REG - NatWest Group plc - NWM N.V. 2024 Interim Results
26/07/2024 07:15
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RNS Number : 9466X NatWest Group plc 26 July 2024
NatWest Markets N.V.
Interim Results 2024
NatWest Markets N.V.
Results for the half year ended 30 June 2024
As part of the NatWest Group Commercial & Institutional segment, we
continued to support customers in navigating their financing and risk
solutions requirements in the prevailing high interest rate market and
geopolitical outlook. We will maintain our focus on leveraging growth
opportunities through the delivery of markets products and collaboration
across the segment to meet our customers' needs.
Climate and sustainable funding and financing have continued to perform well,
and up to 30 June 2024 NWM N.V. has delivered €25.6 billion towards the
NatWest Group climate and sustainable funding and financing target((1))of
£100 billion between 1 July 2021 and the end of 2025.
Management Board and Supervisory Board update
In March 2024, Marije Elkenbracht stepped down as NWM N.V. Chief Risk Officer
and Managing Board member. While a search is underway to identify a permanent
successor, Spencer Lloyd is leading the Risk Management Function on an interim
basis.
In April 2024, Frank Dangeard became Chairman of the NWM N.V. Supervisory
Board. Robert Begbie stepped down from his role as Chairman while remaining a
member of the Supervisory Board.
In May 2024, Mickey van Wieringen was appointed Managing Board member and
Chief Operating Officer on a permanent basis.
Outlook((2))
We retain the outlook for the Common Equity Tier 1 (CET1) ratio and leverage
ratio as set out in the NatWest Markets N.V. 2023 Annual Report and Accounts.
(1) NatWest Group uses its climate and sustainable funding and
financing inclusion (CSFFI) criteria to determine the assets, activities and
companies that are eligible to be counted towards its climate and sustainable
funding and financing target. This includes both provision of committed (on
and off-balance sheet) funding and financing, including provision of services
for underwriting issuances and private placements.
(2) The targets, expectations and trends discussed in this
section represent management's current expectations and are subject to change,
including as a result of the factors described in the Risk Factors section of
the NatWest Markets N.V. 2023 Annual Report and Accounts and the Summary Risk
Factors set out in this announcement for H1 2024.
Financial review
Profit for the period was €64 million compared with €61 million in H1
2023. The total increase of €3 million was mainly due to an increase in net
interest income of €17 million (€67 million in H1 2024 compared with €50
million in H1 2023). This was partially offset by a €4 million decrease in
non-interest income (from €95 million in H1 2023 to €91 million in H1
2024) and a €7 million increase in operating expenses (from €82 million in
H1 2023 to €89 million in H1 2024).
Net interest income was €67 million compared with €50 million in H1 2023,
primarily driven by higher interest rates and by changes in the lending
portfolio and the funding book in H1 2024 in comparison with H1 2023.
Non-interest income decreased by €4 million to €91 million compared with
€95 million in H1 2023. Net fees and commissions of €113 million (H1 2023
- €99 million) primarily consisted of transfer pricing income from NWM Plc
of €75 million (H1 2023 - €61 million) and underwriting fees of €42
million (H1 2023 - €37 million). The increase in transfer pricing income was
mainly driven by higher income from revenue share models. Income from trading
activities was a loss of €11 million compared with a loss of €5 million in
H1 2023. Other operating income was a loss of €11 million compared with a
gain of €1 million in H1 2023. The other operating income loss in H1 2024
was largely driven by a fair value adjustment of a legacy investment
property((1)).
Operating expenses were €89 million compared with €82 million in H1 2023.
Staff costs increased by €4 million to €44 million in H1 2024. Premises
and equipment costs were €3 million (H1 2023 - €3 million). Administrative
expenses increased by €3 million to €41 million, compared with €38
million in H1 2023. Depreciation and amortisation was €1 million (H1 2023 -
€1 million).
Impairments were a release of €2 million in H1 2024, compared with a release
of €3 million in H1 2023.
Tax charge was €7 million compared with a tax charge of €5 million in H1
2023, largely driven by the utilisation of deferred tax assets.
Total assets and total liabilities both increased by €3.9 billion to €32.1
billion and €30.1 billion respectively as at 30 June 2024, compared with
€28.2 billion and €26.2 billion at 31 December 2023.
- Cash and balances at central banks increased by €4.1 billion to
€10.1 billion as at 30 June 2024, with the full balance placed with the
Dutch Central Bank.
- Trading assets increased to €5.5 billion (31 December 2023 - €4.7
billion), driven by an increase in loans subject to reverse repurchase
agreements of €0.9 billion, partially offset by a decrease in collateral
given of €0.2 billion.
- Derivative assets decreased to €9.2 billion (31 December 2023 -
€9.9 billion) and derivative liabilities decreased to €7.7 billion (31
December 2023 - €8.8 billion), primarily reflecting changes in the fair
value of interest rate derivatives and foreign exchange derivatives.
- Amounts due from holding company and fellow subsidiaries decreased to
€1.8 billion compared with €3.2 billion at 31 December 2023, mainly due to
a decrease in trading assets of €1.9 billion, partially offset by an
increase in settlement balances of €0.5 billion.
- Customer deposits increased from €4.5 billion to €5.5 billion as
at 30 June 2024, in line with our strategy to increase customer deposits to
match planned banking book asset growth.
- Amounts due to holding companies and fellow subsidiaries decreased by
€1.7 billion to €2.3 billion as at 30 June 2024, mainly driven by a
decrease in trading liabilities of €1.5 billion.
- Trading liabilities increased to €7.3 billion (31 December 2023 -
€4.6 billion), primarily reflecting an increase in deposits subject to
repurchase agreements of €2.7 billion, partially offset by a decrease in
collateral received of €0.1 billion.
- Other financial liabilities increased by €1.2 billion to €4.0
billion as at 30 June 2024 (31 December 2023 - €2.8 billion), largely driven
by the issuance of new debt securities during the period, partially offset by
the maturity of existing ones.
- Equity attributable to controlling interests decreased by €36
million to €2.0 billion as at 30 June 2024, mainly driven by ordinary
dividends paid of €42 million, paid-in equity dividends paid of €13
million, cash flow hedging movements of €26 million and a reduction in own
credit adjustments of €21 million due to tightened credit spread on our own
debts. This was partially offset by the profit for the period of €64 million
and fair value through other comprehensive income movements of €2 million.
(1) Legacy transactions pertain to NWM N.V.'s tail business from
the period before the repurposing of its banking license in 2019.
Financial review
Capital and Liquidity
Capital ratios and risk-weighted assets (RWAs) on the CRR transitional basis
are set out below.
30 June 31 December
2024 2023
Capital ratios % %
Common Equity Tier 1 (CET1) 19.9 19.0
Tier 1 23.0 22.1
Total 25.0 23.9
Risk-weighted assets €m €m
Credit risk 6,241 6,799
Market risk 1,278 1,103
Operational risk 411 332
Settlement risk - -
Total RWAs 7,930 8,234
Liquidity % %
Liquidity coverage ratio (LCR) 241 144
- The higher capital ratios are largely due to decreased credit risk
RWAs during H1 2024.
- The decrease in overall RWAs is largely driven by a reduction in
credit risk RWAs with a decrease in lending exposure and equity holdings.
Condensed consolidated income statement
for the period ended 30 June 2024 (unaudited)
Half year ended
30 June 30 June
2024 2023
€m €m
Interest receivable 264 145
Interest payable (197) (95)
Net interest income 67 50
Fees and commissions receivable 129 110
Fees and commissions payable (16) (11)
Income from trading activities (11) (5)
Other operating income (11) 1
Non-interest income 91 95
Total income 158 145
Staff costs (44) (40)
Premises and equipment (3) (3)
Other administrative expenses (41) (38)
Depreciation and amortisation (1) (1)
Operating expenses (89) (82)
Profit before impairment releases 69 63
Impairment releases 2 3
Operating profit before tax 71 66
Tax charge (7) (5)
Profit for the period 64 61
Attributable to:
Ordinary shareholders 51 50
Paid-in-equity holders 13 11
64 61
Condensed consolidated statement of comprehensive income
for the period ended 30 June 2024 (unaudited)
Half year ended
30 June 30 June
2024 2023
€m €m
Profit for the period 64 61
Items that will not be reclassified subsequently to profit or loss:
Changes in fair value of financial liabilities designated at fair value
through profit or loss (FVTPL) due to
changes in credit risk (21) (5)
FVOCI financial assets 2 1
(19) (4)
Items that will be reclassified subsequently to profit or loss when specific
conditions are met:
FVOCI financial assets - 3
Cash flow hedges (1) (26) (11)
(26) (8)
Other comprehensive losses after tax (45) (12)
Total comprehensive income for the period 19 49
Attributable to:
Ordinary shareholders 6 38
Paid-in-equity holders 13 11
19 49
(1) Refer to footnote 3 of the consolidated statement of changes
in equity.
Condensed consolidated balance sheet
as at 30 June 2024 (unaudited)
30 June 31 December
2024 2023
€m €m
Assets
Cash and balances at central banks 10,080 5,979
Trading assets 5,472 4,693
Derivatives 9,198 9,890
Settlement balances 1,851 565
Loans to banks - amortised cost 234 236
Loans to customers - amortised cost 802 951
Amounts due from holding company and fellow subsidiaries 1,788 3,174
Other financial assets 2,595 2,605
Other assets 85 95
Total assets 32,105 28,188
Liabilities
Bank deposits 478 411
Customer deposits 5,469 4,531
Amounts due to holding company and fellow subsidiaries 2,260 3,952
Settlement balances 2,541 679
Trading liabilities 7,278 4,637
Derivatives 7,726 8,814
Other financial liabilities 4,034 2,805
Subordinated liabilities 291 293
Other liabilities 63 65
Total liabilities 30,140 26,187
Total equity 1,965 2,001
Total liabilities and equity 32,105 28,188
Condensed consolidated statement of changes in equity
for the period ended 30 June 2024 (unaudited)
Half year ended
30 June 30 June
2024 2023
€m €m
Share capital and premium account - at beginning of period (1) 1,550 1,700
Share capital restructuring (2) - (150)
At end of period 1,550 1,550
Paid-in-equity - at beginning and end of period 250 250
FVOCI reserve - at beginning of period (3) (11)
Unrealised gains 1 4
Realised losses 1 -
At end of period (1) (7)
Cash flow hedging reserve - at beginning of period 28 (10)
Amount recognised in equity (3) (36) (27)
Amount transferred from equity to earnings 10 16
At end of period 2 (21)
Foreign exchange reserve - at beginning and end of period 6 6
Retained earnings - at beginning of period 170 356
Profit attributable to ordinary shareholders and other equity owners 64 61
Paid-in-equity dividends paid (13) (11)
Ordinary dividends paid (42) (100)
Share capital restructuring (2) - 150
Changes in fair value of financial liabilities designated at FVTPL due to (21) (5)
changes in credit risk
At end of period 158 451
Total equity at end of period 1,965 2,229
Attributable to:
Ordinary shareholders 1,715 1,979
Paid-in-equity holders 250 250
1,965 2,229
(1) Includes ordinary share capital of €50,004 (2023 - €50,004).
(2) On 31 March 2023, after obtaining regulatory permission, NWM N.V. executed a
share capital restructuring, converting €150 million of share premium to
retained earnings.
(3) The change in the cash flow hedging reserve is driven from realised accrued
interest transferred into the income statement. This is offset by a loss from
an increase in swap rates compared to 31 December 2023. The portfolio of
hedging instruments is predominantly receive fixed swaps.
Condensed consolidated cash flow statement
for the period ended 30 June 2024 (unaudited)
Half year ended
30 June 30 June
2024 2023
€m €m
Cash flows from operating activities
Operating profit before tax 71 66
Adjustments for non-cash and other items (97) (32)
Net cash flows from trading activities (26) 34
Changes in operating assets and liabilities 632 6,339
Net cash flows from operating activities before tax 606 6,373
Income taxes paid - (2)
Net cash flows from operating activities 606 6,371
Net cash flows from investing activities 83 (401)
Net cash flows from financing activities (61) (211)
Effects of exchange rate changes on cash and cash equivalents 33 27
Net increase in cash and cash equivalents 661 5,786
Cash and cash equivalents at beginning of period 11,610 6,518
Cash and cash equivalents at end of period 12,271 12,304
Notes
1. Presentation of condensed consolidated financial statements
The condensed consolidated financial statements should be read in conjunction
with NatWest Markets N.V.'s 2023 Annual Report and Accounts. The accounting
policies are the same as those applied in the consolidated financial
statements.
The directors have prepared the condensed consolidated financial statements on
a going concern basis after assessing the principal risks, forecasts,
projections, and other relevant evidence over the twelve months from the date
they are approved and in accordance with IAS 34 'Interim Financial Reporting',
as adopted by the European Union.
Amendments to IFRS effective from 1 January 2024 had no material effect on the
condensed consolidated financial statements.
The condensed consolidated financial statements have not been audited or
reviewed by the external auditor.
2. Analysis of net fees and commissions
Half year ended
30 June 30 June
2024 2023
€m €m
Fees and commissions receivable
- Transfer pricing arrangements (Note 10) 75 61
- Underwriting fees 42 37
- Lending and financing 12 12
Total 129 110
Fees and commissions payable (16) (11)
Net fees and commissions 113 99
3. Tax
The actual tax charge differs from the expected tax charge computed by
applying the statutory tax rate of the Netherlands of 25.8% (2023 - 25.8%) as
follows:
Half year ended
30 June 30 June
2024 2023
€m €m
Profit before tax 71 66
Expected tax charge (18) (17)
Foreign profits taxed at other rates (1) (1)
Losses brought forward and utilised 10 9
Tax on paid-in equity dividends 3 3
Non-taxable items (including recycling of foreign exchange reserve) (1) -
Adjustments in respect to prior years - 1
Actual tax charge (7) (5)
Deferred tax assets of €63 million recognised as at 31 December 2023 have
decreased to €57 million at 30 June 2024 due to utilisations. NWM N.V. Group
has considered the carrying value of this asset as at 30 June 2024 and
concluded that it is recoverable based on future profit projections.
Notes
4. Derivatives
The table below shows third party derivatives by type of contract. The master
netting agreements and collateral shown do not result in a net presentation on
the balance sheet under IFRS.
30 June 2024 31 December 2023
Notional
GBP USD EUR Other Total Assets Liabilities Notional Assets Liabilities
€bn €bn €bn €bn €bn €m €m €bn €m €m
Gross exposure 6,945 5,633 7,533 6,746
IFRS offset (199) (199) (702) (702)
Carrying value 35 91 961 37 1,124 6,746 5,434 972 6,831 6,044
Of which:
Interest rate (1) 14 13 879 2 908 4,557 2,978 802 4,370 3,151
Exchange rate 21 78 82 35 216 2,188 2,450 169 2,460 2,886
Credit - - - - - 1 6 1 1 7
Carrying value 1,124 6,746 5,434 972 6,831 6,044
Counterparty mark-to-market netting (3,097) (3,097) (3,098) (3,098)
Cash collateral (2,731) (1,566) (2,855) (1,685)
Securities collateral (590) (108) (455) (601)
Net exposure 328 663 423 660
Banks (2) 32 20 19 29
Other financial institutions (3) 101 244 139 242
Corporate (4) 194 386 262 359
Government (5) 1 13 3 30
Net exposure 328 663 423 660
UK 1 1 7 -
Europe 321 662 376 660
US - - 33 -
RoW 6 - 7 -
Net exposure 328 663 423 660
Asset quality of uncollateralised
derivative assets
AQ1-AQ4 302 358
AQ5-AQ10 26 65
Net exposure 328 423
(1) The notional amount of interest rate derivatives includes €792
billion (31 December 2023 - €684 billion) in respect of contracts cleared
through central clearing counterparties.
(2) Transactions with certain counterparties with whom NWM N.V. has
netting arrangements but collateral is not posted on a daily basis; certain
transactions with specific terms that may not fall within netting and
collateral arrangements; derivative positions in certain jurisdictions where
the collateral agreements are not deemed to be legally enforceable.
(3) Includes transactions with securitisation vehicles and funds
where collateral posting is contingent on NWM N.V.'s external rating.
(4) Mainly large corporates with whom NWM N.V. may have netting
arrangements in place, but operational capability does not support collateral
posting.
(5) Sovereigns and supranational entities with no collateral
arrangements, collateral arrangements that are not considered enforceable, or
one-way collateral agreements in their favour.
Notes
5. Financial instruments - classification
The following tables analyse financial assets and liabilities in accordance
with the categories of financial instruments in IFRS 9.
Amortised Other
MFVTPL FVOCI cost assets Total
€m €m €m €m €m
Assets
Cash and balances at central banks 10,080 10,080
Trading assets 5,472 5,472
Derivatives 9,198 9,198
Settlement balances 1,851 1,851
Loans to banks - amortised cost (1) 234 234
Loans to customers - amortised cost 802 802
Amounts due from holding companies and fellow subsidiaries 875 - 899 14 1,788
Other financial assets 1 518 2,076 2,595
Other assets 85 85
30 June 2024 15,546 518 15,942 99 32,105
Cash and balances at central banks 5,979 5,979
Trading assets 4,693 4,693
Derivatives 9,890 9,890
Settlement balances 565 565
Loans to banks - amortised cost (1) 236 236
Loans to customers - amortised cost 951 951
Amounts due from holding companies and fellow subsidiaries 2,740 - 419 15 3,174
Other financial assets 1 402 2,202 2,605
Other assets 95 95
31 December 2023 17,324 402 10,352 110 28,188
Held-for- Amortised Other
trading DFV cost liabilities Total
€m €m €m €m €m
Liabilities
Bank deposits (2) 478 478
Customer deposits 5,469 5,469
Amounts due to holding companies and fellow subsidiaries 1,188 - 1,045 27 2,260
Settlement balances 2,541 2,541
Trading liabilities 7,278 7,278
Derivatives 7,726 7,726
Other financial liabilities 716 3,318 4,034
Subordinated liabilities (3) 270 21 291
Other liabilities (4) 9 54 63
30 June 2024 16,192 986 12,881 81 30,140
Bank deposits (2) 411 411
Customer deposits 4,531 4,531
Amounts due to holding companies and fellow subsidiaries 2,708 - 1,221 23 3,952
Settlement balances 679 679
Trading liabilities 4,637 4,637
Derivatives 8,814 8,814
Other financial liabilities 535 2,270 2,805
Subordinated liabilities (3) 273 20 293
Other liabilities (4) 9 56 65
31 December 2023 16,159 808 9,141 79 26,187
(1) Includes items in the course of collection from other banks of
€1 million (31 December 2023 - €2 million).
(2) Includes items in the course of transmission to other banks of
€1 million (31 December 2023 - €14 million).
(3) The cumulative own credit adjustment, representing an increase
of the subordinated liability value, was €11 million (31 December 2023 -
€16 million).
(4) Includes lease liabilities of €8 million (31 December 2023 -
€8 million) held at amortised cost.
Notes
5. Financial instruments - valuation
Disclosures relating to the control environment, valuation techniques and
related aspects pertaining to financial instruments measured at fair value are
included in the NatWest Markets N.V. 2023 Annual Report and Accounts.
Valuation, sensitivity methodologies and input methodologies as at 30 June
2024 are consistent with those described in Note 8 in the NatWest Markets N.V.
2023 Annual Report and Accounts.
Fair value hierarchy
The table below shows the assets and liabilities held by NWM N.V. split by
fair value hierarchy level. Level 1 are considered the most liquid
instruments, and level 3 the most illiquid, valued using expert judgment and
hence carry the most significant price uncertainty.
30 June 2024 31 December 2023
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
€m €m €m €m €m €m €m €m
Assets
Trading assets
Loans - 5,466 6 5,472 - 4,689 4 4,693
Derivatives
Interest rate - 4,529 36 4,565 - 4,343 35 4,378
Foreign exchange - 4,626 5 4,631 - 5,507 4 5,511
Other - 2 - 2 - 1 - 1
Amounts due from holding companies
and fellow subsidiaries - 875 - 875 - 2,740 - 2,740
Other financial assets
Securities 341 178 - 519 339 62 2 403
Total financial assets held at fair value 341 15,676 47 16,064 339 17,342 45 17,726
As % of total fair value assets 2% 98% - 2% 98% -
Liabilities
Amounts due to holding companies
and fellow subsidiaries - 1,188 - 1,188 - 2,708 - 2,708
Trading liabilities
Deposits - 7,278 - 7,278 - 4,619 - 4,619
Short positions - - - - - 18 - 18
Derivatives
Interest rate - 2,901 121 3,022 - 3,102 121 3,223
Foreign exchange - 4,692 5 4,697 - 5,580 4 5,584
Other - 7 - 7 - 7 - 7
Other financial liabilities
Debt securities in issue - 328 - 328 - 255 - 255
Deposits - 388 - 388 - 280 - 280
Subordinated liabilities - 270 - 270 - 273 - 273
Total financial liabilities held at fair value - 17,052 126 17,178 - 16,842 125 16,967
As % of total fair value liabilities - 99% 1% - 99% 1%
(1) Level 1 - Instruments valued using unadjusted quoted prices in
active and liquid markets, for identical financial instruments. Examples
include government bonds, listed equity shares and certain exchange-traded
derivatives.
Level 2 - Instruments valued using valuation techniques that have observable
inputs. Observable inputs are those that are readily available with limited
adjustments required. Examples include most government agency securities,
investment-grade corporate bonds, certain mortgage products - including CLOs,
most bank loans, repos and reverse repos, state and municipal obligations,
most notes issued, certain money market securities, loan commitments and most
OTC derivatives.
Level 3 - Instruments valued using a valuation technique where at least one
input which could have a significant effect on the instrument's valuation, is
not based on observable market data. Examples include non-derivative
instruments which trade infrequently, certain syndicated and commercial
mortgage loans, private equity, and derivatives with unobservable model
inputs.
(2) Transfers between levels are deemed to have occurred at the
beginning of the quarter in which the instruments were transferred.
Notes
5. Financial instruments - valuation
Level 3 sensitivities
The table below shows the high and low range of fair value of the level 3
assets and liabilities.
30 June 2024 31 December 2023
Level 3 Favourable Unfavourable Level 3 Favourable Unfavourable
€m €m €m €m €m €m
Assets
Trading assets
Loans 6 - - 4 - -
Derivatives
Interest rate 36 - - 35 - -
Foreign exchange 5 - - 4 - -
Other financial assets
Securities - - - 2 - -
Total financial assets held at fair value 47 - - 45 - -
Liabilities
Derivatives
Interest rate 121 10 (10) 121 10 (10)
Foreign exchange 5 - - 4 - -
Total financial liabilities held at fair value 126 10 (10) 125 10 (10)
Alternative assumptions
Reasonably plausible alternative assumptions of unobservable inputs are
determined based on a specified target level of certainty of 90%. Alternative
assumptions are determined with reference to all available evidence including
consideration of the following: quality of independent pricing information
considering consistency between different sources, variation over time,
perceived tradability or otherwise of available quotes; consensus service
dispersion ranges; volume of trading activity and market bias (e.g. one-way
inventory); day 1 profit or loss arising on new trades; number and nature of
market participants; market conditions; modelling consistency in the market;
size and nature of risk; length of holding of position; and market
intelligence.
Notes
5. Financial instruments - valuation continued
Movement in Level 3 assets and liabilities
The following table shows the movement in level 3 assets and liabilities.
Other Other Other Other
Derivatives trading financial Total Derivatives trading financial Total
assets assets (2) assets (3) assets liabilities liabilities (2) liabilities liabilities
€m €m €m €m €m €m €m €m
At 1 January 2024 39 4 2 45 125 - - 125
Amounts recorded in the income
statement (1) 5 2 - 7 6 - - 6
Level 3 transfers in - - - - - - - -
Level 3 transfers out (1) - - (1) (2) - - (2)
Purchases/originations 1 - - 1 2 - - 2
Sales (3) - (1) (4) (5) - - (5)
Foreign exchange and other adjustments - - (1) (1) - - - -
At 30 June 2024 41 6 - 47 126 - - 126
Amounts recorded in the income statement
in respect of balances held at period end
- unrealised 62 - - 62 62 - - 62
At 1 January 2023 56 37 33 126 176 - - 176
Amounts recorded in the income
statement (1) (8) 7 - (1) (8) - - (8)
Level 3 transfers in - - - - 2 - - 2
Level 3 transfers out - (28) - (28) (2) - - (2)
Purchases/originations 10 - - 10 61 - - 61
Sales (8) - - (8) (8) - - (8)
Foreign exchange and other adjustments - - - - (1) - - (1)
At 30 June 2023 50 16 33 99 220 - - 220
Amounts recorded in the income statement
in respect of balances held at period end
- unrealised (8) 7 - (1) (8) - - (8)
(1) There was €1 million net gain on trading assets and liabilities (30 June
2023 - €7 million) recorded in income from trading activities.
(2) Other trading assets and other trading liabilities comprise assets and
liabilities held at fair value in trading portfolios.
(3) Other financial assets comprise fair value through other comprehensive income,
designated as at fair value through profit or loss and other fair value
through profit or loss.
Notes
5. Financial instruments - valuation continued
Fair value of financial instruments measured at amortised cost on the balance
sheet
The following table shows the carrying value and fair value of financial
instruments carried at amortised cost on the balance sheet.
Items where
fair value
Carrying Fair value hierarchy level approximates
value Fair value Level 2 Level 3 carrying value
30 June 2024 €m €m €m €m €m
Financial assets
Cash and balances at central banks 10,080 10,080 - - 10,080
Settlement balances 1,851 1,851 - - 1,851
Loans to banks 234 234 - - 234
Loans to customers 802 802 - 802 -
Amounts due from holding companies
and fellow subsidiaries 899 900 - 42 858
Other financial assets - securities 2,076 2,080 271 1,809 -
31 December 2023
Financial assets
Cash and balances at central banks 5,979 5,979 - - 5,979
Settlement balances 565 565 - - 565
Loans to banks 236 236 - - 236
Loans to customers 951 951 - 951 -
Amounts due from holding companies
and fellow subsidiaries 419 419 - 102 317
Other financial assets - securities 2,202 2,194 196 1,998 -
30 June 2024
Financial liabilities
Bank deposits 478 478 - 477 1
Customer deposits 5,469 5,468 - 5,449 19
Amounts due to holding companies
and fellow subsidiaries 1,045 1,046 151 668 227
Settlement balances 2,541 2,541 - - 2,541
Other financial liabilities - debt securities in issue 3,318 3,319 2,825 494 -
Subordinated liabilities 21 20 20 - -
31 December 2023
Financial liabilities
Bank deposits 411 411 - 397 14
Customer deposits 4,531 4,531 - 4,502 29
Amounts due to holding companies
and fellow subsidiaries 1,221 1,225 154 898 173
Settlement balances 679 679 - - 679
Other financial liabilities - debt securities in issue 2,269 2,269 1,509 760 -
Subordinated liabilities 20 21 21 - -
The assumptions and methodologies underlying the calculation of fair values of
financial instruments at the balance sheet date are as follows:
Short-term financial instruments
For certain short-term financial instruments: cash and balances at central
banks, items in the course of collection from other banks, settlement
balances, items in the course of transmission to other banks, and customer
demand deposits, carrying value is deemed a reasonable approximation of fair
value.
Loans to banks and customers
In estimating the fair value of net loans to customers and banks measured at
amortised cost, NWM N.V.'s loans are segregated into appropriate portfolios
reflecting the characteristics of the constituent loans. Two principal methods
are used to estimate fair value; contractual cash flows and expected cash
flows.
Debt securities and subordinated liabilities
Most debt securities are valued using quoted prices in active markets or from
quoted prices of similar financial instruments in active markets. The
remaining population is valued using discounted cash flows at current offer
rates.
Bank and customer deposits
Fair values of deposits are estimated using contractual cashflows using a
market discount rate incorporating the current spread.
Notes
6. Trading assets and liabilities
Trading assets and liabilities comprise assets and liabilities held at fair
value in trading portfolios.
30 June 31 December
2024 2023
€m €m
Assets
Loans
Reverse repos 3,714 2,769
Collateral given 1,739 1,900
Other loans 19 24
Total loans 5,472 4,693
Total 5,472 4,693
Liabilities
Deposits
Repos 4,356 1,617
Collateral received 2,921 3,000
Other deposits 1 2
Total deposits 7,278 4,619
Short positions
Central and local government
- Other regions - 18
Total short positions - 18
Total 7,278 4,637
Notes
7. Loan impairment provisions
Economic loss drivers
Introduction
The portfolio segmentation and selection of economic loss drivers for IFRS 9
follows the approach used in stress testing. To enable robust modelling, the
forecasting models for each portfolio segment (defined by product or asset
class and where relevant, industry sector and region) are based on a selected,
small number of economic variables (typically three to four) that best explain
the movements in portfolio loss rates. The process to select economic loss
drivers involves empirical analysis and expert judgement.
Economic scenarios
At 30 June 2024, the range of anticipated future economic conditions was
defined by a set of four internally developed scenarios and their respective
probabilities. In addition to the base case, they comprised upside, downside,
and extreme downside scenarios. The scenarios primarily reflected the current
risks faced by the economy, particularly in relation to the path of inflation
and interest rates.
For 30 June 2024, the four scenarios were deemed appropriate in capturing the
uncertainty in economic forecasts and the non-linearity in outcomes under
different scenarios. These four scenarios were developed to provide sufficient
coverage across potential rises in unemployment, inflation, asset price
declines and the degree of permanent damage to the economy, around which there
remains pronounced levels of uncertainty.
Upside - This scenario assumes robust growth as inflation falls sharply and
rates are lowered quicker than expected. Consumer spending is supported by
quicker recovery in household income, and further helped by higher consumer
confidence, fiscal support and strong business investment. The labour market
remains resilient with the unemployment rate falling. The housing market shows
robust growth.
Compared to 31 December 2023, the upside scenario remains similarly
configured, exploring a more benign set of economic outcomes, including a
stronger performing stock market, real estate prices, and supported by a
stronger global growth backdrop, relative to the base case view.
Base case - Continued declining inflation allows an easing cycle to start in
the second half of 2024. The unemployment rate rises modestly over 2024 but
there are no wide-spread job losses. Inflation remains very close to the
current level of 2% through the forecast period. Economic output also
experiences modest but stable growth in contrast to the stagnation of recent
years. The housing market experiences modest nominal price increase. Housing
market activity gradually strengthens as interest rates fall and real incomes
recover.
Since 31 December 2023, the economic outlook has improved as household incomes
continued to recover, and the labour market remained resilient. The declining
inflation trend has continued, albeit the progress was slower than expected.
As a result, rates are expected to remain higher-for-longer than previously
expected. The unemployment rate still rises but the peak is marginally lower
and is underpinned by a resilient labour market. House prices were assumed to
decline previously in 2024, but there has been a better-than-expected recovery
in early 2024 and prices are now expected to show a modest increase.
Downside - Core inflation remains persistently high leading to resurgent
inflation. The economy experiences a recession as consumer confidence weakens
due to a fall in real incomes. Interest rates are raised higher than the base
case and remain higher-for-longer. High rates are assumed to have a more
significant impact on the labour market. Unemployment is higher than the base
case scenario while house prices lose approximately ten percent of their
value.
Compared to 31 December 2023, the downside scenario is similarly configured
and explores risks associated with high inflation and significantly higher
interest rates across the period.
Extreme downside - This scenario assumes a significant economic downturn with
a loss of consumer confidence leading to a deep economic recession. This
results in widespread job losses with the unemployment rate rising above the
levels seen during the 2008 financial crisis, further compounding consumer
weakness. Rates are cut sharply in response to the demand shock, leading to
some support to the recovery. House prices lose approximately a third of their
value.
Compared to 31 December 2023, the extreme downside is similarly configured
with an extreme set of economic outcomes, low interest rates, very sharp falls
in asset prices and a marked deterioration in the labour market.
Notes
7. Loan impairment provisions continued
Main. macroeconomic variables
The main macroeconomic variables for each of the four scenarios used for
expected credit loss (ECL) modelling are set out in the main macroeconomic
variables table below.
30 June 2024 31 December 2023
Extreme Weighted Extreme Weighted
Upside Base case Downside downside average Upside Base case Downside downside average
Five-year summary % % % % % % % % % %
GDP - CAGR 2.4 1.5 1.0 (0.4) 1.3 2.2 1.2 0.9 (0.5) 1.1
Unemployment - average 5.6 6.5 7.0 10.5 7.0 5.7 6.7 7.0 10.1 7.0
European Central Bank
- main refinancing rate - average 2.7 2.8 4.8 2.3 3.1 2.8 2.9 4.6 2.4 3.2
Probability weight 22.0 45.0 19.4 13.6 21.2 45.0 20.4 13.4
(1) The five-year summary runs from 2024-2028 for 30 June 2024 and
from 2023-2027 for 31 December 2023.
Probability weightings of scenarios
NWM N.V. Group's quantitative approach to IFRS 9 multiple economic scenarios
(MES) involves selecting a suitable set of discrete scenarios to characterise
the distribution of risks in the economic outlook and assigning appropriate
probability weights. This quantitative approach is used for 30 June 2024.
The approach involves comparing GDP paths for NWM N.V. Group's scenarios
against a set of 1,000 model runs, following which, a percentile in the
distribution is established that most closely corresponded to the scenario.
Probability weight for base case is set first based on judgement, while
probability weights for the alternate scenarios are assigned based on these
percentiles scores.
The assigned probability weights were judged to be aligned with the subjective
assessment of balance of the risks in the economy. The weights were broadly
comparable to those used at 31 December 2023 but with slightly less downside
skew. This is reasonable as the inflation outturn since then has been
encouraging, with inflation continuing to decline and a reduced risk of
stagflation. However, the risks of persistent inflation remain elevated and
there is considerable uncertainty in the economic outlook, particularly with
respect to persistence and the range of outcomes on inflation. Given that
backdrop, NWM N.V. Group judges it appropriate that downside-biased scenarios
have higher combined probability weights than the upside-biased scenario. It
presents good coverage to the range of outcomes assumed in the scenarios,
including the potential for a robust recovery on the upside and exceptionally
challenging outcomes on the downside. A 22% weighting was applied to the
upside scenario, a 45% weighting applied to the base case scenario, a 19.4%
weighting applied to the downside scenario and a 13.6% weighting applied to
the extreme downside scenario.
Annual figures
Extreme Weighted
Upside Base case Downside downside average
Eurozone GDP - annual growth % % % % %
2024 1.8 0.7 0.1 (0.2) 0.7
2025 4.7 1.6 (0.1) (4.7) 1.1
2026 2.3 1.8 2.0 0.8 1.8
2027 1.8 1.8 1.6 1.0 1.6
2028 1.3 1.5 1.3 1.0 1.3
2029 1.3 1.4 1.3 1.2 1.3
Eurozone - unemployment rate - annual average
2024 6.5 6.6 6.8 7.2 6.7
2025 5.6 6.7 7.3 11.6 7.2
2026 5.3 6.6 7.1 12.2 7.2
2027 5.4 6.5 6.9 11.3 7.0
2028 5.4 6.3 6.7 10.1 6.7
2029 5.3 6.3 6.6 9.7 6.6
European Central Bank - main refinancing rate - annual average
2024 4.3 4.3 4.5 4.2 4.3
2025 2.7 3.0 5.1 2.0 3.2
2026 2.3 2.4 4.8 1.5 2.7
2027 2.3 2.3 4.8 1.6 2.7
2028 2.3 2.2 4.8 2.0 2.7
2029 2.3 2.2 4.8 2.3 2.7
Notes
7. Loan impairment provisions continued
Worst points
30 June 2024 31 December 2023
Extreme Extreme
Downside downside Downside downside
Eurozone % Quarter % Quarter % Quarter % Quarter
GDP (0.6) Q1 2025 (5.3) Q2 2025 (1.0) Q3 2024 (5.6) Q4 2024
Unemployment rate - peak 7.3 Q1 2025 12.4 Q1 2026 7.3 Q3 2024 12.4 Q3 2025
(1) Unless specified otherwise, the figures show falls relative to
the starting period. The calculations are performed over five years, with a
starting point of Q4 2023 for 30 June 2024 scenarios and Q4 2022 for 31
December 2023 scenarios.
Use of the scenarios in lending
Lending follows a continuous scenario approach to calculate ECL. Probability
of default (PD) and loss given default (LGD) values arising from multiple
economic forecasts (based on the concept of credit cycle indices) are
simulated around the central projection. The central projection is a weighted
average of economic scenarios with the scenarios translated into credit cycle
indices using the Wholesale economic response models.
Economic uncertainty
The high inflation environment alongside high interest rates is presenting
significant headwinds for some businesses and consumers, in many cases
compounding. These cost pressures remain a feature of the economic
environment, though they are expected to moderate over 2024 and 2025 in the
base case scenario. NWM N.V. Group has considered where these are most likely
to affect the customer base, with the cost of borrowing during 2023 and 2024
for both businesses and consumers presenting an additional affordability
challenge.
The effects of these risks are not expected to be fully captured by
forward-looking credit modelling, particularly given the high inflation
environment, low unemployment base case outlook. Any incremental ECL effects
for these risks will be captured via post model adjustments and are detailed
further in the Governance and post model adjustments section.
Governance and post model adjustments
The IFRS 9 PD, EAD and LGD models are subject to NWM N.V. Group's model risk
policy that stipulates periodic model monitoring, periodic re-validation and
defines approval procedures and authorities according to model materiality.
Various post model adjustments were applied where management judged they were
necessary to ensure an adequate level of overall ECL provision. All post model
adjustments were subject to review, challenge and approval through model or
provisioning committees.
Post model adjustments will remain a key focus area of NWM N.V. Group's
ongoing ECL adequacy assessment process. A holistic framework has been
established including reviewing a range of economic data, external benchmark
information and portfolio performance trends with a particular focus on
segments of the portfolio (both commercial and consumer) that are likely to be
more susceptible to high inflation, high interest rates and supply chain
disruption.
Notes
7. Loan impairment provisions continued
Measurement uncertainty and ECL sensitivity analysis
The recognition and measurement of ECL is complex and involves the use of
significant judgment and estimation, particularly in times of economic
volatility and uncertainty. This includes the formulation and incorporation of
multiple forward-looking economic conditions into ECL to meet the measurement
objective of IFRS 9. The ECL provision is sensitive to the model inputs and
economic assumptions underlying the estimate.
The impact arising from the base case, upside, downside, and extreme downside
scenarios was simulated. In the simulations, NWM N.V. Group has assumed that
the economic macro variables associated with these scenarios replace the
existing base case economic assumptions, giving them a 100% probability
weighting and therefore serving as a single economic scenario.
These scenarios were applied to all modelled portfolios in the analysis below,
with the simulation impacting both PDs and LGDs. Post model adjustments
included in the ECL estimates that were modelled were sensitised in line with
the modelled ECL movements, but those that were judgmental in nature,
primarily those for deferred model calibrations and economic uncertainty, were
not (refer to the Governance and post model adjustments section) on the basis
these would be re-evaluated by management through ECL governance for any new
economic scenario outlook and not be subject to an automated calculation. As
expected, the scenarios create differing impacts on ECL by portfolio and the
impacts are deemed reasonable. In this simulation, it is assumed that existing
modelled relationships between key economic variables and loss drivers hold,
but in practice other factors would also have an impact, for example,
potential customer behaviour changes and policy changes by lenders that might
impact on the wider availability of credit.
The focus of the simulations is on ECL provisioning requirements on performing
exposures in Stage 1 and Stage 2. The simulations are run on a stand-alone
basis and are independent of each other; the potential ECL impacts reflect the
simulated impact at 30 June 2024. Scenario impacts on SICR should be
considered when evaluating the ECL movements of Stage 1 and Stage 2. In all
scenarios the total exposure was the same but exposure by stage varied in each
scenario.
Stage 3 provisions are not subject to the same level of measurement
uncertainty - default is an observed event as at the balance sheet date. Stage
3 provisions therefore were not considered in this analysis.
NWM N.V. Group's core criterion to identify a SICR is founded on PD
deterioration. Under the simulations, PDs change and result in exposures
moving between Stage 1 and Stage 2 contributing to the ECL impact.
Measurement uncertainty and ECL adequacy
- If the economics were as negative as observed in the extreme
downside (i.e. 100% probability weighting), total Stage 1 and Stage 2 ECL was
simulated to increase. In this scenario, Stage 2 exposure increased and was
the key driver of the simulated ECL rise. The movement in Stage 2 balances in
the other simulations was far less significant and the impact to ECL less
material.
- There was a significant increase in ECL under the extreme downside
scenario.
- Given that continued uncertainty remained due to persistent
inflation, high interest rates and liquidity concerns at H1 2024, NWM N.V.
Group utilised a framework of quantitative and qualitative measures to support
the levels of ECL coverage. This included economic data, credit performance
insights, supply chain contagion analysis and problem debt trends. This was
particularly important for consideration of post model adjustments.
- As the effects of these economic risks evolve during 2024, there
is a risk of further credit deterioration. However, the income statement
effect of this should have been mitigated by the forward-looking provisions
retained on the balance sheet at 30 June 2024.
- There are a number of key factors that could drive further
downside to impairments, through deteriorating economic and credit metrics and
increased stage migration as credit risk increases for more customers. Such
factors which could impact the IFRS 9 models, include an adverse deterioration
in unemployment and GDP in the economies in which NWM N.V. Group operates.
Notes
7. Loan impairment provisions continued
Portfolio summary
The table below shows gross loans and ECL, by stage, within the scope of the
ECL IFRS 9 framework.
30 June 31 December
2024 2023
€m €m
Loans - amortised cost and fair value through other comprehensive income
(FVOCI)
Stage 1 891 1,052
Stage 2 152 141
Stage 3 - -
Inter-group (1) 36 102
Total 1,079 1,295
Total ECL provisions
Stage 1 5 7
Stage 2 3 2
Stage 3 - -
Total 8 9
ECL provisions coverage (2)
Stage 1 (%) 0.56 0.67
Stage 2 (%) 1.97 1.42
Stage 3 (%) - -
Total 0.77 0.75
Other financial assets - gross exposure 12,675 8,583
Other financial assets - ECL provision 1 3
Half year ended
30 June 30 June
2024 2023
€m €m
Impairment losses
ECL (release) - third party (3) (2) (3)
Amounts written-off - 1
(1) The NWM N.V. intercompany assets were classified in Stage 1.
The ECL for these loans was nil (31 December 2023 - nil).
(2) ECL provisions coverage is calculated as total ECL
provisions divided by loans - amortised cost and FVOCI. It is calculated on
loans and total ECL provisions, including ECL for other (non-loan) assets and
unutilised exposure. Some segments with a high proportion of debt securities
or unutilised exposure may result in a not meaningful coverage ratio.
(3) Includes €1.0 million (30 June 2023 - €0.4 million)
related to other financial assets and nil (30 June 2023 - nil) relating to
contingent liabilities.
(4) The table shows gross loans only and excludes amounts that
are outside the scope of the ECL framework. Refer to page 40 for Financial
instruments within the scope of the IFRS 9 ECL framework in the NatWest
Markets N.V. Group 2023 Annual Report for further details. Other financial
assets within the scope of the IFRS 9 ECL framework were cash and balances at
central banks totalling €10.1 billion (31 December 2023 - €6.0 billion)
and debt securities of €2.6 billion (31 December 2023 - €2.6 billion).
Notes
7. Loan impairment provisions continued
Sector analysis - portfolio summary
The table below shows exposures and ECL by stage, for selected sectors.
Loans - amortised cost and FVOCI Off-balance sheet ECL provisions
Loan Contingent
Stage 1 Stage 2 Stage 3 Total commitments liabilities Stage 1 Stage 2 Stage 3 Total
30 June 2024 €m €m €m €m €m €m €m €m €m €m
Property 23 - - 23 69 - - - - -
Financial institutions 502 43 - 545 565 508 2 - - 2
Other wholesale 366 109 - 475 6,198 - 3 3 - 6
Of which:
Agriculture - - - - - - - - - -
Airlines and aerospace 1 - - 1 35 - - - - -
Automotive 2 - - 2 635 - - - - -
Building materials 5 - - 5 196 - - - - -
Chemicals 9 2 - 11 74 - - - - -
Industrials 35 22 - 57 309 - 1 - - 1
Land transport and logistics 56 5 - 61 671 - - - - -
Leisure 3 - - 3 2 - - - - -
Oil and gas 2 - - 2 3 - - - - -
Power utilities 105 - - 105 2,988 - - - - -
Retail 4 - - 4 227 - - - - -
Shipping 2 - - 2 - - - - - -
Water and waste 4 16 - 20 38 - - - - -
Total 891 152 - 1,043 6,832 508 5 3 - 8
31 December 2023
Property 23 6 - 29 183 - - - - -
Financial institutions 594 3 - 597 812 527 3 - - 3
Other wholesale 435 132 - 567 6,010 - 4 2 - 6
Of which:
Agriculture 1 - - 1 - - - - - -
Airlines and aerospace 3 - - 3 35 - - - - -
Automotive 2 - - 2 635 - - - - -
Building materials 5 - - 5 196 - - - - -
Chemicals 13 - - 13 77 - - - - -
Industrials 34 65 - 99 271 - - 1 - 1
Land transport and logistics 58 5 - 63 358 - - - - -
Leisure 3 - - 3 - - - - - -
Oil and gas 3 - - 3 3 - - - - -
Power utilities 130 - - 130 3,028 - - - - -
Retail 14 2 - 16 450 - - - - -
Shipping 2 - - 2 - - - - - -
Water and waste 4 16 - 20 38 - - - - -
Total 1,052 141 - 1,193 7,005 527 7 2 - 9
Notes
7. Loan impairment provisions continued
Flow statement
The flow statement that follows shows the main ECL and related income
statement movements. It also shows the changes in ECL as well as the changes
in related financial assets used in determining ECL. Due to differences in
scope, exposures may differ from those reported in other tables, principally
in relation to exposures in Stage 1 and Stage 2. These differences do not have
a material ECL effect because they relate to balances at central banks. Other
points to note:
- Financial assets include treasury liquidity portfolios, comprising
balances at central banks and debt securities, as well as loans. Both modelled
and non-modelled portfolios are included.
- Stage transfers (for example, exposures moving from Stage 1 into Stage
2) are a key feature of the ECL movements, with the net re-measurement cost of
transitioning to a worse stage being a primary driver of income statement
charges. Similarly, there is an ECL benefit for accounts improving stage.
- Changes in risk parameters shows the reassessment of the ECL within a
given stage, including any ECL overlays and residual income statement gains or
losses at the point of write-off or accounting write-down.
- Amounts written-off represent the gross asset written-down against
accounts with ECL, including the net asset write-down for any debt sale
activity.
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
€m €m €m €m €m €m €m €m
At 1 January 2024 13,731 8 143 2 - - 13,874 10
Currency translation and other adjustments 269 (1) 1 1 - - 270 -
Inter-group transfers - - - - - - - -
Transfers from Stage 1 to Stage 2 (91) - 91 - - - - -
Transfers from Stage 2 to Stage 1 19 - (19) - - - - -
Net re-measurement of ECL on stage transfer - 1 - 1
Changes in risk parameters (1) - - (1)
Other changes in net exposure (3,263) (1) (44) (1) - - (3,307) (2)
Other profit or loss only items - - - -
Income statement (releases)/charges (2) - - (2)
Amounts written-off - - - - - - - -
At 30 June 2024 10,665 5 172 3 - - 10,837 8
Net carrying amount 10,660 169 - 10,829
At 1 January 2023 7,179 6 303 5 - - 7,482 11
2023 movements 1,670 (1) (152) (2) - - 1,518 (3)
At 30 June 2023 8,849 5 151 3 - - 9,000 8
Net carrying amount 8,844 148 - 8,992
(1) The table above excludes inter-group.
- There was a net inflow into Stage 2 assets, however no material
financial losses are expected to materialise. This is partially due to credit
risk insurance that is in place not being reflected in ECL numbers and
expected exits for some of the Stage 2 assets before the year end.
- The overall credit portfolio is of good quality with no Stage 3
assets.
- Recent credit migration into the portfolio was positive with average
PD improving.
Notes
8. Contingent liabilities and commitments
The amounts shown in the table below are intended only to provide an
indication of the volume of business outstanding at 30 June 2024. Although NWM
N.V. Group is exposed to credit risk in the event of non-performance of the
obligations undertaken by customers, the amounts shown do not, and are not
intended to, provide any indication of NWM N.V. Group's expectation of future
losses.
30 June 31 December
2024 2023
€m €m
Contingent liabilities and commitments
Guarantees 526 527
Standby facilities, credit lines and other commitments 6,890 6,998
Total 7,416 7,525
Commitments and contingent obligations are subject to NWM N.V. Group's normal
credit approval processes.
Included within guarantees and assets pledged as collateral security as at 30
June 2024 was €0.5 billion (31 December 2023 - €0.5 billion) which relates
to the NatWest Group's obligations over liabilities held within the Dutch
State acquired businesses included in ABN AMRO Bank N.V.
Risk-sharing agreements
NWM Plc and NWM N.V. have limited risk-sharing arrangements in place to
facilitate the smooth provision of services to NatWest Markets' customers. The
arrangements, which NWM Plc recognises as financial guarantees within amounts
due to fellow subsidiaries, include:
- The provision of a funded guarantee of up to €1.0 billion by NWM Plc
to NWM N.V. that limits certain NWM N.V.'s exposures to large individual
customer credits. Funding is provided by NWM Plc deposits placed with NWM N.V.
of not less than the guaranteed amount. As at 30 June 2024, the deposits
amounted to €0.6 billion and the guarantee fees in the period were €2.1
million.
- The provision of funded and unfunded guarantees by NWM Plc in respect
of NWM N.V.'s legacy portfolio. As at 30 June 2024 the exposure at default
covered by the guarantees was approximately €0.2 billion (of which none was
cash collateralised). Fees of €0.5 million in relation to the guarantees
were recognised in the period.
Notes
9. Litigation and regulatory matters
NWM N.V. and certain members of NatWest Group are party to various legal
proceedings and are involved in, or subject to, various regulatory matters,
including as the subject of investigations and other regulatory and
governmental action (Matters) in the Netherlands, the United Kingdom (UK), the
European Union (EU), the United States (US) and other jurisdictions.
NWM N.V. Group recognises a provision for a liability in relation to these
matters when it is probable that an outflow of economic benefits will be
required to settle an obligation resulting from past events, and a reliable
estimate can be made of the amount of the obligation.
In many of the Matters, it is not possible to determine whether any loss is
probable or to estimate reliably the amount of any loss, either as a direct
consequence of the relevant proceedings and regulatory matters or as a result
of adverse impacts or restrictions on NWM N.V. Group's reputation, businesses
and operations. Numerous legal and factual issues may need to be resolved,
including through potentially lengthy discovery and document production
exercises and determination of important factual matters, and by addressing
novel or unsettled legal questions relevant to the proceedings in question,
before the probability of a liability, if any, arising can reasonably be
estimated in respect of any Matter. NWM N.V. Group cannot predict if, how, or
when such claims will be resolved or what the eventual settlement, damages,
fine, penalty or other relief, if any, may be, particularly for Matters that
are at an early stage in their development or where claimants seek substantial
or indeterminate damages.
There are situations where NWM N.V. Group may pursue an approach that in some
instances leads to a settlement agreement. This may occur in order to avoid
the expense, management distraction or reputational implications of continuing
to contest liability, or in order to take account of the risks inherent in
defending or contesting Matters, even for those for which NWM N.V. Group
believes it has credible defences and should prevail on the merits. The
uncertainties inherent in all Matters affect the amount and timing of any
potential economic outflows for both matters with respect to which provisions
have been established and other contingent liabilities in respect of any such
Matter.
It is not practicable to provide an aggregate estimate of potential liability
for our Matters as a class of contingent liabilities.
The future economic outflow in respect of any matter may ultimately prove to
be substantially greater than, or less than, the aggregate provision, if any,
that NWM N.V. Group has recognised in respect of such Matter. Where a reliable
estimate of the economic outflow cannot be reasonably made, no provision has
been recognised.
Matters which are, or could be, material, either individually or in aggregate,
having regard to NWM N.V. Group, considered as a whole, in which NWM N.V.
Group is currently involved are set out below. We have provided information on
the procedural history of certain Matters, where we believe appropriate, to
aid the understanding of the Matter.
NatWest Group is involved in ongoing litigation and regulatory matters that
are not described below but are described on pages 100 to 105 in NatWest
Group's H1 Results 2024. NatWest Group expects that in future periods,
additional provisions and economic outflows relating to Matters that may or
may not be currently known by NatWest Group will be necessary, in amounts that
are expected to be substantial in some instances. While NWM N.V. Group may not
be directly involved in such NatWest Group matters, any final adverse outcome
of those matters may also have an adverse effect on NWM N.V. Group.
For a discussion of certain risks associated with NWM N.V. Group's litigation
and regulatory matters (including the Matters), refer to the Risk Factor
relating to legal, regulatory and governmental actions and investigations set
out on pages 160 to 161 of the NatWest Markets N.V. 2023 Annual Report and
Accounts.
Litigation
Foreign exchange litigation
In December 2021, a summons was served in the Netherlands against NatWest
Group plc, NWM Plc and NWM N.V. by Stichting FX Claims on behalf of a number
of parties, seeking declarations from the court concerning liability for
anti-competitive FX market conduct described in decisions of the European
Commission (EC) of 16 May 2019, along with unspecified damages. The claimant
amended its claim to also refer to a 2 December 2021 decision by the EC, which
described anti-competitive FX market conduct. NatWest Group plc, NWM Plc and
other defendants contested the jurisdiction of the Dutch court. In March 2023,
the district court in Amsterdam accepted that it has jurisdiction to hear
claims against NWM N.V. but refused jurisdiction to hear any claims against
the other defendant banks (including NatWest Group plc and NWM Plc) brought on
behalf of the parties represented by the claimant that are domiciled outside
of the Netherlands. The claimant is appealing that decision. The defendant
banks have brought cross-appeals which seek a ruling that the Dutch court has
no jurisdiction to hear any claims against the defendant banks domiciled
outside of the Netherlands, irrespective of whether the claim has been brought
on behalf of a party represented by the claimant that is domiciled within or
outside of the Netherlands. The Amsterdam Court of Appeal has stayed these
appeal proceedings until the Court of Justice of the European Union has
answered preliminary questions that have been referred to it in another
matter.
In September 2023, second summonses were served by Stichting FX Claims on NWM
N.V., NatWest Group plc and NWM Plc, for claims on behalf of a new group of
parties that have been brought before the district court in Amsterdam. The
summonses seek declarations from the Dutch court concerning liability for
anti-competitive FX market conduct described in the above referenced decisions
of the EC of 16 May 2019 and 2 December 2021, along with unspecified damages.
NatWest Group plc, NWM Plc and other defendants are contesting the Dutch
court's jurisdiction. The district court has stayed proceedings pending
judgment in the above-mentioned appeals.
Notes
9. Litigation and regulatory matters continued
In May 2024, a new letter of claim was received from Stichting FX Claims on
behalf of a further group of parties, containing allegations that are similar
in nature to those contained in the above-mentioned claims.
Certain other foreign exchange transaction related claims have been or may be
threatened. NWM N.V. Group cannot predict whether all or any of these claims
will be pursued.
Madoff
NWM N.V. was named as a defendant in two actions filed by the trustee for the
bankrupt estates of Bernard L. Madoff and Bernard L. Madoff Investment
Securities LLC, in bankruptcy court in New York, which together seek to
clawback more than US$298 million that NWM N.V. allegedly received from
certain Madoff feeder funds and certain swap counterparties. The claims were
previously dismissed, but as a result of an August 2021 decision by the United
States Court of Appeals for the Second Circuit (US Court of Appeals), they are
now proceeding in the discovery phase in the bankruptcy court, where they have
been consolidated into one action.
US Anti-Terrorism Act litigation
NWM N.V. and certain other financial institutions are defendants in several
actions filed by a number of US nationals (or their estates, survivors, or
heirs), most of whom are or were US military personnel, who were killed or
injured in attacks in Iraq between 2003 and 2011. NWM Plc is also a defendant
in some of these cases.
According to the plaintiffs' allegations, the defendants are liable for
damages arising from the attacks because they allegedly conspired with and/or
aided and abetted Iran and certain Iranian banks to assist Iran in
transferring money to Hezbollah and the Iraqi terror cells that committed the
attacks, in violation of the US Anti-Terrorism Act, by agreeing to engage in
'stripping' of transactions initiated by the Iranian banks so that the Iranian
nexus to the transactions would not be detected.
The first of these actions, alleging conspiracy claims but not aiding and
abetting claims, was filed in the United States District Court for the Eastern
District of New York in November 2014. In September 2019, the district court
dismissed the case, finding that the claims were deficient for several
reasons, including lack of sufficient allegations as to the alleged conspiracy
and causation. In January 2023, the US Court of Appeals affirmed the district
court's dismissal of this case. The plaintiffs have now filed a motion in the
district court to re-open the case to assert aiding and abetting claims that
they previously did not assert, which the defendants are opposing. Another
action, filed in the United States District Court for the Southern District of
New York (SDNY) in 2017, which asserted both conspiracy and aiding and
abetting claims, was dismissed by the SDNY in March 2019 on similar grounds as
the first case, but remains subject to appeal to the US Court of Appeals.
Other follow-on actions that are substantially similar to those described
above are pending in the same courts.
Regulatory matters
NWM N.V. Group's financial condition can be affected by the actions of various
governmental and regulatory authorities in the Netherlands, the UK, the EU,
the US and elsewhere. NatWest Group has engaged, and will continue to engage,
in discussions with relevant governmental and regulatory authorities,
including in the Netherlands, the UK, the EU, the US and elsewhere, on an
ongoing and regular basis, and in response to informal and formal inquiries or
investigations, regarding operational, systems and control evaluations and
issues including those related to compliance with applicable laws and
regulations, including consumer protection, investment advice, business
conduct, competition/anti-trust, VAT recovery, anti-bribery, anti-money
laundering and sanctions regimes.
Any matters discussed or identified during such discussions and inquiries may
result in, among other things, further inquiry or investigation, other action
being taken by governmental and regulatory authorities, increased costs being
incurred by NWM N.V. Group, remediation of systems and controls, public or
private censure, restriction of NWM N.V. Group's business activities and/or
fines. Any of these events or circumstances could have a material adverse
effect on NWM N.V. Group, its business, authorisations and licences,
reputation, results of operations or the price of securities issued by it, or
lead to material additional provisions being taken.
Notes
10. Related party transactions
NWM N.V. has a related party relationship with associates, joint ventures, key
management and shareholders. NWM N.V. enters into transactions with related
parties.
Interim pricing agreement
NWM N.V. is a party to transfer pricing arrangements with NWM Plc under which
NWM N.V. received income of €75 million (H1 2023 - €61 million) for
business interactions with NWM Plc. The at arm's length nature of the transfer
pricing arrangements is confirmed by transfer pricing documentation which has
been prepared by an external expert.
Full details of NWM N.V. Group's related party transactions for the year ended
31 December 2023 are included in the NatWest Markets N.V. 2023 Annual Report
and Accounts.
Holding companies and fellow subsidiaries
Amounts due from/to holding companies and fellow subsidiaries are as below:
30 June 2024 31 December 2023
Holding Fellow Holding Fellow
companies subsidiaries Total companies subsidiaries Total
€m €m €m €m €m €m
Assets
Trading assets 875 - 875 2,740 - 2,740
Loans to banks - amortised cost 8 7 15 75 6 81
Loans to customers - amortised cost 21 - 21 20 - 20
Settlement balances 851 7 858 291 27 318
Other assets 19 - 19 15 - 15
Amounts due from holding companies
and fellow subsidiaries 1,774 14 1,788 3,141 33 3,174
Derivatives (1) 2,452 - 2,452 3,059 - 3,059
Liabilities
Trading liabilities 1,112 76 1,188 2,708 - 2,708
Bank deposits - amortised cost 752 - 752 917 - 917
Other financial liabilities - subordinated liabilities 150 - 150 150 - 150
Settlement balances 142 - 142 153 - 153
Other liabilities 14 14 28 10 14 24
Amounts due to holding companies
and fellow subsidiaries 2,170 90 2,260 3,938 14 3,952
Derivatives (1) 2,292 - 2,292 2,770 - 2,770
(1) Intercompany derivatives are included within derivative
classification on the balance sheet.
11. Post balance sheet events
Other than as disclosed in this document there have been no significant events
between 30 June 2024 and the date of approval of this announcement which would
require a change to, or additional disclosure in, the announcement.
12. Date of approval
The interim results for the half year ended 30 June 2024 were approved by the
Supervisory Board on 25 July 2024.
NatWest Markets N.V. Summary Risk Factors
Summary of Principal Risks and Uncertainties
Set out below is a summary of the principal risks and uncertainties for the
remaining six months of the financial year which could adversely affect NWM
N.V. Group. This summary should not be regarded as a complete and
comprehensive statement of all potential risks and uncertainties; a fuller
description of these and other risk factors is included on pages 137 to 161 of
the NatWest Markets N.V. 2023 Annual Report and Accounts. Any of the risks
identified may have a material adverse effect on NWM N.V. Group's business,
operations, financial condition or prospects.
Economic and political risk
- NWM N.V. Group, its customers and its counterparties face
continued economic and political risks and uncertainties in the UK, European
and global markets, including as a result of inflation and interest rates,
supply chain disruption and geopolitical developments.
- Continuing uncertainty regarding the effects and extent of the
UK's post Brexit divergence from EU laws and regulation, and NWM N.V.'s post
Brexit EU operating model may continue to adversely affect NWM Plc (NWM N.V.'s
parent company) and its operating environment and NatWest Group plc (NWM
N.V.'s ultimate parent company) and may have an indirect effect on NWM N.V.
Group.
- Changes in interest rates will continue to affect NWM N.V. Group's
business and results.
- HM Treasury (or UKGI on its behalf) could exercise a significant
degree of influence over NatWest Group and NWM N.V. Group is ultimately
controlled by NatWest Group.
Business change and execution risk
- NWM Group (including NWM N.V. Group) has been in a period of
significant structural and other change, including as a result of NatWest
Group's strategy and NatWest Group's creation of its Commercial &
Institutional business segment (of which NWM Group forms a part) and may
continue to be subject to significant structural and other change.
- The transfer of NatWest Group's Western European corporate
portfolio involves certain risks.
Financial resilience risk
- NWM N.V. is NatWest Group's banking and trading entity located in
the Netherlands. NWM N.V. has repurposed its banking licence, and NWM N.V.
Group may be subject to further changes.
- NWM Group, including NWM N.V. Group, may not achieve its
ambitions, targets and guidance it communicates, generate returns or implement
its strategy effectively.
- NWM N.V. may not meet the prudential regulatory requirements for
capital.
- NWM N.V. Group may not meet the prudential regulatory requirements
for liquidity and funding or may not be able to adequately access sources of
liquidity and funding, which could trigger the execution of certain management
actions or recovery options.
- NWM N.V. Group is reliant on access to the capital markets to meet
its funding requirements. The inability to do so may adversely affect NWM N.V.
Group.
- NWM N.V. may not manage its capital, liquidity or funding
effectively which could trigger the execution of certain management actions or
recovery options.
- Any reduction in the credit rating and/or outlooks assigned to
NatWest Group plc, any of its subsidiaries (including NWM Plc or NWM N.V.) or
any of their respective debt securities could adversely affect the
availability of funding for NWM N.V. Group, reduce NWM N.V. Group's liquidity
position and increase the cost of funding.
- NWM N.V. Group operates in markets that are highly competitive,
with increasing competitive pressures and technology disruption.
- NWM N.V. Group may be adversely affected if NatWest Group fails to
meet the requirements of regulatory stress tests.
- NWM N.V. Group has significant exposure to counterparty and
borrower risk including credit losses, which may have an adverse effect on NWM
N.V. Group.
- NWM N.V. Group could incur losses or be required to maintain
higher levels of capital as a result of limitations or failure of various
models.
- NWM N.V. Group's financial statements are sensitive to underlying
accounting policies, judgments, estimates and assumptions.
- Changes in accounting standards may materially impact NWM N.V.
Group's financial results.
- NatWest Group (including NWM N.V.) may become subject to the
application of statutory stabilisation or resolution powers which may result
in, for example, the write-down or conversion of certain Eligible Liabilities
(including NWM N.V.'s Eligible Liabilities).
NatWest Markets N.V. Summary Risk Factors continued
Summary of Principal Risks and Uncertainties continued
- NatWest Group is subject to Bank of England and PRA oversight in
respect of resolution, and NWM N.V. Group could be adversely affected should
the Bank of England in the future deem NatWest Group's preparations to be
inadequate.
Climate and sustainability-related risks
- NWM N.V. Group and its value chain face climate-related and
sustainability-related risk that may adversely affect NWM N.V. Group.
- Climate-related risks may adversely affect the global financial
system, NWM N.V. Group or its value chain.
- NWM N.V. Group and its value chain may, face other
sustainability-related risks that may adversely affect NWM N.V. Group.
- NatWest Group's climate change related strategy, ambitions,
targets and transition plan entail significant execution and/or reputational
risks and are unlikely to be achieved without significant and timely
government policy, technology and customer behavioural changes.
- There are significant limitations related to accessing accurate,
reliable, verifiable, auditable, consistent and comparable climate and other
sustainability-related data that contribute to substantial uncertainties in
accurately modelling and reporting on climate and sustainability information,
as well as making appropriate important internal decisions.
- Failure to implement effective governance, procedures, systems and
controls in compliance with legal, regulatory requirements and societal
expectations to manage climate and sustainability-related risks and
opportunities could adversely affect NWM N.V. Group.
- Increasing levels of climate and other sustainability-related
laws, regulation and oversight may adversely affect NWM N.V. Group.
- Increasing regulation of "greenwashing" is likely to increase the
risk of regulatory enforcement and investigation and litigation.
- NWM N.V. Group may be subject to potential climate and other
sustainability-related litigation, enforcement proceedings, investigations and
conduct risk.
- A reduction in the ESG ratings of NatWest Group (including NWM
N.V. Group) or NWM N.V. Group could have a negative impact on NatWest Group's
(including NWM N.V. Group's) or NWM N.V. Group's reputation and on investors'
risk appetite and customers' willingness to deal with NatWest Group (including
NWM N.V. Group) or NWM N.V. Group.
Operational and IT resilience risk
- Operational risks (including reliance on third party suppliers and
outsourcing of certain activities) are inherent in NWM N.V. Group's
businesses.
- NWM N.V. Group is subject to sophisticated and frequent
cyberattacks.
- NWM N.V. Group operations and strategy are highly dependent on the
accuracy and effective use of data.
- NWM N.V. Group relies on attracting, retaining, developing and
remunerating diverse senior management and skilled personnel (such as market
trading specialists), and is required to maintain good employee relations.
- NWM N.V. Group's operations are highly dependent on its complex IT
systems, and any IT failure could adversely affect NWM N.V. Group.
- A failure in NWM N.V. Group's risk management framework could
adversely affect NWM N.V. Group, including its ability to achieve its
strategic objectives.
- NWM N.V. Group's operations are subject to inherent reputational
risk.
Legal, regulatory and conduct risk
- NWM N.V. Group's businesses are subject to substantial regulation
and oversight, which are constantly evolving and may adversely affect NWM N.V.
Group.
- NWM N.V. Group and NWM Plc are exposed to the risk of various
litigation matters, regulatory and governmental actions and investigations as
well as remedial undertakings, the outcomes of which are inherently difficult
to predict, and which could have an adverse effect on NWM N.V. Group.
Additional Information
Presentation of Information
NatWest Markets N.V. (NWM N.V.) is a wholly owned subsidiary of RBS Holdings
N.V. (RBSH N.V.). NWM N.V. Group or 'we' refers to NWM N.V. and its subsidiary
and associated undertakings. The term 'RBSH Group' refers to RBSH N.V. its
subsidiaries, NWM N.V and RBS International Depository Services S.A. RBSH N.V.
is a wholly owned subsidiary of NatWest Markets Plc (NWM Plc). The term 'NWM
Group' refers to NWM Plc and its subsidiary and associated undertakings.
NatWest Group plc is 'the ultimate holding company'. The term 'NatWest Group'
refers to NatWest Group plc and its subsidiary and associated undertakings.
NatWest Group plc is registered at 36 St Andrew Square, Edinburgh, Scotland.
NWM N.V. publishes its financial statements in 'euro', the European single
currency. The abbreviation '€' represents the 'euro', and the abbreviations
'€m' and '€bn' represent millions and thousands of millions of euros,
respectively, and references to 'cents' represent cents in the European Union
('EU'). The abbreviations '£m' and '£bn' represent millions and thousands of
millions of pounds sterling, respectively, and references to 'pence' represent
pence in the United Kingdom ('UK'). 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, and
references to 'cents' represent cents in the US. The term 'EEA' refers to
European Economic Area.
Contact
Claire Kane Investor Relations +44 (0) 20 7672 1758
Management's report on the interim financial statements
Pursuant to section 5:25d, paragraph 2(c), of the Dutch Financial Supervision
Act (Wet op het financieel toezicht (Wft)), the members of the Managing Board
state that to the best of their knowledge:
- the interim financial statements give a true and fair view, in all material
respects, of the assets and liabilities, financial position, and profit or
loss of NatWest Markets N.V. and the companies included in the consolidation
as at 30 June 2024 and for the six month period then ended.
- the interim report, for the six month period ending on 30 June 2024, gives a
true and fair view of the information required pursuant to section 5:25d,
paragraphs 8 and 9, of the Dutch Financial Supervision Act of NatWest Markets
N.V. and the companies included in the consolidation.
Amsterdam
25 July 2024
Managing Board
Legal Entity Identifier:
NatWest Group plc 2138005O9XJIJN4JPN90
NatWest Markets N.V. X3CZP3CK64YBHON1LE12
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