NWG Q3 IMS Interim Management Statement 2022

RNS Number : 4141E
NatWest Group plc
28 October 2022
 

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NatWest Group

Q3 2022

Interim Management Statement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NatWest Group plc  natwestgroup.com

 



 

NatWest Group Q3 2022 Results   

Page

Highlights

1

Our Purpose in action

2

Business performance summary

3

  CFO Review

6

  Retail Banking

7

  Private Banking

8

  Commercial & Institutional

9

  Ulster Bank RoI

10

  Central items & other

11

  Segment performance

12

Risk and capital management


  Credit risk

17

  Capital, liquidity and funding risk

25

Condensed consolidated financial statements

31

Notes to the financial statements

35

Additional information

38

Appendix - Non-IFRS financial measures

41

 

 

 




NatWest Group plc

Q3 2022 Interim Management Statement

Chief Executive, Alison Rose, commented:

"In a challenging environment, NatWest Group continues to deliver a strong financial performance; supporting our customers, responsibly growing our lending and making significant investments to transform the bank. 

At a time of increased economic uncertainty, we are acutely aware of the challenges that people, families and businesses are facing up and down the country. Although we are not yet seeing signs of heightened financial distress, we are very conscious of the growing concerns of our customers and we are closely monitoring any changes to their finances or behaviours.

The bank's strong capital and liquidity mean we are able to help those who are likely to need it the most, through support for our community partners, proactive outreach to our customers or targeted lending packages for the most impacted sectors."

Strong Q3 2022 performance

Q3 2022 attributable profit of £187 million and a return on tangible equity of 2.9% and 12.1% excluding Ulster Bank RoI.

Excluding notable items, income in the Go-forward group increased by £923 million, or 36.8%, compared with Q3 2021 principally reflecting the impact of volume growth, increased transactional related fees and yield curve movements.

Bank net interest margin (NIM) of 2.99% was 27 basis points higher than Q2 2022 driven by the impact of base rate rises.

Other operating expenses in the Go-forward group were £87 million, or 1.8%, higher for the year to date. We do, however, remain on track to achieve our 2022 cost reduction target of around 3%.

A net impairment charge of £242 million in the Go-forward group in Q3 2022 principally reflects revision of scenario weightings, with more weight being placed on the downside scenario, and not due to underlying book performance where conditions continue to be benign.

Total Ulster Bank RoI including discontinued operations reported a loss of €652 million in the quarter, which included a €419 million loss associated with the reclassification of UBIDAC mortgages to fair value.

Robust balance sheet with strong capital and liquidity levels

Net lending balances for the Go-forward group increased by £9.9 billion during Q3 2022 to £371.5 billion, with growth balanced across the business.

Go-forward group customer deposits decreased by £14.5 billion to £461.7 billion compared with Q2 2022, primarily driven by a reduction in Treasury repo activity of £7.6 billion and an £8.0 billion reduction in Commercial & Institutional reflecting reversal of short term inflows in Q2 2022 and general seasonal fluctuations in liquidity.

The liquidity coverage ratio (LCR) of 156%, representing £67.8 billion headroom above 100% minimum requirement, decreased by 3 percentage points compared with Q2 2022, reflecting shareholder distributions, redemption of senior debt and maturing commercial papers and certificates of deposit.

CET1 ratio of 14.3% was flat on Q2 2022 as the attributable profit and reduction in RWAs was offset by accruals for foreseeable dividends and pension contributions.

RWAs reduced by £1.3 billion in the quarter to £178.5 billion.

Outlook 2023(2)

In 2023, we continue to expect to achieve our planned return on tangible equity in the range of 14-16%.

However, reflecting changes in the economic outlook since H1 2022, the composition of those returns will be different:

Income will be higher supported by higher interest rates.

We no longer expect costs to be broadly stable given increased inflationary pressures.

Our loan book is performing well, and while we expect impairments to increase, we remain comfortable with our through the cycle impairment loss rate guidance of 20-30 basis points, including in 2023.

Outlook 2022(2)

At today's Bank of England base rate of 2.25% we expect 2022 income excluding notable items to be around £12.8 billion in the Go-forward group. We expect NIM to be greater than 2.80% for full year 2022 in the Go-forward group.

Other than as stated above, we retain the outlook guidance provided in the 2022 Interim Results.

 

(1)  Go-forward group excludes Ulster Bank RoI and discontinued operations.

(2)  The guidance, targets, expectations and trends discussed in this section represent NatWest Group plc management's current expectations and are subject to change, including as a result of the factors described in the NatWest Group plc Risk Factors in the 2021 Annual Report and Accounts and Form 20-F and the Summary Risk Factors in the NatWest Group plc 2022 Interim Results. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement.

 



 

Our Purpose in action

We champion potential, helping people, families and businesses to thrive. We are doing this by breaking down barriers, building financial confidence and delivering sustainable growth and returns by living up to our purpose. Some key achievements include:

People and families

8.3 million proactive contacts to our retail customers with support and information on the cost of living so far in 2022 .

Helped c.0.6 million customers with financial health checks so far in 2022, allowing them to organise their finances.

Launched benefits calculator(1) as part of the Cost of Living Hub and increased the interest paid on our Digital Regular Saver to 5%.

We extended our mortgage early refinance window from four months to six months, providing some eligible customers that refinanced in Q3 2022 with a saving of around 2% on their next mortgage rate.

In Retail Banking, we have completed £2.1 billion of green mortgages(2), which give a discounted interest rate to energy efficient properties, since they were launched in Q4 2020, including £668 million in Q3 2022.

Businesses

Contacted c.0.8 million business customers, providing support and advice with the cost of doing business through c.3 million pieces of proactive communication.

Continue to look at ways to support SMEs, for example through the freezing of fees on Business Current accounts for 12 months, and through our dedicated SME ecosystem with access to specialist relationship managers and business hubs.

Working with the UK's largest debt charity, Step Change, donating £2 million to help fund an independent debt advice service for SMEs.

Completed £6.2 billion of climate and sustainable funding and financing in Q3 2022, bringing the cumulative contribution to £26.2 billion against our target of £100 billion between 1 July 2021 and the end of 2025.

Lowered the application threshold for our Green Loan offering for SMEs, from £50,000 to £25,000, helping more businesses transition to net zero.

Launched the NatWest Carbon Planner in August 2022, a free to use digital platform designed to help UK businesses reduce their carbon footprint.

Colleagues

Our new Partner Leave Policy(3) will provide the same pay and leave entitlement   to all eligible new parents, regardless of gender, helping to support wider cultural change by promoting a shared approach to childcare responsibilities early on.

Launched the Peppy Health App, a brand-new digital product providing colleagues and their partners with online support on the menopause as well as access to specialist clinicians. The Peppy App provides support for colleagues at any stage of the menopause, from as early as having initial symptoms to post-menopause.

Targeted action to provide long-term support through a permanent increase in base pay for our lowest paid colleagues, globally. c.22,000 colleagues received a pay rise, effective from 1 September 2022. In the UK, a 4% salary rise for those earning less than £32,000.

246 apprentices have joined the bank so far in 2022(4), with a further c.50 due to join before the end of the year.

Communities

Launched our Greener Homes Retrofit Project with our Sustainable Homes and Buildings Coalition partners. This involves supporting households to improve the energy efficiency of their homes.

The DEC Ukraine Humanitarian Appeal has exceeded £10 million in donations from NatWest Group colleagues and customers. This includes £2.5 million matching from the bank, over £2.3 million in Reward donations (including Gift Aid) and £284,000 (including Gift Aid) donated by colleagues through our SponsorMe page.

MoneySense has helped almost c.0.9 million young people learn about money in 2022 so far, and is used in 58% of schools.   Our CareerSense programme has reached over 7,700 young people, through workshops in schools, paid placements/insight weeks and Find Your Path programme.

Since 1 January 2022, our colleagues have given back c.48,000 hours of volunteering leave within work time and fundraised c.£2.4 million for charitable causes.

 

 

(1)  Benefits calculator launched in October 2022.

(2)  Green mortgages are available to all intermediaries for all residential and Buy to Let properties with an energy performance rating of A or B and specific new build developer properties. Available for Purchase, Porting & Re-mortgage applications.

(3)  Our Partner Leave policies will replace existing Paternity Leave policies from 1 January 2023 in the UK, Guernsey, Jersey, Gibraltar, Republic of Ireland, India and Poland.

(4)  Apprentices who have joined the bank as at 25 October 2022.



 


Business performance summary


Nine months ended


Quarter ended


30 September

30 September


30 September

30 June

30 September


2022

2021


2022

2022

2021

 

£m

£m

 

£m

£m

£m

Continuing operations

 


 

 



Total income

9,448

7,827


3,229

3,211

2,686

Operating expenses

(5,549)

(5,430)


(1,896)

(1,833)

(1,931)

Profit before impairment (losses)/releases

3,899

2,397


1,333

1,378

755

Operating profit before tax

3,706

3,301


1,086

1,396

976

Excluding notable items within total income   (1)

 


 

 



Total income excluding notable items   (2)

9,295

7,679


3,397

3,114

2,568  

Operating expenses

(5,549)

(5,430)


(1,896)

(1,833)

(1,931)

Profit before impairment (losses)/releases and  

 



 



  excluding notable items

3,746

2,249


1,501

1,281

637

Operating profit before tax and excluding notable items

3,553

3,153


1,254

1,299

858

Go-forward group   (3)

 


 

 



Total income   (2)

9,452

7,705


3,266

3,199

2,629

Total income excluding notable items   (2)

9,299

7,557


3,434

3,102

2,511

Other operating expenses

(4,902)

(4,815)


(1,661)

(1,636)

(1,524)

Profit before impairment (losses)/releases   (2)

4,271

2,626


1,484

1,507

810

Return on tangible equity   (2)

13.5%

11.4%


12.1%

16.5%

8.6%

Cost:income ratio   (2)

54.4%

65.4%


54.1%

52.4%

68.8%

Performance key metrics and ratios

 


 

 



Bank net interest margin   (2,4)

2.73%

2.32%


2.99%

2.72%

2.28%

Bank average interest earning assets   (2,4)

£341bn

£323bn


£350bn

£340bn

£325bn

Cost:income ratio   (2)

58.3%

69.0%


58.3%

56.7%

71.5%

Loan impairment rate   (2)

7bps

(33bps)


26bps

(2bps)

(24bps)

Profit attributable to ordinary shareholders

2,078

2,516


187

1,050

674

Total earnings per share attributable to ordinary  

 



 



  shareholders - basic   (5)

20.9p

23.1p


1.9p

10.8p

6.3p

Return on tangible equity   (2)

10.0%

10.7%


2.9%

15.2%

8.5%

 

 

(1)

Refer to page 5 for details of notable items within total income.

(2)

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

(3)

Go-forward group excludes Ulster Bank RoI and discontinued operations.

(4)

NatWest Group excluding Ulster Bank RoI and liquid asset buffer.

(5)

At the General Meeting and Class Meeting on 25 August 2022, the shareholders approved the proposed special dividend and share consolidation.   On 30 August 2022 the issued ordinary share capital was consolidated in the ratio of 14 existing shares for 13 new shares.   The average number of shares for earnings per share has been adjusted retrospectively.



Business performance summary continued

 

 

30 September

30 June

31 December

 

 

2022

2022

2021

 

 

£bn

£bn

£bn

Balance sheet

 

 

 


Total assets


801.5

806.5

782.0

Funded assets   (1)


660.5

697.1

675.9

Loans to customers - amortised cost


371.8

362.6

359.0

Loans to customers and banks - amortised cost and FVOCI  


384.5

376.4

369.8

Go-forward group net lending   (1)


371.5

361.6

352.3

Total impairment provisions   (2)


3.4

3.5

3.8

Expected credit loss (ECL) coverage ratio  


0.88%

0.93%

1.03%

Assets under management and administration (AUMA)   (1)


32.3

32.9

35.6

Go-forward group customer deposits   (1)


461.7

476.2

461.4

Customer deposits  


473.0

492.1

479.8

Liquidity and funding

 

 



Liquidity coverage ratio (LCR)


156%

159%

172%

Liquidity portfolio


251

268

286

Net stable funding ratio (NSFR)   (3)


148%

153%

157%

Loan:deposit ratio   (1)


75%

71%

72%

Total wholesale funding


75

76

77

Short-term wholesale funding


24

24

23

Capital and leverage

 

 



Common Equity Tier (CET1) ratio   (4)


14.3%

14.3%

18.2%

Total capital ratio   (4)


19.2%

19.3%

24.7%

Pro forma CET1 ratio, pre foreseeable items   (5)


14.7%

15.6%

19.5%

Risk-weighted assets (RWAs)


178.5

179.8

157.0

UK leverage ratio   (4)


5.2%

5.2%

5.9%

Tangible net asset value (TNAV) per ordinary share   (6)


250p

267p

272p

Number of ordinary shares in issue (millions)   (6)


9,650

10,436

11,272

 

(1)

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

(2)

Includes £0.1 billion relating to off-balance sheet exposures (30 June 2022 - £0.1 billion; 31 December 2021 - £0.1 billion).

(3)

The NSFR is presented on a spot basis.

(4)

Refer to the Capital, liquidity and funding risk section for details of basis of preparation. On 1 January 2022 the proforma CET1 ratio was 15.9% following regulatory changes.

(5)

The pro forma CET1 ratio at 30 September 2022 excludes foreseeable items of £668 million; £386 million for ordinary dividends and £282 million foreseeable charges (30 June 2022 excludes foreseeable items of £2,341 million: £500 million for ordinary dividends, £1,750 million for special dividends and £91 million foreseeable charges; 31 December 2021 excludes foreseeable charges of £2,036 million: £846 million for ordinary dividends and £1,190 million foreseeable charges and pension contributions).

(6)

The number of ordinary shares in issue excludes own shares held. Comparatives for the number of shares in issue and TNAV per ordinary share have not been adjusted for the effect of the share consolidation referred to in footnote 5 on the previous page.



 

Summary consolidated income statement for the period ended 30 September 2022


Nine months ended


Quarter ended


30 September

30 September


30 September

30 June

30 September


2022

2021


2022

2022

2021


£m  

£m  


£m  

£m  

£m  

Net interest income

6,974

5,613


2,640

2,307

1,869

Non-interest income

2,474

2,214


589

904

817

Total income

9,448

7,827

 

3,229

3,211

2,686

Litigation and conduct costs

(294)

(276)


(125)

(67)

(294)

Other operating expenses

(5,255)

(5,154)


(1,771)

(1,766)

(1,637)

Operating expenses

(5,549)

(5,430)

 

(1,896)

(1,833)

(1,931)

Profit before impairment (losses)/releases

3,899

2,397

 

1,333

1,378

755

Impairment (losses)/releases

(193)

904


(247)

18

221

Operating profit before tax

3,706

3,301

 

1,086

1,396

976

Tax charge

(1,229)

(762)


(434)

(409)

(330)

Profit from continuing operations

2,477

2,539

 

652

987

646

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

(206)

275

 

(396)

127

98

Profit for the period

2,271

2,814

 

256

1,114

744


 



 



Attributable to:

 


 

 



Ordinary shareholders

2,078

2,516


187

1,050

674

Preference shareholders

-

14


-

-

5

Paid-in equity holders

188

241


67

62

63

Non-controlling interests

5

43


2

2

2


2,271

2,814


256

1,114

744

 

 

 

 

 



Notable items within total income   (1)

 

 

 

 



Commercial & Institutional

 



 



Fair value, disposal losses and asset disposals/

 



 



  strategic risk reduction

(45)

(70)


-

(45)

(8)

Tax variable lease repricing

-

32


-

-

-

Own credit adjustments (OCA)

61

3


9

34

2

Central items & other

 



 



Share of associate (losses)/profits for Business  

 



 



  Growth Fund

(29)

208


(16)

(36)

79

Loss on redemption of own debt

(161)

(138)


(137)

-

-

Liquidity Asset Bond sale (losses)/gains

(88)

70


(124)

(5)

45

Interest and FX risk management derivatives not

 



 



  in accounting hedge relationships

415

44


100

149

-

Own credit adjustments (OCA)  

-

(1)


-

-

-

Total

153

148


(168)

97

118

(1)  Refer to page 41 of the Non-IFRS financial measures appendix.

Non-IFRS financial measures

This document contains a number of non-IFRS financial measures and performance metrics not defined under IFRS. For details of the basis of preparation and reconciliations, where applicable, refer to the appendix.

 

 

 

 

 

 

 

 



 

Business performance summary

Chief Financial Officer review

The results for the quarter have been impacted by a significant loss in Ulster Bank RoI as we continue our withdrawal from the Republic of Ireland, however operating performance in the Go-forward group was strong, delivering a RoTE of 12.1%.  We continue to monitor the evolving economic outlook, particularly any impacts on NatWest Group and our customers from higher interest rates and inflationary pressures and recent pressure on sterling, gilts and pension fund liabilities. NatWest Group's capital and liquidity position remains robust.

Financial performance

Total income in the Go-forward group increased by 24.2% to £3,266 million compared with Q3 2021. Excluding notable items, income was £923 million, or 36.8%, higher than Q3 2021 driven by volume growth, increased transactional related fees, higher trading income and favourable yield curve movements.

Bank NIM of 2.99% was 27 basis points higher than Q2 2022 principally reflecting the impact of recent base rate increases.

Other operating expenses in the Go-forward group were £137 million, or 9.0%, higher than Q3 2021 principally driven by strategic investment in key areas, including data and financial crime, resulting in an increase of £87 million, or 1.8%, for the year to date.

A net impairment charge of £242 million for the Go-forward group for Q3 2022 principally reflects an increase in the charge relating to good book exposures, driven by revision of scenario weightings with more weight being placed on the downside scenarios.  We continue to see low levels of Stage 3 defaults. Compared with Q2 2022, our ECL provisions have reduced by £0.1 billion to £3.4 billion, and our ECL coverage ratio has decreased from 0.93% to 0.88%. The element of our economic uncertainty post model adjustments (PMA) that relates to COVID-19 risks has been reduced, which, when combined with revising our scenario weightings, has allowed us to reduce the amount we hold as economic uncertainty PMA to £0.5 billion, or 16.1% of total impairment provisions. Whilst we are comfortable with the strong credit performance of our book, we will continue to assess this position regularly and are closely monitoring the impacts of inflationary pressures on the UK economy and our customers.

After including a charge of €419 million in relation to the reclassification of UBIDAC mortgages to fair value, we report a Q3 2022 attributable profit of £187 million, with earnings per share of 1.9 pence and a RoTE of 2.9% for NatWest Group.

Retail Banking gross new mortgage lending was £11.0 billion in Q3 2022, compared with £8.3 billion in Q3 2021 and £9.8 billion in Q2 2022, bringing gross new lending for the year to £29.9 billion. Unsecured balances in Retail Banking grew £0.2 billion in the quarter as customer demand remained strong. Go-forward group net lending increased by £9.9 billion, or 2.7%, in the quarter including £3.9 billion of mortgage lending growth in Retail Banking and £4.6 billion of growth in Commercial & Institutional. Wholesale lending was strong across the whole book, with most activity in Commercial & Institutional. Government Scheme lending continues to reduce, with £0.6 billion repaid in the quarter.

Customer deposits in the Go-forward group decreased by £14.5 billion, or 3.0%, in the quarter. Retail Banking deposits remained stable, with the decrease primarily driven by an £8.0 billion reduction in Commercial & Institutional reflecting the reversal of short term inflows in Q2 2022 and general seasonal fluctuations in liquidity and a reduction in Treasury repo activity of £7.6 billion. In the Go-forward group around 60% of our customer deposits are interest bearing and the bank has passed on 25-30% of the 215 basis point UK base rate rises since Q4 2021.

TNAV per share decreased by 17 pence in the quarter to 250 pence principally reflecting movements in cashflow hedging reserves and dividend payments, offset by the impact of the share consolidation.

 

Capital and leverage

The Group Pension Fund is holding sufficient collateral and cash for current market levels and the robust risk management of the Fund has negated any need to sell assets to meet collateral calls to date. The Fund remains in surplus and funding levels have improved since the last valuation. The NatWest Group's exposure to LDI funds through secured lending (repo) or derivatives is collateralised on a daily basis.

 

The CET1 ratio remains robust at 14.3%, or 14.1% excluding IFRS 9 transitional relief, and was flat on Q2 2022 as the attributable profit and reduction in RWAs was offset by accruals for foreseeable dividends and pension contributions. The total capital ratio decreased by 10 basis points to 19.2%.

 

RWAs reduced by £1.3 billion in the quarter to £178.5 billion reflecting disposal activity in Ulster Bank RoI, partially offset by lending growth, FX movements and market risk. 

 

Funding and liquidity

The LCR decreased by 3 percentage points to 156%, representing £67.8 billion headroom above 100% minimum requirement. The main drivers of this include shareholder distributions, redemption of Senior debt and maturing commercial papers and certificates of deposit, coupled with a reduction in customers deposits and increased lending to our customers. Total wholesale funding reduced by £1.4 billion in the quarter to £75.0 billion. Short term wholesale funding increased by £0.2 billion in the quarter to £23.8 billion.



 


Business performance summary

Retail Banking


 

 

Quarter ended


 



30 September

30 June

30 September


 



2022

2022

2021


 



£m

£m

£m

Total income

 



1,475

1,337

1,131

Operating expenses

 



(693)

(597)

(552)

  of which: Other operating expenses

 

 

 

(630)

(593)

(537)

Impairment losses

 



(116)

(21)

(16)

Operating profit

 



666

719

563


 



 



Return on equity

 



27.0%

29.5%

29.9%

Net interest margin

 



2.85%

2.62%

2.29%

Cost:income ratio

 



47.0%

44.7%

48.8%

Loan impairment rate

 



24bps

4bps

4bps

 


 


As at


 



30 September

30 June

31 December


 



2022

2022

2021


 



£bn

£bn

£bn

Net loans to customers (amortised cost)

 



192.8

188.7

182.2

Customer deposits

 



190.9

190.5

188.9

RWAs

 



53.0

53.0

36.7

During Q3 2022, Retail Banking continued to pursue sustainable growth with an intelligent approach to risk, delivering a return on equity of 27.0% and an operating profit of £666 million.

We continue to support our customers facing the rising cost of living financial challenges during Q3 2022.  In addition to the measures taken during H1 2022, we have increased the support available to our mortgage customers during their roll-off period by extending the roll-off window from 4 to 6 months, giving customers more time to select their follow on product and secure rates in advance. We have also proactively engaged with those customers identified as potentially income stretched to make them aware of the support available, and offered pre-screening toolkits and soft scoring to help customers understand what borrowing they are eligible for and what their repayments would be.

Retail Banking completed £1.1 billion of climate and sustainable funding and financing in Q3 2022.

Q3 2022 performance

-

Total income was £344 million, or 30.4%, higher than Q3 2021 reflecting higher deposit income, supported by interest rate rises, strong loan growth and higher transactional-related fee income, partially offset by lower mortgage margins and the impact of the summer fee-free overseas spending offer.

-

Net interest margin was 23 basis points higher than Q2 2022 reflecting higher deposit returns, partly offset by mortgage margin pressure. Mortgage back book margin was 138 basis points in the period.

-

Other operating expenses were £93 million, or 17.3%, higher than Q3 2021 primarily due to higher marketing spend, higher fraud losses and increased investment in financial crime prevention, combined with the impact of pay awards to support colleague cost of living challenges. This was partly offset by a 9.3% headcount reduction as a result of the continued digitalisation, automation and improvement of end-to-end customer journeys.

-

Impairment losses of £116 million in Q3 2022 reflect a revision of the economic scenario weightings, with more weight being placed on the downside, and continued low level of stage 3 defaults.

-

Customer deposits increased by £0.4 billion, or 0.2%, in Q3 2022 including the impact of customers utilising savings balances over the summer period.

-

Net loans to customers increased by £4.1 billion, or 2.2%, in Q3 2022 mainly reflecting continued mortgage growth of £3.9 billion, with gross new mortgage lending of £11.0 billion representing flow share of around 13%. Personal advances increased by £0.1 billion and cards balances increased by £0.1 billion in Q3 2022 reflecting continued strong customer demand.

-

RWAs remained broadly in line with Q2 2022 at £53.0 billion with lending growth offset by quality improvements.



 



 

Business performance summary

Private Banking


 

 

Quarter ended




30 September

 

30 June

30 September




2022

 

2022

2021




£m

 

£m

£m

Total income



285

 

245

195

Operating expenses



(139)

 

(146)

(116)

  o f which: Other operating expenses



(138)

 

(146)

(119)

Impairment (losses)/releases



(7)

 

6

15

Operating profit



139

 

105

94




 

 



Return on equity



31.8%

 

23.5%

18.1%

Net interest margin



4.37%

 

3.60%

2.60%

Cost:income ratio



48.8%

 

59.6%

59.5%

Loan impairment rate



15bps

 

(13)bps

(32)bps




 

 



Net new money (£bn)   (1)



0.3  

 

0.6

0.7

 

 


 


As at




30 September

 

30 June

31 December




2022

 

2022

2021




£bn

 

£bn

£bn

Net loans to customers (amortised cost)



19.1

 

18.8

18.4

Customer deposits



42.2

 

41.6

39.3

RWAs



11.1

 

11.3

11.3

Assets under management (AUMs)   (1)



27.6

 

28.1

30.2

Assets under administration (AUAs)   (1)



4.7

 

4.8

5.4

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



32.3

 

32.9

35.6

(1)  Refer to page 48 of the Non-IFRS financial measures appendix.

 

During Q3 2022, Private Banking provided a strong operating performance with continued balance growth, delivering a return on equity of 31.8% and operating profit of £139 million.

We have continued to support our clients in helping them deal with financial challenges as a result of rising inflation and the volatile market environment through financial health checks and fraud and scams workshops. Despite volatile markets throughout the year, our year to date AUM net new money of £1.7 billion represents a strong performance relative to the overall UK investment market.

Private Banking completed £0.1 billion of climate and sustainable funding and financing during Q3 2022.

Q3 2022 performance

-

Total income was £90 million, or 46.2%, higher than Q3 2021 driven by higher deposit and lending balances, and improved deposit returns, supported by interest rate rises.

-

Net interest margin was 77 basis points higher than Q2 2022 reflecting higher deposit income.

-

Other operating expenses were £19 million, or 16.0%, higher than Q3 2021 due to continued investment in people and technology to enhance AUMA growth propositions.

-

Impairment losses of £7 million in Q3 2022 are primarily due to an increase in the impairment charge relating to good book exposures, driven by revision of scenario weightings, with more weight being placed on the downside scenario.

-

AUM net new money was £0.3 billion during Q3 2022 and £1.7 billion in the year to date, which represented 6.4% of opening AUMA balances on an annualised basis, demonstrating a strong performance given volatile investment market conditions. AUMAs decreased by £0.6 billion, or 1.8%, in Q3 2022 primarily reflecting investment market movements of £0.8 billion.

-

Customer deposits increased by £0.6 billion, or 1.4%, in Q3 2022 with continued savings growth.

-

Net loans to customers increased by £0.3 billion, or 1.6%, in Q3 2022 due to continued strong mortgage lending growth, whilst RWAs decreased by £0.2 billion, or 1.8%.

 

 



 

Business performance summary

Commercial & Institutional


 

 

Quarter ended


 



30 September

30 June

30 September


 



2022

2022

2021


 



£m

£m

£m

Net interest income

 



1,131

961

723

Non-interest income

 



526

601

473

Total income

 



1,657

1,562

1,196


 



 



Operating expenses

 



(893)

(898)

(874)

  of which: Other operating expenses

 



(840)

(854)

(845)

Impairment (losses)/releases

 



(119)

48

230

Operating profit

 



645

712

552


 



 



Return on equity

 



12.2%

14.0%

11.0%

Net interest margin

 



3.46%

3.09%

2.39%

Cost:income ratio

 



53.0%

56.6%

72.2%

Loan impairment rate

 



36bps

(15)bps

(72)bps

 

 


 


As at


 



30 September

30 June

31 December


 



2022

2022

2021


 



£bn

£bn

£bn

Net loans to customers (amortised cost)

 



131.9

127.3

124.2

Customer deposits

 



215.2

223.2

217.5

Funded assets   (1)

 



325.5

343.4

321.3

RWAs

 



104.8

103.0

98.1

(1)  Refer to page 48 of the Non-IFRS financial measures appendix.

During Q3 2022, Commercial & Institutional delivered a strong performance with a return on equity of 12.2% and an operating profit of £645 million.

As our customers are facing a volatile external macroeconomic environment, we continue to proactively provide support through our Relationship Manager-led model, alongside a 12-month freeze in SME fees, the launch of the Cost of Trading internet hub and launching Carbon Planner which enables businesses to accurately plan how they can reduce their energy and fuel costs with a bespoke strategy.

Commercial & Institutional completed £4.9 billion of climate and sustainable funding and financing in Q3 2022.

Q3 2022 performance

-

Total income was £461 million, or 38.5%, higher than Q3 2021 reflecting higher deposit returns from an improved interest rate environment, net loan growth and improved card payment fees. Markets income(1) of £136 million, was £31 million, or 29.5%, higher than Q3 2021 reflecting stronger performance in Currencies.

-

Net interest margin was 37 basis points higher than Q2 2022 reflecting higher deposit income.

-

Other operating expenses were £5 million, or 0.6%, lower than Q3 2021 due to the non-repeat of Q3 2021 restructuring costs partly offset by continued investment in the business including higher back office operational costs.

-

A net impairment charge of £119 million in Q3 2022 was predominantly driven by the revision of scenario weightings, with more weight being placed on the downside scenarios.

-

Customer deposits decreased by £8.0 billion, or 3.6%, in Q3 2022 reflecting the reversal of short term inflows in Q2 and general seasonal fluctuations in liquidity. Overall customer liquidity levels remain at heightened levels.

-

Net loans to customers increased by £4.6 billion, or 3.6%, in Q3 2022 due to increased facility utilisation and funds activity within Corporate & Institutions partly offset by UK Government scheme repayments of £0.6 billion across Commercial Mid-market and Business Banking.

-

RWAs increased by £1.8 billion, or 1.7%, in Q3 2022 driven by lending growth, counterparty credit risk and market risk, partly offset by risk parameter improvements and continued benefits from capital actions.

 

(1)  Markets income excludes asset disposals/strategic risk reduction, own credit risk adjustments and central items.



 

Business performance summary

Ulster Bank RoI

Ulster Bank RoI continues to make progress on its phased withdrawal from the Republic of Ireland.

-

Successful migration of a further three tranches of gross performing commercial loans to Allied Irish Banks, p.l.c. (AIB) was completed during Q3 2022. Remaining migrations of commercial customers will be completed in phases over Q4 2022 and H1 2023. Colleagues who are wholly or mainly assigned to supporting this part of the business have begun to transfer to AIB under TUPE arrangements.

-

The planned migration of gross performing non-tracker mortgages to Permanent TSB p.l.c. (PTSB) is progressing and execution of the live migration is expected to commence before the end of the year. The transfer of the Lombard asset finance business, the business direct loan book and 25 branches to PTSB is still expected to be completed in H1 2023.

-

Migration of the portfolio of gross performing tracker and linked mortgages is still on track for delivery in Q2 2023. UBIDAC and AIB remain actively engaged with the Irish Competition and Consumer Protection Commission (CCPC) as it continues its review of the transaction.

-

There has been continued momentum on deposit outflows, with a significant level of customers reducing their balances and moving their active banking relationship in advance of closing their accounts.

-

Work continues on managing the residual activities of the bank, including remaining asset disposals.

 

Continuing operations

 

 

Quarter ended




30 September

30 June

30 September




2022

2022

2021




€m

€m

€m

Total income



(44)

13

68

Operating expenses   (1)



(135)

(167)

(131)

  of which: Other operating expenses



(130)

(154)

(132)

Impairment losses



(5)

(26)

(5)

Operating loss



(184)

(180)

(68)




 

 









 


As at


 


30 September

30 June

31 December


 


2022

2022

2021


 


€bn

€bn

€bn

Net loans to customers - amortised cost   (2)

 


0.4

1.2

7.9

Customer deposits

 


12.8

18.4

21.9

RWAs

 


9.1

12.6

10.9

(1)  Includes withdrawal-related direct programme costs of €24 million for the quarter ended 30 September 2022 (€19 million - 30 June 2022 and nil - 30 September 2021).

(2)  This excludes €0.7 billion of loans to customers held at fair value through profit or loss (nil - 30 June 2022 and nil - 30 September 2021).

Q3 2022 performance

-

Total income was €112 million lower than Q3 2021 reflecting reduced business levels, the continued cost of an inter-group liquidity facility that was put in place as part of the arrangements to manage deposit outflows and the cost of restructuring UBIDAC's hedging portfolio.

-

Other operating expenses were €2 million, or 1.5%, lower than Q3 2021 due to lower regulatory levies and reduced staff costs being partially offset by higher withdrawal-related programme costs.

-

Net loans to customers decreased by €0.8 billion, or 66.7%, in Q3 2022 due to the reclassification of mortgages to loans at fair value and repayments on the remaining portfolio.

-

Customer deposits decreased by €5.6 billion, or 30.4%, in Q3 2022 due to reducing personal and commercial deposits as  momentum continues in account closures.

-

RWAs decreased by €3.5 billion, or 27.8%, in Q3 2022 driven by asset sales and the move to the standardised approach to measuring risk weightings. The move to the standardised approach was part of simplifying processes arising from the phased withdrawal strategy.



 

Business performance summary

Ulster Bank RoI continued

Total Ulster Bank RoI including discontinued operations

 

Quarter ended



 

30 September

30 June

30 September



 

2022

2022

2021



 

€m

€m

€m

Total income


 

(518)

101

171

Operating expenses


 

(148)

(182)

(144)

  of which: Other operating expenses

 

 

(143)

(169)

(145)

Impairment releases


 

14

53

19

Operating (loss)/profit



(652)

(28)

46



 






 






 

As at



 

30 September

30 June

30 December



 

2022

2022

2021



 

€bn

€bn

€bn

Net loans to customers (amortised cost)   (1)


 

2.8

17.7

18.6

Customer deposits


 

12.8

18.4

21.9

RWAs


 

9.1

12.6

10.9

(1)  This excludes €12.1 billion of loans to customers held at fair value through profit or loss (nil - 30 June 2022 and nil - 30 September 2021).

 

Central items & other


Quarter ended

 


30 September

30 June

30 September

 


2022

2022

2021

 


£m

£m

£m

 

Central items not allocated

(208)

10  

(173)

 

An operating loss of £208 million within central items not allocated principally reflects losses on redemption of own debt and further bond disposals, offset by gains from risk management derivatives not in hedge accounting relationships.


Segment performance


Nine months ended 30 September 2022


Go-forward group

 

 


 

 

 

 

 

 

 


Retail

Private

Commercial &

Central items

Total excluding

Ulster  

Total NatWest


Banking

Banking

Institutional

& other

Ulster Bank RoI

Bank RoI

Group


£m

£m

£m

£m

£m

£m

£m

Continuing operations

 

 

 

 

 

 

 

Income statement

 

 

 

 

 

 

 

Net interest income

3,719

526

2,895

(178)

6,962

12

6,974

Non-interest income

310

220

1,699

261

2,490

(16)

2,474

Total income

4,029

746

4,594

83

9,452

(4)

9,448

Direct expenses

(498)

(157)

(1,101)

(3,279)

(5,035)

(220)

(5,255)

Indirect expenses

(1,316)

(265)

(1,473)

3,187

133

(133)

-

Other operating expenses

(1,814)

(422)

(2,574)

(92)

(4,902)

(353)

(5,255)

Litigation and conduct costs

(121)

(2)

(139)

(17)

(279)

(15)

(294)

Operating expenses

(1,935)

(424)

(2,713)

(109)

(5,181)

(368)

(5,549)

Operating profit/(loss) before impairment  

 

 

 

 

 

 

 

  (losses)/releases

2,094

322

1,881

(26)

4,271

(372)

3,899

Impairment (losses)/releases

(142)

4

(60)

2

(196)

3

(193)

Operating profit/(loss)  

1,952

326

1,821

(24)

4,075

(369)

3,706

 

 

 

 

 

 

 

 

Income excluding notable items

4,029

746

4,578

(54)

9,299

(4)

9,295

 

 

 

 

 

 

 

 

Additional information

 

 

 

 

 

 

 

Return on tangible equity   (1)

na

na

na

na

13.5%

na

10.0%

Return on equity   (1)

26.5%

24.5%

11.7%

nm

nm

nm

na

Cost:income ratio   (1)

48.0%

56.8%

58.2%

nm

54.4%

nm

58.3%

Total assets (£bn)

221.3

29.8

465.3

67.8

784.2

17.3

801.5

Funded assets (£bn)   (1)

221.3

29.8

325.5

66.6

643.2

17.3

660.5

Net loans to customers - amortised cost (£bn)

192.8

19.1

131.9

27.7

371.5

0.3

371.8

Loan impairment rate   (1)

10bps

(3)bps

6bps

nm

7bps

nm

7bps

Impairment provisions (£bn)

(1.5)

(0.1)

(1.6)

-

(3.2)

(0.1)

(3.3)

Impairment provisions - stage 3 (£bn)

(0.9)

-

(0.7)

-

(1.6)

(0.1)

(1.7)

Customer deposits (£bn)

190.9

42.2

215.2

13.4

461.7

11.3

473.0

Risk-weighted assets (RWAs) (£bn)

53.0

11.1

104.8

1.6

170.5

8.0

178.5

RWA equivalent (RWAe) (£bn)

53.0

11.1

106.5

2.1

172.7

8.0

180.7

Employee numbers (FTEs - thousands)

13.6

2.1

12.1

30.3

58.1

1.9

60.0

Third party customer asset rate   (2)

2.61%

2.80%

3.19%

nm

nm

nm

nm

Third party customer funding rate   (2)

(0.11%)

(0.15%)

(0.10%)

nm

nm

0.05%

nm

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

188.6

19.1

125.4

nm

341.3

na

341.3

Bank net interest margin   (1)

2.64%

3.69%

3.09%

nm

2.73%

na

2.73%

nm = not meaningful, na = not applicable.

Refer to page 16 for the notes to this table.

Segment performance


Nine months ended 30 September 2021


Go-forward group












Retail

Private

Commercial &

Central items

Total excluding

Ulster  

Total NatWest


Banking

Banking

Institutional

& other

Ulster Bank RoI

Bank RoI

Group


£m

£m

£m

£m

£m

£m

£m

Continuing operations








Income statement

 

 

 

 

 

 

 

Net interest income

3,017

354

2,210

14

5,595

18

5,613

Non-interest income

264

209

1,460

177

2,110

104

2,214

Total income

3,281

563

3,670

191

7,705

122

7,827

Direct expenses

(524)

(139)

(1,291)

(2,986)

(4,940)

(214)

(5,154)

Indirect expenses

(1,191)

(234)

(1,343)

2,893

125

(125)

-

Other operating expenses

(1,715)

(373)

(2,634)

(93)

(4,815)

(339)

(5,154)

Litigation and conduct costs

(24)

8

(64)

(184)

(264)

(12)

(276)

Operating expenses

(1,739)

(365)

(2,698)

(277)

(5,079)

(351)

(5,430)

Operating profit/(loss) before impairment  








  (losses)/releases

1,542

198

972

(86)

2,626

(229)

2,397

Impairment releases/(losses)

41

42

843

(4)

922

(18)

904

Operating profit/(loss)  

1,583

240

1,815

(90)

3,548

(247)

3,301

 








Income excluding notable items

3,281

563

3,705

8

7,557

122

7,679









Additional information








Return on tangible equity   (1)

na

na

na

na

11.4%

na

10.7%

Return on equity   (1)

28.3%

15.5%

11.8%

nm

nm

nm

na

Cost:income ratio   (1)

53.0%

64.8%

72.7%

nm

65.4%

nm

69.0%

Total assets (£bn)

207.6

28.2

436.0

81.3

753.1

25.2

778.3

Funded assets (£bn)   (1)

207.6

28.2

333.9

79.6

649.3

25.2

674.5

Net loans to customers - amortised cost (£bn)

180.5

18.4

125.4

23.5

347.8

13.2

361.0

Loan impairment rate   (1)

(3)bps

(30)bps

(88)bps

nm

(35)bps

nm

(33)bps

Impairment provisions (£bn)

(1.6)

(0.1)

(2.1)

-

(3.8)

(0.5)

(4.3)

Impairment provisions - stage 3 (£bn)

(0.8)

-

(1.0)

-

(1.8)

(0.4)

(2.2)

Customer deposits (£bn)

186.3

35.7

217.4

18.4

457.8

18.5

476.3

Risk-weighted assets (RWAs) (£bn)

36.6

11.4

99.9

1.9

149.8

10.0

159.8

RWA equivalent (RWAe) (£bn)

36.6

11.4

101.6

2.1

151.7

10.0

161.7

Employee numbers (FTEs - thousands)

15.0

1.9

12.0

27.5

56.4

1.8

58.2

Third party customer asset rate   (2)

2.68%

2.36%

2.70%

nm

nm

nm

nm

Third party customer funding rate   (2)

(0.06%)

0.00%

(0.02%)

nm

nm

0.01%

nm

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

177.6

18.1

121.1

nm

323.1

na

323.1

Bank net interest margin   (1)

2.27%

2.61%

2.44%

nm

2.32%

na

2.32%

nm = not meaningful, na = not applicable.

Refer to page 16 for the notes to this table.

Segment performance


Quarter ended 30 September 2022


Go-forward group

 

 


 

 

 

 

 

 

 


Retail

Private

Commercial &

Central items

Total excluding

Ulster  

Total NatWest


Banking

Banking

Institutional

& other

Ulster bank RoI

Bank RoI

Group


£m

£m

£m

£m

£m

£m

£m

Continuing operations

 

 

 

 

 

 

 

Income statement

 

 

 

 

 

 

 

Net interest income

1,379

211

1,131

(87)

2,634

6

2,640

Non-interest income

96

74

526

(64)

632

(43)

589

Total income

1,475

285

1,657

(151)

3,266

(37)

3,229

Direct expenses

(178)

(55)

(365)

(1,098)

(1,696)

(75)

(1,771)

Indirect expenses

(452)

(83)

(475)

1,045

35

(35)

-

Other operating expenses

(630)

(138)

(840)

(53)

(1,661)

(110)

(1,771)

Litigation and conduct costs

(63)

(1)

(53)

(4)

(121)

(4)

(125)

Operating expenses

(693)

(139)

(893)

(57)

(1,782)

(114)

(1,896)

Operating profit/(loss) before impairment

 

 

 

 

 

 

 

  (losses)/releases

782

146

764

(208)

1,484

(151)

1,333

Impairment (losses)/releases

(116)

(7)

(119)

-

(242)

(5)

(247)

Operating profit/(loss)

666

139

645

(208)

1,242

(156)

1,086

 

 

 

 

 

 

 

 

Income excluding notable items

1,475

285

1,648

26

3,434

(37)

3,397

 

 

 

 

 

 

 

 

Additional information

 

 

 

 

 

 

 

Return on tangible equity   (1)

na

na

na

na

12.1%

na

2.9%

Return on equity   (1)

27.0%

31.8%

12.2%

nm

nm

nm

na

Cost:income ratio   (1)

47.0%

48.8%

53.0%

nm

54.1%

nm

58.3%

Total assets (£bn)

221.3

29.8

465.3

67.8

784.2

17.3

801.5

Funded assets (£bn)   (1)

221.3

29.8

325.5

66.6

643.2

17.3

660.5

Net loans to customers - amortised cost (£bn)

192.8

19.1

131.9

27.7

371.5

0.3

371.8

Loan impairment rate   (1)

24bps

15bps

36bps

nm

26bps

nm

26bps

Impairment provisions (£bn)

(1.5)

(0.1)

(1.6)

-

(3.2)

(0.1)

(3.3)

Impairment provisions - stage 3 (£bn)

(0.9)

-

(0.7)

-

(1.6)

(0.1)

(1.7)

Customer deposits (£bn)

190.9

42.2

215.2

13.4

461.7

11.3

473.0

Risk-weighted assets (RWAs) (£bn)

53.0

11.1

104.8

1.6

170.5

8.0

178.5

RWA equivalent (RWAe) (£bn)

53.0

11.1

106.5

2.1

172.7

8.0

180.7

Employee numbers (FTEs - thousands)

13.6

2.1

12.1

30.3

58.1

1.9

60.0

Third party customer asset rate   (2)

2.64%

3.09%

3.53%

nm

nm

nm

nm

Third party customer funding rate   (2)

(0.17%)

(0.29%)

(0.19%)

nm

nm

0.05%

nm

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

192.1

19.2

129.8

nm

349.9

na

349.9

Bank net interest margin   (1)

2.85%

4.37%

3.46%

nm

2.99%

na

2.99%

nm = not meaningful, na = not applicable

Refer to page 16 for notes to this table.

Segment performance


Quarter ended 30 June 2022


Go-forward group












Retail

Private

Commercial &

Central items

Total excluding

Ulster  

Total NatWest


Banking

Banking

Institutional

& other

Ulster Bank RoI

Bank RoI

Group


£m

£m

£m

£m

£m

£m

£m

Continuing operations








Income statement

 

 

 

 

 

 

 

Net interest income

1,228

172

961

(56)

2,305

2

2,307

Non-interest income

109

73

601

111

894

10

904

Total income

1,337

245

1,562

55

3,199

12

3,211

Direct expenses

(159)

(53)

(329)

(1,144)

(1,685)

(81)

(1,766)

Indirect expenses

(434)

(93)

(525)

1,101

49

(49)

-

Other operating expenses

(593)

(146)

(854)

(43)

(1,636)

(130)

(1,766)

Litigation and conduct costs

(4)

-

(44)

(8)

(56)

(11)

(67)

Operating expenses

(597)

(146)

(898)

(51)

(1,692)

(141)

(1,833)

Operating profit/(loss) before impairment  








  (losses)/releases

740

99

664

4

1,507

(129)

1,378

Impairment (losses)/releases

(21)

6

48

6

39

(21)

18

Operating profit/(loss)

719

105

712

10

1,546

(150)

1,396

 








Income excluding notable items

1,337

245

1,573

(53)

3,102

12

3,114

 








Additional information








Return on tangible equity   (1)

na

na

na

na

16.5%

na

15.2%

Return on equity   (1)

29.5%

23.5%

14.0%

nm

nm

nm

na

Cost:income ratio   (1)

44.7%

59.6%

56.6%

nm

52.4%

nm

56.7%

Total assets (£bn)

216.2

30.0

451.5

87.1

784.8

21.7

806.5

Funded assets (£bn)   (1)

216.2

30.0

343.4

85.8

675.4

21.7

697.1

Net loans to customers - amortised cost (£bn)

188.7

18.8

127.3

26.8

361.6

1.0

362.6

Loan impairment rate   (1)

4bps

(13)bps

(15)bps

nm

(4)bps

nm

(2)bps

Impairment provisions (£bn)

(1.5)

(0.1)

(1.4)

-

(3.0)

(0.4)

(3.4)

Impairment provisions - stage 3 (£bn)

(0.9)

-

(0.7)

-

(1.6)

(0.4)

(2.0)

Customer deposits (£bn)

190.5

41.6

223.2

20.9

476.2

15.9

492.1

Risk-weighted assets (RWAs) (£bn)

53.0

11.3

103.0

1.7

169.0

10.8

179.8

RWA equivalent (RWAe) (£bn)

53.0

11.3

101.4

2.2

167.9

10.8

178.7

Employee numbers (FTEs - thousands)

13.9

2.0

11.8

29.4

57.1

1.8

58.9

Third party customer asset rate   (2)

2.59%

2.77%

3.19%

nm

nm

nm

nm

Third party customer funding rate   (2)

(0.10%)

(0.13%)

(0.09%)

nm

nm

0.04%

nm

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

188.1

19.1

124.9

nm

340.0

na

340.0

Bank net interest margin   (1)

2.62%

3.60%

3.09%

nm

2.72%

na

2.72%

nm = not meaningful, na = not applicable

Refer to the following page for notes to this table.



 

Segment performance


Quarter ended 30 September 2021


Go-forward group












Retail

Private

Commercial &

Central items

Total excluding

Ulster  

Total NatWest


Banking

Banking

Institutional

& other

Ulster Bank RoI

Bank RoI

Group


£m

£m

£m

£m

£m

£m

£m

Continuing operations








Income statement

 

 

 

 

 

 

 

Net interest income

1,041

122

723

(20)

1,866

3

1,869

Non-interest income

90

73

473

127

763

54

817

Total income

1,131

195

1,196

107

2,629

57

2,686

Direct expenses

(165)

(47)

(417)

(935)

(1,564)

(73)

(1,637)

Indirect expenses

(372)

(72)

(428)

912

40

(40)

-

Other operating expenses

(537)

(119)

(845)

(23)

(1,524)

(113)

(1,637)

Litigation and conduct costs

(15)

3

(29)

(254)

(295)

1

(294)

Operating expenses

(552)

(116)

(874)

(277)

(1,819)

(112)

(1,931)

Operating profit/(loss) before impairment  








  (losses)/releases

579

79

322

(170)

810

(55)

755

Impairment (losses)/releases

(16)

15

230

(3)

226

(5)

221

Operating profit/(loss)

563

94

552

(173)

1,036

(60)

976

 








Income excluding notable items

1,131

195

1,202

(17)

2,511

57

2,568

 








Additional information








Return on tangible equity   (1)

na

na

na

na

8.6%

na

8.5%

Return on equity   (1)

29.9%

18.1%

11.0%

nm

nm

nm

na

Cost:income ratio   (1)

48.8%

59.5%

72.2%

nm

68.8%

nm

71.5%

Total assets (£bn)

207.6

28.2

436.0

81.3

753.1

25.2

778.3

Funded assets (£bn)   (1)

207.6

28.2

333.9

79.6

649.3

25.2

674.5

Net loans to customers - amortised cost (£bn)

180.5

18.4

125.4

23.5

347.8

13.2

361.0

Loan impairment rate   (1)

4bps

(32)bps

(72)bps

nm

(26)bps

nm

(24)bps

Impairment provisions (£bn)

(1.6)

(0.1)

(2.1)

-

(3.8)

(0.5)

(4.3)

Impairment provisions - stage 3 (£bn)

(0.8)

-

(1.0)

-

(1.8)

(0.4)

(2.2)

Customer deposits (£bn)

186.3

35.7

217.4

18.4

457.8

18.5

476.3

Risk-weighted assets (RWAs) (£bn)

36.6

11.4

99.9

1.9

149.8

10.0

159.8

RWA equivalent (RWAe) (£bn)

36.6

11.4

101.6

2.1

151.7

10.0

161.7

Employee numbers (FTEs - thousands)

15.0

1.9

12.0

27.5

56.4

1.8

58.2

Third party customer asset rate   (2)

2.64%

2.36%

2.67%

nm

nm

nm

nm

Third party customer funding rate   (2)

(0.05%)

0.00%

(0.02%)

nm

nm

0.02%

nm

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

180.2

18.6

119.9

nm

325.4

na

325.4

Bank net interest margin   (1)

2.29%

2.60%

2.39%

nm

2.28%

na

2.28%

nm = not meaningful, na = not applicable

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

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

 

 



 


Risk and capital management


Page

Credit risk


  Economic loss drivers

17

  Segment analysis - portfolio summary

18

  Segment analysis - loans

20

  Movement in ECL provision

20

  ECL post model adjustments

21

  Sector analysis - portfolio summary

22

  Wholesale support schemes

23

Capital, liquidity and funding risk

25

 

Credit risk

Economic loss drivers

Main macroeconomic variables


30 September 2022

 

30 June 2022


Base

Extreme

Weighted

 

Base

Extreme

Weighted


case

downside

average

 

case

downside

average

Five-year summary

%

%

%

 

%

%

%

GDP - CAGR

1.2

0.1

0.9


1.1

(0.1)

1.0

Unemployment - average

4.0

6.4

4.7

 

4.0

6.3

4.3

House price index - total change

13.1

(11.0)

3.8

 

13.7

(10.5)

8.9

Bank of England base rate - average

1.8

2.7

1.6

 

1.8

2.7

1.6

Commercial real estate price - total change

(3.6)

(15.4)

(6.8)

 

(2.6)

(14.5)

(3.2)

Consumer price index - CAGR

2.2

6.5

3.6

 

2.9

7.2

3.7


 

 

 

 




World GDP - CAGR

3.5

1.1

2.6

 

3.2

0.6

2.9


 

 

 

 




Probability weight

35

25

 


45

14


Probability weightings of scenarios

NatWest Group's approach to IFRS 9 multiple economic scenarios (MES) involves selecting a suitable set of discrete scenarios to characterise the distribution of risks in the economic outlook and assigning appropriate probability weights. For June 2022, NatWest Group reverted to using a quantitative approach, which was used prior to COVID-19. The approach involves comparing UK GDP paths for NatWest Group's scenarios against a set of 1,000 model runs, following which, a percentile in the distribution is established that most closely corresponded to the scenario.

NatWest Group has not updated the scenarios from those used at H1 2022, as is consistent with the approach used in prior years. However, since June 2022, the domestic and global economic outlook has deteriorated, reflecting the effect of higher inflation and interest rates. Forecasts for the expected future path of the economy have been revised lower. To reflect the weaker environment and greater risks to the outlook, NatWest Group made a qualitative adjustment to its H1 2022 scenario weightings. Specifically, NatWest Group moved weights from the upside and base case scenarios into the downside and extreme downside scenarios. The updated weights give a weaker weighted-average outcome for key macro variables, which NatWest Group judge to be consistent with prevailing outlook.

A 10% weighting was applied to the upside scenario (30 June 2022 - 21%), a 35% weighting applied to the base case scenario (30 June 2022 - 45%), a 30% weighting applied to the downside scenario (30 June 2022 - 20%) and a 25% weighting applied to the extreme downside scenario (30 June 2022 - 14%). NatWest Group continues to believe a range of reasonable scenarios is fully articulated between the upside and extreme downside scenarios. NatWest Group undertakes sensitivity analysis on the scenarios and possible variations in those scenarios as part of its assessment of overall scenario suitability and as an input to the assessment of adequacy. The effect of high inflation, ongoing monetary tightening and current geopolitical tensions pose considerable uncertainty to the economic outlook, with respect to the persistence of their effects and the degree to which they weigh down on economic activity, the labour market and asset prices.

 



 

Risk and capital management

Credit risk continued

Segment analysis - portfolio summary

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


Go-forward group

 

 


 

 

 

 

Total

 

 


 

 

 

 

excluding

 

 


 

 

 

Central

Ulster

Ulster

 


Retail

Private

Commercial &

items &

Bank

Bank

 


Banking

Banking

Institutional

other

RoI

RoI

Total

30 September 2022

£m

£m

£m

£m

£m

£m

£m

Loans - amortised cost and FVOCI   (1)








Stage 1

178,590

18,428

114,857

32,788

344,663

196

344,859

Stage 2

12,983

649

20,167

80

33,879

154

34,033

Stage 3

2,491

303

2,579

-

5,373

148

5,521

Of which: individual

-

181

848

-

1,029

66

1,095

Of which: collective

2,491

122

1,731

-

4,344

82

4,426

Subtotal excluding disposal group loans

194,064

19,380

137,603

32,868

383,915

498

384,413

Disposal group loans

 

 

 

 

 

2,216

2,216

Total

 

 

 

 

 

2,714

386,629

ECL provisions   (2)

 

 

 

 

 

 

 

Stage 1

234

17

252

16

519

4

523

Stage 2

420

17

637

10

1,084

37

1,121

Stage 3

911

25

741

-

1,677

68

1,745

Of which: individual

-

25

270

-

295

8

303

Of which: collective

911

-

471

-

1,382

60

1,442

Subtotal excluding ECL provisions on disposal group loans

1,565

59

1,630

26

3,280

109

3,389

ECL provisions on disposal group loans

 

 

 

 

 

58

58

Total

 

 

 

 

 

167

3,447

ECL provisions coverage   (3)

 

 

 

 

 

 

 

Stage 1 (%)

0.13

0.09

0.22

0.05

0.15

2.04

0.15

Stage 2 (%)

3.23

2.62

3.16

12.50

3.20

24.03

3.29

Stage 3 (%)

36.57

8.25

28.73

-

31.21

45.95

31.61

ECL provisions coverage excluding disposal group loans

0.81

0.30

1.18

0.08

0.85

21.89

0.88

ECL provisions coverage on disposal group loans

 

 

 

 

 

2.62

2.62

Total

 

 

 

 

 

6.15

0.89

 









30 June 2022








Loans - amortised cost and FVOCI   (1)








Stage 1

175,867

18,428

114,675

32,481

341,451

670

342,121

Stage 2

11,508

628

16,047

83

28,266

239

28,505

Stage 3

2,493

353

2,336

-

5,182

634

5,816

Of which: individual

-

225

857

-

1,082

80

1,162

Of which: collective

2,493

128

1,479

-

4,100

554

4,654

Subtotal excluding disposal group loans

189,868

19,409

133,058

32,564

374,899

1,543

376,442

Disposal group loans






14,254

14,254

Total






15,797

390,696

ECL provisions   (2)








Stage 1

184

12

185

17

398

10

408

Stage 2  

419

17

631

9

1,076

46

1,122

Stage 3

895

34

706

-

1,635

350

1,985

Of which: individual

-

33

260

-

293

11

304

Of which: collective

895

1

446

-

1,342

339

1,681

Subtotal excluding ECL provisions on disposal group loans

1,498

63

1,522

26

3,109

406

3,515

ECL provisions on disposal group loans






95

95

Total






501

3,610

ECL provisions coverage   (3)








Stage 1 (%)

0.10

0.07

0.16

0.05

0.12

1.49

0.12

Stage 2 (%)

3.64

2.71

3.93

10.84

3.81

19.25

3.94

Stage 3 (%)

35.90

9.63

30.22

-

31.55

55.21

34.13

ECL provisions coverage excluding disposal group loans

0.79

0.32

1.14

0.08

0.83

26.31

0.93

ECL provisions coverage on disposal group loans






0.67

0.67

Total






3.17

0.92

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



 

Risk and capital management

Credit risk continued

Segment analysis - portfolio summary continued


Go-forward group








Total








excluding







Central

Ulster

Ulster



Retail

Private

Commercial &

items &

Bank

Bank



Banking

Banking

Institutional

other

RoI

RoI

Total

31 December 2021

£m

£m

£m

£m

£m

£m

£m

Loans - amortised cost and FVOCI   (1)








Stage 1

168,013

17,600

107,368

32,283

325,264

5,560

330,824

Stage 2

13,594

967

18,477

90

33,128

853

33,981

Stage 3

1,884

270

2,081

-

4,235

787

5,022

Of which: individual

-

270

884

-

1,154

61

1,215

Of which: collective

1,884

-

1,197

-

3,081

726

3,807

Subtotal excluding disposal group loans

183,491

18,837

127,926

32,373

362,627

7,200

369,827

Disposal group loans






9,084

9,084

Total






16,284

378,911

ECL provisions   (2)








Stage 1

134

12

129

17

292

10

302

Stage 2  

590

29

784

11

1,414

64

1,478

Stage 3

850

37

751

-

1,638

388

2,026

Of which: individual

-

37

313

-

350

13

363

Of which: collective

850

-

438

-

1,288

375

1,663

Subtotal excluding ECL provisions on disposal group loans

1,574

78

1,664

28

3,344

462

3,806

ECL provisions on disposal group loans






109

109

Total






571

3,915

ECL provisions coverage   (3)








Stage 1 (%)

0.08

0.07

0.12

0.05

0.09

0.18

0.09

Stage 2 (%)

4.34

3.00

4.24

12.22

4.27

7.50

4.35

Stage 3 (%)

45.12

13.70

36.09

-

38.68

49.30

40.34

ECL provisions coverage excluding disposal group loans

0.86

0.41

1.30

0.09

0.92

6.42

1.03

ECL provisions coverage on disposal group loans






1.20

1.20

Total






3.51

1.03

(1)  Fair value through other comprehensive income (FVOCI). Includes loans to customers and banks.

(2)  Includes £3 million (30 June 2022 - £3 million; 31 December 2021 - £5 million) related to assets classified as FVOCI; and £0.1 billion (30 June 2022 - £0.1 billion; 31 December 2021 - £0.1billion) related to off-balance sheet exposures.

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

(4)  The table shows gross loans only and excludes amounts that were outside the scope of the ECL framework. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling £154.1 billion (30 June 2022 - £178.4 billion; 31 December 2021 - £176.3 million) and debt securities of £29.4 billion (30 June 2022 - £38.6 billion; 31 December 2021 - £44.9 million).

 

 

 

 



 

Risk and capital management

Credit risk continued

Segment analysis - loans

Retail Banking - Balance sheet growth continued during Q3 2022, primarily in mortgages, where new lending remained strong. Unsecured lending balances also increased, in line with continued demand following the easing of COVID-19 restrictions and selective lending criteria relaxation from Q2 2021. Total ECL coverage reduced during the first half of the year reflective of low unemployment and stable portfolio performance. However, total coverage increased this quarter as a result of the downside shift in MES weightings, given the amplified risk and uncertainty due to inflation and cost of living pressures. This economics impact was reflected in the increase in Stage 2 balances in Q3 2022, which had previously been reducing during the first half of the year with stable portfolio performance. Stage 3 ECL remained broadly stable in the quarter with default levels remaining steady. Stage 3 ECL was higher overall since the start of the year, mainly because of IFRS 9 alignment to the new regulatory default definition, implemented on 1 January 2022. This change resulted in an increase in Stage 3 exposures of approximately £0.7 billion, mostly in mortgages. 

 

Commercial & Institutional - The balance sheet increased during Q3 2022, attributable to growth in exposure to financial institutions and various sectors in corporate Wholesale. Sector appetite continues to be regularly reviewed, with continued focus on high oversight sector clusters. Stage 2 balances increased significantly in the quarter due to the downside shift in MES weightings leading to PD deterioration, with exposures moving from Stage 1 into Stage 2. Stage 2 ECL increased by a much smaller amount due to the release of COVID-19 related post model adjustments largely offsetting the increased ECL from the MES weightings. Stage 1 ECL increased due to the change in MES weightings and some additional flows into Stage 3 resulted in increased ECL requirements on defaulted exposures.

 

Ulster Bank RoI - The ECL reduction in Ulster Bank RoI from 30 June 2022 related to the mortgage book being reclassified, in Q3 2022, from amortised cost to fair value through profit or loss (FVTPL).

 

Movement in ECL provision

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


ECL provision


£m

At 1 January 2022

3,806

Transfer to disposal groups and reclassifications

(338)

Changes in economic forecast

170

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

(139)

Changes in risk metrics and exposure: Stage 3

399

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

(137)

Write-offs and other

(372)

At 30 September 2022

3,389

 

ECL reduced during 2022, reflecting continued positive trends in portfolio performance alongside a related net release of judgemental post model adjustments and write-off activity.

Stage 3 ECL balances remained broadly stable during the year, mainly due to write-offs and repayments of defaulted debt, largely offsetting new inflows and the effect of the new regulatory default definition.

The weaker economic outlook resulted in increased charges throughout the year with an additional £127 million in Q3 2022 as a result of the re-weighted scenarios. Additionally, broader portfolio performance continued to be stable, which led to some additional post model adjustments being required to ensure provision adequacy in the face of growing uncertainty due to inflation, cost of living pressures and supply chain challenges.

Post model adjustments decreased in total, with the effect of new adjustments more than offset by the retirement of previously held COVID-19 related adjustments and also significant reduction in the requirement for deferred model calibrations, due to new model implementations in Q3 2022.

A £338 million ECL reduction was due to the transfer to disposal groups and reclassifications related to the phased withdrawal of Ulster Bank RoI from the Republic of Ireland. The largest part of this reduction, £286 million, related to the Ulster Bank RoI mortgage book being reclassified, in Q3 2022, from amortised cost to FVTPL.

 

 

 



 

Risk and capital management

Credit risk continued

ECL post model adjustments

The table below shows ECL post model adjustments.


Retail Banking


Private

Commercial &


Ulster Bank RoI   (1)

 


Mortgages

Other

 

Banking

Institutional

 

Mortgages  

Other

Total

30 September 2022

£m

£m

 

£m

£m

 

£m

£m

£m

Deferred model calibrations

-

-

 

-

64

 

-

-

64

Economic uncertainty

97

83

 

7

355

 

-

3

545

Other adjustments

28

36

 

-

13

 

-

17

94

Total

125

119

 

7

432

 

-

20

703


 

 

 

 

 

 

 

 

 

Of which:

 

 

 

 

 

 

 

 

 

- Stage 1

39

38

 

2

69

 

-

(1)

147

- Stage 2

63

81

 

5

362

 

-

20

531

- Stage 3  

23

-

 

-

1

 

-

1

25


 

 

 

 

 

 

 

 

 

30 June 2022

 

 

 

 

Deferred model calibrations

-

-


-

64


-

2

66

Economic uncertainty

97

82


11

388


-

5

583

Other adjustments

28

(26)


-

12


160

18

192

Total

125

56


11

464


160

25

841











Of which:










- Stage 1

39

20

 

2

58

 

5

2

126

- Stage 2

63

36

 

9

404

 

9

22

543

- Stage 3  

23

-

 

-

2

 

146

1

172


 

 

 

 

 

 

 

 

 

31 December 2021

 

 

 

 

Deferred model calibrations

58

97


-

62


-

2

219

Economic uncertainty

60

99


5

391


6

23

584

Other adjustments

37

-


-

5


156

-

198

Total

155

196


5

458


162

25

1,001











Of which:










- Stage 1

9

5

 

-

15

 

4

1

34

- Stage 2

126

164

 

5

443

 

7

26

771

- Stage 3  

20

27

 

-

-

 

151

(2)

196

(1)  Excludes £24 million (30 June 2022 - £34 million; 31 December 2021 - £49 million) of post model adjustments (mortgages - £nil; other - £24 million (30 June 2022 - mortgages £0.4 million; other - £33.6 million; 31 December 2021 - mortgages £4 million; other - £45 million)) for Ulster Bank RoI disclosed as transfers to disposal groups.

Retail Banking - Post model adjustments remained stable in mortgages. In unsecured products, the economic uncertainty adjustment also remained stable, there was, however, a £62 million   uplift in other adjustments for unsecured products following the implementation of a new credit card PD model and the release of the previously held ECL reduction adjustment.   Associated with the new model implementation, a £36 million post model adjustment was retained in relation to cards EAD modelling.

 

Commercial & Institutional - The post model adjustment for economic uncertainty reduced by £33 million in the quarter, reflecting a reduction in COVID-19 related adjustments, partially offset by an increase in the inflation and supply chain adjustment that was introduced in H1 2022. Deferred model calibrations and other adjustments remained stable.

 

Ulster Bank RoI - The removal of post model adjustments in the mortgage portfolio reflected the reclassification of mortgage loans to FVTPL.   Other post model adjustments reduced in line with the decrease in gross loans in the period .

 

 



 

Risk and capital management

Credit risk continued

S ector analysis - portfolio summary

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


 

Off-balance sheet

 

 


Loans - amortised cost and FVOCI

Loan

 

Contingent

 

ECL provisions  


Stage 1

Stage 2

Stage 3

Total

commitments

 

liabilities

 

Stage 1

Stage 2

Stage 3

Total

30 September 2022

£m

£m

£m

£m

£m

 

£m

 

£m

£m

£m

£m

Personal

196,162

13,247

2,821

212,230

45,579

 

51

 

242

426

944

1,612

  Mortgages

185,782

10,551

1,972

198,305

21,194

 

-

 

57

81

237

375

  Credit cards

3,156

999

105

4,260

16,079

 

-

 

65

122

70

257

  Other personal

7,224

1,697

744

9,665

8,306

 

51

 

120

223

637

980

Wholesale

148,697

20,786

2,700

172,183

86,914

 

4,565

 

281

695

801

1,777

  Property

28,213

3,668

751

32,632

15,707

 

511

 

77

116

213

406

  Financial institutions

59,277

261

82

59,620

18,975

 

1,317

 

19

10

57

86

  Sovereign

6,157

151

9

6,317

808

 

-

 

17

1

2

20

  Corporate

55,050

16,706

1,858

73,614

51,424

 

2,737

 

168

568

529

1,265

  Of which:

 

 

 

 

 

 

 

 

 

 

 

 

  Agriculture

3,891

873

105

4,869

883

 

26

 

14

44

53

111

  Airlines and aerospace  

852

695

41

1,588

1,406

 

227

 

2

31

8

41

  Automotive

4,104

2,343

46

6,493

4,099

 

56

 

11

25

11

47

  Health

4,514

729

133

5,376

496

 

8

 

10

34

43

87

  Land transport and logistics

3,632

1,355

38

5,025

2,934

 

130

 

7

29

12

48

  Leisure

3,613

3,494

350

7,457

1,803

 

105

 

23

218

113

354

  Oil and gas

923

240

61

1,224

2,202

 

385

 

3

3

35

41

  Retail

6,214

1,625

187

8,026

4,240

 

420

 

14

31

65

110

Total

344,859

34,033

5,521

384,413

132,493

 

4,616

 

523

1,121

1,745

3,389

 














31 December 2021













Personal

190,175

14,423

2,782

207,380

40,351


60


149

614

1,179

1,942

  Mortgages

180,418

11,543

2,050

194,011

16,827


-


32

174

562

768

  Credit cards

2,924

933

90

3,947

15,354


-


59

141

60

260

  Other personal

6,833

1,947

642

9,422

8,170


60


58

299

557

914

Wholesale

140,649

19,558

2,240

162,447

83,231


4,254


153

864

847

1,864

  Property

28,679

3,101

742

32,522

15,882


460


24

111

239

374

  Financial institutions

52,263

732

46

53,041

16,906


992


14

39

4

57

  Sovereign

5,904

121

8

6,033

1,212


-


19

1

2

22

  Corporate

53,803

15,604

1,444

70,851

49,231


2,802


96

713

602

1,411

  Of which:

 

 

 

 

 

 

 

 

 

 

 

 

  Agriculture

3,722

1,229

133

5,084

993

 

24

 

11

39

78

128

  Airlines and aerospace  

779

668

44

1,491

1,528

 

221

 

1

39

15

55

  Automotive

5,133

1,304

38

6,475

3,507

 

65

 

9

32

10

51

  Health

3,818

1,235

133

5,186

799

 

9

 

9

58

48

115

  Land transport and logistics

3,721

833

39

4,593

3,069

 

188

 

4

53

12

69

  Leisure

3,712

4,050

340

8,102

1,874

 

107

 

11

247

133

391

  Oil and gas

1,482

141

52

1,675

1,126

 

453

 

1

14

28

43

  Retail

6,380

1,342

180

7,902

4,872

 

410

 

8

29

66

103

Total

330,824

33,981

5,022

369,827

123,582


4,314


302

1,478

2,026

3,806

 



 

Risk and capital management

Credit risk continued

Wholesale support schemes

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


Gross carrying amount


BBL

 

Associated debt

 

ECL on associated debt


Stage 1  

Stage 2

Stage 3

Total

 

Stage 1  

Stage 2

Stage 3

Total

 

Stage 1

Stage 2  

Stage 3

30 September 2022

£m

£m

£m

£m

 

£m

£m

£m

£m

 

£m

£m

£m

Wholesale  














Property  

1,125

204

137

1,466

 

991

194

71

1,256

 

7

18

26

Financial institutions

26

4

1

31

 

9

2

-

11

 

-

-

1

Sovereign

6

1

1

8

 

1

-

-

1

 

-

-

-

Corporate

3,474

647

836

4,957

 

2,569

744

127

3,440

 

19

67

62

Of which:

 

 

 

 

 

 

 

 

 

 

 

 

 

  Agriculture

239

78

11

328

 

897

270

22

1,189

 

4

20

8

  Airlines and aerospace

3

1

1

5

 

1

-

-

1

 

-

-

-

  Automotive

241

36

28

305

 

113

28

4

145

 

1

3

2

  Health

181

23

10

214

 

291

79

18

388

 

1

5

4

  Land transport and logistics

134

27

23

184

 

58

15

4

77

 

-

2

3

  Leisure

521

114

75

710

 

366

150

28

544

 

4

14

15

  Oil and gas

6

2

1

9

 

3

1

-

4

 

-

-

-

  Retail

610

101

71

782

 

325

74

16

415

 

3

8

9

Total

4,631

856

975

6,462

 

3,570

940

198

4,708

 

26

85

89















31 December 2021

 

 

 

 

 

 

 

 

 

 

 

Wholesale  














Property  

1,480

218

99

1,797


1,232

165

55

1,452


3

13

18

Financial institutions

33

5

1

39


9

20

3

32


-

1

-

Sovereign

7

1

-

8


2

-

-

2


-

-

-

Corporate

4,593

703

334

5,630


2,481

1,087

84

3,652


10

66

34

Of which:





 

 




 



 

  Agriculture

302

86

6

394

 

827

396

14

1,237

 

3

16

4

  Airlines and aerospace

5

1

1

7

 

1

1

-

2

 

-

-

-

  Automotive

309

43

21

373

 

119

39

2

160

 

1

2

1

  Health

233

26

7

266

 

287

131

13

431

 

1

7

3

  Land transport and logistics

180

32

19

231

 

57

26

2

85

 

-

2

1

  Leisure

706

122

55

883

 

367

208

25

600

 

1

15

9

  Oil and gas

8

2

1

11

 

3

1

-

4

 

-

-

-

  Retail

800

109

47

956

 

310

127

8

445

 

2

7

4

Total

6,113

927

434

7,474


3,724

1,272

142

5,138


13

80

52



Risk and capital management

Credit risk continued

Personal - Mortgage balances continued to increase during 2022 with strong purchase and remortgage demand in the UK. Unsecured lending balances have increased in 2022 after COVID-19 restrictions eased and lending criteria were selectively relaxed. The ECL levels in Stage 2 were lower than at 2021 year end, due to migrations back into Stage 1 following continued stable portfolio performance supporting improved risk metrics. The total ECL coverage requirements reduced since the start of the year but increased in Q3 2022 due to the downside shift in MES weightings.

 

As at 30 September 2022, £134.8 billion, 68%, of the total residential mortgages portfolio had Energy Performance Certificate (EPC) data available (31 December 2021 - £116.2 billion, 62%). Of which, 41% of UK properties were rated as EPC A to C (31 December 2021 - 38%). In addition to the Retail Banking portfolio, during Q2 2022, EPC data became available for the Private Banking portfolio for all periods. EPC data source and limitations are provided on page 60 of the 2021 NatWest Group Climate-related Disclosures Report.

 

Wholesale - Exposures were mainly in the UK. The balance sheet reduction noted at the end of 2021, principally due to repayments of both COVID-19 government support schemes and conventional borrowing, was reversed in 2022. This was due to additional lending across the portfolio, principally concentrated in financial institutions and other corporates. Increases within financial institutions year-to-date, reflected fluctuations in treasury related management activities and strategic growth in the leveraged funds sector in the non-ring fenced bank. Other corporates sector growth was focused on lending aligned to lower risk sectors.

 

When the government support schemes closed in 2021, approximately 317,000 applications across all schemes were approved, £13.4 billion was drawn down, of which, £4.4 billion has been repaid.

 

Repayment performance under government lending schemes continues to be closely tracked. Overall exposure continued to decrease. Missed payment rates marginally increased but volumes remained broadly in line with the wider market. Exposures under the Business Banking Loan Scheme (BBLS) that benefit from the 100% government guarantee account for approximately 70% of remaining exposures. 

 

The Wholesale credit profile remained stable, but the outlook is uncertain. NatWest Group has yet to see inflationary pressure materially affect risk of credit loss framework inflows or curtail outflows. Government intervention on rising energy costs is expected to mitigate some of the effect of higher energy costs for customers. Inflationary effects on customers continues to be assessed. Sector appetite is regularly reviewed and where appropriate adjusted for those sectors most affected by current economic and geopolitical conditions.



 

 


Risk and capital management

Capital, liquidity and funding risk

Introduction

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

Key developments (YTD)

 

CET1

The CET1 ratio decreased by 390 basis points to 14.3%. The decrease was primarily due to a £21.5 billion increase in RWAs and a £3.0 billion decrease in CET1 capital.

The CET1 decrease was mainly driven by:

the directed buyback of £1.2 billion;

a foreseeable dividend accrual of £0.4 billion and foreseeable charges of £0.3 billion;

a £0.3 billion decrease in the IFRS 9 transitional adjustment;

the removal of the adjustment for prudential amortisation on   software development costs of £0.4 billion;

a £0.3 billion decrease due to FX loss on retranslation on the redemption of a US dollar instrument; and

other reserve movements.

Attributable profit, in the nine month period, of £2.1 billion was offset by an ordinary dividend of £0.4 billion and a special dividend of £1.7 billion paid to shareholders.

Total RWAs

Total RWAs increased by £21.5 billion to £178.5 billion, mainly reflecting:

An increase in credit risk RWAs of £21.4 billion, primarily due to model adjustments applied as a result of new regulation applicable to IRB models from 1 January 2022, in addition to increased exposure in Commercial & Institutional and Retail Banking. This was partially offset by a reduction in the Ulster ROI portfolio in addition to improved risk metrics in Retail Banking and Commercial & Institutional.

An increase in market risk RWAs of £1.4 billion, primarily driven by an increase in the capital multiplier for NWM Plc affecting VaR and SVaR calculations. In addition, a prospective adjustment to make the VaR model more sensitive to recent market conditions is currently being capitalised as a new RNIV.

An increase in counterparty credit risk RWAs of £0.6 billion, mainly driven by the implementation of SA-CCR impacting the RWA calculation for the non-internally modelled exposure, in addition to increased exposure following market volatility.

A reduction in operational risk RWAs of £1.9 billion following the annual recalculation. 

UK leverage ratio

The leverage ratio at 30 September 2022 is 5.2% and has been calculated in accordance with changes to the UK's leverage ratio framework which were introduced by the PRA and came into effect from 1 January 2022. As at 31 December 2021, the UK leverage ratio was 5.9%, which was calculated under the prior year's UK leverage methodology. The key driver of the decrease is a £3.6 billion decrease in Tier 1 capital.

Liquidity portfolio

The liquidity portfolio decreased by £35.2 billion to £251.2 billion, with primary liquidity decreasing by £24.4 billion to £184.2 billion. The decrease in primary liquidity is driven by an increase in lending, shareholder distributions (share buyback and dividends), redemption of senior debt and maturing commercial paper and certificates of deposit. The reduction in secondary liquidity is due to a reduction in the pre-positioned collateral.

 

 



 

Risk and capital management

Capital, liquidity and funding risk continued

Maximum Distributable Amount (MDA) and Minimum Capital Requirements

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

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

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

Type

CET1

Total Tier 1

Total capital

Pillar 1 requirements

4.5 %

8.0 %

Pillar 2A requirements

1.8 %

2.3 %

3.1 %

Minimum Capital Requirements

6.3 %

11.1 %

Capital conservation buffer

2.5 %

2.5 %

2.5 %

Countercyclical capital buffer (1)  

0.0 %

0.0 %

0.0 %

MDA threshold (2)

  8.8 %

 

n/a

n/a

Overall capital requirement

  8.8 %

 

10.8 %

13.6 %

Capital ratios at 30 September 2022

14.3 %

16.5 %

19.2 %

Headroom (3)

 5.5 %

5.7 %

5.6 %

 

(1)

In response to COVID-19, many countries reduced their CCyB rates. In December 2021, the Financial Policy Committee announced an increase in the UK CCyB rate from 0% to 1% effective from 13 December 2022. A further increase from 1% to 2% was announced on 5 July 2022, effective 5 July 2023. In June 2022, the Central Bank of Ireland announced that the CCyB on Irish exposures will increase from 0% to 0.5% applicable from 15 June 2023. This is the first step towards a gradual increase which, conditional on macro-financial developments, would see a CCyB of 1.5% announced by mid-2023, which is expected to be applicable from June 2024.

(2)

Pillar 2A requirements for NatWest Group are set on a nominal capital basis. The PRA has confirmed that from Q4 2022 Pillar 2A will be set as a variable amount with the exception of some fixed add-ons.

(3)

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

 

 



 

Risk and capital management

Capital, liquidity and funding risk continued

Capital and leverage ratios

The table below sets out the key capital and leverage ratios. From 1 January 2022, NatWest Group is subject to the requirements set out in the PRA Rulebook. Therefore, going forward the capital and leverage ratios are being presented under these frameworks on a transitional basis.






30 September

30 June

31 December


2022

2022

2021

Capital adequacy ratios   (1)

%

%

%

CET1

14.3

14.3

18.2

Tier 1

16.5

16.4

21.0

Total

19.2

19.3

24.7





Capital

£m

£m

£m

Tangible equity

24,093

27,858

30,689


 



Prudential valuation adjustment

(319)

(316)

(274)

Deferred tax assets

(687)

(738)

(761)

Own credit adjustments

(116)

(99)

21

Pension fund assets

(360)

(471)

(465)

Cash flow hedging reserve

3,274

1,526

395

Foreseeable dividends and pension contributions

(668)

(2,250)

(1,211)

Foreseeable charges - on-market ordinary share buyback programme

-

(91)

(825)

Prudential amortisation of software development costs

-

-

411

Adjustments under IFRS 9 transitional arrangements

358

284

621

Insufficient coverage for non-performing exposures

(19)

(10)

(5)

Total deductions

1,463

(2,165)

(2,093)


 



CET1 capital

25,556

25,693

28,596


 



End-point AT1 capital  

3,875

3,875

3,875

Grandfathered instrument transitional arrangements

-

-

571

Transitional AT1 capital

3,875

3,875

4,446

Tier 1 capital

29,431

29,568

33,042


 



End-point Tier 2 capital  

4,691

5,011

5,402

Grandfathered instrument transitional arrangements

108

172

304

Transitional Tier 2 capital

4,799

5,183

5,706

Total regulatory capital

34,230

34,751

38,748


 



Risk-weighted assets

 



Credit risk

141,530

143,765

120,116

Counterparty credit risk

8,500

8,352

7,907

Market risk

9,349

8,563

7,917

Operational risk

19,115

19,115

21,031

Total RWAs

178,494

179,795

156,971


 



(1)  Based on current PRA rules, therefore includes the transitional relief on grandfathered capital instruments and the transitional arrangements for the capital impact of IFRS 9 expected credit loss (ECL) accounting. The impact of the IFRS 9 transitional adjustments at 30 September 2022 was £0.4 billion for CET1 capital, £23 million for total capital and £80 million RWAs (30 June 2022 - £0.3 billion CET1 capital, £62 million total capital and £32 million RWAs, 31 December 2021 - £0.6 billion CET1 capital, £0.5 billion total capital and £36 million RWAs). Excluding these adjustments, the CET1 ratio would be 14.1% (30 June 2022 - 14.1%, 31 December 2021 - 17.8%). The transitional relief on grandfathered instruments at 30 September 2022 was £0.1 billion (30 June 2022 - £0.2 billion, 31 December 2021 - £0.9 billion). Excluding both the transitional relief on grandfathered capital instruments and the transitional arrangements for the capital impact of IFRS 9 expected credit loss (ECL) accounting, the end-point Tier 1 capital ratio would be 16.3% (30 June 2022 - 16.3%, 31 December 2021 - 20.3%) and the end-point Total capital ratio would be 19.1% (30 June 2022 - 19.3%, 31 December 2021 - 23.8%).



 

Risk and capital management

Capital, liquidity and funding risk continued

Capital and leverage ratios continued

 

30 September

30 June

31 December

 

2022

2022

2021

Leverage

£m

£m

£m

Cash and balances at central banks

155,266

179,525

177,757

Trading assets

57,833

65,604

59,158

Derivatives

141,002

109,342

106,139

Financial assets

411,623

412,115

412,817

Other assets

23,560

25,705

17,106

Assets of disposal groups

12,209

14,187

9,015

Total assets

801,493

806,478

781,992

Derivatives

 



  - netting and variation margin

(139,383)

(107,295)

(110,204)

    - potential future exposures

20,466

20,552

35,035

Securities financing transactions gross up

6,155

5,184

1,397

Other off balance sheet items

45,862

45,095

44,240

Regulatory deductions and other adjustments

(11,540)

(16,314)

(8,980)

Claims on central banks

(151,725)

(176,163)

(174,148)

Exclusion of bounce back loans

(6,462)

(6,785)

(7,474)

UK leverage exposure

564,866

570,752

561,858

UK leverage ratio (%)   (1)

5.2

5.2

5.9

 

(1)  The UK leverage exposure and transitional Tier 1 capital are calculated in accordance with current PRA rules. Excluding the IFRS 9 transitional adjustment, the UK leverage ratio would be 5.2% (30 June 2022 - 5.1%, 31 December 2021 - 5.8%).

 

Capital flow statement

The table below analyses the movement in CET1, AT1 and Tier 2 capital for the nine months ended 30 September 2022. It is being presented on a transitional basis as calculated under the PRA Rulebook Instrument requirements.


CET1

AT1

Tier 2

Total


£m

£m

£m

£m

At 31 December 2021

28,596

4,446

5,706

38,748

Attributable profit for the period

2,078

-

-

2,078

Ordinary interim dividend paid  

(364)

-

-

(364)

Special dividend paid

(1,746)

-

-

(1,746)

Directed buyback  

(1,212)

-

-

(1,212)

Foreseeable dividends

(386)

-

-

(386)

Foreseeable pension contributions

(282)

-

-

(282)

Foreign exchange reserve

384

-

-

384

FVOCI reserve

(374)

-

-

(374)

Own credit

(137)

-

-

(137)

Share capital and reserve movements in respect of employee

 

 

 

 

  share schemes

75

-

-

75

Goodwill and intangibles deduction

(649)

-

-

(649)

Deferred tax assets

74

-

-

74

Prudential valuation adjustments

(45)

-

-

(45)

End of 2021 transitional relief on grandfathered instruments  

-

(571)

(232)

(803)

Net dated subordinated debt instruments

-

-

(1,043)

(1,043)

Foreign exchange movements

(254)

-

632

378

Adjustment under IFRS 9 transitional arrangements

(263)

-

-

(263)

Other movements

61

-

(264)

(203)

At 30 September 2022

25,556

3,875

4,799

34,230

The CET1 decrease was primarily due to the directed buyback of £1.2 billion, foreseeable dividend and pension contribution accruals of £0.7 billion, a £0.3 billion decrease in the IFRS 9 transitional adjustment, the removal of the adjustment for prudential amortisation on software development costs of £0.4 billion, £0.3 billion due to FX loss on retranslation on the redemption of a US dollar instrument and other reserve movements in the period.  Attributable profit of £2.1 billion was offset by an ordinary dividend of £0.4 billion and a special dividend of £1.7 billion paid to shareholders.

The AT1 and Tier 2 movements are due to the end of the 2021 transitional relief on grandfathered instruments, impact of liability management exercise in August and FX movements. In Tier 2 there was also a £0.3 billion decrease in the Tier 2 surplus provisions.

 



 

Risk and capital management

Capital, liquidity and funding risk continued

Risk-weighted assets

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


 

Counterparty

 

Operational

 


Credit risk

credit risk

Market risk

  risk

Total


£bn

£bn

£bn

£bn

£bn

At 31 December 2021

120.2

7.9

7.9

21.0

157.0

Foreign exchange movement

2.1

-

-

-

2.1

Business movement

3.8

0.3

1.2

(1.9)

3.4

Risk parameter changes

(3.5)

-

-

-

(3.5)

Methodology changes  

0.2

0.4

-

-

0.6

Model updates

20.1

(0.1)

0.2

-

20.2

Acquisitions and disposals

(1.3)

-

-

-

(1.3)

At 30 September 2022

141.6

8.5

9.3

19.1

178.5

The table below analyses segmental RWAs.


Go-forward group

 



 

 

 

 

 

 

Total


Retail

Private

Commercial &

Central items

Total excluding  

Ulster  

NatWest


Banking

Banking

Institutional

& other

Ulster Bank RoI

Bank RoI

Group

Total RWAs

£bn

£bn

£bn

£bn

£bn

£bn

£bn

At 31 December 2021

36.7

11.3

98.1

1.8

147.9

9.1

157.0

Foreign exchange movement

-

-

1.9

-

1.9

0.2

2.1

Business movement

2.5

(0.2)

2.5

(0.2)

4.6

(1.2)

3.4

Risk parameter changes  

(1.5)

-

(2.0)

-

(3.5)

-

(3.5)

Methodology changes  

-

-

0.4

-

0.4

0.2

0.6

Model updates

15.3

-

3.9

-

19.2

1.0

20.2

Acquisitions and disposals

-

-

-

-

-

(1.3)

(1.3)

At 30 September 2022

53.0

11.1

104.8

1.6

170.5

8.0

178.5









Credit risk

46.0

9.9

77.1

1.5

134.5

7.1

141.6

Counterparty credit risk

0.1

-

8.4

  -  

8.5

-

8.5

Market risk

0.2

-

9.1

  -  

9.3

-

9.3

Operational risk

6.7

1.2

10.2

0.1

18.2

0.9

19.1

Total RWAs

53.0

11.1

104.8

1.6

170.5

8.0

178.5

Total RWAs increased by £21.5 billion to £178.5 billion during the period mainly reflecting:

An increase in model updates totalling £20.2 billion, primarily due to model adjustments applied as a result of new regulation applicable to IRB models from 1 January 2022 within Retail Banking and Commercial & Institutional.

An increase in business movements totalling £3.4 billion, driven by increased credit risk exposures within Retail Banking and Commercial & Institutional, partially offset by a reduction in credit risk exposures within Ulster Bank ROI.

A partially offsetting reduction of £3.5 billion RWAs due to improved risk metrics within Commercial & Institutional and Retail Banking.

An increase in disposals leading to a £1.3 billion reduction in RWAs relating to the phased withdrawal from the Republic of Ireland.

 

 

 



 

Risk and capital management

Capital, liquidity and funding risk continued

Liquidity portfolio

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


Liquidity value


30 September 2022


30 June 2022


31 December 2021


NatWest


NatWest


NatWest


Group   (1)


Group


Group  


£m


£m


£m

Cash and balances at central banks  

155,173


176,976


174,328

    AAA to AA- rated governments

26,237


18,458


31,073

    A+ and lower rated governments

35


3


25

    Government guaranteed issuers, public sector entities and

 





  government sponsored entities

247


236


307

  International organisations and multilateral development banks

2,490


2,589


2,720

LCR level 1 bonds

29,009


21,286


34,125

LCR level 1 assets

184,182


198,262


208,453

LCR level 2 assets

-


-


117

Non-LCR eligible assets

-


-


-

Primary liquidity  

184,182


198,262


208,570

Secondary liquidity   (2)

67,004


70,186


77,849

Total liquidity value

251,186


268,448


286,419

 

(1)

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

(2)

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

 




 

Condensed consolidated income statement for the period ended 30 September 2022 (unaudited)


Nine months ended


Quarter ended


30 September

30 September


30 September

30 June

30 September


2022

2021


2022

2022

2021


£m  

£m  


£m  

£m  

£m  

Interest receivable

8,591

6,909


3,341

2,820

2,299

Interest payable

(1,617)

(1,296)


(701)

(513)

(430)

Net interest income  

6,974

5,613


2,640

2,307

1,869

Fees and commissions receivable

2,145

1,970


721

731

666

Fees and commissions payable

(468)

(425)


(168)

(151)

(140)

Income from trading activities

969

326


260

347

95

Other operating income  

(172)

343


(224)

(23)

196

Non-interest income

2,474

2,214


589

904

817

Total income

9,448

7,827


3,229

3,211

2,686

Staff costs

(2,687)

(2,761)


(879)

(907)

(881)

Premises and equipment

(820)

(765)


(286)

(283)

(263)

Other administrative expenses

(1,429)

(1,291)


(531)

(427)

(588)

Depreciation and amortisation

(613)

(613)


(200)

(216)

(199)

Operating expenses

(5,549)

(5,430)


(1,896)

(1,833)

(1,931)

Profit before impairment (losses)/releases

3,899

2,397


1,333

1,378

755

Impairment (losses)/releases

(193)

904


(247)

18

221

Operating profit before tax

3,706

3,301


1,086

1,396

976

Tax charge

(1,229)

(762)


(434)

(409)

(330)

Profit from continuing operations

2,477

2,539


652

987

646

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

(206)

275


(396)

127

98

Profit for the period

2,271

2,814


256

1,114

744

 

 



 



Attributable to:

 



 



Ordinary shareholders

2,078

2,516


187

1,050

674

Preference shareholders

-

14


-

-

5

Paid-in equity holders

188

241


67

62

63

Non-controlling interests

5

43


2

2

2


2,271

2,814


256

1,114

744


 



 



Earnings per ordinary share - continuing operations

23.0p

20.6p


6.0p

9.5p

5.4p

Earnings per ordinary share - discontinued operations

(2.1p)

2.5p


(4.1p)

1.3p

0.9p

Total earnings per share attributable to ordinary

 



 



  shareholders - basic  

20.9p

23.1p


1.9p

10.8p

6.3p

Earnings per ordinary share - fully diluted continuing

 



 



  operations

22.9p

20.5p


6.0p

9.4p

5.4p

Earnings per ordinary share - fully diluted discontinued

 



 



  operations

(2.1p)

2.5p


(4.1p)

1.3p

0.9p

Total earnings per share attributable to ordinary

 



 



  shareholders - fully diluted

20.8p

23.0p


1.9p

10.7p

6.3p



 

(1)  At the General Meeting and Class Meeting on 25 August 2022, the shareholders approved the proposed special dividend and share consolidation.   On 30 August 2022 the issued ordinary share capital was consolidated in the ratio of 14 existing shares for 13 new shares.   The number of shares for earnings per share has been adjusted retrospectively.

Condensed consolidated statement of comprehensive income

for the period ended 30 September 2022 (unaudited)


Nine months ended

 

Quarter ended


30 September

30 September


30 September

30 June

30 September


2022

2021


2022

2022

2021


£m

£m


£m

£m

£m

Profit for the period

2,271

2,814


256

1,114

744

Items that do not qualify for reclassification

 



 



Remeasurement of retirement benefit schemes   (1)

(682)

(740)


(165)

(9)

(6)

Changes in fair value of credit in financial liabilities  

 



 



  designated at fair value through profit or loss  

 



 



  (FVTPL) due to own credit risk

102

(29)


11

52

(4)

Fair value through other comprehensive  

 



 



  income (FVOCI) financial assets

42

11


39

(6)

3

Tax   (1)

136

185


13

1

3


(402)

(573)


(102)

38

(4)

Items that do qualify for reclassification  

 



 



FVOCI financial assets

(451)

(145)


7

(220)

-

Cash flow hedges   (2)

(3,978)

(610)


(2,421)

(574)

(245)

Currency translation

358

(267)


173

150

21

Tax   (2)

1,259

130


693

227

65


(2,812)

(892)


(1,548)

(417)

(159)

Other comprehensive loss after tax

(3,214)

(1,465)


(1,650)

(379)

(163)

Total comprehensive (loss)/income for the period

(943)

1,349


(1,394)

735

581

 

 



 



Attributable to:

 



 



Ordinary shareholders

(1,136)

1,047


(1,463)

672

512

Preference shareholders

  -

14


  -

-

5

Paid-in equity holders

188

241


67

62

63

Non-controlling interests

5

47


2

1

1


(943)

1,349


(1,394)

735

581

(1)  Following the purchase of ordinary shares from UKGI in Q1 2022, NatWest Group contributed £500 million to its main pension scheme in line with the memorandum of understanding announced on 17 April 2018. After tax relief, this contribution reduced total equity by £365 million. In line with our policy, the present value of defined benefit obligations and the fair value of plan assets at the end of the interim reporting period are assessed to identity significant market fluctuations and one-off events since the end of the prior financial year. Following this assessment, a remeasurement loss of £150 million offset by tax of £15 million was recorded in OCI in relation to a material movement on valuation of a non-UK scheme. The movement from the year end has primarily arisen due to changes in underlying interest and inflation rates, and changes in asset values.

(2)  The unrealised losses on cash flow hedge reserves is mainly driven by deferment of losses on GBP net received fixed swaps as interest rates have increased, with an offsetting impact of £1 billion included within the tax movement.

 

 



 

   

Condensed consolidated balance sheet as at 30 September 2022 (unaudited)


30 September

31 December

2022

2021


£m

£m  

Assets

 


Cash and balances at central banks

155,266

177,757

Trading assets

57,833

59,158

Derivatives

141,002

106,139

Settlement balances

7,587

2,141

Loans to banks - amortised cost

9,554

7,682

Loans to customers - amortised cost

371,812

358,990

Other financial assets

30,257

46,145

Intangible assets

6,961

6,723

Other assets

9,012

8,242

Assets of disposal groups

12,209

9,015

Total assets

801,493

781,992

 

 


Liabilities

 


Bank deposits  

24,713

26,279

Customer deposits

473,026

479,810

Settlement balances

7,220

2,068

Trading liabilities

64,754

64,598

Derivatives

134,958

100,835

Other financial liabilities

46,895

49,326

Subordinated liabilities

6,592

8,429

Notes in circulation

3,077

3,047

Other liabilities

5,302

5,797

Total liabilities

766,537

740,189

 

 


Equity

 


Ordinary shareholders' interests

31,054

37,412

Other owners' interests

3,890

4,384

Owners' equity

34,944

41,796

Non-controlling interests

12

7

Total equity

34,956

41,803

Total liabilities and equity

801,493

781,992

 

 

 

 


Condensed consolidated statement of changes in equity

for the period ended 30 September 2022 (unaudited)


Share  







 

capital and




Total

Non

 


statutory

Paid-in

Retained

Other

owners'

controlling

Total  


reserves   (1)

equity

earnings

reserves*

equity

  interests

equity


£m

£m

£m

£m

£m

£m

£m

At 1 January 2022

12,980

3,890

12,966

11,960

41,796

7

41,803

Profit attributable to ordinary shareholders

 

 

 

 

 

 

 

  and other equity owners  

 

 

 

 

 

 

 

  - continuing operations

 

 

2,472

 

2,472

5

2,477

  - discontinued operations

 

 

(206)

 

(206)

 

(206)

Other comprehensive income

 

 

 

 

 

 

 

  - Realised gains in period  

 

 

 

 

 

 

 

  on FVOCI equity shares  

 

 

113

(113)

-

 

-

  - Remeasurement of retirement  

 

 

 

 

 

 

 

  benefit schemes   (2)

 

 

(682)

 

(682)

 

(682)

  - Changes in fair value of credit in financial  

 

 

 

 

 

 

 

  liabilities designated at FVTPL due  

 

 

 

 

 

 

 

  to own credit risk

 

 

102

 

102

 

102

  - Unrealised losses: FVOCI   (7)

 

 

 

(567)

(567)

 

(567)

  - Amounts recognised in equity: cash flow hedges   (6)

 

 

 

(3,707)

(3,707)

 

(3,707)

  - Foreign exchange reserve movement

 

 

 

358

358

-

358

  - Amount transferred from equity to earnings

 

 

 

(113)

(113)

 

(113)

  - Tax   (2, 6)

 

 

121

1,274

1,395

 

1,395

Ordinary share dividends paid

 

 

(1,205)

 

(1,205)

 

(1,205)

Special dividends paid

 

 

(1,746)

 

(1,746)

 

(1,746)

Paid-in equity dividends paid

 

 

(188)

 

(188)

 

(188)

Shares repurchased during the period   (3,4)

-

 

(2,054)

 

(2,054)

 

(2,054)

Shares and securities issued during the  

 

 

 

 

 

 

 

  period  

-

 

8

 

8

 

8

Tax on reclassification of paid-in equity  

 

 

(36)

 

(36)

 

(36)

Redemption of preference shares   (5)

 

 

(750)

 

(750)

 

(750)

Share-based payments  

 

 

(29)

 

(29)

 

(29)

Movement in own shares held  

96

 

 

 

96

 

96

At 30 September 2022

13,076

3,890

8,886

9,092

34,944

12

34,956















 

30 September








2022

Attributable to:





£m

Ordinary shareholders







31,054

Paid-in equity holders







3,890

Non-controlling interests







12








34,956

*Other reserves consist of:






 

Merger reserve







10,881

FVOCI reserve







(105)

Cash flow hedging reserve







(3,273)

Foreign exchange reserve







1,589








9,092

 

(1)

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

(2)

Following the purchase of ordinary shares from UKGI in Q1 2022, NatWest Group contributed £500 million to its main pension scheme in line with the memorandum of understanding announced on 17 April 2018. After tax relief, this contribution reduced total equity by £365 million. In line with our policy, the present value of defined benefit obligations and the fair value of plan assets at the end of the interim reporting period are assessed to identity significant market fluctuations and one-off events since the end of the prior financial year.   Following this assessment, a remeasurement loss of £150 million offset by tax of £15 million was recorded in OCI in relation to a material movement on valuation of a non-UK scheme. The movement from the year end has primarily arisen due to changes in underlying interest and inflation rates, and changes in asset values.

(3)

In March 2022, there was an agreement with HM Treasury to buy 549.9 million ordinary shares in NatWest Group plc from UK Government Investments Ltd, at 220.5 pence per share for the total consideration of £1.22 billion. NatWest Group cancelled all 549.9 million of the purchased ordinary shares. The nominal value of the share cancellation has been transferred to the capital redemption reserve.

(4)

NatWest Group plc repurchased and cancelled 379.3 million shares for total consideration of £829.3 million excluding fees to Q3 2022 as part of the On Market Share Buyback Programme which has now concluded. The nominal value of the share cancellations has been transferred to the capital redemption reserve.

(5)

Following an announcement of a Regulatory Call in February 2022, the Series U preference shares were reclassified to liabilities. A £254 million loss was recognised in P&L reserves as a result of FX unlocking.

(6)

The unrealised losses on cash flow hedge reserves is mainly driven by deferment of losses on GBP net received fixed swaps as interest rates have increased, with an offsetting impact of £1 billion included within the tax movement.

(7)

Certain assets within this category have been subject to economic hedges (refer to notable items on page 5). The effect of those creates a temporary difference between Other Comprehensive income and the income statement due to the difference in recognition criteria. This temporary difference is expected to reverse through the income statement over the duration of the hedge.

 



 


Notes

1. Presentation of condensed consolidated financial statements

The condensed consolidated financial statements should be read in conjunction with NatWest Group plc's 2021 Annual Report and Accounts. The directors have prepared these on a going concern basis after assessing the principal risks, forecasts, projections and other relevant evidence over the twelve months from the date they are approved.

Comparative period results have been re-presented from those previously published to reclassify certain items as discontinued operations. For further details refer to Note 4 on page 36.

2. Accounting policies

NatWest Group's principal accounting policies are as set out on pages 307 to 312 of NatWest Group plc's 2021 Annual Report and Accounts. Amendments to IFRS effective from 1 January 2022 had no material effect on the condensed consolidated financial statements.

Critical accounting policies and key sources of estimation uncertainty

The judgments and assumptions that are considered to be the most important to the portrayal of NatWest Group's financial condition are those relating to deferred tax, fair value of financial instruments, loan impairment provisions, goodwill and provisions for liabilities and charges. These critical accounting policies and judgments are noted on pages 311 and 312 of NatWest Group plc's 2021 Annual Report and Accounts. Management's consideration of uncertainty is outlined in the relevant sections of NatWest Group plc's 2021 Annual Report and Accounts, including the ECL estimate for the period in the Risk and capital management section contained in NatWest Group plc's 2021 Annual Report and Accounts.

Information used for significant estimates

Key financial estimates are based on management's latest five-year revenue and cost forecasts. Measurement of goodwill, deferred tax and expected credit losses are highly sensitive to reasonably possible changes in those anticipated conditions. Changes in judgments and assumptions could result in a material adjustment to those estimates in future reporting periods. (Refer to the Summary Risk Factors included in NatWest Group plc's Interim Results 2022 and the Risk Factors included in the 2021 Annual Report and Accounts and Form 20-F).

On 17 October 2022, the Chancellor of the Exchequer confirmed that in line with the previously enacted legislation, the UK corporation tax rate will increase to 25% from 1 April 2023. HM Treasury are expected to confirm the future bank corporation tax surcharge rate at the Autumn Statement scheduled for 17th November 2022. Based on the current enacted legislation, the Bank Corporation Tax Surcharge rate will reduce from 8% to 3% from 1 April 2023. In line with the requirements of IAS 12, enacted tax rates have been used to determine the deferred tax balances.

3. Effect of reclassification

In June 2022 UBIDAC announced the cessation of new mortgage business to its customers. On 1 July 2022 UBIDAC mortgages in both its continuing and discontinued businesses were reclassified from amortised cost to fair value through profit or loss, reflecting the change in business model. We fair value these assets using a discounted cash flow method. Key inputs include assumptions around cash flows from legally binding sales agreements for those mortgage assets that form part of the assets of disposal groups. The effect of this is shown below:


Continuing

Discontinued

 

Ulster Bank RoI

operations

operations

Total

Gross loans to customers (€bn) (1 July 2022)

1.0

12.5

13.5

Loan impairment provisions (€bn) (1 July 2022)

(0.3)

(0.1)

(0.4)

Net book value (€bn) (1 July 2022)

0.7

12.4

13.1

Q3 2022 income statement movement (€m)

14

(433)

(419)

  Of which: reclassification effect (1 July 2022) (€m)

22

(364)

(342)



 


Notes

4. Discontinued operations and assets and liabilities of disposal groups

Three legally binding agreements for the sale of UBIDAC business have been announced as part of the phased withdrawal from the Republic of Ireland. Material developments since the publication of the Interim results on 29 July 2022 are set out below.

Agreement with Allied Irish Banks, p.l.c. (AIB) for the transfer of c.€4.2 billion (plus up to €2.8 billion of undrawn exposures), of gross performing commercial loans (as at 31 December 2020).

Successful migration of a further three tranches of gross performing commercial loans to AIB was completed during Q3 2022. Remaining migrations of commercial customers will be completed in phases over Q4 2022 and H1 2023. Colleagues who are wholly or mainly assigned to supporting this part of the business have begun to transfer to AIB under TUPE arrangements. Losses on disposal of €76 million have been recognised in the nine months to 30 September 2022 (€71 million in Q3 2022) in respect of those transactions completed to date.

 

Agreement with Permanent TSB p.l.c. (PTSB) for the sale of approximately €7.6 billion of gross performing non-tracker mortgages (as at 30 June 2021), the performing loans in the micro-SME business, the UBIDAC Asset Finance business, including its Lombard digital platform, and 25 Ulster Bank branch locations in the Republic of Ireland.

The planned migration of gross performing non-Tracker mortgages to PTSB is progressing and execution of the live migration is expected to commence before the end of the year. The transfer of the Lombard asset finance business, the business direct loan book and 25 branches to PTSB is still expected to be completed in H1 2023.

 

Agreement with AIB for the sale of c.€6 billion portfolio of gross performing tracker and linked mortgages (as at 31 March 2022).

Migration of the portfolio of gross performing tracker and linked mortgages is still on track for delivery in Q2 2023. UBIDAC and AIB remain actively engaged with the Irish Competition and Consumer Protection Commission (CCPC) as it continues its review of the transaction.

 

The business activities relating to these sales that meet the requirements of IFRS 5 are presented as a discontinued operation and as a disposal group. Comparatives have been re-presented from those previously published to reclassify certain items as discontinued operations. The Ulster Bank RoI operating segment continues to be reported separately and reflects the results and balance sheet position of its continuing operations.

 

In Q3 2022 we reclassified mortgage loans to fair value through profit or loss, which resulted in a €419 million reduction in mortgage financial assets in UBIDAC. This reclassification applies across both our continuing and discontinued operations.

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


Nine months ended


Quarter ended  


30 September

30 September


30 September

30 June

30 September


2022

2021


2022

2022

2021


£m

£m


£m

£m

£m

Interest receivable

160

257

 

4

85

Net interest income

160

257

 

4

78

85

Non-interest income

(409)

9

 

(405)

(4)

3

Total income

(249)

266

 

(401)

74

88

Operating expenses

(35)

(33)

 

(11)

(13)

(11)

(Loss)/profit before impairment releases

(284)

233

 

(412)

61

77

Impairment releases

78

45

 

16

66

21

Operating (loss)/profit before tax

(206)

278

 

(396)

127

98

Tax charge

-

(3)

 

-

-

-

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

(206)

275

 

(396)

127

98

 

(b)  Assets and liabilities of disposal groups



As at  



30 September

31 December



2022

2021



£m

£m

Assets of disposal groups


 


Loans to customers - amortised cost


2,161

9,002

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


10,040

-

Derivatives


-

5

Other assets


8

8



12,209

9,015



 


Liabilities of disposal groups


 


Other liabilities


5

5



5

5



 


Net assets of disposal groups


12,204

9,010



 


Notes

5. Litigation and regulatory matters

NatWest Group plc's Interim Results 2022, issued on 29 July 2022 , included disclosures about NatWest Group's litigation and regulatory matters in Note 15. Set out below are the material developments in those matters (all of which have been previously disclosed) since publication of the Interim Results 2022.

Litigation

London Interbank Offered Rate (LIBOR) and other rates litigation

In September 2020, the United States District Court for the Southern District of New York (SDNY) dismissed, on various grounds, all claims against NWM Plc and other NatWest Group companies in the class action alleging that manipulation of JPY LIBOR and Euroyen TIBOR impacted the price of Euroyen TIBOR futures contracts. In October 2022, that decision was affirmed by the United States Court of Appeals for the Second Circuit.

A complaint was filed in August 2020 in the United States District Court for the Northern District of California by several United States consumer borrowers against the USD ICE LIBOR panel banks and their affiliates (including NatWest Group plc, NWM Plc, NWMSI and NWB Plc), alleging (i) that the normal process of setting USD ICE LIBOR amounts to illegal price-fixing; and (ii) that banks in the United States have illegally agreed to use LIBOR as a component of price in variable consumer loans. In September 2022, the district court dismissed the complaint, subject to re-pleading by the plaintiffs. Plaintiffs filed an amended complaint in October 2022, which defendants will again seek to have dismissed.

FX litigation

An FX-related class action, on behalf of 'consumers and end-user businesses', is proceeding in the SDNY against NWM Plc and others. In March 2022, the SDNY denied the plaintiffs' motion for class certification. Plaintiffs sought an immediate appeal of the decision but the appellate court declined to review the decision. As a result, the case is proceeding on an individual, non-class basis.

In July and December 2019, two separate applications seeking opt-out collective proceedings orders were filed in the UK Competition Appeal Tribunal (CAT) against NatWest Group plc, NWM Plc and other banks. Both applications were brought on behalf of persons who, between 18 December 2007 and 31 January 2013, entered into a relevant FX spot or outright forward transaction in the EEA with a relevant financial institution or on an electronic communications network. In March 2022, the CAT declined to certify as collective proceedings either of the applications. In October 2022, the CAT granted permission for the applicants to appeal that decision to the Court of Appeal.


 

6. Auditor selection

The Group last tendered the 2016 audit and is required to undertake a tender for this work on a ten-year frequency. On 6 June 2022, the Group announced the start of a selection process for the statutory auditor. This extensive competitive tender process was led by the Group Audit Committee.   The Board has approved the recommendation of the Group Audit Committee and accordingly, the Group announces its intention to appoint PricewaterhouseCoopers LLP (PwC) as its auditor for the financial year ending 31 December 2026, subject to shareholder approval at the 2026 Annual General Meeting.

Ernst & Young LLP (EY), our current auditor, will continue in its role and, subject to shareholder approval at the relevant Annual General Meetings, will undertake the statutory audit for the 2022-2025 financial years.

 

7. Post balance sheet events

Other than as disclosed there have been no significant events between 30 September 2022 and the date of approval of these

accounts that would require a change to or additional disclosure in the condensed consolidated financial statements.

 




 

Additional information

Presentation of information

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

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

On 27 January 2022, NatWest Group announced that a new franchise, Commercial & Institutional, would be created, bringing together the Commercial, NatWest Markets and RBSI businesses to form a single franchise, with common management and objectives, to best support our customers across the full non-personal customer lifecycle. Comparatives have been re-presented in this document. Refer to the re-segmentation document published on 22 April 2022 for further details. The re-presentation of operating segments does not change the consolidated financial results of NatWest Group.  

Statutory results

Financial information contained in this document does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 ('the Act'). The statutory accounts for the year ended 31 December 2021 have been filed with the Registrar of Companies. The report of the auditor on those statutory accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Act.

MAR - Inside Information

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

Contacts

Analyst enquiries:

Alexander Holcroft, Investor Relations

Media enquiries:

NatWest Group Press Office

 

Management presentation

Date:

28 October 2022

Time:

09:00 AM UK time

Zoom ID:

960 6740 5912

 

 

Available on natwestgroup.com/results

Q3 2022 Interim Management Statement and background slides.

A financial supplement containing income statement, balance sheet and segment performance for the nine quarters ended 30 September 2022 .

NatWest Group Pillar 3 supplement at 30 September 2022.



 

Forward looking statements

This document may include forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, such as statements that include, without limitation, the words 'expect', 'estimate', 'project', 'anticipate', 'commit', 'believe', 'should', 'intend', 'will', 'plan', 'could', 'probability', 'risk', 'Value-at-Risk (VaR)', 'target', 'goal', 'objective', 'may', 'endeavour', 'outlook', 'optimistic', 'prospects' and similar expressions or variations on these expressions. These statements concern or may affect future matters, such as NatWest Group's future economic results, business plans and strategies.   In particular, this document may include forward-looking statements relating to NatWest Group plc in respect of, but not limited to: its economic and political risks, its regulatory capital position and related requirements, its financial position, profitability and financial performance (including financial, capital, cost savings and operational targets), the implementation of its purpose-led strategy, its environmental, social, governance and climate related targets, its access to adequate sources of liquidity and funding, increasing competition from new incumbents and disruptive technologies, the impact of the COVID-19 pandemic, its exposure to third party risks, its ongoing compliance with the UK ring-fencing regime and ensuring operational continuity in resolution, its impairment losses and credit exposures under certain specified scenarios, substantial regulation and oversight, ongoing legal, regulatory and governmental actions and investigations, the transition of LIBOR and IBOR rates to alternative risk free rates and NatWest Group's exposure to operational risk, conduct risk, cyber, data and IT risk, financial crime risk, key person risk and credit rating risk. Forward-looking statements are subject to a number of risks and uncertainties that might cause actual results and performance to differ materially from any expected future results or performance expressed or implied by the forward-looking statements. Factors that could cause or contribute to differences in current expectations include, but are not limited to, future growth initiatives (including acquisitions, joint ventures and strategic partnerships), the outcome of legal, regulatory and governmental actions and investigations, the level and extent of future impairments and write-downs (including with respect to goodwill), legislative, political, fiscal and regulatory developments, accounting standards, competitive conditions, technological developments, interest and exchange rate fluctuations, general economic and political conditions, the impact of climate-related risks and the transitioning to a net zero economy and the impact of the COVID-19 pandemic. These and other factors, risks and uncertainties that may impact any forward-looking statement or NatWest Group plc's actual results are discussed in NatWest Group plc's UK 2021 Annual Report and Accounts (ARA), NatWest Group plc's UK Interim Results for the six months ended 30 June 2022 (H1 report), and NatWest Group plc's filings with the US Securities and Exchange Commission, including, but not limited to, NatWest Group plc's most recent Annual Report on Form 20-F. The forward-looking statements contained in this document speak only as of the date of this document and NatWest Group plc does not assume or undertake any obligation or responsibility to update any of the forward-looking statements contained in this document, whether as a result of new information, future events or otherwise, except to the extent legally required.

 

Legal Entity Identifier: 2138005O9XJIJN4JPN90



F2A4E6A5-86EA-4413-90D6-619423C4A8DF|3|Oracle.SmartView.EPRCS|{86262e33-96fb-4c42-a709-0e94f1ae601e}

 

 

 

 

 

 

Appendix

 

Non-IFRS financial measures

 

 

 

 

 

 

 

 

 

 


Non-IFRS financial measures

NatWest Group prepares its financial statements in accordance with generally accepted accounting principles (GAAP). This document contains a number of adjusted or alternative performance measures, also known as non-GAAP or non-IFRS performance measures. These measures are adjusted for notable and other defined items which management believes are not representative of the underlying performance of the business and which distort period-on-period comparison. The non-IFRS measures provide users of the financial statements with a consistent basis for comparing business performance between financial periods and information on elements of performance that are one-off in nature. The non-IFRS measures also include the calculation of metrics that are used throughout the banking industry. These non-IFRS measures are not measures within the scope of IFRS and are not a substitute for IFRS measures.

1. Go-forward group income excluding notable items

Go-forward group income excluding notable items is calculated as total income excluding Ulster Bank RoI total income and excluding notable items.

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


Nine months ended


Quarter ended  


30 September

30 September


30 September

30 June

30 September


2022

2021


2022

2022

2021


£m

£m


£m

£m

£m

Continuing operations

 



 



Total income

9,448

7,827


3,229

3,211

2,686

Less Ulster Bank RoI total income

4

(122)


37

(12)

(57)

Go-forward group income

9,452

7,705


3,266

3,199

2,629

Less notable items

(153)

(148)


168

(97)

(118)

Go-forward group income excluding notable items

9,299

7,557


3,434

3,102

2,511

2. Go-forward group other operating expenses

Other operating expenses is calculated as total operating expenses less litigation and conduct costs. Other operating expenses of the Go-forward group excludes Ulster Bank RoI.

Our cost target for 2022 is based on this measure and we track progress against it.


Nine months ended


Quarter ended  


30 September

30 September


30 September

30 June

30 September


2022

2021


2022

2022

2021


£m

£m


£m

£m

£m

Continuing operations

 



 



Total operating expenses

5,549

5,430


1,896

1,833

1,931

Less litigation and conduct costs

(294)

(276)


(125)

(67)

(294)

Other operating expenses

5,255

5,154


1,771

1,766

1,637

Less Ulster Bank RoI other operating expenses

(353)

(339)


(110)

(130)

(113)

Go-forward group other operating expenses

4,902

4,815


1,661

1,636

1,524

3. Go-forward group profit before impairment releases/(losses)

Go-forward group profit before impairment releases/(losses) is calculated as total profit before impairment releases/(losses) less Ulster Bank RoI loss before impairment (losses)/releases.


Nine months ended


Quarter ended  


30 September

30 September


30 September

30 June

30 September


2022

2021


2022

2022

2021


£m

£m


£m

£m

£m

Continuing operations

 



 



Profit before impairment releases/(losses)

3,899

2,397


1,333

1,378

755

Less Ulster Bank RoI loss before

 



 



  impairment (losses)/releases

372

229


151

129

55

Go-forward group profit before

 



 



  impairment releases/(losses)

4,271

2,626


1,484

1,507

810

 

 

 

 

 

 

 



 

Non-IFRS financial measures continued

4. Operating expenses - management view

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


Nine months ended


30 September 2022


Litigation and

Other

Statutory


conduct

operating

operating


costs

expenses

expenses

Operating expenses

£m

£m

£m

Continuing operations

 

 

 

Staff costs

29

2,658

2,687

Premises and equipment

-

820

820

Other administrative expenses

265

1,164

1,429

Depreciation and amortisation

-

613

613

Total  

294

5,255

5,549






Nine months ended


30 September 2021


Litigation and

Other

Statutory


conduct

operating

operating


costs

expenses

expenses

Operating expenses

£m

£m

£m

Continuing operations




Staff costs

-  

2,761

2,761

Premises and equipment

-  

765

765

Other administrative expenses

276

1,015

1,291

Depreciation and amortisation

-  

613

613

Total  

276

5,154

5,430






Quarter ended


30 September 2022


Litigation and

Other

Statutory


conduct

operating

operating


costs

expenses

expenses

Operating expenses

£m

£m

£m

Continuing operations

 

 

 

Staff costs

11

868

879

Premises and equipment

-

286

286

Other administrative expenses

114

417

531

Depreciation and amortisation

-

200

200

Total  

125

1,771

1,896






Quarter ended


30 June 2022


Litigation and

Other

Statutory


conduct

operating

operating


costs

expenses

expenses

Operating expenses

£m

£m

£m

Continuing operations




Staff costs

11

896

907

Premises and equipment

-  

283

283

Other administrative expenses

56

371

427

Depreciation and amortisation

-  

216

216

Total  

67

1,766

1,833






Quarter ended


30 September 2021


Litigation and

Other

Statutory


conduct

operating

operating


costs

expenses

expenses

Operating expenses

£m

£m

£m

Continuing operations




Staff costs

-  

881

881

Premises and equipment

-  

263

263

Other administrative expenses

294

294

588

Depreciation and amortisation

-  

199

199

Total  

294

1,637

1,931


Non-IFRS financial measures continued

5. Cost:income ratio

The cost:income ratio is calculated as total operating expenses less operating lease depreciation divided by total income less operating lease depreciation. The cost:income ratio of the Go-forward group excludes Ulster Bank RoI.

This is a common metric used to compare profitability across the banking industry.

 

Go-forward group

 

 

 

 

 

 

 

 

 

 

Ulster

Total

 

Retail

Private

Commercial &  

Central items  

Total excluding

 

Bank

NatWest

 

Banking

Banking

Institutional

and other

Ulster Bank RoI

 

RoI

Group

Nine months ended 30 September 2022

£m

£m

£m

£m

£m

 

£m

£m

Continuing operations

 

 

 

 

 

 

 

 

Operating expenses

(1,935)

(424)

(2,713)

(109)

(5,181)

 

(368)

(5,549)

Operating lease depreciation

-

-

94  

-

94  

 

-

94  

Adjusted operating expenses

(1,935)

(424)

(2,619)

(109)

(5,087)

 

(368)

(5,455)

Total income

4,029  

746  

4,594  

83  

9,452  

 

(4)

9,448  

Operating lease depreciation

-

-

(94)

-

(94)

 

-

(94)

Adjusted total income

4,029  

746  

4,500  

83  

9,358  

 

(4)

9,354  

Cost:income ratio  

48.0%

56.8%

58.2%

nm

54.4%

 

nm

58.3%


 

 

 

 

 

 

 

 

Nine months ended 30 September 2021

 

 

 

 

 

 

 

 

Continuing operations

 

 

 

 

 

 

 

 

Operating expenses

(1,739)

(365)

(2,698)

(277)

(5,079)


(351)

(5,430)

Operating lease depreciation

-

-

106  

-

106  


-

106  

Adjusted operating expenses

(1,739)

(365)

(2,592)

(277)

(4,973)


(351)

(5,324)

Total income

3,281  

563  

3,670  

191  

7,705  


122  

7,827  

Operating lease depreciation

-

-

(106)

-

(106)


-

(106)

Adjusted total income

3,281  

563  

3,564  

191  

7,599  


122  

7,721  

Cost:income ratio  

53.0%

64.8%

72.7%

nm

65.4%


nm

69.0%










Quarter ended 30 September 2022









Continuing operations

 

 

 

 

 

 

 

 

Operating expenses

(693)

(139)

(893)

(57)

(1,782)

 

(114)

(1,896)

Operating lease depreciation

-

-

30

-

30

 

-

30

Adjusted operating expenses

(693)

(139)

(863)

(57)

(1,752)

 

(114)

(1,866)

Total income

1,475  

285

1,657  

(151)

3,266  

 

(37)

3,229  

Operating lease depreciation

-

-

(30)

-

(30)

 

-

(30)

Adjusted total income

1,475  

285

1,627  

(151)

3,236  

 

(37)

3,199  

Cost:income ratio  

47.0%

48.8%

53.0%

nm

54.1%

 

nm

58.3%


 

 

 

 

 

 

 

 

Quarter ended 30 June 2022









Continuing operations









Operating expenses

(597)

(146)

(898)

(51)

(1,692)


(141)

(1,833)

Operating lease depreciation

-

-

32  

-

32  


-

32  

Adjusted operating expenses

(597)

(146)

(866)

(51)

(1,660)


(141)

(1,801)

Total income

1,337  

245  

1,562  

55  

3,199  


12  

3,211  

Operating lease depreciation

-

-

(32)

-

(32)


-

(32)

Adjusted total income

1,337  

245  

1,530  

55  

3,167  


12  

3,179  

Cost:income ratio  

44.7%

59.6%

56.6%

nm

52.4%


nm

56.7%










Quarter ended 30 September 2021









Continuing operations









Operating expenses

(552)

(116)

(874)

(277)

(1,819)


(112)

(1,931)

Operating lease depreciation

-

-

36  

-

36  


-

36  

Adjusted operating expenses

(552)

(116)

(838)

(277)

(1,783)


(112)

(1,895)

Total income

1,131  

195  

1,196  

107  

2,629  


57  

2,686  

Operating lease depreciation

-

-

(36)

-

(36)


-

(36)

Adjusted total income

1,131  

195  

1,160  

107  

2,593  


57  

2,650  

Cost:income ratio  

48.8%

59.5%

72.2%

nm

68.8%


nm

71.5%

 



 

Non-IFRS financial measures continued

6. NatWest Group return on tangible equity

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

Go-forward group return on tangible equity is calculated as annualised profit for the period less Ulster Bank RoI divided by Go-forward group total tangible equity. Go forward RWAe applying factor is the Go-forward group average RWAe as a percentage of total NatWest Group average RWAe.

This measure shows the return NatWest Group generates on tangible equity deployed. It is used to determine relative performance of banks and used widely across the sector, although different banks may calculate the rate differently.


Nine months ended


Quarter ended or as at


30 September

30 September


30 September

30 June

30 September

 

2022

2021

 

2022

2022

2021

NatWest Group return on tangible equity  

£m

£m

 

£m

£m

£m

Profit attributable to ordinary shareholders  

2,078

2,516


187

1,050

674

Annualised profit attributable to ordinary shareholders  

2,771

3,355


748

4,200

2,696


 



 



Average total equity  

38,821

42,978


36,956

38,625

42,507

Adjustment for other owners' equity and intangibles  

(11,099)

(11,525)


(11,200)

(10,944)

(10,881)

Adjusted total tangible equity  

27,722

31,453


25,756

27,681

31,626


 



 



Return on tangible equity

10.0%

10.7%


2.9%

15.2%

8.5%

 

 

 

 

 



Go-forward group return on tangible equity  

 



 



Profit attributable to ordinary shareholders  

2,078

2,516


187

1,050

674

Less Ulster Bank RoI loss from continuing operations,

 



 



  net of tax  

369

278


157

149

60

Less profit from discontinued operations  

206

(275)


396

(127)

(98)

Go-forward group profit attributable to

 



 



  ordinary shareholders  

2,653

2,519


740

1,072

636

Annualised go-forward group profit attributable

 



 



  to ordinary shareholders  

3,537

3,359


2,960

4,288

2,544


 



 



Average total equity

38,821

42,978


36,956

38,625

42,507

Adjustment for other owners' equity and intangibles  

(11,099)

(11,525)


(11,200)

(10,944)

(10,881)

Adjusted total tangible equity  

27,722

31,453


25,756

27,681

31,626

Go-forward group RWAe applying factor  

95%

94%


95%

94%

94%

Go-forward group total tangible equity  

26,197

29,566


24,468

26,020

29,728


 



 



Go-forward group return on tangible equity  

13.5%

11.4%


12.1%

16.5%

8.6%

 



 

Non-IFRS financial measures continued

7. Segmental return on equity

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

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

 



Retail

Private

Commercial &

Nine months ended 30 September 2022



Banking

Banking

Institutional

Operating profit (£m)

 

 

1,952  

326

1,821  

Paid-in equity cost allocation (£m)

 

 

(60)

(9)

(141)

Adjustment for tax (£m)

 

 

(530)

(89)

(420)

Adjusted attributable profit (£m)

 

 

1,362  

228

1,260  

Annualised adjusted attributable profit (£m)

 

 

1,816  

304

1,680  

Average RWAe (£bn)

 

 

52.7  

11.3  

102.9  

Equity factor (%)

 

 

13.0%

11.0%

14.0%

Average notional equity (£bn)

 

 

6.8  

1.2  

14.4  

Return on equity (%)

 

 

26.5%

24.5%

11.7%







Nine months ended 30 September 2021






Operating profit (£m)



1,583

240

1,815

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


(60)

(15)

(177)

Adjustment for tax (£m)



(426)

(63)

(410)

Adjusted attributable profit (£m)



1,097

162

1,229

Annualised adjusted attributable profit (£m)



1,463  

216  

1,639  

Average RWAe (£bn)



35.7

11.1

107.0

Equity factor (%)



14.5%

12.5%

13.0%

Average notional equity (£bn)



5.2

1.4

13.9

Return on equity (%)



28.3%

15.5%

11.8%







Quarter ended 30 September 2022






Operating profit (£m)



666  

139

645  

Paid-in equity cost allocation (£m)



(20)

(3)

(48)

Adjustment for tax (£m)



(181)

(38)

(149)

Adjusted attributable profit (£m)



465  

98

448  

Annualised adjusted attributable profit (£m)



1,860  

392

1,792  

Average RWAe (£bn)



53.0  

11.2  

105.0  

Equity factor (%)



13.0%

11.0%

14.0%

Average notional equity (£bn)



6.9  

1.2  

14.7  

Return on equity (%)



27.0%

31.8%

12.2%







Quarter ended 30 June 2022






Operating profit (£m)



719  

105  

712  

Paid-in equity cost allocation (£m)



(20)

(3)

(47)

Adjustment for tax (£m)



(196)

(29)

(166)

Adjusted attributable profit (£m)



503  

73  

499  

Annualised adjusted attributable profit (£m)



2,012  

294  

1,996  

Average RWAe (£bn)



52.4  

11.3  

101.0  

Equity factor (%)



13.0%

11.0%

14.0%

Average notional equity (£bn)



6.8  

1.2  

14.1  

Return on equity (%)



29.5%

23.5%

14.0%







Quarter ended 30 September 2021






Operating profit (£m)



563  

94  

552  

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


(20)

(5)

(59)

Adjustment for tax (£m)



(152)

(25)

(123)

Adjusted attributable profit (£m)



391  

64  

370  

Annualised adjusted attributable profit (£m)



1,564  

256  

1,480  

Average RWAe (£bn)



36.1  

11.3  

103.4  

Equity factor (%)



14.5%

12.5%

13.0%

Average notional equity (£bn)



5.2  

1.4  

13.4  

Return on equity (%)



29.9%

18.1%

11.0%

 



 

Non-IFRS financial measures continued

8. Bank net interest margin

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

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


Nine months ended


Quarter ended


30 September

30 September


30 September

30 June

30 September


2022

2021


2022

2022

2021

Go-forward group

£m

£m

 

£m

£m

£m

Continuing operations

 



 



NatWest Group net interest income  

6,974

5,613


2,640

2,307

1,869

Less Ulster Bank RoI net interest income

(12)

(18)


(6)

(2)

(3)

Bank net interest income

6,962  

5,595  


2,634  

2,305  

1,866  


 



 



Annualised NatWest Group net interest income  

9,324

7,505


10,474

9,253

7,415

Annualised Bank net interest income

9,308

7,480


10,450

9,245

7,403


 



 



Average interest earning assets (IEA)

546,918

509,757


548,008

548,371

522,032

Less Ulster Bank RoI average IEA

(1,436)

(2,128)


(771)

(1,544)

(1,958)

Less liquid asset buffer average IEA  

(204,224)

(184,548)


(197,304)

(206,843)

(194,713)

Bank average IEA  

341,259

323,081


349,933

339,984

325,361


 



 



Bank net interest margin  

2.73%

2.32%


2.99%

2.72%

2.28%

 


Nine months ended


Quarter ended


30 September

30 September


30 September

30 June

30 September


2022

2021


2022

2022

2021

Retail Banking

£m

£m

 

£m

£m

£m

Net interest income  

3,719

3,017


1,379

1,228

1,041

Annualised net interest income

4,972

4,034


5,471

4,925

4,130


 



 



Retail Banking average IEA

188,604

177,644


192,129

188,081

180,234

Less liquid asset buffer average IEA

-

-


-

-

-

Adjusted Retail Banking average IEA

188,604

177,644


192,129

188,081

180,234


 



 



Retail Banking net interest margin

2.64%

2.27%


2.85%

2.62%

2.29%


 



 



Private Banking

 


 

 



Net interest income  

526

354


211

172

122

Annualised net interest income

703

473


837

690

484


 



 



Private Banking average IEA

19,056

18,125


19,154

19,144

18,595

Less liquid asset buffer average IEA

-

-


-

-

-

Adjusted Private Banking average IEA

19,056

18,125


19,154

19,144

18,595


 



 



Private Banking net interest margin

3.69%

2.61%


4.37%

3.60%

2.60%


 



 



Commercial & Institutional

 


 

 



Net interest income  

2,895

2,210


1,131

961

723

Annualised adjusted net interest income

3,871

2,955


4,487

3,855

2,868


 



 



Commercial & Institutional average IEA

168,707

163,297


173,043

168,498

163,194

Less liquid asset buffer average IEA

(43,285)

(42,147)


(43,238)

(43,558)

(43,317)

Adjusted Commercial & Institutional

 



 



  average IEA

125,422

121,150


129,805

124,940

119,877


 



 



Commercial & Institutional net interest margin

3.09%

2.44%


3.46%

3.09%

2.39%

 



 

Non-IFRS financial measures continued

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

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

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


As at


30 September

30 June

31 December


2022

2022   (1)

2021   (1)

Ordinary shareholders' interests (£m)

31,054

34,727

37,412

Less intangible assets (£m)

(6,961)

(6,869)

(6,723)

Tangible equity (£m)

24,093

27,858

30,689


 



Ordinary shares in issue (millions)

9,650

10,436

11,272


 



TNAV per ordinary share (pence)

250p

267p

272p

 

(1)  At the General Meeting and Class Meeting on 25 August, the shareholders approved the proposed special dividend and share consolidation.   On 30 August the issued ordinary share capital was consolidated in the ratio of 14 existing shares for 13 new shares.   Comparatives for the number of shares in issue and TNAV per ordinary share have not been adjusted.

 

10. Go-forward group net lending

NatWest Group net lending is calculated as total loans to customers less loan impairment provisions. Go-forward group net lending is calculated as net loans to customers less Ulster Bank RoI net loans to customers.


As at


30 September

30 June

31 December


2022

2022

2021


£bn

£bn

£bn

Total loans to customers (amortised cost)

375.1

366.0

362.8

Less loan impairment provisions

(3.3)

(3.4)

(3.8)

Net loans to customers (amortised cost)

371.8

362.6

359.0

Less Ulster Bank RoI net loans to customers (amortised cost)

(0.3)

(1.0)

(6.7)

Go-forward group net lending

371.5

361.6

352.3

11. Go-forward group customer deposits

Go-forward group customer deposits is calculated as total customer deposits less Ulster Bank RoI customer deposits.


As at


30 September

30 June

31 December


2022

2022

2021


£bn

£bn

£bn

Total customer deposits

473.0

492.1

479.8

Less Ulster Bank RoI customer deposits

(11.3)

(15.9)

(18.4)

Go-forward group customer deposits

461.7

476.2

461.4

 

 



 

Performance metrics not defined under IFRS

Metrics based on GAAP measures, included as not defined under IFRS and reported for compliance with the European Securities and Markets Authority (ESMA) adjusted performance measure rules.

1. Loan:deposit ratio

Loan:deposit ratio is calculated as net customer loans held at amortised cost excluding reverse repos divided by total customer deposits excluding repos.

This is a common metric used to assess liquidity. The removal of repos and reverse repos reduces volatility and presents the ratio on a basis that is comparable to UK peers.


As at

 

30 September

30 June

31 December

 

2022

2022

2021   (1)

 

£m

£m

£m

Loans to customers - amortised cost  

371,812

362,551

358,990

Less reverse repos

(27,613)

(25,084)

(25,962)


344,199

337,467

333,028


 



Customer deposits  

473,026

492,075

479,810

Less repos

(11,855)

(19,195)

(14,541)


461,171

472,880

465,269


 



Loan:deposit ratio (%)

75%

71%

72%

(1)  Re-presented.

2. Loan impairment rate

Loan impairment rate is the annualised loan impairment charge divided by gross customer loans.

3. Funded assets

Funded assets are calculated as total assets less derivative assets.

This measure allows review of balance sheet trends exclusive of the volatility associated with derivative fair values. 

4. AUMAs

AUMA comprises both assets under management (AUMs) and assets under administration (AUAs) serviced through the Private Banking franchise. AUMs comprise assets where the investment management is undertaken by Private Banking on behalf of Private Banking, Retail Banking and Commercial & Institutional customers. AUAs comprise third party assets held on an execution-only basis in custody by Private Banking, Retail Banking and Commercial & Institutional for their customers, for which the execution services are supported by Private Banking. Private Banking receives a fee for providing investment management and execution services to Retail Banking and Commercial & Institutional franchises.

Private   Banking   is the centre of expertise for asset management across NatWest Group servicing all client segments across Retail Banking, Private Banking and Commercial & Institutional.

5. Net new money

Net new money refers to client cash inflows and outflows relating to investment products (this can include transfers from savings accounts). Net new money excludes the impact of EEA resident client outflows following the UK's exit from the EU.

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

6. Wholesale funding

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

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

7. Third party rates

Third party customer asset rate is calculated as annualised interest receivable on third-party loans to customers as a percentage of third-party loans to customers. This excludes assets of disposal groups, intragroup items, loans to banks and liquid asset portfolios.

 

Third party customer funding rate reflects interest payable or receivable on third-party customer deposits, including interest bearing and non-interest bearing customer deposits. Intragroup items, bank deposits, debt securities in issue and subordinated liabilities are excluded for customer funding rate calculation.

 

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