commercial customers will be completed in phases over Q4 2022 and H1 2023.
Colleagues who are wholly or mainly assigned to supporting this part of the
business have begun to transfer to AIB under TUPE arrangements. Losses on
disposal of €76 million have been recognised in the nine months to 30
September 2022 (€71 million in Q3 2022) in respect of those transactions
completed to date.
Agreement with Permanent TSB p.l.c. (PTSB) for the sale of approximately
€7.6 billion of gross performing non-tracker mortgages (as at 30 June 2021),
the performing loans in the micro-SME business, the UBIDAC Asset Finance
business, including its Lombard digital platform, and 25 Ulster Bank branch
locations in the Republic of Ireland.
The planned migration of gross performing non-Tracker mortgages to PTSB is
progressing and execution of the live migration is expected to commence before
the end of the year. The transfer of the Lombard asset finance business, the
business direct loan book and 25 branches to PTSB is still expected to be
completed in H1 2023.
Agreement with AIB for the sale of c.€6 billion portfolio of gross
performing tracker and linked mortgages (as at 31 March 2022).
Migration of the portfolio of gross performing tracker and linked mortgages is
still on track for delivery in Q2 2023. UBIDAC and AIB remain actively engaged
with the Irish Competition and Consumer Protection Commission (CCPC) as it
continues its review of the transaction.
The business activities relating to these sales that meet the requirements of
IFRS 5 are presented as a discontinued operation and as a disposal group.
Comparatives have been re-presented from those previously published to
reclassify certain items as discontinued operations. The Ulster Bank RoI
operating segment continues to be reported separately and reflects the results
and balance sheet position of its continuing operations.
In Q3 2022 we reclassified mortgage loans to fair value through profit or
loss, which resulted in a €419 million reduction in mortgage financial
assets in UBIDAC. This reclassification applies across both our continuing and
discontinued operations.
(a) (Loss)/profit from discontinued operations, net of tax
Nine months ended Quarter ended
30 September 30 September 30 September 30 June 30 September
2022 2021 2022 2022 2021
£m £m £m £m £m
Interest receivable 160 257 4 78 85
Net interest income 160 257 4 78 85
Non-interest income (409) 9 (405) (4) 3
Total income (249) 266 (401) 74 88
Operating expenses (35) (33) (11) (13) (11)
(Loss)/profit before impairment releases (284) 233 (412) 61 77
Impairment releases 78 45 16 66 21
Operating (loss)/profit before tax (206) 278 (396) 127 98
Tax charge - (3) - - -
(Loss)/profit from discontinued operations, net of tax (206) 275 (396) 127 98
(b) Assets and liabilities of disposal groups
As at
30 September 31 December
2022 2021
£m £m
Assets of disposal groups
Loans to customers - amortised cost 2,161 9,002
Other financial assets - loans to customers at fair value through profit or 10,040 -
loss
Derivatives - 5
Other assets 8 8
12,209 9,015
Liabilities of disposal groups
Other liabilities 5 5
5 5
Net assets of disposal groups 12,204 9,010
Notes
5. Litigation and regulatory matters
NatWest Group plc's Interim Results 2022, issued on 29 July 2022, included
disclosures about NatWest Group's litigation and regulatory matters in Note
15. Set out below are the material developments in those matters (all of which
have been previously disclosed) since publication of the Interim Results 2022.
Litigation
London Interbank Offered Rate (LIBOR) and other rates litigation
In September 2020, the United States District Court for the Southern District
of New York (SDNY) dismissed, on various grounds, all claims against NWM Plc
and other NatWest Group companies in the class action alleging that
manipulation of JPY LIBOR and Euroyen TIBOR impacted the price of Euroyen
TIBOR futures contracts. In October 2022, that decision was affirmed by the
United States Court of Appeals for the Second Circuit.
A complaint was filed in August 2020 in the United States District Court for
the Northern District of California by several United States consumer
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 normal 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 consumer loans. In September 2022, the
district court dismissed the complaint, subject to re-pleading by the
plaintiffs. Plaintiffs filed an amended complaint in October 2022, which
defendants will again seek to have dismissed.
FX litigation
An FX-related class action, on behalf of 'consumers and end-user businesses',
is proceeding in the SDNY against NWM Plc and others. In March 2022, the SDNY
denied the plaintiffs' motion for class certification. Plaintiffs sought an
immediate appeal of the decision but the appellate court declined to review
the decision. As a result, the case is proceeding on an individual, non-class
basis.
In July and December 2019, two separate applications seeking opt-out
collective proceedings orders were filed in the UK Competition Appeal Tribunal
(CAT) against NatWest Group plc, NWM Plc and other banks. Both applications
were brought on behalf of persons who, between 18 December 2007 and 31 January
2013, entered into a relevant FX spot or outright forward transaction in the
EEA with a relevant financial institution or on an electronic communications
network. In March 2022, the CAT declined to certify as collective proceedings
either of the applications. In October 2022, the CAT granted permission for
the applicants to appeal that decision to the Court of Appeal.
6. Auditor selection
The Group last tendered the 2016 audit and is required to undertake a tender
for this work on a ten-year frequency. On 6 June 2022, the Group announced the
start of a selection process for the statutory auditor. This extensive
competitive tender process was led by the Group Audit Committee. The Board
has approved the recommendation of the Group Audit Committee and accordingly,
the Group announces its intention to appoint PricewaterhouseCoopers LLP (PwC)
as its auditor for the financial year ending 31 December 2026, subject to
shareholder approval at the 2026 Annual General Meeting.
Ernst & Young LLP (EY), our current auditor, will continue in its role
and, subject to shareholder approval at the relevant Annual General Meetings,
will undertake the statutory audit for the 2022-2025 financial years.
7. Post balance sheet events
Other than as disclosed there have been no significant events between 30
September 2022 and the date of approval of these
accounts that would require a change to or additional disclosure in the
condensed consolidated financial statements.
Additional information
Presentation of information
'Parent company' refers to NatWest Group plc and 'NatWest Group' and 'we'
refers to NatWest Group plc and its subsidiary and associated undertakings.
The term 'NWH Group' refers to NatWest Holdings Limited ('NWH') and its
subsidiary and associated undertakings. The term 'NWM Group' refers to NatWest
Markets Plc ('NWM Plc') and its subsidiary and associated undertakings. The
term 'NWM N.V.' refers to NatWest Markets N.V. The term 'NWMSI' refers to
NatWest Markets Securities, Inc. The term 'RBS plc' refers to The Royal Bank
of Scotland plc. The term 'NWB Plc' refers to National Westminster Bank Plc.
The term 'UBIDAC' refers to Ulster Bank Ireland DAC. 'Go-forward group'
excludes Ulster Bank RoI and discontinued operations.
NatWest Group publishes its financial statements in pounds sterling ('£' or
'sterling'). The abbreviations '£m' and '£bn' represent millions and
thousands of millions of pounds sterling, respectively, and references to
'pence' or 'p' represent pence where the amounts are denominated in pounds
sterling ('GBP'). Reference to 'dollars' or '$' are to United States of
America ('US') dollars. The abbreviations '$m' and '$bn' represent millions
and thousands of millions of dollars, respectively. The abbreviation '€'
represents the 'euro', and the abbreviations '€m' and '€bn' represent
millions and thousands of millions of euros, respectively.
On 27 January 2022, NatWest Group announced that a new franchise, Commercial
& Institutional, would be created, bringing together the Commercial,
NatWest Markets and RBSI businesses to form a single franchise, with common
management and objectives, to best support our customers across the full
non-personal customer lifecycle. Comparatives have been re-presented in this
document. Refer to the re-segmentation document published on 22 April 2022 for
further details. The re-presentation of operating segments does not change the
consolidated financial results of NatWest Group.
Statutory results
Financial information contained in this document does not constitute statutory
accounts within the meaning of section 434 of the Companies Act 2006 ('the
Act'). The statutory accounts for the year ended 31 December 2021 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: 28 October 2022
Time: 09:00 AM UK time
Zoom ID: 960 6740 5912
Available on natwestgroup.com/results (http://www.natwestgroup.com/results)
- Q3 2022 Interim Management Statement and background slides.
- A financial supplement containing income statement, balance sheet and
segment performance for the nine quarters ended 30 September 2022.
- NatWest Group Pillar 3 supplement at 30 September 2022.
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, governance and climate related targets,
its access to adequate sources of liquidity and funding, increasing
competition from new incumbents and disruptive technologies, the impact of the
COVID-19 pandemic, its exposure to third party risks, its ongoing compliance
with the UK ring-fencing regime and ensuring operational continuity in
resolution, its impairment losses and credit exposures under certain specified
scenarios, substantial regulation and oversight, ongoing legal, regulatory and
governmental actions and investigations, the transition of LIBOR and IBOR
rates to alternative risk free rates and NatWest Group's exposure to
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 (including with respect to goodwill), legislative,
political, fiscal and regulatory developments, accounting standards,
competitive conditions, technological developments, interest and exchange rate
fluctuations, general economic and political conditions, the impact of
climate-related risks and the transitioning to a net zero economy and the
impact of the COVID-19 pandemic. These and other factors, risks and
uncertainties that may impact any forward-looking statement or NatWest Group
plc's actual results are discussed in NatWest Group plc's UK 2021 Annual
Report and Accounts (ARA), NatWest Group plc's UK Interim Results for the six
months ended 30 June 2022 (H1 report), and NatWest Group plc's filings with
the US Securities and Exchange Commission, including, but not limited to,
NatWest Group plc's most recent Annual Report on Form 20-F. The
forward-looking statements contained in this document speak only as of the
date of this document and NatWest Group plc does not assume or undertake any
obligation or responsibility to update any of the forward-looking statements
contained in this document, whether as a result of new information, future
events or otherwise, except to the extent legally required.
Legal Entity Identifier: 2138005O9XJIJN4JPN90
Appendix
Non-IFRS financial measures
Non-IFRS financial measures
NatWest Group prepares its financial statements in accordance with generally
accepted accounting principles (GAAP). This document contains a number of
adjusted or alternative performance measures, also known as non-GAAP or
non-IFRS performance measures. These measures are adjusted for notable and
other defined items which management believes are not representative of the
underlying performance of the business and which distort period-on-period
comparison. The non-IFRS measures provide users of the financial statements
with a consistent basis for comparing business performance between financial
periods and information on elements of performance that are one-off in nature.
The non-IFRS measures also include the calculation of metrics that are used
throughout the banking industry. These non-IFRS measures are not measures
within the scope of IFRS and are not a substitute for IFRS measures.
1. Go-forward group income excluding notable items
Go-forward group income excluding notable items is calculated as total income
excluding Ulster Bank RoI total income and excluding notable items.
The exclusion of notable items aims to remove the impact of one-offs which may
distort period-on-period comparisons.
Nine months ended Quarter ended
30 September 30 September 30 September 30 June 30 September
2022 2021 2022 2022 2021
£m £m £m £m £m
Continuing operations
Total income 9,448 7,827 3,229 3,211 2,686
Less Ulster Bank RoI total income 4 (122) 37 (12) (57)
Go-forward group income 9,452 7,705 3,266 3,199 2,629
Less notable items (153) (148) 168 (97) (118)
Go-forward group income excluding notable items 9,299 7,557 3,434 3,102 2,511
2. Go-forward group other operating expenses
Other operating expenses is calculated as total operating expenses less
litigation and conduct costs. Other operating expenses of the Go-forward group
excludes Ulster Bank RoI.
Our cost target for 2022 is based on this measure and we track progress
against it.
Nine months ended Quarter ended
30 September 30 September 30 September 30 June 30 September
2022 2021 2022 2022 2021
£m £m £m £m £m
Continuing operations
Total operating expenses 5,549 5,430 1,896 1,833 1,931
Less litigation and conduct costs (294) (276) (125) (67) (294)
Other operating expenses 5,255 5,154 1,771 1,766 1,637
Less Ulster Bank RoI other operating expenses (353) (339) (110) (130) (113)
Go-forward group other operating expenses 4,902 4,815 1,661 1,636 1,524
3. Go-forward group profit before impairment releases/(losses)
Go-forward group profit before impairment releases/(losses) is calculated as
total profit before impairment releases/(losses) less Ulster Bank RoI loss
before impairment (losses)/releases.
Nine months ended Quarter ended
30 September 30 September 30 September 30 June 30 September
2022 2021 2022 2022 2021
£m £m £m £m £m
Continuing operations
Profit before impairment releases/(losses) 3,899 2,397 1,333 1,378 755
Less Ulster Bank RoI loss before
impairment (losses)/releases 372 229 151 129 55
Go-forward group profit before
impairment releases/(losses) 4,271 2,626 1,484 1,507 810
Non-IFRS financial measures continued
4. 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 2022
Litigation and Other Statutory
conduct operating operating
costs expenses expenses
Operating expenses £m £m £m
Continuing operations
Staff costs 29 2,658 2,687
Premises and equipment - 820 820
Other administrative expenses 265 1,164 1,429
Depreciation and amortisation - 613 613
Total 294 5,255 5,549
Nine months ended
30 September 2021
Litigation and Other Statutory
conduct operating operating
costs expenses expenses
Operating expenses £m £m £m
Continuing operations
Staff costs - 2,761 2,761
Premises and equipment - 765 765
Other administrative expenses 276 1,015 1,291
Depreciation and amortisation - 613 613
Total 276 5,154 5,430
Quarter ended
30 September 2022
Litigation and Other Statutory
conduct operating operating
costs expenses expenses
Operating expenses £m £m £m
Continuing operations
Staff costs 11 868 879
Premises and equipment - 286 286
Other administrative expenses 114 417 531
Depreciation and amortisation - 200 200
Total 125 1,771 1,896
Quarter ended
30 June 2022
Litigation and Other Statutory
conduct operating operating
costs expenses expenses
Operating expenses £m £m £m
Continuing operations
Staff costs 11 896 907
Premises and equipment - 283 283
Other administrative expenses 56 371 427
Depreciation and amortisation - 216 216
Total 67 1,766 1,833
Quarter ended
30 September 2021
Litigation and Other Statutory
conduct operating operating
costs expenses expenses
Operating expenses £m £m £m
Continuing operations
Staff costs - 881 881
Premises and equipment - 263 263
Other administrative expenses 294 294 588
Depreciation and amortisation - 199 199
Total 294 1,637 1,931
Non-IFRS financial measures continued
5. Cost:income ratio
The cost:income ratio is calculated as total operating expenses less operating
lease depreciation divided by total income less operating lease depreciation.
The cost:income ratio of the Go-forward group excludes Ulster Bank RoI.
This is a common metric used to compare profitability across the banking
industry.
Go-forward group
Ulster Total
Retail Private Commercial & Central items Total excluding Bank NatWest
Banking Banking Institutional and other Ulster Bank RoI RoI Group
Nine months ended 30 September 2022 £m £m £m £m £m £m £m
Continuing operations
Operating expenses (1,935) (424) (2,713) (109) (5,181) (368) (5,549)
Operating lease depreciation - - 94 - 94 - 94
Adjusted operating expenses (1,935) (424) (2,619) (109) (5,087) (368) (5,455)
Total income 4,029 746 4,594 83 9,452 (4) 9,448
Operating lease depreciation - - (94) - (94) - (94)
Adjusted total income 4,029 746 4,500 83 9,358 (4) 9,354
Cost:income ratio 48.0% 56.8% 58.2% nm 54.4% nm 58.3%
Nine months ended 30 September 2021
Continuing operations
Operating expenses (1,739) (365) (2,698) (277) (5,079) (351) (5,430)
Operating lease depreciation - - 106 - 106 - 106
Adjusted operating expenses (1,739) (365) (2,592) (277) (4,973) (351) (5,324)
Total income 3,281 563 3,670 191 7,705 122 7,827
Operating lease depreciation - - (106) - (106) - (106)
Adjusted total income 3,281 563 3,564 191 7,599 122 7,721
Cost:income ratio 53.0% 64.8% 72.7% nm 65.4% nm 69.0%
Quarter ended 30 September 2022
Continuing operations
Operating expenses (693) (139) (893) (57) (1,782) (114) (1,896)
Operating lease depreciation - - 30 - 30 - 30
Adjusted operating expenses (693) (139) (863) (57) (1,752) (114) (1,866)
Total income 1,475 285 1,657 (151) 3,266 (37) 3,229
Operating lease depreciation - - (30) - (30) - (30)
Adjusted total income 1,475 285 1,627 (151) 3,236 (37) 3,199
Cost:income ratio 47.0% 48.8% 53.0% nm 54.1% nm 58.3%
Quarter ended 30 June 2022
Continuing operations
Operating expenses (597) (146) (898) (51) (1,692) (141) (1,833)
Operating lease depreciation - - 32 - 32 - 32
Adjusted operating expenses (597) (146) (866) (51) (1,660) (141) (1,801)
Total income 1,337 245 1,562 55 3,199 12 3,211
Operating lease depreciation - - (32) - (32) - (32)
Adjusted total income 1,337 245 1,530 55 3,167 12 3,179
Cost:income ratio 44.7% 59.6% 56.6% nm 52.4% nm 56.7%
Quarter ended 30 September 2021
Continuing operations
Operating expenses (552) (116) (874) (277) (1,819) (112) (1,931)
Operating lease depreciation - - 36 - 36 - 36
Adjusted operating expenses (552) (116) (838) (277) (1,783) (112) (1,895)
Total income 1,131 195 1,196 107 2,629 57 2,686
Operating lease depreciation - - (36) - (36) - (36)
Adjusted total income 1,131 195 1,160 107 2,593 57 2,650
Cost:income ratio 48.8% 59.5% 72.2% nm 68.8% nm 71.5%
Non-IFRS financial measures continued
6. NatWest Group return on tangible equity
Return on tangible equity comprises annualised profit or loss for the period
attributable to ordinary shareholders divided by average tangible equity.
Average tangible equity is average total equity excluding average
non-controlling interests, average other owners equity and average intangible
assets.
Go-forward group return on tangible equity is calculated as annualised profit
for the period less Ulster Bank RoI divided by Go-forward group total tangible
equity. Go forward RWAe applying factor is the Go-forward group average RWAe
as a percentage of total NatWest Group average RWAe.
This measure shows the return NatWest Group generates on tangible equity
deployed. It is used to determine relative performance of banks and used
widely across the sector, although different banks may calculate the rate
differently.
Nine months ended Quarter ended or as at
30 September 30 September 30 September 30 June 30 September
2022 2021 2022 2022 2021
NatWest Group return on tangible equity £m £m £m £m £m
Profit attributable to ordinary shareholders 2,078 2,516 187 1,050 674
Annualised profit attributable to ordinary shareholders 2,771 3,355 748 4,200 2,696
Average total equity 38,821 42,978 36,956 38,625 42,507
Adjustment for other owners' equity and intangibles (11,099) (11,525) (11,200) (10,944) (10,881)
Adjusted total tangible equity 27,722 31,453 25,756 27,681 31,626
Return on tangible equity 10.0% 10.7% 2.9% 15.2% 8.5%
Go-forward group return on tangible equity
Profit attributable to ordinary shareholders 2,078 2,516 187 1,050 674
Less Ulster Bank RoI loss from continuing operations,
net of tax 369 278 157 149 60
Less profit from discontinued operations 206 (275) 396 (127) (98)
Go-forward group profit attributable to
ordinary shareholders 2,653 2,519 740 1,072 636
Annualised go-forward group profit attributable
to ordinary shareholders 3,537 3,359 2,960 4,288 2,544
Average total equity 38,821 42,978 36,956 38,625 42,507
Adjustment for other owners' equity and intangibles (11,099) (11,525) (11,200) (10,944) (10,881)
Adjusted total tangible equity 27,722 31,453 25,756 27,681 31,626
Go-forward group RWAe applying factor 95% 94% 95% 94% 94%
Go-forward group total tangible equity 26,197 29,566 24,468 26,020 29,728
Go-forward group return on tangible equity 13.5% 11.4% 12.1% 16.5% 8.6%
Non-IFRS financial measures continued
7. 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 2022 Banking Banking Institutional
Operating profit (£m) 1,952 326 1,821
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%
Nine months ended 30 September 2021
Operating profit (£m) 1,583 240 1,815
Preference share and paid-in equity cost allocation (£m) (60) (15) (177)
Adjustment for tax (£m) (426) (63) (410)
Adjusted attributable profit (£m) 1,097 162 1,229
Annualised adjusted attributable profit (£m) 1,463 216 1,639
Average RWAe (£bn) 35.7 11.1 107.0
Equity factor (%) 14.5% 12.5% 13.0%
Average notional equity (£bn) 5.2 1.4 13.9
Return on equity (%) 28.3% 15.5% 11.8%
Quarter ended 30 September 2022
Operating profit (£m) 666 139 645
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%
Quarter ended 30 June 2022
Operating profit (£m) 719 105 712
Paid-in equity cost allocation (£m) (20) (3) (47)
Adjustment for tax (£m) (196) (29) (166)
Adjusted attributable profit (£m) 503 73 499
Annualised adjusted attributable profit (£m) 2,012 294 1,996
Average RWAe (£bn) 52.4 11.3 101.0
Equity factor (%) 13.0% 11.0% 14.0%
Average notional equity (£bn) 6.8 1.2 14.1
Return on equity (%) 29.5% 23.5% 14.0%
Quarter ended 30 September 2021
Operating profit (£m) 563 94 552
Preference share and paid-in equity cost allocation (£m) (20) (5) (59)
Adjustment for tax (£m) (152) (25) (123)
Adjusted attributable profit (£m) 391 64 370
Annualised adjusted attributable profit (£m) 1,564 256 1,480
Average RWAe (£bn) 36.1 11.3 103.4
Equity factor (%) 14.5% 12.5% 13.0%
Average notional equity (£bn) 5.2 1.4 13.4
Return on equity (%) 29.9% 18.1% 11.0%
Non-IFRS financial measures continued
8. Bank net interest margin
Bank net interest margin is defined as annualised net interest income of the
Go-forward group, as a percentage of bank average interest-earning assets.
Bank average interest earning assets are the average interest earning assets
of the banking business of the Go-forward group excluding liquid asset buffer.
Liquid asset buffer consists of assets held by NatWest Group, such as cash and
balances at central banks and debt securities in issue, that can be used to
ensure repayment of financial obligations as they fall due. The exclusion of
liquid asset buffer has been introduced as a way to present net interest
margin on a basis more comparable with UK peers and exclude the impact of
regulatory driven factors.
Nine months ended Quarter ended
30 September 30 September 30 September 30 June 30 September
2022 2021 2022 2022 2021
Go-forward group £m £m £m £m £m
Continuing operations
NatWest Group net interest income 6,974 5,613 2,640 2,307 1,869
Less Ulster Bank RoI net interest income (12) (18) (6) (2) (3)
Bank net interest income 6,962 5,595 2,634 2,305 1,866
Annualised NatWest Group net interest income 9,324 7,505 10,474 9,253 7,415
Annualised Bank net interest income 9,308 7,480 10,450 9,245 7,403
Average interest earning assets (IEA) 546,918 509,757 548,008 548,371 522,032
Less Ulster Bank RoI average IEA (1,436) (2,128) (771) (1,544) (1,958)
Less liquid asset buffer average IEA (204,224) (184,548) (197,304) (206,843) (194,713)
Bank average IEA 341,259 323,081 349,933 339,984 325,361
Bank net interest margin 2.73% 2.32% 2.99% 2.72% 2.28%
Nine months ended Quarter ended
30 September 30 September 30 September 30 June 30 September
2022 2021 2022 2022 2021
Retail Banking £m £m £m £m £m
Net interest income 3,719 3,017 1,379 1,228 1,041
Annualised net interest income 4,972 4,034 5,471 4,925 4,130
Retail Banking average IEA 188,604 177,644 192,129 188,081 180,234
Less liquid asset buffer average IEA - - - - -
Adjusted Retail Banking average IEA 188,604 177,644 192,129 188,081 180,234
Retail Banking net interest margin 2.64% 2.27% 2.85% 2.62% 2.29%
Private Banking
Net interest income 526 354 211 172 122
Annualised net interest income 703 473 837 690 484
Private Banking average IEA 19,056 18,125 19,154 19,144 18,595
Less liquid asset buffer average IEA - - - - -
Adjusted Private Banking average IEA 19,056 18,125 19,154 19,144 18,595
Private Banking net interest margin 3.69% 2.61% 4.37% 3.60% 2.60%
Commercial & Institutional
Net interest income 2,895 2,210 1,131 961 723
Annualised adjusted net interest income 3,871 2,955 4,487 3,855 2,868
Commercial & Institutional average IEA 168,707 163,297 173,043 168,498 163,194
Less liquid asset buffer average IEA (43,285) (42,147) (43,238) (43,558) (43,317)
Adjusted Commercial & Institutional
average IEA 125,422 121,150 129,805 124,940 119,877
Commercial & Institutional net interest margin 3.09% 2.44% 3.46% 3.09% 2.39%
Non-IFRS financial measures continued
9. 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
2022 2022 (1) 2021 (1)
Ordinary shareholders' interests (£m) 31,054 34,727 37,412
Less intangible assets (£m) (6,961) (6,869) (6,723)
Tangible equity (£m) 24,093 27,858 30,689
Ordinary shares in issue (millions) 9,650 10,436 11,272
TNAV per ordinary share (pence) 250p 267p 272p
(1) At the General Meeting and Class Meeting on 25 August, the
shareholders approved the proposed special dividend and share consolidation.
On 30 August the issued ordinary share capital was consolidated in the ratio
of 14 existing shares for 13 new shares. Comparatives for the number of
shares in issue and TNAV per ordinary share have not been adjusted.
10. Go-forward group net lending
NatWest Group net lending is calculated as total loans to customers less loan
impairment provisions. Go-forward group net lending is calculated as net loans
to customers less Ulster Bank RoI net loans to customers.
As at
30 September 30 June 31 December
2022 2022 2021
£bn £bn £bn
Total loans to customers (amortised cost) 375.1 366.0 362.8
Less loan impairment provisions (3.3) (3.4) (3.8)
Net loans to customers (amortised cost) 371.8 362.6 359.0
Less Ulster Bank RoI net loans to customers (amortised cost) (0.3) (1.0) (6.7)
Go-forward group net lending 371.5 361.6 352.3
11. Go-forward group customer deposits
Go-forward group customer deposits is calculated as total customer deposits
less Ulster Bank RoI customer deposits.
As at
30 September 30 June 31 December
2022 2022 2021
£bn £bn £bn
Total customer deposits 473.0 492.1 479.8
Less Ulster Bank RoI customer deposits (11.3) (15.9) (18.4)
Go-forward group customer deposits 461.7 476.2 461.4
Performance metrics not defined under IFRS
Metrics based on GAAP measures, included as not defined under IFRS and
reported for compliance with the European Securities and Markets Authority
(ESMA) adjusted performance measure rules.
1. Loan:deposit ratio
Loan:deposit ratio is calculated as net customer loans held at amortised cost
excluding reverse repos divided by total customer deposits excluding repos.
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.
As at
30 September 30 June 31 December
2022 2022 2021 (1)
£m £m £m
Loans to customers - amortised cost 371,812 362,551 358,990
Less reverse repos (27,613) (25,084) (25,962)
344,199 337,467 333,028
Customer deposits 473,026 492,075 479,810
Less repos (11,855) (19,195) (14,541)
461,171 472,880 465,269
Loan:deposit ratio (%) 75% 71% 72%
(1) Re-presented.
2. Loan impairment rate
Loan impairment rate is the annualised loan impairment charge divided by gross
customer loans.
3. 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.
4. AUMAs
AUMA comprises both assets under management (AUMs) and assets under
administration (AUAs) serviced through the Private Banking franchise. AUMs
comprise assets where the investment management is undertaken by Private
Banking on behalf of Private Banking, Retail Banking and Commercial &
Institutional customers. AUAs comprise third party assets held on an
execution-only basis in custody by Private Banking, Retail Banking and
Commercial & Institutional for their customers, for which the execution
services are supported by Private Banking. Private Banking receives a fee for
providing investment management and execution services to Retail Banking and
Commercial & Institutional franchises.
Private Banking is the centre of expertise for asset management across
NatWest Group servicing all client segments across Retail Banking, Private
Banking and Commercial & Institutional.
5. Net new money
Net new money refers to client cash inflows and outflows relating to
investment products (this can include transfers from savings accounts). Net
new money excludes the impact of EEA resident client outflows following the
UK's exit from the EU.
Net new money is reported and tracked to monitor the business performance of
new business inflows and management of existing client withdrawals across
Retail Banking, Private Banking and Commercial & Institutional.
6. 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.
7. 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.
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