NWG plc Q3 2023 Interim Management Statement

NatWest Group plc
27 October 2023
 

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NatWest Group

Q3 2023

Interim Management Statement

 

 

 

 

 

 

 

 

                                                 

 

 

 

 

 

 

 

NatWest Group plc                                                                                                natwestgroup.com

 

 

NatWest Group Q3 2023 Results                                                    

Page

Highlights

1

Business performance summary

3

  Chief Financial Officer review

4

  Retail Banking

6

  Private Banking

7

  Commercial & Institutional

8

  Central items & other

9

  Segment performance

10

Risk and capital management


  Credit risk

15

  Capital, liquidity and funding risk

22

Condensed consolidated financial statements

28

Notes to the financial statements

32

Additional information

35

Appendix - Non-IFRS financial measures

37

 

 

 



NatWest Group plc

Q3 2023 Interim Management Statement

Chief Executive, Paul Thwaite, commented:

"Today's Q3 2023 results show that NatWest is a strong bank which is performing well, generating sustainable profits and returns. This performance is built on the foundations of strong customer franchises and a robust balance sheet with high levels of liquidity and a well-diversified loan book. As a result, credit losses and impairments remain low and we are ready and able to stand by our customers and businesses through the current economic uncertainty.

 

Our leadership team has come together to ensure we all keep our eyes on the things that matter most - the 19 million people, families, and businesses we serve.  Across the bank, we are resolutely focused on meeting their needs today, whilst getting ahead of what they will need from us tomorrow. This is at the core of what we do. It is how we will build long-term value in our bank and deliver sustainable growth."

 

Strong Q3 2023 performance

-    Q3 2023 attributable profit of £866 million and a return on tangible equity (RoTE) of 14.7%. Attributable profit of £3,165 million for the year to date and a RoTE of 17.1%.

-    Total income excluding notable items(1), increased by £117 million, or 3.4%, compared with Q3 2022 principally reflecting the impact of volume growth and favourable yield curve movements. For the nine months ended 30 September 2023, total income excluding notable items, was £10,897 million, £1,602 million higher than prior year.

-    Bank net interest margin (NIM) of 2.94% was 19 basis points lower than Q2 2023 with the reduction largely due to changes in deposit mix as customers shifted balances from non-interest bearing current accounts to interest bearing savings accounts, particularly term, as well as the continued impact on mortgage margins as the higher margin Covid-era book rolls off and is replaced at lower margins. Bank NIM was 3.11% for the year to date.

-    Other operating expenses increased by £22 million, or 1.2%, compared with Q3 2022. For the nine months ended 30 September 2023, other operating expenses of £5.6 billion were £345 million, or 6.6%, higher than prior year. The cost:income ratio (excl. litigation and conduct) was 49.9% for the nine months ended 30 September 2023 compared with 55.6% for the same period in 2022.

-    The net impairment charge was £229 million in Q3 2023, or 24 basis points of gross customer loans, which reflects continued low and stable levels of stage 3 defaults across the portfolio and good book charges related to unsecured lending.

Robust balance sheet underpinning growth

-    Net loans to customers excluding central items increased by £1.8 billion to £354.5 billion during Q3 2023 including a £1.3 billion uplift in Commercial & Institutional as term loan facilities increased. Retail Banking gross new mortgage lending was £7.5 billion in the quarter compared with £7.6 billion in Q2 2023.

-    Up to 30 September 2023 we have provided £53.2 billion against our target to provide £100 billion climate and sustainable funding and financing between 1 July 2021 and the end of 2025.

-    Customer deposits excluding central items of £423.5 billion were £2.4 billion higher than Q2 2023. Term balances now account for 15% of our book, up from 11% at the end of the second quarter.

-    The loan:deposit ratio (LDR) (excl. repos and reverse repos) was 83%, in line with Q2 2023, with customer deposits exceeding net loans to customers by around £71 billion.

-    The liquidity coverage ratio (LCR) increased by 4 percentage points to 145% in the quarter, representing £49.6 billion headroom above 100% minimum requirement, primarily due to UBIDAC asset sales along with increased deposits offset by increased customer lending.

-    TNAV per share increased by 9 pence in Q3 2023 to 271 pence primarily reflecting the attributable profit for the period and movements in cash flow hedging reserves, offset by the impact of dividend payments.

Shareholder return supported by strong capital generation

-    Common Equity Tier 1 (CET1) ratio of 13.5% was in line with the position at 30 June 2023 principally reflecting the attributable profit offset by the ordinary dividend accrual and increase in RWAs.

-    RWAs increased by £4.1 billion during the quarter to £181.6 billion principally reflecting increased market risk and lending growth in Commercial & Institutional partially offset by a £1.9 billion reduction as we continue our exit from the Republic of Ireland.

 

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

 

Outlook(1)

The economic outlook and consequent customer behaviours remain uncertain. The following statements are based on our latest economic forecasts and expected customer behaviours.

 

Outlook 2023

-    We continue to expect to achieve a return on tangible equity for the Group of 14-16%.

-    We expect total income excluding notable items to be around £14.3 billion and full year Bank NIM to be greater than 3% based on our latest expectations for the mix of our deposit book and the assumption that Bank of England base rates remain flat at 5.25% for the remainder of the year.

-    We continue to expect to deliver a Group cost:income ratio (excl. litigation and conduct) below 52% or around £7.6 billion of Group operating costs, excluding litigation and conduct costs.

-    We expect our impairment loss rate for 2023 to be below our through the cycle range of 20-30 basis points.

-    We expect CRD IV model updates to increase RWAs by around £3 billion in Q4 2023. The models remain subject to further development and final approval by the PRA.

 

Medium term

-    We continue to target a sustainable return on tangible equity for the group of 14-16% over the medium term.

-    We continue to expect to deliver a Group cost:income ratio (excl. litigation and conduct) of less than 50%, by 2025.

-    We currently expect RWAs to be around £200 billion at the end of 2025, including the impact of Basel 3.1, however this remains subject to final rules and approval.

-    We expect to continue to generate and return significant capital via ordinary dividends and buybacks to shareholders over the medium term and continue to expect that the CET1 ratio will be in the range of 13-14%.

 

The guidance remains subject to market conditions. We will monitor and react to market conditions and refine our internal forecasts as the economic position and customer behaviours evolve.

 

(1)       The guidance, targets, expectations, and trends discussed in this section represent NatWest Group plc management's current expectations and are subject to change, including as a result of the factors described in the NatWest Group plc Risk Factors section in the 2022 Annual Report and Accounts and Form 20-F and the Summary Risk Factors in the 2023 NatWest Group plc Interim Results announcement. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement.

 



Business performance summary

Nine months ended


Quarter ended


30 September

30 September


30 September

30 June

30 September


2023

2022


2023

2023

2022

Summary consolidated income statement

£m

£m

 

£m

£m

£m

Net interest income

8,411

6,974

 

2,685

2,824

2,640

Non-interest income

2,804

2,474


803

1,027

589

Total income

11,215

9,448


3,488

3,851

3,229

Litigation and conduct costs

(242)

(294)


(134)

(52)

(125)

Other operating expenses

(5,600)

(5,255)


(1,793)

(1,875)

(1,771)

Operating expenses

(5,842)

(5,549)


(1,927)

(1,927)

(1,896)

Profit before impairment losses

5,373

3,899


1,561

1,924

1,333

Impairment losses

(452)

(193)


(229)

(153)

(247)

Operating profit before tax

4,921

3,706


1,332

1,771

1,086

Tax charge

(1,439)

(1,229)


(378)

(549)

(434)

Profit from continuing operations

3,482

2,477


954

1,222

652

Loss from discontinued operations, net of tax

(138)

(206)


(30)

(143)

(396)

Profit for the period

3,344

2,271


924

1,079

256

Performance key metrics and ratios

 



 



Notable items within total income (1)

£318m

£153m

 

(£26m)

£288m

(£168m)

Total income excluding notable items (1)

£10,897m

£9,295m

 

£3,514m

£3,563m

£3,397m

Bank net interest margin (1)

3.11%

2.72%


2.94%

3.13%

2.99%

Bank average interest earning assets (1)

£362bn

£343bn


£363bn

£362bn

£351bn

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

49.9%

55.6%


51.4%

48.7%

54.8%

Loan impairment rate (1)

16bps

7bps


24bps

16bps

26bps

Profit attributable to ordinary shareholders

£3,165m

£2,078m


£866m

£1,020m

£187m

Total earnings per share attributable to ordinary 

 



 



   shareholders - basic

34.1p

20.9p


9.8p

11.0p

1.9p

Return on tangible equity (RoTE) (1)

17.1%

10.0%


14.7%

16.4%

2.9%

Climate and sustainable funding and financing (2)

£20.6bn

£18.1bn


£4.6bn

£8.4bn

£6.2bn

 

 

As at

 

30 September

30 June

31 December

 

2023

2023

2022

 

£bn

£bn

£bn

Balance sheet

 

 


Total assets

717.1

702.6

720.1

Loans to customers - amortised cost

377.3

373.9

366.3

Loans to customers excluding central items (1)

354.5

352.7

346.7

Loans to customers and banks - amortised cost and FVOCI 

389.5

385.2

377.1

Total impairment provisions (3)

3.5

3.4

3.4

Expected credit loss (ECL) coverage ratio 

0.94%

0.92%

0.91%

Assets under management and administration (AUMA) (1)

38.2

37.9

33.4

Customer deposits

435.9

432.5

450.3

Customer deposits excluding central items (1,4)

423.5

421.1

432.9

Liquidity and funding

 



Liquidity coverage ratio (LCR)

145%

141%

145%

Liquidity portfolio

225

227

226

Net stable funding ratio (NSFR)

138%

138%

145%

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

83%

83%

79%

Total wholesale funding

82

81

74

Short-term wholesale funding

29

28

21

Capital and leverage

 



Common Equity Tier 1 (CET1) ratio (5)

13.5%

13.5%

14.2%

Total capital ratio (5)

18.7%

18.8%

19.3%

Pro forma CET1 ratio (excl. foreseeable items) (6)

14.1%

14.2%

15.4%

Risk-weighted assets (RWAs)

181.6

177.5

176.1

UK leverage ratio

5.1%

5.0%

5.4%

Tangible net asset value (TNAV) per ordinary share (1,7)

271p

262p

264p

Number of ordinary shares in issue (millions) (7)

8,871

8,929

9,659

 

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

(2)     NatWest Group uses its climate and sustainable funding and financing inclusion criteria to determine the assets, activities and companies that are eligible to be included within its climate and sustainable funding and financing targets. This includes both provision of committed (on and off-balance sheet) funding and financing, including provision of services for underwriting issuances and private placements. Up to 30 September 2023 we have provided £53.2 billion against our target to provide £100 billion climate and sustainable funding and financing between 1 July 2021 and end of 2025. As part of this, we aim to provide at least £10 billion in lending for residential properties with Energy Performance Certificate (EPC) ratings A and B between 1 January 2023 and the end of end of 2025. During Q3 2023 we provided £4.6 billion climate and sustainable funding and financing, which included £0.9 billion in lending for residential properties with EPC ratings A and B.

(3)     Includes £0.1 billion relating to off-balance sheet exposures (30 June 2023 - £0.1 billion; 31 December 2022 - £0.1 billion).

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

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

(6)     The pro forma CET1 ratio at 30 September 2023 excludes foreseeable items of £1,004 million: £643 million for ordinary dividends and £361 million foreseeable charges. (30 June 2023 excludes foreseeable items of £1,280 million: £780 million for ordinary dividends and £500 million foreseeable charges. 31 December 2022 excludes foreseeable items of £2,132 million: £967 million for ordinary dividends and £1,165 million foreseeable charges).

(7)     The number of ordinary shares in issue excludes own shares held.


Business performance summary

Chief Financial Officer review

We delivered a strong operating performance in Q3 2023 with a RoTE of 14.7% and 17.1% for the year to date. Total income excluding notable items, of £3.5 billion, was up by 3.4% on prior year and levels of default remain stable across our portfolio.

Our robust balance sheet has allowed us to continue to lend to our personal and business customers and customer deposits excluding central items have increased £2.4 billion in the quarter. We retain strong liquidity and capital positions with an LCR of 145%, representing £49.6 billion headroom above 100% minimum requirement, an LDR (excl. repos and reverse repos) of 83% and a strong CET1 ratio of 13.5%.

Financial performance

Total income increased by 8.0% to £3,488 million compared with Q3 2022. Total income excluding notable items, was 3.4% higher than Q3 2022 principally driven by increased lending, higher markets income and yield curve movements partially offset by the continued change in deposit mix from non-interest bearing to interest bearing and lower deposit balances. For the nine months ended 30 September 2023, total income, excluding notable items, was £10,897 million, £1,602 million higher than prior year. Total income excluding notable items, was £49 million lower than Q2 2023 reflecting asset margin pressure and changes in deposit mix partially offset by higher markets income in Commercial & Institutional.

Bank NIM of 2.94% was 19 basis points lower than Q2 2023 principally reflecting lending margin pressure of 12 basis points and 14 basis points due to continued changes in deposit mix as customers shift to lower margin fixed term accounts, and we expect some further pressure on Bank NIM as this shift continues, albeit at a slower rate. Bank NIM was 3.11% for the year to date.

In line with our expectations, other operating expenses were £345 million, or 6.6% higher for the year to date due to increased staff costs, and a one-off cost of living payment, inflationary pressures on utility and contract costs, and a property impairment. We remain committed to delivering on our full year cost guidance.

A net impairment charge of £229 million primarily reflects continued low and stable levels of stage 3 defaults across the portfolio and good book charges related to unsecured lending. Compared with Q2 2023, our ECL provision increased by £0.1 billion to £3.6 billion and our ECL coverage ratio has increased from 0.92% to 0.94%. We retain post model adjustments of £0.5 billion related to economic uncertainty, or 12% of total impairment provisions. Whilst we are comfortable with the strong credit performance of our book, we will continue to assess this position regularly and are closely monitoring the impacts of inflationary pressures on the UK economy and our customers. The impairment charge for the year to date was £452 million, or 16 basis points of gross customer loans.

As a result, we are pleased to report an attributable profit for Q3 2023 of £866 million, with earnings per share of 9.8 pence and a RoTE of 14.7%.

Net loans to customers excluding central items increased by £1.8 billion over the quarter primarily driven by £1.3 billion growth in Commercial & Institutional due to an increase in term loan facilities and private financing within Corporate & Institutions, net of £0.7 billion of UK Government scheme repayments.  Retail Banking mortgage lending increased by £0.4 billion and unsecured lending increased by £0.6 billion with gross new mortgage lending of £7.5 billion in Q3 2023 compared with £7.6 billion in Q2 2023 and £11.0 billion in Q3 2022. Private Banking net loans to customers decreased by £0.3 billion driven by higher repayments and weaker demand for new lending.

Up to 30 September 2023 we have provided £53.2 billion against our target to provide £100 billion climate and sustainable funding and financing between 1 July 2021 and the end of 2025. As part of this we aim to provide at least £10 billion in lending for residential properties with Energy Performance Certificate (EPC) ratings A and B between 1 January 2023 and the end of 2025. During Q3 2023 we provided £4.6 billion climate and sustainable funding and financing, which included £0.9 billion in lending for residential properties with EPC ratings A and B.

Customer deposits excluding central items increased by £2.4 billion in the quarter to £423.5 billion, driven by term balance growth partially offset by reductions in instant access and current accounts. Growth of £1.4 billion in Retail Banking and £0.7 billion in Private Banking reflected increased term account balances offset by reductions in instant access savings and current accounts. Commercial & Institutional customer deposits increased by £0.3 billion primarily due to growth in Corporate & Institutions, specifically term balances, partially offset with a reduction in Commercial Mid-market non-interest bearing balances reflecting the market contraction. The mix of our deposit book has continued to change in the third quarter, with term balances now accounting for 15% of the book compared with 11% at the end of the second quarter. The shift to term balances was seen across the business but was strongest in Private Banking and parts of our Corporate & Institutional business within Commercial & Institutional.

TNAV per share increased by 9 pence in Q3 2023 to 271 pence primarily reflecting the attributable profit for the period and movements in cash flow hedging reserves, offset by the impact of dividend payments.

 

 

Business performance summary

Chief Financial Officer review continued

Capital

The CET1 ratio remains strong at 13.5%, or 13.4% excluding IFRS 9 transitional relief. This is in line with Q2 2023 principally reflecting the attributable profit, 50 basis points, offset with distributions deducted from capital of 20 basis points and the increase in RWAs, 30 basis points. NatWest Group's minimum requirement for own funds and eligible liabilities (MREL) ratio was 31.2%.

RWAs increased by £4.1 billion in Q3 2023 to £181.6 billion principally reflecting increased market risk and lending growth in Commercial & Institutional partially offset by a £1.9 billion reduction as we continue our exit from the Republic of Ireland.

Funding and liquidity

The LCR increased by 4 percentage points to 145% in the quarter, representing £49.6 billion headroom above 100% minimum requirement, primarily due to UBIDAC asset sales along with increased deposits offset by increased customer lending. Our primary liquidity as at 30 September 2023 was £148.9 billion and £116.2 billion or 78% of this was cash at central banks. Total wholesale funding increased by £1.0 billion in the quarter to £82.2 billion.


Business performance summary

Retail Banking

Quarter ended


30 September

30 June

30 September


2023

2023

2022


£m

£m

£m

Total income

1,442

1,516

1,475

Operating expenses

(780)

(671)

(693)

   of which: Other operating expenses

(721)

(650)

(630)

Impairment losses

(169)

(79)

(116)

Operating profit

493

766

666


 



Return on equity (1)

17.5%

28.2%

27.0%

Net interest margin (1)

2.56%

2.78%

2.85%

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

50.0%

42.9%

42.7%

Loan impairment rate (1)

33bps

15bps

24bps

 

As at


30 September

30 June

31 December


2023

2023

2022


£bn

£bn

£bn

Net loans to customers (amortised cost)

205.2

204.4

197.6

Customer deposits

184.5

183.1

188.4

RWAs

58.9

57.3

54.7

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

During Q3 2023, Retail Banking continued to pursue sustainable growth whilst taking a measured approach to risk. Retail Banking delivered a return on equity of 17.5%, reflecting the impact of a more challenging operating environment and higher cost impacts.

 

Retail Banking provided £0.9 billion of climate and sustainable funding and financing in Q3 2023.

 

Q3 2023 performance

-

Total income was £33 million, or 2.2%, lower than Q3 2022 reflecting lower deposit balances with mix shift from non-interest bearing to interest bearing balances, as customers continue to migrate to higher interest rate savings products, and continued mortgage margin dilution, as well as higher treasury costs, partly offset by continued strong loan growth and the impact of rate rises on deposit income.

-

Net interest margin was 22 basis points lower than Q2 2023 largely reflecting deposit mix shift from non-interest bearing to interest bearing balances and lower mortgage margins reflecting the roll-off of higher margin business. These impacts are partly offset by the impact of rate rises on deposit income.

-

Other operating expenses were £91 million, or 14.4%, higher than Q3 2022 reflecting property lease termination losses, continued investment in the business, higher pay awards to support our colleagues with cost of living challenges and increased data costs. This was partly offset by savings from a 3% headcount reduction.

-

An impairment charge of £169 million in Q3 2023 largely reflects stage 3 defaults, which remain broadly stable, good book charges driven by unsecured PD increases, linked to economic modelling inputs, and unsecured lending growth.

-

Net loans to customers increased by £0.8 billion in Q3 2023 reflecting mortgage growth of £0.4 billion, with gross new mortgage lending of £7.5 billion, representing flow share of around 13%. Cards balances increased by £0.5 billion and personal advances increased by £0.1 billion in Q3 2023 with continued strong customer demand.

-

Customer deposits increased by £1.4 billion in Q3 2023 reflecting strong growth in fixed term savings, partially offset by lower current account and instant access savings balances.

-

RWAs increased by £1.6 billion, or 2.8%, in Q3 2023 due to IRB model adjustments and continued asset growth in the period.








 

 

Business performance summary

Private Banking

Quarter ended


30 September

30 June

30 September


2023

2023

2022


£m

£m

£m

Total income

214

271

285

Operating expenses

(157)

(167)

(139)

   of which: Other operating expenses

(157)

(159)

(138)

Impairment releases/(losses)

2

(3)

(7)

Operating profit

59

101

139


 



Return on equity (1)

11.7%

20.8%

31.8%

Net interest margin (1)

3.02%

4.17%

4.37%

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

73.4%

58.7%

48.4%

Loan impairment rate (1)

(4)bps

6bps

15bps

AUM net flows (£bn) (1)

-

0.4

0.3

 

 

 

As at


30 September

30 June

31 December


2023

2023

2022


£bn

£bn

£bn

Net loans to customers (amortised cost)

18.8

19.1

19.2

Customer deposits

37.2

36.5

41.2

RWAs

11.6

11.5

11.2

Assets under management (AUMs) (1)

29.8

30.0

28.3

Assets under administration (AUAs) (1)

8.4

7.9

5.1

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

38.2

37.9

33.4

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

 

 

During Q3 2023, Private Banking delivered a return on equity of 11.7%, reflecting the impact of a more challenging operating environment with competitive pressure and a change in customer behaviour leading to an adverse deposit book mix.

 

Private Banking provided £0.1 billion of climate and sustainable funding and financing in Q3 2023.

 

Q3 2023 performance

-

Total income was £71 million, or 24.9%, lower than Q3 2022 reflecting lower deposit balances with mix shift from non-interest bearing to interest bearing balances, as customers continue to migrate to higher interest rate savings products, higher pass through of interest rate increases to customers, reduced lending volumes and mortgage margin pressure, partially offset by the deposit benefits from higher interest rates.

-

Net interest margin was 115 basis points lower than Q2 2023 largely reflecting a change in the deposit book mix and the impact of the Q2 2023 deposit repricing. Higher margin current accounts reduced by £1.3 billion in the quarter whilst lower margin savings accounts increased £2.0 billion.

-

Other operating expenses were £19 million, or 13.8%, higher than Q3 2022 reflecting continued investment in the business and planned increased headcount for consumer duty and Coutts 24, our customer help centre.

-

A net impairment release of £2 million in Q3 2023 largely reflects a small release in good book provision whilst stage 3 defaults remain at low levels.

-

Net loans to customers decreased by £0.3 billion, or 1.6%, in Q3 2023 driven by higher repayments and weaker demand for new lending.   

-

Customer deposits increased by £0.7 billion, or 1.9%, compared with Q2 2023 driven by the continued strong term and notice balance growth, partially offset by lower instant access savings and current accounts.

-

AUMAs increased by £0.3 billion to £38.2 billion, in Q3 2023 primarily reflecting AUA net inflows of £0.2 billion and muted

market movements. AUM net inflows for the year to date reflects 4% of opening AUM balances.

 

 

 

Business performance summary

Commercial & Institutional

Quarter ended


30 September

30 June

30 September


2023

2023

2022


£m

£m

£m

Net interest income

1,271 

1,243

1,131

Non-interest income

570 

552

526

Total income

1,841 

1,795

1,657


 



Operating expenses

(1,012)

(984)

(893)

   of which: Other operating expenses

(960)

(934)

(840)

Impairment losses

(59)

(64)

(119)

Operating profit

770 

747

645


 



Return on equity (1)

14.7%

14.3%

12.2%

Net interest margin (1)

3.88%

3.79%

3.46%

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

52.1%

52.0%

50.7%

Loan impairment rate (1)

18bps

20bps

36bps

 

 

As at


30 September

30 June

31 December


2023

2023

2022


£bn

£bn

£bn

Net loans to customers (amortised cost)

130.5

129.2

129.9

Customer deposits

201.8

201.5

203.3

Funded assets (1)

325.2

320.6

306.3

RWAs

107.9

103.6

103.2


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

During Q3 2023, Commercial & Institutional delivered another strong performance with growth in revenues and operating profit supporting a return on equity of 14.7%.

 

Commercial & Institutional provided £3.6 billion of climate and sustainable funding and financing in Q3 2023.

 

Q3 2023 performance

-

Total income was £184 million, or 11.1%, higher than Q3 2022 largely reflecting higher deposit income supported by interest rate rises and higher markets income partly offset by higher funding costs.

-

Net interest margin was 9 basis points higher than Q2 2023 largely reflecting one-off items. The benefit of rate rises on deposit income is more than offset by deposit mix shifts from non-interest bearing to interest bearing balances.

-

Other operating expenses were £120 million, or 14.3%, higher than Q3 2022 reflecting higher pay awards to support our colleagues with cost of living challenges, continued investment in the business, including an increase in headcount, and property lease termination losses.

-

An impairment charge of £59 million in Q3 2023 reflects continued low stage 3 default charges.

-

Net loans to customers increased by £1.3 billion, or 1.0%, in Q3 2023 largely due to an increase in term loan facilities including an increase in revolving credit utilisations and private financing growth within Corporate & Institutions, partly offset by UK Government scheme repayments of £0.7 billion.

-

Customer deposits increased by £0.3 billion, or 0.1%, in Q3 2023 due to growth in Corporate & Institutions, specifically term balances, partly offset by a continued market contraction of non-interest bearing balances in Commercial Mid-market. The deposit mix continues to evolve with transition from non-interest bearing and instant access to term balances.

-

RWAs increased by £4.3 billion, or 4.2%, in Q3 2023 primarily due to increased market risk through the quarter following heightened market volatility and lending volume growth.





 

 

Business performance summary

Central items & other

Quarter ended


30 September

30 June

30 September


2023

2023

2022


£m

£m

£m

Continuing operations

 



Total income

(9)

269 

(188)

Operating expenses (1)

22 

(105)

(171)

   of which: Other operating expenses

45 

(132)

(163)

   of which: Ulster Bank RoI direct expenses

(43)

(63)

(75)

Impairment losses

(3)

(7)

(5)

Operating profit/(loss)

10 

157 

(364)

   of which: Ulster Bank RoI

(54)

(136)

(156)


 




As at


30 September

30 June

31 December


2023

2023

2022


£bn

£bn

£bn

Net loans to customers (amortised cost) (2)

22.8

21.2

19.6

Customer deposits

12.4

11.4

17.4

RWAs

3.2

5.1 

7.0 

 

(1)

Includes withdrawal-related direct program costs of £10 million for the quarter ended 30 September 2023 (30 June 2023 - £15 million, 30 September 2022 - £24 million).

(2)

Excluded £0.3 billion of loans to customers held at fair value through profit or loss (30 June 2023 - £0.4 billion, 31 December 2022 - £0.5 billion).

 

Q3 2023 performance

-    Total income was £179 million higher than Q3 2022 reflecting one-off items including lower losses on liquidity asset bond sales, business growth fund gains and lower losses on redemption of own debt partially offset by lower gains on interest and FX risk management derivatives not in accounting hedge relationships and losses associated with property lease terminations.

-    Net loans to customers increased by £1.6 billion in Q3 2023 mainly due to reverse repo activity in Treasury.

-    Customer deposits increased by £1.0 billion in Q3 2023 primarily reflecting repo activity in Treasury. Ulster Bank RoI customer deposit balances were £0.2 billion as at Q3 2023.

 

 


 


 


 


 


 


 

 

 

Segment performance

Nine months ended 30 September 2023


 

 

 

Central

Total


Retail

Private

Commercial &

 & items

 NatWest


Banking

Banking

Institutional

 other

Group


£m

£m

£m

£m

£m

Continuing operations

 

 

 

 

 

Income statement

 

 

 

 

 

Net interest income

4,242 

572 

3,775 

(178)

8,411 

Non-interest income

320 

209 

1,814 

461 

2,804 

Total income

4,562 

781 

5,589 

283 

11,215 

Direct expenses 

(604)

(181)

(1,118)

(3,697)

(5,600)

Indirect expenses 

(1,460)

(287)

(1,735)

3,482 

-

Other operating expenses

(2,064)

(468)

(2,853)

(215)

(5,600)

Litigation and conduct costs

(83)

(11)

(146)

(2)

(242)

Operating expenses

(2,147)

(479)

(2,999)

(217)

(5,842)

Operating profit before impairment losses (1)

2,415 

302 

2,590 

66 

5,373 

Impairment losses (1)

(362)

(9)

(79)

(2)

(452)

Operating profit

2,053 

293 

2,511 

64 

4,921 

 

 

 

 

 

 

Income excluding notable items (1)

4,562 

781 

5,586 

(32)

10,897 

 

 

 

 

 

 

Additional information

 

 

 

 

 

Return on tangible equity (1)

na

na

na

na

17.1%

Return on equity (1)

25.1%

20.3%

16.1%

nm

na

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

45.2%

59.9%

51.0%

nm

49.9%

Total assets (£bn)

229.1

26.8

411.6

49.6

717.1

Funded assets (£bn) (1)

229.1

26.8

325.2

48.5

629.6

Net loans to customers - amortised cost (£bn)

205.2

18.8

130.5

22.8

377.3

Loan impairment rate (1)

23bps

6bps

8bps

nm

16bps

Impairment provisions (£bn)

(1.9)

(0.1)

(1.5)

-

(3.5)

Impairment provisions - stage 3 (£bn)

(1.1)

-

(0.8)

-

(1.9)

Customer deposits (£bn)

184.5

37.2

201.8

12.4

435.9

Risk-weighted assets (RWAs) (£bn)

58.9

11.6

107.9

3.2

181.6

RWA equivalent (RWAe) (£bn)

58.9

11.6

109.1

3.9

183.5

Employee numbers (FTEs - thousands)

13.4

2.4

12.6

33.3

61.7

Third party customer asset rate (1)

3.13%

4.43%

5.98%

nm

nm

Third party customer funding rate (1)

(1.24%)

(1.88%)

(1.23%)

nm

nm

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

204.6

19.1

130.9

na

361.7

Bank net interest margin (1)

2.77%

4.00%

3.86%

na

3.11%

nm = not meaningful, na = not applicable.

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

 

 

Segment performance

Nine months ended 30 September 2022





Central

Total 


Retail

Private

Commercial &

& items

NatWest


Banking

Banking

Institutional

other

Group


£m

£m

£m

£m

£m

Continuing operations






Income statement

 

 

 

 

 

Net interest income

3,719 

526 

2,895 

(166)

6,974 

Non-interest income

310 

220 

1,699 

245 

2,474 

Total income

4,029 

746 

4,594 

79 

9,448 

Direct expenses 

(505)

(169)

(1,109)

(3,472)

(5,255)

Indirect expenses 

(1,309)

(253)

(1,465)

3,027 

-

Other operating expenses

(1,814)

(422)

(2,574)

(445)

(5,255)

Litigation and conduct costs

(121)

(2)

(139)

(32)

(294)

Operating expenses

(1,935)

(424)

(2,713)

(477)

(5,549)

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

2,094 

322 

1,881 

(398)

3,899 

Impairment (losses)/releases (1)

(142)

4 

(60)

5 

(193)

Operating profit/(loss)

1,952 

326 

1,821 

(393)

3,706 

 






Income excluding notable items (1)

4,029 

746 

4,578 

(58)

9,295 

 






Additional information






Return on tangible equity (1)

na

na

na

na

10.0%

Return on equity (1)

26.5%

24.5%

11.7%

nm

na

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

45.0%

56.6%

56.0%

nm

55.6%

Total assets (£bn)

221.3

29.8

465.3

85.1

801.5

Funded assets (£bn) (1)

221.3

29.8

325.5

83.9

660.5

Net loans to customers - amortised cost (£bn)

192.8

19.1

131.9

28.0

371.8

Loan impairment rate (1)

10bps

(3)bps

6bps

nm

7bps

Impairment provisions (£bn)

(1.5)

(0.1)

(1.6)

(0.1)

(3.3)

Impairment provisions - stage 3 (£bn)

(0.9)

-

(0.7)

(0.1)

(1.7)

Customer deposits (£bn)

190.9

42.2

215.2

24.7

473.0

Risk-weighted assets (RWAs) (£bn)

53.0

11.1

104.8

9.6

178.5

RWA equivalent (RWAe) (£bn)

53.0

11.1

106.5

10.1

180.7

Employee numbers (FTEs - thousands)

13.8

2.2

12.2

31.8

60.0

Third party customer asset rate (1)

2.61%

2.80%

3.19%

nm

nm

Third party customer funding rate (1)

(0.11%)

(0.15%)

(0.10%)

nm

nm

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

188.6

19.1

125.4

na

342.7

Bank net interest margin (1)

2.64%

3.69%

3.09%

na

2.72%

nm = not meaningful, na = not applicable.

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

 

Segment performance

Quarter ended 30 September 2023


 

 

 

Central

Total


Retail

Private

Commercial &

 & items

 NatWest


Banking

Banking

Institutional

 other

Group


£m

£m

£m

£m

£m

Continuing operations

 

 

 

 

 

Income statement

 

 

 

 

 

Net interest income

1,334

144

1,271

(64)

2,685

Non-interest income

108

70

570

55

803

Total income

1,442

214

1,841

(9)

3,488

Direct expenses 

(206)

(63)

(377)

(1,147)

(1,793)

Indirect expenses 

(515)

(94)

(583)

1,192

-

Other operating expenses

(721)

(157)

(960)

45

(1,793)

Litigation and conduct costs

(59)

-

(52)

(23)

(134)

Operating expenses

(780)

(157)

(1,012)

22

(1,927)

Operating profit before impairment losses/releases (1)

662

57

829

13

1,561

Impairment (losses)/releases (1)

(169)

2

(59)

(3)

(229)

Operating profit

493

59

770

10

1,332

 

 

 

 

 

 

Income excluding notable items (1)

1,442

214

1,847

11

3,514

 

 

 

 

 

 

Additional information

 

 

 

 

 

Return on tangible equity (1)

na

na

na

na

14.7%

Return on equity (1)

17.5%

11.7%

14.7%

nm

na

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

50.0%

73.4%

52.1%

nm

51.4%

Total assets (£bn)

229.1

26.8

411.6

49.6

717.1

Funded assets (£bn) (1)

229.1

26.8

325.2

48.5

629.6

Net loans to customers - amortised cost (£bn)

205.2

18.8

130.5

22.8

377.3

Loan impairment rate (1)

33bps

(4)bps

18bps

nm

24bps

Impairment provisions (£bn)

(1.9)

(0.1)

(1.5)

-

(3.5)

Impairment provisions - stage 3 (£bn)

(1.1)

-

(0.8)

-

(1.9)

Customer deposits (£bn)

184.5

37.2

201.8

12.4

435.9

Risk-weighted assets (RWAs) (£bn)

58.9

11.6

107.9

3.2

181.6

RWA equivalent (RWAe) (£bn)

58.9

11.6

109.1

3.9

183.5

Employee numbers (FTEs - thousands)

13.4

2.4

12.6

33.3

61.7

Third party customer asset rate (1)

3.34%

4.80%

6.72%

nm

nm

Third party customer funding rate (1)

(1.69%)

(2.80%)

(1.65%)

nm

nm

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

206.9

18.9

129.8

na

362.8

Bank net interest margin (1)

2.56%

3.02%

3.88%

na

2.94%

nm = not meaningful, na = not applicable

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

 

Segment performance

Quarter ended 30 June 2023





Central

Total 


Retail

Private

Commercial &

& items

NatWest


Banking

Banking

Institutional

other

Group


£m

£m

£m

£m

£m

Continuing operations






Income statement

 

 

 

 

 

Net interest income

1,416

199

1,243

(34)

2,824

Non-interest income

100

72

552

303

1,027

Total income

1,516

271

1,795

269

3,851

Direct expenses 

(187)

(58)

(381)

(1,249)

(1,875)

Indirect expenses 

(463)

(101)

(553)

1,117

-

Other operating expenses

(650)

(159)

(934)

(132)

(1,875)

Litigation and conduct costs

(21)

(8)

(50)

27

(52)

Operating expenses

(671)

(167)

(984)

(105)

(1,927)

Operating profit before impairment losses (1)

845

104

811

164

1,924

Impairment losses (1)

(79)

(3)

(64)

(7)

(153)

Operating profit

766

101

747

157

1,771

 






Income excluding notable items (1)

1,516

271

1,792

(16)

3,563

 






Additional information






Return on tangible equity (1)

na

na

na

na

16.4%

Return on equity (1)

28.2%

20.8%

14.3%

nm

na

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

42.9%

58.7%

52.0%

nm

48.7%

Total assets (£bn)

229.1

27.3

401.5

44.7

702.6

Funded assets (£bn) (1)

229.1

27.3

320.6

43.7

620.7

Net loans to customers - amortised cost (£bn)

204.4

19.1

129.2

21.2

373.9

Loan impairment rate (1)

15bps

6bps

20bps

nm

16bps

Impairment provisions (£bn)

(1.7)

(0.1)

(1.5)

(0.1)

(3.4)

Impairment provisions - stage 3 (£bn)

(1.0)

-

(0.8)

(0.1)

(1.9)

Customer deposits (£bn)

183.1

36.5

201.5

11.4

432.5

Risk-weighted assets (RWAs) (£bn)

57.3

11.5

103.6

5.1

177.5

RWA equivalent (RWAe) (£bn)

57.3

11.5

104.9

5.8

179.5

Employee numbers (FTEs - thousands)

13.7

2.3

12.6

32.9

61.5

Third party customer asset rate (1)

3.11%

4.41%

5.84%

nm

nm

Third party customer funding rate (1)

(1.20%)

(1.71%)

(1.18%)

nm

nm

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

204.6

19.2

131.4

na

362.3

Bank net interest margin (1)

2.78%

4.17%

3.79%

na

3.13%

nm = not meaningful, na = not applicable

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

 

Segment performance

Quarter ended 30 September 2022





Central

Total 


Retail

Private

Commercial &

& items

NatWest


Banking

Banking

Institutional

other

Group


£m

£m

£m

£m

£m

Continuing operations






Income statement

 

 

 

 

 

Net interest income

1,379 

211 

1,131 

(81)

2,640 

Non-interest income

96 

74 

526 

(107)

589 

Total income

1,475 

285 

1,657 

(188)

3,229 

Direct expenses 

(180)

(59)

(367)

(1,165)

(1,771)

Indirect expenses 

(450)

(79)

(473)

1,002 

-

Other operating expenses

(630)

(138)

(840)

(163)

(1,771)

Litigation and conduct costs

(63)

(1)

(53)

(8)

(125)

Operating expenses

(693)

(139)

(893)

(171)

(1,896)

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

782 

146 

764 

(359)

1,333 

Impairment losses (1)

(116)

(7)

(119)

(5)

(247)

Operating profit/(loss)

666 

139 

645 

(364)

1,086 

 






Income excluding notable items (1)

1,475 

285 

1,648 

(11)

3,397 

 






Additional information






Return on tangible equity (1)

na

na

na

na

2.9%

Return on equity (1)

27.0%

31.8%

12.2%

nm

na

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

42.7%

48.4%

50.7%

nm

54.8%

Total assets (£bn)

221.3

29.8

465.3

85.1

801.5

Funded assets (£bn) (1)

221.3

29.8

325.5

83.9

660.5

Net loans to customers - amortised cost (£bn)

192.8

19.1

131.9

28.0

371.8

Loan impairment rate (1)

24bps

15bps

36bps

nm

26bps

Impairment provisions (£bn)

(1.5)

(0.1)

(1.6)

(0.1)

(3.3)

Impairment provisions - stage 3 (£bn)

(0.9)

-

(0.7)

(0.1)

(1.7)

Customer deposits (£bn)

190.9

42.2

215.2

24.7

473.0

Risk-weighted assets (RWAs) (£bn)

53.0

11.1

104.8

9.6

178.5

RWA equivalent (RWAe) (£bn)

53.0

11.1

106.5

10.1

180.7

Employee numbers (FTEs - thousands)

13.8

2.2

12.2

31.8

60.0

Third party customer asset rate (1)

2.64%

3.09%

3.53%

nm

nm

Third party customer funding rate (1)

(0.17%)

(0.29%)

(0.19%)

nm

nm

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

192.1

19.2

129.8

na

350.7

Bank net interest margin (1)

2.85%

4.37%

3.46%

na

2.99%

nm = not meaningful, na = not applicable

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

 

 

 


Risk and capital management

Page

Credit risk


   Segment analysis - portfolio summary

16

   Segment analysis - loans

18

   Movement in ECL provision

18

   ECL post model adjustments

19

   Sector analysis - portfolio summary

20

   Wholesale support schemes

21

Capital, liquidity and funding risk

22

 

 

 

 

Risk and capital management

Credit risk

Segment analysis - portfolio summary

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

 

 

 

 

 


Retail

Private

Commercial 

Central items

 


Banking

Banking

& Institutional

& other

Total

30 September 2023

£m

£m

£m

£m

£m

Loans - amortised cost and FVOCI (1)






Stage 1

185,826

17,831

114,918

27,866

346,441

Stage 2

17,963

943

18,721

19

37,646

Stage 3

2,965

258

2,224

18

5,465

Of which: individual

-

209

1,041

-

1,250

Of which: collective

2,965

49

1,183

18

4,215

Subtotal excluding disposal group loans

206,754

19,032

135,863

27,903

389,552

Disposal group loans

 

 

 

136

136

Total

 

 

 

28,039

389,688

ECL provisions (2)

 

 

 

 

 

Stage 1

304

20

340

23

687

Stage 2

481

17

509

25

1,032

Stage 3

1,096

33

785

16

1,930

Of which: individual

-

33

287

-

320

Of which: collective

1,096

-

498

16

1,610

Subtotal excluding ECL provisions on disposal group loans

1,881

70

1,634

64

3,649

ECL provisions on disposal group loans

 

 

 

61

61

Total

 

 

 

125

3,710

ECL provisions coverage (3)

 

 

 

 

 

Stage 1 (%)

0.16

0.11

0.30

0.08

0.20

Stage 2 (%)

2.68

1.80

2.72

nm

2.74

Stage 3 (%)

36.96

12.79

35.30

88.89

35.32

ECL provisions coverage excluding disposal group loans

0.91

0.37

1.20

0.23

0.94

ECL provisions coverage on disposal group loans

 

 

 

44.85

44.85

Total

 

 

 

0.45

0.95

 

30 June 2023






Loans - amortised cost and FVOCI (1)






Stage 1

180,293

18,075

112,341

25,653

336,362

Stage 2

22,686

988

19,676

90

43,440

Stage 3

2,826

254

2,246

124

5,450

Of which: individual

-

203

1,017

27

1,247

Of which: collective

2,826

51

1,229

97

4,203

Subtotal excluding disposal group loans

205,805

19,317

134,263

25,867

385,252

Disposal group loans




573

573

Total




26,440

385,825

ECL provisions (2)






Stage 1

282

23

333

23

661

Stage 2 

439

17

507

28

991

Stage 3

1,038

31

765

71

1,905

Of which: individual

-

31

260

4

295

Of which: collective

1,038

-

505

67

1,610

Subtotal excluding ECL provisions on disposal group loans

1,759

71

1,605

122

3,557

ECL provisions on disposal group loans




31

31

Total




153

3,588

ECL provisions coverage (3)






Stage 1 (%)

0.16

0.13

0.30

0.09

0.20

Stage 2 (%)

1.94

1.72

2.58

31.11

2.28

Stage 3 (%)

36.73

12.20

34.06

57.26

34.95

ECL provisions coverage excluding disposal group loans

0.85

0.37

1.20

0.47

0.92

ECL provisions coverage on disposal group loans




5.41

5.41

Total




0.58

0.93

nm = not meaningful

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

 

Risk and capital management

Credit risk continued

Segment analysis - portfolio summary continued







Retail

Private

Commercial

Central items



Banking

Banking

& Institutional

& other

Total

31 December 2022

£m

£m

£m

£m

£m

Loans - amortised cost and FVOCI (1)






Stage 1

174,727

18,367

108,791

23,339

325,224

Stage 2

21,561

801

24,226

245

46,833

Stage 3

2,565

242

2,166

123

5,096

Of which: individual

-

168

905

48

1,121

Of which: collective

2,565

74

1,261

75

3,975

Subtotal excluding disposal group loans

198,853

19,410

135,183

23,707

377,153

Disposal group loans




1,502

1,502

Total




25,209

378,655

ECL provisions (2)






Stage 1

251

21

342

18

632

Stage 2 

450

14

534

45

1,043

Stage 3

917

26

747

69

1,759

Of which: individual

-

26

251

10

287

Of which: collective

917

-

496

59

1,472

Subtotal excluding ECL provisions on disposal group loans

1,618

61

1,623

132

3,434

ECL provisions on disposal group loans




53

53

Total




185

3,487

ECL provisions coverage (3)






Stage 1 (%)

0.14

0.11

0.31

0.08

0.19

Stage 2 (%)

2.09

1.75

2.20

18.37

2.23

Stage 3 (%)

35.75

10.74

34.49

56.10

34.52

ECL provisions coverage excluding disposal group loans

0.81

0.31

1.20

0.56

0.91

ECL provisions coverage on disposal group loans




3.53

3.53

Total




0.73

0.92

 

(1)     Includes loans to customers and banks.

(2)     Includes £9 million (30 June 2023 - £4 million; 31 December 2022 - £3 million) related to assets classified as FVOCI; and £0.1 billion (30 June 2023 - £0.1 billion; 31 December 2022 - £0.1 billion) related to off-balance sheet exposures.

(3)     ECL provisions coverage is calculated as ECL provisions divided by loans - amortised cost and FVOCI. It is calculated on third party loans and total ECL provisions. Some segments with a high proportion of debt securities or unutilised exposure may result in a not meaningful coverage ratio.

(4)     The table shows gross loans only and excludes amounts that were outside the scope of the ECL framework. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling £118.6 billion (30 June 2023 - £121.9 billion; 31 December 2022 - £143.3 billion) and debt securities of £45.3 billion (30 June 2023 - £34.7 billion; 31 December 2022 - £29.9 billion).

 

 

 

Risk and capital management

Credit risk continued

Segment analysis - loans

-    Retail Banking - Balance sheet growth continued during Q3 2023, but at a reduced pace compared to Q2 2023, reflecting UK mortgage market trends. Unsecured balances growth, primarily in credit cards, was a continuation of the strong customer demand seen in the first half of the year. Lending criteria and affordability assumptions continue to be reviewed to ensure new business is assessed appropriately in the higher interest rate and inflationary environment. While portfolio performance continued to remain stable, total ECL coverage increased. The rise in coverage was reflective of increased Stage 3 ECL on unsecured portfolios, mainly due to reduced write-off activity. The modest increase in good book coverage reflected slightly increased probability of defaults in unsecured portfolios, linked to economic modelling inputs, and unsecured lending growth. Post model adjustments to capture increased affordability pressures on customers due to high inflation and rising interest rates remained broadly stable. Stage 2 balances decreased during Q3 2023, driven by mortgages, as a lagged effect of the multiple economic scenarios update at 30 June 2023. This scenario update reduced levels of probability of default significant increase in credit risk deterioration, with the three-month probability of default persistence rules expiring, which resulted in some migration back into Stage 1. Increased probability of defaults in unsecured portfolios, as described above, resulted in increased Stage 2 balances, primarily in credit cards.

-    Commercial & Institutional - There was balance sheet growth during Q3 2023. Growth since Q4 2022 was primarily in financial institutions and other wholesale. Sector appetite continues to be reviewed regularly, with particular focus on sector clusters and sub-sectors that are deemed to represent a heightened risk, including due to cost of living, supply chain and inflationary pressures. Coverage remained stable with small increases in ECL alongside balance growth. Stage 1 and Stage 2 ECL increased marginally during the quarter with increases from changes in risk parameters largely offset by the continued unwind of Covid post model adjustments. Stage 3 individual ECL increased due to some flows into Stage 3 as well as ECL increases on a small number of previously defaulted exposures.

-    Central items & other - Disposal group loans continue to reduce as portfolios are sold, with Q3 2023 sales comprised primarily of non-defaulted loans. ECL for the remaining loans was updated to reflect the expected outcome from future portfolio sales.  This has resulted in higher coverage rates on these remaining loans.

Movement in ECL provision

The table below shows the main ECL provision movements during the year.

ECL provision


£m

At 1 January 2023

3,434

Transfers to disposal groups and reclassifications

(69)

Changes in economic forecasts

(98)

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

45

Changes in risk metrics and exposure: Stage 3

424

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

118

Write-offs and other

(205)

At 30 September 2023

3,649

 

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

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

-    Stage 3 balances increased, primarily driven by retail portfolios, linked to reduced write-off activity this year.

-    There were no changes to economic forecasts in the quarter and minimal changes from post model adjustments which have been largely retained reflecting a continued uncertain economic outlook.

-    A £69 million ECL reduction was due to the transfer to disposal groups and reclassifications related to the phased withdrawal of Ulster Bank RoI from the Republic of Ireland.

 

 

 

 

Risk and capital management

Credit risk continued

ECL post model adjustments

The table below shows ECL post model adjustments.

Retail Banking


Private

Commercial &

 

Central items &

 


Mortgages

Other

 

Banking

Institutional

 

 other

Total

30 September 2023

£m

£m

 

£m

£m

 

£m

£m

Deferred model calibrations

-

-

 

1

21

 

-

22

Economic uncertainty

115

46

 

11

279

 

2

453

Other adjustments

7

-

 

-

14

 

33

54

Total

122

46

 

12

314

 

35

529


 

 

 

 

 

 

 

 

Of which:

 

 

 

 

 

 

 

 

- Stage 1

79

19

 

6

117

 

11

232

- Stage 2

29

27

 

6

193

 

21

276

- Stage 3 

14

-

 

-

4

 

3

21


 

 

 

 

 

 

 

 

30 June 2023

 

 

 

Deferred model calibrations

-

-


1

22


-

23

Economic uncertainty

116

43


12

289


2

462

Other adjustments

7

-


-

12


36

55

Total

123

43


13

323


38

540










Of which:









- Stage 1

74

19

 

6

113

 

20

232

- Stage 2

34

24

 

7

206

 

17

288

- Stage 3 

15

-

 

-

4

 

1

20


 

 

 

 

 

 

 

 

31 December 2022

 

 

 

Economic uncertainty

102

51


6

191


2

352

Other adjustments

8

20


-

16


15

59

Total

110

71


6

207


17

411










Of which:









- Stage 1

62

27

 

3

63

 

-

155

- Stage 2

32

44

 

3

139

 

16

234

- Stage 3 

16

-

 

-

5

 

1

22

 

-    Retail Banking - The post model adjustments for economic uncertainty increased slightly to £161 million at 30 September 2023, from £159 million at 30 June 2023. Continued consumer affordability risks, as a result of higher interest rates and sustained inflation, prompted an uplift in the cost of living post model adjustment (up from £134 million to £138 million). The cost of living post model adjustment captures the risk on segments in the Retail Banking portfolio that are more susceptible to the effects of cost of living rises. It focuses on key affordability lenses, including customers with lower income in fuel poverty, over-indebted borrowers and customers vulnerable to a potential mortgage rate shock.

-    Commercial & Institutional - The post model adjustments for economic uncertainty decreased slightly to £279 million at 30 September 2023, from £289 million at 30 June 2023. It included an overlay of £62 million, down from £79 million, to cover the residual risks from Covid, to address concerns about the associated debt of customers who have used government support schemes. A mechanistic post model adjustment via a sector level downgrade remained in place to account for the pressures from inflation and supply chains, plus broader concerns around liquidity and reducing cash reserves across many sectors. The post model adjustment increased to £217 million at 30 September 2023 from £210 million at 30 June 2023, reflecting the significant headwinds for a number of sectors which are not fully captured in the models.

 

 

 

Risk and capital management

Credit risk continued

Sector analysis - portfolio summary

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

 

Off-balance sheet

 

 


Loans - amortised cost and FVOCI

Loan

 

Contingent

 

ECL provisions 


Stage 1

Stage 2

Stage 3

Total

commitments

 

liabilities

 

Stage 1

Stage 2

Stage 3

Total

30 September 2023

£m

£m

£m

£m

£m

 

£m

 

£m

£m

£m

£m

Personal

202,724

18,233

3,218

224,175

36,965

 

46

 

317

493

1,139

1,949

  Mortgages (1)

192,083

14,629

2,170

208,882

11,007

 

-

 

96

56

264

416

  Credit cards

3,569

1,825

132

5,526

17,267

 

-

 

70

175

95

340

  Other personal

7,072

1,779

916

9,767

8,691

 

46

 

151

262

780

1,193

Wholesale

143,717

19,413

2,247

165,377

92,220

 

4,540

 

370

539

791

1,700

  Property

27,083

3,510

661

31,254

14,372

 

359

 

99

114

197

410

  Financial institutions

52,414

437

34

52,885

19,697

 

1,553

 

32

15

10

57

  Sovereign

2,669

1

22

2,692

231

 

-

 

12

-

1

13

  Other wholesale

61,551

15,465

1,530

78,546

57,920

 

2,628

 

227

410

583

1,220

    Of which:

 

 

 

 

 

 

 

 

 

 

 

 

        Agriculture

3,719

1,119

104

4,942

998

 

20

 

18

37

35

90

        Airlines and aerospace 

1,382

596

3

1,981

1,636

 

181

 

4

9

2

15

        Automotive

6,844

868

63

7,775

4,097

 

84

 

20

16

19

55

        Building materials

1,309

305

15

1,629

1,471

 

73

 

7

10

8

25

        Chemicals

339

69

1

409

822

 

11

 

1

5

1

7

        Industrials

2,303

674

73

3,050

3,059

 

156

 

10

20

19

49

        Land transport and logistics

4,314

766

65

5,145

3,193

 

162

 

12

19

18

49

        Leisure

4,146

2,678

289

7,113

1,979

 

161

 

30

85

88

203

        Mining and metals

359

36

5

400

488

 

7

 

1

1

4

6

        Oil and gas

760

147

28

935

1,977

 

236

 

3

3

27

33

        Power utilities

5,023

446

45

5,514

8,608

 

623

 

12

13

9

34

        Retail

5,594

1,899

224

7,717

4,566

 

389

 

21

44

116

181

        Shipping

199

72

3

274

66

 

31

 

-

2

2

4

        Water and waste

3,389

386

14

3,789

1,812

 

97

 

4

4

4

12

Total

346,441

37,646

5,465

389,552

 

4,586

 

687

1,032

1,930

3,649

 













31 December 2022 (2)













Personal

192,438

21,854

2,831

217,123

43,126


51


260

466

957

1,683

  Mortgages (1)

182,245

18,787

1,925

202,957

18,782


-


81

62

233

376

  Credit cards

3,275

1,076

109

4,460

15,848


-


62

122

73

257

  Other personal

6,918

1,991

797

9,706

8,496


51


117

282

651

1,050

Wholesale

132,786

24,979

2,265

160,030

88,886


4,963


372

577

802

1,751

  Property

26,300

4,035

701

31,036

13,895


413


99

98

223

420

  Financial institutions

46,738

1,353

47

48,138

18,223


1,332


32

14

17

63

  Sovereign

2,793

1

2

2,796

269


-


15

-

2

17

  Other wholesale

56,955

19,590

1,515

78,060

56,499


3,218


226

465

560

1,251

    Of which:

 

 

 

 

 

 

 

 

 

 

 

 

        Agriculture

3,646

1,034

93

4,773

968

 

24

 

21

31

43

95

        Airlines and aerospace 

483

1,232

19

1,734

1,715

 

174

 

2

40

8

50

        Automotive

5,776

1,498

30

7,304

4,009

 

99

 

18

18

11

47

        Building materials

1,244

284

15

1,543

1,407

 

78

 

7

7

7

21

        Chemicals

384

117

1

502

650

 

12

 

1

2

1

4

        Industrials

2,148

1,037

82

3,267

3,135

 

195

 

10

16

24

50

        Land transport and logistics

3,863

1,304

72

5,239

3,373

 

190

 

13

34

18

65

        Leisure

3,416

3,787

260

7,463

1,907

 

102

 

27

147

115

289

        Mining and metals

173

230

5

408

545

 

5

 

-

1

5

6

        Oil and gas

953

159

60

1,172

2,157

 

248

 

3

3

31

37

        Power utilities

4,228

406

6

4,640

6,960

 

1,182

 

9

11

1

21

        Retail

6,497

1,746

150

8,393

4,682

 

416

 

21

29

68

118

        Shipping

161

151

14

326

110

 

22

 

-

7

6

13

        Water and waste

3,026

335

7

3,368

2,143

 

101

 

4

4

4

12

Total

325,224

46,833

5,096

377,153

132,012


5,014


632

1,043

1,759

3,434

 

(1)     As at 30 September 2023, £144.2 billion, 70%, of the total residential mortgages portfolio had Energy Performance Certificate (EPC) data available (31 December 2022 - £138.8 billion, 68%), of which, 43% were rated as EPC A to C (31 December 2022 - 42%).

(2)     Previously published sector splits for the Wholesale portfolio have been re-presented to reflect updated internal sector reporting splits.

 

 

Risk and capital management

Credit risk continued

Wholesale support schemes

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

Gross carrying amount

 

 

 

 


BBL

 

Associated debt

 

ECL on associated debt


Stage 1 

Stage 2

Stage 3

Total

 

Stage 1 

Stage 2

Stage 3

Total

 

Stage 1

Stage 2 

Stage 3

30 September 2023

£m

£m

£m

£m

 

£m

£m

£m

£m

 

£m

£m

£m

Wholesale 














Property 

699

191

32

922

 

702

222

78

1,002

 

9

18

29

Financial institutions

18

4

-

22

 

8

2

-

10

 

-

-

-

Other

2,346

628

280

3,254

 

2,062

954

161

3,177

 

26

64

89

Total

3,063

823

312

4,198

 

2,772

1,178

239

4,189

 

35

82

118















31 December 2022 (1)

 

 

 

 

 

 

 

 

 

 

 

Wholesale 














Property 

966

186

48

1,200


874

205

60

1,139


10

14

26

Financial institutions

24

4

-

28


9

2

-

11


-

-

1

Other

3,233

641

342

4,216


2,338

884

117

3,339


26

57

70

Total

4,223

831

390

5,444


3,221

1,091

177

4,489


36

71

97

 

(1)     Previously published sector splits for the Wholesale portfolio have been re-presented to reflect updated internal sector reporting splits.

 

 


Risk and capital management

Capital, liquidity and funding risk

Introduction

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

Key developments since 31 December 2022

CET1 ratio

The CET1 ratio decreased by 70 basis points to 13.5%. The reduction in CET1 ratio was due to a £0.4 billion decrease in CET1 capital and a £5.5 billion increase in RWAs.

The CET1 decrease was mainly driven by:

-    the directed buyback of £1.3 billion;

-    a foreseeable dividend accrual of £0.6 billion;

-    a £0.5 billion decrease for the on-market ordinary share buyback programme, of which £0.4 billion is reported as a foreseeable charge;

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

-    an increase in the intangible assets deduction of £0.4 billion; and

-    other movements on reserves and regulatory adjustments of £0.2 billion.

These reductions were partially offset by the £2.7 billion attributable profit in the period (net of ordinary interim dividend paid).

Total RWAs

Total RWAs increased by £5.5 billion to £181.6 billion, mainly reflecting:

-    an increase in credit risk RWAs of £2.0 billion, primarily due to £0.9 billion of IRB model adjustments within Retail Banking, in addition to increased exposures within Commercial & Institutional and Retail Banking. This was partially offset by reduced exposures within Ulster Bank RoI as a result of the phased withdrawal from the Republic of Ireland.

-    an increase in counterparty credit risk RWAs of £1.3 billion, primarily due to the call of a credit default swap trade in Q2 2023 and the subsequent removal of credit risk mitigation, this is in addition to increased trades during Q3 2023.

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

-    an increase in market risk RWAs of £1.1 billion, driven by market volatility during Q3 2023.

UK leverage ratio

The leverage ratio decreased by 30 basis points to 5.1%. The decrease was due to a £0.4 billion reduction in Tier 1 capital and a £28.9 billion increase in leverage exposure. The key driver in leverage exposure was an increase in other financial assets.

Liquidity portfolio

The liquidity portfolio decreased by £0.5 billion to £225.0 billion. Primary liquidity decreased by £12.7 billion to £148.9 billion, driven by a reduction in customer deposits, increased lending and capital distributions, partially offset by the UBIDAC asset sales and wholesale funding. Secondary liquidity increased by £12.2 billion due to an increase in pre-positioned collateral at the Bank of England.

 

 

 

Risk and capital management

Capital, liquidity and funding risk continued

Maximum Distributable Amount (MDA) and Minimum Capital Requirements

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

Where the CET1 ratio falls below the sum of the minimum capital and the combined buffer requirement, there is a subsequent automatic restriction on the amount available to service discretionary payments (including AT1 coupons), known as the MDA. Note that different requirements apply to individual legal entities or sub-groups and that the table shown does not reflect any incremental PRA buffer requirements, which are not disclosable.

The current capital position provides significant headroom above both our minimum requirements and our MDA threshold requirements.

Type

CET1

Total Tier 1

Total capital

Pillar 1 requirements

4.5%

6.0%

8.0%

Pillar 2A requirements

1.7%

2.3%

3.0%

Minimum Capital Requirements

6.2%

8.3%

11.0%

Capital conservation buffer

2.5%

2.5%

2.5%

Countercyclical capital buffer (1) 

1.7%

1.7%

1.7%

MDA threshold (2)

10.4%

n/a

n/a

Overall capital requirement

10.4%

12.5%

15.2%

Capital ratios at 30 September 2023

13.5%

15.7%

18.7%

Headroom (3) 

3.1%

3.2%

3.5%

 

(1)

The UK CCyB rate is being maintained at 2%. The rate may vary in either direction in the future depending on how risks develop.  The CCyB on Irish exposures will increase from 0.5% to 1.0% from 24 November 2023.  A further increase to 1.5% will be effective June 2024.

(2)

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

(3)

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

 

Leverage ratios

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

Type

CET1

Total Tier 1

Minimum ratio

2.44%

3.25%

Countercyclical leverage ratio buffer (1)

0.6%

0.6%

Total

3.04%

3.85%

 

(1)

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

 

 

Risk and capital management

Capital, liquidity and funding risk continued

Capital and leverage ratios

The table below sets out the key capital and leverage ratios and measures. These are calculated on current PRA rules and presented on a transitional basis for the remaining IFRS 9 transitional relief in respect to ECL. The remaining Tier 2 instruments subject to CRR2 grandfathering provisions were derecognised during Q3 2023 following regulatory approvals.





30 September

30 June

31 December


2023

2023

2022

Capital adequacy ratios (1)

%

%

%

CET1

13.5

13.5

14.2

Tier 1

15.7

15.7

16.4

Total

18.7

18.8

19.3





Capital

£m

£m

£m

Tangible equity

24,015

23,415

25,482


 



Prudential valuation adjustment

(272)

(271)

(275)

Deferred tax assets

(688)

(742)

(912)

Own credit adjustments

(24)

(49)

(58)

Pension fund assets

(246)

(243)

(227)

Cash flow hedging reserve

2,967

3,344

2,771

Foreseeable ordinary dividends

(643)

(780)

(967)

Adjustment for trust assets (2)

(365)

(365)

(365)

Foreseeable charges - on-market ordinary share buyback programme

(361)

(500)

(800)

Adjustments under IFRS 9 transitional arrangements

223

223

361

Insufficient coverage for non-performing exposures

(21)

(19)

(18)

Total regulatory adjustments

570

598

(490)


 



CET1 capital

24,585

24,013

24,992


 



Additional AT1 capital

3,875

3,875

3,875

Tier 1 capital

28,460

27,888

28,867


 



End-point Tier 2 capital 

5,485

5,364

4,978

Grandfathered instrument transitional arrangements

-

73

75

Tier 2 capital

5,485

5,437

5,053

Total regulatory capital

33,945

33,325

33,920


 



Risk-weighted assets

 



Credit risk

143,974

142,704

141,963

Counterparty credit risk

8,001

7,680

6,723

Market risk

9,380

6,962

8,300

Operational risk

20,198

20,198

19,115

Total RWAs

181,553

177,544

176,101


 



 

 

(1)     30 September 2023 includes the transitional arrangements for the capital impact of IFRS 9 expected credit loss (ECL) accounting and prior periods also include the transitional relief on grandfathered capital instruments. The impact of the IFRS 9 transitional adjustments at 30 September 2023 was £0.2 billion for CET1 capital, £48 million for total capital and £28 million RWAs (30 June 2023 - £0.2 billion CET1 capital, £35 million total capital and £37 million RWAs; 31 December 2022 - £0.4 billion CET1 capital, £36 million total capital and £71 million RWAs). Excluding these adjustments, the CET1 ratio would be 13.4% (30 June 2023 - 13.4%; 31 December 2022 - 14.0%). The transitional relief on grandfathered instruments at 30 September 2023 was nil (30 June 2023 - £0.1 billion; 31 December 2022 - £0.1 billion). Excluding both the transitional relief on grandfathered capital instruments and the transitional arrangements for the capital impact of IFRS 9 expected credit loss (ECL) accounting, the end-point Tier 1 capital ratio would be 15.6% (30 June 2023 - 15.6%; 31 December 2022 - 16.2%) and the end-point Total capital ratio would be 18.7% (30 June 2023 - 18.8%; 31 December 2022 - 19.2%)

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

 

 

 

 

Risk and capital management

Capital, liquidity and funding risk continued

Capital and leverage ratios continued

 

30 September

30 June

31 December

 

2023

2023

2022

Leverage

£m

£m

£m

Cash and balances at central banks

119,590

123,022

144,832

Trading assets

49,621

48,893

45,577

Derivatives

87,504

81,873

99,545

Financial assets

432,451

416,739

404,374

Other assets

26,891

27,499

18,864

Assets of disposal groups

1,084

4,575

6,861

Total assets

717,141

702,601

720,053

Derivatives

 



   - netting and variation margin

(86,657)

(82,798)

(100,356)

   - potential future exposures

17,226

16,654

18,327

Securities financing transactions gross up

2,245

2,013

4,147

Other off-balance sheet items

50,528

48,668

46,144

Regulatory deductions and other adjustments

(16,647)

(15,663)

(7,114)

Claims on central banks

(116,157)

(114,253)

(141,144)

Exclusion of bounce back loans

(4,198)

(4,627)

(5,444)

UK leverage exposure

563,481

552,595

534,613

UK leverage ratio (%) (1)

5.1

5.0

5.4

 

(1)     Excluding the IFRS 9 transitional adjustment, the UK leverage ratio would be 5.0% (30 June 2023 - 5.0%; 31 December 2022 - 5.3%).

 

Capital flow statement

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

CET1

AT1

Tier 2

Total


£m

£m

£m

£m

At 31 December 2022

24,992

3,875

5,053

33,920

Attributable profit for the period

3,165

-

-

3,165

Ordinary interim dividend paid

(491)

-

-

(491)

Directed buyback 

(1,259)

-

-

(1,259)

Foreseeable ordinary dividends

(643)

-

-

(643)

On-market share buyback

(500)

-

-

(500)

Foreign exchange reserve

(419)

-

-

(419)

FVOCI reserve

82

-

-

82

Own credit

34

-

-

34

Share capital and reserve movements in respect of employee

 

 

 

 

   share schemes

70

-

-

70

Goodwill and intangibles deduction

(399)

-

-

(399)

Deferred tax assets

224

-

-

224

Prudential valuation adjustments

3

-

-

3

Net dated subordinated debt instruments

-

-

303

303

Foreign exchange movements

-

-

(50)

(50)

Adjustment under IFRS 9 transitional arrangements

(138)

-

-

(138)

Other movements

(136)

-

179

43

At 30 September 2023

24,585

3,875

5,485

33,945

 

-    The CET1 decrease is mainly driven by the directed buyback of £1.3 billion, a foreseeable ordinary dividend accrual of £0.6 billion, a £0.5 billion decrease for the on-market ordinary share buyback programme, a £0.1 billion decrease in the IFRS 9 transitional adjustment, an increase in the intangible assets deduction of £0.4 billion and other movements in reserves and regulatory adjustments of £0.2 billion, partially offset by an attributable profit in the period (net of ordinary interim dividend paid) of £2.7 billion.

-    The Tier 2 movement of £0.3 billion includes €700 million 5.763% Fixed to Fixed Reset Tier 2 Notes 2034 issued in February 2023 offset by the £0.1 billion derecognition of the UBIDAC subordinated notes as eligible Tier 2 capital instruments, partial redemption of 5.125% Subordinated Tier 2 Notes 2024, maturities with minimum regulatory value and an increase in regulatory amortisation £0.1 billion. Within Tier 2, there was also a £0.2 billion increase in the Tier 2 surplus provisions.

 

 

 

Risk and capital management

Capital, liquidity and funding risk continued

Risk-weighted assets

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

 

Counterparty

 

Operational

 


Credit risk

credit risk

Market risk

 risk

Total


£bn

£bn

£bn

£bn

£bn

At 31 December 2022

142.0

6.7

8.3

19.1

176.1

Foreign exchange movement

(0.4)

(0.1)

-

-

(0.5)

Business movement

6.5

0.5

1.2

1.1

9.3

Risk parameter changes

(2.1)

-

-

-

(2.1)

Methodology changes 

-

-

-

-

-

Model updates

0.8

-

(0.1)

-

0.7

Other charges

-

0.9

-

-

0.9

Acquisitions and disposals

(2.8)

-

-

-

(2.8)

At 30 September 2023

144.0

8.0

9.4

20.2

181.6

The table below analyses segmental RWAs.

Retail

Private

Commercial 

Central items

Total NatWest


Banking

Banking

& Institutional

& other (1)

Group

Total RWAs

£bn

£bn

£bn

£bn

£bn

At 31 December 2022

54.7

11.2

103.2

7.0

176.1

Foreign exchange movement

-

-

(0.4)

(0.1)

(0.5)

Business movement

3.5

0.4

6.3

(0.9)

9.3

Risk parameter changes 

(0.2)

-

(1.9)

-

(2.1)

Methodology changes 

-

-

-

-

-

Model updates

0.9

-

(0.2)

-

0.7

Other charges

-

-

0.9

-

0.9

Acquisitions and disposals

-

-

-

(2.8)

(2.8)

At 30 September 2023

58.9

11.6

107.9

3.2

181.6







Credit risk

51.2

10.2

80.2

2.4

144.0

Counterparty credit risk

0.3

-

7.7

-

8.0

Market risk

0.2

-

9.2

-

9.4

Operational risk

7.2

1.4

10.8

0.8

20.2

Total RWAs

58.9

11.6

107.9

3.2

181.6

(1)     £1.6 billion of Central items & other relates to Ulster Bank RoI.

Total RWAs increased by £5.5 billion to £181.6 billion during the period mainly reflecting:

-    Business movements totalling £9.3 billion, driven by increased credit risk exposures within Retail Banking and Commercial & Institutional, increased market risk RWAs of £1.1 billion reflecting heightened market volatility in Q3 and increased RWAs following the annual recalculation of operational risk.

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

-    Model update increase of £0.7 billion, mainly driven by IRB model adjustments within Retail Banking.

-    A decrease in risk parameters of £2.1 billion, primarily reflecting changes in regulatory treatment for certain structured transactions.

-    Disposals relating to the phased withdrawal from the Republic of Ireland, reducing RWAs by £2.8 billion.

 

 

 

Risk and capital management

Capital, liquidity and funding risk continued

Liquidity portfolio

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

Liquidity value


30 September 2023


30 June 2023


31 December 2022


NatWest


NatWest


NatWest


Group (1)


Group


Group 


£m


£m


£m

Cash and balances at central banks 

116,231


119,612


140,820

   AAA to AA- rated governments

25,214


23,813


18,589

   A+ and lower rated governments

4,223


1,172


317

   Government guaranteed issuers, public sector entities and

 





      government sponsored entities

455


229


134

   International organisations 

 





      and multilateral development banks

2,821


2,674


1,734

LCR level 1 bonds

32,713


27,888


20,774

LCR level 1 assets

148,944


147,500


161,594

LCR level 2 assets

-


-


-

Non-LCR eligible assets

-


-


-

Primary liquidity 

148,944


147,500


161,594

Secondary liquidity (2)

76,097


79,424


63,917

Total liquidity value

225,041


226,924


225,511


 






30 September 2023


30 June 2023




NatWest


NatWest



Stressed outflow coverage (SOC) to liquidity coverage ratio (LCR)

Group (1)


Group



   reconciliation

£m


£m



SOC primary liquidity (from table above)

148,944


147,500



   Level 1 assets excluded (3)

6,175


4,180



   Level 2 assets excluded (4)

4,173


3,133



   Methodology difference (5)

628


960



Total LCR high quality liquid assets

159,920


155,773



 

(1)

NatWest Group includes the UK Domestic Liquidity Sub-Group (NWB Plc, RBS plc and Coutts & Co), NatWest Markets Plc and other significant operating subsidiaries that hold liquidity portfolios. These include The Royal Bank of Scotland International Limited, NWM N.V. and Ulster Bank Ireland DAC who hold managed portfolios that comply with local regulations that may differ from PRA rules.

(2)

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

(3)

LCR level 1 assets include extremely high-quality covered bonds, government guaranteed bonds, and other LCR level 1 assets, which are not included as primary liquidity, but

included as inflows in stressed outflow coverage.

(4)

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

(5)

Methodology differences include cash in tills which is classified as LCR level 1 but not included in stressed outflow coverage, JPY bonds which are classified as level 1 for stressed

outflow coverage but level 2 for LCR and weighting differences between stressed outflow coverage and LCR.





 

 

Condensed consolidated income statement

for the period ended 30 September 2023 (unaudited)

 

 

Nine months ended


Quarter ended

 

30 September

30 September


30 September

30 June

30 September

 

2023

2022


2023

2023

2022

 

£m 

£m 


£m 

£m 

£m 

Interest receivable

15,071

8,591


5,589

4,981

3,341

Interest payable

(6,660)

(1,617)


(2,904)

(2,157)

(701)

Net interest income

8,411

6,974


2,685

2,824

2,640

Fees and commissions receivable

2,213

2,145


754

719

721

Fees and commissions payable

(484)

(468)


(169)

(158)

(168)

Trading income

609

969


191

85

260

Other operating income

466

(172)


27

381

(224)

Non-interest income

2,804

2,474


803

1,027

589

Total income

11,215

9,448


3,488

3,851

3,229

Staff costs

(2,924)

(2,687)


(919)

(965)

(879)

Premises and equipment

(845)

(820)


(275)

(284)

(286)

Other administrative expenses

(1,390)

(1,429)


(519)

(421)

(531)

Depreciation and amortisation

(683)

(613)


(214)

(257)

(200)

Operating expenses

(5,842)

(5,549)


(1,927)

(1,927)

(1,896)

Profit before impairment losses

5,373

3,899


1,561

1,924

1,333

Impairment losses

(452)

(193)


(229)

(153)

(247)

Operating profit before tax

4,921

3,706


1,332

1,771

1,086

Tax charge

(1,439)

(1,229)


(378)

(549)

(434)

Profit from continuing operations

3,482

2,477


954

1,222

652

Loss from discontinued operations, net of tax (1)

(138)

(206)


(30)

(143)

(396)

Profit for the period

3,344

2,271


924

1,079

256


 



 



Attributable to:

 



 



Ordinary shareholders

3,165

2,078


866

1,020

187

Paid-in equity holders

182

188


61

60

67

Non-controlling interests

(3)

5


(3)

(1)

2


3,344

2,271


924

1,079

256


 






Earnings per ordinary share - continuing operations

35.6p

23.0p


10.1p

12.5p

6.0p

Earnings per ordinary share - discontinued operations

(1.5p)

(2.1p)


(0.3p)

(1.5p)

(4.1p)

Total earnings per share attributable to ordinary

 



 



   shareholders - basic 

34.1p

20.9p


9.8p

11.0p

1.9p

Earnings per ordinary share - fully diluted continuing

 



 



   operations

35.4p

22.9p


10.1p

12.4p

6.0p

Earnings per ordinary share - fully diluted discontinued

 



 



   operations

(1.5p)

(2.1p)


(0.3p)

(1.5p)

(4.1p)

Total earnings per share attributable to ordinary

 



 



   shareholders - fully diluted

33.9p

20.8p


9.8p

10.9p

1.9p

(1)     The results of discontinued operations, comprising the post-tax loss, is shown as a single amount on the face of the income statement. An analysis of this amount is presented in Note 2 to the condensed consolidated financial statements.

 

Condensed consolidated statement of comprehensive income

for the period ended 30 September 2023 (unaudited)

 

Nine months ended

 

Quarter ended


30 September

30 September


30 September

30 June

30 September


2023

2022


2023

2023

2022


£m

£m


£m

£m

£m

Profit for the period

3,344

2,271


924

1,079

256

Items that do not qualify for reclassification

 



 



Remeasurement of retirement benefit schemes

(105)

(682)


(41)

(25)

(165)

Changes in fair value of credit in financial liabilities 

 



 



   designated at fair value through profit or loss 

 



 



      (FVTPL)

(27)

102


(23)

2

11

Fair value through other comprehensive income 

 



 



   (FVOCI) financial assets

36

42


6

(13)

39

Tax

20

136


13

9

13


(76)

(402)


(45)

(27)

(102)

Items that do qualify for reclassification 

 



 



FVOCI financial assets

65

(451)


12

13

7

Cash flow hedges

(208)

(3,978)


526

(1,032)

(2,421)

Currency translation

(401)

358


68

(410)

173

Tax

(16)

1,259


(143)

225

693


(560)

(2,812)


463

(1,204)

(1,548)

Other comprehensive (loss)/income after tax

(636)

(3,214)


418

(1,231)

(1,650)

Total comprehensive income/(loss) for the period

2,708

(943)


1,342

(152)

(1,394)

 

 



 



Attributable to:

 



 



Ordinary shareholders

2,529

(1,136)


1,284

(211)

(1,463)

Paid-in equity holders

182

188


61

60

67

Non-controlling interests

(3)

5


(3)

(1)

2


2,708

(943)


1,342

(152)

(1,394)

 

 

Condensed consolidated balance sheet as at 30 September 2023 (unaudited)

 

 


30 September

31 December


 


2023

2022


 

£m 

£m 


Assets


 

 


Cash and balances at central banks


         119,590 

144,832 


Trading assets


           49,621 

45,577 


Derivatives


           87,504 

99,545 


Settlement balances


           10,644 

2,572 


Loans to banks - amortised cost


             8,454 

7,139 


Loans to customers - amortised cost


         377,268 

366,340 


Other financial assets


           46,729 

30,895 


Intangible assets


             7,515 

7,116 


Other assets


             8,732 

9,176 


Assets of disposal groups


             1,084 

6,861 


Total assets


         717,141 

720,053 




 



Liabilities


 



Bank deposits


           24,354 

20,441 


Customer deposits


         435,867 

450,318 


Settlement balances


           11,585 

2,012 


Trading liabilities


           58,495 

52,808 


Derivatives


           81,135 

94,047 


Other financial liabilities


           56,302 

49,107 


Subordinated liabilities


             6,210 

6,260 


Notes in circulation


             3,144 

3,218 


Other liabilities


             4,592 

5,346 


Total liabilities


         681,684 

683,557 




 



Equity


 



Ordinary shareholders' interests


           31,530 

32,598 


Other owners' interests


             3,890 

3,890 


Owners' equity


           35,420 

36,488 


Non-controlling interests


                  37 

8 


Total equity


           35,457 

36,496 




 



Total liabilities and equity


717,141 

720,053 


 

 


Condensed consolidated statement of changes in equity

for the period ended 30 September 2023 (unaudited)

 

Share 







 

capital and




Total

Non

 


statutory

Paid-in

Retained

Other

owners'

controlling

Total 


reserves (1)

equity

earnings

reserves*

equity

 interests

equity


£m

£m

£m

£m

£m

£m

£m

At 1 January 2023

13,093

10,019

9,486

36,488

8

36,496

Profit/(loss) attributable to ordinary 

 

 

 

 

 

 

 

   shareholders and other equity owners

 

 

 

 

 

 

 

      - continuing operations

 

 

3,485

 

3,485

(3)

3,482

      - discontinued operations

 

 

(138)

 

(138)

 

(138)

Other comprehensive income

 

 

 

 

 

 

 

  - Realised gains/(losses) in period 

 

 

 

 

 

 

 

        on FVOCI equity shares 

 

 

2

(2)

-

 

-

  - Remeasurement of retirement 

 

 

 

 

 

 

 

        benefit schemes

 

 

(105)

 

(105)

 

(105)

  - Changes in fair value of credit in financial 

 

 

 

 

 

 

 

        liabilities designated at FVTPL due 

 

 

 

 

 

 

 

           to own credit risk

 

 

(27)

 

(27)

 

(27)

  - Unrealised gains: FVOCI

 

 

 

68

68

 

68

  - Amounts recognised in equity: cash flow 

 

 

 

 

 

 

 

        hedges

 

 

 

(821)

(821)

 

(821)

  - Foreign exchange reserve movement (4)

 

 

 

(401)

(401)

 

(401)

  - Amount transferred from equity to earnings

 

 

 

646

646

 

646

  - Tax

 

 

27

(23)

4

 

4

Ordinary dividends paid

 

 

(1,456)

 

(1,456)

 

(1,456)

Paid-in equity dividends paid

 

 

(182)

 

(182)

 

(182)

Shares repurchased during the period  (2,3)

-

 

(1,852)

 

(1,852)

 

(1,852)

Shares issued under employee share schemes during the period

-

 

21

 

21

 

21

Share-based payments 

 

 

(31)

 

(31)

 

(31)

Movement in own shares held 

(279)

 

 

 

(279)

 

(279)

Acquisition of subsidiary

 

 

 

 

 

32

32

At 30 September 2023

12,814

3,890

9,763

8,953

35,420

37

35,457















 

30 September








2023

Attributable to:





£m

Ordinary shareholders







31,530

Paid-in equity holders







3,890

Non-controlling interests







37








35,457

*Other reserves consist of:






 

Merger reserve







10,881

FVOCI reserve







(20)

Cash flow hedging reserve







(2,967)

Foreign exchange reserve







1,059








8,953

 

(1)     Share capital and statutory reserves includes share capital, share premium, capital redemption reserve and own shares held.

(2)     In May 2023, there was an agreement to buy 469.2 million ordinary shares in NatWest Group plc from UK Government Investments Ltd (UKGI) at 268.4p per share for the total consideration of £1,265.6 million. NatWest Group cancelled 336.2 million of the purchased ordinary shares, amounting to £906.9 million excluding fees and held the remaining 133.0 million shares as own shares held, amounting to £358.8 million excluding fees. The nominal value of the share cancellation has been transferred to the capital redemption reserve.

(3)     NatWest Group plc repurchased and cancelled 364.3 million shares for total consideration of £951.0 million excluding fees in 2023 so far, as part of the On Market Share Buyback Programmes. Out of total number of shares bought back, 2.93 million shares were settled and cancelled in October 2023 amounting to £6.9 million. The nominal value of the share cancellations amounting to £389.2 million has been transferred to the capital redemption reserve.

(4)     Includes £305 million FX recycled to profit or loss upon completion of a capital repayment by UBIDAC.

 

 


Notes

1. Presentation of condensed consolidated financial statements

The condensed consolidated financial statements should be read in conjunction with NatWest Group plc's 2022 Annual Report and Accounts. The accounting policies are the same as those applied in the consolidated financial statements.

The directors have prepared the condensed consolidated financial statements on a going concern basis after assessing the principal risks, forecasts, projections and other relevant evidence over the twelve months from the date they are approved.

Amendments to IFRS effective from 1 January 2023 had no material effect on the condensed consolidated financial statements.

2. Discontinued operations and assets and liabilities of disposal groups

Four legally binding agreements for the sale of UBIDAC business have been announced as part of the phased withdrawal from the Republic of Ireland. Material developments in Q3 2023 are set out below.

Agreement with Allied Irish Banks, p.l.c. (AIB) for the transfer of performing commercial loans

In Q3 2023, UBIDAC completed the sale of commercial loans to AIB, with a cumulative €3.1 billion of gross performing loans being fully migrated. The transfer of the final cohort of colleagues to AIB who were wholly or mainly assigned to supporting this part of the business under Transfer of Undertakings, Protection of Employment (TUPE) arrangements has also completed. Losses on disposal of €30 million have been recognised in respect of the migrations completed during Q3 2023.

Agreement with Permanent TSB p.l.c. (PTSB) for the sale of performing non-tracker mortgages, the performing loans in the micro-SME business, the UBIDAC Asset Finance business, including its Lombard digital platform, and 25 Ulster Bank branch locations in the Republic of Ireland.

In Q3 2023, the Lombard Asset Finance business which included balances of c.€500 million migrated to PTSB and the transfer of remaining colleagues who were eligible to move to PTSB under TUPE regulations also completed. This was the final phase of the transaction with PTSB, which also included c.€6.3 billion of gross performing non-tracker mortgage and micro-SME balances as well as 25 Ulster Bank branches.

Agreement with AIB for the sale of performing tracker and linked mortgages

In Q3 2023, UBIDAC completed the migration of €4.0 billion of performing tracker and linked mortgages to AIB. The remaining migrations are expected to occur by H1 2024.

Agreement with Elmscott Property Finance DAC / AB CarVal (CarVal) for the sale of a portfolio of performing and non-performing exposures

In Q3 2023, UBIDAC agreed the sale of a portfolio of performing and non-performing exposures to CarVal, which consists mostly of non-performing mortgages, unsecured personal loans and commercial facilities with a gross value of c. €690 million at 31 December 2022. Pepper Finance Corporation (Ireland) DAC will become the legal owner and servicer of the facilities. The majority of these migrations are expected to occur in Q4 2023.

The business activities relating to these sales that meet the requirements of IFRS 5 are presented as a discontinued operation and as a disposal group. Ulster Bank RoI continuing operations are reported within Central items & other.

(a)   Loss from discontinued operations, net of tax

Nine months ended


Quarter ended 


30 September

30 September


30 September

30 June

30 September


2023

2022


2023

2023

2022


£m

£m


£m

£m

£m

Interest receivable

22

160

 

(4)

11

4

Net interest income

22

160

 

(4)

11

4

Non-interest income

(42)

(409)

 

(28)

(31)

(405)

Total income

(20)

(249)

 

(32)

(20)

(401)

Operating expenses

(124)

(35)

 

(2)

(118)

(11)

Loss before impairment releases/losses

(144)

(284)

 

(34)

(138)

(412)

Impairment releases/(losses)

6

78

 

4

(5)

16

Operating loss before tax

(138)

(206)

 

(30)

(143)

(396)

Tax charge

-

-

 

-

-

-

Loss from discontinued operations, net of tax

(138)

(206)

 

(30)

(143)

(396)

 

 

Notes

2. Discontinued operations and assets and liabilities of disposal groups continued

(b)   Assets and liabilities of disposal groups

As at 


30 September

31 December


2023

2022


£m

£m

Assets of disposal groups

 


Loans to customers - amortised cost

75

1,458

Other financial assets - loans to customers at fair value through profit or loss

1,001

5,397

Other assets

8

6


1,084

6,861


 


Liabilities of disposal groups

 


Other liabilities

5

15


5

15


 


Net assets of disposal groups

1,079

6,846

 

3. Litigation and other matters

NatWest Group plc's Interim Results 2023, issued on 28 July 2023, included disclosures about NatWest Group's litigation and regulatory matters in Note 14. Set out below are the material developments in those matters, and an update on an internal investigation by independent counsel, since publication of the Interim Results 2023.

Litigation

London Interbank Offered Rate (LIBOR) and other rates litigation

In August 2020, a complaint was filed in the United States District Court for the Northern District of California by several United States retail borrowers against the USD ICE LIBOR panel banks and their affiliates (including NatWest Group plc, NWM Plc, NWMSI and NWB Plc), alleging (i) that the very process of setting USD ICE LIBOR amounts to illegal price-fixing; and (ii) that banks in the United States have illegally agreed to use LIBOR as a component of price in variable retail loans. In September 2022, the district court dismissed the complaint. The plaintiffs filed an amended complaint, but in October 2023, the district court dismissed that complaint as well, and indicated that further amendment would not be permitted. The district court's decision is subject to appeal by the plaintiffs.    

FX litigation

In September 2023, second summonses were served by Stichting FX Claims on NWM N.V., NatWest Group plc and NWM Plc, for claims on behalf of a new group of parties. The summonses seek declarations from the Dutch court concerning liability for anti-competitive FX market conduct described in decisions of the European Commission (EC) of 16 May 2019 and 2 December 2021, along with unspecified damages.

Government securities antitrust litigation

Class action antitrust claims commenced in March 2019 are pending in the United States District Court for the Southern District of New York (SDNY) against NWM Plc, NWMSI and other banks in respect of Euro-denominated bonds issued by various European central banks (European government bonds or EGBs). The complaint alleges a conspiracy among dealers of EGBs to widen the bid-ask spreads they quoted to customers, thereby increasing the prices customers paid for the EGBs or decreasing the prices at which customers sold EGBs. The class consists of those who purchased or sold EGBs in the US between 2007 and 2012. Previously, in March 2022, the SDNY dismissed the claims against NWM Plc and NWMSI on the ground that the complaint's conspiracy allegations were insufficient. However, in September 2023, the SDNY ruled that new allegations which plaintiffs have included in an amended complaint are sufficient to bring those NatWest entities back into the case as defendants.

1MDB litigation

A Malaysian court claim was served in Switzerland in November 2022 by 1MDB, a Sovereign Wealth Fund, in which Coutts & Co Ltd was named, along with six others, as a defendant in respect of losses allegedly incurred by 1MDB. It is claimed that Coutts & Co Ltd is liable as a constructive trustee for having dishonestly assisted the directors of 1MDB in the breach of their fiduciary duties by failing (amongst other alleged claims) to undertake due diligence in relation to a customer of Coutts & Co Ltd, through which funds totalling c.US$1 billion were received and paid out between 2009 and 2011. The claimant seeks the return of that amount plus interest. Coutts & Co Ltd filed an application in January 2023 challenging the validity of service and the Malaysian court's jurisdiction to hear the claim.

In April 2023, the claimant filed a notice of discontinuance of its claim against certain defendants including Coutts & Co Ltd. The claimant subsequently indicated that it intended to issue further replacement proceedings. Coutts & Co Ltd challenged the claimant's ability to take that step and a hearing took place in the Malaysian High Court in June 2023. In August 2023, the court disallowed the discontinuation of the claim by the claimant and directed that the application by Coutts & Co Ltd challenging the validity of the proceedings should proceed to a hearing. In September 2023, the claimant filed a notice to appeal that decision.

Coutts & Co Ltd (a subsidiary of RBS Netherlands Holdings B.V., which in turn is a subsidiary of NatWest Markets Plc) is a company registered in Switzerland and is in wind-down following the announced sale of its business assets in 2015.

 

Notes

3. Litigation and other matters continued

Other

Reviews into customer account closures

In July 2023, NatWest Group plc commissioned an independent review by the law firm Travers Smith LLP into issues that had arisen in connection with a recent account closure and treatment of the customer that attracted significant public attention and certain related interactions with the media. NatWest Group plc has received reports in connection with those reviews (and has today published a summary of the key findings and recommendations) and expects to receive a further report in due course.

In addition, NatWest Group plc is conducting internal reviews with respect to certain governance processes, policies, systems and controls of NatWest Group entities, including with respect to customer account closures.

The subject matter giving rise to these independent reviews and related developments, or the outcomes of any of the independent or internal reviews, could increase the risk of greater regulatory or third-party scrutiny and result in future legal or regulatory actions, which could have financial, reputational or collateral consequences for NatWest Group's business.

4. Post balance sheet events

On 28 July 2023, the Group announced that it had appointed Travers Smith LLP to undertake a thorough and independent review into account closure arrangements at Coutts and the circumstances surrounding an article including if there was a leak of confidential information. Phase 1 of this review is now complete.

Other than as disclosed in this document, there have been no significant events between 30 September 2023 and the date of approval of this announcement which would require a change to, or additional disclosure, in the announcement.


Additional information

Presentation of information

'Parent company' refers to NatWest Group plc and 'NatWest Group' and 'we' refers to NatWest Group plc and its subsidiary and associated undertakings. The term 'NWH Group' refers to NatWest Holdings Limited ('NWH') and its subsidiary and associated undertakings. The term 'NWM Group' refers to NatWest Markets Plc ('NWM Plc') and its subsidiary and associated undertakings. The term 'NWM N.V.' refers to NatWest Markets N.V. The term 'NWMSI' refers to NatWest Markets Securities, Inc. The term 'RBS plc' refers to The Royal Bank of Scotland plc. The term 'NWB Plc' refers to National Westminster Bank Plc. The term 'UBIDAC' refers to Ulster Bank Ireland DAC.

NatWest Group publishes its financial statements in pounds sterling ('£' or 'sterling'). The abbreviations '£m' and '£bn' represent millions and thousands of millions of pounds sterling, respectively, and references to 'pence' or 'p' represent pence where the amounts are denominated in pounds sterling ('GBP'). Reference to 'dollars' or '$' are to United States of America ('US') dollars. The abbreviations '$m' and '$bn' represent millions and thousands of millions of dollars, respectively. The abbreviation '€' represents the 'euro', and the abbreviations '€m' and '€bn' represent millions and thousands of millions of euros, respectively.

Statutory accounts

Financial information contained in this document does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 ('the Act'). The statutory accounts for the year ended 31 December 2022 have been filed with the Registrar of Companies. The report of the auditor on those statutory accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Act.

MAR - Inside Information

This announcement contains information that qualified or may have qualified as inside information for NatWest Group plc, for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 (MAR) as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018. This announcement is made by Alexander Holcroft, Head of Investor Relations for NatWest Group plc.

Contacts

Analyst enquiries:

Alexander Holcroft, Investor Relations

Media enquiries:

NatWest Group Press Office



 

Management presentation

Date:

Friday 27 October 2023

Time:

9am UK time

Zoom ID:

919 9900 1956



 

 

Available on natwestgroup.com/results

-    Q3 2023 Interim Management Statement and background slides.

-    A financial supplement containing income statement, balance sheet and segment performance for the nine quarters ended 30 September 2023.

-    NatWest Group Pillar 3 at 30 September 2023.

 

Forward-looking statements

This document may include forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, such as statements that include, without limitation, the words 'expect', 'estimate', 'project', 'anticipate', 'commit', 'believe', 'should', 'intend', 'will', 'plan', 'could', 'probability', 'risk', 'Value-at-Risk (VaR)', 'target', 'goal', 'objective', 'may', 'endeavour', 'outlook', 'optimistic', 'prospects' and similar expressions or variations on these expressions. These statements concern or may affect future matters, such as NatWest Group's future economic results, business plans and strategies.  In particular, this document may include forward-looking statements relating to NatWest Group plc in respect of, but not limited to: its economic and political risks, its regulatory capital position and related requirements, its financial position, profitability and financial performance (including financial, capital, cost savings and operational targets), the implementation of its purpose-led strategy, its environmental, social and governance and climate related targets, its access to adequate sources of liquidity and funding, increasing competition from new incumbents and disruptive technologies, its exposure to third party risks, its ongoing compliance with the UK ring-fencing regime and ensuring operational continuity in resolution, its impairment losses and credit exposures under certain specified scenarios, substantial regulation and oversight, ongoing legal, regulatory and governmental actions and investigations, the transition of LIBOR and IBOR rates to replacement risk free rates and NatWest Group's exposure to operational risk, conduct risk, cyber, data and IT risk, financial crime risk, key person risk and credit rating risk. Forward-looking statements are subject to a number of risks and uncertainties that might cause actual results and performance to differ materially from any expected future results or performance expressed or implied by the forward-looking statements. Factors that could cause or contribute to differences in current expectations include, but are not limited to, future growth initiatives (including acquisitions, joint ventures and strategic partnerships), the outcome of legal, regulatory and governmental actions and investigations, the level and extent of future impairments and write-downs, legislative, political, fiscal and regulatory developments, accounting standards, competitive conditions, technological developments, interest and exchange rate fluctuations, general economic and political conditions and the impact of climate-related risks and the transitioning to a net zero economy. These and other factors, risks and uncertainties that may impact any forward-looking statement or NatWest Group plc's actual results are discussed in NatWest Group plc's 2022 Annual Report on Form 20-F, NatWest Group plc's Interim Results for H1 2023 on Form 6-K, Natwest Group plc's Interim Management Statement for Q1 and Q3 2023 on Form 6-K, and its other public filings. The forward-looking statements contained in this document speak only as of the date of this document and NatWest Group plc does not assume or undertake any obligation or responsibility to update any of the forward-looking statements contained in this document, whether as a result of new information, future events or otherwise, except to the extent legally required.




 

F2A4E6A5-86EA-4413-90D6-619423C4A8DF|3|Oracle.SmartView.EPRCS|{933e5b92-430f-4e8e-bbf7-563eae925a2a}

 

 

 

 

 

Appendix

RBS\Finance\

 

Non-IFRS financial measures

 

 

 

 

 

 

 

 

 

 


Non-IFRS financial measures

NatWest Group prepares its financial statements in accordance with UK-adopted International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS). This document contains a number of non-IFRS measures, also known as alternative performance measures, defined under the European Securities and Markets Authority guidance or non-GAAP financial measures in accordance with SEC regulations. These measures are adjusted for notable and other defined items which management believes are not representative of the underlying performance of the business and which distort period-on-period comparison.

The non-IFRS measures provide users of the financial statements with a consistent basis for comparing business performance between financial periods and information on elements of performance that are one-off in nature. The non-IFRS measures also include a calculation of metrics that are used throughout the banking industry.

These non-IFRS measures are not a substitute for IFRS measures and a reconciliation to the closest IFRS measure is presented where appropriate.

1. Total income excluding notable items

Total income excluding notable items is calculated as total income less notable items.

The exclusion of notable items aims to remove the impact of one-offs and other items which may distort period-on-period comparisons.

Nine months ended


Quarter ended 


30 September

30 September


30 September

30 June

30 September


2023

2022


2023

2023

2022


£m

£m


£m

£m

£m

Continuing operations

 



 



Total income

11,215

9,448


3,488

3,851

3,229

Less notable items:

 



 



Commercial & Institutional

 



 



   Fair value, disposal losses and asset

 



 



      disposals/strategic risk reduction

-

(45)


-

-

-

   Own credit adjustments (OCA)

3

61


(6)

3

9

Central items & other

 



 



   Loss on redemption of own debt

-

(161)


-

-

(137)

   Liquidity Asset Bond sale (losses)/gains

(33)

(88)


(9)

(11)

(124)

   Share of associate (losses)/profits for Business

 



 



      Growth Fund

(5)

(29)


10

(3)

(16)

  Property lease termination losses

(69)

-


(69)

-

-

   Interest and FX management derivatives not in

 



 



      hedge accounting relationships

100

415


48

(23)

100

   FX recycling gains

322

-


-

322

-


318

153


(26)

288

(168)

Total income excluding notable items

10,897

9,295


3,514

3,563

3,397

 

 

Non-IFRS financial measures continued

2. Operating expenses - management view

The management analysis of operating expenses shows litigation and conduct costs on a separate line. These amounts are included within staff costs and other administrative expenses in the statutory analysis. Other operating expenses excludes litigation and conduct costs, which are more volatile and may distort comparisons with prior periods.

Nine months ended


30 September 2023


Litigation and

Other operating

Statutory operating


conduct costs

expenses

expenses


£m

£m

£m

Continuing operations

 

 

 

Staff costs

46

2,878

2,924

Premises and equipment

-

845

845

Depreciation and amortisation

-

683

683

Other administrative expenses

196

1,194

1,390

Total 

242

5,600

5,842






Nine months ended


30 September 2022


Litigation and

Other operating

Statutory operating


conduct costs

expenses

expenses


£m

£m

£m

Continuing operations




Staff costs

29

2,658

2,687

Premises and equipment

-

820

820

Depreciation and amortisation

-

613

613

Other administrative expenses

265

1,164

1,429

Total 

294

5,255

5,549






Quarter ended


30 September 2023


Litigation and

Other operating

Statutory operating


conduct costs

expenses

expenses


£m

£m

£m

Continuing operations

 

 

 

Staff costs

15

904

919

Premises and equipment

-

275

275

Depreciation and amortisation

-

214

214

Other administrative expenses

119

400

519

Total 

134

1,793

1,927






Quarter ended


30 June 2023


Litigation and

Other operating

Statutory operating


conduct costs

expenses

expenses


£m

£m

£m

Continuing operations




Staff costs

17

948

965

Premises and equipment

-

284

284

Depreciation and amortisation

-

257

257

Other administrative expenses

35

386

421

Total 

52

1,875

1,927






Quarter ended


30 September 2022


Litigation and

Other operating

Statutory operating


conduct costs

expenses

expenses


£m

£m

£m

Continuing operations




Staff costs

11

868

879

Premises and equipment

-

286

286

Depreciation and amortisation

-

200

200

Other administrative expenses

114

417

531

Total 

125

1,771

1,896


Non-IFRS financial measures continued

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

NatWest Group uses the cost:income ratio (excl. litigation and conduct) in its Outlook guidance. This is calculated as other operating expenses (operating expenses less litigation and conduct costs) divided by total income. Litigation and conduct costs are excluded as they are one-off in nature, difficult to forecast for Outlook purposes and distort period-on-period comparisons.

The calculation of the cost:income ratio (excl. litigation and conduct) is shown below, along with a comparison to cost:income ratio using total operating expenses.

 

 

 

 

 

 

 

Retail

Private

Commercial & 

Central items 

Total 

 

Banking

Banking

Institutional

and other

NatWest Group

Nine months ended 30 September 2023

£m

£m

£m

£m

£m

Continuing operations

 

 

 

 

 

Operating expenses

2,147

479

2,999

217

5,842

Less litigation and conduct costs

(83)

(11)

(146)

(2)

(242)

Other operating expenses

2,064

468

2,853

215

5,600


 

 

 

 

 

Total income

4,562

781

5,589

283

11,215

Cost:income ratio

47.1%

61.3%

53.7%

nm

52.1%

Cost:income ratio (excl. litigation and conduct)

45.2%

59.9%

51.0%

nm

49.9%


 

 

 

 

 

Nine months ended 30 September 2022

 

 

 

 

 

Continuing operations

 

 

 

 

 

Operating expenses

1,935

424

2,713

477

5,549

Less litigation and conduct costs

(121)

(2)

(139)

(32)

(294)

Other operating expenses

1,814

422

2,574

445

5,255







Total income

4,029

746

4,594

79

9,448

Cost:income ratio 

48.0%

56.8%

59.1%

nm

58.7%

Cost:income ratio (excl. litigation and conduct)

45.0%

56.6%

56.0%

nm

55.6%







Quarter ended 30 September 2023






Continuing operations

 

 

 

 

 

Operating expenses

780

157

1,012

(22)

1,927

Less litigation and conduct costs

(59)

-

(52)

(23)

(134)

Other operating expenses

721

157

960

(45)

1,793


 

 

 

 

 

Total income

1,442

214

1,841

(9)

3,488

Cost:income ratio

54.1%

73.4%

55.0%

nm

55.2%

Cost:income ratio (excl. litigation and conduct)

50.0%

73.4%

52.1%

nm

51.4%


 

 

 

 

 

Quarter ended 30 June 2023






Continuing operations






Operating expenses

671

167

984

105

1,927

Less litigation and conduct costs

(21)

(8)

(50)

27

(52)

Other operating expenses

650

159

934

132

1,875







Total income

1,516

271

1,795

269

3,851

Cost:income ratio 

44.3%

61.6%

54.8%

nm

50.0%

Cost:income ratio (excl. litigation and conduct)

42.9%

58.7%

52.0%

nm

48.7%







Quarter ended 30 September 2022






Continuing operations






Operating expenses

693

139

893

171

1,896

Less litigation and conduct costs

(63)

(1)

(53)

(8)

(125)

Other operating expenses

630

138

840

163

1,771







Total income

1,475

285

1,657

188

3,229

Cost:income ratio 

47.0%

48.8%

53.9%

nm

58.7%

Cost:income ratio (excl. litigation and conduct)

42.7%

48.4%

50.7%

nm

54.8%

 

 

Non-IFRS financial measures continued

4. NatWest Group return on tangible equity

Return on tangible equity comprises annualised profit or loss for the period attributable to ordinary shareholders divided by average tangible equity. Average tangible equity is average total equity excluding average non-controlling interests, average other owners' equity and average intangible assets.

This measure shows the return NatWest Group generates on tangible equity deployed. It is used to determine relative performance of banks and used widely across the sector, although different banks may calculate the rate differently. A reconciliation is shown below including a comparison to the nearest GAAP measure, return on equity. This comprises profit attributable to ordinary shareholders divided by average total equity.

Nine months ended


Quarter ended or as at


30 September

30 September


30 September

30 June

30 September

 

2023

2022

 

2023

2023

2022

NatWest Group return on tangible equity 

£m

£m

 

£m

£m

£m

Profit attributable to ordinary shareholders 

3,165

2,078


866

1,020

187

Annualised profit attributable to ordinary shareholders 

4,220

2,771


3,464

4,080

748


 



 



Average total equity 

36,150

38,821


35,081

36,216

36,956

Adjustment for other owners' equity and intangibles 

(11,427)

(11,099)


(11,583)

(11,378)

(11,200)

Adjusted total tangible equity 

24,723

27,722


23,498

24,838

25,756


 



 



Return on equity

11.7%

7.1%


9.9%

11.3%

2.0%

Return on tangible equity

17.1%

10.0%


14.7%

16.4%

2.9%

 

 

Non-IFRS financial measures continued

5. Segmental return on equity

Segmental return on equity comprises segmental operating profit or loss, adjusted for preference share dividends and tax, divided by average notional tangible equity. Average RWAe is defined as average segmental RWAs incorporating the effect of capital deductions. This is multiplied by an allocated equity factor for each segment to calculate the average notional tangible equity.

This measure shows the return generated by operating segments on equity deployed.

 



Retail

Private

Commercial &

Nine months ended 30 September 2023



Banking

Banking

Institutional

Operating profit (£m)

 

 

2,053

293

2,511

Paid-in equity cost allocation (£m)

 

 

(43)

(17)

(125)

Adjustment for tax (£m)

 

 

(563)

(77)

(597)

Adjusted attributable profit (£m)

 

 

1,447

199

1,790

Annualised adjusted attributable profit (£m)

 

 

1,930

265

2,386

Average RWAe (£bn)

 

 

56.9 

11.4 

105.6 

Equity factor (%)

 

 

13.5%

11.5%

14.0%

Average notional equity (£bn)

 

 

7.7 

1.3 

14.8 

Return on equity (%)

 

 

25.1%

20.3%

16.1%







Nine months ended 30 September 2022






Operating profit (£m)



1,952

326

1,821

Preference share and paid-in equity cost allocation (£m)


(60)

(9)

(141)

Adjustment for tax (£m)



(530)

(89)

(420)

Adjusted attributable profit (£m)



1,362

228

1,260

Annualised adjusted attributable profit (£m)



1,816 

304 

1,680 

Average RWAe (£bn)



52.7

11.3

102.9

Equity factor (%)



13.0%

11.0%

14.0%

Average notional equity (£bn)



6.8

1.2

14.4

Return on equity (%)



26.5%

24.5%

11.7%







Quarter ended 30 September 2023






Operating profit (£m)



493

59

770

Paid-in equity cost allocation (£m)



(13)

(6)

(39)

Adjustment for tax (£m)



(134)

(15)

(183)

Adjusted attributable profit (£m)



346

38

548

Annualised adjusted attributable profit (£m)



1,382

153

2,193

Average RWAe (£bn)



58.5 

11.4 

106.7 

Equity factor (%)



13.5%

11.5%

14.0%

Average notional equity (£bn)



7.9 

1.3 

14.9 

Return on equity (%)



17.5%

11.7%

14.7%







Quarter ended 30 June 2023






Operating profit (£m)



766

101

747

Paid-in equity cost allocation (£m)



(15)

(6)

(42)

Adjustment for tax (£m)



(210)

(27)

(176)

Adjusted attributable profit (£m)



541

68

529

Annualised adjusted attributable profit (£m)



2,163

274

2,115

Average RWAe (£bn)



56.8 

11.4 

106.0 

Equity factor (%)



13.5%

11.5%

14.0%

Average notional equity (£bn)



7.7 

1.3 

14.8 

Return on equity (%)



28.2%

20.8%

14.3%







Quarter ended 30 September 2022






Operating profit (£m)



666

139

645

Preference share and paid-in equity cost allocation (£m)


(20)

(3)

(48)

Adjustment for tax (£m)



(181)

(38)

(149)

Adjusted attributable profit (£m)



465

98

448

Annualised adjusted attributable profit (£m)



1,860

392

1,792

Average RWAe (£bn)



53.0 

11.2 

105.0 

Equity factor (%)



13.0%

11.0%

14.0%

Average notional equity (£bn)



6.9 

1.2 

14.7 

Return on equity (%)



27.0%

31.8%

12.2%

 

 

Non-IFRS financial measures continued

6. Bank net interest margin

Bank net interest margin is defined as annualised net interest income, as a percentage of bank average interest-earning assets. Bank average interest earning assets are the average interest earning assets of the banking business of NatWest Group excluding liquid asset buffer.

Liquid asset buffer consists of assets held by NatWest Group, such as cash and balances at central banks and debt securities in issue, that can be used to ensure repayment of financial obligations as they fall due. The exclusion of liquid asset buffer has been introduced as a way to present net interest margin on a basis more comparable with UK peers and exclude the impact of regulatory driven factors. A reconciliation is shown below including a comparison to the nearest GAAP measure, net interest margin. This is net interest income as a percentage of average interest earning assets.

Nine months ended


Quarter ended


30 September

30 September


30 September

30 June

30 September


2023

2022


2023

2023

2022

 

£m

£m

 

£m

£m

£m

Continuing operations

 



 



NatWest Group net interest income 

8,411 

6,974


2,685 

2,824

2,640

Annualised NatWest Group net interest income

11,245 

9,324


10,652 

11,327

10,474


 



 



Average interest earning assets (IEA)

519,199 

546,918


520,815 

514,459

548,008

Less liquid asset buffer average IEA 

(157,505)

(204,224)


(157,972)

(152,133)

(197,304)

Bank average IEA 

361,694 

342,694 


362,843 

362,326

350,704


 



 



Net interest margin

2.17%

1.70%


2.05%

2.20%

1.91%

Bank net interest margin 

3.11%

2.72%


2.94%

3.13%

2.99%

 

Nine months ended


Quarter ended


30 September

30 September


30 September

30 June

30 September


2023

2022


2023

2023

2022

Retail Banking

£m

£m

 

£m

£m

£m

Net interest income 

4,242

3,719


1,334

1,416

1,379

Annualised net interest income

5,672

4,972


5,293

5,680

5,471


 



 



Retail Banking average IEA

221,838

207,915


223,686

221,468

212,179

Less liquid asset buffer average IEA

(17,269)

(19,311)


(16,745)

(16,820)

(20,050)

Adjusted Retail Banking average IEA

204,569

188,604


206,941

204,648

192,129


 



 



Retail Banking net interest margin

2.77%

2.64%


2.56%

2.78%

2.85%


 



 



Private Banking

 


 

 



Net interest income 

572

526


144

199

211

Annualised net interest income

765

703


571

798

837


 



 



Private Banking average IEA

27,270

29,366


26,595

27,140

29,309

Less liquid asset buffer average IEA

(8,174)

(10,310)


(7,680)

(7,976)

(10,155)

Adjusted Private Banking average IEA

19,096

19,056


18,915

19,164

19,154


 



 



Private Banking net interest margin

4.00%

3.69%


3.02%

4.17%

4.37%


 



 



Commercial & Institutional

 


 

 



Net interest income 

3,775

2,895


1,271

1,243

1,131

Annualised adjusted net interest income

5,047

3,871


5,043

4,986

4,487


 



 



Commercial & Institutional average IEA

196,457

202,061


193,793

196,735

205,021

Less liquid asset buffer average IEA

(65,598)

(76,639)


(63,944)

(65,288)

(75,216)

Adjusted Commercial & Institutional average IEA

130,859

125,422


129,849

131,447

129,805


 



 



Commercial & Institutional net interest margin

3.86%

3.09%


3.88%

3.79%

3.46%

 

 

Non-IFRS financial measures continued

7. Tangible net asset value (TNAV) per ordinary share

TNAV per ordinary share is calculated as tangible equity divided by the number of ordinary shares in issue.

This is a measure used by external analysts in valuing the bank and allows for comparison with other per ordinary share metrics including the share price.

As at


30 September

30 June

31 December


2023

2023

2022

Ordinary shareholders' interests (£m)

31,530

30,868

32,598

Less intangible assets (£m)

(7,515)

(7,453)

(7,116)

Tangible equity (£m)

24,015

23,415

25,482


 



Ordinary shares in issue (millions) (1)

8,871

8,929

9,659


 



TNAV per ordinary share (pence)

271p

262p

264p

(1)     The number of ordinary shares in issue excludes own shares held.

8. Customer deposits excluding central items

Customer deposits excluding central items is calculated as total NatWest Group customer deposits excluding Central items & other customer deposits.

Central items & other includes Treasury repo activity and Ulster Bank RoI. The exclusion of Central items & other removes the volatility relating to Treasury repo activity and the expected reduction of deposits as part of our withdrawal from the Republic of Ireland. These items may distort period-on-period comparisons and their removal gives the user of the financial statements a better understanding of the movements in customer deposits.

As at


30 September

30 June

31 December


2023

2023

2022


£bn

£bn

£bn

Total customer deposits

435.9

432.5

450.3

Less Central items & other

(12.4)

(11.4)

(17.4)

Customer deposits excluding central items

423.5

421.1

432.9

9. Net loans to customers excluding central items

Net loans to customers excluding central items is calculated as total NatWest Group net loans to customers excluding Central items & other net loans to customers.

Central items & other includes Treasury reverse repo activity and Ulster Bank RoI. The exclusion of Central items & other removes the volatility relating to Treasury reverse repo activity and the reduction of loans to customers over 2022 as part of our withdrawal from the Republic of Ireland. This allows for better period-on-period comparisons and gives the user of the financial statements a better understanding of the movements in net loans to customers.

As at


30 September

30 June

31 December


2023

2023

2022


£bn

£bn

£bn

Net loans to customers (amortised cost)

377.3

373.9

366.3

Less Central items & other

(22.8)

(21.2)

(19.6)

Net loans to customers excluding central items

354.5

352.7

346.7

 

 

Non-IFRS financial measures continued

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

Loan:deposit ratio (excl. repos and reverse repos) is calculated as net customer loans held at amortised cost excluding reverse repos divided by total customer deposits excluding repos. This is a common metric used to assess liquidity.

The removal of repos and reverse repos reduces volatility and presents the ratio on a basis that is comparable to UK peers. A reconciliation is shown below including a comparison to the nearest GAAP measure, loan:deposit ratio. This is calculated as net loans to customers held at amortised cost divided by customer deposits.

As at

 

30 September

30 June

31 December

 

2023

2023

2022

 

£m

£m

£m

Loans to customers - amortised cost 

377,268

373,885

366,340

Less reverse repos

(23,095)

(21,420)

(19,749)

Loans to customers - amortised cost (excl. reverse repos)

354,173

352,465

346,591


 



Customer deposits 

435,867

432,532

450,318

Less repos

(10,692)

(9,322)

(9,828)

Customer deposits (excl. repos)

425,175

423,210

440,490


 



Loan:deposit ratio (%)

87%

86%

81%

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

83%

83%

79%

11. Loan impairment rate

Loan impairment rate is the annualised loan impairment charge divided by gross customer loans. This measure is used to assess the credit quality of the loan book.

Nine months ended


Quarter ended 


30 September

30 September


30 September

30 June

30 September


2023

2022


2023

2023

2022

Loan impairment charge (£m)

452

193


229

153

247

Annualised loan impairment charge (£m)

603

257


916

612

988


 



 



Gross customer loans (£bn)

380.8

375.1


380.8

377.3

375.1


 



 



Loan impairment rate

16bps

7bps


24bps

16bps

26bps

12. Funded assets

Funded assets are calculated as total assets less derivative assets. This measure allows review of balance sheet trends exclusive of the volatility associated with derivative fair values.

As at


30 September

30 June

31 December


2023

2023

2022


£m

£m

£m

Total assets

717,141

702,601

720,053

Less derivative assets

(87,504)

(81,873)

(99,545)

Funded assets

629,637

620,728

620,508

13. Assets under management and administration (AUMA)

AUMA comprises both assets under management (AUM) and assets under administration (AUA) serviced through the Private Banking segment.

AUM comprise assets where the investment management is undertaken by Private Banking on behalf of Private Banking, Retail Banking and Commercial & Institutional customers.

AUA comprise i) third party assets held on an execution-only basis in custody by Private Banking, Retail Banking and Commercial & Institutional for their customers, for which the execution services are supported by Private Banking, and for which Private Banking receives a fee for providing investment management and execution services to Retail Banking and Commercial & Institutional business segments ii) AUA of Cushon, acquired on 1 June 2023, which are supported by Private Banking and held and managed by third parties.

This measure is tracked and reported as the amount of funds that we manage or administer, and directly impacts the level of investment income that we receive.

 

Non-IFRS financial measures continued

14. AUM net flows

AUM net flows refers to client cash inflows and outflows relating to investment products (this can include transfers from savings accounts). AUM net flows excludes the impact of European Economic Area (EEA) resident client outflows following the UK's exit from the EU and Russian client outflows since Q1 2022.

AUM net flows is reported and tracked to monitor the business performance of new business inflows and management of existing client withdrawals across Private Banking, Retail Banking and Commercial & Institutional.

15. Wholesale funding

Wholesale funding comprises deposits by banks (excluding repos), debt securities in issue and subordinated liabilities.

Funding risk is the risk of not maintaining a diversified, stable and cost-effective funding base. The disclosure of wholesale funding highlights the extent of our diversification and how we mitigate funding risk.

16. Third party rates

Third party customer asset rate is calculated as annualised interest receivable on third-party loans to customers as a percentage of third-party loans to customers. This excludes assets of disposal groups, intragroup items, loans to banks and liquid asset portfolios. Third party customer funding rate reflects interest payable or receivable on third-party customer deposits, including interest bearing and non-interest bearing customer deposits. Intragroup items, bank deposits, debt securities in issue and subordinated liabilities are excluded for customer funding rate calculation.

These metrics help investors better understand our net interest margin and interest rate sensitivity.

 

 

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