NWG H1 23 Interim Management Statement-Part 1 of 2

NatWest Group plc
28 July 2023
 

F2A4E6A5-86EA-4413-90D6-619423C4A8DF|3|Oracle.SmartView.EPRCS|{595d0b5f-8c48-4b4c-be0d-3a42619438bf}

 

                                                                                                                                                   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NatWest Group

Interim Results 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                                                                                                natwestgroup.com

 


NatWest Group Interim Results 2023                                                             

Page

Highlights

3

Our Purpose in action

4

Business performance summary

5

  Chief Financial Officer review

6

  Retail Banking

8

  Private Banking

9

  Commercial & Institutional

10

  Central items & other

11

  Segment performance

12

Risk and capital management


  Credit risk

18

  Credit risk - banking activities

29

  Credit risk - trading activities

58

  Capital, liquidity and funding risk

61

  Market risk

71

  Other risks

76

Condensed consolidated financial statements

77

Notes to the financial statements

83

Independent review report to NatWest Group plc

102

Summary of Principal Risks and Uncertainties

103

Statement of directors' responsibilities

105

Additional information

106

Appendix - Non-IFRS financial measures

109



 

NatWest Group plc

Interim results for the period ended 30 June 2023

Chief Financial Officer, Katie Murray, commented

"NatWest Group's strong performance for the first half of the year is underpinned by our robust balance sheet, with a high-quality deposit base, high levels of liquidity and a well-diversified loan book. As a result, we are able to continue lending to our customers and delivering sustainable returns and distributions to our shareholders, even in the current uncertain economic environment.

Although arrears remain low, we know that people, families and businesses are anxious about their finances and many are really struggling. We are being proactive in our support for those who are hardest hit, helping to build the financial resilience of the customers and communities we serve."

Group Chief Executive Officer

On 25 July 2023, Alison Rose stepped down as Chief Executive Officer and as a Director of NatWest Group plc. Paul Thwaite was appointed as Chief Executive Officer and as a Director of NatWest Group plc for an initial period of 12 months, subject to regulatory approval.

Strong H1 2023 performance

-   H1 2023 attributable profit of £2,299 million and a return on tangible equity of 18.2%.

-   Total income, excluding notable items(1), increased by £1,485 million, or 25.2%, compared with H1 2022 principally reflecting the impact of lending growth and yield curve movements.

-   Bank net interest margin (NIM) of 3.20% in H1 2023 compared with 2.58% in H1 2022 with the increase reflecting favourable yield curve movements. Q2 2023 Bank NIM of 3.13% was 14 basis points lower than Q1 2023 principally reflecting asset margin pressure and changes in deposit mix from non-interest bearing to interest bearing balances.

-   Other operating expenses were £323 million, or 9.3%, higher than H1 2022. The cost:income ratio (excl. litigation and conduct) was 49.3% for the first half of the year compared with 56.0% in H1 2022.

-   A net impairment charge of £223 million in H1 2023, or 12 basis points of gross customer loans, principally reflects an increase in post model adjustments driven by increased economic uncertainty notwithstanding a £98 million modelled release. Defaults remain stable and at low levels across the portfolio.

Robust balance sheet underpinning growth

-   Net loans to customers excluding central items increased by £6.0 billion to £352.7 billion during H1 2023 primarily reflecting £5.9 billion of mortgage growth in Retail Banking.

-   Up to 30 June 2023 we have provided £48.6 billion against our target to provide £100 billion climate and sustainable funding and financing between 1 July 2021 and the end of 2025.

-   Customer deposit balances were stable in the second quarter following the outflows in the first quarter. Customer deposits excluding central items decreased by £11.8 billion to £421.1 billion during H1 2023.

-   The loan:deposit ratio (LDR) (excl. repos and reverse repos) was 83%, with customer deposits exceeding net loans to customers by around £71 billion.

-   The liquidity coverage ratio (LCR) of 141%, representing £45.3 billion headroom above 100% minimum requirement, increased by 2 percentage points compared with Q1 2023 primarily due to increased wholesale funding and UBIDAC asset sale offset by capital distributions.

Shareholder return supported by strong capital generation

-   We are pleased to announce an interim dividend of 5.5 pence per share and intend to commence an on-market buyback programme of up to £500 million in the second half of 2023 in addition to the £1.3 billion directed buyback completed in Q2 2023 bringing total distributions deducted from capital to £2.5 billion for H1 2023.

-   Common Equity Tier (CET1) ratio of 13.5% was 70 basis points lower than at 31 December 2022 principally reflecting distributions deducted from capital of c.140 basis points and an increase in RWAs, partially offset by the attributable profit.

-   RWAs increased by £1.4 billion during the first half of the year to £177.5 billion.

Outlook(2)

We retain the guidance provided in the 2022 Annual Report and Accounts with the exception of full year 2023 Bank NIM which is now expected to be less than 3.20%, with a current view of around 3.15%. This remains subject to market conditions including the assumption of a Bank of England base rate of 5.50% from Q3 2023 through to the end of the year.

 

(1)     Refer to the Non-IFRS financial measures appendix for details of notable items.

(2)     The guidance, targets, expectations, and trends discussed in this section represent NatWest Group plc management's current expectations and are subject to change, including as a result of the factors described in the NatWest Group plc Risk Factors section in the 2022 Annual Report and Accounts and Form 20-F and the Summary Risk Factors in this announcement. 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. By working to benefit our customers, colleagues, and communities, we will deliver long-term value and drive sustainable returns to our shareholders. Some key achievements in H1 2023 include:

People and families

-    We announced a new ambition to support 10 million people with their financial wellbeing every year by the end of 2027; starting with 6.5 million people in 2023 and increasing on an annual basis between 2024 and 2027, to reach 10 million a year by 2027. In H1 2023, we carried out c.341,000 financial health checks and extended our free Know Your Credit Score tool to everyone in the UK.

-    From the end of April 2023, we stopped all fees and charges for personal mortgage customers in persistent financial difficulty who are receiving help from our specialist Financial Health and Support teams.

-    We announced our collaboration with Places for People, British Gas Centrica and Schneider Electric - coordinated by Pineapple Sustainable Partnerships - to show that retrofitting homes at scale can be an achievable and affordable goal.

Businesses

-    We announced our aim to provide an additional £1 billion of lending to the UK manufacturing sector by the end of 2030, aiming to stimulate growth and help manufacturers invest in cleaner, more efficient forms of energy generation and use(1).

-    We announced strategic partnerships with WWF-UK to mobilise investment in climate and nature-friendly farming, and with food manufacturer McCain to reduce financial barriers for farmers transitioning to sustainable agricultural practices.

-    As part of our ambition to remove the barriers for women in business, in March 2023 we became the first bank in Europe to issue a bond with the intention to use the net proceeds to lend to businesses identified as women-led. The nominal amount of the bond is €500 million (£446 million), as at 7 March 2023.

Colleagues

-    With the National Youth Agency, we announced a new employee volunteering programme, which will enable our colleagues to deliver NatWest Thrive in their local youth clubs.

-    We launched our new Women in Entrepreneurship learning programme, open to all colleagues across the bank, to help them offer practical advice and support to women entrepreneurs. 

-    We were included in The Times 2023 Top 50 Employers for Gender Equality list, run by business network, Business in the Community.

Communities

-    We announced £5.7 million in cost of living donations to charities and strategic partners, including £1 million to the Trussell Trust to further support the Help through Hardship scheme and over £1.6 million to the debt advice sector.

-    With the University of Edinburgh, we launched the Centre for Purpose-Driven Innovation in Banking, which will use business insights from NatWest Group to improve how data is used to benefit customers, researchers and policymakers.

-    We launched the Royal Bank Regenerate Fund with giving platform, Neighbourly, to support schools, charities and community groups based in Scotland to deliver sustainability projects.

Driving targeted growth

We're driving our strategy forward through three areas of growth:

Delivering personalised solutions throughout our customers' lifecycle

-    We're focused on customer lifetime value to deliver growth: c.20% of youth accounts are held with NatWest Group(2) and in H1 2023 we attracted c.93,000 new NatWest Rooster card holders.

-    According to a survey by Savanta, we have a 17.7% share of the start-up market, up from 13.0% at the same time last year, with c.55,000 new accounts opened in H1 2023(3).

Supporting our customers' sustainability transitions

-    During H1 2023 we provided £16.0 billion climate and sustainable funding and financing, bringing the cumulative contribution to £48.6 billion at 30 June 2023 against our target to provide £100 billion between 1 July 2021 and the end of 2025(4).

-    As part of this, we aim to provide at least £10 billion in lending for residential properties with Energy Performance Certificate (EPC) ratings A and B between 1 January 2023 and the end of 2025. During H1 2023, we provided £2.3 billion in lending for residential properties with EPC ratings A and B.

Embedding our services in our customers' digital lives

-    We're scaling up digital and payment offerings for our business customers: Mettle has grown its customer base to almost 100,000 with c.17,000 new accounts opened in H1 2023; £2.2 billion transactions were processed by Tyl by NatWest, a 64% year-on-year increase, and c.8,000 new merchants onboarded.

-    We launched a whole-of-market(5) credit card offering: our credit card share is 9.6%(6), up from 5.7% this time last year, with c.309,000 cards issued in the year to date and c.76,000 new-to-bank customers.

(1)    The £1 billion manufacturing fund lending package will be deployed through a variety of routes, including loans, asset finance and increased overdrafts.

(2)     As at April 2023. Source: CACI - UK youth flow share max age 18, cash card and no overdraft and Rooster 11+ overlay (12 months rolling).

(3)     Based on the % of 771 businesses, less than 2 years old, that name a NatWest Group brand as their main bank. Compared to other banks with a presence on the high street. Source: MarketVue Business Banking from Savanta at Q2 2023.  Excludes those using personal bank accounts.

(4)     NatWest Group uses its climate and sustainable funding and financing inclusion criteria to determine the assets, activities and companies that are eligible to be included within its climate and sustainable funding and financing targets. This includes both provision of committed (on and off-balance sheet) funding and financing, including provision of services for underwriting issuances and private placements.

(5)     Whole-of-market primarily comprises retail customers who do not currently hold a current account with NatWest Group.

(6)    Source: eBenchmarkers 3 month rolling average to end May.


Business performance summary


Half year ended

 

Quarter ended


30 June

30 June


30 June

31 March

30 June


2023

2022


2023

2023

2022

Summary consolidated income statement

£m

£m


£m

£m

£m

Net interest income

5,726

4,334


2,824

2,902

2,307

Non-interest income

2,001

1,885


1,027

974

904

Total income

7,727

6,219


3,851

3,876

3,211

Litigation and conduct costs

(108)

(169)


(52)

(56)

(67)

Other operating expenses

(3,807)

(3,484)


(1,875)

(1,932)

(1,766)

Operating expenses

(3,915)

(3,653)


(1,927)

(1,988)

(1,833)

Profit before impairment losses/releases

3,812

2,566


1,924

1,888

1,378

Impairment (losses)/releases

(223)

54


(153)

(70)

18

Operating profit before tax

3,589

2,620


1,771

1,818

1,396

Tax charge

(1,061)

(795)


(549)

(512)

(409)

Profit from continuing operations

2,528

1,825


1,222

1,306

987

(Loss)/profit from discontinued operations, net of tax

(108)

190


(143)

35

127

Profit for the period

2,420

2,015


1,079

1,341

1,114

Performance key metrics and ratios

 



 



Notable items within total income (1)

£344m

£321m


£288m

£56m

£97m

Total income excluding notable items (1)

£7,383m

£5,898m


£3,563m

£3,820m

£3,114m

Bank net interest margin (1)

3.20%

2.58%


3.13%

3.27%

2.71%

Bank average interest earning assets (1)

£361bn

£338bn


£362bn

£360bn

£342bn

Cost:income ratio (excl. litigation and conduct) (1)

49.3%

56.0%


48.7%

49.8%

55.0%

Loan impairment rate (1)

12bps

(3bps)


16bps

7bps

(2bps)

Profit attributable to ordinary shareholders

£2,299m

£1,891m


£1,020m

£1,279m

£1,050m

Total earnings per share attributable to ordinary shareholders - basic (2)

24.3p

18.7p


11.0p

13.2p

10.8p

Return on tangible equity (RoTE) (1)

18.2%

13.1%


16.4%

19.8%

15.2%

Climate and sustainable funding and financing (3)

£16.0bn

£11.9bn


£8.4bn

£7.6bn

£6.4bn


 



 




 



As at


 



30 June

31 March

31 December


 



2023

2023

2022

Balance sheet

 



£bn

£bn

£bn

Total assets

 



702.6

695.6

720.1

Net loans to customers - amortised cost

 



373.9

374.2

366.3

Net loans to customers excluding central items (1)

 



352.7

352.4

346.7

Loans to customers and banks - amortised cost and FVOCI 

 



385.2

385.8

377.1

Total impairment provisions (4)

 



3.4

3.4

3.4

Expected credit loss (ECL) coverage ratio 

 



0.9%

0.9%

0.9%

Assets under management and administration (AUMAs) (1)

 



37.9

35.2

33.4

Customer deposits

 



432.5

430.5

450.3

Customer deposits excluding central items (1,5)

 



421.1

421.8

432.9

Liquidity and funding

 



 



Liquidity coverage ratio (LCR)

 



141%

139%

145%

Liquidity portfolio

 



227

210

226

Net stable funding ratio (NSFR)

 



138%

141%

145%

Loan:deposit ratio (excl. repos and reverse repos)  (1)

 



83%

83%

79%

Total wholesale funding

 



81

79

74

Short-term wholesale funding

 



28

25

21

Capital and leverage

 



 



Common Equity Tier (CET1) ratio (6)

 



13.5%

14.4%

14.2%

Total capital ratio (6)

 



18.8%

19.6%

19.3%

Pro forma CET1 ratio (excl. foreseeable items) (7)

 



14.2%

15.7%

15.4%

Risk-weighted assets (RWAs)

 



177.5

178.1

176.1

UK leverage ratio

 



5.0%

5.4%

5.4%

Tangible net asset value (TNAV) per ordinary share (1,8)

 



262p

278p

264p

Number of ordinary shares in issue (millions) (8)

 



8,929

9,581

9,659

 

(1)

Refer to the Non-IFRS financial measures appendix for details of the basis of preparation and reconciliation of non-IFRS financial measures and performance metrics.

(2)

On 30 August 2022 issued ordinary share capital was consolidated in the ratio of 14 existing shares for 13 new shares. The average number of shares for earnings per share has been adjusted retrospectively.

(3)

NatWest Group uses its climate and sustainable funding and financing inclusion criteria to determine the assets, activities and companies that are eligible to be included within its climate and sustainable funding and financing targets. This includes both provision of committed (on and off-balance sheet) funding and financing, including provision of services for underwriting issuances and private placements. Up to 30 June 2023 we have provided £48.6 billion against our target to provide £100 billion climate and sustainable funding and financing between 1 July 2021 and the end of 2025. As part of this, we aim to provide at least £10 billion in lending for residential properties with Energy Performance Certificate (EPC) ratings A and B between 1 January 2023 and the end of 2025. During H1 2023 we provided £16.0 billion climate and sustainable funding and financing, which included £2.3 billion in lending for residential properties with EPC ratings A and B.

(4)

Includes £0.1 billion relating to off-balance sheet exposures (31 March 2023 - £0.1 billion; 31 December 2022 - £0.1 billion).

(5)

Central items includes Treasury repo activity and Ulster Bank Republic of Ireland.

(6)

Refer to the Capital, liquidity and funding risk section for details of the basis of preparation.

(7)

The pro forma CET1 ratio at 30 June 2023 excludes foreseeable items of £1,280 million: £780 million for ordinary dividends and £500 million foreseeable charges. (31 March 2023 excludes foreseeable items of £2,351 million: £1,479 million for ordinary dividends and £872 million foreseeable charges. 31 December 2022 excludes foreseeable charges of £2,132 million: £967 million for ordinary dividends and £1,165 million foreseeable charges).

(8)

The number of ordinary shares in issue excludes own shares held. Comparatives for the number of shares in issue and TNAV per ordinary share have not been adjusted for the effect of the share consolidation referred to in footnote 2 above.



 

Business performance summary

Chief Financial Officer review

We delivered a strong operating performance in the first half of the year with a RoTE of 18.2%. Total Income, excluding notable items, of £7.4 billion, was up by 25.2% on prior year and levels of default remain low across our portfolio.

The strength of our balance sheet has allowed us to continue to lend to our personal and business customers and we have seen customer deposit balances stabilise in the second quarter following the reduction in quarter one. We remain in a strong liquidity position, with an LCR of 141%, representing £45.3 billion headroom above 100% minimum requirement, and an LDR of 83%.

Our CET1 ratio remains strong at 13.5% with total distributions from capital of £2.5 billion.

We are pleased to announce an interim dividend of 5.5 pence per share and intend to commence an on-market buyback programme of up to £500 million in the second half of 2023. We have announced distributions of £2.3 billion to shareholders in the first half of the year and accrued a further £0.3 billion towards the final dividend payment in Q2 2023, bringing total distributions deducted from capital to £2.5 billion for H1 2023.

Financial performance

Total income increased by 24.2% to £7,727 million compared with H1 2022. Total income, excluding notable items, was 25.2% higher than H1 2022 principally driven by lending growth and favourable yield curve movements partially offset by the change in mix of deposits from non-interest bearing to interest bearing and lower deposit balances. These factors continued to impact in the quarter where net interest income fell by 2.7% compared with Q1 2023 driven by the ongoing change in mix of customer deposits, lower average balances and the impact of higher pass-through rates coupled with mortgage income reductions. We expect these factors to continue to be a feature of our results largely offsetting the positive gains of interest rate rises throughout 2023.

Bank NIM of 3.20% in H1 2023 compared with 2.58% in H1 2022 with the increase reflecting favourable yield curve movements. Q2 2023 Bank NIM of 3.13% was 14 basis points lower than Q1 2023 principally reflecting asset margin pressure of 9 basis points, changes in deposit mix from non-interest bearing to interest bearing balances and the impact and timing of pass-through of rate rises on deposits, 5 basis points.

In line with our expectations, other operating expenses were £323 million, or 9.3%, higher than H1 2022 principally reflecting increased staff costs due to inflation and a one-off cost of living payment, increased strategic investment costs, such as Financial Crime and Data, and a property impairment. We remain committed to delivering on our full year cost guidance.

A net impairment charge of £223 million principally reflects an increase in post model adjustments driven by increased economic uncertainty notwithstanding a £98 million modelled release. Defaults remain stable and at low levels across the portfolio. Compared with Q1 2023, our ECL provision increased by £0.1 billion to £3.6 billion and our ECL coverage ratio has increased from 0.89% to 0.92%. We retain post model adjustments of £0.5 billion related to economic uncertainty, or 13% of total impairment provisions. Whilst we are comfortable with the strong credit performance of our book, we will continue to assess this position regularly and are closely monitoring the impacts of inflationary pressures on the UK economy and our customers.

As a result, we are pleased to report an attributable profit for H1 2023 of £2,299 million, with earnings per share of 24.3 pence and a RoTE of 18.2%.

Net loans to customers excluding central items increased by £6.0 billion over the first half of the year. Retail Banking mortgage lending increased by £5.9 billion and unsecured lending increased by £1.0 billion due to strong customer demand. Gross new mortgage lending was £17.1 billion in H1 2023 compared with £18.9 billion in H1 2022 and £22.5 billion in H2 2022. Commercial & Institutional net loans to customers decreased by £0.7 billion which was primarily driven by UK Government scheme repayments of £1.4 billion and subdued activity in funds lending, partially offset by an increase in term loan facilities.

Up to 30 June 2023 we have provided £48.6 billion against our target to provide £100 billion climate and sustainable funding and financing between 1 July 2021 and the end of 2025. As part of this we aim to provide at least £10 billion in lending for residential properties with Energy Performance Certificate (EPC) ratings A and B between 1 January 2023 and the end of 2025. During H1 2023 we provided £16.0 billion climate and sustainable funding and financing, which included £2.3 billion in lending for residential properties with EPC ratings A and B.

During Q2 2023 customer deposits were stable following the outflows experienced in the first quarter. Customer deposits excluding central items reduced by £11.8 billion during H1 2023 reflecting customer tax payments which were significantly higher than previous years, competition for deposits and an overall market liquidity contraction. 

TNAV per share reduced by 2 pence in H1 2023 to 262 pence primarily reflecting the full year ordinary dividend payment, movements in cash flow hedging reserves and other reserves partially offset by the attributable profit for the period.



 

Business performance summary

Chief Financial Officer review continued

Capital

The CET1 ratio remains strong at 13.5%, or 13.4% excluding IFRS 9 transitional relief. The 70 basis points reduction compared with Q4 2022 principally reflects total distributions deducted from capital of £2.5 billion and increased RWAs of £1.4 billion, partially offset by the attributable profit. NatWest Group's minimum requirement for own funds and eligible liabilities (MREL) ratio was 31.2%.

We have completed the £800 million share buyback programme announced as part of our 2022 annual results. In Q2 2023 we completed a £1.3 billion directed buyback and we intend to commence an on-market buyback programme of up to £500 million in the remainder of the year which, including the ordinary dividend accrual, brings total distributions deducted from capital to £2.5 billion for H1 2023.

We have continued to make good progress with our withdrawal from the Republic of Ireland with a €800 million dividend from Ulster Bank Ireland DAC declared in Q2 2023.

RWAs increased by £1.4 billion in H1 2023 to £177.5 billion largely reflecting lending growth and a £1.1 billion increase associated with the annual update to operational risk balances partially offset by reductions associated with our exit from the Republic of Ireland.

Funding and liquidity

The LCR increased by 2 percentage points to 141% in the quarter, representing £45.3 billion headroom above 100% minimum requirement, primarily due to increased wholesale funding and UBIDAC asset sale offset by capital distributions. Our primary liquidity as at 30 June 2023 was £147.5 billion and £119.6 billion or 81% of this was cash at central banks. Total wholesale funding increased by £1.8 billion in the quarter to £81.2 billion.


Business performance summary

Retail Banking


Half year ended

 

Quarter ended


30 June

30 June


30 June

31 March

30 June


2023

2022


2023

2023

2022


£m

£m


£m

£m

£m

Total income

3,120

2,554


1,516

1,604

1,337

Operating expenses

(1,367)

(1,242)


(671)

(696)

(597)

   of which: Other operating expenses

(1,343)

(1,184)

 

(650)

(693)

(593)

Impairment losses

(193)

(26)


(79)

(114)

(21)

Operating profit

1,560

1,286


766

794

719


 



 



Return on equity (1)

29.1%

26.3%


28.2%

30.0%

29.5%

Net interest margin (1)

2.88%

2.53%


2.78%

2.99%

2.62%

Cost:income ratio (excl. litigation and conduct) (1)

43.0%

46.4%


42.9%

43.2%

44.4%

Loan impairment rate (1)

19bps

3bps


15bps

22bps

4bps


 



 




 



As at


 



30 June

31 March

31 December


 



2023

2023

2022





£bn

£bn

£bn

Net loans to customers (amortised cost)




204.4

201.7

197.6

Customer deposits




183.1

184.0

188.4

RWAs




57.3

55.6

54.7

 

(1)     Refer to the Non-IFRS financial measures appendix for details of the basis of preparation and reconciliation of non-IFRS financial measures and performance metrics.

During H1 2023, Retail Banking continued to pursue sustainable growth with an intelligent approach to risk, delivering a return on equity of 29.1% and an operating profit of £1,560 million. 

Retail Banking provided £2.2 billion of climate and sustainable funding and financing in H1 2023.

H1 2023 performance

-    Total income was £566 million, or 22.2%, higher than H1 2022 reflecting continued strong loan growth and higher deposit income supported by interest rate rises, partially offset by a reduction in mortgage margins, lower deposit balances with mix shift from non-interest bearing to interest bearing balances, as well as increased capital issuance and funding costs.

-    Net interest margin was 35 basis points higher than H1 2022 reflecting higher deposit income supported by interest rate rises, partially offset by a reduction in mortgage margins, lower deposit balances with mix shift from non-interest bearing to interest bearing balances, as well as higher treasury funding costs.

-    Other operating expenses were £159 million, or 13.4%, higher than H1 2022 reflecting continued investment in the business and higher pay awards to support our colleagues with cost of living challenges, increased data costs and increased restructuring costs. This was partly offset by a 3.0% headcount reduction as a result of continued digitalisation, automation and improvement of end-to-end customer journeys.

-    A net impairment charge of £193 million in H1 2023 largely reflects Stage 3 defaults, which remain stable, as well as good book charges driven by strong unsecured lending growth, partly offset by the benefits from the updated economic outlook.

-    Net loans to customers increased by £6.8 billion, or 3.4%, in H1 2023 mainly reflecting continued mortgage growth of £5.9 billion, or 3.2%, with gross new mortgage lending of £17.1 billion, representing flow share of around 16%. Cards balances increased by £0.7 billion, or 15.9%, and personal advances increased by £0.3 billion, or 3.9%, in H1 2023 with strong customer demand.

-    Customer deposits decreased by £5.3 billion, or 2.8%, in H1 2023 reflecting the impact of customer tax payments which were higher than previous years, lower household liquidity and increased competition for savings balances. Personal current account balances decreased by £5.5 billion, partially offset by an increase in personal savings of £0.2 billion in H1 2023. We have seen strong growth in our fixed term savings products in H1 2023.

-    RWAs increased by £2.6 billion, or 4.8%, primarily reflecting lending volume growth.

Q2 2023 performance

-    Total income was £88 million, or 5.5%, lower than Q1 2023 reflecting a reduction in mortgage margins and lower deposit balances with mix shift from non-interest bearing to interest bearing balances, partly offset by lending growth and benefit of higher rates on deposit income.

-    Net interest margin was 21 basis points lower than Q1 2023 reflecting lower mortgage margins and lower deposit balances with mix shift from non-interest bearing to interest bearing balances, partly offset by the impact of rate rises on deposit income.

-    Other operating expenses were £43 million, or 6.2%, lower than Q1 2023 reflecting non repeat of Q1 2023 one-off cost of living payment, and lower restructuring costs, partially offset by the impact of April 2023 pay award and timing of investment and other non-staff costs.

-    A net impairment charge of £79 million in Q2 2023 largely reflects Stage 3 defaults, which remain stable, as well as good book charges driven by strong unsecured lending growth, partly offset by benefits from the updated economic outlook.

-    Net loans to customers increased by £2.7 billion, or 1.3%, in Q2 2023 mainly reflecting continued mortgage growth of £2.0 billion, or 1.0%, with gross new mortgage lending of £7.6 billion, representing flow share of around 15%. Cards balances increased by £0.5 billion, or 10.9%, and personal advances increased by £0.2 billion, or 2.6%, reflecting strong customer demand.

-    Customer deposits decreased by £0.9 billion, or 0.5%, in Q2 2023 as growth in fixed term savings deposits was offset by lower instant access savings and current accounts.



 

-    RWAs increased by £1.7 billion, or 3.1%, in Q2 2023 primarily reflecting strong lending volume growth and a small increase in risk parameters.

Business performance summary

Private Banking


Half year ended

 

Quarter ended


30 June

30 June


30 June

31 March

30 June


2023

2022


2023

2023

2022


£m

£m


£m

£m

£m

Total income

567

461


271

296

245

Operating expenses

(322)

(285)


(167)

(155)

(146)

   of which: Other operating expenses

(311)

(284)

 

(159)

(152)

(146)

Impairment (losses)/releases

(11)

11


(3)

(8)

6

Operating profit

234

187


101

133

105


 



 



Return on equity (1)

24.7%

20.9%


20.8%

28.5%

23.5%

Net interest margin (1)

4.50%

3.34%


4.17%

4.83%

3.60%

Cost:income ratio (excl. litigation and conduct) (1)

54.9%

61.6%


58.7%

51.4%

59.6%

Loan impairment rate (1)

11bps

(12)bps


6bps

17bps

(13)bps

Net new money (£bn) (1)

1.0

1.4


0.4

0.6

0.6


 



 




 



As at


 



30 June

31 March

31 December


 



2023

2023

2022





£bn

£bn

£bn

Net loans to customers (amortised cost)




19.1

19.2

19.2

Customer deposits




36.5

37.3

41.2

RWAs




11.5

11.4

11.2

Assets under management (AUMs) (1)




30.0

29.6

28.3

Assets under administration (AUAs) (1)




7.9

5.6

5.1

Total assets under management and administration (AUMAs) (1)



37.9

35.2

33.4

(1)     Refer to the Non-IFRS financial measures appendix for details of basis of preparation and reconciliation of non-IFRS financial measures and performance metrics.

During H1 2023, Private Banking delivered a strong return on equity of 24.7%, and an operating profit of £234 million.

NatWest Group completed the acquisition of a majority shareholding in Cushon on 1 June 2023. The acquisition of the workplace savings and pensions fintech resulted in a £1.9 billion increase to the NatWest Group AUMAs on the date of acquisition.

Private Banking provided £0.1 billion of climate and sustainable funding and financing in H1 2023.

H1 2023 performance

-   

Total income was £106 million, or 23.0%, higher than H1 2022 reflecting increased deposit income supported by interest rate rises, partially offset by a reduction in mortgage margins.

-   

Net interest margin was 116 basis points higher than H1 2022 reflecting higher deposit income, supported by interest rate rises, partially offset by a reduction in lending margins, lower deposit balances, as well as increased capital issuance and funding costs.

-   

Other operating expenses were £27 million, or 9.5% higher than H1 2022 due to the impact of pay awards to support colleagues with cost of living challenges and the impact of one-offs including a £7 million property revaluation and an £8 million technology cost.

-   

A net impairment charge of £11 million in H1 2023 reflected higher good book charges and a small level of Stage 3 defaults.

-   

Net loans to customers decreased by £0.1 billion in H1 2023 as gross new lending of £1.4 billion, of which £0.9 billion related to mortgages, was offset by higher repayments.

-   

Customer deposits decreased by £4.7 billion, or 11.4% in H1 2023 reflecting the impact of customer tax payments which were higher than previous years, as well as increased competition for savings balances.  Current account and instant access savings account balances decreased by £7.0 billion partially offset by an increase in term savings products.

-   

AUMAs increased by £4.5 billion, or 13.5%, in H1 2023 primarily reflecting AUM net new money of £1.0 billion, which represents 6.0% of opening AUMA balances, positive market movements, and acquisition of Cushon which contributes £2.0 billion(1).

Q2 2023 performance

-   

Total income was £25 million, or 8.4%, lower than Q1 2023 reflecting lower deposit balances and higher pass-through of rate rises on customer deposits partially offset by the benefit of higher interest rates.

-   

Net interest margin was 66 basis points lower than Q1 2023 reflecting lower deposit volumes, changes in deposit mix from non-interest bearing to interest bearing balances and increased funding costs.

-   

A net impairment charge of £3 million in Q2 2023 reflected benefits from the updated economic outlook with Stage 3 defaults remaining stable.

-   

Customer deposits decreased by £0.8 billion, or 2.1% in Q2 2023 as growth in fixed term savings deposits was offset by lower instant access savings and current accounts combined with repayment of debt. 

-   

AUMAs increased by £2.7 billion, or 7.7%, in Q2 2023 primarily reflecting AUM net new money of £0.4 billion and positive investment market movements. The acquisition of Cushon contributes £2.0 billion(1) to the increase in AUMAs.

 


(1)     Cushon AUMAs at 30 June 2023 were £2.0 billion and £1.9 billion as at date of acquisition. AUMAs are reported within the Private Banking segment as the Investment Centre of Expertise, and the financials are within Central items & other.



Business performance summary

Commercial & Institutional


Half year ended

 

Quarter ended


30 June

30 June


30 June

31 March

30 June


2023

2022


2023

2023

2022


£m

£m


£m

£m

£m

Net interest income

2,504

1,764


1,243

1,261

961

Non-interest income

1,244

1,173


552

692

601

Total income

3,748

2,937


1,795

1,953

1,562


 



 



Operating expenses

(1,987)

(1,820)


(984)

(1,003)

(898)

   of which: Other operating expenses

(1,893)

(1,734)

 

(934)

(959)

(854)

Impairment (losses)/releases

(20)

59


(64)

44

48

Operating profit

1,741

1,176


747

994

712


 



 



Return on equity (1)

16.9%

11.4%


14.3%

19.5%

14.0%

Net interest margin (1)

3.84%

2.84%


3.79%

3.90%

3.09%

Cost:income ratio (excl. litigation and conduct) (1)

50.5%

59.0%


52.0%

49.1%

54.7%

Loan impairment rate (1)

3bps

(9)bps


20bps

(13)bps

(15)bps


 



 




 



As at


 



30 June

31 March

31 December


 



2023

2023

2022





£bn

£bn

£bn

Net loans to customers (amortised cost)




129.2

131.5

129.9

Customer deposits




201.5

200.5

203.3

Funded assets (1)




320.6

320.4

306.3

RWAs




103.6

104.8

103.2

 

(1)     Refer to the Non-IFRS financial measures appendix for details of the basis of preparation and reconciliation of non-IFRS financial measures and performance metrics.

 

During H1 2023, Commercial & Institutional delivered a strong performance with a return on equity of 16.9% and operating profit of £1,741 million. 

Commercial & Institutional provided £13.8 billion of climate and sustainable funding and financing in H1 2023.

H1 2023 performance

-   

Total income was £811 million, or 27.6%, higher than H1 2022 primarily reflecting higher deposit returns from an improved interest rate environment, credit and debit card fees and higher markets income(1).

-   

Net interest margin was 100 basis points higher than H1 2022 reflecting higher deposit returns supported by interest rate rises, partly offset by lower deposits balances, evolving deposit and lending mix impacts and higher treasury funding costs.

-   

Other operating expenses were £159 million, or 9.2%, higher than H1 2022 due to higher pay awards to support our colleagues with cost of living challenges and continued investment in the business.

-   

An impairment charge of £20 million in H1 2023 compared with an impairment release of £59 million in H1 2022 driven by an increase in post model adjustments to reflect increased inflationary and liquidity risk impacts to our customers offset by  benefits of modelled releases to reflect benefits from the revised economic outlook. Stage 3 charges remain low.

-   

Net loans to customers decreased by £0.7 billion, or 0.5%, in H1 2023 due to UK Government scheme repayments of £1.4 billion and subdued activity within funds lending, partly offset by an increase in term loan facilities including revolving credit facilities and asset finance.

-   

Customer deposits decreased by £1.8 billion, or 0.9%, in H1 2023 primarily due to overall market liquidity contraction, particularly sight deposits with strong growth in term deposit balances.

-   

RWAs increased by £0.4 billion, or 0.4%, in H1 2023 primarily reflecting an evolving book mix of lending growth and UK Government scheme repayments, partially offset by foreign exchange benefits and lower market risk.

Q2 2023 performance

-   

Total income was £158 million, or 8.1%, lower than Q1 2023 largely reflecting lower markets income(1) mainly driven by challenging market conditions and additional treasury costs.

-   

Net interest margin was 11 basis points lower than Q1 2023 reflecting increased treasury costs and lower deposit balances, partly offset by higher deposit margins.

-   

Other operating expenses were £25 million, or 2.6%, lower than Q1 2023 reflecting non-repeat of the Q1 2023 one-off cost of living payments partly offset by continued investment in the business.

-   

A net impairment charge of £64 million in Q2 2023 reflected an increase in post model adjustments to reflect inflationary and liquidity risk impacts to our customers offset by benefits of modelled releases to reflect benefits from the revised economic outlook. Stage 3 charges remain low.

-   

Net loans to customers decreased by £2.3 billion, or 1.7%, in Q2 2023 largely due to lower funds activity and UK Government scheme repayments of £0.7 billion.

-   

Customer deposits increased by £1.0 billion, or 0.5%, in Q2 2023 primarily due to growth in the Corporate & Institutions business. We have seen continued strong growth in term deposit balances.

-   

RWAs decreased by £1.2 billion, or 1.1%, in Q2 2023 primarily reflecting foreign exchange benefits and lower lending balances.

(1)     Markets income excludes own credit risk adjustments and central items.



Business performance summary

Central items & other


Half year ended

 

Quarter ended


30 June

30 June


30 June

31 March

30 June


2023

2022


2023

2023

2022


£m

£m


£m

£m

£m

Continuing operations

 



 



Total income

292

267


269

23

67

Operating expenses (1)

(239)

(306)


(105)

(134)

(192)

   of which: Other operating expenses

(260)

(282)


(132)

(128)

(173)

   of which: Ulster Bank RoI direct expenses

(163)

(145)


(63)

(100)

(81)

Impairment releases/(losses)

1

10


(7)

8

(15)

Operating profit/(loss)

54

(29)


157

(103)

(140)

   of which: Ulster Bank RoI

(295)

(213)


(136)

(159)

(150)


 



 




 



 

As at

 


 



30 June

31 March

31 December


 



2023

2023

2022


 



£bn

£bn

£bn

Net loans to customers (amortised cost) (2)

 



21.2

21.8

19.6

Customer deposits

 



11.4

8.7

17.4

RWAs

 



5.1

6.3

7.0

(1)     Includes withdrawal-related direct program costs of £64 million for the half year ended 30 June 2023 (30 June 2022 - £26 million) and £15 million for the quarter ended 30 June 2023 (31 March 2023 - £49 million; 30 June 2022 - £16 million).

(2)     Excludes £0.4 billion of loans to customers held at fair value through profit or loss (31 March 2023 - £0.5 billion; 31 December 2022 - £0.5 billion).

H1 2023 performance

-    Total income was £25 million higher than H1 2022 reflecting one-off items that broadly offset including foreign exchange recycling gains, partially offset by lower gains on interest and foreign exchange risk management derivatives not in hedge accounting relationships, gains on liquidity asset bond sales in the prior year and the effect of the continued withdrawal of our operations from the Republic of Ireland.

-    Customer deposits decreased by £6.0 billion in H1 2023 primarily reflecting the continued withdrawal of our operations from the Republic of Ireland. Ulster Bank RoI customer deposit balances were £0.4 billion as at H1 2023.

-    Net loans to customers increased £1.6 billion in H1 2023 mainly due to reverse repo activity in Treasury. 

Q2 2023 performance

-    Customer deposits increased by £2.7 billion during Q2 2023 primarily reflecting repo activity in Treasury partially offset by the continued withdrawal of our operations from the Republic of Ireland.



 


Segment performance

 

 

Half year ended 30 June 2023

 

 

 

 

 

Central

Total



Retail

Private

Commercial &

items &

NatWest



Banking

Banking

Institutional

other

Group



£m

£m

£m

£m

£m

Continuing operations






Income statement 






Net interest income

2,908

428

2,504

(114)

5,726

Own credit adjustments

-

-

9

-

9

Other non-interest income

212

139

1,235

406

1,992

Total income 

3,120

567

3,748

292

7,727

Direct expenses


(394)

(109)

(737)

(2,567)

(3,807)

Indirect expenses

(949)

(202)

(1,156)

2,307

-

Other operating expenses

(1,343)

(311)

(1,893)

(260)

(3,807)

Litigation and conduct costs

(24)

(11)

(94)

21

(108)

Operating expenses

(1,367)

(322)

(1,987)

(239)

(3,915)

Operating profit before impairment losses/releases (1)

1,753

245

1,761

53

3,812

Impairment (losses)/releases

(193)

(11)

(20)

1

(223)

Operating profit (1)

1,560

234

1,741

54

3,589



 

 

 

 

 

Income excluding notable items (1)

3,120

567

3,739

(43)

7,383



 

 

 

 

 

Additional information

 

 

 

 

 

Return on tangible equity (1)

na

na

na

na

18.2%

Return on equity (1)

29.1%

24.7%

16.9%

nm

na

Cost:income ratio (excl. litigation and conduct) (1)

43.0%

54.9%

50.5%

nm

49.3%

Total assets (£bn)

229.1

27.3

401.5

44.7

702.6

Funded assets (£bn) (1)

229.1

27.3

320.6

43.7

620.7

Net loans to customers - amortised cost (£bn)

204.4

19.1

129.2

21.2

373.9

Loan impairment rate (1)

19bps

11bps

3bps

nm

12bps

Impairment provisions (£bn)

(1.7)

(0.1)

(1.5)

(0.1)

(3.4)

Impairment provisions - stage 3 (£bn)

(1.0)

-

(0.8)

(0.1)

(1.9)

Customer deposits (£bn)

183.1

36.5

201.5

11.4

432.5

Risk-weighted assets (RWAs) (£bn)

57.3

11.5

103.6

5.1

177.5

RWA equivalent (RWAe) (£bn)

57.3

11.5

104.9

5.8

179.5

Employee numbers (FTEs - thousands)

13.5

2.2

12.5

33.3

61.5

Third party customer asset rate (1)

3.03%

4.24%

5.61%

nm

nm

Third party customer funding rate (1)

(1.02%)

(1.43%)

(1.03%)

nm

nm

Bank average interest earning assets (£bn) (1)

203.4

19.2

131.4

na

361.1

Bank net interest margin (1)

2.88%

4.50%

3.84%

na

3.20%

nm = not meaningful, na = not applicable.

(1)     Refer to the Non-IFRS financial measures appendix for details of the basis of preparation and reconciliation of non-IFRS financial measures and performance metrics.



 

Segment performance

 

 

Half year ended 30 June 2022

 

 




Central

Total



Retail

Private

Commercial &

items &

NatWest



Banking

Banking

Institutional

other

Group



£m

£m

£m

£m

£m

Continuing operations






Income statement 






Net interest income

2,340

315

1,764

(85)

4,334

Own credit adjustments

- 

- 

52

- 

52

Other non-interest income

214

146

1,121

352

1,833

Total income 

2,554

461

2,937

267

6,219

Direct expenses


(320)

(102)

(736)

(2,326)

(3,484)

Indirect expenses

(864)

(182)

(998)

2,044

- 

Other operating expenses

(1,184)

(284)

(1,734)

(282)

(3,484)

Litigation and conduct costs

(58)

(1)

(86)

(24)

(169)

Operating expenses

(1,242)

(285)

(1,820)

(306)

(3,653)

Operating profit/(loss) before impairment losses/releases (1)

1,312

176

1,117

(39)

2,566

Impairment (losses)/releases

(26)

11

59

10

54

Operating profit/(loss) (1)

1,286

187

1,176

(29)

2,620








Income excluding notable items (1)

2,554

461

2,930

(47)

5,898








Additional information






Return on tangible equity (1)

na

na

na

na

13.1%

Return on equity (1)

26.3%

20.9%

11.4%

nm

na

Cost:income ratio (excl. litigation and conduct) (1)

46.4%

61.6%

59.0%

nm

56.0%

Total assets (£bn)

216.2

30.0

451.5

108.8

806.5

Funded assets (£bn) (1)

216.2

30.0

343.4

107.5

697.1

Net loans to customers - amortised cost (£bn)

188.7

18.8

127.3

27.8

362.6

Loan impairment rate (1)

3bps

(12)bps

(9)bps

nm

(3)bps

Impairment provisions (£bn)

(1.5)

(0.1)

(1.4)

(0.4)

(3.4)

Impairment provisions - stage 3 (£bn)

(0.9)

- 

(0.7)

(0.4)

(2.0)

Customer deposits (£bn)

190.5

41.6

223.2

36.8

492.1

Risk-weighted assets (RWAs) (£bn)

53.0

11.3

103.0

12.5

179.8

RWA equivalent (RWAe) (£bn)

53.0

11.3

101.4

13.0

178.7

Employee numbers (FTEs - thousands)

13.9

2.0

11.8

31.2

58.9

Third party customer asset rate (1)

2.59%

2.65%

3.01%

nm

nm

Third party customer funding rate (1)

(0.07%)

(0.07%)

(0.06%)

nm

nm

Bank average interest earning assets (£bn) (1)

186.8

19.0

125.2

na

338.5

Bank net interest margin (1)

2.53%

3.34%

2.84%

na

2.58%

nm = not meaningful, na = not applicable.

(1)     Refer to the Non-IFRS financial measures appendix for details of the basis of preparation and reconciliation of non-IFRS financial measures and performance metrics.



 

Segment performance

 

 

Quarter ended 30 June 2023

 

 

 



Central

Total



Retail

Private

Commercial &

 items &

NatWest



Banking

Banking

Institutional

other

Group



£m

£m

£m

£m

£m

Continuing operations

 

 

 

 

 

Income statement 






Net interest income

1,416

199

1,243

(34)

2,824

Own credit adjustments

-

-

3

-

3

Other non-interest income

100

72

549

303

1,024

Total income 

1,516

271

1,795

269

3,851

Direct expenses


(185)

(53)

(379)

(1,258)

(1,875)

Indirect expenses

(465)

(106)

(555)

1,126

-

Other operating expenses

(650)

(159)

(934)

(132)

(1,875)

Litigation and conduct costs

(21)

(8)

(50)

27

(52)

Operating expenses

(671)

(167)

(984)

(105)

(1,927)

Operating profit before impairment losses/releases (1)

845

104

811

164

1,924

Impairment (losses)

(79)

(3)

(64)

(7)

(153)

Operating profit (1)

766

101

747

157

1,771



 

 

 

 

 

Income excluding notable items (1)

1,516

271

1,792

(16)

3,563



 

 

 

 

 

Additional information

 

 

 

 

 

Return on tangible equity (1)

na

na

na

na

16.4%

Return on equity (1)

28.2%

20.8%

14.3%

nm

na

Cost:income ratio (excl. litigation and conduct) (1)

42.9%

58.7%

52.0%

nm

48.7%

Total assets (£bn)

229.1

27.3

401.5

44.7

702.6

Funded assets (£bn) (1)

229.1

27.3

320.6

43.7

620.7

Net loans to customers - amortised cost (£bn)

204.4

19.1

129.2

21.2

373.9

Loan impairment rate (1)

15bps

6bps

20bps

nm

16bps

Impairment provisions (£bn)

(1.7)

(0.1)

(1.5)

(0.1)

(3.4)

Impairment provisions - stage 3 (£bn)

(1.0)

-

(0.8)

(0.1)

(1.9)

Customer deposits (£bn)

183.1

36.5

201.5

11.4

432.5

Risk-weighted assets (RWAs) (£bn)

57.3

11.5

103.6

5.1

177.5

RWA equivalent (RWAe) (£bn)

57.3

11.5

104.9

5.8

179.5

Employee numbers (FTEs - thousands)

13.5

2.2

12.5

33.3

61.5

Third party customer asset rate (1)

3.11%

4.41%

5.84%

nm

nm

Third party customer funding rate (1)

(1.20%)

(1.71%)

(1.18%)

nm

nm

Bank average interest earning assets (£bn) (1)

204.6

19.2

131.4

na

362.3

Bank net interest margin (1)

2.78%

4.17%

3.79%

na

3.13%

nm = not meaningful, na = not applicable.

(1)         Refer to the Non-IFRS financial measures appendix for details of the basis of preparation and reconciliation of non-IFRS financial measures and performance metrics.



 

Segment performance

 

 

Quarter ended 31 March 2023

 

 




Central

Total



Retail

Private

Commercial &

items &

NatWest



Banking

Banking

Institutional

other

Group



£m

£m

£m

£m

£m

Continuing operations






Income statement 






Net interest income

1,492

229

1,261

(80)

2,902

Own credit adjustments

-

-

6

-

6

Other non-interest income

112

67

686

103

968

Total income 

1,604

296

1,953

23

3,876

Direct expenses


(209)

(56)

(358)

(1,309)

(1,932)

Indirect expenses

(484)

(96)

(601)

1,181

-

Other operating expenses

(693)

(152)

(959)

(128)

(1,932)

Litigation and conduct costs

(3)

(3)

(44)

(6)

(56)

Operating expenses

(696)

(155)

(1,003)

(134)

(1,988)

Operating profit/(loss) before impairment losses/releases (1)

908

141

950

(111)

1,888

Impairment (losses)/releases

(114)

(8)

44

8

(70)

Operating profit/(loss) (1)

794

133

994

(103)

1,818








Income excluding notable items (1)

1,604

296

1,947

(27)

3,820








Additional information






Return on tangible equity (1)

na

na

na

na

19.8%

Return on equity (1)

30.0%

28.5%

19.5%

nm

na

Cost:income ratio (excl. litigation and conduct) (1)

43.2%

51.4%

49.1%

nm

49.8%

Total assets (£bn)

227.2

28.1

399.0

41.3

695.6

Funded assets (£bn) (1)

227.2

28.1

320.4

40.5

616.2

Net loans to customers - amortised cost (£bn)

201.7

19.2

131.5

21.8

374.2

Loan impairment rate (1)

22bps

17bps

(13)bps

nm

7bps

Impairment provisions (£bn)

(1.7)

(0.1)

(1.5)

(0.1)

(3.4)

Impairment provisions - stage 3 (£bn)

(1.0)

-

(0.7)

(0.1)

(1.8)

Customer deposits (£bn)

184.0

37.3

200.5

8.7

430.5

Risk-weighted assets (RWAs) (£bn)

55.6

11.4

104.8

6.3

178.1

RWA equivalent (RWAe) (£bn)

56.4

11.4

106.2

6.9

180.9

Employee numbers (FTEs - thousands)

13.9

2.2

12.4

33.3

61.8

Third party customer asset rate (1)

2.94%

4.07%

5.38%

nm

nm

Third party customer funding rate (1)

(0.83%)

(1.15%)

(0.87%)

nm

nm

Bank average interest earning assets (£bn) (1)

202.1

19.2

131.3

na

360.0

Bank net interest margin (1)

2.99%

4.83%

3.90%

na

3.27%

nm = not meaningful, na = not applicable.

(1)     Refer to the Non-IFRS financial measures appendix for details of the basis of preparation and reconciliation of non-IFRS financial measures and performance metrics.



 

 

Segment performance

 

 

Quarter ended 30 June 2022

 

 




Central

Total



Retail

Private

Commercial &

items &

NatWest



Banking

Banking

Institutional

other

Group



£m

£m

£m

£m

£m

Continuing operations






Income statement 






Net interest income

1,228

172

961

(54)

2,307

Own credit adjustments

-

-

34

-

34

Other non-interest income

109

73

567

121

870

Total income 

1,337

245

1,562

67

3,211

Direct expenses


(159)

(53)

(329)

(1,225)

(1,766)

Indirect expenses

(434)

(93)

(525)

1,052

-

Other operating expenses

(593)

(146)

(854)

(173)

(1,766)

Litigation and conduct costs

(4)

-

(44)

(19)

(67)

Operating expenses

(597)

(146)

(898)

(192)

(1,833)

Operating profit/(loss) before impairment losses/releases (1)

740

99

664

(125)

1,378

Impairment (losses)/releases

(21)

6

48

(15)

18

Operating profit/(loss) (1)

719

105

712

(140)

1,396








Income excluding notable items (1)

1,337

245

1,573

(41)

3,114








Additional information






Return on tangible equity (1)

na

na

na

na

15.2%

Return on equity (1)

29.5%

23.5%

14.0%

nm

na

Cost:income ratio (excl. litigation and conduct) (1)

44.4%

59.6%

54.7%

nm

55.0%

Total assets (£bn)

216.2

30.0

451.5

108.8

806.5

Funded assets (£bn) (1)

216.2

30.0

343.4

107.5

697.1

Net loans to customers - amortised cost (£bn)

188.7

18.8

127.3

27.8

362.6

Loan impairment rate (1)

4bps

(13)bps

(15)bps

nm

(2)bps

Impairment provisions (£bn)

(1.5)

(0.1)

(1.4)

(0.4)

(3.4)

Impairment provisions - stage 3 (£bn)

(0.9)

-

(0.7)

(0.4)

(2.0)

Customer deposits (£bn)

190.5

41.6

223.2

36.8

492.1

Risk-weighted assets (RWAs) (£bn)

53.0

11.3

103.0

12.5

179.8

RWA equivalent (RWAe) (£bn)

53.0

11.3

101.4

13.0

178.7

Employee numbers (FTEs - thousands)

13.9

2.0

11.8

31.2

58.9

Third party customer asset rate (1)

2.59%

2.77%

3.19%

nm

nm

Third party customer funding rate (1)

(0.10%)

(0.13%)

(0.09%)

nm

nm

Bank average interest earning assets (£bn) (1)

188.1

19.1

124.9

na

341.5

Bank net interest margin (1)

2.62%

3.60%

3.09%

na

2.71%

nm - not meaningful, na - not applicable

(1)

Refer to the Non-IFRS financial measures appendix for details of the basis of preparation and reconciliation of non-IFRS financial measurements and performance metrics.

 



 


Risk and capital management

 


Page

Credit risk


   Economic loss drivers

18

   UK economic uncertainty

23

   Wholesale support schemes

25

   Measurement uncertainty and ECL sensitivity analysis

26

   Measurement uncertainty and ECL adequacy

28

Credit risk - Banking activities


    Financial instruments within the scope of the IFRS 9 ECL framework

29

    Segment analysis

30

    Segment loans and impairment metrics

33

    Sector analysis

34

    Wholesale forbearance

39

    Personal portfolio

40

    Commercial real estate

42

    Flow statements

44

    Stage 2 decomposition by a significant increase in credit risk trigger

52

    Asset quality

54

Credit risk - Trading activities

58

Capital, liquidity and funding risk

61

Market risk


    Non-traded

71

    Traded

75

Other risks

76

 

Certain disclosures in the Risk and capital management section are within the scope of EY's review report and are marked as reviewed in the section header.

 

 



 

Risk and capital management

Credit risk

Economic loss drivers (reviewed)

Introduction

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

The most significant economic loss drivers for the most material portfolios are shown in the table below:

Portfolio

Economic loss drivers

UK Personal mortgages

UK unemployment rate, sterling swap rate, UK house price index, UK household debt to income

UK Personal unsecured

UK unemployment rate, sterling swap rate, UK household debt to income

UK corporates

UK stock price index, UK gross domestic product (GDP), Bank of England base rate

UK commercial real estate

UK stock price index, UK commercial property price index, UK GDP, Bank of England base rate

 

Economic scenarios

At 30 June 2023, the range of anticipated future economic conditions was defined by a set of four internally developed scenarios and their respective probabilities. In addition to the base case, they comprised upside, downside and extreme downside scenarios. The scenarios primarily reflected the current risks faced by the economy, particularly related to persistently high inflation and interest rate environment, resulting in a fall in real household income, economic slowdown, a rise in unemployment and asset price declines.

For 30 June 2023, the four scenarios were deemed appropriate in capturing the uncertainty in economic forecasts and the non-linearity in outcomes under different scenarios. These four scenarios were developed to provide sufficient coverage across potential rises in unemployment, inflation, asset price declines and the degree of permanent damage to the economy, around which there remains pronounced levels of uncertainty.

Upside - This scenario assumes robust growth as inflation falls sharply and rates are lowered. Consumer spending is supported by savings built up since COVID-19 and further helped by fiscal support and strong business investment. The labour market remains resilient, with the unemployment rate remaining below pre-COVID-19 levels. The housing market slows down compared to the previous year but remains robust.

Base case - In the midst of high inflation and significant monetary policy tightening, the economic growth remains muted. However, recession is avoided as only a small proportion of households are directly affected by the rise in the mortgage costs. The unemployment rate rises modestly but job losses are contained. Inflation moderates over the medium-term and falls to target level of 2%. The housing market experiences price decline and lower activity but the extent of the decline is lower than that experienced during prior stresses.

Since 31 December 2022, the economic outlook has improved as energy prices fell sharply and the labour market remained resilient. However, the inflation outlook remains elevated due to higher core inflation pressure. As a result, interest rates need to rise higher than assumed previously. The base case now assumes muted growth in 2023 as opposed to a mild recession assumed previously. The unemployment rate still rises but the peak is lower, reflecting the labour market's recent resilience. The peak to trough house price correction remains broadly similar to the previous assumption.

Downside - Inflation remains persistently high. The economy experiences a recession as consumer confidence weakens due to a fall in real income. Interest rates are raised higher than the base case and remain elevated for longer. High rates are assumed to have a more significant impact on the labour market. Unemployment is higher than the base case scenario while house prices experience declines comparable to previous episodes of stress.

The previous year's downside scenario also included a deep recession, labour market deterioration and asset price falls, but the current downside scenario explores these risks in a persistently high inflation, high rates environment.

Extreme downside - This scenario assumes high and persistent inflation. Households see the highest recorded decline in real income. Interest rates rise to levels last observed in early 2000. Resulting economic recession is deep and leads to widespread job losses. House prices lose approximately a third of their value while the unemployment rate rises to a level above that observed during the 2008 financial crisis.

The main macroeconomic variables for each of the four scenarios used for expected credit loss (ECL) modelling are set out in the main macroeconomic variables table below.



 

Risk and capital management

Credit risk continued

Economic loss drivers (reviewed)

Main macroeconomic variables

30 June 2023

 

31 December 2022

 





Extreme

Weighted

 




Extreme

Weighted

 


Upside

Base case

Downside

downside

average

 

Upside

Base case

Downside

downside

average

 

Five-year summary

%

%

%

%

%

 

%

%

%

%

%

 

GDP

1.8

0.9

0.4

(0.2)

0.8


2.2

1.3

0.8

0.4

1.2

 

Unemployment

3.5

4.2

4.9

6.6

4.6

 

3.9

4.5

4.9

6.7

4.8

 

House price index

3.8

0.3

(0.8)

(6.0)

-

 

5.1

0.8

(0.7)

(4.4)

0.6

 

Commercial real estate price

3.3

0.2

(2.7)

(7.6)

(0.7)

 

1.2

(1.9)

(2.8)

(9.1)

(2.5)

 

Consumer price index

1.7

2.3

4.2

3.7

2.8

 

3.6

4.2

4.4

8.2

4.8

 

Bank of England base rate

2.6

4.2

5.0

5.1

4.2

 

2.4

3.1

1.5

4.5

2.8

 

UK stock price index

5.8

4.3

1.8

0.1

3.5

 

3.0

1.4

(1.1)

(3.7)

0.5

 

World GDP

3.7

3.1

2.7

1.0

2.8

 

3.7

3.3

1.7

1.1

2.7

 

Probability weight

19.5

45.0

21.5

14.0

 


18.6

45.0

20.8

15.6


 

(1)       The five-year summary runs from 2023-2027 for 30 June 2023.

(2)       The table shows five calendar year CAGR for GDP, average for unemployment and Bank of England base rate and 20-quarter CAGR for other parameters.

(3)       Comparatives have been aligned with the current calculation approach.

Probability weightings of scenarios

NatWest Group's quantitative approach to IFRS 9 multiple economic scenarios (MES) involves selecting a suitable set of discrete scenarios to characterise the distribution of risks in the economic outlook and assigning appropriate probability weights. This quantitative approach is used for 30 June 2023.

The approach involves comparing UK GDP paths for NatWest Group's scenarios against a set of 1,000 model runs, following which, a percentile in the distribution is established that most closely corresponded to the scenario. Probability weight for base case is set first based on judgement, while probability weights for the alternate scenarios are assigned based on these percentiles scores.

The assigned probability weights were judged to be aligned with the subjective assessment of balance of the risks in the economy. The weights were broadly comparable to those used at 31 December 2022. Since then, the outlook has improved across key areas of the economy. However, the risks still remain elevated and there is considerable uncertainty in the economic outlook, particularly with respect to persistence and the range of outcomes on inflation. Given that backdrop, NatWest Group judges it appropriate that downside-biased scenarios have higher probability weights than the upside-biased scenario. It presents good coverage to the range of outcomes assumed in the scenarios, including the potential for a robust recovery on the upside and exceptionally challenging outcomes on the downside. A 19.5% weighting was applied to the upside scenario, a 45.0% weighting applied to the base case scenario, a 21.5% weighting applied to the downside scenario and a 14.0% weighting applied to the extreme downside scenario.



 

Risk and capital management

Credit risk continued

Climate transition

During 2023, NatWest Group continued to align its financial planning process with the climate transition planning process. This included adding climate policy and technology related transition assumptions into NatWest Group's base case macroeconomic scenario used for financial planning and assessment of ECL in this IFRS 9 reporting period. This resulted in an increase in ECL of £4 million.

As in the initial iteration of the Climate transition plan, included in NatWest Group's 2022 Climate-related Disclosures Report, NatWest Group assesses the effects of climate transition policies within the base case macroeconomic scenario, using the UK Climate Change Committee (CCC) Balanced Net Zero (BNZ) scenario, aligned with the UK CCC sixth carbon budget, as a starting point. In addition, NatWest Group included estimated average policy delay into the climate economic assumptions for IFRS 9 purposes, based on the credibility ratings for sectoral policies provided by the UK CCC 2022 Progress Report to Parliament, to reflect estimated time delays based on credibility ratings as follows:

-    Credible policies - estimated zero years of delayed adjustment to the BNZ pathway for the associated policy.

-    Policies with some or significant risk - estimated three and five years of delay respectively for the associated policy.

-    Policies with insufficient plans - estimated ten years of delay for the associated policy.

The base case macroeconomic scenario now explicitly includes assumptions about the changes in transition policy expressed as an additional implicit carbon price. Implicit carbon price is an additional cost related to greenhouse gas emissions as a result of climate transition policy. NatWest Group assumes that between now and 2028, the transition policy will change slowly, and the implicit carbon price will increase modestly by £10.5/tCO2e, which is consistent with the UK CCC BNZ scenario. The base case macroeconomic scenario also included assumptions about abatement technology development and specific sectors' transition, for example, the switch from fossil fuels to renewable energy sources. NatWest Group will continue to enhance this analysis, including updates in the UK CCC 2023 Progress Report to Parliament published in June 2023.

While previous NatWest Group IFRS 9 base case scenarios included some climate transition considerations, they were based on all enacted policies and available technologies. The new approach described here applies to explicitly identifying the effect of additional climate transition policy.

NatWest Group and its customers have a dependency on timely and appropriate government policies to provide the necessary impetus for technology development and customer behaviour changes, to enable the UK's successful transition to net zero. Policy delays and risks outlined in the UK CCC 2022 and 2023 Progress Reports, if not adequately addressed in a timely manner, put at risk the UK's net zero transition and in turn that of NatWest Group and its customers.

For this first iteration of climate economic assumptions included within the base case macroeconomic scenario, NatWest Group focused on policy and technology related transition risks. It is assumed that in more extreme scenarios it is likely that climate policy changes would offset adverse/benign economic conditions. NatWest Group's tools, methodologies and assessment of climate risks will continue to evolve to further align financial planning and climate transition planning processes.



 

Risk and capital management

Credit risk continued

Economic loss drivers (reviewed)

Annual figures


 

 

 

Extreme

Weighted


Upside

Base case

Downside

downside

average

GDP - annual growth

%

%

%

%

%

2023

1.4

0.3

-

(0.3)

0.3

2024

3.8

0.8

(1.4)

(4.1)

0.3

2025

1.4

1.0

1.0

0.9

1.1

2026

1.2

1.3

1.2

1.2

1.2

2027

1.2

1.4

1.3

1.2

1.3

2028

1.2

1.4

1.3

1.2

1.3








 

 

 

Extreme

Weighted


Upside

Base case

Downside

downside

average

Unemployment rate - annual average

%

%

%

%

%

2023

3.9

3.9

4.1

4.3

4.0

2024

3.3

4.2

5.1

7.3

4.7

2025

3.3

4.4

5.3

7.7

4.8

2026

3.4

4.3

5.1

7.1

4.7

2027

3.4

4.3

4.9

6.5

4.6

2028

3.4

4.3

4.7

6.0

4.4








 

 

 

Extreme

Weighted


Upside

Base case

Downside

downside

average

House price index - four quarter change 

%

%

%

%

%

2023

(3.3)

(6.9)

(6.2)

(8.2)

(6.2)

2024

10.4

(1.0)

(13.2)

(14.1)

(3.1)

2025

6.1

2.9

0.9

(16.4)

0.9

2026

3.1

3.4

8.5

4.3

4.4

2027

3.5

3.4

7.9

6.8

4.7

2028

3.4

3.4

5.5

5.0

4.0








 

 

 

Extreme

Weighted


Upside

Base case

Downside

downside

average

Commercial real estate price - four quarter change 

%

%

%

%

%

2023

1.1

(5.8)

(7.8)

(10.7)

(5.6)

2024

5.5

0.5

(13.4)

(35.3)

(6.1)

2025

4.6

2.5

2.5

2.5

3.0

2026

3.8

2.5

3.6

6.3

3.4

2027

1.8

1.3

3.0

6.9

2.3

2028

1.5

1.3

2.2

4.2

1.8








 

 

 

Extreme

Weighted


Upside

Base case

Downside

downside

average

Consumer price index - four quarter change

%

%

%

%

%

2023

1.6

3.4

5.5

7.0

4.0

2024

1.1

2.3

4.3

6.8

3.2

2025

1.8

1.9

3.9

1.7

2.3

2026

1.9

1.9

3.8

1.2

2.2

2027

1.9

1.9

3.7

2.1

2.3

2028

1.9

1.9

3.2

2.1

2.2








 

 

 

Extreme

Weighted


Upside

Base case

Downside

downside

average

Bank of England base rate - annual average

%

%

%

%

%

2023

4.3

4.8

4.7

4.8

4.7

2024

3.0

5.0

5.5

6.0

4.9

2025

2.3

4.2

5.0

5.7

4.2

2026

2.0

3.7

4.9

4.9

3.8

2027

1.6

3.3

4.7

4.1

3.4

2028

1.5

3.2

4.5

3.4

3.2








 

 

 

Extreme

Weighted


Upside

Base case

Downside

downside

average

UK stock price index - four quarter change

%

%

%

%

%

2023

13.0

9.1

(9.2)

(26.6)

0.9

2024

5.7

3.1

(1.9)

(9.4)

1.4

2025

4.1

3.1

9.7

21.2

6.2

2026

3.6

3.1

6.5

12.9

4.9

2027

3.2

3.1

5.3

10.2

4.3

2028

3.0

3.1

5.3

6.4

3.9


Risk and capital management

Credit risk continued

Economic loss drivers (reviewed)

Worst points

 

30 June 2023


31 December 2022


 

 

Extreme

 

Weighted




Extreme


Weighted


Downside

 

downside

 

average


Downside


downside


average


%

Quarter

%

Quarter

%


%

Quarter

%

Quarter

%

GDP

(1.7)

Q2 2024

(4.9)

Q2 2024

0.1


(3.2)

Q4 2023

(4.7)

Q4 2023

(0.8)

Unemployment rate - peak

5.4

Q1 2025

8.0

Q4 2024

4.9


6.0

Q1 2024

8.5

Q3 2024

5.4

House price index

(18.9)

Q1 2025

(34.3)

Q1 2026

(9.2)


(15.0)

Q1 2025

(26.2)

Q3 2025

(3.4)

Commercial real estate price

(20.1)

Q4 2024

(42.6)

Q1 2025

(11.3)


(21.8)

Q4 2023

(46.8)

Q3 2024

(16.4)

Consumer price index

 

 

 

 

 







   - highest four quarter change

10.1

Q1 2023

10.1

Q1 2023

10.1


15.7

Q1 2023

17.0

Q4 2023

11.7

Bank of England base rate

 

 

 

 

 







   - extreme level

5.8

Q1 2024

6.0

Q1 2024

5.3


4.0

Q1 2023

6.0

Q1 2024

4.1

UK stock price index

(15.5)

Q2 2024

(40.9)

Q2 2024

(1.1)


(26.0)

Q4 2023

(48.7)

Q4 2023

(14.1)

 

(1)     Unless specified otherwise, the figures show falls relative to the starting period. The calculations are performed over five years, with a starting point of Q4 2022 for 30 June 2023 scenarios.

(2)     Comparatives have been aligned with the current calculation approach.

 

Use of the scenarios in Personal lending

Personal lending follows a discrete scenario approach. The probability of default (PD), exposure at default (EAD), loss given default (LGD) and resultant ECL for each discrete scenario is calculated using product specific economic response models. Probability weighted averages across the suite of economic scenarios are then calculated for each of the model outputs, with the weighted PD being used for staging purposes.

Business Banking utilises the Personal lending methodology rather than the Wholesale lending methodology.

Use of the scenarios in Wholesale lending

The Wholesale lending scenario methodology is based on the concept of credit cycle indices (CCIs). The CCIs represent, similar to the exogenous component in Personal, all relevant economic drivers for a region/industry segment aggregated into a single index value that describes the credit conditions in the respective segment relative to its long-run average. A CCI value of zero corresponds to credit conditions at long-run average levels, a positive CCI value corresponds to credit conditions below long run average levels and a negative CCI value corresponds to credit conditions above long-run average levels.

The individual economic scenarios are translated into forward-looking projections of CCIs using a set of econometric models. Subsequently the CCI projections for the individual scenarios are averaged into a single central CCI projection according to the given scenario probabilities. The central CCI projection is then extended with an additional mean reversion assumption to gradually revert to the long-run average CCI value of zero in the outer years of the projection horizon.

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

UK economic uncertainty

The high inflation environment alongside rapidly rising interest rates and supply chain disruption are presenting significant headwinds for some businesses and consumers. These are a result of various factors and in many cases are compounding and look set to remain a feature of the economic environment into 2024. NatWest Group has considered where these are most likely to affect the customer base, with the rising cost of borrowing during 2023 for both businesses and consumers presenting an additional affordability challenge for many borrowers in recent months.

The effects of these risks are not expected to be fully captured by forward-looking credit modelling, particularly given the high inflation environment, low unemployment base case outlook. Any incremental ECL effects for these risks will be captured via post model adjustments and are detailed further in the Governance and post model adjustments section.



 

Risk and capital management

Credit risk continued

UK economic uncertainty

Governance and post model adjustments (reviewed)

The IFRS 9 PD, EAD and LGD models are subject to NatWest Group's model risk policy that stipulates periodic model monitoring, periodic re-validation and defines approval procedures and authorities according to model materiality. Various post model adjustments were applied where management judged they were necessary to ensure an adequate level of overall ECL provision. All post model adjustments were subject to formal approval through provisioning governance, and were categorised as follows (business level commentary is provided below):

-    Deferred model calibrations - ECL adjustments where model monitoring and similar analyses indicates that model adjustments will be required to ensure ECL adequacy. As a consequence, an estimate of the ECL impact is recorded on the balance sheet until modelled ECL levels are affirmed by new model parallel runs or similar analyses.

-    Economic uncertainty - ECL adjustments primarily arising from uncertainties associated with high inflation and rapidly rising interest rates as well as supply chain disruption, along with the residual effects from COVID-19 Government support schemes. In all cases, management judged that additional ECL was required until further credit performance data became available as the observable effects of these issues crystallise.

-    Other adjustments - ECL adjustments where it was judged that the modelled ECL required amendment.

 

Post model adjustments will remain a key focus area of NatWest Group's ongoing ECL adequacy assessment process. A holistic framework has been established including reviewing a range of economic data, external benchmark information and portfolio performance trends with a particular focus on segments of the portfolio (both commercial and consumer) that are likely to be more susceptible to high inflation, rapidly rising interest rates and supply chain disruption.

ECL post model adjustments

The table below shows ECL post model adjustments.


Retail Banking


Private

Commercial &

Central items

 


Mortgages

Other

 

Banking

Institutional

& other

Total

30 June 2023

£m

£m

 

£m

£m

£m

£m

Deferred model calibrations

-

-

 

1

22

-

23

Economic uncertainty

116

43

 

12

289

2

462

Other adjustments

7

-

 

-

12

36

55

Total

123

43

 

13

323

38

540


 

 

 

 

 

 

 

Of which:

 

 

 

 

 

 

 

- Stage 1

74

19

 

6

113

20

232

- Stage 2

34

24

 

7

206

17

288

- Stage 3

15

-

 

-

4

1

20

 

 

 

 

 

 

 

 

31 December 2022

 

 

 

 

 

 

 

Economic uncertainty

102

51

 

6

191

2

352

Other adjustments

8

20

 

-

16

15

59

Total

110

71

 

6

207

17

411




 





Of which:



 





- Stage 1

62

27

 

3

63

-

155

- Stage 2

32

44

 

3

139

16

234

- Stage 3

16

-

 

-

5

1

22

 



 

Risk and capital management

Credit risk continued

UK economic uncertainty

Post model adjustments increased since 31 December 2022, with a notable shift in economic uncertainty reflecting rapidly rising interest rates and high inflation.

-    Retail Banking - The post model adjustment for economic uncertainty increased from £153 million at 31 December 2022 to £159 million at 30 June 2023, with recent interest rate rises resulting in higher levels of mortgage customers at risk of financial difficulties and prompting an uplift in the cost of living post model adjustment (up from £127 million to £134 million). The cost of living post model adjustment captures the risk on segments in the Retail Banking portfolio that are more susceptible to the effects of cost of living rises, focusing on key affordability lenses, including customers with lower incomes in fuel poverty, over-indebted borrowers and customers vulnerable to a potential mortgage rate shock effect on their affordability.

-    The £20 million other judgemental overlay for EAD modelling dynamics in credit cards was no longer required.

-    Commercial & Institutional - The post model adjustment for economic uncertainty increased from £191 million at 31 December 2022 to £289 million at 30 June 2023. It still includes an overlay of £79 million to cover the residual risks from COVID-19, including the risk that government support schemes could affect future recoveries and concerns surrounding associated debt, to customers that have utilised government support schemes. The inflation and supply chain post model adjustment has been maintained with a mechanistic adjustment, via a sector-level downgrade, being applied to the sectors that were considered most at risk from these headwinds. A number of additional sectors have been included in the sector-level downgrade reflecting the pressures from inflation plus broader concerns around liquidity and reducing cash reserves across many sectors. The impact of the sector-level downgrades is a post model adjustment increase from £83 million at 31 December 2022 to £210 million at 30 June 2023, reflecting the significant headwinds for a number of sectors which are not fully captured in the models.

-    The £22 million judgemental overlay for deferred model calibrations relates to refinance risk with the existing mechanistic modelling approach not fully capturing the risk on deteriorated exposures.

-    Other adjustments includes an overlay of £10 million to mitigate the effect of operational timing delays in the identification and flagging of a SICR.

-    Other - The post model adjustments in Central items & other increased from £17 million at 31 December 2022 to £38 million at 30 June 2023 with the rise attributable to the divestment risk of the phased withdrawal of Ulster Bank RoI from the Republic of Ireland.

 

 

 

 



 

Risk and capital management

Credit risk continued

Wholesale support schemes

The table below shows the sector split for the Bounce Back Loan Scheme (BBLS) as well as associated debt split by stage. Associated debt refers to non-BBLS lending to customers who also have BBLS lending.


Gross carrying amount


BBL

 

Associated debt

 

ECL on associated debt


Stage 1 

Stage 2

Stage 3

Total

 

Stage 1 

Stage 2

Stage 3

Total

 

Stage 1

Stage 2 

Stage 3

30 June 2023

£m

£m

£m

£m

 

£m

£m

£m

£m

 

£m

£m

£m

Wholesale 














Property 

864

173

40

1,077

 

805

225

71

1,101

 

9

17

25

Financial institutions

20

3

-

23

 

8

2

-

10

 

-

-

-

Sovereign

4

1

-

5

 

1

-

-

1

 

-

-

-

Corporate

2,638

550

334

3,522

 

2,169

879

153

3,201

 

26

56

91

Of which:

 

 

 

 

 

 

 

 

 

 

 

 

 

  Agriculture

184

68

4

256

 

762

338

21

1,121

 

6

15

9

  Airlines and aerospace

3

1

-

4

 

2

1

-

3

 

-

-

-

  Automotive

185

30

8

223

 

103

29

7

139

 

2

3

4

  Chemicals 

5

1

-

6

 

8

1

-

9

 

-

-

-

  Health

139

20

4

163

 

255

84

14

353

 

2

4

6

  Industrials 

109

18

5

132

 

72

23

5

100

 

1

1

3

  Land transport and logistics

101

22

6

129

 

43

24

4

71

 

1

2

3

  Leisure

386

94

24

504

 

322

143

23

488

 

5

12

16

  Mining and metals

4

1

-

5

 

6

-

-

6

 

-

-

-

  Oil and gas

5

1

-

6

 

4

1

-

5

 

-

-

-

  Power utilities

3

1

-

4

 

3

3

1

7

 

-

-

-

  Retail

460

88

22

570

 

256

104

17

377

 

4

8

12

  Shipping 

2

-

-

2

 

1

-

-

1

 

-

-

-

  Water and waste

12

2

1

15

 

9

2

2

13

 

-

-

1

Total

3,526

727

374

4,627

 

2,983

1,106

224

4,313

 

35

73

116















31 December 2022

 

 

 

 

 

 

 

 

 

 

 

Wholesale 














Property 

1,029

197

51

1,277


908

217

61

1,186


10

15

27

Financial institutions

24

4

-

28


9

2

-

11


-

-

1

Sovereign

5

1

1

7


2

-

-

2


-

-

-

Corporate

3,165

629

338

4,132


2,302

872

116

3,290


26

56

69

Of which:





 

 




 



 

  Agriculture

221

74

4

299

 

819

297

22

1,138

 

6

14

11

  Airlines and aerospace

3

1

-

4

 

-

1

-

1

 

-

-

-

  Automotive

221

34

10

265

 

100

37

5

142

 

1

2

3

  Chemicals 

6

1

-

7

 

9

1

-

10

 

-

-

-

  Health

165

23

4

192

 

271

92

9

372

 

2

4

4

  Industrials 

131

21

5

157

 

77

20

4

101

 

1

2

2

  Land transport and logistics

122

25

8

155

 

51

16

4

71

 

1

2

3

  Leisure

471

108

28

607

 

336

161

27

524

 

5

12

16

  Mining and metals

5

1

-

6

 

5

1

-

6

 

-

-

-

  Oil and gas

6

1

-

7

 

2

2

-

4

 

-

-

-

  Power utilities

3

1

-

4

 

3

4

-

7

 

-

-

-

  Retail

554

102

26

682

 

283

94

14

391

 

4

7

10

  Shipping 

2

-

-

2

 

1

3

-

4

 

-

-

-

  Water and waste

15

2

1

18

 

10

3

-

13

 

-

-

-

Total

4,223

831

390

5,444


3,221

1,091

177

4,489


36

71

97

 



 

Risk and capital management

Credit risk continued

Measurement uncertainty and ECL sensitivity analysis (reviewed)

The recognition and measurement of ECL is complex and involves the use of significant judgment and estimation, particularly in times of economic volatility and uncertainty. This includes the formulation and incorporation of multiple forward-looking economic conditions into ECL to meet the measurement objective of IFRS 9. The ECL provision is sensitive to the model inputs and economic assumptions underlying the estimate.

The impact arising from the base case, upside, downside and extreme downside scenarios was simulated. These scenarios are used in the methodology for Personal multiple economic scenarios as described in the Economic loss drivers section. 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 therefore serving as a single economic scenario.

These scenarios were applied to all modelled portfolios in the analysis below, with the simulation impacting both PDs and LGDs. Post model adjustments included in the ECL estimates that were modelled were sensitised in line with the modelled ECL movements, but those that were judgmental in nature, primarily those for deferred model calibrations and economic uncertainty, were not (refer to the Governance and post model adjustments section). As expected, the scenarios create differing impacts on ECL by portfolio and the impacts are deemed reasonable. In this simulation, it is assumed that existing modelled relationships between key economic variables and loss drivers hold, but in practice other factors would also have an impact, for example, potential customer behaviour changes and policy changes by lenders that might impact on the wider availability of credit.

The focus of the simulations is on ECL provisioning requirements on performing exposures in Stage 1 and Stage 2. The simulations are run on a stand-alone basis and are independent of each other; the potential ECL impacts reflect the simulated impact at 30 June 2023. Scenario impacts on SICR should be considered when evaluating the ECL movements of Stage 1 and Stage 2. In all scenarios the total exposure was the same but exposure by stage varied in each scenario.

Stage 3 provisions are not subject to the same level of measurement uncertainty - default is an observed event as at the balance sheet date. Stage 3 provisions therefore were not considered in this analysis.

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



 

Risk and capital management

Credit risk continued

Measurement uncertainty and ECL sensitivity analysis (reviewed)

 

 

 

 

Moderate

Moderate

Extreme

 

 

Base

upside

 downside

downside

30 June 2023

Actual

scenario

scenario

scenario

scenario

Stage 1 modelled loans (£m)






Retail Banking - mortgages

168,723 

168,198 

169,272 

168,676 

160,339 

Retail Banking - unsecured

8,256 

8,296 

8,562 

8,102 

7,393 

Wholesale - property

27,157 

27,445 

27,594 

26,830 

17,541 

Wholesale - non-property

110,583 

112,316 

113,020 

109,447 

84,290 


314,719 

316,255 

318,448 

313,055 

269,563 

Stage 1 modelled ECL (£m)

 

 

 

 

 

Retail Banking - mortgages

85 

84 

81 

87 

83 

Retail Banking - unsecured

191 

193 

192 

191 

169 

Wholesale - property

98 

76 

60 

128 

131 

Wholesale - non-property

250 

220 

193 

305 

310 


624 

573 

526 

711 

693 

Stage 2 modelled loans (£m)

 

 

 

 

 

Retail Banking - mortgages

19,653 

20,178 

19,104 

19,700 

28,037 

Retail Banking - unsecured

3,400 

3,360 

3,094 

3,554 

4,263 

Wholesale - property

3,942 

3,654 

3,505 

4,269 

13,558 

Wholesale - non-property

16,854 

15,121 

14,417 

17,990 

43,147 


43,849 

42,313 

40,120 

45,513 

89,005 

Stage 2 modelled ECL (£m)

 

 

 

 

 

Retail Banking - mortgages

64 

64 

44 

64 

114 

Retail Banking - unsecured

376 

369 

304 

404 

515 

Wholesale - property

113 

92 

74 

134 

584 

Wholesale - non-property

405 

336 

279 

483 

1,234 


958 

861 

701 

1,085 

2,447 

Stage 1 and Stage 2 modelled loans (£m)

 

 

 

 

 

Retail Banking - mortgages

188,376 

188,376 

188,376 

188,376 

188,376 

Retail Banking - unsecured

11,656 

11,656 

11,656 

11,656 

11,656 

Wholesale - property

31,099 

31,099 

31,099 

31,099 

31,099 

Wholesale - non-property

127,437 

127,437 

127,437 

127,437 

127,437 


358,568 

358,568 

358,568 

358,568 

358,568 

Stage 1 and Stage 2 modelled ECL (£m)

 

 

 

 

 

Retail Banking - mortgages

149 

148 

125 

151 

197 

Retail Banking - unsecured

567 

562 

496 

595 

684 

Wholesale - property

211 

168 

134 

262 

715 

Wholesale - non-property

655 

556 

472 

788 

1,544 


1,582 

1,434 

1,227 

1,796 

3,140 

Stage 1 and Stage 2 coverage (%)

 

 

 

 

 

Retail Banking - mortgages

0.08 

0.08 

0.07 

0.08 

0.10 

Retail Banking - unsecured

4.86 

4.82 

4.26 

5.10 

5.87 

Wholesale - property

0.68 

0.54 

0.43 

0.84 

2.30 

Wholesale - non-property

0.51 

0.44 

0.37 

0.62 

1.21 


0.44 

0.40 

0.34 

0.50 

0.88 

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

 

 

 

 

 

ECL on modelled exposures

1,582 

1,434 

1,227 

1,796 

3,140 

ECL on UBIDAC modelled exposures

32 

32 

32 

32 

32 

ECL on non-modelled exposures

38 

38 

38 

38 

38 


 

 

 

 

 

Total Stage 1 and Stage 2 ECL

1,652 

1,504 

1,297 

1,866 

3,210 

Variance to actual total Stage 1 and Stage 2 ECL

 

(148)

(355)

214 

1,558 

 

 



 

Risk and capital management

Credit risk continued

Measurement uncertainty and ECL sensitivity analysis (reviewed)

 

 

 

 

Moderate

Moderate

Extreme

 

 

Base

upside

 downside

downside

30 June 2023

Actual

scenario

scenario

scenario

scenario

Reconciliation to Stage 1 and Stage 2 flow exposure (£m)

 

 

 

 

 

Modelled loans

358,568

358,568

358,568

358,568

358,568

UBIDAC loans

565

565

565

565

565

Non-modelled loans

20,993

20,993

20,993

20,993

20,993

Other asset classes

145,405

145,405

145,405

145,405

145,405

 

(1)     Variations in future undrawn exposure values across the scenarios are modelled, however the exposure position reported is that used to calculate modelled ECL as at 30 June 2023 and therefore does not include variation in future undrawn exposure values.

(2)     Reflects ECL for all modelled exposure in scope for IFRS 9. The analysis excludes non-modelled portfolios.

(3)     Exposures related to Ulster Bank RoI continuing operations have not been included in the simulations. The current Ulster Bank RoI ECL has been included across all scenarios to enable reconciliation to other disclosures.

(4)     All simulations are run on a stand-alone basis and are independent of each other, with the potential ECL impact reflecting the simulated impact as at 30 June 2023. The simulations change the composition of Stage 1 and Stage 2 exposure but total exposure is unchanged under each scenario as the loan population is static.

(5)     Refer to the Economic loss drivers section for details of economic scenarios.

(6)     Refer to the NatWest Group 2022 Annual Report and Accounts for 31 December 2022 comparatives.

Measurement uncertainty and ECL adequacy (reviewed)

-    During H1 2023, overall modelled ECL remained stable reflecting portfolio growth coupled with stable portfolio performance offset by the H1 2023 economics update ECL reduction at 30 June 2023. Judgemental ECL post model adjustments, increased from 31 December 2022, reflecting the increased economic uncertainty and the expectation of increased defaults in H2 2023 and beyond, and represented 15% of total ECL (31 December 2022 - 12%).

-    If the economics were as negative as observed in the extreme downside, total Stage 1 and Stage 2 ECL was simulated to increase by £1.6 billion (approximately 94%). In this scenario, Stage 2 exposure increased significantly and was the key driver of the simulated ECL rise. The movement in Stage 2 balances in the other simulations was less significant.

-    In the Wholesale portfolio, there was a significant increase in ECL under both a moderate and extreme downside scenario. The Wholesale property ECL increase was mainly due to commercial real estate prices which show negative growth until 2024 and significant deterioration in the stock index. The non-property increase was mainly due to GDP contraction and significant deterioration in the stock index.

-    The changes in the economic outlook and scenarios used in the IFRS 9 MES framework at 30 June 2023 resulted in a decrease in modelled ECL. Given that continued uncertainty remains due to high inflation, rapidly rising interest rates and supply chain disruption, NatWest Group utilised a framework of quantitative and qualitative measures to support the levels of ECL coverage, including economic data, credit performance insights, supply chain contagion analysis and problem debt trends. This was particularly important for consideration of post model adjustments.

-    As the effects of high inflation, rapidly rising interest rates and supply chain disruption evolve during 2023 and into 2024, there is a risk of credit deterioration. However, the income statement effect of this should have been mitigated by the forward-looking provisions retained on the balance sheet at 30 June 2023.

-    There are a number of key factors that could drive further downside to impairments, through deteriorating economic and credit metrics and increased stage migration as credit risk increases for more customers. Such factors which could impact the IFRS 9 models, include an adverse deterioration in GDP and unemployment in the economies in which NatWest Group operates.

 

Movement in ECL provision

The table below shows the main ECL provision movements during H1 2023.


ECL provision


£m

At 1 January 2023

3,434

Changes in economic forecasts

(98)

Changes in risk metrics and exposure: Stage 1 and Stage 2

(48)

Changes in risk metrics and exposure: Stage 3

263

Judgemental changes: changes in post model adjustments for Stage 1, Stage 2 and Stage 3

129

Write-offs and other

(123)

At 30 June 2023

3,557

 

-    ECL increased during H1 2023, reflecting a stable level of good book ECL alongside increases in Stage 3 ECL levels.

-    Stage 3 default flows in the Personal portfolios remained stable, although there were modest increases in line with growth and post-COVID-19 lending strategy. For the Wholesale portfolios, with the exception of BBLS, default levels were lower than historic trends as the effects of high inflation, rapidly rising interest rates and supply chain disruption has to date not led to a significant change in defaults.

-    Stage 3 balances increased due to default flows, as described above, alongside reduced write-off activity in H1 2023.

-    The update to the economic scenarios at 30 June 2023 resulted in a modelled decrease in ECL of £98 million. While broader portfolio performance continued to be stable, the additional uncertainty due to high inflation and rapidly rising interest rates led to an increase in post model adjustments being required to ensure provision adequacy.



 

Risk and capital 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 (reviewed)

Refer to Note 8 for balance sheet analysis of financial assets that are classified as amortised cost or fair value through other comprehensive income (FVOCI), the starting point for IFRS 9 ECL framework assessment. The table below excludes loans in disposal groups of £0.6 billion (31 December 2022 - £1.5 billion).

Financial assets


30 June 2023

 

31 December 2022


Gross

ECL

Net

 

Gross

ECL

Net


£bn

£bn

£bn

 

£bn

£bn

£bn

Balance sheet total gross amortised cost and FVOCI

554.3



 

554.3




 

 

 

 


 

 

In scope of IFRS 9 ECL framework

541.7



 

550.3



% in scope

98%



 

99%




 

 

 

 


 

 

Loans to customers - in scope - amortised cost

377.9

3.5

374.4

 

370.1

3.3

366.8

Loans to customers - in scope - FVOCI

0.1

-

0.1

 

0.1

-

0.1

Loans to banks - in scope - amortised cost

7.2

-

7.2

 

6.9

-

6.9

Total loans - in scope

385.2

3.5

381.7

 

377.1

3.3

373.8

  Stage 1

336.4

0.6

335.8

 

325.2

0.6

324.6

  Stage 2

43.4

1.0

42.4

 

46.8

0.9

45.9

  Stage 3

5.4

1.9

3.5

 

5.1

1.8

3.3


 

 

 

 




Other financial assets - in scope - amortised cost

138.5

-

138.5

 

156.4

-

156.4

Other financial assets - in scope - FVOCI

18.0

-

18.0

 

16.8

-

16.8

Total other financial assets - in scope

156.5

-

156.5

 

173.2

-

173.2

  Stage 1

156.4

-

156.4

 

172.4

-

172.4

  Stage 2

0.1

-

0.1

 

0.8

-

0.8


 

 

 

 




Out of scope of IFRS 9 ECL framework

12.6

na

12.6

 

 4.0

na

4.0

Loans to customers - out of scope - amortised cost

(0.6)

na

(0.6)


(0.4)

na

(0.4)

Loans to banks - out of scope - amortised cost

0.1

na

0.1


0.2

na

0.2

Other financial assets - out of scope - amortised cost

13.0

na

13.0


4.1

na

4.1

Other financial assets - out of scope - FVOCI

0.1

na

0.1


0.1

na

0.1

na = not applicable

 

The assets outside the IFRS 9 ECL framework were as follows:

-   

Settlement balances, items in the course of collection, cash balances and other non-credit risk assets of £12.5 billion (31 December 2022 - £4.3 billion). These were assessed as having no ECL unless there was evidence that they were defaulted.

-   

Equity shares of £0.3 billion (31 December 2022 - £0.4 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 of £0.9 billion (31 December 2022 - £(0.6) billion).

Contingent liabilities and commitments

In addition to contingent liabilities and commitments disclosed in Note 13, reputationally-committed limits were also included in the scope of the IFRS 9 ECL framework. These were offset by £0.1 billion (31 December 2022 - £(0.1) billion) out of scope balances primarily related to facilities that, if drawn, would not be classified as amortised cost or FVOCI, or undrawn limits relating to financial assets exclusions. Total contingent liabilities (including financial guarantees) and commitments within IFRS 9 ECL scope of £136.2 billion (31 December 2022 - £137.2 billion) comprised Stage 1 £123.1 billion (31 December 2022 - £119.2 billion); Stage 2 £12.5 billion (31 December 2022 - £17.3 billion); and Stage 3 £0.7 billion (31 December 2022 - £0.7 billion).

The ECL relating to off-balance sheet exposures was £0.1 billion (31 December 2022 - £0.1 billion). The total ECL in the remainder of the Credit risk section of £3.6 billion (31 December 2022 - £3.4 billion) included ECL for both on and off-balance sheet exposures for non-disposal groups.



 


Risk and capital management

Credit risk - Banking activities continued

Segment analysis - portfolio summary (reviewed)

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


Retail

Private

Commercial &

Central items

 


Banking

Banking

Institutional

& other

Total

30 June 2023

£m

£m

£m

£m

£m

Loans - amortised cost and FVOCI (1)

 

 

 

 

 

Stage 1

180,293

18,075

112,341

25,653

336,362

Stage 2

22,686

988

19,676

90

43,440

Stage 3

2,826

254

2,246

124

5,450

Of which: individual

-

203

1,017

27

1,247

Of which: collective

2,826

51

1,229

97

4,203

Subtotal excluding disposal group loans

205,805

19,317

134,263

25,867

385,252

Disposal group loans

 

 

 

573

573

Total 

 

 

 

26,440

385,825

ECL provisions (2)

 

 

 

 

 

Stage 1

282

23

333

23

661

Stage 2 

439

17

507

28

991

Stage 3

1,038

31

765

71

1,905

Of which: individual

-

31

260

4

295

Of which: collective

1,038

-

505

67

1,610

Subtotal excluding ECL provisions on disposal group loans

1,759

71

1,605

122

3,557

ECL provisions on disposal group loans

 

 

 

31

31

Total 

 

 

 

153

3,588

ECL provisions coverage (3)

 

 

 

 

 

Stage 1 (%)

0.16

0.13

0.30

0.09

0.20

Stage 2 (%)

1.94

1.72

2.58

31.11

2.28

Stage 3 (%)

36.73

12.20

34.06

57.26

34.95

ECL provisions coverage excluding disposal group loans

0.85

0.37

1.20

0.47

0.92

ECL provisions coverage on disposal group loans

 

 

 

5.41

5.41

Total 

 

 

 

0.58

0.93

Impairment (releases)/losses (4)

 

 

 

 

 

ECL (release)/charge

193

11

20

(1)

223

Stage 1

(88)

(1)

(124)

4

(209)

Stage 2

188

8

98

2

296

Stage 3

93

4

46

(7)

136

Of which: individual

-

4

13

(4)

13

Of which: collective

93

-

33

(3)

123

Continuing operations

193

11

20

(1)

223

Discontinued operations

 

 

 

(1)

(1)

Total

 

 

 

(2)

222


 

 

 

 

 

Amounts written-off 

63

1

50

8

122

Of which: individual

-

1

19

2

22

Of which: collective

63

-

31

6

100






 

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

 

 



Risk and capital management

Credit risk - Banking activities continued

Segment analysis - portfolio summary (reviewed)


Retail

Private

Commercial &

Central items



Banking

Banking

Institutional

& other

Total

31 December 2022

£m

£m

£m

£m

£m

Loans - amortised cost and FVOCI (1)






Stage 1

174,727

18,367

108,791

23,339

325,224

Stage 2

21,561

801

24,226

245

46,833

Stage 3

2,565

242

2,166

123

5,096

Of which: individual

-

168

905

48

1,121

Of which: collective

2,565

74

1,261

75

3,975

Subtotal excluding disposal group loans

198,853

19,410

135,183

23,707

377,153

Disposal group loans

 

 

 

1,502

1,502

Total 




25,209

378,655

ECL provisions (2)






Stage 1

251

21

342

18

632

Stage 2 

450

14

534

45

1,043

Stage 3

917

26

747

69

1,759

Of which: individual

-

26

251

10

287

Of which: collective

917

-

496

59

1,472

Subtotal excluding ECL provisions on disposal group loans

1,618

61

1,623

132

3,434

ECL provisions on disposal group loans

 

 

 

53

53

Total 




185

3,487

ECL provisions coverage (3)






Stage 1 (%)

0.14

0.11

0.31

0.08

0.19

Stage 2 (%)

2.09

1.75

2.20

18.37

2.23

Stage 3 (%)

35.75

10.74

34.49

56.10

34.52

ECL provisions coverage excluding disposal group loans

0.81

0.31

1.20

0.56

0.91

ECL provisions coverage on disposal group loans

 

 

 

3.53

3.53

Total 




0.73

0.92







Half year ended 30 June 2022






Impairment (releases)/losses (4)






ECL (release)/charge

26

(11)

(59)

(10)

(54)

Stage 1

(125)

(6)

(204)

(7)

(342)

Stage 2

86

(7)

108

18

205

Stage 3

65

2

37

(21)

83

Of which: individual

-

2

-

(3)

(1)

Of which: collective

65

-

37

(18)

84

Continuing operations

26

(11)

(59)

(10)

(54)

Discontinued operations

 

 

 

(62)

(62)

Total




(70)

(116)







Amounts written-off

106

1

94

14

215

Of which: individual

-

1

57

-

58

Of which: collective

106

-

37

14

157

 

(1)       Includes loans to customers and banks.

(2)       Includes £4 million (31 December 2022 - £3 million) related to assets classified as FVOCI and £0.1 billion (31 December 2022 - £0.1 billion) related to off-balance sheet exposures.

(3)       ECL provisions coverage is calculated as ECL provisions divided by loans - amortised cost and FVOCI. It is calculated on third party loans and total ECL provisions.

(4)       Includes a £5 million release (30 June 2022 - £2 million release) related to other financial assets, of which £1 million (30 June 2022 - nil) related to assets classified as FVOCI; and £3 million release (30 June 2022 - £3 million release) related to contingent liabilities.

(5)       The table shows gross loans only and excludes amounts that were outside the scope of the ECL framework. Refer to 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 £121.9 billion (31 December 2022 - £143.3 billion) and debt securities of £34.7 billion (31 December 2022 - £29.9 billion).

 

-    Stage 1 and Stage 2 modelled ECL remained broadly unchanged with stable portfolio performance and latest MES scenario update modelled ECL reduction being offset by increased post model adjustments to reflect growing economic uncertainty due to high inflation and rapidly rising interest rates.

-    Stage 2 loans decreased during H1 2023, primarily within Wholesale portfolios, in line with the modelled ECL reduction, linked to the update of MES forward-looking economics at H1 2023. The latest MES scenario update captures a lower unemployment peak and better GDP outlook, offset by higher inflation and interest rates.

-    Stage 3 loans increased, primarily due to reduced write-off activity in H1 2023.

-    As previously mentioned, in Personal, the flows into default remained relatively stable and broadly in-line with post-COVID-19 lending strategy expectations and for Wholesale portfolios, with the exception of BBLS, default levels were lower than historic trends. However, it is expected that defaults will increase as growing inflationary pressures on businesses, consumers and the broader economy continue to evolve, particularly given the rapid rise in interest rates.



 

Risk and capital management

Credit risk - Banking activities continued

Segment analysis - portfolio summary (reviewed)

The table below shows Ulster Bank RoI disposal groups for Personal and Wholesale, by stage, for gross loans, off-balance sheet exposures and ECL. The tables in the rest of the Credit risk section are shown on a continuing basis and therefore exclude these exposures.

 

 

 

Off-balance sheet 

 

 

 

 

 

 

Loans - amortised cost and FVOCI

 

Loan

Contingent

 

ECL provisions

 

Stage 1

Stage 2

Stage 3

Total

 

commitments 

liabilities

 

Stage 1

Stage 2

Stage 3

Total

30 June 2023

£m

£m

£m

£m

 

£m

£m

 

£m

£m

£m

£m

Personal

-

-

-

-

 

-

-

 

-

-

-

-

Wholesale

517

49

7

573

 

87

10

 

17

9

5

31

Total

517

49

7

573

 

87

10

 

17

9

5

31

 

31 December 2022

 

 

 

 

 

 

 

 

 

 

 

 

Personal

-

-

-

-


-

-


-

-

-

-

Wholesale

1,269

193

40

1,502


413

19


17

19

17

53

Total

1,269

193

40

1,502


413

19


17

19

17

53

Segment loans and impairment metrics (reviewed)

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

 

 

 

 

 

 

 

Not

 

 

 

 

 


 

past

1-30

>30

 

 

 

 

 

past

1-30

>30

 

 

 


Stage 1

due

DPD

DPD

Total

Stage 3

Total

 

Stage 1

due

DPD

DPD

Total

Stage 3

Total

30 June 2023

£m

£m

£m

£m

£m

£m

£m

 

£m

£m

£m

£m

£m

£m

£m

Retail Banking

180,293

21,610

709

367

22,686

2,826

205,805

 

282

394

14

31

439

1,038

1,759

Private Banking

18,075

913

46

29

988

254

19,317

 

23

17

-

-

17

31

71

Personal

14,929

118

43

16

177

198

15,304

 

7

2

-

-

2

19

28

Wholesale

3,146

795

3

13

811

56

4,013

 

16

15

-

-

15

12

43

Commercial 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  & Institutional

112,341

17,808

957

911

19,676

2,246

134,263

 

333

456

33

18

507

765

1,605

Personal 

2,374

16

16

10

42

46

2,462

 

3

-

-

1

1

13

17

Wholesale

109,967

17,792

941

901

19,634

2,200

131,801

 

330

456

33

17

506

752

1,588

Central items 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  & other

25,653

80

4

6

90

124

25,867

 

23

24

2

2

28

71

122

Personal 

10

57

2

5

64

19

93

 

1

11

-

2

13

16

30

Wholesale

25,643

23

2

1

26

105

25,774

 

22

13

2

-

15

55

92

Total loans

336,362

40,411

1,716

1,313

43,440

5,450

385,252

 

661

891

49

51

991

1,905

3,557

Of which:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Personal

197,606

21,801

770

398

22,969

3,089

223,664

 

293

407

14

34

455

1,086

1,834

   Wholesale

138,756

18,610

946

915

20,471

2,361

161,588

 

368

484

35

17

536

819

1,723

































31 December 2022
















Retail Banking

174,727

20,653

605

303

21,561

2,565

198,853


251

406

14

30

450

917

1,618

Private Banking

18,367

730

39

32

801

242

19,410


21

14

-

-

14

26

61

Personal

15,182

122

35

16

173

207

15,562

 

5

1

-

-

1

17

23

Wholesale

3,185

608

4

16

628

35

3,848

 

16

13

-

-

13

9

38

Commercial 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  & Institutional

108,791

22,520

956

750

24,226

2,166

135,183


342

491

26

17

534

747

1,623

Personal 

2,475

17

17

7

41

46

2,562

 

3

1

-

-

1

12

16

Wholesale

106,316

22,503

939

743

24,185

2,120

132,621

 

339

490

26

17

533

735

1,607

Central items
















  & other

23,339

234

4

7

245

123

23,707


18

42

1

2

45

69

132

Personal 

54

70

3

6

79

13

146

 

1

11

1

2

14

11

26

Wholesale

23,285

164

1

1

166

110

23,561

 

17

31

-

-

31

58

106

Total loans

325,224

44,137

1,604

1,092

46,833

5,096

377,153


632

953

41

49

1,043

1,759

3,434

Of which:
















   Personal

192,438

20,862

660

332

21,854

2,831

217,123

 

260

419

15

32

466

957

1,683

   Wholesale

132,786

23,275

944

760

24,979

2,265

160,030

 

372

534

26

17

577

802

1,751

 

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

Risk and capital management

Credit risk - Banking activities continued

Segment loans and impairment metrics (reviewed)

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 provisions coverage

Half year ended 30 June 2023


 

Stage 2 (1,2)

 

 

ECL


 

Not past

 

 

 

 

 

Total

Amounts


Stage 1

due

1-30 DPD

>30 DPD

Total

Stage 3

Total

(release)/charge

written-off

30 June 2023

%

%

%

%

%

%

%

£m

£m

Retail Banking

0.16

1.82

1.97

8.45

1.94

36.73

0.85

193

63

Private Banking

0.13

1.86

-

-

1.72

12.20

0.37

11

1

Personal

0.05

1.69

-

-

1.13

9.60

0.18

4

1

Wholesale

0.51

1.89

-

-

1.85

21.43

1.07

7

-

Commercial & Institutional

0.30

2.56

3.45

1.98

2.58

34.06

1.20

20

50

Personal 

0.13

-

-

10.00

2.38

28.26

0.69

1

1

Wholesale

0.30

2.56

3.51

1.89

2.58

34.18

1.20

19

49

Central items & other

0.09

30.00

50.00

33.33

31.11

57.26

0.47

(1)

8

Personal 

10.00

19.30

-

40.00

20.31

84.21

32.26

5

1

Wholesale

0.09

56.52

100.00

-

57.69

52.38

0.36

(6)

7

Total loans

0.20

2.20

2.86

3.88

2.28

34.95

0.92

223

122

Of which:

 

 

 

 

 

 

 

 

 

   Personal

0.15

1.87

1.82

8.54

1.98

35.16

0.82

203

66

   Wholesale

0.27

2.60

3.70

1.86

2.62

34.69

1.07

20

56











31 December 2022









Retail Banking

 0.14

 1.97

 2.31

 9.90

 2.09

 35.75

 0.81

 26

 106

Private Banking

 0.11

 1.92

-

-

 1.75

 10.74

 0.31

(11)

 1

Personal

 0.03

 0.82

-

-

 0.58

 8.21

 0.15

(2)

 1

Wholesale

 0.50

 2.14

-

-

 2.07

 25.71

 0.99

(9)

-

Commercial & Institutional

 0.31

 2.18

 2.72

 2.27

 2.20

 34.49

 1.20

(59)

 94

Personal

 0.12

 5.88

-

-

 2.44

 26.09

 0.62

 1

 1

Wholesale

 0.32

 2.18

 2.77

 2.29

 2.20

 34.67

 1.21

(60)

 93

Central items & other

 0.08

 17.95

 25.00

 28.57

 18.37

 56.10

 0.56

(10)

 14

Personal

 1.85

 15.71

 33.33

 33.33

 17.72

 84.62

 17.81

(7)

 6

Wholesale

 0.07

 18.90

-

-

 18.67

 52.73

 0.45

(3)

 8

Total loans

 0.19

 2.16

 2.56

 4.49

 2.23

 34.52

 0.91

(54)

 215

Of which:

 

 

 

 

 

 

 



   Personal

 0.14

 2.01

 2.27

 9.64

 2.13

 33.80

 0.78

 18

 116

   Wholesale

 0.28

 2.29

 2.75

 2.24

 2.31

 35.41

 1.09

(72)

 99

 

(1)     30 DPD - 30 days past due, the mandatory 30 days past due backstop as 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.

 

-    Retail Banking - Balance sheet growth during H1 2023 mainly reflected continued mortgage growth. Unsecured balances growth, primarily in credit cards, was mainly a result of strong customer demand alongside disciplined credit risk appetite. Total ECL coverage increased. The increase in coverage was reflective of increased Stage 3 ECL on unsecured portfolios, mainly due to reduced write-off activity. Stable good book coverage reflected continued stable portfolio performance alongside the ECL release from the H1 2023 MES update. This was counterbalanced by an increased level of post model adjustments to capture increased affordability pressures on customers due to high inflation and rapidly rising interest rates. Stage 2 balances increased during H1 2023 as a result of the forecast rise in unemployment, therefore increasing IFRS 9 probability of defaults on a forward-looking basis during H1 2023. The expected peak in unemployment rate reduced as a result of the latest MES update at 30 June 2023, dampening the levels of PD SICR deterioration, but Stage 2 balance levels were maintained through three month PD persistence rules. 

Commercial & Institutional - The balance sheet was broadly stable. Sector appetite continues to be reviewed regularly, with particular focus on sector clusters and sub-sectors that are vulnerable to cost of living, supply chain or inflationary pressures, or deemed to represent a heightened risk. Total coverage remained broadly stable with reductions in ECL and exposure. Stage 1 and Stage 2 ECL decreased due to improvements in forward-looking economics and some positive portfolio performance more than offsetting increases in post model adjustments. 

-    Central items & other - The balance sheet increase in H1 2023 was due to an increase in central items held in the course of treasury related management activities.



 

Risk and capital management

Credit risk - Banking activities continued

Sector analysis - portfolio summary (reviewed)

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.


Personal

 

Wholesale


Total


 

Credit

Other

 

 

 

 

 

 

 


 


Mortgages (1)

cards

personal

Total

 

Property

Corporate

FI

Sovereign

Total


 

30 June 2023

£m

£m

£m

£m

 

£m

£m

£m

£m

£m


£m

Loans by geography

208,689

5,150

9,825

223,664

 

32,925

73,975

49,199

5,489

161,588

 

385,252

  - UK

208,689

5,134

9,748

223,571

 

32,482

62,026

33,498

4,105

132,111

 

355,682

  - RoI

-

16

77

93

 

32

1,009

48

-

1,089

 

1,182

  - Other Europe

-

-

-

-

 

269

4,907

6,433

473

12,082

 

12,082

  - RoW

-

-

-

-

 

142

6,033

9,220

911

16,306

 

16,306

Loans by stage 

208,689

5,150

9,825

223,664

 

32,925

73,975

49,199

5,489

161,588

 

385,252

  - Stage 1

186,983

3,526

7,097

197,606

 

28,183

56,770

48,468

5,335

138,756

 

336,362

  - Stage 2

19,653

1,501

1,815

22,969

 

3,990

15,660

695

126

20,471

 

43,440

  - Stage 3

2,053

123

913

3,089

 

752

1,545

36

28

2,361

 

5,450

  - Of which: individual

177

-

15

192

 

398

606

24

27

1,055

 

1,247

  - Of which: collective

1,876

123

898

2,897

 

354

939

12

1

1,306

 

4,203

Loans - past due analysis (2)

208,689

5,150

9,825

223,664

 

32,925

73,975

49,199

5,489

161,588

 

385,252

  - Not past due

206,026

5,014

8,838

219,878

 

31,818

70,389

48,516

5,416

156,139

 

376,017

  - Past due 1-30 days

1,091

31

91

1,213

 

404

2,370

620

71

3,465

 

4,678

  - Past due 31-90 days

633

35

106

774

 

361

572

35

2

970

 

1,744

  - Past due 90-180 days

376

27

96

499

 

56

47

3

-

106

 

605

  - Past due >180 days

563

43

694

1,300

 

286

597

25

-

908

 

2,208

Loans - Stage 2

19,653

1,501

1,815

22,969

 

3,990

15,660

695

126

20,471

 

43,440

  - Not past due

18,648

1,460

1,693

21,801

 

3,541

14,292

653

124

18,610

 

40,411

  - Past due 1-30 days

694

19

57

770

 

112

827

7

-

946

 

1,716

  - Past due 31-90 days

311

22

65

398

 

337

541

35

2

915

 

1,313

Weighted average life (4)

 

 

 

 

 

 

 

 

 

 

 

 

   - ECL measurement (years)

9

3

6

6

 

5

6

2

2

5

 

6

Weighted average 12 months  

 

 

 

 

 

 

 

 

 

 

 

 

PDs (4)

 

 

 

 

 

 

 

 

 

 

 

 

  - IFRS 9 (%)

0.50

3.09

4.96

0.74

 

1.46

1.67

0.20

0.20

1.13

 

0.90

  - Basel (%)

0.66

3.29

3.24

0.82

 

1.02

1.33

0.18

0.20

0.87

 

0.84

ECL provisions by geography

413

293

1,128

1,834

 

445

1,200

60

18

1,723

 

3,557

  - UK

413

288

1,103

1,804

 

415

988

32

11

1,446

 

3,250

  - RoI

-

5

25

30

 

14

57

1

-

72

 

102

  - Other Europe

-

-

-

-

 

9

95

8

2

114

 

114

  - RoW

-

-

-

-

 

7

60

19

5

91

 

91

ECL provisions by stage 

413

293

1,128

1,834

 

445

1,200

60

18

1,723

 

3,557

  - Stage 1

92

60

141

293

 

99

220

36

13

368

 

661

  - Stage 2

65

148

242

455

 

115

410

10

1

536

 

991

  - Stage 3

256

85

745

1,086

 

231

570

14

4

819

 

1,905

  - Of which: individual

23

-

10

33

 

79

169

10

4

262

 

295

  - Of which: collective

233

85

735

1,053

 

152

401

4

-

557

 

1,610

ECL provisions coverage (%)

0.20

5.69

11.48

0.82

 

1.35

1.62

0.12

0.33

1.07

 

0.92

  - Stage 1 (%)

0.05

1.70

1.99

0.15

 

0.35

0.39

0.07

0.24

0.27

 

0.20

  - Stage 2 (%)

0.33

9.86

13.33

1.98

 

2.88

2.62

1.44

0.79

2.62

 

2.28

  - Stage 3 (%)

12.47

69.11

81.60

35.16

 

30.72

36.89

38.89

14.29

34.69

 

34.95

ECL (release)/charge

23

70

110

203

 

29

(2)

(6)

(1)

20

 

223

  - UK

23

68

107

198

 

29

28

(11)

(1)

45

 

243

  - RoI

-

2

3

5

 

5

(5)

-

-

-

 

5

  - Other Europe

-

-

-

-

 

(5)

16

1

-

12

 

12

  - RoW

-

-

-

-

 

-

(41)

4

-

(37)

 

(37)

Amounts written-off 

8

34

24

66

 

20

36

-

-

56

 

122














For the notes to this table refer to page 37.



 

Risk and capital management

Credit risk - Banking activities continued

Sector analysis - portfolio summary (reviewed)


Personal

 

Wholesale


Total


 

Credit

Other

 

 

 

 

 

 

 


 


Mortgages (1)

cards

personal

Total

 

Property

Corporate

FI

Sovereign

Total


 

30 June 2023

£m

£m

£m

£m

 

£m

£m

£m

£m

£m


£m

Loans by residual maturity

208,689

5,150

9,825

223,664

 

32,925

73,975

49,199

5,489

161,588

 

385,252

 - <1 year 

3,349

2,867

3,261

9,477

 

7,359

23,585

37,554

2,898

71,396

 

80,873

 - 1-5 year

10,383

2,283

5,534

18,200

 

17,164

31,815

9,927

1,670

60,576

 

78,776

 - 5 year

194,957

-

1,030

195,987

 

8,402

18,575

1,718

921

29,616

 

225,603

Other financial assets by

 

 

 

 

 

 

 

 

 

 

 

 

  asset quality (3)

-

-

-

-

 

39

90

16,985

139,464

156,578

 

156,578

  - AQ1-AQ4

-

-

-

-

 

-

12

16,452

139,464

155,928

 

155,928

  - AQ5-AQ8

-

-

-

-

 

39

78

533

-

650

 

650

Off-balance sheet

15,474

16,572

8,688

40,734

 

16,048

58,800

19,898

724

95,470

 

136,204

  - Loan commitments

15,474

16,572

8,643

40,689

 

15,604

56,181

18,610

570

90,965

 

131,654

  - Financial guarantees

-

-

45

45

 

444

2,619

1,288

154

4,505

 

4,550

Off-balance sheet by

 

 

 

 

 

 

 

 

 

 

 

 

  asset quality (3)

15,474

16,572

8,688

40,734

 

16,048

58,800

19,898

724

95,470

 

136,204

  - AQ1-AQ4

14,791

536

7,403

22,730

 

12,486

36,034

18,318

644

67,482

 

90,212

  - AQ5-AQ8

666

15,732

1,255

17,653

 

3,532

22,475

1,580

63

27,650

 

45,303

  - AQ9 

1

6

6

13

 

5

9

-

-

14

 

27

  - AQ10

16

298

24

338

 

25

282

-

17

324

 

662

 

For the notes to this table refer to page 37.

 

 

 



 

Risk and capital management

Credit risk - Banking activities continued

Sector analysis - portfolio summary (reviewed)

 


Personal


Wholesale


Total



Credit

Other











Mortgages (1)

cards

personal

Total


Property

Corporate

FI

Sovereign

Total



31 December 2022

£m

£m

£m

£m


£m

£m

£m

£m

£m


£m

Loans by geography

202,957

4,460

9,706

217,123


32,574

73,677

48,138

5,641

160,030


377,153

  - UK

202,957

4,420

9,602

216,979

 

31,452

62,318

32,480

4,285

130,535

 

347,514

  - RoI

-

40

104

144

 

34

1,102

74

-

1,210

 

1,354

  - Other Europe

-

-

-

-

 

623

4,670

6,967

475

12,735

 

12,735

  - RoW

-

-

-

-

 

465

5,587

8,617

881

15,550

 

15,550

Loans by stage

202,957

4,460

9,706

217,123


32,574

73,677

48,138

5,641

160,030


377,153

  - Stage 1

182,245

3,275

6,918

192,438

 

27,542

53,048

46,738

5,458

132,786

 

325,224

  - Stage 2

18,787

1,076

1,991

21,854

 

4,316

19,153

1,353

157

24,979

 

46,833

  - Stage 3

1,925

109

797

2,831

 

716

1,476

47

26

2,265

 

5,096

  - Of which: individual

172

-

13

185

 

314

564

33

25

936

 

1,121

  - Of which: collective

1,753

109

784

2,646

 

402

912

14

1

1,329

 

3,975

Loans - past due analysis (2)

202,957

4,460

9,706

217,123


32,574

73,677

48,138

5,641

160,030


377,153

  - Not past due

200,634

4,335

8,825

213,794

 

31,366

70,034

47,824

5,633

154,857

 

368,651

  - Past due 1-30 days

916

33

86

1,035

 

608

2,490

278

1

3,377

 

4,412

  - Past due 31-90 days

510

29

104

643

 

302

551

5

7

865

 

1,508

  - Past due 90-180 days

380

24

79

483

 

49

34

24

-

107

 

590

  - Past due >180 days

517

39

612

1,168

 

249

568

7

-

824

 

1,992

Loans - Stage 2

18,787

1,076

1,991

21,854


4,316

19,153

1,353

157

24,979


46,833

  - Not past due

17,951

1,039

1,872

20,862

 

3,866

17,915

1,344

150

23,275

 

44,137

  - Past due 1-30 days

588

19

53

660

 

185

754

5

-

944

 

1,604

  - Past due 31-90 days

248

18

66

332

 

265

484

4

7

760

 

1,092

Weighted average life (4)













   - ECL measurement (years)

8

2

6

5

 

4

6

3

1

5

 

5

Weighted average 12 months PDs (4)












  - IFRS 9 (%)

0.50

2.62

4.78

0.71

 

1.88

2.11

0.23

0.19

1.41

 

1.01

  - Basel (%)

0.65

2.97

3.11

0.79

 

1.03

1.44

0.16

0.19

0.92

 

0.85

ECL provisions by geography

376

257

1,050

1,683


441

1,228

63

19

1,751


3,434

  - UK

376

254

1,027

1,657

 

404

985

42

14

1,445

 

3,102

  - RoI

-

3

23

26

 

13

66

1

-

80

 

106

  - Other Europe

-

-

-

-

 

16

72

7

1

96

 

96

  - RoW

-

-

-

-

 

8

105

13

4

130

 

130

ECL provisions by stage 

376

257

1,050

1,683


441

1,228

63

19

1,751


3,434

  - Stage 1

81

62

117

260

 

107

218

32

15

372

 

632

  - Stage 2

62

122

282

466

 

105

457

14

1

577

 

1,043

  - Stage 3

233

73

651

957

 

229

553

17

3

802

 

1,759

  - Of which: individual

18

-

10

28

 

80

163

13

3

259

 

287

  - Of which: collective

215

73

641

929

 

149

390

4

-

543

 

1,472

ECL provisions coverage (%)

0.19

5.76

10.82

0.78


1.35

1.67

0.13

0.34

1.09


0.91

  - Stage 1 (%)

0.04

1.89

1.69

0.14

 

0.39

0.41

0.07

0.27

0.28

 

0.19

  - Stage 2 (%)

0.33

11.34

14.16

2.13

 

2.43

2.39

1.03

0.64

2.31

 

2.23

  - Stage 3 (%)

12.10

66.97

81.68

33.80

 

31.98

37.47

36.17

11.54

35.41

 

34.52

 

 

 

 

 

 

 

 

 

 

 

 

 

Half year ended 30 June 2022

 

 

 

 

 

 

 

 

 

 

 

ECL (release)/charge

(80)

20

78

18


21

(61)

(31)

(1)

(72)


(54)

  - UK

(75)

20

78

23

 

30

(66)

(34)

(1)

(71)

 

(48)

  - RoI

(5)

-

-

(5)

 

2

(7)

(3)

-

(8)

 

(13)

  - Other Europe

-

-

-

-

 

(12)

10

1

-

(1)

 

(1)

  - RoW

-

-

-

-

 

1

2

5

-

8

 

8

Amounts written-off

27

33

54

114


17

84

-

-

101


215

 

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



 

Risk and capital management

Credit risk - Banking activities continued

Sector analysis - portfolio summary (reviewed)


 


Personal


Wholesale


Total



Credit

Other











Mortgages (1)

cards

personal

Total


Property

Corporate

FI

Sovereign

Total



31 December 2022

£m

£m

£m

£m


£m

£m

£m

£m

£m


£m

Loans by residual maturity

202,957

4,460

9,706

217,123


32,574

73,677

48,138

5,641

160,030


377,153

 - <1 year 

3,347

2,655

3,368

9,370

 

6,740

24,297

36,192

2,958

70,187

 

79,557

 - 1-5 year

10,968

1,805

5,387

18,160

 

17,523

32,127

10,380

1,819

61,849

 

80,009

 - 5 year

188,642

-

951

189,593

 

8,311

17,253

1,566

864

27,994

 

217,587

Other financial assets by

 

 

 

 

 

 

 

 

 

 

 

 

  asset quality (3)

-

-

-

-


49

25

14,704

158,416

173,194


173,194

  - AQ1-AQ4

-

-

-

-

 

-

11

14,156

158,416

172,583

 

172,583

  - AQ5-AQ8

-

-

-

-

 

49

14

548

-

611

 

611

Off-balance sheet

18,782

15,848

8,547

43,177


15,793

57,791

19,555

710

93,849


137,026

  - Loan commitments

18,782

15,848

8,496

43,126

 

15,302

54,651

18,223

710

88,886

 

132,012

  - Financial guarantees

-

-

51

51

 

491

3,140

1,332

-

4,963

 

5,014

Off-balance sheet by













  asset quality (3)

18,782

15,848

8,547

43,177


15,793

57,791

19,555

710

93,849


137,026

  - AQ1-AQ4

17,676

436

7,353

25,465

 

12,477

35,960

17,899

606

66,942

 

92,407

  - AQ5-AQ8

1,089

15,048

1,170

17,307

 

3,282

21,496

1,655

84

26,517

 

43,824

  - AQ9 

2

74

4

80

 

5

24

-

-

29

 

109

  - AQ10

15

290

20

325

 

29

311

1

20

361

 

686

 

(1)

Includes a portion of Private Banking lending secured against residential real estate, in line with ECL calculation methodology. Private Banking and RBS International mortgages are reported in UK reflecting the country of lending origination, and includes crown dependencies.

(2)

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

(3)

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 2022 - £0.3 billion) of AQ10 Personal balances primarily relate to loan commitments, the drawdown of which is effectively prohibited.

(4)

Not within the scope of EY's review report.

 



 

Risk and capital management

Credit risk - Banking activities continued

Sector analysis - portfolio summary (reviewed)

The table below shows ECL by stage, for the Personal portfolios and selected sectors of the Wholesale portfolios.


Loans - amortised cost and FVOCI

Off-balance sheet 

 

ECL provisions


 

Loan

Contingent

 

 


Stage 1

Stage 2

Stage 3

Total

commitments

liabilities

 

Stage 1

Stage 2

Stage 3

Total

30 June 2023

£m

£m

£m

£m

£m

£m

 

£m

£m

£m

£m

Personal

197,606

22,969

3,089

223,664

40,689

45

 

293

455

1,086

1,834

Mortgages (1)

186,983

19,653

2,053

208,689

15,474

-

 

92

65

256

413

Credit cards

3,526

1,501

123

5,150

16,572

-

 

60

148

85

293

Other personal

7,097

1,815

913

9,825

8,643

45

 

141

242

745

1,128

Wholesale

138,756

20,471

2,361

161,588

90,965

4,505

 

368

536

819

1,723

Property

28,183

3,990

752

32,925

15,604

444

 

99

115

231

445

Financial institutions

48,468

695

36

49,199

18,610

1,288

 

36

10

14

60

Sovereigns

5,335

126

28

5,489

570

154.0

 

13

1

4

18

Corporate

56,770

15,660

1,545

73,975

56,181

2,619

 

220

410

570

1,200

Of which:

 

 

 

 

 

 

 

 

 

 

 

      Agriculture

3,707

1,169

112

4,988

922

23

 

16

35

43

94

Airlines and aerospace

1,262

596

13

1,871

1,609

251

 

4

11

7

22

Automotive

6,642

837

30

7,509

4,120

86

 

21

18

12

51

Chemicals

390

55

1

446

806

12

 

2

1

1

4

Health

3,831

995

138

4,964

528

10

 

17

33

48

98

Industrials

2,407

811

79

3,297

3,080

182

 

9

20

21

50

Land transport and logistics

4,163

942

68

5,173

3,299

182

 

12

19

19

50

Leisure

3,973

3,145

240

7,358

2,021

171

 

30

109

91

230

Mining and metals 

433

39

5

477

404

5

 

1

-

4

5

Oil and gas

915

94

29

1,038

1,912

258

 

3

2

28

33

Power utilities

4,597

355

46

4,998

8,979

528

 

11

14

7

32

Retail

5,505

1,797

232

7,533

4,515

358

 

22

39

87

148

Shipping

181

93

3

277

78

28

 

-

3

3

6

Water and waste

3,425

406

15

3,846

2,012

96

 

4

5

4

13

Total

336,362

43,440

5,450

385,252

131,654

4,550

 

661

991

1,905

3,557

 

31 December 2022 












Personal

192,438

21,854

2,831

217,123

43,126

51


260

466

957

1,683

Mortgages (1)

182,245

18,787

1,925

202,957

18,782

-


81

62

233

376

Credit cards

3,275

1,076

109

4,460

15,848

-


62

122

73

257

Other personal

6,918

1,991

797

9,706

8,496

51


117

282

651

1,050

Wholesale

132,786

24,979

2,265

160,030

88,886

4,963


372

577

802

1,751

Property

27,542

4,316

716

32,574

15,302

491


107

105

229

441

Financial institutions

46,738

1,353

47

48,138

18,223

1,332


32

14

17

63

Sovereigns

5,458

157

26

5,641

710

-


15

1

3

19

Corporate

53,048

19,153

1,476

73,677

54,651

3,140


218

457

553

1,228

Of which:

 

 

 

 

 

 

 

 

 

 

 

   Agriculture

3,646

1,034

93

4,773

968

24

 

21

31

43

95

Airlines and aerospace

483

1,232

19

1,734

1,715

174

 

2

40

8

50

Automotive

5,776

1,498

30

7,304

4,009

99

 

18

18

11

47

Chemicals

384

117

1

502

650

12

 

1

2

1

4

Health

3,974

1,008

141

5,123

475

8

 

19

30

48

97

Industrials

2,148

1,037

82

3,267

3,135

195

 

10

16

24

50

Land transport and logistics

3,788

1,288

66

5,142

3,367

190

 

13

33

17

63

Leisure

3,416

3,787

260

7,463

1,907

102

 

27

147

115

289

Mining and metals 

173

230

5

408

545

5

 

-

1

5

6

Oil and gas

953

159

60

1,172

2,157

248

 

3

3

31

37

Power utilities

4,228

406

6

4,640

6,960

1,182

 

9

11

1

21

Retail

6,497

1,746

150

8,393

4,682

416

 

21

29

68

118

Shipping

161

151

14

326

110

22

 

-

7

6

13

Water and waste

3,026

335

7

3,368

2,143

101

 

4

4

4

12

Total

325,224

46,833

5,096

377,153

132,012

5,014


632

1,043

1,759

3,434

 

(1)     As at 30 June 2023, £143.5 billion, 69%, of the total residential mortgages portfolio had Energy Performance Certificate (EPC) data available (31 December 2022 - £138.8 billion, 68%). Of which, 43% were rated as EPC A to C (31 December 2022 - 42%).

 

 

 

 



 

Risk and capital management

Credit risk - Banking activities continued  

Wholesale forbearance (reviewed)

The table below shows Wholesale forbearance, Heightened Monitoring and Risk of Credit Loss by sector. Personal forbearance is disclosed in the Personal portfolio section. This table shows current exposure but reflects risk transfers where there is a guarantee by another customer.


 

Financial 

 

Other 

 


Property

institution

Sovereign

corporate

Total

30 June 2023

£m

£m

£m

£m

£m

Forbearance (flow)

843

82

24

1,614

2,563

Forbearance (stock)

1,077

122

24

3,704

4,927

Heightened Monitoring and Risk of Credit Loss

1,198

304

-

4,183

5,685


 

 

 

 

 

31 December 2022






Forbearance (flow)

746

105

-

2,575

3,426

Forbearance (stock)

933

107

-

4,709

5,749

Heightened Monitoring and Risk of Credit Loss

976

112

-

3,445

4,533

 

-   

Loans by geography - In line with NatWest Group's strategic focus, exposures continued to be mainly in the UK. Exposure to the Republic of Ireland continued to reduce during H1 2023 as part of the phased withdrawal of Ulster Bank RoI.

-   

Loans by stage - There was an increase in Stage 1 exposure due to mortgage growth in Personal. An improvement in forward-looking economics meant a smaller proportion of Wholesale accounts exhibited a SICR compared to 2022, resulting in a migration of exposures from Stage 2 into Stage 1 during H1 2023.

-   

Loans - Past due analysis - In Personal, the value of arrears increased during H1 2023 as expected with portfolio growth and subsequent adjustments to lending criteria following the COVID-19 pandemic. In Wholesale, overall the past due profile remained broadly stable.

-   

Weighted average 12 months PDs - Basel II PDs remained relatively unchanged during H1 2023, reflecting stable credit performance in the portfolios. IFRS 9 PDs also remained broadly stable overall, with some modest increases in Personal portfolios, most notably in credit cards which had a PD model update. In Wholesale, some reductions were observed in PDs in corporate and property portfolios, linked to the economic scenario update at 30 June 2023.

-   

ECL provision by geography - In line with loans by geography, the vast majority of ECL related to exposures in the UK.

-   

ECL provisions by stage - Stage 2 provisions reduced during H1 2023, reflecting continued strong credit performance of the portfolios and the effect of H1 2023 MES scenario updates. Book growth was the key driver behind an increase in Stage 1 provisions. As outlined above, Stage 3 provisions have yet to be materially affected by the customer affordability risks linked to the current economic uncertainty prevalent in the UK. However, there has been an increase in Stage 3 linked to a modest rise in default levels and reduced write-off activity.

-   

ECL provisions coverage - Overall provisions coverage remained broadly consistent with 31 December 2022, mainly a result of continued stable portfolio performance and MES economics-driven modelled ECL releases contrasted with increased economic uncertainty, captured in ECL through post model adjustments.

-   

The ECL charge and loss rate - The impairment charge for H1 2023 of £223 million primarily reflected the underlying Stage 3 charges as good book ECL levels remaining broadly stable since 31 December 2022. The annualised loss rate at 30 June 2023 was 12bps with the expectation that this will rise in H2 2023 due to increased customer defaults.  

-   

Loans by residual maturity - The maturity profile of the portfolios remained consistent with prior periods. In mortgages, as expected, the vast majority of exposures were greater than five years. In unsecured lending - cards and other - exposures were concentrated in less than five years. In Wholesale, financial institutions and sovereigns lending was concentrated in less than one year. For the rest of Wholesale, most of the lending was residual maturity of one to five years.

 

-   

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 bands.             

 

-   

Off-balance sheet exposures by asset quality - In Personal, undrawn exposures were reflective of available credit lines in credit cards and current accounts. Additionally, the mortgage portfolio had undrawn exposures, where a formal offer had been made to a customer but had not yet drawn down; the value decreased in line with 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 was aligned to the wider portfolio. In Wholesale, growth was primarily loan commitments to corporates in the AQ5-AQ8 bands.

 

-   

Wholesale forbearance - Forbearance flow and stock decreased in H1 2023. The retail and leisure, property and services sectors continued to represent the largest share of forbearance. The high inflation environment, cost of living, and supply chain issues continue to weigh on these sectors. Payment holidays and covenant waivers were the most common forms of forbearance granted.

 

-   

Heightened Monitoring and Risk of Credit Loss - Economic headwinds continued to drive an uncertain outlook. Heightened Monitoring and Risk of Credit Loss stock increased in H1 2023. The sector breakdown of exposures within the framework remained consistent with prior periods.

 

 

 



 

Risk and capital management

Credit risk - Banking activities continued

Personal portfolio (reviewed)

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


30 June 2023

 

31 December 2022


 

 

 

Central

 

 




Central



Retail

Private

Commercial &

items

 

 

Retail

Private

Commercial &

items



Banking

Banking

Institutional

& other

Total

 

Banking

Banking

Institutional

& other

Total

Personal lending

£m

£m

£m

£m

£m

 

£m

£m

£m

£m

£m

Mortgages

192,924

13,542

2,281

-

208,747


186,891

13,709

2,357

-

202,957

Of which:

 

 

 

 

 







  Owner occupied

174,247

11,948

1,504

-

187,699


168,790

12,096

1,541

-

182,427

  Buy-to-let

18,677

1,594

777

-

21,048


18,101

1,613

816

-

20,530

  Interest only - variable

3,534

3,508

239

-

7,281


3,515

3,286

258

-

7,059

  Interest only - fixed

18,217

8,404

249

-

26,870


17,954

8,591

261

-

26,806

  Mixed (1)

10,160

1

12

-

10,173


9,768

1

16

-

9,785

 ECL provisions (2)

388

8

8

-

404


355

9

6

-

370

Other personal lending (3)

12,915

1,761

251

93

15,020


11,935

1,853

267

143

14,198

ECL provisions (2)

1,365

21

2

30

1,418


1,257

15

3

26

1,301

Total personal lending

205,839

15,303

2,532

93

223,767


198,826

15,562

2,624

143

217,155

Mortgage LTV ratios

 

 

 

 

 







  Total portfolio

55%

59%

56%

-

55%


52%

59%

56%

-

53%

      - Stage 1

55%

59%

55%

-

55%

 

52%

59%

56%

-

53%

      - Stage 2

56%

61%

59%

-

56%

 

52%

61%

60%

-

52%

      - Stage 3

48%

60%

72%

-

49%

 

45%

59%

74%

-

47%

  Buy-to-let

53%

59%

53%

-

53%


50%

59%

53%

-

51%

      - Stage 1

53%

59%

52%

-

53%

 

51%

59%

53%

-

52%

      - Stage 2

52%

56%

50%

-

52%

 

49%

53%

48%

-

49%

      - Stage 3

49%

55%

56%

-

51%

 

47%

55%

57%

-

50%

Gross new mortgage lending 

17,348

812

89

-

18,249


41,227

2,968

327

-

44,522

   Of which:

 

 

 

 

 







Owner occupied 

16,171

738

66

-

16,975


36,305

2,701

221

-

39,227

Weighted average LTV (4)

69%

64%

68%

-

69%


69%

65%

65%

-

69%

Buy-to-let

1,177

74

23

-

1,274


4,922

267

106

-

5,295

Weighted average LTV (4)

58%

65%

55%

-

58%


64%

66%

60%

-

64%

Interest only - variable rate

130

335

7

-

472


24

329

11

-

364

Interest only - fixed rate

1,334

366

7

-

1,707


5,299

2,335

51

-

7,685

Mixed (1)

912

-

-

-

912


2,309

-

2

-

2,311

Mortgage forbearance

 

 

 

 

 







Forbearance flow (5)

111

11

6

-

128


182

7

4

-

193

Forbearance stock

1,032

17

13

-

1,062


1,015

16

8

-

1,039

  Current

623

6

7

-

636

 

649

8

6

-

663

  1-3 months in arrears

171

8

3

-

182

 

133

-

2

-

135

  > 3 months in arrears

238

4

3

-

245

 

233

8

-

-

241

 

(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)

Retail Banking 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)

New mortgage lending LTV reflects the LTV at the time of lending.

(5)

Forbearance flows only include an account once per year, although some accounts may be subject to multiple forbearance deals. Forbearance deals post default are excluded from these flows.

 

-   

Overall, mortgage portfolio growth continued in H1 2023, although new business volumes fluctuated in line with uncertainty regarding interest rate environment and product availability across the market.

-   

Portfolio LTV increased, partly due to the higher relative proportion of new business from recent years' strong lending performance, but also, specifically in H1 2023, easing of house prices reflected in house price indices.

-   

Credit quality of new business was maintained. Lending criteria and affordability calculations and assumptions for new lending were adjusted during H1 2023, considering inflationary pressure and interest rate rises, to maintain credit quality in line with appetite and ensure customers are assessed fairly.

-   

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.

-   

Other personal lending balances increased in H1 2023 mainly a result of credit card new business. Lending criteria were carefully managed and the credit quality (based on new business PD) of the new business written in H1 2023 improved.

-   

Flows into forbearance increased gradually in H1 2023 as NatWest Group continues to support customers, with portfolio growth also being a driver of increased forbearance flows overall.

-   

As noted previously, ECL increased. For further details on the movements in ECL provisions at product level, refer to the Flow statements section.

 



Risk and capital management

Credit risk - Banking activities continued

Personal portfolio (reviewed)

Mortgage LTV distribution by stage

The table below shows gross mortgage lending and related ECL by LTV band for the Retail Banking portfolio. Mortgage lending not within the scope of Governance and post-model adjustments reflected portfolios carried at fair value.

Retail banking


Mortgages

 

ECL provisions

 

ECL provisions coverage (2)


 

 

 

Not

 

Of

 

 

 

 

 

 

 

 

 

 

 


 


within


which:

 

 

 






 

 


Stage

Stage

Stage

IFRS 9

 

gross new

 

Stage

Stage

Stage

Total

 

Stage

Stage

Stage

 


1

2

3

ECL scope

Total

lending

 

1

2

3

(1)

 

1

2

3

Total

30 June 2023

£m

£m

£m

£m

£m

£m

 

£m

£m

£m

£m

 

%

%

%

%

≤50%

66,183

7,523

1,019

53

74,778

2,809

 

26

18

122

166

 

0.0

0.2

12.0

0.2

>50% and ≤70%

66,810

7,816

704

7

75,337

4,854

 

35

28

81

144

 

0.1

0.4

11.5

0.2

>70% and ≤80%

22,503

2,181

105

-

24,789

4,018

 

12

8

15

35

 

0.1

0.4

14.3

0.1

>80% and ≤90%

11,464

1,448

31

1

12,944

3,199

 

9

7

6

22

 

0.1

0.5

19.4

0.2

>90% and ≤100%

4,434

513

12

-

4,959

2,461

 

5

3

3

11

 

0.1

0.6

25.0

0.2

>100%

45

7

13

-

65

7

 

2

-

6

8

 

4.4

-

46.2

12.3

Total with LTVs

171,439

19,488

1,884

61

192,872

17,348

 

89

64

233

386

 

0.1

0.3

12.4

0.2

Other

110

1

1

-

112

-

 

2

-

1

3

 

1.8

-

100.0

2.7

Total

171,549

19,489

1,885

61

192,984

17,348

 

91

64

234

389

 

0.1

0.3

12.4

0.2


















31 December 2022
















≤50%

71,321

8,257

1,036

61

80,675

7,467


26

20

121

167


-

0.2

11.7

0.2

>50% and ≤70%

68,178

7,792

616

7

76,593

14,088


32

30

71

133


-

0.4

11.5

0.2

>70% and ≤80%

17,602

1,602

62

1

19,267

11,154


7

6

11

24


-

0.4

17.7

0.1

>80% and ≤90%

7,918

944

17

1

8,880

7,127


6

5

5

16


0.1

0.5

29.4

0.2

>90% and ≤100%

1,409

18

6

-

1,433

1,389


3

-

2

5


0.2

-

33.3

0.3

>100%

35

7

10

-

52

2


2

-

4

6


5.7

-

40.0

11.5

Total with LTVs

166,463

18,620

1,747

70

186,900

41,227


76

61

214

351


-

0.3

12.3

0.2

Other

59

1

1

-

61

-


3

-

1

4


5.1

-

100.0

6.6

Total

166,522

18,621

1,748

70

186,961

41,227


79

61

215

355


-

0.3

12.3

0.2

 

(1)

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

 

 

(2)

ECL provisions coverage is ECL provisions divided by mortgages

(3)

LTVs used in this table reflect the LTV at the reporting date, including changes in LTV after the date of new business due to repayments and indexation of property.

 

 

-    Overall LTV for the portfolio increased during H1 2023, reflecting the easing of UK house prices, which was reflected in the increased exposure in the higher LTV bands. ECL coverage levels were maintained across the LTV bands.

 

 



Risk and capital management

Credit risk - Banking activities continued

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).


30 June 2023


31 December 2022


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)

4,698

4

6

4,708


4,583

2

13

4,598

Office (3)

2,682

4

-

2,686


2,781

10

-

2,791

Retail (4)

3,582

1

-

3,583


3,754

-

-

3,754

Industrial (5)

3,137

-

128

3,265


2,939

-

184

3,123

Mixed/other (6)

919

7

44

970


876

7

46

929


15,018

16

178

15,212


14,933

19

243

15,195

Development

 

 

 

 






Residential (2)

1,752

2

-

1,754


1,693

7

-

1,700

Office (3)

46

-

-

46


81

-

-

81

Retail (4)

58

-

-

58


56

-

-

56

Industrial (5)

56

-

-

56


90

-

-

90

Mixed/other (6)

12

1

-

13


14

1

-

15


1,924

3

-

1,927


1,934

8

-

1,942

Total 

16,942

19

178

17,139


16,867

27

243

17,137

 

(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. 

 

 

 


Risk and capital management

Credit risk - Banking activities continued

Commercial real estate (reviewed)

CRE LTV distribution by stage

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

 

Gross loans

 

ECL provisions

 

ECL provisions coverage (2)


 

 

 

Not within

 

 

 

 

 

 

 

 

 

 

 


 

 

 

IFRS 9

 

 

 

 

 

 

 

 

 

 

 


Stage

Stage

Stage

ECL

 

 

Stage

Stage

Stage

 

 

Stage

Stage

Stage

 

1

2

3

scope (1)

Total

 

1

2

3

Total

 

1

2

3

Total

30 June 2023

£m

£m

£m

£m

£m

 

£m

£m

£m

£m

 

%

%

%

%

≤50%

7,136

951

61

3

8,151

 

34

14

12

60

 

0.5

1.5

19.7

0.7

>50% and ≤70%

3,399

582

66

2

4,049

 

20

26

18

64

 

0.6

4.5

27.3

1.6

>70% and ≤100%

182

114

200

2

498

 

2

3

31

36

 

1.1

2.6

15.5

7.2

>100%

216

17

41

-

274

 

1

1

14

16

 

0.5

5.9

34.1

5.8

Total with LTVs

10,933

1,664

368

7

12,972

 

57

44

75

176

 

0.5

2.6

20.4

1.4

Total portfolio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  average LTV%

47%

50%

80%

50%

48%

 

 

 

 

 

 

 

 

 

 

Other (3)

1,703

493

51

64

2,311

 

7

18

22

47

 

0.4

3.7

43.1

2.0

Development (4)

1,733

141

53

3

1,930

 

14

4

24

42

 

0.8

2.8

45.3

2.2

Total

14,369

2,298

472

74

17,213

 

78

66

121

265

 

0.5

2.9

25.6

1.5

















31 December 2022
















≤50%

7,010

658

57

67

7,792


36

12

16

64


0.5

1.8

28.1

0.8

>50% and ≤70%

3,515

798

43

19

4,375


23

18

12

53


0.7

2.3

27.9

1.2

>70% and ≤100%

259

82

156

7

504


1

3

42

46


0.4

3.7

26.9

9.1

>100%

102

10

23

1

136


1

1

14

16


1.0

10.0

60.9

11.8

Total with LTVs

10,886

1,548

279

94

12,807


61

34

84

179


0.6

2.2

30.1

1.4

Total portfolio
















  average LTV%

45%

52%

75%

44%

47%











Other (3)

1,800

627

55

86

2,568


9

15

27

51


0.5

2.4

49.1

2.0

Development (4)

1,553

332

57

7

1,949


13

8

28

49


0.8

2.4

49.1

2.5

Total

14,239

2,507

391

187

17,324


83

57

139

279


0.6

2.3

35.6

1.6

 

(1)

Includes exposures relating to non-modelled portfolios and other exposures carried at fair value.

(2)

ECL provisions coverage is ECL provisions divided by gross loans.

(3)

Relates mainly to business banking, rate risk management products and unsecured corporate lending.

(4)

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

 

-     Overall - The majority of the CRE portfolio was located and managed in the UK. Business appetite and strategy is aligned across NatWest Group.

-     2023 trends - H1 commenced with a fairly positive outlook as commercial property markets had observed a relatively quick repricing in late 2022 with investors keen to commence purchase and sale activity. However, as the economic outlook deteriorated over Q1 with higher interest rates, investor sentiment weakened. This resulted in very limited market activity, with residential build-to-rent being the exception.

-     Credit quality - The CRE portfolio has been resilient to date despite the fall in capital values and increase in rates, with no significant increase to movements onto the Risk of Credit Loss framework.

-     Risk appetite - Lending appetite is subject to regular review and is adjusted to prevailing and projected market conditions.  Following recent market re-pricing, appetite increased for certain specific sub-sectors. As a cashflow lender in the current interest rate environment, leverage is typically capped by interest cover considerations.  

 

 


Risk and capital management

Credit risk - Banking activities continued

Flow statements (reviewed)

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 may differ from those reported in other tables, principally in relation to exposures in Stage 1 and Stage 2. These differences do not have a material ECL effect. Other points to note:

-    Financial assets include treasury liquidity portfolios, comprising balances at central banks and debt securities, as well as loans. Both modelled and non-modelled portfolios are included.

-    Stage transfers (for example, exposures moving from Stage 1 into Stage 2) are a key feature of the ECL movements, with the net re-measurement cost of transitioning to a worse stage being a primary driver of income statement charges. Similarly, there is an ECL benefit for accounts improving stage.

-    Changes in risk parameters shows the reassessment of the ECL within a given stage, including any ECL overlays and residual income statement gains or losses at the point of write-off or accounting write-down.

-    Other (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 any debt sale activity.

-    There were flows from Stage 1 into Stage 3 including transfers due to unexpected default events.

-    The effect of any change in post model adjustments during the year is typically reported under changes in risk parameters, as are any effects arising from changes to the underlying models. Refer to the section on Governance and post model adjustments for further details.

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 2023

507,539

632

 

48,482

1,043

 

5,231

1,759

 

561,252

3,434

Currency translation and other adjustments

(3,085)

4

 

(259)

(4)

 

52

67

 

(3,292)

67

Transfers from Stage 1 to Stage 2

(25,420)

(161)

 

25,420

161

 

-

-

 

-

-

Transfers from Stage 2 to Stage 1

23,485

380

 

(23,485)

(380)

 

-

-

 

-

-

Transfers to Stage 3

(156)

(3)

 

(1,723)

(146)

 

1,879

149

 

-

-

Transfers from Stage 3

185

18

 

320

27

 

(505)

(45)

 

-

-

Net re-measurement of ECL on stage transfer

 

(277)

 

 

406

 

 

129

 

 

258

Changes in risk parameters (model inputs)

 

(33)

 

 

(14)

 

 

123

 

 

76

Other changes in net exposure

(21,643)

101

 

(4,134)

(96)

 

(1,003)

(94)

 

(26,780)

(89)

Other (P&L only items)

 

-

 

 

-

 

 

(22)

 

 

(22)

Income statement (releases)/charges

 

(209)

 

 

296

 

 

136

 

 

223

Transfers to disposal groups

11

-

 

(4)

(4)

 

11

4

 

18

-

Amounts written-off

-

-

 

(2)

(2)

 

(120)

(120)

 

(122)

(122)

Unwinding of discount

 

-

 

 

-

 

 

(67)

 

 

(67)

At 30 June 2023

480,916

661

 

44,615

991

 

5,545

1,905

 

531,076

3,557

Net carrying amount

480,255

 

 

43,624

 

 

3,640

 

 

527,519

 

At 1 January 2022

546,178

302


35,557

1,478


5,238

2,026


586,973

3,806

2022 movements

(2,063)

106


(6,017)

(356)


769

(41)


(7,311)

(291)

At 30 June 2022

544,115

408


29,540

1,122


6,007

1,985


579,662

3,515

Net carrying amount

543,707

-


28,418

-


4,022

-


576,147

-

 

 



 

Risk and capital management

Credit risk - Banking activities continued

Flow statements (reviewed)


Stage 1


Stage 2

 

Stage 3


Total


Financial

 

 

Financial

 

 

Financial

 

 

Financial

 


assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

Retail Banking - mortgages

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2023

165,264

79

 

18,831

61

 

1,762

215

 

185,857

355

Currency translation and other adjustments

-

-

 

-

-

 

34

34

 

34

34

Transfers from Stage 1 to Stage 2

(9,502)

(7)

 

9,502

7

 

-

-

 

-

-

Transfers from Stage 2 to Stage 1

7,105

15

 

(7,105)

(15)

 

-

-

 

-

-

Transfers to Stage 3

(20)

-

 

(467)

(3)

 

487

3

 

-

-

Transfers from Stage 3

22

1

 

149

3

 

(171)

(4)

 

-

-

Net re-measurement of ECL on stage transfer

 

(10)

 

 

14

 

 

3

 

 

7

Changes in risk parameters (model inputs)

 

18

 

 

(1)

 

 

36

 

 

53

Other changes in net exposure

6,922

(5)

 

(1,245)

(2)

 

(258)

(24)

 

5,419

(31)

Other (P&L only items)

 

-

 

 

(1)

 

 

(7)

 

 

(8)

Income statement (releases)/charges

 

3

 

 

10

 

 

8

 

 

21

Amounts written-off

-

-

 

-

-

 

(7)

(7)

 

(7)

(7)

Unwinding of discount

 

-

 

 

-

 

 

(22)

 

 

(22)

At 30 June 2023

169,791

91

 

19,665

64

 

1,847

234

 

191,303

389

Net carrying amount

169,700

 

 

19,601

 

 

1,613

 

 

190,914

 

At 1 January 2022

159,966

24


10,748

155


1,267

250


171,981

429

2022 movements

6,169

33


(1,763)

(79)


501

(38)


4,907

(84)

At 30 June 2022

166,135

57


8,985

76


1,768

212


176,888

345

Net carrying amount

166,078

-


8,909

-


1,556

-


176,543

-

 

-    ECL levels for mortgages increased during H1 2023, reflecting continued strong growth. While portfolio performance remained stable, increased economic uncertainty is captured through ECL post model adjustments (reflected in changes in risk parameters).

-    There were net flows into Stage 2 from Stage 1 as PDs increased due to moving closer to the forecasted unemployment peak, noting the latest MES update reduction in unemployment peak will not result in exits from Stage 2 until Q3 2023 (due to the three month PD persistence rule in stage allocation).

-    The increase in the cost of living post model adjustment at 30 June 2023 proportionately allocated more ECL to Stage 1 given the forward-looking nature of the cost of living and inflation threat. Refer to the Governance and post model adjustments section for more information.

-    The Stage 3 inflows remained broadly stable but there was a modest increase in Stage 3 ECL overall, partly linked to recent house price index deterioration. The relatively small ECL cost for net re-measurement on stage transfer included the effect of risk targeted ECL adjustments, when previously in the good book. Refer to the Governance and post model adjustments section for further details.

-    Write-off occurs once the repossessed property has been sold and there is a residual shortfall balance remaining outstanding. This would typically be within five years from default but can be longer. Given repossession activity remains subdued relative to pre-COVID-19 levels, write-offs remained at a lower level. 

 



 

Risk and capital management

Credit risk - Banking activities continued

Flow statements (reviewed)


Stage 1


Stage 2

 

Stage 3


Total


Financial

 

 

Financial

 

 

Financial

 

 

Financial

 


assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

Retail Banking - credit cards

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2023

3,062

61

 

1,098

120

 

113

71

 

4,273

252

Currency translation and other adjustments

-

-

 

-

-

 

2

3

 

2

3

Transfers from Stage 1 to Stage 2

(862)

(21)

 

862

21

 

-

-

 

-

-

Transfers from Stage 2 to Stage 1

330

24

 

(330)

(24)

 

-

-

 

-

-

Transfers to Stage 3

(11)

-

 

(54)

(23)

 

65

23

 

-

-

Transfers from Stage 3

1

1

 

3

1

 

(4)

(2)

 

-

-

Net re-measurement of ECL on stage transfer

 

(15)

 

 

77

 

 

17

 

 

79

Changes in risk parameters (model inputs)

 

6

 

 

(2)

 

 

8

 

 

12

Other changes in net exposure

660

3

 

(59)

(25)

 

(17)

(1)

 

584

(23)

Other (P&L only items)

 

-

 

 

1

 

 

(1)

 

 

-

Income statement (releases)/charges

 

(6)

 

 

51

 

 

23

 

 

68

Amounts written-off

-

-

 

-

-

 

(33)

(33)

 

(33)

(33)

Unwinding of discount

 

-

 

 

-

 

 

(3)

 

 

(3)

At 30 June 2023

3,180

59

 

1,520

145

 

126

83

 

4,826

287

Net carrying amount

3,121

 

 

1,375

 

 

43

 

 

4,539

 

At 1 January 2022

2,740

58


947

141


91

60


3,778

259

2022 movements

64

6


77

(28)


17

8


158

(14)

At 30 June 2022

2,804

64


1,024

113


108

68


3,936

245

Net carrying amount

2,740

-


911

-


40

-


3,691

-

 

-    The overall increase in ECL was mainly due to the increase in Stage 2 ECL.

-    While portfolio performance remained stable, a net flow into Stage 2 from Stage 1 is observed as PDs increase as the forecasted unemployment peak moves closer and PD modelling updates capture more economic downside.

-    Credit card balances have continued to grow since the 2022 year end, in line with industry trends in the UK, reflecting strong customer demand, while sustaining robust risk appetite.

-    Reflecting the strong credit performance observed during H1 2023, Stage 3 inflows remained stable and therefore Stage 3 ECL movement was modest in H1 2023.

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

 



 

Risk and capital management

Credit risk - Banking activities continued

Flow statements (reviewed)


Stage 1


Stage 2

 

Stage 3


Total


Financial

 

 

Financial

 

 

Financial

 

 

Financial

 


assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

Retail Banking - other personal unsecured

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2023

4,784

111

 

2,028

269

 

779

631

 

7,591

1,011

Currency translation and other adjustments

-

(1)

 

-

-

 

12

12

 

12

11

Transfers from Stage 1 to Stage 2

(1,450)

(59)

 

1,450

59

 

-

-

 

-

-

Transfers from Stage 2 to Stage 1

1,178

165

 

(1,178)

(165)

 

-

-

 

-

-

Transfers to Stage 3

(25)

(1)

 

(162)

(64)

 

187

65

 

-

-

Transfers from Stage 3

3

2

 

11

4

 

(14)

(6)

 

-

-

Net re-measurement of ECL on stage transfer

 

(118)

 

 

165

 

 

26

 

 

73

Changes in risk parameters (model inputs)

 

(22)

 

 

(10)

 

 

49

 

 

17

Other changes in net exposure

586

55

 

(268)

(28)

 

(51)

(18)

 

267

9

Other (P&L only items)

 

-

 

 

-

 

 

5

 

 

5

Income statement (releases)/charges

 

(85)

 

 

127

 

 

62

 

 

104

Amounts written-off

-

-

 

-

-

 

(23)

(23)

 

(23)

(23)

Unwinding of discount

 

-

 

 

-

 

 

(15)

 

 

(15)

At 30 June 2023

5,076

132

 

1,881

230

 

890

721

 

7,847

1,083

Net carrying amount

4,944

 

 

1,651

 

 

169

 

 

6,764

 

At 1 January 2022

4,548

52


1,967

294


629

540


7,144

886

2022 movements

272

11


(194)

(64)


104

75


182

22

At 30 June 2022

4,820

63


1,773

230


733

615


7,326

908

Net carrying amount

4,757

-


1,543

-


118

-


6,418

-

 

-    Total ECL increased mainly in Stage 3. While default levels were stable, they were higher than in 2022 in absolute terms. This increase was in line with post-COVID-19 portfolio growth alongside robust risk appetite and, given write-off levels are lower during 2023 so far, ECL levels have also risen.

-    While portfolio performance remains stable, a net flow into Stage 2 from Stage 1 is observed as PDs increase as the forecasted unemployment peak moves closer. The lower forecast unemployment peak in the latest MES economics dampened the net effect of stage migrations on ECL, primarily through reducing PDs on existing Stage 2 cases.

-    Unsecured retail balances have grown since the 2022 year end, in line with industry trends in the UK, as unsecured borrowing demand continues.

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

 

 

 



 

Risk and capital management

Credit risk - Banking activities continued

Flow statements (reviewed)


 

 

 

 

 

 

 

 

 

 

 


Stage 1


Stage 2

 

Stage 3


Total


Financial

 

 

Financial

 

 

Financial

 

 

Financial

 

 

assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

Commercial & Institutional total

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2023

160,352

342

 

24,711

534

 

2,198

747

 

187,261

1,623

Currency translation and other adjustments

(2,069)

2

 

(249)

(2)

 

9

18

 

(2,309)

18

Inter-group transfers

-

-

 

-

-

 

-

-

 

-

-

Transfers from Stage 1 to Stage 2

(12,526)

(69)

 

12,526

69

 

-

-

 

-

-

Transfers from Stage 2 to Stage 1

13,546

167

 

(13,546)

(167)

 

-

-

 

-

-

Transfers to Stage 3

(45)

(1)

 

(900)

(40)

 

945

41

 

-

-

Transfers from Stage 3

111

16

 

147

16

 

(258)

(32)

 

-

-

Net re-measurement of ECL on stage transfer

 

(128)

 

 

136

 

 

76

 

 

84

Changes in risk parameters (model inputs)

 

(41)

 

 

(11)

 

 

31

 

 

(21)

Other changes in net exposure

2,802

45

 

(2,345)

(27)

 

(572)

(43)

 

(115)

(25)

Other (P&L only items)

 

-

 

 

-

 

 

(18)

 

 

(18)

Income statement releases

 

(124)

 

 

98

 

 

46

 

 

20

Amounts written-off

-

-

 

(1)

(1)

 

(49)

(49)

 

(50)

(50)

Unwinding of discount

 

-

 

 

-

 

 

(24)

 

 

(24)

At 30 June 2023

162,171

333

 

20,343

507

 

2,273

765

 

184,787

1,605

Net carrying amount

161,838

 

 

19,836

 

 

1,508

 

 

183,182

 

At 1 January 2022

152,224

129


19,731

785


2,155

750


174,110

1,664

2022 movements

10,103

56


(2,962)

(154)


199

(44)


7,340

(142)

At 30 June 2022

162,327

185


16,769

631


2,354

706


181,450

1,522

Net carrying amount

162,142

-


16,138

-


1,648

-


179,928

-

 

-    There was a modest decrease in ECL levels during H1 2023, with reductions in modelled ECL from improving economic variables and risk metrics offset by increases in post model adjustments to capture increased economic uncertainty.

-    Stage 2 exposure and ECL reduced, reflecting improving economic variables and risk metrics which lowered PDs and led to significant transfers of exposure and ECL from Stage 2 into Stage 1. The ECL reduction was partially offset by charges, the majority of which were from increases in post model adjustments, with the PD downgrade adjustment resulting in transfers from Stage 1 into Stage 2 and increased ECL on stage transfer, from moving from a 12 month ECL to a lifetime ECL.

-    Stage 3 inflows remained stable. There was a modest increase in Stage 3 ECL overall with increases from transfers and charges largely offset by write-offs.

 


 

 

 



 

Risk and capital management

Credit risk - Banking activities continued

Flow statements (reviewed)


 

 

 

 

 

 

 

 

 

 

 


Stage 1

 

Stage 2

 

Stage 3

 

Total


Financial

 

 

Financial

 

 

Financial

 

 

Financial

 


assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

Commercial & Institutional - corporate

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2023

49,288

210

 

18,779

423

 

1,397

497

 

69,464

1,130

Currency translation and other adjustments

(455)

3

 

(198)

(3)

 

11

10

 

(642)

10

Inter-group transfers

3

-

 

(17)

-

 

(7)

(1)

 

(21)

(1)

Transfers from Stage 1 to Stage 2

(9,015)

(52)

 

9,015

52

 

-

-

 

-

-

Transfers from Stage 2 to Stage 1

9,322

127

 

(9,322)

(127)

 

-

-

 

-

-

Transfers to Stage 3

(35)

(1)

 

(642)

(31)

 

677

32

 

-

-

Transfers from Stage 3

74

12

 

112

12

 

(186)

(24)

 

-

-

Net re-measurement of ECL on stage transfer

 

(99)

 

 

98

 

 

58

 

 

57

Changes in risk parameters (model inputs)

 

(21)

 

 

(20)

 

 

22

 

 

(19)

Other changes in net exposure

5,386

32

 

(2,179)

(18)

 

(433)

(35)

 

2,774

(21)

Other (P&L only items)

 

-

 

 

(1)

 

 

(18)

 

 

(19)

Income statement (releases)/charges

 

(88)

 

 

59

 

 

27

 

 

(2)

Amounts written-off

-

-

 

(1)

(1)

 

(26)

(26)

 

(27)

(27)

Unwinding of discount

 

-

 

 

-

 

 

(18)

 

 

(18)

At 30 June 2023

54,568

211

 

15,547

385

 

1,433

515

 

71,548

1,111

Net carrying amount

54,357

 

 

15,162

 

 

918

 

 

70,437

 

 

-    There was a modest decrease in ECL levels during H1 2023, with reductions in modelled ECL from improving economic variables and risk metrics offset by increases in post model adjustments to capture increased economic uncertainty.

-    Stage 2 exposure and ECL reduced, reflecting improving economic variables and risk metrics which lowered PDs, with the net effect of stage transfers leading to a reduction in ECL. The ECL reduction was partially offset by charges, the majority of which, were from increases in post model adjustments.

-    Stage 3 inflows remained stable with the small increase in exposure largely attributable to government scheme lending. There was a modest increase in Stage 3 ECL overall with increases from transfers and charges partially offset by write-offs.

 

 

 



 

Risk and capital management

Credit risk - Banking activities continued

Flow statements (reviewed)


 

 

 

 

 

 

 

 

 

 

 


Stage 1


Stage 2

 

Stage 3


Total


Financial

 

 

Financial

 

 

Financial

 

 

Financial

 


assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

Commercial & Institutional - property

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2023

26,134

100

 

4,301

96

 

642

220

 

31,077

416

Currency translation and other adjustments

(8)

-

 

(10)

-

 

-

7

 

(18)

7

Inter-group transfers

2

-

 

12

-

 

7

1

 

21

1

Transfers from Stage 1 to Stage 2

(2,567)

(15)

 

2,567

15

 

-

-

 

-

-

Transfers from Stage 2 to Stage 1

2,290

30

 

(2,290)

(30)

 

-

-

 

-

-

Transfers to Stage 3

(9)

(1)

 

(248)

(9)

 

257

10

 

-

-

Transfers from Stage 3

27

3

 

32

4

 

(59)

(7)

 

-

-

Net re-measurement of ECL on stage transfer

 

(21)

 

 

33

 

 

17

 

 

29

Changes in risk parameters (model inputs)

 

(16)

 

 

9

 

 

3

 

 

(4)

Other changes in net exposure

440

11

 

(454)

(7)

 

(97)

(7)

 

(111)

(3)

Other (P&L only items)

 

-

 

 

-

 

 

1

 

 

1

Income statement (releases)/charges

 

(26)

 

 

35

 

 

14

 

 

23

Amounts written-off

-

-

 

-

-

 

(19)

(19)

 

(19)

(19)

Unwinding of discount

 

-

 

 

-

 

 

(5)

 

 

(5)

At 30 June 2023

26,309

91

 

3,910

111

 

731

220

 

30,950

422

Net carrying amount

26,218

 

 

3,799

 

 

511

 

 

30,528

 

 

-    There was a modest increase in ECL levels during H1 2023, with reductions in modelled ECL from improving economic variables and risk metrics offset by increases in post model adjustments to capture increased economic uncertainty.

-    Stage 2 exposure reduced reflecting improving economic variables and risk metrics which lowered PDs, with the net effect of stage transfers leading to a reduction in ECL.

-    Stage 2 ECL increased due to economic uncertainty post model adjustments which more than offset reductions from stage transfers.

-    Stage 3 inflows increased due to an uptick in defaults but this did not lead to a change in ECL with increases from transfers and charges offset by write-offs.

 



 

 




Risk and capital management

Credit risk - Banking activities continued

Flow statements (reviewed)


 

 

 

 

 

 

 

 

 

 

 


Stage 1


Stage 2

 

Stage 3


Total


Financial

 

 

Financial

 

 

Financial

 

 

Financial

 


assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

Commercial & Institutional - other

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2023

84,930

32

 

1,631

15

 

159

30

 

86,720

77

Currency translation and other adjustments

(1,606)

-

 

(40)

-

 

(2)

2

 

(1,648)

2

Inter-group transfers

(5)

-

 

5

-

 

-

-

 

-

-

Transfers from Stage 1 to Stage 2

(944)

(2)

 

944

2

 

-

-

 

-

-

Transfers from Stage 2 to Stage 1

1,934

10

 

(1,934)

(10)

 

-

-

 

-

-

Transfers to Stage 3

-

-

 

(11)

-

 

11

-

 

-

-

Transfers from Stage 3

10

1

 

3

-

 

(13)

(1)

 

-

-

Net re-measurement of ECL on stage transfer

 

(9)

 

 

5

 

 

1

 

 

(3)

Changes in risk parameters (model inputs)

 

(3)

 

 

-

 

 

5

 

 

2

Other changes in net exposure

(3,025)

2

 

288

(1)

 

(41)

(1)

 

(2,778)

-

Other (P&L only items)

 

-

 

 

-

 

 

-

 

 

-

Income statement (releases)/charges

 

(10)

 

 

4

 

 

5

 

 

(1)

Amounts written-off

-

-

 

-

-

 

(5)

(5)

 

(5)

(5)

Unwinding of discount

 

-

 

 

-

 

 

(1)

 

 

(1)

At 30 June 2023

81,294

31

 

886

11

 

109

30

 

82,289

72

Net carrying amount

81,263

 

 

875

 

 

79

 

 

82,217

 

 

-    There was a modest decrease in ECL levels during H1 2023, with reductions in modelled ECL from improving economic variables and risk metrics partially offset by increases in post model adjustments to capture increased economic uncertainty.

-    Stage 2 exposure and ECL reduced, reflecting improving economic variables and risk metrics which lowered PDs and led to significant transfers of exposure and ECL from Stage 2 into Stage 1.


 

 

 



 

Risk and capital management

Credit risk - Banking activities continued

Stage 2 decomposition by a significant increase in credit risk trigger

The tables that follow show decomposition for the Personal and Wholesale portfolios.




UK mortgages

 

Credit cards

 

Other

 

Total

30 June 2023

 

 

£m

%

 

£m

%

 

£m

%

 

£m

%

Personal trigger (1)







 

 

 

 

 

 

PD movement



9,799

49.9

 

1,163

77.4

 

937

51.6

 

11,899

51.8

PD persistence



8,349

42.5

 

265

17.7

 

417

23.0

 

9,031

39.3

Adverse credit bureau recorded with

 

 

 

 

 

 

 

 

 

 

 

  credit reference agency

935

4.8

 

49

3.3

 

89

4.9

 

1,073

4.7

Forbearance support provided

98

0.5

 

1

0.1

 

12

0.7

 

111

0.5

Customers in collections

185

0.9

 

2

0.1

 

6

0.3

 

193

0.8

Collective SICR and other reasons (2)

183

0.9

 

21

1.4

 

337

18.6

 

541

2.4

Days past due >30

104

0.5

 

-

-

 

17

0.9

 

121

0.5




19,653

100

 

1,501

100

 

1,815

100

 

22,969

100




 

 

 

 

 

 

 

 

 

 

 

31 December 2022

 

 

 

 

 

 

 

 

 

 

 

Personal trigger (1)













PD movement



16,477

87.7


814

75.7


1,129

56.7


18,420

84.3

PD persistence



866

4.6


200

18.6


186

9.3


1,252

5.7

Adverse credit bureau recorded with












  credit reference agency

929

4.9


52

4.8


96

4.8


1,077

4.9

Forbearance support provided

101

0.5


1

0.1


17

0.9


119

0.5

Customers in collections

153

0.8


2

0.2


4

0.2


159

0.7

Collective SICR and other reasons (2)

195

1.0


7

0.7


546

27.4


748

3.4

Days past due >30

66

0.4


-

-


13

0.7


79

0.4




18,787

100


1,076

100


1,991

100


21,854

100

 

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

-    The levels of PD driven deterioration decreased in H1 2023, mainly in the mortgage portfolio. The economic scenario update at H1 2023 resulted in a reduction in lifetime PDs for the mortgage and personal loan portfolios, which has driven a segment of lower risk cases out of PD SICR deterioration (and now captured in three month PD persistence).

-    The PD modelling update on the credit card portfolio resulted in more downside risk captured through modelled ECL and lead to more PD SICR deterioration being captured at 30 June 2023.

 


 



 

Risk and capital management

Credit risk - Banking activities continued

Stage 2 decomposition by a significant increase in credit risk trigger


Property

 

Corporate

 

Financial institutions

 

Sovereign

 

Total

30 June 2023

£m

%

 

£m

%

 

£m

%

 

£m

%

 

£m

%

Wholesale trigger (1)










 

 

 

 

 

PD movement

2,633

65.9

 

11,733

74.9

 

406

58.4

 

1

0.8

 

14,773

72.3

PD persistence

119

3.0

 

329

2.1

 

5

0.7

 

-

-

 

453

2.2

Risk of credit loss

722

18.1

 

2,016

12.9

 

146

21.0

 

104

82.5

 

2,988

14.6

Forbearance support provided

40

1.0

 

418

2.7

 

-

-

 

-

-

 

458

2.2

Customers in collections

8

0.2

 

35

0.2

 

-

-

 

-

-

 

43

0.2

Collective SICR and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   reasons (2)

198

5.0

 

751

4.8

 

84

12.1

 

19

15.1

 

1,052

5.1

Days past due >30

270

6.8

 

378

2.4

 

54

7.8

 

2

1.6

 

704

3.4


3,990

100

 

15,660

100

 

695

100

 

126

100

 

20,471

100


 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 December 2022










 

 

 

 

 

Wholesale trigger (1)















PD movement

2,807

65.0


15,645

81.7


1,231

91.0


79

50.3


19,762

79.2

PD persistence

88

2.0


263

1.4


5

0.4


-

-


356

1.4

Risk of credit loss

618

14.4


1,587

8.3


32

2.4


55

35.0


2,292

9.2

Forbearance support provided

44

1.0


473

2.5


19

1.4


-

-


536

2.1

Customers in collections

13

0.3


44

0.2


-

-


-

-


57

0.2

Collective SICR and other















   reasons (2)

575

13.3


946

4.9


64

4.7


16

10.2


1,601

6.4

Days past due >30

171

4.0


195

1.0


2

0.1


7

4.5


375

1.5


4,316

100


19,153

100


1,353

100


157

100


24,979

100

 

(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)     Includes cases where a PD assessment cannot be made and accounts where the PD has deteriorated beyond a prescribed backstop threshold aligned to risk management practices.

 

-    PD deterioration continued to be the primary trigger of migration of exposures from Stage 1 into Stage 2. There was a reduction in cases triggering PD deterioration reflecting the economic scenario update at H1 2023 and positive portfolio performance which lowered PDs. Customers that triggered SICR due to post model adjustments for sector-level downgrades were also captured in the PD movement category.

-    Moving exposures on to the Risk of Credit Loss framework remained an important backstop indicator of a SICR. The exposures classified under the Stage 2 Risk of Credit Loss framework increased over the period reflecting economic headwinds and the lower capture in PD deterioration category.

-    There was an increase in customers meeting the >30 days past due trigger where since the regulatory definition of default changes all customer borrowing was categorised as past due.

 

 



 

 

Risk and capital management

Credit risk - Banking activities continued

Asset quality (reviewed)

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 2023

£m

£m

£m

£m

 

£m

£m

£m

£m

 

%

%

%

%

UK mortgages

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

116,722

8,845

-

125,567

 

54

24

-

78

 

0.05

0.27

-

0.06

AQ5-AQ8

70,112

10,114

-

80,226

 

38

37

-

75

 

0.05

0.37

-

0.09

AQ9 

149

694

-

843

 

-

4

-

4

 

-

0.58

-

0.47

AQ10 

-

-

2,053

2,053

 

-

-

256

256

 

-

-

12.47

12.47


186,983

19,653

2,053

208,689

 

92

65

256

413

 

0.05

0.33

12.47

0.20

Credit cards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

143

-

-

143

 

1

-

-

1

 

0.70

-

-

0.70

AQ5-AQ8

3,375

1,454

-

4,829

 

58

137

-

195

 

1.72

9.42

-

4.04

AQ9 

8

47

-

55

 

1

11

-

12

 

12.50

23.40

-

21.82

AQ10 

-

-

123

123

 

-

-

85

85

 

-

-

69.11

69.11


3,526

1,501

123

5,150

 

60

148

85

293

 

1.70

9.86

69.11

5.69

Other personal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

966

118

-

1,084

 

12

17

-

29

 

1.24

14.41

-

2.68

AQ5-AQ8

6,090

1,564

-

7,654

 

125

185

-

310

 

2.05

11.83

-

4.05

AQ9 

41

133

-

174

 

4

40

-

44

 

9.76

30.08

-

25.29

AQ10 

-

-

913

913

 

-

-

745

745

 

-

-

81.60

81.60


7,097

1,815

913

9,825

 

141

242

745

1,128

 

1.99

13.33

81.60

11.48

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

117,831

8,963

-

126,794

 

67

41

-

108

 

0.06

0.46

-

0.09

AQ5-AQ8

79,577

13,132

-

92,709

 

221

359

-

580

 

0.28

2.73

-

0.63

AQ9 

198

874

-

1,072

 

5

55

-

60

 

2.53

6.29

-

5.60

AQ10 

-

-

3,089

3,089

 

-

-

1,086

1,086

 

-

-

35.16

35.16


197,606

22,969

3,089

223,664

 

293

455

1,086

1,834


0.15

1.98

35.16

0.82

 

 

 



 

 

Risk and capital management

Credit risk - Banking activities continued

Asset quality (reviewed)

 


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 2022

£m

£m

£m

£m


£m

£m

£m

£m


%

%

%

%

UK mortgages















AQ1-AQ4

116,559

9,208

-

125,767


45

24

-

69


0.04

0.26

-

0.05

AQ5-AQ8

65,510

8,962

-

74,472


36

34

-

70


0.05

0.38

-

0.09

AQ9 

176

617

-

793


-

4

-

4


-

0.65

-

0.50

AQ10 

-

-

1,925

1,925


-

-

233

233


-

-

12.10

12.10


182,245

18,787

1,925

202,957


81

62

233

376


0.04

0.33

12.10

0.19

Credit cards















AQ1-AQ4

98

-

-

98


-

-

-

-


-

-

-

-

AQ5-AQ8

3,172

1,036

-

4,208


61

112

-

173


1.92

10.81

-

4.11

AQ9 

5

40

-

45


1

10

-

11


20.00

25.00

-

24.44

AQ10 

-

-

109

109


-

-

73

73


-

-

66.97

66.97


3,275

1,076

109

4,460


62

122

73

257


1.89

11.34

66.97

5.76

Other personal















AQ1-AQ4

1,047

128

-

1,175


11

17

-

28


1.05

13.28

-

2.38

AQ5-AQ8

5,843

1,732

-

7,575


104

224

-

328


1.78

12.93

-

4.33

AQ9 

28

131

-

159


2

41

-

43


7.14

31.30

-

27.04

AQ10 

-

-

797

797


-

-

651

651


-

-

81.68

81.68


6,918

1,991

797

9,706


117

282

651

1,050


1.69

14.16

81.68

10.82

Total















AQ1-AQ4

117,704

9,336

-

127,040


56

41

-

97


0.05

0.44

-

0.08

AQ5-AQ8

74,525

11,730

-

86,255


201

370

-

571


0.27

3.15

-

0.66

AQ9 

209

788

-

997


3

55

-

58


1.44

6.98

-

5.82

AQ10 

-

-

2,831

2,831


-

-

957

957


-

-

33.80

33.80


192,438

21,854

2,831

217,123


260

466

957

1,683


0.14

2.13

33.80

0.78

 

-   

In the Personal portfolio, the majority of exposures were in AQ4 and AQ5 within mortgages. The higher proportion of UK mortgage loans in bands AQ5-AQ8 was reflected in the overall average Basel PD for mortgages marginally increasing from 0.65% to 0.66%. AQ band distributions for unsecured lending remained stable.

-   

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.





 



 

Risk and capital management

Credit risk - Banking activities continued

Asset quality (reviewed)

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 2023

£m

£m

£m

£m

 

£m

£m

£m

£m

 

%

%

%

%

Property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

14,402

655

-

15,057

 

13

6

-

19

 

0.09

0.92

-

0.13

AQ5-AQ8

13,770

3,223

-

16,993

 

86

100

-

186

 

0.62

3.10

-

1.09

AQ9 

11

112

-

123

 

-

9

-

9

 

-

8.04

-

7.32

AQ10 

-

-

752

752

 

-

-

231

231

 

-

-

30.72

30.72


28,183

3,990

752

32,925

 

99

115

231

445

 

0.35

2.88

30.72

1.35

Corporate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

20,919

2,963

-

23,882

 

26

24

-

50

 

0.12

0.81

-

0.21

AQ5-AQ8

35,818

12,450

-

48,268

 

194

368

-

562

 

0.54

2.96

-

1.16

AQ9 

33

247

-

280

 

-

18

-

18

 

-

7.29

-

6.43

AQ10 

-

-

1,545

1,545

 

-

-

570

570

 

-

-

36.89

36.89


56,770

15,660

1,545

73,975

 

220

410

570

1,200

 

0.39

2.62

36.89

1.62

Financial institutions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

45,714

332

-

46,046

 

23

1

-

24

 

0.05

0.30

-

0.05

AQ5-AQ8

2,746

353

-

3,099

 

13

9

-

22

 

0.47

2.55

-

0.71

AQ9 

8

10

-

18

 

-

-

-

-

 

-

-

-

-

AQ10 

-

-

36

36

 

-

-

14

14

 

-

-

38.89

38.89


48,468

695

36

49,199

 

36

10

14

60

 

0.07

1.44

38.89

0.12

Sovereign

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

5,115

123

-

5,238

 

13

1

-

14

 

0.25

0.81

-

0.27

AQ5-AQ8

220

3

-

223

 

-

-

-

-

 

-

-

-

-

AQ 9

-

-

-

-

 

-

-

-

-

 

-

-

-

-

AQ10 

-

-

28

28

 

-

-

4

4

 

-

-

14.29

14.29


5,335

126

28

5,489

 

13

1

4

18

 

0.24

0.79

14.29

0.33

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

86,150

4,073

-

90,223

 

75

32

-

107

 

0.09

0.79

-

0.12

AQ5-AQ8

52,554

16,029

-

68,583

 

293

477

-

770

 

0.56

2.98

-

1.12

AQ9 

52

369

-

421

 

-

27

-

27

 

-

7.32

-

6.41

AQ10 

-

-

2,361

2,361

 

-

-

819

819

 

-

-

34.69

34.69


138,756

20,471

2,361

161,588

 

368

536

819

1,723

 

0.27

2.62

34.69

1.07

 

 

 



 

Risk and capital management

Credit risk - Banking activities continued

Asset quality (reviewed)


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 2022

£m

£m

£m

£m


£m

£m

£m

£m


%

%

%

%

Property















AQ1-AQ4

14,818

600

-

15,418


17

4

-

21


0.11

0.67

-

0.14

AQ5-AQ8

12,712

3,618

-

16,330


90

95

-

185


0.71

2.63

-

1.13

AQ9 

12

98

-

110


-

6

-

6


-

6.12

-

5.45

AQ10 

-

-

716

716


-

-

229

229


-

-

31.98

31.98


27,542

4,316

716

32,574


107

105

229

441


0.39

2.43

31.98

1.35

Corporate















AQ1-AQ4

17,447

5,184

-

22,631


23

37

-

60


0.13

0.71

-

0.27

AQ5-AQ8

35,567

13,643

-

49,210


195

398

-

593


0.55

2.92

-

1.21

AQ9 

34

326

-

360


-

22

-

22


-

6.75

-

6.11

AQ10 

-

-

1,476

1,476


-

-

553

553


-

-

37.47

37.47


53,048

19,153

1,476

73,677


218

457

553

1,228


0.41

2.39

37.47

1.67

Financial institutions















AQ1-AQ4

44,257

914

-

45,171


18

5

-

23


0.04

0.55

-

0.05

AQ5-AQ8

2,479

429

-

2,908


14

9

-

23


0.56

2.10

-

0.79

AQ9 

2

10

-

12


-

-

-

-


-

-

-

-

AQ10 

-

-

47

47


-

-

17

17


-

-

36.17

36.17


46,738

1,353

47

48,138


32

14

17

63


0.07

1.03

36.17

0.13

Sovereign















AQ1-AQ4

5,319

75

-

5,394


15

1

-

16


0.28

1.33

-

0.30

AQ5-AQ8

139

82

-

221


-

-

-

-


-

-

-

-

AQ9 

-

-

-

-


-

-

-

-


-

-

-

-

AQ10 

-

-

26

26


-

-

3

3


-

-

11.54

11.54


5,458

157

26

5,641


15

1

3

19


0.27

0.64

11.54

0.34

Total















AQ1-AQ4

81,841

6,773

-

88,614


73

47

-

120


0.09

0.69

-

0.14

AQ5-AQ8

50,897

17,772

-

68,669


299

502

-

801


0.59

2.82

-

1.17

AQ9 

48

434

-

482


-

28

-

28


-

6.45

-

5.81

AQ10 

-

-

2,265

2,265


-

-

802

802


-

-

35.41

35.41


132,786

24,979

2,265

160,030


372

577

802

1,751


0.28

2.31

35.41

1.09

 

-    Across the Wholesale portfolio, asset quality remained stable. The majority of the portfolio is within the AQ1-AQ4, and AQ5-AQ8 bands. Distribution differs across segments reflective of the underlying quality of counterparties, with financial institutions and sovereigns mostly in the AQ1-AQ4 bands, and property and corporates mostly in the AQ5-AQ8 bands.

-    Customer credit grades were reassessed as and when a request for financing was made, a scheduled customer credit review was performed or a material credit event specific to that customer occurred. Credit grades are reassessed for all customers at least annually.

-    ECL provisions coverage showed the expected trend, with increased coverage in the weaker asset quality bands within Stage 2 compared to Stage 1, and again within Stage 3 compared to Stage 2.

 



 

Risk and capital management

Credit risk - Trading activities

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

Securities financing transactions and collateral (reviewed)

The table below shows securities financing transactions in Commercial & Institutional and Central items & Other. Balance sheet captions include balances held at all classifications under IFRS.

 

 


Reverse repos

 

Repos


 

Of which:

Outside

 

 

Of which:

Outside


 

can be

netting

 

 

can be

netting


Total

offset

arrangements

 

Total

offset

arrangements

30 June 2023

£m

£m

£m

 

£m

£m

£m

Gross

76,144

75,855

289

 

72,458

71,945

513

IFRS offset

(33,097)

(33,097)

-

 

(33,097)

(33,097)

-

Carrying value

43,047

42,758

289

 

39,361

38,848

513


 

 

 

 

 

 

 

Master netting arrangements

(2,045)

(2,045)

-

 

(2,045)

(2,045)

-

Securities collateral

(39,091)

(39,091)

-

 

(36,803)

(36,803)

-

Potential for offset not recognised under IFRS

(41,136)

(41,136)

-

 

(38,848)

(38,848)

-

Net

1,911

1,622

289

 

513

-

513









31 December 2022








Gross

61,775

61,241

534


55,226

50,743

4,483

IFRS offset

(20,211)

(20,211)

-


(20,211)

(20,211)

-

Carrying value

41,564

41,030

534


35,015

30,532

4,483









Master netting arrangements

(2,445)

(2,445)

-


(2,445)

(2,445)

-

Securities collateral

(38,387)

(38,387)

-


(28,087)

(28,087)

-

Potential for offset not recognised under IFRS

(40,832)

(40,832)

-


(30,532)

(30,532)

-

Net

732

198

534


4,483

-

4,483

 


 



 

Risk and capital management

Credit risk - Trading activities continued

Derivatives (reviewed)

The table below shows derivatives by type of contract. The master netting agreements and collateral shown do not result in a net presentation on the balance sheet under IFRS. A significant proportion of the derivatives relate to trading activities in Commercial & Institutional. The table also includes hedging derivatives in Central items & Other.

 


30 June 2023


31 December 2022


Notional

 

 

 






GBP

USD

EUR

Other

Total

Assets

Liabilities


Notional

Assets

Liabilities


£bn

£bn

£bn

£bn

£bn

£m

£m


£bn

£m

£m

Gross exposure

 

 

 

 

 

104,122



118,275

116,158

IFRS offset

 

 

 

 

 

(22,249)



(18,730)

(22,111)

Carrying value

3,194

3,728

5,773

1,121

13,816

81,873

77,246


13,925

99,545

94,047

Of which:

 

 

 

 

 

 

 





Interest rate (1)

2,900

2,373

5,277

261

10,811

50,730

46,895


10,742

53,480

48,535

Exchange rate

292

1,352

488

860

2,992

30,938


3,168

45,829

45,237

Credit

2

3

8

-

13

205


15

236

275

Carrying value

 

 

 

 

13,816

81,873

77,246


13,925

99,545

94,047


 

 

 

 

 

 





Counterparty mark-to-market netting

 

 

 

 

 

(62,547)



(77,365)

(77,365)

Cash collateral

 

 

 

 

 

(12,380)



(14,079)

(9,761)

Securities collateral

 

 

 

 

 

(4,465)

(1,540)



(4,571)

(1,185)

Net exposure

 

 

 

 

 

2,481

5,579



3,530

5,736

 

 

 

 

 

 

 



 

 

Banks (2)

 

 

 

 

 

263



648

711

Other financial institutions (3)

 

 

 

 

 

1,252



1,732

1,969

Corporate (4)

 

 

 

 

 

910



1,068

2,969

Government (5)

 

 

 

 

 

56

34



82

87

Net exposure

 

 

 

 

 

2,481

5,579



3,530

5,736

 

 

 

 

 

 

 





UK

 

 

 

 

 

1,111



1,271

2,878

Europe

 

 

 

 

 

672



1,196

2,015

US

 

 

 

 

 

592



753

626

RoW

 

 

 

 

 

106

193



310

217

Net exposure

 

 

 

 

 

2,481

5,579



3,530

5,736












Asset quality of uncollateralised











  derivative assets











AQ1-AQ4

 

 

 

 

 

2,056



3,014


AQ5-AQ8

 

 

 

 

 

422



500


AQ9-AQ10

 

 

 

 

 

3



16


Net exposure

 

 

 

 

 

2,481



3,530


 

(1)     The notional amount of interest rate derivatives included £8,006 billion (31 December 2022 - £8,065 billion) in respect of contracts cleared through central clearing counterparties

(2)     Transactions with certain counterparties with whom NatWest Group has netting arrangements but collateral is not posted on a daily basis; certain transactions with specific terms that may not fall within netting and collateral arrangements; derivative positions in certain jurisdictions where the collateral agreements are not deemed to be legally enforceable.

(3)     Includes transactions with securitisation vehicles and funds where collateral posting is contingent on NatWest Group's external rating.

(4)     Mainly large corporates with whom NatWest Group may have netting arrangements in place, but operational capability does not support collateral posting.

(5)     Sovereigns and supranational entities with no collateral arrangements, collateral arrangements that are not considered enforceable, or one-way collateral agreements in their favour.

 

 



 

Risk and capital management

Credit risk - Trading activities continued

Debt securities (reviewed)

The table below shows debt securities held at mandatory fair value through profit or loss by issuer as well as ratings based on the lowest of Standard & Poor's, Moody's and Fitch.


Central and local government

Financial

 

 


UK

US

Other

institutions

Corporate

Total

30 June 2023

£m

£m

£m

£m

£m

£m

AAA

-

-

1,452

936

-

2,388

AA to AA+

-

5,478

1,596

1,290

3

8,367

A to AA-

2,703

-

382

511

102

3,698

BBB- to A-

-

-

1,415

227

645

2,287

Non-investment grade

-

-

-

58

61

119

Unrated

-

-

-

1

-

1

Total

2,703

5,478

4,845

3,023

811

16,860


 

 

 

 

 

 

Short positions

(2,377)

(2,493)

(4,293)

(1,911)

(137)

(11,211)








31 December 2022







AAA

-

-

469

766

3

1,238

AA to AA+

-

2,345

1,042

1,114

21

4,522

A to AA-

2,205

-

372

77

29

2,683

BBB- to A-

-

-

916

149

296

1,361

Non-investment grade

-

-

-

65

49

114

Unrated

-

-

-

1

3

4

Total

2,205

2,345

2,799

2,172

401

9,922








Short positions

(2,313)

(1,293)

(3,936)

(1,875)

(107)

(9,524)

 

 

 




Risk and capital management

Capital, liquidity and funding risk 

Introduction

NatWest Group takes a comprehensive approach to the management of capital, liquidity and funding, underpinned by frameworks, risk appetite and policies, to manage and mitigate capital, liquidity and funding risks. The framework ensures the tools and capability are in place to facilitate the management and mitigation of risk ensuring that NatWest Group operates within its regulatory requirements and risk appetite.

Key developments since 31 December 2022

CET1 ratio

The CET1 ratio decreased by 70 basis points to 13.5%. The decrease in CET1 ratio was due to a £1.0 billion decrease in CET1 capital and a £1.4 billion increase in RWAs.

The CET1 decrease is mainly driven by:

-    the directed buyback of £1.3 billion;

-    a foreseeable ordinary dividend accrual of £0.8 billion;

-    a foreseeable charge for the on-market ordinary share buyback programme of £0.5 billion;

-    a £0.1 billion decrease in the IFRS 9 transitional adjustment, primarily due to the annual update in the dynamic stage transition percentage and the end of transition on the static and historic stages;

-    an increase in the intangible assets deduction of £0.3 billion; and

-    other movements on reserves and regulatory adjustments of £0.3 billion.

These reductions were partially offset by the £2.3 billion attributable profit in the period.

MREL

MREL ratio as a percentage of risk-weighted assets decreased to 31.2% from 31.5% due to a £1.4 billion increase in RWAs and £0.2 billion decrease in MREL resources. The ratio remains well above the minimum of 22%, calculated as 2 x (Pillar 1 + Pillar 2A).


In the first half of 2023 there were new issues of $3.3 billion and €1.5 billion senior unsecured debt and €0.7 billion Tier 2 instruments. These were partially offset by redemptions of $2.6 billion senior unsecured debt and £0.2 billion Tier 2 instruments.

Total RWAs

Total RWAs increased by £1.4 billion to £177.5 billion during H1 2023 reflecting:

-    an increase in operational risk RWAs of £1.1 billion following the annual recalculation.

-    an increase in counterparty credit risk RWAs of £1.0 billion, primarily due to the removal of credit risk mitigation for a particular trade in Q2 2023.

-    an increase in credit risk RWAs of £0.7 billion, primarily due to increased exposures within Retail Banking and Commercial & Institutional, in addition to model adjustments applied as a result of new regulations applied to IRB models. This was partially offset by reduced exposures within Ulster Bank RoI as a result of the phased withdrawal from the Irish market.

-    a reduction in market risk RWAs of £1.3 billion, primarily due to lower volatility than in Q4 2022, and further reductions in the capital multiplier for NWM Plc in Q2, driven by a fall in the VaR back-testing exception count.

UK leverage ratio

The leverage ratio decreased by 40 basis points to 5.0%. The decrease was due to a £1.0 billion decrease in Tier 1 capital and an £18.0 billion increase in leverage exposure. The key driver of the increase in leverage exposure was an increase in other financial assets, central bank exposures and other off balance sheet items.

Liquidity portfolio

The liquidity portfolio increased by £1.4 billion to £226.9 billion. Primary liquidity decreased by £14.1 billion to £147.5 billion, driven by a reduction in customer deposits, increased lending and capital distributions, partially

offset by increase in wholesale funding. Secondary liquidity increased £15.5 billion due to an increase in pre-positioned collateral at the Bank of England.  

 



 

Risk and capital management

Capital, liquidity and funding risk continued

Maximum Distributable Amount (MDA) and Minimum Capital Requirements

NatWest Group is subject to minimum capital requirements relative to RWAs. The table below summarises the minimum capital requirements (the sum of Pillar 1 and Pillar 2A), and the additional capital buffers which are held in excess of the regulatory minimum requirements and are usable in stress.

Where the CET1 ratio falls below the sum of the minimum capital and the combined buffer requirement, there is a subsequent automatic restriction on the amount available to service discretionary payments (including AT1 coupons), known as the MDA. Note that different 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 NatWest Group's minimum requirements and its MDA threshold requirements.

Type

CET1

Total Tier 1

Total capital

Pillar 1 requirements

4.5%

6.0%

8.0%

Pillar 2A requirements

1.7%

2.3%

3.0%

Minimum Capital Requirements

6.2%

8.3%

11.0%

Capital conservation buffer

2.5%

2.5%

2.5%

Countercyclical capital buffer (1,2) 

0.9%

0.9%

0.9%

MDA threshold (3)

9.6%

 

n/a

 

n/a

Overall capital requirement

9.6%

11.7%

14.4%

Capital ratios at 30 June 2023

13.5%

15.7%

18.8%

Headroom (4)

3.9%

4.0%

4.4%

 

(1)     The Financial Policy Committee announced an increase in the UK CCyB rate from 1% to 2% effective from 5 July 2023.

(2)     The Central Bank of Ireland (CBI) announced the CCyB on Irish exposures will increase from 0.5% to 1.0% from 24 November 2023. A further increase to 1.5% will be effective June 2024.

(3)     Pillar 2A requirements for NatWest Group are set as a variable amount with the exception of some fixed add-ons.

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

Leverage ratios

The table below summarises the minimum ratios of capital to leverage exposure under the binding PRA UK leverage framework applicable for NatWest Group.

Type

CET1

Total Tier 1

Minimum ratio

2.44%

3.25%

Countercyclical leverage ratio buffer (1)

0.3%

0.3%

Total

2.74%

3.55%

 

(1)     The countercyclical leverage ratio buffer is set at 35% of NatWest Group's CCyB. As noted above the UK CCyB will increase from 1% to 2% from 5 July 2023. Foreign exposure may be subject to different CCyB rates depending on the rates set in those jurisdictions.

 



 

Risk and capital management

Capital, liquidity and funding risk continued

Capital and leverage ratios

The table below sets out the key capital and leverage ratios. NatWest Group is subject to the requirements set out in the UK CRR therefore the capital and leverage ratios are presented under these frameworks on a transitional basis.


30 June

31 December


2023

2022

Capital adequacy ratios (1)

%

%

CET1

13.5

14.2

Tier 1

15.7

16.4

Total

18.8

19.3




Capital

£m

£m

Tangible equity

23,415

25,482


 


Prudential valuation adjustment

(271)

(275)

Deferred tax assets

(742)

(912)

Own credit adjustments

(49)

(58)

Pension fund assets

(243)

(227)

Cash flow hedging reserve

3,344

2,771

Foreseeable ordinary dividends

(780)

(967)

Adjustment for trust assets (2)

(365)

(365)

Foreseeable charges - on-market ordinary share buyback programme

(500)

(800)

Adjustments under IFRS 9 transitional arrangements

223

361

Insufficient coverage for non-performing exposures

(19)

(18)

Total regulatory adjustments

598

(490)


 


CET1 capital

24,013

24,992


 


Additional AT1 capital

3,875

3,875

Tier 1 capital

27,888

28,867


 


End-point Tier 2 capital

5,364

4,978

Grandfathered instrument transitional arrangements

73

75

Tier 2 capital

5,437

5,053

Total regulatory capital

33,325

33,920


 


Risk-weighted assets

 


Credit risk

142,704

141,963

Counterparty credit risk

7,680

6,723

Market risk

6,962

8,300

Operational risk

20,198

19,115

Total RWAs

177,544

176,101

 

(1)     Includes the transitional relief on grandfathered capital instruments and the transitional arrangements for the capital impact of IFRS 9 expected credit loss (ECL) accounting. The impact of the IFRS 9 transitional adjustments at 30 June 2023 was £0.2 billion for CET1 capital, £35 million for total capital and £37 million RWAs (31 December 2022 - £0.4 billion CET1 capital, £36 million total capital and £71 million RWAs). Excluding these adjustments, the CET1 ratio would be 13.4% (31 December 2022 14.0%). The transitional relief on grandfathered instruments at 30 June 2023 was £0.1 billion (31 December 2022 - £0.1 billion). Excluding both the transitional relief on grandfathered capital instruments and the transitional arrangements for the capital impact of IFRS 9 expected credit loss (ECL) accounting, the end-point Tier 1 capital ratio would be 15.6% (31 December 2022 - 16.2%) and the end-point Total capital ratio would be 18.8% (31 December 2022 - 19.2%).

(2)     Prudent deduction in respect of agreement with the pension fund to establish new legal structure.

 

 



 

Risk and capital management

Capital, liquidity and funding risk continued

Capital and leverage ratios continued

 

30 June

31 December

 

2023

2022

Leverage

£m

£m

Cash and balances at central banks

123,022

144,832

Trading assets

48,893

45,577

Derivatives

81,873

99,545

Financial assets

416,739

404,374

Other assets

27,499

18,864

Assets of disposal groups

4,575

6,861

Total assets

702,601

720,053

Derivatives

 


   - netting and variation margin

(82,798)

(100,356)

   - potential future exposures

16,654

18,327

Securities financing transactions gross up

2,013

4,147

Other off balance sheet items

48,668

46,144

Regulatory deductions and other adjustments

(15,663)

(7,114)

Claims on central banks

(114,253)

(141,144)

Exclusion of bounce back loans

(4,627)

(5,444)

UK leverage exposure 

552,595

534,613

UK leverage ratio (%) (1)

5.0

5.4

 

(1)    Excluding the IFRS 9 transitional adjustment, the UK leverage ratio would be 5.0% (31 December 2022 - 5.3%).

 

Capital flow statement

The table below analyses the movement in CET1, AT1 and Tier 2 capital for the half year ended 30 June 2023. It is presented on a transitional basis based on current PRA rules.


CET1

AT1

Tier 2

Total


£m

£m

£m

£m

At 31 December 2022

24,992

3,875

5,053

33,920

Attributable profit for the period

2,299

-

-

2,299

Directed buyback

(1,259)

-

-

(1,259)

Foreseeable ordinary dividends 

(780)

-

-

(780)

Foreseeable charges - on-market share buyback 

(500)

-

-

(500)

Foreign exchange reserve

(492)

-

-

(492)

FVOCI reserve

60

-

-

60

Own credit

9

-

-

9

Share capital and reserve movements in respect of employee share

 

 

 

 

   schemes

62

-

-

62

Goodwill and intangibles deduction

(337)

-

-

(337)

Deferred tax assets

170

-

-

170

Prudential valuation adjustments

4

-

-

4

Net dated subordinated debt instruments

-

-

348

348

Foreign exchange movements

-

-

(121)

(121)

Adjustment under IFRS 9 transitional arrangements

(138)

-

-

(138)

Other movements

(77)

-

157

80

At 30 June 2023

24,013

3,875

5,437

33,325

 

-     

The CET1 decrease is mainly driven by the directed buyback of £1.3 billion, a foreseeable ordinary dividend accrual of £0.8 billion, a foreseeable charge for additional on-market ordinary share buyback programme of £0.5 billion, a £0.1 billion decrease in the IFRS 9 transitional adjustment, an increase in the intangible assets deduction of £0.3 billion and other movements in reserves and regulatory adjustments of £0.3 billion, partially offset by an attributable profit in the period of £2.3 billion.

-  

The Tier 2 movements include €700 million 5.763% Fixed to Fixed Reset Tier 2 Notes 2034 issued in February 2023, the derecognition of the £0.2 billion in respect of the cash tender offer for the outstanding 5.125% Subordinated Tier 2 Notes 2024 announced in March 2023 and maturity of Subordinated Notes with minimum regulatory value. Within Tier 2, there was also a £0.2 billion increase in the Tier 2 surplus provisions.

 

 



 

Risk and capital management

Capital, liquidity and funding risk continued

Capital resources (reviewed)

NatWest Group's regulatory capital is assessed against minimum requirements that are set out under the UK CRR to determine the strength of its capital base. This note shows a reconciliation of shareholders' equity to regulatory capital.


30 June

31 December


2023

2022


£m

£m

Shareholders' equity (excluding non-controlling interests)



Shareholders' equity

 34,758

 36,488

Preference shares - equity

-

-

Other equity instruments

(3,890)

(3,890)


 30,868

 32,598

Regulatory adjustments and deductions

 


Own credit

(49)

(58)

Defined benefit pension fund adjustment

(243)

(227)

Cash flow hedging reserve 

 3,344

 2,771

Deferred tax assets

(742)

(912)

Prudential valuation adjustments

(271)

(275)

Goodwill and other intangible assets

(7,453)

(7,116)

Foreseeable ordinary dividends

(780)

(967)

Adjustment for trust assets (1)

(365)

(365)

Foreseeable charges - on-market share buyback programme

(500)

(800)

Adjustment under IFRS 9 transitional arrangements 

 223

 361

Insufficient coverage for non-performing exposures

(19)

(18)


(6,855)

(7,606)


 


CET1 capital

 24,013

 24,992

Additional Tier (AT1) capital

 


Qualifying instruments and related share premium

 3,875

 3,875

Qualifying instruments and related share premium subject to phase out

-

-

AT1 capital

 3,875

 3,875

Tier 1 capital

 27,888

 28,867

Qualifying Tier 2 capital

 


Qualifying instruments and related share premium

 5,189

 4,953

Qualifying instruments issued by subsidiaries and held by third parties

 73

 82

Other regulatory adjustments

 175

 18

Tier 2 capital

 5,437

 5,053

Total regulatory capital

 33,325

 33,920

 

(1)      Prudent deduction in respect of agreement with the pension fund to establish new legal structure.

 



 

Risk and capital management

Capital, liquidity and funding risk continued

Minimum requirements of own funds and eligible liabilities (MREL)

The following table illustrates the components of estimated Minimum requirements of own funds and eligible liabilities (MREL) in NatWest Group and operating subsidiaries and includes external issuances only.


30 June 2023

 

31 December 2022


 

Balance

 

 

 


Balance




Par

sheet

Regulatory

MREL

 

Par

sheet

Regulatory

MREL


 value (1)

value

value (2,5)

value (3)

 

value 

value

value

value


£bn

£bn

£bn

£bn

 

£bn

£bn

£bn

£bn

CET1 capital (4)

24.0

24.0

24.0

24.0


25.0

25.0

25.0

25.0


 

 

 

 

 





Tier 1 capital:

 

 

 

 

 





   end-point CRR compliant AT1

 

 

 

 

 





   of which: NatWest Group plc (holdco)

3.9

3.9

3.9

3.9

 

3.9

3.9

3.9

3.9

   of which: NatWest Group plc operating 

 

 

 

 

 





      subsidiaries (opcos)

-

-

-

-

 

-

-

-

-


3.9

3.9

3.9

3.9

 

3.9

3.9

3.9

3.9


 

 

 

 

 





Tier 1 capital:

 

 

 

 

 





   end-point CRR non-compliant (6)

 

 

 

 

 





   of which: holdco

-

-

-

-

 

-

-

-

-

   of which: opcos

0.1

0.1

-

-

 

0.1

0.1

-

-


0.1

0.1

-

-

 

0.1

0.1

-

-


 

 

 

 

 





Tier 2 capital: end-point CRR 

 

 

 

 

 





   compliant

 

 

 

 

 





   of which: holdco

5.7

5.2

5.1

5.1

 

6.0

5.5

4.9

5.4

   of which: opcos

-

-

-

-

 

0.1

0.1

-

-


5.7

5.2

5.1

5.1

 

6.1

5.6

4.9

5.4


 

 

 

 

 





Tier 2 capital:

 

 

 

 

 





   end-point CRR non-compliant (6)

 

 

 

 

 





   of which: holdco

0.4

0.4

-

-

 

-

-

-

-

   of which: opcos

0.2

0.3

0.1

-

 

0.3

0.5

0.1

-


0.6

0.7

0.1

-

 

0.3

0.5

0.1

-


 

 

 

 

 





Senior unsecured debt securities 

 

 

 

 

 





   of which: holdco

23.0

21.8

-

22.1

 

23.4

22.3

-

21.2

   of which: opcos

34.0

30.7

-

-


26.1

22.9

-

-


57.0

52.5

-

22.1


49.5

45.2

-

21.2


 

 

 

 

 





Tier 2 capital

 

 

 

 

 





   Other regulatory adjustments

-

-

0.2

0.2


-

-

-

-


-

-

0.2

0.2


-

-

-

-


 

 

 

 






Total

91.3

86.4

33.3

55.3


84.9

80.3

33.9

55.5


 

 

 

 






RWAs

 

 

 

177.5





176.1

UK leverage exposure

 

 

 

552.6





534.6


 

 

 

 






MREL as a ratio of RWAs

 

 

 

31.2%





31.5%

MREL as a ratio of UK leverage exposure

 

 

 

10.0%





10.4%

 

(1)    

Par value reflects the nominal value of securities issued.

(2)    

Regulatory amounts reported for AT1, Tier 1 and Tier 2 instruments incudes grandfathered instruments as per the transitional provisions allowed under CRR2 (until 28 June 2025).

(3)    

MREL 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 December 2021 (Updating June 2018). Liabilities excluded from MREL 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 MREL calculation includes Tier 1 and Tier 2 securities before the application of any regulatory caps or adjustments.

(4)    

Corresponding shareholders' equity was £34.8 billion (31 December 2022 - £36.5 billion).

(5)    

Regulatory amount includes grandfathered instrument from operating companies as per the transitional provisions allowed under CRR2 (until 28 June 2025). On 30 June 2023, only 3 Tier 2 instruments from UBIDAC were classified as grandfathered.

(6)    

CRR2 non-compliant instruments - From January 2022, All Tier 1 and Tier 2 instruments that were grandfathered under CRR2 compliance (until 28 June 2025) are reported under "Tier 1 capital: end-point CRR non-compliant" and  "Tier 2 capital: end-point CRR non-compliant" category.

 



 

Risk and capital management

Capital, liquidity and funding risk continued

Minimum requirements of own funds and eligible liabilities (MREL)

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



 

NatWest

 

 

 

 

NatWest

NWM

RBS



NatWest

Holdings

NWB

RBS

UBI

NWM

Markets

Securities

International



Group plc

Limited

Plc

plc

DAC

Plc

N.V.

Inc.

Limited



£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

Additional Tier 1

Externally issued

3.9

-

0.1

-

-

-

-

-

-

Additional Tier 1

Internally issued

-

3.7

2.5

1.0

-

0.9

0.2

-

0.3



3.9

3.7

2.6

1.0

-

0.9

0.2

-

0.3

Tier 2

Externally issued

5.6

-

-

-

0.1

-

0.2

-

-

Tier 2

Internally issued

-

5.1

3.4

1.4

-

1.0

0.1

0.3

-



5.6

5.1

3.4

1.4

0.1

1.0

0.3

0.3

-

Senior unsecured

Externally issued

21.8

-

-

-

-

-

-

-

-

Senior unsecured

Internally issued

-

10.2

6.3

1.4

0.5

3.0

-

-

0.3



21.8

10.2

6.3

1.4

0.5

3.0

-

-

0.3

Total outstanding issuance

31.3

19.0

12.3

3.8

0.6

4.9

0.5

0.3

0.6

 

(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 UBIDAC 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 does not include CP, CD and short/medium term notes issued from NatWest Group operating subsidiaries. 

(5)     The above table does not include CET1 numbers.

 

 



 

Risk and capital management

Capital, liquidity and funding risk continued

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 31 December 2022

142.0

6.7

8.3

19.1

176.1

Foreign exchange movement

(1.0)

(0.1)

-

-

(1.1)

Business movement

3.7

0.2

(1.3)

1.1

3.7

Risk parameter changes

(2.2)

-

-

-

(2.2)

Methodology changes

0.5

-

-

-

0.5

Model updates

0.6

-

-

-

0.6

Other changes

-

0.9

-

-

0.9

Acquisitions and disposals 

(1.0)

-

-

-

(1.0)

At 30 June 2023

142.6

7.7

7.0

20.2

177.5

 

The table below analyses segmental RWAs.


 

 

 

 

Total 


Retail

Private

Commercial &

Central items 

NatWest


Banking

Banking

Institutional 

& other (1)

Group

Total RWAs

£bn

£bn

£bn

£bn

£bn

At 31 December 2022

54.7

11.2

103.2

7.0

176.1

Foreign exchange movement

-

-

(1.0)

(0.1)

(1.1)

Business movement

2.1

0.3

2.1

(0.8)

3.7

Risk parameter changes 

(0.3)

-

(1.9)

-

(2.2)

Methodology changes

0.2

-

0.3

-

0.5

Model updates

0.6

-

-

-

0.6

Other changes

-

-

0.9

-

0.9

Acquisitions and disposals

-

-

-

(1.0)

(1.0)

At 30 June 2023

               57.3 

11.5

103.6

5.1

177.5


 

 

 

 

 

Credit risk

49.7

10.1

78.5

4.3

142.6

Counterparty credit risk

0.2

-

7.5

-

7.7

Market risk

0.2

-

6.8

-

7.0

Operational risk

7.2

1.4

10.8

0.8

20.2

Total RWAs

57.3

11.5

103.6

5.1

177.5

 

(1)     £3.5 billion of Central items & other relates to Ulster Bank RoI.

 

Total RWAs increased by £1.4 billion to £177.5 billion during the period mainly reflecting:

-    Business movements totalling £3.7 billion, driven by increased credit risk exposures within Retail Banking and Commercial & Institutional and the impact of the operational risk recalculation.

-    An increase in other changes of £0.9 billion, driven by the early termination of portfolio credit default swap resulting in a decrease to the CRM benefit.

-    Model update increase of £0.6 billion, driven by model adjustments as a result of new regulations applied to IRB models within Retail Banking.

-    Methodology changes totalling £0.5 billion, driven by revised LGD approach for non UK covered bonds.

-    A decrease in risk parameters of £2.2 billion, primarily reflecting improved risk metrics within Commercial & Institutional in addition to changes in regulatory treatment for certain structured transactions.

-    Disposals relating to the phased withdrawal from the Republic of Ireland, reducing RWAs by £1.0 billion.

 

 

 



   

Risk and capital management

Capital, liquidity and funding risk continued

Funding sources (reviewed)

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 2023

 

31 December 2022


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

2,231

- 

2,231

 

1,446

- 

1,446

   Other bank deposits (1)

6,181

13,309

19,490

 

6,353

12,642

18,995


8,412

13,309

21,721

 

7,799

12,642

20,441

Customer deposits

 

 

 

 




   Repos

9,083

239

9,322

 

9,575

254

9,829

   Non-bank financial institutions

50,733

59

50,792

 

50,226

9

50,235

   Personal

212,486

4,111

216,597

 

224,706

1,209

225,915

   Corporate

155,735

86

155,821

 

164,314

25

164,339


428,037

4,495

432,532

 

448,821

1,497

450,318

Trading liabilities (2)

 

 

 

 




   Repos (3)

27,554

254

27,808

 

23,740

- 

23,740

   Derivative collateral

15,234

- 

15,234

 

17,680

- 

17,680

   Other bank customer deposits

775

440

1,215

 

413

654

1,067

   Debt securities in issue - Medium term notes

353

361

714

 

54

743

797


43,916

1,055

44,971

 

41,887

1,397

43,284

Other financial liabilities

 

 

 

 




   Customer deposits

144

940

1,084

 

253

797

1,050

   Debt securities in issue:

 

 

 

 




      Commercial paper and certificates of deposit

13,195

141

13,336

 

5,587

85

5,672

      Medium term notes

5,170

33,258

38,428

 

6,934

31,750

38,684

      Covered bonds

2,043

- 

2,043

 

804

2,038

2,842

      Securitisation (5)

- 

857

857

 

- 

859

859


20,552

35,196

55,748

 

13,578

35,529

49,107

Subordinated liabilities

968

5,052

6,020

 

974

5,286

6,260

Total funding

501,885

59,107

560,992

 

513,059

56,351

569,410

   Of which: available in resolution (4)

 

 

25,634


 

 

24,899

 

(1)    

Includes £12.0 billion (31 December 2022 - £12.0 billion) relating to Term Funding Scheme with additional incentives for Small and Medium-sized Enterprises participation.

(3)    

Comprises central & other bank repos of £2.5 billion (31 December 2022 - £1.6 billion), other financial institution repos of £22.7 billion (31 December 2022 - £19.4 billion) and other corporate repos of £2.6 billion (31 December 2022 - £2.7 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 December 2021 (updating June 2018). The balance consists of £21.0 billion (31 December 2022 - £20.0 billion) under debt securities in issue (senior MREL) and £4.6 billion (31 December 2022 - £4.9 billion) under subordinated liabilities.

(5)    

NatWest Group transfers credit risk on originated loans and mortgages without the transfer of assets to a structured entity, whereby it enters credit derivative and financial guarantee contracts with consolidated structured entities and they in turn issue debt securities to investors. This funding is legally ringfenced in the structured entity and is restricted to specifically cover investor credit protection claim payments in respect of the associated loans and mortgages.

 

 



 

Risk and capital management

Capital, liquidity and funding risk continued

Liquidity portfolio (reviewed)

The table below shows the liquidity portfolio by product, with primary liquidity aligned to internal stressed outflow coverage and regulatory LCR categorisation. Secondary liquidity comprises assets eligible for discount at central banks, which do not form part of the liquid asset portfolio for LCR or internal stressed outflow purposes. In addition, a reconciliation has been provided between the liquidity portfolio for internal stressed outflow coverage and high quality liquid assets on a regulatory LCR basis.


Liquidity value


30 June 2023

 

31 December 2022


NatWest

NWH

UK DoL

 

NatWest

NWH

UK DoL


Group (1)

Group (2)

Sub

 

Group 

Group

Sub 


£m

£m

£m

 

£m

£m

£m

Cash and balances at central banks 

 119,612

 79,423

 78,916


 140,820

 106,869

 103,708

   AAA to AA- rated governments

 23,813

 15,872

 15,872


 18,589

 9,843

 9,843

   A+ and lower rated governments

 1,172

 187

 187


 317

-

-

   Government guaranteed issuers, public sector entities 

 

 

 


   



      and government sponsored entities

 229

 229

 208


 134

 120

 100

   International organisations and multilateral

 

 

 





      development banks

 2,674

 1,521

 1,437


 1,734

 1,112

 1,021

LCR level 1 bonds

 27,888

 17,809

 17,704

 

 20,774

 11,075

 10,964

LCR level 1 assets

 147,500

 97,232

 96,620

 

 161,594

 117,944

 114,672

LCR level 2 assets

-

-

-

 

-

-

-

Non-LCR eligible assets

-

-

-

 

-

-

-

Primary liquidity 

 147,500

 97,232

 96,620

 

 161,594

 117,944

 114,672

Secondary liquidity (3)

 79,424

 79,389

 79,388

 

 63,917

 63,849

 63,849

Total liquidity value

 226,924

 176,621

 176,008


 225,511

 181,793

 178,521


 


30 June 2023


 


NatWest

NWH

UK DoL


 

 

 

Stressed outflow coverage (SOC) to liquidity 

Group (1)

Group (2)

Sub


 

 

 

   coverage ratio (LCR) reconciliation*

£m

£m

£m


 

 

 

SOC primary liquidity (from table above)

147,500

97,232

96,620


 

 

 

   Level 1 assets excluded (4)

4,180

3,467

3,447


 

 

 

   Level 2 assets excluded (5)

3,133

2,951

2,721


 

 

 

   Methodology difference (6)

960

1,135

1,081





Total LCR high quality liquid assets

155,773

104,785

103,869





 

* Table not within the scope of EY's review report.

 

(1)     NatWest Group includes the UK Domestic Liquidity Sub-Group (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 and NatWest Bank Europe GmbH who hold managed portfolios that comply with local regulations that may differ from PRA rules.

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

(4)     LCR level 1 assets include extremely high quality covered bonds, government guaranteed bonds, and other LCR level 1 assets, which are not included as primary liquidity, but included as inflows in stressed outflow coverage.

(5)     LCR level 2 assets include high quality covered bonds, asset backed securities and other level 2 assets which are not included as primary liquidity but included as inflows in stressed outflow coverage.

(6)     Methodology differences include cash in tills which is classified as LCR level 1 but not included in stressed outflow coverage, JPY bonds which are classified as level 1 for stressed outflow coverage but level 2 for LCR and weighting differences between stressed outflow coverage and LCR.

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

 

 



 


Risk and capital management

Non-traded market risk

Non-traded market risk is the risk to the value of assets or liabilities outside the trading book, or the risk to income, that arises from changes in market prices such as interest rates, foreign exchange rates and equity prices, or from changes in managed rates.

Key developments

-    In the UK, the base rate rose from 3.5% at 31 December 2022 to 5.0% at 30 June 2023 as inflation pressures persisted.

-    The five-year sterling swap rate increased to 5.09% at the end of June 2023 from 4.10% at the end of December 2022. The ten-year sterling swap rate also increased, to 4.36% from 3.75%.

-    The structural hedge notional decreased by £6 billion from £231 billion to £225 billion, due to lower current account and instant access savings deposits. The structural hedge yield rose over the same period to 1.38% from 1.14% as maturing hedges were replaced with new hedges at higher rates.

-    The sensitivity of net interest earnings to parallel shifts in the yield curve reduced in H1 2023. Sensitivity to an upward 25-basis-point parallel shift in all rates was £135 million at 30 June 2023 compared to £198 million at 31 December 2022. 

-    The main driver was reduced sensitivity to managed margin products. This resulted from lower managed rate savings volumes  - including the impact of migration from instant access accounts to term savings accounts - and from greater pass-through of future rate rises to depositors.

-    Sterling strengthened against both the US dollar and the euro over the period. Against the dollar, sterling was 1.27 at 30 June 2023 compared to 1.21 at 31 December 2022. Against the euro, it was 1.17 at 30 June 2023 compared to 1.13 at 31 December 2022.

-    Net investments in foreign operations decreased by £1.4 billion over the period, mainly reflecting the UBIDAC wind-down. However, residual structural foreign currency exposures after hedging were broadly stable, decreasing, in sterling equivalent terms, by £0.2 billion over the period.

Non-traded internal VaR (1-day 99%) (reviewed)

The following table shows one-day internal banking book Value-at-Risk (VaR) at a 99% confidence level, split by risk type.


Half year ended


30 June 2023

30 June 2022

31 December 2022


 

 

 

Period




Period




Period


Average

Maximum

Minimum

end

Average

Maximum

Minimum

end

Average

Maximum

Minimum

end


£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

Interest rate

40.5

63.2

30.1

63.2

17.0

37.8

7.6

37.8

43.8

60.7

34.2

37.7

Credit spread

23.6

29.7

20.9

29.7

48.8

86.6

33.4

34.6

23.8

29.1

19.9

20.3

Structural foreign 

 

 

 

 









   exchange rate

11.3

13.6

8.4

12.3

8.8

10.9

5.4

7.0

9.1

11.3

7.4

11.3

Equity

16.7

19.0

13.0

13.0

18.9

22.2

13.7

18.8

17.4

19.3

14.7

14.7

Pipeline risk (1)

3.1

4.4

1.4

3.4

1.0

2.9

0.3

2.9

1.9

4.5

0.6

2.4

Diversification (2)

(35.3)

 

 

(38.1)

(33.4)



(48.1)

(40.4)



(34.9)

Total

59.9

83.5

52.1

83.5

61.1

91.2

52.3

53.0

55.6

66.3

45.5

51.5

 

(1)

Pipeline risk is the risk of loss arising from Personal customers owning an option to draw down a loan - typically a mortgage - at a committed rate, where interest rate changes may result in greater or fewer customers than anticipated taking up the committed offer.

(2)

NatWest Group benefits from diversification across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the correlation between the assets and risk factors in the portfolio at a particular time. The diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR.

 

-    On an average basis, total non-traded VaR for H1 2023 was broadly similar to H1 2022 and H2 2022.

-    Total non-traded VaR increased during H1 2023, driven by an increase in interest rate risk VaR. This reflects further interest rate volatility compared to H2 2022, particularly in sterling.

-    Credit spread VaR was slightly higher than in H2 2022, driven by an increase in the holding of bonds in the liquidity portfolio. However, the holding of bonds in this portfolio is still considerably lower than in H1 2022.

 

 

 


Risk and capital management

Non-traded market risk continued

Structural hedging

NatWest Group has a significant pool of stable, non and low interest-bearing liabilities, principally comprising equity, current accounts and instant access savings. A proportion of these balances are hedged, either by investing directly in longer-term fixed-rate assets (usually fixed-rate mortgages) or by using interest rate swaps, which are generally booked as cash flow hedges of floating-rate assets, in order to provide a consistent and predictable revenue stream.

After hedging the net interest rate exposure, NatWest Group allocates income to equity or products in structural hedges by reference to the relevant interest rate swap curve. Over time, this approach has provided a basis for stable income attribution, particularly to products such as current accounts and instant access savings. The programme aims to track a time series of medium-term swap rates, so that at any point in time the total yield may be higher or lower than the current market yield. Additionally, the closeness of the yield to average swap rates in recent years is also affected by changes in the composition of the hedge caused by changes in product volumes or equity capital resources.

The table below shows the total income and total yield, incremental income relative to short-term cash rates, and the period-end and average notional balances allocated to equity and products in respect of the structural hedges managed by NatWest Group.


Half year ended


30 June 2023

 

30 June 2022


31 December 2022


 

 

Period

 

 

 



Period






Period




Incremental

Total

-end

Average

Total

 

Incremental

Total

-end

Average

Total


Incremental

Total

-end

Average

Total


income

income

notional

notional

yield

 

income

income

notional

notional

yield


income

income

notional

notional

yield


£m

£m

£bn

£bn

%

 

£m

£m

£bn

£bn

%


£m

£m

£bn

£bn

%

Equity 

(246)

204

23

22

1.83


111

182

21

21

1.71


(48)

189

23

22

1.72

Product

(2,773)

1,362

202

205

1.33

 

61

662

204

188

0.70


(1,135)

1,118

208

206

1.08

Total

(3,019)

1,566

225

227

1.38


172

844

225

209

0.81


(1,183)

1,307

231

228

1.14

 

(1)

Incremental income represents the difference between total income (i.e. hedged income) and an unhedged return that is based on short-term cash rates. For example, the sterling overnight index average (SONIA) is used to estimate incremental income from sterling structural hedges.

(2)

The basis of preparation of the table above has changed since December 2022. UBIDAC is no longer included. In addition, the 'Other' category is no longer used: hedges booked in Coutts & Co. have now been allocated between product hedges and equity hedges, while hedges booked in RBS International have been allocated to product hedges.

 

Equity structural hedges refer to income allocated primarily to equity and reserves. At 30 June 2023, the equity structural hedge notional was allocated between NWH Group and NWM Group in a ratio of approximately 77%/23% respectively.

Product structural hedges refer to income allocated to customer products, mainly current accounts and customer deposits in Commercial & Institutional, Retail Banking and Private Banking.

At 30 June 2023, approximately 94% by notional of total structural hedges were sterling-denominated.

The following table presents the incremental income associated with product structural hedges at segment level.


Half year ended


30 June

30 June

31 December


2023

2022

2022


£m

£m

£m

Retail Banking

(1,156)

12

(475)

Commercial & Institutional 

(1,415)

39

(576)

Private Banking & Other

(202)

10

(84)

Total

(2,773)

61

(1,135)

 

-    The structural hedge notional fell, mainly due to lower deposit volume.

-    The five-year sterling swap rate rose to 5.09% at 30 June 2023 from 4.10% at 31 December 2022. The ten-year sterling swap rate also rose, to 4.36% from 3.75%. The structural hedge yield also rose to 1.38% in H1 2023 from 1.14% in H2 2022.

-    Despite the increase in total yield, incremental income fell. This highlights the relative stability of the total yield of the structural hedge compared to an unhedged portfolio that would earn short-term cash rates. Compared to the 24-basis-point increase in the structural hedge total yield, SONIA increased 150 basis points to 4.93% at 30 June 2023 from 3.43% at 31 December 2022.

 



 

Risk and capital management

Non-traded market risk continued

Sensitivity of net interest earnings

Net interest earnings are sensitive to changes in the level of interest rates, mainly because maturing structural hedges are replaced at higher or lower rates and changes to coupons on managed rate customer products do not always match changes in market rates of interest or central bank policy rates.

Earnings sensitivity is derived from a market-implied forward rate curve, which will incorporate expected changes in central bank policy rates such as the Bank of England base rate. A simple scenario is shown that projects forward earnings based on the 30 June 2023 balance sheet, which is assumed to remain constant. An earnings projection is derived from the market-implied curve, which is then subject to interest rate shocks. The difference between the market-implied projection and the shock gives an indication of underlying sensitivity to interest rate movements.

Reported sensitivities should not be considered a forecast of future performance in these rate scenarios. Actions that could reduce interest earnings sensitivity include changes in pricing strategies on customer loans and deposits as well as hedging. Management action may also be taken to stabilise total income also taking into account non-interest income.

The table below shows the sensitivity of net interest earnings - for both structural hedges and managed rate accounts - on a one, two and three-year forward-looking basis to an upward or downward interest rate shift of 25 basis points.


+25 basis points upward shift

 

-25 basis points downward shift


Year 1 

Year 2 

Year 3

 

Year 1 

Year 2 

Year 3

30 June 2023

£m

£m

£m

 

£m

£m

£m

Structural hedges

 49

 151

 249

 

(49)

(151)

(248)

Managed margin

 86

 76

 157

 

(121)

(75)

(168)

Total

 135

 227

 406

 

(170)

(226)

(416)


 

 

 

 

 

 

 

31 December 2022

 

 

 

 

 

 

 

Structural hedges

50

158

260


(50)

(158)

(260)

Managed margin

148

141

136


(170)

(140)

(129)

Total

198

299

396


(220)

(298)

(389)

 

(1)     Earnings sensitivity considers only the main drivers, namely structural hedging and margin management, and excludes UBIDAC.

 

The following table analyses the one-year scenarios by currency and, in addition, shows the impact over one year of a 100-basis-point upward and downward shift in all interest rates.


Shifts in yield curve


30 June 2023

 

 

31 December 2022


+25 basis 

-25 basis 

+100 basis

-100 basis

 

+25 basis 

-25 basis 

+100 basis

-100 basis


points

points

points

points

 

points

points

points

points

 

£m

£m

£m

£m

 

£m

£m

£m

£m

Euro

13

(15)

56

(57)


13

(12)

48

(50)

Sterling

108

(137)

431

(574)


172

(194)

698

(784)

US dollar

8

(13)

37

(47)


10

(11)

42

(53)

Other

6

(5)

23

(15)


3

(3)

13

(16)

Total

135

(170)

547

(693)


198

(220)

801

(903)

 

(1)     The table excludes UBIDAC.

 


-    The overall reduction in net interest income sensitivity in all scenarios reflects lower managed rate deposit volumes. This includes changes to the deposit mix, where customers have moved balances into fixed-term savings from managed rate savings accounts.

-    Changes in pass-through assumptions for managed rate savings products also contributed to the lower sensitivity.

 



 

Risk and capital management

Non-traded market risk continued

Foreign exchange risk (reviewed)

The table below shows structural foreign currency exposures.


 

 

Structural

 

 


Net

 

foreign currency

 

Residual


investments

Net

exposures

 

structural


in foreign

investment

pre-economic

Economic

foreign currency


operations

hedges

hedges

hedges (1)

exposures

30 June 2023

£m

£m

£m

£m

£m

US dollar

1,215

(287)

928

(928)

-

Euro

4,913

(3,101)

1,812

-

1,812

Other non-sterling

938

(406)

532

-

532

Total

7,066

(3,794)

3,272

(928)

2,344


 

 

 

 

 

31 December 2022

 

 

 

 

 

US dollar

1,278

(303)

975

(975)

-

Euro

6,189

(4,164)

2,025

-

2,025

Other non-sterling

996

(431)

565

-

565

Total

8,463

(4,898)

3,565

(975)

2,590

 

(1)     Economic hedges of US dollar net investments in foreign operations represent US dollar equity securities that do not qualify as net investment hedges for accounting purposes. They provide an offset to structural foreign exchange exposures to the extent that there are net assets in overseas operations available.

 

-   

Euro net investments in foreign operations and euro net investment hedges fell in H1 2023, mainly due to the wind-down of UBIDAC. Overall, residual structural foreign currency exposures fell.

-   

Changes in foreign currency exchange rates affect equity in proportion to structural foreign currency exposure. For example, a 5% strengthening or weakening in foreign currencies against sterling would result in a gain or loss of £0.2 billion in equity, respectively.

 



 

Risk and capital management

Traded market risk

Traded market risk is the risk arising from changes in fair value on positions, assets, liabilities or commitments in trading portfolios as a result of fluctuations in market prices.

Traded VaR (1-day 99%) (reviewed)

The table below shows one-day internal value-at-risk (VaR) for NatWest Group's trading portfolios, split by exposure type.


Half year ended


30 June 2023

 

30 June 2022


31 December 2022


 

 

 

Period

 




Period





Period


Average

Maximum

Minimum

end

 

Average

Maximum

Minimum

end


Average

Maximum

Minimum

end


£m

£m

£m

£m

 

£m

£m

£m

£m


£m

£m

£m

£m

Interest rate

 9.0

 19.3

 4.3

 16.5


 7.4

 12.6

 4.1

 6.0


 7.3

 12.5

 4.5

 9.0

Credit spread

 5.9

 6.9

 4.9

 6.1

 

 8.5

 12.0

 6.5

 6.9


 7.2

 8.6

 6.0

 6.4

Currency

 2.1

 4.9

 1.0

 1.5

 

 2.8

 8.0

 1.2

 2.3


 3.3

 6.9

 1.5

 1.5

Equity

-

 0.1

-

-

 

 0.1

 0.3

-

-


-

 0.3

-

-

Commodity

-

-

-

-

 

-

-

-

-


-

-

-

-

Diversification (1)

(6.8)

 

 

(6.3)

 

(8.3)



(6.0)


(7.0)



(6.8)

Total

 10.2

 17.8

 6.6

 17.8


 10.5

 15.1

 7.2

 9.2


 10.8

 13.7

 8.3

 10.1

 

(1)

NatWest Group benefits from diversification across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the correlation between the assets and risk factors in the portfolio at a particular time. The diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR.

 

-

On an average basis, total traded VaR remained at similar levels in H1 2023 compared to 2022.

-

The increase in average interest rate VaR, compared to 2022, reflected an increase in yield curve risk in sterling and euro flow trading.

-

The decrease in average credit spread VaR reflected lower credit spread volatility in H1 2023.

 



 


Risk and capital management

Other risks

Operational risk

Risk management continued to focus on material risk areas. Key focus over the period has been the management of the large change portfolio, in particular the regulatory change initiatives relating to preparedness for Consumer Duty and ISO 20022, as well as addressing vulnerabilities in relation to the infrastructure requiring remediation. Linked to the focus on remediation, security, data and outsourcing remain key pillars for the ongoing management of the risk profile, operational integrity and continuity of service.

Compliance & conduct risk

The ring-fencing attestation was completed and submitted to the PRA on 31 March 2023. Implementation of Consumer Duty has been a key focus, with customer journeys being enhanced in line with the new standard which complements our purpose 'to champion potential, helping people, families, and businesses to thrive' and aligns with our strategy 'supporting customers at every stage of their lives'. NatWest Markets has a program in place to review, remediate, and enhance certain areas of its business. Resources were agreed in February 2023. The results of this work will be shared with the Department of Justice Monitor and other regulators, with the ongoing work plan continuing to be assessed for potential impact.

The cost of living challenge continues to be a key priority for the conduct and regulatory compliance agenda as mortgage interest rates continue to increase in the UK. There has been continued oversight of delivery of the mandatory and regulatory change programmes, including the Mortgage Charter - a set of measures aimed at supporting residential mortgage customers concerned by rising interest rates.

Climate risk

NatWest Group continued to embed climate considerations in its risk management framework throughout the reporting period. This is focused on making iterative advancements in capabilities towards quantitative techniques in risk assessment. Particular attention continues to be paid to developing the next version of the NatWest Group Climate Transition Plan. Work is also underway to evolve NatWest Group's customer-level climate risk assessments, including development of capability to assess customer climate plans. In-house modelling and scenario analysis capabilities continue to be developed to support the assessment of NatWest Group's exposure to physical and transition risks.

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