| Exhibit No. 1 | Interim Results 2020 dated 31 July 2020 |
| Exhibit No. 2 | Publication of Supplementary Reg Doc & Prospectus dated 31 July 2020 |
| ● | Income excluding asset disposals/strategic risk reduction and own credit adjustments was £819 million in H1 2020 compared with £553 million in H1 2019, following increased customer activity as the market reacted to the Covid-19 pandemic, partially offset by traded credit write-downs. Own credit adjustments of £53 million in H1 2020 (H1 2019 - £(47) million) reflect the widening of credit spreads. Asset disposals/strategic risk reduction of £63 million in H1 2020 was largely driven by a single significant transaction undertaken to mitigate the capital and RWA usage of NWM Group that will take full effect in Q3 2020. Total income was £809 million, compared with £506 million in H1 2019. |
| ● | Operating expenses of £814 million in H1 2020 were £403 million higher than H1 2019, due to increased strategic costs and litigation and conduct costs. Other operating expenses were up £207 million to £589 million in H1 2020, primarily reflecting the absorption of NatWest Markets N.V. costs in H1 2020 and the non-repeat of certain one-off cost recoveries in H1 2019. |
| ● | Litigation and conduct costs of £113 million in H1 2020 (H1 2019 - £16 million credit) relate primarily to historical trading activities of a joint venture subsidiary. |
Financial review Balance sheet, capital and RWAs | |
| ● | NWM Group's total assets and liabilities increased by £41.0 billion and £41.0 billion to £307.1 billion and £297.2 billion respectively at 30 June 2020, compared with 31 December 2019. The increases primarily reflect higher derivative cash collateral, as well as increased derivative fair values following a downward shift in interest rate yields and weaker sterling. |
| ● | Total NWM Plc RWAs were £32.8 billion at 30 June 2020, compared with £35.2 billion at 31 December 2019. The decrease reflected lower levels of credit and market risk which, despite market turbulence, have trended downwards as the business seeks to reduce RWAs, as well as the annual re-calculation of standardised operational risk RWAs. The calculation of market risk RWAs also benefitted from the PRA's temporary approach to VaR back-testing exceptions. The reduction in credit risk RWAs included £0.3 billion of insurance-related asset transfers to NatWest Bank Plc. |
| ● | NWM Plc's Common Equity Tier 1 (CET1) ratio increased to 18.9%, from 17.3% at 31 December 2019, principally reflecting reserve movements in the period and lower RWAs. |
| ● | The total regulatory capital and CRR-compliant MREL for NWM Plc at 30 June 2020 was £14.1 billion, or 43.0% of RWAs. |
| 30 June | 31 March | 31 December | |
Performance key metrics and ratios (1) | 2020 | 2020 | 2019 |
Liquidity coverage ratio (LCR) (%) (2) | 258 | 287 | 254 |
Liquidity portfolio (£bn) (2) | 21.6 | 16.6 | 16.1 |
Total wholesale funding (£bn) (3) | 23.5 | 22.0 | 21.9 |
| Total funding including repo (£bn) | 91.2 | 96.8 | 85.0 |
| Common Equity Tier (CET1) ratio (%) | 18.9 | 15.7 | 17.3 |
| CRR leverage ratio (%) | 5.3 | 4.3 | 5.1 |
| Risk-weighted assets (RWAs) (£bn) | 32.8 | 35.3 | 35.2 |
| Total Capital ratio (%) | 26.5 | 22.8 | 24.2 |
| Total CRR-compliant MREL (£bn) | 14.1 | 13.3 | 13.5 |
| Total MREL ratio (%) | 43.0 | 37.8 | 38.4 |
| (1) | Capital, leverage and RWAs are based on the PRA transitional arrangements for NWM Plc. Regulatory capital is monitored and reported at NWM Plc level. |
| (2) | This metric has been presented for NWM Plc as it is monitored and reported for regulatory purposes. |
| (3) | Excluding derivative cash collateral, customer deposits, repo and intra-NatWest Group balances. |
| ● | NWM Group has continued to focus on customers during the crisis, supporting financing programmes and providing thematic advice. NWM Group supported governments to access financing for Covid-19 schemes, including acting as Duration Manager and joint Lead Manager for the UK Debt Management Office's 40 year Gilt issuance, and corporates to access capital markets as volatility decreased, including through Covid-19 response bonds. |
| ● | NWM Group continues to work closely with NatWest Group's Commercial Banking business to support customers' access to the CCFF. As at H1 2020, NWM Group had arranged gross CCFF issuance of £7.4 billion and facilitated customer access to combined issuance limits of £19.3 billion. NWM Group has worked with 121 customers to explore the facility, utilising strong specialist expertise across the bank to support customers through this ongoing period of uncertainty. |
| ● | NWM Group was acknowledged for supporting customers during the crisis and UK Rates Investors ranked NWM Group amongst their top 3 providers for standing by them during the crisis, as surveyed by Greenwich Associates. |
| ● | Robust business continuity plans ensured that NWM Group was able to continue to support customers and protect employees, with the vast majority of the workforce working remotely as the crisis developed in Q1 and throughout Q2 2020. In line with guidance from public health authorities in the various regions in which NWM Group operates, a small proportion of employees have returned to the workplace, primarily those in regulated roles and key oversight functions. |
| ● | NWM Plc RWAs decreased to £32.8 billion (31 December 2019 - £35.2 billion), reflecting lower levels of credit and market risk which, despite market turbulence brought on by Covid-19, have trended downwards as the business seeks to reduce RWAs. |
| ● | NWM Group remains well-capitalised, with a NWM Plc CET1 ratio of 18.9%, within guidance of above 15%. Liquidity position was also strong, with NWM Plc's liquidity portfolio of £21.6 billion and LCR of 258%, reflecting improved conditions during Q2 2020, particularly in shorter tenors. |
| ● | Capital, funding and liquidity remained closely monitored, with increased tracking and scenario analysis to ensure balance sheet strength. |
| ● | Continued to access capital markets despite Covid-19 with two benchmark transactions during H1 2020, in the form of a €1.0 billion five year fixed rate EMTN and $1.0 billion 3 year fixed rate US Rule 144A programme issuance. |
| ● | Valuation reserves, comprised of credit valuation adjustments (CVA), funding valuation adjustment (FVA), bid-offer and product and deal specific reserves decreased to £912 million at 30 June 2020 (31 December 2019 - £953 million) with an increase in CVA reserves more than offset by reductions in other reserves. |
| ● | CVA reserves increased to £442 million at 30 June 2020 (31 December 2019 - £384 million) due to credit spreads widening and increases in positive exposures, driven by interest rate and FX market moves, partially offset by trade novation activity. |
| ● | FVA reserves reduced to £162 million at 30 June 2020 (31 December 2019 - £193 million) as the impact of funding spreads widening and the increases in positive exposures were more than offset by increases in negative exposures, credit spreads widening, trade novation activity and a reduction in the types of initial margin posting requirements assessed as part of FVA. The reduction in product and deal specific reserves to £180 million at 30 June 2020 (31 December 2019 - £238 million) was due to certain negative exposures increasing (driven by interest rate and FX market moves), credit spreads widening and trade novation activity. |
| ● | Refer to further information on page 38. |
| ● | Risk management initiatives have continued to focus on the safety and soundness of the business in response to Covid-19. |
| ● | A Covid-19 risk register was established during H1 2020 to track all key risks and risk acceptance decisions, together with regular analysis of the impact of Covid-19 on NWM Group's risk profile. With operations having moved beyond the immediate management of the crisis towards the end of H1 2020, the remaining Covid-19 related risks are being integrated into standard management and governance processes. |
| ● | During the height of the crisis, extensive planning and business continuity calls were held daily to manage and oversee NWM Group's incident management response. Scenario planning for a worsening situation has been continually refreshed across NWM Group's critical services to supplement the existing business continuity plan. |
| ● | Working practices and processes have been adjusted in some areas in light of new working from home arrangements. |
| ● | Whilst Covid-19 has impacted NWM Group's business, overall it has demonstrated that NWM Group has a strong ability to respond to a major disruption event. Nevertheless the future risk profile remains heightened as NWM Group prolongs the period that staff continue to work from home and as the business faces the economic impacts of the crisis. |
| ● | Internal traded VaR for NWM Group was £25.7 million at peak and £16.7 million average during H1 2020, reflecting Covid-19 related market volatility. Stressed VaR was £196.2 million at peak and £113.0 million on an average basis. |
| ● | Refer to pages 48-49 for Summary Risk Factors. |
| ● | The unprecedented nature of the Covid-19 crisis has prompted a change of approach to formulating multiple economic scenarios (MES). The incorporation of these stresses has resulted in a probability of default (PD) deterioration across models and sectors, leading to an increase in IFRS 9 Stage 2 exposures and associated expected credit loss (ECL) provisioning. |
| ● | The overall impairment charge during H1 2020 was £45 million. The net impairment charge of £50 million in Q2 2020 was driven by the new base case economic scenarios (£28 million) with a number of deals moving into Stage 2 and increased ECL on existing Stage 2 lending, as well as a downgrade of an individual significant exposure. This was partially offset by the release of the management overlay taken in Q1 2020, following the implementation of the new scenarios. |
| (1) | The targets, expectations and trends discussed in this section represent management's current expectations and are subject to change, including as a result of the factors described in the "Risk Factors" section on pages 143 to 156 of NWM Group's 2019 Annual Report and Accounts, the Covid-19 Risk factors on pages 13 and 14 of the NWM Group Interim Management Statement for Q1 2020, as well as the Summary Risk Factors set out on pages 48 and 49 of this announcement for H1 2020. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement. |
| Half year ended 30 June 2020 | Half year ended 30 June 2019 | ||||||
| Central | Central | ||||||
| NatWest | items & | NatWest | items & | ||||
| Markets | other | Total | Markets | other | Total | ||
| Income statement | £m | £m | £m | £m | £m | £m | |
| Net interest income | (39) | - | (39) | (116) | 9 | (107) | |
| Non-interest income | 848 | - | 848 | 573 | 40 | 613 | |
| Total income | 809 | - | 809 | 457 | 49 | 506 | |
| Strategic costs | (105) | (7) | (112) | (45) | - | (45) | |
| Litigation and conduct costs | (2) | (111) | (113) | 4 | 12 | 16 | |
| Other operating expenses | (610) | 21 | (589) | (548) | 166 | (382) | |
| Operating expenses | (717) | (97) | (814) | (589) | 178 | (411) | |
| Operating profit/(loss) before impairments | 92 | (97) | (5) | (132) | 227 | 95 | |
| Impairment (losses)/releases | (40) | (5) | (45) | 34 | 2 | 36 | |
| Operating profit/(loss) before tax | 52 | (102) | (50) | (98) | 229 | 131 | |
| Tax (charge)/ credit | (79) | 74 | |||||
| (Loss)/profit for the period | (129) | 205 | |||||
| Income | |||||||
Rates (1,2) | 451 | - | 451 | 326 | - | 326 | |
Currencies (2) | 336 | - | 336 | 225 | - | 225 | |
Financing (1,2) | 171 | - | 171 | 197 | - | 197 | |
| Revenue share paid to other NatWest Group segments | (95) | - | (95) | (101) | - | (101) | |
Other (3) | (44) | - | (44) | (143) | 49 | (94) | |
| Income excluding Asset disposals and OCA | 819 | - | 819 | 504 | 49 | 553 | |
Asset disposals/Strategic risk reduction (4) | (63) | - | (63) | - | - | - | |
Own credit adjustments (OCA) (5) | 53 | - | 53 | (47) | - | (47) | |
| Total income | 809 | - | 809 | 457 | 49 | 506 | |
| (1) | Income of £74 million relating to business previously within Rates has been reallocated to Financing in H1 2020. H1 2019 has not been restated. The equivalent amount was £60 million in H1 2019. | |||
| (2) | Income of £4 million, £(7) million and £10 million previously relating to Rates, Currencies and Financing respectively has been reallocated to Other in H1 2020. Comparatives have not been restated. The equivalent amounts were £3 million, £(4) million and £5 million respectively in H1 2019. | |||
| (3) | For NWM segment, Other includes business previously referred to as legacy, and certain additional wind-down activity not included within Asset disposals. | |||
| (4) | Asset disposals/Strategic risk reduction in 2020 relates to the costs of exiting positions and the impact of risk reduction transactions entered into, in respect of the strategic announcements of 14 February 2020. Prior to this date, disposal losses were primarily reflected in legacy and are presented within Other in the table above. Refer to further information on page 52. | |||
| (5) | Refer to further information on page 52. OCA gains and losses can be material and vary substantially from period to period based on NWM Group's estimation of counterparty views of NWM Group's creditworthiness. Any such gain or loss is not taken into account in the definition of regulatory capital. | |||
| ● | Operating loss before tax was £50 million compared with an operating profit of £131 million in H1 2019. Income excluding asset disposals and own credit adjustments of £819 million increased by £266 million from £553 million in H1 2019, reflecting increased levels of customer activity as the market reacted to the Covid-19 pandemic, partially offset by traded credit write-downs. Total income was up £303 million to £809 million (H1 2019 - £506 million). Operating expenses of £814 million in H1 2020 were higher relative to H1 2019, largely due to increased strategic costs and litigation and conduct costs, as well the non-recurrence of certain one-off cost recoveries from H1 2019. | |||
| ● | Net interest income was a net expense of £39 million in H1 2020 compared with £107 million net expense in H1 2019. | |||
| ● | Non-interest income of £848 million increased by £235 million compared with £613 million in H1 2019, driven by strong customer activity in response to the Covid-19 crisis as well as own credit adjustments of £53 million (H1 2019 - £(47) million) following the widening of credit spreads. This was partly offset by traded credit write-downs, as well as asset disposals. | |||
| ● | Operating expenses were £814 million in H1 2020, an increase of £403 million relative to £411 million in H1 2019. Litigation and conduct costs of £113 million in H1 2020 (H1 2019 - £16 million credit) were primarily related to historical trading activities of a joint venture subsidiary. Strategic costs of £112 million in H1 2020 increased compared with £45 million in H1 2019. Other operating expenses increased to £589 million in H1 2020 from £382 million in H1 2019, a period that included certain one-off cost recoveries. | |||
| ● | Impairment losses were £45 million in H1 2020, largely due to the impact of expected credit losses recognised following the Covid-19 pandemic. | |||
| ● | NatWest Markets operating profit before tax was £52 million compared with a loss of £98 million in H1 2019. Income excluding asset disposals and own credit adjustments was £819 million in H1 2020 (H1 2019 - £504 million) driven by strong customer activity as the market reacted to Covid-19, in particular higher levels of primary issuance from governments and increased secondary market activity in both the Rates and Currencies businesses. This was partially offset by traded credit write downs. Asset disposals of £63 million include £40 million from a single significant transaction. Own credit adjustments of £53 million in H1 2020 (H1 2019 - £(47) million) reflect the widening of credit spreads. Operating expenses of £717 million were higher compared with £589 million in H1 2019, largely driven by increased strategic costs and other operating expenses which included the absorption of NatWest Markets N.V. costs in H1 2020. | |||
| ● | Central items & other operating loss before tax was £102 million in H1 2020 compared with a £229 million operating profit in H1 2019. This was largely driven by litigation and conduct costs in H1 2020 as well as the non-repeat of certain one-off cost recoveries in the prior period. | |||
| Q2 2020 | Q1 2020 | Q2 2019 | |||||||||
| Central | Central | Central | |||||||||
| NatWest | items & | NatWest | items & | NatWest | items & | ||||||
| Markets | other | Total | Markets | other | Total | Markets | other | Total | |||
| Income statement | £m | £m | £m | £m | £m | £m | £m | £m | £m | ||
| Net interest income | 4 | - | 4 | (43) | - | (43) | (83) | 12 | (71) | ||
| Non-interest income | 265 | - | 265 | 583 | - | 583 | 261 | 40 | 301 | ||
| Total income | 269 | - | 269 | 540 | - | 540 | 178 | 52 | 230 | ||
| Strategic costs | (75) | (5) | (80) | (30) | (2) | (32) | (33) | - | (33) | ||
| Litigation and conduct costs | - | (9) | (9) | (2) | (102) | (104) | (2) | 12 | 10 | ||
| Other operating expenses | (285) | 15 | (270) | (325) | 6 | (319) | (265) | 108 | (157) | ||
| Operating expenses | (360) | 1 | (359) | (357) | (98) | (455) | (300) | 120 | (180) | ||
| Operating (loss)/profit before impairments | (91) | 1 | (90) | 183 | (98) | 85 | (122) | 172 | 50 | ||
| Impairment (losses)/releases | (45) | (5) | (50) | 5 | - | 5 | 18 | (2) | 16 | ||
| Operating (loss)/profit before tax | (136) | (4) | (140) | 188 | (98) | 90 | (104) | 170 | 66 | ||
| Tax credit/(charge) | 3 | (82) | 21 | ||||||||
| (Loss)/profit for the period | (137) | 8 | 87 | ||||||||
| Income | |||||||||||
Rates (1,2) | 175 | - | 175 | 276 | - | 276 | 100 | - | 100 | ||
Currencies (2) | 142 | - | 142 | 194 | - | 194 | 120 | - | 120 | ||
Financing (1,2) | 182 | - | 182 | (11) | - | (11) | 104 | - | 104 | ||
| Revenue share paid to other NatWest Group segments | (48) | (48) | (47) | - | (47) | (51) | - | (51) | |||
Other (3) | (17) | - | (17) | (27) | - | (27) | (91) | 52 | (39) | ||
| Income excluding Asset disposals and OCA | 434 | - | 434 | 385 | - | 385 | 182 | 52 | 234 | ||
Asset disposals/Strategic risk reduction (4) | (63) | - | (63) | - | - | - | - | - | - | ||
| Own credit adjustments (OCA) | (102) | - | (102) | 155 | - | 155 | (4) | - | (4) | ||
| Total income | 269 | - | 269 | 540 | - | 540 | 178 | 52 | 230 | ||
| (1) | Income of £40 million and £34 million relating to business previously within Rates has been reallocated to Financing in Q2 2020 and Q1 2020 respectively. Q2 2019 has not been restated. The equivalent amount in Q2 2019 was £25 million. |
| (2) | Income of £4 million, £(7) million and £10 million previously relating to Rates, Currencies and Financing respectively has been reallocated to Other in Q2 2020. Comparatives have not been restated. The equivalent amounts were £(9) million, £(4) million and £(16) million respectively in Q1 2020 and nil, £(2) million and £2 million respectively in Q2 2019. |
| (3) | For NWM segment, Other includes business previously referred to as legacy, and certain additional wind-down activity not included within Asset disposals. |
| (4) | Asset disposals/Strategic risk reduction in 2020 relate to the costs of exiting positions, and the impact of risk reduction transactions entered into, in respect of the strategic announcements of 14 February 2020. Prior to this date, disposal losses were primarily reflected in legacy and are presented within Other in the table above. Refer to further information on page 52. |
| ● | Operating loss before tax was £140 million in Q2 2020 compared with an operating profit of £90 million and £66 million in Q1 2020 and Q2 2019 respectively. Income excluding asset disposals and OCA was £434 million (Q1 2020 - £385 million; Q2 2019 - £234 million). Total income of £269 million was down compared to £540 million in Q1 2020, mainly as a result of asset disposals and own credit adjustments in Q2 2020, but increased relative to £230 million in Q2 2019. Operating expenses of £359 million in Q2 2020 were lower compared with £455 million Q1 2020 largely due to reduced litigation and conduct costs partially offset by higher strategic costs, but increased relative to £180 million in Q2 2019 which included certain one-off cost recoveries. |
| ● | Net interest income was £4 million in Q2 2020 compared with a net expense of £43 million and £71 million in Q1 2020 and Q2 2019 respectively. |
| ● | Non-interest income of £265 million reduced by £318 million compared with £583 million in Q1 2020 and by £36 million compared with £301 million in Q2 2019. Income from Financing increased as credit markets stabilised, supported by central bank actions, whilst Rates and Currencies decreased as the volatility seen towards the end of Q1 2020 eased. Further offsetting this were own credit adjustments of £(102) million, which reflected the tightening of credit spreads. Asset disposals of £63 million included £40 million from a single significant transaction. |
| ● | Operating expenses were £359 million in Q2 2020, compared with £455 million in Q1 2020 and £180 million in Q2 2019. Strategic costs increased to £80 million, compared with £32 million in Q1 2020 and £33 million in Q2 2019. Litigation and conduct costs of £9 million in Q2 2020 were down relative to £104 million in Q1 2020, which related to historical trading activities of a joint venture subsidiary. Other operating expenses reduced to £270 million in Q2 2020 from £319 million in Q1 2020, although were higher than £157 million in Q2 2019, a period that included certain one-off cost recoveries. |
| ● | Impairment losses were £50 million in Q2 2020 (Q1 2020 - £5 million release; Q2 2019 - £16 million release), due to the impact of expected credit losses recognised following the Covid-19 pandemic. |
| ● | NatWest Markets operating loss before tax was £136 million compared with a profit of £188 million in Q1 2020 and a loss of £104 million in Q2 2019. Income excluding asset disposals and own credit adjustments was £434 million in Q2 2020 (Q1 2020 - £385 million; Q2 2019 - £182 million) reflecting increased income from Financing as credit markets stabilised, supported by central bank actions, whilst Rates and Currencies decreased as the volatility seen towards the end of Q1 2020 eased. This was partially offset by asset disposals of £63 million and own credit adjustments of £(102) million. Operating expenses of £360 million in Q2 2020 were broadly flat overall compared with £357 million in Q1 2020, but were higher than in Q2 2019 (£300 million) largely due to higher strategic costs. |
| ● | Central items & other operating loss before tax was £4 million compared with £98 million in Q1 2020 and an operating profit of £170 million in Q2 2019. This was largely driven by litigation and conduct costs and certain one-off cost recoveries in Q1 2020 and Q2 2019 respectively. |
| 30 June 2020 | 31 March 2020 | 31 December 2019 | |||||||||
| Central | Central | Central | |||||||||
| NatWest | items | NatWest | items | NatWest | items | ||||||
| Markets | & other | Total | Markets | & other | Total | Markets | & other | Total | |||
| Balance sheet | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | ||
| Funded assets | 124.8 | - | 124.8 | 131.5 | - | 131.5 | 117.4 | - | 117.4 | ||
| Derivative assets | 182.3 | - | 182.3 | 207.5 | - | 207.5 | 148.7 | - | 148.7 | ||
| Total assets | 307.1 | - | 307.1 | 339.0 | - | 339.0 | 266.1 | - | 266.1 | ||
| Liabilities excl. derivatives | 120.5 | - | 120.5 | 127.3 | - | 127.3 | 112.1 | - | 112.1 | ||
| Derivative liabilities | 176.7 | - | 176.7 | 201.7 | - | 201.7 | 144.1 | - | 144.1 | ||
| Total liabilities | 297.2 | - | 297.2 | 329.0 | - | 329.0 | 256.2 | - | 256.2 | ||
| ● | Total assets and liabilities increased by £41.0 billion and £41.0 billion to £307.1 billion and £297.2 billion respectively at 30 June 2020, compared with £266.1 billion and £256.2 billion at 31 December 2019. Funded assets, which exclude derivatives, increased by £7.4 billion to £124.8 billion. |
| ● | Cash and balances at central banks increased by £4.8 billion to £17.6 billion, compared with £12.7 billion at 31 December 2019, reflecting surplus liquidity following a reduction in trading asset inventory at 30 June 2020. |
| ● | Trading assets were down by £4.6 billion to £72.0 billion at 30 June 2020 driven by a reduction in positions as levels of securities inventory and reverse repos were managed within limits, partially offset by an increase in derivative cash collateral posted. Trading liabilities increased marginally by £1.6 billion to £75.5 billion as reductions in short positions and repurchase agreements were more than offset by increases in derivative cash collateral received at 30 June 2020. |
| ● | Derivative assets and derivative liabilities were up £33.6 billion to £182.3 billion and £32.6 billion to £176.7 billion respectively at 30 June 2020. The movements in mark-to-market were driven by a downward shift in interest rate yields, together with sterling having weakened against major currencies since year end 2019. |
| ● | Settlement balance assets and liabilities were up £3.5 billion and £2.8 billion to £7.8 billion and £6.9 billion respectively, due to increased trading compared with the seasonally lower levels of customer activity leading up to 31 December 2019. |
| ● | Loans to customers - amortised cost were up £3.0 billion to £11.4 billion, reflecting new corporate lending and draw downs on existing facilities, as well as increased margin balances with exchanges and clearing houses following market volatility during H1 2020. |
| ● | Other financial assets, which include non-trading government debt securities of £6.4 billion, increased to £12.5 billion at 30 June 2020. Other financial liabilities increased to £19.0 billion (31 December 2019 - £18.4 billion) due to issuance activity in the period, partially offset by maturities. |
| ● | Owners' equity increased slightly to £10.0 billion (31 December 2019 - £9.9 billion) reflecting reserve movements in the period. |
| Assets | £bn | £bn | Liabilities | |
| Cash and balances at central banks | 17.6 | |||
| Trading assets | 72.0 | 75.5 | Trading liabilities | |
| Securities | 25.3 | 20.5 | Short positions | |
Reverse repos (1) | 18.9 | 23.8 | Repos (2) | |
Derivative cash collateral given (3) | 25.0 | 27.1 | Derivative cash collateral received (4) | |
| Other trading assets | 2.8 | 4.2 | Other trading liabilities | |
| Loans - amortised cost | 12.4 | 8.4 | Deposits - amortised cost | |
| Settlement balances | 7.8 | 6.9 | Settlement balances | |
| Amounts due from holding company and fellow subsidiaries | 1.8 | 9.0 | Amounts due to holding company and fellow subsidiaries | |
| Other financial assets | 12.5 | 19.0 | Other financial liabilities | |
| Other assets | 0.7 | 1.7 | Other liabilities | |
| Funded assets | 124.8 | 120.5 | Liabilities excluding derivatives | |
| Derivatives assets | 182.3 | 176.7 | Derivative liabilities | |
| Total assets | 307.1 | 297.2 | Total liabilities | |
| 23.5 | of which: wholesale funding (5) | |||
| 9.8 | of which: short-term wholesale funding (5) | |||
| Net derivative assets | 4.7 | 3.8 | Net derivative liabilities |
| (1) | Comprises bank reverse repos of £2.2 billion (2019 - £4.9 billion) and customer reverse repos of £16.7 billion (2019 - £19.2 billion). |
| (2) | Comprises bank repos of £2.2 billion (2019 - £6.6 billion) and customer repos of £21.6 billion (2019 - £21.3 billion). |
| (3) | Comprises derivative cash collateral given relating to banks of £8.9 billion (2019 - £7.6 billion) and customers of £16.1 billion (2019 - £12.9 billion). |
| (4) | Comprises derivative cash collateral received relating to banks of £15.2 billion (2019 - £11.9 billion) and customers of £11.9 billion (2019 - £9.6 billion). |
| (5) | Excludes derivative cash collateral received, repo, customer deposits and intra-NatWest Group balances. |
| 30 June | 31 December | ||
| 2020 | 2019 | ||
| £bn | £bn | ||
| RWAs | 32.8 | 35.2 | |
| Total net credit exposures (banking book and counterparty credit) | 48.0 | 43.4 | |
of which: net non-investment grade credit exposures (based on external credit ratings) | 3.5 | 2.5 | |
of which: IFRS 9 Stage 3 exposures | 0.2 | 0.2 | |
and: IFRS 9 Stage 3 expected credit loss (ECL) | 0.1 | 0.1 |
| ● | The increase in net credit exposures was primarily a result of higher cash at central banks within the highest asset quality banding, reflecting surplus liquidity following reductions in levels of trading asset inventory. |
| ● | The increase in net non-investment grade exposures was largely due to ratings downgrades on existing positions during H1 2020. |
| 30 June | 31 March | 31 December | |
| 2020 | 2020 | 2019 | |
| Capital adequacy ratios | % | % | % |
| CET1 | 18.9 | 15.7 | 17.3 |
| Tier 1 | 21.7 | 18.3 | 19.9 |
| Total | 26.5 | 22.8 | 24.2 |
Capital (1) | £m | £m | £m |
| CET1 | 6,203 | 5,550 | 6,097 |
| Tier 1 | 7,110 | 6,462 | 7,003 |
| Total | 8,687 | 8,050 | 8,501 |
| Risk-weighted assets | |||
| Credit risk | 9,092 | 9,327 | 9,825 |
| Counterparty credit risk | 11,134 | 12,293 | 11,060 |
| Market risk | 10,153 | 11,311 | 11,229 |
| Operational risk | 2,382 | 2,382 | 3,039 |
| Total RWAs | 32,761 | 35,313 | 35,153 |
Leverage (2) | |||
CRR leverage exposure (3) (£m) | 133,897 | 151,247 | 136,505 |
| Tier 1 capital (£m) | 7,110 | 6,462 | 7,003 |
| CRR leverage ratio (%) | 5.3 | 4.3 | 5.1 |
Capital resources Under Capital Requirements Regulation (CRR), regulators within the European Union monitor capital on a legal entity basis, with local transitional arrangements on the phasing in of end-point CRR. The capital resources based on the PRA transitional basis for NWM Plc are set out below. | |||
| 30 June | 31 December | ||
| 2020 | 2019 | ||
| Shareholders' equity (excluding non-controlling interests) | £m | £m | |
| Shareholders' equity | 9,564 | 9,631 | |
| Other equity instruments | (904) | (904) | |
| 8,660 | 8,727 | ||
| Regulatory adjustments and deductions | |||
| Own credit | (107) | (39) | |
| Defined benefit pension fund adjustment | (179) | (171) | |
| Cash flow hedging reserve | (246) | (137) | |
| Prudential valuation adjustments | (332) | (373) | |
| Expected losses less impairments | - | (10) | |
| Instruments of financial sector entities where the institution has a significant investment | (1,597) | (1,900) | |
| Adjustments under IFRS9 transition arrangements | 4 | - | |
| (2,457) | (2,630) | ||
| CET1 capital | 6,203 | 6,097 | |
| Additional Tier 1 (AT1) capital | |||
| Qualifying instruments and related share premium | 904 | 904 | |
| Qualifying instruments and related share premium subject to phase out | 242 | 226 | |
| 1,146 | 1,130 | ||
| Tier 1 deductions | |||
| Instruments of financial sector entities where the institution has a significant investment | (239) | (224) | |
| Tier 1 capital | 7,110 | 7,003 | |
| Qualifying Tier 2 capital | |||
| Qualifying instruments and related share premium | 2,012 | 1,967 | |
| Tier 2 deductions | |||
| Instruments of financial sector entities where the institution has a significant investment | (435) | (469) | |
| Tier 2 capital | 1,577 | 1,498 | |
| Total regulatory capital | 8,687 | 8,501 | |
| 30 June | 31 December | |
| 2020 | 2019 | |
| Leverage | £m | £m |
| Cash and balances at central banks | 14,477 | 9,953 |
| Trading assets | 54,543 | 57,768 |
| Derivatives | 180,306 | 147,458 |
| Net loans to customers | 28,822 | 25,929 |
| Other assets | 8,258 | 6,945 |
| Total assets | 286,406 | 248,053 |
| Derivatives | ||
- netting | (191,383) | (155,147) |
- potential future exposures | 41,361 | 39,997 |
| Securities financing transactions gross up | 1,034 | 1,559 |
| Undrawn commitments | 5,989 | 5,986 |
| Regulatory deductions and other adjustments | (7,722) | (2,815) |
| Exclusion of core UK-group exposures | (1,788) | (1,128) |
| Leverage exposure | 133,897 | 136,505 |
Liquidity value (1) | ||
| 30 June | 31 December | |
| 2020 | 2019 | |
| NatWest Markets Plc | £m | £m |
| Cash and balances at central banks | 14,384 | 9,929 |
| AAA to AA- rated governments | 5,558 | 4,399 |
| A+ and lower rated governments | 1,040 | 1,277 |
| Government guaranteed issuers, Public sector entities and Government sponsored entities | - | - |
| International Organisations and Multilateral development banks | 102 | 244 |
| LCR level 1 bonds | 6,700 | 5,920 |
| LCR level 1 Assets | 21,084 | 15,849 |
| LCR level 2 Assets | - | - |
| Non-LCR Eligible Assets | - | 5 |
| Primary liquidity | 21,084 | 15,854 |
Secondary liquidity (2) | 484 | 244 |
| Total liquidity value | 21,568 | 16,098 |
| GBP | USD | EUR | Other | Total | |
| Total liquidity portfolio | £m | £m | £m | £m | £m |
| 30 June 2020 | 11,534 | 4,585 | 4,408 | 1,041 | 21,568 |
| 31 December 2019 | 6,142 | 3,628 | 5,051 | 1,277 | 16,098 |
Funding sources | | |||||||
The table below shows NWM Group's carrying values of the principal funding sources based on contractual maturity. | ||||||||
| 30 June 2020 | 31 December 2019 | |||||||
| Short-term | Long-term | Short-term | Long-term | |||||
| less than | more than | less than | more than | |||||
| 1 year | 1 year | Total | 1 year | 1 year | Total | |||
| £m | £m | £m | £m | £m | £m | |||
| Bank deposits (amortised cost) | 1,899 | 967 | 2,866 | 1,302 | 787 | 2,089 | ||
| of which: repos (amortised cost) | 393 | - | 393 | 380 | - | 380 | ||
| Customer deposits (amortised cost) | 5,450 | 87 | 5,537 | 3,176 | 527 | 3,703 | ||
Trading liabilities (1) | ||||||||
Repos (2) | 23,767 | - | 23,767 | 27,885 | - | 27,885 | ||
| Derivative cash collateral received | 27,095 | - | 27,095 | 21,506 | - | 21,506 | ||
| Other bank and customer deposits | 1,096 | 981 | 2,077 | 600 | 896 | 1,496 | ||
| Debt securities in issue | 829 | 1,255 | 2,084 | 659 | 1,103 | 1,762 | ||
| 52,787 | 2,236 | 55,023 | 50,650 | 1,999 | 52,649 | |||
| Other financial liabilities | ||||||||
| Customer deposits (designated fair value) | 168 | 182 | 350 | - | - | - | ||
| Debt securities in issue | ||||||||
| commercial paper and certificates of deposits | 3,300 | 97 | 3,397 | 2,699 | 6 | 2,705 | ||
| medium term notes (MTNs) | 3,897 | 10,229 | 14,126 | 4,386 | 10,218 | 14,604 | ||
| Subordinated liabilities | 102 | 1,071 | 1,173 | 107 | 1,029 | 1,136 | ||
| 7,467 | 11,579 | 19,046 | 7,192 | 11,253 | 18,445 | |||
Amounts due to holding company and fellow subsidiaries (3) | ||||||||
| CRR-compliant internal MREL | - | 5,566 | 5,566 | - | 5,120 | 5,120 | ||
| Other bank and customer deposits | 1,025 | 36 | 1,061 | 951 | 38 | 989 | ||
| Subordinated liabilities | - | 2,182 | 2,182 | - | 2,020 | 2,020 | ||
| 1,025 | 7,784 | 8,809 | 951 | 7,178 | 8,129 | |||
| Total funding | 68,628 | 22,653 | 91,281 | 63,271 | 21,744 | 85,015 | ||
Of which: available in resolution (4) | - | 8,819 | 8,819 | 107 | 8,169 | 8,276 | ||
Notes: (1) Funding sources excludes short positions of £20,458 million (2019 - £21,187 million) reflected as trading liabilities on the balance sheet. (2) Comprises of central and other bank repos of £2,147 million (2019 - £6,636 million), other financial institution repos of £19,364 million (2019 - £18,998 million) and other corporate repos of £2,256 million (2019 - £2,251 million). (3) Amount due to holding company and fellow subsidiaries relating to non-financial instruments of £148 million (2019 - £171 million) have been excluded from the table. (4) Eligible liabilities (as defined in the Banking Act 2009 as amended from time to time) that meet the eligibility criteria set out in the regulations, rules, policies, guidelines, or statements of the Bank of England including the Statement of Policy published in June 2018. Key points ● During H1 2020, NWM Group continued to access capital markets despite Covid-19, with significant transactions including €1.0 billion five-year fixed rate EMTN and $1.0 billion three-year fixed rate US Rule 144A programme issuances. ● Of the £3-5 billion senior unsecured target for 2020, £2.5 billion of funding has been raised in the form of benchmark transactions and private placements in H1 2020. ● Depending on market conditions in H2 2020, NWM Group will look to further diversify the investor base and build out new markets and issuance programmes. ● NWM Group also maintains a portfolio of bi-lateral borrowing in other formats, including notes or loans secured primarily by banking book collateral. | ||||||||
Senior notes and subordinated liabilities - residual maturity profile by instrument type The table below shows NWM Group's debt securities in issue, subordinated liabilities and internal resolution instruments by residual maturity. | ||||||||||||
| Trading liabilities | Other financial liabilities | Amounts due to holding | ||||||||||
| Debt | Debt securities in issue | company and fellow | ||||||||||
| securities | Commercial | subsidiaries | ||||||||||
| in issue | paper | Subordinated | CRR-compliant | Subordinated | Total notes | |||||||
| MTNs | Total | and CDs | MTNs | liabilities | Total | internal MREL | liabilities | in issue | ||||
| 30 June 2020 | £m | £m | £m | £m | £m | £m | £m | £m | £m | |||
| Less than 1 year | 829 | 829 | 3,300 | 3,897 | 102 | 7,299 | - | - | 8,128 | |||
| 1-3 years | 316 | 316 | 94 | 5,935 | 540 | 6,569 | 3,219 | 339 | 10,443 | |||
| 3-5 years | 234 | 234 | 3 | 3,483 | - | 3,486 | 2,347 | 886 | 6,953 | |||
| More than 5 years | 705 | 705 | - | 811 | 531 | 1,342 | - | 957 | 3,004 | |||
| Total | 2,084 | 2,084 | 3,397 | 14,126 | 1,173 | 18,696 | 5,566 | 2,182 | 28,528 | |||
| 31 December 2019 | ||||||||||||
| Less than 1 year | 659 | 659 | 2,699 | 4,386 | 107 | 7,192 | - | - | 7,851 | |||
| 1-3 years | 321 | 321 | 3 | 6,885 | 273 | 7,161 | 2,129 | - | 9,611 | |||
| 3-5 years | 217 | 217 | 3 | 2,545 | 252 | 2,800 | 2,991 | 1,143 | 7,151 | |||
| More than 5 years | 565 | 565 | - | 788 | 504 | 1,292 | - | 877 | 2,734 | |||
| Total | 1,762 | 1,762 | 2,705 | 14,604 | 1,136 | 18,445 | 5,120 | 2,020 | 27,347 | |||
The table below shows the currency breakdown of total notes in issue. | ||||||||||||
| GBP | USD | EUR | Other | Total | ||||||||
| 30 June 2020 | £m | £m | £m | £m | £m | |||||||
| Commercial paper and CDs | 319 | 560 | 2,475 | 43 | 3,397 | |||||||
| MTNs | 304 | 4,139 | 9,519 | 2,248 | 16,210 | |||||||
| External subordinated liabilities | 98 | 341 | 734 | - | 1,173 | |||||||
| CRR-compliant internal MREL due to NatWest Group plc | - | 3,625 | 1,941 | - | 5,566 | |||||||
| Subordinated liabilities due to NatWest Group plc | - | 1,297 | 885 | - | 2,182 | |||||||
| Total | 721 | 9,962 | 15,554 | 2,291 | 28,528 | |||||||
| 31 December 2019 | 1,944 | 7,536 | 15,624 | 2,243 | 27,347 | |||||||
Traded internal VaR The table below shows one-day 99% internal VaR for the trading portfolios of NWM Group, split by exposure type. | |||||||
| Half year ended 30 June 2020 | 31 December 2019 | ||||||
| Period | Period | ||||||
| Average | Maximum | Minimum | end | end | |||
| Traded internal VaR (1-day 99%) | £m | £m | £m | £m | £m | ||
| Interest rate | 10.1 | 20.2 | 6.1 | 6.1 | 10.6 | ||
| Credit spread | 16.3 | 27.2 | 8.7 | 17.7 | 10.6 | ||
| Currency | 4.2 | 8.4 | 2.1 | 3.9 | 3.2 | ||
| Equity | 0.8 | 2.0 | 0.3 | 0.3 | 0.9 | ||
| Commodity | 0.1 | 0.3 | - | 0.1 | 0.1 | ||
Diversification (2) | (14.8) | (9.6) | (11.3) | ||||
| Total | 16.7 | 25.7 | 10.1 | 18.5 | 14.1 | ||
Notes: (1) Traded internal VaR for NWM Group is presented on a consolidated basis following the acquisition of NWM N.V. on 29 November 2019. (2) NWM Group benefits from diversification across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the correlation between the assets and risk factors in the portfolio at a particular time. The diversification factor is the sum of the VaR on individual risk types less the total. Key points ● Traded VaR in H1 2020 reflected Covid-19-related market volatility entering the time series used in the VaR model. ● Despite this volatility, traded VaR remained within appetite throughout H1 2020. ● The peaks in total, interest rate and credit spread VaR were due to client bond syndication activity, including the recent 2061 UK Gilt issuance in which NatWest Markets acted as duration manager on behalf of the UK Debt Management Office. | |||||||
Securities financing transactions and collateral The table below shows securities financing transactions in NWM Group. Balance sheet captions include balances held at all classifications under IFRS 9. | ||||||||
| Reverse repos | Repos | |||||||
| Outside | Outside | |||||||
| Of which: | netting | Of which: | netting | |||||
| Total | can be offset | arrangements | Total | can be offset | arrangements | |||
| 30 June 2020 | £m | £m | £m | £m | £m | £m | ||
| Gross | 51,170 | 50,956 | 214 | 55,780 | 53,694 | 2,086 | ||
| IFRS offset | (31,620) | (31,620) | - | (31,620) | (31,620) | - | ||
| Carrying value | 19,550 | 19,336 | 214 | 24,160 | 22,074 | 2,086 | ||
| Master netting arrangements | (321) | (321) | - | (321) | (321) | - | ||
| Securities collateral | (18,421) | (18,421) | - | (21,753) | (21,753) | - | ||
| Potential for offset not recognised under IFRS | (18,742) | (18,742) | - | (22,074) | (22,074) | - | ||
| Net | 808 | 594 | 214 | 2,086 | - | 2,086 | ||
| 31 December 2019 | ||||||||
| Gross | 52,829 | 52,021 | 808 | 56,985 | 54,510 | 2,475 | ||
| IFRS offset | (28,720) | (28,720) | - | (28,720) | (28,720) | - | ||
| Carrying value | 24,109 | 23,301 | 808 | 28,265 | 25,790 | 2,475 | ||
| Master netting arrangements | (562) | (562) | - | (562) | (562) | - | ||
| Securities collateral | (22,378) | (22,378) | - | (25,228) | (25,228) | - | ||
| Potential for offset not recognised under IFRS | (22,940) | (22,940) | - | (25,790) | (25,790) | - | ||
| Net | 1,169 | 361 | 808 | 2,475 | - | 2,475 | ||
Key point ● Reverse repo and repo transactions are primarily backed by highly-rated sovereign, supranational and government agency collateral. | ||||||||
Debt securities The table below shows debt securities held at mandatory fair value through profit or loss by issuer as well as ratings based on the lowest of Standard & Poor's, Moody's and Fitch. | |||||||
| Central and local government | Financial | ||||||
| UK | US | Other | institutions | Corporate | Total | ||
| 30 June 2020 | £m | £m | £m | £m | £m | £m | |
| AAA | - | - | 2,265 | 934 | 3 | 3,202 | |
| AA to AA+ | - | 4,570 | 3,377 | 678 | 52 | 8,677 | |
| A to AA- | 4,515 | - | 1,608 | 345 | 85 | 6,553 | |
| BBB- to A- | - | - | 4,773 | 625 | 1,064 | 6,462 | |
| Non-investment grade | - | - | 58 | 149 | 90 | 297 | |
| Unrated | - | - | - | 328 | 39 | 367 | |
| Total | 4,515 | 4,570 | 12,081 | 3,059 | 1,333 | 25,558 | |
| Short positions | (4,210) | (1,801) | (12,883) | (1,442) | (122) | (20,458) | |
| 31 December 2019 | |||||||
| AAA | - | - | 2,197 | 1,188 | 5 | 3,390 | |
| AA to AA+ | 4,897 | 5,458 | 2,824 | 333 | 87 | 13,599 | |
| A to AA- | - | - | 3,297 | 755 | 109 | 4,161 | |
| BBB- to A- | - | - | 6,508 | 872 | 895 | 8,275 | |
| Non-investment grade | - | - | 76 | 298 | 150 | 524 | |
| Unrated | - | - | - | 420 | 48 | 468 | |
| Total | 4,897 | 5,458 | 14,902 | 3,866 | 1,294 | 30,417 | |
| Short positions | (4,340) | (1,392) | (13,749) | (1,620) | (86) | (21,187) | |
Key point ● Fitch downgraded the UK's Long-Term Issuer Default Rating (IDRs) to AA-, from AA, in Q1 2020. | |||||||
Derivatives The table below shows third-party derivatives by type of contract. The master netting agreements and collateral shown do not result in a net presentation on the balance sheet under IFRS 9. | ||||||||||||
| 30 June 2020 | 31 December 2019 | |||||||||||
| Notional | ||||||||||||
| GBP | USD | Euro | Other | Total | Assets | Liabilities | Notional | Assets | Liabilities | |||
| £bn | £bn | £bn | £bn | £bn | £m | £m | £bn | £m | £m | |||
| Gross exposure | 180,905 | 174,776 | 151,557 | 147,104 | ||||||||
| IFRS offset | - | - | (3,876) | (4,011) | ||||||||
| Carrying value | 3,665 | 4,988 | 5,892 | 1,949 | 16,494 | 180,905 | 174,776 | 14,734 | 147,681 | 143,093 | ||
| Of which: | ||||||||||||
Interest rate (1) | ||||||||||||
| Interest rate swaps | 110,086 | 101,904 | 87,324 | 82,445 | ||||||||
| Options purchased | 26,613 | - | 15,299 | - | ||||||||
| Options written | - | 26,462 | - | 13,198 | ||||||||
| Futures and forwards | 3 | 3 | 11 | 10 | ||||||||
| Total | 3,301 | 3,387 | 5,274 | 905 | 12,867 | 136,702 | 128,369 | 10,972 | 102,634 | 95,653 | ||
| Exchange rate | ||||||||||||
| Spot, forwards and futures | 25,098 | 25,175 | 30,336 | 30,714 | ||||||||
| Currency swaps | 12,434 | 13,825 | 8,782 | 10,202 | ||||||||
| Options purchased | 6,475 | - | 5,649 | - | ||||||||
| Options written | - | 7,019 | - | 6,117 | ||||||||
| Total | 362 | 1,594 | 609 | 1,044 | 3,609 | 44,007 | 46,019 | 3,742 | 44,767 | 47,033 | ||
| Credit | 2 | 5 | 9 | - | 16 | 177 | 370 | 17 | 280 | 359 | ||
| Equity and commodity | - | 2 | - | - | 2 | 19 | 18 | 3 | - | 48 | ||
| Carrying value | 16,494 | 180,905 | 174,776 | 14,734 | 147,681 | 143,093 | ||||||
| Counterparty mark-to-market netting | (147,783) | (147,783) | (120,420) | (120,420) | ||||||||
| Cash collateral | (22,719) | (20,262) | (18,682) | (17,187) | ||||||||
| Securities collateral | (5,654) | (2,966) | (4,292) | (1,276) | ||||||||
| Net exposure | 4,749 | 3,765 | 4,287 | 4,210 | ||||||||
Banks (2) | 295 | 673 | 607 | 821 | ||||||||
Other financial institutions (3) | 1,535 | 1,324 | 1,033 | 2,773 | ||||||||
Corporate (4) | 2,717 | 1,656 | 2,394 | 592 | ||||||||
Government (5) | 202 | 112 | 253 | 24 | ||||||||
| Net exposure | 4,749 | 3,765 | 4,287 | 4,210 | ||||||||
| UK | 3,081 | 1,369 | 2,004 | 1,783 | ||||||||
| Europe | 1,004 | 1,500 | 1,374 | 1,868 | ||||||||
| US | 315 | 599 | 428 | 331 | ||||||||
| RoW | 349 | 297 | 481 | 228 | ||||||||
| Net exposure | 4,749 | 3,765 | 4,287 | 4,210 | ||||||||
| Asset quality of uncollateralised derivative assets | ||||||||||||
| AQ1-AQ4 | 3,634 | 3,311 | ||||||||||
| AQ5-AQ8 | 959 | 955 | ||||||||||
| AQ9-AQ10 | 156 | 21 | ||||||||||
| Net exposure | 4,749 | 4,287 | ||||||||||
Notes: (1) The notional amount of interest rate derivatives includes £8,941 billion (31 December 2019 - £6,788 billion) in respect of contracts cleared through central clearing counterparties. (2) Transactions with certain counterparties with whom NWM Group has netting arrangements but collateral is not posted on a daily basis; certain transactions with specific terms that may not fall within netting and collateral arrangements; derivative positions in certain jurisdictions, for example China, where the collateral agreements are not deemed to be legally enforceable. (3) Transactions with securitisation vehicles and funds where collateral posting is contingent on NWM Group's external rating. (4) Mainly large corporates with whom NWM Group may have netting arrangements in place, but operational capability does not support collateral posting. (5) Sovereigns and supranational entities with one-way collateral agreements in their favour. Key point ● The increase in the AQ9-AQ10 band was due to a single counterparty downgrade. | ||||||||||||
Asset quality The table below shows the current and potential exposure by high level asset class and asset quality. It represents total credit risk for assets held in the banking book in addition to counterparty credit risk for traded products. | |||||||||||
| Cash & | Sovereign | Loans | Collateralised | Uncollateralised | |||||||
| balances at | debt | & other | Other debt | rate risk | rate risk | Repo & | Off-balance | ||||
| central banks | securities | lending | securities | management | management | reverse repo | sheet items | Leasing | Total | ||
| 30 June 2020 | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |
| AQ1-AQ4 | 17,566 | 7,188 | 9,073 | 2,109 | 3,974 | 2,396 | 1,072 | 763 | 57 | 44,198 | |
| AQ5-AQ8 | - | - | 2,149 | 95 | 598 | 825 | 5 | 93 | - | 3,765 | |
| AQ9 | - | - | 21 | - | 3 | - | - | 1 | - | 25 | |
| AQ10 | - | - | 40 | 1 | - | 8 | - | 8 | 5 | 62 | |
| Current exposure | 17,566 | 7,188 | 11,283 | 2,205 | 4,575 | 3,229 | 1,077 | 865 | 62 | 48,050 | |
| Potential exposure | 17,566 | 7,188 | 23,900 | 2,205 | 13,796 | 5,554 | 1,887 | 2,205 | 61 | 74,362 | |
| 31 December 2019 | |||||||||||
| AQ1-AQ4 | 12,729 | 6,854 | 9,217 | 2,142 | 4,150 | 2,517 | 1,454 | 1,060 | 32 | 40,155 | |
| AQ5-AQ8 | - | - | 1,628 | 30 | 625 | 735 | 116 | 47 | 1 | 3,182 | |
| AQ9 | - | - | 22 | 1 | 2 | - | - | 1 | - | 26 | |
| AQ10 | - | - | 44 | 1 | - | 6 | - | 4 | 4 | 59 | |
| Current exposure | 12,729 | 6,854 | 10,911 | 2,174 | 4,777 | 3,258 | 1,570 | 1,112 | 37 | 43,422 | |
| Potential exposure | 12,729 | 6,854 | 24,919 | 2,173 | 13,732 | 5,907 | 2,537 | 2,426 | 38 | 71,315 | |
Key points ● Measured against NWM Group's asset quality scale, 92% (31 December 2019 - 92%) of total current exposure was rated in the AQ1-AQ4 bands. When considered against external credit ratings, 93%, or £44.5 billion (31 December 2019 - 94%, £40.9 billion) of current exposure was equivalent to an investment grade rating (BBB- or better). ● The increase was driven by cash and balances at central banks rather than increased customer exposure. | |||||||||||
Economic loss drivers The portfolio segmentation and selection of economic loss drivers for IFRS 9 follow closely the approach used in stress testing. To enable robust modelling the forecasting models for each portfolio segment (defined by asset class and where relevant, industry sector and region) are based on a selected, small number of economic factors (typically two to four) that best explain the temporal variations in portfolio loss rates. The process to select economic loss drivers involves empirical analysis and expert judgement. The most material economic loss drivers in NWM Group include national gross domestic product (GDP), unemployment rates, house price indices and central bank base rates. Economic scenarios The range of anticipated future economic conditions is described by a set of four internally developed scenarios and their respective probabilities. In a change from previous quarters, two scenarios are used instead of a single base case to describe the central outlook. This reflects increased uncertainty as a result of Covid-19 and the difficulty in identifying a consensus among economic forecasters. Those two central scenarios are complemented by an upside and a downside scenario. The tables and commentary below provide details of the key economic loss drivers under the four scenarios. The average over the five-year horizon (2020 to 2024) for the two central scenarios and upside and downside scenarios used for expected credit loss (ECL) modelling, are set out below. It is compared with the five-year average (2020 to 2024) of the 2019 scenarios. The scenarios are specified on a quarterly frequency. The extreme points refer to worst four-quarter rate of change for GDP and house price inflation and worst quarterly figures for unemployment. | |||||||||||
| Five-year average | 30 June 2020 | 31 December 2019 | |||||||||
| Upside | Central 1 | Central 2 | Downside 2 | Upside 2 | Upside 1 | Base case | Downside 1 | Downside 2 | |||
| UK | % | % | % | % | % | % | % | % | % | ||
| GDP - change | 1.4 | 1.5 | 0.6 | (0.4) | 2.4 | 2.2 | 1.6 | 1.3 | 0.9 | ||
| Unemployment | 5.1 | 5.5 | 7.4 | 9.9 | 3.6 | 3.9 | 4.4 | 4.7 | 5.2 | ||
| House Price Inflation - change | 2.0 | 1.4 | 0.5 | (4.5) | 4.1 | 3.3 | 1.6 | 0.8 | (1.0) | ||
| Bank of England base rate | 0.2 | 0.2 | 0.1 | (0.2) | 1.0 | 0.7 | 0.3 | - | - | ||
| Commercial real estate price - change | (0.5) | (1.2) | (2.3) | (8.6) | 2.7 | 1.7 | (0.1) | (1.0) | (3.0) | ||
| World GDP - change | 2.8 | 2.9 | 2.0 | 1.3 | 3.8 | 3.3 | 2.8 | 2.5 | 2.1 | ||
| Probability weight | 20.0 | 35.0 | 35.0 | 10.0 | 12.7 | 14.8 | 30.0 | 29.7 | 12.7 | ||
Five-year average UK GDP - annual growth | ||||||||
| Upside | Central 1 | Central 2 | Downside | |||||
| % | % | % | % | |||||
| 2020 | (8.9) | (14.3) | (14.1) | (16.9) | ||||
| 2021 | 10.1 | 15.4 | 11.2 | 5.3 | ||||
| 2022 | 2.7 | 3.4 | 2.3 | 6.4 | ||||
| 2023 | 1.6 | 1.6 | 2.0 | 1.7 | ||||
| 2024 | 1.6 | 1.6 | 1.6 | 1.6 | ||||
| UK unemployment rate | ||||||||
| Upside | Central 1 | Central 2 | Downside | |||||
| % | % | % | % | |||||
| Q4 2020 | 7.4 | 9.2 | 9.8 | 14.4 | ||||
| Q4 2021 | 4.8 | 5.0 | 7.8 | 10.9 | ||||
| Q4 2022 | 4.1 | 4.0 | 6.7 | 9.1 | ||||
| Q4 2023 | 4.1 | 4.0 | 6.0 | 7.6 | ||||
| Q4 2024 | 4.1 | 4.0 | 5.9 | 6.9 | ||||
| UK House Price Inflation - annual growth | ||||||||
| Upside | Central 1 | Central 2 | Downside | |||||
| % | % | % | % | |||||
| 2020 | (0.1) | (8.9) | (9.3) | (11.5) | ||||
| 2021 | 0.6 | 3.6 | (5.1) | (14.9) | ||||
| 2022 | 2.4 | 6.4 | 7.1 | 0.7 | ||||
| 2023 | 3.5 | 3.2 | 6.4 | 1.5 | ||||
| 2024 | 3.8 | 2.6 | 3.5 | 1.6 | ||||
| UK commercial real estate price - annual change | ||||||||
| Upside | Central 1 | Central 2 | Downside | |||||
| % | % | % | % | |||||
| 2020 | (7.5) | (16.0) | (22.1) | (20.9) | ||||
| 2021 | 2.2 | 1.9 | (0.7) | (20.3) | ||||
| 2022 | 1.3 | 6.3 | 7.3 | (8.1) | ||||
| 2023 | 0.4 | 1.5 | 2.2 | 3.2 | ||||
| 2024 | 1.0 | 0.6 | 1.6 | 3.2 | ||||
| Extreme points | ||||||||
| Worst points | ||||||||
| H1 2020 | H2 2019 | |||||||
| Upside | Central 1 | Central 2 | Downside | Downside 1 | Downside 2 | |||
| UK | % | % | % | % | % | % | ||
| GDP (year-on-year) | (17.1) | (27.7) | (26.6) | (28.0) | (0.2) | (1.8) | ||
| Unemployment | 7.6 | 9.5 | 12.0 | 15.1 | 4.9 | 5.5 | ||
| House Price Inflation (year-on-year) | (0.7) | (13.7) | (14.9) | (20.4) | (3.5) | (8.4) | ||
| Commercial real estate price (year-on-year) | (10.2) | (21.2) | (27.2) | (31.0) | (8.2) | (12.6) | ||
Economic loss drivers Probability weightings of scenarios The scale of the economic impact of Covid-19 and the range of recovery paths necessitates a change of approach to assigning probability weights from that used in recent updates. Previously GDP paths for NWM Group's scenarios were compared against a set of 1,000 model runs, following which a percentile in the distribution was established that most closely corresponded to the scenario. This approach does not produce meaningful outcomes in the current circumstances because GDP is highly volatile and highly uncertain. Instead, NWM Group has subjectively applied probability weights. The probability weight assignment was judged to present good coverage to the central scenarios and the potential for a far more robust recovery on the upside and exceptionally challenging outcome on the downside. A 20% weighting was applied to the upside scenario, a 35% weighting on each central scenario and a 10% weighting on the downside scenario. NWM Group judged a downside-biased weighting as placing too much weight on negative outcomes. The Wholesale Lending methodology is based on the concept of credit cycle indices (CCI). The CCI represents all relevant economic loss drivers for a region/industry segment aggregated into a single index value describing the loss rate conditions in the respective segment relative to its long-run average. That means a CCI value of zero corresponds to loss rates at long-run average levels, a positive CCI value corresponds to loss rates below long-run average levels and a negative CCI value corresponds to loss rates above long-run average levels. The four economic scenarios outlined above are translated into individual projections of CCIs for each region/industry segment which are then subsequently aggregated into a single central CCI projection by calculating a weighted average according to the given scenario probabilities. The CCI projection for each economic scenario, and by extension the weighted central CCI projection, are overlaid with an additional assumption that after one to two years into the forecast period credit cycle conditions gradually revert to long-run average conditions, i.e. CCI values mean revert to zero. Finally, ECL is calculated using a Monte Carlo approach by averaging probability of default (PD) and loss given default (LGD) values arising from a large number of CCI paths simulated around the central CCI projection calculated as above. The rationale for the Wholesale approach, is the long-standing observation that loss rates in Wholesale portfolios tend to follow regular cycles. This allows NWM Group to enrich the range and depth of future economic conditions embedded in the final ECL beyond what would be obtained from the discrete macro-economic scenarios alone. Covid-19 - estimating ECL in uncertain times Almost all areas of the global economy, in terms of both individuals and businesses, have been adversely affected by the unprecedented economic and social disruption resulting from Covid-19. The impact of the virus has led to the creation of significant government and central bank mechanisms to support businesses and individuals. Uncertainty remained elevated during H1 2020 and the severity of the economic impact becomes increasingly observable in key economic data such as GDP and unemployment. This crisis has created an unprecedented challenge for IFRS 9 ECL modelling, given the severity of economic shock and associated uncertainty for the future economic path coupled with the scale of government and central bank intervention and Covid-19 relief mechanisms that have altered the relationships between economic drivers and default. The NWM Group approach to dealing with this challenge is to leverage stress test modelling insights to inform IFRS 9 model refinements to enable modelled ECL estimates. Management review of modelling approaches and outcomes continues to inform any necessary adjustments to the ECL estimates through the form of in-model adjustments or overlays/underlays, based on expert judgement including the use of available information. Management considerations included the potential severity and duration of the economic shock, including the mitigating effects of government support actions, as well the potential trajectory of the subsequent recovery. NWM Group also considered differential impacts on portfolio and sector classes, including pronouncements from regulatory bodies regarding IFRS 9 application in the context of Covid-19, notably on significant increase in credit risk (SICR) identification. The modelling interventions described above and the severity of the scenarios underpinning the ECL estimate have alleviated the need for a dedicated economic uncertainty overlay. Consequently, the existing overlay for economic uncertainty at 31 December 2019 of £4 million was absorbed through the H1 2020 modelled ECL estimate. |
Economic loss drivers Treatment of Covid-19 relief mechanisms Use of Covid-19 relief mechanisms (for example, payment holidays, CBILS and BBLS) will not automatically merit identification of SICR and trigger a Stage 2 classification in isolation. For Wholesale customers, at H1 2020, lifetime PD deterioration remains the primary driver of SICR identification, amplified by the forward-looking economics. NWM Group continues to provide support, where appropriate, to existing customers. Those who are deemed either to require a) a prolonged timescale to return within NWM Group's risk appetite or b) not to be viable pre-crisis or c) not to be able to sustain their debt once the crisis is over will trigger a SICR and, if concessions are sought, be categorised as forborne, in line with regulatory guidance. As some of the government support mechanisms conclude, NWM Group anticipates further credit deterioration in the portfolios. There are a number of key factors that could drive further downside to impairments, through deteriorating economic and credit metrics and increased stage migration as credit risk increases for more customers. A key factor would be a more adverse deterioration in GDP and unemployment in the economies in which NWM Group operates, but also, among others: ● The timing and nature of governmental exit plans from lockdown and any future repeated lockdown requirements. ● The progress of the pandemic, with potential for changes in worker/consumer behaviour and sickness levels. ● The efficacy of the various government support initiatives in terms of their ability to defray customer defaults is yet to be proven, notably over an extended period. ● Any further damage to certain supply chains, most notably in the case of any re-tightening of lockdown rules but also delays caused by social distancing measures and possible export/import controls. ● The level of revenues lost by corporate clients and pace of recovery of those revenues may affect NWM Group's clients' ability to service their borrowing, especially in those sectors most exposed to the impacts of Covid-19. ● Higher unemployment if companies fail to restart jobs after periods of staff furlough. This could potentially lead to further ECL increases. However, the income statement impact of this will be mitigated to some extent by the forward-looking provisions taken at H1 2020. Model performance To date, model performance monitoring has not identified any noticeable increases in default or loss rates in Wholesale Lending. This is not unexpected given the recent impact of Covid-19 and the implementation of government interventions aiming to delay and/or mitigate its impact on the economy. As a result, it is too early to meaningfully assess model performance against the actual impact. Nonetheless, Covid-19 has already had a significant impact on the forward-looking economic information used by the IFRS 9 models in calculating ECL. While the central scenario used previously implied largely a continuation of current conditions, the central scenarios assumed now forecast a dramatic deterioration in conditions on a magnitude typically observed for severe stresses but with the deterioration and subsequent recovery compressed into a much shorter time frame than typical economic cycles. This extreme and unusual nature of the scenarios considered has highlighted several limitations in the components of the Wholesale methodology that translate projected economic loss drivers into aggregate default and loss rate conditions at portfolio level. To account for these limitations, a number of refinements and changes have been applied to the respective model components to ensure that the ECL outcome is reasonable, not only in aggregate, but at industry sector level and with regard to the timing in which deteriorating economics translate into default and loss outcomes. More specifically, the following key adjustments have been applied to the modelled forward-looking economic conditions for the portfolios: ● Scenario profile - The previously unseen, extreme movements and quarterly variations in some economic loss drivers (most notably year-on-year change in UK GDP) are extrapolated by some Wholesale models into unrealistically high default rate outcomes. Where necessary, judgement was applied to adjust model outcomes to more appropriate levels based on peak default rates observed in previous crises and other existing stress scenario analysis, including the 2019 Bank of England annual cyclical scenario. ● Government support - The temporal profile of projected default and loss conditions was further adjusted to account for the expected impact of government interventions where those are not already reflected in the scenario's economic loss drivers. These adjustments result in both a delay and a reduction in the peak level of default and loss rates that would have been expected under the projected economic loss drivers without government intervention. The specification of the parameters of the adjustments - while guided by the level and characteristics of loans extended under the various government guarantee schemes - involve a considerable level of expert judgement. |
● Industry sector detail - The current suite of models for the Wholesale portfolios provides limited differentiation by industry sector. This approach is based on the data from the global financial crisis which exhibited a very high correlation across industry sectors. In contrast, the impact from Covid-19 is highly differentiated by industry sector and accordingly adjustments have been applied to implement an appropriate differentiation in the severity of projected default rate conditions for different sectors. The categorisation of industry sectors and scale of adjustments have been informed by a combination of expert judgement and external market data. The in-model adjustments have been applied in order to weight the PD and LGD estimates within the core ECL calculation process and therefore consistently and systematically inform stage allocation and ECL quantification. |
Measurement uncertainty and ECL sensitivity analysis The recognition and measurement of ECL is complex and involves the use of significant judgement and estimation, particularly in times of economic volatility and uncertainty. This includes the formulation and incorporation of multiple forward-looking economic conditions into ECL to meet the measurement objective of IFRS 9. The ECL provision is sensitive to the model inputs and economic assumptions underlying the estimate. The focus of the simulations is on ECL provisioning requirements on performing exposures in Stage 1 and Stage 2. The simulations are run on a stand-alone basis and are independent of each other; the potential ECL impacts reflect the simulated impact as at the H1 2020 balance sheet date. As default is an observed event as at the balance sheet date, Stage 3 provisions are not subject to the same level of measurement uncertainty, and therefore have not been considered in this analysis. The impact arising from the downside, upside and the central 1 scenarios was simulated. In the simulations, NWM Group has assumed that the economic macro variables associated with these scenarios replace the existing base case economic assumptions, giving them a 100% probability weighting and thus serving as a single economic scenario. These scenarios have been applied to all modelled portfolios in the analysis below, with the simulation impacting both PDs and LGDs. Modelled overlays present in the underlying ECL estimates are also sensitised. As expected, the scenarios create differing impacts on ECL by portfolio and the impacts are deemed reasonable. In this simulation, it is assumed that existing modelled relationships between key economic variables and loss drivers hold, but in practice other factors would also have an impact, for example, potential customer behaviour changes, policy changes by lenders that might impact on the wider availability of credit. NWM Group's core criterion to identify a SICR is founded on PD deterioration, as discussed above. Under the simulations, PDs increase and result in exposures moving from Stage 1 to Stage 2, contributing to the ECL impact. | |||||
30 June 2020 | Actual | Upside | Central 1 | Downside | |
| Stage 1 modelled exposure (£m) | 37,664 | 39,710 | 38,361 | 35,992 | |
| Stage 1 modelled ECL (£m) | 18 | 13 | 18 | 19 | |
| Stage 1 coverage (%) | 0.05% | 0.03% | 0.05% | 0.05% | |
| Stage 2 modelled exposure (£m) | 3,424 | 1,377 | 2,726 | 5,096 | |
| Stage 2 modelled ECL (£m) | 53 | 30 | 41 | 101 | |
| Stage 2 coverage (%) | 1.54% | 2.16% | 1.52% | 1.98% | |
| Stage 1 and Stage 2 modelled exposure (£m) | 41,087 | 41,087 | 41,087 | 41,087 | |
| Stage 1 and Stage 2 modelled ECL (£m) | 71 | 43 | 59 | 120 | |
| Stage 1 and Stage 2 coverage (%) | 0.17% | 0.10% | 0.14% | 0.29% | |
Notes: (1) Variations in future undrawn exposure values across the scenarios are modelled, however the exposure position reported is as at 30 June 2020 and therefore does not include variation in future undrawn exposure values. (2) Reflects ECL for all modelled exposure in scope for IFRS 9; in addition to loans this includes bonds and cash. The analysis excludes non-modelled portfolios. (3) All simulations are run on a stand-alone basis and are independent of each other, with the potential ECL impact reflecting the simulated impact at the half year balance sheet date. (4) Refer to page 17 for details of economic scenarios. (5) 2019 comparative details are not included as the sensitivity scenario analysis relates to the half year 2020 balance sheet position. Refer to the 2019 Annual Report and Accounts for the sensitivity analysis carried out at that time. | |||||
Portfolio summary The table below shows gross loans and related credit impairment measures, within the scope of the IFRS 9 ECL framework. | ||||
| 30 June | 31 December | |||
| 2020 | 2019 | |||
| £m | £m | |||
| Loans - amortised cost and fair value through other comprehensive income | ||||
| Stage 1 | 10,190 | 9,260 | ||
| Stage 2 | 2,381 | 180 | ||
| Stage 3 | 178 | 169 | ||
| Of which: individual | 172 | 158 | ||
| Of which: collective | 6 | 11 | ||
Inter-Group (1) | 682 | 738 | ||
| Total | 13,431 | 10,347 | ||
ECL provisions (2) | ||||
| Stage 1 | 18 | 10 | ||
| Stage 2 | 53 | 4 | ||
| Stage 3 | 136 | 132 | ||
| Of which: individual | 131 | 123 | ||
| Of which: collective | 5 | 9 | ||
| Inter-Group | 2 | - | ||
| Total | 209 | 146 | ||
ECL provisions coverage (3,4) | ||||
| Stage 1 (%) | 0.18 | 0.11 | ||
| Stage 2 (%) | 2.23 | 2.22 | ||
| Stage 3 (%) | 76.4 | 78.11 | ||
| Total | 1.56 | 1.52 | ||
| 30 June | 30 June | |||
| 2020 | 2019 | |||
| £m | £m | |||
| Impairment losses | ||||
ECL charge (5) | ||||
| Stage 1 | 14 | (2) | ||
| Stage 2 | 43 | (1) | ||
| Stage 3 | (13) | (32) | ||
| Of which: individual | (4) | (29) | ||
| Of which: collective | (9) | (3) | ||
| Third party | 44 | (35) | ||
| Inter-Group | 2 | (1) | ||
ECL loss rate - annualised (basis points) (4) | 69.03 | (72.45) | ||
| Amounts written off | 4 | 11 | ||
Notes: (1) NWM Group's intercompany assets were classified in Stage 1. The ECL attached to these loans was £2.1 million (31 December 2019 - £0.3 million). (2) Includes £2 million (31 December 2019 - £1 million) related to assets classified as FVOCI. (3) ECL provisions coverage is calculated as ECL provisions divided by loans. (4) ECL provisions coverage and ECL loss rates are calculated on third party loans and related ECL provisions and charge respectively. (5) Includes a £1 million charge (30 June 2019 - nil) related to other financial assets, of which nil (30 June 2019 - £1 million release) related to assets classified as FVOCI and a £1 million release (30 June 2019 - nil) related to contingent liabilities. (6) The table above shows gross loans only and excludes amounts that are outside the scope of the ECL framework. Refer to page 34 for Financial instruments within the scope of the IFRS 9 ECL framework for further details. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling £17.6 billion and debt securities of £11.3 billion (31 December 2019 - £12.7 billion and £11.1 billion respectively). | ||||
| Key points | ||||
| ● | The ECL requirement increased, primarily in Stage 1 and Stage 2 exposures, in anticipation of credit deterioration reflecting the severity of the economic impact arising from Covid-19. | |||
| ● | Stage 3 ECL provisions increased as a result of balance sheet movements, largely driven by increased interest in suspense and adverse foreign exchange movements. | |||
| ● | The release in Stage 3 impairment losses was primarily due to recoveries against debt previously written-off on legacy assets. | |||
| ● | Reflecting the deteriorated economic environment, the annualised loss rate was significantly above that observed in 2019. | |||
Sector analysis The table below shows ECL by stage, for key sectors in the Wholesale portfolio impacted by Covid-19. | |||||||||||||
| 30 June 2020 | |||||||||||||
Loans - amortised cost & FVOCI (1) | Off-balance sheet | ECL provisions | |||||||||||
| Stage 1 | Stage 2 | Stage 3 | Total | Loan | Contingent | Stage 1 | Stage 2 | Stage 3 | Total | ||||
| £m | £m | £m | £m | commitments | liabilities | £m | £m | £m | £m | ||||
| Wholesale | 10,190 | 2,381 | 178 | 12,749 | 14,504 | 870 | 18 | 53 | 136 | 207 | |||
| Property | 125 | 47 | 19 | 191 | 748 | 37 | 2 | 1 | 12 | 15 | |||
| Financial institutions | 7,760 | 938 | 1 | 8,699 | 6,634 | 682 | 12 | 31 | - | 43 | |||
| Sovereign | 75 | - | 3 | 78 | 40 | - | 1 | - | - | 1 | |||
| Corporate | 2,230 | 1,396 | 155 | 3,781 | 7,082 | 151 | 3 | 21 | 124 | 148 | |||
| Of which: | |||||||||||||
| Airlines and aerospace | - | 141 | 5 | 146 | 273 | 48 | - | 3 | 10 | 13 | |||
| Automotive | 348 | 518 | - | 866 | 317 | 1 | 1 | 4 | - | 5 | |||
| Education | - | - | - | - | - | - | - | - | - | - | |||
| Health | 22 | - | 2 | 24 | 3 | - | - | - | 1 | 1 | |||
| Land transport and logistics | 71 | 188 | 1 | 260 | 314 | 9 | - | 2 | 1 | 3 | |||
| Leisure | - | 88 | - | 88 | 436 | - | - | 2 | - | 2 | |||
| Oil and gas | - | 24 | 52 | 76 | 484 | 3 | - | 1 | 36 | 37 | |||
| Retail | - | - | 11 | 11 | 441 | 6 | - | - | 11 | 11 | |||
| Shipping | - | - | - | - | 114 | 7 | - | - | - | - | |||
| Textiles | - | - | - | - | - | - | - | - | - | - | |||
| Total | 10,190 | 2,381 | 178 | 12,749 | 14,504 | 870 | 18 | 53 | 136 | 207 | |||
| 31 December 2019 | |||||||||||||
Loans - amortised cost (1) | Off-balance sheet | ECL provisions | |||||||||||
| Stage 1 | Stage 2 | Stage 3 | Total | Loan | Contingent | Stage 1 | Stage 2 | Stage 3 | Total | ||||
| £m | £m | £m | £m | commitments | liabilities | £m | £m | £m | £m | ||||
| Wholesale | 9,260 | 180 | 169 | 9,609 | 16,093 | 1,127 | 10 | 4 | 132 | 146 | |||
| Property | 227 | - | 21 | 248 | 577 | 36 | - | - | 12 | 12 | |||
| Financial institutions | 7,791 | 23 | 2 | 7,816 | 8,034 | 940 | 7 | 1 | 2 | 10 | |||
| Sovereign | 60 | - | 2 | 62 | 38 | - | 2 | - | - | 2 | |||
| Corporate | 1,182 | 157 | 144 | 1,483 | 7,444 | 151 | 1 | 3 | 118 | 122 | |||
| Of which: | |||||||||||||
| Airlines and aerospace | - | - | 5 | 5 | 388 | 48 | - | - | 9 | 9 | |||
| Automotive | 49 | 44 | - | 93 | 919 | 1 | - | - | - | - | |||
| Education | - | - | - | - | - | - | - | - | - | - | |||
| Health | 22 | - | - | 22 | 26 | - | - | - | - | - | |||
| Land transport and logistics | 63 | 1 | 1 | 65 | 337 | 9 | - | - | - | - | |||
| Leisure | - | 48 | - | 48 | 464 | - | - | - | - | - | |||
| Oil and gas | 68 | 7 | 38 | 113 | 492 | 3 | 1 | - | 33 | 34 | |||
| Retail | - | - | 11 | 11 | 364 | 7 | - | - | 11 | 11 | |||
| Shipping | - | - | - | - | 12 | 4 | - | - | - | - | |||
| Textiles | - | - | - | - | - | - | - | - | - | - | |||
| Total | 9,260 | 180 | 169 | 9,609 | 16,093 | 1,127 | 10 | 4 | 132 | 146 | |||
Note: (1) The table was prepared consistently with NWM Group 2019 Annual Report and Accounts, in which, loans represent gross loans to customers and banks. | |||||||||||||
Flow statement The flow statement that follows shows the main ECL and related income statement movements. It also shows the changes in ECL as well as the changes in related financial assets used in determining ECL. Due to differences in scope, exposures may differ from those reported in other tables, principally in relation to exposures in Stage 1 and Stage 2. These differences do not have a material ECL impact. Other points to note: ● Financial assets include treasury liquidity portfolios, comprising balances at central banks and debt securities, as well as loans. Both modelled and non-modelled portfolios are included. ● Stage transfers (for example, exposures moving from Stage 1 to Stage 2) are a key feature of the ECL movements, with the net re-measurement cost of transitioning to a worse stage being a primary driver of income statement charges. Similarly, there is an ECL benefit for accounts improving stage. ● Changes in risk parameters shows the reassessment of the ECL within a given stage, including any ECL overlays and residual income statement gains or losses at the point of write-off or accounting write-down. ● Other (Profit or loss (P&L) only items) includes any subsequent changes in the value of written-down assets (for example, fortuitous recoveries) along with other direct write-off items such as direct recovery costs. Other (P&L only items) affects the income statement but does not affect balance sheet ECL movements. ● Amounts written-off represent the gross asset written-down against accounts with ECL, including the net asset write-down for any debt sale activity. |
| Stage 1 | Stage 2 | Stage 3 | Total | |||||||||
| Financial | Financial | Financial | Financial | |||||||||
| assets | ECL | assets | ECL | assets | ECL | assets | ECL | |||||
| NWM Group | £m | £m | £m | £m | £m | £m | £m | £m | ||||
| At 1 January 2020 | 32,877 | 10 | 188 | 4 | 184 | 132 | 33,249 | 146 | ||||
| Currency translation and other adjustments | 1,346 | - | 35 | - | 12 | 12 | 1,393 | 12 | ||||
| Inter-Group transfers | (771) | - | - | - | - | - | (771) | - | ||||
| Transfers from Stage 1 to Stage 2 | (2,133) | (6) | 2,133 | 6 | - | - | - | - | ||||
| Transfers from Stage 2 to Stage 1 | 62 | - | (62) | - | - | - | - | - | ||||
| Transfers from Stage 3 | - | - | - | - | - | - | - | - | ||||
| Net re-measurement of ECL on stage transfer | - | 39 | - | 39 | ||||||||
| Changes in risk parameters (model inputs) | 9 | 5 | (9) | 5 | ||||||||
| Other changes in net exposure | 6,866 | 5 | 503 | (1) | (10) | 5 | 7,359 | 9 | ||||
| Other (P&L only items) | - | - | (9) | (9) | ||||||||
| Income statement charges/(releases) | 14 | 43 | (13) | 44 | ||||||||
| Amounts written-off | - | - | - | - | (4) | (4) | (4) | (4) | ||||
| Unwinding of discount | - | - | - | - | ||||||||
| At 30 June 2020 | 38,247 | 18 | 2,797 | 53 | 182 | 136 | 41,226 | 207 | ||||
| Net carrying amount | 38,229 | 2,744 | 46 | 41,019 | ||||||||
| At 1 January 2019 | 32,499 | 6 | 670 | 11 | 671 | 91 | 33,840 | 108 | ||||
| 2019 movements | (1,524) | - | (287) | (3) | 17 | (15) | (1,794) | (18) | ||||
| At 30 June 2019 | 30,975 | 6 | 383 | 8 | 688 | 76 | 32,046 | 90 | ||||
| Net carrying amount | 30,969 | 375 | 612 | 31,956 | ||||||||
Key points ● The increase in ECL in Stage 1 and Stage 2 was primarily driven by the deterioration in the economic outlook as detailed in the Covid-19 - estimating ECL in uncertain times section, causing both PDs and LGDs to increase. ● The updated economics also resulted in a migration of assets from Stage 1 to Stage 2 with a consequential increase from a 12-month ECL to a lifetime ECL. | |
| Half year ended | ||
| 30 June | 30 June | |
| 2020 | 2019 | |
| £m | £m | |
| Interest receivable | 276 | 278 |
| Interest payable | (315) | (385) |
| Net interest income | (39) | (107) |
| Fees and commissions receivable | 277 | 181 |
| Fees and commissions payable | (202) | (185) |
| Income from trading activities | 776 | 543 |
| Other operating income | (3) | 74 |
| Non-interest income | 848 | 613 |
| Total income | 809 | 506 |
| Operating expenses | (814) | (411) |
| (Loss)/profit before impairment (losses)/releases | (5) | 95 |
| Impairment (losses)/releases | (45) | 36 |
| Operating (loss)/profit before tax | (50) | 131 |
| Tax (charge)/credit | (79) | 74 |
| (Loss)/profit for the period | (129) | 205 |
| Attributable to: | ||
| Ordinary shareholders | (96) | 175 |
| Paid-in equity holders | 34 | 30 |
| Non-controlling interests | (67) | - |
| (129) | 205 | |
| Half year ended | ||
| 30 June | 30 June | |
| 2020 | 2019 | |
| £m | £m | |
| (Loss)/profit for the period | (129) | 205 |
| Items that do not qualify for reclassification | ||
| Remeasurement of retirement benefit schemes | (3) | - |
| Profit/(loss) on fair value of credit in financial liabilities designated at fair value through | ||
profit or loss due to own credit risk | 83 | (39) |
| FVOCI financial assets | (176) | (5) |
| Tax | 3 | 31 |
| (93) | (13) | |
| Items that do qualify for reclassification | ||
| FVOCI financial assets | (18) | 5 |
| Cash flow hedges | 154 | 53 |
| Currency translation | 258 | 84 |
| Tax | (42) | (12) |
| 352 | 130 | |
| Other comprehensive income after tax | 259 | 117 |
| Total comprehensive income for the period | 130 | 322 |
| Attributable to: | ||
| Ordinary shareholders | 149 | 291 |
| Paid-in equity holders | 34 | 30 |
| Non-controlling interests | (53) | 1 |
| 130 | 322 | |
| 30 June | 31 December | |
| 2020 | 2019 | |
| £m | £m | |
| Assets | ||
| Cash and balances at central banks | 17,566 | 12,729 |
| Trading assets | 71,958 | 76,540 |
| Derivatives | 182,297 | 148,696 |
| Settlement balances | 7,806 | 4,339 |
| Loans to banks - amortised cost | 974 | 1,088 |
| Loans to customers - amortised cost | 11,408 | 8,361 |
| Amounts due from holding company and fellow subsidiaries | 1,827 | 1,231 |
| Other financial assets | 12,550 | 12,305 |
| Other assets | 667 | 847 |
| Total assets | 307,053 | 266,136 |
| Liabilities | ||
| Bank deposits | 2,866 | 2,089 |
| Customer deposits | 5,537 | 3,703 |
| Amounts due to holding company and fellow subsidiaries | 8,957 | 8,300 |
| Settlement balances | 6,860 | 4,022 |
| Trading liabilities | 75,481 | 73,836 |
| Derivatives | 176,718 | 144,142 |
| Other financial liabilities | 19,046 | 18,445 |
| Other liabilities | 1,685 | 1,689 |
| Total liabilities | 297,150 | 256,226 |
| Equity | ||
| Owners' equity | 9,953 | 9,907 |
| Non-controlling interests | (50) | 3 |
| Total equity | 9,903 | 9,910 |
| Total liabilities and equity | 307,053 | 266,136 |
| Half year ended | ||
| 30 June | 30 June | |
| 2020 | 2019 | |
| £m | £m | |
Called up share capital - at beginning and end of period | 400 | 400 |
Share premium account - at beginning and end of period | 1,759 | 1,759 |
Paid-in equity - at beginning and end of period | 904 | 749 |
FVOCI reserve - at beginning of period | (134) | 134 |
| Unrealised (losses)/gains | (196) | 4 |
| Realised losses/(gains) | 1 | (166) |
| Tax | 3 | 20 |
| At end of period | (326) | (8) |
Cash flow hedging reserve - at beginning of period | 137 | 114 |
| Amount recognised in equity | 110 | 53 |
| Amount transferred from equity to earnings | 44 | - |
| Tax | (45) | (11) |
| At end of period | 246 | 156 |
Foreign exchange reserve - at beginning of period | 77 | 230 |
| Retranslation of net assets | 284 | 55 |
| Foreign currency (losses)/gains on hedges of net assets | (35) | 28 |
| Recycled to profit or loss on disposal of businesses | (5) | - |
| At end of period | 321 | 313 |
Retained earnings - at beginning of period | 6,764 | 5,701 |
| Implementation of IFRS 16 on 1 January 2019 | - | (6) |
| (Loss)/profit attributable to ordinary shareholders and other equity owners | (62) | 205 |
| Ordinary dividends paid | - | (500) |
| Paid-in equity dividends paid | (34) | (30) |
| Remeasurement of retirement benefit schemes | ||
- gross | (3) | - |
- tax | 11 | - |
| Realised gains in period on FVOCI equity shares | 1 | 162 |
| Changes in fair value of credit in financial liabilities designated as fair value through profit or loss | ||
- gross | 83 | (39) |
- tax | (8) | 10 |
Share-based payments (1) | (85) | (217) |
| Capital contribution | 22 | - |
| Distribution | (40) | - |
| At end of period | 6,649 | 5,286 |
| Owners' equity at end of period | 9,953 | 8,655 |
Non-controlling interests - at beginning of period | 3 | 2 |
| Currency translation adjustments and other movements | 14 | 1 |
| Loss attributable to non-controlling interests | (67) | - |
| At end of period | (50) | 3 |
| Total equity at end of period | 9,903 | 8,658 |
| Attributable to: | ||
| Ordinary shareholders | 9,049 | 7,906 |
| Paid-in equity holders | 904 | 749 |
| Non-controlling interests | (50) | 3 |
| 9,903 | 8,658 | |
| (1) | 2019 includes adjustments to the allocation of deferred awards following the implementation of ring-fencing and the impact of vesting during the period. |
| Half year ended | ||
| 30 June | 30 June | |
| 2020 | 2019 (1) | |
| £m | £m | |
| Operating activities | ||
| Operating (loss)/profit before tax from continuing operations | (50) | 131 |
| Adjustments for non-cash items | (236) | 57 |
| Net cash (outflow)/inflow from trading activities | (286) | 188 |
| Changes in operating assets and liabilities | 1,414 | 5,030 |
| Net cash flows from operating activities before tax | 1,128 | 5,218 |
| Income taxes paid | 1 | (7) |
| Net cash flows from operating activities | 1,129 | 5,211 |
| Net cash flows from investing activities | 44 | (863) |
| Net cash flows from financing activities | (201) | (355) |
| Effects of exchange rate changes on cash and cash equivalents | 1,331 | 63 |
| Net increase in cash and cash equivalents | 2,303 | 4,056 |
| Cash and cash equivalents at beginning of period | 27,043 | 26,127 |
| Cash and cash equivalents at end of period | 29,346 | 30,183 |
| Half year ended | ||
| 30 June | 30 June | |
| 2020 | 2019 | |
| £m | £m | |
| Salaries and other | (257) | (223) |
| Temporary and contract costs | (12) | (19) |
| Social security costs | (31) | (30) |
| Variable compensation | (58) | (68) |
| Pension costs | (19) | (23) |
| Staff costs | (377) | (363) |
| Premises and equipment | (75) | (54) |
| Depreciation and amortisation | (14) | (6) |
Other administrative expenses (1,2) | (348) | 12 |
| (814) | (411) | |
| (1) | Includes recharges from other NatWest Group entities, mainly NatWest Bank Plc which provides the majority of shared services (including technology) and operational processes. |
| (2) | Includes litigation and other regulatory costs. Further details provided in Note 12. |
| ● | NatWest Markets; and |
| ● | Central items & other, which comprises corporate functions and other activity not managed in the NatWest Markets segment during the period. In H1 2020 this is substantially comprised of litigation and conduct costs. In H1 2019 this was primarily comprised of certain one-off cost recoveries. |
| Net | Net fees | Other non- | Impairment | ||||
| interest | and | interest | Total | Operating | releases/ | Operating | |
income (1) | commissions | income | income | expenses | (losses) | (loss)/profit | |
| Half year ended 30 June 2020 | £m | £m | £m | £m | £m | £m | £m |
| NatWest Markets | (39) | 75 | 773 | 809 | (717) | (40) | 52 |
| Central items & other | - | - | - | - | (97) | (5) | (102) |
| Total | (39) | 75 | 773 | 809 | (814) | (45) | (50) |
| Half year ended 30 June 2019 | |||||||
| NatWest Markets | (116) | (7) | 580 | 457 | (589) | 34 | (98) |
| Central items & other | 9 | 3 | 37 | 49 | 178 | 2 | 229 |
| Total | (107) | (4) | 617 | 506 | (411) | 36 | 131 |
| (1) | Includes interest payable of £315 million and interest receivable of £276 million (H1 2019 - £385 million and £278 million respectively). Within the NatWest Markets segment, net interest income comprises interest receivable on external lending activities, offset by net interest payable on external funding activity managed by NatWest Markets Treasury and inter-segmental charges. |
| Half year ended | |||||||
| 30 June 2020 | 30 June 2019 | ||||||
| Inter | Inter | ||||||
| External | segment | Total | External | segment | Total | ||
| Total revenue | £m | £m | £m | £m | £m | £m | |
| NatWest Markets | 1,326 | - | 1,326 | 1,049 | 433 | 1,482 | |
| Central items & other | - | - | - | 27 | (433) | (406) | |
| Total | 1,326 | - | 1,326 | 1,076 | - | 1,076 | |
Central | |||
| NatWest | items | ||
| Markets | & other | Total | |
| Half year ended 30 June 2020 | £m | £m | £m |
| Fees and commissions receivable | |||
- Underwriting fees | 124 | - | 124 |
- Brokerage | 61 | - | 61 |
- Lending (credit facilities) | 44 | - | 44 |
- Other | 48 | - | 48 |
| Total | 277 | - | 277 |
| Fees and commissions payable | (202) | - | (202) |
| Net fees and commissions | 75 | - | 75 |
| Half year ended 30 June 2019 | |||
| Fees and commissions receivable | |||
- Underwriting fees | 94 | - | 94 |
- Brokerage | 41 | - | 41 |
- Lending (credit facilities) | 36 | - | 36 |
- Other | 7 | 3 | 10 |
| Total | 178 | 3 | 181 |
| Fees and commissions payable | (185) | - | (185) |
| Net fees and commissions | (7) | 3 | (4) |
| 30 June 2020 | 31 December 2019 | ||||
| Assets | Liabilities | Assets | Liabilities | ||
| £m | £m | £m | £m | ||
| NatWest Markets | 307,053 | 297,122 | 266,136 | 256,210 | |
| Central items & other | - | 28 | - | 16 | |
| Total | 307,053 | 297,150 | 266,136 | 256,226 | |
| Half year ended | ||
| 30 June | 30 June | |
| 2020 | 2019 | |
| £m | £m | |
| (Loss)/profit before tax | (50) | 131 |
| Expected tax credit/(charge) | 10 | (25) |
| Losses and temporary differences in period where no deferred tax asset recognised | (8) | (2) |
| Foreign profits taxed at other rates | (11) | (4) |
| UK tax rate change impact | (23) | - |
| Items not allowed for tax: | ||
- losses on disposals and write-downs | (1) | (6) |
- UK bank levy | (2) | 2 |
- regulatory and legal actions | (19) | 3 |
- other disallowable items | (7) | (16) |
| Non-taxable items | - | 46 |
| Taxable foreign exchange movements | (1) | |
| Losses brought forward and utilised | 20 | 1 |
| Decrease in the carrying value of deferred tax assets in respect of UK losses | (16) | - |
| Banking surcharge | (2) | 7 |
| Tax on paid-in equity | 8 | 7 |
| Adjustments in respect of prior periods | (27) | 61 |
| Actual tax (charge)/credit | (79) | 74 |
| 30 June | 31 December | |
| 2020 | 2019 | |
| Assets | £m | £m |
| Loans | ||
| Reverse repos | 18,909 | 24,095 |
| Collateral given | 25,018 | 20,467 |
| Other loans | 2,697 | 1,854 |
| Total loans | 46,624 | 46,416 |
| Securities | ||
| Central and local government | ||
- UK | 4,515 | 4,897 |
- US | 4,570 | 5,458 |
- other | 12,081 | 14,902 |
| Financial institutions and corporate | 4,168 | 4,867 |
| Total securities | 25,334 | 30,124 |
| Total | 71,958 | 76,540 |
| Liabilities | ||
| Deposits | ||
| Repos | 23,767 | 27,885 |
| Collateral received | 27,095 | 21,506 |
| Other deposits | 2,077 | 1,496 |
| Total deposits | 52,939 | 50,887 |
| Debt securities in issue | 2,084 | 1,762 |
| Short positions | 20,458 | 21,187 |
| Total | 75,481 | 73,836 |
| Amortised | Other | ||||
MFVTPL (1) | FVOCI (2) | cost | assets | Total | |
| Assets | £m | £m | £m | £m | £m |
| Cash and balances at central banks | 17,566 | 17,566 | |||
| Trading assets | 71,958 | 71,958 | |||
Derivatives (3) | 182,297 | 182,297 | |||
| Settlement balances | 7,806 | 7,806 | |||
Loans to banks - amortised cost (4) | 974 | 974 | |||
Loans to customers - amortised cost (5) | 11,408 | 11,408 | |||
| Amounts due from holding company and fellow subsidiaries | 1,096 | - | 679 | 52 | 1,827 |
| Other financial assets | 335 | 8,128 | 4,087 | 12,550 | |
| Other assets | 667 | 667 | |||
| 30 June 2020 | 255,686 | 8,128 | 42,520 | 719 | 307,053 |
| Cash and balances at central banks | 12,729 | 12,729 | |||
| Trading assets | 76,540 | 76,540 | |||
Derivatives (3) | 148,696 | 148,696 | |||
| Settlement balances | 4,339 | 4,339 | |||
Loans to banks - amortised cost (4) | 1,088 | 1,088 | |||
Loans to customers - amortised cost (5) | 8,361 | 8,361 | |||
| Amounts due from holding company and fellow subsidiaries | 438 | - | 753 | 40 | 1,231 |
| Other financial assets | 392 | 7,929 | 3,984 | 12,305 | |
| Other assets | 847 | 847 | |||
| 31 December 2019 | 226,066 | 7,929 | 31,254 | 887 | 266,136 |
| Held-for- | Amortised | Other | |||
| trading | DFV (6) | cost | liabilities | Total | |
| Liabilities | £m | £m | £m | £m | £m |
| Bank deposits | 2,866 | 2,866 | |||
| Customer deposits | 5,537 | 5,537 | |||
| Amounts due to holding company and fellow subsidiaries | 521 | - | 8,288 | 148 | 8,957 |
| Settlement balances | 6,860 | 6,860 | |||
| Trading liabilities | 75,481 | 75,481 | |||
Derivatives (7) | 176,718 | 176,718 | |||
| Other financial liabilities | 2,853 | 16,193 | 19,046 | ||
Other liabilities (8) | 97 | 1,588 | 1,685 | ||
| 30 June 2020 | 252,720 | 2,853 | 39,841 | 1,736 | 297,150 |
| Bank deposits | 2,089 | 2,089 | |||
| Customer deposits | 3,703 | 3,703 | |||
| Amounts due to holding company and fellow subsidiaries | 491 | - | 7,641 | 168 | 8,300 |
| Settlement balances | 4,022 | 4,022 | |||
| Trading liabilities | 73,836 | 73,836 | |||
Derivatives (7) | 144,142 | 144,142 | |||
| Other financial liabilities | 2,980 | 15,465 | 18,445 | ||
Other liabilities (8) | 100 | 1,589 | 1,689 | ||
| 31 December 2019 | 218,469 | 2,980 | 33,020 | 1,757 | 256,226 |
| (1) | Mandatory fair value through profit or loss. |
| (2) | Fair value through other comprehensive income |
| (3) | Includes net hedging derivatives of £331 million (31 December 2019 - £179 million). |
| (4) | Includes items in the course of collection from other banks of £14 million (31 December 2019 - £11 million). |
| (5) | Includes finance lease receivables. |
| (6) | Designated as at fair value through profit or loss. |
| (7) | Includes net hedging derivatives of £17 million (31 December 2019 - £1 million). |
| (8) | Includes lease liabilities of £91 million (31 December 2019 - £97 million). |
| 30 June 2020 | 31 December 2019 | ||||||
| Holding | Fellow | Holding | Fellow | ||||
| company | subsidiaries | Total | company | subsidiaries | Total | ||
| £m | £m | £m | £m | £m | £m | ||
| Assets | |||||||
| Loans to banks and customers | 917 | 858 | 1,775 | 423 | 754 | 1,177 | |
| Settlement balances | - | - | - | - | 14 | 14 | |
| Other assets | - | 52 | 52 | - | 40 | 40 | |
| Total inter-group assets | 917 | 910 | 1,827 | 423 | 808 | 1,231 | |
| Not included above: | |||||||
| Derivatives | 684 | 708 | 1,392 | 421 | 594 | 1,015 | |
| Liabilities | |||||||
| Bank and customer deposits | - | 1,061 | 1,061 | - | 989 | 989 | |
| CRR-compliant internal MREL | 5,566 | - | 5,566 | 5,120 | - | 5,120 | |
| Settlement balances | - | - | - | - | 3 | 3 | |
| Other financial liabilities - Subordinated liabilities | 2,182 | - | 2,182 | 2,020 | - | 2,020 | |
| Other liabilities | - | 148 | 148 | - | 168 | 168 | |
| Total inter-group liabilities | 7,748 | 1,209 | 8,957 | 7,140 | 1,160 | 8,300 | |
| Not included above: | |||||||
| Derivatives | 1,433 | 509 | 1,942 | 712 | 337 | 1,049 | |
| 30 June | 31 December | |
| 2020 | 2019 | |
| £m | £m | |
| Reverse repos | ||
| Trading assets | 18,909 | 24,095 |
| Loans to bank - amortised cost | 3 | 2 |
| Loans to customers - amortised cost | 638 | 12 |
| Repos | ||
| Bank deposits | 393 | 380 |
| Trading liabilities | 23,767 | 27,885 |
| 30 June 2020 | 31 December 2019 | ||||||
| Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||
| Assets | £m | £m | £m | £m | £m | £m | |
| Trading assets | |||||||
Loans | - | 46,202 | 422 | - | 45,967 | 449 | |
Securities | 17,983 | 7,185 | 166 | 20,865 | 8,704 | 555 | |
| Derivatives | - | 180,755 | 1,542 | - | 147,285 | 1,411 | |
| Amount due from holding company and fellow subsidiaries | - | 1,096 | - | - | 438 | - | |
| Other financial assets | |||||||
Loans | - | 22 | 230 | - | 18 | 58 | |
Securities | 6,321 | 1,862 | 28 | 6,428 | 1,787 | 30 | |
| Total financial assets held at fair value | 24,304 | 237,122 | 2,388 | 27,293 | 204,199 | 2,503 | |
| Liabilities | |||||||
| Amount due to holding company and fellow subsidiaries | - | 521 | - | - | 491 | - | |
| Trading liabilities | |||||||
Deposits | - | 52,910 | 29 | - | 50,831 | 56 | |
Debt securities in issue | - | 2,069 | 15 | - | 1,703 | 59 | |
Short positions | 15,365 | 5,093 | - | 15,565 | 5,622 | - | |
| Derivatives | - | 175,678 | 1,040 | - | 143,009 | 1,133 | |
| Other financial liabilities | |||||||
Deposits | - | 350 | - | - | - | - | |
Debt securities in issue | - | 1,769 | - | - | 2,115 | 141 | |
Subordinated liabilities | - | 734 | - | - | 724 | - | |
| Total financial liabilities held at fair value | 15,365 | 239,124 | 1,084 | 15,565 | 204,495 | 1,389 | |
| (1) | Level 1 - Instruments valued using unadjusted quoted prices in active and liquid markets, for identical financial instruments. Examples include government bonds, listed equity shares and certain exchange-traded derivatives. Level 2 - Instruments valued using valuation techniques that have observable inputs. Examples include most government agency securities, investment-grade corporate bonds, certain mortgage products, including CLOs, most bank loans, repos and reverse repos, less liquid listed equities, state and municipal obligations, most notes issued, and certain money market securities and loan commitments and most OTC derivatives. Level 3 - Instruments valued using a valuation technique where at least one input which could have a significant effect on the instrument's valuation is not based on observable market data. Examples include cash instruments which trade infrequently, certain syndicated and commercial mortgage loans, certain emerging markets and derivatives with unobservable model inputs. |
| (2) | Transfers between levels are deemed to have occurred at the beginning of the quarter in which the instruments were transferred. There were no significant transfers between level 1 and level 2. |
| Half year ended 30 June 2020 | Half year ended 30 June 2019 | ||||||||
| Other | Other | ||||||||
| Trading | financial | Total | Total | Trading | financial | Total | Total | ||
assets (1) | assets (2) | assets | liabilities | assets (1) | assets (2) | assets | liabilities | ||
| £m | £m | £m | £m | £m | £m | £m | £m | ||
| At 1 January | 2,415 | 88 | 2,503 | 1,389 | 2,723 | 531 | 3,254 | 2,051 | |
Amount recorded in the income statement (3) | 358 | 2 | 360 | 104 | (85) | 6 | (79) | 225 | |
| Amount recorded in the statement of | - | ||||||||
comprehensive income | - | (1) | (1) | - | - | 33 | 33 | - | |
| Level 3 transfers in | 133 | 161 | 294 | 6 | 156 | 2 | 158 | 56 | |
| Level 3 transfers out | (101) | (3) | (104) | (337) | (476) | (133) | (609) | (239) | |
| Issuances | - | - | - | - | - | - | - | 23 | |
| Purchases | 366 | 5 | 371 | 100 | 368 | - | 368 | 272 | |
| Settlements | (113) | - | (113) | (14) | (88) | (6) | (94) | (142) | |
| Sales | (933) | - | (933) | (167) | (263) | (157) | (420) | (428) | |
| Foreign exchange and other adjustments | 5 | 6 | 11 | 3 | (1) | (2) | (3) | - | |
| At 30 June | 2,130 | 258 | 2,388 | 1,084 | 2,334 | 274 | 2,608 | 1,818 | |
| Amounts recorded in the income statement in | |||||||||
respect of balances held at period end | |||||||||
- unrealised | 358 | 2 | 360 | 104 | (85) | 6 | (79) | 225 | |
| (1) | Trading assets comprise assets held at fair value in trading portfolios. |
| (2) | Other financial assets comprise fair value through other comprehensive income, designated as at fair value through profit or loss and other fair value through profit or loss. |
| (3) | Net gains on trading assets and liabilities of £254 million (30 June 2019 - £320 million losses) were recorded in income from trading activities. Net gains on other instruments of £2 million (30 June 2019 - £16 million) were recorded in other operating income and interest income as appropriate. |
| 30 June 2020 | 31 December 2019 | ||||||
| Level 3 | Favourable | Unfavourable | Level 3 | Favourable | Unfavourable | ||
| Assets | £m | £m | £m | £m | £m | £m | |
| Trading assets | |||||||
Loans | 422 | 10 | (10) | 449 | 10 | (10) | |
Securities | 166 | 10 | - | 555 | - | - | |
| Derivatives | |||||||
Interest rate | 1,115 | 120 | (120) | 1,015 | 160 | (160) | |
Foreign exchange | 82 | 10 | (10) | 98 | 10 | (10) | |
Other | 345 | 50 | (50) | 298 | 80 | (60) | |
| Other financial assets | |||||||
Loans | 230 | 10 | (10) | 58 | - | - | |
Securities | 28 | - | - | 30 | - | - | |
| Total financial assets held at fair value | 2,388 | 210 | (200) | 2,503 | 260 | (240) | |
| Liabilities | |||||||
| Trading liabilities | |||||||
Deposits | 29 | - | - | 56 | - | - | |
Debt securities in issue | 15 | - | (20) | 59 | - | - | |
| Derivatives | |||||||
Interest rate | 529 | 70 | (60) | 630 | 70 | (70) | |
Foreign exchange | 240 | - | - | 222 | 10 | (10) | |
Other | 271 | 20 | (20) | 281 | 20 | (20) | |
| Other financial liabilities - debt securities in issue | - | - | - | 141 | 10 | (10) | |
| Total financial liabilities held at fair value | 1,084 | 90 | (100) | 1,389 | 110 | (110) | |
| 30 June | 31 December | |
| 2020 | 2019 | |
| £m | £m | |
| Funding - FVA | 162 | 193 |
| Credit - CVA | 442 | 384 |
| Bid - Offer | 128 | 138 |
| Product and deal specific | 180 | 238 |
| 912 | 953 |
| Items where | |||||
| fair value | |||||
| approximates | Carrying | Fair value hierarchy level | |||
| carrying value | value | Fair value | Level 2 | Level 3 | |
| 30 June 2020 | £bn | £bn | £bn | £bn | £bn |
| Financial assets | |||||
| Cash and balances at central banks | 17.6 | ||||
| Settlement balances | 7.8 | ||||
| Loans to banks | 1.0 | 1.0 | 0.2 | 0.8 | |
| Loans to customers | 11.4 | 11.3 | 0.9 | 10.4 | |
| Amounts due from holding company and fellow subsidiaries | - | 0.7 | 0.7 | - | 0.7 |
| Other financial assets - Securities | 4.1 | 4.1 | 1.3 | 2.8 | |
| Financial liabilities | |||||
| Bank deposits | 2.9 | 2.8 | - | 2.8 | |
| Customer deposits | 2.2 | 3.3 | 3.4 | - | 3.4 |
| Amounts due to holding company and fellow subsidiaries | 0.1 | 8.2 | 8.3 | 7.8 | 0.5 |
| Settlement balances | 6.9 | ||||
| Other financial liabilities | |||||
Debt securities in issue | 15.8 | 15.9 | 14.1 | 1.8 | |
Subordinated liabilities | 0.4 | 0.5 | 0.5 | - | |
| 31 December 2019 | |||||
| Financial assets | |||||
| Cash and balances at central banks | 12.7 | ||||
| Settlement balances | 4.3 | ||||
| Loans to banks | 1.1 | 1.1 | 0.2 | 0.9 | |
| Loans to customers | 8.4 | 8.1 | 0.3 | 7.8 | |
| Amounts due from holding company and fellow subsidiaries | 0.2 | 0.6 | 0.6 | - | 0.6 |
| Other financial assets - Securities | 4.0 | 4.0 | 1.5 | 2.5 | |
| Financial liabilities | |||||
| Bank deposits | 2.1 | 2.1 | - | 2.1 | |
| Customer deposits | 0.9 | 2.8 | 2.8 | - | 2.8 |
| Amounts due to holding company and fellow subsidiaries | 0.1 | 7.5 | 7.7 | 7.3 | 0.4 |
| Settlement balances | 4.0 | ||||
| Other financial liabilities | |||||
Debt securities in issue | 15.1 | 15.1 | 12.6 | 2.5 | |
Subordinated liabilities | 0.4 | 0.4 | 0.4 | - | |
| Litigation | |||
| and other | |||
| regulatory | Other (1) | Total | |
| £m | £m | £m | |
| At 1 January 2020 | 325 | 180 | 505 |
| Currency translation and other movements | 12 | 11 | 23 |
| Charge to income statement | 98 | 54 | 152 |
| Release to income statement | (6) | (23) | (29) |
| Provisions utilised | (10) | (24) | (34) |
| At 30 June 2020 | 419 | 198 | 617 |
| (1) | Materially comprises provisions relating to property closures and restructuring costs. |
| 30 June | 31 December | |
| 2020 | 2019 | |
| £m | £m | |
| Loans - amortised cost and fair value through other comprehensive income | ||
| Stage 1 | 10,190 | 9,260 |
| Stage 2 | 2,381 | 180 |
| Stage 3 | 178 | 169 |
| Of which: individual | 172 | 158 |
| Of which: collective | 6 | 11 |
Inter-Group (1) | 682 | 738 |
| Total | 13,431 | 10,347 |
ECL provisions (2) | ||
| Stage 1 | 18 | 10 |
| Stage 2 | 53 | 4 |
| Stage 3 | 136 | 132 |
| Of which: individual | 131 | 123 |
| Of which: collective | 5 | 9 |
| Inter-Group | 2 | - |
| Total | 209 | 146 |
ECL provisions coverage (3,4) | ||
| Stage 1 (%) | 0.18 | 0.11 |
| Stage 2 (%) | 2.23 | 2.22 |
| Stage 3 (%) | 76.4 | 78.11 |
| Total | 1.56 | 1.52 |
| 30 June | 30 June | |
| 2020 | 2019 | |
| £m | £m | |
| Impairment losses | ||
ECL charge (5) | ||
| Stage 1 | 14 | (2) |
| Stage 2 | 43 | (1) |
| Stage 3 | (13) | (32) |
| Of which: individual | (4) | (29) |
| Of which: collective | (9) | (3) |
| Third party | 44 | (35) |
| Inter-Group | 2 | (1) |
ECL loss rate - annualised (basis points) (4) | 69.03 | (72.45) |
| Amounts written off | 4 | 11 |
| 30 June | 31 December | |
| 2020 | 2019 | |
| £m | £m | |
| Guarantees | 712 | 972 |
| Other contingent liabilities | 159 | 155 |
| Standby facilities, credit lines and other commitments | 16,379 | 15,805 |
| Contingent liabilities and commitments | 17,250 | 16,932 |
| ● | The provision of a funded guarantee of up to £3.0 billion by NWM Plc to NWM N.V. that limits NWM N.V.'s exposure to large individual customer credits to 10% of NWM N.V.'s capital. Funding is provided by NWM Plc deposits placed with NWM N.V. of not less than the guaranteed amount. At 30 June 2020 the deposits amounted to £0.8 billion and the guarantee fees in the period were £3.2 million. |
| ● | The provision of a funded and an unfunded guarantee by NWM Plc in respect of NWM N.V.'s legacy portfolio. At 30 June 2020 the exposure at default covered by the guarantees was approximately £0.4 billion of which £0.1 billion was funded. The guarantee fees in the period were £4.3 million. |
| ● | the condensed financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting'; |
| ● | the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and |
| ● | the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein). |
Frank Dangeard Chairman | Robert Begbie Chief Executive Officer | David King Chief Financial Officer |
| Chairman | Executive directors | Non-executive directors |
| Frank Dangeard | Robert Begbie David King | Vivek Ahuja Brendan Nelson Tamsin Rowe Sarah Wilkinson |
| ● | Statutory results on pages 25 to 47 comprising the condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated balance sheet, condensed consolidated statement of changes in equity, condensed consolidated cash flow statement and the related notes 1 to 15. |
| ● | Capital and risk management section on pages 9 to 24 as indicated within the scope of the independent review. Refer to the Independent review report to NatWest Markets Plc on page 50 for further information. |
| Contact | ||
| Amanda Hausler | NatWest Markets Plc Investor Relations | +44 (0) 20 7085 6448 |
NatWest Markets Plc (Registrant) | |
| By: /s/ | |
| Name: Mark Stevens | |
| Title: Assistant Secretary |
