Q3 Interim Management Statement

RNS Number : 6911D
NatWest Group plc
30 October 2020
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q3 2020

Interim Management Statement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  www.natwestgroup.com

 

 

 

 

 

 

 

NatWest Group plc

Q3 2020 Interim Management Statement

 

Alison Rose, Chief Executive Officer, commented:

 

"These results demonstrate the resilience of our underlying business and the strength of our balance sheet in the face of significant continued uncertainty. Our sector-leading capital position, strong levels of liquidity and intelligent and consistent approach to risk mean we can continue to provide our customers and communities with the support they need.

 

Although impairments were relatively low in the quarter and we have seen some positive trends across our customer base, the full impact of Covid-19 remains very unclear. Challenging times lie ahead, especially as the current government support schemes come to an end and as new Covid-19 related restrictions are introduced.

 

We continue to deliver well against our strategy, building a bank that champions potential and has the capability to grow. By building deeper relationships with our customers at every stage of their lives, simplifying the bank further, investing in innovation and partnerships and allocating capital well, we will deliver sustainable returns to our shareholders."

 

Financial performance in a challenging environment

●

Q3 2020 operating profit before tax of £355 million and an attributable profit to ordinary shareholders of £61 million including a £324 million loss on redemption of own debt.

●

In comparison to Q3 2019, across the retail and commercial businesses income decreased by 12.1%. Within NatWest Markets (NWM), the level of primary issuance and market activity eased in Q3 2020, compared to the first half of the year.

●

Bank net interest margin (NIM) of 1.65% was 2 basis points lower than Q2 2020 principally reflecting reduced structural hedge income as a result of lower swap rates and the contraction of the yield curve. Mortgage front book new business and switcher completion margins were approximately 140 basis points, broadly in line with the overall book margin.

●

Strategic costs of £223 million in Q3 2020 include £90 million redundancy costs, a £34 million charge related to technology spend and a £21 million property charge.

●

Other expenses, excluding operating lease depreciation (OLD), were £152 million lower than Q3 2019, with a £193 million cost reduction achieved for the year to date. We remain on track to achieve our £250 million target for full year 2020.

●

Net impairment losses of £254 million in Q3 2020, or 28 basis points of gross customer loans, resulted in an expected credit loss (ECL) coverage ratio of 1.72%.

 

Robust balance sheet with strong capital and liquidity levels

 

●

CET1 ratio of 18.2% was 100 basis points higher than Q2 2020 mainly reflecting a £7.6 billion reduction in RWAs, principally in NatWest Markets. Excluding IFRS 9 transitional relief, the CET1 ratio was 17.2%.

●

The liquidity coverage ratio (LCR) remains strong at 157%, representing £61.8 billion headroom above 100%,which includes the impact of a £5.0 billion term funding scheme (TFS) repayment within the quarter.

●

Across the retail and commercial businesses net lending increased by £0.4 billion during Q3 2020, as £2.9 billion drawdowns against UK Government lending initiatives and £2.4 billion related to mortgages was partially offset by net revolving credit facility (RCF) repayments of £3.1 billion and lower lending across Large Corporate & Institutions and Specialised business.

●

Customer deposits of £418.4 billion increased by £10.1 billion during Q3 2020, with retail and commercial balances £6.6 billion higher as consumer spending continued to be impacted by government restrictions and customers retained liquidity. 

 

Outlook(1)

We retain the outlook guidance provided in the 2020 Interim Results with the exception of the following updates, noting the continued significant economic uncertainty.

 

We believe the full year impairment charge is likely to be at the lower end of the £3.5-4.5 billion range following the limited level of defaults across lending portfolios and associated ECL stage migration within the third quarter.

 

We now expect NatWest Group RWAs to be below our previously guided range of £185-195 billion at the end of 2020 following the relatively low level of procyclical inflation experienced to date, with previously expected uplifts delayed to 2021, whilst also now targeting NatWest Markets RWAs of around £30 billion by the end of 2020.

 

 

 

Note:

(1)  The guidance, targets, expectations and trends discussed in this section represent management's current expectations and are subject to change, including as a result of the factors described in the NatWest Group plc "Risk Factors" as described on pages 108-109 of its Interim Results 2020, pages 29-31 of its Q1 2020 IMS and pages 281-295 of its 2019 Annual Report & Accounts. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement.

 

 

 

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

 

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

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

· Approved £13.0 billion through the government lending initiatives(1).

· Facilitated approximately £8.8 billion of Covid-19 Corporate Financing Facilities (CCFF) issuances(2).

 

Supported the financial health of our customers:

· Helped approximately 250,000 customers with an initial mortgage repayment holiday and provided payment holidays on over 72,000 business customer accounts(3).

· Launched 'Banking My Way' service, enabling customers who need additional support to request bespoke assistance, with 38,500 registrations since its launch(4).

 

Long-term investment plan is powering our operational effectiveness:

· Increased digital adoption with 9.3 million active digital users as at Q3 2020 (9.0 million as at Q3 2019), 6 million interactions with our AI chat bot Cora in the first nine months of 2020 (3.9 million in the first nine months of 2019) and c.9,000 weekly video banking conversations now taking place, compared to less than 100 a week in January 2020(5). 

· Announced a new relationship with BlackRock to support our investment management processing activity, enabling savings to be passed onto our clients.

 

Partnered to proactively respond and support UK communities:

· NatWest Social and Community Capital launched a £1 million Coronavirus Response Fund offering grants to organisations across the UK that employ people from vulnerable or disadvantaged groups.

· Launched a review with SafeLives into supporting survivors of economic abuse and acquired coercive debt.

 

Prioritised the wellbeing of our colleagues:

· Continued to enable more than 50,000 colleagues to work from home, delivering office furniture and computer equipment, including 31,000 tech bundles to homes(6).

· Enhanced our free mental health support through a new partnership with Silvercloud, providing substantial, sector-leading support to any colleague who needs it and provided all leaders access to extended mental health awareness support.

 

 

Q3 2020 progress against areas of focus

Enterprise - addressing barriers to enterprise and business creation:

· NatWest Entrepreneur Accelerator Programme ranked the top UK accelerator by total attendances(7). The programme has run 800 virtual events with 33,000 attendees since the start of lockdown(2).

· Over half of the £1 billion of debt funding to support female entrepreneurs announced in February 2020 has been committed as part of our ambition to help create new businesses in the UK(2).

 

Learning - skill building, particularly around financial confidence:

· Reached 2.4 million people through financial capability interactions including live MoneySense lessons on social media(6).

· Island Saver, the world's first financial education console, PC and mobile game, has been downloaded over 1.7 million times since its launch(8).

 

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

· As part of our membership of the Green Finance Institute's 'Coalition for the Energy Efficiency of Buildings', we have signed up to their Green Home Retrofit Principles.

· Progress in sustainability has been recognised by leading ESG rating agencies: Sustainalytics substantially improved our Risk Score to 20.5 (from 27.5) in July 2020 and MSCI upgraded our ESG rating to A (from BBB) in October 2020.

 

Diversity and inclusion - building an open and inclusive bank where everyone can thrive:

· In addition to our existing target of at least 14% BAME representation in senior UK roles by 2025, we have introduced a new target to have 3% Black colleagues in senior UK roles by 2025.

· Included in 'The Times' Top 50 employers for women.

 

 

 

Notes:

(1)  As at 30 September 2020, inclusive of Commercial Banking and Private Banking: Bounce Back Loan Scheme (BBLS) - £7.9 billion; Coronavirus Business Interruption Loan Scheme (CBILS) - £3.9 billion, Coronavirus Large Business Interruption Loan Scheme (CLBILS) - £1.2 billion.

(2)  As at 30 September 2020.

(3)  For the nine months ended 30 September 2020 in Retail Banking and since 22 March 2020 in Commercial Banking. As at 30 September 2020, there were 37,000 active mortgage repayment holidays and approximately 55,000 active payment holidays on business customer accounts.

(4)  From launch date of 19 August 2020 to 9 October 2020.

(5)  Weekly conversation volumes, as at week commencing 12 October 2020.

(6)  For the nine months ended 30 September 2020.

(7)  Beauhurst report 'Accelerating Growth'- September 2020.

(8)  From launch date of 13 May 2020 to 30 September 2020.

 

Business performance summary

 

 

Nine months ended

 

Quarter ended

 

30 September

30 September

 

30 September

30 June

30 September

Performance key metrics and ratios

2020

2019

 

2020

2020

2019

Profit before impairment losses

£2,697m

£3,222m

 

£609m

£767m

£205m

Operating (loss)/profit before tax

(£415m)

£2,686m

 

£355m

(£1,289m)

(£8m)

(Loss)/profit attributable to ordinary shareholders

(£644m)

£1,723m

 

£61m

(£993m)

(£315m)

Bank net interest margin

 

 

 

 

 

 

 (NatWest Group NIM excluding NWM) (1)

1.73%

2.02%

 

1.65%

1.67%

1.97%

Bank average interest earning assets

 

 

 

 

 

 

  (NatWest Group excluding NWM) (1)

£449bn

£410bn

 

£468bn

£458bn

£416bn

Cost:income ratio (1)

66.9%

67.5%

 

74.5%

70.9%

92.9%

Loan impairment rate  (1)

115bps

22bps

 

28bps

229bps

26bps

Earnings per share

 

 

 

 

 

 

  - basic

(5.3p)

14.3p

 

0.5p

(8.2p)

(2.6p)

  - basic fully diluted

(5.3p)

14.2p

 

0.5p

(8.2p)

(2.6p)

Return on tangible equity (1)

(2.7%)

6.8%

 

0.8%

(12.4%)

(3.8%)

Average tangible equity

£32bn

£34bn

 

£32bn

£32bn

£33bn

Average number of ordinary shares

 

 

 

 

 

 

  outstanding during the period (millions)

 

 

 

 

 

 

  - basic

12,090

12,064

 

12,110

12,085

12,075

  - fully diluted (2)

12,112

12,099

 

12,133

12,107

12,106

 

 

30 September

30 June

31 December

Balance sheet key metrics and ratios

2020

2020

2019

Total assets

£791.6bn

£806.9bn

£723.0bn

Funded assets (1)

£627.3bn

£623.5bn

£573.0bn

Loans to customers - amortised cost

£353.7bn

£352.3bn

£326.9bn

Impairment provisions

£6.1bn

£6.1bn

£3.7bn

Customer deposits

£418.4bn

£408.3bn

£369.2bn

 

 

 

 

Liquidity coverage ratio (LCR)

157%

166%

152%

Liquidity portfolio

£243bn

£243bn

£199bn

Net stable funding ratio (NSFR) (3)

147%

144%

141%

Loan:deposit ratio (1)

85%

86%

89%

Total wholesale funding

£75bn

£86bn

£75bn

Short-term wholesale funding

£25bn

£22bn

£19bn

 

 

 

 

Common Equity Tier (CET1) ratio  (4)

18.2%

17.2%

16.2%

Total capital ratio

23.7%

22.5%

21.2%

Pro forma CET1 ratio, pre dividend accrual (5)

18.2%

17.2%

17.0%

Risk-weighted assets (RWAs)

£173.9bn

£181.5bn

£179.2bn

CRR leverage ratio

5.2%

5.1%

5.1%

UK leverage ratio

6.2%

6.0%

5.8%

 

 

 

 

Tangible net asset value (TNAV) per ordinary share

265p

264p

268p

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

264p

263p

267p

Tangible equity

£32,093m

£32,006m

£32,371m

Number of ordinary shares in issue (millions)

12,127

12,125

12,094

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

12,149

12,147

12,138

 

Notes:

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

(2)  Includes the effect of dilutive share options and convertible securities. Dilutive shares on an average basis for the nine months ended 30 September 2020 were 22 million shares; Q3 2020 -  23 million shares (nine months ended 30 September 2019 - 35 million shares; Q2 2020 - 22 million shares; Q3 2019 - 31 million shares) and as at 30 September 2020 were 22 million shares (as at 30 June 2020 - 22 million shares; as at 31 December 2019 - 44 million shares).

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

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

(5)  Based on CRR end point including the IFRS 9 transitional adjustment of £1.7 billion. Excluding this adjustment, the CET1 ratio would be 17.2%.

(6)  Includes 16 million shares held by the Employee Benefit Trust (30 June 2020 - 16 million shares; 31 December 2019 - 15 million shares).

 

 

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.

 

 

Summary consolidated income statement for the period ended 30 September 2020

 

 

Nine months ended

 

Quarter ended

 

30 September

30 September

 

30 September

30 June

30 September

 

2020

2019

 

2020

2020

2019

 

£m 

£m 

 

£m 

£m 

£m 

Net interest income

5,778

6,010

 

1,926

1,910

2,006

Own credit adjustments

19

(58)

 

(34)

(102)

(12)

Other non-interest income

2,464

4,068

 

531

868

909

Non-interest income

2,483

4,010

 

497

766

897

Total income

8,261

10,020

 

2,423

2,676

2,903

Litigation and conduct costs

81

(810)

 

(8)

85

(750)

Strategic costs

(687)

(844)

 

(223)

(333)

(215)

Other expenses

(4,958)

(5,144)

 

(1,583)

(1,661)

(1,733)

Operating expenses

(5,564)

(6,798)

 

(1,814)

(1,909)

(2,698)

Profit before impairment losses

2,697

3,222

 

609

767

205

Impairment losses

(3,112)

(536)

 

(254)

(2,056)

(213)

Operating (loss)/profit before tax

(415)

2,686

 

355

(1,289)

(8)

Tax credit/(charge)

1

(395)

 

(207)

396

(201)

(Loss)/profit for the period

(414)

2,291

 

148

(893)

(209)

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

Ordinary shareholders

(644)

1,723

 

61

(993)

(315)

Preference shareholders

21

30

 

5

8

10

Paid-in equity holders

272

277

 

80

95

95

Non-controlling interests

(63)

261

 

2

(3)

1

 

Notable items within total income

 

 

 

 

 

 

Alawwal bank merger gain in NatWest Markets

-

444

 

-

-

-

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

(39)

290

 

64

(39)

-

Legacy liability release in Central items & other

-

256

 

-

-

-

Loss on redemption of own debt

(324)

-

 

(324)

-

-

Liquidity Asset Bond sale gain/(loss)

111

(8)

 

1

17

(19)

IFRS volatility in Central items & other

38

(34)

 

49

55

(51)

NatWest Markets asset disposals/strategic risk reduction

(75)

(35)

 

(12)

(63)

(8)

Share of losses under equity accounting for

 

 

 

 

 

 

  Business Growth Fund

(28)

-

 

(43)

(1)

-

 

 

 

 

Business performance summary

Retail Banking (formerly UK Personal Banking)

 

Quarter ended

 

 

As at

 

30 September

30 June

30 September

 

 

30 September

30 June

31 December

 

2020

2020

2019

 

 

2020

2020

2019

 

£m

£m

£m

 

 

£bn

£bn

£bn

Total income (1)

1,022

1,035

1,224

 

Net loans to customers -

 

 

 

Operating expenses (1)

(647)

(546)

(1,601)

 

  amortised cost

166.7

164.5

158.9

Impairment losses

(70)

(360)

(131)

 

Customer deposits (1)

164.9

161.0

150.3

Operating profit/(loss)

305

129

(508)

 

RWAs

36.3

36.7

37.8

Return on equity

15.3%

5.7%

(26.8%)

 

 

 

 

 

Net interest margin

2.05%

2.18%

2.44%

 

 

 

 

 

Cost:income ratio

63.3%

52.8%

130.8%

 

 

 

 

 

Loan impairment rate

17bps

87bps

34bps

 

 

 

 

 

 

Note:

(1)  Comparisons with prior periods are impacted by the transfer of the Private Client Advice business to Private Banking from 1 January 2020. The net impact on Q3 2019 operating profit would have been to decrease total income by £11 million and operating expenses by £2 million. The net impact on the Q3 2019 balance sheet would have been to decrease customer deposits by £0.2 billion.

Retail Banking customer activity levels in Q3 2020 improved significantly compared with Q2 2020 with debit and credit card spend levels 30% and 43% higher respectively and mortgage applications increased by 91%. In the nine months ended 30 September 2020, Retail Banking helped approximately 250,000 customers with an initial mortgage repayment holiday and as at Q3 2020 had 37,000 active mortgage repayment holidays, representing 3% of the book by volume. Additionally, Retail Banking had approximately 40,000, or 4%, of personal loan customers on active repayment holidays as at Q3 2020.

 

●

Total income decreased by £202 million, or 16.5%, in comparison to Q3 2019 due to lower fee income on overdrafts, lower deposit returns, mortgage margin dilution and lower international spend related fee income, partially offset by strong balance growth in mortgages and customer deposits. Total income decreased by £13 million compared with Q2 2020, reflecting a 13 basis point reduction in net interest margin largely due to the deferred impact of the lower yield curve on deposit margins. Mortgage book margin stabilised in Q3 2020 as front book new business and switcher completion margins were approximately 140 basis points, broadly in line with the overall book margin. In Q3 2020, application margins were around 160 basis points as spreads in the market continued to widen.

●

Excluding strategic, litigation and conduct costs, operating expenses decreased by £49 million, or 8.0%, compared with Q3 2019, predominantly reflecting a reduction in staff costs associated with a 10.3% reduction in headcount.

●

Impairment losses of £70 million in Q3 2020 primarily reflect stage three default charges driven by personal advances.

●

Net loans to customers increased by £2.2 billion compared with Q2 2020. Gross new mortgage lending was £6.7 billion in Q3 2020, with market flow share of approximately 11% and strong retention supporting a stock share of approximately 10.6%. Unsecured balances remained stable in Q3 2020, compared with a reduction of £0.8 billion in Q2 2020.

●

Customer deposits increased by £3.9 billion in Q3 2020, compared with an £8.2 billion increase in Q2 2020, predominantly driven by increasing current account balances, however growth slowed in Q3 2020 as customer spend levels increased towards pre-Covid-19 levels.

 

 

 

Business performance summary

Ulster Bank RoI

 

Quarter ended

 

 

As at

 

30 September

30 June

30 September

 

 

30 September

30 June

31 December

 

2020

2020

2019

 

 

2020

2020

2019

 

€m

€m

€m

 

 

€bn

€bn

€bn

Total income

145

135

161

 

Net loans to customers -

 

 

 

Operating expenses

(138)

(140)

(146)

 

  amortised cost

20.2

20.5

21.4

Impairment (losses)/

 

 

 

 

Customer deposits

21.6

22.0

21.7

  releases

(6)

(246)

19

 

RWAs

13.3

14.1

15.3

Operating profit/(loss)

1

(251)

34

 

 

 

 

 

Return on equity

0.2%

(45.5%)

5.8%

 

 

 

 

 

Net interest margin

1.47%

1.49%

1.54%

 

 

 

 

 

Cost:income ratio

95.2%

103.7%

90.7%

 

 

 

 

 

Loan impairment rate

11bps

460bps

(34)bps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note:

(1)  Ratios have been presented on a Euro basis. Comparatives have been restated.

 

Our strategy to grow our Ulster Bank business in the Republic of Ireland organically and safely remains unchanged. We continue to evaluate the impact of Covid-19 and the challenges to the economy and we are reviewing our strategy appropriately and responsibly in light of these events.

 

 

In the event of any changes being made to our strategy, these would be undertaken with full consideration of any impact on customers, colleagues and shareholders in the first instance. Our priority now is to continue to remain focused on supporting our colleagues in serving our customers in these difficult times.

 

As at Q3 2020, Ulster Bank RoI had approved over 17,000 payment breaks and, of those who have rolled off their initial payment break, approximately 46% have opted for a second payment break, representing around 8% of the lending book by value.

 

 

●

Total income decreased by €16 million, or 9.9%, compared with Q3 2019 primarily due to lower lending income, reduced transaction volumes and fee income resulting from the impact of Covid-19. Total income increased by €10 million in comparison to Q2 2020, reflecting higher fee income from a return to more normalised transaction levels. Net interest margin decreased by 2 basis points in comparison to Q2 2020 reflecting the continued impact of negative rates on increased liquid assets.

●

Impairment losses were €6 million in Q3 2020, with payment breaks in part mitigating the full impact of credit losses attributable to the Covid-19 pandemic.

●

Net loans to customers decreased by €0.3 billion compared with Q2 2020 as repayments continued to exceed gross new lending, combined with a further derecognition of the non-performing loan (NPL) sale agreed in 2019. Gross new lending of €0.4 billion was broadly in line with Q2 2020.

●

Customer deposits decreased by €0.4 billion in comparison to Q2 2020 mainly due to the introduction of negative rates on certain commercial deposit categories.

●

RWAs decreased by €0.8 billion in comparison to Q2 2020 reflecting the €0.2 billion impact of the NPL sale derecognition, lower volumes and improved credit metrics.

 

          

 

 

 

 

 

 

 

 

Business performance summary

Commercial Banking

 

Quarter ended

 

 

As at

 

30 September

30 June

30 September

 

 

30 September

30 June

31 December

 

2020

2020

2019

 

 

2020

2020

2019

 

£m

£m

£m

 

 

£bn

£bn

£bn

Total income

1,004

995

1,077

 

Net loans to customers -

 

 

 

Operating expenses

(553)

(611)

(638)

 

  amortised cost

110.0

112.0

101.2

Impairment losses

(127)

(1,355)

(108)

 

Customer deposits

161.3

159.6

135.0

Operating profit/(loss)

324

(971)

331

 

RWAs

76.5

78.3

72.5

Return on equity

9.2%

(32.5%)

8.4%

 

 

 

 

 

Net interest margin

1.65%

1.70%

1.90%

 

 

 

 

 

Cost:income ratio

53.4%

59.9%

57.9%

 

 

 

 

 

Loan impairment rate

45bps

472bps

42bps

 

 

 

 

 

 

Commercial Banking continues to support customers through a comprehensive package of initiatives including participation in the UK Government's financial support schemes. As at Q3 2020, £7.9 billion BBLS, £3.7 billion CBILS and £1.2 billion CLBILS had been approved. Since 22 March 2020 Commercial Banking provided payment holidays on over 72,000 customer accounts and as at Q3 2020 had active payment holidays on c.55,000 customer accounts, representing c.8% of the lending book by value.

 

●

Total income decreased by £73 million, or 6.8%, compared with Q3 2019 as the continued contraction of the yield curve and lower business activity was partially offset by increased lending volumes. Net interest margin decreased by 5 basis points in comparison to Q2 2020 as a result of lower deposit funding benefits.

●

Other expenses, excluding OLD, were £36 million, or 6.8%, lower than Q3 2019 mainly due to a reduction in back office operations costs and a 3.0% reduction in headcount.

●

Impairment losses of £127 million in Q3 2020 primarily reflect stage one and two movements related to the expected deterioration in the economic environment, with total stage three charges of £53 million, including a small number of single name charges.

●

Net loans to customersdecreased by £2.0 billion compared with Q2 2020 as £3.1 billion net RCF repayments and lower lending across Large Corporate & Institutions and Specialised business lending more than offset drawdowns against UK Government lending schemes, including £1.7 billion related to BBLS, £0.8 billion related to CBILS and £0.4 billion related to CLBILS. RCF utilisation decreased to c.26% of committed facilities, broadly in line with pre-Covid-19 levels.

●

Customer deposits increased by £1.7 billion compared with Q2 2020 as customers continued to retain liquidity.

●

RWAs decreased by £1.8 billion compared with Q2 2020 as lower lending volumes and a c.£1.5 billion reduction reflecting the CRR Covid-19 amendment to accelerate the planned changes to the SME supporting factor and the introduction of an Infrastructure supporting factor,  partially offset by risk parameter changes.

 

          

 

 

 

Business performance summary

Private Banking - (commentary adjusted for transfers)

 

Quarter ended

 

 

As at

 

30 September

30 June

30 September

 

 

30 September

30 June

31 December

 

2020

2020

2019

 

 

2020

2020

2019

 

£m

£m

£m

 

 

£bn

£bn

£bn

Total income

187

191

198

 

Net loans to customers -

 

 

 

Operating expenses

(112)

(129)

(119)

 

  amortised cost

16.5

16.0

15.5

Impairment

 

 

 

 

Customer deposits

30.3

29.8

28.4

  (losses)/releases

(18)

(27)

2

 

RWAs

10.6

10.4

10.1

Operating profit

57

35

81

 

Assets Under Management

 

 

 

Return on equity

11.2%

6.6%

16.8%

 

  (AUMs)

27.3

27.1

23.2

Net interest margin

1.99%

2.14%

2.35%

 

Assets Under Administration

 

 

 

Cost:income ratio

59.9%

67.5%

60.1%

 

  (AUAs) (1)

2.8

2.7

7.2

Loan impairment rate

43bps

67bps

(5)bps

 

Total Assets Under

 

 

 

 

 

 

 

 

  Management and

 

 

 

 

 

 

 

 

  Administration (AUMA)

30.1

29.8

30.4

 

Notes:

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

(2)  Comparisons with prior periods are impacted by the transfer of the Private Client Advice business from Retail Banking from 1 January 2020. The net impact on Q3 2019 operating profit would have been to increase total income by £11 million and operating expenses by £2 million. The net impact on the Q3 2019 balance sheet would have been to increase customer deposits by £0.2 billion. AUMs would have been £4.5 billion higher, with a corresponding decrease in AUAs. Variances in the commentary below have been adjusted for the impact of this transfer.

 

Private Banking remains committed to supporting clients through a range of initiatives, including the provision of mortgage and loan repayment breaks and via participation in UK Government lending initiatives, with c.£0.3 billion approved as at Q3 2020.

 

●

Total income was £22 million, or 10.5%, lower than Q3 2019 mainly reflecting lower deposit funding benefits, a reduction in fee income and one-off benefits related to hedging income gains in Q3 2019, partially offset by balance sheet growth. Net interest margin decreased by 15 basis points in comparison to Q2 2020 primarily due to lower deposit funding benefits.

●

Impairment losses of £18 million largely reflected stage one and two charges.

●

Net loans to customers increased by £0.5 billion in comparison to Q2 2020 reflecting mortgage growth and drawdowns against UK Government lending schemes.

●

Total AUMAs overseen by Private Banking increased by £0.3 billion compared with Q2 2020 reflecting positive investment performance.

 

RBS International

 

Quarter ended

 

 

As at

 

30 September

30 June

30 September

 

 

30 September

30 June

31 December

 

2020

2020

2019

 

 

2020

2020

2019

 

£m

£m

£m

 

 

£bn

£bn

£bn

Total income

112

115

150

 

Net loans to customers -

 

 

 

Operating expenses

(53)

(65)

(62)

 

  amortised cost

12.8

12.7

14.1

Impairment losses

(34)

(31)

-

 

Customer deposits

30.4

29.5

30.1

Operating profit

25

19

88

 

RWAs

7.0

6.8

6.5

Return on equity

6.4%

4.3%

26.0%

 

 

 

 

 

Net interest margin

1.07%

1.15%

1.55%

 

 

 

 

 

Cost:income ratio

47.3%

56.5%

41.3%

 

 

 

 

 

Loan impairment rate

105bps

97bps

-

 

 

 

 

 

 

 

As at Q3 2020, RBS International had 322 active mortgage repayment breaks, reflecting a mortgage value of £82 million, and is providing support for 566 business customers with working capital facilities, reflecting a value of £503 million, while continuing to suspend a range of fees and charges for its personal and business customers.

 

●

Total income decreased by £38 million, or 25.3%, compared with Q3 2019 primarily due to the impact of the interest rate reductions on deposit income and lower fee income reflecting the economic response to Covid-19. Net interest margin decreased by 8 basis points compared with Q2 2020 due to reduced funding benefits.

●

Excluding strategic, litigation and conduct costs, operating expenses decreased by £7 million, or 12.3%, compared with Q3 2019 mainly due to lower staff costs as a result of a 5.6% headcount reduction and lower project spend.

●

Impairment losses were £34 million higher than Q3 2019 due to revised economic scenarios, refreshed staging and maturity date analysis.

●

Customer deposits were £0.9 billion higher than Q2 2020 due to short term placements in the Institutional Banking Sector.

●

RWAs increased by £0.2 billion compared with Q2 2020 due to customer maturities and higher lending balances in the wholesale sector.

          

 

 

 

Business performance summary

NatWest Markets(1)

 

Quarter ended

 

 

As at

 

30 September

30 June

30 September

 

 

30 September

30 June

31 December

 

2020

2020

2019

 

 

2020

2020

2019

 

£m

£m

£m

 

 

£bn

£bn

£bn

Total income

234

273

150

 

Funded Assets

121.3

122.9

116.2

of which:

 

 

 

 

RWAs

30.0

35.1

37.9

  - Income excluding

 

 

 

 

 

 

 

 

  asset disposals/strategic

 

 

 

 

 

 

 

 

  risk reduction and own

 

 

 

 

 

 

 

 

  credit adjustments

280

438

161

 

 

 

 

 

  - Asset disposals/strategic

 

 

 

 

 

 

 

 

  risk reduction (2)

(12)

(63)

-

 

 

 

 

 

  - Own credit adjustments

(34)

(102)

(11)

 

 

 

 

 

Operating expenses

(302)

(365)

(348)

 

 

 

 

 

Impairment releases/(losses)

2

(45)

5

 

 

 

 

 

Operating (loss)

(66)

(137)

(193)

 

 

 

 

 

Return on equity

(4.7%)

(7.1%)

(8.7%)

 

 

 

 

 

Cost:income ratio

129.1%

133.7%

232.0%

 

 

 

 

 

 

Notes:

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

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

 

During Q3 2020 NatWest Markets made further progress on reshaping the business for the future, putting purpose at its core. The front office operating model was reorganised to increase focus on NatWest Group's customers. A Capital Management Unit has also been established to safely manage capital reduction and optimisation. Further refinements to the product suite were also communicated, to focus resources on developing product capability in the areas that matter most to NatWest Group's customers. This included exiting Distressed and Emerging Markets Credit trading and making changes to simplify the Rates business. In line with the strategy announced in February, NatWest Markets has continued to reduce RWAs, particularly within counterparty credit and market risk, and are now targeting RWAs of around £30 billion by the end of 2020.

 

●

Income excluding asset disposals/strategic risk reduction, OCA and notable items increased by £111 million, or 65.7%, in comparison to Q3 2019. Although market activity and the level of primary issuance eased in Q3 2020 compared to the first half of the year, income was significantly higher than Q3 2019 due to elevated hedging costs in the prior period.

●

Excluding strategic, litigation and conduct costs, operating expenses decreased by £57 million, or 20.2%, in comparison to Q3 2019 reflecting continued reductions in line with the strategic announcement in February 2020.

●

RWAs were £5.1 billion lower than Q2 2020 as counterparty credit risk decreased by £2.2 billion and market risk decreased by £2.2 billion due to capital optimisation actions.

 

Central items & other

 

Quarter ended

 

 

30 September

30 June

30 September

 

 

 

 

2020

2020

2019

 

 

 

 

£m

£m

£m

 

 

 

Central items not allocated

(285)

(146)

162

 

 

 

 

●

A £285 million operating loss within central items not allocated in Q3 2020 principally reflects the day one loss on redemption of own debt of £324 million related to the repurchase of legacy instruments which will result in annual net interest savings of c.£74 million. Q3 2019 principally reflected a £162 million reimbursment under indemnification agreements relating to residential mortgage-backed securities.

 

 

 

 

 

 

Segment performance

 

Nine months ended 30 September 2020

Retail

Ulster

Commercial

Private

RBS

NatWest

Central items

Total NatWest

 

Banking

Bank RoI

Banking

Banking

International

Markets

& other  (1)

Group

 

£m

£m

£m

£m

£m

£m

£m

£m

Income statement

 

 

 

 

 

 

 

 

Net interest income

2,919

294

2,073

371

286

(55)

(110)

5,778

Non-interest income

288

85

934

208

85

1,086

(222)

2,464

Own credit adjustments

-

-

-

-

-

19

-

19

Total income

3,207

379

3,007

579

371

1,050

(332)

8,261

Direct expenses

 

 

 

 

 

 

 

 

  - staff costs

(399)

(150)

(497)

(137)

(92)

(434)

(914)

(2,623)

  - other costs

(152)

(65)

(211)

(61)

(37)

(131)

(1,678)

(2,335)

Indirect expenses

(1,178)

(139)

(958)

(149)

(42)

(229)

2,695

-

Strategic costs

 

 

 

 

 

 

 

 

  - direct

(46)

(9)

(5)

(4)

(8)

(187)

(428)

(687)

  - indirect

(138)

(10)

(111)

(10)

(3)

(24)

296

-

Litigation and conduct costs

191

1

8

(3)

3

(4)

(115)

81

Operating expenses

(1,722)

(372)

(1,774)

(364)

(179)

(1,009)

(144)

(5,564)

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

1,485

7

1,233

215

192

41

(476)

2,697

Impairment (losses)/releases

(727)

(251)

(1,917)

(74)

(80)

(38)

(25)

(3,112)

Operating profit/(loss)

758

(244)

(684)

141

112

3

(501)

(415)

Additional information

 

 

 

 

 

 

 

 

Return on equity  (2)

12.2%

(16.6%)

(8.7%)

9.2%

10.0%

(0.8%)

nm

(2.7%)

Cost:income ratio (2)

53.7%

98.2%

57.4%

62.9%

48.2%

96.1%

nm

66.9%

Total assets (£bn)

189.5

27.4

186.9

24.9

32.7

283.2

47.0

791.6

Funded assets (£bn)

189.5

27.4

186.9

24.9

32.7

121.3

44.6

627.3

Net loans to customers - amortised cost (£bn)

166.7

18.3

110.0

16.5

12.8

10.1

19.3

353.7

Loan impairment rate (2)

57bps

175bps

226bps

59bps

83bps

nm

nm

115bps

Impairment provisions (£bn)

(1.9)

(0.8)

(3.0)

(0.1)

(0.1)

(0.2)

-

(6.1)

Impairment provisions - stage 3 (£bn)

(0.9)

(0.5)

(1.1)

-

-

(0.2)

-

(2.7)

Customer deposits (£bn)

164.9

19.6

161.3

30.3

30.4

4.7

7.2

418.4

Risk-weighted assets (RWAs) (£bn)

36.3

12.1

76.5

10.6

7.0

30.0

1.4

173.9

RWA equivalent (RWAe) (£bn)

36.3

12.1

76.6

10.6

7.1

32.0

1.4

176.1

Employee numbers (FTEs - thousands)

16.6

2.8

9.6

2.1

1.7

2.8

26.0

61.6

Average interest earning assets (£bn)

179.8

26.2

160.8

23.3

31.3

38.4

nm

487.8

Net interest margin

2.17%

1.50%

1.72%

2.12%

1.22%

(0.19%)

nm

1.58%

Third party customer asset rate (3)

2.92%

2.29%

2.93%

2.59%

2.57%

nm

nm

nm

Third party customer funding rate (3)

(0.23%)

(0.12%)

(0.20%)

(0.18%)

(0.03%)

nm

nm

nm

 

Refer to page 14 for the notes to this table. nm = not meaningful.
 

Segment performance

 

Nine months ended 30 September 2019

 

Retail

Ulster

Commercial

Private

RBS

NatWest

Central items

Total NatWest

 

Banking

Bank RoI

Banking

Banking

International

Markets

 & other  (1)

Group

 

£m

£m

£m

£m

£m

£m

£m

£m

Income statement

 

 

 

 

 

 

 

 

Net interest income

3,118

302

2,127

391

361

(184)

(105)

6,010

Non-interest income

553

125

1,115

191

99

890

60

3,033

Own credit adjustments

-

1

-

-

-

(58)

(1)

(58)

Strategic disposals

-

-

-

-

-

444

591

1,035

Total income

3,671

428

3,242

582

460

1,092

545

10,020

Direct expenses

 

 

 

 

 

 

 

 

  - staff costs

(431)

(156)

(521)

(122)

(89)

(508)

(905)

(2,732)

  - other costs

(217)

(70)

(223)

(52)

(37)

(128)

(1,685)

(2,412)

Indirect expenses

(1,113)

(134)

(915)

(145)

(40)

(246)

2,593

-

Strategic costs

 

 

 

 

 

 

 

 

  - direct

(8)

(12)

(20)

-

(9)

(104)

(691)

(844)

  - indirect

(143)

(19)

(171)

(30)

(6)

(37)

406

-

Litigation and conduct costs

(918)

(21)

(50)

(2)

-

(3)

184

(810)

Operating expenses

(2,830)

(412)

(1,900)

(351)

(181)

(1,026)

(98)

(6,798)

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

841

16

1,342

231

279

66

447

3,222

Impairment (losses)/releases

(312)

38

(310)

5

3

41

(1)

(536)

Operating profit/(loss)

529

54

1,032

236

282

107

446

2,686

Additional information

 

 

 

 

 

 

 

 

Return on equity  (2)

7.8%

3.4%

8.7%

16.7%

28.5%

(2.2%)

nm

6.8%

Cost:income ratio  (2)

77.1%

96.3%

57.2%

60.3%

39.3%

94.0%

nm

67.5%

Total assets (£bn)

176.7

26.1

166.6

22.6

31.2

318.3

35.0

776.5

Funded assets (£bn)

176.7

26.0

166.6

22.6

31.2

142.7

34.9

600.7

Net loans to customers - amortised cost (£bn)

154.6

19.0

101.5

15.2

13.8

9.1

6.3

319.5

Loan impairment rate  (2)

27bps

(26)bps

40bps

(4)bps

(3)bps

nm

nm

22bps

Impairment provisions (£bn)

(1.4)

(0.8)

(1.3)

-

-

(0.2)

(0.1)

(3.8)

Impairment provisions - stage 3 (£bn)

(0.8)

(0.8)

(1.0)

-

-

(0.2)

-

(2.8)

Customer deposits (£bn)

147.9

18.8

135.7

28.2

29.1

3.3

6.7

369.7

Risk-weighted assets (RWAs) (£bn)

37.5

13.3

77.0

10.0

6.5

43.8

1.4

189.5

RWA equivalent (RWAe) (£bn)

38.4

13.6

78.1

10.0

6.6

48.9

1.7

197.3

Employee numbers (FTEs - thousands)

18.5

3.0

9.9

1.9

1.8

5.1

25.5

65.7

Average interest earning assets (£bn)

165.3

25.2

145.8

21.5

29.3

35.1

nm

445.1

Net interest margin

2.52%

1.60%

1.95%

2.44%

1.65%

(0.70%)

nm

1.81%

Third party customer asset rate (3)

3.27%

2.29%

3.37%

2.95%

2.93%

nm

nm

nm

Third party customer funding rate (3)

(0.37%)

(0.15%)

(0.35%)

(0.44%)

(0.14%)

nm

nm

nm

 

Refer to page 14 for the notes to this table. nm = not meaningful.
 

Segment performance

 

Quarter ended 30 September 2020

Retail

Ulster

Commercial

Private

RBS

NatWest

Central items

Total NatWest

 

Banking

Bank RoI

Banking

Banking

International

Markets

& other  (1)

Group

 

£m

£m

£m

£m

£m

£m

£m

£m

Income statement

 

 

 

 

 

 

 

 

Net interest income

937

100

703

120

85

(21)

2

1,926

Non-interest income

85

30

301

67

27

289

(268)

531

Own credit adjustments

-

-

-

-

-

(34)

-

(34)

Total income

1,022

130

1,004

187

112

234

(266)

2,423

Direct expenses

 

 

 

 

 

 

 

 

  - staff costs

(131)

(50)

(156)

(44)

(27)

(108)

(311)

(827)

  - other costs

(49)

(23)

(71)

(14)

(10)

(37)

(552)

(756)

Indirect expenses

(380)

(47)

(300)

(48)

(13)

(80)

868

-

Strategic costs

 

 

 

 

 

 

 

 

  - direct

(45)

(5)

(3)

(4)

(5)

(67)

(94)

(223)

  - indirect

(35)

(2)

(38)

-

2

(8)

81

-

Litigation and conduct costs

(7)

-

15

(2)

-

(2)

(12)

(8)

Operating expenses

(647)

(127)

(553)

(112)

(53)

(302)

(20)

(1,814)

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

375

3

451

75

59

(68)

(286)

609

Impairment (losses)/releases

(70)

(8)

(127)

(18)

(34)

2

1

(254)

Operating profit/(loss)

305

(5)

324

57

25

(66)

(285)

355

Additional information

 

 

 

 

 

 

 

 

Return on equity  (2)

15.3%

(1.0%)

9.2%

11.2%

6.4%

(4.7%)

nm

0.8%

Cost:income ratio (2)

63.3%

97.7%

53.4%

59.9%

47.3%

129.1%

nm

74.5%

Total assets (£bn)

189.5

27.4

186.9

24.9

32.7

283.2

47.0

791.6

Funded assets (£bn)

189.5

27.4

186.9

24.9

32.7

121.3

44.6

627.3

Net loans to customers - amortised cost (£bn)

166.7

18.3

110.0

16.5

12.8

10.1

19.3

353.7

Loan impairment rate (2)

17bps

17bps

45bps

43bps

105bps

nm

nm

28bps

Impairment provisions (£bn)

(1.9)

(0.8)

(3.0)

(0.1)

(0.1)

(0.2)

-

(6.1)

Impairment provisions - stage 3 (£bn)

(0.9)

(0.5)

(1.1)

-

-

(0.2)

-

(2.7)

Customer deposits (£bn)

164.9

19.6

161.3

30.3

30.4

4.7

7.2

418.4

Risk-weighted assets (RWAs) (£bn)

36.3

12.1

76.5

10.6

7.0

30.0

1.4

173.9

RWA equivalent (RWAe) (£bn)

36.3

12.1

76.6

10.6

7.1

32.0

1.4

176.1

Employee numbers (FTEs - thousands)

16.6

2.8

9.6

2.1

1.7

2.8

26.0

61.6

Average interest earning assets (£bn)

182.2

27.3

169.3

24.0

31.5

39.2

nm

507.3

Net interest margin

2.05%

1.46%

1.65%

1.99%

1.07%

(0.21%)

nm

1.51%

Third party customer asset rate (3)

2.82%

2.32%

2.73%

2.43%

2.41%

nm

nm

nm

Third party customer funding rate (3)

(0.13%)

(0.11%)

(0.03%)

(0.02%)

0.03%

nm

nm

nm

 

Refer to page 14 for the notes to this table. nm = not meaningful.

Segment performance

 

Quarter ended 30 June 2020

 

Retail

Ulster

Commercial

Private

RBS

NatWest

Central items

Total NatWest

 

Banking

Bank RoI

Banking

Banking

International

Markets

 & other  (1)

Group

 

£m

£m

£m

£m

£m

£m

£m

£m

Income statement

 

 

 

 

 

 

 

 

Net interest income

975

97

696

124

90

6

(78)

1,910

Non-interest income

60

23

299

67

25

369

25

868

Own credit adjustments

-

-

-

-

-

(102)

-

(102)

Total income

1,035

120

995

191

115

273

(53)

2,676

Direct expenses

 

 

 

 

 

 

 

 

  - staff costs

(133)

(52)

(167)

(46)

(33)

(159)

(287)

(877)

  - other costs

(45)

(18)

(67)

(23)

(13)

(37)

(581)

(784)

Indirect expenses

(399)

(46)

(337)

(54)

(15)

(75)

926

-

Strategic costs

 

 

 

 

 

 

 

 

  - direct

(1)

(3)

-

-

(2)

(86)

(241)

(333)

  - indirect

(69)

(4)

(34)

(5)

(2)

(8)

122

-

Litigation and conduct costs

101

1

(6)

(1)

-

-

(10)

85

Operating expenses

(546)

(122)

(611)

(129)

(65)

(365)

(71)

(1,909)

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

489

(2)

384

62

50

(92)

(124)

767

Impairment (losses)/releases

(360)

(216)

(1,355)

(27)

(31)

(45)

(22)

(2,056)

Operating profit/(loss)

129

(218)

(971)

35

19

(137)

(146)

(1,289)

Additional information

 

 

 

 

 

 

 

 

Return on equity  (2)

5.7%

(44.5%)

(32.5%)

6.6%

4.3%

(7.1%)

nm

(12.4%)

Cost:income ratio  (2)

52.8%

101.7%

59.9%

67.5%

56.5%

133.7%

nm

70.9%

Total assets (£bn)

187.1

27.6

186.0

23.9

31.5

303.8

47.0

806.9

Funded assets (£bn)

187.1

27.6

186.0

23.9

31.5

122.9

44.5

623.5

Net loans to customers - amortised cost (£bn)

164.5

18.7

112.0

16.0

12.7

11.4

17.0

352.3

Loan impairment rate  (2)

87bps

441bps

472bps

67bps

97bps

nm

nm

229bps

Impairment provisions (£bn)

(1.9)

(0.9)

(3.0)

(0.1)

-

(0.2)

-

(6.1)

Impairment provisions - stage 3 (£bn)

(0.9)

(0.6)

(1.2)

-

-

(0.1)

-

(2.8)

Customer deposits (£bn)

161.0

20.0

159.6

29.8

29.5

5.5

2.9

408.3

Risk-weighted assets (RWAs) (£bn)

36.7

12.8

78.3

10.4

6.8

35.1

1.4

181.5

RWA equivalent (RWAe) (£bn)

36.7

12.8

78.4

10.4

6.9

37.2

1.5

183.9

Employee numbers (FTEs - thousands)

17.1

2.8

9.6

2.0

1.8

5.0

24.4

62.7

Average interest earning assets (£bn)

179.8

26.4

164.6

23.3

31.5

39.9

nm

497.4

Net interest margin

2.18%

1.48%

1.70%

2.14%

1.15%

0.06%

nm

1.54%

Third party customer asset rate (3)

2.88%

2.27%

2.88%

2.53%

2.58%

nm

nm

nm

Third party customer funding rate (3)

(0.20%)

(0.12%)

(0.25%)

(0.14%)

(0.01%)

nm

nm

nm

 

Refer to page 14 for the notes to this table. nm = not meaningful.

 

 

Segment performance

 

Quarter ended 30 September 2019

 

Retail

Ulster

Commercial

Private

RBS

NatWest

Central items

Total NatWest

 

Banking

Bank RoI

Banking

Banking

International

Markets

& other (1)

Group

 

£m

£m

£m

£m

£m

£m

£m

£m

Income statement

 

 

 

 

 

 

 

 

Net interest income

1,034

102

703

130

119

(62)

(20)

2,006

Non-interest income

190

43

374

68

31

223

(20)

909

Own credit adjustments

-

-

-

-

-

(11)

(1)

(12)

Total income

1,224

145

1,077

198

150

150

(41)

2,903

Direct expenses

 

 

 

 

 

 

 

 

  - staff costs

(143)

(52)

(172)

(40)

(30)

(159)

(295)

(891)

  - other costs

(81)

(22)

(72)

(17)

(14)

(42)

(594)

(842)

Indirect expenses

(385)

(44)

(317)

(49)

(13)

(81)

889

-

Strategic costs

 

 

 

 

 

 

 

 

  - direct

(12)

(3)

10

-

(4)

(55)

(151)

(215)

  - indirect

(68)

(9)

(83)

(13)

(1)

(7)

181

-

Litigation and conduct costs

(912)

(1)

(4)

-

-

(4)

171

(750)

Operating expenses

(1,601)

(131)

(638)

(119)

(62)

(348)

201

(2,698)

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

(377)

14

439

79

88

(198)

160

205

Impairment (losses)/releases

(131)

17

(108)

2

-

5

2

(213)

Operating profit/(loss)

(508)

31

331

81

88

(193)

162

(8)

Additional information

 

 

 

 

 

 

 

 

Return on equity (2)

(26.8%)

5.8%

8.4%

16.8%

26.0%

(8.7%)

nm

(3.8%)

Cost:income ratio (2)

130.8%

90.3%

57.9%

60.1%

41.3%

232.0%

nm

92.9%

Total assets (£bn)

176.7

26.1

166.6

22.6

31.2

318.3

35.0

776.5

Funded assets (£bn)

176.7

26.0

166.6

22.6

31.2

142.7

34.9

600.7

Net loans to customers - amortised cost (£bn)

154.6

19.0

101.5

15.2

13.8

9.1

6.3

319.5

Loan impairment rate (2)

34bps

(34)bps

42bps

(5)bps

-

nm

nm

26bps

Impairment provisions (£bn)

(1.4)

(0.8)

(1.3)

-

-

(0.2)

(0.1)

(3.8)

Impairment provisions - stage 3 (£bn)

(0.8)

(0.8)

(1.0)

-

-

(0.2)

-

(2.8)

Customer deposits (£bn)

147.9

18.8

135.7

28.2

29.1

3.3

6.7

369.7

Risk-weighted assets (RWAs) (£bn)

37.5

13.3

77.0

10.0

6.5

43.8

1.4

189.5

RWA equivalent (RWAes) (£bn)

38.4

13.6

78.1

10.0

6.6

48.9

1.7

197.3

Employee numbers (FTEs - thousands)

18.5

3.0

9.9

1.9

1.8

5.1

25.5

65.7

Average interest earning assets (£bn)

168.1

26.2

146.7

22.0

30.4

38.6

nm

454.4

Net interest margin

2.44%

1.55%

1.90%

2.35%

1.55%

(0.64%)

nm

1.75%

Third party customer asset rate (3)

3.23%

2.26%

3.31%

2.92%

2.91%

nm

nm

nm

Third party customer funding rate (3)

(0.37%)

(0.14%)

(0.36%)

(0.44%)

(0.14%)

nm

nm

nm

 

Notes:

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

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

(3)  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 only. Third party customer funding rate reflects interest payable on third-party customer deposits. This excludes intragroup items, loans to banks and liquid asset portfolios. Intragroup items, bank deposits and debt securities in issue 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 without these exclusions.

 

Capital and risk management

 

Page

Capital, liquidity and funding risk

15

Credit risk

 

  Segmental exposure

21

  Sector analysis

25

  Wholesale support schemes

27

 

Capital, liquidity and funding risk

Introduction

The economic impact of the Covid-19 pandemic was significant. While liquidity, capital and funding were closely monitored

throughout, NatWest Group benefited from its strong positions, particularly in relation to CET1, going into the crisis. Prudent

risk management continues to be important as the full economic effects of the global pandemic unfold.  

 

Key developments

●

The CET1 ratio increased by 200 basis points to 18.2%. There was a release of £1.3 billion following the cancellation of the proposed 2019 dividend payments and associated pension contribution in Q1 2020, as announced by the Board in response to Covid-19. The attributable loss in the period was £644 million however the IFRS 9 transitional arrangements on expected credit losses provided relief of £1,719 million.

●

Total RWAs decreased by £5.3 billion during the period, mainly reflecting reductions in Market Risk RWAs of £3.6 billion and Counterparty Credit Risk RWAs of £2.4 billion. Operational Risk RWAs reduced by £0.7 billion following the annual recalculation in Q1 2020.  The reduction in Market Risk RWAs was due to movements in Risks-not-in-VaR (RNIV) and Incremental Risk Charge (IRC) as well as a reduction in non-modelled market risk.  There were offsetting increases in Credit Risk RWAs of £1.4 billion.

●

The CRR leverage ratio increased to 5.2% due to a £2.5 billion increase in Tier 1 capital which is partially offset by a £44.4 billion increase in the leverage exposure driven by balance sheet exposures.

 

In response to the Covid-19 pandemic, a number of relief measures to alleviate the financial stability impact have been announced and recommended by regulatory and supervisory bodies. One significant announcement was on 26 June when the European Parliament passed an amended regulation to the CRR in response to the Covid-19 pandemic ("the CRR Covid-19 amendment"); NatWest Group has applied a number of the CRR amendments for Q3 2020 reporting. The impact on capital and leverage of the CRR amendment and other relief measures are set out below.

 

●

IFRS 9 Transition - NatWest Group has elected to take advantage of the transitional regulatory capital rules in respect of expected credit losses following the adoption of IFRS 9; it had previously had a negligible impact up to Q4 2019. The CRR Covid-19 amendment now requires a full CET1 addback for the movement in stage 1 and stage 2 ECL from 1 January 2020 for the next two years. The IFRS 9 transitional arrangement impact on NatWest Group CET1 regulatory capital at 30 September 2020 is £1,719 million.  Excluding this adjustment, the CET1 ratio would be 17.2%.

●

UK Leverage exposure - The Prudential Regulation Authority (PRA) announced the ability for firms to apply for a modification by consent to permit the netting of regular-way purchase and sales settlement balances. The PRA also offered a further modification that gave an exclusion from the UK Leverage Exposure for BBLS and other 100% guaranteed government Covid-19 lending schemes. NatWest Group has received permission to apply these and it has reduced the UK leverage exposure by c.£9.8 billion and £7.5 billion respectively.

●

CRR Leverage exposure - The CRR Covid-19 amendment accelerated a change in CRR2 to allow the netting of regular-way purchase and sales settlement balances. NatWest Group has applied this, and it has reduced the CRR leverage exposure by c.£9.8 billion.

●

Infrastructure and SME RWA supporting factors - The CRR Covid-19 amendment allowed an acceleration of the planned changes to the SME supporting factor and the introduction of an Infrastructure supporting factor. NatWest Group has implemented these beneficial changes to supporting factors which have reduced RWAs by c.£1.0 billion for SMEs and £0.8 billion for Infrastructure.

●

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

●

Market Risk Value-at-risk (VaR) model capital multiplier - Earlier in the year, the PRA and De Nederlandsche Bank (DNB) announced temporary approaches in relation to the exceptional levels of market volatility which resulted in an increase in VaR model back-testing exceptions in NatWest Markets Plc and NatWest Markets N.V.. Under the PRA temporary approach, capital multiplier increases due to new back-testing exceptions which have resulted in an increase in capital requirements could be offset through a commensurate reduction in RNIV capital requirements. The PRA announced that this temporary approach will cease to apply from 1 October 2020, and be replaced by the measures announced in the CRR Covid-19 amendment where back-testing exceptions due to the exceptional levels of market volatility due to Covid-19 can be excluded from the capital multiplier. The application of this CRR Covid-19 measure is subject to approval by the PRA, which NatWest Markets Plc has applied for. The PRA approach resulted in c.£1.3 billion benefit.

●

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

 

 

 

Capital and risk management

Capital, liquidity and funding risk continued

Maximum Distributable Amount (MDA) and Minimum Capital Requirements

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

 

Where the 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, known as the MDA. Note that different requirements apply to individual legal entities or sub-groups and that the table shown does not reflect any incremental PRA buffer requirements, which are not disclosable.

 

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

 

Type

CET1

Total Tier 1

Total capital

Pillar 1 requirements

4.5%

6.0%

8.0%

Pillar 2A requirements

1.9%

2.6%

3.4%

Minimum Capital Requirements

6.4%

8.6%

11.4%

Capital conservation buffer

2.5%

2.5%

2.5%

Countercyclical capital buffer (1) 

0.0%

0.0%

0.0%

G-SIB buffer (2)

-

 

-

-

MDA Threshold (3)

8.9%

 

na

 

na

Subtotal

8.9%

11.1%

13.9%

Capital ratios at 30 September 2020

18.2%

20.5%

23.7%

Headroom (4)

9.3%

9.4%

9.8%

 

 

 

 

 

 

 

 

        

Notes:

(1)

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

(2)

 

(3)

 

(4)

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

The prevailing combined buffer requirements for NatWest Group equate to the aggregate of the capital conservation buffer and countercyclical buffer. The PRA informed a revised Pillar 2A requirement on a nominal capital basis effective from 5 October 2020 which results in an implied 9.1% MDA.

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

 

 

 

Capital and risk management

Capital, liquidity and funding risk continued

Capital and leverage ratios

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

 

CRR basis (1)

 

30 September

30 June

31 December

Capital adequacy ratios

2020

2020

2019

CET1 (%)

18.2

17.2

16.2

Tier 1 (%)

20.5

19.4

18.5

Total (%)

23.7

22.5

21.2

 

 

 

 

Capital

£m

£m

£m

Tangible equity

32,093

32,006

32,371

 

 

 

 

Expected loss less impairment provisions

-

-

(167)

Prudential valuation adjustment

(341)

(370)

(431)

Deferred tax assets

(835)

(844)

(757)

Own credit adjustments

(154)

(244)

(118)

Pension fund assets

(590)

(588)

(474)

Cash flow hedging reserve

(300)

(341)

(35)

Foreseeable ordinary and special dividends

-

-

(968)

Foreseeable charges

   -

-

(365)

Adjustments under IFRS 9 transitional arrangements

1,719

1,578

-

Other deductions

-

-

(2)

Total deductions

(501)

(809)

(3,317)

 

 

 

 

CET1 capital

31,592

31,197

29,054

AT1 capital

3,990

3,990

4,051

Tier 1 capital

35,582

35,187

33,105

Tier 2 capital

5,710

5,596

4,900

 

 

 

 

Total regulatory capital

41,292

40,783

38,005

 

 

 

 

Risk-weighted assets

 

 

 

Credit risk

132,387

135,657

131,012

Counterparty credit risk

10,170

12,354

12,631

Market risk

9,399

11,517

12,930

Operational risk

21,930

21,930

22,599

Total RWAs

173,886

181,458

179,172

 

 

 

 

Leverage

 

 

 

Cash and balances at central banks

106,388

100,281

77,858

Trading assets

70,820

72,402

76,745

Derivatives

164,311

183,419

150,029

Financial assets

424,291

428,040

399,088

Other assets

25,751

22,745

19,319

Total assets

791,561

806,887

723,039

 

 

 

 

Derivatives

 

 

 

  - netting and variation margin

(172,389)

(194,387)

(157,778)

  - potential future exposures

40,439

44,019

43,004

Securities financing transactions gross up

1,193

1,312

2,224

Other off balance sheet items

44,650

43,484

42,363

Regulatory deductions and other adjustments

(17,167)

(14,579)

(8,978)

CRR leverage exposure

688,287

686,736

643,874

 

 

 

 

CRR leverage ratio % (2)

5.2

5.1

5.1

 

 

 

 

UK leverage exposure

576,889

585,115

570,330

UK leverage ratio % (3)

6.2

6.0

5.8

 

Notes:

(1)  Based on CRR end point including the IFRS 9 transitional adjustment of £1,719 million. Excluding this adjustment, the CET1 ratio would be 17.2%.

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

(3)  Presented on CRR end point Tier 1 capital (including IFRS 9 transitional adjustment). The UK leverage ratio excludes central bank claims from the leverage exposure where deposits held are denominated in the same currency and of contractual maturity that is equal or longer than that of the central bank claims. Excluding the IFRS 9 transitional adjustment, the UK leverage ratio would be 5.9%.

 

 

Capital and risk management

Capital, liquidity and funding risk continued

Capital flow statement

The table below analyses the movement in CET1, AT1 and Tier 2 capital for the nine months ended 30 September 2020.

 

CET1

AT1

Tier 2

Total

 

£m

£m

£m

£m

At 1 January 2020

29,054

4,051

4,900

38,005

Attributable loss for the period

(644)

-

-

(644)

Own credit

(36)

-

-

(36)

Foreign exchange reserve

415

-

-

415

FVOCI reserve

(174)

-

-

(174)

Goodwill and intangibles deduction

22

-

-

22

Deferred tax assets

(78)

-

-

(78)

Prudential valuation adjustments

90

-

-

90

Expected loss less impairment

167

-

-

167

New issues of capital instruments

-

1,216

1,654

2,870

Redemption of capital instruments

-

(1,277)

(751)

(2,028)

Net dated subordinated debt/grandfathered instruments

-

-

(579)

(579)

Foreign exchange movements

(355)

-

103

(252)

Foreseeable ordinary and special dividends

968

-

-

968

Foreseeable charges

365

-

-

365

Adjustment under IFRS 9 transitional arrangements

1,719

-

-

1,719

Other movements

79

-

383

462

At 30 September 2020

31,592

3,990

5,710

41,292

 

Key points

· NatWest Group has elected to take advantage of the transitional regulatory capital rules in respect of expected credit losses following the adoption of IFRS 9; it had previously had a negligible impact up to Q4 2019. The CRR Covid-19 amendment now requires a full CET1 addback for the movement in stage 1 and stage 2 ECL from 1 January 2020 for the next two years. The IFRS 9 transitional arrangement impact on NatWest Group CET1 regulatory capital at 30 September 2020 is £1,719 million. 

· Foreign exchange movements in CET1 include a £345 million charge in relation to a $2 billion AT1 redemption announcement on 28 June 2020.

 

 

 

Capital and risk 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 1 January 2020

131.0

12.6

13.0

22.6

179.2

Foreign exchange movement

1.6

0.2

-

-

1.8

Business movement

-

(1.6)

(2.1)

(0.7)

(4.4)

Risk parameter changes (1)

0.3

0.2

-

-

0.5

Methodology changes (2)

(1.4)

(0.1)

-

-

(1.5)

Model updates

0.9

-

(0.2)

-

0.7

Other movements (3)

-

(1.1)

(1.3)

-

(2.4)

At 30 September 2020

132.4

10.2

9.4

21.9

173.9

 

The table below analyses segmental RWAs.

 

 

 

 

 

 

 

 

Central

 

 

Retail

Ulster

Commercial

Private

RBS

NatWest

items &

 

 

Banking

Bank RoI

Banking

Banking

International

Markets

 other

Total

Total RWAs

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

At 1 January 2020

37.8

13.0

72.5

10.1

6.5

37.9

1.4

179.2

Foreign exchange movement

-

0.7

0.5

-

0.1

0.5

-

1.8

Business movement

(0.3)

(1.0)

2.4

0.6

0.4

(6.2)

(0.3)

(4.4)

Risk parameter changes (1)

(1.2)

(0.7)

1.9

-

-

0.5

-

0.5

Methodology changes (2)

-

(0.1)

(1.8)

(0.1)

-

0.2

0.3

(1.5)

Model updates

-

0.2

0.7

-

-

(0.2)

-

0.7

Other movements (3)

-

-

0.3

-

-

(2.7)

-

(2.4)

At 30 September 2020

36.3

12.1

76.5

10.6

7.0

30.0

1.4

173.9

 

 

 

 

 

 

 

 

 

Credit risk

28.7

11.0

67.6

9.3

6.0

8.4

1.4

132.4

Counterparty credit risk

0.1

-

0.2

0.1

-

9.8

-

10.2

Market risk

0.1

0.1

0.2

-

-

9.0

-

9.4

Operational risk

7.4

1.0

8.5

1.2

1.0

2.8

-

21.9

Total RWAs

36.3

12.1

76.5

10.6

7.0

30.0

1.4

173.9

 

Notes:

(1)

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

(2)

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

(b) Methodology changes also reflect the CRR Covid-19 amendment which allowed an acceleration of the planned changes to the SME supporting factor and the introduction of an Infrastructure supporting factor.

(3)

Other movements include:

(a) The temporary reduction permitted by the PRA to offset the impact of multiplier increases (included in business movement). The offset covers all metrics affected by the multiplier increase, including CVAs.

(b) Hedging activity on counterparty credit risk in NatWest Markets.

(c) A transfer of Insurance related assets from NatWest Markets to Commercial Banking.

 

 

Key point

●

Total RWAs decreased by £5.3 billion during the period, mainly reflecting reductions in Market Risk RWAs of £3.6 billion and Counterparty Credit Risk RWAs of £2.4 billion. Operational Risk RWAs reduced by £0.7 billion following the annual recalculation in Q1 2020.  The reduction in Market Risk RWAs was due to movements in Risks-not-in-VaR (RNIV) and Incremental Risk Charge (IRC) as well as a reduction in non-modelled market risk. The reduction in Counterparty Credit Risk RWAs was driven by hedging activity and trade novations. There were increases in Credit Risk RWAs of £1.4 billion mainly attributed to increases due to foreign exchange movements of £1.6 billion and model changes of £0.9 billion, which were partially offset by the beneficial CRR changes to supporting factors which have reduced RWAs by c.£1.8 billion. The £0.3 billion increase in Credit Risk RWAs due to risk parameters mainly reflected PD deteriorations for customers in Commercial, partly offset by improved risk metrics for Retail Banking products.

 

 

 

Capital and risk management

Capital, liquidity and funding risk continued

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

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

 

 

 

Retail

Ulster

Commercial

Private

RBS

NatWest

Central items

 

 

Banking

Bank RoI

Banking

Banking

International

Markets

& other

Total

30 September 2020

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

239.9

28.0

149.8

22.2

32.2

38.2

0.9

511.2

28.1

2.3

30.4

0.3

4.8

6.2

0.1

72.2

268.0

30.3

180.2

22.5

37.0

44.4

1.0

583.4

 

 

 

 

 

 

 

 

 

 

26.1

9.9

53.7

9.1

4.7

6.2

1.4

111.1

2.6

1.1

13.9

0.2

1.3

2.2

-

21.3

28.7

11.0

67.6

9.3

6.0

8.4

1.4

132.4

30 June 2020

 

 

 

 

 

 

 

 

235.6

28.3

152.6

21.4

31.1

40.7

0.7

510.4

27.2

2.2

29.9

0.3

4.8

6.2

0.4

71.0

262.8

30.5

182.5

21.7

35.9

46.9

1.1

581.4

 

 

 

 

 

 

 

 

 

 

26.4

10.6

56.3

8.9

4.5

7.0

1.3

115.0

2.7

1.1

13.2

0.2

1.3

2.1

0.1

20.7

29.1

11.7

69.5

9.1

5.8

9.1

1.4

135.7

31 December 2019

 

 

 

 

 

 

 

 

221.8

26.0

131.4

20.3

31.7

35.4

0.7

467.3

30.2

2.2

27.2

0.3

3.3

7.5

0.4

71.1

252.0

28.2

158.6

20.6

35.0

42.9

1.1

538.4

 

 

 

 

 

 

 

 

 

 

27.1

10.8

50.8

8.7

4.7

6.4

1.3

109.8

3.1

1.1

12.5

0.2

1.0

3.2

0.1

21.2

30.2

11.9

63.3

8.9

5.7

9.6

1.4

131.0

 

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 purposes.

 

 

Liquidity value

 

30 September 2020

 

30 June 2020

 

31 December 2019

 

NatWest

 

NatWest

 

NatWest

 

Group (1)

 

Group (1)

 

Group (1)

 

£m

 

£m

 

£m

Cash and balances at central banks

103,198

 

97,201

 

74,289

  AAA to AA- rated governments

49,143

 

56,234

 

46,622

  A+ and lower rated governments

492

 

1,040

 

1,277

  Government guaranteed issuers, public sector entities and

 

 

 

 

 

  government sponsored entities

282

 

261

 

251

  International organisations and multilateral development

 

 

 

 

 

  banks

2,781

 

2,799

 

2,393

LCR level 1 bonds

52,698

 

60,334

 

50,543

LCR level 1 assets

155,896

 

157,535

 

124,832

LCR level 2 assets

126

 

127

 

-

Non-LCR eligible assets

-

 

-

 

88

Primary liquidity

156,022

 

157,662

 

124,920

Secondary liquidity (2)

87,392

 

84,910

 

74,431

Total liquidity value

243,414

 

242,572

 

199,351

 

Notes:

(1)

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

(2)

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

(3)

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

 

 

 

Capital and risk management

Credit risk

Portfolio summary - segment analysis

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

 

Retail

Ulster

Commercial

Private

RBS

NatWest

Central items

 

 

Banking

Bank RoI

Banking

Banking

International

Markets

& other (2)

Total

30 September 2020

£m

£m

£m

£m

£m

£m

£m

£m

Loans - amortised cost and FVOCI (1)

 

 

 

 

 

 

 

 

Stage 1

133,208

13,916

57,513

14,637

12,219

9,288

27,454

268,235

Stage 2

33,289

4,222

52,291

1,911

1,834

1,869

111

95,527

Stage 3

2,036

1,333

2,750

290

203

195

 - 

6,807

Of which: individual

 - 

30

1,669

290

203

190

 - 

2,382

Of which: collective

2,036

1,303

1,081

 - 

 - 

5

 - 

4,425

 

168,533

19,471

112,554

16,838

14,256

11,352

27,565

370,569

ECL provisions

 

 

 

 

 

 

 

 

Stage 1

153

39

280

30

14

20

11

547

Stage 2

904

268

1,722

55

53

41

18

3,061

Stage 3

921

509

1,125

28

43

139

 - 

2,765

Of which: individual

 - 

11

630

28

43

135

 - 

847

Of which: collective

921

498

495

 - 

 - 

4

 - 

1,918

 

1,978

816

3,127

113

110

200

29

6,373

ECL provisions coverage

 

 

 

 

 

 

 

 

Stage 1 (%)

0.11

0.28

0.49

0.20

0.11

0.22

0.04

0.20

Stage 2 (%)

2.72

6.35

3.29

2.88

2.89

2.19

16.22

3.20

Stage 3 (%)

45.24

38.18

40.91

9.66

21.18

71.28

 - 

40.62

 

1.17

4.19

2.78

0.67

0.77

1.76

0.11

1.72

30 June 2020

 

 

 

 

 

 

 

 

Loans - amortised cost and FVOCI

 

 

 

 

 

 

 

 

Stage 1

136,065

18,642

53,514

14,465

12,697

10,197

20,864

266,444

Stage 2

28,270

4,478

58,374

1,567

1,825

2,381

115

97,010

Stage 3

2,052

1,547

2,806

256

195

178

-

7,034

Of which: individual

-

22

1,727

256

195

172

-

2,372

Of which: collective

2,052

1,525

1,079

-

-

6

-

4,662

 

166,387

24,667

114,694

16,288

14,717

12,756

20,979

370,488

ECL provisions

 

 

 

 

 

 

 

 

Stage 1

155

42

217

21

9

18

7

469

Stage 2

901

262

1,714

49

25

53

21

3,025

Stage 3

902

567

1,184

29

42

136

-

2,860

Of which: individual

-

4

701

29

42

129

-

905

Of which: collective

902

563

483

-

-

7

-

1,955

 

1,958

871

3,115

99

76

207

28

6,354

ECL provisions coverage

 

 

 

 

 

 

 

 

Stage 1 (%)

0.11

0.23

0.41

0.15

0.07

0.18

0.03

0.18

Stage 2 (%)

3.19

5.85

2.94

3.13

1.37

2.23

18.26

3.12

Stage 3 (%)

43.96

36.65

42.20

11.33

21.54

76.40

-

40.66

 

1.18

3.53

2.72

0.61

0.52

1.62

0.13

1.72

31 December 2019

 

 

 

 

 

 

 

 

Loans - amortised cost and FVOCI

 

 

 

 

 

 

 

 

Stage 1

144,513

18,544

88,100

14,956

14,834

9,273

15,282

305,502

Stage 2

13,558

1,642

11,353

587

545

180

3

27,868

Stage 3

1,902

2,037

2,162

207

121

169

-

6,598

Of which: individual

-

68

1,497

207

121

158

-

2,051

Of which: collective

1,902

1,969

665

-

-

11

-

4,547

 

159,973

22,223

101,615

15,750

15,500

9,622

15,285

339,968

ECL provisions

 

 

 

 

 

 

 

 

Stage 1

114

29

152

7

4

10

6

322

Stage 2

467

53

214

7

6

5

-

752

Stage 3

823

693

1,021

29

21

131

-

2,718

Of which: individual

-

22

602

29

21

122

-

796

Of which: collective

823

671

419

-

-

9

-

1,922

 

1,404

775

1,387

43

31

146

6

3,792

ECL provisions coverage

 

 

 

 

 

 

 

 

Stage 1 (%)

0.08

0.16

0.17

0.05

0.03

0.11

0.04

0.11

Stage 2 (%)

3.44

3.23

1.88

1.19

1.10

2.78

-

2.70

Stage 3 (%)

43.27

34.02

47.22

14.01

17.36

77.51

-

41.19

 

0.88

3.49

1.36

0.27

0.20

1.52

0.04

1.12

 

Notes:

(1)  Fair value through other comprehensive income.

(2)  During Q3 2020, £5.1 billion of loans and advances to banks were reclassified from Ulster Bank RoI to Central items & other.

 

 

 

Capital and risk management

Credit risk continued

Portfolio summary - segment analysis

Key points

· The rise in total ECL in the period was mainly due to increased ECL on Stage 1 and Stage 2 exposures in H1 2020, and reflective of the significantly deteriorated economic environment arising from Covid-19. Overall, Stage 3 ECL has been broadly stable year-to-date, with the various government support schemes mitigating actual portfolio deterioration in the short-term and therefore delaying default emergence.

· The significant uplift in loan balances in Stage 2 was driven by deterioration in forward-looking customer probability of default (PD), also reflecting the deteriorated economic outlook, and resulted in a significant migration of exposures from Stage 1 to Stage 2 as at 30 June 2020.

· Total ECL remained broadly stable during Q3 2020, largely reflective of maintaining the underlying economics unchanged from Q2 2020. The movement in Stage 2 balances was also less volatile in Q3 2020 (refer to the following page for further details).

· The economic scenarios driving the ECL requirement, as well as the model performance considerations, are consistent with those described in the NatWest Group Interim Results 2020 along with further detail on various aspects of the IFRS 9 process.

 

 

Capital and risk management

Credit risk continued

Segmental loans

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

 

Gross loans

 

 

Stage 2

 

 

 

 

Not past

1-29

>30

 

 

 

 

Stage 1

due

DPD

DPD

Total

Stage 3

Total

30 September 2020

£m

£m

£m

£m

£m

£m

£m

Retail Banking

133,208

31,774

1,015

500

33,289

2,036

168,533

Ulster Bank RoI

13,916

3,824

157

241

4,222

1,333

19,471

Personal

10,793

1,897

123

150

2,170

1,170

14,133

Wholesale

3,123

1,927

34

91

2,052

163

5,338

Commercial Banking

57,513

50,885

623

783

52,291

2,750

112,554

Private Banking

14,637

1,868

22

21

1,911

290

16,838

Personal

12,311

164

20

19

203

252

12,766

Wholesale

2,326

1,704

2

2

1,708

38

4,072

RBS International

12,219

1,805

17

12

1,834

203

14,256

Personal

2,725

20

14

7

41

76

2,842

Wholesale

9,494

1,785

3

5

1,793

127

11,414

NatWest Markets

9,288

1,771

98

 - 

1,869

195

11,352

Central items & other

27,454

111

 - 

 - 

111

 - 

27,565

Total loans

268,235

92,038

1,932

1,557

95,527

6,807

370,569

Of which:

 

 

 

 

 

 

 

Personal

159,037

33,855

1,172

676

35,703

3,534

198,274

Wholesale

109,198

58,183

760

881

59,824

3,273

172,295

30 June 2020

 

Retail Banking

136,065

26,597

1,017

656

28,270

2,052

166,387

Ulster Bank RoI

18,642

4,122

150

206

4,478

1,547

24,667

Personal

10,602

2,015

131

133

2,279

1,384

14,265

Wholesale

8,040

2,107

19

73

2,199

163

10,402

Commercial Banking

53,514

55,593

1,934

847

58,374

2,806

114,694

Private Banking

14,465

1,545

14

8

1,567

256

16,288

Personal

11,972

168

12

7

187

243

12,402

Wholesale

2,493

1,377

2

1

1,380

13

3,886

RBS International

12,697

1,792

15

18

1,825

195

14,717

Personal

2,793

18

13

11

42

68

2,903

Wholesale

9,904

1,774

2

7

1,783

127

11,814

NatWest Markets

10,197

2,363

-

18

2,381

178

12,756

Central items & other

20,864

115

-

-

115

-

20,979

Total loans

266,444

92,127

3,130

1,753

97,010

7,034

370,488

Of which:

 

 

 

 

 

 

 

Personal

161,432

28,798

1,173

807

30,778

3,747

195,957

Wholesale

105,012

63,329

1,957

946

66,232

3,287

174,531

 

31 December 2019

 

Retail Banking

144,513

11,921

1,034

603

13,558

1,902

159,973

Ulster Bank RoI

18,544

1,405

104

133

1,642

2,037

22,223

Personal

10,858

944

96

105

1,145

1,877

13,880

Wholesale

7,686

461

8

28

497

160

8,343

Commercial Banking

88,100

10,837

254

262

11,353

2,162

101,615

Private Banking

14,956

478

63

46

587

207

15,750

Personal

11,630

180

60

41

281

192

12,103

Wholesale

3,326

298

3

5

306

15

3,647

RBS International

14,834

520

18

7

545

121

15,500

Personal

2,799

27

17

6

50

65

2,914

Wholesale

12,035

493

1

1

495

56

12,586

NatWest Markets

9,273

176

4

-

180

169

9,622

Central items & other

15,282

3

-

-

3

-

15,285

Total loans

305,502

25,340

1,477

1,051

27,868

6,598

339,968

Of which:

 

 

 

 

 

 

 

Personal

169,800

13,072

1,207

755

15,034

4,036

188,870

Wholesale

135,702

12,268

270

296

12,834

2,562

151,098

 

 

Capital and risk management

Credit risk continued

Segmental loans

Key points

· Retail Banking: Balance sheet growth since 2019 year-end was driven by mortgages, with strong growth pre-Covid-19 in Q1 2020 that moderated significantly in Q2 2020, before picking up in Q3 2020 as lockdown measures eased. Unsecured lending balances reduced in Q2 2020 as customer spend and demand for borrowing reduced as a result of lockdown and customers made repayments. During Q3 2020, overall unsecured balances flattened, with a slight growth in credit cards offsetting further reductions in other unsecured lending. Loan balances in Stage 2 increased significantly, driven by deterioration in forward-looking customer PDs primarily at the half-year point and reflected the deteriorated economic environment. The movement in Stage 2 balances was less pronounced in Q3 2020. However, there was a further increase driven by the significant increase in credit risk (SICR) policy criteria that meant retail exposures must remain in Stage 2 for at least three months after the customer PD has reduced below the SICR trigger level, meaning flows back to Stage 1 were subdued. The various Covid-19 related customer support schemes (for example, loan repayment holidays and the government job retention scheme) are mitigating actual portfolio deterioration in the short-term, with the days past due, and flows to Stage 3 metrics, yet to be materially affected.

· Ulster Bank RoI: Similar to Retail Banking, the increase in both ECL and balances in Stage 2 was mainly due to the deteriorated economic outlook primarily at the half-year point. The reduction in Stage 3 ECL and balances reflected the de-recognition of non-performing exposures following the execution of three tranches of a previously agreed portfolio sale and continued improvements in the portfolio.

· Commercial Banking: Balance sheet growth during 2020 mainly occurred in the first half of the year and was primarily due to drawdowns on existing facilities and new lending under government support schemes. In line with the other business segments, Stage 2 balances increased significantly during Q2 2020 when revised economics materially affected the forward-looking IFRS 9 PDs. Consistent with previous periods, PD deterioration remained the largest contributor to Stage 2 migration. Although there has been an increase in past due exposures, the flow to Stage 3 remained stable in Q3 2020, as government interventions and relief mitigate against defaults at this point. Stage 1 loans increased during Q3 2020, mainly reflecting increased government scheme lending. 

 

 

Capital and risk management

Credit risk continued

Sector analysis

The table below shows ECL by stage, for the Personal portfolios and key sectors of the Wholesale portfolios, that continue to be affected by Covid-19.

 

 

Off-balance sheet

 

 

 

Loans - amortised cost & FVOCI

Loan

 

Contingent

 

ECL provisions

 

Stage 1

Stage 2

Stage 3

Total

commitments (1)

 

liabilities

 

Stage 1

Stage 2

Stage 3

Total

30 September 2020

£m

£m

£m

£m

£m

 

£m

 

£m

£m

£m

£m

Personal

159,037

35,703

3,534

198,274

40,706

 

46

 

177

1,011

1,358

2,546

  Mortgages

150,944

30,896

2,671

184,511

12,489

 

3

 

32

286

651

969

  Credit cards

2,526

1,323

107

3,956

15,474

 

-

 

50

245

85

380

  Other personal

5,567

3,484

756

9,807

12,743

 

43

 

95

480

622

1,197

Wholesale

109,198

59,824

3,273

172,295

91,240

 

4,746

 

370

2,050

1,407

3,827

  Property

25,489

12,299

1,424

39,212

16,666

 

577

 

144

461

532

1,137

  Financial institutions

39,624

3,434

34

43,092

17,084

 

1,105

 

24

72

8

104

  Sovereign

9,670

104

5

9,779

1,022

 

2

 

15

-

1

16

  Corporate

34,415

43,987

1,810

80,212

56,468

 

3,062

 

187

1,517

866

2,570

  Of which:

 

 

 

 

 

 

 

 

 

 

 

 

  Airlines and aerospace

378

1,833

41

2,252

1,931

 

227

 

3

61

26

90

  Automotive

2,475

4,352

83

6,910

4,217

 

106

 

13

115

19

147

  Education

593

1,067

62

1,722

819

 

16

 

3

37

18

58

  Health

2,286

3,470

155

5,911

689

 

14

 

11

141

56

208

  Land transport and logistics

1,448

3,396

119

4,963

3,697

 

210

 

10

98

39

147

  Leisure

3,242

6,541

526

10,309

2,085

 

124

 

33

350

244

627

  Oil and gas

454

1,279

87

1,820

2,410

 

347

 

5

43

57

105

  Retail

5,052

4,238

117

9,407

6,219

 

504

 

19

147

99

265

Total

268,235

95,527

6,807

370,569

131,946

 

4,792

 

547

3,061

2,765

6,373

30 June 2020

 

 

 

 

 

 

 

 

 

 

 

 

Personal

161,432

30,778

3,747

195,957

41,279

 

48

 

178

1,010

1,404

2,592

  Mortgages

152,947

26,292

2,903

182,142

11,158

 

3

 

34

292

706

1,032

  Credit cards

2,387

1,321

110

3,818

17,481

 

-

 

47

243

86

376

  Other personal

6,098

3,165

734

9,997

12,640

 

45

 

97

475

612

1,184

Wholesale

105,012

66,232

3,287

174,531

89,151

 

5,038

 

291

2,015

1,456

3,762

  Property

26,782

12,400

1,259

40,441

15,423

 

607

 

126

392

513

1,031

  Financial institutions

39,133

3,789

10

42,932

17,500

 

1,130

 

22

69

5

96

  Sovereign

9,436

1

6

9,443

1,129

 

2

 

10

-

-

10

  Corporate

29,661

50,042

2,012

81,715

55,099

 

3,299

 

133

1,554

938

2,625

  Of which:

 

 

 

 

 

 

 

 

 

 

 

 

  Airlines and aerospace

495

1,839

38

2,372

1,829

 

233

 

4

53

26

83

  Automotive

2,000

5,437

146

7,583

3,547

 

93

 

8

108

19

135

  Education

704

919

83

1,706

725

 

19

 

2

27

16

45

  Health

2,055

3,650

168

5,873

515

 

139

 

9

145

60

214

  Land transport and logistics

1,149

3,334

110

4,593

3,919

 

206

 

6

96

43

145

  Leisure

2,755

6,739

534

10,028

1,841

 

126

 

22

303

249

574

  Oil and gas

465

1,535

89

2,089

2,627

 

382

 

4

55

61

120

  Retail

2,647

5,059

221

7,927

5,858

 

507

 

13

158

170

341

Total

266,444

97,010

7,034

370,488

130,430

 

5,086

 

469

3,025

2,860

6,354

31 December 2019

 

 

 

 

 

 

 

 

 

 

 

 

Personal

169,800

15,034

4,036

188,870

43,316

 

50

 

130

503

1,449

2,082

  Mortgages

159,261

11,465

3,277

174,003

14,345

 

3

 

25

118

821

964

  Credit cards

3,103

1,259

116

4,478

16,686

 

-

 

40

132

89

261

  Other personal

7,436

2,310

643

10,389

12,285

 

47

 

65

253

539

857

Wholesale

135,702

12,834

2,562

151,098

79,060

 

5,477

 

192

249

1,269

1,710

  Property

32,896

2,580

895

36,371

14,739

 

644

 

45

47

402

494

  Financial institutions

35,707

546

13

36,266

15,417

 

1,325

 

16

4

8

28

  Sovereign

7,410

4

5

7,419

1,021

 

1

 

7

-

-

7

  Corporate

59,689

9,704

1,649

71,042

47,883

 

3,507

 

124

198

859

1,181

  Of which:

 

 

 

 

 

 

 

 

 

 

 

 

  Airlines and aerospace (2)

1,412

261

40

1,713

1,716

 

271

 

2

3

55

60

  Automotive

5,062

1,143

20

6,225

3,815

 

98

 

12

11

15

38

  Education

1,426

154

12

1,592

654

 

18

 

2

4

1

7

  Health

4,695

844

167

5,706

534

 

17

 

9

16

52

77

  Land transport and logistics

3,477

316

53

3,846

3,301

 

249

 

6

12

21

39

  Leisure

6,323

1,253

377

7,953

2,876

 

135

 

25

27

175

227

  Oil and gas

1,923

140

86

2,149

2,400

 

358

 

5

3

55

63

  Retail

6,397

1,279

215

7,891

5,383

 

560

 

13

16

180

209

Total

305,502

27,868

6,598

339,968

122,376

 

5,527

 

322

752

2,718

3,792

Notes:

(1)  Includes £3.8 billion of commercial cards related balances, as at 30 September 2020 (£4.1 billion as at 30 June 2020), which were brought into scope of ECL calculations during 2020.

(2)  Stage 3 ECL at 31 December 2019 included £27 million of ECL related to contingent liabilities.

 

 

Capital and risk management

Credit risk continued

Sector analysis

Key points

· Personal: As noted earlier, both the increased ECL on Stage 1 and Stage 2 exposures, and the migration of assets from Stage 1 to Stage 2, were mainly a result of deterioration in forward-looking customer PDs primarily at the half-year point and reflected the deteriorated economic environment. The ECL requirements were broadly stable during Q3 2020 largely reflective of maintaining the underlying economics unchanged from Q2 2020, and the mitigating effects on portfolio deterioration of Covid-19 related customer support schemes, as previously described. The reduction in mortgage Stage 3 ECL and balances reflected the de-recognition in Ulster Bank RoI of non-performing exposures following the execution of three tranches of a previously agreed portfolio sale and continued improvements in the portfolio.

· Wholesale: On and off-balance sheet growth since the 2019 year-end was mainly due to further drawdowns on existing facilities and new lending (drawn and undrawn) agreed under the Covid-19 government lending schemes. A further £2.9 billion increase in government lending schemes occurred in Q3 (refer to the table on the following page for further information). Construction (within Property), Retail and Leisure represented the top three sectors for borrowers accessing the various government lending schemes. Sector appetite continues to be regularly reviewed and where appropriate has been adjusted for those sectors most affected by the Covid-19 pandemic.

 

As described in the NatWest Group Interim Results 2020, NatWest Group adopted a nuanced response to capture the sector ECL impact from the Covid-19 crisis by using sector specific credit cycle indices in its Wholesale methodology. As a result, a more adverse impact is seen in sectors experiencing the most disruption through this period with an increase in both Stage 2 and ECL balances. This impact was seen during Q2 2020 when revised economics were implemented. During Q3 2020, exposures reduced with relatively low ECL charges. Performing book charges reflected model recalibrations taking account of portfolio changes and the moving closer to the predicted worst point in the economic cycle. As government relief schemes reduce, defaults are expected to rise with cases moving from Stage 2 to Stage 3.

 

 

 

Capital and risk management

Credit risk continued

Wholesale support schemes

The table below shows the uptake of Bounce Back Loan Scheme (BBLS), Coronavirus Business Interruption Loan Scheme (CBILS) and Coronavirus Large Business Interruption Loan Scheme (CLBILS) in Wholesale, by sector.

 

 

BBLS

 

CBILS

 

CLBILS

 

Approved

Drawdown

% of BBLS to

 

Approved

Drawdown

% of CBILS to

 

Approved

Drawdown

% of CLBILS to

30 September 2020

Volume

amount (£m)

sector loans

 

Volume

amount (£m)

sector loans

 

Volume

amount (£m)

sector loans

Wholesale lending by sector

 

 

 

 

 

 

 

 

 

 

 

  Airlines and aerospace

223

6

0.27%

 

19

7

0.31%

 

2

-

-

  Automotive

11,531

385

5.57%

 

538

125

1.81%

 

31

47

0.68%

  Education

1,766

47

2.73%

 

105

54

3.14%

 

10

35

2.03%

  Health

9,035

289

4.89%

 

573

89

1.51%

 

3

24

0.41%

  Land transport and logistics

7,991

235

4.74%

 

341

82

1.65%

 

3

5

0.10%

  Leisure

28,778

902

8.75%

 

1,869

429

4.16%

 

31

94

0.91%

  Oil and gas

271

8

0.44%

 

16

6

0.33%

 

-

-

-

  Retail

29,425

999

10.62%

 

1,493

391

4.16%

 

25

75

0.80%

  Property (3)

53,841

1,514

3.86%

 

2,224

605

1.54%

 

35

112

0.29%

  Other (including Business

 

 

 

 

 

 

 

 

 

 

 

  Banking)

118,645

3,127

3.48%

 

8,100

1,450

1.61%

 

77

180

0.20%

Total

261,506

7,512

4.36%

 

15,278

3,238

1.88%

 

217

572

0.33%

30 June 2020

 

 

 

 

 

Wholesale lending by sector

 

 

 

 

 

 

 

 

 

 

 

  Airlines and aerospace

175

5

0.21%

 

17

4

0.17%

 

-

-

-

  Automotive

9,267

309

4.07%

 

495

111

1.46%

 

26

22

0.29%

  Education

1,347

36

2.11%

 

83

21

1.23%

 

4

30

1.76%

  Health

6,976

222

3.78%

 

543

69

1.17%

 

2

5

0.09%

  Land transport and logistics

6,222

181

3.94%

 

306

66

1.44%

 

2

3

0.07%

  Leisure

22,776

715

7.13%

 

1,697

305

3.04%

 

16

11

0.11%

  Oil and gas

197

6

0.29%

 

13

5

0.24%

 

-

-

-

  Retail

23,824

808

10.19%

 

1,395

328

4.14%

 

13

48

0.61%

  Property (3)

41,233

1,170

2.89%

 

2,018

456

1.13%

 

27

31

0.08%

  Other (including Business

 

 

 

 

 

 

 

 

 

 

 

  Banking)

88,391

2,343

2.55%

 

7,160

1,035

1.13%

 

53

31

0.03%

Total

200,408

5,795

3.32%

 

13,727

2,400

1.38%

 

143

181

0.10%

 

Notes:

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

(2)  Approved limits as at 30 September 2020 were as follows: BBLS - £7.9 billion (95% drawn); CBILS - £3.9 billion (83% drawn); CLBILS - £1.2 billion (50% drawn).

(3)  Construction activities previously reported in Other (including Business Banking) have been reclassified as Property, to be consistent with other sector analysis provided. Comparatives have been restated.

Key points

· The value and volume of lending under government support schemes continued to grow during Q3 2020, though at a slower rate than in Q2 2020.

· Customers seeking Covid-19 related support, including payment holidays, who were not subject to any wider SICR triggers and who are assessed as being viable and able to meet credit appetite metrics in the medium-term post-crisis, were not considered to have been granted forbearance. Completed forbearance flow for Wholesale remained elevated in Q3 2020, in line with Q2 2020. Property, Transport and Leisure represented the largest share of forbearance flow in Q3 2020, continuing an emerging trend from Q2 2020. The rise in Transport and Property results from forbearance completed on individually significant exposures. Payment holidays and covenant waivers remain the most common forms of forbearance granted. Heightened Monitoring and Risk of Credit Loss values increased in the quarter with a concentration towards borrowers in the Retail, Leisure and Property sectors which represented approximately 50% of the inflows to the framework (refer to page 134 of the NatWest Group plc's Annual Report and Accounts 2019 for further details of the Risk of Credit Loss framework).

 

 

 

Condensed consolidated income statement for the period ended 30 September 2020 (unaudited)

 

 

Nine months ended

 

Quarter ended

 

30 September

30 September

 

30 September

30 June

30 September

 

2020

2019

 

2020

2020

2019

 

£m 

£m 

 

£m 

£m 

£m 

Interest receivable

7,702

8,474

 

2,512

2,507

2,921

Interest payable

(1,924)

(2,464)

 

(586)

(597)

(915)

Net interest income

5,778

6,010

 

1,926

1,910

2,006

Fees and commissions receivable

2,081

2,570

 

651

682

808

Fees and commissions payable

(591)

(673)

 

(199)

(217)

(186)

Income from trading activities

1,054

794

 

252

210

195

Other operating income (1)

(61)

1,319

 

(207)

91

80

Non-interest income

2,483

4,010

 

497

766

897

Total income

8,261

10,020

 

2,423

2,676

2,903

Staff costs

(2,937)

(3,028)

 

(982)

(963)

(1,000)

Premises and equipment

(902)

(823)

 

(251)

(393)

(265)

Other administrative expenses

(1,081)

(2,085)

 

(385)

(298)

(1,222)

Depreciation and amortisation

(635)

(853)

 

(194)

(248)

(232)

Impairment of other intangible assets

(9)

(9)

 

(2)

(7)

21

Operating expenses

(5,564)

(6,798)

 

(1,814)

(1,909)

(2,698)

Profit before impairment losses

2,697

3,222

 

609

767

205

Impairment losses

(3,112)

(536)

 

(254)

(2,056)

(213)

Operating (loss)/profit before tax

(415)

2,686

 

355

(1,289)

(8)

Tax credit/(charge)

1

(395)

 

(207)

396

(201)

(Loss)/profit for the period

(414)

2,291

 

148

(893)

(209)

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

Ordinary shareholders

(644)

1,723

 

61

(993)

(315)

Preference shareholders

21

30

 

5

8

10

Paid-in equity holders

272

277

 

80

95

95

Non-controlling interests

(63)

261

 

2

(3)

1

 

(414)

2,291

 

148

(893)

(209)

Earnings per ordinary share

(5.3p)

14.3p

 

0.5p

(8.2p)

(2.6p)

Earnings per ordinary share - fully diluted

(5.3p)

14.2p

 

0.5p

(8.2p)

(2.6p)

 

Note:

(1)  Other operating income includes £324 million loss on redemption of own debt.

 

 

Condensed consolidated statement of comprehensive income for the period ended 30 September 2020 (unaudited)

 

 

Nine months ended

 

Quarter ended

 

30 September

30 September

 

30 September

30 June

30 September

 

2020

2019

 

2020

2020

2019

 

£m

£m

 

£m

£m

£m

(Loss)/profit for the period

(414)

2,291

 

148

(893)

(209)

Items that do not qualify for reclassification

 

 

 

 

 

 

Remeasurement of retirement benefit schemes

54

(96)

 

(14)

90

(28)

Profit/(loss) on fair value of credit in financial liabilities

 

 

 

 

 

 

  designated as at FVTPL due to own credit risk

20

(115)

 

(63)

(105)

(19)

FVOCI financial assets

(43)

(92)

 

77

133

(130)

Tax

13

24

 

13

-

(2)

 

44

(279)

 

13

118

(179)

Items that do qualify for reclassification

 

 

 

 

 

 

FVOCI financial assets

(37)

(3)

 

74

32

9

Cash flow hedges

364

688

 

(53)

105

286

Currency translation

425

(298)

 

(150)

217

(57)

Tax

(85)

(193)

 

94

(126)

(71)

 

667

194

 

(35)

228

167

Other comprehensive income/(loss) after tax

711

(85)

 

(22)

346

(12)

Total comprehensive income/(loss) for the period

297

2,206

 

126

(547)

(221)

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

Ordinary shareholders

51

1,624

 

37

(648)

(326)

Preference shareholders

21

30

 

5

8

10

Paid-in equity holders

272

277

 

80

95

95

Non-controlling interests

(47)

275

 

4

(2)

-

 

297

2,206

 

126

(547)

(221)

 

 

 

Condensed consolidated balance sheet as at 30 September 2020 (unaudited)

 

30 September

30 June

31 December

2020

2020

2019

 

£m

£m 

£m 

Assets

 

 

 

Cash and balances at central banks

106,388

100,281

77,858

Trading assets

70,820

72,402

76,745

Derivatives

164,311

183,419

150,029

Settlement balances

10,947

7,806

4,387

Loans to banks - amortised cost

11,864

12,972

10,689

Loans to customers - amortised cost

353,691

352,341

326,947

Other financial assets

58,736

62,727

61,452

Intangible assets

6,600

6,602

6,622

Other assets

8,204

8,337

8,310

Total assets

791,561

806,887

723,039

 

 

 

 

Liabilities

 

 

 

Bank deposits

18,666

21,119

20,493

Customer deposits

418,358

408,268

369,247

Settlement balances

9,839

6,895

4,069

Trading liabilities

73,023

75,540

73,949

Derivatives

160,532

179,859

146,879

Other financial liabilities

48,848

49,681

45,220

Subordinated liabilities

10,467

13,558

9,979

Other liabilities

8,678

8,906

9,647

Total liabilities

748,411

763,826

679,483

 

 

 

 

Equity

 

 

 

Ordinary shareholders' interests

38,693

38,608

38,993

Other owners' interests

4,495

4,495

4,554

Owners' equity

43,188

43,103

43,547

Non-controlling interests

(38)

(42)

9

Total equity

43,150

43,061

43,556

Total liabilities and equity

791,561

806,887

723,039

 

 

Condensed consolidated statement of changes in equity for the period ended 30 September 2020 (unaudited)

 

Share

 

 

 

 

 

 

capital and

 

 

 

Total

Non

 

statutory

Paid-in

Retained

Other

owners'

controlling

Total

reserves

equity

earnings

reserves*

equity

 interests

equity

£m

£m

£m

£m

£m

£m

£m

At 1 January 2020

13,146

4,058

13,946

12,397

43,547

9

43,556

 

 

 

 

 

 

 

-

-

(351)

-

(351)

(63)

(414)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

-

114

(114)

-

-

-

 

 

 

 

 

 

 

  benefit schemes

-

-

54

-

54

-

54

 

 

 

 

 

 

 

-

-

20

-

20

-

20

-

-

-

810

810

16

826

-

-

-

(133)

(133)

-

(133)

 

 

 

 

 

 

-

-

-

-

16

16

-

16

-

-

1

(73)

(72)

-

(72)

 

 

 

 

 

 

 

-

-

(293)

-

(293)

-

(293)

-

-

2

-

2

-

2

49

1,220

(11)

-

1,258

-

1,258

-

(1,277)

(355)

-

(1,632)

-

(1,632)

-

-

(56)

-

(56)

-

(56)

Movement in own shares held

18

-

-

-

18

-

18

At 30 September 2020

13,213

4,001

13,071

12,903

43,188

(38)

43,150

 

 

 

 

 

 

 

 

 

 

 

 

30 September

 

 

 

 

 

 

2020

Attributable to:

 

 

 

 

£m

Ordinary shareholders

 

 

 

 

 

 

38,693

 

 

 

 

 

 

494

 

 

 

 

 

 

4,001

Non-controlling interests

 

 

 

 

 

 

(38)

 

 

 

 

 

 

43,150

*Other reserves consists of:

 

 

 

 

 

 

Merger reserve

 

 

 

 

 

 

10,881

 

 

 

 

 

 

(36)

 

 

 

 

 

 

300

Foreign exchange reserve

 

 

 

 

 

 

1,758

 

 

 

 

 

 

12,903

 

Note:

(1)  The gain includes a reclassification from Other comprehensive income to Retained earnings following conversion of Visa B and C preference shares to Visa Class A shares in September 2020. There has been a corresponding adjustment to the conversion ratio of the Visa B and C preference shares.


 

 

Notes

1. Basis of preparation

The condensed consolidated financial statements should be read in conjunction with NatWest Group plc's (formerly The Royal Bank of Scotland Group plc) 2019 Annual Report and Accounts which were prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board (IASB) and interpretations issued by the IFRS Interpretations Committee of the IASB as adopted by the European Union (EU) (together IFRS).

 

Going concern

Having reviewed NatWest Group's forecasts, projections, the potential impact of Covid-19, and other relevant evidence, the directors have a reasonable expectation that NatWest Group will continue in operational existence for the foreseeable future. Accordingly, the results for the period ended 30 September 2020 have been prepared on a going concern basis.

 

2. Accounting policies

NatWest Group's principal accounting policies are as set out on pages 208 to 212 of the NatWest Group plc's 2019 Annual Report and Accounts and are unchanged other than as presented below.

 

Accounting policy changes effective 1 January 2020

Amendments to IFRS 3 Business Combinations (IFRS 3) - Changes to the definition of a business

The IASB amended IFRS 3 to provide additional guidance on the definition of a business. The amendment aims to help entities when determining whether a transaction should be accounted for as a business combination or as an asset acquisition. The amendments are in line with current accounting policy and therefore did not affect the financial statements.

 

Definition of material - Amendments to IAS 1 - Presentation of Financial Statements (IAS 1) and IAS 8 -

Accounting Policies, Changes in Accounting Estimates and Errors (IAS 8)

The IASB clarified the definition of 'material' and aligned the definition of material used in the Conceptual Framework and in other IFRS standards. The amendments clarify that materiality will depend on the nature or magnitude of information. Under the amended definition of materiality, an entity will need to assess whether the information, either individually or in combination with other information, is material in the context of the financial statements. A misstatement of information is material if it could reasonably be expected to influence decisions made by the primary users. NatWest Group's definition and application of materiality is in line with the definition in the amendments.

 

Interest Rate Benchmark Reform (IBOR reform) Phase 1 amendments to IFRS 9 and IAS 39

The IASB issued 'Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)' as a first reaction to the potential effects the IBOR reform could have on financial reporting. The amendments focused on hedge accounting and allow hedge relationships affected by the IBOR reform to be accounted for as continuing hedges. Amendments are effective for annual reporting periods beginning on or after 1 January 2020 with early application permitted. NatWest Group early adopted these amendments for the annual period ending on 31 December 2019.

 

Interest Rate Benchmark Reform (IBOR reform) Phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16

Phase 2 of the IASB's IBOR project addresses the wider accounting issues arising from the IBOR reform. This was published in August 2020 and is awaiting endorsement. The amendments are effective for annual reporting periods beginning on or after 1 January 2021 with early application permitted. NatWest Group intends to early adopt Phase 2 of the standard once endorsed. NatWest Group's IBOR transition program remains on-track and key milestones have been met. Conversion from LIBOR to alternative risk-free rates (RFRs) is expected to increase as RFR-based products become more widely available and key market-driven conversion events occur.

 

Amendment to IFRS effective 1 June 2020

Covid-19 amendments on lease modifications - Amendments to IFRS 16 - Leases (IFRS 16)

The IASB published 'amendments to IFRS 16 covering Covid-19-Related Rent Concessions'. These provide lessees with an exemption from assessing whether a Covid-19 related rent concession is a lease modification. The amendment is effective for annual reporting periods beginning on or after 1 June 2020. The effect of the amendment on NatWest Group's financial statements is immaterial and will be adopted from 1 January 2021.

 

Critical accounting policies and key sources of estimation uncertainty

The judgements and assumptions that are considered to be the most important to the portrayal of NatWest Group's financial condition are those relating to goodwill, provisions for liabilities and charges, deferred tax, loan impairment provisions and fair value of financial instruments. These critical accounting policies and judgements are described on page 212 of the NatWest Group plc's 2019 Annual Report and Accounts. Estimation uncertainty has been affected by the Covid-19 pandemic during the first three quarters of 2020. Management's consideration of this source of uncertainty is outlined in the relevant sections of this Interim Management Statement, including the ECL estimate for the period in the Capital and Risk Management section contained in the NatWest Group Interim Results 2020.

 

 

 

Notes

2. Accounting policies continued

Information used for significant estimates

The Covid-19 pandemic has continued to cause significant economic and social disruption during the quarter ended 30 September 2020. Key financial estimates are based on a range of anticipated future economic conditions described by internally developed scenarios.  Measurement of goodwill, deferred tax and expected credit losses are highly sensitive to reasonably possible changes in those anticipated conditions. Other reasonably possible assumptions about the future include a prolonged financial effect of the Covid-19 pandemic on the economy of the UK and other countries. Changes in judgements and assumptions could result in a material adjustment to those estimates in the next reporting periods, including impairment of goodwill (refer to the NatWest Group plc risk factors in the 2019 Annual Report and Accounts and the summary risk factors contained in the Q1 2020 IMS and the Interim Results 2020).

 

Goodwill

Goodwill remains recoverable: key assumptions and sensitivities around these assumptions are materially consistent with those disclosed in the NatWest Group Interim Results 2020.

 

Tax credit

The lower than anticipated tax credit by applying the standard UK statutory tax rate of 19%, is attributable to a decrease in the carrying value of deferred tax assets in respect of losses, no recognition of deferred tax in the period in respect of some current year tax losses and the banking surcharge. This is offset to some extent by the UK Government decision to reverse the previously enacted reduction in the UK tax rate change. 

 

 

3. Litigation, investigations and reviews

NatWest Group's Interim Results 2020, issued on 31 July 2020, included disclosures about NatWest Group's litigation, investigations and reviews in Note 14. Set out below are the material developments in those matters since the Interim Results 2020 were published.

 

Litigation

Residential mortgage-backed securities litigation in the US

In September 2020, NWMSI settled residential mortgage-backed securities (RMBS) claims by the Federal Home Loan Bank of Seattle. The settlement amount, which has been paid, was covered by an existing provision.

 

In September 2020, a complaint was served on NWMSI by the State of New Mexico, which claims, in a case pending in state court in New Mexico, that certain New Mexico state agencies suffered US$119 million in damages resulting from misrepresentations concerning RMBS they purchased from NWMSI and six other banks primarily from 2005-2007. 

 

London Interbank Offered Rate (LIBOR) and other rates litigation

On 18 August 2020, a complaint was filed 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, alleging that the normal process of setting USD ICE LIBOR amounts to illegal price-fixing, and also that banks in the United States have illegally agreed to use LIBOR as a component of price in variable consumer loans. The NatWest Group defendants are NatWest Group plc, NWM Plc, NWMSI and NWB Plc. The plaintiffs seek damages and to prevent the enforcement of LIBOR-based instruments.

 

EUA trading litigation

Following judgment against NWM Plc in March 2020, the High Court on 2 October 2020 quantified damages against NWM Plc at £45 million plus interest and costs, and permitted it to appeal to the Court of Appeal.

 

Investigations and reviews

US investigations relating to fixed-income securities

In September 2020, the NatWest Markets business reached a settlement in principle, subject to documentation, with the State of Maryland concerning its investigation of the issuance and underwriting of RMBS. The amount of the tentative settlement, which will be paid by RBS Financial Products Inc., is covered by an existing provision.

 

4. Post balance sheet events

Other than as disclosed there have been no other significant events between 30 September 2020 and the date of approval of these accounts which 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' 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 'UBI DAC' refers to Ulster Bank Ireland DAC.  The term 'RBSI Limited' refers to The Royal Bank of Scotland International Limited.

 

UK Personal Banking was renamed Retail Banking, with effect from 16 September 2020.

 

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' represent pence in the United Kingdom ('UK'). Reference to 'dollars' or '$' are to United States of America ('US') dollars. The abbreviations '$m' and '$bn' represent millions and thousands of millions of dollars, respectively, and references to 'cents' represent cents in the US. The abbreviation '€' represents the 'euro', and the abbreviations '€m' and '€bn' represent millions and thousands of millions of euros, respectively.

 

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 2019 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.

 

Contacts

Analyst enquiries:

Alexander Holcroft, Investor Relations

+44 (0) 20 7672 1758

Media enquiries:

NatWest Group Press Office

+44 (0) 131 523 4205

 

 

Analyst and investor call

Webcast and dial in details

Date:

30 October 2020

https://investors.natwestgroup.com/results-centre

 

 

Time:

9am UK time

International: +44 (0) 203 057 6566

Conference ID:

4482325

UK Free Call: 0800 279 5995

US Local Dial-In, New York: +1 646 741 2115

 

 

Available on www.natwestgroup.com/results

· Q3 2020 Interim Management Statement and slides.

· A financial supplement containing income statement, balance sheet and segment performance for the quarter ended 30 September 2020.

· NatWest Group and NWH Group Pillar 3 supplements.

 

Forward looking statements

This document contains 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', '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 regulatory capital position and related requirements, its financial position, profitability and financial performance (including financial, capital and operational targets), its access to adequate sources of liquidity and funding, increasing competition from new incumbents and disruptive technologies, its exposure to third party risks, its ongoing compliance with the UK ring-fencing regime and ensuring operational continuity in resolution, its impairment losses and credit exposures under certain specified scenarios, substantial regulation and oversight, ongoing legal, regulatory and governmental actions and investigations, the transition of LIBOR and IBOR rates to alternative risk free rates and NatWest Group's exposure to economic and political risks (including with respect to terms surrounding Brexit and climate change), operational risk, conduct risk, cyber and IT 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, the final number of PPI claims and their amounts, 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 and the uncertainty surrounding the Covid-19 pandemic and its impact on NatWest Group. 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 2019 Annual Report and Accounts (ARA), NatWest Group plc's Interim Results for Q1 2020 and NatWest Group plc's Interim Results for H1 2020 and materials filed with, or furnished to, the US Securities and Exchange Commission, including, but not limited to, NatWest Group plc's most recent Annual Report on Form 20-F and Reports on Form 6-K. 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

 

 

 

 

 

 

 

 

Appendix

 

Non-IFRS financial   measures

 

 

 

 

 

 

Appendix Non-IFRS financial measures

As described in Note 1, NatWest Group prepares its financial statements in accordance with IFRS as issued by the IASB which constitutes a body of 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 certain items which management believe are not representative of the underlying performance of the business and which distort period-on-period comparison. These non-IFRS measures are not measures within the scope of IFRS and are not a substitute for IFRS measures. These measures include:

 

Non-IFRS financial measures

Measure

Basis of preparation

Additional analysis or reconciliation

NatWest Group return on tangible equity

Annualised loss or profit for the period attributable to ordinary shareholders divided by average tangible equity. Average tangible equity is average total equity less average intangible assets and average other owners' equity.

Table 1

Segmental return on equity

Annualised segmental operating loss or profit adjusted for tax and for preference share dividends divided by average notional equity, allocated at an operating segment specific rate, of the period average segmental risk-weighted assets incorporating the effect of capital deductions (RWAes).

Table 1

Operating expenses analysis - management view

The management analysis of operating expenses shows strategic costs and litigation

and conduct costs in separate lines. Depreciation and amortisation, impairment of

other intangibles and other administrative expenses attributable to these costs are

included in strategic costs and litigation and conduct costs lines for management

analysis. These amounts are included in staff, premises and equipment and other

administrative expenses in the statutory analysis.

Table 2

Cost:income ratio

Total operating expenses less operating lease depreciation divided by total income less operating lease depreciation.

Table 3

Commentary - adjusted periodically for specific items

NatWest Group and segmental business performance commentary have been adjusted for the impact of specific items such as transfers, strategic costs and, litigation and conduct costs (detailed on pages 10 to 14).

Notable items - page 4

Transfers - pages 5 and 8

Strategic costs and, litigation and conduct costs - pages 10 to 14

Bank net interest margin (NIM)

Net interest income of the banking business less NatWest Markets (NWM) element as a percentage of interest-earning assets of the banking business less NWM element.

Table 4

 

Performance metrics not defined under IFRS(1) 

Measure

Basis of preparation

Additional analysis or reconciliation

Loan:deposit ratio

Net customer loans held at amortised cost divided by total customer deposits.

Table 5

Tangible net asset value (TNAV)

Tangible equity divided by the number of ordinary shares in issue. Tangible equity is ordinary shareholders' interest less intangible assets.

Page 3

NIM

Net interest income of the banking business as a percentage of interest-earning assets of the banking business.

Page 3

Funded assets

Total assets less derivatives.

Pages 10 to 14

ECL loss rate

The annualised loan impairment charge divided by gross customer loans.

Pages 10 to 14

Third party customer asset rate

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 only. This excludes intragroup items, loans to banks and liquid asset portfolios, which are included for the calculation of net interest margin.

Pages 10 to 14

Third party customer funding rate

Third party customer funding rate is calculated as annualised interest payable on third-party customer deposits as a percentage of third-party customer deposits. This excludes intragroup items, bank deposits and debt securities in issue.

Pages 10 to 14

 

Note:

(1)  Metric based on GAAP measures, included as not defined under IFRS and reported for compliance with ESMA adjusted performance measure rules.

 

 

 

Appendix Non-IFRS financial measures

1. Return on tangible equity

 

 

 

Nine months ended or as at

 

Quarter ended or as at

 

30 September

30 September

 

30 September

30 June

30 September

 

2020

2019

 

2020

2020

2019

(Loss)/profit attributable to ordinary shareholders (£m)

(644)

1,723

 

61

(993)

(315)

Annualised (loss)/profit attributable to ordinary

 

 

 

 

 

 

  shareholders (£m)

(859)

2,297

 

244

(3,972)

(1,260)

Adjustment for PPI provision for Q3 2019 (£m)

 

 

 

 

 

900

Adjusted profit attributable to ordinary shareholders (£m)

 

 

 

 

 

585

Annualised adjusted (loss)/profit attributable to ordinary

 

 

 

 

 

 

  shareholders (£m)

 

 

 

 

 

2,340

 

 

 

 

 

 

 

Average total equity (£m)

43,766

46,025

 

43,145

44,068

45,579

Adjustment for other owners' equity and intangibles (£m)

(11,760)

(12,432)

 

(11,482)

(11,987)

(12,226)

Adjusted total tangible equity (£m)

32,006

33,593

 

31,663

32,081

33,353

 

 

 

 

 

 

 

Return on tangible equity (%)

(2.7%)

6.8%

 

0.8%

(12.4%)

(3.8%)

Return on tangible equity adjusting for impact

 

 

 

 

 

 

  of PPI provision (%)

 

 

 

 

 

7.0%

 

 

 

Appendix Non-IFRS financial measures

1. Return on tangible equity continued

 

 

Ulster

 

 

 

 

 

Retail

 Bank

Commercial

Private

RBS

NatWest

Nine months ended 30 September 2020

Banking

RoI

Banking

Banking

International

Markets

Operating profit/(loss) (£m)

758

(244)

(684)

141

112

3

Preference share cost allocation (£m)

(66)

-

(114)

(17)

(15)

(51)

Adjustment for tax (£m)

(194)

-

223

(35)

(14)

13

Adjusted attributable profit/(loss) (£m)

498

(244)

(575)

89

83

(35)

Annualised adjusted attributable profit/(loss) (£m)

664

(325)

(767)

119

111

(47)

Average RWAe (£bn)

37.6

12.6

76.6

10.3

6.9

39.2

Equity factor

14.5%

15.5%

11.5%

12.5%

16.0%

15.0%

RWAe applying equity factor (£bn)

5.5

2.0

8.8

1.3

1.1

5.9

Return on equity

12.2%

(16.6%)

(8.7%)

9.2%

10.0%

(0.8%)

 

 

 

 

 

 

 

Nine months ended 30 September 2019

 

 

 

 

 

 

Operating profit (£m)

529

54

1,032

236

282

107

Adjustment for tax (£m)

(148)

-

(289)

(66)

(39)

(30)

Preference share cost allocation (£m)

(54)

-

(123)

(12)

(5)

(50)

Adjusted attributable profit(£m)

327

54

620

158

238

27

Annualised adjusted attributable profit (£m)

436

72

827

211

317

36

Adjustment for Alawwal bank merger gain (£m)

-

-

-

-

-

(200)

Annualised adjusted attributable profit/(loss) (£m)

436

72

827

211

317

(164)

Average RWAe (£bn)

37.4

14.2

79.3

9.7

6.9

49.0

Equity factor

15.0%

15.0%

12.0%

13.0%

16.0%

15.0%

RWAe applying equity factor (£bn)

5.6

2.1

9.5

1.3

1.1

7.4

Return on equity

7.8%

3.4%

8.7%

16.7%

28.5%

(2.2%)

 

 

 

 

 

 

 

Quarter ended 30 September 2020

 

 

 

 

 

 

Operating profit/(loss) (£m)

305

(5)

324

57

25

(66)

Preference share cost allocation (£m)

(22)

-

(38)

(6)

(5)

(17)

Adjustment for tax (£m)

(79)

-

(80)

(14)

(3)

23

Adjusted attributable profit/(loss) (£m)

204

(5)

206

37

17

(60)

Annualised adjusted attributable profit/(loss) (£m)

816

(20)

824

148

68

(240)

Average RWAe (£bn)

36.7

12.3

77.8

10.5

6.8

34.0

Equity factor

14.5%

15.5%

11.5%

12.5%

16.0%

15.0%

RWAe applying equity factor (£bn)

5.3

1.9

8.9

1.3

1.1

5.1

Return on equity

15.3%

(1.0%)

9.2%

11.2%

6.4%

(4.7%)

 

 

 

 

 

 

 

Quarter ended 30 June 2020

 

 

 

 

 

 

Operating profit/(loss) (£m)

129

(218)

(971)

35

19

(137)

Preference share cost allocation (£m)

(22)

-

(38)

(5)

(5)

(17)

Adjustment for tax (£m)

(30)

-

283

(8)

(2)

43

Adjusted attributable profit/(loss)(£m)

77

(218)

(726)

22

12

(111)

Annualised adjusted attributable profit/(loss) (£m)

308

(872)

(2,904)

88

48

(444)

Average RWAe (£bn)

37.4

12.6

77.8

10.3

7.1

41.8

Equity factor

14.5%

15.5%

11.5%

12.5%

16.0%

15.0%

RWAe applying equity factor (£bn)

5.4

2.0

8.9

1.3

1.1

6.3

Return on equity

5.7%

(44.5%)

(32.5%)

6.6%

4.3%

(7.1%)

 

 

 

 

 

 

 

Quarter ended 30 September 2019

 

 

 

 

 

 

Operating (loss)/profit (£m)

(508)

31

331

81

88

(193)

Adjustment for tax (£m)

142

-

(92)

(23)

(12)

54

Preference share cost allocation (£m)

(18)

-

(41)

(4)

(5)

(20)

Adjusted attributable (loss)/profit (£m)

(384)

31

198

54

71

(159)

Annualised adjusted attributable (loss)/profit (£m)

(1,536)

124

792

216

283

(634)

Average RWAe (£bn)

38.2

14.2

78.8

9.9

6.8

48.7

Equity factor

15.0%

15.0%

12.0%

13.0%

16.0%

15.0%

RWAe applying equity factor (£bn)

5.7

2.1

9.5

1.3

1.1

7.3

Return on equity

(26.8%)

5.8%

8.4%

16.8%

26.0%

(8.7%)

 

 

 

 

 

 

 

 

 

Appendix Non-IFRS financial measures

2. Operating expenses analysis

Statutory analysis (1,2)

 

 

 

 

 

 

 

Nine months ended

 

Quarter ended

 

30 September

30 September

 

30 September

30 June

30 September

 

2020

2019

 

2020

2020

2019

Operating expenses

£m 

£m 

 

£m 

£m 

£m 

Staff costs

2,937

3,028

 

982

963

1,000

Premises and equipment

902

823

 

251

393

265

Other administrative expenses

1,081

2,085

 

385

298

1,222

Depreciation and amortisation

635

853

 

194

248

232

Impairment of other intangible assets

9

9

 

2

7

(21)

Total operating expenses

5,564

6,798

 

1,814

1,909

2,698

 

Non-statutory analysis

 

 

 

 

 

 

 

 

 

 

Nine months ended

 

30 September 2020

 

30 September 2019

 

 

Litigation

 

 

 

 

Litigation

 

 

 

 

and

 

Statutory

 

 

and

 

Statutory

 

Strategic

conduct

Other

operating

 

Strategic

conduct

Other

operating

Operating expenses

costs

costs

expenses

expenses

 

costs

costs

expenses

expenses

Staff costs

315

-

2,622

2,937

 

296

-

2,732

3,028

Premises and equipment

170

-

732

902

 

93

-

730

823

Other administrative expenses

143

(81)

1,019

1,081

 

197

810

1,078

2,085

Depreciation and amortisation

52

-

583

635

 

233

-

620

853

Impairment of other intangible assets

7

-

2

9

 

25

-

(16)

9

Total

687

(81)

4,958

5,564

 

844

810

5,144

6,798

 

 

 

 

 

 

 

 

 

 

 

Quarter ended

 

30 September 2020

 

30 June 2020

 

 

Litigation

 

 

 

 

Litigation

 

 

 

 

and

 

Statutory

 

 

and

 

Statutory

 

Strategic

conduct

Other

operating

 

Strategic

conduct

Other

operating

Operating expenses

costs

costs

expenses

expenses

 

costs

costs

expenses

expenses

Staff costs

155

-

827

982

 

87

-

876

963

Premises and equipment

22

-

229

251

 

135

-

258

393

Other administrative expenses

43

8

334

385

 

57

(85)

326

298

Depreciation and amortisation

3

-

191

194

 

47

-

201

248

Impairment of other intangible assets

-

-

2

2

 

7

-

-

7

Total

223

8

1,583

1,814

 

333

(85)

1,661

1,909

 

 

 

 

 

 

 

 

 

 

 

Quarter ended

 

 

 

 

 

 

30 September 2019

 

 

 

 

Litigation

 

 

 

 

 

 

 

 

 

and

 

Statutory

 

 

 

 

 

 

Strategic

conduct

Other

operating

 

 

 

 

 

Operating expenses

costs

costs

expenses

expenses

 

 

 

 

 

Staff costs

109

-

891

1,000

 

 

 

 

 

Premises and equipment

28

-

237

265

 

 

 

 

 

Other administrative expenses

67

750

405

1,222

 

 

 

 

 

Depreciation and amortisation

11

-

221

232

 

 

 

 

 

Impairment of other intangible assets

-

-

(21)

(21)

 

 

 

 

 

Total

215

750

1,733

2,698

 

 

 

 

 

 

Notes:

(1)  On a statutory, or GAAP basis, strategic costs are included within staff costs, premises and equipment, depreciation and amortisation, impairment of other intangible assets and other administrative expenses. Strategic costs relate to restructuring provisions, related costs and projects that are transformational in nature.

(2)  On a statutory, or GAAP basis, litigation and conduct costs are included within other administrative expenses.

 

 

Appendix Non-IFRS performance measures

3. Cost:income ratio

 

 

Ulster

 

 

 

 

Central

Total

 

Retail

 Bank

Commercial

Private

RBS

NatWest

items

NatWest

 

Banking

RoI

Banking

Banking

International

Markets

& other

Group

Nine months ended

£m

£m

£m

£m

£m

£m

£m

£m

30 September 2020

 

 

 

 

 

 

 

 

Operating expenses

(1,722)

(372)

(1,774)

(364)

(179)

(1,009)

(144)

(5,564)

Operating lease depreciation

-

-

110

-

-

-

-

110

Adjusted operating expenses

(1,722)

(372)

(1,664)

(364)

(179)

(1,009)

(144)

(5,454)

Total income

3,207

379

3,007

579

371

1,050

(332)

8,261

Operating lease depreciation

-

-

(110)

-

-

-

-

(110)

Adjusted total income

3,207

379

2,897

579

371

1,050

(332)

8,151

Cost:income ratio

53.7%

98.2%

57.4%

62.9%

48.2%

96.1%

nm

66.9%

 

 

 

 

 

 

 

 

 

30 September 2019

 

 

 

 

 

 

 

 

Operating expenses

(2,830)

(412)

(1,900)

(351)

(181)

(1,026)

(98)

(6,798)

Operating lease depreciation

-

-

103

-

-

-

-

103

Adjusted operating expenses

(2,830)

(412)

(1,797)

(351)

(181)

(1,026)

(98)

(6,695)

Total income

3,671

428

3,242

582

460

1,092

545

10,020

Operating lease depreciation

-

-

(103)

-

-

-

-

(103)

Adjusted total income

3,671

428

3,139

582

460

1,092

545

9,917

Cost:income ratio

77.1%

96.3%

57.2%

60.3%

39.3%

94.0%

nm

67.5%

 

 

 

 

 

 

 

 

 

Quarter ended

 

 

 

 

 

 

 

 

30 September 2020

 

 

 

 

 

 

 

 

Operating expenses

(647)

(127)

(553)

(112)

(53)

(302)

(20)

(1,814)

Operating lease depreciation

-

-

37

-

-

-

-

37

Adjusted operating expenses

(647)

(127)

(516)

(112)

(53)

(302)

(20)

(1,777)

Total income

1,022

130

1,004

187

112

234

(266)

2,423

Operating lease depreciation

-

-

(37)

-

-

-

-

(37)

Adjusted total income

1,022

130

967

187

112

234

(266)

2,386

Cost:income ratio

63.3%

97.7%

53.4%

59.9%

47.3%

129.1%

nm

74.5%

 

 

 

 

 

 

 

 

 

30 June 2020

 

 

 

 

 

 

 

 

Operating expenses

(546)

(122)

(611)

(129)

(65)

(365)

(71)

(1,909)

Operating lease depreciation

-

-

37

-

-

-

-

37

Adjusted operating expenses

(546)

(122)

(574)

(129)

(65)

(365)

(71)

(1,872)

Total income

1,035

120

995

191

115

273

(53)

2,676

Operating lease depreciation

-

-

(37)

-

-

-

-

(37)

Adjusted total income

1,035

120

958

191

115

273

(53)

2,639

Cost:income ratio

52.8%

101.7%

59.9%

67.5%

56.5%

133.7%

nm

70.9%

 

 

 

 

 

 

 

 

 

30 September 2019

 

 

 

 

 

 

 

 

Operating expenses

(1,601)

(131)

(638)

(119)

(62)

(348)

201

(2,698)

Operating lease depreciation

-

-

35

-

-

-

-

35

Adjusted operating expenses

(1,601)

(131)

(603)

(119)

(62)

(348)

201

(2,663)

Total income

1,224

145

1,077

198

150

150

(41)

2,903

Operating lease depreciation

-

-

(35)

-

-

-

-

(35)

Adjusted total income

1,224

145

1,042

198

150

150

(41)

2,868

Cost:income ratio

130.8%

90.3%

57.9%

60.1%

41.3%

232.0%

nm

92.9%

 

 

 

Appendix Non-IFRS performance measures

4. Net interest margin

 

Nine months ended or as at

 

Quarter ended or as at

 

30 September

30 September

 

30 September

30 June

30 September

 

2020

2019

 

2020

2020

2019

 

£m

£m

 

£m

£m

£m

NatWest Group net interest income

5,778

6,010

 

1,926

1,910

2,006

NWM net interest income

55

184

 

21

(6)

62

Net interest income excluding NWM

5,833

6,194

 

1,947

1,904

2,068

Annualised net interest income

7,718

8,035

 

7,662

7,682

7,959

Annualised net interest income excluding NWM

7,792

8,281

 

7,746

7,658

8,205

Average interest earning assets (IEA)

487,777

445,068

 

507,325

497,440

454,429

NWM average IEA

38,403

35,065

 

39,213

39,874

38,616

Bank average IEA excluding NWM

449,374

410,003

 

468,112

457,566

415,813

 

 

 

 

 

 

 

Net interest margin

1.58%

1.81%

 

1.51%

1.54%

1.75%

Bank net interest margin (NatWest Group NIM excluding NWM)

1.73%

2.02%

 

1.65%

1.67%

1.97%

 

5. Loan:deposit ratio

 

As at

 

30 September

30 June

31 December

 

2020

2020

2019

 

£m

£m

£m

Loans to customers - amortised cost

353,691

352,341

326,947

Customer deposits

418,358

408,268

369,247

Loan:deposit ratio (%)

85%

86%

89%

 

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