Interim Results 2020 - (Part 1 of 2)

RNS Number : 6949U
NatWest Group plc
31 July 2020
 

 

 

  Interim Results 2020

 

 

 

 

 

 

 

  www.natwestgroup.com

 

 

 

NatWest Group plc

Interim Results for the period ending 30 June 2020

 

Alison Rose, Chief Executive Officer, commented:

"Our performance in the first half of the year has been significantly impacted by the challenges and uncertainty our economy continues to face as a result of Covid-19. However, NatWest Group has a robust capital position, underpinned by a resilient, capital generative and well diversified business.

 

Throughout this crisis we have provided exceptional levels of support to our customers, colleagues and the communities we serve. I am proud that our colleagues have consistently shown they are putting our purpose at the heart of everything they do.

 

Through our strong balance sheet and prudent approach to risk, we are well placed not only to withstand Covid-19 related impacts but also to provide the right support to those who will need it most in the tough times to come.

 

O ur purposeful strategy will help our customers, colleagues and communities to recover, rebuild and, ultimately, to thrive. We are building a sustainable business that will generate lasting value for all our stakeholders, as we work together to create a greener, fairer and more inclusive economy."

 

Financial performance in a challenging environment

H1 2020 operating loss before tax of £770 million and operating profit before impairment losses of £2,088 million.

 

Net impairment losses of £2,858 million in H1 2020, or 159 basis points of gross customer loans, resulted in an expected credit loss (ECL) coverage ratio of 1.72% across the Personal and Wholesale portfolios.

 

In comparison to H1 2019, across the retail and commercial businesses income decreased by 9.0% whilst NatWest Markets income excluding asset disposals/strategic risk reduction, own credit adjustments (OCA) and notable items increased by 44.4%.

 

Bank net interest margin (NIM) of 1.67% was 22 basis points lower than Q1 2020 reflecting the contraction of the yield curve, 10 basis points, the impact of a change in the mix of lending, 5 basis points, and excess levels of central liquidity, 7 basis points.

 

Other expenses, excluding operating lease depreciation (OLD), were £41 million lower than H1 2019.

 

 

Robust balance sheet with strong capital and liquidity levels

We have maintained absolute and relative capital strength and retain significant headroom above the regulatory minimum. CET1 ratio of 17.2% was 60 basis points higher than Q1 2020, benefiting from a £3.7 billion reduction in RWAs. In addition, the attributable loss for the quarter was more than offset by a c.70 basis point increase in IFRS 9 transitional relief.

The liquidity coverage ratio (LCR) is strong at 166%, 14 percentage points higher than Q1 2020 reflecting the significant increase in customer deposits.

Across the retail and commercial businesses net lending increased by £16.0 billion during H1 2020, of which £8.4 billion  related to drawdowns against UK Government lending initiatives and £7.6 billion was due to mortgages.

Customer deposits increased by £39.1 billion in H1 2020 to £408.3 billion, as customers sought to retain liquidity and reduced spending as a result of government measures in relation to Covid-19.

 

 

Outlook (1)

 

We remain committed to achieving a £250 million cost reduction in 2020 and expect strategic costs to be within our £0.8-1.0 billion guidance after recognising property related charges in Q2 2020.

 

We believe the full year 2020 impairment charge is likely to be in the range of £3.5-4.5 billion. Impairment charges in the second half of 2020 will be driven by a combination of the developing economic outlook for the UK and Republic of Ireland, along with the effectiveness of government support schemes in delaying and reducing the level of economic distress experienced by our personal and commercial customers, and the absolute level of defaults across lending portfolios and associated ECL stage migration.

 

We expect RWAs to be in the range of £185-195 billion at the end of 2020. Changes in RWAs in the second half of 2020 will be driven by the delivery of targeted reductions in NatWest Markets, the level of procyclical inflation driven by the economic outlook, downgrades in the credit quality and assessments in the commercial book and ongoing demand for lending from our customers.

 

We continue to target a reduction in NatWest Markets RWAs to £32 billion by the end of 2020, with income disposal losses of around £0.2 billion, subject to market conditions. We are now intending to achieve the majority of the expected medium term reduction in NatWest Markets RWAs by the end of 2021, while managing the associated income disposal losses to around £0.6 billion over the two years.

 

We continue to monitor events closely and assess potential scenarios and outcomes. The multiple economic scenarios underpinning our guidance are disclosed on pages 28-35. The impacts of Covid-19 on the economy and the mitigating benefits of government support schemes remain uncertain and could result in changes to our financial results in upcoming periods, including the possible impairment of goodwill. 

 

N ote:

(1)  The guidance, 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 on pages 108 and 109 of this announcement, pages 29-31 of NatWest Group plc's (formerly The Royal Bank of Scotland Group plc) Q1 IMS and pages 281 to 295 of NatWest Group plc's 2019 Annual Report & Accounts. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement.

 

Our Purpose in action - we champion potential, helping people, families and businesses to thrive

 

Helping our colleagues and customers through the impacts of Covid-19

 

Provided lending support to our customers with a disciplined approach to risk and value creation:

· Approved £10.1 billion through the government lending initiatives(1,2).

· Facilitated approximately £7.4 billion of Covid-19 Corporate Financing Facilities (CCFF) issuances(2).

 

Supported the financial health of our customers:

· Helped approximately 240,000 customers with an initial three month mortgage repayment holiday and provided payment holidays, of up to twelve months, on approximately 71,000 business customer accounts(2).

· Delivered approximately £2.0 million of cash to vulnerable customers' homes(2)

 

Long-term investment plan is powering our operational effectiveness:

· Increased digital adoption with over 500,000 new mobile app downloads and over 485,000 new online banking customers(2).

· Launched digital credit scoring in our mobile app with a net promoter score of +52(3).

 

Partnered to proactively respond and support UK communities:

· Supported the National Emergencies Trust by raising £10 million through matched customer donations.

· Donated £1 million to eight existing debt management not-for-profit partners.

 

Prioritised the wellbeing of our colleagues;

· Enabled over 50,000 colleagues to work from home, including over three quarters of our contact centre colleagues.

· Ensured that all colleagues continue to be paid as normal until September if they need to take some time to look after their families, are unable to work from home or if they are ill.

 

H1 2020 progress against our three chosen areas of focus

 

Enterprise - addressing barriers to enterprise and business creation:

· Migrated our twelve accelerator hubs to digital channel delivery.

· Digitised our Dream Bigger programme which supports the next generation of female entrepreneurs.

· Launched a £5 million Enterprise Relief Fund in partnership with The Prince's Trust.

 

Learning - skill building, particularly around financial confidence:

· Reached approximately two million people through financial capability interactions including live MoneySense lessons on social media platforms(2).

· Helped approximately 305,000 additional customers to start saving(2).

· Over 1 million downloads of Island Saver, the world's first financial education console and PC game.  

 

Climate - supporting the necessary transition to a low carbon economy:

· NatWest Group plc issued a green MREL bond, the first green bond issued in USD by a UK bank, with $600 million of proceeds allocated to renewable energy projects.

· NatWest Group has recently joined the UNEP FI PRB Collective Commitment on Climate Action and is the first major UK bank to join the Partnership for Carbon Accounting (PCAF), two important global initiatives that signal our level of commitment to measuring and reducing our climate impact in accordance with the 2015 Paris Agreement.

· Helped our customers through c.£4.0 billion of new sustainable financing and funding for H1 2020.

 

 

 

 

 

 

 

 

Notes:

(1)  Inclusive of Commercial Banking and Private Banking: Bounce Back Loan Scheme (BBLS) - £6.1 billion; Coronavirus Business Interruption Loan Scheme (CBILS) - £3.3 billion; Coronavirus Large Business Interruption Loan Scheme (CLBILS) - £0.7 billion.

(2)  As at 30 June 2020.

(3)  As at 3 April 2020.

 

 

Business performance summary

 

 

Half year ended

 

Quarter ended

 

30 June

30 June

 

30 June

31 March

30 June

Performance key metrics and ratios

2020

2019

 

2020

2020

2019

Profit before impairment losses

£2,088m

£3,017m

 

£767m

£1,321m

£1,918m

Operating (loss)/profit before tax

(£770m)

£2,694m

 

(£1,289m)

£519m

£1,681m

(Loss)/profit attributable to ordinary shareholders

(£705m)

£2,038m

 

(£993m)

£288m

£1,331m

Bank net interest margin (NatWest Group NIM

 

 

 

 

 

 

  excluding NWM) (1)

1.78%

2.04%

 

1.67%

1.89%

2.02%

Bank average interest earning assets (NatWest Group

 

 

 

 

 

 

  excluding NWM) (1)

£440bn

£407bn

 

£458bn

£422bn

£410bn

Cost:income ratio (1)

63.8%

57.2%

 

70.9%

57.7%

52.6%

Loan impairment rate (1)

159bps

21bps

 

229bps

90bps

30bps

Earnings per share

 

 

 

 

 

 

  - basic

(5.8p)

16.9p

 

(8.2p)

2.4p

11.0p

  - basic fully diluted

(5.8p)

16.8p

 

(8.2p)

2.4p

11.0p

Return on tangible equity (1)

(4.4%)

12.1%

 

(12.4%)

3.6%

15.8%

Average tangible equity

£32bn

£34bn

 

£32bn

£32bn

£34bn

Average number of ordinary shares

 

 

 

 

 

 

  outstanding during the period (millions)

 

 

 

 

 

 

  - basic

12,079

12,058

 

12,085

12,074

12,069

  - basic fully diluted (2)

12,101

12,096

 

12,107

12,100

12,104

 

 

 

 

 

 

 

 

 

 

 

30 June

31 March

31 December

Balance sheet related key metrics and ratios

 

 

 

2020

2020

2019

Total assets

 

 

 

£806.9bn

£817.6bn

£723.0bn

Funded assets (1)

 

 

 

£623.5bn

£608.9bn

£573.0bn

Loans to customers - amortised cost

 

 

 

£352.3bn

£351.3bn

£326.9bn

Impairment provisions

 

 

 

£6.1bn

£4.2bn

£3.7bn

Customer deposits

 

 

 

£408.3bn

£384.8bn

£369.2bn

 

 

 

 

 

 

 

Liquidity coverage ratio (LCR)

 

 

 

166%

152%

152%

Liquidity portfolio

 

 

 

£243bn

£201bn

£199bn

Net stable funding ratio (NSFR) (3)

 

 

 

144%

138%

141%

Loan:deposit ratio (1)

 

 

 

86%

91%

89%

Total wholesale funding

 

 

 

£86bn

£86bn

£75bn

Short-term wholesale funding

 

 

 

£22bn

£32bn

£19bn

 

 

 

 

 

 

 

Common equity tier (CET1) ratio (4)

 

 

 

17.2%

16.6%

16.2%

Total capital ratio

 

 

 

22.5%

21.4%

21.2%

Pro forma CET1 ratio, pre dividend accrual (5)

 

 

 

17.2%

16.6%

17.0%

Risk-weighted assets (RWAs)

 

 

 

£181.5bn

£185.2bn

£179.2bn

CRR leverage ratio

 

 

 

5.1%

5.1%

5.1%

UK leverage ratio

 

 

 

6.0%

5.8%

5.8%

 

 

 

 

 

 

 

Tangible net asset value (TNAV) per ordinary share

 

 

 

264p

273p

268p

Tangible net asset value (TNAV) per ordinary share - fully diluted (1,2)

 

 

263p

272p

267p

Tangible equity

 

 

 

£32,006m

£32,990m

£32,371m

Number of ordinary shares in issue (millions)

 

 

 

12,125

12,094

12,094

Number of ordinary shares in issue (millions) - fully diluted (2,6)

 

 

12,147

12,116

12,138

 

 

Notes:

(1)  Refer to the Appendix for details of basis of preparation and reconciliation of non-IFRS financial and performance measures where relevant.

(2)  Includes the effect of dilutive share options and convertible securities. Dilutive shares on an average basis for H1 2020 were 22 million shares and for Q2 2020 were 22 million shares; (Q1 2020 - 26 million shares, H1 2019 - 38 million shares; Q2 2019 - 35 million shares), and as at 30 June 2020 were 22 million shares (31 March 2020 - 22 million shares; 31 December 2019 - 44 million shares).

(3)  NSFR reported in line with CRR2 regulations finalised in June 2019.

(4)  Based on CRR end point including the IFRS 9 transitional adjustment of £1.6 billion. Excluding this adjustment, the CET 1 ratio would be 16.3%.

(5)  At June 2020 and March 2020 there was no charge in CET1 for foreseeable dividends or charges. The pro forma CET 1 ratio at 31 December 2019 excludes foreseeable charges of £968 million for ordinary dividends (3p per share final dividend and 5p per share special dividend) and £365 million pension contribution.

(6)  Includes 16 million shares held by the Employee Benefit Trust (31 March 2020 -18 million shares; 31 December 2019 - 15 million shares).

 

 

 

Summary consolidated income statement for the period ended 30 June 2020

 

 

Half year ended

 

Quarter ended

 

30 June

30 June

 

30 June

31 March

30 June

 

2020

2019

 

2020

2020

2019

Net interest income

3,852

4,004

 

1,910

1,942

1,971

 

 

 

 

 

 

 

Own credit adjustments

53

(46)

 

(102)

155

(3)

Strategic disposals

-

1,035

 

-

-

1,035

Other non-interest income

1,933

2,124

 

868

1,065

1,077

 

 

 

 

 

 

 

Non-interest income

1,986

3,113

 

766

1,220

2,109

 

 

 

 

 

 

 

Total income

5,838

7,117

 

2,676

3,162

4,080

 

 

 

 

 

 

 

Litigation and conduct costs

89

(60)

 

85

4

(55)

Strategic costs

(464)

(629)

 

(333)

(131)

(434)

Other expenses

(3,375)

(3,411)

 

(1,661)

(1,714)

(1,673)

 

 

 

 

 

 

 

Operating expenses

(3,750)

(4,100)

 

(1,909)

(1,841)

(2,162)

 

 

 

 

 

 

 

Profit before impairment losses

2,088

3,017

 

767

1,321

1,918

Impairment losses

(2,858)

(323)

 

(2,056)

(802)

(237)

 

 

 

 

 

 

 

Operating (loss)/profit before tax

(770)

2,694

 

(1,289)

519

1,681

Tax credit/(charge)

208

(194)

 

396

(188)

22

 

 

 

 

 

 

 

(Loss)/profit for the period

(562)

2,500

 

(893)

331

1,703

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

Ordinary shareholders

(705)

2,038

 

(993)

288

1,331

Preference shareholders

16

20

 

8

8

10

Paid-in equity shareholders

192

182

 

95

97

92

Non-controlling interests

(65)

260

 

(3)

(62)

270

 

 

 

 

 

 

 

Notable items within total income

 

 

 

 

 

 

Alawwal bank merger gain in NatWest Markets

-

444

 

-

-

444

FX recycling (loss)/gain in Central items & other

(103)

290

 

(39)

(64)

290

Legacy liability release in Central items & other

-

256

 

-

-

256

Liquidity Asset Bond sale gain

110

11

 

17

93

1

IFRS volatility in Central items & other

(11)

17

 

55

(66)

21

NatWest Markets asset disposals/strategic risk reduction (1)

(63)

(27)

 

(63)

-

(23)

 

Note:

(1)

Asset disposals/strategic risk reduction in 2020 relates to the cost of exiting positions and the impact of risk reduction transactions entered into, in respect of the strategic announcement on 14 February 2020. Prior period comparatives refer to the previously disclosed NatWest Markets legacy business disposal losses.

 

 

 

 

 

Income statement overview

H1 2020 compared with H1 2019

Income across the retail and commercial businesses decreased by 9.0% reflecting the contraction of the yield curve, mortgage margin dilution, lower business activity and lower consumer spending, resulting from government measures in response to Covid-19. Partially offsetting, we have seen strong gross new mortgage lending in UK Personal Banking with drawdowns against UK Government lending initiatives and increased utilisation of revolving credit facilities (RCFs) in Commercial Banking, whilst maintaining a disciplined approach to risk.

NatWest Markets income excluding asset disposals/strategic risk reduction, OCA and notable items increased by 44.4% reflecting increased customer activity as the market reacted to the spread of the Covid-19 virus, partially offset by the impact of credit market write-downs.

Litigation and conduct costs included a £250 million PPI release reflecting lower than predicted valid complaints volumes, partially offset by other charges.

Strategic costs of £464 million in H1 2020 included an £83 million charge related to technology spend, £155 million related to property charges and a £120 million direct charge in NatWest Markets primarily related to restructuring activity.

Other expenses, excluding OLD, decreased by £41 million, or 1.2%, and headcount reduced by c.3,900, or 5.9%. We have maintained a focus on driving underlying cost reductions and efficiencies across the business through the continued shift from physical to digital, process improvements and property savings.

The net impairment loss of £2,858 million, 159 basis points of gross customer loans, reflected the deterioration of the economic outlook. As a result the ECL coverage ratio across the Personal and Wholesale portfolios increased from 1.02% to 1.72%.

 

 

Q2 2020 compared with Q1 2020

Income across the retail and commercial businesses decreased by £176 million reflecting the contraction of the yield curve, reduced business activity and lower consumer spending, resulting from government measures in response to Covid-19. Partially offsetting, we have seen strong balance growth in Commercial Banking, largely relating to drawdowns against UK Government lending initiatives.

NatWest Markets income excluding asset disposals/strategic risk reduction and OCA increased by £50 million. Income from Financing increased as credit markets stabilised, supported by central bank actions, whilst Rates and Currencies decreased as the volatility seen towards the end of Q1 2020 eased.

Strategic costs of £333 million in Q2 2020 included a £44 million charge related to technology spend, £148 million related to property charges and an £86 million direct charge in NatWest Markets primarily related to restructuring activity.

Other expenses, excluding OLD, decreased by £54 million reflecting reduced investment spend and other cost saving initiatives. Headcount decreased by c.500.

The net impairment loss of £2,056 million, 229 basis points of gross customer loans, reflected the deterioration of the economic outlook. As a result the ECL coverage ratio across the Personal and Wholesale portfolios increased from 1.18% to 1.72%.

 

 

Q2 2020 compared with Q2 2019

Income across the retail and commercial businesses decreased by 11.4% whilst NatWest Markets income excluding asset disposals/strategic risk reduction, OCA and notable items increased by 62.2%.

Other expenses, excluding OLD, decreased by £15 million, or 0.9%.

 

 

 

 

 

 

 

Business performance summary

UK Personal Banking

 

Half year ended

 

Quarter ended

 

30 June

30 June

 

30 June

31 March

30 June

 

2020

2019

 

2020

2020

2019

 

£m

£m

 

£m

£m

£m

Total income

2,185

2,447

 

1,035

1,150

1,202

Operating expenses

(1,075)

(1,229)

 

(546)

(529)

(594)

Impairment losses

(657)

(181)

 

(360)

(297)

(69)

Operating profit

453

1,037

 

129

324

539

Return on equity

10.7%

25.6%

 

5.7%

15.5%

26.5%

Net interest margin

2.23%

2.57%

 

2.18%

2.28%

2.51%

Cost:income ratio

49.2%

50.2%

 

52.8%

46.0%

49.4%

 

 

 

 

 

 

 

 

 

 

 

As at

 

 

 

 

30 June

31 March

31 December

 

 

 

 

2020

2020

2019

 

 

 

 

£bn

£bn

£bn

Net loans to customers (amortised cost)

 

 

 

164.5

163.7

158.9

Customer deposits

 

 

 

161.0

152.8

150.3

RWAs

 

 

 

36.7

38.2

37.8

Loan impairment rate

 

 

 

87bps

72bps

20bps

 

Note:

(1)

 

Comparisons with prior periods are impacted by the transfer of the Private Client Advice business to Private Banking from 1 January 2020. The net impact on H1 2019 operating profit would have been to decrease total income by £22 million and operating expenses by £4 million. The net impact on the H1 2019 balance sheet would have been to decrease customer deposits by £0.3 billion. The net impact on Q2 2019 operating profit would have been to decrease total income by £11 million and operating expenses by £2 million. The net impact on the Q4 2019 balance sheet would have been to decrease customer deposits by £0.2 billion.

 

 

UK Personal Banking continues to support customers whose income has been impacted by Covid-19. We had 240,000 mortgage customers request an initial three month mortgage repayment holiday, representing 20% of the book by volume. To support mortgage customers who continue to be impacted, we are offering a range of options from a full payment holiday to part payments for a further three months; of those who have rolled off their initial repayment holiday, and who have reviewed their options and taken action, approximately one third have requested a further extension. Additionally, we offered the option of three month payment deferrals on loans, with 72,000, or 7%, of loan customers taking up the offer.

 

 

H1 2020 compared with H1 2019

Total income decreased by £262 million, or 10.7%, due to lower deposit hedge income, mortgage margin dilution and lower fee income on overdrafts, partially offset by strong balance growth.

Excluding strategic, litigation and conduct costs, operating expenses increased by £17 million, or 1.5%, due to one-off releases in Q2 2019 partially offset by a reduction in staff costs associated with a 9.3% reduction in headcount.

Litigation and conduct costs include a £250 million PPI release reflecting lower than predicted valid complaints volumes.

Impairment losses of £657 million increased by £476 million primarily reflecting stage two charges linked to a forecast rise in unemployment and decline in HPI under a deteriorating economic outlook.

Net loans to customers increased by £12.6 billion, or 8.3%, as a result of strong gross new mortgage lending and lower redemptions. Gross new mortgage lending was £16.5 billion with market flow share of approximately 14%, supporting a stock share of approximately 10.5%. Personal advances and cards reduced by £0.2 billion and £0.3 billion respectively, reflecting lower spend and higher repayments as a result of Covid-19.

Customer deposits increased by £13.5 billion, or 9.2%, with stronger than normal growth as government backed initiatives for Covid-19, combined with lockdown restrictions, resulted in lower customer spend and increased savings.

RWAs remained broadly stable as mortgage lending growth was largely offset by lower unsecured balances, with no pro-cyclicality evident to date.

Q2 2020 compared with Q1 2020

Total income decreased by £115 million due to lower overdraft fees, Covid-19 support measures, significantly reduced card spend, which resulted in lower fees and lower unsecured balances, and the non-repeat of the annual insurance profit share. Net interest margin decreased by 10 basis points reflecting lower personal advances and cards balances and continued structural pressure in the mortgage business, as blended front book margins of around 124 basis points remain lower than the back book margin of approximately 138 basis points, partially offset by lower customer deposit rates payable. In the latter part of June 2020 blended front book application margins were around 130 basis points as spreads in the market continued to widen.

Impairment losses of £360 million increased by £63 million, primarily reflecting stage two charges linked to a forecast rise in unemployment and decline in HPI under a deteriorating economic outlook.

Net loans to customers increased by £0.8 billion due to mortgage growth of £1.9 billion, with lower consumer demand and increased repayments impacting unsecured. Personal advances and cards reduced by £0.4 billion respectively, as customers spent less and made repayments.

Customer deposits increased by £8.2 billion as customer spend reduced and savings increased as a result of Covid-19.

Q2 2020 compared with Q2 2019

Total income decreased by £167 million, or 13.9%, primarily reflecting lower overdraft fees, lower deposit hedge income and mortgage margin dilution.

 

 

Business performance summary

Ulster Bank RoI

 

Half year ended

 

Quarter ended

 

30 June

30 June

 

30 June

31 March

30 June

 

2020

2019

 

2020

2020

2019

 

€m

€m

 

€m

€m

€m

Total income

285

324

 

135

150

158

Operating expenses

(283)

(322)

 

(140)

(143)

(166)

Impairment losses/releases

(278)

24

 

(246)

(32)

11

Operating (loss)/profit

(276)

26

 

(251)

(25)

3

Return on equity

(24.2%)

2.1%

 

(44.5%)

(4.2%)

0.6%

Net interest margin

1.52%

1.63%

 

1.48%

1.56%

1.62%

Cost:income ratio

98.4%

99.3%

 

101.7%

95.3%

105.1%

 

 

 

 

 

 

 

 

 

 

 

As at

 

 

 

 

30 June

31 March

31 December

 

 

 

 

2020

2020

2019

 

 

 

 

€bn

€bn

€bn

Net loans to customers (amortised cost)

 

 

 

20.5

21.2

21.4

Customer deposits

 

 

 

22.0

21.9

21.7

RWAs

 

 

 

14.1

14.4

15.3

Loan impairment rate

 

 

 

460bps

58bps

9bps

 

Ulster Bank RoI continues to support all customers, including those who have been impacted by Covid-19. We have launched our digital Home Buying Platform, supporting customers to complete a mortgage application online, temporarily reduced our overdraft charges and we continue to support our vulnerable and elderly customers through our Companion card, dedicated helpline, priority banking hours and proactive outbound care calls. We have also provided mortgage payment breaks for approximately 12,000 customers, with over 4,000 extensions approved as at 30 June 2020. In our commercial business, we have provided payment breaks for approximately 3,000 customers and we continue to work closely with the Irish Government in providing customers with assistance through existing support schemes and the Credit Guarantee Scheme launched in July 2020.

 

H1 2020 compared with H1 2019

Total income decreased by €39 million, or 12.0%, reflecting lower business activity resulting from the impact of Covid-19 on our customers and our business, the non-repeat of €11 million income relating to the restructure of interest rate swaps on free funds, and interest rate and foreign exchange movements.

Excluding strategic, litigation and conduct costs, operating expenses decreased by €6 million, or 2.2%, reflecting a 9.7% headcount reduction, including the scale down of our services and other functional teams, and lower project costs, which in H1 2019 included costs related to the improvement of the Ulster Bank RoI risk management framework.

Impairment losses of €278 million increased by €302 million due to the impact across all portfolios from the deterioration in the economic outlook caused by Covid-19.

Net loans to customers decreased by €0.7 billion, or 3.3%, which included the net de-recognition of €0.2 billion of non-performing loans (NPL) from a sale agreed in Q4 2019, and an increase in loan provisions against the remaining loans. Gross new lending of €1.1 billion was 29.0% lower, with Q2 2020 impacted by lower demand primarily related to Covid-19 factors.

Customer deposits increased by €0.7 billion, or 3.3%, supporting a reduction in the loan:deposit ratio to 93% from 100%.

RWAs decreased by €1.7 billion, or 10.8%, largely due to model recalibrations and the de-recognition of NPLs in H1 2020.

 

Q2 2020 compared with Q1 2020

Total income decreased by €15 million mainly due to lower personal and commercial fees. Net interest margin decreased by 8 basis points reflecting the impact of negative rates on increased liquid assets.

Excluding strategic, litigation and conduct costs, operating expenses were €3 million lower due to reduced marketing and administration costs and foreign exchange movements.

Impairment losses increased by €214 million due to the deterioration in the economic outlook.

Net loans to customers decreased by €0.7 billion due to an increase in provisions together with loan repayments outweighing gross new lending, which was adversely impacted by lower demand largely as a result of Covid-19. Gross new lending was €0.4 billion, €0.3 billion lower than Q1 2020.

RWAs decreased by €0.3 billion due to model recalibrations and the impact of the NPL sale.

 

Q2 2020 compared with Q2 2019

Total income decreased by €23 million reflecting the impact of Covid-19, particularly on fee income due to lower transaction levels and implementation of waivers on both personal and commercial products.

 

 

Business performance summary

Commercial Banking

 

Half year ended

 

Quarter ended

 

30 June

30 June

 

30 June

31 March

30 June

 

2020

2019

 

2020

2020

2019

 

£m

£m

 

£m

£m

£m

Total income

2,003

2,165

 

995

1,008

1,083

Operating expenses

(1,221)

(1,262)

 

(611)

(610)

(622)

Impairment losses

(1,790)

(202)

 

(1,355)

(435)

(197)

Operating (loss)/profit

(1,008)

701

 

(971)

(37)

264

Return on equity

(17.9%)

8.8%

 

(32.5%)

(2.5%)

6.2%

Net interest margin

1.76%

1.98%

 

1.70%

1.83%

1.97%

Cost:income ratio

59.5%

56.9%

 

59.9%

59.1%

56.1%

 

 

 

 

 

 

 

 

 

 

 

As at

 

 

 

 

30 June

31 March

31 December

 

 

 

 

2020

2020

2019

 

 

 

 

£bn

£bn

£bn

Net loans to customers (amortised cost)

 

 

 

112.0

109.2

101.2

Customer deposits

 

 

 

159.6

143.9

135.0

RWAs

 

 

 

78.3

76.9

72.5

Loan impairment rate

 

 

 

472bps

157bps

32bps

 

Commercial Banking continues to support customers through a comprehensive package of initiatives including participation in the UK Government's financial support schemes. As at H1 2020, £6.1 billion BBLS loans, £3.2 billion of CBILS loans and £0.7 billion of CLBILS loans had been approved and payment holidays, for up to twelve months, provided on c.71,000 customer accounts, representing c.12% of the lending book by value.

 

H1 2020 compared with H1 2019

Total income decreased by £162 million, or 7.5%, reflecting £108 million lower non interest income due to reduced business activity and £54 million lower net interest income as a result of the contraction of the yield curve, partially offset by balance sheet growth.

Excluding strategic, litigation and conduct costs, operating expenses increased by £41 million, or 3.7%, reflecting a number of one-off releases in Q2 2019, higher innovation spend and a £5 million increase in OLD, partially offset by a 1.9% reduction in headcount following operating model efficiencies in H2 2019 and lower non staff costs.

Impairment losses of £1,790 million primarily from stage one and two charges reflecting the deterioration in the economic outlook, with total stage three charges of £236 million, including a small number of single name charges.

Net loans to customers increased by £10.6 billion, or 10.5%, with a £10.8 billion increase in H1 2020 reflecting drawdowns against UK Government lending schemes and £4.1 billion increased RCF utilisation.

Customer deposits increased by £26.2 billion, or 19.6%, principally due to a £24.6 billion increase in H1 2020 as customers sought to retain liquidity in light of Covid-19 uncertainty.

RWAs increased by £0.5 billion, or 0.6%, due to increased lending volumes and risk parameter changes, partially offset by a £4.5 billion reduction related to model improvements and active capital management, with limited procyclicality evident to date

 

Q2 2020 compared with Q1 2020

Total income decreased by £13 million as lower deposit funding benefits and reduced business activity offset balance sheet growth. Net interest margin decreased by 13 basis points mainly reflecting lower deposit funding benefits and higher liquidity portfolio costs.

Excluding strategic, litigation and conduct costs, operating expenses remained broadly stable as higher back office operations costs and a £1 million increase in OLD were partially offset by lower non-staff costs.

Impairment losses of £1,355 million primarily from stage one and two charges reflecting the deterioration in the economic outlook, with total stage three charges of £169 million, including a small number of single name charges.

Net loans to customers increased by £2.8 billion reflecting drawdowns against UK Government lending schemes, including £5.8 billion related to BBLS, £2.3 billion related to CBILS and £0.2 billion related to CLBILS, partially offset by £2.3 billion net RCF repayments, lower specialised business lending and increased loan provisions. RCF utilisation decreased to c.32% of committed facilities following increased drawdowns in March and April 2020, but remained above pre-Covid-19 levels.

Customer deposits increased by £15.7 billion as customers sought to retain liquidity in light of Covid-19 uncertainty, including the retention of UK Government lending scheme drawdowns.

RWAs increased by £1.4 billion due to increased lending volumes, risk parameter changes and business transfers of £0.4 billion from NatWest Markets.

 

Q2 2020 compared with Q2 2019

Total income decreased by £88 million, or 8.1%, reflecting reduced business activity and the contraction of the yield curve, partially offset by balance sheet growth and an £8 million fair value and disposal gain in Q2 2020, compared with a £15 million loss in Q2 2019.

Excluding strategic, litigation and conduct costs, operating expenses increased by £47 million, or 9.0%, reflecting a number of one-off releases in Q2 2019, higher innovation spend and £3 million higher OLD, partially offset by a 1.9% reduction in headcount following operating model efficiencies in H2 2019 and lower non-staff costs.

 

 

Business performance summary

Private Banking (commentary adjusted for transfers)

 

Half year ended

 

Quarter ended

 

30 June

30 June

 

30 June

31 March

30 June

 

2020

2019

 

2020

2020

2019

 

£m

£m

 

£m

£m

£m

Total income

392

384

 

191

201

191

Operating expenses

(252)

(232)

 

(129)

(123)

(115)

Impairment (losses)/releases

(56)

3

 

(27)

(29)

(1)

Operating profit

84

155

 

35

49

75

Return on equity

8.2%

16.6%

 

6.6%

9.8%

15.9%

Net interest margin

2.20%

2.48%

 

2.14%

2.25%

2.44%

Cost:income ratio

64.3%

60.4%

 

67.5%

61.2%

60.2%

 

 

 

 

 

 

 

 

 

 

 

As at

 

 

 

 

30 June

31 March

31 December

 

 

 

 

2020

2020

2019

 

 

 

 

£bn

£bn

£bn

Net loans to customers (amortised cost)

 

 

 

16.0

15.8

15.5

Customer deposits

 

 

 

29.8

29.0

28.4

RWAs

 

 

 

10.4

10.3

10.1

Assets Under Management (AUMs)

 

 

 

27.1

24.3

23.2

Assets Under Administration (AUAs) (1)

 

 

 

2.7

2.4

7.2

Total Assets Under Management and Administration (AUMA)

 

 

 

29.8

26.7

30.4

Loan impairment rate

 

 

 

67bps

73bps

(3)bps

 

Notes:

(1)  Private Banking manages assets under management portfolios on behalf of UK Personal Banking and RBSI and receives a management fee in respect of providing this service.

(2)  Comparisons with prior periods are impacted by the transfer of the Private Client Advice business to Private Banking from 1 January 2020. The net impact on H1 2019 operating profit would have been to increase total income by £22 million and operating expenses by £4 million. The net impact on the H1 2019 balance sheet would have been to increase AUMs by £4.5 billion and customer deposits by £0.3 billion. The net impact on Q2 2019 operating profit would have been to increase total income by £11 million and operating expenses by £2 million. The net impact on the Q4 2019 balance sheet would have been to increase AUMs by £4.6 billion and customer deposits by £0.2 billion. Variances in the commentary below have been adjusted for the impact of this transfer.

 

Private Banking remains committed to supporting clients through a range of initiatives during this period of significant uncertainty, including the provision of mortgage and loan repayment breaks and via participation in the UK Government's CBILS financial support scheme, with £146 million approved as at H1 2020.

 

H1 2020 compared with H1 2019

Total income decreased by £14 million, or 3.4%, primarily reflecting £11 million lower net interest income due to lower deposit income and asset margin compression, partially offset by balance sheet growth.

Excluding strategic, litigation and conduct costs, operating expenses increased by £24 million, or 11.1%, reflecting higher investment spend and a number of one-off items.

Impairment losses of £56 million, mainly reflected stage one and two charges linked to the deterioration of the economic outlook.

Net loans to customers increased by £1.3 billion, or 8.8%, reflecting mortgage lending and other loans growth. RWAs increased by £0.7 billion, or 7.2%, primarily reflecting increased lending volumes.

Customer deposits increased by £1.5 billion, or 5.3%, principally due to a £1.2 billion increase in H1 2020 reflecting an increase in instant access savings and current accounts.

Total AUMAs overseen by Private Banking increased by £0.9 billion, or 3.1%, reflecting net new business inflows of £1.2 billion partially offset by adverse market movements of £0.3 billion.

 

Q2 2020 compared with Q1 2020

Total income decreased by £10 million, primarily reflecting asset margin compression and a reduction in fee income, partially offset by balance sheet growth. Net interest margin decreased by 11 basis points mainly due to asset margin compression, lower deposit income and higher liquidity portfolio costs.

Excluding strategic, litigation and conduct costs, operating expenses increased by £5 million reflecting higher investment spend and a number of one-off items.

Impairment losses of £27 million, mainly reflected stage one and two charges linked to the deterioration of the economic outlook, partially offset by a single name release.

Customer deposits increased by £0.8 billion reflecting an increase in instant access savings and current accounts.

Total AUMAs overseen by Private Banking increased by £3.1 billion, reflecting positive investment performance of £2.9 billion and net new business inflows of £0.2 billion.

 

Q2 2020 compared with Q2 2019

Total income decreased by £11 million, or 5.4%, primarily reflecting lower deposit income, asset margin compression and a reduction in fee income, partially offset by balance sheet growth.

Excluding strategic, litigation and conduct costs, operating expenses increased by £18 million, or 17.1%, primarily reflecting higher investment spend and a number of one-off items.

 

 

Business performance summary

RBS International

 

Half year ended

 

Quarter ended

 

30 June

30 June

 

30 June

31 March

30 June

 

2020

2019

 

2020

2020

2019

 

£m

£m

 

£m

£m

£m

Total income

259

310

 

115

144

159

Operating expenses

(126)

(119)

 

(65)

(61)

(60)

Impairment (losses)/releases

(46)

3

 

(31)

(15)

2

Operating profit

87

194

 

19

68

101

Return on equity

11.8%

29.7%

 

4.3%

19.4%

30.8%

Net interest margin

1.30%

1.69%

 

1.15%

1.45%

1.68%

Cost:income ratio

48.6%

38.4%

 

56.5%

42.4%

37.7%

 

 

 

 

 

 

 

 

 

 

 

As at

 

 

 

 

30 June

31 March

31 December

 

 

 

 

2020

2020

2019

 

 

 

 

£bn

£bn

£bn

Net loans to customers (amortised cost)

 

 

 

12.7

13.6

14.1

Customer deposits

 

 

 

29.5

32.3

30.1

RWAs

 

 

 

6.8

6.8

6.5

Loan impairment rate

 

 

 

97bps

44bps

14bps

 

During H1 2020, RBS International supported 1,282 personal customers with mortgage repayment breaks, reflecting a mortgage value of £275 million, and 418 business customers with working capital facilities, reflecting a value of £452 million, while continuing to suspend a range of fees and charges for its personal and business customers.

 

H1 2020 compared with H1 2019

Total income decreased by £51 million, or 16.5%, primarily due to the impact of interest rate reductions on deposit income as well as £2 million lower payments income with the waiving of personal and commercial banking fees in Q2 2020 to support customers during Covid-19. 

Excluding strategic, litigation and conduct costs, operating expenses increased by £12 million, or 11.0%, mainly due to £6 million higher investment spend to enhance the digital proposition, £2 million Covid-19 incident costs and £3 million higher technology costs.

Impairment losses of £46 million included £25 million stage one and stage two charges reflecting the deterioration in the economic outlook and a £19 million charge related to a single client.

Net loans to customers decreased by £0.9 billion, or 6.6%, as Institutional Banking customers repaid facilities to position themselves in the uncertain environment.

Customer deposits increased by £1.4 billion, or 5.0%, as Institutional Banking customers sought to build liquidity in response to Covid-19 uncertainty.

 

Q2 2020 compared with Q1 2020

Total income decreased £29 million primarily due to £23 million lower deposit income resulting from the full quarter impact of the central bank rate reductions and £4 million lower lending income. Net interest margin decreased by 30 basis points due to lower deposit funding benefits as a result of interest rate changes by central banks.

Impairment losses of £31 million included £17 million stage one and two charges reflecting the deterioration in the economic outlook and a £13 million charge related to a single client.

Net loans to customers decreased by £0.9 billion as Institutional Banking customers responded to the uncertain economic outlook by repaying facilities.

Customer deposits decreased £2.8 billion due to lower call balances in the Institutional Banking sector as significant Q1 2020 inflows were used to fund loan repayments. Deposits in Local Banking increased by £0.4 billion, most notably in Local Corporate and Everyday Banking.

 

Q2 2020 compared with Q2 2019

Total income decreased by £44 million, or 27.7%, due to lower deposit funding benefits, and lower fee income reflecting the economic response to Covid-19 with central bank rate reductions and fee waivers.

Excluding strategic, litigation and conduct costs, operating expenses increased by £7 million, or 13.0%, reflecting higher investment spend and Covid-19 incident costs.

 

 

 

 

Business performance summary

NatWest Markets(1)

 

Half year ended

 

Quarter ended

 

30 June

30 June

 

30 June

31 March

30 June

 

2020

2019

 

2020

2020

2019

 

£m

£m

 

£m

£m

£m

Total income

816

942

 

273

543

686

of which:

 

 

 

 

 

 

  - Income excluding asset disposals/strategic risk

 

 

 

 

 

 

  reduction and own credit adjustments

826

989

 

438

388

691

  - Asset disposals/strategic risk reduction (2)

(63)

-

 

(63)

-

-

  - Own credit adjustments

53

(47)

 

(102)

155

(5)

Operating expenses

(707)

(678)

 

(365)

(342)

(344)

Impairment (losses)/releases

(40)

36

 

(45)

5

20

Operating profit/(loss)

69

300

 

(137)

206

362

Return on equity

0.8%

1.0%

 

(7.1%)

8.7%

4.4%

Cost:income ratio

86.6%

72.0%

 

133.7%

63.0%

50.1%

 

 

 

 

 

 

 

 

 

 

 

As at

 

 

 

 

30 June

31 March

31 December

 

 

 

 

2020

2020

2019

 

 

 

 

£bn

£bn

£bn

Funded Assets

 

 

 

122.9

129.6

116.2

RWAs

 

 

 

35.1

38.9

37.9

 

Notes:

(1)  The NatWest Markets operating segment is not the same as the NatWest Markets Plc legal entity (NWM Plc) or group (NWM or NWM Group). For 2019, NWM Group includes NatWest Markets N.V. (NWM N.V.) from 29 November 2019 only. For periods prior to Q4 2019, NWM N.V. was excluded from the NWM Group. In both 2019 and 2020 the NatWest Markets segment excludes the Central items & other segment.

(2)  Asset disposals/strategic risk reduction in 2020 relates to the cost of exiting positions and the impact of risk reduction transactions entered into, in respect of the strategic announcement on 14 February 2020.

Progress on strategic change

NatWest Markets continues to progress its strategy to refocus towards NatWest Group's corporate and institutional customers and reduce RWAs. During H1 2020, further refinements have been made to simplify the customer product suite, including exiting the Custom Index Trading business and the reduction of the third party market making offering in flow asset backed securities (ABS), residential mortgage backed securities (RMBS) and collateralised loan obligations (CLO). Additionally, NatWest Markets selected BNP Paribas as a strategic partner for the provision of execution and clearing of listed derivatives, following the decision to no longer offer these services for certain exchange traded derivatives, as announced in Q1 2020.

NatWest Markets continues to identify efficiency improvements. During Q2 2020 changes were made to the regional operating models in the US and APAC and actions were taken to drive closer alignment with NatWest Group, such as leveraging NatWest Group Technology infrastructure.

NatWest Markets has also actively identified and progressed RWA reduction, with a number of asset exits completed during Q2 2020. NatWest Markets continues to target an RWA reduction to £32 billion at the end of 2020.

 

H1 2020 compared with H1 2019

Total income decreased by £126 million, or 13.4%, reflecting a £444 million gain from the merger of Alawwal bank with Saudi British Bank (SABB) in H1 2019, partially offset by heightened customer activity and OCA movements. An OCA credit of £53 million compared with a £47 million charge in H1 2019 reflected the significant widening of credit spreads.

Income excluding asset disposals/strategic risk reduction, OCA and notable items increased by £254 million, or 44.4%, reflecting increased customer activity as the market reacted to the spread of the Covid-19 virus, resulting in higher levels of primary issuance from governments and increased secondary market activity in both the Rates and Currencies businesses, partially offset by the impact of credit market write-downs.

Excluding strategic, litigation and conduct costs, operating expenses decreased by £31 million, or 5.2%, primarily reflecting lower back office operational costs and initial reductions following the strategic announcement in February 2020.

RWAs decreased by £6.3 billion, or 15.2%, reflecting lower levels of counterparty and market risk which, despite recent turbulence, have trended downwards as the business seeks to reduce its RWAs.

 

Q2 2020 compared with Q1 2020

Income excluding asset disposals/strategic risk reduction and OCA increased by £50 million. Income from Financing increased as credit markets stabilised, supported by central bank actions, whilst Rates and Currencies decreased as the volatility seen towards the end of Q1 2020 eased. Asset disposal/strategic risk reduction losses of £63 million included a £40 million loss related to a single significant transaction.

Excluding strategic, litigation and conduct costs, operating expenses decreased by £27 million reflecting initial reductions following the strategic announcement in February 2020.

RWAs decreased by £3.8 billion as the business works towards its full year RWA target. Counterparty credit risk decreased by £1.5 billion reflecting the exit of specific positions and market risk decreased by £1.5 billion, as markets normalised. A reduction in credit risk of £0.8 billion included £0.4 billion of business transfers to Commercial Banking.

Q2 2020 compared with Q2 2019

Income excluding asset disposals/strategic risk reduction, OCA and notable items increased by £168 million, or 62.2%, reflecting heightened levels of customer activity in Q2 2020, as markets reacted to the Covid-19 pandemic.

 

Business performance summary

Central items & other

 

Half year ended

 

Quarter ended

 

30 June

30 June

 

30 June

31 March

30 June

 

2020

2019

 

2020

2020

2019

 

£m

£m

 

£m

£m

£m

Central items not allocated

(216)

284

 

(146)

(70)

337

 

Central items not allocated represented a £216 million operating loss in H1 2020 principally due to property related strategic costs, litigation and conduct charges and other treasury income. This compares with a £284 million gain in H1 2019 which primarily reflected FX recycling gains of £290 million and a legacy liability release of £256 million, both relating to the Alawwal bank merger.

 

 

 

Segment performance

 

 

Half year ended 30 June 2020

 

 

 

 

 

 

 

Central

Total

 

 

UK Personal

Ulster

 

Commercial

Private

RBS

 

NatWest

 items &

NatWest

 

 

Banking

Bank RoI

 

Banking

Banking

International

 

Markets

other (1)

Group

 

 

£m

£m

 

£m

£m

£m

 

£m

£m

£m

Income statement

 

 

 

 

 

 

 

 

 

 

Net interest income

1,982

194

 

1,370

251

201

 

(34)

(112)

3,852

Other non-interest income

203

55

 

633

141

58

 

797

46

1,933

Own credit adjustments

-

-

 

-

-

-

 

53

-

53

Total income

2,185

249

 

2,003

392

259

 

816

(66)

5,838

Direct expenses

- staff costs

(280)

(100)

 

(360)

(93)

(65)

 

(326)

(572)

(1,796)

 

- other costs

(104)

(42)

 

(149)

(47)

(27)

 

(94)

(1,116)

(1,579)

Indirect expenses

(785)

(92)

 

(630)

(101)

(29)

 

(149)

1,786

-

Strategic costs

- direct

(1)

(4)

 

(5)

-

(3)

 

(120)

(331)

(464)

 

- indirect

(103)

(8)

 

(70)

(10)

(5)

 

(16)

212

-

Litigation and conduct costs

198

1

 

(7)

(1)

3

 

(2)

(103)

89

Operating expenses

(1,075)

(245)

 

(1,221)

(252)

(126)

 

(707)

(124)

(3,750)

Operating profit/(loss) before impairment losses

1,110

4

 

782

140

133

 

109

(190)

2,088

Impairment losses

(657)

(243)

 

(1,790)

(56)

(46)

 

(40)

(26)

(2,858)

Operating profit/(loss)

453

(239)

 

(1,008)

84

87

 

69

(216)

(770)

Additional information

 

 

 

 

 

 

 

 

 

 

Return on equity  (2)

10.7%

(24.2%)

 

(17.9%)

8.2%

11.8%

 

0.8%

nm

(4.4%)

Cost:income ratio  (2)

49.2%

98.4%

 

59.5%

64.3%

48.6%

 

86.6%

nm

63.8%

Total assets (£bn)

187.1

27.6

 

186.0

23.9

31.5

 

303.8

47.0

806.9

Funded assets (£bn)

187.1

27.6

 

186.0

23.9

31.5

 

122.9

44.5

623.5

Net loans to customers - amortised cost (£bn)

164.5

18.7

 

112.0

16.0

12.7

 

11.4

17.0

352.3

Loan impairment rate (2)

79bps

248bps

 

311bps

70bps

72bps

 

nm

nm

159bps

Impairment provisions (£bn)

(1.9)

(0.9)

 

(3.0)

(0.1)

-

 

(0.2)

-

(6.1)

Impairment provisions - Stage 3 (£bn)

(0.9)

(0.6)

 

(1.2)

-

-

 

(0.1)

-

(2.8)

Customer deposits (£bn)

161.0

20.0

 

159.6

29.8

29.5

 

5.5

2.9

408.3

Risk-weighted assets (RWAs) (£bn)

36.7

12.8

 

78.3

10.4

6.8

 

35.1

1.4

181.5

RWA equivalent (RWAe) (£bn)

36.7

12.8

 

78.4

10.4

6.9

 

37.2

1.5

183.9

Employee numbers (FTEs - thousands)

17.5

2.8

 

10.2

2.0

1.8

 

5.0

23.4

62.7

Average interest earning assets (£bn)

178.6

25.7

 

156.5

23.0

31.2

 

38.0

nm

477.9

Net interest margin

2.23%

1.52%

 

1.76%

2.20%

1.30%

 

(0.18%)

nm

1.62%

Third party customer asset rate (3)

2.96%

2.27%

 

2.86%

2.65%

2.65%

 

nm

nm

nm

Third party customer funding rate (3)

(0.28%)

(0.12%)

 

(0.37%)

(0.25%)

(0.06%)

 

nm

nm

nm

 

For the notes to this table, refer to page 18.

 

 

Segment performance

 

 

Half year ended 30 June 2019

 

 

 

 

 

 

 

Central

Total

 

 

UK Personal

Ulster

 

Commercial

Private

RBS

 

NatWest

 items &

NatWest

 

 

Banking

Bank RoI

 

Banking

Banking

International

 

Markets

other (1)

Group

 

 

£m

£m

 

£m

£m

£m

 

£m

£m

£m

Income statement

 

 

 

 

 

 

 

 

 

 

Net interest income

2,084

200

 

1,424

261

242

 

(122)

(85)

4,004

Other non-interest income

363

82

 

741

123

68

 

667

80

2,124

Own credit adjustments

-

1

 

-

-

-

 

(47)

-

(46)

Strategic disposals

-

-

 

-

-

-

 

444

591

1,035

Total income

2,447

283

 

2,165

384

310

 

942

586

7,117

Direct expenses

- staff costs

(300)

(104)

 

(356)

(82)

(59)

 

(349)

(591)

(1,841)

 

- other costs

(136)

(48)

 

(155)

(35)

(23)

 

(86)

(1,087)

(1,570)

Indirect expenses

(716)

(90)

 

(587)

(96)

(27)

 

(165)

1,681

-

Strategic costs

- direct

4

(9)

 

(32)

-

(5)

 

(49)

(538)

(629)

 

- indirect

(75)

(10)

 

(86)

(17)

(5)

 

(30)

223

-

Litigation and conduct costs

(6)

(20)

 

(46)

(2)

-

 

1

13

(60)

Operating expenses

(1,229)

(281)

 

(1,262)

(232)

(119)

 

(678)

(299)

(4,100)

Operating profit before impairment (losses)/releases

1,218

2

 

903

152

191

 

264

287

3,017

Impairment (losses)/releases

(181)

21

 

(202)

3

3

 

36

(3)

(323)

Operating profit

1,037

23

 

701

155

194

 

300

284

2,694

Additional information

 

 

 

 

 

 

 

 

 

 

Return on equity (2)

25.6%

2.1%

 

8.8%

16.6%

29.7%

 

1.0%

nm

12.1%

Cost:income ratio (2)

50.2%

99.3%

 

56.9%

60.4%

38.4%

 

72.0%

nm

57.2%

Total assets (£bn)

173.9

26.4

 

165.6

21.9

30.4

 

278.9

32.8

729.9

Funded assets (£bn)

173.9

26.4

 

165.6

21.9

30.4

 

133.4

32.7

584.3

Net loans to customers - amortised cost (£bn)

151.9

19.0

 

101.4

14.7

13.6

 

9.3

0.7

310.6

Loan impairment rate (2)

24bps

(21)bps

 

39bps

(4)bps

(4)bps

 

nm

nm

21bps

Impairment provisions (£bn)

(1.3)

(0.9)

 

(1.3)

-

-

 

(0.2)

-

(3.7)

Impairment provisions - Stage 3 (£bn)

(0.8)

(0.8)

 

(1.0)

-

-

 

(0.2)

-

(2.8)

Customer deposits (£bn)

147.5

19.0

 

133.4

28.0

28.1

 

2.8

2.8

361.6

Risk-weighted assets (RWAs) (£bn)

37.0

14.2

 

77.8

9.7

6.9

 

41.4

1.5

188.5

RWA equivalent (RWAe) (£bn)

38.1

14.5

 

79.3

9.7

7.0

 

46.1

1.8

196.5

Employee numbers (FTEs - thousands)

19.3

3.1

 

10.4

1.9

1.8

 

5.0

25.1

66.6

Average interest earning assets (£bn)

163.8

24.7

 

145.3

21.2

28.8

 

33.3

nm

440.3

Net interest margin

2.57%

1.63%

 

1.98%

2.48%

1.69%

 

(0.73%)

nm

1.83%

Third party customer asset rate (3)

3.28%

2.30%

 

3.20%

2.95%

1.75%

 

nm

nm

nm

Third party customer funding rate (3)

(0.37%)

(0.17%)

 

(0.43%)

(0.44%)

(0.14%)

 

nm

nm

nm

 

For the notes to this table, refer to page 18.

 

 

 

 

Segment performance

 

 

Quarter ended 30 June 2020

 

 

 

 

 

 

 

Central

Total

 

 

UK Personal

Ulster

 

Commercial

Private

RBS

 

NatWest

 items &

NatWest

 

 

Banking

Bank RoI

 

Banking

Banking

International

 

Markets

other (1)

Group

 

 

£m

£m

 

£m

£m

£m

 

£m

£m

£m

Income statement

 

 

 

 

 

 

 

 

 

 

Net interest income

975

97

 

696

124

90

 

6

(78)

1,910

Other non-interest income

60

23

 

299

67

25

 

369

25

868

Own credit adjustments

-

-

 

-

-

-

 

(102)

-

(102)

Total income

1,035

120

 

995

191

115

 

273

(53)

2,676

Direct expenses

- staff costs

(139)

(52)

 

(176)

(46)

(33)

 

(159)

(272)

(877)

 

- other costs

(45)

(18)

 

(71)

(23)

(13)

 

(37)

(577)

(784)

Indirect expenses

(393)

(46)

 

(324)

(54)

(15)

 

(75)

907

-

Strategic costs

- direct

(1)

(3)

 

-

-

(2)

 

(86)

(241)

(333)

 

- indirect

(69)

(4)

 

(34)

(5)

(2)

 

(8)

122

-

Litigation and conduct costs

101

1

 

(6)

(1)

-

 

-

(10)

85

Operating expenses

(546)

(122)

 

(611)

(129)

(65)

 

(365)

(71)

(1,909)

Operating profit/(loss) before impairment losses

489

(2)

 

384

62

50

 

(92)

(124)

767

Impairment losses

(360)

(216)

 

(1,355)

(27)

(31)

 

(45)

(22)

(2,056)

Operating profit/(loss)

129

(218)

 

(971)

35

19

 

(137)

(146)

(1,289)

Additional information

 

 

 

 

 

 

 

 

 

 

Return on equity (2)

5.7%

(44.5%)

 

(32.5%)

6.6%

4.3%

 

(7.1%)

nm

(12.4%)

Cost:income ratio (2)

52.8%

101.7%

 

59.9%

67.5%

56.5%

 

133.7%

nm

70.9%

Total assets (£bn)

187.1

27.6

 

186.0

23.9

31.5

 

303.8

47.0

806.9

Funded assets (£bn)

187.1

27.6

 

186.0

23.9

31.5

 

122.9

44.5

623.5

Net loans to customers - amortised cost (£bn)

164.5

18.7

 

112.0

16.0

12.7

 

11.4

17.0

352.3

Loan impairment rate (2)

87bps

441bps

 

472bps

67bps

97bps

 

nm

nm

229bps

Impairment provisions (£bn)

(1.9)

(0.9)

 

(3.0)

(0.1)

-

 

(0.2)

-

(6.1)

Impairment provisions - Stage 3 (£bn)

(0.9)

(0.6)

 

(1.2)

-

-

 

(0.1)

-

(2.8)

Customer deposits (£bn)

161.0

20.0

 

159.6

29.8

29.5

 

5.5

2.9

408.3

Risk-weighted assets (RWAs) (£bn)

36.7

12.8

 

78.3

10.4

6.8

 

35.1

1.4

181.5

RWA equivalent (RWAe) (£bn)

36.7

12.8

 

78.4

10.4

6.9

 

37.2

1.5

183.9

Employee numbers (FTEs - thousands)

17.5

2.8

 

10.2

2.0

1.8

 

5.0

23.4

62.7

Average interest earning assets (£bn)

179.8

26.4

 

164.6

23.3

31.5

 

39.9

nm

497.4

Net interest margin

2.18%

1.48%

 

1.70%

2.14%

1.15%

 

0.06%

nm

1.54%

Third party customer asset rate (3)

2.86%

2.27%

 

2.70%

2.52%

2.58%

 

nm

nm

nm

Third party customer funding rate (3)

(0.20%)

(0.12%)

 

(0.33%)

(0.13%)

(0.01%)

 

nm

nm

nm

 

For the notes to this table, refer to page 18.

 

 

 

Segment performance

 

 

Quarter ended 31 March 2020

 

 

 

 

 

 

 

Central

Total

 

 

UK Personal

Ulster

 

Commercial

Private

RBS

 

NatWest

 items &

NatWest

 

 

Banking

Bank RoI

 

Banking

Banking

International

 

Markets

other (1)

Group

 

 

£m

£m

 

£m

£m

£m

 

£m

£m

£m

Income statement

 

 

 

 

 

 

 

 

 

 

Net interest income

1,007

97

 

674

127

111

 

(40)

(34)

1,942

Other non-interest income

143

32

 

334

74

33

 

428

21

1,065

Own credit adjustments

-

-

 

-

-

-

 

155

-

155

Total income

1,150

129

 

1,008

201

144

 

543

(13)

3,162

Direct expenses

- staff costs

(141)

(48)

 

(184)

(47)

(32)

 

(167)

(300)

(919)

 

- other costs

(59)

(24)

 

(78)

(24)

(14)

 

(57)

(539)

(795)

Indirect expenses

(392)

(46)

 

(306)

(47)

(14)

 

(74)

879

-

Strategic costs

- direct

-

(1)

 

(5)

-

(1)

 

(34)

(90)

(131)

 

- indirect

(34)

(4)

 

(36)

(5)

(3)

 

(8)

90

-

Litigation and conduct costs

97

-

 

(1)

-

3

 

(2)

(93)

4

Operating expenses

(529)

(123)

 

(610)

(123)

(61)

 

(342)

(53)

(1,841)

Operating profit/(loss) before impairment (losses)/releases

621

6

 

398

78

83

 

201

(66)

1,321

Impairment (losses)/releases

(297)

(27)

 

(435)

(29)

(15)

 

5

(4)

(802)

Operating profit/(loss)

324

(21)

 

(37)

49

68

 

206

(70)

519

Additional information

 

 

 

 

 

 

 

 

 

 

Return on equity (2)

15.5%

(4.2%)

 

(2.5%)

9.8%

19.4%

 

8.7%

nm

3.6%

Cost:income ratio (2)

46.0%

95.3%

 

59.1%

61.2%

42.4%

 

63.0%

nm

57.7%

Total assets (£bn)

186.3

26.3

 

178.3

23.4

33.2

 

335.7

34.4

817.6

Funded assets (£bn)

186.3

26.3

 

178.3

23.4

33.2

 

129.6

31.8

608.9

Net loans to customers - amortised cost (£bn)

163.7

18.7

 

109.2

15.8

13.6

 

12.2

18.1

351.3

Loan impairment rate (2)

72bps

56bps

 

157bps

73bps

44bps

 

nm

nm

90bps

Impairment provisions (£bn)

(1.6)

(0.7)

 

(1.7)

(0.1)

-

 

(0.1)

-

(4.2)

Impairment provisions - Stage 3 (£bn)

(0.9)

(0.6)

 

(1.0)

-

-

 

(0.1)

-

(2.6)

Customer deposits (£bn)

152.8

19.3

 

143.9

29.0

32.3

 

5.7

1.8

384.8

Risk-weighted assets (RWAs) (£bn)

38.2

12.7

 

76.9

10.3

6.8

 

38.9

1.4

185.2

RWA equivalent (RWAe) (£bn)

38.2

12.7

 

77.0

10.3

7.1

 

42.2

1.7

189.2

Employee numbers (FTEs - thousands)

17.8

2.9

 

10.0

2.0

1.8

 

5.1

23.6

63.2

Average interest earning assets (£bn)

177.4

24.9

 

148.4

22.7

30.9

 

36.1

nm

458.5

Net interest margin

2.28%

1.56%

 

1.83%

2.25%

1.45%

 

(0.45%)

nm

1.70%

Third party customer asset rate (3)

3.06%

2.28%

 

3.03%

2.77%

2.79%

 

nm

nm

nm

Third party customer funding rate (3)

(0.37%)

(0.13%)

 

(0.42%)

(0.38%)

(0.11%)

 

nm

nm

nm

 

For the notes to this table, refer to page 18.

 

 

 

Segment performance

 

 

Quarter ended 30 June 2019

 

 

 

 

 

 

 

Central

Total

 

 

UK Personal

Ulster

 

Commercial

Private

RBS

 

NatWest

 items &

NatWest

 

 

Banking

Bank RoI

 

Banking

Banking

International

 

Markets

other (1)

Group

 

 

£m

£m

 

£m

£m

£m

 

£m

£m

£m

Income statement

 

 

 

 

 

 

 

 

 

 

Net interest income

1,032

102

 

716

129

125

 

(91)

(42)

1,971

Other non-interest income

170

35

 

367

62

34

 

338

71

1,077

Own credit adjustments

-

1

 

-

-

-

 

(5)

1

(3)

Strategic disposals

-

-

 

-

-

-

 

444

591

1,035

Total income

1,202

138

 

1,083

191

159

 

686

621

4,080

Direct expenses

- staff costs

(148)

(53)

 

(175)

(41)

(31)

 

(176)

(281)

(905)

 

- other costs

(77)

(22)

 

(80)

(17)

(10)

 

(38)

(524)

(768)

Indirect expenses

(317)

(42)

 

(269)

(45)

(13)

 

(76)

762

-

Strategic costs

- direct

4

(4)

 

(12)

-

(3)

 

(31)

(388)

(434)

 

- indirect

(49)

(5)

 

(50)

(10)

(3)

 

(17)

134

-

Litigation and conduct costs

(7)

(19)

 

(36)

(2)

-

 

(6)

15

(55)

Operating expenses

(594)

(145)

 

(622)

(115)

(60)

 

(344)

(282)

(2,162)

Operating profit/(loss) before impairment (losses)/releases

608

(7)

 

461

76

99

 

342

339

1,918

Impairment (losses)/releases

(69)

10

 

(197)

(1)

2

 

20

(2)

(237)

Operating profit

539

3

 

264

75

101

 

362

337

1681

Additional information

 

 

 

 

 

 

 

 

 

 

Return on equity (2)

26.5%

0.6%

 

6.2%

15.9%

30.8%

 

4.4%

nm

15.8%

Cost:income ratio (2)

49.4%

105.1%

 

56.1%

60.2%

37.7%

 

50.1%

nm

52.6%

Total assets (£bn)

173.9

26.4

 

165.6

21.9

30.4

 

278.9

32.8

729.9

Funded assets (£bn)

173.9

26.4

 

165.6

21.9

30.4

 

133.4

32.7

584.3

Net loans to customers - amortised cost (£bn)

151.9

19.0

 

101.4

14.7

13.6

 

9.3

0.7

310.6

Loan impairment rate (2)

18bps

(20)bps

 

77bps

3bps

(6)bps

 

nm

nm

30bps

Impairment provisions (£bn)

(1.3)

(0.9)

 

(1.3)

-

-

 

(0.2)

-

(3.7)

Impairment provisions - Stage 3 (£bn)

(0.8)

(0.8)

 

(1.0)

-

-

 

(0.2)

-

(2.8)

Customer deposits (£bn)

147.5

19.0

 

133.4

28.0

28.1

 

2.8

2.8

361.6

Risk-weighted assets (RWAs) (£bn)

37.0

14.2

 

77.8

9.7

6.9

 

41.4

1.5

188.5

RWA equivalent (RWAe) (£bn)

38.1

14.5

 

79.3

9.7

7.0

 

46.1

1.8

196.5

Employee numbers (FTEs - thousands)

19.3

3.1

 

10.4

1.9

1.8

 

5.0

25.1

66.6

Average interest earning assets (£bn)

164.8

25.3

 

146.1

21.2

29.8

 

34.4

nm

444.8

Net interest margin

2.51%

1.62%

 

1.97%

2.44%

1.68%

 

(1.05%)

nm

1.78%

Third party customer asset rate (3)

3.25%

2.29%

 

3.18%

2.89%

1.79%

 

nm

nm

nm

Third party customer funding rate (3)

(0.38%)

(0.15%)

 

(0.42%)

(0.45%)

(0.13%)

 

nm

nm

nm

 

Notes:

(1)  Central items & other includes unallocated transactions, including volatile items under IFRS, items related to the Alawwal bank merger (2019 only) and RMBS related items.

(2)  Refer to the Appendix for details of basis of preparation and reconciliation of non-IFRS performance measures where relevant.

(3)  Ulster Bank Ireland DAC(UBI DAC) and RBS International manage their funding and liquidity requirements locally. Their liquidity asset portfolios and non-customer related funding sources are included within their net interest margin, but excluded from their third party asset and liability rates.

 

 

 

Capital and risk management

 

Page

Capital, liquidity and funding risk

19

Credit risk

 

  Economic loss drivers

28

Credit risk - Banking activities

 

  Segmental exposure

37

  Sector analysis

42

  Personal portfolio

49

  CRE

52

  Flow statements

54

  Asset quality

66

Credit risk - Trading activities

70

Market risk

 

  Non-traded

73

  Traded

76

Other risks

77

 

Certain disclosures in this section are within the scope of EY's review report and are marked accordingly by a bracket in the right hand margin.

 

Capital, liquidity and funding risk  

Introduction

The economic impact of the Covid-19 pandemic was significant. While liquidity, capital and funding were closely monitored throughout, NatWest Group benefited from its strong positions - particularly in relation to CET1 - going into the crisis. Prudent risk management continues to be important as the full economic effects of the global pandemic unfold.

 

Key developments

The CET1 ratio increased by 100 basis points to 17.2% primarily due to the release of £1.3 billion following the cancellation of the proposed 2019 dividend payments and associated pension contribution in Q1 2020, as announced by the Board in response to Covid-19. The attributable loss in the period was £705 million however the IFRS 9 transitional arrangements on expected credit losses provided relief of £1,578 million.

RWAs increased by £2.3 billion in H1 2020. Credit Risk RWAs increased by £4.7 billion largely due to increased utilisation of existing facilities, new lending under the Government lending initiatives and revision of risk parameters in Commercial Banking. There were offsetting credit risk reductions in UK Personal Banking and NatWest Markets segments. Market Risk RWAs decreased by £1.5 billion, primarily reflecting movements in risks-not-in-VaR (RNIV) and Incremental Risk Charge (IRC) as well as a reduction in non-modelled market risk during the period.

The CRR leverage ratio remained as 5.1% due to an increase in Tier 1 capital being offset by increases in balance sheet exposures.

The total loss absorbing capital ratio of 36.8% is above the Bank of England (BOE) requirement of 21.9% at 1 January 2020, including CRDIV combined buffer requirements.

In the first half of 2020, NatWest Group plc issued $1.6 billion (£1.3 billion) new MREL eligible senior debt, $1.5 billion (£1.2 billion) of AT1 and £1.0 billion Tier 2 securities. NatWest Group plc made a redemption announcement on $2 billion (£1.3 billion) AT1 in June 2020 which have been excluded from capital and will be redeemed in August 2020. CET1 reduced by £345 million due to the FX impact on the redemption announcement. In subsidiaries, a £1.25 billion covered bond from National Westminster Bank Plc matured and NatWest Markets Plc issued two benchmark transactions, in the form of a €1.0 billion five - year fixed rate EMTN and a $1.0 billion three -  year fixed rate US Rule 144A programme issuance.

NatWest Group participation in the BOE Term Funding Scheme (TFS) reduced by £5 billion and the Group drew down £5 billion under the BOE Term Funding Scheme with additional incentives for Small and Medium-sized Enterprises (TFSME) during H1 2020.

UBI DAC borrowed €3.1 billion from the European Central Bank (ECB) Targeted longer-term refinancing operation (TLTRO 3) and repaid €2.0 billion of TLTRO 2.

H1 2020 published LCR ratio of 166% is 14% higher than FY 2019 driven by increased deposits in NatWest Holdings Limited and Treasury issuance including AT1, Tier 2 and MREL, partially offset by NatWest Holdings Limited lending growth driven by mortgages and government schemes lending.

The net stable funding ratio was at 144% compared to 141% for FY 2019. The increase is mainly due to deposits growth.

 

 

 

Capital and risk management

Capital, liquidity and funding risk continued

In response to the Covid-19 pandemic, a number of relief measures to alleviate the financial stability impact have been announced and recommended by regulatory and supervisory bodies. One significant announcement was on 26 June when the European Parliament passed an amended regulation to the CRR in response to the Covid-19 pandemic ("the CRR Covid-19 amendment"); NatWest Group has applied a number of the CRR amendments for H1 2020 reporting. The impact on capital and leverage of the CRR amendment and other relief measures are set out below.

 

IFRS 9 Transition - NatWest Group has elected to take advantage of the transitional regulatory capital rules in respect of expected credit losses following the adoption of IFRS 9; it had previously had a negligible impact up to Q4 2019. The CRR Covid-19 amendment now requires a full CET1 addback for the movement in stage 1 and stage 2 ECL from 1 January 2020 for the next two years. The IFRS 9 transitional arrangement impact on NatWest Group CET1 regulatory capital at 30 June 2020 is £1.6 billion. 

 

UK Leverage exposure - The Prudential Regulation Authority (PRA) announced the ability for firms to apply for a modification by consent to permit the netting of regular-way purchase and sales settlement balances. The PRA also offered a further modification that gave an exclusion from the UK Leverage Exposure for Bounce Back Loans (BBL) and other 100% guaranteed government Covid-19 lending schemes.  The NatWest Group has received permission to apply these and it has reduced the UK leverage exposure by approximately £6.9 billion and £5.2 billion respectively.

 

CRR Leverage exposure - The CRR Covid-19 amendment accelerated a change in CRR2 to allow the netting of regular-way purchase and sales settlement balances. The NatWest Group has applied this and it has reduced the CRR leverage exposure by approximately £6.9 billion.

 

Infrastructure and SME RWA supporting factors - The CRR Covid-19 amendment allowed an acceleration of the planned changes to the SME supporting factor and the introduction of an Infrastructure supporting factor, with these now being applicable with immediate effect. NatWest Group intends to implement these beneficial changes which will reduce RWAs but has not yet concluded the required operational change project to implement.

 

Prudential Valuation Adjustment (PVA) - The European Commission amended the prudent valuation Regulatory Technical Standard such that, due to the exceptional levels of market volatility, the aggregation factor was increased from 50% to 66% until 31 December 2020. This has reduced NatWest Group's PVA deduction by approximately £100 million.

 

Market Risk Value-at-risk (VaR) model capital multiplier - The PRA and De Nederlandsche Bank (DNB) have announced temporary approaches in relation to the exceptional levels of market volatility which has resulted in an increase in VaR model back testing exceptions in NatWest Markets Plc and NatWest Markets N.V.. Under the PRA temporary approach, capital multiplier increases due to new back testing exceptions which have resulted in an increase in capital requirements can be offset through a commensurate reduction in RNIV capital requirements. Under the DNB approach, back testing exceptions have been allowed to be excluded from the capital multiplier. The PRA approach resulted in approximately £2,300 million benefit and the DNB approach a benefit of approximately €100 million.

Capital buffers - Many countries have recently announced reductions in their countercyclical capital buffer rates in response to Covid-19. Most notably for NatWest Group, the Financial Policy Committee reduced the UK rate from 1% to 0% effective from 11 March 2020. The CBI also announced a reduction of the Republic of Ireland rate from 1% to 0% effective from 1 April 2020.

 

 

 

 

 

Capital and risk 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 CET 1 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, known as the MDA. Note that different capital 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

1.9%

2.6%

3.4%

Minimum Capital Requirements

6.4%

8.6%

11.4%

Capital conservation buffer

2.5%

2.5%

2.5%

Countercyclical capital buffer (1) 

0.0%

0.0%

0.0%

G-SIB buffer (2)

 

  -

  -

MDA Threshold

8.9%

 

  na

 

  na

Subtotal (3)

8.9%

11.1%

13.9%

Capital ratios at 30 June 2020

17.2%

19.4%

22.5%

Headroom (4)

8.3%

8.3%

8.6%

 

 

 

 

 

 

 

 

        

Notes:

(1)

Many countries have recently announced reductions in their countercyclical capital buffer rates in response to Covid-19. Most notably for NatWest Group, the Financial Policy Committee reduced the UK rate from 1% to 0% effective from 11 March 2020. The CBI also announced a reduction of the Republic of Ireland rate from 1% to 0% effective from 1 April 2020.

(2)

 

(3)

 

(4)

In November 2018 the Financial Stability Board announced that NatWest Group is no longer a G-SIB. From 1 January 2020, NatWest Group was released from this global buffer requirement.

The prevailing combined buffer requirements for NatWest Group equate to the aggregate of the capital conservation buffer and countercyclical buffer. 8.9% CET1 represents the MDA threshold for NatWest Group.

The headroom does not reflect excess distributable capital and may vary over time.

 

 

Capital and risk management

Capital, liquidity and funding risk continued

Capital and leverage ratios

The table below sets out the key capital and leverage ratios.

 

CRR basis (1)

 

30 June

31 December

Capital adequacy ratios

2020

2019

CET1 (%)

17.2

16.2

Tier 1 (%)

19.4

18.5

Total (%)

22.5

21.2

 

 

 

Capital

£m

£m

Tangible equity

32,006

32,371

 

 

 

Expected loss less impairment provisions

-

(167)

Prudential valuation adjustment

(370)

(431)

Deferred tax assets

(844)

(757)

Own credit adjustments

(244)

(118)

Pension fund assets

(588)

(474)

Cash flow hedging reserve

(341)

(35)

Foreseeable ordinary and special dividends

-

(968)

Foreseeable charges

-

(365)

Adjustments under IFRS 9 transitional arrangements

1,578

-

Other deductions

-

(2)

Total deductions

(809)

(3,317)

 

 

 

CET1 capital

31,197

29,054

AT1 capital

3,990

4,051

Tier 1 capital

35,187

33,105

Tier 2 capital

5,596

4,900

 

 

 

Total regulatory capital

40,783

38,005

 

 

 

Risk-weighted assets

 

 

Credit risk

135,700

131,000

Counterparty credit risk

12,400

12,600

Market risk

11,500

13,000

Operational risk

21,900

22,600

Total RWAs

181,500

179,200

 

 

 

Leverage

 

 

Cash and balances at central banks

100,300

77,900

Trading assets

72,400

76,700

Derivatives

183,400

150,000

Financial assets

428,100

399,100

Other assets

22,700

19,300

Total assets

806,900

723,000

 

 

 

Derivatives

 

 

  - netting and variation margin

(194,400)

(157,800)

  - potential future exposures

44,000

43,000

Securities financing transactions gross up

1,300

2,200

Other off balance sheet items

43,500

42,500

Regulatory deductions and other adjustments

(14,600)

(9,000)

CRR leverage exposure

686,700

643,900

 

 

 

CRR leverage ratio % (2)

5.1

5.1

 

 

 

UK leverage exposure

585,100

570,300

UK leverage ratio % (3)

6.0

5.8

 

 

 

Notes:

(1)  Based on CRR end point including the IFRS 9 transitional adjustment of £1.6 billion. Excluding this adjustment, the CET 1 ratio would be 16.3%.

(2)  Presented on CRR end point Tier 1 capital (including IFRS 9 transitional adjustment) and leverage exposure under the CRR Delegated Act. Excluding the IFRS 9 transitional adjustment, the leverage ratio would be 4.9%.

(3)  Presented on CRR end point Tier 1 capital (including IFRS 9 transitional adjustment). The UK leverage ratio excludes central bank claims from the leverage exposure where deposits held are denominated in the same currency and of contractual maturity that is equal or longer than that of the central bank claims. Excluding the IFRS 9 transitional adjustment, the UK leverage ratio would be 5.8%.

 

 

 

Capital and risk management

Capital, liquidity and funding risk continued

Capital flow statement

The table below analyses the movement in CET1, AT1 and Tier 2 capital for the half year ended 30 June 2020.

 

CET1

AT1

Tier 2

Total

 

£m

£m

£m

£m

At 1 January 2020

29,054

4,051

4,900

38,005

Attributable loss for the period

(705)

-

-

(705)

Own credit

(126)

-

-

(126)

Share capital and reserve movements in respect of employee share schemes

(46)

-

-

(46)

Foreign exchange reserve

466

-

-

466

FVOCI reserves

(218)

-

-

(218)

Goodwill and intangibles deduction

20

-

-

20

Deferred tax assets

(87)

-

-

(87)

Prudential valuation adjustments

61

-

-

61

Expected loss less impairment

167

-

-

167

New issues of capital instruments

-

1,216

1,000

2,216

Redemption of capital instruments

-

(1,277)

-

(1,277)

Net dated subordinated debt/grandfathered instruments

-

-

(756)

(756)

Foreign exchange movements

(355)

-

452

97

Foreseeable ordinary and special dividends

968

-

-

968

Foreseeable charges

365

-

-

365

Adjustment under IFRS 9 transitional arrangements

1,578

-

-

1,578

Other movements

55

-

-

55

At 30 June 2020

31,197

3,990

5,596

40,783

 

Key points

·

NatWest Group has elected to take advantage of the transitional regulatory capital rules in respect of expected credit losses following the adoption of IFRS 9, it had previously had a negligible impact up to Q4 2019. The CRR Covid-19 amendment now requires a full CET1 addback for the movement in stage 1 and stage 2 ECL from 1 January 2020 for the next two years. The IFRS9 transitional arrangement impact on NatWest Group CET1 regulatory capital at 30 June 2020 is £1.6 billion.

·

Foreign exchange movements include a £345 million charge, in relation to a $2 billion AT1 redemption announcement on 28 June 2020.

Risk-weighted assets

The table below analyses the movement in RWAs during the half year, by key drivers.

 

 

Counterparty

 

Operational

 

 

Credit risk

credit risk

Market risk

risk

Total

 

£bn

£bn

£bn

£bn

£bn

At 1 January 2020

131.0

12.6

13.0

22.6

179.2

Foreign exchange movement

2.1

0.4

-

-

2.5

Business movement

2.8

(0.6)

1.0

(0.7)

2.5

Risk parameter changes (1)

(0.6)

-

-

-

(0.6)

Methodology changes (2)

0.3

-

(0.1)

-

0.2

Model updates

0.1

-

-

-

0.1

Other movements (3)

-

-

(2.4)

-

(2.4)

At 30 June 2020

135.7

12.4

11.5

21.9

181.5

 

The table below analyses segmental RWAs.

 

 

UK Personal

Ulster

Commercial

Private

 

NatWest

Central

 

 

Banking

Bank RoI

Banking

Banking

RBSI

Markets

items & other

Total

Total RWAs

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

At 1 January 2020

37.8

13.0

72.5

10.1

6.5

37.9

1.4

179.2

Foreign exchange movement

-

0.7

0.8

-

0.1

0.9

-

2.5

Business movement

(0.3)

(0.5)

4.5

0.3

0.2

(1.4)

(0.3)

2.5

Risk parameter changes (1)

(0.8)

(0.6)

0.6

-

-

0.2

-

(0.6)

Methodology changes (2)

-

-

(0.3)

-

-

0.2

0.3

0.2

Model updates

-

0.2

(0.1)

-

-

-

-

0.1

Other movements (3)

-

-

0.3

-

-

(2.7)

-

(2.4)

At 30 June 2020

36.7

12.8

78.3

10.4

6.8

35.1

1.4

181.5

 

 

 

 

 

 

 

 

 

Credit risk

29.1

11.7

69.5

9.1

5.8

9.1

1.4

135.7

Counterparty credit risk

0.1

-

0.2

0.1

-

12.0

-

12.4

Market risk

0.1

0.1

0.1

-

-

11.2

-

11.5

Operational risk

7.4

1.0

8.5

1.2

1.0

2.8

-

21.9

Total RWAs

36.7

12.8

78.3

10.4

6.8

35.1

1.4

181.5

 

Notes:

(1)

Risk parameter changes relate to changes in credit quality metrics of customers and counterparties (such as probability of default and loss given default) as well as internal ratings based model changes relating to counterparty credit risk in line with European Banking Authority Pillar 3 Guidelines.

(2)

The new securitisation framework has been fully implemented from 1 January 2020 and all positions have moved to the new framework.

(3)

The decrease in Other movements reflects the temporary reduction permitted by the PRA to offset the impact of multiplier increases (included in Business

movement). The offset covers all metrics affected by the multiplier increase, including CVAs. Other movements also reflect transfers between segments, primarily reflecting a transfer of Insurance related assets from NatWest Markets to Commercial Banking. 

 

Capital and risk management

Capital, liquidity and funding risk continued

Key point

· RWAs increased by £2.3 billion in H1 2020, mainly reflecting increases in credit risk of £4.7 billion. There were offsetting decreases in market risk by £1.5 billion, operational risk by £0.7 billion and counterparty credit risk by £0.2 billion. The increase in credit risk RWAs primarily reflected increases in Commercial Banking due to drawdowns on existing facilities, new lending under the Government lending initiatives and deterioration of risk parameters. There were offsetting credit risk reductions in Personal Banking mainly due to revision of risk parameters as well as in the NatWest Markets segment in line with business strategy. Market Risk RWAs decreased by £1.5 billion, primarily reflecting movements in RNIVs and IRC as well as a reduction in non-modelled market risk during the period.

 

Credit risk exposure at default (EAD) and risk-weighted assets (RWAs)

The table below analyses credit risk RWAs and EADs, by on and off balance sheet.

 

 

 

UK Personal

Ulster

Commercial

Private

RBS

NatWest

Central items

 

 

 

Banking

Bank RoI

Banking

Banking

International

Markets

& other

Total

30 June 2020

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

EAD

On balance sheet

235.6

28.3

152.6

21.4

31.1

40.7

0.7

510.4

Off balance sheet

27.2

2.2

29.9

0.3

4.8

6.2

0.4

71.0

Total

262.8

30.5

182.5

21.7

35.9

46.9

1.1

581.4

 

 

 

 

 

 

 

 

 

 

RWAs

On balance sheet

26.4

10.6

56.3

8.9

4.5

7.0

1.3

115.0

Off balance sheet

2.7

1.1

13.2

0.2

1.3

2.1

0.1

20.7

Total

29.1

11.7

69.5

9.1

5.8

9.1

1.4

135.7

 

 

 

 

 

 

 

 

 

 

31 December 2019

 

 

 

 

 

 

 

 

EAD

On balance sheet

221.8

26.0

131.4

20.3

31.7

35.4

0.7

467.3

Off balance sheet

30.2

2.2

27.2

0.3

3.3

7.5

0.4

71.1

Total

252.0

28.2

158.6

20.6

35.0

42.9

1.1

538.4

 

 

 

 

 

 

 

 

 

 

RWAs

On balance sheet

27.1

10.8

50.8

8.7

4.7

6.4

1.3

109.8

Off balance sheet

3.1

1.1

12.5

0.2

1.0

3.2

0.1

21.2

Total

30.2

11.9

63.3

8.9

5.7

9.6

1.4

131.0

 

Capital resources

 

PRA transitional basis

 

30 June

31 December

 

2020

2019

 

£m

£m

Shareholders' equity (excluding non-controlling interests)

 

 

Shareholders' equity

43,103

43,547

Preference shares - equity

(494)

(496)

Other equity instruments

(4,001)

(4,058)

 

38,608

38,993

Regulatory adjustments and deductions

 

 

Own credit

(244)

(118)

Defined benefit pension fund adjustment

(588)

(474)

Cash flow hedging reserve

(341)

(35)

Deferred tax assets

(844)

(757)

Prudential valuation adjustments

(370)

(431)

Goodwill and other intangible assets

(6,602)

(6,622)

Expected losses less impairments

-

(167)

Foreseeable ordinary and special dividends

-

(968)

Foreseeable charges

-

(365)

Adjustment under IFRS9 transition arrangements

1,578

-

Other regulatory adjustments

-

(2)

 

(7,411)

(9,939)

CET1 capital

31,197

29,054

 

 

 

Additional Tier (AT1) capital

 

 

Qualifying instruments and related share premium

3,990

4,051

Qualifying instruments and related share premium to phase out

1,424

1,366

Qualifying instruments issued by subsidiaries and held by third parties subject to phase out

140

140

AT1 capital

5,554

5,557

Tier 1 capital

36,751

34,611

 

 

 

Qualifying Tier 2 capital

 

 

Qualifying instruments and related share premium

5,588

4,867

Qualifying instruments issued by subsidiaries and held by third parties

1,348

1,345

 

 

 

Tier 2 capital

6,936

6,212

Total regulatory capital

43,687

40,823

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital and risk management 

Capital, liquidity and funding risk continued

Loss absorbing capital 

The following table illustrates the components of estimated loss absorbing capital (LAC) in NatWest Group plc and operating subsidiaries and includes external issuances only. The table is prepared on a transitional basis, including the benefit of regulatory capital instruments issued from operating companies, to the extent they meet the current MREL criteria.

 

 

30 June 2020

 

31 December 2019

 

 

Balance

 

 

 

 

Balance

 

 

 

Par

sheet

Regulatory

LAC

 

Par

sheet

Regulatory

LAC

 

 value (1)

value

value(2)

value (3)

 

value (1)

value

value (2)

value (3)

 

£bn

£bn

£bn

£bn

 

£bn

£bn

£bn

£bn

CET1 capital (4)

31.2

31.2

31.2

31.2

 

29.1

29.1

29.1

29.1

 

 

 

 

 

 

 

 

 

 

Tier 1 capital: end-point CRR compliant AT1

 

 

 

 

 

 

 

 

 

  of which: NatWest Group (holdco)

4.0

4.0

4.0

4.0

 

4.0

4.0

4.0

4.0

  of which: NatWest Group operating

 

 

 

 

 

 

 

 

 

  subsidiaries (opcos)

-

-

-

-

 

-

-

-

-

 

4.0

4.0

4.0

4.0

 

4.0

4.0

4.0

4.0

Tier 1 capital: end-point CRR non compliant

 

 

 

 

 

 

 

 

 

  of which: holdco

1.5

1.7

1.5

0.5

 

1.4

1.6

1.4

0.5

  of which: opcos

0.1

0.1

0.1

0.1

 

0.1

0.1

0.1

0.1

 

1.6

1.8

1.6

0.6

 

1.5

1.7

1.5

0.6

Tier 2 capital: end-point CRR compliant

 

 

 

 

 

 

 

 

 

  of which: holdco

9.3

9.7

5.5

6.2

 

6.2

6.4

4,8

4.7

  of which: opcos

0.5

0.5

0.1

0.4

 

0.5

0.5

0.1

0.4

 

9.8

10.2

5.6

6.6

 

6.7

6.9

4.9

5.1

Tier 2 capital: end-point CRR non compliant

 

 

 

 

 

 

 

 

 

  of which: holdco

0.1

0.1

0.1

0.1

 

0.1

0.1

0.1

0.1

  of which: opcos

1.6

1.9

1.2

1.7

 

1.6

1.8

1.2

1.6

 

1.7

2.0

1.3

1.8

 

1.7

1.9

1.3

1.7

Senior unsecured debt securities issued by:

 

 

 

 

 

 

 

 

 

  NatWest Group holdco

21.0

22.5

-

22.5

 

18.6

19.2

-

19.2

  NatWest Group opcos

22.5

23.0

-

-

 

21.1

20.7

-

-

 

43.5

45.5

-

22.5

 

39.7

39.9

-

19.2

Total

91.8

94.7

43.7

66.7

 

82.7

83.5

40.8

59.7

 

 

 

 

 

 

 

 

 

 

RWAs

 

 

 

181.5

 

 

 

 

179.2

UK leverage exposure

 

 

 

585.1

 

 

 

 

570.3

 

 

 

 

 

 

 

 

 

 

LAC as a ratio of RWAs

 

 

 

36.8%

 

 

 

 

33.3%

LAC as a ratio of UK leverage exposure

 

 

 

11.4%

 

 

 

 

10.5%

 

Notes:

(1)

Par value reflects the nominal value of securities issued.

(2)

Regulatory capital instruments issued from operating companies are included in the transitional LAC calculation, to the extent they meet the current MREL criteria.

(3)

LAC value reflects NatWest Group's interpretation of the Bank of England's approach to setting a minimum requirement for own funds and eligible liabilities (MREL), published in June 2018. MREL policy and requirements remain subject to further potential development, as such NatWest Group estimated position remains subject to potential change. Liabilities excluded from LAC include instruments with less than one year remaining to maturity, structured debt, operating company senior debt, and other instruments that do not meet the MREL criteria. The LAC calculation includes eligible Tier 1 and Tier 2 securities before the application of any regulatory caps or adjustments.

(4)

Corresponding shareholders' equity was £43.1 billion (2019 - £43.5 billion).

(5)

Regulatory amounts reported for AT1, Tier 1 and Tier 2 instruments are before grandfathering restrictions imposed by CRR.

(6)

NatWest Group is no longer recognised as a G-SII from 1 January 2020 and is therefore not subject to the CRR MREL requirement as of this date which references CRR2 leverage exposure. To aid comparison the leverage exposure, and resulting ratio, is disclosed according to the BoE leverage framework for all time periods.

 

 

 

Capital and risk management

Capital, liquidity and funding risk   continued

Loss   absorbing capital  

The following table illustrates the components of the stock of outstanding issuance in NatWest Group and its operating subsidiaries including external and Internal issuances.

 

 

 

NatWest

 

 

 

 

NatWest

NWM

 

 

 

NatWest

Holdings

NWB

RBS

UBI

NWM

Markets

Securities

RBSI

 

 

Group plc

Limited

Plc

plc

DAC

Plc

N.V.

Inc.

Limited

 

 

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

Tier 1 (Inclusive of AT1)

Externally issued

5.8

-

0.1

-

-

-

-

-

-

Tier 1 (Inclusive of AT1)

Internally issued

-

3.7

2.4

1.0

-

1.1

0.2

-

0.3

 

 

5.8

3.7

2.5

1.0

-

1.1

0.2

-

0.3

Tier 2

Externally issued

9.8

-

1.2

-

0.1

0.6

0.6

-

-

Tier 2

Internally issued

0.0

5.4

3.5

1.6

0.5

2.0

0.1

0.3

-

 

 

9.8

5.4

4.7

1.6

0.6

2.6

0.7

0.3

-

Senior unsecured

Externally issued

22.5

-

-

-

-

-

-

-

-

Senior unsecured

Internally issued

-

9.8

4.4

0.4

0.5

5.6

-

-

-

 

 

22.5

9.8

4.4

0.4

0.5

5.6

-

-

-

Total outstanding issuance

38.1

18.9

11.6

3.0

1.1

9.3

0.9

0.3

0.3

 

Notes:

(1)  The balances are the IFRS balance sheet carrying amounts, which may differ from the amount which the instrument contributes to regulatory capital. Regulatory balances exclude, for example, issuance costs and fair value movements, while dated capital is required to be amortised on a straight-line basis over the final five years of maturity.

(2)  Balance sheet amounts reported for AT1, Tier 1 and Tier 2 instruments are before grandfathering restrictions imposed by CRR.

(3)  Internal issuance for NWB Plc, RBS plc and UBI DAC represents AT1, Tier 2 or Senior unsecured issuance to NatWest Holdings Limited and for NWM N.V. and NWM SI to NWM Plc.

(4)  Senior unsecured debt category does not include CP, CD and short term/medium notes issued from NatWest Group operating subsidiaries. 

(5)  Tier 1 (inclusive of AT1) category does not include CET 1 numbers.

 

Funding sources

The table below shows the carrying values of the principal funding sources based on contractual maturity. Balance sheet captions include balances held at all classifications under IFRS 9.

 

30 June 2020

 

31 December 2019

 

 

Short-term

Long-term

 

 

Short-term

Long-term

 

 

 

less than

more than

 

 

less than

more than

 

 

 

1 year

1 year

Total

 

1 year

1 year

Total

 

 

£m

£m

£m

 

£m

£m

£m

 

Bank deposits

 

 

 

 

 

 

 

 

Repos

627

-

627

 

2,598

-

2,598

 

Other bank deposits (1)

6,706

13,786

20,492

 

6,688

11,207

17,895

 

 

7,333

13,786

21,119

 

9,286

11,207

20,493

 

Customer deposits

 

 

 

 

 

 

 

 

Repos

1,337

-

1,337

 

1,765

-

1,765

 

Non-bank financial institutions

54,015

146

54,161

 

48,759

352

49,111

 

Personal

196,312

904

197,216

 

183,124

1,210

184,334

 

Corporate

155,460

94

155,554

 

133,450

587

134,037

 

 

407,124

1,144

408,268

 

367,098

2,149

369,247

 

Trading liabilities (2)

 

 

 

 

 

 

 

 

Repos (3)

23,767

-

23,767

 

27,885

-

27,885

 

Derivative collateral

27,139

-

27,139

 

21,509

-

21,509

 

Other bank customer deposits

1,111

981

2,092

 

710

896

1,606

 

Debt securities in issue - Medium term notes

829

1,255

2,084

 

659

1,103

1,762

 

 

52,846

2,236

55,082

 

50,763

1,999

52,762

 

Other financial liabilities

 

 

 

 

 

 

 

 

Customer deposits

168

182

350

 

-

-

-

 

Debt securities in issue:

 

 

 

 

 

 

 

 

  Commercial papers and certificates of deposit

6,656

97

6,753

 

4,272

6

4,278

 

  Medium term notes

4,072

32,585

36,657

 

4,592

29,262

33,854

 

  Covered bonds

1,907

2,991

4,898

 

3,051

2,897

5,948

 

  Securitisation

-

1,023

1,023

 

-

1,140

1,140

 

 

12,803

36,878

49,681

 

11,915

33,305

45,220

 

Subordinated liabilities

1,798

11,760

13,558

 

160

9,819

9,979

 

Total funding

481,904

65,804

547,708

 

439,222

58,479

497,701

 

Of which: available in resolution (4)

-

31,063

31,063

 

-

26,168

26,168

                       

Notes:

(1)  Includes £5.0 billion (31 December 2019 - £10.0 billion) relating to Term Funding Scheme participation, £5.0 billion (31 December 2019 - nil) relating to Term Funding Scheme with additional incentives for Small and Medium-sized Enterprises participation and £2.8 billion (31 December 2019 - £1.7 billion) relating to NatWest Group's participation in central bank financing operations under the European Central Bank's targeted Long-term financing operations.

(2)  Excludes short positions of £20.5 billion (31 December 2019 - £21.2 billion).

(3)  Comprises central & other bank repos of £2.1 billion (31 December 2019 - £6.6 billion), other financial institution repos of £19.4 billion (31 December 2019 - £19.0 billion) and other corporate repos of £2.3 billion (31 December 2019 - £2.3 billion).

(4)  Eligible liabilities (as defined in the Banking Act 2009 as amended from time to time) that meet the eligibility criteria set out in the regulations, rules, policies, guidelines, or statements of the Bank of England including the Statement of Policy published by the Bank of England in June 2018. The balance consists of £22.6 billion (31 December 2019 - £19.2 billion) under debt securities in issue (senior MREL) and £8.5 billion (31 December 2019 - £6.9 billion) under subordinated liabilities.

 

 

 

Capital and risk management

Capital, liquidity and funding risk continued

Liquidity portfolio

The table below shows the liquidity portfolio by product, with primary liquidity aligned to internal stressed outflow coverage and regulatory LCR categorisation. Secondary liquidity comprises assets eligible for discount at central banks, which do not form part of the liquid asset portfolio for LCR or internal stressed outflow purposes.

 

Liquidity value

 

30 June 2020

 

31 December 2019

 

NatWest

NWH

UK Dol

 

NatWest

NWH

UK Dol

 

Group (1)

Group (2)

Sub (3)

 

Group (1)

Group (2)

Sub (3)

 

£m

£m

£m

 

£m

£m

£m

Cash and balances at central banks

97,201

67,783

67,783

 

74,289

51,080

51,080

  AAA to AA- rated governments

56,234

44,738

43,334

 

46,622

35,960

34,585

  A+ and lower rated governments

1,040

-

-

 

1,277

-

-

  Government guaranteed issuers, Public sector entities and

 

 

 

 

 

 

 

  Government sponsored entities

261

261

96

 

251

251

90

  International Organisations and Multilateral development

 

 

 

 

 

 

 

  banks

2,799

2,458

1,994

 

2,393

2,149

1,717

LCR level 1 bonds

60,334

47,457

45,424

 

50,543

38,360

36,392

LCR level 1 Assets

157,535

115,240

113,207

 

124,832

89,440

87,472

LCR level 2 Assets

127

-

-

 

-

-

-

Non-LCR Eligible Assets

-

-

-

 

88

-

-

Primary liquidity

157,662

115,240

113,207

 

124,920

89,440

87,472

Secondary liquidity (4)

84,910

84,427

81,835

 

74,431

74,187

73,332

Total liquidity value

242,572

199,667

195,042

 

199,351

163,627

160,804

 

Notes:

(1)

NatWest Group includes UK DoLSub, 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)

NWH Group comprises UK DoLSub & Ulster Bank Ireland DAC who hold managed portfolios that comply with local regulations that may differ from PRA rules.

(3)

UK DoLSub comprises NatWest Group's four licensed deposit-taking UK banks within the ring-fenced bank: NWB Plc, RBS plc, Coutts & Company and

Ulster Bank Limited.

(4)

Comprises assets eligible for discounting at the Bank of England and other central banks.

(5)

Liquidity portfolio table approach has been aligned to the ILAAP methodology with effect from December 2019.

(6)

NatWest Markets Plc liquidity portfolio is reported in the NatWest Markets Plc Company Announcement.

 

 

 

 

 

 

Capital and risk management

Credit risk

Economic loss drivers

Introduction

The portfolio segmentation and selection of economic loss drivers for IFRS 9 follow closely the approach used in stress testing. To enable robust modelling the forecasting models for each portfolio segment (defined by asset class and where relevant, industry sector and region) are based on a selected, small number of economic factors, (typically two to four) that best explain the temporal variations in portfolio loss rates. The process to select economic loss drivers involves empirical analysis and expert judgement.

 

The most material economic loss drivers for the Personal portfolio include the unemployment rate, house price indices as well as the Bank of England and the European Central Bank base rates. For the Wholesale portfolio, in addition to interest and unemployment rates, national gross domestic product (GDP), stock price indices and world GDP are primary loss drivers.

 

Economic scenarios

The range of anticipated future economic conditions is described by a set of four internally developed scenarios and their respective probabilities. In a change from previous quarters, two scenarios are used instead of a single base case to describe the central outlook. This reflects increased uncertainty as a result of Covid-19 and the difficulty in identifying a consensus among economic forecasters. Those two central scenarios are complemented by an upside and a downside scenario.

 

As at 31 December 2019, NatWest Group used five discrete scenarios to characterise the distribution of risks in the economic outlook. In contrast, the four scenarios set out below 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, asset price falls and degree of permanent damage to the economy, around which there are pronounced levels of uncertainty at this stage.

 

The tables and commentary below provide details of the key economic loss drivers under the four scenarios. The average over the five-year horizon (2020 to 2024) for the two central scenarios and upside and downside scenarios used for expected credit loss (ECL) modelling, are set out below. It is compared with the five-year average (2020 to 2024) of the 2019 scenarios.

 

The scenarios are specified on a quarterly frequency. The extreme points refer to worst four-quarter rate of change for GDP and house price inflation and worst quarterly figures for unemployment.

 

Five-year average

30 June 2020

 

31 December 2019

 

Upside

Central 1

Central 2

Downside

 

Upside 2

Upside 1

Base case

Downside 1

Downside 2

 

 %

 %

 %

 %

 

%

%

%

%

%

UK

 

 

 

 

 

 

 

 

 

 

GDP - change

1.4

1.5

0.6

(0.4)

 

2.4

2.2

1.6

1.3

0.9

Unemployment

5.1

5.5

7.4

9.9

 

3.6

3.9

4.4

4.7

5.2

House Price Inflation - change

2.0

1.4

0.5

(4.5)

 

4.1

3.3

1.6

0.8

(1.0)

Bank of England base rate

0.2

0.2

0.1

(0.2)

 

1.0

0.7

0.3

-

-

Commercial real estate price

 

 

 

 

 

 

 

 

 

 

  - change

(0.5)

(1.2)

(2.3)

(8.6)

 

2.7

1.7

(0.1)

(1.0)

(3.0)

 

 

 

 

 

 

 

 

 

 

 

Republic of Ireland

 

 

 

 

 

 

 

 

 

 

GDP - change

2.9

2.6

1.8

0.2

 

3.9

3.6

2.8

2.4

1.9

Unemployment

5.8

6.9

9.3

11.8

 

3.9

4.3

4.8

5.7

6.9

House Price Inflation - change

2.3

2.2

1.1

(0.9)

 

5.3

4.7

2.9

2.2

1.0

European Central Bank base rate

-

-

-

-

 

1.6

0.9

-

-

-

 

 

 

 

 

 

 

 

 

 

 

World GDP - change

2.8

2.9

2.0

1.3

 

3.8

3.3

2.8

2.5

2.1

 

 

 

 

 

 

 

 

 

 

 

Probability weight

20.0

35.0

35.0

10.0

 

12.7

14.8

30.0

29.7

12.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note:

(1)  Probability weights for the Republic of Ireland were symmetrical with 15% on the upside and downside. Weightings for Ulster Bank RoI reflect the relative severity of scenarios in a Republic of Ireland context.

 

 

 

 

Capital and risk management

Credit risk continued

Five-year average

GDP - annual growth

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upside

Central 1

Central 2

Downside

 

 

Upside

Central 1

Central 2

Downside

UK

%

%

%

%

 

Republic of Ireland

%

%

%

%

2020

(8.9)

(14.3)

(14.1)

(16.9)

 

2020

(8.9)

(10.5)

(16.3)

(20.3)

2021

10.1

15.4

11.2

5.3

 

2021

14.2

9.9

16.4

5.5

2022

2.7

3.4

2.3

6.4

 

2022

4.1

6.3

3.6

8.1

2023

1.6

1.6

2.0

1.7

 

2023

2.6

4.9

3.1

5.3

2024

1.6

1.6

1.6

1.6

 

2024

2.4

2.4

2.4

2.4

 

 

 

 

 

 

 

 

 

 

 

Unemployment rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upside

Central 1

Central 2

Downside

 

 

Upside

Central 1

Central 2

Downside

UK

%

%

%

%

 

Republic of Ireland

%

%

%

%

Q4 2020

7.4

9.2

9.8

14.4

 

Q4 2020

8.2

9.7

13.2

16.6

Q4 2021

4.8

5.0

7.8

10.9

 

Q4 2021

5.5

7.3

10.0

13.7

Q4 2022

4.1

4.0

6.7

9.1

 

Q4 2022

4.7

5.6

8.3

11.0

Q4 2023

4.1

4.0

6.0

7.6

 

Q4 2023

4.8

5.0

6.9

8.7

Q4 2024

4.1

4.0

5.9

6.9

 

Q4 2024

4.9

5.1

6.8

8.5

 

 

 

 

 

 

 

 

 

 

 

House Price Inflation - annual growth

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upside

Central 1

Central 2

Downside

 

 

Upside

Central 1

Central 2

Downside

UK

%

%

%

%

 

Republic of Ireland

%

%

%

%

2020

(0.1)

(8.9)

(9.3)

(11.5)

 

2020

(3.4)

(6.0)

(10.1)

(13.6)

2021

0.6

3.6

(5.1)

(14.9)

 

2021

(1.6)

(6.8)

(9.8)

(17.3)

2022

2.4

6.4

7.1

0.7

 

2022

7.2

11.8

11.1

9.7

2023

3.5

3.2

6.4

1.5

 

2023

5.8

7.9

7.9

9.8

2024

3.8

2.6

3.5

1.6

 

2024

3.7

4.0

6.5

7.2

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate price - annual change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upside

Central 1

Central 2

Downside

 

 

 

 

 

 

UK

%

%

%

%

 

 

 

 

 

 

2020

(7.5)

(16.0)

(22.1)

(20.9)

 

 

 

 

 

 

2021

2.2

1.9

(0.7)

(20.3)

 

 

 

 

 

 

2022

1.3

6.3

7.3

(8.1)

 

 

 

 

 

 

2023

0.4

1.5

2.2

3.2

 

 

 

 

 

 

2024

1.0

0.6

1.6

3.2

 

 

 

 

 

 

 

Extreme points

Worst points

 

H1 2020

 

H2 2019

 

Upside

Central 1

Central 2

Downside

 

Downside 1

Downside 2

UK

%

%

%

%

 

%

%

GDP (year-on-year)

(17.1)

(27.7)

(26.6)

(28.0)

 

(0.2)

(1.8)

Unemployment

7.6

9.5

12.0

15.1

 

4.9

5.5

House Price Inflation (year-on-year)

(0.7)

(13.7)

(14.9)

(20.4)

 

(3.5)

(8.4)

Commercial real estate price (year-on-year)

(10.2)

(21.2)

(27.2)

(31.0)

 

(8.2)

(12.6)

 

 

 

 

 

 

 

 

 

Worst points

 

H1 2020

 

H2 2019

 

Upside

Central 1

Central 2

Downside

 

Downside 1

Downside 2

Republic of Ireland

%

%

%

%

 

%

%

GDP (year-on-year)

(19.0)

(20.6)

(32.7)

(34.7)

 

0.5

(2.1)

Unemployment

9.0

14.8

16.9

17.7

 

5.8

7.3

House Price Inflation (year-on-year)

(8.0)

(15.1)

(22.3)

(30.8)

 

(2.6)

(8.4)

 

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.

 

The scale of the economic impact of Covid-19 and the range of recovery paths necessitates a change of approach to assigning probability weights from that used in recent updates. Previously GDP paths for NatWest Group's scenarios were compared against a set of 1,000 model runs, following which a percentile in the distribution was established that most closely corresponded to the scenario. This approach does not produce meaningful outcomes in the current circumstances because GDP is highly volatile and highly uncertain.

 

 

 

 

Capital and risk management

Credit risk continued

Instead, NatWest Group has subjectively applied probability weights, reflecting expert views within NatWest Group. The probability weight assignment was judged to present good coverage to the central scenarios and the potential for a far more robust recovery on the upside and exceptionally challenging outcome on the downside. A 20% weighting was applied to the upside scenario, a 35% weighting on each central scenario and a 10% weighting on the downside scenario. NatWest Group judged a downside-biased weighting as placing too much weight on negative outcomes.

 

Use of the scenarios in Personal Banking

Personal Banking follows a discrete scenario approach which means that ECL is calculated based on the probability of default (PD) and loss given default (LGD) values that arise directly from the probability weighted averages across all four economic scenarios.

 

Use of the scenarios in Wholesale Lending

The Wholesale Lending methodology is based on the concept of credit cycle indices (CCI). The CCI represents all relevant economic loss drivers for a region/industry segment aggregated into a single index value describing the loss rate conditions in the respective segment relative to its long run average. That means a CCI value of zero corresponds to loss rates at long-run average levels, a positive CCI value corresponds to loss rates below long-run average levels and a negative CCI value corresponds to loss rates above long-run average levels.

 

The four economic scenarios outlined above are translated into individual projections of CCIs for each region/industry segment which are then subsequently aggregated into a single central CCI projection by calculating a weighted average according to the given scenario probabilities. The CCI projection for each economic scenario, and by extension the weighted central CCI projection, are overlaid with an additional assumption that after one to two years into the forecast period credit cycle conditions gradually revert to long-run average conditions, i.e. CCI values mean revert to zero.

 

Finally, ECL is calculated using a Monte Carlo approach by averaging PD and LGD values arising from a large number of CCI paths simulated around the central CCI projection calculated as above.

 

The rationale for the Wholesale approach, is the long-standing observation that loss rates in Wholesale portfolios tend to follow regular cycles. This allows NatWest Group to enrich the range and depth of future economic conditions embedded in the final ECL beyond what would be obtained from the discrete macro-economic scenarios alone.

 

Business Banking, while part of the Wholesale segment, for reporting purposes, utilises the Personal Banking rather than the Wholesale Lending methodology.

 

Covid-19 - estimating ECL in uncertain times

Almost all areas of the global economy, in terms of both individuals and businesses, have been adversely affected by the unprecedented economic and social disruption resulting from Covid-19. The impact of the virus has led to the creation of significant government and central bank mechanisms to support businesses and individuals. Uncertainty remained elevated during H1 2020 and the severity of the economic impact becomes increasingly observable in key economic data such as GDP and unemployment. This crisis has created an unprecedented challenge for IFRS 9 ECL modelling, given the severity of economic shock and associated uncertainty for the future economic path coupled with the scale of government and central bank intervention and Covid-19 relief mechanisms that have altered the relationships between economic drivers and default. 

 

The NatWest Group approach to dealing with this challenge is to leverage stress test modelling insights to inform IFRS 9 model refinements to enable modelled ECL estimates. Management review of modelling approaches and outcomes continues to inform any necessary adjustments to the ECL estimates through the form of in-model adjustments or overlays/underlays, based on expert judgement including the use of available information. Management considerations included the potential severity and duration of the economic shock, including the mitigating effects of government support actions, as well the potential trajectory of the subsequent recovery. NatWest Group also considered differential impacts on portfolio and sector classes, including pronouncements from regulatory bodies regarding IFRS 9 application in the context of Covid-19, notably on significant increase in credit risk (SICR) identification.

 

The modelling interventions described above and the severity of the MES scenarios underpinning the ECL estimate have alleviated the need for a dedicated economic uncertainty overlay. Consequently, the existing overlay for economic uncertainty at Q1 2020 of £798 million was absorbed through the H1 2020 modelled ECL estimate.

 

Treatment of Covid-19 relief mechanisms

Use of Covid-19 relief mechanisms (for example, payment holidays, CBILS and BBLS) will not automatically merit identification of SICR and trigger a Stage 2 classification in isolation. For Personal products, where detailed information surrounding the customer situation may not be readily available, movements in account PD - which includes the effect of customer account behaviour as well as forward-looking economics - continued to be the key determinant of a SICR. This assessment was supplemented by an analysis of high-risk identifiers.

 

 

 

Capital and risk management

Credit risk continued

For Wholesale customers, at H1 2020, lifetime PD deterioration remains the primary driver of SICR identification, amplified by the forward-looking economics. NatWest Group continues to provide support, where appropriate, to existing customers. Those who are deemed either to require a) a prolonged timescale to return within NatWest Group's risk appetite or b) not to be viable pre-crisis or c) not to be able to sustain their debt once the crisis is over will trigger a SICR and, if concessions are sought, be categorised as forborne, in line with regulatory guidance.

 

As some of the government support mechanisms conclude, NatWest Group anticipates further credit deterioration in the portfolios. 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. A key factor would be a more adverse deterioration in GDP and unemployment in the economies in which NatWest Group operates, but also, among others:

· The timing and nature of governmental exit plans from lockdown, notably in UK and the Republic of Ireland, and any future repeated lockdown requirements.

· The progress of the pandemic, with potential for changes in worker/consumer behaviour and sickness levels.

· The efficacy of the various government support initiatives in terms of their ability to defray customer defaults is yet to be proven, notably over an extended period.

· Any further damage to certain supply chains, most notably in the case of any re-tightening of lockdown rules but also delays caused by social distancing measures and possible export/import controls.

· The level of revenues lost by corporate clients and pace of recovery of those revenues may affect NatWest Group's clients' ability to service their borrowing, especially in those sectors most exposed to the impacts of Covid-19.

· Higher unemployment if companies fail to restart jobs after periods of staff furlough.

 

This could potentially lead to further ECL increases. However, the income statement impact of this will be mitigated to some extent by the forward-looking provisions taken at H1 2020.

 

Model performance

To date, model performance monitoring has not identified any noticeable increases in default or loss rates in Wholesale Lending or Personal Banking. This is not unexpected given the recent impact of Covid-19 and the implementation of government interventions aiming to delay and/or mitigate its impact on the economy. As a result, it is too early to meaningfully assess model performance against the actual impact.

 

Nonetheless, Covid-19 has already had a significant impact on the forward-looking economic information used by the IFRS 9 models in calculating ECL. While the central scenario used previously implied largely a continuation of current conditions, the central scenarios assumed now forecast a dramatic deterioration in conditions on a magnitude typically observed for severe stresses but with the deterioration and subsequent recovery compressed into a much shorter time frame than typical economic cycles. This extreme and unusual nature of the scenarios considered has highlighted several limitations in the components of the Wholesale methodology that translate projected economic loss drivers into aggregate default and loss rate conditions at portfolio level. To account for these limitations, a number of refinements and changes have been applied to the respective model components to ensure that the ECL outcome is reasonable, not only in aggregate, but at industry sector level and with regard to the timing in which deteriorating economics translate into default and loss outcomes. More specifically, the following key adjustments have been applied to the modelled forward-looking economic conditions for the Wholesale portfolios:

· Scenario profile - The previously unseen, extreme movements and quarterly variations in some economic loss drivers (most notably year-on-year change in UK GDP) are extrapolated by some Wholesale models into unrealistically high default rate outcomes. Where necessary, judgement was applied to adjust model outcomes to more appropriate levels based on peak default rates observed in previous crises and other existing stress scenario analysis, including the 2019 Bank of England annual cyclical scenario.

· Government support - The temporal profile of projected default and loss conditions was further adjusted to account for the expected impact of government interventions where those are not already reflected in the scenario's economic loss drivers. These adjustments result in both a delay and a reduction in the peak level of default and loss rates that would have been expected under the projected economic loss drivers without government intervention. The specification of the parameters of the adjustments - while guided by the level and characteristics of loans extended under the various government guarantee schemes - involve a considerable level of expert judgement.

· Industry sector detail - The current suite of models for the Wholesale portfolios provides limited differentiation by industry sector. This approach is based on the data from the global financial crisis which exhibited a very high correlation across industry sectors. In contrast, the impact from Covid-19 is highly differentiated by industry sector and accordingly adjustments have been applied to implement an appropriate differentiation in the severity of projected default rate conditions for different sectors. The categorisation of industry sectors and scale of adjustments have been informed by a combination of expert judgement and external market data.

 

 

 

 

Capital and risk management

Credit risk continued

For the UK Personal Banking portfolio, the forward-looking components of the IFRS 9 PD models were also modified leveraging existing stress testing models to ensure that PDs appropriately reflect the forecasts for unemployment and house prices in particular. Additionally, post model ECL adjustments were made to ensure that the ECL was adjusted for known model over and under-predictions pending the systematic calibration of the underlying models.

 

The in-model adjustments have been applied in order to weight the PD and LGD estimates within the core ECL calculation process and therefore consistently and systematically inform stage allocation and ECL quantification.

 

Government guarantees

During March and April 2020, the UK government launched a series of temporary schemes designed to support businesses deal with the impact of Covid-19. The BBLS, CBILS and CLBILS lending products are originated by NatWest Group but are covered by government guarantees. These are to be set against the outstanding balance of a defaulted facility after the proceeds of the business assets have been applied. The government guarantee is 80% for CBILS and CLBILS and 100% for BBLS. NatWest Group recognises lower LGDs for these lending products as a result, with 0% applied to the government-guaranteed part of the exposure.

 

Notwithstanding the government guarantees, NatWest Group's measurements of PD are unaffected and NatWest Group continues to move exposures to Stage 2 and Stage 3 where a significant deterioration in credit risk or a default is identified.

 

 

 

Wholesale support schemes

The table below shows the uptake of BBLS, CBILS and CLBILS in Wholesale, by sector.

 

BBL

 

CBIL

 

CLBIL

 

 

Drawdown

% of BBIL to

 

 

Drawdown

% of CBIL to

 

 

Drawdown

% of CLBIL to

30 June 2020

Volume

amount (£m)

Sector loans

 

Volume

amount (£m)

Sector loans

 

Volume

amount (£m)

Sector loans

Wholesale lending by sector

 

 

 

 

 

 

 

 

 

 

 

  Airlines and aerospace

175

5

0.21%

 

17

4

0.17%

 

-

-

-

  Automotive

9,267

309

4.07%

 

495

111

1.46%

 

26

22

0.29%

  Education

1,347

36

2.11%

 

83

21

1.23%

 

4

30

1.76%

  Health

6,976

222

3.78%

 

543

69

1.17%

 

2

5

0.09%

  Land transport and logistics

6,222

181

3.94%

 

306

66

1.44%

 

2

3

0.07%

  Leisure

22,776

715

7.13%

 

1,697

305

3.04%

 

16

11

0.11%

  Oil and gas

197

6

0.29%

 

13

5

0.24%

 

-

-

-

  Retail

23,824

808

10.19%

 

1,395

328

4.14%

 

13

48

0.61%

  Shipping

113

4

0.34%

 

15

3

0.25%

 

2

-

-

  Textiles

844

25

13.37%

 

94

18

9.63%

 

2

-

-

  Property

12,284

402

0.99%

 

327

64

0.16%

 

4

10

0.02%

  Other (including Business

 

 

 

 

 

 

 

 

 

 

 

  Banking)

116,382

3,082

3.40%

 

8,742

1,406

1.55%

 

72

52

0.06%

Total

200,408

5,795

3.32%

 

13,727

2,400

1.38%

 

143

181

0.10%

 

Notes:

(1)  The table contains some cases which as at 30 June 2020 were approved but not yet drawn upon.

(2)  Approved limits as at 30 June 2020 were as follows: BBLS - £6.1 billion; CBILS - £3.3 billion; and CLBILS - £0.7 billion.

 

 

Capital and risk management

Credit risk continued

Mortgage payment holidays/breaks by stage

The tables below show payment holidays in UK Personal Banking and payment breaks in Ulster Bank RoI, by loan-to-value (LTV) band and by stage. They show live payment holidays as at 30 June 2020, including any agreed second payment holidays. They exclude cases which have been completed prior to this date.

 

UK Personal Banking

Mortgages

 

ECL

 

Proportion of mortgage portfolio

 

 

 

 

Not within

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IFRS 9 ECL

 

 

 

 

 

 

 

 

 

 

 

 

Stage 1

Stage 2

Stage 3

scope

Total

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

30 June 2020

£m

£m

£m

£m

£m

 

£m

£m

£m

£m

 

%

%

%

%

≤50%

4,441

661

31

4

5,137

 

-

4

5

9

 

9.2

14.7

5.8

9.6

>50% and ≤70%

6,722

1,226

30

1

7,979

 

1

8

4

13

 

13.7

19.4

6.2

14.3

>70% and ≤80%

3,159

1,447

11

-

4,617

 

1

9

2

12

 

15.8

21.3

6.2

17.1

>80 and ≤90%

1,727

1,356

6

-

3,089

 

-

13

1

14

 

16.8

23.8

7.8

19.3

>90% and ≤100%

378

121

1

-

500

 

-

2

-

2

 

18.5

25.1

2.3

19.7

>100% and ≤110%

1

4

-

-

5

 

-

1

-

1

 

3.4

9.8

-

7.3

>110% and ≤130%

2

3

-

-

5

 

-

-

-

-

 

5.6

6.3

-

5.8

>130 and ≤150%

-

2

-

-

2

 

-

-

-

-

 

-

9.0

-

5.5

>150%

-

-

-

-

-

 

-

-

-

-

 

-

-

-

-

Total

16,430

4,820

79

5

21,334

 

2

37

12

51

 

12.7

20.1

6.0

13.8

 

Note:

(1)  Total payment holidays in the period up until 30 June 2020 were £33.6 billion (22% of the UK Personal Banking mortgage portfolio).

 

Ulster Bank RoI

Mortgages

 

ECL

 

Proportion of mortgage portfolio

 

 

 

 

Not within

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IFRS 9 ECL

 

 

 

 

 

 

 

 

 

 

 

 

Stage 1

Stage 2

Stage 3

scope

Total

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

30 June 2020

£m

£m

£m

£m

£m

 

£m

£m

£m

£m

 

%

%

%

%

≤50%

148

115

49

-

312

 

-

5

13

18

 

3.5

21.4

11.9

6.1

>50% and ≤70%

139

119

44

-

302

 

-

5

11

16

 

4.1

21.9

14.8

7.2

>70% and ≤80%

47

62

23

-

132

 

-

3

7

10

 

3.4

19.0

15.1

7.1

>80 and ≤90%

40

53

21

-

114

 

-

3

7

10

 

3.8

15.7

14.1

7.4

>90% and ≤100%

2

42

16

-

60

 

-

2

6

8

 

0.8

17.3

12.4

9.3

>100% and ≤110%

1

17

13

-

31

 

-

1

5

6

 

0.9

12.5

13.2

9.5

>110% and ≤130%

-

13

9

-

22

 

-

1

4

5

 

-

15.8

9.0

9.8

>130 and ≤150%

-

1

3

-

4

 

-

-

2

2

 

-

21.2

10.8

11.3

>150%

-

1

-

-

1

 

-

-

-

-

 

-

8.2

4.1

4.8

Total

377

423

178

-

978

 

-

20

55

75

 

3.6

19.1

13.0

7.0

 

Note:

(1)  Total payment breaks in the period up until 30 June 2020 were £1.8 billion (13% of the Ulster Bank RoI mortgage portfolio).

 

 

Measurement uncertainty and ECL sensitivity analysis

The recognition and measurement of ECL is complex and involves the use of significant judgement 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 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 as at the H1 2020 balance sheet date.

 

Stage 3 provisions are not subject to the same level of measurement uncertainty - default is an observed event as at the balance sheet date, unsecured portfolio LGDs do not vary between scenarios, plus repossession periods in the UK mean that short term volatility in HPI does not translate directly to additional loss. Stage 3 provisions therefore have not been considered in this analysis.

 

The impact arising from the downside, upside and the central 1 scenarios has been simulated. These scenarios are three of the four discrete scenarios used in the methodology for Personal MES. In the simulations, NatWest 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 thus serving as a single economic scenario.

 

These scenarios have been applied to all modelled portfolios in the analysis below, with the simulation impacting both PDs and LGDs. Modelled overlays present in the underlying ECL estimates are also sensitised. 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, policy changes by lenders that might impact on the wider availability of credit.

 

 

 

 

Capital and risk management

Credit risk continued

NatWest Group's core criterion to identify a SICR is founded on PD deterioration, as discussed above. Under the simulations, PDs increase and result in exposures moving from Stage 1 to Stage 2 contributing to the ECL impact.

 

30 June 2020

Actual

Upside

Central 1

Downside

Stage 1 modelled exposure (£m)

 

 

 

 

UK Personal Banking

134,398

146,496

142,448

100,658

Ulster Bank RoI Personal & Business Banking

10,766

11,300

11,268

9,367

Wholesale

235,333

263,206

242,672

223,386

 

 

 

 

 

Stage 1 modelled ECL (£m)

 

 

 

 

UK Personal Banking

154

154

159

114

Ulster Bank RoI Personal & Business Banking

18

16

18

19

Wholesale

274

289

278

284

 

 

 

 

 

Stage 1 coverage (%)

 

 

 

 

UK Personal Banking

0.11%

0.11%

0.11%

0.11%

Ulster Bank RoI Personal & Business Banking

0.17%

0.14%

0.16%

0.20%

Wholesale

0.12%

0.11%

0.11%

0.13%

 

 

 

 

 

Stage 2 modelled exposure (£m)

 

 

 

 

UK Personal Banking

28,575

16,477

20,525

62,314

Ulster Bank RoI Personal & Business Banking

2,352

1,819

1,850

3,751

Wholesale

65,908

38,034

58,569

77,855

 

 

 

 

 

Stage 2 modelled ECL (£m)

 

 

 

 

UK Personal Banking

900

630

760

1,641

Ulster Bank RoI Personal & Business Banking

110

83

91

174

Wholesale

1,984

891

1,661

3,071

 

 

 

 

 

Stage 2 coverage (%)

 

 

 

 

UK Personal Banking

3.15%

3.82%

3.70%

2.63%

Ulster Bank RoI Personal & Business Banking

4.69%

4.58%

4.89%

4.63%

Wholesale

3.01%

2.34%

2.84%

3.94%

 

 

 

 

 

Stage 1 and Stage 2 modelled exposure (£m)

 

 

 

 

UK Personal Banking

162,973

162,973

162,973

162,973

Ulster Bank RoI Personal & Business Banking

13,118

13,118

13,118

13,118

Wholesale

301,240

301,240

301,240

301,240

 

 

 

 

 

Stage 1 and Stage 2 modelled ECL (£m)

 

 

 

 

UK Personal Banking

1,054

784

919

1,755

Ulster Bank RoI Personal & Business Banking

129

99

109

193

Wholesale

2,258

1,180

1,939

3,355

 

 

 

 

 

Stage 1 and Stage 2 coverage (%)

 

 

 

 

UK Personal Banking

0.65%

0.48%

0.56%

1.08%

Ulster Bank RoI Personal & Business Banking

0.98%

0.76%

0.83%

1.47%

Wholesale

0.75%

0.39%

0.64%

1.11%

 

 

 

 

 

Reconciliation to Stage 1 and Stage 2 ECL (£m)

 

 

 

 

ECL on modelled exposures

3,441

2,063

2,967

5,303

ECL on non-modelled exposures

53

53

53

53

 

 

 

 

 

Total Stage 1 and Stage 2 ECL

3,494

2,116

3,020

5,356

Variance to actual total Stage 1 and Stage 2 ECL

 

(1,378)

(474)

1,862

 

Notes:

(1)  Variations in future undrawn exposure values across the scenarios are modelled, however the exposure position reported is as at 30 June 2020 and therefore does not include variation in future undrawn exposure values.

(2)  The table above reflects ECL for all modelled exposure in scope for IFRS 9; in addition to loans this includes bonds and cash. The analysis excludes non-modelled portfolios.

(3)  All simulations are run on a stand-alone basis and are independent of each other, with the potential ECL impact reflecting the simulated impact at the H1 2020 balance sheet date.

(4)  Refer to page 28 for details of economic scenarios.

(5)  2019 comparatives are not included as the sensitivity scenario analysis relates to the H1 2020 balance sheet position. Refer to the NatWest Group plc (formerly The Royal Bank of Scotland Group plc) 2019 Annual Report and Accounts for the sensitivity analysis carried out at that time.

 

 

 

 

 

 

Capital and risk management

Credit risk continued

Key points

The outlook for the financial year 2020 ECL charge (disclosed on page 2) is £3.5 billion to £4.5 billion. However, the economic outcomes are very uncertain and if the economics are as adverse as the downside scenario, the Stage 1 and Stage 2 charge would be at least £1.9 billion higher.

In the downside scenario, UK Personal and Wholesale portfolios reached a similar level of coverage (1.08% and 1.11% respectively), however, this represented a greater increase in provision for the UK Personal portfolio.

 

In arriving at the H1 2020 ECL position, Wholesale portfolios had already observed a larger proportionate increase in ECL and coverage, driven by a larger rise in Stage 2 size relative to Personal, which typically carries a higher level of Stage 2 through-the-cycle provision. Additionally, Personal portfolios, especially mortgages, are particularly responsive to changes in unemployment rate, leading to a greater increase in ECLs in the downside simulations in comparison to the Wholesale portfolio, where relative impacts of GDP and dampening effects of base rate resulted in a lower proportionate uplift.

The upside release and the downside uplift were more symmetrical in Wholesale portfolios. This was at least partly due to the impact of credit mitigation by way of portfolio securitisations, which dampened the downside impacts. Additionally, the higher proportion of Stage 2 in the Wholesale portfolio at H1 2020 resulted in a larger benefit to the upside scenario. The impacts on retail reflected a more standard view of non-linearity of losses to the downside. 

Central 1 presented a marginal upside to the weighted average, but a step change in Stage 2 retail assets for the UK and the Republic of Ireland was noted. This reflected that a number of assets classed as Stage 2 under the weighted average had only just hurdled the SICR threshold. 

A higher coverage rate was observed in the Republic of Ireland portfolio compared with the UK Personal portfolio.  This was due to higher coverage rates in the Republic of Ireland mortgage portfolio as compared with the UK mortgage portfolio. The Republic of Ireland portfolio appeared more responsive to economic simulations than the UK Personal portfolio. A larger upside benefit was observed, since the Republic of Ireland portfolio was heavily weighted towards mortgages and mortgage assets benefit more than personal unsecured lending in upside scenarios. The downside simulation indicated a larger uplift for the Republic of Ireland portfolio, reflecting the particular sensitivity of this portfolio to adverse unemployment rates and house price forecasts.

 

 

 

 

 

Capital and risk management

Credit risk - Banking activities

Introduction

This section details the credit risk profile of NatWest Group 's banking activities.

 

Financial instruments within the scope of the IFRS 9 ECL framework

Refer to Note 8 for balance sheet analysis of financial assets that are classified as amortised cost (AC) or fair value through other comprehensive income (FVOCI), the starting point for IFRS 9 ECL framework assessment.

 

Financial assets

 

30 June

31 December

 

2020

2019

 

£bn

£bn

Balance sheet total gross AC and FVOCI

541.6

484.3

In scope of IFRS 9 ECL framework

530.0

475.5

% in scope

98%

98%

Loans - in scope

370.4

340.0

  Stage 1

266.4

305.5

  Stage 2

97.0

27.9

  Stage 3

7.0

6.6

Other financial assets - in scope

159.6

135.5

  Stage 1

158.2

135.5

  Stage 2

1.4

-

Out of scope of IFRS 9 ECL framework

11.6

8.8

 

Those assets outside the framework were as follows:

Settlement balances, items in the course of collection, cash balances and other non-credit risk assets of £8.9 billion (31 December 2019 - £6.1 billion). These were assessed as having no ECL unless there was evidence that they were credit impaired.

Equity shares of £0.8 billion (31 December 2019 - £0.9 billion) as not within the IFRS 9 ECL framework by definition. 

Fair value adjustments on loans hedged by interest rate swaps, where the underlying loan was within the IFRS 9 ECL scope - £1.5 billion (31 December 2019 - £1.1 billion).

NatWest Group originated securitisations, where ECL was captured on the underlying loans of £0.4 billion (31 December 2019 - £0.4 billion).

Commercial cards which operate in a similar manner to charge cards, with balances repaid monthly via mandated direct debit with the underlying risk of loss captured within the customer's linked current account of nil (31 December 2019 - £0.3 billion).

 

Contingent liabilities and commitments

In addition to contingent liabilities and commitments disclosed in Note 13 - reputationally-committed limits, are also included in the scope of the IFRS 9 ECL framework. These are offset by £0.1 billion (31 December 2019 - £2.6 billion) out of scope balances primarily related to facilities that, if drawn, would not be classified as AC or FVOCI, or undrawn limits relating to financial assets exclusions. Total contingent liabilities (including financial guarantees) and commitments within IFRS 9 ECL scope of £135.5 billion (31 December 2019 - £127.9 billion) comprised Stage 1 £89.0 billion (31 December 2019 - £121.7 billion); Stage 2 £45.7 billion (31 December 2019 - £5.6 billion); and Stage 3 £0.8 billion (31 December 2019 - £0.6 billion).

 

 

 

 

 

 

Capital and risk management

Credit risk - Banking activities continued

Portfolio summary - segment analysis

The table below shows gross loans and ECL, by segment and stage, within the scope of the IFRS 9 ECL framework.

 

 

UK Personal

Ulster

Commercial

Private

RBS

NatWest

Central items

 

 

Banking

Bank RoI

Banking

Banking

International

Markets

& other

Total

30 June 2020

£m

£m

£m

£m

£m

£m

£m

£m

Loans - amortised cost and FVOCI

 

 

 

 

 

 

 

 

Stage 1

136,065

18,642

53,514

14,465

12,697

10,197

20,864

266,444

Stage 2

28,270

4,478

58,374

1,567

1,825

2,381

115

97,010

Stage 3

2,052

1,547

2,806

256

195

178

 - 

7,034

Of which: individual

 - 

22

1,727

256

195

172

 - 

2,372

Of which: collective

2,052

1,525

1,079

 - 

 - 

6

 - 

4,662

 

166,387

24,667

114,694

16,288

14,717

12,756

20,979

370,488

ECL provisions (1)

 

 

 

 

 

 

 

 

Stage 1

155

42

217

21

9

18

7

469

Stage 2

901

262

1,714

49

25

53

21

3,025

Stage 3

902

567

1,184

29

42

136

 - 

2,860

Of which: individual

 - 

4

701

29

42

129

 - 

905

Of which: collective

902

563

483

 - 

 - 

7

 - 

1,955

 

1,958

871

3,115

99

76

207

28

6,354

ECL provisions coverage (2,3)

 

 

 

 

 

 

 

 

Stage 1 (%)

0.11

0.23

0.41

0.15

0.07

0.18

0.03

0.18

Stage 2 (%)

3.19

5.85

2.94

3.13

1.37

2.23

18.26

3.12

Stage 3 (%)

43.96

36.65

42.20

11.33

21.54

76.40

-

40.66

 

1.18

3.53

2.72

0.61

0.52

1.62

0.13

1.72

 

 

 

 

 

 

 

 

 

Half year ended 30 June 2020

 

 

 

 

 

 

 

 

Impairment losses

 

 

 

 

 

 

 

 

ECL charge (4)

657

243

1,790

56

46

40

26

2,858

Stage 1

24

12

231

16

4

10

11

308

Stage 2

524

186

1,323

39

20

43

15

2,150

Stage 3

109

45

236

1

22

(13)

-

400

Of which: individual

-

(2)

114

1

22

(4)

-

131

Of which: collective

109

47

122

 - 

 - 

(9)

-

269

ECL loss rate - annualised (basis points) (3)

78.97

197.02

312.13

68.76

62.51

62.72

24.79

154.28

Amounts written-off

117

164

120

1

2

4

-

408

Of which: individual

-

 - 

34

1

2

4

-

41

Of which: collective

117

164

86

-

-

-

-

367

 

For the notes to this table refer to the following page.

 

 

 

 

Capital and risk management

Credit risk - Banking activities continued

Portfolio summary - segment analysis 

 

UK Personal

Ulster

Commercial

Private

RBS

NatWest

Central items

 

 

Banking

Bank RoI

Banking

Banking

International

Markets

& other

Total

31 December 2019

£m

£m

£m

£m

£m

£m

£m

£m

Loans - amortised cost and FVOCI

 

 

 

 

 

 

 

 

Stage 1

144,513

18,544

88,100

14,956

14,834

9,273

15,282

305,502

Stage 2

13,558

1,642

11,353

587

545

180

3

27,868

Stage 3

1,902

2,037

2,162

207

121

169

-

6,598

Of which: individual

-

68

1,497

207

121

158

-

2,051

Of which: collective

1,902

1,969

665

-

-

11

-

4,547

 

159,973

22,223

101,615

15,750

15,500

9,622

15,285

339,968

ECL provisions (1)

 

 

 

 

 

 

 

 

Stage 1

114

29

152

7

4

10

6

322

Stage 2

467

53

214

7

6

5

-

752

Stage 3

823

693

1,021

29

21

131

-

2,718

Of which: individual

-

22

602

29

21

122

-

796

Of which: collective

823

671

419

-

-

9

-

1,922

 

1,404

775

1,387

43

31

146

6

3,792

ECL provisions coverage (2,3)

 

 

 

 

 

 

 

 

Stage 1 (%)

0.08

0.16

0.17

0.05

0.03

0.11

0.04

0.11

Stage 2 (%)

3.44

3.23

1.88

1.19

1.10

2.78

-

2.70

Stage 3 (%)

43.27

34.02

47.22

14.01

17.36

77.51

-

41.19

 

0.88

3.49

1.36

0.27

0.20

1.52

0.04

1.12

 

 

 

 

 

 

 

 

 

Half year ended 30 June 2019

 

 

 

 

 

 

 

 

Impairment losses

 

 

 

 

 

 

 

 

ECL charge (4)

181

(21)

202

(3)

(3)

(36)

3

323

Stage 1

(53)

(24)

(55)

(5)

(3)

(2)

2

(140)

Stage 2

103

(38)

38

(1)

-

(2)

1

101

Stage 3

131

41

219

3

-

(32)

-

362

Of which: individual

 - 

(4)

200

3

-

(29)

-

170

Of which: collective

131

45

19

-

-

(3)

-

192

ECL loss rate - annualised (basis points) (3)

23.70

(17.88)

39.66

(4.03)

(3.86)

(68.68)

9.98

19.88

Amounts written-off

90

72

276

1

2

11

-

452

Of which: individual

-

2

227

1

2

11

-

243

Of which: collective

90

70

49

-

-

-

-

209

 

Notes:

(1)

Includes £8 million (31 December 2019 - £4 million) related to assets classified as FVOCI.

(2)

ECL provisions coverage is calculated as ECL provisions divided by loans.

(3)

ECL provisions coverage and ECL loss rates are calculated on third party loans and related ECL provisions and charge respectively. ECL loss rate is calculated as annualised third party ECL charge divided by loans. The half year ECL charge is annualised by multiplying by two.

(4)

Includes a £5 million charge (30 June 2019 - £30 million charge) related to other financial assets, of which £4 million (30 June 2019 - nil) related to assets classified as FVOCI; and £8 million (30 June 2019 - £28 million) related to contingent liabilities.

(5)

 

The table above shows gross loans only and excludes amounts that are outside the scope of the ECL framework. Refer to page 90 for Financial instruments within the scope of the IFRS 9 ECL framework for further details. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling £99.2 billion and debt securities of £60.5 billion (31 December 2019 - £76.1 billion and £59.4 billion respectively).

 

Key points

The ECL requirement increased significantly, primarily in Stage 1 and Stage 2 exposures, in anticipation of credit deterioration, reflecting the severity of the economic impact arising from Covid-19.

The various customer support mechanisms available mitigate against flows to default in the short-term. Hence, there was a more limited impact on Stage 3 ECL requirements.

Reflecting the deteriorated economic environment, the annualised loss rate was significantly above the previously advised view of a normalised blended long-term loss rate.

 

 

 

 

 

 

Capital and risk management

Credit risk - Banking activities continued

Segmental loans and impairment metrics

The table below shows gross loans and ECL provisions, by days past due, by segment and stage, within the scope of the ECL framework.

 

Gross loans

 

ECL provisions (2)

 

 

Stage 2 (1)

 

 

 

 

Stage 2 (1)

 

 

 

 

Not past

1-29

>30

 

 

 

 

 

Not past

1-29

>30

 

 

 

 

Stage 1

due

DPD

DPD

Total

Stage 3

Total

 

Stage 1

due

DPD

DPD

Total

Stage 3

Total

30 June 2020

£m

£m

£m

£m

£m

£m

£m

 

£m

£m

£m

£m

£m

£m

£m

UK Personal Banking

136,065

26,597

1,017

656

28,270

2,052

166,387

 

155

766

61

74

901

902

1,958

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ulster Bank RoI

18,642

4,122

150

206

4,478

1,547

24,667

 

42

234

12

16

262

567

871

Personal (3)

10,602

2,015

131

133

2,279

1,384

14,265

 

18

82

10

13

105

467

590

Wholesale

8,040

2,107

19

73

2,199

163

10,402

 

24

152

2

3

157

100

281

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Banking

53,514

55,593

1,934

847

58,374

2,806

114,694

 

217

1,614

72

28

1,714

1,184

3,115

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Private Banking

14,465

1,545

14

8

1,567

256

16,288

 

21

48

 - 

1

49

29

99

Personal

11,972

168

12

7

187

243

12,402

 

4

3

 - 

 - 

3

26

33

Wholesale

2,493

1,377

2

1

1,380

13

3,886

 

17

45

 - 

1

46

3

66

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RBS International

12,697

1,792

15

18

1,825

195

14,717

 

9

25

 - 

 - 

25

42

76

Personal

2,793

18

13

11

42

68

2,903

 

1

1

 - 

 - 

1

9

11

Wholesale

9,904

1,774

2

7

1,783

127

11,814

 

8

24

 - 

 - 

24

33

65

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NatWest Markets

10,197

2,363

 - 

18

2,381

178

12,756

 

18

53

 - 

 - 

53

136

207

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Central items & other

20,864

115

 - 

 - 

115

 - 

20,979

 

7

21

 - 

 - 

21

 - 

28

Total loans

266,444

92,127

3,130

1,753

97,010

7,034

370,488

 

469

2,761

145

119

3,025

2,860

6,354

Of which:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

161,432

28,798

1,173

807

30,778

3,747

195,957

 

178

852

71

87

1,010

1,404

2,592

Wholesale

105,012

63,329

1,957

946

66,232

3,287

174,531

 

291

1,909

74

32

2,015

1,456

3,762

 

31 December 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UK Personal Banking

144,513

11,921

1,034

603

13,558

1,902

159,973

 

114

375

45

47

467

823

1,404

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ulster Bank RoI

18,544

1,405

104

133

1,642

2,037

22,223

 

29

39

6

8

53

693

775

Personal (3)

10,858

944

96

105

1,145

1,877

13,880

 

12

20

6

6

32

591

635

Wholesale

7,686

461

8

28

497

160

8,343

 

17

19

-

2

21

102

140

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Banking

88,100

10,837

254

262

11,353

2,162

101,615

 

152

195

12

7

214

1,021

1,387

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Private Banking

14,956

478

63

46

587

207

15,750

 

7

6

-

1

7

29

43

Personal

11,630

180

60

41

281

192

12,103

 

3

2

-

1

3

23

29

Wholesale

3,326

298

3

5

306

15

3,647

 

4

4

-

-

4

6

14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RBS International

14,834

520

18

7

545

121

15,500

 

4

6

-

-

6

21

31

Personal

2,799

27

17

6

50

65

2,914

 

1

1

-

-

1

12

14

Wholesale

12,035

493

1

1

495

56

12,586

 

3

5

-

-

5

9

17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NatWest Markets

9,273

176

4

-

180

169

9,622

 

10

5

-

-

5

131

146

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Central items & other

15,282

3

-

-

3

-

15,285

 

6

-

-

-

-

-

6

Total loans

305,502

25,340

1,477

1,051

27,868

6,598

339,968

 

322

626

63

63

752

2,718

3,792

Of which:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

169,800

13,072

1,207

755

15,034

4,036

188,870

 

130

398

51

54

503

1,449

2,082

Wholesale

135,702

12,268

270

296

12,834

2,562

151,098

 

192

228

12

9

249

1,269

1,710

 

For the notes to this table refer to the following page.

 

 

 

 

 

 

 

 

Capital and risk management

Credit risk - Banking activities continued

Segmental loans and impairment metrics

The table below shows ECL and ECL provisions coverage, by days past due, by segment and stage, within the scope of the ECL framework.

 

ECL provision coverage

 

Half year ended 30 June

 

 

Stage 2 (1,2)

 

 

 

ECL

 

 

Not past

 

 

 

 

 

 

Total

 

Amounts

 

Stage 1

due

1-29 DPD

>30 DPD

Total

Stage 3

Total

 

charge

Loss rate

written-off

30 June 2020

%

%

%

%

%

%

%

 

£m

basis points

£m

UK Personal Banking

0.11

2.88

6.00

11.28

3.19

43.96

1.18

 

657

78.97

117

 

 

 

 

 

 

 

 

 

 

 

 

Ulster Bank RoI

0.23

5.68

8.00

7.77

5.85

36.65

3.53

 

243

197.02

164

Personal (3)

0.17

4.07

7.63

9.77

4.61

33.74

4.14

 

120

168.24

162

Wholesale

0.30

7.21

10.53

4.11

7.14

61.35

2.70

 

123

236.49

2

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Banking

0.41

2.90

3.72

3.31

2.94

42.20

2.72

 

1,790

312.13

120

 

 

 

 

 

 

 

 

 

 

 

 

Private Banking

0.15

3.11

-

12.50

3.13

11.33

0.61

 

56

68.76

1

Personal

0.03

1.79

-

-

1.60

10.70

0.27

 

3

4.84

 -

Wholesale

0.68

3.27

-

100.00

3.33

23.08

1.70

 

53

272.77

1

 

 

 

 

 

 

 

 

 

 

 

 

RBS International

0.07

1.40

-

-

1.37

21.54

0.52

 

46

62.51

2

Personal

0.04

5.56

-

-

2.38

13.24

0.38

 

(3)

(20.67)

2

Wholesale

0.08

1.35

-

-

1.35

25.98

0.55

 

49

82.95

 -

 

 

 

 

 

 

 

 

 

 

 

 

NatWest Markets

0.18

2.24

-

-

2.23

76.40

1.62

 

40

62.72

4

 

 

 

 

 

 

 

 

 

 

 

 

Central items & other

0.03

18.26

-

-

18.26

 - 

0.13

 

26

24.79

 -

Total loans

0.18

3.00

4.63

6.79

3.12

40.66

1.72

 

2,858

154.28

408

Of which:

 

 

 

 

 

 

 

 

 

 

 

Personal

0.11

2.96

6.05

10.78

3.28

37.47

1.32

 

777

79.30

281

Wholesale

0.28

3.01

3.78

3.38

3.04

44.30

2.16

 

2,081

238.47

127

 

 

 

 

 

 

 

 

 

 

31 December 2019

 

 

 

 

 

 

 

 

 

 

 

UK Personal Banking

0.08

3.15

4.35

7.79

3.44

43.27

0.88

 

181

23.70

90

 

 

 

 

 

 

 

 

 

 

 

 

Ulster Bank RoI

0.16

2.78

5.77

6.02

3.23

34.02

3.49

 

(21)

(17.88)

72

Personal (3)

0.11

2.12

6.25

5.71

2.79

31.49

4.57

 

(10)

(13.87)

64

Wholesale

0.22

4.12

-

7.14

4.23

63.75

1.68

 

(11)

(24.26)

8

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Banking

0.17

1.80

4.72

2.67

1.88

47.22

1.36

 

202

39.66

276

 

 

 

 

 

 

 

 

 

 

 

 

Private Banking

0.05

1.26

-

2.17

1.19

14.01

0.27

 

(3)

(4.03)

1

Personal

0.03

1.11

-

2.44

1.07

11.98

0.24

 

(3)

(5.11)

1

Wholesale

0.12

1.34

-

-

1.31

40.00

0.38

 

-

-

-

 

 

 

 

 

 

 

 

 

 

 

 

RBS International

0.03

1.15

-

-

1.10

17.36

0.20

 

(3)

(3.86)

2

Personal

0.04

3.70

-

-

2.00

18.46

0.48

 

(1)

(7.30)

2

Wholesale

0.02

1.01

-

-

1.01

16.07

0.14

 

(2)

(3.13)

-

 

 

 

 

 

 

 

 

 

 

 

 

NatWest Markets

0.11

2.84

-

-

2.78

77.51

1.52

 

(36)

(68.68)

11

 

 

 

 

 

 

 

 

 

 

 

 

Central items & other

0.04

-

-

-

-

-

0.04

 

3

9.98

-

Total loans

0.11

2.47

4.27

5.99

2.70

41.19

1.12

 

323

19.88

452

Of which:

 

 

 

 

 

 

 

 

 

 

 

Personal

0.08

3.04

4.23

7.15

3.35

35.90

1.10

 

167

18.39

157

Wholesale

0.14

1.86

4.44

3.04

1.94

49.53

1.13

 

156

21.76

295

 

Notes:

(1)  30 DPD - 30 days past due, the mandatory 30 days past due backstop is prescribed by IFRS 9 for a SICR.

(2)  ECL provisions on contingent liabilities and commitments are included within the Financial assets section so as not to distort ECL coverage ratios.

(3)  Includes a £7 million charge and a £1 million write-off (31 December 2019 - £5 million release and £3 million write-off) related to the business banking portfolio in Ulster Bank RoI.

 

 

 

 

 

 

Capital and risk management

Credit risk - Banking activities continued

Segmental loans and impairment metrics

Key points

Personal Banking -Balance sheet growth since the 2019 year-end was driven by mortgages, primarily pre-Covid-19, in the first quarter of the year. Unsecured lending balances reduced in the second quarter as customer spend and demand for borrowing reduced whilst in lockdown and customers have made repayments. The deteriorated economic outlook, as detailed in the Covid-19 - estimating ECL in uncertain times section, including forecast increases in unemployment, resulted in increased account level IFRS 9 PDs. Consequently, compared to the 2019 year-end, a larger proportion of customer accounts exhibited a SICR with an associated migration of assets from Stage 1 to Stage 2. As a result, the ECL requirement increased. Additionally, forecast declines in house prices increased the ECL requirement on the mortgage portfolio. The various Covid-19 related customer support mechanisms (loan repayment holidays, government job retention scheme) are mitigating actual portfolio deterioration in the short term, with the days past due, and flows to Stage 3 metrics, yet to be materially impacted. Provisions coverage increased overall but coverage on Stage 2 alone has reduced driven by a proportionately higher share of mortgage exposures where coverage levels are lower, reflecting the secured nature of the borrowing. The annualised loss rate for H1 2020 was significantly higher than in 2019.

Commercial Banking - Balance sheet growth since the 2019 year-end was mainly due to further drawdowns on existing facilities and new lending under the Covid-19 government lending schemes. The deteriorated economic outlook, as detailed in the Covid-19 - estimating ECL in uncertain times section, including significant falls in GDP and commercial real estate valuations, resulted in increased IFRS 9 PDs. Consequently, compared to the 2019 year-end, a larger proportion of the exposures exhibited a SICR with an associated migration of assets from Stage 1 to Stage 2. As a result, the ECL requirement increased. The increase in Stage 2 assets due to PD deterioration was also the primary driver for the increase in the Stage 2 exposures less than 30 days past due. The various Covid-19 related customer support mechanisms are providing some mitigation against flows in to defaults in the short-term. Increased coverage in Stage 1 and Stage 2 was driven by the increased ECL, mainly as a result of the deteriorated economic outlook, which was partially offset by a slight decrease in Stage 3 coverage. The annualised loss rate for H1 2020 was significantly higher than in 2019.

Ulster Bank RoI - Balance sheet growth since the 2019 year-end was mainly due to further drawdowns on existing facilities and new lending across both the commercial and personal banking portfolios, offset by ongoing deleveraging of the Ulster Bank RoI mortgage non-performing portfolio through the execution of two tranches of a portfolio sale. The deteriorated economic outlook, as detailed in the Covid-19 - estimating ECL in uncertain times section, included forecast increases in unemployment, falls in property prices and GDP, which resulted in increased IFRS 9 PDs across all portfolios. Consequently, compared to the 2019 year-end, a larger proportion of the exposures exhibited a SICR with an associated migration of assets from Stage 1 to Stage 2. As a result, the ECL requirement increased. The various Covid-19 related customer support mechanisms (loan repayment breaks, government job retention scheme) provided by Ulster Bank RoI are mitigating actual portfolio deterioration in the short-term, with the days past due, and flows to Stage 3 metrics, yet to be materially impacted. The annualised loss rate for H1 2020 was significantly higher than in 2019.

 

 

 

 

 

 

Capital and risk management

Credit risk - Banking activities continued

Portfolio summary - sector analysis

The table below shows financial assets and off-balance sheet exposures gross of ECL and related ECL provisions, impairment and past due by sector, asset quality and geographical region based on the country of operation of the customer.

 

 

 

Personal

 

Wholesale

 

Total

 

 

Credit

Other

 

 

 

 

 

 

 

 

 

 

Mortgages(1)

cards

personal

Total

 

Property

Corporate

FI

Sovereign

Total

 

 

30 June 2020

£m

£m

£m

£m

 

£m

£m

£m

£m

£m

 

£m

Loans by geography

182,142

3,818

9,997

195,957

 

40,441

81,715

42,932

9,443

174,531

 

370,488

  - UK

168,163

3,743

9,786

181,692

 

37,546

66,125

29,575

3,566

136,812

 

318,504

  - RoI

13,979

75

211

14,265

 

1,375

4,312

288

4,994

10,969

 

25,234

  - Other Europe

-

-

-

-

 

829

5,706

4,260

382

11,177

 

11,177

  - RoW

-

-

-

-

 

691

5,572

8,809

501

15,573

 

15,573

Loans by asset quality (2)

182,142

3,818

9,997

195,957

 

40,441

81,715

42,932

9,443

174,531

 

370,488

  - AQ1

2,552

-

554

3,106

 

4,602

1,919

23,299

2,054

31,874

 

34,980

  - AQ2

4,496

-

-

4,496

 

2,324

647

1,954

1,824

6,749

 

11,245

  - AQ3

276

-

-

276

 

2,924

6,502

1,644

5,300

16,370

 

16,646

  - AQ4

98,997

42

377

99,416

 

7,268

15,830

9,977

96

33,171

 

132,587

  - AQ5

59,995

907

1,405

62,307

 

10,048

20,605

1,798

106

32,557

 

94,864

  - AQ6

4,066

994

3,969

9,029

 

6,539

14,905

706

3

22,153

 

31,182

  - AQ7

5,627

1,374

1,697

8,698

 

3,596

12,018

3,258

44

18,916

 

27,614

  - AQ8

1,610

335

868

2,813

 

1,086

4,566

268

5

5,925

 

8,738

  - AQ9

1,620

56

393

2,069

 

795

2,711

18

5

3,529

 

5,598

  - AQ10

2,903

110

734

3,747

 

1,259

2,012

10

6

3,287

 

7,034

Loans by stage

182,142

3,818

9,997

195,957

 

40,441

81,715

42,932

9,443

174,531

 

370,488

  - Stage 1

152,947

2,387

6,098

161,432

 

26,782

29,661

39,133

9,436

105,012

 

266,444

  - Stage 2

26,292

1,321

3,165

30,778

 

12,400

50,042

3,789

1

66,232

 

97,010

  - Stage 3

2,903

110

734

3,747

 

1,259

2,012

10

6

3,287

 

7,034

  - Of which: individual

290

-

21

311

 

860

1,196

2

3

2,061

 

2,372

  - Of which: collective

2,613

110

713

3,436

 

399

816

8

3

1,226

 

4,662

Loans - past due analysis (3,4)

182,142

3,818

9,997

195,957

 

40,441

81,715

42,932

9,443

174,531

 

370,488

  - Not past due

177,991

3,663

8,989

190,643

 

38,890

78,439

42,651

8,476

168,456

 

359,099

  - Past due 1-29 days

1,495

25

155

1,675

 

604

1,964

200

967

3,735

 

5,410

  - Past due 30-89 days

954

46

132

1,132

 

435

599

75

-

1,109

 

2,241

  - Past due 90-180 days

494

30

84

608

 

29

88

-

-

117

 

725

  - Past due >180 days

1,208

54

637

1,899

 

483

625

6

-

1,114

 

3,013

Loans - Stage 2

26,292

1,321

3,165

30,778

 

12,400

50,042

3,789

1

66,232

 

97,010

  - Not past due

24,624

1,267

2,907

28,798

 

11,636

47,992

3,700

1

63,329

 

92,127

  - Past due 1-29 days

1,020

17

136

1,173

 

395

1,548

14

-

1,957

 

3,130

  - Past due 30-89 days

648

37

122

807

 

369

502

75

-

946

 

1,753

Weighted average life*

 

 

 

 

 

 

 

 

 

 

 

 

  - ECL measurement (years)

9

3

5

6

 

4

5

4

-

5

 

5

Weighted average 12 months PDs*

 

 

 

 

 

 

 

 

 

 

 

 

  - IFRS 9 (%)

0.71

4.14

4.88

0.98

 

3.78

4.07

0.52

0.06

2.74

 

1.69

  - Basel (%)

0.89

3.75

4.14

1.10

 

1.61

2.52

0.29

0.09

1.55

 

1.30

ECL provisions by geography

1,032

376

1,184

2,592

 

1,031

2,625

96

10

3,762

 

6,354

  - UK

461

373

1,168

2,002

 

895

2,010

37

7

2,949

 

4,951

  - RoI

571

3

16

590

 

82

219

3

1

305

 

895

  - Other Europe

-

-

-

-

 

47

182

42

1

272

 

272

  - RoW

-

-

-

-

 

7

214

14

1

236

 

236

ECL provisions by stage

1,032

376

1,184

2,592

 

1,031

2,625

96

10

3,762

 

6,354

  - Stage 1

34

47

97

178

 

126

133

22

10

291

 

469

  - Stage 2

292

243

475

1,010

 

392

1,554

69

-

2,015

 

3,025

  - Stage 3

706

86

612

1,404

 

513

938

5

-

1,456

 

2,860

  - Of which: individual

20

-

15

35

 

305

565

-

-

870

 

905

  - Of which: collective

686

86

597

1,369

 

208

373

5

-

586

 

1,955

ECL provisions coverage (%)

0.57

9.85

11.84

1.32

 

2.55

3.21

0.22

0.11

2.16

 

1.72

  - Stage 1 (%)

0.02

1.97

1.59

0.11

 

0.47

0.45

0.06

0.11

0.28

 

0.18

  - Stage 2 (%)

1.11

18.40

15.01

3.28

 

3.16

3.11

1.82

-

3.04

 

3.12

  - Stage 3 (%)

24.32

78.18

83.38

37.47

 

40.75

46.62

50.00

-

44.30

 

40.66

ECL charge

243

164

370

777

 

568

1,439

73

1

2,081

 

2,858

  - UK

136

163

358

657

 

501

1,238

26

1

1,766

 

2,423

  - RoI

107

1

12

120

 

47

77

1

-

125

 

245

  - Other Europe

-

-

-

-

 

16

50

36

-

102

 

102

  - RoW

-

-

-

-

 

4

74

10

-

88

 

88

ECL loss rate (%)

0.27

8.59

7.40

0.79

 

2.81

3.52

0.34

0.02

2.38

 

1.54

Amounts written-off

169

49

63

281

 

21

104

2

-

127

 

408

 

*Not within the scope of EY's review report.

 

For the notes to this table refer to page 45.

 

 

 

Capital and risk management

Credit risk - Banking activities continued

Portfolio summary - sector analysis

 

Personal

 

Wholesale

 

Total

 

 

Credit

Other

 

 

 

 

 

 

 

 

 

 

Mortgages(1)

cards

personal

Total

 

Property

Corporate

FI

Sovereign

Total

 

 

30 June 2020

£m

£m

£m

£m

 

£m

£m

£m

£m

£m

 

£m

Loans by residual maturity

182,142

3,818

9,997

195,957

 

40,441

81,715

42,932

9,443

174,531

 

370,488

 - <1 year

3,820

2,357

3,129

9,306

 

8,930

25,187

33,226

7,322

74,665

 

83,971

 - 1-5 year

9,103

1,461

5,724

16,288

 

21,932

39,324

8,790

1,317

71,363

 

87,651

 - 5 year

169,219

 - 

1,144

170,363

 

9,579

17,204

916

804

28,503

 

198,866

Other financial assets by asset quality (2)

-

-

-

-

 

37

129

13,213

146,272

159,651

 

159,651

  - AQ1-AQ4

-

-

-

-

 

-

128

12,734

146,236

159,098

 

159,098

  - AQ5-AQ8

-

-

-

-

 

37

1

479

36

553

 

553

Off-balance sheet

11,161

17,481

12,685

41,327

 

16,030

58,398

18,630

1,131

94,189

 

135,516

  - Loan commitments

11,158

17,481

12,640

41,279

 

15,423

55,099

17,500

1,129

89,151

 

130,430

  - Financial guarantees

3

 - 

45

48

 

607

3,299

1,130

2

5,038

 

5,086

Off-balance sheet by asset quality (2)

11,161

17,481

12,685

41,327

 

16,030

58,398

18,630

1,131

94,189

 

135,516

  - AQ1-AQ4

10,537

278

10,362

21,177

 

11,837

35,657

17,083

1,092

65,669

 

86,846

  - AQ5-AQ8

614

16,910

2,307

19,831

 

4,116

22,210

1,543

39

27,908

 

47,739

  - AQ9

1

9

16

26

 

12

46

-

-

58

 

84

  - AQ10

9

284

-

293

 

65

485

4

-

554

 

847

 

 

For the notes to this table refer to page 45.

 

 

 

 

 

 

 

Capital and risk management

Credit risk - Banking activities continued

Portfolio summary - sector analysis 

 

Personal

 

Wholesale

 

Total

 

 

Credit

Other

 

 

 

 

 

 

 

 

 

 

Mortgages(1)

cards

personal

Total

 

Property

Corporate

FI

Sovereign

Total

 

 

31 December 2019

£m

£m

£m

£m

 

£m

£m

£m

£m

£m

 

£m

Loans by geography

174,003

4,478

10,389

188,870

 

36,371

71,042

36,266

7,419

151,098

 

339,968

  - UK

160,431

4,383

10,176

174,990

 

33,644

58,666

22,564

3,479

118,353

 

293,343

  - RoI

13,572

95

213

13,880

 

1,310

4,169

513

3,167

9,159

 

23,039

  - Other Europe

-

-

-

-

 

921

4,350

5,120

328

10,719

 

10,719

  - RoW

-

-

-

-

 

496

3,857

8,069

445

12,867

 

12,867

Loans by asset quality (2)

174,003

4,478

10,389

188,870

 

36,371

71,042

36,266

7,419

151,098

 

339,968

  - AQ1

3,837

-

665

4,502

 

4,474

2,272

17,841

1,931

26,518

 

31,020

  - AQ2

2,866

-

-

2,866

 

2,490

496

1,763

1,780

6,529

 

9,395

  - AQ3

277

-

-

277

 

2,465

5,561

2,939

3,520

14,485

 

14,762

  - AQ4

92,520

375

625

93,520

 

6,574

14,660

9,979

41

31,254

 

124,774

  - AQ5

58,051

786

1,708

60,545

 

10,419

19,584

2,027

107

32,137

 

92,682

  - AQ6

5,253

1,211

3,344

9,808

 

5,809

13,470

811

3

20,093

 

29,901

  - AQ7

5,326

1,531

2,328

9,185

 

2,853

11,404

867

30

15,154

 

24,339

  - AQ8

1,379

393

792

2,564

 

302

1,478

20

2

1,802

 

4,366

  - AQ9

1,217

66

284

1,567

 

90

468

6

-

564

 

2,131

  - AQ10

3,277

116

643

4,036

 

895

1,649

13

5

2,562

 

6,598

Loans by stage

174,003

4,478

10,389

188,870

 

36,371

71,042

36,266

7,419

151,098

 

339,968

  - Stage 1

159,261

3,103

7,436

169,800

 

32,896

59,689

35,707

7,410

135,702

 

305,502

  - Stage 2

11,465

1,259

2,310

15,034

 

2,580

9,704

546

4

12,834

 

27,868

  - Stage 3

3,277

116

643

4,036

 

895

1,649

13

5

2,562

 

6,598

  - Of which: individual

235

-

21

256

 

646

1,137

7

5

1,795

 

2,051

  - Of which: collective

3,042

116

622

3,780

 

249

512

6

-

767

 

4,547

Loans - past due analysis (3,4)

174,003

4,478

10,389

188,870

 

36,371

71,042

36,266

7,419

151,098

 

339,968

  - Not past due

169,536

4,313

9,473

183,322

 

35,445

68,730

36,214

7,365

147,754

 

331,076

  - Past due 1-29 days

1,578

43

164

1,785

 

317

1,339

36

54

1,746

 

3,531

  - Past due 30-89 days

955

36

123

1,114

 

82

271

7

-

360

 

1,474

  - Past due 90-180 days

495

30

84

609

 

26

148

-

-

174

 

783

  - Past due >180 days

1,439

56

545

2,040

 

501

554

9

-

1,064

 

3,104

Loans - Stage 2

11,465

1,259

2,310

15,034

 

2,580

9,704

546

4

12,834

 

27,868

  - Not past due

9,798

1,204

2,070

13,072

 

2,466

9,266

534

4

12,270

 

25,342

  - Past due 1-29 days

1,050

29

128

1,207

 

49

214

5

-

268

 

1,475

  - Past due 30-89 days

617

26

112

755

 

65

224

7

-

296

 

1,051

Weighted average life*

 

 

 

 

 

 

 

 

 

 

 

 

  - ECL measurement (years)

9

2

6

5

 

6

6

3

1

6

 

6

Weighted average 12 months PDs*

 

 

 

 

 

 

 

 

 

 

 

 

  - IFRS 9 (%)

0.31

3.86

2.98

0.54

 

0.63

0.98

0.13

0.05

0.60

 

0.54

  - Basel (%)

0.81

3.59

3.75

1.03

 

0.96

1.25

0.20

0.07

0.83

 

0.92

ECL provisions by geography

964

261

857

2,082

 

494

1,181

28

7

1,710

 

3,792

  - UK

342

259

846

1,447

 

424

800

14

4

1,242

 

2,689

  - RoI

622

2

11

635

 

39

117

3

1

160

 

795

  - Other Europe

-

-

-

-

 

28

130

9

1

168

 

168

  - RoW

-

-

-

-

 

3

134

2

1

140

 

140

ECL provisions by stage

964

261

857

2,082

 

494

1,181

28

7

1,710

 

3,792

  - Stage 1

25

40

65

130

 

45

124

16

7

192

 

322

  - Stage 2

118

132

253

503

 

47

198

4

-

249

 

752

  - Stage 3

821

89

539

1,449

 

402

859

8

-

1,269

 

2,718

  - Of which: individual

24

-

11

35

 

236

521

4

-

761

 

796

  - Of which: collective

797

89

528

1,414

 

166

338

4

-

508

 

1,922

ECL provisions coverage (%)

0.55

5.83

8.25

1.10

 

1.36

1.66

0.08

0.09

1.13

 

1.12

  - Stage 1 (%)

0.02

1.29

0.87

0.08

 

0.14

0.21

0.04

0.09

0.14

 

0.11

  - Stage 2 (%)

1.03

10.48

10.95

3.35

 

1.82

2.04

0.73

-

1.94

 

2.70

  - Stage 3 (%)

25.05

76.72

83.83

35.90

 

44.92

52.09

61.54

-

49.53

 

41.19

 

 

 

 

 

 

 

 

 

 

 

 

 

Half year ended 30 June 2019

 

 

 

 

 

 

 

 

 

 

 

 

ECL charge

3

26

138

167

 

22

134

(2)

2

156

 

323

  - UK

15

26

136

177

 

22

165

(1)

1

187

 

364

  - RoI

(12)

-

2

(10)

 

-

(11)

-

-

(11)

 

(21)

  - Other Europe

-

-

-

-

 

-

(25)

(1)

-

(26)

 

(26)

  - RoW

-

-

-

-

 

-

5

-

1

6

 

6

ECL loss rate (%)

-

1.24

2.78

0.18

 

0.12

0.37

(0.01)

0.05

0.22

 

0.20

Amounts written-off

71

35

51

157

 

173

112

10

-

295

 

452

 

*Not within the scope of EY's review report.

 

For the notes to this table refer to the following page.

 

 

 

Capital and risk management

Credit risk - Banking activities continued

Portfolio summary - sector analysis

 

 

Personal

 

Wholesale

 

Total

 

 

Credit

Other

 

 

 

 

 

 

 

 

 

 

Mortgages(1)

cards

personal

Total

 

Property

Corporate

FI

Sovereign

Total

 

 

31 December 2019

£m

£m

£m

£m

 

£m

£m

£m

£m

£m

 

£m

Loans by residual maturity

174,003

4,478

10,389

188,870

 

36,371

71,042

36,266

7,419

151,098

 

339,968

 - <1 year

3,996

2,750

3,480

10,226

 

7,318

24,539

27,299

5,477

64,633

 

74,859

 - 1-5 year

8,771

1,728

5,769

16,268

 

19,774

31,215

7,922

1,164

60,075

 

76,343

 - 5 year

161,236

-

1,140

162,376

 

9,279

15,288

1,045

778

26,390

 

188,766

Other financial assets by asset quality (2)

-

-

-

-

 

-

110

12,185

123,170

135,465

 

135,465

  - AQ1-AQ4

-

-

-

-

 

-

110

11,742

122,906

134,758

 

134,758

  - AQ5-AQ8

-

-

-

-

 

-

-

441

264

705

 

705

  - AQ9

-

-

-

-

 

-

-

2

-

2

 

2

Off-balance sheet

14,348

16,686

12,332

43,366

 

15,383

51,390

16,742

1,022

84,537

 

127,903

  - Loan commitments

14,345

16,686

12,285

43,316

 

14,739

47,883

15,417

1,021

79,060

 

122,376

  - Financial guarantees

3

-

47

50

 

644

3,507

1,325

1

5,477

 

5,527

Off-balance sheet by asset quality (2)

14,348

16,686

12,332

43,366

 

15,383

51,390

16,742

1,022

84,537

 

127,903

  - AQ1-AQ4

13,506

3,818

10,049

27,373

 

11,364

34,852

15,397

984

62,597

 

89,970

  - AQ5-AQ8

832

12,588

2,271

15,691

 

3,948

16,228

1,340

38

21,554

 

37,245

  - AQ9

1

4

12

17

 

11

49

4

-

64

 

81

  - AQ10

9

276

-

285

 

60

261

1

-

322

 

607

 

Notes:

(1)

Includes a portion of secured lending in Private Banking, in line with ECL calculation methodology. Private Banking and RBSI mortgages are reported in UK, reflecting the country of lending origination.

(2)

AQ bandings are based on Basel PDs and the mapping is as follows:

 

Internal asset quality band

Probability of default range

Indicative S&P rating

AQ1

0% - 0.034%

AAA to AA

AQ2

0.034% - 0.048%

AA to AA-

AQ3

0.048% - 0.095%

A+ to A

AQ4

0.095% - 0.381%

BBB+ to BBB-

AQ5

0.381% - 1.076%

BB+ to BB

AQ6

1.076% - 2.153%

BB- to B+

AQ7

2.153% - 6.089%

B+ to B

AQ8

6.089% - 17.222%

B- to CCC+

AQ9

17.222% - 100%

CCC to C

AQ10

100%

D

 

£0.3 billion (31 December 2019 - £0.3 billion) of AQ10 Personal balances primarily relate to loan commitments, the drawdown of which is effectively prohibited. AQ10 includes £0.5 billion (31 December 2019 - £0.6 billion) of RoI mortgages which are not currently considered defaulted for capital calculation purposes for RoI but are included in Stage 3.

(3)

30 DPD - 30 days past due, the mandatory 30 days past due backstop as prescribed by the IFRS 9 guidance for a SICR.

(4)

Days past due - Personal products: at a high level, for amortising products, the number of days past due is derived from the arrears amount outstanding and the monthly repayment instalment. For credit cards, it is based on payments missed, and for current accounts the number of continual days in excess of borrowing limit. Wholesale products: the number of days past due for all products is the number of continual days in excess of borrowing limit.

 

 

 

 

 

Capital and risk management

Credit risk - Banking activities continued

Sector analysis

The table below shows ECL by stage, for key sectors in the Personal and Wholesale portfolios impacted by Covid-19.

 

 

 

Off-balance sheet

 

 

 

Loans - amortised cost & FVOCI (1)

 

Loan

Contingent

 

ECL provisions

 

Stage 1

Stage 2

Stage 3

Total

 

commitments (1)

liabilities

 

Stage 1

Stage 2

Stage 3

Total

30 June 2020

£m

£m

£m

£m

 

£m

£m

 

£m

£m

£m

£m

Personal

161,432

30,778

3,747

195,957

 

41,279

48

 

178

1,010

1,404

2,592

  Mortgages

152,947

26,292

2,903

182,142

 

11,158

3

 

34

292

706

1,032

  Credit cards

2,387

1,321

110

3,818

 

17,481

-

 

47

243

86

376

  Other personal

6,098

3,165

734

9,997

 

12,640

45

 

97

475

612

1,184

Wholesale

105,012

66,232

3,287

174,531

 

89,151

5,038

 

291

2,015

1,456

3,762

  Property

26,782

12,400

1,259

40,441

 

15,423

607

 

126

392

513

1,031

  Financial institutions

39,133

3,789

10

42,932

 

17,500

1,130

 

22

69

5

96

  Sovereign

9,436

1

6

9,443

 

1,129

2

 

10

-

-

10

  Corporate

29,661

50,042

2,012

81,715

 

55,099

3,299

 

133

1,554

938

2,625

  Of which:

 

 

 

 

 

 

 

 

 

 

 

 

  Airlines and aerospace

495

1,839

38

2,372

 

1,829

233

 

4

53

26

83

  Automotive

2,000

5,437

146

7,583

 

3,547

93

 

8

108

19

135

  Education

704

919

83

1,706

 

725

19

 

2

27

16

45

  Health

2,055

3,650

168

5,873

 

515

13

 

9

145

60

214

  Land transport and logistics

1,149

3,334

110

4,593

 

3,919

206

 

6

96

43

145

  Leisure

2,755

6,739

534

10,028

 

1,841

126

 

22

303

249

574

  Oil and gas

465

1,535

89

2,089

 

2,627

382

 

4

55

61

120

  Retail

2,647

5,059

221

7,927

 

5,858

507

 

13

158

170

341

  Shipping

293

877

21

1,191

 

219

38

 

2

90

11

103

  Textiles

73

111

3

187

 

65

9

 

-

2

2

4

Total

266,444

97,010

7,034

370,488

 

130,430

5,086

 

469

3,025

2,860

6,354

 

31 December 2019

 

 

 

 

 

 

 

 

 

 

 

 

Personal

169,800

15,034

4,036

188,870

 

43,316

50

 

130

503

1,449

2,082

  Mortgages

159,261

11,465

3,277

174,003

 

14,345

3

 

25

118

821

964

  Credit cards

3,103

1,259

116

4,478

 

16,686

-

 

40

132

89

261

  Other personal

7,436

2,310

643

10,389

 

12,285

47

 

65

253

539

857

Wholesale

135,702

12,834

2,562

151,098

 

79,060

5,477

 

192

249

1,269

1,710

  Property

32,896

2,580

895

36,371

 

14,739

644

 

45

47

402

494

  Financial institutions

35,707

546

13

36,266

 

15,417

1,325

 

16

4

8

28

  Sovereign

7,410

4

5

7,419

 

1,021

1

 

7

-

-

7

  Corporate

59,689

9,704

1,649

71,042

 

47,883

3,507

 

124

198

859

1,181

  Of which:

 

 

 

 

 

 

 

 

 

 

 

 

  Airlines and aerospace (2)

1,412

261

40

1,713

 

1,716

271

 

2

3

55

60

  Automotive

5,062

1,143

20

6,225

 

3,815

98

 

12

11

15

38

  Education

1,426

154

12

1,592

 

654

18

 

2

4

1

7

  Health

4,695

844

167

5,706

 

534

17

 

9

16

52

77

  Land transport and logistics

3,477

316

53

3,846

 

3,301

249

 

6

12

21

39

  Leisure

6,323

1,253

377

7,953

 

2,876

135

 

25

27

175

227

  Oil and gas

1,923

140

86

2,149

 

2,400

358

 

5

3

55

63

  Retail

6,397

1,279

215

7,891

 

5,383

560

 

13

16

180

209

  Shipping

474

725

20

1,219

 

313

53

 

1

37

5

43

  Textiles

134

29

3

166

 

93

6

 

-

1

2

3

Total

305,502

27,868

6,598

339,968

 

122,376

5,527

 

322

752

2,718

3,792

 

Notes:

(1)

Loan commitments as at 30 June 2020 includes £4.1 billion of commercial cards related balances which were brought into scope of ECL calculations in H1 2020. 

(2)

Airlines and aerospace Stage 3 ECL at 31 December 2019 included £27 million of ECL related to contingent liabilities.

 

 

 

 

 

 

 

Capital and risk management

Credit risk - Banking activities continued

Sector performance in Wholesale portfolios

The nature of the Covid-19 crisis is such that the impact on customers varies significantly by industry sector. NatWest Group has adopted a nuanced response to capture the sector ECL impact by using sector specific CCIs in its Wholesale methodology. The CCIs observed at the reporting date are based on average default probability estimates for publicly-listed companies, in a set of comprehensive sector/region segments derived from the stock market valuation, asset volatility and capital structure of each company. Forward-looking CCIs are projected based on the economic loss drivers in the scenarios (refer to the Use of the scenarios in Wholesale section) and have been adjusted by sector group specific CCI changes observed throughout H1 2020 to make them more sector specific (refer to the industry detail in the Model performance section). Since both, current and projected CCI are driving PD and LGD, NatWest Group obtains modelled ECL outcomes which are significantly differentiated by sector. As a result, the impact on ECL is more pronounced for those sectors which have suffered a more significant disruption from Covid-19.

 

 

Wholesale forbearance

The table below shows Wholesale forbearance, Heightened Monitoring and Risk of Credit Loss by sector. Personal forbearance is disclosed on page 49.

 

FI

Property

Sovereign

Other corporate

Total

30 June 2020

£m

£m

£m

£m

£m

Forbearance (flow)

80

730

-

2,648

3,458

Heightened Monitoring and Risk of Credit Loss

154

1,333

-

5,960

7,447

31 December 2019

 

 

 

 

 

Forbearance (flow)

35

546

-

2,254

2,835

Heightened Monitoring and Risk of Credit Loss

107

1,209

-

4,207

5,523

 

 

 

 

 

Capital and risk management

Credit risk - Banking activities continued

Key points

Loans by geography - In the Personal portfolios, exposures continued to be concentrated in the UK and heavily weighted to mortgages and the vast majority of exposures in the Republic of Ireland remained in mortgages. Balance sheet growth since the 2019 year-end was driven by mortgages, primarily pre-Covid-19, in the first quarter of the year. Unsecured lending balances reduced as described earlier. In the Wholesale portfolios, balance sheet growth was driven by additional drawings on existing facilities and new lending under the various government-supported lending schemes which are predominantly to UK customers.

Loans by asset quality (based on Basel II PD) - In the Personal portfolios, asset quality distribution deteriorated slightly in credit cards and other personal since the year-end, with the Basel II point-in-time PDs yet to reflect the expected credit deterioration. In the Wholesale portfolios, Basel II PDs are based on a through-the-cycle approach. The asset quality distribution was relatively stable with only modest deterioration. For further details refer to the Asset quality section.

Loans by stage - In both the Personal and Wholesale portfolios, the deteriorated economic outlook, as detailed in the Covid-19 - estimating ECL in uncertain times section, resulted in increased account level IFRS 9 PDs. Consequently, compared to the 2019 year-end, a larger proportion of accounts exhibited a SICR with an associated migration of exposures from Stage 1 to Stage 2.

Loans - past due analysis and Stage 2 - The various Covid-19 related customer support mechanisms (capital repayment holidays, government job retention scheme, government supported lending schemes) are mitigating actual portfolio deterioration in the short term, although there have been some increases in past due exposures.

Weighted average PDs - In Personal, the Basel II point-in-time PDs have yet to be materially affected. The forward-looking IFRS 9 PDs increased reflecting the deteriorated economics. The cards PD had been significantly over-predicting defaults at the 2019 year-end but has now been addressed, hence the relatively small movement. The over-prediction had been mitigated by a downward ECL overlay, now discontinued. The IFRS 9 PDs for both loans and mortgages were under-predicting and an upward ECL overlay adjustment was held in mitigation. In the Wholesale portfolios, the Basel II PDs are based on a through-the-cycle approach and have been relatively stable. The increase in the IFRS 9 PDs reflected the impact of the deteriorated economic outlook.

ECL provisions by geography - In line with exposures by geography, the vast majority of ECL related to exposures in the UK and the Republic of Ireland.

ECL provisions by stage - Stage 1 and Stage 2 provisions have increased reflecting the deteriorated economic outlook. As outlined above, Stage 3 provisions have yet to be materially impacted mitigated by the various customer support mechanisms discussed earlier. In mortgages, the Stage 3 ECL reduction was driven by a debt sale in Ulster Bank RoI, where the exposure value also reduced.

ECL provisions coverage - Overall provisions coverage increased. In Stage 2 alone, at a total Personal level, coverage reduced slightly, driven by a proportionately higher share of mortgage exposures where coverage levels were lower reflecting the secured nature of the borrowing. In Wholesale, overall provisions coverage increased, primarily due to the impact of the deteriorated economic conditions. Stage 1 and Stage 2 coverage increased, particularly in those sectors suffering the most disruption as a result of Covid-19.

ECL charge and loss rate - Reflecting the deteriorated economic outlook, the impairment charge was elevated, with the annualised loss rate for H1 2020 significantly higher than the 2019 outcome.

Loans by residual maturity - In mortgages, the vast majority of exposures remained greater than five years. In unsecured lending - cards and other - exposures were concentrated in less than five years. In Wholesale, the vast majority of new lending was for residual maturity of one-five years, with some greater than five years in line with lending under the government support schemes.

Other financial assets by asset quality - Consisting almost entirely of cash and balances at central banks and debt securities, held in the course of treasury related management activities, these assets were mainly within the AQ1-AQ4 category.

Off-balance sheet by asset quality - In Personal, undrawn exposures were reflective of available credit lines in credit cards and current accounts and have increased slightly as drawn exposures have reduced. Additionally, the mortgage portfolio had undrawn exposure, where a formal offer had been made to a customer but had not yet been drawn down; the value has reduced in line with a reduction in the pipeline of offers. There was also a legacy portfolio of flexible mortgages where a customer had the right and ability to draw down further funds. The asset quality distribution in mortgages remained heavily weighted to the highest quality bands AQ1-AQ4, with credit card concentrated in the risk bands AQ5-AQ8. In Wholesale, undrawn exposures increased additional lending facilities were agreed, primarily as a result of the Covid-19 crisis. The vast majority of new corporate loan commitments were in the AQ5-AQ8 asset quality bands.

Wholesale forbearance - Customers seeking Covid-19 related support, including payment holidays, who were not subject to any wider SICR triggers and who are assessed as having the ability in the medium term post-crisis to be viable and meet credit appetite metrics, were not considered to have been granted forbearance. Completed forbearance flow in H1 2020 for other corporate was £2.6 billion. Retail and leisure continued to represent the largest share of this forbearance flow. Following the outbreak of Covid-19, the flow of forbearance rose significantly in the property and transport sectors, with the rise in transport resulting from forbearance completed on individually significant exposures. Payment holidays and covenant waivers were the most common forms of forbearance granted.

Heightened Monitoring and Risk of Credit Loss - Exposure increased to £7.4 billion (31 December 2019 - £5.5 billion).  Consistent with the impacts of Covid-19, increased flows into Heightened Monitoring and Risk of Credit Loss have been noted across a number of sectors.  The most material increases in both volumes and exposure was seen within other corporate and particularly in retail and leisure.

 

 

Capital and risk management

Credit risk - Banking activities continued

Personal portfolio

Disclosures in the Personal portfolio section include drawn exposure (gross of provisions).

 

 

30 June 2020

 

31 December 2019

 

UK Personal

Ulster

Private

RBS

 

 

UK Personal

Ulster

Private

RBS

 

 

Banking

Bank RoI

Banking

International

Total

 

Banking

Bank RoI

Banking

International

Total

Personal lending

£m

£m

£m

£m

£m

 

£m

£m

£m

£m

£m

Mortgages

154,909

14,007

10,238

2,596

181,750

 

147,489

13,598

9,955

2,620

173,662

Of which:

 

 

 

 

 

 

 

 

 

 

 

  Owner occupied

140,372

13,038

8,991

1,728

164,129

 

132,698

12,593

8,714

1,747

155,752

  Buy-to-let

14,537

969

1,247

868

17,621

 

14,791

1,005

1,241

874

17,911

  Interest only - variable

5,650

166

3,965

349

10,130

 

6,279

165

3,646

371

10,461

  Interest only - fixed

13,277

9

4,570

248

18,104

 

12,891

9

4,604

241

17,745

  Mixed (1)

6,689

59

1

20

6,769

 

6,288

61

1

20

6,370

  Impairment provisions (2)

437

571

12

10

1,030

 

309

622

13

11

955

Other personal lending (3)

11,650

286

1,943

290

14,169

 

12,778

308

1,767

280

15,133

Impairment provisions (2)

1,515

18

21

2

1,556

 

1,087

13

16

1

1,117

Total personal lending

166,559

14,293

12,181

2,886

195,919

 

160,267

13,906

11,722

2,900

188,795

Mortgage LTV ratios

 

 

 

 

 

 

 

 

 

 

 

  Total portfolio

57%

59%

57%

58%

57%

 

57%

60%

57%

58%

57%

  - Stage 1

56%

55%

57%

57%

56%

 

57%

57%

57%

57%

57%

  - Stage 2

67%

69%

61%

66%

67%

 

58%

67%

60%

64%

59%

  - Stage 3

55%

69%

69%

75%

63%

 

55%

73%

70%

80%

66%

  Buy-to-let

52%

60%

55%

52%

53%

 

53%

61%

54%

53%

54%

  - Stage 1

51%

54%

55%

52%

51%

 

52%

57%

54%

53%

52%

  - Stage 2

60%

74%

65%

50%

62%

 

57%

69%

57%

51%

59%

  - Stage 3

58%

75%

54%

62%

64%

 

59%

75%

58%

66%

67%

Gross new mortgage lending (4)

15,849

400

814

124

17,187

 

31,857

1,184

2,112

355

35,508

Of which:

 

 

 

 

 

 

 

 

 

 

 

Owner occupied

15,368

399

732

82

16,581

 

30,779

1,175

1,889

248

34,091

Weighted average LTV

69%

75%

67%

72%

69%

 

69%

75%

65%

71%

69%

Buy-to-let

481

1

82

42

606

 

1,078

10

222

107

1,417

Weighted average LTV

62%

60%

64%

64%

62%

 

60%

58%

60%

63%

60%

Interest only - variable rate

51

-

394

-

445

 

56

-

688

4

748

Interest only - fixed rate

714

-

279

19

1,012

 

1,275

-

993

51

2,319

Mixed (1)

674

-

-

1

675

 

1,074

1

-

4

1,079

 

 

 

 

 

 

 

 

 

 

 

 

Forbearance flow

255

24

14

6

299

 

450

177

4

5

636

Forbearance stock

1,207

1,870

14

13

3,104

 

1,212

2,229

2

11

3,454

  Current

650

1,130

9

9

1,798

 

623

1,149

1

9

1,782

  1-3 months in arrears

273

132

3

-

408

 

338

157

-

1

496

  > 3 months in arrears

284

608

2

4

898

 

251

923

1

1

1,176

 

Notes:

(1)  Includes accounts which have an interest only sub-account and a capital and interest sub-account to provide a more comprehensive view of interest only exposures.

(2)  For UK Personal Banking this excludes a non-material amount of provisions held on relatively small legacy portfolios.

(3)  Comprises unsecured lending except for Private Banking, which includes both secured and unsecured lending. It excludes loans that are commercial in nature.

(4)  UK Personal Banking excludes additional lending to existing customers.

 

 

Key points

New mortgage lending was higher than in H1 2019, reflecting strong lending before the Covid-19 lockdown. The existing mortgage stock and new business were closely monitored against agreed risk appetite parameters. These included loan-to-value ratios, buy-to-let concentrations, new-build concentrations and credit quality. Underwriting standards were maintained during the period.

Mortgage growth was driven by the owner-occupied portfolio.

By value, the proportion of mortgages on interest only and mixed terms (capital and interest only) reduced. This was driven by low proportions of buy-to-let and owner occupier interest only new business.

In the UK Personal Banking mortgage portfolio, 88% of customer balances were on fixed rates (57% on five-year deals). In addition, 99% of all new mortgage completions were fixed rate deals (41% of these were five-year deals).

43% of the stock of UK Personal Banking lending was in Greater London and the South East (31 December 2019 - 43%). The average weighted loan-to-value for these regions was 54% (31 December 2019 - 53%) compared to all regions 57%.

Impairment provisions - as detailed earlier, the deteriorated economic outlook including forecast increases in unemployment and declines in house prices, resulted in an increased ECL requirement.

Unsecured balances fell, with the decrease driven principally by reductions in overdrafts and credit card borrowing in the UK Personal Banking segment. Overdraft and credit card usage decreased significantly following the Covid-19 lockdown. NatWest Group also responded to Covid-19 with a more cautious approach in new lending, to protect the bank and customers from potentially unaffordable borrowing.

 

 

 

 

 

Capital and risk management

Credit risk - Banking activities continued

Personal portfolio

Mortgage LTV distribution by stage

The table below shows gross mortgage lending and related ECL by LTV band. Mortgage lending not within the scope of IFRS 9 ECL reflected portfolios carried at fair value.

 

 

Mortgages

 

ECL provisions

 

ECL provisions coverage (2)

UK Personal Banking

 

 

Not within

 

Of which:

 

 

 

 

 

 

 

 

 

 

 

Stage

Stage

Stage

IFRS 9

 

gross new

 

Stage

Stage

Stage

 

 

Stage

Stage

Stage

 

 

1

2

3

ECL scope

Total

lending

 

1

2

3

Total(1)

 

1

2

3

Total

30 June 2020

£m

£m

£m

£m

£m

£m

 

£m

£m

£m

£m

 

%

%

%

%

≤50%

48,176

4,505

544

125

53,350

2,361

 

3

28

98

129

 

-

0.6

18.0

0.2

>50% and ≤70%

48,897

6,325

487

38

55,747

4,758

 

6

49

74

129

 

-

0.8

15.2

0.2

>70% and ≤80%

20,039

6,796

163

8

27,006

4,763

 

3

45

29

77

 

-

0.7

17.8

0.3

>80% and ≤90%

10,261

5,691

80

6

16,038

3,262

 

3

53

16

72

 

-

0.9

20.4

0.4

>90% and ≤100%

2,038

483

19

3

2,543

632

 

1

10

5

16

 

-

2.1

26.5

0.6

>100% and ≤110%

22

40

7

1

70

-

 

-

2

2

4

 

0.1

5.3

23.5

5.3

>110% and ≤130%

27

49

8

1

85

-

 

-

3

2

5

 

0.2

6.8

30.4

6.8

>130% and ≤150%

10

24

5

-

39

-

 

-

2

1

3

 

0.1

7.0

26.1

7.9

>150%

1

4

3

-

8

-

 

-

-

1

1

 

0.1

10.6

42.6

20.5

Total with LTVs

129,471

23,917

1,316

182

154,886

15,776

 

16

192

228

436

 

-

0.8

17.4

0.3

Other

16

6

1

-

23

73

 

-

-

1

1

 

0.1

5.0

75.3

3.9

Total

129,487

23,923

1,317

182

154,909

15,849

 

16

192

229

437

 

-

0.8

17.4

0.3

31 December 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

≤50%

47,746

3,375

511

159

51,791

4,661

 

2

19

90

111

 

-

0.6

17.6

0.2

>50% and ≤70%

47,224

3,804

463

91

51,582

8,723

 

3

29

68

100

 

-

0.8

14.7

0.2

>70% and ≤80%

23,235

1,568

150

39

24,992

8,366

 

2

14

26

42

 

-

0.9

17.1

0.1

>80% and ≤90%

14,030

1,111

85

25

15,251

8,675

 

2

12

18

32

 

-

1.1

20.5

0.2

>90% and ≤100%

3,401

174

20

15

3,610

1,208

 

1

4

5

10

 

-

2.5

25.4

0.3

>100% and ≤110%

42

34

8

1

85

-

 

-

2

2

4

 

0.1

5.1

25.3

4.4

>110% and ≤130%

47

38

7

1

93

-

 

-

2

2

4

 

0.1

6.1

33.5

5.0

>130% and ≤150%

19

22

6

1

48

-

 

-

1

2

3

 

0.1

6.3

27.7

6.5

>150%

3

6

3

-

12

-

 

-

-

2

2

 

0.1

6.5

45.7

15.2

Total with LTVs

135,747

10,132

1,253

332

147,464

31,663

 

10

83

215

308

 

-

0.8

17.0

0.2

Other

21

3

1

-

25

224

 

-

-

1

1

 

0.1

4.2

81.2

3.2

Total

135,768

10,135

1,254

332

147,489

31,857

 

10

83

216

309

 

-

0.8

17.1

0.2

 

For the notes to this table refer to the following page.

 

 

 

 

 

 

Capital and risk management

Credit risk - Banking activities continued

Personal portfolio 

 

 

Mortgages

 

ECL provisions

 

ECL provisions coverage (2)

Ulster Bank RoI

 

 

 

Of which:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

gross new

 

 

 

 

 

 

 

 

 

 

 

Stage 1

Stage 2

Stage 3

Total

lending

 

Stage 1

Stage 2

Stage 3

Total(1)

 

Stage 1

Stage 2

Stage 3

Total

30 June 2020

£m

£m

£m

£m

£m

 

£m

£m

£m

£m

 

%

%

%

%

≤50%

4,197

538

413

5,148

34

 

6

20

103

129

 

0.1

3.7

24.9

2.5

>50% and ≤70%

3,376

542

297

4,215

84

 

5

23

73

101

 

0.1

4.2

24.6

2.4

>70% and ≤80%

1,379

325

154

1,858

138

 

2

14

49

65

 

0.1

4.3

31.8

3.5

>80% and ≤90%

1,051

335

150

1,536

141

 

2

15

54

71

 

0.2

4.5

36.0

4.6

>90% and ≤100%

276

244

124

644

-

 

1

11

52

64

 

0.4

4.5

41.9

9.9

>100% and ≤110%

89

139

100

328

2

 

-

8

47

55

 

-

5.8

47.0

16.8

>110% and ≤130%

41

80

97

218

1

 

-

6

52

58

 

-

7.5

53.6

26.6

>130% and ≤150%

5

7

30

42

-

 

-

1

20

21

 

-

14.3

66.7

50.0

>150%

3

6

9

18

-

 

-

-

7

7

 

-

-

77.8

38.9

Total

10,417

2,216

1,374

14,007

400

 

16

98

457

571

 

0.2

4.4

33.3

4.1

31 December 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

≤50%

4,107

308

475

4,890

107

 

4

7

97

108

 

0.1

2.3

20.5

2.2

>50% and ≤70%

3,382

274

409

4,065

231

 

3

7

90

100

 

0.1

2.6

22.0

2.5

>70% and ≤80%

1,381

151

219

1,751

356

 

2

4

60

66

 

0.1

3.0

27.5

3.8

>80% and ≤90%

1,132

145

217

1,494

484

 

1

5

76

82

 

0.1

3.0

35.1

5.5

>90% and ≤100%

381

102

188

671

3

 

1

3

72

76

 

0.2

2.9

38.6

11.3

>100% and ≤110%

167

57

151

375

2

 

-

2

67

69

 

0.3

3.5

44.0

18.4

>110% and ≤130%

82

36

152

270

1

 

-

2

78

80

 

0.3

4.9

51.3

29.7

>130% and ≤150%

8

3

46

57

-

 

-

-

30

30

 

0.6

4.1

64.7

51.9

>150%

7

3

15

25

-

 

-

-

11

11

 

0.3

8.2

71.4

44.6

Total with LTVs

10,647

1,079

1,872

13,598

1,184

 

11

30

581

622

 

0.1

2.8

31.0

4.6

 

Notes:

(1)

Excludes a non-material amount of provisions held on relatively small legacy portfolios.

(2)

ECL provisions coverage is ECL provisions divided by mortgages.

 

 

 

Key points

ECL coverage rates increase through the LTV bands with both UK Personal Banking and Ulster Bank RoI currently having only limited exposures in the highest LTV bands. The relatively high coverage level in the lowest LTV band for UK Personal Banking included the effect of time-discounting on expected recoveries. Additionally, this also reflected the modelling approach that recognised an element of expected loss on mortgages that are not subject to formal repossession activity.

The deteriorated economic outlook, as detailed in the Covid-19 - estimating ECL in uncertain times section, resulted in increased account level IFRS 9 PDs. Consequently, compared to the 2019 year-end, a larger proportion of accounts exhibited a SICR with an associated migration of exposures from Stage 1 to Stage 2.

 

 

 

 

 

 

 

 

Capital and risk management

Credit risk - Banking activities   continued

Personal portfolio

UK Personal Banking mortgage LTV distribution by region

LTV ratio value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

≤ 50%

50% ≤ 80%

80% ≤ 100%

100% ≤ 150%

> 150%

Total

average LTV

Other

Total

Total

30 June 2020

£m

£m

£m

£m

£m

£m

%

£m

£m

%

South East

14,284

21,339

4,329

7

-

39,959

57

6

39,965

26

Greater London

13,459

11,797

1,625

4

-

26,885

50

4

26,889

17

Scotland

3,621

6,231

1,429

2

-

11,283

58

1

11,284

7

North West

4,414

8,619

1,808

3

-

14,844

59

3

14,847

10

South West

4,600

7,764

1,451

4

-

13,819

57

2

13,821

9

West Midlands

3,347

6,604

1,290

4

-

11,245

59

1

11,246

7

Rest of the UK

9,627

20,397

6,649

170

8

36,851

62

6

36,857

24

Total

53,352

82,751

18,581

194

8

154,886

57

23

154,909

100

31 December 2019

 

 

 

 

 

 

 

 

 

 

South East

14,175

19,390

3,920

7

-

37,492

56

7

37,499

25

Greater London

13,199

10,496

1,504

4

-

25,203

49

4

25,207

17

Scotland

3,395

5,946

1,726

3

-

11,070

60

1

11,071

8

North West

4,449

8,420

1,524

4

-

14,397

58

2

14,399

10

South West

4,482

7,374

1,391

5

-

13,252

57

2

13,254

9

West Midlands

3,086

6,109

1,520

5

-

10,720

60

1

10,721

7

Rest of the UK

9,004

18,839

7,276

198

13

35,330

63

8

35,338

24

Total

51,790

76,574

18,861

226

13

147,464

57

25

147,489

100

 

 

 

 

Commercial real estate (CRE)

The CRE portfolio comprises exposures to entities involved in the development of, or investment in, commercial and residential properties (including house builders but excluding housing associations, construction and the building materials sub sector). The sector is reviewed regularly by senior executive committees. Reviews include portfolio credit quality, capital consumption and control frameworks. All disclosures in the CRE section are based on current exposure (gross of provisions and risk transfer). Current exposure is defined as: loans; the amount drawn under a credit facility plus accrued interest; contingent obligations; the issued amount of the guarantee or letter of credit; derivatives - the mark-to-market value, netted where netting agreements exist and net of legally enforceable collateral.

 

30 June 2020

 

31 December 2019

 

UK

RoI

Other

Total

 

UK

RoI

Other

Total

By geography and sub sector (1)

£m

£m

£m

£m

 

£m

£m

£m

£m

Investment

 

 

 

 

 

 

 

 

 

Residential  (2)

4,791

412

5

5,208

 

4,507

462

27

4,996

Office  (3)

3,737

210

58

4,005

 

2,916

183

83

3,182

Retail  (4)

5,419

64

78

5,561

 

5,277

63

62

5,402

Industrial (5)

2,881

18

100

2,999

 

2,457

18

115

2,590

Mixed/other  (6)

3,199

202

170

3,571

 

3,672

187

56

3,915

 

20,027

906

411

21,344

 

18,829

913

343

20,085

Development

 

 

 

 

 

 

 

 

 

Residential  (2)

3,052

233

8

3,293

 

2,464

165

5

2,634

Office  (3)

137

22

-

159

 

78

17

-

95

Retail (4)

147

-

1

148

 

134

2

1

137

Industrial (5)

129

2

-

131

 

85

2

-

87

Mixed/other (6)

24

2

-

26

 

16

2

-

18

 

3,489

259

9

3,757

 

2,777

188

6

2,971

Total

23,516

1,165

420

25,101

 

21,606

1,101

349

23,056

 

Notes:

(1)

Geographical splits are based on country of collateral risk.

(2)

Properties including houses, flats and student accommodation.

(3)

Properties including offices in central business districts, regional headquarters and business parks.

(4)

Properties including high street retail, shopping centres, restaurants, bars and gyms.

(5)

Properties including distribution centres, manufacturing and warehouses. 

(6)

Properties that do not fall within the other categories above. Mixed generally relates to a mixture of retail/office with residential. 

 

 

Capital and risk management

Credit risk - Banking activities   continued

Commercial real estate

CRE LTV distribution by stage

The table below shows CRE current exposure and related ECL by LTV band.

 

Current exposure (gross of provisions) (1,2)

 

ECL provisions

 

ECL provisions coverage (4)

 

 

 

Not within

 

 

 

 

 

 

 

 

 

 

 

 

Stage

Stage

Stage

IFRS 9 ECL

 

 

Stage

Stage

Stage

 

 

Stage

Stage

Stage

 

 

1

2

3

scope (3)

Total

 

1

2

3

Total (1)

 

1

2

3

Total

30 June 2020

£m

£m

£m

£m

£m

 

£m

£m

£m

£m

 

%

%

%

%

≤50%

7,445

2,904

70

 -  

10,419

 

45

88

18

151

 

0.6

3.0

25.7

1.4

>50% and ≤70%

4,445

1,732

216

 -  

6,393

 

35

68

70

173

 

0.8

3.9

32.4

2.7

>70% and ≤80%

163

72

44

 -  

279

 

2

3

12

17

 

1.2

4.2

27.3

6.1

>80% and ≤90%

66

91

20

 -  

177

 

1

5

4

10

 

1.5

5.5

20.0

5.6

>90% and ≤100%

42

22

126

 -  

190

 

-

2

42

44

 

 -  

9.1

33.3

23.2

>100% and ≤110%

15

23

63

 -  

101

 

-

4

11

15

 

 -  

17.4

17.5

14.9

>110% and ≤130%

16

15

59

 -  

90

 

-

2

32

34

 

 -  

13.3

54.2

37.8

>130% and ≤150%

5

8

10

 -  

23

 

-

1

5

6

 

 -  

12.5

50.0

26.1

>150%

63

21

28

 -  

112

 

1

3

18

22

 

1.6

14.3

64.3

19.6

Total with LTVs

12,260

4,888

636

-

17,784

 

84

176

212

472

 

0.7

3.6

33.3

2.7

Total portfolio average LTV

45%

47%

88%

50%

47%

 

-

-

-

-

 

-

-

-

-

Other (5)

1,406

1,014

210

930

3,560

 

6

62

96

164

 

0.4

6.1

45.7

6.2

Development (6)

1,323

2,173

176

85

3,757

 

16

49

67

132

 

1.2

2.3

38.1

3.6

Total

14,989

8,075

1,022

1,015

25,101

 

106

287

375

768

 

0.7

3.6

36.7

3.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 December 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

≤50%

8,787

468

40

837

10,132

 

8

8

11

27

 

0.1

1.7

27.5

0.3

>50% and ≤70%

4,945

252

148

846

6,191

 

7

6

33

46

 

0.1

2.4

22.3

0.9

>70% and ≤80%

269

38

51

9

367

 

1

1

19

21

 

0.4

2.6

37.3

5.9

>80% and ≤90%

61

19

15

2

97

 

-

1

3

4

 

-

5.3

20.0

4.2

>90% and ≤100%

50

81

22

1

154

 

-

2

15

17

 

-

2.5

68.2

11.1

>100% and ≤110%

18

13

52

-

83

 

-

-

5

5

 

-

-

9.6

6.0

>110% and ≤130%

20

26

46

1

93

 

-

1

16

17

 

-

3.8

34.8

18.5

>130% and ≤150%

3

6

18

-

27

 

-

-

7

7

 

-

-

38.9

25.9

>150%

63

6

37

-

106

 

-

1

24

25

 

-

16.7

64.9

23.6

Total with LTVs

14,216

909

429

1,696

17,250

 

16

20

133

169

 

0.1

2.2

31.0

1.1

Total portfolio average LTV

46%

55%

101%

48%

48%

 

-

-

-

-

 

-

-

-

-

Other (5)

658

149

123

1,905

2,835

 

5

4

54

63

 

0.8

2.7

43.9

6.8

Development (6)

2,377

272

144

178

2,971

 

8

4

73

85

 

0.3

1.5

50.7

3.0

Total

17,251

1,330

696

3,779

23,056

 

29

28

260

317

 

0.2

2.1

37.4

1.6

 

Notes:

(1)  Comprises gross lending, interest rate hedging derivatives and other assets carried at fair value that are managed as part of the overall CRE portfolio.

(2)  The exposure in Stage 3 mainly related to legacy assets.

(3)  Includes exposures relating to non-modelled portfolios and other exposures carried at fair value, including derivatives.

(4)  ECL provisions coverage is ECL provisions divided by current exposure.

(5)  Relates mainly to business banking, rate risk management products and unsecured corporate lending. The low Stage 3 ECL provisions coverage was driven by a single large exposure, which was written down to the expected recoverable amount.

(6)  Relates to the development of commercial and residential properties. LTV is not a meaningful measure for this type of lending activity.

 

Key points

Overall - The majority of the CRE portfolio was managed in the UK within Commercial Banking and Private Banking. Business appetite and strategy remained aligned across the segments.

2020 trends - The portfolio remained broadly unchanged in composition. While new activity in H1 2020 was subdued due to Covid-19, NatWest Group has supported existing customers with capital repayment holidays, interest roll-ups and extensions using CRE specific criteria and government-backed Covid-19 support schemes. The retail and leisure sectors were heavily affected by the government-imposed lockdown, resulting in low rental payments. The office sector was more resilient overall, albeit the smaller serviced-office sub-sector came under some stress given the short-term nature of income and site closures. Demand for office space in the medium-term is expected to decline with flexible working trends continuing post Covid-19. Residential development re-started but progress is slow with social distancing measures. The early resurgence in residential sales following the housing market hiatus is expected to curtail as the economic outlook becomes clearer.

Credit quality - Despite significant challenges across the CRE sector, Heightened Monitoring inflows by volume were stable. By value, Heightened monitoring and Risk of Credit Loss increased due to some larger names, particularly in the retail sub-sector.

Risk appetite - Appetite in CRE remains cautious. Pre-Covid-19 conservative lending criteria remains in place, including lower leverage required for new London office originations and parts of the retail sector.

 

 

 

 

 

Capital and risk management

Credit risk - Banking activities   continued

Flow statements

The flow statements that follow show the main ECL and related income statement movements. They also show the changes in ECL as well as the changes in related financial assets used in determining ECL. Due to differences in scope, exposures in this section may therefore 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 impact. 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 to 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.

 

Other (Profit or loss (P&L) only items) includes any subsequent changes in the value of written-down assets (for example, fortuitous recoveries) along with other direct write-off items such as direct recovery costs. Other (P&L only items) affects the income statement but does not affect balance sheet ECL movements.

 

Amounts written-off represent the gross asset written-down against accounts with ECL, including the net asset write-down for debt sale activity.

 

There were small ECL flows from Stage 3 to Stage 1. This does not, however, indicate that accounts returned from Stage 3 to Stage 1 directly. On a similar basis, there were flows from Stage 1 to Stage 3 including transfers due to unexpected default events. The small number of write-offs in Stage 1 and Stage 2 reflect the effect of portfolio debt sales and also staging at the start of the analysis period.

 

NatWest Group continues to hold post model adjustments (PMAs) on a temporary basis ahead of the underlying model parameter changes being implemented, as well as on certain portfolio segments where management judge additional ECL is required. The impact of any change in PMAs during the year is reported under changes in risk parameters, as are any impacts arising from changes to the underlying models.

 

All movements are captured monthly and aggregated. Interest suspended post default is included within Stage 3 ECL with the movement in the value of suspended interest during the year reported under currency translation and other adjustments.

 

 

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Financial

 

 

Financial

 

 

Financial

 

 

Financial

 

 

assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

NatWest Group total

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2020

428,604

322

 

28,630

752

 

7,135

2,718

 

464,369

3,792

Currency translation and other adjustments

6,386

4

 

430

9

 

165

46

 

6,981

59

Transfers from Stage 1 to Stage 2

(86,717)

(385)

 

86,717

385

 

-

-

 

-

-

Transfers from Stage 2 to Stage 1

11,976

200

 

(11,976)

(200)

 

-

-

 

-

-

Transfers to Stage 3

(360)

-

 

(1,849)

(145)

 

2,209

145

 

-

-

Transfers from Stage 3

133

20

 

835

75

 

(968)

(95)

 

-

-

Net re-measurement of ECL on stage transfer

 

(170)

 

 

1,564

 

 

336

 

 

1,730

Changes in risk parameters (model inputs)

 

372

 

 

604

 

 

180

 

 

1,156

Other changes in net exposure

52,463

106

 

(2,024)

(18)

 

(744)

(19)

 

49,695

69

Other (P&L only items)

 

-

 

 

-

 

 

(97)

 

 

(97)

Income statement charges

 

308

 

 

2,150

 

 

400

 

 

2,858

Amounts written-off

-

-

 

(1)

(1)

 

(405)

(405)

 

(406)

(406)

Unwinding of discount

 

-

 

 

-

 

 

(46)

 

 

(46)

At 30 June 2020

412,485

469

 

100,762

3,025

 

7,392

2,860

 

520,639

6,354

Net carrying amount

412,016

 

 

97,737

 

 

4,532

 

 

514,285

 

At 1 January 2019

422,541

297

 

27,360

772

 

8,251

2,782

 

458,152

3,851

2019 movements

(10,048)

(17)

 

(553)

(90)

 

(332)

13

 

(10,933)

(94)

At 30 June 2019

412,493

280

 

26,807

682

 

7,919

2,795

 

447,219

3,757

Net carrying amount

412,213

 

 

26,125

 

 

5,124

 

 

443,462

 

                           

 

 

 

 

 

 

 

 

Capital and risk management

Credit risk - Banking activities continued

Flow statements

The following flow statements show the material portfolios underpinning the NatWest Group flow statement.

 

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Financial

 

 

Financial

 

 

Financial

 

 

Financial

 

 

assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

UK Personal Banking - mortgages

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2020

135,625

12

 

10,283

86

 

1,289

215

 

147,197

313

Currency translation and other adjustments

-

-

 

-

-

 

9

9

 

9

9

Transfers from Stage 1 to Stage 2

(17,557)

(5)

 

17,557

5

 

-

-

 

-

-

Transfers from Stage 2 to Stage 1

3,051

9

 

(3,051)

(9)

 

-

-

 

-

-

Transfers to Stage 3

(10)

-

 

(335)

(12)

 

345

12

 

-

-

Transfers from Stage 3

7

-

 

172

12

 

(179)

(12)

 

-

-

Net re-measurement of ECL on stage transfer

 

(8)

 

 

95

 

 

4

 

 

91

Changes in risk parameters (model inputs)

 

10

 

 

20

 

 

34

 

 

64

Other changes in net exposure

7,089

(1)

 

(554)

(5)

 

(115)

(6)

 

6,420

(12)

Other (P&L only items)

 

-

 

 

-

 

 

(14)

 

 

(14)

Income statement charges

 

1

 

 

110

 

 

18

 

 

129

Amounts written-off

-

-

 

-

-

 

(8)

(8)

 

(8)

(8)

Unwinding of discount

 

-

 

 

-

 

 

(18)

 

 

(18)

At 30 June 2020

128,205

17

 

24,072

192

 

1,341

230

 

153,618

439

Net carrying amount

128,188

 

 

23,880

 

 

1,111

 

 

153,179

 

At 1 January 2019

127,671

10

 

10,241

74

 

1,286

202

 

139,198

286

2019 movements

535

(1)

 

149

3

 

2

-

 

686

2

At 30 June 2019

128,206

9

 

10,390

77

 

1,288

202

 

139,884

288

Net carrying amount

128,197

 

 

10,313

 

 

1,086

 

 

139,596

 

 

Key points

The increase in ECL in Stage 1 and Stage 2 was primarily driven by the deterioration in the economic outlook as detailed in the Covid-19 - estimating ECL in uncertain times section, causing both PDs and LGDs to increase.

 

The updated economics also resulted in a net migration of assets from Stage 1 to Stage 2 with a consequent increase from a 12 month ECL to a lifetime ECL.

 

In Stage 3, reflecting the various customer support mechanisms available, ECL was less impacted than in Stage 1 and Stage 2.

 

In Stage 3, the ECL cost within changes in risk parameters included the forward-looking impact of forecast reductions in house prices, as well as the monthly assessment of the loss requirement, capturing underlying portfolio movements.

 

Write-off occurs once the repossessed property has been sold and there is a residual shortfall balance remaining outstanding. Write-off would typically be within five years from default but can be longer.

 

 

 

 

 

 

 

 

Capital and risk management

Credit risk - Banking activities continued

Flow statements

 

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Financial

 

 

Financial

 

 

Financial

 

 

Financial

 

 

assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

UK Personal Banking - credit cards

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2020

2,804

38

 

1,246

131

 

127

88

 

4,177

257

Transfers from Stage 1 to Stage 2

(860)

(29)

 

860

29

 

-

-

 

-

-

Transfers from Stage 2 to Stage 1

575

46

 

(575)

(46)

 

-

-

 

-

-

Transfers to Stage 3

(10)

-

 

(59)

(24)

 

69

24

 

-

-

Transfers from Stage 3

-

-

 

5

3

 

(5)

(3)

 

-

-

Net re-measurement of ECL on stage transfer

 

(32)

 

 

163

 

 

23

 

 

154

Changes in risk parameters (model inputs)

 

5

 

 

(30)

 

 

5

 

 

(20)

Other changes in net exposure

(332)

17

 

(157)

14

 

(15)

-

 

(504)

31

Other (P&L only items)

 

-

 

 

-

 

 

(2)

 

 

(2)

Income statement (releases)/charges

 

(10)

 

 

147

 

 

26

 

 

163

Amounts written-off

-

-

 

-

-

 

(49)

(49)

 

(49)

(49)

Unwinding of discount

 

-

 

 

-

 

 

(3)

 

-

(3)

At 30 June 2020

2,177

45

 

1,320

240

 

127

85

 

3,624

370

Net carrying amount

2,132

 

 

1,080

 

 

42

 

 

3,254

 

At 1 January 2019

2,632

36

 

1,226

118

 

108

73

 

3,966

227

2019 movements

(82)

(2)

 

(29)

(20)

 

20

15

 

(91)

(7)

At 30 June 2019

2,550

34

 

1,197

98

 

128

88

 

3,875

220

Net carrying amount

2,516

 

 

1,099

 

 

40

 

 

3,655

 

 

Key points

The increase in ECL in Stage 1 and Stage 2 was primarily driven by the deterioration in the economic outlook as detailed in the Covid-19 - estimating ECL in uncertain times section, causing PDs to increase.

The updated economics also resulted in a net migration of assets from Stage 1 to Stage 2 with a consequent increase from a 12 month ECL to a lifetime ECL.

In Stage 3, reflecting the various customer support mechanisms available, ECL was less impacted than Stage 2.

Charge-off (analogous to partial write-off) typically occurs after 12 missed payments.

 

 

 

 

 

 

 

Capital and risk management

Credit risk - Banking activities continued

Flow statements

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Financial

 

 

Financial

 

 

Financial

 

 

Financial

 

UK Personal Banking - other

assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

 personal unsecured

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2020

5,417

63

 

2,250

252

 

608

518

 

8,275

833

Currency translation and other adjustments

-

-

 

-

-

 

2

3

 

2

3

Transfers from Stage 1 to Stage 2

(2,347)

(52)

 

2,347

52

 

-

-

 

-

-

Transfers from Stage 2 to Stage 1

771

48

 

(771)

(48)

 

-

-

 

-

-

Transfers to Stage 3

(6)

-

 

(180)

(59)

 

186

59

 

-

-

Transfers from Stage 3

1

-

 

19

6

 

(20)

(6)

 

-

-

Net re-measurement of ECL on stage transfer

 

(32)

 

 

206

 

 

56

 

 

230

Changes in risk parameters (model inputs)

 

55

 

 

86

 

 

29

 

 

170

Other changes in net exposure

309

11

 

(473)

(26)

 

(13)

(4)

 

(177)

(19)

Other (P&L only items)

 

-

 

 

-

 

 

(16)

 

 

(16)

Income statement charges

 

34

 

 

266

 

 

65

 

 

365

Amounts written-off

-

-

 

-

-

 

(61)

(61)

 

(61)

(61)

Unwinding of discount

 

-

 

 

-

 

 

(8)

 

 

(8)

At 30 June 2020

4,145

93

 

3,192

469

 

702

586

 

8,039

1,148

Net carrying amount

4,052

 

 

2,723

 

 

116

 

 

6,891

 

At 1 January 2019

5,073

54

 

1,970

239

 

503

402

 

7,546

695

2019 movements

329

2

 

191

3

 

92

98

 

612

103

At 30 June 2019

5,402

56

 

2,161

242

 

595

500

 

8,158

798

Net carrying amount

5,346

 

 

1,919

 

 

95

 

 

7,360

 

 

Key points

The increase in ECL in Stage 1 and Stage 2 was primarily driven by the deterioration in the economic outlook as detailed in the Covid-19 - estimating ECL in uncertain times section, causing PDs to increase.

 

The updated economics also resulted in a net migration of assets from Stage 1 to Stage 2 with a consequent increase from a 12 month ECL to a lifetime ECL.

 

In Stage 3, reflecting the various customer support mechanisms available, ECL was impacted relatively less than in Stage 1 and Stage 2.

 

The portfolio continued to experience cash recoveries after write-off which are reported in other (P&L only items). These benefited the income statement without affecting ECL.

 

Write-off occurs once recovery activity with the customer has been concluded and there are no further recoveries expected, but no later than six years after default.

 

 

 

 

 

 

 

Capital and risk management

Credit risk - Banking activities continued

Flow statements 

 

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Financial

 

 

Financial

 

 

Financial

 

 

Financial

 

 

assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

Ulster Bank RoI - mortgages

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2020

10,603

11

 

1,084

30

 

1,875

581

 

13,562

622

Currency translation and other adjustments

691

1

 

115

4

 

104

(7)

 

910

(2)

Transfers from Stage 1 to Stage 2

(1,526)

(5)

 

1,526

5

 

-

-

 

-

-

Transfers from Stage 2 to Stage 1

624

11

 

(624)

(11)

 

-

-

 

-

-

Transfers to Stage 3

(4)

-

 

(31)

(2)

 

35

2

 

-

-

Transfers from Stage 3

13

-

 

179

12

 

(192)

(12)

 

-

-

Net re-measurement of ECL on stage transfer

 

(10)

 

 

39

 

 

6

 

 

35

Changes in risk parameters (model inputs)

 

8

 

 

22

 

 

51

 

 

81

Other changes in net exposure

(36)

-

 

(30)

-

 

(290)

2

 

(356)

2

Other (P&L only items)

 

-

 

 

-

 

 

(11)

 

 

(11)

Income statement (releases)/charges

 

(2)

 

 

61

 

 

48

 

 

107

Amounts written-off

-

-

 

(1)

(1)

 

(157)

(157)

 

(158)

(158)

Unwinding of discount

 

-

 

 

-

 

 

(9)

 

 

(9)

At 30 June 2020

10,365

16

 

2,218

98

 

1,375

457

 

13,958

571

Net carrying amount

10,349

 

 

2,120

 

 

918

 

 

13,387

 

At 1 January 2019

10,782

11

 

1,394

75

 

2,278

657

 

14,454

743

2019 movements

223

(6)

 

(339)

(57)

 

(92)

(37)

 

(208)

(100)

At 30 June 2019

11,005

5

 

1,055

18

 

2,186

620

 

14,246

643

Net carrying amount

11,000

 

 

1,037

 

 

1,566

 

 

13,603

 

 

Key points

The increase in ECL in Stage 1 and Stage 2 was primarily driven by the deterioration in the economic outlook as detailed in the Covid-19 - estimating ECL in uncertain times section, coupled with the application of post-model adjustments to fully reflect the deteriorated economic outlook in ECL estimations.

The reduction in ECL in Stage 3 reflected ongoing deleveraging of the Ulster mortgage non-performing portfolio through the execution of two tranches of a portfolio sale.

In Stage 3, the ECL cost within changes in risk parameters included the forward-looking impact of forecast reductions in house prices and the application of post-model adjustments to fully reflect the deteriorated economic outlook in ECL estimations.

Write-off generally occurs once the repossessed property has been sold and there is a residual shortfall balance remaining outstanding or when the loan is sold to a third party.

 

 

 

 

Capital and risk management

Credit risk - Banking activities   continued

Flow statements

 

 

 

 

 

 

 

 

 

 

 

 

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Financial

 

 

Financial

 

 

Financial

 

 

Financial

 

Commercial Banking - commercial

assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

  real estate

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2020

25,556

31

 

2,218

28

 

895

306

 

28,669

365

Currency translation and other adjustments

25

-

 

3

-

 

2

-

 

30

-

Transfers from Stage 1 to Stage 2

(9,216)

(46)

 

9,216

46

 

-

-

 

-

-

Transfers from Stage 2 to Stage 1

893

13

 

(893)

(13)

 

-

-

 

-

-

Transfers to Stage 3

(101)

-

 

(412)

(10)

 

513

10

 

-

-

Transfers from Stage 3

29

3

 

202

12

 

(231)

(15)

 

-

-

Net re-measurement of ECL on stage transfer

-

(13)

 

-

157

 

-

87

 

-

231

Changes in risk parameters (model inputs)

-

91

 

-

53

 

-

21

 

-

165

Other changes in net exposure

2,474

18

 

20

1

 

(88)

9

 

2,406

28

Other (P&L only items)

 

-

 

 

-

 

 

-

 

 

-

Income statement charges

 

96

 

 

211

 

 

117

 

 

424

Amounts written-off

-

-

 

-

-

 

(15)

(15)

 

(15)

(15)

Unwinding of discount

 

-

 

 

-

 

 

(2)

 

 

(2)

At 30 June 2020

19,660

97

 

10,354

274

 

1,076

401

 

31,090

772

Net carrying amount

19,563

 

 

10,080

 

 

675

 

 

30,318

 

At 1 January 2019

29,180

37

 

1,500

24

 

1,631

459

 

32,311

520

2019 movements

(11)

1

 

361

4

 

(189)

(158)

 

162

(154)

At 30 June 2019

29,169

38

 

1,861

28

 

1,442

301

 

32,473

366

Net carrying amount

29,131

 

 

1,833

 

 

1,141

 

 

32,107

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Key points

The increase in ECL in Stage 1 and Stage 2 was primarily driven by the deterioration in the economic outlook as detailed in the Covid-19 - estimating ECL in uncertain times section, causing both PDs and LGDs to increase.

The updated economics also resulted in a migration of assets from Stage 1 to Stage 2 with a consequential increase from a 12 month ECL to a lifetime ECL.

For flows into Stage 3, defaults have been suppressed reflecting the various government customer support mechanisms available.

Stage 3 recovery values are beginning to be impacted as market conditions deteriorate, leading to higher ECL charges.

Other changes in net exposures have increased across Stage 1 and Stage 2 as customers draw down on existing facilities and undertake new lending supported by government schemes.

 

 

 

 

 

 

 

 

Capital and risk management

Credit risk - Banking activities continued

Flow statements

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Financial

 

 

Financial

 

 

Financial

 

 

Financial

 

 

assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

Commercial Banking - business banking

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2020

6,338

28

 

767

45

 

257

200

 

7,362

273

Transfers from Stage 1 to Stage 2

(1,312)

(13)

 

1,312

13

 

-

-

 

-

-

Transfers from Stage 2 to Stage 1

310

22

 

(310)

(22)

 

-

-

 

-

-

Transfers to Stage 3

(12)

-

 

(78)

(16)

 

90

16

 

-

-

Transfers from Stage 3

6

2

 

18

7

 

(24)

(9)

 

-

-

Net re-measurement of ECL on stage transfer

 

(21)

 

 

88

 

 

32

 

 

99

Changes in risk parameters (model inputs)

 

9

 

 

(10)

 

 

11

 

 

10

Other changes in net exposure

3,870

5

 

(110)

(7)

 

(18)

(5)

 

3,742

(7)

Other (P&L only items)

 

-

 

 

-

 

 

(41)

 

 

(41)

Income statement (releases)/charges

 

(7)

 

 

71

 

 

(3)

 

 

61

Amounts written-off

-

-

 

-

-

 

(53)

(53)

 

(53)

(53)

Unwinding of discount

 

-

 

 

-

 

 

(2)

 

 

(2)

At 30 June 2020

9,200

32

 

1,599

98

 

252

190

 

11,051

320

Net carrying amount

9,168

 

 

1,501

 

 

62

 

 

10,731

 

At 1 January 2019

6,303

22

 

897

43

 

245

163

 

7,445

228

2019 movements

64

(5)

 

(56)

(9)

 

-

24

 

8

10

At 30 June 2019

6,367

17

 

841

34

 

245

187

 

7,453

238

Net carrying amount

6,350

 

 

807

 

 

58

 

 

7,215

 

 

Key points

The increase in ECL in Stage 1 and Stage 2 was primarily driven by the deterioration in the economic outlook as detailed in the Covid-19 - estimating ECL in uncertain times section, causing both PDs and LGDs to increase.

The updated economics also resulted in a migration of assets from Stage 1 to Stage 2 with a consequential increase from a 12 month ECL to a lifetime ECL.

For flows into Stage 3, defaults have been suppressed reflecting the various government customer support mechanisms available.

Other changes in net exposures have increased in Stage 1 as customers draw down on existing facilities and undertake new lending supported by government schemes.

The portfolio continued to benefit from cash recoveries post write-off, which are reported as other (P&L only items).

Write-off occurs once recovery activity with the customer has been concluded and there are no further recoveries expected, but no later than five years after default.

 

 

 

 

 

 

Capital and risk management

Credit risk - Banking activities continued

Flow statements

 

 

 

 

 

 

 

 

 

 

 

 

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Financial

 

 

Financial

 

 

Financial

 

 

Financial

 

 

assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

Commercial Banking - other

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2020

53,722

94

 

8,788

143

 

1,386

516

 

63,896

753

Currency translation and other adjustments

709

-

 

154

-

 

20

18

 

883

18

Inter-group transfers

(116)

-

 

-

-

 

-

-

 

(116)

-

Transfers from Stage 1 to Stage 2

(44,992)

(193)

 

44,992

193

 

-

-

 

-

-

Transfers from Stage 2 to Stage 1

4,666

34

 

(4,666)

(34)

 

-

-

 

-

-

Transfers to Stage 3

(80)

-

 

(567)

(19)

 

647

19

 

-

-

Transfers from Stage 3

47

13

 

225

19

 

(272)

(32)

 

-

-

Net re-measurement of ECL on stage transfer

 

(37)

 

 

625

 

 

117

 

 

705

Changes in risk parameters (model inputs)

 

133

 

 

411

 

 

25

 

 

569

Other changes in net exposure

6,928

43

 

(805)

5

 

(142)

(11)

 

5,981

37

Other (P&L only items)

 

-

 

 

-

 

 

(6)

 

 

(6)

Income statement charges

 

139

 

 

1,041

 

 

125

 

 

1,305

Amounts written-off

-

-

 

-

-

 

(51)

(51)

 

(51)

(51)

Unwinding of discount

 

-

 

 

-

 

 

(2)

 

 

(2)

At 30 June 2020

20,884

87

 

48,121

1,343

 

1,588

599

 

70,593

2,029

Net carrying amount

20,797

 

 

46,778

 

 

990

 

 

68,565

 

At 1 January 2019

52,312

71

 

7,893

131

 

845

444

 

61,050

646

2019 movements

1,310

(3)

 

(678)

(5)

 

(99)

118

 

532

111

At 30 June 2019

53,622

68

 

7,215

126

 

746

562

 

61,582

757

Net carrying amount

53,554

 

 

7,089

 

 

184

 

 

60,825

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Key points

The increase in ECL in Stage 1 and Stage 2 was primarily driven by the deterioration in the economic outlook as detailed in the Covid-19 - estimating ECL in uncertain times section, causing both PDs and LGDs to increase.

The updated economics also resulted in the migration of assets from Stage 1 to Stage 2 with a consequential increase from a 12 month ECL to a lifetime ECL.

For flows into Stage 3, defaults have been suppressed reflecting the various government customer support mechanisms available.

Stage 3 recovery values have decreased as market conditions deteriorate, leading to higher ECL charges.

Other changes in net exposures increased across Stage 1 and Stage 2 as customers draw down on existing facilities and undertake new borrowings supported by the government schemes.

 

 

 

 

 

 

Capital and risk management

Credit risk - Banking activities continued

Flow statements

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Financial

 

 

Financial

 

 

Financial

 

 

Financial

 

 

assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

NatWest Markets (1)

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2020

32,892

10

 

188

5

 

183

131

 

33,263

146

Currency translation and other adjustments

1,345

-

 

36

(1)

 

13

14

 

1,394

13

Inter-group transfers

(774)

-

 

-

-

 

-

-

 

(774)

-

Transfers from Stage 1 to Stage 2

(2,133)

(6)

 

2,133

6

 

-

-

 

-

-

Transfers from Stage 2 to Stage 1

62

-

 

(62)

-

 

-

-

 

-

-

Net re-measurement of ECL on stage transfer

 

-

 

 

39

 

 

-

 

 

39

Changes in risk parameters (model inputs)

 

9

 

 

4

 

 

(9)

 

 

4

Other changes in net exposure

6,855

5

 

502

-

 

(10)

4

 

7,347

9

Other (P&L only items)

 

(4)

 

 

 

 

 

(8)

 

 

(12)

Income statement (releases)/charges

 

10

 

 

43

 

 

(13)

 

 

40

Amounts written-off

-

-

 

-

-

 

(4)

(4)

 

(4)

(4)

Unwinding of discount

 

-

 

 

-

 

 

-

 

 

-

At 30 June 2020

38,247

18

 

2,797

53

 

182

136

 

41,226

207

Net carrying amount

38,229

 

 

2,744

 

 

46

 

 

41,019

 

At 1 January 2019

32,758

7

 

732

14

 

775

179

 

34,265

200

2019 movements

1,276

1

 

(278)

(4)

 

(9)

(31)

 

989

(34)

At 30 June 2019

34,034

8

 

454

10

 

766

148

 

35,254

166

Net carrying amount

34,026

 

 

444

 

 

618

 

 

35,088

 

 

Note:

(1)

Reflects the NatWest Markets segment and includes NWM N.V..

 

Key points

The increase in ECL in Stage 1 and Stage 2 was primarily driven by the deterioration in the economic outlook as detailed in the Covid-19 - estimating ECL in uncertain times section, causing both PDs and LGDs to increase.

The updated economics also resulted in a migration of assets from Stage 1 to Stage 2 with a consequential increase from a 12 month ECL to a lifetime ECL.

For flows into Stage 3, defaults have been suppressed reflecting the various government customer support mechanisms available.

 

 

 

 

 

 

 

 

 

Capital and risk management

Credit risk - Banking activities   continued

Stage 2 decomposition - arrears status and contributing factors

The tables below show Stage 2 decomposition for the Personal and Wholesale portfolios.

 

 

 

 

UK mortgages

 

RoI mortgages

 

Credit cards

 

Other

 

Total

 

 

 

Loans

ECL

 

Loans

ECL

 

Loans

ECL

 

Loans

ECL

 

Loans

ECL

30 June 2020

 

 

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

Personal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currently in arrears (>30 DPD)

 

 

532

21

 

34

3

 

30

10

 

102

35

 

698

69

Currently up-to-date

 

 

23,553

173

 

2,173

95

 

1,291

233

 

3,063

440

 

30,080

941

 - PD deterioration

 

 

19,089

166

 

1,332

69

 

859

187

 

2,553

383

 

23,833

805

 - Up-to-date, PD persistence

 

 

1,017

1

 

66

2

 

293

15

 

256

17

 

1,632

35

 - Other driver (adverse credit, forbearance etc)

3,447

6

 

775

24

 

139

31

 

254

40

 

4,615

101

Total Stage 2

 

 

24,085

194

 

2,207

98

 

1,321

243

 

3,165

475

 

30,778

1,010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 December 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currently in arrears (>30 DPD)

 

 

528

14

 

21

3

 

16

6

 

92

19

 

657

42

Currently up-to-date

 

 

9,860

73

 

1,056

28

 

1,243

126

 

2,218

234

 

14,377

461

 - PD deterioration

 

 

4,184

60

 

208

15

 

727

92

 

1,482

188

 

6,601

355

 - Up-to-date, PD persistence

 

 

1,812

5

 

252

4

 

422

20

 

540

29

 

3,026

58

 - Other driver (adverse credit, forbearance etc)

3,864

8

 

596

9

 

94

14

 

196

17

 

4,750

48

Total Stage 2

 

 

10,388

87

 

1,077

31

 

1,259

132

 

2,310

253

 

15,034

503

 

Key points

The deteriorated economic outlook, as detailed in the Covid-19 - estimating ECL in uncertain times section, including forecast increases in unemployment, resulted in increased account level IFRS 9 PDs. Consequently, compared to the 2019 year-end, a larger proportion of accounts exhibited a SICR causing Stage 2 exposures to increase significantly.

As expected, ECL coverage was higher in accounts that were more than 30 days past due than those in Stage 2 for other reasons.

 

 

 

 

Property

 

Corporate

 

FI

 

Other

 

Total

 

 

 

Loans

ECL

 

Loans

ECL

 

Loans

ECL

 

Loans

ECL

 

Loans

ECL

30 June 2020

 

 

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

Wholesale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currently in arrears (>30 DPD)

 

 

346

7

 

492

27

 

75

3

 

-

 -  

 

913

37

Currently up-to-date

 

 

12,054

385

 

49,550

1,527

 

3,714

66

 

1

 -  

 

65,319

1,978

 - PD deterioration

 

 

10,715

304

 

47,137

1,418

 

3,217

38

 

1

 -  

 

61,070

1,760

 - Up-to-date, PD persistence

 

 

25

 -  

 

81

1

 

1

 -  

 

-

 -  

 

107

1

 - Other driver (forbearance, RoCL etc)

1,314

81

 

2,332

108

 

496

28

 

-

 -  

 

4,142

217

Total Stage 2

 

 

12,400

392

 

50,042

1,554

 

3,789

69

 

1

 -  

 

66,232

2,015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 December 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currently in arrears (>30 DPD)

 

 

57

2

 

219

6

 

7

-

 

-

-

 

283

8

Currently up-to-date

 

 

2,523

45

 

9,485

192

 

539

4

 

4

-

 

12,551

241

 - PD deterioration

 

 

1,386

28

 

6,083

144

 

368

3

 

3

-

 

7,840

175

 - Up-to-date, PD persistence

 

 

45

1

 

183

5

 

2

-

 

-

-

 

230

6

 - Other driver (forbearance, RoCL etc)

1,092

16

 

3,219

43

 

169

1

 

1

-

 

4,481

60

Total Stage 2

 

 

2,580

47

 

9,704

198

 

546

4

 

4

-

 

12,834

249

 

Key points  

The deteriorated economic outlook, as detailed in the Covid-19 - estimating ECL in uncertain times section, including significant falls in GDP and commercial real estate valuations, resulted in increased IFRS 9 PDs. Consequently, compared to the 2019 year-end, a larger proportion of the exposures exhibited a SICR causing Stage 2 exposures to increase significantly.

PD deterioration is the main trigger for identifying a SICR and Stage 2 treatment, although there has also been an increase in arrears. 

There was an increase in flows on to the Risk of Credit Loss framework, however, these have been recorded under PD deterioration if this Stage 2 trigger has also been met.

 

 

 

 

 

Capital and risk management

Credit risk - Banking activities continued

Stage 2 decomposition by a significant increase in credit risk trigger

 

 

 

 

UK mortgages

 

RoI mortgages

 

Credit cards

 

Other

 

Total

30 June 2020

 

 

£m

%

 

£m

%

 

£m

%

 

£m

%

 

£m

%

Personal trigger (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PD movement

 

 

19,557

81.2

 

1,362

61.7

 

889

67.2

 

2,635

83.3

 

24,443

79.5

PD persistence

 

 

1,017

4.2

 

66

3.0

 

293

22.2

 

257

8.1

 

1,633

5.3

Adverse credit bureau recorded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  with credit reference agency

 

 

2,910

12.1

 

 - 

 - 

 

51

3.9

 

69

2.2

 

3,030

9.8

Forbearance support provided

 

 

209

0.9

 

2

0.1

 

 - 

 - 

 

37

1.2

 

248

0.8

Customers in collections

 

 

112

0.5

 

53

2.4

 

4

0.3

 

54

1.7

 

223

0.7

Other reasons (2)

 

 

228

0.9

 

724

32.8

 

84

6.4

 

109

3.4

 

1,145

3.7

Days past due >30

 

 

52

0.2

 

 - 

 - 

 

 - 

 - 

 

4

0.1

 

56

0.2

 

 

 

24,085

100

 

2,207

100

 

1,321

100

 

3,165

100

 

30,778

100

31 December 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal trigger (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PD movement

 

 

4,583

44.0

 

223

20.7

 

742

59.0

 

1,538

66.6

 

7,086

47.1

PD persistence

 

 

1,815

17.5

 

252

23.4

 

422

33.5

 

542

23.5

 

3,031

20.2

Adverse credit bureau recorded 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  with credit reference agency

 

 

3,236

31.2

 

-

-

 

59

4.7

 

102

4.4

 

3,397

22.6

Forbearance support provided

 

 

163

1.6

 

3

0.3

 

-

-

 

10

0.4

 

176

1.2

Customers in collections

 

 

137

1.3

 

74

6.9

 

3

0.2

 

36

1.6

 

250

1.7

Other reasons (2)

 

 

339

3.3

 

525

48.7

 

33

2.6

 

56

2.4

 

953

6.3

Days past due >30

 

 

115

1.1

 

-

-

 

-

-

 

26

1.1

 

141

0.9

 

 

 

10,388

100

 

1,077

100

 

1,259

100

 

2,310

100

 

15,034

100

 

For the notes to the table refer to the next page.

 

Key points

The primary driver of credit deterioration was PD, which including persistence, accounted for the majority of movements into Stage 2. High risk back-stops, for example, forbearance and adverse credit bureau, provide additional valuable discrimination.

However, with a larger proportion of exposures now triggering PD deterioration following the deteriorated economic outlook, the proportion of accounts triggering high risk backstops alone decreased.

 

 

 

Capital and risk management

Credit risk - Banking activities continued

Stage 2 decomposition by a significant increase in credit risk trigger

 

 

 

 

 

Property

 

Corporate

 

FI

 

Other

 

Total

 

 

 

Loans

ECL

 

Loans

ECL

 

Loans

ECL

 

Loans

ECL

 

Loans

ECL

30 June 2020

 

 

£m

%

 

£m

%

 

£m

%

 

£m

%

 

£m

%

Wholesale trigger (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PD movement

 

 

10,849

87.6

 

47,483

94.9

 

3,259

86.0

 

1

100

 

61,592

93.0

PD persistence

 

 

25

0.2

 

82

0.2

 

1

 - 

 

-

-

 

108

0.2

Risk of credit loss

 

 

449

3.6

 

1,007

2.0

 

211

5.6

 

-

-

 

1,667

2.5

Forbearance support provided

 

 

17

0.1

 

16

 - 

 

19

0.5

 

-

-

 

52

0.1

Customers in collections

 

 

16

0.1

 

63

0.1

 

-

 - 

 

-

-

 

79

0.1

Other reasons (3,4)

 

 

959

7.7

 

1,296

2.6

 

266

7.0

 

-

-

 

2,521

3.8

Days past due >30

 

 

85

0.7

 

95

0.2

 

33

0.9

 

-

-

 

213

0.3

 

 

 

12,400

100

 

50,042

100

 

3,789

100

 

1

100

 

66,232

100

31 December 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale trigger (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PD movement

 

 

1,416

54.8

 

6,129

63.1

 

368

67.4

 

3

75.0

 

7,916

61.7

PD persistence

 

 

45

1.7

 

183

1.9

 

3

0.5

 

-

-

 

231

1.8

Risk of credit loss

 

 

915

35.5

 

2,394

24.7

 

69

12.6

 

-

-

 

3,378

26.3

Forbearance support provided

 

 

31

1.2

 

140

1.4

 

29

5.3

 

-

-

 

200

1.6

Customers in collections

 

 

10

0.4

 

47

0.5

 

-

-

 

-

-

 

57

0.4

Other reasons (3,4)

 

 

146

5.7

 

659

6.8

 

71

13.0

 

1

25.0

 

877

6.8

Days past due >30

 

 

17

0.7

 

152

1.6

 

6

1.1

 

-

-

 

175

1.4

 

 

 

2,580

100

 

9,704

100

 

546

100

 

4

100

 

12,834

100

 

Notes:

(1)

The table is prepared on a hierarchical basis from top to bottom, for example, accounts with PD deterioration may also trigger backstop(s) but are only reported under PD deterioration.

(2)

£322 million of Ulster Bank Rol mortgage exposure which did not meet existing SICR criteria have been classified within Stage 2 following a strategic review and are included in other reasons. It includes customers that have accessed payday lending, interest only mortgages past end of term, a small number of mortgage customers on a highly flexible mortgage significantly behind their repayment plan and customers breaching risk appetite thresholds for new business acquisition.

(3)

Includes customers where a PD assessment cannot be undertaken due to missing PDs.

(4)

£703 million of Ulster Bank Rol Wholesale exposure which did not meet existing SICR criteria have been classified within Stage 2 following strategic and sectoral reviews and are included in other reasons.

 

Key points

PD deterioration continued to be the primary trigger of migration of exposures from Stage 1 to Stage 2. As the economic outlook deteriorated, it now accounts for a higher proportion of the balances migrated to Stage 2.

Moving exposures on to the Risk of Credit Loss framework remains an important backstop indicator of a SICR.

The exposures classified under the Stage 2 Risk of Credit Loss framework trigger decreased over the period as more exposures were captured under the PD deterioration Stage 2 trigger.

NatWest Group continues to appraise its IFRS 9 SICR rules in the context of effectiveness, volatility and industry consistency. The recent PD driven increase in Stage 2 exposures in the Wholesale portfolios highlighted the gradual diminished impact on ECL of the threshold for better quality portfolios under stress, suggesting possible conservatism in the SICR rules for these portfolios.  As an illustration, an increase of the de minimus PD threshold to 0.75% in the SICR rules could decrease the Wholesale portfolios Stage 2 exposure by 24% with a two basis point reduction on good book ECL coverage.

 

 

 

 

Capital and risk management

Credit risk - Banking activities continued

Stage 3 vintage analysis

The table below shows estimated vintage analysis of the material Stage 3 portfolios totalling 83% of the Stage 3 loans of £7.0 billion.

 

30 June 2020

 

31 December 2019

 

UK Personal

Ulster Bank

 

 

UK Personal

Ulster Bank

 

 

Banking

RoI

 

 

Banking

RoI

 

 

mortgages

mortgages

Wholesale

 

mortgages

mortgages

Wholesale

Stage 3 loans (£bn)

1.3

1.4

3.1

 

1.3

1.9

2.3

Vintage (time in default):

 

 

 

 

 

 

 

<1 year

33%

5%

46%

 

32%

13%

37%

1-3 years

26%

18%

15%

 

23%

12%

14%

3-5 years

10%

23%

9%

 

11%

23%

9%

5-10 years

23%

41%

30%

 

26%

44%

40%

>10 years

8%

12%

-

 

8%

8%

-

 

100%

100%

100%

 

100%

100%

100%

 

Key points

Mortgages -The proportion of the Stage 3 defaulted population who have been in default for over five years reflected NatWest Group's support for customers in financial difficulty. When customers continue to engage constructively with NatWest Group, making regular payments, NatWest Group continues to support them. NatWest Group's provisioning approach retains customers in Stage 3 for a life-time loss provisioning calculation, even when their arrears status reverts to below 90 days past due.

Wholesale -The value of Stage 3 loans that have been impaired for > 5 years was mainly due to customers being in a protracted formal insolvency process or subject to litigation or a complaints process.

 

Asset quality

The table below shows asset quality bands of gross loans and ECL, by stage, for the Personal portfolio.

 

Gross loans

 

ECL provisions

 

ECL provisions coverage

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

30 June 2020

£m

£m

£m

£m

 

£m

£m

£m

£m

 

%

%

%

%

UK mortgages

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

92,865

4,672

-

97,537

 

10

14

 - 

24

 

0.01

0.30

 - 

0.02

AQ5-AQ8

49,355

18,440

-

67,795

 

7

138

 - 

145

 

0.01

0.75

 - 

0.21

AQ9

325

973

-

1,298

 

 - 

42

 - 

42

 

-

4.32

 - 

3.24

AQ10

-

-

1,533

1,533

 

 - 

 - 

250

250

 

-

-

16.31

16.31

 

142,545

24,085

1,533

168,163

 

17

194

250

461

 

0.01

0.81

16.31

0.27

RoI mortgages (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

7,820

964

-

8,784

 

13

37

 - 

50

 

0.17

3.84

-

0.57

AQ5-AQ8

2,576

927

-

3,503

 

4

45

 - 

49

 

0.16

4.85

-

1.40

AQ9

6

316

-

322

 

-

16

 - 

16

 

-

5.06

-

4.97

AQ10

 - 

 - 

1,370

1,370

 

-

-

456

456

 

-

-

33.28

33.28

 

10,402

2,207

1,370

13,979

 

17

98

456

571

 

0.16

4.44

33.28

4.08

Credit cards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

35

7

-

42

 

2

1

 - 

3

 

5.71

14.29

-

7.14

AQ5-AQ8

2,350

1,260

-

3,610

 

45

226

 - 

271

 

1.91

17.94

-

7.51

AQ9

2

54

-

56

 

-

16

 - 

16

 

-

29.63

-

28.57

AQ10

-

-

110

110

 

-

-

86

86

 

-

-

78.18

78.18

 

2,387

1,321

110

3,818

 

47

243

86

376

 

1.97

18.40

78.18

9.85

Other personal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

883

48

-

931

 

7

11

-

18

 

0.79

22.92

-

1.93

AQ5-AQ8

5,148

2,791

-

7,939

 

87

357

-

444

 

1.69

12.79

-

5.59

AQ9

67

326

-

393

 

3

107

-

110

 

4.48

32.82

-

27.99

AQ10

-

 - 

734

734

 

-

-

612

612

 

 - 

 - 

83.38

83.38

 

6,098

3,165

734

9,997

 

97

475

612

1,184

 

1.59

15.01

83.38

11.84

Total personal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

101,603

5,691

-

107,294

 

32

63

-

95

 

0.03

1.11

-

0.09

AQ5-AQ8

59,429

23,418

-

82,847

 

143

766

-

909

 

0.24

3.27

-

1.10

AQ9

400

1,669

-

2,069

 

3

181

-

184

 

0.75

10.84

-

8.89

AQ10

-

-

3,747

3,747

 

-

-

1,404

1,404

 

-

-

37.47

37.47

 

161,432

30,778

3,747

195,957

 

178

1,010

1,404

2,592

 

0.11

3.28

37.47

1.32

 

Note:

(1)  AQ10 includes £0.5 billion (31 December 2019 - £0.6 billion) of RoI mortgages which are not currently considered defaulted for capital calculation purposes for RoI but are included in Stage 3.

 

 

 

 

 

 

Capital and risk management

Credit risk - Banking activities continued

Asset quality

 

 

Gross loans

 

ECL provisions

 

ECL provisions coverage

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

31 December 2019

£m

£m

£m

£m

 

£m

£m

£m

£m

 

%

%

%

%

UK mortgages

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

90,494

2,579

-

93,073

 

6

7

-

13

 

0.01

0.27

-

0.01

AQ5-AQ8

58,039

6,939

-

64,978

 

8

55

-

63

 

0.01

0.79

-

0.10

AQ9

96

870

-

966

 

-

25

-

25

 

-

2.87

-

2.59

AQ10

-

-

1,414

1,414

 

-

-

240

240

 

-

-

16.97

16.97

 

148,629

10,388

1,414

160,431

 

14

87

240

341

 

0.01

0.84

16.97

0.21

RoI mortgages (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

6,215

212

-

6,427

 

4

4

-

8

 

0.06

1.89

-

0.12

AQ5-AQ8

4,416

615

-

5,031

 

7

19

-

26

 

0.16

3.09

-

0.52

AQ9

1

250

-

251

 

-

8

-

8

 

-

3.20

-

3.19

AQ10

-

-

1,863

1,863

 

-

-

581

581

 

-

-

31.19

31.19

 

10,632

1,077

1,863

13,572

 

11

31

581

623

 

0.10

2.88

31.19

4.59

Credit cards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

364

11

-

375

 

1

1

-

2

 

0.27

9.09

-

0.53

AQ5-AQ8

2,734

1,187

-

3,921

 

39

112

-

151

 

1.43

9.44

-

3.85

AQ9

5

61

-

66

 

-

19

-

19

 

-

31.15

-

28.79

AQ10

-

-

116

116

 

-

-

89

89

 

-

-

76.72

76.72

 

3,103

1,259

116

4,478

 

40

132

89

261

 

1.29

10.48

76.72

5.83

Other personal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

1,231

59

-

1,290

 

4

5

-

9

 

0.32

8.47

-

0.70

AQ5-AQ8

6,127

2,045

-

8,172

 

59

195

-

254

 

0.96

9.54

-

3.11

AQ9

78

206

-

284

 

2

53

-

55

 

2.56

25.73

-

19.37

AQ10

-

-

643

643

 

-

-

539

539

 

-

-

83.83

83.83

 

7,436

2,310

643

10,389

 

65

253

539

857

 

0.87

10.95

83.83

8.25

Total personal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

98,304

2,861

-

101,165

 

15

17

-

32

 

0.02

0.59

-

0.03

AQ5-AQ8

71,316

10,786

-

82,102

 

113

381

-

494

 

0.16

3.53

-

0.60

AQ9

180

1,387

-

1,567

 

2

105

-

107

 

1.11

7.57

-

6.83

AQ10

-

-

4,036

4,036

 

-

-

1,449

1,449

 

-

-

35.90

35.90

 

169,800

15,034

4,036

188,870

 

130

503

1,449

2,082

 

0.08

3.35

35.90

1.10

 

Note:

(1)  AQ10 includes £0.5 billion (31 December 2019 - £0.6 billion) of RoI mortgages which are not currently considered defaulted for capital calculation purposes for RoI but are included in Stage 3.

 

Key points

In the Personal portfolios, the asset quality distribution deteriorated slightly in credit cards and other personal since the year-end, with the Basel II point-in-time PDs yet to reflect the expected credit deterioration.

The majority of exposures were in AQ1-AQ4, with a significant proportion in AQ5-AQ8. As expected, mortgage exposures have a higher proportion in AQ1-AQ4 than unsecured borrowing.

The relatively high level of Stage 3 impaired assets (AQ10) in RoI mortgages reflected their legacy mortgage portfolio and the residual effects from the financial crisis.

In other personal, the relatively high level of exposures in AQ10 reflected that impaired assets can be held on the balance sheet, with commensurate ECL provision for up to six years after default.

ECL provisions coverage shows the expected trend with increased coverage in the poorer asset quality bands, and also by stage.

 

 

 

 

 

 

 

 

Capital and risk management

Credit risk - Banking activities continued

Asset quality

The table below shows asset quality bands of gross loans and ECL, by stage, for the Wholesale portfolio.

 

 

Gross loans

 

ECL provisions

 

ECL provisions coverage

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

30 June 2020

£m

£m

£m

£m

 

£m

£m

£m

£m

 

%

%

%

%

Property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

14,066

3,052

-

17,118

 

16

56

-

72

 

0.11

1.83

-

0.42

AQ5-AQ8

12,100

9,169

-

21,269

 

110

320

-

430

 

0.91

3.49

-

2.02

AQ9

616

179

-

795

 

-

16

-

16

 

-

8.94

-

2.01

AQ10

-

-

1,259

1,259

 

-

-

513

513

 

-

-

40.75

40.75

 

26,782

12,400

1,259

40,441

 

126

392

513

1,031

 

0.47

3.16

40.75

2.55

Corporate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

9,419

15,479

-

24,898

 

21

155

-

176

 

0.22

1.00

-

0.71

AQ5-AQ8

18,094

34,000

-

52,094

 

111

1,350

-

1,461

 

0.61

3.97

-

2.80

AQ9

2,148

563

-

2,711

 

1

49

-

50

 

0.05

8.70

-

1.84

AQ10

-

-

2,012

2,012

 

-

-

938

938

 

-

-

46.62

46.62

 

29,661

50,042

2,012

81,715

 

133

1,554

938

2,625

 

0.45

3.11

46.62

3.21

Financial institutions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

34,532

2,342

-

36,874

 

13

12

-

25

 

0.04

0.51

-

0.07

AQ5-AQ8

4,590

1,440

-

6,030

 

9

57

-

66

 

0.20

3.96

-

1.09

AQ9

11

7

-

18

 

-

-

-

-

 

-

-

-

-

AQ10

-

-

10

10

 

-

-

5

5

 

-

-

50.00

50.00

 

39,133

3,789

10

42,932

 

22

69

5

96

 

0.06

1.82

50.00

0.22

Sovereign

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

9,274

-

-

9,274

 

9

-

-

9

 

0.10

-

-

0.10

AQ5-AQ8

157

1

-

158

 

1

-

-

1

 

0.64

-

-

0.63

AQ 9

5

-

-

5

 

-

-

-

-

 

-

-

-

-

AQ10

-

-

6

6

 

-

-

-

-

 

-

-

-

-

 

9,436

1

6

9,443

 

10

-

-

10

 

0.11

-

-

0.11

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

67,291

20,873

-

88,164

 

59

223

-

282

 

0.09

1.07

-

0.32

AQ5-AQ8

34,941

44,610

-

79,551

 

231

1,727

-

1,958

 

0.66

3.87

-

2.46

AQ9

2,780

749

-

3,529

 

1

65

-

66

 

0.04

8.68

-

1.87

AQ10

-

-

3,287

3,287

 

-

-

1,456

1,456

 

-

-

44.30

44.30

 

105,012

66,232

3,287

174,531

 

291

2,015

1,456

3,762

 

0.28

3.04

44.30

2.16

 

 

 

 

Capital and risk management

Credit risk - Banking activities continued

Asset quality

 

Gross loans

 

ECL provisions

 

ECL provisions coverage

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

31 December 2019

£m

£m

£m

£m

 

£m

£m

£m

£m

 

%

%

%

%

Property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

15,590

413

-

16,003

 

7

6

-

13

 

0.04

1.45

-

0.08

AQ5-AQ8

17,268

2,115

-

19,383

 

38

36

-

74

 

0.22

1.70

-

0.38

AQ9

38

52

-

90

 

-

5

-

5

 

-

9.62

-

5.56

AQ10

-

-

895

895

 

-

-

402

402

 

-

-

44.92

44.92

 

32,896

2,580

895

36,371

 

45

47

402

494

 

0.14

1.82

44.92

1.36

Corporate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

22,373

616

-

22,989

 

12

11

-

23

 

0.05

1.79

-

0.10

AQ5-AQ8

37,133

8,803

-

45,936

 

111

169

-

280

 

0.30

1.92

-

0.61

AQ9

183

285

-

468

 

1

18

-

19

 

0.55

6.32

-

4.06

AQ10

-

-

1,649

1,649

 

-

-

859

859

 

-

-

52.09

52.09

 

59,689

9,704

1,649

71,042

 

124

198

859

1,181

 

0.21

2.04

52.09

1.66

Financial institutions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

32,297

225

-

32,522

 

7

1

-

8

 

0.02

0.44

-

0.02

AQ5-AQ8

3,406

319

-

3,725

 

9

2

-

11

 

0.26

0.63

-

0.30

AQ9

4

2

-

6

 

-

1

-

1

 

-

50.00

-

16.67

AQ10

-

-

13

13

 

-

-

8

8

 

-

-

61.54

61.54

 

35,707

546

13

36,266

 

16

4

8

28

 

0.04

0.73

61.54

0.08

Sovereign

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

7,268

4

-

7,272

 

7

-

-

7

 

0.10

-

-

0.10

AQ5-AQ8

142

-

-

142

 

-

-

-

-

 

-

-

-

-

AQ10

-

-

5

5

 

-

-

-

-

 

-

-

-

-

 

7,410

4

5

7,419

 

7

-

-

7

 

0.09

-

-

0.09

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

77,528

1,258

-

78,786

 

33

18

-

51

 

0.04

1.43

-

0.06

AQ5-AQ8

57,949

11,237

-

69,186

 

158

207

-

365

 

0.27

1.84

-

0.53

AQ9

225

339

-

564

 

1

24

-

25

 

0.44

7.08

-

4.43

AQ10

-

-

2,562

2,562

 

-

-

1,269

1,269

 

-

-

49.53

49.53

 

135,702

12,834

2,562

151,098

 

192

249

1,269

1,710

 

0.14

1.94

49.53

1.13

 

 

Key points

● Across the Wholesale portfolio, the asset quality band distribution differed, reflecting the diverse nature of the sectors, however, asset quality deterioration was observed across most sectors in H1 2020 as the impacts of Covid-19 affected customers' operations and markets.

● Within the Wholesale portfolio, customer credit grades are being reassessed as and when a request for financing is made, a scheduled customer credit review is undertaken or a material event specific to that customer occurs.

● As noted above, a request for support using one of the government-backed Covid-19 support schemes is not itself a reason for a customer's credit grade to be amended.

● The magnitude of credit migration in Wholesale was influenced by Covid-19 specific guidance on credit grading for customers in place during Q2 2020. NatWest Group established this guidance to provide consistency and fair outcomes for these customers, whilst appropriately reflecting the economic outlook at that time. Large or complex customers were graded using financial forecasts, incorporating both the impact of Covid-19, and the length of the time to return to within credit appetite metrics.

● All other customers who were not subject to any wider SICR triggers and who were assessed as having the ability in the medium-term post-crisis to be viable and meet credit appetite metrics were graded using audited accounts.

● NatWest Group identified those customers for whom additional borrowing would require remedial action to return to within risk appetite over the medium term, and customers who were exhibiting signs of financial stress before the Covid-19 crisis. These customers were graded with reference to the impact Covid-19 had on their business.

● Tailored guidance applies to financial institutions and, where appropriate, specialist credit grading models.

● ECL provisions coverage shows the expected trend with increased coverage in the poorer asset quality bands, and also by stage.

● The relatively low provision coverage for Stage 3 loans in the property sector reflected the secured nature of the exposures.

 

 

 

 

 

 

Capital and risk management

Credit risk - Trading activities

This section details the credit risk profile of NatWest Group's trading activities.

 

Securities financing transactions and collateral

The table below shows securities financing transactions in NatWest Markets and Treasury. Balance sheet captions include balances held at all classifications under IFRS 9.

 

Reverse repos

 

Repos

 

 

 

Outside

 

 

 

Outside

 

 

Of which:

netting

 

 

Of which:

netting

 

Total

can be offset

arrangements

 

Total

can be offset

arrangements

30 June 2020

£m

£m

£m

 

£m

£m

£m

Gross

80,186

79,972

214

 

68,927

66,816

2,111

IFRS offset

(43,196)

(43,196)

-

 

(43,196)

(43,196)

-

Carrying value

36,990

36,776

214

 

25,731

23,620

2,111

 

 

 

 

 

 

 

 

Master netting arrangements

(321)

(321)

-

 

(321)

(321)

-

Securities collateral

(33,982)

(33,982)

-

 

(23,299)

(23,299)

-

Potential for offset not recognised under IFRS

(34,303)

(34,303)

-

 

(23,620)

(23,620)

-

Net

2,687

2,473

214

 

2,111

-

2,111

 

 

 

 

 

 

 

 

31 December 2019

 

 

 

 

 

 

 

Gross

74,156

73,348

808

 

71,494

69,020

2,474

IFRS offset

(39,247)

(39,247)

-

 

(39,247)

(39,247)

-

Carrying value

34,909

34,101

808

 

32,247

29,773

2,474

 

 

 

 

 

 

 

 

Master netting arrangements

(562)

(562)

-

 

(562)

(562)

-

Securities collateral

(33,178)

(33,178)

-

 

(29,211)

(29,211)

-

Potential for offset not recognised under IFRS

(33,740)

(33,740)

-

 

(29,773)

(29,773)

-

Net

1,169

361

808

 

2,474

-

2,474

 

 

 

 


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