Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
30 July 2021
Commission file number: 001-10306
Form 6-K
NatWest Group plc
Gogarburn
PO Box 1000
Edinburgh EH12 1HQ
Scotland
United Kingdom
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ⌧ Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):__
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):__
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
If "Yes" is marked, indicate below the file number assigned to
the registrant in connection with Rule 12g3-2(b): 82-
This report on Form 6-K, except for any information contained on any websites linked or documents referred to in this report, shall be deemed incorporated by reference into the company’s Registration Statement on Form F-3 (File No. 333-251220) and to be a part thereof from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished.
Forward-looking statements
Cautionary statement regarding forward-looking statements
Certain sections in this document contain ‘forward-looking statements’ as that term is defined in the United States Private Securities Litigation Reform Act of 1995, such as statements that include the words ‘expect’, ‘estimate’, ‘project’, ‘anticipate’, ‘commit’, ‘believe’, ‘should’, ‘intend’, ‘will’, ‘plan’, ‘could’, ‘probability’, ‘risk’, ‘Value-at-Risk (VaR)’, ‘target’, ‘goal’, ‘objective’, ‘may’, ‘endeavour’, ‘outlook’, ‘optimistic’, ‘prospects’ and similar expressions or variations on these expressions. In particular, this document includes forward-looking statements relating, but not limited to: the COVID-19 pandemic and its impact on NatWest Group; future profitability and performance, including financial performance targets (such as RoTE and ROE) and discretionary capital distribution targets; ESG and climate-related targets, including in relation to sustainable financing and financed emissions; planned cost savings; implementation of NatWest Group’s Purpose-led strategy, including in relation to the refocusing of its NWM franchise and the digitalisation of its operations and services; the timing and outcome of litigation and government and regulatory investigations; the implementation of the Alternative Remedies Package; balance sheet reduction, including the reduction of RWAs; capital, liquidity and leverage ratios and requirements, including CET1 Ratio, RWAes, Pillar 2 and other regulatory buffer requirements and MREL; funding plans and credit risk profile; capitalisation; portfolios; net interest margin; customer loan and income growth and product share; impairments and write-downs, including with respect to goodwill; restructuring and remediation costs and charges; NatWest Group’s exposure to political risk, economic risk, climate, environmental and sustainability risk, operational risk, conduct risk, cyber and IT risk and credit rating risk and to various types of market risk, including interest rate risk, foreign exchange rate risk and commodity and equity price risk; customer experience, including our Net Promotor Score (NPS); employee engagement and gender balance in leadership positions.
Limitations inherent to forward-looking statements
These statements are based on current plans, expectations, estimates, targets and projections, and are subject to significant inherent risks, uncertainties and other factors, both external and relating to NatWest Group’s strategy or operations, which may result in NatWest Group being unable to achieve the current plans, expectations, estimates, targets, projections and other anticipated outcomes expressed or implied by such forward-looking statements. In addition, certain of these disclosures are dependent on choices relying on key model characteristics and assumptions and are subject to various limitations, including assumptions and estimates made by management. By their nature, certain of these disclosures are only estimates and, as a result, actual future results, gains or losses could differ materially from those that have been estimated. Accordingly, undue reliance should not be placed on these statements. The forward-looking statements contained in this document speak only as of the date we make them and we expressly disclaim any obligation or undertaking to update or revise any forward-looking statements contained herein, whether to reflect any change in our expectations with regard thereto, any change in events, conditions or circumstances on which any such statement is based, or otherwise, except to the extent legally required.
Important factors that could affect the actual outcome of the forward-looking statements
We caution you that a large number of important factors could adversely affect our results or our ability to implement our strategy, cause us to fail to meet our targets, predictions, expectations and other anticipated outcomes or affect the accuracy of forward-looking statements described in this document. These factors include, but are not limited to, those set forth in the risk factors and the other uncertainties described in NatWest Group plc’s Annual Report on Form 20-F and its other filings with the US Securities and Exchange Commission. The principal risks and uncertainties that could adversely NatWest Group’s future results, its financial condition and prospects and cause them to be materially different from what is forecast or expected, include, but are not limited to: risks relating to the COVID-19 pandemic (including in respect of: the effects on the global economy and financial markets, and NatWest Group’s customers; increased counterparty risk; NatWest Group’s ability to meet its targets and strategic objectives; increased operational and control risks; increased funding risk; future impairments and write-downs); economic and political risk (including in respect of: uncertainty regarding the effects of Brexit; increased political and economic risks and uncertainty in the UK and global markets; changes in interest rates and foreign currency exchange rates; and HM Treasury’s ownership of NatWest Group plc); strategic risk (including in respect of the implementation of NatWest Group’s Purpose-led Strategy, including the re-focusing of the NWM franchise, the phased withdrawal from the Republic of Ireland and NatWest Group’s ability to achieve its targets); financial resilience risk (including in respect of: NatWest Group’s ability to meet targets and to resume discretionary capital distributions; the competitive environment; counterparty risk; prudential regulatory requirements for capital and MREL; funding risk; changes in the credit ratings; the adequacy of NatWest Group’s resolution plans; the requirements of regulatory stress tests; model risk; sensitivity to accounting policies, judgments, assumptions and estimates; changes in applicable accounting standards; the value or effectiveness of credit protection; and the application of UK statutory stabilisation or resolution powers); climate and sustainability risk (including in respect of: risks relating to climate change and the transitioning to a low-carbon economy; the implementation of NatWest Group’s climate change strategy and climate change resilient systems, controls and procedures; increased model risk; the failure to adapt to emerging climate, environmental and sustainability risks and opportunities; changes in ESG ratings; increasing levels of climate, environmental and sustainability related regulation and oversight; and climate, environmental and sustainability related litigation, enforcement proceedings and investigations); operational and IT resilience risk (including in respect of: operational risks (including reliance on third party suppliers); cyberattacks; the accuracy and effective use of data; complex IT systems (including those that enable remote working); attracting, retaining and developing senior management and skilled personnel; NatWest Group’s risk management framework; and reputational risk); and legal, regulatory and conduct risk (including in respect of: the impact of substantial regulation and oversight; compliance with regulatory requirements; the outcome of legal, regulatory and governmental actions and investigations; the replacement of LIBOR, EURIBOR and other IBOR rates;
heightened regulatory and governmental scrutiny (including by competition authorities); implementation of the Alternative Remedies Package; and changes in tax legislation or failure to generate future taxable profits).
The information, statements and opinions contained in this document do not constitute a public offer under any applicable legislation or an offer to sell or a solicitation of an offer to buy any securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments.
Introduction
Presentation of information
‘Parent company’ refers to the NatWest Group plc, and ‘NatWest Group’ refers to NatWest Group plc and its subsidiary and associated undertakings. The term ‘NWH Group’ refers to NatWest Holdings Limited (‘NWH’) and its subsidiary and associated undertakings. The term ‘NWM Group’ refers to NatWest Markets Plc (‘NWM Plc’) and its subsidiary and associated undertakings. The term ‘NWM N.V.’ refers to NatWest Markets N.V. The term ‘NWMSI’ refers to NatWest Markets Securities, Inc. The term ‘RBS plc’ refers to The Royal Bank of Scotland plc. The term ‘NWB Plc’ refers to National Westminster Bank Plc. The term ‘UBI DAC’ refers to Ulster Bank Ireland DAC. The term ‘RBSI Limited’ refers to The Royal Bank of Scotland International Limited.
NatWest Group publishes its financial statements in pounds sterling (‘£’ or ‘sterling’). The abbreviations ‘£m’ and ‘£bn’ represent millions and thousands of millions of pounds sterling, respectively, and references to ‘pence’ represent pence in the United Kingdom (‘UK’). Reference to ‘dollars’ or ‘$’ are to United States of America (‘US’) dollars. The abbreviations ‘$m’ and ‘$bn’ represent millions and thousands of millions of dollars, respectively, and references to ‘cents’ represent cents in the US. The abbreviation ‘€’ represents the ‘euro’, and the abbreviations ‘€m’ and ‘€bn’ represent millions and thousands of millions of euros, respectively, and references to ‘cents’ represent cents in the European Union (‘EU’).
To aid readability, this document retains references to EU legislative and regulatory provisions in effect in the UK before 1 January 2021 that have now been implemented in UK domestic law. These references should be read and construed as including references to the applicable UK implementation measures with effect from 1 January 2021.
NatWest Group – Form 6-K Interim Results 2021 | 3 |
Non-IFRS financial measures
NatWest Group prepares its financial statements in accordance with generally accepted accounting principles (GAAP). The 2021 Interim Results contain a number of adjusted or alternative performance measures, also known as non-GAAP or non-IFRS performance measures. These measures are adjusted for certain items which management believes are not representative of the underlying performance of the business and which distort period-on-period comparison. The non-IFRS measures provide users of the financial statements with a consistent basis for comparing business performance between financial periods and information on elements of performance that are one-off in nature. The non-IFRS measures also include the calculation of metrics that are used throughout the banking industry. These non-IFRS measures are not measures within the scope of IFRS and are not a substitute for IFRS measures. These measures include:
Non-IFRS financial measures
Measure | Basis of preparation | Additional analysis or reconciliation |
NatWest Group return on tangible equity | Annualised profit or loss for the period attributable to ordinary shareholders divided by average tangible equity. Average tangible equity is average total equity excluding non-controlling interests (NCI) less average intangible assets and average other owners’ equity. | Table 1 in the Appendix |
Segmental return on equity | Segmental operating profit or loss adjusted for tax and for preference share dividends divided by average notional tangible equity, allocated at an operating segment specific rate, of the period average segmental risk-weighted assets incorporating the effect of capital deductions (RWAes). | Table 2 in the Appendix |
Operating expenses analysis – management view | The management analysis of operating expenses shows strategic costs and litigation and conduct costs in separate lines. Depreciation and amortisation, and other administrative expenses attributable to these costs are included in strategic costs and litigation and conduct costs lines for management analysis. These amounts are included in staff, premises and equipment and other administrative expenses in the statutory analysis. | Table 3 in the Appendix |
Cost:income ratio | Total operating expenses less operating lease depreciation divided by total income less operating lease depreciation. | Table 4 in the Appendix |
Commentary – adjusted periodically for specific items | NatWest Group and segmental business performance commentary have been adjusted for the impact of specific items such as such as notable items, operating lease depreciation, strategic costs and litigation and conduct costs. | Notable items - page 9 Operating lease depreciation, Strategic, litigation and conduct costs - pages 18 to 22 |
Income across UK and RBSI retail and commercial businesses | Comprises income in the Retail Banking, Commercial Banking, Private Banking and RBS International operating segments, excluding notable items. | Table 7 in the Appendix |
Net lending in the UK and RBSI retail and commercial businesses | Comprises customer loans in the Retail Banking, Commercial Banking, Private Banking and RBS International operating segments, excluding UK Government support schemes. | Table 8 in the Appendix |
Deposits across UK and RBSI retail and commercial businesses | Comprises customer deposits in the Retail Banking, Commercial Banking, Private Banking and RBS International operating segments. | Table 9 in the Appendix |
Bank net interest margin (NIM) | Net interest income of the banking business less NatWest Markets (NWM) element as a percentage of interest-earning assets of the banking business less NWM element. | Table 5 in the Appendix |
Bank net interest margin (NIM) excluding Liquid Asset Buffer | Net interest income of the banking business less NWM element as a percentage of interest-earning assets of the banking business less NWM element and Liquid Asset Buffer. | Table 5 in the Appendix |
NatWest Group – Form 6-K Interim Results 2021 | 4 |
Performance metrics not defined under IFRS
Measure | Basis of preparation | Additional analysis or reconciliation |
Loan:deposit ratio | Net customer loans held at amortised cost divided by total customer deposits. | Table 6 in the Appendix |
Tangible net asset value (TNAV) | Tangible equity divided by the number of ordinary shares in issue (excluding own shares held). Tangible equity is ordinary shareholders’ equity less intangible assets. | Page 8 |
NIM | Net interest income as a percentage of interest-earning assets. | Pages 18 to 22 |
Funded assets | Total assets less derivatives. | Pages 18 to 22 |
Loan impairment rate | The annualised loan impairment charge divided by gross customer loans. | Pages 18 to 22 |
Third party customer asset rate | Third party customer asset rate is calculated as annualised interest receivable on third-party loans to customers as a percentage of third-party loans to customers only. This excludes intragroup items, loans to banks and liquid asset portfolios, which are included for the calculation of net interest margin. | Pages 18 to 22 |
Third party customer funding rate | Third party customer funding rate is calculated as annualised interest payable on third-party customer deposits as a percentage of third-party customer deposits, including interest bearing and non-interest bearing customer deposits. This excludes intragroup items, bank deposits, debt securities in issue and subordinated liabilities. | Pages 18 to 22 |
Assets under management and administration (AUMA) | AUMA comprises both assets under management (AUMs) and assets under administration (AUAs) serviced through the Private Banking franchise. AUMs comprise assets where the investment management is undertaken by Private Banking on behalf of Private Banking, Retail Banking and RBSI customers. AUAs comprise third party assets held on an execution-only basis in custody by Private Banking, Retail Banking and RBSI for their customers accordingly, for which the execution services are supported by Private Banking. Private Banking receive a fee in respect of providing investment management and execution services to Retail Banking and RBSI franchises. | Page 12 |
Depositary assets | Assets held by RBSI as an independent trustee and in a depositary service capacity. | Page 14 |
NatWest Group – Form 6-K Interim Results 2021 | 5 |
NatWest Group plc
Interim Results for the period ending 30 June 2021
Alison Rose, Chief Executive Officer, commented:
“These results have been driven by good operating performances across the Group, underpinned by a robust loan book and a strong capital position. Defaults remain low and, given the improved outlook, we have released a further £0.6 billion of impairment provisions in the quarter. While we see the potential for a more rapid recovery, we will continue to take an appropriate and conservative approach as the government schemes wind down and the economy reopens.
As a result of our strong and resilient performance, coupled with our capital strength and cautiously optimistic outlook, we are announcing an interim dividend of 3p and share buy-back of up to £750 million. We are also increasing our minimum distribution to shareholders to £1.0 billion for the next three years. Taken together, this means our total distributions for 2021 will be a minimum of £2.9 billion.
We continue to make progress against our strategic targets and to accelerate our digital transformation as we build a bank that is relevant to our customers in every region of the UK and supports them at every stage of their lives. As the UK’s leading business bank, we are determined to remove barriers to entry and help the economy build back better. Against the background of an ongoing pandemic, our commitment to helping people, families and businesses to rebuild and thrive has never been more important. Because if they thrive, so will we.”
Financial performance in a challenging environment
● | H1 2021 operating profit before tax of £2,505 million compared with an operating loss before tax of £770 million in H1 2020. H1 2021 profit attributable to shareholders of £1,842 million. |
● | Total income decreased by £519 million, or 8.9% compared with H1 2020. Income across the UK and RBSI retail and commercial businesses, excluding notable items, decreased by £160 million, or 3.3%, compared with H1 2020 reflecting the lower yield curve and subdued transactional business activity, partially offset by balance sheet growth. NatWest Markets (NWM) total income decreased by £521 million, or 63.8%, compared with H1 2020. NWM income, excluding asset disposals/strategic risk reduction and OCA, decreased by £492 million, or 59.6%, compared with H1 2020 reflecting the exceptional level of market activity generated by the spread of the COVID-19 virus in the prior period, together with weak performance in the Fixed Income business in the current period. |
● | Net interest margin of 1.51% decrease by 2 basis points compared with Q1 2021. Bank net interest margin (NIM) of 1.61% decreased by 3 basis points compared with Q1 2021 principally reflecting increased levels of liquidity. |
● | Operating expenses decreased by £229 million, or 6.1%, compared with H1 2020. Other expenses, excluding operating lease depreciation (OLD) and Ulster Bank RoI direct costs, were £185 million, or 5.9% lower than H1 2020. |
● | A net impairment release of £707 million in the first half of 2021 mainly reflects releases in non-default portfolios as a result of the improved economic outlook. |
Robust balance sheet with strong capital and liquidity levels
● | CET1 ratio of 18.2% was in line with Q1 2021. |
● | An interim dividend of 3 pence per share is proposed. |
● | The liquidity coverage ratio (LCR) of 164%, representing £75.3 billion headroom above 100% minimum requirement, increased by 6 percentage points compared with Q1 2021, reflecting the continued growth in customer deposits. |
● | Net lending increased by £2.2 billion to £362.7 billion during H1 2021. Across the UK and RBSI retail and commercial businesses, net lending excluding UK Government support schemes, increased by £4.1 billion, or 2.8% on an annualised basis, including £7.0 billion of mortgage growth. |
● | Customer deposits increased by £35.5 billion during H1 2021 to £467.2 billon, as customers sought to retain liquidity and reduced spending. Treasury repo activity drove £11.5 billion of balance growth. |
● | RWAs decreased by £7.3 billion to £163.0 billion during H1 2021 mainly reflecting business movements in Commercial Banking. |
Outlook(1)
The rollout of COVID-19 vaccines over the first half of 2021 has contributed towards an improved economic outlook. Our central forecasts are disclosed on pages 24 to 27. The outlook remains subject to significant uncertainty and we will continue to refine our internal forecast as the economic position evolves. We retain the guidance provided at the full year results announcement with the exception of the following:
● | We now expect NatWest Markets exit/disposal costs and the impact of Commercial Banking capital management actions to total a combined £150 million in 2021; |
● | Noting impairment losses in the first half of 2021 were a net release of £707 million, we now expect the 2021 full year impairment loss to be a net release; |
● | We now expect NatWest Group RWAs to be below or at the lower end of our previously guided range of £185-195 billon on 1 January 2022; |
● | NatWest Group now aims to distribute a minimum of £1 billion per annum from 2021 to 2023, via a combination of ordinary and special dividends, and intends to commence an ordinary share buy-back programme of up to £750 million in the second half of the year. |
Note:
(1) | The guidance, targets, expectations and trends discussed in this section represent management’s current expectations and are subject to change, including as a result of the factors described in the Risk Factors section on pages 116 and 117 of this announcement and pages 347 to 366 of the NatWest Group plc 2020 Annual Report on Form 20-F. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement. |
NatWest Group – Form 6-K Interim Results 2021 | 6 |
Our Purpose in action
We champion potential, helping people, families and businesses to thrive. If they succeed, so will we. By being relevant to our customers and communities and by supporting our colleagues, we will deliver long-term value and drive sustainable returns to our shareholders. Some key achievements from H1 2021:
People and families
● | Supported customers with 1.5 million financial capability interactions including 515,000 financial health checks. |
● | 273,000 customers have grown their savings with us by £100 or more for the first time. |
● | Use of chatbot Cora has grown with 2.7 million conversation in Q2 2021 compared to 2.5 million in Q2 2020. |
● | Facial biometrics and cheque deposits are now live in our app and Know My Credit Score has been used 20 million times since launch. |
● | We’ve introduced 95% mortgages to help more young people onto the property ladder and Retail Banking has supported customers with £19.3 billion of gross new mortgage lending in H1 2021. |
● | Launched Career Sense, a new programme to support 13 to 24 year-olds with readiness for work, aiming to reach over 10,000 young people this year. |
Businesses
● | c.92% of Bounce Back Loan Scheme (BBLS) customers due to commence loan repayments had begun repayments on, or ahead of schedule and c.5% of all BBLS customers had repaid in full as at 30 June 2021. |
● | Held 35,000 interactions with entrepreneurs to help them launch their business so far this year through mentoring, webinars and coaching, 76% of which are outside London and the South-East and 53% are female led. |
● | Relaunched our entrepreneurship proposition and refocused 11 of our 12 Entrepreneur Accelerator hubs to support high growth, female led, black and minority ethnic led and B Corp focused businesses. |
● | Coutts has collaborated with the Business Growth Fund to provide additional funding, growth capital, and to support small and medium sized enterprises (SMEs). |
● | Our Springboard to Recovery report launched in March 2021, showed how targeted support for SMEs could unlock £140 billion of additional Gross Value Added (GVA) growth by 2030 equivalent to creating around 3.2 million new jobs across the UK. In response we committed £6 billion to help SMEs grow, of which £4 billion will be allocated outside London, and we doubled our funding of female entrepreneurship to £2 billion. |
● | Our digital investment platform across NatWest Invest, Royal Bank Invest and Coutts Invest saw £0.5 billion of inflows in H1 2021. |
Colleagues
● | Launched a framework for NatWest Group’s new hybrid working model, balancing the needs of our customers, communities and colleagues. |
● | Named as one of the top 25 workplaces in the UK to grow a career by LinkedIn. NatWest Group was also recognised in The Times Top 50 Employers for Women for the 11th year running. |
● | Extended our package of COVID-19 support available to colleagues in India, including access to interest-free salary advances to meet medical expenses, reimbursement for the cost of vaccines and extended leave. |
● | Launched the Talent Academy, a new talent initiative, open to all colleagues with an initial cohort of just over 3,500. |
Communities
● | NatWest Group joined the Net Zero Banking Alliance and Coutts Asset Management has joined the Net Zero Asset Managers initiative, working with other financial organisations to help deliver the Paris Agreement. |
● | NatWest Group was the first UK bank to introduce a carbon tracking feature in our mobile banking app to help customers reduce the climate impact of their spending. Following a successful pilot, we've partnered with carbon tracking experts CoGo to let personal customers see the carbon impact of their daily spending. |
● | NatWest Group issued a €1 billion affordable housing social bond, the first of its kind by a UK bank. The proceeds will support lending to not-for-profit, UK housing associations as part of our commitment to provide £3 billion of funding to the UK’s affordable housing sector by the end of 2022. |
● | Coutts has become the first major UK Private Bank and Wealth Manager to be certified as a B Corp demonstrating its commitment to meeting the highest standards of verifiable social and environmental performance, public transparency and legal accountability. |
● | Applications opened for the Circle Fund to support victims of economic and domestic abuse. NatWest pledged £1 million to the fund to help frontline specialist services who provide crisis intervention and recovery support. |
For further detail refer to the Climate, Purpose and ESG measures supplement H1 2021.
NatWest Group – Form 6-K Interim Results 2021 | 7 |
Business performance summary
| | | | | | | | | | |
| | Half year ended | | Quarter ended | ||||||
| | 30 June | | 30 June | | 30 June | | 31 March | | 30 June |
Performance key metrics and ratios |
| 2021 |
| 2020 |
| 2021 |
| 2021 |
| 2020 |
Total income | | £5,319m | | £5,838m | | £2,660m | | £2,659m | | £2,676m |
Operating expenses |
| (£3,521m) |
| (£3,750m) |
| (£1,706m) |
| (£1,815m) |
| (£1,909m) |
Profit before impairment releases/(losses) |
| £1,798m |
| £2,088m |
| £954m |
| £844m |
| £767m |
Operating profit/(loss) before tax |
| £2,505m |
| (£770m) |
| £1,559m |
| £946m |
| (£1,289m) |
Profit/(loss) attributable to ordinary shareholders |
| £1,842m |
| (£705m) |
| £1,222m |
| £620m |
| (£993m) |
| | | | |
| | | | | |
Excluding notable items within total income (1) |
| |
| |
| |
|
|
|
|
Total income excluding notable items |
| £5,314m |
| £5,844m |
| £2,641m |
| £2,673m |
| £2,797m |
Operating expenses |
| (£3,521m) |
| (£3,750m) |
| (£1,706m) |
| (£1,815m) |
| £1,909m |
Profit before impairment releases/(losses) and excluding notable items |
| £1,793m |
| £2,094m |
| £935m |
| £858m |
| £888m |
Operating profit/(loss) before tax and excluding notable items |
| £2,500m |
| (£764m) |
| £1,540m |
| £960m |
| (£1,168m) |
UK and RBSI retail and commercial income excluding notable items (2) | | £4,687m | | £4,847m | | £2,368m | | £2,319m | | £2,325m |
|
| | | |
| | | | | |
Performance key metrics and ratios |
| |
|
|
| |
|
|
|
|
Bank net interest margin (2,3) |
| 1.62% |
| 1.78% | | 1.61% |
| 1.64% | | 1.67% |
Bank net interest margin excluding liquid asset buffer (2) | | 2.40% | | 2.48% | | 2.40% | | 2.39% | | 2.38% |
Bank average interest earning assets (2,3) | | £487bn | | £440bn | | £494bn | | £480bn | | £458bn |
Bank average interest earning assets excluding liquid asset buffer (2) |
| £329bn |
| £316bn |
| £330bn |
| £328bn |
| £321bn |
Cost:income ratio (2) |
| 65.7% |
| 63.8% | | 63.7% |
| 67.8% | | 70.9% |
Loan impairment rate (2) |
| (38bps) |
| 159bps |
| (66bps) |
| (11bps) |
| 229bps |
Earnings per share - basic |
| 15.6p |
| (5.8p) |
| 10.6p |
| 5.1p |
| (8.2p) |
Return on tangible equity (2) |
| 11.7% |
| (4.4)% |
| 15.6% |
| 7.9% | | (12.4)% |
| | | | | | |
| | 30 June | | 31 March | | 31 December |
|
| 2021 |
| 2021 |
| 2020 |
Balance sheet | |
|
| | | |
Total assets |
| £775.9bn |
| £769.8bn |
| £799.5bn |
Funded assets (2) |
| £666.3bn |
| £646.8bn |
| £633.0bn |
Loans to customers - amortised cost |
| £362.7bn |
| £358.7bn |
| £360.5bn |
Loans to customers and banks - amortised cost and FVOCI |
| £375.6bn |
| £371.0bn |
| £372.4bn |
UK and RBSI retail and commercial net lending excluding UK Government support schemes (2) |
| £302.0bn |
| £300.1bn |
| £297.9bn |
Impairment provisions - amortised cost | | £4.7bn | | £5.6bn | | £6.0bn |
Total impairment provisions | | £4.9bn | | £5.8bn | | £6.2bn |
Expected credit loss (ECL) coverage ratio | | 1.31% | | 1.56% | | 1.66% |
Assets under management and administration (AUMA) (2) |
| £34.7bn |
| £32.6bn | | £32.1bn |
Customer deposits |
| £467.2bn |
| £453.3bn |
| £431.7bn |
UK and RBSI retail and commercial customer deposits (2) |
| £428.7bn |
| £415.3bn |
| £403.2bn |
| | | |
|
|
|
Liquidity and funding |
|
|
| | | |
Liquidity coverage ratio (LCR) |
| 164% |
| 158% | | 165% |
Liquidity portfolio |
| £277bn |
| £263bn | | £262bn |
Net stable funding ratio (NSFR) (4) |
| 154% |
| 153% | | 151% |
Loan:deposit ratio (2) |
| 78% |
| 79% | | 84% |
Total wholesale funding |
| £66bn |
| £61bn |
| £71bn |
Short-term wholesale funding |
| £23bn |
| £20bn |
| £19bn |
| | | |
|
|
|
Capital and leverage |
|
|
| | | |
Common Equity Tier (CET1) ratio (5) |
| 18.2% |
| 18.2% | | 18.5% |
Total capital ratio |
| 24.9% |
| 24.0% | | 24.5% |
Pro forma CET1 ratio, pre dividend accrual (6) |
| 19.1% |
| 18.6% | | 18.8% |
Risk-weighted assets (RWAs) |
| £163.0bn |
| £164.7bn | | £170.3bn |
UK leverage ratio (7) |
| 6.2% |
| 6.2% | | 6.4% |
Tangible net asset value (TNAV) per ordinary share |
| 266p |
| 261p |
| 261p |
Number of ordinary shares in issue (millions) (8) |
| 11,569 |
| 11,560 |
| 12,129 |
Notes:
NatWest Group – Form 6-K Interim Results 2021 | 8 |
Summary consolidated income statement for the period ended 30 June 2021
| | | | | | | | | | |
| | Half year ended | | Quarter ended | ||||||
|
| 30 June |
| 30 June |
| 30 June |
| 31 March |
| 30 June |
|
| 2021 |
| 2020 |
| 2021 |
| 2021 |
| 2020 |
| | £m | | £m | | £m | | £m | | £m |
Net interest income | | 3,916 | | 3,852 | | 1,985 | | 1,931 | | 1,910 |
| | | | | | | | | | |
Own credit adjustments |
| — |
| 53 |
| (2) |
| 2 |
| (102) |
Other non-interest income |
| 1,403 |
| 1,933 |
| 677 |
| 726 |
| 868 |
| | | | | | | | | | |
Non-interest income |
| 1,403 |
| 1,986 |
| 675 |
| 728 |
| 766 |
| | | | | | | | | | |
Total income |
| 5,319 |
| 5,838 |
| 2,660 |
| 2,659 |
| 2,676 |
| | | | | | | | | | |
Litigation and conduct costs |
| 18 |
| 89 |
| 34 |
| (16) |
| 85 |
Strategic costs |
| (332) |
| (464) |
| (172) |
| (160) |
| (333) |
Other expenses |
| (3,207) |
| (3,375) |
| (1,568) |
| (1,639) |
| (1,661) |
| | | | | | | | | | |
Operating expenses |
| (3,521) |
| (3,750) |
| (1,706) |
| (1,815) |
| (1,909) |
| | | | | | | | | | |
Profit before impairment releases/(losses) |
| 1,798 |
| 2,088 |
| 954 |
| 844 |
| 767 |
Impairment releases/(losses) |
| 707 |
| (2,858) |
| 605 |
| 102 |
| (2,056) |
| | | | | | | | | | |
Operating profit/(loss) before tax |
| 2,505 |
| (770) |
| 1,559 |
| 946 |
| (1,289) |
Tax (charge)/credit |
| (435) |
| 208 |
| (202) |
| (233) |
| 396 |
| | | | | | | | | | |
Profit/(loss) for the period |
| 2,070 |
| (562) |
| 1,357 |
| 713 |
| (893) |
| | | | | | | | | | |
Attributable to: |
|
|
|
|
|
|
|
|
|
|
Ordinary shareholders |
| 1,842 |
| (705) |
| 1,222 |
| 620 |
| (993) |
Preference shareholders |
| 9 |
| 16 |
| 4 |
| 5 |
| 8 |
Paid-in equity shareholders |
| 178 |
| 192 |
| 91 |
| 87 |
| 95 |
Non-controlling interests |
| 41 |
| (65) |
| 40 |
| 1 |
| (3) |
| | | | | | | | | | |
Notable items within total income |
|
|
|
|
|
|
|
|
|
|
Own credit adjustments |
| — |
| 53 |
| (2) |
| 2 |
| (102) |
FX recycling (loss)/gain in Central items & other |
| — |
| (103) |
| — |
| — |
| (39) |
Liquidity Asset Bond sale gain |
| — |
| 110 |
| — |
| — |
| 17 |
IFRS volatility in Central items & other (1) |
| 44 |
| (11) |
| 45 |
| (1) |
| 55 |
Loss on redemption of own debt |
| (138) |
| — |
| (20) |
| (118) |
| — |
Retail Banking debt sale gain | | — | | 3 | | — | | — | | 3 |
Commercial Banking fair value and disposal (loss)/gain |
| (22) |
| (11) |
| (8) |
| (14) |
| 8 |
Commercial Banking tax variable lease repricing | | 32 | | — | | 32 | | — | | — |
NatWest Markets asset disposals/strategic risk reduction (2) |
| (40) |
| (63) |
| (36) |
| (4) |
| (63) |
Share of associate profits for Business Growth Fund |
| 129 |
| 16 |
| 8 |
| 121 |
| — |
Total |
| 5 |
| (6) |
| 19 |
| (14) |
| (121) |
Notes:
NatWest Group – Form 6-K Interim Results 2021 | 9 |
Business performance summary
Chief Financial Officer review
We have progressed against our strategic objectives and have delivered a good financial performance in the first half of the year. The interim results include a £707 million impairment release reflecting the improved economic outlook, our capital and liquidity positions remain robust and we have increased our commitment for capital returns.
Financial performance
Total income decreased by £519 million, or 8.9%, compared with H1 2020 reflecting the lower yield curve, subdued transactional business activity and a more normalised level of customer activity in NatWest Markets, partially offset by balance sheet growth. We continue to expect a full year reduction in structural hedge income of around £250 million compared with 2020, of which £157 million was incurred in H1 2021. Total income increased by £1 million compared with Q1 2021. Excluding notable items, Q2 2021 income decreased by £32 million, or 1.2%, compared with Q1 2021 as a weaker performance in the NWM Fixed Income business was partially offset by positive signs of an initial recovery in transactional business activity as COVID-19 restrictions eased. Net interest margin of 1.51% decreased by 2 basis points compared with Q1 2021. Bank NIM of 1.61% decreased by 3 basis points compared with Q1 2021 principally due to excess levels of liquidity, 4 basis points, lower structural hedge income, 1 basis point, and lower asset margins, 1 basis point, partially offset by tax variable lease repricing in Commercial Banking following the enactment of future corporation tax rate changes, 3 basis points.
Operating expenses decreased by £229 million, or 6.1% compared with H1 2020. We achieved a cost reduction of £185 million, or 5.9%, compared with H1 2020 mainly reflecting Customer Journey Transformation, the continued shift from physical to digital and actions taken in NatWest Markets in line with the strategic announcement made in February 2020. Strategic costs of £332 million in the first half of 2021 included £87 million redundancy charges, £48 million related to property charges and a £27 million charge related to technology spend. We remain committed to our 4% full year cost reduction target.
Whilst we continue to navigate a high degree of uncertainty in the wider economic environment, a net impairment release of £707 million for the first half of 2021 reflects an improved economic outlook. We have assessed the downside risk posed by COVID-19 to be diminishing over the course of 2021. Given the vaccination roll-out and positive economic data observed since the gradual relaxing of lockdown restrictions, it is appropriate to apply a higher probability to upside-biased scenarios than at the year-end 2020. Total impairment provisions decreased by £0.9 billion to £4.9 billion in the quarter, which resulted in a reduction in the ECL coverage ratio from 1.56% at Q1 2021 to 1.31%. Whilst we are comfortable with the strong performance of our book, we continue to hold economic uncertainty post model adjustments (PMA) of £0.8 billion, or 16.9% of total impairment provisions. We will continue to assess this position as UK Government support winds down and we emerge from the pandemic.
As a result, we are pleased to report an interim attributable profit of £1,842 million, with earnings per share of 15.6 pence and a return on tangible equity (RoTE) of 11.7%.
We continue to support our customers to recover and grow during this period of continued uncertainty, whilst taking a measured approach to risk. Net lending increased by £2.2 billion to £362.7 billion during H1 2021. Across the UK and RBSI retail and commercial businesses, net lending excluding UK Government support schemes increased by £4.1 billion in the first half of 2021, or 2.8% on an annualised basis, including £7.0 billion of mortgage growth, partially offset by lower unsecured balances and lower Commercial Banking lending volumes. The £1.9 billion increase in the second quarter of 2021 included mortgage lending growth of £3.6 billion.
Customer deposits increased by £35.5 billion, or 8.2%, to £467.2 billon in the first half of 2021. Across the UK and RBSI retail and commercial businesses customer deposits increased by £25.5 billion, or 6.3%, as customers sought to retain liquidity and reduced spending. Treasury repo activity drove a further £11.5 billion.
TNAV per share increased by 5 pence in the quarter to 266 pence largely reflecting the attributable profit partially offset by the full year dividend payment.
Capital and leverage
The CET1 ratio of 18.2%, or 17.5% excluding IFRS 9 transitional relief, remains robust and was in line with Q1 2021 as the attributable profit for the period and the reduction in RWAs were offset by a £0.5 billion decrease in IFRS 9 transitional relief and foreseeable capital deductions in respect of our proposed in-market buy-backs, dividends and associated pension contribution. The total capital ratio increased by 90 basis points in the quarter to 24.9%.
RWAs of £163.0 billion decreased by £7.3 billion, or 4.3%, in the first half of 2021 reflecting business movements of £2.9 billion, risk parameter improvements of £1.4 billion and FX movements of £1.2 billion. The £1.7 billion reduction in the second quarter of 2021 mainly relates to Commercial Banking business movements.
The UK leverage ratio of 6.2% was in line with Q1 2021.
Funding and Liquidity
The liquidity portfolio was £277 billion at the end of Q2 2021, £14 billion higher than Q1 2021, and the LCR increased by 6 percentage points to 164%, representing £75.3 billion headroom above 100% minimum requirement, primarily reflecting the £13.9 billion increase in customer deposits in the quarter. The loan:deposit ratio remained broadly stable with Q1 2021 at 78%.
Total wholesale funding increased by £5 billion compared with Q1 2021. Short term wholesale funding increased by £3 billion in the quarter to £23 billion.
NatWest Group – Form 6-K Interim Results 2021 | 10 |
Business performance summary
Retail Banking
| | | | | | | | | | |
| | Half year ended | | Quarter ended | ||||||
| | 30 June | | 30 June | | 30 June | | 31 March | | 30 June |
| | 2021 | | 2020 | | 2021 | | 2021 | | 2020 |
|
| £m |
| £m |
| £m |
| £m |
| £m |
Total income |
| 2,150 |
| 2,185 |
| 1,094 |
| 1,056 |
| 1,035 |
Operating expenses |
| (1,187) |
| (1,075) |
| (600) |
| (587) |
| (546) |
of which: Other expenses |
| (1,102) |
| (1,169) |
| (545) |
| (557) |
| (577) |
Impairment releases/(losses) |
| 57 |
| (657) |
| 91 |
| (34) |
| (360) |
Operating profit |
| 1,020 |
| 453 |
| 585 |
| 435 |
| 129 |
Return on equity |
| 27.5% |
| 10.7% |
| 32.0% |
| 23.0% |
| 5.7% |
Net interest margin |
| 2.07% |
| 2.23% |
| 2.08% |
| 2.06% |
| 2.18% |
Cost:income ratio | | 55.2% | | 49.2% | | 54.8% | | 55.6% | | 52.8% |
Loan impairment rate |
| (6)bps |
| 79bps |
| (20)bps |
| 8bps |
| 87bps |
| | | | | | |
| | As at | ||||
| | 30 June | | 31 March | | 31 December |
| | 2021 | | 2021 | | 2020 |
|
| £bn |
| £bn |
| £bn |
Net loans to customers (amortised cost) |
| 178.1 |
| 174.8 |
| 172.3 |
Customer deposits |
| 184.1 |
| 179.1 |
| 171.8 |
RWAs |
| 35.6 |
| 35.0 |
| 36.7 |
During H1 2021, Retail Banking continued to pursue sustainable growth with an intelligent approach to risk. Lending growth was supported by a strong performance in mortgages, partially offset by continued UK Government restrictions impacting customer spending and the continued repayment of unsecured balances, although both customer spending and demand for new unsecured lending continued to improve over H1 2021 as the UK Government restrictions eased.
As at 30 June 2021, Retail Banking had c.500 active mortgage repayment holidays, representing less than 0.1% of the book by volume, and approximately 2,300, or 0.3%, of personal loan customers on active repayment holidays.
H1 2021 performance
● | Total income was £35 million, or 1.6%, lower than H1 2020 primarily due to regulatory changes impacting fee income, lower deposit returns and lower unsecured balances, partially offset by strong balance growth in mortgages and improved asset margins. |
● | Operating expenses were £112 million, or 10.4%, higher than H1 2020. Other expenses were £67 million, or 5.7%, lower than H1 2020 primarily reflecting a 10.5% reduction in headcount as a result of the continued digitalisation, automation and improvement of end-to-end customer journeys. |
● | A net impairment release of £57 million in H1 2021 primarily reflects ECL releases related to an improvement in the economic outlook. Stage 3 defaults remain at a low level. |
● | Net loans to customers increased by £5.8 billion, or 3.4%, in H1 2021 due to continued strong mortgage growth of £6.2 billion, with gross new mortgage lending of £19.3 billion, and flow share of 11.4%, supporting a stock share of 11.0%. Personal advances and cards reduced by £0.4 billion and £0.2 billion respectively as customers spent less and made higher repayments, reflecting the impact of continued UK Government restrictions. |
● | Customer deposits increased by £12.3 billion, or 7.2%, in H1 2021 as continued UK Government support schemes combined with restrictions, resulted in lower customer spend and increased savings. |
● | RWAs decreased by £1.1 billion, or 3.0%, in H1 2021 largely reflecting lower unsecured balances and continued quality improvements supported by rising house prices and customer behaviour. |
Q2 2021 performance
● | Total income was £38 million higher than Q1 2021 as strong mortgage completions and a full quarter impact of savings customer rate changes were partially offset by the non-repeat of an insurance profit share. In comparison with Q2 2020, total income was £59 million, or 5.7%, higher due to stronger asset margins and transactional related fee income, partially offset by lower deposit returns. Non-interest income in Q2 2021 benefitted from a debt sale, along with other one-off items which will not repeat in Q3 2021, totalling around £12 million. |
● | Net interest margin increased by 2 basis points compared with Q1 2021 reflecting strong mortgage completion margins and a full quarter of savings customer rate changes. Mortgage completion margins of around 165 basis points were higher than the back book margin of around 163 basis points, with application margins of around 155 basis points in the quarter decreasing to around 145 basis points in the latter part of Q2 2021, reflecting increased competition in the market. |
● | Operating expenses were £13 million, or 2.2%, higher than Q1 2021. Other expenses were £12 million, or 2.2%, lower than Q1 2021 as continued cost reduction activity was partially offset by the annual pay award. |
● | A net impairment release of £91 million in Q2 2021 primarily reflects ECL releases related to an improvement in the economic outlook. |
● | Net loans to customers increased by £3.3 billion compared with Q1 2021 reflecting continued mortgage growth, supported by a retention rate of 79%, partially offset by lower personal advances. Cards balances increased by £0.1 billion as customer demand and spend levels increased. |
● | Customer deposits increased by £5.0 billion compared with Q1 2021 as continued UK Government support schemes combined with restrictions, resulted in lower customer spend and increased savings. |
NatWest Group – Form 6-K Interim Results 2021 | 11 |
Business performance summary
Private Banking
| | | | | | | | | | |
| | Half year ended | | Quarter ended | ||||||
| | 30 June | | 30 June | | 30 June | | 31 March | | 30 June |
| | 2021 | | 2020 | | 2021 | | 2021 | | 2020 |
|
| £m |
| £m |
| £m |
| £m |
| £m |
Total income | | 368 | | 392 | | 183 | | 185 | | 191 |
Operating expenses |
| (249) |
| (252) |
| (128) |
| (121) |
| (129) |
of which: Other expenses |
| (242) |
| (241) |
| (120) |
| (122) |
| (123) |
Impairment releases/(losses) |
| 27 |
| (56) |
| 27 |
| — |
| (27) |
Operating profit |
| 146 |
| 84 |
| 82 |
| 64 |
| 35 |
Return on equity |
| 14.2% |
| 8.2% |
| 15.9% |
| 12.4% |
| 6.6% |
Net interest margin |
| 1.77% |
| 2.20% |
| 1.75% |
| 1.79% |
| 2.14% |
Cost:income ratio | | 67.7% | | 64.3% | | 69.9% | | 65.4% | | 67.5% |
Loan impairment rate |
| (30)bps |
| 70bps |
| (60)bps |
| — |
| 67bps |
| | | | | | |
| | As at | ||||
| | 30 June | | 31 March | | 31 December |
| | 2021 | | 2021 | | 2020 |
|
| £bn |
| £bn |
| £bn |
Net loans to customers (amortised cost) |
| 18.0 |
| 17.5 |
| 17.0 |
Customer deposits |
| 34.7 |
| 33.5 |
| 32.4 |
RWAs |
| 11.2 |
| 11.2 |
| 10.9 |
Assets under management (AUMs) (1) |
| 29.6 |
| 27.6 |
| 27.0 |
Assets under administration (AUAs) (1) |
| 5.1 |
| 5.0 |
| 5.1 |
Total assets under management and administration (AUMA) (1) |
| 34.7 |
| 32.6 |
| 32.1 |
Note:
(1) | The definitions of AUMs/AUAs have been updated to provide clarity on assets where the investment management is undertaken by Private Banking. AUMs now comprises assets where the investment management is undertaken by Private Banking irrespective of the franchise the customer belongs to. AUAs now comprises third party assets held on an execution-only basis in custody. Total AUMA remain as before. |
Private Banking delivered strong balance growth and a resilient operating performance in H1 2021, including a £27 million impairment release, which supported a return on equity of 14.2%. AUMA growth in H1 2021 included £1.4 billion of AUM net new money, of which £0.5 billion related to digital investing inflows into NatWest Invest, Royal Bank Invest and Coutts Invest, more than double H1 2020 levels.
H1 2021 performance
● | Total income decreased by £24 million, or 6.1%, compared with H1 2020 primarily reflecting lower deposit returns, partially offset by strong balance growth. |
● | Operating expenses were £3 million, or 1.2%, lower than H1 2020. Other expenses increased by £1 million, or 0.4%, compared with H1 2020 principally due to an increase in headcount, related to the enhancement of AUMA growth and other client propositions, partially offset by the movement of costs associated with the planned sale of Adam and Company Investment Management business to strategic costs in Q2 2021 and a property revaluation charge in H1 2020. |
● | A net impairment release of £27 million in H1 2021 reflects ECL releases related to the improved economic outlook. |
● | Net loans to customers increased by £1.0 billion, or 5.9%, in H1 2021 due to continued strong mortgage lending growth, whilst RWAs increased by £0.3 billion, or 2.8%. |
● | Customer deposits increased by £2.3 billion, or 7.1%, in H1 2021 reflecting strong personal and commercial inflows as UK Government restrictions resulted in customers continuing to build and retain liquidity. |
● | AUMAs increased by £2.6 billion, or 8.1%, in H1 2021 largely due to AUM net new money inflows of £1.4 billion and AUM positive investment performance of £1.2 billion. |
Q2 2021 performance
● | Total income decreased by £2 million compared to Q1 2021 as lower fee income was partially offset by continued balance growth. In comparison to Q2 2020, total income decreased by £8 million, or 4.2%, as lower deposit returns were partially offset by strong balance growth. Net interest margin decreased by 4 basis points compared with Q1 2021 reflecting higher liquidity portfolio costs. |
● | Net loans to customers increased by £0.5 billion compared with Q1 2021 supported by £0.4 billion of mortgage lending growth. |
● | AUMAs increased by £2.1 billion compared with Q1 2021 largely due to AUM net new money inflows of £0.8 billion and AUM positive investment performance of £1.2 billion. |
NatWest Group – Form 6-K Interim Results 2021 | 12 |
Business performance summary
Commercial Banking
| | | | | | | | | | |
| | Half year ended | | Quarter ended | ||||||
| | 30 June | | 30 June | | 30 June | | 31 March | | 30 June |
| | 2021 | | 2020 | | 2021 | | 2021 | | 2020 |
|
| £m |
| £m |
| £m |
| £m |
| £m |
Total income | | 1,923 | | 2,003 | | 982 | | 941 | | 995 |
Operating expenses |
| (1,152) |
| (1,221) |
| (569) |
| (583) |
| (611) |
of which: Other expenses (excluding OLD) |
| (983) |
| (1,066) |
| (470) |
| (513) |
| (534) |
Impairment releases/(losses) |
| 568 |
| (1,790) |
| 451 |
| 117 |
| (1,355) |
Operating profit/(loss) |
| 1,339 |
| (1,008) |
| 864 |
| 475 |
| (971) |
Return on equity |
| 21.9% |
| (17.9%) |
| 29.3% |
| 14.9% |
| (32.5%) |
Net interest margin |
| 1.57% |
| 1.76% |
| 1.60% |
| 1.54% |
| 1.70% |
Cost:income ratio | | 58.4% | | 59.5% | | 56.4% | | 60.5% | | 59.9% |
Loan impairment rate |
| (107)bps |
| 311bps |
| (170)bps |
| (43)bps |
| 472bps |
| | | | | | |
| | As at | ||||
| | 30 June | | 31 March | | 31 December |
| | 2021 | | 2021 | | 2020 |
|
| £bn |
| £bn |
| £bn |
Net loans to customers (amortised cost) | | 103.8 | | 106.6 | | 108.2 |
Customer deposits | | 176.0 | | 169.4 | | 167.7 |
RWAs | | 69.5 | | 71.6 | | 75.1 |
Note:
(1) | EU Divestment balances from Q2 2021 integrated within business banking (Q4 2020 - £1.1 billion, Q1 2021 - £1.7 billion) and SME & mid corporates (Q4 2020 - £4.8 billion, Q1 2021 - £4.1 billion), as the Incentivised Switching Scheme (ISS) closed at the end of June 2021. |
Commercial Banking delivered a solid performance in H1 2021 as business activity increased. The £1,339 million operating profit includes a £568 million impairment release, largely reflecting the improved economic outlook. During H1 2021 Commercial Banking delivered £2.5 billion towards NatWest Group’s Climate and Sustainable Funding and Financing 2021 target.
Commercial Banking continues to support its customers with active payment holidays on c.3,000 customer accounts, representing 1% of the lending book by value as at 30 June 2021. c.92% of BBLS customers due to commence loan repayments had begun repayments on, or ahead of, schedule and c.5% of all BBLS customers had repaid in full as at 30 June 2021.
H1 2021 performance
● | Total income decreased by £80 million, or 4.0%, compared with H1 2020 as lower deposit returns and lower transactional banking activity were partially offset by higher other non-interest income. |
● | Operating expenses decreased by £69 million, or 5.7%, compared with H1 2020. Other expenses, excluding OLD, decreased by £83 million, or 7.8%, compared with H1 2020, reflecting cost reduction actions, lower staff costs and a reduction in back office operations costs. |
● | A net impairment release of £568 million in H1 2021 mainly reflects ECL releases related to the improved economic outlook, with limited defaults. Excluding amounts related to economic uncertainty held within the PMA, the ECL coverage ratio was 1.65%. |
● | Net loans to customers decreased by £4.4 billion, or 4.1%, in H1 2021 mainly reflecting reductions across Large Corporates & Institutions, SME & mid-corporates and Real Estate Finance related to net revolving credit facility (RCF) repayments of £1.5 billion, active capital management of £0.6 billion and targeted sector reductions partially offset by £0.8 billion lower loan provisions. |
● | Customer deposits increased by £8.3 billion, or 4.9%, in H1 2021 as customers continued to build and retain liquidity in light of economic uncertainty and the continued impact of UK Government initiatives. |
● | RWAs decreased by £5.6 billion, or 7.5%, in H1 2021 mainly reflecting business movements, excluding active capital management, of £3.0 billion, active capital management of £0.8 billion, a £0.8 billion reduction reflecting a CRR COVID-19 amendment related to a Housing Association supporting factor, £0.2 billion lower risk parameters, and FX movements of £0.4 billion. |
Q2 2021 performance
● | Total income increased by £41 million compared with Q1 2021 mainly reflecting tax variable lease repricing and a partial recovery in transactional banking volumes, partially offset by lower lending volumes. In comparison to Q2 2020 total income decreased by £13 million, or 1.3%, primarily reflecting lower deposit returns. Net interest margin increased by 6 basis points compared with Q1 2021 mainly reflecting tax variable lease repricing following the enactment of future corporation tax rate changes. Underlying net interest margin decreased by 2 basis points reflecting lower deposit returns. |
● | Operating expenses decreased by £14 million, or 2.4%, compared with Q1 2021. Other expenses, excluding OLD, decreased by £43 million compared with Q1 2021 mainly reflecting the transfer of remediation costs to Litigation and conduct costs. |
● | A net impairment release of £451 million in Q2 2021 mainly reflects ECL releases related to the improved economic outlook. |
● | Net loans to customers decreased by £2.8 billion compared with Q1 2021 as net RCF repayments of £1.2 billion, net UK Government financial support scheme repayments of £0.4 billion and targeted sector reductions were partially offset by £0.6 billion lower loan provisions. RCF utilisation was c.20% of committed facilities, significantly below the COVID-19 peak of c.40%. |
● | Customer deposits increased by £6.6 billion compared with Q1 2021 as customers continued to build and retain liquidity. |
● | RWAs decreased by £2.1 billion compared with Q1 2021 mainly reflecting business movements, excluding active capital management, of £1.1 billion, a £0.8 billion reduction reflecting the CRR COVID-19 amendment and active capital management of £0.2 billion. |
NatWest Group – Form 6-K Interim Results 2021 | 13 |
Business performance summary
International Banking & Markets
RBS International
| | | | | | | | | | |
| | Half year ended | | Quarter ended | ||||||
| | 30 June | | 30 June | | 30 June | | 31 March | | 30 June |
| | 2021 | | 2020 | | 2021 | | 2021 | | 2020 |
|
| £m |
| £m |
| £m |
| £m |
| £m |
Total income |
| 256 |
| 259 |
| 133 |
| 123 |
| 115 |
Operating expenses |
| (112) |
| (126) |
| (55) |
| (57) |
| (65) |
of which: Other expenses |
| (104) |
| (121) |
| (52) |
| (52) |
| (61) |
Impairment releases/(losses) |
| 29 |
| (46) |
| 27 |
| 2 |
| (31) |
Operating profit |
| 173 |
| 87 |
| 105 |
| 68 |
| 19 |
Return on equity |
| 22.1% | | 11.8% | | 26.5% | | 17.5% | | 4.3% |
Net interest margin |
| 1.04% | | 1.30% | | 1.02% | | 1.06% | | 1.15% |
Cost:income ratio | | 43.8% | | 48.6% | | 41.4% | | 46.3% | | 56.5% |
Loan impairment rate |
| (38)bps |
| 72bps |
| (71)bps |
| (5)bps |
| 97bps |
| | | | | | |
| | As at | ||||
| | 30 June | | 31 March | | 31 December |
| | 2021 | | 2021 | | 2020 |
|
| £bn |
| £bn |
| £bn |
Net loans to customers (amortised cost) |
| 15.1 |
| 14.7 |
| 13.3 |
Customer deposits |
| 33.9 |
| 33.3 |
| 31.3 |
RWAs |
| 7.6 |
| 7.7 |
| 7.5 |
Depositary assets (1) | | 460.4 | | 452.0 | | 427.5 |
Note:
(1) | Assets held by RBSI as an independent trustee and in a depositary service capacity. |
During H1 2021 RBSI delivered £256 million of income, supported by customer lending growth and contributed £0.6 billion towards NatWest Group’s Climate and Sustainable Funding and Financing 2021 target. RBSI also implemented a range of new payment features on the mobile app for both personal and business customers, including the introduction of face biometrics to authorise payments and the ability to deposit cheques.
As at 30 June 2021, RBSI was supporting 22 mortgage repayment breaks, reflecting a mortgage value of £4.8 million, and was providing 161 business customers with working capital facilities, reflecting a value of £434 million, whilst continuing to suspend some fees.
H1 2021 performance
● | Total income was £3 million, or 1.2%, lower than H1 2020 with net interest income £19 million lower, impacted by lower deposit funding benefits partially offset by higher customer lending volumes and depositary fees in non-interest income. |
● | Operating expenses decreased by £14 million, or 11.1% compared with H1 2020. Other expenses were £17 million, or 14.0%, lower than H1 2020 due to a 11% reduction in headcount from simplifying the business and the non-repeat of COVID-19 related costs last year. |
● | A net impairment release of £29 million in H1 2021 mainly reflects Stage 1 and Stage 2 releases. Stage 3 defaults remain low. |
● | Net loans to customers increased by £1.8 billion, or 13.5%, in H1 2021 due to higher demand from customers in the Institutional Banking sector. |
● | Customer deposits increased by £2.6 billion, or 8.3%, in H1 2021 due to £2.3 billion of short-term placement inflows in the Institutional Banking sector and a £0.6 billion increase in Notice products as clients switched from short-term call products to longer term products. |
● | Depositary assets have increased by £32.9 billion in H1 2021 in both operating jurisdictions, Luxembourg and UK, as a result of increases in fund performance and new business. |
Q2 2021 performance
● | Total income was £10 million, or 8.1%, higher than Q1 2021 due to higher average lending and deposit volumes in the Institutional Banking sector and was £18 million, or 15.7%, higher than Q2 2020 principally due to higher depositary and non-utilisation fees. Net interest margin decreased by 4 basis points compared with Q1 2021 largely due to lower returns from higher surplus deposits. |
● | A net impairment release of £27 million in Q2 2021, mainly reflects Stage 1 and Stage 2 releases. Stage 3 defaults remain low. |
● | Net loans to customers increased by £0.4 billion compared with Q1 2021 due to higher demand from customers in the Institutional Banking sector. |
● | Customer deposits increased by £0.6 billion compared with Q1 2021 following an inflow of short term call deposits in the Institutional Banking sector as customer activity increased. |
NatWest Group – Form 6-K Interim Results 2021 | 14 |
Business performance summary
International Banking and Markets
NatWest Markets(1)
| | | | | | | | | | |
| | Half year ended | | Quarter ended | ||||||
| | 30 June | | 30 June | | 30 June | | 31 March | | 30 June |
| | 2021 | | 2020 | | 2021 | | 2021 | | 2020 |
|
| £m |
| £m |
| £m |
| £m |
| £m |
Total income |
| 295 |
| 816 |
| 106 |
| 189 |
| 273 |
of which: |
| | | | | | | |
|
|
- Income excluding asset disposals/strategic risk |
| | | | | | | |
|
|
reduction and own credit adjustments |
| 334 |
| 826 |
| 143 |
| 191 |
| 438 |
- Asset disposals/strategic risk reduction (2) |
| (40) |
| (63) |
| (36) |
| (4) |
| (63) |
- Own credit adjustments |
| 1 |
| 53 |
| (1) |
| 2 |
| (102) |
Operating expenses |
| (560) |
| (707) |
| (285) |
| (275) |
| (365) |
of which: Other expenses |
| (456) |
| (569) |
| (216) |
| (240) |
| (271) |
Impairment releases/(losses) |
| 16 |
| (40) |
| 10 |
| 6 |
| (45) |
Operating (loss)/profit |
| (249) |
| 69 |
| (169) |
| (80) |
| (137) |
Return on equity |
| (9.2)% | | 0.8% | | (12.1)% | | (6.3)% | | (7.1)% |
Cost:income ratio |
| 189.8% | | 86.6% | | 268.9% | | 145.5% | | 133.7% |
| | | | | | |
| | As at | ||||
| | 30 June | | 31 March | | 31 December |
| | 2021 | | 2021 | | 2020 |
|
| £bn |
| £bn |
| £bn |
Funded assets |
| 111.8 |
| 105.7 |
| 105.9 |
RWAs |
| 26.9 |
| 26.5 |
| 26.9 |
Notes:
NatWest Markets continued to support customers with innovative financial solutions and to deliver on plans to become a more sustainable part of NatWest Group. NatWest Markets has further developed its capability to offer better integrated solutions, particularly in foreign exchange and funds financing, targeted to the investment management community. NatWest Markets continued to build momentum in Climate and Sustainable Funding and Financing, with a strong performance during the first half of 2021, delivering £6.3 billion towards NatWest Group’s 2021 target.
H1 2021 performance
● | Total income decreased by £521 million, or 63.8% compared with H1 2020. Income excluding asset disposals/strategic risk reduction and OCA decreased by £492 million, or 59.6%, compared with H1 2020 reflecting the exceptional level of market activity generated by the spread of the COVID-19 virus in the prior period, together with weaker performance and reshaping of the Fixed Income business in the current period. Capital Markets and Currencies performed broadly in line with expectations.The H1 2021 results also included a £20 million loss from a liability management exercise which thereafter reduces the cost of funding. |
● | Operating expenses decreased by £147 million, or 20.8%, compared with H1 2020. Other expenses decreased by £113 million, or 19.9%, compared with H1 2020 reflecting continued reductions in line with the strategic announcement in February 2020. |
● | RWAs were in line with 31 December 2020 however, following the announcement of GBP LIBOR cessation in March 2021, market risk RWAs became elevated by £2.5 billion as a result of including modelled GBP LIBOR basis risk post 4 January 2022. Regulatory approval has been obtained in July 2021 to update the VaR model and this will remove this impact in Q3 2021. If this model approval was back dated to Q2 2021 the reported RWAs would have been £24.4 billion. Underlying levels of market risk were low and progress continues to be made on asset disposals in line with the strategy. |
Q2 2021 performance
● | Total income decreased by £83 million, or 43.9%, compared with Q1 2021. Income excluding asset disposals/strategic risk reduction and OCA decreased by £48 million compared with Q1 2021 reflecting a weaker performance in Fixed Income and a reduction in Currencies as volatility decreased. In comparison to Q2 2020, income excluding asset disposals/strategic risk reduction and OCA decreased by £295 million, or 67.4%, reflecting more normalised levels of customer activity, with the prior period impacted by exceptional levels of market activity generated by the spread of the COVID-19 virus. |
● | Operating expenses increased by £10 million, or 3.64%, compared with Q1 2021. Other expenses decreased by £24 million compared with Q1 2021 reflecting the timing of discretionary expense and continued reductions in line with the strategic announcement in February 2020. |
● | RWAs increased by £0.4 billion compared with Q1 2021 reflecting the impact of GBP LIBOR cessation highlighted above. Underlying levels of market risk were low and progress continues to be made on asset disposals in line with the strategy. |
NatWest Group – Form 6-K Interim Results 2021 | 15 |
Business performance summary
Ulster Bank RoI
| | | | | | | | | | |
| | Half year ended | | Quarter ended | ||||||
| | 30 June | | 30 June | | 30 June | | 31 March | | 30 June |
| | 2021 | | 2020 | | 2021 | | 2021 | | 2020 |
|
| £m |
| £m |
| £m |
| £m |
| £m |
Total income | | 243 | | 249 | | 119 | | 124 | | 120 |
Operating expenses |
| (261) |
| (245) |
| (136) |
| (125) |
| (122) |
of which: Other expenses |
| (245) |
| (234) |
| (130) |
| (115) |
| (116) |
Impairment releases/(losses) |
| 11 |
| (243) |
| (1) |
| 12 |
| (216) |
Operating (loss)/profit |
| (7) |
| (239) |
| (18) |
| 11 |
| (218) |
Return on equity |
| (0.8)% | | (24.2)% | | (4.3)% | | 2.5% | | (44.5)% |
Net interest margin |
| 1.46% | | 1.52% | | 1.45% | | 1.48% | | 1.48% |
Cost:income ratio | | 107.4% | | 98.4% | | 114.3% | | 100.8% | | 101.7% |
Loan impairment rate |
| (13)bps |
| 248bps |
| 2bps |
| (27)bps |
| 441bps |
| | | | | | |
| | As at | ||||
| | 30 June | | 31 March | | 31 December |
|
| 2021 |
| 2021 |
| 2020 |
|
| £bn |
| £bn |
| £bn |
Net loans to customers (amortised cost) | | 16.7 | | 16.9 | | 18.0 |
Customer deposits |
| 18.5 |
| 18.4 |
| 19.6 |
RWAs |
| 10.5 |
| 11.1 |
| 11.8 |
In June 2021, UBIDAC entered into a binding agreement with Allied Irish Banks p.l.c. for the sale of around €4.2 billion of gross performing commercial lending and associated undrawn exposures of around €2.8 billion. The timing of completion remains uncertain and the sale is subject to obtaining regulatory and other approvals. In July 2021, NatWest Group plc and UBIDAC entered into a non-binding Memorandum of Understanding with Permanent TSB Group Holdings p.l.c. for the proposed sale of a perimeter comprising performing non-tracker mortgages, performing micro-SME loans, UBIDAC’s asset finance business and 25 branch locations. The proposed perimeter included approximately €7.6 billion gross performing loans as at 31 March 2021. Ulster Bank RoI remains focused on supporting its customers as it continues its withdrawal from the Republic of Ireland.
H1 2021 performance
● | Total income decreased by £6 million (€6 million), or 2.4% (2.1% in euro terms), compared with H1 2020 primarily reflecting lower lending levels and fee income as a result of the continued impact of COVID-19 and the recent announcement to commence a phased withdrawal from the Republic of Ireland, partially offset by increased FX gains. |
● | Operating expenses were £16 million (€16 million), or 6.5% (5.7% in euro terms) higher compared with H1 2020. Other expenses were £11 million (€10 million), or 4.7% (3.7% in euro terms), higher than H1 2020 due to increased regulatory levies and higher VAT charges, partially offset by a 7.1% reduction in headcount and lower back office operations costs. |
● | A net impairment release of £11 million (€13 million) in H1 2021 reflects improvements in the mortgage portfolio, including releases related to the final de-recognition of assets from a non-performing loan (NPL) sale agreed in Q4 2019, offset by post model adjustments to reflect loan disposal strategies not captured within loss modelling. |
● | Net loans to customers decreased by £1.3 billion (€0.6 billion), or 7.2% (3.0% in euro terms), in H1 2021 as repayments exceeded gross new lending of £0.7 billion (€0.8 billion). |
● | Customer deposits decreased by by £1.1 billion, or 5.6%, largely due to the weakening of the euro. In euro terms, customer deposits decreased by €0.2 billion, or 0.9%, in H1 2021 due to a large short term placement at the end of 2020 partially offset by increased personal balances. |
Q2 2021 performance
● | Total income decreased by £5 million (€5 million) compared with Q1 2021 due to lower lending income and reduced FX gains. Net interest margin decreased by 3 basis points (6 basis points in euro terms) compared with Q1 2021 reflecting lower lending volumes and a stable deposit base, resulting in higher liquid assets in a negative interest rate environment. |
● | Operating expenses increased by £11 million (€13 million) compared with Q1 2021. Other expenses increased by £15 million (€17 million) compared with Q1 2021 mainly due to increased Single Resolution Fund (SRF) levies, much of which relates to prior years, and higher VAT charges, partially offset by a 3.7% reduction in headcount. |
● | Net loans to customers decreased by £0.2 billion (€0.4 billion) compared with Q1 2021. |
● | Customer deposits increased by £0.1 billion due to the strengthening of the euro. In euro terms, customer deposits decreased by €0.1 billion compared with Q1 2021 resulting in loan:deposit ratio of 90% compared with 92% in Q1 2021. |
● | RWAs decreased by £0.6 billion (€0.9 billion) compared with Q1 2021 mainly due to improvements in asset quality, lower lending volumes and the impact of the NPL de-recognition. |
NatWest Group – Form 6-K Interim Results 2021 | 16 |
Business performance summary
Central items & other
| | | | | | | | | | |
| | Half year ended | | Quarter ended | ||||||
| | 30 June | | 30 June | | 30 June | | 31 March | | 30 June |
| | 2021 | | 2020 | | 2021 | | 2021 | | 2020 |
|
| £m |
| £m |
| £m |
| £m |
| £m |
Central items not allocated |
| 83 |
| (216) |
| 110 |
| (27) |
| (146) |
· | An £83 million operating profit within central items not allocated mainly reflects a £129 million share of associate profits for the Business Growth Fund, a litigation and conduct release and IFRS volatility, partially offset by a £138 million day one loss on redemption of own debt related to the repurchase of legacy instruments, which will result in annual net interest savings of c.£51 million. |
NatWest Group – Form 6-K Interim Results 2021 | 17 |
Segment performance
| | | | | | | | | | | | | | | | |
|
| Half year ended 30 June 2021 | ||||||||||||||
| | | | | | | | International Banking & Markets | | | | Central | | Total | ||
| | Retail | | Private | | Commercial | | RBS | | NatWest | | Ulster | | items & | | NatWest |
| | Banking | | Banking | | Banking | | International | | Markets | | Bank RoI | | other | | Group |
|
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
Income statement |
| |
| |
| |
| |
| |
| |
| |
| |
Net interest income |
| 1,976 |
| 232 |
| 1,308 |
| 182 |
| (3) |
| 187 |
| 34 |
| 3,916 |
Own credit adjustments |
| — |
| — |
| — |
| — |
| 1 |
| — |
| (1) |
| — |
Other non-interest income |
| 174 |
| 136 |
| 615 |
| 74 |
| 297 |
| 56 |
| 51 |
| 1,403 |
Total income |
| 2,150 |
| 368 |
| 1,923 |
| 256 |
| 295 |
| 243 |
| 84 |
| 5,319 |
Direct expenses - staff costs | | (232) |
| (67) |
| (280) |
| (52) |
| (188) |
| (94) |
| (768) |
| (1,681) |
- other costs |
| (111) |
| (20) |
| (131) |
| (24) |
| (64) |
| (68) |
| (1,108) |
| (1,526) |
Indirect expenses |
| (759) |
| (155) |
| (642) |
| (28) |
| (204) |
| (83) |
| 1,871 |
| — |
Strategic costs - direct | | (16) |
| (5) |
| (39) |
| (6) |
| (90) |
| (1) |
| (175) |
| (332) |
- indirect |
| (60) |
| (7) |
| (23) |
| (2) |
| (16) |
| (2) |
| 110 |
| — |
Litigation and conduct costs |
| (9) |
| 5 |
| (37) |
| — |
| 2 |
| (13) |
| 70 |
| 18 |
Operating expenses |
| (1,187) |
| (249) |
| (1,152) |
| (112) |
| (560) |
| (261) |
| — |
| (3,521) |
Operating profit/(loss) before impairment releases/(losses) |
| 963 |
| 119 |
| 771 |
| 144 |
| (265) |
| (18) |
| 84 |
| 1,798 |
Impairment releases/(losses) |
| 57 |
| 27 |
| 568 |
| 29 |
| 16 |
| 11 |
| (1) |
| 707 |
Operating profit/(loss) |
| 1,020 |
| 146 |
| 1,339 |
| 173 |
| (249) |
| (7) |
| 83 |
| 2,505 |
Additional information |
| |
| |
| |
| |
| |
| |
| |
| |
Return on tangible equity (1) | | na | | na | | na | | na | | na | | na | | na | | 11.7% |
Return on equity (1) |
| 27.5% | | 14.2% | | 21.9% | | 22.1% | | (9.2)% | | (0.8)% | | nm | | na |
Cost:income ratio (1) |
| 55.2% | | 67.7% | | 58.4% | | 43.8% | | 189.8% | | 107.4% | | nm | | 65.7% |
Total assets (£bn) |
| 204.2 |
| 27.7 |
| 185.8 |
| 37.0 |
| 219.4 |
| 25.4 |
| 76.4 |
| 775.9 |
Funded assets (£bn) (1) |
| 204.2 |
| 27.7 |
| 185.8 |
| 36.9 |
| 111.8 |
| 25.4 |
| 74.5 |
| 666.3 |
Net loans to customers - amortised cost (£bn) |
| 178.1 |
| 18.0 |
| 103.8 |
| 15.1 |
| 6.3 |
| 16.7 |
| 24.7 |
| 362.7 |
Loan impairment rate (1) |
| (6)bps |
| (30)bps |
| (107)bps |
| (38)bps |
| nm |
| (13)bps |
| nm |
| (38)bps |
Impairment provisions (£bn) |
| (1.6) |
| (0.1) |
| (2.1) |
| (0.1) |
| (0.1) |
| (0.7) |
| — |
| (4.7) |
Impairment provisions - Stage 3 (£bn) |
| (0.8) |
| — |
| (0.8) |
| (0.1) |
| (0.1) |
| (0.4) |
| — |
| (2.2) |
Customer deposits (£bn) |
| 184.1 |
| 34.7 |
| 176.0 |
| 33.9 |
| 2.5 |
| 18.5 |
| 17.5 |
| 467.2 |
Risk-weighted assets (RWAs) (£bn) |
| 35.6 |
| 11.2 |
| 69.5 |
| 7.6 |
| 26.9 |
| 10.5 |
| 1.7 |
| 163.0 |
RWA equivalent (RWAe) (£bn) |
| 35.6 |
| 11.3 |
| 69.5 |
| 7.7 |
| 28.6 |
| 10.5 |
| 1.8 |
| 165.0 |
Employee numbers (FTEs - thousands) |
| 15.3 |
| 1.9 |
| 9.1 |
| 1.6 |
| 1.6 |
| 2.6 |
| 27.1 |
| 59.2 |
Third party customer asset rate (2) |
| 2.70% | | 2.36% | | 2.74% | | 2.23% | | nm | | 2.28% | | nm | | nm |
Third party customer funding rate (2) |
| (0.07)% | | (0.00)% | | (0.01)% | | 0.07% | | nm | | 0.01% | | nm | | nm |
Average interest earning assets (£bn) (1) |
| 192.5 | | 26.4 | �� | 168.2 | | 35.3 | | 32.3 |
| 25.8 | | nm |
| 519.2 |
Bank net interest margin (1) |
| 2.07% | | 1.77% | | 1.57% | | 1.04% | | na | | 1.46% | | nm | | 1.62% |
nm = not meaningful, na = not applicable.
For the notes to this table, refer to page 22.
NatWest Group – Form 6-K Interim Results 2021 | 18 |
Segment performance
| | | | | | | | | | | | | | | | |
|
| Half year ended 30 June 2020 | ||||||||||||||
| | | | | | | | International Banking & Markets | | | | Central | | Total | ||
| | Retail | | Private | | Commercial | | RBS | | NatWest | | Ulster | | items & | | NatWest |
| | Banking | | Banking | | Banking | | International | | Markets | | Bank RoI | | other | | Group |
|
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
Income statement |
| |
| |
| |
| |
| |
| |
| |
| |
Net interest income |
| 1,982 |
| 251 |
| 1,370 |
| 201 |
| (34) |
| 194 |
| (112) |
| 3,852 |
Own credit adjustments |
| — |
| — |
| — |
| — |
| 53 |
| — |
| — |
| 53 |
Other non-interest income |
| 203 |
| 141 |
| 633 |
| 58 |
| 797 |
| 55 |
| 46 |
| 1,933 |
Total income |
| 2,185 |
| 392 |
| 2,003 |
| 259 |
| 816 |
| 249 |
| (66) |
| 5,838 |
Direct expenses - staff costs | | (268) |
| (79) |
| (341) |
| (65) |
| (326) |
| (100) |
| (617) |
| (1,796) |
- other costs |
| (103) |
| (25) |
| (140) |
| (27) |
| (94) |
| (42) |
| (1,148) |
| (1,579) |
Indirect expenses |
| (798) |
| (137) |
| (658) |
| (29) |
| (149) |
| (92) |
| 1,863 |
| — |
Strategic costs - direct | | (1) |
| — |
| (2) |
| (3) |
| (120) |
| (4) |
| (334) |
| (464) |
- indirect |
| (103) |
| (10) |
| (73) |
| (5) |
| (16) |
| (8) |
| 215 |
| — |
Litigation and conduct costs |
| 198 |
| (1) |
| (7) |
| 3 |
| (2) |
| 1 |
| (103) |
| 89 |
Operating expenses |
| (1,075) |
| (252) |
| (1,221) |
| (126) |
| (707) |
| (245) |
| (124) |
| (3,750) |
Operating profit/(loss) before impairment losses |
| 1,110 |
| 140 |
| 782 |
| 133 |
| 109 |
| 4 |
| (190) |
| 2,088 |
Impairment losses |
| (657) |
| (56) |
| (1,790) |
| (46) |
| (40) |
| (243) |
| (26) |
| (2,858) |
Operating profit/(loss) |
| 453 |
| 84 |
| (1,008) |
| 87 |
| 69 |
| (239) |
| (216) |
| (770) |
Additional information |
| |
| |
| |
| |
| |
| |
| |
| |
Return on tangible equity (1) | | na | | na | | na | | na | | na | | na | | na | | (4.4)% |
Return on equity (1) |
| 10.7% | | 8.2% | | (17.9)% | | 11.8% | | 0.8% | | (24.2)% | | nm | | na |
Cost:income ratio (1) |
| 49.2% | | 64.3% | | 59.5% | | 48.6% | | 86.6% | | 98.4% | | nm | | 63.8% |
Total assets (£bn) |
| 187.1 |
| 23.9 |
| 186.0 |
| 31.5 |
| 303.8 |
| 27.6 |
| 47.0 |
| 806.9 |
Funded assets (£bn) (1) |
| 187.1 |
| 23.9 |
| 186.0 |
| 31.5 |
| 122.9 |
| 27.6 |
| 44.5 |
| 623.5 |
Net loans to customers - amortised cost (£bn) |
| 164.5 |
| 16.0 |
| 112.0 |
| 12.7 |
| 11.4 |
| 18.7 |
| 17.0 |
| 352.3 |
Loan impairment rate (1) |
| 79bps |
| 70bps |
| 311bps |
| 72bps |
| nm |
| 248bps |
| nm |
| 159bps |
Impairment provisions (£bn) |
| (1.9) |
| (0.1) |
| (3.0) |
| — |
| (0.2) |
| (0.9) |
| — |
| (6.1) |
Impairment provisions - Stage 3 (£bn) |
| (0.9) |
| — |
| (1.2) |
| — |
| (0.1) |
| (0.6) |
| — |
| (2.8) |
Customer deposits (£bn) |
| 161.0 |
| 29.8 |
| 159.6 |
| 29.5 |
| 5.5 |
| 20.0 |
| 2.9 |
| 408.3 |
Risk-weighted assets (RWAs) (£bn) |
| 36.7 |
| 10.4 |
| 78.3 |
| 6.8 |
| 35.1 |
| 12.8 |
| 1.4 |
| 181.5 |
RWA equivalent (RWAe) (£bn) |
| 36.7 |
| 10.4 |
| 78.4 |
| 6.9 |
| 37.2 |
| 12.8 |
| 1.5 |
| 183.9 |
Employee numbers (FTEs - thousands) |
| 17.1 |
| 1.8 |
| 9.6 |
| 1.8 |
| 5.0 |
| 2.8 |
| 24.6 |
| 62.7 |
Third party customer asset rate (2) |
| 2.97% | | 2.67% | | 3.04% | | 2.65% | | nm | | 2.27% | | nm | | nm |
Third party customer funding rate (2) |
| (0.28)% | | (0.21)% | | (0.15)% | | (0.05)% | | nm | | (0.07)% | | nm | | nm |
Average interest earning assets (£bn) (1) |
| 178.6 | | 23.0 | | 156.5 | | 31.2 | | 38.0 |
| 25.7 | | nm |
| 477.9 |
Bank net interest margin (1) |
| 2.23% | | 2.20% | | 1.76% | | 1.30% | | na | | 1.52% | | nm | | 1.78% |
nm = not meaningful, na = not applicable.
For the notes to this table, refer to page 22.
NatWest Group – Form 6-K Interim Results 2021 | 19 |
Segment performance
| | | | | | | | | | | | | | | | |
|
| Quarter ended 30 June 2021 | ||||||||||||||
| | | | | | | | International Banking & Markets | | | | Central | | Total | ||
| | Retail | | Private | | Commercial | | RBS | | NatWest | | Ulster | | items & | | NatWest |
| | Banking | | Banking | | Banking | | International | | Markets | | Bank RoI | | other | | Group |
|
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
Income statement |
| |
| |
| |
| |
| |
| |
| |
| |
Net interest income |
| 1,003 |
| 117 |
| 665 |
| 93 |
| 4 |
| 93 |
| 10 |
| 1,985 |
Own credit adjustments |
| — |
| — |
| — |
| — |
| (1) |
| — |
| (1) |
| (2) |
Other non-interest income |
| 91 |
| 66 |
| 317 |
| 40 |
| 103 |
| 26 |
| 34 |
| 677 |
Total income |
| 1,094 |
| 183 |
| 982 |
| 133 |
| 106 |
| 119 |
| 43 |
| 2,660 |
Direct expenses- staff costs | | (116) |
| (33) |
| (139) |
| (26) |
| (77) |
| (47) |
| (371) |
| (809) |
- other costs |
| (50) |
| (11) |
| (65) |
| (11) |
| (35) |
| (45) |
| (542) |
| (759) |
Indirect expenses |
| (379) |
| (76) |
| (301) |
| (15) |
| (104) |
| (38) |
| 913 |
| — |
Strategic costs - direct | | (5) |
| (5) |
| (13) |
| (2) |
| (60) |
| (1) |
| (86) |
| (172) |
- indirect |
| (43) |
| (3) |
| (14) |
| (1) |
| (11) |
| (1) |
| 73 |
| — |
Litigation and conduct costs |
| (7) |
| — |
| (37) |
| — |
| 2 |
| (4) |
| 80 |
| 34 |
Operating expenses |
| (600) |
| (128) |
| (569) |
| (55) |
| (285) |
| (136) |
| 67 |
| (1,706) |
Operating profit/(loss) before impairment losses |
| 494 |
| 55 |
| 413 |
| 78 |
| (179) |
| (17) |
| 110 |
| 954 |
Impairment releases/(losses) |
| 91 |
| 27 |
| 451 |
| 27 |
| 10 |
| (1) |
| — |
| 605 |
Operating profit/(loss) |
| 585 |
| 82 |
| 864 |
| 105 |
| (169) |
| (18) |
| 110 |
| 1,559 |
Additional information |
| |
| |
| |
| |
| |
| |
| |
| |
Return on tangible equity (1) | | na | | na | | na | | na | | na | | na | | na | | 15.6% |
Return on equity (1) |
| 32.0% | | 15.9% | | 29.3% | | 26.5% | | (12.1)% | | (4.3)% | | nm | | na |
Cost:income ratio (1) |
| 54.8% | | 69.9% | | 56.4% | | 41.5% | | 268.9% | | 114.3% | | nm | | 63.7% |
Total assets (£bn) |
| 204.2 |
| 27.7 |
| 185.8 |
| 37.0 |
| 219.4 |
| 25.4 |
| 76.4 |
| 775.9 |
Funded assets (£bn) (1) |
| 204.2 |
| 27.7 |
| 185.8 |
| 36.9 |
| 111.8 |
| 25.4 |
| 74.5 |
| 666.3 |
Net loans to customers - amortised cost (£bn) |
| 178.1 |
| 18.0 |
| 103.8 |
| 15.1 |
| 6.3 |
| 16.7 |
| 24.7 |
| 362.7 |
Loan impairment rate (1) |
| (20)bps |
| (60)bps |
| (170)bps |
| (71)bps |
| nm |
| 2bps |
| nm |
| (66)bps |
Impairment provisions (£bn) |
| (1.6) |
| (0.1) |
| (2.1) |
| (0.1) |
| (0.1) |
| (0.7) |
| — |
| (4.7) |
Impairment provisions - Stage 3 (£bn) |
| (0.8) |
| — |
| (0.8) |
| (0.1) |
| (0.1) |
| (0.4) |
| — |
| (2.2) |
Customer deposits (£bn) |
| 184.1 |
| 34.7 |
| 176.0 |
| 33.9 |
| 2.5 |
| 18.5 |
| 17.5 |
| 467.2 |
Risk-weighted assets (RWAs) (£bn) |
| 35.6 |
| 11.2 |
| 69.5 |
| 7.6 |
| 26.9 |
| 10.5 |
| 1.7 |
| 163.0 |
RWA equivalent (RWAe) (£bn) |
| 35.6 |
| 11.3 |
| 69.5 |
| 7.7 |
| 28.6 |
| 10.5 |
| 1.8 |
| 165.0 |
Employee numbers (FTEs - thousands) |
| 15.3 |
| 1.9 |
| 9.1 |
| 1.6 |
| 1.6 |
| 2.6 |
| 27.1 |
| 59.2 |
Third party customer asset rate (2) |
| 2.67% | | 2.36% | | 2.82% | | 2.18% | | nm | | 2.28% | | nm | | nm |
Third party customer funding rate (2) |
| (0.06)% | | (0.00)% | | (0.02)% | | 0.09% | | nm | | 0.01% | | nm | | nm |
Average interest earning assets (£bn) (1) |
| 193.8 | | 26.8 | | 167.1 | | 36.4 | | 32.3 |
| 25.8 | | nm |
| 526.1 |
Bank net interest margin (1) |
| 2.08% | | 1.75% | | 1.60% | | 1.02% | | na | | 1.45% | | nm | | 1.61% |
nm = not meaningful, na = not applicable.
For the notes to this table, refer to page 22.
NatWest Group – Form 6-K Interim Results 2021 | 20 |
Segment performance
| | | | | | | | | | | | | | | | |
|
| Quarter ended 31 March 2021 | ||||||||||||||
| | | | | | | | International Banking & Markets | | | | Central | | Total | ||
| | Retail | | Private | | Commercial | | RBS | | NatWest | | Ulster | | items & | | NatWest |
| | Banking | | Banking | | Banking | | International | | Markets | | Bank RoI | | other | | Group |
|
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
Income statement |
| |
| |
| |
| |
| |
| |
| |
| |
Net interest income |
| 973 |
| 115 |
| 643 |
| 89 |
| (7) |
| 94 |
| 24 |
| 1,931 |
Own credit adjustments |
| — |
| — |
| — |
| — |
| 2 |
| — |
| — |
| 2 |
Other non-interest income |
| 83 |
| 70 |
| 298 |
| 34 |
| 194 |
| 30 |
| 17 |
| 726 |
Total income |
| 1,056 |
| 185 |
| 941 |
| 123 |
| 189 |
| 124 |
| 41 |
| 2,659 |
Direct expenses-staff costs | | (116) |
| (34) |
| (141) |
| (26) |
| (111) |
| (47) |
| (397) |
| (872) |
- other costs |
| (61) |
| (9) |
| (66) |
| (13) |
| (29) |
| (23) |
| (566) |
| (767) |
Indirect expenses |
| (380) |
| (79) |
| (341) |
| (13) |
| (100) |
| (45) |
| 958 |
| - |
Strategic costs - direct | | (11) |
| — |
| (26) |
| (4) |
| (30) |
| — |
| (89) |
| (160) |
- indirect |
| (17) |
| (4) |
| (9) |
| (1) |
| (5) |
| (1) |
| 37 |
| — |
Litigation and conduct costs |
| (2) |
| 5 |
| — |
| — |
| — |
| (9) |
| (10) |
| (16) |
Operating expenses |
| (587) |
| (121) |
| (583) |
| (57) |
| (275) |
| (125) |
| (67) |
| (1,815) |
Operating profit/(loss) before impairment (losses)/releases |
| 469 |
| 64 |
| 358 |
| 66 |
| (86) |
| (1) |
| (26) |
| 844 |
Impairment (losses)/releases |
| (34) |
| — |
| 117 |
| 2 |
| 6 |
| 12 |
| (1) |
| 102 |
Operating profit/(loss) |
| 435 |
| 64 |
| 475 |
| 68 |
| (80) |
| 11 |
| (27) |
| 946 |
Additional information |
| |
| |
| |
| |
| |
| |
| |
| |
Return on tangible equity (1) | | na | | na | | na | | na | | na | | na | | na | | 7.9% |
Return on equity (1) |
| 23.0% | | 12.4% | | 14.9% | | 17.5% | | (6.3)% | | 2.5% | | nm | | na |
Cost:income ratio (1) |
| 55.6% | | 65.4% | | 60.5% | | 46.3% | | 145.5% | | 100.8% | | nm | | 67.8% |
Total assets (£bn) |
| 199.2 |
| 26.9 |
| 187.1 |
| 36.7 |
| 226.8 |
| 25.9 |
| 67.2 |
| 769.8 |
Funded assets (£bn) (1) |
| 199.2 |
| 26.9 |
| 187.1 |
| 36.7 |
| 105.7 |
| 25.9 |
| 65.3 |
| 646.8 |
Net loans to customers - amortised cost (£bn) |
| 174.8 |
| 17.5 |
| 106.6 |
| 14.7 |
| 7.5 |
| 16.9 |
| 20.7 |
| 358.7 |
Loan impairment rate (1) |
| 8bps |
| — |
| (43)bps |
| (5)bps |
| nm |
| (27)bps |
| nm |
| (11)bps |
Impairment provisions (£bn) |
| (1.8) |
| (0.1) |
| (2.7) |
| (0.1) |
| (0.1) |
| (0.7) |
| (0.1) |
| (5.6) |
Impairment provisions - Stage 3 (£bn) |
| (0.8) |
| — |
| (0.9) |
| — |
| (0.1) |
| (0.5) |
| (0.1) |
| (2.4) |
Customer deposits (£bn) |
| 179.1 |
| 33.5 |
| 169.4 |
| 33.3 |
| 2.4 |
| 18.4 |
| 17.2 |
| 453.3 |
Risk-weighted assets (RWAs) (£bn) |
| 35.0 |
| 11.2 |
| 71.6 |
| 7.7 |
| 26.5 |
| 11.1 |
| 1.6 |
| 164.7 |
RWA equivalent (RWAe) (£bn) |
| 35.0 |
| 11.2 |
| 71.7 |
| 7.7 |
| 29.2 |
| 11.1 |
| 1.7 |
| 167.6 |
Employee numbers (FTEs - thousands) |
| 15.8 |
| 1.9 |
| 9.5 |
| 1.6 |
| 2.1 |
| 2.7 |
| 26.0 |
| 59.6 |
Third party customer asset rate (2) |
| 2.73% | | 2.36% | | 2.65% | | 2.28% | | nm | | 2.28% | | nm | | nm |
Third party customer funding rate (2) |
| (0.08)% | | (0.00)% | | (0.01)% | | 0.05% | | nm | | 0.00% | | nm | | nm |
Average interest earning assets (£bn) (1) |
| 191.2 | | 26.0 | | 169.4 | | 34.1 | | 32.4 |
| 25.8 | | nm | | 512.2 |
Bank net interest margin (1) |
| 2.06% | | 1.79% | | 1.54% | | 1.06% | | na | | 1.48% | | nm | | 1.64% |
nm = not meaningful, na = not applicable.
For the notes to this table, refer to the following page.
NatWest Group – Form 6-K Interim Results 2021 | 21 |
Segment performance
| | | | | | | | | | | | | | | | |
|
| Quarter ended 30 June 2020 | ||||||||||||||
| | | | | | | | International Banking & Markets | | | | Central | | Total | ||
| | Retail | | Private | | Commercial | | RBS | | NatWest | | Ulster | | items & | | NatWest |
| | Banking | | Banking | | Banking | | International | | Markets | | Bank RoI | | other | | Group |
|
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
Income statement |
| |
| |
| |
| |
| |
| |
| |
| |
Net interest income |
| 975 |
| 124 |
| 696 |
| 90 |
| 6 |
| 97 |
| (78) |
| 1,910 |
Own credit adjustments |
| — |
| — |
| — |
| — |
| (102) |
| — |
| — |
| (102) |
Other non-interest income |
| 60 |
| 67 |
| 299 |
| 25 |
| 369 |
| 23 |
| 25 |
| 868 |
Total income |
| 1,035 |
| 191 |
| 995 |
| 115 |
| 273 |
| 120 |
| (53) |
| 2,676 |
Direct expenses-staff costs |
| (133) |
| (40) |
| (167) |
| (33) |
| (159) |
| (52) |
| (293) |
| (877) |
- other costs |
| (45) |
| (9) |
| (67) |
| (13) |
| (37) |
| (18) |
| (595) |
| (784) |
Indirect expenses |
| (399) |
| (74) |
| (337) |
| (15) |
| (75) |
| (46) |
| 946 |
| — |
Strategic costs - direct |
| (1) |
| — |
| — |
| (2) |
| (86) |
| (3) |
| (241) |
| (333) |
- indirect |
| (69) |
| (5) |
| (34) |
| (2) |
| (8) |
| (4) |
| 122 |
| — |
Litigation and conduct costs |
| 101 |
| (1) |
| (6) |
| — |
| — |
| 1 |
| (10) |
| 85 |
Operating expenses |
| (546) |
| (129) |
| (611) |
| (65) |
| (365) |
| (122) |
| (71) |
| (1,909) |
Operating profit/(loss) before impairment losses |
| 489 |
| 62 |
| 384 |
| 50 |
| (92) |
| (2) |
| (124) |
| 767 |
Impairment losses |
| (360) |
| (27) |
| (1,355) |
| (31) |
| (45) |
| (216) |
| (22) |
| (2,056) |
Operating profit/(loss) |
| 129 |
| 35 |
| (971) |
| 19 |
| (137) |
| (218) |
| (146) |
| (1,289) |
Additional information |
| |
| |
| |
| |
| |
| |
| |
| |
Return on tangible equity (1) | | na | | na | | na | | na | | na | | na | | na | | (12.4)% |
Return on equity (1) |
| 5.7% | | 6.6% | | (32.5)% | | 4.3% | | (7.1)% | | (44.5)% | | nm | | na |
Cost:income ratio (1) |
| 52.8% | | 67.5% | | 59.9% | | 56.5% | | 133.7% | | 101.7% | | nm | | 70.9% |
Total assets (£bn) |
| 187.1 |
| 23.9 |
| 186.0 |
| 31.5 |
| 303.8 |
| 27.6 |
| 47.0 |
| 806.9 |
Funded assets (£bn) (1) |
| 187.1 |
| 23.9 |
| 186.0 |
| 31.5 |
| 122.9 |
| 27.6 |
| 44.5 |
| 623.5 |
Net loans to customers - amortised cost (£bn) |
| 164.5 |
| 16.0 |
| 112.0 |
| 12.7 |
| 11.4 |
| 18.7 |
| 17.0 |
| 352.3 |
Loan impairment rate (1) |
| 87bps |
| 67bps |
| 472bps |
| 97bps |
| nm |
| 441bps |
| nm |
| 229bps |
Impairment provisions (£bn) |
| (1.9) |
| (0.1) |
| (3.0) |
| — |
| (0.2) |
| (0.9) |
| — |
| (6.1) |
Impairment provisions - Stage 3 (£bn) |
| (0.9) |
| — |
| (1.2) |
| — |
| (0.1) |
| (0.6) |
| — |
| (2.8) |
Customer deposits (£bn) |
| 161.0 |
| 29.8 |
| 159.6 |
| 29.5 |
| 5.5 |
| 20.0 |
| 2.9 |
| 408.3 |
Risk-weighted assets (RWAs) (£bn) |
| 36.7 |
| 10.4 |
| 78.3 |
| 6.8 |
| 35.1 |
| 12.8 |
| 1.4 |
| 181.5 |
RWA equivalent (RWAe) (£bn) |
| 36.7 |
| 10.4 |
| 78.4 |
| 6.9 |
| 37.2 |
| 12.8 |
| 1.5 |
| 183.9 |
Employee numbers (FTEs - thousands) |
| 17.1 |
| 1.8 |
| 9.6 |
| 1.8 |
| 5.0 |
| 2.8 |
| 24.6 |
| 62.7 |
Third party customer asset rate (2) |
| 2.88% | | 2.53% | | 2.88% | | 2.58% | | nm | | 2.27% | | nm | | nm |
Third party customer funding rate (2) |
| (0.20)% | | (0.12)% | | (0.13)% | | (0.01)% | | nm | | (0.07)% | | nm | | nm |
Average interest earning assets (£bn) (1) |
| 179.8 | | 23.3 | | 164.6 | | 31.5 | | 39.9 | | 26.4 | | nm | | 497.4 |
Bank net interest margin (1) |
| 2.18% | | 2.14% | | 1.70% | | 1.15% | | na | | 1.48% | | nm | | 1.67% |
nm = not meaningful, na = not applicable.
Notes:
(1) Refer to Non-IFRS financial measures Appendix for details of basis of preparation and reconciliation of non-IFRS financial measures and performance metrics where relevant.
(2) Third party customer asset rate is calculated as annualised interest receivable on third-party loans to customers as a percentage of third-party loans to customers only. Third party customer funding rate reflects interest payable or receivable on third-party customer deposits, including interest bearing and non-interest bearing customer deposits. This excludes intragroup items, loans to banks and liquid asset portfolios. Intragroup items, bank deposits, debt securities in issue and subordinated liabilities are excluded for customer funding rate calculation. Comparatives have been restated. Net interest margin is calculated as net interest income as a percentage of the average interest-earning assets without these exclusions.
NatWest Group – Form 6-K Interim Results 2021 | 22 |
Risk and capital management
| |
| Page |
Credit risk | 21 |
Economic loss drivers | 21 |
UK economic uncertainty | 24 |
Measurement uncertainty and ECL sensitivity analysis | 27 |
Measurement uncertainty and ECL adequacy | 29 |
Credit risk – Banking activities | 31 |
Segment analysis | 31 |
Sector analysis | 36 |
Wholesale forbearance | 41 |
Personal portfolio | 43 |
Commercial real estate | 46 |
Flow statements | 48 |
Stage 2 decomposition by a significant increase in credit risk trigger | |
Asset quality | 59 |
Credit risk – Trading activities | 63 |
Capital, liquidity and funding risk | 66 |
Market risk | |
Non-traded | 76 |
Traded | 80 |
Other risks | 81 |
NatWest Group – Form 6-K Interim Results 2021 | 23 |
Risk and capital management
Credit risk
Economic loss drivers
Introduction
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 product or asset class and where relevant, industry sector and region) are based on a selected, small number of economic factors, (typically three to four) that best explain the temporal variations in portfolio loss rates. The process to select economic loss drivers involves empirical analysis and expert judgement.
The most material economic loss drivers are shown in the table below.
| |
Portfolio | Economic loss drivers |
UK retail mortgages | UK unemployment rate, sterling swap rate, UK house price index, UK household debt to income |
UK retail unsecured | UK unemployment rate, sterling swap rate, UK household debt to income |
UK large corporates | World GDP, UK unemployment rate, sterling swap rate, stock price index |
UK commercial | UK GDP, UK unemployment rate, sterling swap rate |
UK commercial real estate | UK GDP, UK property price indices, sterling swap rate |
RoI retail mortgages | RoI unemployment rate, European Central Bank base rate, RoI house price index |
Note:
(1) | This is not an exhaustive list of economic loss drivers but shows the most material drivers for the most material models/portfolios. |
Economic scenarios
There was improvement in the economic outlook for the UK since 31 December 2020, which was reflected in a more optimistic base case scenario as at 30 June 2021. The main drivers of the improvement were as follows:
● | Rapid roll-out of the COVID-19 vaccination in the UK and in other developed countries, leading to relaxation of restrictions. |
● | The success of various government support measures in containing the fallout from lockdown. |
● | Faster than expected economic recovery, with GDP having made material gains since the lifting of restrictions, and labour and housing markets in particular showing continued signs of resiliency. |
The range of anticipated future economic conditions was defined by a set of four internally developed scenarios and their respective probabilities. In addition to the base case, they comprised upside, downside and extreme downside scenarios. The scenarios primarily reflect a range of outcomes for the path of COVID-19 as well as recovery, and the associated effects on labour and asset markets.
The four scenarios were deemed appropriate in capturing the uncertainty in economic forecasts and the non-linearity in outcomes under different scenarios. The scenarios were developed to provide sufficient coverage across potential changes in unemployment, asset price and the degree of permanent damage to the economy, around which there are pronounced levels of uncertainty at this stage.
The tables below provide details of the key economic parameters under the four scenarios.
The main macroeconomic variables for each of the four scenarios used for expected credit loss (ECL) modelling are set out in the table below. The compound annual growth rate (CAGR) for GDP is shown. It also shows the five-year average for unemployment and the Bank of England base rate. The House Price Index and commercial real estate figures show the total change in each asset over five years.
| | | | | | | | | | | | | | | | |
Main macroeconomic variables |
| 30 June 2021 | | 31 December 2020 | ||||||||||||
| | | | | | | | Extreme | | | | | | | | Extreme |
| | Upside | | Base case | | Downside | | downside | | Upside | | Base case | | Downside | | downside |
Five-year summary | | % | | % | | % | | % | | % | | % | | % | | % |
UK |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GDP - CAGR |
| 3.9 |
| 3.5 |
| 2.9 |
| 2.5 |
| 3.6 |
| 3.1 |
| 2.8 |
| 1.3 |
Unemployment - average |
| 4.1 |
| 4.6 |
| 5.8 |
| 8.1 |
| 4.4 |
| 5.7 |
| 7.1 |
| 9.7 |
House price index - total change |
| 23.4 |
| 14.2 |
| 4.9 |
| (0.8) |
| 12.5 |
| 7.6 |
| 4.4 |
| (19.0) |
Bank of England base rate - average |
| 0.9 |
| 0.4 |
| — |
| (0.5) |
| 0.2 |
| — |
| (0.1) |
| (0.5) |
Commercial real estate price - total change |
| 13.6 |
| 4.7 |
| 0.1 |
| (8.7) |
| 4.3 |
| 0.7 |
| (12.0) |
| (31.5) |
| | | | | | | | | | | | | | | | |
Republic of Ireland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GDP - CAGR |
| 3.8 |
| 3.2 |
| 2.5 |
| 1.8 |
| 4.2 |
| 3.5 |
| 3.0 |
| 1.6 |
Unemployment - average |
| 5.1 |
| 6.8 |
| 9.1 |
| 10.9 |
| 5.6 |
| 7.5 |
| 9.3 |
| 11.2 |
House price index - total change |
| 25.4 |
| 18.0 |
| 11.3 |
| 2.6 |
| 21.0 |
| 13.3 |
| 6.8 |
| (7.0) |
European Central Bank base rate - average |
| 0.2 |
| 0.1 |
| — |
| — |
| 0.1 |
| — |
| — |
| — |
| | | | | | | | | | | | | | | | |
World GDP - CAGR |
| 3.8 |
| 3.5 |
| 2.7 |
| 1.8 |
| 3.5 |
| 3.4 |
| 2.9 |
| 2.8 |
| | | | | | | | | | | | | | | | |
Probability weight |
| 35.0 |
| 40.0 |
| 20.0 |
| 5.0 |
| 20.0 |
| 40.0 |
| 30.0 |
| 10.0 |
Notes:
(1) | The five year period starts at Q1 2021 for 30 June 2021 and Q3 2020 for 31 December 2020. |
(2) | The Republic of Ireland unemployment rate in table above and following tables corresponds to the mid-point of the Irish Central Statistics Office lower and upper bound unemployment rate measures. |
NatWest Group – Form 6-K Interim Results 2021 | 24 |
Risk and capital management
Credit risk continued
Annual figures
GDP - annual growth
| | | | | | | | | | | | | | | | | | |
| | | | Base | | | | Extreme | | | | | | Base | | | | Extreme |
| | Upside | | case | | Downside | | downside | | | | Upside | | case | | Downside | | downside |
UK | | % | | % | | % | | % | | Republic of Ireland | | % | | % | | % | | % |
2021 |
| 10.1 |
| 7.3 |
| 2.7 |
| 0.1 |
| 2021 |
| 9.1 |
| 4.8 |
| 1.8 |
| (0.3) |
2022 |
| 5.4 |
| 5.8 |
| 4.3 | | — |
| 2022 |
| 5.0 |
| 4.9 |
| 2.2 |
| (3.7) |
2023 |
| 1.6 |
| 1.6 |
| 4.4 |
| 7.7 |
| 2023 |
| 3.0 |
| 3.6 |
| 5.4 |
| 7.5 |
2024 |
| 1.6 |
| 1.6 |
| 2.2 |
| 3.7 |
| 2024 |
| 2.6 |
| 3.0 |
| 3.2 |
| 5.2 |
2025 |
| 1.6 |
| 1.6 |
| 1.5 |
| 1.7 |
| 2025 |
| 2.7 |
| 2.9 |
| 2.8 |
| 3.1 |
Unemployment rate - annual average
| | | | | | | | | | | | | | | | | | |
| | | | Base | | | | Extreme | | | | | | Base | | | | Extreme |
| | Upside | | case | | Downside | | downside | | | | Upside | | case | | Downside | | downside |
UK | | % | | % | | % | | % | | Republic of Ireland | | % | | % | | % | | % |
2021 |
| 4.7 |
| 5.3 |
| 5.4 |
| 5.9 |
| 2021 |
| 9.0 |
| 11.7 |
| 14.2 |
| 14.9 |
2022 |
| 4.3 |
| 4.8 |
| 7.0 |
| 11.8 |
| 2022 |
| 5.8 |
| 7.5 |
| 12.7 |
| 13.9 |
2023 |
| 4.0 |
| 4.5 |
| 6.5 |
| 10.4 |
| 2023 |
| 4.7 |
| 6.1 |
| 7.6 |
| 12.4 |
2024 |
| 3.8 |
| 4.5 |
| 5.4 |
| 7.1 |
| 2024 |
| 4.4 |
| 5.7 |
| 7.0 |
| 9.0 |
2025 |
| 3.8 |
| 4.3 |
| 4.8 |
| 5.2 |
| 2025 |
| 4.2 |
| 5.4 |
| 6.3 |
| 6.6 |
House price index - four quarter growth
| | | | | | | | | | | | | | | | | | |
|
| | | Base | | | | Extreme |
|
|
| | | Base | | | | Extreme |
| | Upside | | case | | Downside | | downside | | | | Upside | | case | | Downside | | downside |
UK | | % | | % | | % | | % |
| Republic of Ireland | | % | | % | | % | | % |
2021 |
| 8.0 |
| 2.0 |
| (2.4) |
| (5.4) |
| 2021 |
| 10.9 |
| 3.6 |
| (4.7) |
| (3.5) |
2022 |
| 1.7 |
| 0.5 |
| (3.0) |
| (27.0) |
| 2022 |
| 4.9 |
| 3.6 |
| 1.3 |
| (21.4) |
2023 |
| 2.8 |
| 1.9 |
| 1.3 |
| 12.2 |
| 2023 |
| 2.4 |
| 3.3 |
| 4.0 |
| 10.3 |
2024 |
| 4.8 |
| 4.8 |
| 4.8 |
| 19.5 |
| 2024 |
| 2.8 |
| 3.5 |
| 5.8 |
| 17.6 |
2025 |
| 4.0 |
| 4.0 |
| 4.0 |
| 6.2 |
| 2025 |
| 3.2 |
| 3.4 |
| 5.3 |
| 4.7 |
Commercial real estate price - four quarter growth
| | | | | | | | |
|
| | | Base | | | | Extreme |
| | Upside | | case | | Downside | | downside |
UK | | % | | % | | % | | % |
2021 |
| 7.0 |
| (1.4) |
| (8.4) |
| (13.4) |
2022 |
| 2.1 |
| 2.0 |
| (1.3) |
| (18.2) |
2023 |
| 1.7 |
| 1.7 |
| 5.8 |
| 15.7 |
2024 |
| 1.3 |
| 1.3 |
| 2.3 |
| 5.4 |
2025 |
| 1.2 |
| 1.2 |
| 2.3 |
| 5.1 |
| | | | | | | | | | | | | | | | | |
Worst points | | 30 June 2021 | | 31 December 2020 |
| ||||||||||||
|
| |
| |
| |
| Extreme |
| |
| |
| |
| Extreme |
|
| | Upside | | Base case | | Downside | | downside | | Upside | | Base case | | Downside | | downside |
|
UK | | % | | % | | % | | % | | % | | % | | % | | % | |
GDP |
| — |
| — |
| — |
| (10.2) |
| — |
| (1.8) |
| (5.1) |
| (10.4) | |
Unemployment rate (peak) |
| 5.0 |
| 5.5 |
| 7.0 |
| 11.9 |
| 5.9 |
| 7.0 |
| 9.4 |
| 13.9 | |
House price index |
| — |
| — |
| (6.1) |
| (33.1) |
| — |
| (3.6) |
| (11.2) |
| (32.0) | |
Commercial real estate price |
| — |
| (2.1) |
| (14.1) |
| (33.1) |
| (3.4) |
| (10.1) |
| (28.9) |
| (40.4) | |
| | | | | | | | | | | | | | | | | |
Republic of Ireland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
GDP |
| — |
| — |
| (5.3) |
| (13.3) |
| (0.6) |
| (3.0) |
| (5.5) |
| (13.8) | |
Unemployment rate (peak) |
| 15.0 |
| 15.0 |
| 15.0 |
| 17.2 |
| 16.5 |
| 16.5 |
| 16.5 |
| 18.1 | |
House price index |
| — |
| — |
| (10.1) |
| (26.5) |
| — |
| (4.2) |
| (13.3) |
| (27.0) | |
Note:
(1) | For the unemployment rate, the figures show the peak levels between 2021 and 2026 for 30 June 2021, and between 2020 and 2025 for 31 December 2020. For the other parameters, the figures show falls relative to the starting periods mentioned under the five-year summary table above. |
NatWest Group – Form 6-K Interim Results 2021 | 25 |
Risk and capital management
Credit risk continued
Probability weightings of scenarios
NatWest Group’s approach to IFRS 9 multiple economic scenarios (MES) involves selecting a suitable set of discrete scenarios to characterise the distribution of risks in the economic outlook and assigning appropriate probability weights. 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. Prior to 2020, GDP paths for NatWest 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.
Instead, NatWest Group has subjectively applied probability weights, reflecting expert views within NatWest Group. The probability weight assignment was judged to present good coverage to the central scenarios and the potential for a robust recovery on the upside and exceptionally challenging outcomes on the downside. A 35% weighting was applied to the upside scenario, a 40% weighting applied to the base case scenario, a 20% weighting applied to the downside scenario and a 5% weighting applied to the extreme downside scenario. NatWest Group assessed the downside risk posed by COVID-19 to be diminishing over the course of 2021, with the vaccination roll-out and positive economic data being observed since the gradual relaxing of lockdown restrictions.NatWest Group therefore judged it was appropriate to apply a higher probability to upside-biased scenarios than at December 2020.
Use of the scenarios in Personal lending
Personal lending follows a discrete scenario approach. The probability of default (PD) and loss given default (LGD) values for each discrete scenario are calculated using product specific econometric models. Each account has a PD and LGD calculated as probability weighted averages across the suite of economic scenarios.
Use of the scenarios in Wholesale lending
The Wholesale lending ECL methodology is based on the concept of credit cycle indices (CCIs). The CCIs represent, similar to the exogenous component in Personal, all relevant economic loss drivers for a region/industry segment aggregated into a single index value that describes the loss rate conditions in the respective segment relative to its long-run average. 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 are translated into forward-looking projections of CCIs using a set of econometric models. Subsequently the CCI projections for the individual scenarios are averaged into a single central CCI projection according to the given scenario probabilities. The central CCI projection is then overlaid with an additional mean reversion assumption, i.e. that after one to two years into the forecast horizon the CCIs gradually revert to their long-run average of zero.
Finally, ECL is calculated using a Monte Carlo approach by averaging PD and LGD values arising from many CCI paths simulated around the central CCI projection.
The rationale for the Wholesale approach is the long-standing observation that loss rates in Wholesale portfolios tend to follow regular cycles. This allows NatWest Group to enrich the range and depth of future economic conditions embedded in the final ECL beyond what would be obtained from using the discrete macro-economic scenarios alone.
Business banking, while part of the Wholesale segment, for reporting purposes, utilises the Personal lending rather than the Wholesale lending methodology.
UK economic uncertainty
Treatment of COVID-19 relief mechanisms
Use of COVID-19 relief mechanisms (for example, payment holidays, Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS)) does not automatically merit identification of significant increase in credit risk (SICR) and trigger a Stage 2 classification in isolation. However, a subset of Personal customers who had accessed payment holiday support, and where their risk profile has been identified as relatively high risk continue to be collectively migrated to Stage 2 (if not already captured by other SICR criteria).
For Wholesale customers, NatWest Group continues to provide support, where appropriate, to existing customers. Those who are deemed either (a) to require a prolonged timescale to return to within NatWest Group’s risk appetite, (b) not to have been viable pre-COVID-19, or (c) not to be able to sustain their debt once COVID-19 is over, will trigger a SICR and, if concessions are sought, be categorised as forborne, in line with regulatory guidance. Payment holiday extensions beyond an aggregate of 12 months in an 18 month period to cover continuing COVID-19 business interruption are categorised as forbearance, including for customers where no other SICR triggers are present.
NatWest Group – Form 6-K Interim Results 2021 | 26 |
Risk and capital management
Credit risk continued
In February 2021, the British Business Bank announced details of Pay As You Grow (PAYG) options for borrowers of BBLS. The scheme options include the extension of lending terms, periods of reduced repayments and six month payment holidays. PAYG options are a feature of BBLS rather than a concession granted by NatWest Group. It is therefore not automatically considered significant credit deterioration and a Stage 2 trigger. NatWest Group relies on both customer attestations and existing credit monitoring procedures to identify significant financial difficulty. Should signs of financial stress be identified, a review is performed. If credit deterioration is confirmed, existing problem debt management journeys are followed and forbearance (if a concession is granted) is marked in line with existing processes. This will result in Stage 2 transfer.
Model monitoring and enhancement
The abrupt and prolonged interruption of a wide range of economic activities due to COVID-19 and the subsequent government interventions to support businesses and individuals, has resulted in patterns in the data of key economic loss drivers and loss outcomes, that are markedly different from those that NatWest Group’s models have been built on. To account for these structural changes, model adjustments have been applied and model changes have been implemented.
All in-model adjustments described have been applied by correcting the PD and LGD estimates within the core ECL calculation process and therefore consistently and systematically inform SICR identification and ECL measurement.
Government support
Most notably as a result of various government support measures, model-projected default rates in Wholesale and Personal have been adjusted by introducing lags between 6 to 12 months. These lags are based partly on objective empirical data (i.e. the absence of increases in realised default rates by the reporting date) and partly judgmental, based on remaining government support measures and their expected effectiveness.
Extreme GDP movements – Wholesale only
Due to the specific nature of COVID-19, GDP year-on-year movements in both directions are extremely sharp, many multiples of their respective extremes observed previously.
This creates a risk of overstretched, invalid extrapolations in statistical models. Therefore, all Wholesale econometric models were updated to make them robust against extreme GDP movements by capping projected CCI values at levels corresponding to three times the default rates observed at the peak of the global financial crisis and using quarterly averages rather than spot values for CCI projections.
Scenario sensitivity – Personal only
For the Personal lending portfolio, the forward-looking components of the IFRS 9 PD models were modified, leveraging existing econometric models used in stress testing to ensure that PDs appropriately reflect the forecasts for unemployment and house prices in particular.
Additionally, post model ECL adjustments were made in Personal to ensure that the ECL was adjusted for known model over and underpredictions pre-dating COVID-19, pending the systematic recalibration of the underlying models.
NatWest Group – Form 6-K Interim Results 2021 | 27 |
Risk and capital management
Credit risk continued
Governance and post model adjustments
The IFRS 9 PD, exposure at default and LGD models are subject to NatWest Group’s model risk policy that stipulates periodic model monitoring, periodic re-validation and defines approval procedures and authorities according to model materiality. Various post model adjustments (PMAs) were applied where management judged they were necessary to ensure an adequate level of overall ECL provision. All PMAs were subject to formal approval through provisioning governance, and were categorised as follows:
● | Deferred model calibrations – ECL adjustments where PD model monitoring indicated that actual defaults were below estimated levels but where it was judged that an implied ECL release was not supportable, as these were being judged to have been distorted by government support schemes. As a consequence, any potential ECL release was deferred and retained on the balance sheet. |
● | Economic uncertainty – ECL adjustments primarily arising from uncertainties associated with MES and credit outcomes as a result of the effect of COVID-19 and the consequences of government interventions. In both cases, management judged that additional ECL was required until further credit performance data became available on the behavioural and loss consequences of COVID-19. |
● | Other adjustments – ECL adjustments where it was judged that the modelled ECL required to be amended. |
PMAs will remain a key focus area of NatWest Group’s ongoing ECL adequacy assessment process. A holistic framework has been established including reviewing a range of economic data, external benchmark information and portfolio performance trends, particularly with more observable outcomes from the unwinding of COVID-19 support mechanisms during the remainder of 2021.
| | | | | | | | | | |
ECL post model adjustments | | Retail | | Commercial | | Ulster | | | | |
|
| Banking |
| Banking |
| Bank RoI |
| Other |
| Total |
30 June 2021 |
| £m |
| £m |
| £m |
| £m |
| £m |
Deferred model calibrations |
| 103 |
| 51 |
| (2) |
| — |
| 152 |
Economic uncertainty |
| 197 |
| 493 |
| 114 |
| 30 |
| 834 |
Other adjustments |
| 22 |
| 19 |
| 118 |
| 4 |
| 163 |
|
| 322 |
| 563 |
| 230 |
| 34 |
| 1,149 |
| | | | | | | | | | |
31 December 2020 |
|
|
|
|
|
|
|
|
|
|
Deferred model calibrations |
| 34 |
| 13 |
| 2 |
| — |
| 49 |
Economic uncertainty |
| 158 |
| 526 |
| 176 |
| 18 |
| 878 |
Other adjustments |
| 20 |
| 19 |
| 26 |
| 3 |
| 68 |
|
| 212 |
| 558 |
| 204 |
| 21 |
| 995 |
Retail Banking – The PMA for deferred model calibrations increased to £103 million from £34 million at 31 December 2020. This reflected management’s judgement that the implied ECL decreases that continued to manifest themselves through the standard PD model monitoring process during H1 2021, were not fully supportable as they were viewed as being temporarily distorted by government support mechanisms. Management retained this view on the basis that underlying portfolio performance had been influenced by the various customer support mechanisms and further outcome data is required.
The PMA for economic uncertainty increased to £197 million from £158 million at 31 December 2020. This was primarily due to the addition of a further £47 million of post model adjustments to hold back modelled LGD reductions on certain unsecured portfolio segements. The total included an ECL uplift of £55 million (a reduction from £63 million at 31 December 2020 due to PD improvements) on a subset of customers who had accessed payment holiday support where their risk profile was identified as relatively high risk. In addition, NatWest Group continues to retain a holdback of a modelled ECL release of £69 million, again due to the delayed default emergence reflective of the various customer support mechanisms (£15 million related to mortgages and £54 million related to unsecured lending). The H1 2021 overlay also included an ECL uplift on buy-to-let mortgages of £14 million (31 December 2020 – £15 million) to mitigate the risk of a disproportionate credit deterioration in challenging economic circumstances.
Other judgmental overlays included £15 million (31 December 2020 – £13 million) in respect of the repayment risk not captured in the models, that a proportion of customers on interest-only mortgages would not be able to repay the capital element of their loan at the end of term, as well as a £7 million overlay for an identified weakness in the mortgage PD model pending remediation.
NatWest Group – Form 6-K Interim Results 2021 | 28 |
Risk and capital management
Credit risk continued
Commercial Banking – The PMA for economic uncertainty included an overlay of £409 million (£450 million across NatWest Group’s Wholesale portfolio) based on a judgemental thesis, reflecting concern that the unprecedented nature of COVID-19 could result in longer debt recovery periods and lower values than history suggested, and also the risk of idiosyncratic credit outcomes. It also included an overlay of £23 million in respect of elevated concerns around borrowers’ ability to refinance facilities at the end of the contractual term. Additionally, it included overlays to address the effects of customer support mechanisms.
There was also a PMA for deferred model calibrations on the business banking portfolio reflecting management’s judgement that the beneficial modelling impact, and implied ECL decrease, was not supportable again while portfolio performance was being under-pinned by the various support mechanisms. Other adjustments included an overlay of £19 million to mitigate the effect of operational timing delays in the identification and flagging of a SICR.
Ulster Bank RoI – The PMA for economic uncertainty included an adjustment of £49 million in the mortgage portfolio reflecting concerns that losses arising from defaults during 2021 would be higher than modelled. There was a PMA of £30 million in the Wholesale portfolio, reflecting concern that the unprecedented nature of COVID-19 could result in longer debt recovery periods and lower recovery values than history suggested. It also included PMAs of £9 million in respect of high risk payment break mortgage customers and £23 million in the SME portfolio reflective of the elevated risk for this sector. The increase in other PMAs reflects the judgment that continuing actions on the phased withdrawal of Ulster Bank RoI from the Irish market will lead to higher/earlier crystallisation of losses.
Government guarantees
In April 2021, the UK government launched the Recovery Loan Scheme, replacing previous support schemes which are now closed. Consistent with CBILS and the Coronavirus Large Business Interruption Loan Scheme (CLBILS), the government guarantee is 80%. NatWest Group recognises lower LGDs for these lending products as a result, with 0% applied to the government-guaranteed part of the exposure.
NatWest Group does not directly adjust the measurement of PD due to the government guarantee and continues to move exposures to Stage 2 and Stage 3 where a significant deterioration in credit risk or a default is identified.
Wholesale support schemes
The table below shows the uptake of BBLS, CBILS and CLBILS by Wholesale customers, by sector, which ended for new applications on 31 March 2021.
| | | | | | | | | | | | | | | | | | |
| | BBLS | | CBILS | | CLBILS | ||||||||||||
| | Approved | | Drawdown | | % of BBLS to | | Approved | | Drawdown | | % of CBILS to | | Approved | | Drawdown | | % of CLBILS to |
30 June 2021 |
| volume |
| amount (£m) |
| sector loans |
| volume |
| amount (£m) |
| sector loans |
| volume |
| amount (£m) |
| sector loans |
Wholesale lending by sector |
| | | | | | | | | | | | | | | | | |
Airlines and aerospace |
| 260 |
| 6 |
| 0.35% | | 18 |
| 9 |
| 0.53% | | 4 |
| 16 |
| 0.93% |
Automotive |
| 12,839 |
| 409 |
| 6.78% | | 578 |
| 143 |
| 2.37% | | 26 |
| 44 |
| 0.73% |
Education |
| 2,050 |
| 52 |
| 3.36% | | 121 |
| 76 |
| 4.91% | | 10 |
| 32 |
| 2.07% |
Health |
| 10,248 |
| 302 |
| 5.46% | | 630 |
| 101 |
| 1.82% | | 3 |
| 19 |
| 0.34% |
Land transport and logistics |
| 8,996 |
| 255 |
| 5.35% | | 399 |
| 99 |
| 2.08% | | 1 |
| 5 |
| 0.10% |
Leisure |
| 32,721 |
| 982 |
| 10.74% | | 2,182 |
| 568 |
| 6.21% | | 39 |
| 228 |
| 2.49% |
Oil and gas |
| 329 |
| 9 |
| 0.61% | | 15 |
| 7 |
| 0.47% | | |
| |
| |
Retail |
| 32,652 |
| 1,060 |
| 12.29% | | 1,655 |
| 399 |
| 4.63% | | 26 |
| 115 |
| 1.33% |
Property |
| 71,422 |
| 1,993 |
| 5.55% | | 2,491 |
| 676 |
| 1.88% | | 37 |
| 81 |
| 0.23% |
Other (including Business |
| | | | | | | | | | | | | | | | | |
Banking) |
| 127,787 |
| 3,181 |
| 3.49% | | 8,918 |
| 1,844 |
| 2.02% | | 84 |
| 328 |
| 0.36% |
Total |
| 299,304 |
| 8,249 |
| 4.97% | | 17,007 |
| 3,922 |
| 2.36% | | 230 |
| 868 |
| 0.52% |
Notes:
(1) | The table contains some cases which as at 30 June 2021 were approved but not yet drawn down. Approved limits as at 30 June 2021 were as follows: BBLS £9.2 billion (90% drawn); CBILS – £4.2 billion (93% drawn); and CLBILS – £1.3 billion (66% drawn). |
(2) | The Recovery Loan Scheme, a successor to the now closed BBLS, CBILS, and CLBILS was launched on 6 April 2021. Uptake of the new scheme was minimal with 192 customers having drawn down £13.7 million as at 2 July 2021. |
NatWest Group – Form 6-K Interim Results 2021 | 29 |
Risk and capital management
Credit risk continued
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 30 June 2021. Scenario impacts on a SICR should be considered when evaluating the ECL movements of Stage 1 and Stage 2. In all scenarios the total exposure was the same but exposure by stage varied in each scenario.
Stage 3 provisions are not subject to the same level of measurement uncertainty – default is an observed event as at the balance sheet date. Stage 3 provisions therefore have not been considered in this analysis.
The impact arising from the upside, downside and extreme downside scenarios has been simulated. These scenarios are three of the four discrete scenarios used in the methodology for Personal MES as described in the Economic loss drivers section. In the simulations, NatWest Group has assumed that the economic macro variables associated with these scenarios replace the existing base case economic assumptions, giving them a combined total 100% probability weighting and therefore 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 PMAs present in the underlying ECL estimates are also sensitised in line with the modelled ECL movements, but those that were judgmental in nature, primarily those for economic uncertainty, were not (refer to the Governance and post model adjustments section). As expected, the scenarios create differing impacts on ECL by portfolio and the impacts are deemed reasonable. In this simulation, it is assumed that existing modelled relationships between key economic variables and loss drivers hold, but in practice other factors would also have an impact, for example, potential customer behaviour changes and policy changes by lenders that might impact on the wider availability of credit.
NatWest Group’s core criterion to identify a SICR is founded on PD deterioration, as discussed above. Under the simulations, PDs change and result in exposures moving between Stage 1 and Stage 2 contributing to the ECL impact.
NatWest Group – Form 6-K Interim Results 2021 | 30 |
Risk and capital management
Credit risk continued
| | | | | | | | | | |
| | | | | | | | | | Extreme |
30 June 2021 |
| Actual | | Base case |
| Upside |
| Downside |
| downside |
Stage 1 modelled exposure (£m) | | | | | | | | | | |
Retail Banking | | 152,428 | | 152,412 | | 152,510 | | 152,128 | | 141,758 |
Ulster Bank RoI Personal & Business Banking |
| 10,989 | | 10,989 |
| 11,022 |
| 10,556 |
| 10,373 |
Wholesale |
| 113,315 | | 115,403 |
| 116,189 |
| 113,405 |
| 98,561 |
| | 276,732 | | 278,804 | | 279,721 | | 276,089 | | 250,692 |
Stage 1 modelled ECL (£m) |
| | | | | | | | | |
Retail Banking |
| 110 | | 112 | | 112 | | 113 | | 113 |
Ulster Bank RoI Personal & Business Banking |
| 25 | | 24 |
| 22 |
| 27 |
| 27 |
Wholesale |
| 262 | | 269 |
| 269 |
| 273 |
| 287 |
| | 397 | | 405 | | 403 | | 413 | | 427 |
Stage 1 coverage (%) |
| | | | | | | | | |
Retail Banking |
| 0.07% | | 0.07% | | 0.07% | | 0.07% | | 0.08% |
Ulster Bank RoI Personal & Business Banking |
| 0.22% | | 0.22% |
| 0.20% |
| 0.26% |
| 0.26% |
Wholesale |
| 0.23% | | 0.23% |
| 0.23% |
| 0.24% |
| 0.29% |
| | 0.14% | | 0.15% | | 0.14% | | 0.15% | | 0.17% |
Stage 2 modelled exposure (£m) |
| | | | | | | | | |
Retail Banking |
| 19,435 | | 19,451 | | 19,353 | | 19,735 | | 30,105 |
Ulster Bank RoI Personal & Business Banking |
| 1,387 | | 1,387 |
| 1,354 |
| 1,820 |
| 2,003 |
Wholesale |
| 33,405 | | 31,317 |
| 30,531 |
| 33,315 |
| 48,159 |
| | 54,227 | | 52,155 | | 51,238 | | 54,870 | | 80,267 |
Stage 2 modelled ECL (£m) |
| | | | | | | | | |
Retail Banking |
| 710 | | 722 | | 671 | | 799 | | 1,042 |
Ulster Bank RoI Personal & Business Banking |
| 76 | | 76 |
| 71 |
| 93 |
| 107 |
Wholesale |
| 1,479 | | 1,368 |
| 1,316 |
| 1,485 |
| 2,347 |
| | 2,265 | | 2,166 | | 2,058 | | 2,377 | | 3,496 |
Stage 2 coverage (%) |
| | | | | | | | | |
Retail Banking |
| 3.65% | | 3.71% | | 3.46% | | 4.05% | | 3.46% |
Ulster Bank RoI Personal & Business Banking |
| 5.51% | | 5.49% |
| 5.22% |
| 5.10% |
| 5.32% |
Wholesale |
| 4.43% | | 4.37% |
| 4.31% |
| 4.46% |
| 4.87% |
| | 4.18% | | 4.15% | | 4.01% | | 4.33% | | 4.35% |
Stage 1 and Stage 2 modelled exposure (£m) |
| | | | | | | | | |
Retail Banking |
| 171,863 | | 171,863 | | 171,863 | | 171,863 | | 171,863 |
Ulster Bank RoI Personal & Business Banking |
| 12,376 | | 12,376 |
| 12,376 |
| 12,376 |
| 12,376 |
Wholesale |
| 146,720 | | 146,720 |
| 146,720 |
| 146,720 |
| 146,720 |
| | 330,959 | | 330,959 | | 330,959 | | 330,959 | | 330,959 |
Stage 1 and Stage 2 modelled ECL (£m) |
| | | | | | | | | |
Retail Banking |
| 820 | | 834 | | 783 | | 912 | | 1,155 |
Ulster Bank RoI Personal & Business Banking |
| 101 | | 100 |
| 93 |
| 120 |
| 134 |
Wholesale |
| 1,741 | | 1,637 |
| 1,584 |
| 1,758 |
| 2,635 |
| | 2,662 | | 2,571 | | 2,460 | | 2,790 | | 3,924 |
Stage 1 and Stage 2 coverage (%) |
| | | | | | | | | |
Retail Banking |
| 0.48% | | 0.49% | | 0.46% | | 0.53% | | 0.67% |
Ulster Bank RoI Personal & Business Banking |
| 0.82% | | 0.81% |
| 0.75% |
| 0.97% |
| 1.08% |
Wholesale |
| 1.19% | | 1.12% |
| 1.08% |
| 1.20% |
| 1.80% |
| | 0.80% | | 0.78% | | 0.74% | | 0.84% | | 1.19% |
Reconciliation to Stage 1 and Stage 2 ECL (£m) |
| | | | | | | | | |
ECL on modelled exposures |
| 2,662 | | 2,571 | | 2,461 | | 2,790 | | 3,923 |
ECL on non-modelled exposures |
| 70 | | 70 |
| 70 |
| 70 |
| 70 |
| | | | | | | | | | |
Total Stage 1 and Stage 2 ECL |
| 2,732 | | 2,641 |
| 2,530 |
| 2,860 |
| 3,994 |
Variance – (lower)/higher to actual total Stage 1 and Stage 2 ECL |
| | | (91) |
| (202) |
| 128 |
| 1,262 |
Notes:
(1) | Variations in future undrawn exposure values across the scenarios are modelled, however the exposure position reported is that used to calculate modelled ECL as at 30 June 2021 and therefore does not include variation in future undrawn exposure values. |
(2) | Reflects ECL for all modelled exposure in scope for IFRS 9. The analysis excludes non-modelled portfolios and exposure relating to bonds and cash. |
(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 as at 30 June 2021. The simulations change the composition of Stage 1 and Stage 2 exposure but total exposure is unchanged under each scenario as the loan population is static. |
(4) | Refer to the Economic loss drivers section for details of economic scenarios. |
(5) | Refer to the NatWest Group 2020 Annual Report on Form 20-F for 31 December 2020 comparatives. |
NatWest Group – Form 6-K Interim Results 2021 | 31 |
Risk and capital management
Credit risk continued
Key points
● | During H1 2021, both the Stage 2 size and overall modelled ECL reduced as a result of the improved economic outlook and scenario weightings, together with stable portfolio performance. Judgemental ECL PMAs continued to reflect residual economic uncertainty with the expectation of increased defaults later in 2021 and beyond, now representing 23% of total ECL (31 December 2020 - 18%). These combined factors, in conjunction with a less severe suite of economics in the H1 2021 extreme downside scenario, contributed to a smaller range of ECL sensitivities at H1 2021 compared to the 2020 year end. |
● | If the economics were as negative as observed in the extreme downside, total Stage 1 and Stage 2 ECL was simulated to increase by £1.3 billion (approximately 45%). In this scenario, Stage 2 exposure increased significantly and was the key driver of the simulated ECL rise. The movement in Stage 2 balances in the other simulations was less significant. |
● | The small ECL uplift in the downside scenario, particularly in Wholesale, reflected the net effect of the MES weightings towards the downside for ECL, observable when comparing to the ECL scenario with 100% weight on the base case. |
● | For the downside scenario, the ECL result was not materially different to actual ECL due to mean reversion of default rates and the recovery trajectory in the downside. Compared to the base case, Wholesale Stage 1 and Stage 2 ECL was over 7% higher in the downside scenario. In Retail Banking, similar scenario shape dynamics led to minimal difference between the base case sensitivity and actual ECL. |
● | In the upside scenario, the simulated ECL reduction (£0.2 billion, 8% of actual) was lower than the uplift observed in the extreme downside, again reflecting the expectation that the non-linearity of losses was skewed to the downside. In Retail Banking this is partly due to the effect of PD persistence, where Stage 2 will not be affected immediately by PD reductions. |
Measurement uncertainty and ECL adequacy
The improvement in the economic outlook and scenarios used in the IFRS 9 MES framework at H1 2021 resulted in a release of modelled ECL. Given continued uncertainty remains due to COVID-19 despite the improved economic outlook, NatWest Group utilised a framework of quantitative and qualitative measures to support the directional change and levels of ECL coverage, including economic data, credit performance insights and problem debt trends. This was particularly important for consideration of post model adjustments.
As government support mechanisms continue to conclude during 2021, NatWest Group anticipates further credit deterioration in the portfolios. However, the income statement effect of this will be mitigated by the forward-looking provisions retained on the balance sheet as at 30 June 2021.
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 NatWest Group operates, but also, among others:
● | The ongoing trajectory of lockdown restriction relaxation within the UK and the Republic of Ireland, and any future repeated lockdown requirements. |
● | The progress of the COVID-19 vaccination roll-out and its effectiveness against new variants. |
● | 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. |
● | Higher unemployment if companies fail to retain jobs after the UK furlough scheme concludes in Q3 2021. |
● | The level of revenues lost by corporate clients and pace of recovery of those revenues may affect NatWest Group’s clients’ ability to service their borrowing, especially in those sectors most exposed to the effects of COVID-19. |
Movement in ECL provision
The table below shows the main ECL provision movements during H1 2021.
| | |
|
| ECL provision |
| | £m |
At 1 January 2021 |
| 6,186 |
Changes in economic forecasts |
| (363) |
Changes in risk metrics and exposure: Stage 1 and Stage 2 |
| (483) |
Changes in risk metrics and exposure: Stage 3 |
| 43 |
Judgemental changes: changes in post model adjustments for Stage 1, Stage 2 and Stage 3 |
| 155 |
Write-offs and other |
| (613) |
At 30 June 2021 |
| 4,925 |
NatWest Group – Form 6-K Interim Results 2021 | 32 |
Risk and capital management
Credit risk – Banking activities
Introduction
This section details the credit risk profile of NatWest Group’s banking activities.
Financial instruments within the scope of the IFRS 9 ECL framework
Refer to Note 8 for balance sheet analysis of financial assets that are classified as amortised cost or fair value through other comprehensive income (FVOCI), the starting point for IFRS 9 ECL framework assessment.
Financial assets
| | | | | | | | | | | | |
|
| 30 June 2021 |
| 31 December 2020 | ||||||||
|
| Gross | | ECL | | Net |
| Gross | | ECL | | Net |
|
| £bn | | £bn | | £bn |
| £bn | | £bn | | £bn |
Balance sheet total gross amortised cost and FVOCI |
| 586.1 | | | | | | 555.0 | | | | |
In scope of IFRS 9 ECL framework |
| 575.9 | | | | | | 548.8 | | | | |
% in scope |
| 98% | | | | | | 99% | | | | |
Loans to customers - in scope - amortised cost | | 367.0 | | 4.7 | | 362.3 | | 365.5 | | 6.0 | | 359.5 |
Loans to customers - in scope - FVOCI | | 0.7 | | — | | 0.7 | | — | | — | | — |
Loans to banks - in scope - amortised cost | | 7.9 | | — | | 7.9 | | 6.8 | | — | | 6.8 |
Total loans - in scope |
| 375.6 | | 4.7 | | 370.9 |
| 372.3 | | 6.0 | | 366.3 |
Stage 1 |
| 316.7 | | 0.4 | | 316.3 |
| 287.1 | | 0.5 | | 286.6 |
Stage 2 |
| 53.2 | | 2.2 | | 51.0 |
| 78.9 | | 3.0 | | 75.9 |
Stage 3 |
| 5.7 | | 2.1 | | 3.6 |
| 6.3 | | 2.5 | | 3.8 |
Other financial assets - in scope - amortised cost | | 159.2 | | — | | 159.2 | | 132.1 | | — | | 132.1 |
Other financial assets - in scope - FVOCI |
| 41.1 | | — | | 41.1 |
| 44.4 | | — | | 44.4 |
Total other financial assets - in scope | | 200.3 | | — | | 200.3 | | 176.5 | | — | | 176.5 |
Stage 1 |
| 199.5 | | — | | 199.5 |
| 175.5 | | — | | 175.5 |
Stage 2 |
| 0.8 | | — | | 0.8 |
| 1.0 | | — | | 1.0 |
Out of scope of IFRS 9 ECL framework |
| 10.2 | | na | | 10.2 |
| 6.2 | | na | | 6.2 |
Loans to customers - out of scope - amortised cost | | 0.4 | | na | | 0.4 | | 1.0 | | na | | 1.0 |
Loans to banks - out of scope - amortised cost | | 0.3 | | na | | 0.3 | | 0.1 | | na | | 0.1 |
Other financial assets - out of scope - amortised cost | | 9.2 | | na | | 9.2 | | 4.6 | | na | | 4.6 |
Other financial assets - out of scope - FVOCI | | 0.3 | | na | | 0.3 | | 0.5 | | na | | 0.5 |
na = not applicable
The assets outside the IFRS 9 ECL framework were as follows:
Contingent liabilities and commitments
In addition to contingent liabilities and commitments disclosed in Note 11, reputationally-committed limits, are also included in the scope of the IFRS 9 ECL framework. These are offset by nil (31 December 2020 – £0.2 billion) out of scope balances primarily related to facilities that, if drawn, would not be classified as amortised cost or FVOCI, or undrawn limits relating to financial assets exclusions. Total contingent liabilities (including financial guarantees) and commitments within IFRS 9 ECL scope of £127.6 billion (31 December 2020 – £133.6 billion) comprised Stage 1 £110.6 billion (31 December 2020 – £107.4 billion); Stage 2 £16.2 billion (31 December 2020 – £25.2 billion); and Stage 3 £0.8 billion (31 December 2020 – £1.0 billion).
The ECL relating to contingent liabilities is £0.2 billion (31 December 2020 - £0.2 billion). The total ECL in the remainder of the credit risk section of £4.9 billion includes ECL for both balance sheet exposure and contingent liabilities.
NatWest Group – Form 6-K Interim Results 2021 | 33 |
Risk and capital management
Credit risk – Banking activities continued
Segment analysis – portfolio summary
The table below shows gross loans and related credit impairment measures, within the scope of the IFRS 9 ECL framework.
| | | | | | | | | | | | | | | | |
| | | | | | International Banking & Markets | | | | | | | ||||
|
| Retail |
| Private |
| Commercial |
| RBS |
| NatWest |
| Ulster |
| Central items | | |
|
| Banking |
| Banking |
| Banking |
| International |
| Markets |
| Bank RoI |
| & other |
| Total |
30 June 2021 |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
Loans - amortised cost and FVOCI | | | | | | | | | | | | | | | | |
Stage 1 | | 158,989 | | 16,728 | | 75,713 | | 15,027 | | 7,019 | | 13,732 | | 29,493 | | 316,701 |
Stage 2 | | 18,866 | | 1,444 | | 27,895 | | 1,342 | | 721 | | 2,821 | | 99 | | 53,188 |
Stage 3 | | 1,921 | | 307 | | 2,226 | | 206 | | 108 | | 935 | | — | | 5,703 |
Of which: individual | | — | | 307 | | 1,202 | | 206 | | 98 | | 38 | | — | | 1,851 |
Of which: collective | | 1,921 | | — | | 1,024 | | — | | 10 | | 897 | | — | | 3,852 |
| | 179,776 | | 18,479 | | 105,834 | | 16,575 | | 7,848 | | 17,488 | | 29,592 | | 375,592 |
ECL provisions (1) | | | | | | | | | | | | | | | | |
Stage 1 | | 120 | | 21 | | 208 | | 15 | | 10 | | 44 | | 15 | | 433 |
Stage 2 | | 709 | | 49 | | 1,222 | | 46 | | 36 | | 225 | | 13 | | 2,300 |
Stage 3 | | 811 | | 36 | | 812 | | 47 | | 88 | | 398 | | — | | 2,192 |
Of which: individual | | — | | 36 | | 386 | | 47 | | 79 | | 12 | | — | | 560 |
Of which: collective | | 811 | | — | | 426 | | — | | 9 | | 386 | | — | | 1,632 |
| | 1,640 | | 106 | | 2,242 | | 108 | | 134 | | 667 | | 28 | | 4,925 |
ECL provisions coverage (2,3) | | | | | | | | | | | | | | | | |
Stage 1 (%) | | 0.08 | | 0.13 | | 0.27 | | 0.10 | | 0.14 | | 0.32 | | 0.05 | | 0.14 |
Stage 2 (%) | | 3.76 | | 3.39 | | 4.38 | | 3.43 | | 4.99 | | 7.98 | | 13.13 | | 4.32 |
Stage 3 (%) | | 42.22 | | 11.73 | | 36.48 | | 22.82 | | 81.48 | | 42.57 | | — | | 38.44 |
| | 0.91 | | 0.57 | | 2.12 | | 0.65 | | 1.71 | | 3.81 | | 0.09 | | 1.31 |
| | | | | | | | | | | | | | | | |
Half year ended 30 June 2021 | | | | | | | | | | | | | | | | |
Impairment losses | | | | | | | | | | | | | | | | |
ECL (release)/charge (4) | | (57) | | (27) | | (568) | | (29) | | (16) | | (11) | | 1 | | (707) |
Stage 1 | | (195) | | (27) | | (405) | | (23) | | (8) | | (43) | | — | | (701) |
Stage 2 | | 45 | | (4) | | (141) | | (4) | | (5) | | 8 | | 1 | | (100) |
Stage 3 | | 93 | | 4 | | (22) | | (2) | | (3) | | 24 | | — | | 94 |
Of which: individual | | — | | 4 | | (29) | | (2) | | 1 | | 1 | | — | | (25) |
Of which: collective | | 93 | | — | | 7 | | — | | (4) | | 23 | | — | | 119 |
ECL loss rate - annualised | | | | | | | | | | | | | | | | |
(basis points) (3) | | (6) | | (29) | | (107) | | (35) | | (41) | | (13) | | 1 | | (38) |
Amounts written-off |
| 138 | | 5 | | 257 | | 1 | | 40 | | 76 | | — | | 517 |
Of which: individual |
| — | | 5 | | 210 | | 1 | | 40 | | — | | — | | 256 |
Of which: collective |
| 138 | | — | | 47 | | — | | — | | 76 | | — | | 261 |
For the notes to this table refer to the following page.
NatWest Group – Form 6-K Interim Results 2021 | 34 |
Risk and capital management
Credit risk – Banking activities continued
Segment analysis – portfolio summary
| | | | | | | | | | | | | | | | |
| | | | | | International Banking & Markets | | | | | | | ||||
|
| Retail |
| Private |
| Commercial |
| RBS |
| NatWest |
| Ulster |
| Central items | | |
|
| Banking |
| Banking |
| Banking |
| International |
| Markets |
| Bank RoI |
| & other |
| Total |
31 December 2020 |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
Loans - amortised cost and FVOCI | | | | | | | | | | | | | | | | |
Stage 1 |
| 139,956 |
| 15,321 |
| 70,685 |
| 12,143 |
| 7,780 |
| 14,380 |
| 26,859 |
| 287,124 |
Stage 2 |
| 32,414 |
| 1,939 |
| 37,344 |
| 2,242 |
| 1,566 |
| 3,302 |
| 110 |
| 78,917 |
Stage 3 |
| 1,891 |
| 298 |
| 2,551 |
| 211 |
| 171 |
| 1,236 |
| — |
| 6,358 |
Of which: individual |
| — |
| 298 |
| 1,578 |
| 211 |
| 162 |
| 43 |
| — |
| 2,292 |
Of which: collective |
| 1,891 |
| — |
| 973 |
| — |
| 9 |
| 1,193 |
| — |
| 4,066 |
|
| 174,261 |
| 17,558 |
| 110,580 |
| 14,596 |
| 9,517 |
| 18,918 |
| 26,969 |
| 372,399 |
ECL provisions (1) | | | | | | | | | | | | | | | | |
Stage 1 |
| 134 |
| 31 |
| 270 |
| 14 |
| 12 |
| 45 |
| 13 |
| 519 |
Stage 2 |
| 897 |
| 68 |
| 1,713 |
| 74 |
| 49 |
| 265 |
| 15 |
| 3,081 |
Stage 3 |
| 806 |
| 39 |
| 1,069 |
| 48 |
| 132 |
| 492 |
| — |
| 2,586 |
Of which: individual |
| — |
| 39 |
| 607 |
| 48 |
| 124 |
| 13 |
| — |
| 831 |
Of which: collective |
| 806 |
| — |
| 462 |
| — |
| 8 |
| 479 |
| — |
| 1,755 |
|
| 1,837 |
| 138 |
| 3,052 |
| 136 |
| 193 |
| 802 |
| 28 |
| 6,186 |
ECL provisions coverage (2,3) |
| |
| |
| |
| |
| |
| |
| |
| |
Stage 1 (%) |
| 0.10 |
| 0.20 |
| 0.38 |
| 0.12 |
| 0.15 |
| 0.31 |
| 0.05 |
| 0.18 |
Stage 2 (%) |
| 2.77 |
| 3.51 |
| 4.59 |
| 3.30 |
| 3.13 |
| 8.03 |
| 13.64 |
| 3.90 |
Stage 3 (%) |
| 42.62 |
| 13.09 |
| 41.91 |
| 22.75 |
| 77.19 |
| 39.81 |
| — |
| 40.67 |
|
| 1.05 |
| 0.79 |
| 2.76 |
| 0.93 |
| 2.03 |
| 4.24 |
| 0.10 |
| 1.66 |
| | | | | | | | | | | | | | | | |
Half year ended 30 June 2020 |
| |
| |
| |
| |
| |
| |
| |
| |
Impairment losses |
| |
| |
| |
| |
| |
| |
| |
| |
ECL charge (4) |
| 657 |
| 56 |
| 1,790 |
| 46 |
| 40 |
| 243 |
| 26 |
| 2,858 |
Stage 1 |
| 24 |
| 16 |
| 231 |
| 4 |
| 10 |
| 12 |
| 11 |
| 308 |
Stage 2 |
| 524 |
| 39 |
| 1,323 |
| 20 |
| 43 |
| 186 |
| 15 |
| 2,150 |
Stage 3 |
| 109 |
| 1 |
| 236 |
| 22 |
| (13) |
| 45 |
| — |
| 400 |
Of which: individual |
| — |
| 1 |
| 114 |
| 22 |
| (4) |
| (2) |
| — |
| 131 |
Of which: collective |
| 109 |
| — |
| 122 |
| — |
| (9) |
| 47 |
| — |
| 269 |
ECL loss rate - annualised |
| |
| |
| |
| |
| |
| |
| |
| |
(basis points) (3) |
| 79 |
| 69 |
| 312 |
| 63 |
| 63 |
| 197 |
| 25 |
| 154 |
Amounts written-off |
| 117 |
| 1 |
| 120 |
| 2 |
| 4 |
| 164 |
| — |
| 408 |
Of which: individual |
| — |
| 1 |
| 34 |
| 2 |
| 4 |
| - |
| — |
| 41 |
Of which: collective |
| 117 |
| — |
| 86 |
| — |
| — |
| 164 |
| — |
| 367 |
Notes:
(1) | Includes £6 million (31 December 2020 – £6 million) related to assets classified as FVOCI. |
(2) | ECL provisions coverage is calculated as ECL provisions divided by loans – amortised cost and FVOCI. |
(3) | ECL provisions coverage and ECL loss rates are calculated on third party loans and related ECL provisions and charge respectively. ECL loss rate is calculated as annualised third party ECL charge divided by loans – amortised cost and FVOCI. The half year ECL charge is annualised by multiplying by two. |
(4) | Includes a £4 million charge (30 June 2020 – £5 million) related to other financial assets, of which nil (30 June 2020 – £4 million) related to assets classified as FVOCI; and £2 million (30 June 2020 – £8 million) related to contingent liabilities. |
(5) | The table shows gross loans only and excludes amounts that are outside the scope of the ECL framework. Refer to page 33 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 £150.5 billion (31 December 2020 – £122.7 billion) and debt securities of £49.8 billion (31 December 2020 – £53.8 billion). |
(6) | The stage allocation of the ECL charge was aligned to the stage transition approach that underpins the analysis in the Flow statement section. |
Key points
● | ECL reduced significantly on Stage 1 and Stage 2 exposures, reflecting a more positive economic outlook, commensurate with reduced levels of uncertainty due to vaccination progress and economic rebound as lockdown eases. |
● | The various customer support mechanisms which continue to be available mitigate against flows to default in the short-term. Hence, there was a limited effect on Stage 3 ECL requirements during H1 2021. |
● | Reflecting the improved economic environment and resultant ECL releases across all key businesses, the annualised loss rate has reduced to negative 38bps. |
NatWest Group – Form 6-K Interim Results 2021 | 35 |
Risk and capital management
Credit risk – Banking activities continued
Segment loans and impairment metrics
The table below shows gross loans and ECL provisions, by days past due, by segment and stage, within the scope of the ECL framework.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gross loans | | ECL provisions (2) | ||||||||||||||||||||||||
|
| | | Stage 2 (1) | | | | |
| | Stage 2 (1) | | | | | |||||||||||||
| | |
| Not past |
| 1-30 |
| >30 | | | | | | |
| |
| Not past |
| 1-30 | | >30 | | | | | | |
|
| Stage 1 |
| due |
| DPD |
| DPD |
| Total |
| Stage 3 |
| Total |
| Stage 1 |
| due |
| DPD |
| DPD |
| Total |
| Stage 3 | | Total |
30 June 2021 |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
Retail Banking | | 158,989 | | 17,478 | | 895 | | 493 | | 18,866 | | 1,921 | | 179,776 | | 120 | | 626 | | 44 | | 39 | | 709 | | 811 | | 1,640 |
Private Banking | | 16,728 | | 1,376 | | 38 | | 30 | | 1,444 | | 307 | | 18,479 | | 21 | | 49 | | — | | — | | 49 | | 36 | | 106 |
Personal | | 13,783 | | 114 | | 38 | | 27 | | 179 | | 267 | | 14,229 | | 6 | | 2 | | — | | — | | 2 | | 17 | | 25 |
Wholesale | | 2,945 | | 1,262 | | — | | 3 | | 1,265 | | 40 | | 4,250 | | 15 | | 47 | | — | | — | | 47 | | 19 | | 81 |
Commercial Banking | | 75,713 | | 26,569 | | 876 | | 450 | | 27,895 | | 2,226 | | 105,834 | | 208 | | 1,155 | | 49 | | 18 | | 1,222 | | 812 | | 2,242 |
International Banking | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
& Markets |
| | | | | | | | | | | | | | | | | | | | | | | |
| |
| |
RBS International |
| 15,027 |
| 1,311 |
| 17 |
| 14 |
| 1,342 |
| 206 |
| 16,575 |
| 15 |
| 45 |
| — |
| 1 |
| 46 |
| 47 |
| 108 |
Personal |
| 2,686 |
| 19 |
| 14 |
| 7 |
| 40 |
| 68 |
| 2,794 |
| 2 |
| 1 |
| — |
| 1 |
| 2 |
| 12 |
| 16 |
Wholesale |
| 12,341 |
| 1,292 |
| 3 |
| 7 |
| 1,302 |
| 138 |
| 13,781 |
| 13 |
| 44 |
| — |
| — |
| 44 |
| 35 |
| 92 |
NatWest Markets |
| 7,019 |
| 709 |
| — |
| 12 |
| 721 |
| 108 |
| 7,848 |
| 10 |
| 36 |
| — |
| — |
| 36 |
| 88 |
| 134 |
Ulster Bank RoI |
| 13,732 |
| 2,636 |
| 85 |
| 100 |
| 2,821 |
| 935 |
| 17,488 |
| 44 |
| 205 |
| 9 |
| 11 |
| 225 |
| 398 |
| 667 |
Personal |
| 10,798 |
| 1,166 |
| 78 |
| 85 |
| 1,329 |
| 773 |
| 12,900 |
| 24 |
| 59 |
| 6 |
| 8 |
| 73 |
| 301 |
| 398 |
Wholesale |
| 2,934 |
| 1,470 |
| 7 |
| 15 |
| 1,492 |
| 162 |
| 4,588 |
| 20 |
| 146 |
| 3 |
| 3 |
| 152 |
| 97 |
| 269 |
Central items & other |
| 29,493 |
| 99 |
| — |
| — |
| 99 |
| — |
| 29,592 |
| 15 |
| 13 |
| — |
| — |
| 13 |
| — |
| 28 |
Total loans |
| 316,701 |
| 50,178 |
| 1,911 |
| 1,099 |
| 53,188 |
| 5,703 |
| 375,592 |
| 433 |
| 2,129 |
| 102 |
| 69 |
| 2,300 |
| 2,192 |
| 4,925 |
Of which: |
| �� | | | | | | | | | | | | | | | | | | | | | | |
| |
| |
Personal |
| 186,256 |
| 18,777 |
| 1,025 |
| 612 |
| 20,414 |
| 3,029 |
| 209,699 |
| 152 |
| 688 |
| 50 |
| 48 |
| 786 |
| 1,141 |
| 2,079 |
Wholesale |
| 130,445 |
| 31,401 |
| 886 |
| 487 |
| 32,774 |
| 2,674 |
| 165,893 |
| 281 |
| 1,441 |
| 52 |
| 21 |
| 1,514 |
| 1,051 |
| 2,846 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
31 December 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Banking |
| 139,956 |
| 30,714 |
| 1,080 |
| 620 |
| 32,414 |
| 1,891 |
| 174,261 |
| 134 |
| 762 |
| 70 |
| 65 |
| 897 |
| 806 |
| 1,837 |
Private Banking |
| 15,321 |
| 1,908 |
| 17 |
| 14 |
| 1,939 |
| 298 |
| 17,558 |
| 31 |
| 67 |
| — |
| 1 |
| 68 |
| 39 |
| 138 |
Personal |
| 12,799 |
| 116 |
| 17 |
| 11 |
| 144 |
| 263 |
| 13,206 |
| 7 |
| 2 |
| — |
| — |
| 2 |
| 19 |
| 28 |
Wholesale |
| 2,522 |
| 1,792 |
| — |
| 3 |
| 1,795 |
| 35 |
| 4,352 |
| 24 |
| 65 |
| — |
| 1 |
| 66 |
| 20 |
| 110 |
Commercial Banking |
| 70,685 |
| 36,451 |
| 589 |
| 304 |
| 37,344 |
| 2,551 |
| 110,580 |
| 270 |
| 1,648 |
| 44 |
| 21 |
| 1,713 |
| 1,069 |
| 3,052 |
International Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
& Markets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RBS International |
| 12,143 |
| 2,176 |
| 46 |
| 20 |
| 2,242 |
| 211 |
| 14,596 |
| 14 |
| 72 |
| 1 |
| 1 |
| 74 |
| 48 |
| 136 |
Personal |
| 2,676 |
| 18 |
| 17 |
| 14 |
| 49 |
| 70 |
| 2,795 |
| 3 |
| 1 |
| — |
| — |
| 1 |
| 11 |
| 15 |
Wholesale |
| 9,467 |
| 2,158 |
| 29 |
| 6 |
| 2,193 |
| 141 |
| 11,801 |
| 11 |
| 71 |
| 1 |
| 1 |
| 73 |
| 37 |
| 121 |
NatWest Markets |
| 7,780 |
| 1,457 |
| — |
| 109 |
| 1,566 |
| 171 |
| 9,517 |
| 12 |
| 49 |
| — |
| — |
| 49 |
| 132 |
| 193 |
Ulster Bank RoI |
| 14,380 |
| 2,964 |
| 144 |
| 194 |
| 3,302 |
| 1,236 |
| 18,918 |
| 45 |
| 227 |
| 15 |
| 23 |
| 265 |
| 492 |
| 802 |
Personal |
| 11,117 |
| 1,500 |
| 115 |
| 130 |
| 1,745 |
| 1,064 |
| 13,926 |
| 27 |
| 74 |
| 9 |
| 13 |
| 96 |
| 392 |
| 515 |
Wholesale |
| 3,263 |
| 1,464 |
| 29 |
| 64 |
| 1,557 |
| 172 |
| 4,992 |
| 18 |
| 153 |
| 6 |
| 10 |
| 169 |
| 100 |
| 287 |
Central items & other |
| 26,859 |
| 110 |
| — |
| — |
| 110 |
| — |
| 26,969 |
| 13 |
| 15 |
| — |
| — |
| 15 |
| — |
| 28 |
Total loans |
| 287,124 |
| 75,780 |
| 1,876 |
| 1,261 |
| 78,917 |
| 6,358 |
| 372,399 |
| 519 |
| 2,840 |
| 130 |
| 111 |
| 3,081 |
| 2,586 |
| 6,186 |
Of which: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal |
| 166,548 |
| 32,348 |
| 1,229 |
| 775 |
| 34,352 |
| 3,288 |
| 204,188 |
| 171 |
| 839 |
| 79 |
| 78 |
| 996 |
| 1,228 |
| 2,395 |
Wholesale |
| 120,576 |
| 43,432 |
| 647 |
| 486 |
| 44,565 |
| 3,070 |
| 168,211 |
| 348 |
| 2,001 |
| 51 |
| 33 |
| 2,085 |
| 1,358 |
| 3,791 |
For the notes to this table refer to the following page.
NatWest Group – Form 6-K Interim Results 2021 | 36 |
Risk and capital management
Credit risk – Banking activities continued
Segment loans and impairment metrics
The table below shows ECL and ECL provisions coverage, by days past due, by segment and stage, within the scope of the ECL framework.
| | | | | | | | | | | | | | | | | | | | |
| | ECL provisions coverage | | Half year ended 30 June 2021 | ||||||||||||||||
|
| | | Stage 2 (1,2) | | | | |
| ECL | ||||||||||
|
| | | Not past | | | | | | | | | | |
| Total | | |
| Amounts |
|
| Stage 1 |
| due |
| 1-30 DPD |
| >30 DPD |
| Total |
| Stage 3 |
| Total |
| (release)/charge |
| Loss rate |
| written-off |
30 June 2021 | | % | | % | | % | | % | | % | | % | | % |
| £m |
| basis points | | £m |
Retail Banking | | 0.08 | | 3.58 | | 4.92 | | 7.91 | | 3.76 | | 42.22 | | 0.91 | | (57) | | (6) | | 138 |
Private Banking | | 0.13 | | 3.56 | | — | | — | | 3.39 | | 11.73 | | 0.57 | | (27) | | (29) | | 5 |
Personal | | 0.04 | | 1.75 | | — | | — | | 1.12 | | 6.37 | | 0.18 | | (4) | | (6) | | (1) |
Wholesale | | 0.51 | | 3.72 | | — | | — | | 3.72 | | 47.50 | | 1.91 | | (23) | | (108) | | 6 |
Commercial Banking | | 0.27 | | 4.35 | | 5.59 | | 4.00 | | 4.38 | | 36.48 | | 2.12 | | (568) | | (107) | | 257 |
International Banking | | | | | | | | | | | | | | | | | | | | |
& Markets | | | | | | | | | | | | | | | | | | | | |
RBS International | | 0.10 | | 3.43 | | — | | 7.14 | | 3.43 | | 22.82 | | 0.65 | | (29) | | (35) | | 1 |
Personal | | 0.07 | | 5.26 | | — | | 14.29 | | 5.00 | | 17.65 | | 0.57 | | — | | — | | — |
Wholesale | | 0.11 | | 3.41 | | — | | — | | 3.38 | | 25.36 | | 0.67 | | (29) | | (42) | | 1 |
NatWest Markets | | 0.14 | | 5.08 | | — | | — | | 4.99 | | 81.48 | | 1.71 | | (16) | | (41) | | 40 |
Ulster Bank RoI | | 0.32 | | 7.78 | | 10.59 | | 11.00 | | 7.98 | | 42.57 | | 3.81 | | (11) | | (13) | | 76 |
Personal | | 0.22 | | 5.06 | | 7.69 | | 9.41 | | 5.49 | | 38.94 | | 3.09 | | (11) | | (17) | | 71 |
Wholesale | | 0.68 | | 9.93 | | 42.86 | | 20.00 | | 10.19 | | 59.88 | | 5.86 | | — | | — | | 5 |
Central items & other | | 0.05 | | 13.13 | | — | | — | | 13.13 | | — | | 0.09 | | 1 | | 1 | | — |
Total loans | | 0.14 | | 4.24 | | 5.34 | | 6.28 | | 4.32 | | 38.44 | | 1.31 | | (707) | | (38) | | 517 |
Of which: | | | | | | | | | | | | | | | | | | | | |
Personal | | 0.08 | | 3.66 | | 4.88 | | 7.84 | | 3.85 | | 37.67 | | 0.99 | | (72) | | (7) | | 208 |
Wholesale | | 0.22 | | 4.59 | | 5.87 | | 4.31 | | 4.62 | | 39.30 | | 1.72 | | (635) | | (77) | | 309 |
| | | | | | | | | | | | | | | | | | | | |
| | ECL provisions coverage | | Half year ended 30 June 2020 | ||||||||||||||||
|
| | | Stage 2 (1,2) | | | | |
| ECL | ||||||||||
|
| | | Not past | | | | | | | | | | |
| Total | | |
| Amounts |
|
| Stage 1 |
| due |
| 1-30 DPD |
| >30 DPD |
| Total |
| Stage 3 |
| Total |
| charge/(release) |
| Loss rate |
| written-off |
31 December 2020 | | % | | % | | % | | % | | % | | % | | % |
| £m |
| basis points | | £m |
Retail Banking |
| 0.10 |
| 2.48 |
| 6.48 |
| 10.48 |
| 2.77 |
| 42.62 |
| 1.05 |
| 657 |
| 79 |
| 117 |
Private Banking |
| 0.20 |
| 3.51 |
| — |
| 7.14 |
| 3.51 |
| 13.09 |
| 0.79 |
| 56 |
| 69 |
| 1 |
Personal |
| 0.05 |
| 1.72 |
| — |
| — |
| 1.39 |
| 7.22 |
| 0.21 |
| 3 |
| 5 |
| — |
Wholesale |
| 0.95 |
| 3.63 |
| — |
| 33.33 |
| 3.68 |
| 57.14 |
| 2.53 |
| 53 |
| 273 |
| 1 |
Commercial Banking |
| 0.38 |
| 4.52 |
| 7.47 |
| 6.91 |
| 4.59 |
| 41.91 |
| 2.76 |
| 1,790 |
| 312 |
| 120 |
International Banking |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
& Markets |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
RBS International |
| 0.12 |
| 3.31 |
| 2.17 |
| 5.00 |
| 3.30 |
| 22.75 |
| 0.93 |
| 46 |
| 63 |
| 2 |
Personal |
| 0.11 |
| 5.56 |
| — |
| — |
| 2.04 |
| 15.71 |
| 0.54 |
| (3) |
| (21) |
| 2 |
Wholesale |
| 0.12 |
| 3.29 |
| 3.45 |
| 16.67 |
| 3.33 |
| 26.24 |
| 1.03 |
| 49 |
| 83 |
| — |
NatWest Markets |
| 0.15 |
| 3.36 |
| — |
| — |
| 3.13 |
| 77.19 |
| 2.03 |
| 40 |
| 63 |
| 4 |
Ulster Bank RoI |
| 0.31 |
| 7.66 |
| 10.42 |
| 11.86 |
| 8.03 |
| 39.81 |
| 4.24 |
| 243 |
| 197 |
| 164 |
Personal |
| 0.24 |
| 4.93 |
| 7.83 |
| 10.00 |
| 5.50 |
| 36.84 |
| 3.70 |
| 120 |
| 168 |
| 162 |
Wholesale |
| 0.55 |
| 10.45 |
| 20.69 |
| 15.63 |
| 10.85 |
| 58.14 |
| 5.75 |
| 123 |
| 236 |
| 2 |
Central items & other |
| 0.05 |
| 13.64 |
| — |
| — |
| 13.64 |
| — |
| 0.10 |
| 26 |
| 25 |
| — |
Total loans |
| 0.18 |
| 3.75 |
| 6.93 |
| 8.80 |
| 3.90 |
| 40.67 |
| 1.66 |
| 2,858 |
| 154 |
| 408 |
Of which: |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Personal |
| 0.10 |
| 2.59 |
| 6.43 |
| 10.06 |
| 2.90 |
| 37.35 |
| 1.17 |
| 777 |
| 79 |
| 281 |
Wholesale |
| 0.29 |
| 4.61 |
| 7.88 |
| 6.79 |
| 4.68 |
| 44.23 |
| 2.25 |
| 2,081 |
| 238 |
| 127 |
Notes:
(1) | 30 DPD – 30 days past due, the mandatory 30 days past due backstop is prescribed by IFRS 9 for a SICR. |
(2) | ECL provisions on contingent liabilities and commitments are included within the Financial assets section so as not to distort ECL coverage ratios. |
NatWest Group – Form 6-K Interim Results 2021 | 37 |
Risk and capital management
Credit risk – Banking activities continued
Segment loans and impairment metrics
Key points
● | Retail Banking – Balance sheet growth during H1 2021 was mainly due to mortgages. In line with the market, mortgage demand was strong during the first six months of the year, supported by the extension of the stamp duty holiday and overall improvements in economic conditions. The improved economic outlook captured in the updated MES scenarios, including a more positive forecast on unemployment levels, resulted in reduced account level PDs compared to the year end. Unsecured lending balances reduced over the same period as customer spend and demand for borrowing has been subdued during COVID-19 restrictions, particularly in the first quarter of 2021. Lending criteria were selectively relaxed in H1 2021 to support growing demand for secured and unsecured borrowing, as lockdown restrictions eased. |
● | Portfolio performance remained stable, for further details refer to the Personal portfolio section below. Arrears levels in both the mortgage and unsecured portfolios remained low overall, however, a small number of customers who had utilised their full payment holiday support did migrate into late arrears during H1 2021. With the vast majority of payment holidays now complete, this trend stabilised by the end of H1 2021 and new inflows to arrears were below pre-COVID-19 levels. The improved economic conditions alongside continued benign credit performance in the portfolio, resulted in a smaller proportion of customer accounts triggering SICR and an associated migration of assets from Stage 2 to Stage 1, resulting in reduced ECL. The various COVID-19 related customer support mechanisms (e.g. loan repayment holidays, government job retention scheme) have mitigated actual portfolio deterioration in the short term, with the days past due and flows to Stage 3 yet to be materially affected. Provisions coverage reduced overall mirroring the positive trajectory of the COVID-19 vaccination, labour market trends and portfolio performance. The annualised loss rate for H1 2021 was significantly lower than in 2020. |
● | Commercial Banking – Balance sheet reduction occurred across the key sectors of the portfolio that continue to be affected by COVID-19, including off-balance sheet exposures in the Land Transport & Logistics, Oil and Gas, Automotive and Retail sectors. Sector appetite continued to be regularly reviewed with oversight classifications adjusted based on updated financial performance and economic outlook for the sectors. The improved economic outlook, including positive movement in GDP and commercial real estate valuations, resulted in lower IFRS 9 PDs. Consequently, there was a reduction in exposures exhibiting a SICR which caused a migration of assets from Stage 2 to Stage 1. As a result, the ECL requirement decreased. Reflecting the residual uncertainty arising from COVID-19, management judged it appropriate to maintain certain ECL post model adjustments. The various COVID-19 related customer support mechanisms continued to mitigate against flows into default. The Stage 2 exposure reduced with PMAs dampening the associated ECL reduction. The loss rate was significantly lower in H1 2021 than in the prior year. |
● | Ulster Bank RoI –Balance sheet reductions since the 2020 year end were a result of diminished credit demand caused by COVID-19 disruption and the announcement of the phased withdrawal of Ulster Bank RoI from the Irish market. The weakening of the euro against sterling further contributed to this balance sheet reduction. Decreases in ECL reflected ongoing deleveraging of the non-performing mortgage portfolio through the execution of the final tranche of a 2019 debt sale. The various COVID-19 related customer support mechanisms are mitigating actual portfolio deterioration in the short term, with the days past due and flows to Stage 3 yet to be materially impacted. The annualised loss rate for H1 2021 was significantly lower than in 2020. |
NatWest Group – Form 6-K Interim Results 2021 | 38 |
Risk and capital management
Credit risk – Banking activities continued
Sector analysis – portfolio summary
The table below shows financial assets and off-balance sheet exposures gross of ECL and related ECL provisions, impairment and past due by sector, asset quality and geographical region.
| | | | | | | | | | | | | | | | | | | | |
| | Personal | | Wholesale | | Total | ||||||||||||||
|
| |
| Credit |
| Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | Mortgages (1) | | cards | | personal | | Total | | Property | | Corporate | | FI | | Sovereign | | Total | | |
30 June 2021 | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m |
Loans by geography |
| 196,708 |
| 3,727 |
| 9,264 |
| 209,699 |
| 35,941 |
| 74,122 |
| 50,072 |
| 5,758 |
| 165,893 |
| 375,592 |
- UK |
| 184,046 |
| 3,660 |
| 9,093 |
| 196,799 |
| 33,825 |
| 63,855 |
| 36,774 |
| 4,223 |
| 138,677 |
| 335,476 |
- RoI |
| 12,662 |
| 67 |
| 171 |
| 12,900 |
| 1,137 |
| 3,677 |
| 321 |
| 27 |
| 5,162 |
| 18,062 |
- Other Europe |
| — |
| — |
| — |
| — |
| 621 |
| 3,759 |
| 4,799 |
| 878 |
| 10,057 |
| 10,057 |
- RoW |
| — |
| — |
| — |
| — |
| 358 |
| 2,831 |
| 8,178 |
| 630 |
| 11,997 |
| 11,997 |
Loans by stage |
| 196,708 |
| 3,727 |
| 9,264 |
| 209,699 |
| 35,941 |
| 74,122 |
| 50,072 |
| 5,758 |
| 165,893 |
| 375,592 |
- Stage 1 |
| 177,630 |
| 2,562 |
| 6,064 |
| 186,256 |
| 28,105 |
| 49,050 |
| 47,694 |
| 5,596 |
| 130,445 |
| 316,701 |
- Stage 2 |
| 16,750 |
| 1,083 |
| 2,581 |
| 20,414 |
| 6,782 |
| 23,478 |
| 2,361 |
| 153 |
| 32,774 |
| 53,188 |
- Stage 3 |
| 2,328 |
| 82 |
| 619 |
| 3,029 |
| 1,054 |
| 1,594 |
| 17 |
| 9 |
| 2,674 |
| 5,703 |
- Of which: individual |
| 315 |
| — |
| 20 |
| 335 |
| 706 |
| 791 |
| 10 |
| 9 |
| 1,516 |
| 1,851 |
- Of which: collective |
| 2,013 |
| 82 |
| 599 |
| 2,694 |
| 348 |
| 803 |
| 7 |
| — |
| 1,158 |
| 3,852 |
Loans - past due analysis (2,3) |
| 196,708 |
| 3,727 |
| 9,264 |
| 209,699 |
| 35,941 |
| 74,122 |
| 50,072 |
| 5,758 |
| 165,893 |
| 375,592 |
- Not past due |
| 193,185 |
| 3,618 |
| 8,457 |
| 205,260 |
| 34,889 |
| 71,810 |
| 48,943 |
| 5,488 |
| 161,130 |
| 366,390 |
- Past due 1-30 days |
| 1,317 |
| 25 |
| 129 |
| 1,471 |
| 398 |
| 1,495 |
| 1,110 |
| 269 |
| 3,272 |
| 4,743 |
- Past due 30-90 days |
| 697 |
| 24 |
| 93 |
| 814 |
| 251 |
| 250 |
| 13 |
| 1 |
| 515 |
| 1,329 |
- Past due 90-180 days |
| 433 |
| 23 |
| 72 |
| 528 |
| 39 |
| 41 |
| — |
| — |
| 80 |
| 608 |
- Past due >180 days |
| 1,076 |
| 37 |
| 513 |
| 1,626 |
| 364 |
| 526 |
| 6 |
| — |
| 896 |
| 2,522 |
Loans - Stage 2 |
| 16,750 |
| 1,083 |
| 2,581 |
| 20,414 |
| 6,782 |
| 23,478 |
| 2,361 |
| 153 |
| 32,774 |
| 53,188 |
- Not past due |
| 15,331 |
| 1,053 |
| 2,393 |
| 18,777 |
| 6,330 |
| 22,599 |
| 2,320 |
| 152 |
| 31,401 |
| 50,178 |
- Past due 1-30 days |
| 903 |
| 14 |
| 108 |
| 1,025 |
| 211 |
| 647 |
| 28 |
| - |
| 886 |
| 1,911 |
- Past due 30-90 days |
| 516 |
| 16 |
| 80 |
| 612 |
| 241 |
| 232 |
| 13 |
| 1 |
| 487 |
| 1,099 |
Weighted average life* |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
- ECL measurement (years) |
| 9 |
| 2 |
| 5 |
| 6 |
| 4 |
| 6 |
| 3 |
| 1 |
| 5 |
| 5 |
Weighted average 12 months PDs* |
| | | | | | | | | | | | | | | | | | | |
- IFRS 9 (%) |
| 0.34 |
| 5.94 |
| 3.51 |
| 0.56 |
| 2.31 |
| 2.91 |
| 0.41 |
| 0.13 |
| 1.91 |
| 1.18 |
- Basel (%) |
| 0.77 |
| 3.33 |
| 3.22 |
| 0.91 |
| 1.23 |
| 1.87 |
| 0.27 |
| 0.14 |
| 1.18 |
| 1.03 |
ECL provisions by geography |
| 853 |
| 289 |
| 937 |
| 2,079 |
| 797 |
| 1,885 |
| 143 |
| 21 |
| 2,846 |
| 4,925 |
- UK |
| 469 |
| 287 |
| 925 |
| 1,681 |
| 678 |
| 1,482 |
| 86 |
| 15 |
| 2,261 |
| 3,942 |
- RoI |
| 384 |
| 2 |
| 12 |
| 398 |
| 73 |
| 187 |
| 13 |
| 2 |
| 275 |
| 673 |
- Other Europe |
| — |
| — |
| — |
| — |
| 38 |
| 97 |
| 38 |
| 1 |
| 174 |
| 174 |
- RoW |
| — |
| — |
| — |
| — |
| 8 |
| 119 |
| 6 |
| 3 |
| 136 |
| 136 |
ECL provisions by stage |
| 853 |
| 289 |
| 937 |
| 2,079 |
| 797 |
| 1,885 |
| 143 |
| 21 |
| 2,846 |
| 4,925 |
- Stage 1 |
| 43 |
| 47 |
| 62 |
| 152 |
| 93 |
| 149 |
| 21 |
| 18 |
| 281 |
| 433 |
- Stage 2 |
| 249 |
| 183 |
| 354 |
| 786 |
| 313 |
| 1,085 |
| 115 |
| 1 |
| 1,514 |
| 2,300 |
- Stage 3 |
| 561 |
| 59 |
| 521 |
| 1,141 |
| 391 |
| 651 |
| 7 |
| 2 |
| 1,051 |
| 2,192 |
- Of which: individual |
| 19 |
| - |
| 10 |
| 29 |
| 222 |
| 304 |
| 3 |
| 2 |
| 531 |
| 560 |
- Of which: collective |
| 542 |
| 59 |
| 511 |
| 1,112 |
| 169 |
| 347 |
| 4 |
| - |
| 520 |
| 1,632 |
ECL provisions coverage (%) |
| 0.43 |
| 7.75 |
| 10.11 |
| 0.99 |
| 2.22 |
| 2.54 |
| 0.29 |
| 0.36 |
| 1.72 |
| 1.31 |
- Stage 1 (%) |
| 0.02 |
| 1.83 |
| 1.02 |
| 0.08 |
| 0.33 |
| 0.30 |
| 0.04 |
| 0.32 |
| 0.22 |
| 0.14 |
- Stage 2 (%) |
| 1.49 |
| 16.90 |
| 13.72 |
| 3.85 |
| 4.62 |
| 4.62 |
| 4.87 |
| 0.65 |
| 4.62 |
| 4.32 |
- Stage 3 (%) |
| 24.10 |
| 71.95 |
| 84.17 |
| 37.67 |
| 37.10 |
| 40.84 |
| 41.18 |
| 22.22 |
| 39.30 |
| 38.44 |
ECL (release)/charge |
| (53) |
| (17) |
| (2) |
| (72) |
| (195) |
| (465) |
| 22 |
| 3 |
| (635) |
| (707) |
- UK |
| (40) |
| (17) |
| (3) |
| (60) |
| (224) |
| (373) |
| 28 |
| 2 |
| (567) |
| (627) |
- RoI |
| (13) |
| — |
| 1 |
| (12) |
| 40 |
| (49) |
| 9 |
| 1 |
| 1 |
| (11) |
- Other Europe |
| — |
| — |
| — |
| — |
| (20) |
| (10) |
| (8) |
| — |
| (38) |
| (38) |
- RoW |
| — |
| — |
| — |
| — |
| 9 |
| (33) |
| (7) |
| — |
| (31) |
| (31) |
ECL loss rate (%) |
| (0.05) |
| (0.91) |
| (0.04) |
| (0.07) |
| (1.09) |
| (1.25) |
| 0.09 |
| 0.10 |
| (0.77) |
| (0.38) |
Amounts written-off |
| 74 |
| 45 |
| 89 |
| 208 |
| 120 |
| 187 |
| 2 |
| — |
| 309 |
| 517 |
For the notes to this table refer to page 42.
NatWest Group – Form 6-K Interim Results 2021 | 39 |
Risk and capital management
Credit risk – Banking activities continued
Sector analysis – portfolio summary
| | | | | | | | | | | | | | | | | | | | |
| | Personal | | Wholesale | | Total | ||||||||||||||
|
| Credit |
| Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | Mortgages (1) | | cards | | personal | | Total | | Property | | Corporate | | FI | | Sovereign | | Total | | |
30 June 2021 | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m |
Loans by residual maturity |
| 196,708 |
| 3,727 |
| 9,264 |
| 209,699 |
| 35,941 |
| 74,122 |
| 50,072 |
| 5,758 |
| 165,893 |
| 375,592 |
- <1 year |
| 3,761 |
| 2,420 |
| 3,080 |
| 9,261 |
| 9,876 |
| 22,159 |
| 39,865 |
| 2,713 |
| 74,613 |
| 83,874 |
- 1-5 year |
| 12,075 |
| 1,307 |
| 5,286 |
| 18,668 |
| 17,145 |
| 35,795 |
| 9,147 |
| 1,714 |
| 63,801 |
| 82,469 |
- 5 year |
| 180,872 |
| — |
| 898 |
| 181,770 |
| 8,920 |
| 16,168 |
| 1,060 |
| 1,331 |
| 27,479 |
| 209,249 |
Other financial assets by asset quality (4) |
| — |
| — |
| — |
| — |
| 93 |
| 12 |
| 10,764 |
| 189,412 |
| 200,281 |
| 200,281 |
- AQ1-AQ4 |
| — |
| — |
| — |
| — |
| — |
| 12 |
| 10,263 |
| 189,375 |
| 199,650 |
| 199,650 |
- AQ5-AQ8 |
| — |
| — |
| — |
| — |
| 93 |
| — |
| 501 |
| 37 |
| 631 |
| 631 |
Off-balance sheet |
| 12,825 |
| 14,470 |
| 10,251 |
| 37,546 |
| 17,591 | | 55,538 |
| 15,585 |
| 1,358 |
| 90,072 |
| 127,618 |
- Loan commitments |
| 12,822 |
| 14,470 |
| 10,212 |
| 37,504 |
| 17,083 |
| 52,626 |
| 14,659 |
| 1,356 |
| 85,724 |
| 123,228 |
- Financial guarantees |
| 3 |
| — |
| 39 |
| 42 |
| 508 |
| 2,912 |
| 926 |
| 2 |
| 4,348 |
| 4,390 |
Off-balance sheet by asset quality (4) |
| 12,825 |
| 14,470 |
| 10,251 |
| 37,546 |
| 17,591 |
| 55,538 |
| 15,585 |
| 1,358 |
| 90,072 |
| 127,618 |
- AQ1-AQ4 |
| 12,021 |
| 185 |
| 8,514 |
| 20,720 |
| 13,130 |
| 30,984 |
| 14,148 |
| 1,212 |
| 59,474 |
| 80,194 |
- AQ5-AQ8 |
| 795 |
| 13,991 |
| 1,718 |
| 16,504 |
| 4,368 |
| 24,071 |
| 1,434 |
| 146 |
| 30,019 |
| 46,523 |
- AQ9 |
| — |
| 9 |
| 7 |
| 16 |
| 8 |
| 38 |
| — |
| — |
| 46 |
| 62 |
- AQ10 |
| 9 |
| 285 |
| 12 |
| 306 |
| 85 |
| 445 |
| 3 |
| — |
| 533 |
| 839 |
For the notes to this table refer to page 42.
NatWest Group – Form 6-K Interim Results 2021 | 40 |
Risk and capital management
Credit risk – Banking activities continued
Sector analysis – portfolio summary
| | | | | | | | | | | | | | | | | | | | |
| | Personal | | Wholesale | | Total | ||||||||||||||
|
|
|
| Credit |
| Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | Mortgages (1) | | cards | | personal | | Total | | Property | | Corporate | | FI | | Sovereign | | Total | | |
31 December 2020 | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m |
Loans by geography |
| 190,516 |
| 3,895 |
| 9,777 |
| 204,188 |
| 38,076 |
| 77,533 |
| 47,643 |
| 4,959 |
| 168,211 |
| 372,399 |
- UK |
| 176,866 |
| 3,816 |
| 9,580 |
| 190,262 |
| 35,617 |
| 65,968 |
| 34,847 |
| 3,776 |
| 140,208 |
| 330,470 |
- RoI |
| 13,650 |
| 79 |
| 197 |
| 13,926 |
| 1,241 |
| 4,056 |
| 348 |
| 30 |
| 5,675 |
| 19,601 |
- Other Europe |
| — |
| — |
| — |
| — |
| 772 |
| 4,132 |
| 4,535 |
| 538 |
| 9,977 |
| 9,977 |
- RoW |
| — |
| — |
| — |
| — |
| 446 |
| 3,377 |
| 7,913 |
| 615 |
| 12,351 |
| 12,351 |
Loans by stage |
| 190,516 |
| 3,895 |
| 9,777 |
| 204,188 |
| 38,076 |
| 77,533 |
| 47,643 |
| 4,959 |
| 168,211 |
| 372,399 |
- Stage 1 |
| 158,387 |
| 2,411 |
| 5,750 |
| 166,548 |
| 23,733 |
| 48,090 |
| 44,002 |
| 4,751 |
| 120,576 |
| 287,124 |
- Stage 2 |
| 29,571 |
| 1,375 |
| 3,406 |
| 34,352 |
| 13,021 |
| 27,716 |
| 3,624 |
| 204 |
| 44,565 |
| 78,917 |
- Stage 3 |
| 2,558 |
| 109 |
| 621 |
| 3,288 |
| 1,322 |
| 1,727 |
| 17 |
| 4 |
| 3,070 |
| 6,358 |
- Of which: individual |
| 308 |
| — |
| 26 |
| 334 |
| 987 |
| 958 |
| 9 |
| 4 |
| 1,958 |
| 2,292 |
- Of which: collective |
| 2,250 |
| 109 |
| 595 |
| 2,954 |
| 335 |
| 769 |
| 8 |
| — |
| 1,112 |
| 4,066 |
Loans - past due analysis (2,3) |
| 190,516 |
| 3,895 |
| 9,777 |
| 204,188 |
| 38,076 |
| 77,533 |
| 47,643 |
| 4,959 |
| 168,211 |
| 372,399 |
- Not past due |
| 186,592 |
| 3,770 |
| 8,868 |
| 199,230 |
| 36,818 |
| 75,690 |
| 47,195 |
| 4,689 |
| 164,392 |
| 363,622 |
- Past due 1-30 days |
| 1,482 |
| 29 |
| 192 |
| 1,703 |
| 348 |
| 990 |
| 328 |
| 270 |
| 1,936 |
| 3,639 |
- Past due 30-90 days |
| 863 |
| 26 |
| 135 |
| 1,024 |
| 260 |
| 251 |
| 113 |
| — |
| 624 |
| 1,648 |
- Past due 90-180 days |
| 456 |
| 20 |
| 66 |
| 542 |
| 161 |
| 67 |
| — |
| — |
| 228 |
| 770 |
- Past due >180 days |
| 1,123 |
| 50 |
| 516 |
| 1,689 |
| 489 |
| 535 |
| 7 |
| — |
| 1,031 |
| 2,720 |
Loans - Stage 2 |
| 29,571 |
| 1,375 |
| 3,406 |
| 34,352 |
| 13,021 |
| 27,716 |
| 3,624 |
| 204 |
| 44,565 |
| 78,917 |
- Not past due |
| 27,893 |
| 1,340 |
| 3,115 |
| 32,348 |
| 12,708 |
| 27,036 |
| 3,484 |
| 204 |
| 43,432 |
| 75,780 |
- Past due 1-30 days |
| 1,038 |
| 18 |
| 173 |
| 1,229 |
| 160 |
| 457 |
| 30 |
| — |
| 647 |
| 1,876 |
- Past due 30-90 days |
| 640 |
| 17 |
| 118 |
| 775 |
| 153 |
| 223 |
| 110 |
| — |
| 486 |
| 1,261 |
Weighted average life* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- ECL measurement (years) |
| 9 |
| 2 |
| 5 |
| 6 |
| 4 |
| 6 |
| 4 |
| — |
| 5 |
| 5 |
Weighted average 12 months PDs* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- IFRS 9 (%) |
| 0.72 |
| 6.17 |
| 4.82 |
| 1.03 |
| 3.99 |
| 3.70 |
| 0.51 |
| 0.13 |
| 2.73 |
| 1.81 |
- Basel (%) |
| 0.85 |
| 3.40 |
| 3.82 |
| 1.03 |
| 1.66 |
| 2.51 |
| 0.32 |
| 0.15 |
| 1.54 |
| 1.25 |
ECL provisions by geography |
| 1,005 |
| 354 |
| 1,036 |
| 2,395 |
| 1,175 |
| 2,478 |
| 121 |
| 17 |
| 3,791 |
| 6,186 |
- UK |
| 506 |
| 351 |
| 1,024 |
| 1,881 |
| 1,069 |
| 1,907 |
| 60 |
| 12 |
| 3,048 |
| 4,929 |
- RoI |
| 499 |
| 3 |
| 12 |
| 514 |
| 41 |
| 277 |
| 3 |
| 1 |
| 322 |
| 836 |
- Other Europe |
| — |
| — |
| — |
| — |
| 53 |
| 125 |
| 46 |
| 1 |
| 225 |
| 225 |
- RoW |
| — |
| — |
| — |
| — |
| 12 |
| 169 |
| 12 |
| 3 |
| 196 |
| 196 |
ECL provisions by stage |
| 1,005 |
| 354 |
| 1,036 |
| 2,395 |
| 1,175 |
| 2,478 |
| 121 |
| 17 |
| 3,791 |
| 6,186 |
- Stage 1 |
| 51 |
| 53 |
| 67 |
| 171 |
| 123 |
| 188 |
| 23 |
| 14 |
| 348 |
| 519 |
- Stage 2 |
| 319 |
| 225 |
| 452 |
| 996 |
| 507 |
| 1,487 |
| 90 |
| 1 |
| 2,085 |
| 3,081 |
- Stage 3 |
| 635 |
| 76 |
| 517 |
| 1,228 |
| 545 |
| 803 |
| 8 |
| 2 |
| 1,358 |
| 2,586 |
- Of which: individual |
| 18 |
| — |
| 12 |
| 30 |
| 360 |
| 436 |
| 3 |
| 2 |
| 801 |
| 831 |
- Of which: collective |
| 617 |
| 76 |
| 505 |
| 1,198 |
| 185 |
| 367 |
| 5 |
| — |
| 557 |
| 1,755 |
ECL provisions coverage (%) |
| 0.53 |
| 9.09 |
| 10.60 |
| 1.17 |
| 3.09 |
| 3.20 |
| 0.25 |
| 0.34 |
| 2.25 |
| 1.66 |
- Stage 1 (%) |
| 0.03 |
| 2.20 |
| 1.17 |
| 0.10 |
| 0.52 |
| 0.39 |
| 0.05 |
| 0.29 |
| 0.29 |
| 0.18 |
- Stage 2 (%) |
| 1.08 |
| 16.36 |
| 13.27 |
| 2.90 |
| 3.89 |
| 5.37 |
| 2.48 |
| 0.49 |
| 4.68 |
| 3.90 |
- Stage 3 (%) |
| 24.82 |
| 69.72 |
| 83.25 |
| 37.35 |
| 41.23 |
| 46.50 |
| 47.06 |
| 50.00 |
| 44.23 |
| 40.67 |
| | | | | | | | | | | | | | | | | | | | |
Half year ended 30 June 2020 | | | | | | | | | | | | | | | | | | | | |
ECL charge |
| 243 |
| 164 |
| 370 |
| 777 |
| 568 |
| 1,439 |
| 73 |
| 1 |
| 2,081 |
| 2,858 |
- UK |
| 136 |
| 163 |
| 358 |
| 657 |
| 501 |
| 1,238 |
| 26 |
| 1 |
| 1,766 |
| 2,423 |
- RoI |
| 107 |
| 1 |
| 12 |
| 120 |
| 47 |
| 77 |
| 1 |
| — |
| 125 |
| 245 |
- Other Europe |
| — |
| — |
| — |
| — |
| 16 |
| 50 |
| 36 |
| — |
| 102 |
| 102 |
- RoW |
| — |
| — |
| — |
| — |
| 4 |
| 74 |
| 10 |
| — |
| 88 |
| 88 |
ECL loss rate (%) |
| 0.27 |
| 8.59 |
| 7.40 |
| 0.79 |
| 2.81 |
| 3.52 |
| 0.34 |
| 0.02 |
| 2.38 |
| 1.54 |
Amounts written-off |
| 169 |
| 49 |
| 63 |
| 281 |
| 21 |
| 104 |
| 2 |
| — |
| 127 |
| 408 |
For the notes to this table refer to the following page.
NatWest Group – Form 6-K Interim Results 2021 | 41 |
Risk and capital management
Credit risk – Banking activities continued
Sector analysis - portfolio summary
| | | | | | | | | | | | | | | | | | | | |
| | Personal | | Wholesale | | Total | ||||||||||||||
|
| Credit |
| Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | Mortgages (1) | | cards | | personal | | Total | | Property | | Corporate | | FI | | Sovereign | | Total | | |
31 December 2020 | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m |
Loans by residual maturity |
| 190,516 |
| 3,895 |
| 9,777 |
| 204,188 |
| 38,076 |
| 77,533 |
| 47,643 |
| 4,959 |
| 168,211 |
| 372,399 |
- <1 year |
| 3,831 |
| 2,557 |
| 3,249 |
| 9,637 |
| 8,669 |
| 23,015 |
| 38,203 |
| 2,196 |
| 72,083 |
| 81,720 |
- 1-5 year |
| 12,193 |
| 1,338 |
| 5,509 |
| 19,040 |
| 20,029 |
| 36,640 |
| 8,340 |
| 1,590 |
| 66,599 |
| 85,639 |
- 5 year |
| 174,492 |
| — |
| 1,019 |
| 175,511 |
| 9,378 |
| 17,878 |
| 1,100 |
| 1,173 |
| 29,529 |
| 205,040 |
Other financial assets by asset quality (4) |
| — |
| — |
| — |
| — |
| 98 |
| 116 |
| 11,093 |
| 165,209 |
| 176,516 |
| 176,516 |
- AQ1-AQ4 |
| — |
| — |
| — |
| — |
| — |
| 116 |
| 10,734 |
| 165,184 |
| 176,034 |
| 176,034 |
- AQ5-AQ8 |
| — |
| — |
| — |
| — |
| 98 |
| — |
| 359 |
| 25 |
| 482 |
| 482 |
Off-balance sheet |
| 14,557 |
| 14,262 |
| 10,186 |
| 39,005 |
| 17,397 |
| 58,635 |
| 17,011 |
| 1,587 |
| 94,630 |
| 133,635 |
- Loan commitments |
| 14,554 |
| 14,262 |
| 10,144 |
| 38,960 |
| 16,829 |
| 55,496 |
| 15,935 |
| 1,585 |
| 89,845 |
| 128,805 |
- Financial guarantees |
| 3 |
| — |
| 42 |
| 45 |
| 568 |
| 3,139 |
| 1,076 |
| 2 |
| 4,785 |
| 4,830 |
Off-balance sheet by asset quality (4) |
| 14,557 |
| 14,262 |
| 10,186 |
| 39,005 |
| 17,397 |
| 58,635 |
| 17,011 |
| 1,587 |
| 94,630 |
| 133,635 |
- AQ1-AQ4 |
| 13,610 |
| 148 |
| 8,008 |
| 21,766 |
| 12,917 |
| 33,939 |
| 15,460 |
| 1,404 |
| 63,720 |
| 85,486 |
- AQ5-AQ8 |
| 937 |
| 13,809 |
| 2,152 |
| 16,898 |
| 4,372 |
| 24,065 |
| 1,544 |
| 183 |
| 30,164 |
| 47,062 |
- AQ9 |
| 1 |
| 8 |
| 9 |
| 18 |
| 13 |
| 76 |
| 1 |
| — |
| 90 |
| 108 |
- AQ10 |
| 9 |
| 297 |
| 17 |
| 323 |
| 95 |
| 555 |
| 6 |
| — |
| 656 |
| 979 |
Notes:
| | | | |
Internal asset quality band |
| Probability of default range |
| Indicative S&P rating |
AQ1 |
| 0% - 0.034% | | AAA to AA |
AQ2 |
| 0.034% - 0.048% | | AA to AA- |
AQ3 |
| 0.048% - 0.095% | | A+ to A |
AQ4 |
| 0.095% - 0.381% | | BBB+ to BBB- |
AQ5 |
| 0.381% - 1.076% | | BB+ to BB |
AQ6 |
| 1.076% - 2.153% | | BB- to B+ |
AQ7 |
| 2.153% - 6.089% | | B+ to B |
AQ8 |
| 6.089% - 17.222% | | B- to CCC+ |
AQ9 |
| 17.222% - 100% | | CCC to C |
AQ10 |
| 100% | | D |
£0.3 billion (31 December 2020 – £0.3 billion) of AQ10 Personal balances primarily relate to loan commitments, the drawdown of which is effectively prohibited. AQ10 includes £0.3 billion (31 December 2020 – £0.4 billion) of RoI mortgages which are not currently considered defaulted for capital calculation purposes for RoI but are included in Stage 3.
NatWest Group – Form 6-K Interim Results 2021 | 42 |
Risk and capital management
Credit risk – Banking activities continued
Sector analysis - COVID-19 impact
The table below shows ECL, by stage, for the Personal portfolio and key sectors of the Wholesale portfolio, that continue to be affected by COVID-19.
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Off-balance sheet | | | | | | | | | ||
| | Loans - amortised cost & FVOCI | | Loan | | Contingent | | ECL provisions | ||||||||||||
| | Stage 1 | | Stage 2 | | Stage 3 | | Total | | commitments | | liabilities | | Stage 1 | | Stage 2 | | Stage 3 | | Total |
30 June 2021 |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
Personal |
| 186,256 |
| 20,414 |
| 3,029 |
| 209,699 |
| 37,504 |
| 42 |
| 152 |
| 786 |
| 1,141 |
| 2,079 |
Mortgages |
| 177,630 |
| 16,750 |
| 2,328 |
| 196,708 |
| 12,822 |
| 3 |
| 43 |
| 249 |
| 561 |
| 853 |
Credit cards |
| 2,562 |
| 1,083 |
| 82 |
| 3,727 |
| 14,470 |
| — |
| 47 |
| 183 |
| 59 |
| 289 |
Other personal |
| 6,064 |
| 2,581 |
| 619 |
| 9,264 |
| 10,212 |
| 39 |
| 62 |
| 354 |
| 521 |
| 937 |
Wholesale |
| 130,445 |
| 32,774 |
| 2,674 |
| 165,893 |
| 85,724 |
| 4,348 |
| 281 |
| 1,514 |
| 1,051 |
| 2,846 |
Property |
| 28,105 |
| 6,782 |
| 1,054 |
| 35,941 |
| 17,083 |
| 508 |
| 93 |
| 313 |
| 391 |
| 797 |
Financial institutions |
| 47,694 |
| 2,361 |
| 17 |
| 50,072 |
| 14,659 |
| 926 |
| 21 |
| 115 |
| 7 |
| 143 |
Sovereign |
| 5,596 |
| 153 |
| 9 |
| 5,758 |
| 1,356 |
| 2 |
| 18 |
| 1 |
| 2 |
| 21 |
Corporate |
| 49,050 |
| 23,478 |
| 1,594 |
| 74,122 |
| 52,626 |
| 2,912 |
| 149 |
| 1,085 |
| 651 |
| 1,885 |
Of which: |
| | | | | | | | | | | | | | | | | | | |
Airlines and aerospace |
| 635 |
| 1,017 |
| 60 |
| 1,712 |
| 1,805 |
| 209 |
| 2 |
| 33 |
| 27 |
| 62 |
Automotive |
| 4,214 |
| 1,617 |
| 201 |
| 6,032 |
| 3,897 |
| 98 |
| 15 |
| 60 |
| 14 |
| 89 |
Education |
| 864 |
| 616 |
| 68 |
| 1,548 |
| 1,144 |
| 17 |
| 2 |
| 22 |
| 18 |
| 42 |
Health |
| 3,136 |
| 2,276 |
| 123 |
| 5,535 |
| 650 |
| 12 |
| 12 |
| 116 |
| 47 |
| 175 |
Land transport and logistics |
| 3,131 |
| 1,578 |
| 53 |
| 4,762 |
| 3,061 |
| 170 |
| 7 |
| 83 |
| 30 |
| 120 |
Leisure |
| 3,264 |
| 5,578 |
| 305 |
| 9,147 |
| 2,106 |
| 123 |
| 15 |
| 323 |
| 142 |
| 480 |
Oil and gas |
| 1,005 |
| 415 |
| 60 |
| 1,480 |
| 1,663 |
| 339 |
| 3 |
| 11 |
| 31 |
| 45 |
Retail |
| 6,133 |
| 2,303 |
| 191 |
| 8,627 |
| 5,339 |
| 468 |
| 13 |
| 112 |
| 80 |
| 205 |
Total |
| 316,701 |
| 53,188 |
| 5,703 |
| 375,592 |
| 123,228 |
| 4,390 |
| 433 |
| 2,300 |
| 2,192 |
| 4,925 |
31 December 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal |
| 166,548 |
| 34,352 |
| 3,288 |
| 204,188 |
| 38,960 |
| 45 |
| 171 |
| 996 |
| 1,228 |
| 2,395 |
Mortgages |
| 158,387 |
| 29,571 |
| 2,558 |
| 190,516 |
| 14,554 |
| 3 |
| 51 |
| 319 |
| 635 |
| 1,005 |
Credit cards |
| 2,411 |
| 1,375 |
| 109 |
| 3,895 |
| 14,262 |
| — |
| 53 |
| 225 |
| 76 |
| 354 |
Other personal |
| 5,750 |
| 3,406 |
| 621 |
| 9,777 |
| 10,144 |
| 42 |
| 67 |
| 452 |
| 517 |
| 1,036 |
Wholesale |
| 120,576 |
| 44,565 |
| 3,070 |
| 168,211 |
| 89,845 |
| 4,785 |
| 348 |
| 2,085 |
| 1,358 |
| 3,791 |
Property |
| 23,733 |
| 13,021 |
| 1,322 |
| 38,076 |
| 16,829 |
| 568 |
| 123 |
| 507 |
| 545 |
| 1,175 |
Financial institutions |
| 44,002 |
| 3,624 |
| 17 |
| 47,643 |
| 15,935 |
| 1,076 |
| 23 |
| 90 |
| 8 |
| 121 |
Sovereign |
| 4,751 |
| 204 |
| 4 |
| 4,959 |
| 1,585 |
| 2 |
| 14 |
| 1 |
| 2 |
| 17 |
Corporate |
| 48,090 |
| 27,716 |
| 1,727 |
| 77,533 |
| 55,496 |
| 3,139 |
| 188 |
| 1,487 |
| 803 |
| 2,478 |
Of which: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Airlines and aerospace |
| 753 |
| 1,213 |
| 41 |
| 2,007 |
| 1,888 |
| 215 |
| 2 |
| 42 |
| 25 |
| 69 |
Automotive |
| 4,383 |
| 1,759 |
| 161 |
| 6,303 |
| 4,205 |
| 102 |
| 17 |
| 63 |
| 17 |
| 97 |
Education |
| 821 |
| 754 |
| 63 |
| 1,638 |
| 1,016 |
| 16 |
| 2 |
| 41 |
| 17 |
| 60 |
Health |
| 2,694 |
| 2,984 |
| 131 |
| 5,809 |
| 616 |
| 14 |
| 13 |
| 164 |
| 48 |
| 225 |
Land transport and logistics |
| 2,868 |
| 1,823 |
| 111 |
| 4,802 |
| 3,782 |
| 197 |
| 8 |
| 98 |
| 32 |
| 138 |
Leisure |
| 3,299 |
| 6,135 |
| 385 |
| 9,819 |
| 2,199 |
| 125 |
| 22 |
| 439 |
| 204 |
| 665 |
Oil and gas |
| 1,178 |
| 300 |
| 83 |
| 1,561 |
| 2,225 |
| 346 |
| 4 |
| 20 |
| 59 |
| 83 |
Retail |
| 6,702 |
| 2,282 |
| 187 |
| 9,171 |
| 5,888 |
| 512 |
| 18 |
| 112 |
| 101 |
| 231 |
Total |
| 287,124 |
| 78,917 |
| 6,358 |
| 372,399 |
| 128,805 |
| 4,830 |
| 519 |
| 3,081 |
| 2,586 |
| 6,186 |
NatWest Group – Form 6-K Interim Results 2021 | 43 |
Risk and capital management
Credit risk – Banking activities continued
Sector analysis – COVID-19 impact
The table below shows ECL, by stage, for the Personal portfolio and key sectors of the Wholesale portfolio, that continue to be affected by COVID-19. It also includes 2019 data to allow a pre-COVID19 comparison.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | ECL provisions | ||||||||||||||||||||||
| | 30 June 2021 | | 31 December 2020 | | 31 December 2019 | ||||||||||||||||||
|
| Stage 1 |
| Stage 2 |
| Stage 3 |
| Total |
| Stage 1 |
| Stage 2 |
| Stage 3 |
| Total |
| Stage 1 |
| Stage 2 |
| Stage 3 |
| Total |
| | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m |
Personal | | 152 | | 786 | | 1,141 | | 2,079 |
| 171 |
| 996 |
| 1,228 |
| 2,395 |
| 130 |
| 503 |
| 1,449 |
| 2,082 |
Mortgages | | 43 | | 249 | | 561 | | 853 |
| 51 |
| 319 |
| 635 |
| 1,005 |
| 25 |
| 118 |
| 821 |
| 964 |
Cards | | 47 | | 183 | | 59 | | 289 |
| 53 |
| 225 |
| 76 |
| 354 |
| 40 |
| 132 |
| 89 |
| 261 |
Other Personal | | 62 | | 354 | | 521 | | 937 |
| 67 |
| 452 |
| 517 |
| 1,036 |
| 65 |
| 253 |
| 539 |
| 857 |
Wholesale | | 281 | | 1,514 | | 1,051 | | 2,846 |
| 348 |
| 2,085 |
| 1,358 |
| 3,791 |
| 192 |
| 249 |
| 1,269 |
| 1,710 |
Property | | 93 | | 313 | | 391 | | 797 |
| 123 |
| 507 |
| 545 |
| 1,175 |
| 45 |
| 47 |
| 402 |
| 494 |
Financial institutions | | 21 | | 115 | | 7 | | 143 |
| 23 |
| 90 |
| 8 |
| 121 |
| 16 |
| 4 |
| 8 |
| 28 |
Sovereigns | | 18 | | 1 | | 2 | | 21 |
| 14 |
| 1 |
| 2 |
| 17 |
| 7 |
| — |
| — |
| 7 |
Corporate | | 149 | | 1,085 | | 651 | | 1,885 |
| 188 |
| 1,487 |
| 803 |
| 2,478 |
| 124 |
| 198 |
| 859 |
| 1,181 |
Of which: | | | | | | | | | | | | | | | | | | | | | | | | |
Airlines and aerospace (1) | | 2 | | 33 | | 27 | | 62 |
| 2 |
| 42 |
| 25 |
| 69 |
| 2 |
| 3 |
| 55 |
| 60 |
Automotive | | 15 | | 60 | | 14 | | 89 |
| 17 |
| 63 |
| 17 |
| 97 |
| 12 |
| 11 |
| 15 |
| 38 |
Education | | 2 | | 22 | | 18 | | 42 |
| 2 |
| 41 |
| 17 |
| 60 |
| 2 |
| 4 |
| 1 |
| 7 |
Health | | 12 | | 116 | | 47 | | 175 |
| 13 |
| 164 |
| 48 |
| 225 |
| 9 |
| 16 |
| 52 |
| 77 |
Land transport & logistics | | 7 | | 83 | | 30 | | 120 |
| 8 |
| 98 |
| 32 |
| 138 |
| 6 |
| 12 |
| 21 |
| 39 |
Leisure | | 15 | | 323 | | 142 | | 480 |
| 22 |
| 439 |
| 204 |
| 665 |
| 25 |
| 27 |
| 175 |
| 227 |
Oil and gas | | 3 | | 11 | | 31 | | 45 |
| 4 |
| 20 |
| 59 |
| 83 |
| 5 |
| 3 |
| 55 |
| 63 |
Retail | | 13 | | 112 | | 80 | | 205 |
| 18 |
| 112 |
| 101 |
| 231 |
| 13 |
| 16 |
| 180 |
| 209 |
Total | | 433 | | 2,300 | | 2,192 | | 4,925 |
| 519 |
| 3,081 |
| 2,586 |
| 6,186 |
| 322 |
| 752 |
| 2,718 |
| 3,792 |
The table below shows ECL provisions coverage, by stage, for the Personal portfolio and key sectors of the Wholesale portfolio, that continue to be affected by COVID-19. It also includes 2019 data to allow a pre-COVID19 comparison.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | ECL provisions coverage | ||||||||||||||||||||||
| | 30 June 2021 | | 31 December 2020 | | 31 December 2019 | ||||||||||||||||||
|
| Stage 1 |
| Stage 2 |
| Stage 3 |
| Total |
| Stage 1 |
| Stage 2 |
| Stage 3 |
| Total |
| Stage 1 |
| Stage 2 |
| Stage 3 |
| Total |
| | % | | % | | % | | % | | % | | % | | % | | % | | % | | % | | % | | % |
Personal |
| 0.08 |
| 3.85 |
| 37.67 |
| 0.99 |
| 0.10 |
| 2.90 |
| 37.35 |
| 1.17 |
| 0.08 |
| 3.35 |
| 35.90 |
| 1.10 |
Mortgages |
| 0.02 |
| 1.49 |
| 24.10 |
| 0.43 |
| 0.03 |
| 1.08 |
| 24.82 |
| 0.53 |
| 0.02 |
| 1.03 |
| 25.05 |
| 0.55 |
Cards |
| 1.83 |
| 16.90 |
| 71.95 |
| 7.75 |
| 2.20 |
| 16.36 |
| 69.72 |
| 9.09 |
| 1.29 |
| 10.48 |
| 76.72 |
| 5.83 |
Other Personal |
| 1.02 |
| 13.72 |
| 84.17 |
| 10.11 |
| 1.17 |
| 13.27 |
| 83.25 |
| 10.60 |
| 0.87 |
| 10.95 |
| 83.83 |
| 8.25 |
Wholesale |
| 0.22 |
| 4.62 |
| 39.30 |
| 1.72 |
| 0.29 |
| 4.68 |
| 44.23 |
| 2.25 |
| 0.14 |
| 1.94 |
| 49.53 |
| 1.16 |
Property |
| 0.33 |
| 4.62 |
| 37.10 |
| 2.22 |
| 0.52 |
| 3.89 |
| 41.23 |
| 3.09 |
| 0.14 |
| 1.82 |
| 44.92 |
| 1.36 |
Financial institutions |
| 0.04 |
| 4.87 |
| 41.18 |
| 0.29 |
| 0.05 |
| 2.48 |
| 47.06 |
| 0.25 |
| 0.04 |
| 0.73 |
| 61.54 |
| 0.08 |
Sovereigns |
| 0.32 |
| 0.65 |
| 22.22 |
| 0.36 |
| 0.29 |
| 0.49 |
| 50.00 |
| 0.34 |
| 0.16 |
| — |
| — |
| 0.16 |
Corporate |
| 0.30 |
| 4.62 |
| 40.84 |
| 2.54 |
| 0.39 |
| 5.37 |
| 46.50 |
| 3.20 |
| 0.21 |
| 2.04 |
| 52.09 |
| 1.66 |
Of which: |
| |
| |
| |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Airlines and aerospace |
| 0.31 |
| 3.24 |
| 45.00 |
| 3.62 |
| 0.27 |
| 3.46 |
| 60.98 |
| 3.44 |
| 0.14 |
| 1.15 |
| 137.50 |
| 3.50 |
Automotive |
| 0.36 |
| 3.71 |
| 6.97 |
| 1.48 |
| 0.39 |
| 3.58 |
| 10.56 |
| 1.54 |
| 0.24 |
| 0.96 |
| 75.00 |
| 0.61 |
Education |
| 0.23 |
| 3.57 |
| 26.47 |
| 2.71 |
| 0.24 |
| 5.44 |
| 26.98 |
| 3.66 |
| 0.14 |
| 2.60 |
| 8.33 |
| 0.44 |
Health |
| 0.38 |
| 5.10 |
| 38.21 |
| 3.16 |
| 0.48 |
| 5.50 |
| 36.64 |
| 3.87 |
| 0.19 |
| 1.90 |
| 31.14 |
| 1.35 |
Land transport & logistics |
| 0.22 |
| 5.26 |
| 56.60 |
| 2.52 |
| 0.28 |
| 5.38 |
| 28.83 |
| 2.87 |
| 0.17 |
| 3.80 |
| 39.62 |
| 1.01 |
Leisure |
| 0.46 |
| 5.79 |
| 46.56 |
| 5.25 |
| 0.67 |
| 7.16 |
| 52.99 |
| 6.77 |
| 0.40 |
| 2.15 |
| 46.42 |
| 2.85 |
Oil and gas |
| 0.30 |
| 2.65 |
| 51.67 |
| 3.04 |
| 0.34 |
| 6.67 |
| 71.08 |
| 5.32 |
| 0.26 |
| 2.14 |
| 63.95 |
| 2.93 |
Retail |
| 0.21 |
| 4.86 |
| 41.88 |
| 2.38 |
| 0.27 |
| 4.91 |
| 54.01 |
| 2.52 |
| 0.20 |
| 1.25 |
| 83.69 |
| 2.65 |
Total |
| 0.14 |
| 4.32 |
| 38.44 |
| 1.31 |
| 0.18 |
| 3.90 |
| 40.67 |
| 1.66 |
| 0.11 |
| 2.70 |
| 41.19 |
| 1.13 |
Note:
(1) | Airlines and aerospace Stage 3 ECL as at 31 December 2019 included £27 million of ECL related to contingent liabilities. |
NatWest Group – Form 6-K Interim Results 2021 | 44 |
Risk and capital management
Credit risk – Banking activities continued
Wholesale forbearance
The table below shows Wholesale forbearance, Heightened Monitoring and Risk of Credit Loss by sector. Personal forbearance is disclosed on page 47.
The exposure in this section is based on current exposure gross of provisions but reflecting risk transfer where exposure is guaranteed by a third party. Current exposure is defined as: loans; the amount drawn under a credit facility plus accrued interest; contingent obligations; the issued amount of the guarantee or letter of credit; derivatives - the mark-to-market value, netted where netting agreements exist and net of legally enforceable collateral. Where exposure is guaranteed by a third party not in forbearance, heightened monitoring, or risk of credit loss it will not feature in the table.
| | | | | | | | |
|
| Property |
| FI |
| Other corporate |
| Total |
30 June 2021 | | £m | | £m | | £m | | £m |
Forbearance (flow) |
| 974 |
| 41 |
| 3,290 |
| 4,305 |
Forbearance (stock) | | 1,466 | | 60 | | 5,868 | | 7,394 |
Heightened Monitoring and Risk of Credit Loss |
| 1,542 |
| 206 |
| 5,816 |
| 7,564 |
31 December 2020 |
|
|
|
|
|
|
|
|
Forbearance (flow) | | 1,597 | | 68 | | 4,201 | | 5,866 |
Forbearance (stock) |
| 1,744 |
| 92 |
| 4,983 |
| 6,819 |
Heightened Monitoring and Risk of Credit Loss |
| 1,600 |
| 155 |
| 5,771 |
| 7,526 |
Key points
NatWest Group – Form 6-K Interim Results 2021 | 45 |
Risk and capital management
Credit risk – Banking activities continued
NatWest Group – Form 6-K Interim Results 2021 | 46 |
Risk and capital management
Credit risk – Banking activities continued
Personal portfolio
Disclosures in the Personal portfolio section include drawn exposure (gross of provisions).
| | | | | | | | | | | | | | | | | | | | | |
| | 30 June 2021 | | 31 December 2020 |
| ||||||||||||||||
| | Retail | | Private | | RBS | | Ulster | | | | Retail | | Private | | RBS | | Ulster | | |
|
| | Banking | | Banking | | International | | Bank RoI | | Total | | Banking | | Banking | | International | | Bank RoI | | Total |
|
Personal lending |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
|
Mortgages |
| 169,300 |
| 11,838 |
| 2,508 |
| 12,688 |
| 196,334 |
| 163,107 |
| 10,910 |
| 2,517 |
| 13,678 |
| 190,212 | |
Of which: |
| | | | | | | | | |
|
|
|
|
|
|
|
|
|
| |
Owner occupied |
| 155,136 |
| 10,469 |
| 1,645 |
| 11,887 |
| 179,137 |
| 148,614 |
| 9,601 |
| 1,676 |
| 12,781 |
| 172,672 | |
Buy-to-let |
| 14,164 |
| 1,369 |
| 863 |
| 801 |
| 17,197 |
| 14,493 |
| 1,309 |
| 841 |
| 897 |
| 17,540 | |
Interest only - variable |
| 4,534 |
| 4,575 |
| 357 |
| 151 |
| 9,617 |
| 5,135 |
| 4,375 |
| 347 |
| 159 |
| 10,016 | |
Interest only - fixed |
| 13,729 |
| 5,337 |
| 225 |
| 10 |
| 19,301 |
| 13,776 |
| 4,758 |
| 233 |
| 10 |
| 18,777 | |
Mixed (1) |
| 8,039 |
| 1 |
| 18 |
| 43 |
| 8,101 |
| 7,321 |
| 1 |
| 20 |
| 56 |
| 7,398 | |
Impairment provisions (2) |
| 445 |
| 5 |
| 8 |
| 384 |
| 842 |
| 483 |
| 5 |
| 9 |
| 499 |
| 996 | |
Other personal lending (3) |
| 10,542 |
| 1,722 |
| 280 |
| 238 |
| 12,782 |
| 11,116 |
| 1,613 |
| 279 |
| 276 |
| 13,284 | |
Impairment provisions (2) |
| 1,188 |
| 17 |
| 3 |
| 14 |
| 1,222 |
| 1,348 |
| 20 |
| 1 |
| 15 |
| 1,384 | |
Total personal lending |
| 179,842 |
| 13,560 |
| 2,788 |
| 12,926 |
| 209,116 |
| 174,223 |
| 12,523 |
| 2,796 |
| 13,954 |
| 203,496 | |
Mortgage LTV ratios |
| | | | | | | | | |
|
|
|
|
|
|
|
|
|
| |
Total portfolio |
| 55% | | 59% | | 57% | | 56% | | 55% | | 56% | | 58% | | 57% | | 59% | | 57% | |
- Stage 1 |
| 55% | | 59% | | 56% | | 55% | | 55% | | 55% | | 58% | | 57% | | 57% | | 55% | |
- Stage 2 |
| 58% | | 58% | | 62% | | 61% | | 58% | | 66% | | 61% | | 64% | | 65% | | 66% | |
- Stage 3 |
| 50% | | 65% | | 76% | | 62% | | 56% | | 53% | | 64% | | 75% | | 67% | | 60% | |
Buy-to-let |
| 51% | | 57% | | 53% | | 56% | | 52% | | 52% | | 56% | | 53% | | 59% | | 53% | |
- Stage 1 |
| 51% | | 57% | | 53% | | 53% | | 52% | | 51% | | 56% | | 53% | | 55% | | 52% | |
- Stage 2 |
| 54% | | 56% | | 50% | | 65% | | 55% | | 60% | | 59% | | 53% | | 69% | | 61% | |
- Stage 3 |
| 53% | | 57% | | 59% | | 69% | | 59% | | 56% | | 54% | | 61% | | 74% | | 62% | |
Gross new mortgage lending (4) |
| 18,862 | | 1,692 |
| 197 |
| 338 |
| 21,089 |
| 30,551 |
| 2,148 |
| 249 |
| 910 |
| 33,858 | |
Of which: |
| | | | | | | | | |
|
|
|
|
|
|
|
|
|
| |
Owner occupied |
| 18,289 |
| 1,528 |
| 111 |
| 335 |
| 20,263 |
| 29,608 |
| 1,922 |
| 167 |
| 908 |
| 32,605 | |
Weighted average LTV |
| 69% | | 67% | | 67% | | 73% | | 68% | | 69% | | 66% | | 66% | | 74% | | 69% | |
Buy-to-let |
| 573 |
| 164 |
| 86 |
| 3 |
| 826 |
| 943 |
| 227 |
| 82 |
| 2 |
| 1,254 | |
Weighted average LTV |
| 63% | | 65% | | 63% | | 58% | | 63% | | 62% | | 62% | | 63% | | 54% | | 62% | |
Interest only - variable rate |
| 15 |
| 551 |
| - |
| — |
| 566 |
| 81 |
| 1,082 |
| 7 |
| — |
| 1,170 | |
Interest only - fixed rate |
| 984 |
| 826 |
| 45 |
| — |
| 1,855 |
| 1,501 |
| 695 |
| 35 |
| — |
| 2,231 | |
Mixed (1) |
| 1,193 |
| — |
| 1 |
| — |
| 1,194 |
| 1,630 |
| — |
| 2 |
| — |
| 1,632 | |
| | | | | | | | | | | | | | | | | | | | | |
Forbearance flow |
| 284 |
| 7 |
| 4 |
| 40 |
| 335 |
| 550 |
| 50 |
| 10 |
| 127 |
| 737 | |
Forbearance stock |
| 1,273 |
| 3 |
| 10 |
| 1,326 |
| 2,612 |
| 1,293 |
| 18 |
| 10 |
| 1,627 |
| 2,948 | |
Current |
| 651 |
| 1 |
| 6 |
| 939 |
| 1,597 |
| 648 |
| 13 |
| 9 |
| 1,070 |
| 1,740 | |
1-3 months in arrears |
| 292 |
| 2 |
| 1 |
| 70 |
| 365 |
| 360 |
| 3 |
| — |
| 105 |
| 468 | |
> 3 months in arrears |
| 330 |
| — |
| 3 |
| 317 |
| 650 |
| 285 |
| 2 |
| 1 |
| 452 |
| 740 | |
Notes:
(1) | Includes accounts which have an interest only sub-account and a capital and interest sub-account to provide a more comprehensive view of interest only exposures. |
(2) | Retail Banking excludes a non-material amount of provisions held on relatively small legacy portfolios. |
(3) | Comprises unsecured lending except for Private Banking, which includes both secured and unsecured lending. It excludes loans that are commercial in nature. |
(4) | Retail Banking excludes additional lending to existing customers. |
Key points
NatWest Group – Form 6-K Interim Results 2021 | 47 |
Risk and capital management
Credit risk – Banking activities continued
Personal portfolio
Mortgage LTV distribution by stage
The table below shows gross mortgage lending and related ECL by LTV band. Mortgage lending not within the scope of IFRS 9 ECL reflected portfolios carried at fair value.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Mortgages | | ECL provisions | | ECL provisions coverage (2) | | ||||||||||||||||||||||
| | | | | | | | Not within | | | | Of which: | | | | | | | | | | | | | | | | | |
Retail Banking |
| |
| |
| |
| IFRS 9 |
| |
| gross new |
| |
| |
| |
| |
| |
| |
| |
|
| |
| | Stage 1 | | Stage 2 | | Stage 3 | | ECL scope | | Total | | lending | | Stage 1 | | Stage 2 | | Stage 3 | | Total(1) | | Stage 1 | | Stage 2 | | Stage 3 | | Total | |
30 June 2021 | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | % | | % | | % | | % | |
≤50% | | 54,791 |
| 4,808 |
| 604 |
| 66 |
| 60,269 |
| 2,493 |
| 4 |
| 60 |
| 129 |
| 193 |
| — |
| 1.2 |
| 21.4 |
| 0.3 | |
>50% and ≤70% | | 63,017 |
| 5,772 |
| 509 |
| 13 |
| 69,311 |
| 5,105 |
| 6 |
| 74 |
| 89 |
| 169 |
| — |
| 1.3 |
| 17.6 |
| 0.2 | |
>70% and ≤80% | | 27,713 |
| 2,869 |
| 121 |
| 1 |
| 30,704 |
| 7,544 |
| 6 |
| 31 |
| 21 |
| 58 |
| — |
| 1.1 |
| 17.1 |
| 0.2 | |
>80% and ≤90% | | 6,854 |
| 1,581 |
| 35 |
| 1 |
| 8,471 |
| 3,565 |
| 2 |
| 14 |
| 6 |
| 22 |
| — |
| 0.9 |
| 18.0 |
| 0.3 | |
>90% and ≤100% | | 474 |
| 22 |
| 5 |
| — |
| 501 |
| 29 |
| — |
| — |
| 1 |
| 1 |
| — |
| 1.5 |
| 27.3 |
| 0.3 | |
>100% and ≤110% | | 4 |
| 6 |
| 1 |
| — |
| 11 |
| — |
| — |
| — |
| — |
| — |
| — |
| 2.9 |
| 32.0 |
| 5.0 | |
>110% and ≤130% | | 4 |
| 4 |
| 1 |
| — |
| 9 |
| — |
| — |
| — |
| — |
| — |
| — |
| 4.4 |
| 32.0 |
| 4.0 | |
>130% and ≤150% | | 3 |
| 2 |
| — |
| — |
| 5 |
| — |
| — |
| — |
| — |
| — |
| — |
| 2.1 |
| 45.2 |
| 4.3 | |
Total with LTVs |
| 152,860 |
| 15,064 |
| 1,276 |
| 81 |
| 169,281 |
| 18,736 |
| 18 |
| 179 |
| 246 |
| 443 |
| — |
| 1.2 |
| 19.4 |
| 0.3 | |
Other |
| 16 |
| 2 |
| 1 |
| — |
| 19 |
| 126 |
| — |
| — |
| 1 |
| 1 |
| 0.1 |
| 8.5 |
| 100.0 |
| 6.0 | |
Total |
| 152,876 |
| 15,066 |
| 1,277 |
| 81 |
| 169,300 |
| 18,862 |
| 18 |
| 179 |
| 247 |
| 444 |
| — |
| 1.2 |
| 19.5 |
| 0.3 | |
31 December 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
≤50% | | 50,170 |
| 5,009 |
| 554 |
| 124 |
| 55,857 |
| 4,207 |
| 4 |
| 43 |
| 107 |
| 154 |
| — |
| 0.8 |
| 19.4 |
| 0.3 | |
>50% and ≤70% | | 55,263 |
| 7,416 |
| 488 |
| 35 |
| 63,202 |
| 9,083 |
| 7 |
| 66 |
| 81 |
| 154 |
| — |
| 0.9 |
| 16.5 |
| 0.2 | |
>70% and ≤80% | | 19,994 |
| 9,555 |
| 141 |
| 8 |
| 29,698 |
| 11,060 |
| 7 |
| 56 |
| 26 |
| 89 |
| — |
| 0.6 |
| 18.5 |
| 0.3 | |
>80% and ≤90% | | 8,029 |
| 5,552 |
| 52 |
| 6 |
| 13,639 |
| 5,175 |
| 3 |
| 52 |
| 11 |
| 66 |
| — |
| 0.9 |
| 20.3 |
| 0.5 | |
>90% and ≤100% | | 368 |
| 137 |
| 13 |
| 2 |
| 520 |
| 865 |
| — |
| 5 |
| 3 |
| 8 |
| 0.1 |
| 3.4 |
| 26.8 |
| 1.6 | |
>100% and ≤110% | | 19 |
| 31 |
| 6 |
| 1 |
| 57 |
| — |
| — |
| 2 |
| 1 |
| 3 |
| 0.1 |
| 6.2 |
| 22.1 |
| 5.6 | |
>110% and ≤130% | | 23 |
| 45 |
| 6 |
| 1 |
| 75 |
| — |
| — |
| 3 |
| 2 |
| 5 |
| 0.3 |
| 7.6 |
| 31.1 |
| 7.3 | |
>130% and ≤150% | | 5 |
| 20 |
| 5 |
| — |
| 30 |
| — |
| — |
| 1 |
| 1 |
| 2 |
| — |
| 7.2 |
| 23.0 |
| 8.5 | |
>150% | | 1 |
| 3 |
| 3 |
| — |
| 7 |
| — |
| — |
| — |
| 1 |
| 1 |
| 0.1 |
| 9.4 |
| 44.4 |
| 22.6 | |
Total with LTVs |
| 133,872 |
| 27,768 |
| 1,268 |
| 177 |
| 163,085 |
| 30,390 |
| 21 |
| 228 |
| 233 |
| 482 |
| — |
| 0.8 |
| 18.5 |
| 0.3 | |
Other |
| 17 |
| 4 |
| 1 |
| — |
| 22 |
| 161 |
| — |
| — |
| 1 |
| 1 |
| 0.1 |
| 3.6 |
| 71.9 |
| 3.3 | |
Total |
| 133,889 |
| 27,772 |
| 1,269 |
| 177 |
| 163,107 |
| 30,551 |
| 21 |
| 228 |
| 234 |
| 483 |
| — |
| 0.8 |
| 18.5 |
| 0.3 | |
For the notes to this table refer to the following page.
NatWest Group – Form 6-K Interim Results 2021 | 48 |
Risk and capital management
Credit risk – Banking activities continued
Personal portfolio
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Mortgages | | ECL provisions | | ECL provisions coverage (2) | ||||||||||||||||||||
Ulster Bank RoI | | | | | | | | | | Of which: | | | | | | | | | | | | | | | | |
| | | | | | | | | | gross new | | | | | | | | | | | | | | | | |
| | Stage 1 | | Stage 2 | | Stage 3 | | Total | | lending | | Stage 1 | | Stage 2 | | Stage 3 | | Total(1) | | Stage 1 | | Stage 2 | | Stage 3 | | Total |
30 June 2021 |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| % |
| % |
| % |
| % |
≤50% |
| 4,266 |
| 429 |
| 306 |
| 5,001 |
| 33 |
| 9 |
| 22 |
| 118 |
| 149 |
| 0.2 |
| 5.0 |
| 38.7 |
| 3.0 |
>50% and ≤70% | | 3,435 |
| 375 |
| 163 |
| 3,973 |
| 81 |
| 8 |
| 20 |
| 55 |
| 83 |
| 0.2 |
| 5.3 |
| 34.1 |
| 2.1 |
>70% and ≤80% | | 1,521 |
| 172 |
| 81 |
| 1,774 |
| 146 |
| 3 |
| 9 |
| 31 |
| 43 |
| 0.2 |
| 5.5 |
| 37.8 |
| 2.4 |
>80% and ≤90% | | 1,060 |
| 131 |
| 67 |
| 1,258 |
| 76 |
| 2 |
| 8 |
| 25 |
| 35 |
| 0.2 |
| 5.6 |
| 38.3 |
| 2.8 |
>90% and ≤100% | | 240 |
| 81 |
| 58 |
| 379 |
| — |
| 1 |
| 5 |
| 23 |
| 29 |
| 0.3 |
| 6.0 |
| 40.0 |
| 7.6 |
>100% and ≤110% | | 87 |
| 50 |
| 41 |
| 178 |
| 1 |
| — |
| 3 |
| 18 |
| 21 |
| 0.3 |
| 6.4 |
| 43.1 |
| 11.8 |
>110% and ≤130% | | 37 |
| 30 |
| 28 |
| 95 |
| — |
| — |
| 2 |
| 14 |
| 16 |
| 0.4 |
| 7.4 |
| 47.1 |
| 16.5 |
>130% and ≤150% | | 4 |
| 3 |
| 11 |
| 18 |
| — |
| — |
| — |
| 5 |
| 5 |
| 0.4 |
| 7.8 |
| 50.1 |
| 31.2 |
>150% | | 6 |
| 2 |
| 4 |
| 12 |
| 1 |
| — |
| — |
| 3 |
| 3 |
| 0.4 |
| 8.0 |
| 62.6 |
| 23.0 |
Total | | 10,656 |
| 1,273 |
| 759 |
| 12,688 |
| 338 |
| 23 |
| 69 |
| 292 |
| 384 |
| 0.2 |
| 5.4 |
| 38.5 |
| 3.0 |
31 December 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
≤50% | | 4,156 |
| 504 |
| 354 |
| 5,014 |
| 78 |
| 10 |
| 24 |
| 105 |
| 139 |
| 0.2 |
| 4.8 |
| 29.7 |
| 2.8 |
>50% and ≤70% | | 3,453 |
| 453 |
| 230 |
| 4,136 |
| 194 |
| 8 |
| 23 |
| 66 |
| 97 |
| 0.2 |
| 5.1 |
| 28.7 |
| 2.3 |
>70% and ≤80% | | 1,569 |
| 232 |
| 114 |
| 1,915 |
| 346 |
| 4 |
| 12 |
| 40 |
| 56 |
| 0.3 |
| 5.2 |
| 35.1 |
| 2.9 |
>80% and ≤90% | | 1,214 |
| 190 |
| 105 |
| 1,509 |
| 286 |
| 3 |
| 11 |
| 40 |
| 54 |
| 0.2 |
| 5.8 |
| 38.1 |
| 3.6 |
>90% and ≤100% | | 372 |
| 145 |
| 88 |
| 605 |
| 1 |
| 1 |
| 9 |
| 40 |
| 50 |
| 0.3 |
| 6.2 |
| 45.5 |
| 8.3 |
>100% and ≤110% | | 119 |
| 76 |
| 74 |
| 269 |
| 4 |
| 1 |
| 5 |
| 37 |
| 43 |
| 0.8 |
| 6.6 |
| 50.0 |
| 16.0 |
>110% and ≤130% | | 53 |
| 63 |
| 64 |
| 180 |
| 1 |
| — |
| 5 |
| 35 |
| 40 |
| — |
| 7.9 |
| 54.7 |
| 22.2 |
>130% and ≤150% | | 6 |
| 8 |
| 17 |
| 31 |
| — |
| — |
| 1 |
| 10 |
| 11 |
| — |
| 12.5 |
| 58.8 |
| 35.5 |
>150% | | 5 |
| 4 |
| 10 |
| 19 |
| — |
| — |
| 1 |
| 8 |
| 9 |
| — |
| 25.0 |
| 80.0 |
| 47.4 |
Total with LTVs | | 10,947 |
| 1,675 |
| 1,056 |
| 13,678 |
| 910 |
| 27 |
| 91 |
| 381 |
| 499 |
| 0.2 |
| 5.4 |
| 36.1 |
| 3.6 |
Notes:
(1)Excludes a non-material amount of provisions held on relatively small legacy portfolios.
(2)ECL provisions coverage is ECL provisions divided by mortgages.
Key points
● | Within the Retail Banking portfolio, LTV distribution improved with strong house price growth in the UK in the first half of the year and the more cautious approach to LTV for new lending, adopted in response to COVID-19, which has seen a reduction in exposure to higher LTV bands. |
● | ECL coverage rates increased through the LTV bands with both Retail Banking and Ulster Bank RoI having only limited exposures in the highest LTV bands. The relatively high coverage level in the lowest LTV band for Retail Banking included the effect of time-discounting on expected recoveries. Additionally, this also reflected the modelling approach that recognised an element of expected loss on mortgages that are not subject to formal repossession activity. |
NatWest Group – Form 6-K Interim Results 2021 | 49 |
Risk and capital management
Credit risk – Banking activities continued
Commercial real estate (CRE)
The CRE portfolio comprises exposures to entities involved in the development of, or investment in, commercial and residential properties (including house builders but excluding housing associations, construction and the building materials sub sector). The sector is reviewed regularly by senior executive committees. Reviews include portfolio credit quality, capital consumption and control frameworks. All disclosures in the CRE section are based on current exposure (gross of provisions and risk transfer). Current exposure is defined as: loans; the amount drawn under a credit facility plus accrued interest; contingent obligations; the issued amount of the guarantee or letter of credit; derivatives – the mark-to-market value, netted where netting agreements exist and net of legally enforceable collateral.
| | | | | | | | | | | | | | | | |
| | 30 June 2021 | | 31 December 2020 | ||||||||||||
|
| UK |
| RoI |
| Other |
| Total |
| UK |
| RoI |
| Other |
| Total |
By geography and sub sector (1) | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m |
Investment |
| |
| |
| |
| |
|
|
|
|
|
|
|
|
Residential (2) |
| 4,360 |
| 372 |
| 20 |
| 4,752 |
| 4,507 |
| 360 |
| 14 |
| 4,881 |
Office (3) |
| 3,152 |
| 210 |
| 35 |
| 3,397 |
| 3,386 |
| 226 |
| 28 |
| 3,640 |
Retail (4) |
| 4,903 |
| 78 |
| 87 |
| 5,068 |
| 5,423 |
| 68 |
| 118 |
| 5,609 |
Industrial (5) |
| 2,604 |
| 14 |
| 154 |
| 2,772 |
| 2,773 |
| 18 |
| 202 |
| 2,993 |
Mixed/other (6) |
| 2,101 |
| 131 |
| 80 |
| 2,312 |
| 2,688 |
| 154 |
| 74 |
| 2,916 |
| | 17,120 | | 805 | | 376 | | 18,301 |
| 18,777 |
| 826 |
| 436 |
| 20,039 |
Development |
| |
| |
| |
| |
|
|
|
|
|
|
|
|
Residential (2) |
| 2,151 |
| 103 |
| 2 |
| 2,256 |
| 2,685 |
| 200 |
| 3 |
| 2,888 |
Office (3) |
| 83 |
| 31 |
| — |
| 114 |
| 123 |
| 30 |
| — |
| 153 |
Retail (4) |
| 64 |
| — |
| — |
| 64 |
| 126 |
| — |
| — |
| 126 |
Industrial (5) |
| 100 |
| 1 |
| — |
| 101 |
| 125 |
| 2 |
| — |
| 127 |
Mixed/other (6) |
| 24 |
| 2 |
| — |
| 26 |
| 24 |
| 2 |
| — |
| 26 |
| | 2,422 | | 137 | | 2 | | 2,561 |
| 3,083 |
| 234 |
| 3 |
| 3,320 |
Total |
| 19,542 |
| 942 |
| 378 |
| 20,862 |
| 21,860 |
| 1,060 |
| 439 |
| 23,359 |
Notes:
(1) | Geographical splits are based on country of collateral risk. |
(2) | Properties including houses, flats and student accommodation. |
(3) | Properties including offices in central business districts, regional headquarters and business parks. |
(4) | Properties including high street retail, shopping centres, restaurants, bars and gyms. |
(5) | Properties including distribution centres, manufacturing and warehouses. |
(6) | Properties that do not fall within the other categories above. Mixed generally relates to a mixture of retail/office with residential. |
NatWest Group – Form 6-K Interim Results 2021 | 50 |
Risk and capital management
Credit risk – Banking activities continued
Commercial real estate
CRE LTV distribution by stage
The table below shows CRE current exposure and related ECL by LTV band.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Current exposure (gross of provisions) (1,2) | | ECL provisions | | ECL provisions coverage (4) |
| ||||||||||||||||||||
| | | | | | | | Not within | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | IFRS 9 ECL | | | | | | | | | | | | | | | | | | |
|
| | Stage 1 | | Stage 2 | | Stage 3 | | scope (3) | | Total | | Stage 1 | | Stage 2 | | Stage 3 | | Total(1) | | Stage 1 | | Stage 2 | | Stage 3 | | Total |
|
30 June 2021 |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
|
| % |
| % |
| % |
| % |
≤50% | | 7,099 |
| 1,230 |
| 143 |
| — |
| 8,472 |
| 26 |
| 46 |
| 26 |
| 98 |
| 0.4 |
| 3.7 |
| 18.2 |
| 1.2 | |
>50% and ≤70% | | 4,345 |
| 1,189 |
| 176 |
| — |
| 5,710 |
| 21 |
| 54 |
| 56 |
| 131 |
| 0.5 |
| 4.5 |
| 31.8 |
| 2.3 | |
>70% and ≤80% | | 245 |
| 309 |
| 21 |
| — |
| 575 |
| 2 |
| 26 |
| 3 |
| 31 |
| 0.8 |
| 8.4 |
| 14.3 |
| 5.4 | |
>80% and ≤90% | | 30 |
| 37 |
| 36 |
| — |
| 103 |
| — |
| 3 |
| 12 |
| 15 |
| — |
| 8.1 |
| 33.3 |
| 14.6 | |
>90% and ≤100% | | 71 |
| 14 |
| 51 |
| — |
| 136 |
| — |
| 2 |
| 19 |
| 21 |
| — |
| 14.3 |
| 37.3 |
| 15.4 | |
>100% and ≤110% | | 10 |
| 2 |
| 60 |
| — |
| 72 |
| — |
| — |
| 7 |
| 7 |
| — |
| — |
| 11.7 |
| 9.7 | |
>110% and ≤130% | | 24 |
| 23 |
| 31 |
| — |
| 78 |
| — |
| 1 |
| 10 |
| 11 |
| — |
| 4.3 |
| 32.3 |
| 14.1 | |
>130% and ≤150% | | 7 |
| 2 |
| 8 |
| — |
| 17 |
| — |
| — |
| 3 |
| 3 |
| — |
| — |
| 37.5 |
| 17.6 | |
>150% | | 75 |
| 10 |
| 140 |
| — |
| 225 |
| 1 |
| 2 |
| 61 |
| 64 |
| 1.3 |
| 20.0 |
| 43.6 |
| 28.4 | |
Total with LTVs |
| 11,906 |
| 2,816 |
| 666 |
| — |
| 15,388 |
| 50 |
| 134 |
| 197 |
| 381 |
| 0.4 |
| 4.8 |
| 29.6 |
| 2.5 | |
Total portfolio average LTV |
| 45% | | 49% | | 101% | | — |
| 47% | | |
| |
| |
| |
| |
| |
| |
| | |
Other (5) |
| 1,771 |
| 739 |
| 101 |
| 302 |
| 2,913 |
| 6 |
| 53 |
| 42 |
| 101 |
| 0.3 |
| 7.2 |
| 41.6 |
| 3.9 | |
Development (6) |
| 1,699 |
| 757 |
| 91 |
| 14 |
| 2,561 |
| 16 |
| 22 |
| 53 |
| 91 |
| 0.9 |
| 2.9 |
| 58.2 |
| 3.6 | |
Total |
| 15,376 |
| 4,312 |
| 858 |
| 316 |
| 20,862 |
| 72 |
| 209 |
| 292 |
| 573 |
| 0.5 |
| 4.8 |
| 34.0 |
| 2.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
31 December 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
≤50% | | 4,918 |
| 4,538 |
| 138 |
| — |
| 9,594 |
| 46 |
| 145 |
| 24 |
| 215 |
| 0.9 |
| 3.2 |
| 17.4 |
| 2.2 | |
>50% and ≤70% | | 2,815 |
| 3,266 |
| 226 |
| — |
| 6,307 |
| 32 |
| 112 |
| 63 |
| 207 |
| 1.1 |
| 3.4 |
| 27.9 |
| 3.3 | |
>70% and ≤80% | | 39 |
| 222 |
| 23 |
| — |
| 284 |
| 1 |
| 17 |
| 7 |
| 25 |
| 2.6 |
| 7.7 |
| 30.4 |
| 8.8 | |
>80% and ≤90% | | 84 |
| 35 |
| 36 |
| — |
| 155 |
| 2 |
| 4 |
| 11 |
| 17 |
| 2.4 |
| 11.4 |
| 30.6 |
| 11 | |
>90% and ≤100% | | 46 |
| 26 |
| 65 |
| — |
| 137 |
| — |
| 2 |
| 33 |
| 35 |
| — |
| 7.7 |
| 50.8 |
| 25.5 | |
>100% and ≤110% | | 6 |
| 6 |
| 63 |
| — |
| 75 |
| — |
| 1 |
| 10 |
| 11 |
| — |
| 16.7 |
| 15.9 |
| 14.7 | |
>110% and ≤130% | | 9 |
| 22 |
| 117 |
| — |
| 148 |
| — |
| 2 |
| 45 |
| 47 |
| — |
| 9.1 |
| 38.5 |
| 31.8 | |
>130% and ≤150% | | 12 |
| 12 |
| 10 |
| — |
| 34 |
| — |
| 1 |
| 5 |
| 6 |
| — |
| 8.3 |
| 50.0 |
| 17.6 | |
>150% | | 23 |
| 24 |
| 105 |
| — |
| 152 |
| — |
| 2 |
| 53 |
| 55 |
| — |
| 8.3 |
| 50.5 |
| 36.2 | |
Total with LTVs |
| 7,952 |
| 8,151 |
| 783 |
| — |
| 16,886 |
| 81 |
| 286 |
| 251 |
| 618 |
| 1.0 |
| 3.5 |
| 32.1 |
| 3.7 | |
Total portfolio average LTV |
| 45% | | 47% | | 93% | | — |
| 48% | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Other (5) |
| 1,776 |
| 511 |
| 159 |
| 707 |
| 3,153 |
| 6 |
| 40 |
| 93 |
| 139 |
| 0.3 |
| 7.8 |
| 58.5 |
| 5.7 | |
Development (6) |
| 1,362 |
| 1,767 |
| 161 |
| 30 |
| 3,320 |
| 15 |
| 58 |
| 70 |
| 143 |
| 1.1 |
| 3.3 |
| 43.5 |
| 4.3 | |
Total |
| 11,090 |
| 10,429 |
| 1,103 |
| 737 |
| 23,359 |
| 102 |
| 384 |
| 414 |
| 900 |
| 0.9 |
| 3.7 |
| 37.5 |
| 4.0 | |
Notes:
(1) | Comprises gross lending, interest rate hedging derivatives and other assets carried at fair value that are managed as part of the overall CRE portfolio. |
(2) | The exposure in Stage 3 mainly relates to legacy assets. |
(3) | Includes exposures relating to non-modelled portfolios and other exposures carried at fair value, including derivatives. |
(4) | ECL provisions coverage is ECL provisions divided by current exposure. |
(5) | Relates mainly to business banking, rate risk management products and unsecured corporate lending. |
(6) | Relates to the development of commercial and residential properties. LTV is not a meaningful measure for this type of lending activity. |
NatWest Group – Form 6-K Interim Results 2021 | 51 |
Risk and capital management
Credit risk – Banking activities continued
Key points
·Overall – The majority of the CRE portfolio was located and managed in the UK. Business appetite and strategy remained aligned across the segments.
·2021 trends – The reduction in the size of the portfolio was a consequence of active portfolio management to reduce the size and composition of the CRE portfolio as the economy recovers from the disruption associated with COVID-19. In addition, customer appetite to borrow was muted particularly amongst larger customers. At a sub sector level the Residential market has been resilient; the Retail sector has exhibited mixed performance in line with changing consumer habits; the Industrial market has performed strongly; with uncertainty continuing in the Office sub sector as occupiers move to a more flexible way of working, new business in the Office sub sector has been selective.
·Credit quality – Heightened Monitoring inflows by volume have been muted with overall CRE exposures on the Risk of Credit Loss Framework having reduced since the 2020 year end. NatWest Group entered the COVID-19 period with a conservatively positioned CRE portfolio, which has helped to mitigate the impact of COVID-19. However, in the Retail sub sector, structural change, which was already underway, has been exacerbated by COVID-19, and a number of defaulted loans were seen during 2020, mainly related to shopping centres, this trend has not however continued during H1 2021. Outside of Retail, there has been limited distress as noted, uncertainty still remains, particularly in relation to the Office sub sector and the portfolio continues to be actively reviewed and managed.
·Risk appetite – Lending appetite has been gradually and selectively increased by sub sector during 2021 albeit below pre-COVID-19 levels.
Flow statements
The flow statements that follow show the main ECL and related income statement movements. They also show the changes in ECL as well as the changes in related financial assets used in determining ECL. Due to differences in scope, exposures may differ from those reported in other tables, principally in relation to exposures in Stage 1 and Stage 2. These differences do not have a material ECL affect. 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 (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 debt sale activity.
·There were small ECL flows from Stage 3 to Stage 1. This does not, however, indicate that accounts returned from Stage 3 to Stage 1 directly. On a similar basis, there were flows from Stage 1 to Stage 3 including transfers due to unexpected default events. The small number of write-offs in Stage 1 and Stage 2 reflect the effect of portfolio debt sales and also staging at the start of the analysis period.
·The impact of any change in PMAs during the year is typically reported under changes in risk parameters, as are any impacts arising from changes to the underlying models Refer to the section on Governance and post model adjustments for further details.
·All movements are captured monthly and aggregated. Interest suspended post default is included within Stage 3 ECL with the movement in the value of suspended interest during the year reported under currency translation and other adjustments.
| | | | | | | | | | | | | | | | |
| | Stage 1 | | Stage 2 | | Stage 3 | | Total | ||||||||
| | Financial | | | | Financial | | | | Financial | | | | Financial | | |
| | assets | | ECL | | assets | | ECL | | assets | | ECL | | assets | | ECL |
NatWest Group total | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m |
At 1 January 2021 | | 446,666 | | 519 | | 81,667 | | 3,081 | | 6,524 | | 2,586 | | 534,857 | | 6,186 |
Currency translation and other adjustments |
| (3,369) |
| (2) |
| (302) |
| (12) |
| 67 |
| (52) |
| (3,604) |
| (66) |
Transfers from Stage 1 to Stage 2 |
| (21,925) |
| (104) |
| 21,925 |
| 104 |
| — |
| — |
| — |
| — |
Transfers from Stage 2 to Stage 1 |
| 36,688 |
| 712 |
| (36,688) |
| (712) |
| — |
| — |
| — |
| — |
Transfers to Stage 3 |
| (256) |
| (1) |
| (1,211) |
| (165) |
| 1,467 |
| 166 |
| — |
| — |
Transfers from Stage 3 |
| 155 |
| 13 |
| 654 |
| 107 |
| (809) |
| (120) |
| — |
| — |
Net re-measurement of ECL on stage transfer |
| |
| (585) |
| |
| 524 |
| |
| 154 |
| |
| 93 |
Changes in risk parameters (model inputs) |
| |
| (174) |
| |
| (345) |
| |
| 89 |
| |
| (430) |
Other changes in net exposure |
| 34,739 |
| 55 |
| (10,546) |
| (281) |
| (875) |
| (74) |
| 23,318 |
| (300) |
Other (P&L only items) |
| |
| 3 |
| |
| 2 |
| |
| (75) |
| |
| (70) |
Income statement (releases)/charges |
| |
| (701) |
| |
| (100) |
| |
| 94 |
| |
| (707) |
Amounts written-off |
| — |
| — |
| (1) |
| (1) |
| (516) |
| (516) |
| (517) |
| (517) |
Unwinding of discount |
| — |
| — |
| |
| |
| |
| (41) |
| |
| (41) |
At 30 June 2021 |
| 492,698 |
| 433 |
| 55,498 |
| 2,300 |
| 5,858 |
| 2,192 |
| 554,054 |
| 4,925 |
Net carrying amount |
| 492,265 |
| |
| 53,198 |
| |
| 3,666 |
| |
| 549,129 |
| |
At 1 January 2020 |
| 428,604 |
| 322 |
| 28,630 |
| 752 |
| 7,135 |
| 2,718 |
| 464,369 |
| 3,792 |
2020 movements |
| (16,119) |
| 147 |
| 72,132 |
| 2,273 |
| 257 |
| 142 |
| 56,270 |
| 2,562 |
At 30 June 2020 |
| 412,485 |
| 469 |
| 100,762 |
| 3,025 |
| 7,392 |
| 2,860 |
| 520,639 |
| 6,354 |
Net carrying amount |
| 412,016 |
| |
| 97,737 |
| |
| 4,532 |
| |
| 514,285 |
| |
| | | | | | | | | | | | | | | | |
NatWest Group – Form 6-K Interim Results 2021 | 52 |
Risk and capital management
Credit risk – Banking activities continued
Flow statements
| | | | | | | | | | �� | | | | | | |
| | Stage 1 | | Stage 2 | | Stage 3 | | Total | ||||||||
| | Financial | | | | Financial | | | | Financial | | | | Financial | | |
| | assets | | ECL | | assets | | ECL | | assets | | ECL | | assets | | ECL |
Retail Banking - mortgages | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m |
At 1 January 2021 |
| 132,390 |
| 23 |
| 28,079 |
| 227 |
| 1,291 |
| 236 |
| 161,760 |
| 486 |
Currency translation and other adjustments |
| — |
| — |
| — |
| — |
| 7 |
| 7 |
| 7 |
| 7 |
Transfers from Stage 1 to Stage 2 |
| (6,168) |
| (1) |
| 6,168 |
| 1 |
| — |
| — |
| — |
| — |
Transfers from Stage 2 to Stage 1 |
| 16,906 |
| 80 |
| (16,906) |
| (80) |
| — |
| — |
| — |
| — |
Transfers to Stage 3 |
| (9) |
| — |
| (337) |
| (13) |
| 346 |
| 13 |
| — |
| — |
Transfers from Stage 3 |
| 6 |
| — |
| 157 |
| 11 |
| (163) |
| (11) |
| — |
| — |
Net re-measurement of ECL on stage transfer |
| |
| (77) |
| |
| 64 |
| |
| 4 |
| |
| (9) |
Changes in risk parameters (model inputs) |
| |
| (6) |
| |
| (16) |
| |
| 27 |
| |
| 5 |
Other changes in net exposure |
| 6,180 |
| — |
| (1,592) |
| (14) |
| (126) |
| (8) |
| 4,462 |
| (22) |
Other (P&L only items) |
| — |
| — |
| |
| |
| |
| (13) |
| |
| (13) |
Income statement (releases)/charges |
| |
| (83) |
| |
| 34 |
| |
| 10 |
| |
| (39) |
Amounts written-off |
| — |
| — |
| — |
| — |
| (3) |
| (3) |
| (3) |
| (3) |
Unwinding of discount |
| — |
| — |
| |
| |
| |
| (15) |
| |
| (15) |
At 30 June 2021 |
| 149,305 |
| 19 |
| 15,569 |
| 180 |
| 1,352 |
| 250 |
| 166,226 |
| 449 |
Net carrying amount |
| 149,286 |
| |
| 15,389 |
| |
| 1,102 |
| |
| 165,777 |
| |
At 1 January 2020 |
| 135,625 |
| 12 |
| 10,283 |
| 86 |
| 1,289 |
| 215 |
| 147,197 |
| 313 |
2020 movements |
| (7,420) |
| 5 |
| 13,789 |
| 106 |
| 52 |
| 15 |
| 6,421 |
| 126 |
At 30 June 2020 |
| 128,205 |
| 17 |
| 24,072 |
| 192 |
| 1,341 |
| 230 |
| 153,618 |
| 439 |
Net carrying amount |
| 128,188 |
| |
| 23,880 |
| |
| 1,111 |
| |
| 153,179 |
| |
Key points
· | Despite the strong portfolio growth during H1 2021, ECL levels for mortgages reduced during the same period. The decrease in ECL was primarily a result of reduced PDs and LGDs reflecting the improved economic outlook and stable portfolio performance, resulting in lower levels of SICR identification and ECL requirement. |
· | More specifically, the reduced PDs alongside muted portfolio deterioration resulted in a net migration of assets from Stage 2 to Stage 1 with an associated decrease from lifetime ECL to a 12 month ECL. The updated economics at the 2020 year end also contributed to this migration back to Stage 1 once the PD persistence period had expired three months after the 2020 year end. |
· | With various customer support mechanisms available and the revised economic outlook, Stage 3 ECL remained stable as new inflows remaining subdued. The relatively small ECL cost for net re-measurement on stage transfer included the effect of risk targeted ECL adjustments when previously in Stage 2. Refer to the Governance and post model adjustments section for further details. |
· | Write-off occurs once the repossessed property has been sold and there is a residual shortfall balance remaining outstanding. This would typically be within five years from default but can be longer. Given the moratorium on repossession activity, write-offs remained at a subdued level. |
NatWest Group – Form 6-K Interim Results 2021 | 53 |
Risk and capital management
Credit risk – Banking activities continued
Flow statements
| | | | | | | | | | | | | | | | |
| | Stage 1 | | Stage 2 | | Stage 3 | | Total | ||||||||
|
| Financial |
|
|
| Financial |
|
|
| Financial |
|
|
| Financial |
|
|
| | assets | | ECL | | assets | | ECL | | assets | | ECL | | assets | | ECL |
Retail Banking - credit cards | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m |
At 1 January 2021 |
| 2,250 |
| 52 |
| 1,384 |
| 220 |
| 114 |
| 75 |
| 3,748 |
| 347 |
Currency translation and other adjustments |
| — |
| (1) |
| — |
| 2 |
| (1) |
| (1) |
| (1) |
| — |
Transfers from Stage 1 to Stage 2 |
| (460) |
| (25) |
| 460 |
| 25 |
| — |
| — |
| — |
| — |
Transfers from Stage 2 to Stage 1 |
| 565 |
| 70 |
| (565) |
| (70) |
| — |
| — |
| — |
| — |
Transfers to Stage 3 |
| (8) |
| — |
| (44) |
| (18) |
| 52 |
| 18 |
| — |
| — |
Transfers from Stage 3 |
| — |
| — |
| 4 |
| 2 |
| (4) |
| (2) |
| — |
| — |
Net re-measurement of ECL on stage transfer |
| |
| (43) |
| |
| 89 |
| |
| 15 |
| |
| 61 |
Changes in risk parameters (model inputs) |
| |
| (15) |
| |
| (33) |
| |
| 2 |
| |
| (46) |
Other changes in net exposure |
| (5) |
| 8 |
| (148) |
| (36) |
| (27) |
| (2) |
| (180) |
| (30) |
Other (P&L only items) |
| — |
| — |
| |
| |
| |
| (2) |
| |
| (2) |
Income statement (releases)/charges |
| |
| (50) |
| |
| 20 |
| |
| 13 |
| |
| (17) |
Amounts written-off |
| — |
| — |
| — |
| — |
| (45) |
| (45) |
| (45) |
| (45) |
Unwinding of discount |
| — |
| — |
| |
| |
| |
| (3) |
| |
| (3) |
At 30 June 2021 |
| 2,342 |
| 46 |
| 1,091 |
| 181 |
| 89 |
| 57 |
| 3,522 |
| 284 |
Net carrying amount |
| 2,296 |
| | | 910 |
| |
| 32 |
| |
| 3,238 |
| |
At 1 January 2020 |
| 2,804 |
| 38 |
| 1,246 |
| 131 |
| 127 |
| 88 |
| 4,177 |
| 257 |
2020 movements |
| (627) |
| 7 |
| 74 |
| 109 |
| — |
| (3) |
| (553) |
| 113 |
At 30 June 2020 |
| 2,177 |
| 45 |
| 1,320 |
| 240 |
| 127 |
| 85 |
| 3,624 |
| 370 |
Net carrying amount |
| 2,132 | | |
| 1,080 | | |
| 42 |
|
|
| 3,254 |
|
|
Key points
● | The overall decrease in ECL was mainly due to the reduction in Stage 2 ECL reflecting the improved economic outlook and stable portfolio performance, causing both PDs and LGDs to decrease and resulting in reduced levels of SICR identification and ECL requirement. |
● | More specifically, the reduced PDs alongside muted portfolio deterioration resulted in a net migration of assets from Stage 2 to Stage 1 with an associated decrease from lifetime ECL to a 12 month ECL. The updated economics at the 2020 year end also contributed to this migration back to Stage 1 once the PD persistence period had expired three months after 2020 year end. |
● | In line with industry trends in the UK, credit card balances reduced further during H1 2021, which has amplified the ECL reductions within the portfolio. This has stabilised as UK lockdown restrictions have eased and borrowing demand increased. |
● | With various customer support mechanisms available and the improved economic outlook, Stage 3 inflows have remained subdued and therefore Stage 3 ECL movement was minimal during H1 2021. |
● | Charge-off (analogous to partial write-off) typically occurs after 12 missed payments. |
NatWest Group – Form 6-K Interim Results 2021 | 54 |
Risk and capital management
Credit risk – Banking activities continued
Flow statements
| | | | | | | | | | | | | | | | |
| | Stage 1 | | Stage 2 | | Stage 3 | | Total | ||||||||
|
| Financial |
|
|
| Financial |
|
|
| Financial |
|
|
| Financial |
|
|
| | assets | | ECL | | assets | | ECL | | assets | | ECL | | assets | | ECL |
Retail Banking - other personal unsecured | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m |
At 1 January 2021 |
| 3,385 |
| 59 |
| 3,487 |
| 450 |
| 596 |
| 495 |
| 7,468 |
| 1,004 |
Currency translation and other adjustments |
| — |
| — |
| — |
| (1) |
| — |
| 2 |
| — |
| 1 |
Transfers from Stage 1 to Stage 2 |
| (876) |
| (21) |
| 876 |
| 21 |
| — |
| — |
| — |
| — |
Transfers from Stage 2 to Stage 1 |
| 1,109 |
| 75 |
| (1,109) |
| (75) |
| — |
| — |
| — |
| — |
Transfers to Stage 3 |
| (5) |
| — |
| (194) |
| (73) |
| 199 |
| 73 |
| — |
| — |
Transfers from Stage 3 |
| 3 |
| 4 |
| 57 |
| 35 |
| (60) |
| (39) |
| — |
| — |
Net re-measurement of ECL on stage transfer |
| |
| (58) |
| |
| 74 |
| |
| 53 |
| |
| 69 |
Changes in risk parameters (model inputs) |
| |
| (9) |
| |
| (38) |
| |
| 39 |
| |
| (8) |
Other changes in net exposure |
| 204 |
| 5 |
| (593) |
| (45) |
| (52) |
| (21) |
| (441) |
| (61) |
Other (P&L only items) |
| — |
| — |
| |
| |
| |
| (1) |
| |
| (1) |
Income statement (releases)/charges |
| |
| (62) |
| |
| (9) |
| |
| 70 |
| |
| (1) |
Amounts written-off |
| — |
| — |
| — |
| — |
| (90) |
| (90) |
| (90) |
| (90) |
Unwinding of discount |
| — |
| — |
| |
| |
| |
| (8) |
| |
| (8) |
At 30 June 2021 |
| 3,820 |
| 55 |
| 2,524 |
| 348 |
| 593 |
| 504 |
| 6,937 |
| 907 |
Net carrying amount |
| 3,765 |
| |
| 2,176 |
| |
| 89 |
| |
| 6,030 |
| |
At 1 January 2020 |
| 5,417 |
| 63 |
| 2,250 |
| 252 |
| 608 |
| 518 |
| 8,275 |
| 833 |
2020 movements |
| (1,272) |
| 30 |
| 942 |
| 217 |
| 94 |
| 68 |
| (236) |
| 315 |
At 30 June 2020 |
| 4,145 |
| 93 |
| 3,192 |
| 469 |
| 702 |
| 586 |
| 8,039 |
| 1,148 |
Net carrying amount |
| 4,052 | | |
| 2,723 | | |
| 116 |
|
|
| 6,891 |
|
|
Key points
● | The overall reduction in ECL was mainly due to the reduction in Stage 2 ECL reflecting the improved economic outlook and stable portfolio performance, causing both PDs and LGDs to decrease and resulting in reduced levels of SICR identification and ECL requirement. |
● | More specifically, the reduced PDs alongside muted portfolio deterioration resulted in a net migration of assets from Stage 2 to Stage 1 with an associated decrease from lifetime ECL to a 12 month ECL. The updated economics at the 2020 year end also contributed to this migration back to Stage 1 once the PD persistence period had expired three months after the 2020 year end. |
● | In line with industry trends in the UK, unsecured balances reduced further during H1 2021, which has amplified the ECL reductions within the portfolio. This has stabilised as UK lockdown restrictions have eased and borrowing demand increased. |
● | With various customer support mechanisms available and the improved economic outlook, Stage 3 inflows have remained subdued and therefore Stage 3 ECL movement was minimal during H1 2021. |
● | Write-off occurs once recovery activity with the customer has been concluded or there are no further recoveries expected, but no later than six years after default. |
NatWest Group – Form 6-K Interim Results 2021 | 55 |
Risk and capital management
Credit risk – Banking activities continued
Flow statements
| | | | | | | | | | | | | | | | |
| | Stage 1 | | Stage 2 | | Stage 3 | | Total | ||||||||
|
| Financial |
|
|
| Financial |
|
|
| Financial |
|
|
| Financial |
|
|
| | assets | | ECL | | assets | | ECL | | assets | | ECL | | assets | | ECL |
Commercial Banking - commercial real estate | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m |
At 1 January 2021 |
| 17,269 | | 90 | | 10,380 | | 364 | | 1,118 | | 428 | | 28,767 | | 882 |
Currency translation and other adjustments |
| (8) | | — | | (3) | | — | | (1) | | 3 | | (12) | | 3 |
Inter-group transfers |
| — | | — | | — | | — | | — | | — | | — | | — |
Transfers from Stage 1 to Stage 2 |
| (1,832) | | (15) | | 1,832 | | 15 | | — | | — | | — | | — |
Transfers from Stage 2 to Stage 1 |
| 5,366 | | 147 | | (5,366) | | (147) | | — | | — | | — | | — |
Transfers to Stage 3 |
| (6) | | — | | (95) | | (4) | | 101 | | 4 | | — | | — |
Transfers from Stage 3 |
| 5 | | — | | 74 | | 7 | | (79) | | (7) | | — | | — |
Net re-measurement of ECL on stage transfer |
| | | (109) | | | | 25 | | | | 5 | | | | (79) |
Changes in risk parameters (model inputs) |
| | | (65) | | — | | | | | | (36) | | | | (101) |
Other changes in net exposure |
| 356 | | 16 | | (1,654) | | (45) | | (175) | | (1) | | (1,473) | | (30) |
Other (P&L only items) |
| | | (1) | | | | 2 | | | | 1 | | | | 2 |
Income statement releases |
| | | (159) | | | | (18) | | | | (31) | | | | (208) |
Amounts written-off |
| — | | — | | — | | — | | (115) | | (115) | | (115) | | (115) |
Unwinding of discount |
| — | | — | | | | | | | | (2) | | | | (2) |
At 30 June 2021 |
| 21,150 | | 64 | | 5,168 | | 215 | | 849 | | 279 | | 27,167 | | 558 |
Net carrying amount |
| 21,086 | | | | 4,953 | | | | 570 | | | | 26,609 | | |
At 1 January 2020 |
| 25,556 |
| 31 |
| 2,218 |
| 28 |
| 895 |
| 306 |
| 28,669 |
| 365 |
2020 movements |
| (5,896) |
| 66 |
| 8,136 |
| 246 |
| 181 |
| 95 |
| 2,421 |
| 407 |
At 30 June 2020 |
| 19,660 |
| 97 |
| 10,354 |
| 274 |
| 1,076 |
| 401 |
| 31,090 |
| 772 |
Net carrying amount |
| 19,563 | | |
| 10,080 | | |
| 675 |
|
|
| 30,318 |
|
|
Key points
· | The decrease in ECL in Stage 1 and Stage 2 was primarily due to the improvement in the economic outlook. This resulted in a reduction in IFRS 9 PDs and a flow of exposure from Stage 2 to Stage 1. Total exposure reduced with repayment of existing debt and lower demand for new facilities following significant growth during 2020 driven by government support schemes. |
· | The migration of assets from Stage 2 to Stage 1 resulted in more assets attracting a 12 month ECL and release of lifetime ECL in Stage 2. |
· | Flows to Stage 3 during H1 2021 were low, as government support continued to mitigate against defaults in the Wholesale portfolio. Stage 3 ECL reduced in the period due to the write-off of previously defaulted debt which also resulted in an ECL release in the period. |
NatWest Group – Form 6-K Interim Results 2021 | 56 |
Risk and capital management
Credit risk – Banking activities continued
Flow statements
| | | | | | | | | | | | | | | | |
| | Stage 1 | | Stage 2 | | Stage 3 | | Total | ||||||||
|
| Financial |
|
|
| Financial |
|
|
| Financial |
|
|
| Financial |
|
|
| | assets | | ECL | | assets | | ECL | | assets | | ECL | | assets | | ECL |
Commercial Banking - business banking | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m |
At 1 January 2021 |
| 12,122 | | 41 | | 2,184 | | 145 | | 250 | | 173 | | 14,556 | | 359 |
Currency translation and other adjustments | | — | | — | | — | | — | | (7) | | (5) | | (7) | | (5) |
Transfers from Stage 1 to Stage 2 |
| (2,250) | | (9) | | 2,250 | | 9 | | — | | — | | — | | — |
Transfers from Stage 2 to Stage 1 |
| 1,200 | | 60 | | (1,200) | | (60) | | — | | — | | — | | — |
Transfers to Stage 3 |
| (46) | | — | | (79) | | (16) | | 125 | | 16 | | — | | — |
Transfers from Stage 3 |
| 6 | | 1 | | 15 | | 4 | | (21) | | (5) | | — | | — |
Net re-measurement of ECL on stage transfer |
| | | (57) | | | | 119 | | | | 10 | | | | 72 |
Changes in risk parameters (model inputs) |
| | | (4) | | | | (46) | | | | 3 | | | | (47) |
Other changes in net exposure |
| 710 | | (3) | | (199) | | (13) | | (19) | | (2) | | 492 | | (18) |
Other (P&L only items) |
| — | | | | | | 1 | | | | (17) | | | | (16) |
Income statement (releases)/charges |
| | | (64) | | | | 61 | | | | (6) | | | | (9) |
Amounts written-off |
| — | | — | | — | | — | | (21) | | (21) | | (21) | | (21) |
Unwinding of discount |
| — | | — | | | | | | | | (3) | | | | (3) |
At 30 June 2021 |
| 11,742 | | 29 | | 2,971 | | 142 | | 307 | | 166 | | 15,020 | | 337 |
Net carrying amount |
| 11,713 | | | | 2,829 | | | | 141 | | | | 14,683 | | |
At 1 January 2020 |
| 6,338 |
| 28 |
| 767 |
| 45 |
| 257 |
| 200 |
| 7,362 |
| 273 |
2020 movements |
| 2,862 |
| 4 |
| 832 |
| 53 |
| (5) |
| (10) |
| 3,689 |
| 47 |
At 30 June 2020 |
| 9,200 |
| 32 |
| 1,599 |
| 98 |
| 252 |
| 190 |
| 11,051 |
| 320 |
Net carrying amount |
| 9,168 |
|
|
| 1,501 |
|
|
| 62 |
|
|
| 10,731 |
|
|
Key points
· | Total ECL reduced marginally during H1 2021 primarily due to the improvement in the economic outlook, causing both PDs and LGDs to decrease. The increase in Stage 2 loans was mainly due to an appropriately conservative approach to government support scheme exposure as customers reached the end of the initial payment holiday period. Due to the guarantees in place, related ECL did not see a proportionate increase. |
· | Flows of defaulted exposure into Stage 3 remained suppressed reflecting the various government customer support mechanisms available, with ECL reducing during H1 2021. |
· | The portfolio continued to benefit from cash recoveries post write-off, which are reported as other (P&L only items). Write-off occurs once recovery activity with the customer has been concluded or there are no further recoveries expected, but no later than five years after default. |
NatWest Group – Form 6-K Interim Results 2021 | 57 |
Risk and capital management
Credit risk – Banking activities continued
Flow statements
| | | | | | | | | | | | | | | | |
| | Stage 1 | | Stage 2 | | Stage 3 | | Total | ||||||||
|
| Financial |
|
|
| Financial |
|
|
| Financial |
|
|
| Financial |
|
|
| | assets | | ECL | | assets | | ECL | | assets | | ECL | | assets | | ECL |
Commercial Banking - other | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m |
At 1 January 2021 |
| 39,279 | | 139 | | 25,981 | | 1,204 | | 1,249 | | 468 | | 66,509 | | 1,811 |
Currency translation and other adjustments |
| (257) | | 1 | | (88) | | — | | 76 | | 3 | | (269) | | 4 |
Inter-group transfers |
| — | | — | | — | | — | | — | | — | | — | | — |
Transfers from Stage 1 to Stage 2 |
| (4,447) | | (21) | | 4,447 | | 21 | | — | | — | | — | | — |
Transfers from Stage 2 to Stage 1 |
| 6,076 | | 174 | | (6,076) | | (174) | | — | | — | | — | | — |
Transfers to Stage 3 |
| (43) | | — | | (343) | | (29) | | 386 | | 29 | | — | | — |
Transfers from Stage 3 |
| 19 | | 5 | | 190 | | 27 | | (209) | | (32) | | — | | — |
Net re-measurement of ECL on stage transfer |
| | | (152) | | | | 98 | | | | 60 | | | | 6 |
Changes in risk parameters (model inputs) |
| | | (51) | | | | (173) | | | | (15) | | | | (239) |
Other changes in net exposure |
| 300 | | 20 | | (3,372) | | (109) | | (249) | | (22) | | (3,321) | | (111) |
Other (P&L only items) |
| | | 1 | | — | | | | | | (8) | | | | (7) |
Income statement (releases)/charges |
| | | (182) | | | | (184) | | | | 15 | | | | (351) |
Amounts written-off |
| — | | — | | — | | — | | (121) | | (121) | | (121) | | (121) |
Unwinding of discount |
| — | | — | | | | | | | | (3) | | | | (3) |
At 30 June 2021 |
| 40,927 | | 115 | | 20,739 | | 865 | | 1,132 | | 367 | | 62,798 | | 1,347 |
Net carrying amount |
| 40,812 | | | | 19,874 | | | | 765 | | | | 61,451 | | |
At 1 January 2020 |
| 53,722 |
| 94 |
| 8,788 |
| 143 |
| 1,386 |
| 516 |
| 63,896 |
| 753 |
2020 movements |
| (32,838) |
| (7) |
| 39,333 |
| 1,200 |
| 202 |
| 83 |
| 6,697 |
| 1,276 |
At 30 June 2020 |
| 20,884 |
| 87 |
| 48,121 |
| 1,343 |
| 1,588 |
| 599 |
| 70,593 |
| 2,029 |
Net carrying amount |
| 20,797 |
|
|
| 46,778 |
|
|
| 989 |
|
|
| 68,564 |
|
|
Key points
· | The decrease in ECL in Stage 1 and Stage 2 was primarily due to the improvement in the economic outlook and the change in scenario weightings. Underlying PD’s and LGDs improved as a result. The updated economics resulted in the migration of assets from Stage 2 to Stage 1 with a consequential reduction in Stage 2 lifetime ECL. |
· | Changes in net exposure reduced in Stage 1 and 2 with repayment of existing debt which was not fully replaced by new lending in the period due to muted demand. |
· | Flows to Stage 3 remained suppressed reflecting the various government customer support mechanisms. Stage 3 assets and ECL reduced in the period due to the write-off of previously defaulted debt |
NatWest Group – Form 6-K Interim Results 2021 | 58 |
Risk and capital management
Credit risk – Banking activities continued
Flow statements
| | | | | | | | | | | | | | | | |
| | Stage 1 | | Stage 2 | | Stage 3 | | Total | ||||||||
|
| Financial |
|
|
| Financial |
|
|
| Financial |
|
|
| Financial |
|
|
| | assets | | ECL | | assets | | ECL | | assets | | ECL | | assets | | ECL |
NatWest Markets (1) | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m |
At 1 January 2021 |
| 33,327 | | 12 | | 1,671 | | 49 | | 168 | | 132 | | 35,166 | | 193 |
Currency translation and other adjustments |
| (700) | | — | | (36) | | — | | (3) | | (1) | | (739) | | (1) |
Inter-group transfers |
| (3) | | — | | — | | — | | — | | — | | (3) | | — |
Transfers from Stage 1 to Stage 2 |
| (484) | | (1) | | 484 | | 1 | | — | | — | | — | | — |
Transfers from Stage 2 to Stage 1 | | 1,150 | | 7 | | (1,150) | | (7) | | — | | — | | — | | — |
Transfers to Stage 3 |
| — | | — | | — | | — | | — | | — | | — | | — |
Net re-measurement of ECL on stage transfer |
| | | (5) | | | | 3 | | | | — | | | | (2) |
Changes in risk parameters (model inputs) |
| | | (3) | | | | (8) | | | | (1) | | | | (12) |
Other changes in net exposure |
| (1,978) | | — | | (226) | | (2) | | (23) | | (2) | | (2,227) | | (4) |
Other (P&L only items) |
| — | | | | | | 2 | | — | | | | | | 2 |
Income statement (releases)/charges |
| | | (8) | | | | (5) | | | | (3) | | | | (16) |
Amounts written-off |
| — | | — | | — | | — | | (40) | | (40) | | (40) | | (40) |
Unwinding of discount |
| — | | — | | — | | — | | | | | | | | |
At 30 June 2021 |
| 31,312 | | 10 | | 743 | | 36 | | 102 | | 88 | | 32,157 | | 134 |
Net carrying amount |
| 31,302 |
| |
| 707 |
| |
| 14 |
| |
| 32,023 |
| |
At 1 January 2020 |
| 32,892 |
| 10 |
| 188 |
| 5 |
| 183 |
| 131 |
| 33,263 |
| 146 |
2020 movements |
| 5,355 |
| 8 |
| 2,609 |
| 48 |
| (1) |
| 5 |
| 7,963 |
| 61 |
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 |
|
|
Note:
(1) | Reflects the NatWest Markets segment and includes NWM N.V.. |
Key points
· | The decrease in Stage 1 and Stage 2 ECL was primarily due to the improvement in economic forecasts |
· | The updated economics resulted in the migration of assets from Stage 2 to Stage 1 with a consequential reduction in Stage 2 lifetime ECL. |
· | Amounts written-off in the period largely related to a small number of legacy defaulted exposures. |
NatWest Group – Form 6-K Interim Results 2021 | 59 |
Risk and capital management
Credit risk – Banking activities continued
Flow statements
| | | | | | | | | | | | | | | | |
| | Stage 1 | | Stage 2 | | Stage 3 | | Total | ||||||||
|
| Financial |
|
|
| Financial |
|
|
| Financial |
|
|
| Financial |
|
|
| | assets | | ECL | | assets | | ECL | | assets | | ECL | | assets | | ECL |
Ulster Bank RoI - mortgages | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m |
At 1 January 2021 |
| 10,919 |
| 27 |
| 1,682 |
| 91 |
| 1,061 |
| 381 |
| 13,662 |
| 499 |
Currency translation and other adjustments |
| (489) |
| (1) |
| (71) |
| (4) |
| (44) |
| (37) |
| (604) |
| (42) |
Transfers from Stage 1 to Stage 2 |
| (473) |
| (1) |
| 473 |
| 1 |
| — |
| — |
| — |
| — |
Transfers from Stage 2 to Stage 1 |
| 827 |
| 34 |
| (827) |
| (34) |
| — |
| — |
| — |
| — |
Transfers to Stage 3 |
| (2) |
| — |
| (43) |
| (5) |
| 45 |
| 5 |
| — |
| — |
Transfers from Stage 3 |
| 13 |
| — |
| 136 |
| 19 |
| (149) |
| (19) |
| — |
| — |
Net re-measurement of ECL on stage transfer |
| |
| (31) |
| |
| 8 |
| |
| 4 |
| |
| (19) |
Changes in risk parameters (model inputs) |
| |
| (4) |
| |
| (6) |
| |
| 33 |
| |
| 23 |
Other changes in net exposure |
| (147) |
| (1) |
| (73) |
| — |
| (81) |
| (2) |
| (301) |
| (3) |
Other (P&L only items) |
| — |
| |
| |
| (1) |
| |
| (13) |
| |
| (14) |
Income statement (releases)/charges |
| |
| (36) |
| |
| 1 |
| |
| 22 |
| |
| (13) |
Amounts written-off |
| — |
| — |
| (1) |
| (1) |
| (68) |
| (68) |
| (69) |
| (69) |
Unwinding of discount |
| — |
| — |
| |
| |
| |
| (5) |
| |
| (5) |
At 30 June 2021 |
| 10,648 |
| 23 |
| 1,276 |
| 69 |
| 764 |
| 292 |
| 12,688 |
| 384 |
Net carrying amount |
| 10,625 |
| |
| 1,207 |
| |
| 472 |
| |
| 12,304 |
| |
At 1 January 2020 |
| 10,603 |
| 11 |
| 1,084 |
| 30 |
| 1,875 |
| 581 |
| 13,562 |
| 622 |
2020 movements |
| (238) |
| 5 |
| 1,134 |
| 68 |
| (500) |
| (124) |
| 396 |
| (51) |
At 30 June 2020 |
| 10,365 |
| 16 |
| 2,218 |
| 98 |
| 1,375 |
| 457 |
| 13,958 |
| 571 |
Net carrying amount |
| 10,349 | | |
| 2,120 | | |
| 918 |
|
|
| 13,387 |
|
|
Key points
● | The decrease in ECL reflected ongoing deleveraging of the non-performing mortgage portfolio through the execution of the final tranche of a 2019 debt sale. |
● | Updated economics resulted in a net migration of assets from Stage 2 to Stage 1. |
● | Write-off generally occurs once the repossessed property has been sold and there is a residual shortfall balance remaining outstanding or when the loan is sold to a third party. |
NatWest Group – Form 6-K Interim Results 2021 | 60 |
Risk and capital management
Credit risk – Banking activities continued
Stage 2 decomposition by a significant increase in credit risk trigger
| | | | | | | | | | | | | | | | | | | | |
| | UK mortgages | | RoI mortgages | | Credit cards | | Other | | Total | ||||||||||
30 June 2021 |
| £m |
| % |
| £m |
| % |
| £m |
| % |
| £m |
| % |
| £m |
| % |
Personal trigger (1) |
| | | | | | | | | | | | | | | | | | | |
PD movement |
| 3,412 |
| 22.0 | | 185 | | 14.6 | | 583 | | 53.8 | | 1,520 | | 58.9 | | 5,700 | | 27.9 |
PD persistence |
| 6,458 |
| 41.8 | | 55 | | 4.3 | | 404 | | 37.3 | | 842 | | 32.6 | | 7,759 | | 38.0 |
Adverse credit bureau recorded |
| | | | | | | | | | | | | | | | | | | |
with credit reference agency |
| 3,449 |
| 22.3 | | — | | — | | 54 | | 5.0 | | 60 | | 2.3 | | 3,563 | | 17.5 |
Forbearance support provided |
| 147 |
| 0.9 | | 12 | | 0.9 | | 1 | | 0.1 | | 22 | | 0.9 | | 182 | | 0.9 |
Customers in collections |
| 50 |
| 0.3 | | 44 | | 3.5 | | 4 | | 0.4 | | 9 | | 0.3 | | 107 | | 0.5 |
Collective SICR and other reasons (2) |
| 1,877 |
| 12.1 | | 970 | | 76.5 | | 37 | | 3.4 | | 121 | | 4.7 | | 3,005 | | 14.7 |
Days past due >30 |
| 89 |
| 0.6 | | 2 | | 0.2 | | — | | — | | 7 | | 0.3 | | 98 | | 0.5 |
| | 15,482 | | 100 | | 1,268 | | 100 | | 1,083 | | 100 | | 2,581 | | 100 | | 20,414 | | 100 |
31 December 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal trigger (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PD movement |
| 13,520 |
| 48.4 |
| 751 |
| 45.0 |
| 911 |
| 66.2 |
| 2,310 |
| 67.8 |
| 17,492 |
| 51.0 |
PD persistence |
| 9,977 |
| 35.8 |
| 46 |
| 2.8 |
| 350 |
| 25.5 |
| 968 |
| 28.4 |
| 11,341 |
| 33.0 |
Adverse credit bureau recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
with credit reference agency |
| 2,936 |
| 10.5 |
| — |
| — |
| 51 |
| 3.7 |
| 46 |
| 1.4 |
| 3,033 |
| 8.8 |
Forbearance support provided |
| 138 |
| 0.5 |
| 7 |
| 0.4 |
| 1 |
| 0.1 |
| 9 |
| 0.3 |
| 155 |
| 0.5 |
Customers in collections |
| 131 |
| 0.5 |
| 30 |
| 1.8 |
| 2 |
| 0.1 |
| 14 |
| 0.4 |
| 177 |
| 0.5 |
Collective SICR and other reasons (2) |
| 1,165 |
| 4.2 |
| 832 |
| 49.9 |
| 60 |
| 4.4 |
| 55 |
| 1.6 |
| 2,112 |
| 6.1 |
Days past due >30 |
| 36 |
| 0.1 |
| 2 |
| 0.1 |
| — |
| — |
| 4 |
| 0.1 |
| 42 |
| 0.1 |
|
| 27,903 |
| 100 |
| 1,668 |
| 100 |
| 1,375 |
| 100 |
| 3,406 |
| 100 |
| 34,352 |
| 100 |
For the notes to the table refer to the following page.
Key points
● | The improved economic outlook, including a more optimistic forecast for unemployment, resulted in decreased account level IFRS 9 PDs. Consequently, compared to the 2020 year end, a smaller proportion of accounts exhibited PD deterioration at H1 2021. |
● | Since the 2020 year end, large populations of Stage 2 have been migrated to Stage 1, reflecting the PD persistence roll-off three months after the PD reductions at the end of 2020. Furthermore, continued reductions in PDs as a result of stable portfolio performance during H1 2021, have supported the Stage 2 reductions. |
● | In the absence of PD deterioration or other backstop SICR triggers, the granting of a COVID-19 related payment holiday did not automatically result in a migration to Stage 2. |
● | However, a subset of customers who had accessed payment holiday support, and where their risk profile was identified as relatively high risk, were collectively migrated to Stage 2. In Retail Banking (primarily on mortgages), approximately £1.6 billion of exposures were collectively migrated from Stage 1 to Stage 2, and approximately £0.4 million in Ulster Bank RoI mortgages. The effect of collective migrations on unsecured lending was much more limited. |
● | PD persistence made up a larger proportion of Stage 2 for UK mortgages than at the 2020 year end, supporting the use of the collective SICR migration approach described above. |
● | As expected, ECL coverage was higher in accounts that were more than 30 days past due than those in Stage 2 for other reasons. |
NatWest Group – Form 6-K Interim Results 2021 | 61 |
Risk and capital management
Credit risk – Banking activities continued
Stage 2 decomposition by a significant increase in credit risk trigger
| | | | | | | | | | | | | | | | | | | | |
| | Property | | Corporate | | FI | | Other | | Total | ||||||||||
|
| Loans |
| ECL |
| Loans |
| ECL |
| Loans |
| ECL |
| Loans |
| ECL |
| Loans |
| ECL |
30 June 2021 | | £m | | % | | £m | | % | | £m | | % | | £m | | % | | £m | | % |
Wholesale trigger (1) |
| | | | | | | | | | | | | | | | | | | |
PD movement |
| 4,619 |
| 68.1 |
| 17,782 |
| 75.8 |
| 2,246 |
| 95.2 |
| 89 |
| 58.1 |
| 24,736 |
| 75.4 |
PD persistence |
| 278 |
| 4.1 |
| 1,122 |
| 4.8 |
| 10 |
| 0.4 |
| 2 |
| 1.3 |
| 1,412 |
| 4.3 |
Risk of Credit Loss |
| 651 |
| 9.6 |
| 2,493 |
| 10.6 |
| 53 |
| 2.2 |
| 56 |
| 36.6 |
| 3,253 |
| 9.9 |
Forbearance support provided |
| 93 |
| 1.4 |
| 288 |
| 1.2 |
| 5 |
| 0.2 |
| — |
| — |
| 386 |
| 1.2 |
Customers in collections |
| 20 |
| 0.3 |
| 63 |
| 0.3 |
| — |
| — |
| — |
| — |
| 83 |
| 0.3 |
Collective SICR and other reasons (2) |
| 908 |
| 13.4 |
| 1,677 |
| 7.1 |
| 35 |
| 1.5 |
| 5 |
| 3.3 |
| 2,625 |
| 8.0 |
Days past due >30 |
| 213 |
| 3.1 |
| 53 |
| 0.2 |
| 12 |
| 0.5 |
| 1 |
| 0.7 |
| 279 |
| 0.9 |
| | 6,782 | | 100 | | 23,478 | | 100 | | 2,361 | | 100 | | 153 | | 100 | | 32,774 | | 100 |
31 December 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale trigger (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PD movement |
| 11,849 |
| 91.1 |
| 23,403 |
| 84.3 |
| 3,183 |
| 87.9 |
| 97 |
| 47.6 |
| 38,532 |
| 86.6 |
PD persistence |
| 162 |
| 1.2 |
| 624 |
| 2.3 |
| 7 |
| 0.2 |
| — |
| — |
| 793 |
| 1.8 |
Risk of Credit Loss |
| 394 |
| 3.0 |
| 2,106 |
| 7.6 |
| 66 |
| 1.8 |
| 39 |
| 19.1 |
| 2,605 |
| 5.8 |
Forbearance support provided |
| 73 |
| 0.6 |
| 133 |
| 0.5 |
| 27 |
| 0.7 |
| — |
| — |
| 233 |
| 0.5 |
Customers in collections |
| 30 |
| 0.2 |
| 115 |
| 0.4 |
| 1 |
| — |
| — |
| — |
| 146 |
| 0.3 |
Collective SICR and other reasons (2) |
| 462 |
| 3.5 |
| 1,262 |
| 4.6 |
| 231 |
| 6.4 |
| 68 |
| 33.3 |
| 2,023 |
| 4.5 |
Days past due >30 |
| 51 |
| 0.4 |
| 73 |
| 0.3 |
| 109 |
| 3.0 |
| — |
| — |
| 233 |
| 0.5 |
|
| 13,021 |
| 100 |
| 27,716 |
| 100 |
| 3,624 |
| 100 |
| 204 |
| 100 |
| 44,565 |
| 100 |
Notes:
(1) | The table is prepared on a hierarchical basis from top to bottom, for example, accounts with PD deterioration may also trigger backstop(s) but are only reported under PD deterioration. |
(2) | Includes customers where a PD assessment cannot be undertaken due to missing PDs. |
Key points
·The improved economic outlook, including improvement in forecasts of GDP and UK property price indices, resulted in a reduction in IFRS 9 PDs. Consequently, compared to 2020, a smaller proportion of exposures exhibited a SICR which resulted in a reduction in Stage 2 exposures. The decrease in Stage 2 was larger in Property, which saw a relatively higher increase during 2020 following the onset of COVID-19.
· | PD deterioration remained the primary trigger for identifying a SICR and Stage 2 treatment. |
● | Use of COVID-19 relief mechanisms did not automatically merit identification of SICR and trigger a Stage 2 classification in isolation (refer to Treatment of COVID-19 relief mechanisms for further details). |
● | In Ulster Bank RoI, £0.4 billion of exposures relating to small and medium size enterprises were collectively migrated from Stage 1 to Stage 2 reflective of the elevated risk for this sector. |
NatWest Group – Form 6-K Interim Results 2021 | 62 |
Risk and capital management
Credit risk – Banking activities continued
Asset quality
The table below shows asset quality bands of gross loans and ECL, by stage, for the Personal portfolio.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Gross loans | | ECL provisions | | ECL provisions coverage | ||||||||||||||||||
|
| Stage 1 |
| Stage 2 |
| Stage 3 |
| Total |
| Stage 1 |
| Stage 2 |
| Stage 3 |
| Total |
| Stage 1 |
| Stage 2 |
| Stage 3 |
| Total |
30 June 2021 | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | % | | % | | % | | % |
UK mortgages |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
AQ1-AQ4 |
| 118,191 |
| 6,163 |
| — |
| 124,354 |
| 7 |
| 64 |
| — |
| 71 |
| 0.01 |
| 1.04 |
| — |
| 0.06 |
AQ5-AQ8 |
| 48,554 |
| 8,543 |
| — |
| 57,097 |
| 13 |
| 94 |
| — |
| 107 |
| 0.03 |
| 1.10 |
| — |
| 0.19 |
AQ9 |
| 251 |
| 776 |
| — |
| 1,027 |
| — |
| 22 |
| — |
| 22 |
| — |
| 2.84 |
| — |
| 2.14 |
AQ10 |
| — |
| - |
| 1,568 |
| 1,568 |
| — |
| — |
| 269 |
| 269 |
| — |
| — |
| 17.16 |
| 17.16 |
| | 166,996 |
| 15,482 |
| 1,568 |
| 184,046 |
| 20 |
| 180 |
| 269 |
| 469 |
| 0.01 |
| 1.16 |
| 17.16 |
| 0.25 |
RoI mortgages | | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
AQ1-AQ4 |
| 8,134 |
| 615 |
| — |
| 8,749 |
| 17 |
| 31 |
| — |
| 48 |
| 0.21 |
| 5.04 |
| — |
| 0.55 |
AQ5-AQ8 |
| 2,492 |
| 371 |
| — |
| 2,863 |
| 6 |
| 22 |
| — |
| 28 |
| 0.24 |
| 5.93 |
| — |
| 0.98 |
AQ9 |
| 8 |
| 282 |
| — |
| 290 |
| — |
| 16 |
| — |
| 16 |
| — |
| 5.67 |
| — |
| 5.52 |
AQ10 |
| — |
| — |
| 760 |
| 760 |
| — |
| — |
| 292 |
| 292 |
| — |
| — |
| 38.42 |
| 38.42 |
|
| 10,634 | | 1,268 | | 760 | | 12,662 | | 23 | | 69 | | 292 | | 384 | | 0.22 | | 5.44 | | 38.42 | | 3.03 |
Credit cards | | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
AQ1-AQ4 |
| 25 |
| 9 |
| — |
| 34 |
| 1 |
| 2 |
| — |
| 3 |
| 4.00 |
| 22.22 |
| — |
| 8.82 |
AQ5-AQ8 |
| 2,532 |
| 1,040 |
| — |
| 3,572 |
| 46 |
| 169 |
| — |
| 215 |
| 1.82 |
| 16.25 |
| — |
| 6.02 |
AQ9 |
| 5 |
| 34 |
| — |
| 39 |
| — |
| 12 |
| — |
| 12 |
| — |
| 35.29 |
| — |
| 30.77 |
AQ10 |
| — |
| — |
| 82 |
| 82 |
| — |
| — |
| 59 |
| 59 |
| — |
| — |
| 71.95 |
| 71.95 |
|
| 2,562 | | 1,083 | | 82 | | 3,727 | | 47 | | 183 | | 59 | | 289 | | 1.83 | | 16.90 | | 71.95 | | 7.75 |
Other Personal | | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
AQ1-AQ4 |
| 1,035 |
| 105 |
| — |
| 1,140 |
| 8 |
| 25 |
| — |
| 33 |
| 0.77 |
| 23.81 |
| — |
| 2.89 |
AQ5-AQ8 |
| 4,997 |
| 2,301 |
| — |
| 7,298 |
| 53 |
| 279 |
| — |
| 332 |
| 1.06 |
| 12.13 |
| — |
| 4.55 |
AQ9 |
| 32 |
| 175 |
| — |
| 207 |
| 1 |
| 50 |
| — |
| 51 |
| 3.13 |
| 28.57 |
| — |
| 24.64 |
AQ10 |
| — |
| — |
| 619 |
| 619 |
| — |
| — |
| 521 |
| 521 |
| — |
| — |
| 84.17 |
| 84.17 |
|
| 6,064 | | 2,581 | | 619 | | 9,264 | | 62 | | 354 | | 521 | | 937 | | 1.02 | | 13.72 | | 84.17 | | 10.11 |
Total | | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
AQ1-AQ4 |
| 127,385 |
| 6,892 |
| — |
| 134,277 |
| 33 |
| 122 |
| — |
| 155 |
| 0.03 |
| 1.77 |
| — |
| 0.12 |
AQ5-AQ8 |
| 58,575 |
| 12,255 |
| — |
| 70,830 |
| 118 |
| 564 |
| — |
| 682 |
| 0.20 |
| 4.60 |
| — |
| 0.96 |
AQ9 |
| 296 |
| 1,267 |
| — |
| 1,563 |
| 1 |
| 100 |
| — |
| 101 |
| 0.34 |
| 7.89 |
| — |
| 6.46 |
AQ10 |
| — |
| — |
| 3,029 |
| 3,029 |
| — |
| — |
| 1,141 |
| 1,141 |
| — |
| — |
| 37.67 |
| 37.67 |
|
| 186,256 | | 20,414 | | 3,029 | | 209,699 | | 152 | | 786 | | 1,141 | | 2,079 | | 0.08 | | 3.85 | | 37.67 | | 0.99 |
NatWest Group – Form 6-K Interim Results 2021 | 63 |
Risk and capital management
Credit risk – Banking activities continued
Asset quality
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Gross loans | | ECL provisions | | ECL provisions coverage | ||||||||||||||||||
|
| Stage 1 |
| Stage 2 |
| Stage 3 |
| Total |
| Stage 1 |
| Stage 2 |
| Stage 3 |
| Total |
| Stage 1 |
| Stage 2 |
| Stage 3 |
| Total |
31 December 2020 | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | % | | % | | % | | % |
UK mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
| 108,869 |
| 6,634 |
| — |
| 115,503 |
| 10 |
| 33 |
| — |
| 43 |
| 0.01 |
| 0.50 |
| — |
| 0.04 |
AQ5-AQ8 |
| 38,347 |
| 20,254 |
| — |
| 58,601 |
| 14 |
| 146 |
| — |
| 160 |
| 0.04 |
| 0.72 |
| — |
| 0.27 |
AQ9 |
| 240 |
| 1,015 |
| — |
| 1,255 |
| — |
| 49 |
| — |
| 49 |
| — |
| 4.83 |
| — |
| 3.90 |
AQ10 |
| — |
| — |
| 1,507 |
| 1,507 |
| — |
| — |
| 254 |
| 254 |
| — |
| — |
| 16.85 |
| 16.85 |
|
| 147,456 |
| 27,903 |
| 1,507 |
| 176,866 |
| 24 |
| 228 |
| 254 |
| 506 |
| 0.02 |
| 0.82 |
| 16.85 |
| 0.29 |
RoI mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
| 8,247 |
| 777 |
| — |
| 9,024 |
| 20 |
| 38 |
| — |
| 58 |
| 0.24 |
| 4.89 |
| — |
| 0.64 |
AQ5-AQ8 |
| 2,677 |
| 560 |
| — |
| 3,237 |
| 7 |
| 34 |
| — |
| 41 |
| 0.26 |
| 6.07 |
| — |
| 1.27 |
AQ9 |
| 7 |
| 331 |
| — |
| 338 |
| — |
| 19 |
| — |
| 19 |
| — |
| 5.74 |
| — |
| 5.62 |
AQ10 |
| — |
| — |
| 1,051 |
| 1,051 |
| — |
| — |
| 381 |
| 381 |
| — |
| — |
| 36.25 |
| 36.25 |
|
| 10,931 |
| 1,668 |
| 1,051 |
| 13,650 |
| 27 |
| 91 |
| 381 |
| 499 |
| 0.25 |
| 5.46 |
| 36.25 |
| 3.66 |
Credit cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
| 23 |
| 4 |
| — |
| 27 |
| 1 |
| 2 |
| — |
| 3 |
| 4.35 |
| 50.00 |
| — |
| 11.11 |
AQ5-AQ8 |
| 2,384 |
| 1,329 |
| — |
| 3,713 |
| 52 |
| 208 |
| — |
| 260 |
| 2.18 |
| 15.65 |
| — |
| 7.00 |
AQ9 |
| 4 |
| 42 |
| — |
| 46 |
| — |
| 15 |
| — |
| 15 |
| — |
| 35.71 |
| — |
| 32.61 |
AQ10 |
| — |
| — |
| 109 |
| 109 |
| — |
| — |
| 76 |
| 76 |
| — |
| — |
| 69.72 |
| 69.72 |
|
| 2,411 |
| 1,375 |
| 109 |
| 3,895 |
| 53 |
| 225 |
| 76 |
| 354 |
| 2.20 |
| 16.36 |
| 69.72 |
| 9.09 |
Other Personal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
| 1,234 |
| 59 |
| — |
| 1,293 |
| 8 |
| 9 |
| — |
| 17 |
| 0.65 |
| 15.25 |
| — |
| 1.31 |
AQ5-AQ8 |
| 4,461 |
| 3,020 |
| — |
| 7,481 |
| 58 |
| 336 |
| — |
| 394 |
| 1.30 |
| 11.13 |
| — |
| 5.27 |
AQ9 |
| 55 |
| 327 |
| — |
| 382 |
| 1 |
| 107 |
| — |
| 108 |
| 1.82 |
| 32.72 |
| — |
| 28.27 |
AQ10 |
| — |
| — |
| 621 |
| 621 |
| — |
| — |
| 517 |
| 517 |
| — |
| — |
| 83.25 |
| 83.25 |
|
| 5,750 |
| 3,406 |
| 621 |
| 9,777 |
| 67 |
| 452 |
| 517 |
| 1,036 |
| 1.17 |
| 13.27 |
| 83.25 |
| 10.6 |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
| 118,373 |
| 7,474 |
| — |
| 125,847 |
| 39 |
| 82 |
| — |
| 121 |
| 0.03 |
| 1.1 |
| — |
| 0.10 |
AQ5-AQ8 |
| 47,869 |
| 25,163 |
| — |
| 73,032 |
| 131 |
| 724 |
| — |
| 855 |
| 0.27 |
| 2.88 |
| — |
| 1.17 |
AQ9 |
| 306 |
| 1,715 |
| — |
| 2,021 |
| 1 |
| 190 |
| — |
| 191 |
| 0.33 |
| 11.08 |
| — |
| 9.45 |
AQ10 |
| — |
| — |
| 3,288 |
| 3,288 |
| — |
| — |
| 1,228 |
| 1,228 |
| — |
| — |
| 37.35 |
| 37.35 |
|
| 166,548 |
| 34,352 |
| 3,288 |
| 204,188 |
| 171 |
| 996 |
| 1,228 |
| 2,395 |
| 0.10 |
| 2.90 |
| 37.35 |
| 1.17 |
Key points
● | In the Personal portfolio, the asset quality distribution overall improved with high quality new business written during H1 2021 and no material deterioration in existing portfolio quality. |
● | The majority of exposures were in AQ1-AQ4, with a significant proportion in AQ5-AQ8. As expected, mortgage exposures have a higher proportion in AQ1-AQ4 than unsecured borrowing. |
● | The slight increase in AQ10 exposure in UK mortgages related to a small number of customers who took extended COVID-19 payment holidays and had subsequently moved from arrears to default during the period. Repossession and formal recovery activities were paused to support customers during COVID-19, also contributing to late arrears and therefore an increase in AQ10 balances. |
● | In other Personal, the relatively high level of exposures in AQ10 reflected that impaired assets can be held on the balance sheet, with commensurate ECL provision for up to six years after default. |
● | ECL provisions coverage shows the expected trend with increased coverage in the poorer asset quality bands, and also by stage. |
● | As noted previously, across all asset quality bands, migration from Stage 2 to Stage 1 was observed as the effect of improved economic scenarios enhanced IFRS 9 PDs and therefore reduced Stage 2 exposure. |
NatWest Group – Form 6-K Interim Results 2021 | 64 |
Risk and capital management
Credit risk – Banking activities continued
Asset quality
The table below shows asset quality bands of gross loans and ECL, by stage, for the Wholesale portfolio.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gross loans | | ECL provisions | | ECL provisions coverage |
| ||||||||||||||||||
| | Stage 1 | | Stage 2 | | Stage 3 | | Total | | Stage 1 | | Stage 2 | | Stage 3 | | Total | | Stage 1 | | Stage 2 | | Stage 3 | | Total |
|
30 June 2021 |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| % |
| % |
| % |
| % |
|
Property |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| | |
AQ1-AQ4 |
| 13,097 |
| 721 |
| — |
| 13,818 |
| 11 |
| 11 |
| — |
| 22 |
| 0.08 |
| 1.53 |
| — |
| 0.16 | |
AQ5-AQ8 |
| 14,966 |
| 5,953 |
| — |
| 20,919 |
| 82 |
| 292 |
| — |
| 374 |
| 0.55 |
| 4.91 |
| — |
| 1.79 | |
AQ9 |
| 42 |
| 108 |
| — |
| 150 |
| — |
| 10 |
| — |
| 10 |
| — |
| 9.26 |
| — |
| 6.67 | |
AQ10 |
| — |
| — |
| 1,054 |
| 1,054 |
| — |
| — |
| 391 |
| 391 |
| — |
| — |
| 37.10 |
| 37.10 | |
| | 28,105 |
| 6,782 |
| 1,054 |
| 35,941 |
| 93 |
| 313 |
| 391 |
| 797 |
| 0.33 |
| 4.62 |
| 37.10 |
| 2.22 | |
Corporate |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| | |
AQ1-AQ4 |
| 17,252 |
| 1,710 |
| — |
| 18,962 |
| 15 |
| 34 |
| — |
| 49 |
| 0.09 |
| 1.99 |
| — |
| 0.26 | |
AQ5-AQ8 |
| 31,542 |
| 21,388 |
| — |
| 52,930 |
| 134 |
| 1,014 |
| — |
| 1,148 |
| 0.42 |
| 4.74 |
| — |
| 2.17 | |
AQ9 |
| 256 |
| 380 |
| — |
| 636 |
| — |
| 37 |
| — |
| 37 |
| — |
| 9.74 |
| — |
| 5.82 | |
AQ10 |
| — |
| — |
| 1,594 |
| 1,594 |
| — |
| — |
| 651 | | 651 |
| — |
| — |
| 40.84 |
| 40.84 | |
| | 49,050 | | 23,478 | | 1,594 | | 74,122 | | 149 | | 1,085 | | 651 | | 1,885 | | 0.30 | | 4.62 | | 40.84 | | 2.54 | |
Financial institutions |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| | |
AQ1-AQ4 |
| 46,160 |
| 1,050 |
| — |
| 47,210 |
| 13 |
| 9 |
| — |
| 22 |
| 0.03 |
| 0.86 |
| — |
| 0.05 | |
AQ5-AQ8 |
| 1,533 |
| 1,146 |
| — |
| 2,679 |
| 8 |
| 76 |
| — |
| 84 |
| 0.52 |
| 6.63 |
| — |
| 3.14 | |
AQ9 |
| 1 |
| 165 |
| — |
| 166 |
| — |
| 30 |
| — |
| 30 |
| — |
| 18.18 |
| — |
| 18.07 | |
AQ10 |
| — |
| — |
| 17 |
| 17 |
| — |
| — |
| 7 |
| 7 |
| — |
| — |
| 41.18 |
| 41.18 | |
| | 47,694 | | 2,361 | | 17 | | 50,072 | | 21 | | 115 | | 7 | | 143 | | 0.04 | | 4.87 | | 41.18 | | 0.29 | |
Sovereign |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| | |
AQ1-AQ4 |
| 5,582 |
| 58 |
| — |
| 5,640 |
| 18 |
| — |
| — |
| 18 |
| 0.32 |
| — |
| — |
| 0.32 | |
AQ5-AQ8 |
| 14 |
| 95 |
| — |
| 109 |
| — |
| 1 |
| — |
| 1 |
| — |
| 1.05 |
| — |
| 0.92 | |
AQ 9 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — | |
AQ10 |
| | — | — |
| 9 |
| 9 |
| — |
| — |
| 2 |
| 2 |
| — |
| — |
| 22.22 |
| 22.22 | |
| | 5,596 | | 153 | | 9 | | 5,758 | | 18 | | 1 | | 2 | | 21 | | 0.32 | | 0.65 | | 22.22 | | 0.36 | |
Total |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| | |
AQ1-AQ4 |
| 82,091 |
| 3,539 |
| — |
| 85,630 |
| 57 |
| 54 |
| — |
| 111 |
| 0.07 |
| 1.53 |
| — |
| 0.13 | |
AQ5-AQ8 |
| 48,055 |
| 28,582 |
| — |
| 76,637 |
| 224 |
| 1,383 |
| — |
| 1,607 |
| 0.47 |
| 4.84 |
| — |
| 2.10 | |
AQ9 |
| 299 |
| 653 |
| — |
| 952 |
| — |
| 77 |
| — |
| 77 |
| — |
| 11.79 |
| — |
| 8.09 | |
AQ10 |
| — |
| — |
| 2,674 |
| 2,674 |
| — | | |
| 1,051 |
| 1,051 |
| — | | — |
| 39.30 |
| 39.30 | |
| | 130,445 | | 32,774 | | 2,674 | | 165,893 | | 281 | | 1,514 | | 1,051 | | 2,846 | | 0.22 | | 4.62 | | 39.30 | | 1.72 | |
NatWest Group – Form 6-K Interim Results 2021 | 65 |
Risk and capital management
Credit risk – Banking activities continued
Asset quality
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Gross loans | | ECL provisions | | ECL provisions coverage | ||||||||||||||||||
| | Stage 1 | | Stage 2 | | Stage 3 | | Total | | Stage 1 | | Stage 2 | | Stage 3 | | Total | | Stage 1 | | Stage 2 | | Stage 3 | | Total |
31 December 2020 | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | % | | % | | % | | % |
Property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
| 12,694 |
| 2,079 |
| — |
| 14,773 |
| 20 |
| 40 |
| — |
| 60 |
| 0.16 |
| 1.92 |
| — |
| 0.41 |
AQ5-AQ8 |
| 10,785 |
| 10,780 |
| — |
| 21,565 |
| 103 |
| 450 |
| — |
| 553 |
| 0.96 |
| 4.17 |
| — |
| 2.56 |
AQ9 |
| 254 |
| 162 |
| — |
| 416 |
| — |
| 17 |
| — |
| 17 |
| — |
| 10.49 |
| — |
| 4.09 |
AQ10 |
| — |
| — |
| 1,322 |
| 1,322 |
| — |
| — |
| 545 |
| 545 |
| — |
| — |
| 41.23 |
| 41.23 |
|
| 23,733 |
| 13,021 |
| 1,322 |
| 38,076 |
| 123 |
| 507 |
| 545 |
| 1,175 |
| 0.52 |
| 3.89 |
| 41.23 |
| 3.09 |
Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
| 17,757 |
| 2,726 |
| — |
| 20,483 |
| 20 |
| 51 |
| — |
| 71 |
| 0.11 |
| 1.87 |
| — |
| 0.35 |
AQ5-AQ8 |
| 29,405 |
| 24,430 |
| — |
| 53,835 |
| 167 |
| 1,374 |
| — |
| 1,541 |
| 0.57 |
| 5.62 |
| — |
| 2.86 |
AQ9 |
| 928 |
| 560 |
| — |
| 1,488 |
| 1 |
| 62 |
| — |
| 63 |
| 0.11 |
| 11.07 |
| — |
| 4.23 |
AQ10 |
| — |
| — |
| 1,727 |
| 1,727 |
| — |
| — |
| 803 |
| 803 |
| — |
| — |
| 46.5 |
| 46.5 |
|
| 48,090 |
| 27,716 |
| 1,727 |
| 77,533 |
| 188 |
| 1,487 |
| 803 |
| 2,478 |
| 0.39 |
| 5.37 |
| 46.5 |
| 3.20 |
Financial institutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
| 42,222 |
| 1,985 |
| — |
| 44,207 |
| 13 |
| 13 |
| — |
| 26 |
| 0.03 |
| 0.65 |
| — |
| 0.06 |
AQ5-AQ8 |
| 1,776 |
| 1,453 |
| — |
| 3,229 |
| 10 |
| 39 |
| — |
| 49 |
| 0.56 |
| 2.68 |
| — |
| 1.52 |
AQ9 |
| 4 |
| 186 |
| — |
| 190 |
| — |
| 38 |
| — |
| 38 |
| — |
| 20.43 |
| — |
| 20.00 |
AQ10 |
| — |
| — |
| 17 |
| 17 |
| — |
| — |
| 8 |
| 8 |
| — |
| — |
| 47.06 |
| 47.06 |
|
| 44,002 |
| 3,624 |
| 17 |
| 47,643 |
| 23 |
| 90 |
| 8 |
| 121 |
| 0.05 |
| 2.48 |
| 47.06 |
| 0.25 |
Sovereign |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
| 4,731 |
| 106 |
| — |
| 4,837 |
| 14 |
| 1 |
| — |
| 15 |
| 0.30 |
| 0.94 |
| — |
| 0.31 |
AQ5-AQ8 |
| 17 |
| 98 |
| — |
| 115 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
AQ9 |
| 3 |
| — |
| — |
| 3 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
AQ10 |
| — |
| — |
| 4 |
| 4 |
| — |
| — |
| 2 |
| 2 |
| — |
| — |
| 50.00 |
| 50.00 |
|
| 4,751 |
| 204 |
| 4 |
| 4,959 |
| 14 |
| 1 |
| 2 |
| 17 |
| 0.29 |
| 0.49 |
| 50.00 |
| 0.34 |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
| 77,404 |
| 6,896 |
| — |
| 84,300 |
| 67 |
| 105 |
| — |
| 172 |
| 0.09 |
| 1.52 |
| — |
| 0.20 |
AQ5-AQ8 |
| 41,983 |
| 36,761 |
| — |
| 78,744 |
| 280 |
| 1,863 |
| — |
| 2,143 |
| 0.67 |
| 5.07 |
| — |
| 2.72 |
AQ9 |
| 1,189 |
| 908 |
| — |
| 2,097 |
| 1 |
| 117 |
| — |
| 118 |
| 0.08 |
| 12.89 |
| — |
| 5.63 |
AQ10 |
| — |
| — |
| 3,070 |
| 3,070 |
| — |
| — |
| 1,358 |
| 1,358 |
| — |
| — |
| 44.23 |
| 44.23 |
|
| 120,576 |
| 44,565 |
| 3,070 |
| 168,211 |
| 348 |
| 2,085 |
| 1,358 |
| 3,791 |
| 0.29 |
| 4.68 |
| 44.23 |
| 2.25 |
Key points
● | Across the Wholesale portfolio, the asset quality band distribution differed, reflecting the diverse nature of the sectors. However, improvements were observed across the portfolio consistent with the improvement in the economic outlook for the UK since the 2020 year end. |
● | Increased exposure in the AQ1-AQ4 band in financial institutions was related to repo transactions as part of treasury activities. |
● | Remaining government support measures in relation to COVID-19 continued to mitigate against flows to default in the short-term. |
● | Within the Wholesale portfolio, customer credit grades were reassessed as and when a request for financing was made, a scheduled customer credit review was performed or a material event specific to that customer occurred. |
● | As previously noted, a request for support using one of the government-backed COVID-19 support schemes would prompt credit grades to be reassessed but was not, in itself, a reason for a customer’s credit grade to be amended. |
● | ECL provisions coverage showed the expected trend with increased coverage in the poorer asset quality bands, and also by stage. Overall provisions coverage reduced, mainly due to the improvement in economic outlook and scenario weightings. The base economic scenario improved compared with H2 2020 reflecting the faster than expected vaccination roll-out, better than expected actual economic data and the persisting strong government support. |
● | The lower provision coverage for Stage 3 loans in the Property sector reflected the secured nature of the exposures. |
NatWest Group – Form 6-K Interim Results 2021 | 66 |
Risk and capital management
Credit risk – Trading activities
This section details the credit risk profile of NatWest Group’s trading activities.
Securities financing transactions and collateral
The table below shows securities financing transactions in NatWest Markets and Treasury. 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 2021 |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
Gross |
| 86,079 |
| 85,070 |
| 1,009 |
| 83,005 |
| 81,873 |
| 1,132 |
IFRS offset |
| (38,273) |
| (38,273) |
| — |
| (38,273) |
| (38,273) |
| — |
Carrying value |
| 47,806 |
| 46,797 |
| 1,009 |
| 44,732 |
| 43,600 |
| 1,132 |
| | | | | | | | | | | | |
Master netting arrangements |
| (2,838) |
| (2,838) |
| — |
| (2,838) |
| (2,838) |
| — |
Securities collateral |
| (43,440) |
| (43,440) |
| — |
| (40,694) |
| (40,694) |
| — |
Potential for offset not recognised under IFRS |
| (46,278) |
| (46,278) |
| — |
| (43,532) |
| (43,532) |
| — |
Net |
| 1,528 |
| 519 |
| 1,009 |
| 1,200 |
| 68 |
| 1,132 |
| | | | | | | | | | | | |
31 December 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
| 80,388 |
| 80,025 |
| 363 |
| 66,493 |
| 64,793 |
| 1,700 |
IFRS offset |
| (35,820) |
| (35,820) |
| — |
| (35,820) |
| (35,820) |
| — |
Carrying value |
| 44,568 |
| 44,205 |
| 363 |
| 30,673 |
| 28,973 |
| 1,700 |
| | | | | | | | | | | | |
Master netting arrangements |
| (929) |
| (929) |
| — |
| (929) |
| (929) |
| — |
Securities collateral |
| (43,204) |
| (43,204) |
| — |
| (28,044) |
| (28,044) |
| — |
Potential for offset not recognised under IFRS |
| (44,133) |
| (44,133) |
| — |
| (28,973) |
| (28,973) |
| — |
Net |
| 435 |
| 72 |
| 363 |
| 1,700 |
| — |
| 1,700 |
Key points
● | Reverse repos and repos increased on both gross and carrying value basis when compared to 2020. These trends are consistent with trading assets and liabilities having been managed within limits at 31 December 2020. |
● | Reverse repo and repo transactions are primarily backed by highly-rated sovereign, supranational and agency collateral. |
NatWest Group – Form 6-K Interim Results 2021 | 67 |
Risk and capital management
Credit risk – Trading activities continued
Derivatives
The table below shows derivatives by type of contract. The master netting agreements and collateral shown do not result in a net presentation on the balance sheet under IFRS 9. A significant proportion (more than 90%) of the derivatives relate to trading activities in NatWest Markets. The table also includes hedging derivatives in Treasury.
| | | | | | | | | | | | | | | | | | | | |
| | 30 June 2021 | | 31 December 2020 | ||||||||||||||||
| | Notional | | | | | | | | | | | | | ||||||
| | GBP | | USD | | Euro | | Other | | Total | | Assets | | Liabilities | | Notional | | Assets | | Liabilities |
| | £bn | | £bn | | £bn | | £bn | | £bn | | £m | | £m | | £bn | | £m | | £m |
Gross exposure |
| |
| |
| |
| |
| |
| 117,434 |
| 112,464 |
| |
| 177,330 |
| 172,245 |
IFRS offset |
| |
| |
| |
| |
| |
| (7,878) |
| (8,472) |
| |
| (10,807) |
| (11,540) |
Carrying value |
| 3,835 |
| 3,843 |
| 4,930 |
| 1,413 |
| 14,021 |
| 109,556 |
| 103,992 |
| 14,047 |
| 166,523 |
| 160,705 |
Of which: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate (1) |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
| | | | | | | | | |
| 60,918 |
| 53,667 |
| |
| 93,587 |
| 85,022 |
Options purchased |
| | | | | | | | | |
| 14,664 |
| — |
| |
| 20,527 |
| — |
Options written |
| | | | | | | | | |
| — |
| 14,804 |
| |
| — |
| 20,190 |
Futures and forwards |
| | | | | | | | | |
| — |
| — |
| |
| 1 |
| 2 |
Total |
| 3,472 |
| 2,304 |
| 4,304 |
| 425 |
| 10,505 |
| 75,582 |
| 68,471 |
| 10,703 |
| 114,115 |
| 105,214 |
Exchange rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spot, forwards and futures |
| | | | | | | | | |
| 22,260 |
| 22,148 |
| |
| 34,924 |
| 35,309 |
Currency swaps |
| | | | | | | | | |
| 6,931 |
| 8,116 |
| |
| 10,038 |
| 12,136 |
Options purchased |
| | | | | | | | | |
| 4,562 |
| — |
| |
| 7,277 |
| — |
Options written |
| | | | | | | | | |
| — |
| 4,825 |
| |
| — |
| 7,662 |
Total |
| 361 |
| 1,535 |
| 615 |
| 988 |
| 3,499 |
| 33,753 |
| 35,089 |
| 3,328 |
| 52,239 |
| 55,107 |
Credit |
| 2 |
| 4 |
| 11 |
| — |
| 17 |
| 221 |
| 431 |
| 15 |
| 161 |
| 376 |
Equity and commodity |
| — |
| — |
| — |
| — |
| — |
| — |
| 1 |
| 1 |
| 8 |
| 8 |
Carrying value |
| |
| |
| |
| |
| 14,021 |
| 109,556 |
| 103,992 |
| 14,047 |
| 166,523 |
| 160,705 |
| | | | | | | | | | | | | | | | | | | | |
Counterparty mark-to-market netting |
| |
| |
| |
| |
| |
| (87,322) |
| (87,322) |
| |
| (137,086) |
| (137,086) |
Cash collateral |
| |
| |
| |
| |
| |
| (14,009) |
| (10,368) |
| |
| (19,608) |
| (15,034) |
Securities collateral |
| |
| |
| |
| |
| |
| (4,170) |
| (3,125) |
| |
| (5,053) |
| (4,921) |
Net exposure |
| |
| |
| |
| |
| |
| 4,055 |
| 3,177 |
| |
| 4,776 |
| 3,664 |
Of which outside netting arrangements |
| |
| |
| |
| |
| |
| 999 |
| 962 |
| |
| 905 |
| 631 |
| | | | | | | | | | | | | | | | | | | | |
Banks (2) |
| |
| |
| |
| |
| |
| 311 |
| 683 |
| |
| 206 |
| 557 |
Other financial institutions (3) |
| |
| |
| |
| |
| |
| 1,647 |
| 1,371 |
| |
| 1,436 |
| 1,931 |
Corporate (4) |
| |
| |
| |
| |
| |
| 1,993 |
| 957 |
| |
| 2,985 |
| 1,082 |
Government (5) |
| |
| |
| |
| |
| |
| 104 |
| 166 |
| |
| 149 |
| 94 |
Net exposure |
| |
| |
| |
| |
| |
| 4,055 |
| 3,177 |
| |
| 4,776 |
| 3,664 |
| | | | | | | | | | | | | | | | | | | | |
UK |
| |
| |
| |
| |
| |
| 2,445 |
| 780 |
| |
| 2,914 |
| 1,627 |
Europe |
| |
| |
| |
| |
| |
| 822 |
| 1,188 |
| |
| 1,091 |
| 1,118 |
US |
| |
| |
| |
| |
| |
| 573 |
| 945 |
| |
| 470 |
| 644 |
RoW |
| |
| |
| |
| |
| |
| 215 |
| 264 |
| |
| 301 |
| 275 |
Net exposure |
| |
| |
| |
| |
| |
| 4,055 |
| 3,177 |
| |
| 4,776 |
| 3,664 |
| | | | | | | | | | | | | | | | | | | | |
Asset quality of uncollateralised derivative assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1-AQ4 |
| |
| |
| |
| |
| |
| 3,150 |
| |
| |
| 3,464 |
| |
AQ5-AQ8 |
| |
| |
| |
| |
| |
| 847 |
| |
| |
| 1,283 |
| |
AQ9-AQ10 |
| |
| |
| |
| |
| |
| 58 |
| |
| |
| 29 |
| |
Net exposure |
| |
| |
| |
| |
| |
| 4,055 |
| |
| |
| 4,776 |
| |
Notes:
(1) | The notional amount of interest rate derivatives included £7,330 billion (31 December 2020 – £7,390 billion) in respect of contracts cleared through central clearing counterparties. |
(2) | Transactions with certain counterparties with whom NatWest Group has netting arrangements but collateral is not posted on a daily basis; certain transactions with specific terms that may not fall within netting and collateral arrangements; derivative positions in certain jurisdictions for example China where the collateral agreements are not deemed to be legally enforceable. |
(3) | Includes transactions with securitisation vehicles and funds where collateral posting is contingent on NatWest Group’s external rating. |
(4) | Mainly large corporates with whom NatWest Group may have netting arrangements in place, but operational capability does not support collateral posting. |
(5) | Sovereigns and supranational entities with no collateral arrangements, collateral arrangements that are not considered enforceable, or one-way collateral agreements in their favour. |
NatWest Group – Form 6-K Interim Results 2021 | 68 |
Risk and capital management
Credit risk – Trading activities continued
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. A significant proportion (more than 95%) of these positions are trading securities in NatWest Markets.
| | | | | | | | | | | | |
| | Central and local government | | Financial | | | | | ||||
| | UK | | US | | Other | | institutions | | Corporate | | Total |
30 June 2021 | | £m | | £m | | £m | | £m | | £m | | £m |
AAA |
| — |
| — |
| 2,469 |
| 1,013 |
| — |
| 3,482 |
AA to AA+ |
| — |
| 4,088 |
| 4,829 |
| 1,010 |
| 44 |
| 9,971 |
A to AA- |
| 5,121 |
| — |
| 1,781 |
| 397 |
| 75 |
| 7,374 |
BBB- to A- |
| — |
| — |
| 9,235 |
| 386 |
| 518 |
| 10,139 |
Non-investment grade |
| — |
| — |
| 33 |
| 252 |
| 105 |
| 390 |
Unrated |
| — |
| — |
| — |
| 10 |
| 4 |
| 14 |
Total |
| 5,121 |
| 4,088 |
| 18,347 |
| 3,068 |
| 746 |
| 31,370 |
Short positions |
| (5,487) |
| (2,303) |
| (22,185) |
| (2,030) |
| (106) |
| (32,111) |
| | | | | | | | | | | | |
31 December 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
AAA |
| — |
| — |
| 3,114 |
| 1,113 |
| — |
| 4,227 |
AA to AA+ |
| — |
| 5,149 |
| 3,651 |
| 576 |
| 49 |
| 9,425 |
A to AA- |
| 4,184 |
| — |
| 1,358 |
| 272 |
| 81 |
| 5,895 |
BBB- to A- |
| — |
| — |
| 8,277 |
| 444 |
| 656 |
| 9,377 |
Non-investment grade |
| — |
| — |
| 36 |
| 127 |
| 53 |
| 216 |
Unrated |
| — |
| — |
| — |
| 150 |
| 5 |
| 155 |
Total |
| 4,184 |
| 5,149 |
| 16,436 |
| 2,682 |
| 844 |
| 29,295 |
Short positions |
| (5,704) |
| (1,123) |
| (18,135) |
| (1,761) |
| (56) |
| (26,779) |
NatWest Group – Form 6-K Interim Results 2021 | 69 |
Risk and capital management
Capital, liquidity and funding risk
Introduction
NatWest Group continually ensures a comprehensive approach is taken to the management of Capital, Liquidity and Funding, underpinned by frameworks, risk appetite and policies, to manage and mitigate Capital, Liquidity and Funding risks. The framework ensures the tools and capability are in place to facilitate the management and mitigation of risk ensuring that NatWest Group operates within its regulatory requirements and risk appetite.
Within the 2020 Annual Report on Form 20-F, NatWest Group outlined a number of COVID-19 specific relief measures which impacted capital and leverage ratios during the year, one of which was a temporary change to the Prudential Valuation Adjustment (PVA). From 1 January 2021 the aggregation factor reverted back to 50% from 66%. This has increased NatWest Group’s PVA deduction by c.£120 million.
Key developments
CET1 (CRR end-point) | In the first half of 2021, the CET1 ratio decreased by 30 basis points to 18.2%. The CET1 decrease is primarily due to the impact of the directed buy back and associated pension contribution of £1.2 billion (72 bps), foreseeable dividend accrual of £0.5 billion (33 bps) and foreseeable charges and pension contributions of £0.9 billion (58 bps). The attributable profit in the period of £1.8 billion has been partially utilised by the foreseeable dividends and charges. There was a £0.5 billion decrease in the IFRS 9 transitional arrangements on expected credit losses however this offset the impact of impairment releases. |
LAC (MREL) | LAC (MREL) ratio as percentage of risk weighted assets increased to 38.9% from 37.5% primarily due to the £7.3 billion decrease in RWAs and remains well above the minimum of 23%. In the first half of 2021, there were new issuances of $1.5 billion and €1.0 billion Senior debt, AT1 issuances of $0.75 billion and £0.4 billion and Tier 2 issuances of £1.0 billion. These were partially offset by the redemption of $2.1 billion, $0.2 billion and €0.2 billion Tier 2 instruments. |
Total RWAs | RWAs reduced by £7.3 billion in H1 2021, primarily reflecting reductions in credit risk RWAs of £7.4 billion due to repayments and expired facilities of c.£4 billion in Commercial Banking, a reduction of c.£0.8 billion due to improved risk metrics in Retail Banking and reduced exposures in Ulster Bank RoI in line with the current exit strategy. The decreases in credit risk also included a £0.8 billion benefit as a result of the CRR COVID-19 amendment for Infrastructure Supporting factor. Operational risk RWAs reduced by £0.9 billion following the annual recalculation in Q1 2021. Counterparty credit risk RWAs reduced by £0.5 billion as a result of lower exposures in NatWest Markets. There were offsetting increases in market risk RWAs of £1.5 billion, mainly reflecting an increase in modelled market risk following the announcement of GBP LIBOR cessation in March 2021 as a result of including modelled GBP LIBOR basis risk post 4 January 2022. Regulatory approval has been obtained in July 2021 to update the VaR model and this will remove this impact in Q3 2021. |
UK leverage ratio | The UK leverage ratio decreased by c.20 basis points from 6.4% to 6.2% predominantly driven by a decrease in Tier 1 capital. |
Liquidity portfolio | The liquidity portfolio increased by £15 billion in H1 2021 to £277 billion, with primary liquidity increasing by £17 billion to £187 billion. The increase in primary liquidity was mainly driven by customer deposits, cash proceeds from new issuance and the methodology change to include UBIDAC cash at central banks. This is offset by the TFSME repayment, buyback of shares owned by UK Government, pension fund contributions, liability management exercise and the purchase of additional mortgages. Secondary liquidity is lower due to monthly repayments on underlying assets. |
NatWest Group – Form 6-K Interim Results 2021 | 70 |
Risk and capital management
Capital, liquidity and funding risk continued
Maximum Distributable Amount (MDA) and Minimum Capital Requirements
NatWest Group is subject to minimum capital requirements relative to RWAs. The table below summarises the minimum capital requirements (the sum of Pillar 1 and Pillar 2A), and the additional capital buffers which are held in excess of the regulatory minimum requirements and are usable in stress.
Where the CET1 ratio falls below the sum of the minimum capital and the combined buffer requirement, there is a subsequent automatic restriction on the amount available to service discretionary payments, known as the MDA. Note that different capital requirements apply to individual legal entities or sub-groups and that the table shown does not reflect any incremental PRA buffer requirements, which are not disclosable.
The current capital position provides significant headroom above both our minimum requirements and our MDA threshold requirements.
| | | | | | |
Type |
| CET1 |
| Total Tier 1 |
| Total capital |
Pillar 1 requirements |
| 4.5% | | 6.0% | | 8.0% |
Pillar 2A requirements |
| 2.0% | | 2.7% | | 3.6% |
Minimum Capital Requirements |
| 6.5% | | 8.7% | | 11.6% |
Capital conservation buffer |
| 2.5% | | 2.5% | | 2.5% |
Countercyclical capital buffer (1) |
| — |
| — |
| — |
MDA threshold (2) |
| 9.0% | | n/a |
| n/a |
Subtotal |
| 9.0% | | 11.2% | | 14.1% |
Capital ratios at 30 June 2021 |
| 18.2% | | 21.8% | | 24.9% |
Headroom (3) |
| 9.2% | | 10.6% | | 10.8% |
Notes:
(1) | In response to COVID-19 many countries reduced their CCyB rates. Most notably for NatWest Group, the Financial Policy Committee reduced the UK rate from 1% to 0% and the CBI also announced a reduction in the Republic of Ireland rate from 1% to 0%. |
(2) | Pillar 2A requirements for NatWest Group are set on a nominal capital basis. |
(3) | The headroom does not reflect excess distributable capital and may vary over time. |
NatWest Group – Form 6-K Interim Results 2021 | 71 |
Risk and capital management
Capital, liquidity and funding risk continued
Capital and leverage ratios
The table below sets out the key capital and leverage ratios.
| | | | |
|
| 30 June |
| 31 December |
|
| 2021 |
| 2020 |
Capital adequacy ratios (1) |
|
| % | % |
CET1 |
| 18.2 |
| 18.5 |
Tier 1 |
| 21.8 |
| 21.4 |
Total |
| 24.9 |
| 24.5 |
| | | | |
Capital |
| £m |
| £m |
Tangible equity |
| 30,751 |
| 31,712 |
| | | | |
Prudential valuation adjustment |
| (285) |
| (286) |
Deferred tax assets |
| (832) |
| (760) |
Own credit adjustments |
| 22 |
| (1) |
Pension fund assets |
| (384) |
| (579) |
Cash flow hedging reserve |
| 77 |
| (229) |
Foreseeable ordinary dividends |
| (500) |
| (364) |
Foreseeable charges |
| (750) |
| — |
Foreseeable pension contributions | | (174) | | (266) |
Prudential amortisation of software development costs |
| 537 |
| 473 |
Adjustments under IFRS 9 transitional arrangements |
| 1,198 |
| 1,747 |
Total deductions |
| (1,091) |
| (265) |
| | | | |
CET1 capital |
| 29,660 |
| 31,447 |
AT1 capital |
| 5,916 |
| 4,983 |
Tier 1 capital |
| 35,576 |
| 36,430 |
Tier 2 capital |
| 4,973 |
| 5,255 |
Total regulatory capital |
| 40,549 |
| 41,685 |
| | | | |
Risk-weighted assets |
|
|
|
|
Credit risk |
| 122,475 |
| 129,914 |
Counterparty credit risk |
| 8,619 |
| 9,104 |
Market risk |
| 10,845 |
| 9,362 |
Operational risk |
| 21,031 |
| 21,930 |
Total RWAs |
| 162,970 |
| 170,310 |
| | | | |
Leverage |
|
|
|
|
Cash and balances at central banks |
| 151,511 |
| 124,489 |
Trading assets |
| 70,195 |
| 68,990 |
Derivatives |
| 109,556 |
| 166,523 |
Financial assets |
| 422,356 |
| 422,647 |
Other assets |
| 22,240 |
| 16,842 |
Total assets |
| 775,858 |
| 799,491 |
Derivatives |
|
|
|
|
- netting and variation margin |
| (112,441) |
| (172,658) |
- potential future exposures |
| 37,468 |
| 38,171 |
Securities financing transactions gross up |
| 1,486 |
| 1,179 |
Other off balance sheet items |
| 43,979 |
| 45,853 |
Regulatory deductions and other adjustments |
| (13,831) |
| (8,943) |
Claims on central banks |
| (148,644) |
| (122,252) |
Exclusion of bounce back loans |
| (8,239) |
| (8,283) |
UK leverage exposure |
| 575,636 |
| 572,558 |
UK leverage ratio % (2) |
| 6.2 |
| 6.4 |
Notes:
(1) | Based on CRR end-point including an IFRS 9 transitional adjustment of £1.2 billion (31 December 2020 - £1.7 billion). Excluding this adjustment, the CET1 ratio would be 17.5% (31 December 2020 - 17.5%). The amended article for the prudential treatment of software assets was implemented in December 2020. Excluding this adjustment the CET1 ratio at 30 June 2021 would be 17.9% (31 December 2020 - 18.2%). |
(2) | The UK leverage ratio excludes central bank claims from the leverage exposure where deposits held are denominated in the same currency and of contractual maturity that is equal or longer than that of the central bank claims. Excluding an IFRS 9 transitional adjustment, the UK leverage ratio would be 6.0% (31 December 2020 – 6.1%). The amended article for the prudential treatment of software assets was implemented in December 2020. Excluding this adjustment, the UK leverage ratio at 30 June 2021 would be 6.1% (31 December 2020 – 6.3%). |
NatWest Group – Form 6-K Interim Results 2021 | 72 |
Risk and capital management
Capital, liquidity and funding risk continued
Capital flow statement
The table below analyses the movement in CET1, AT1 and Tier 2 capital for the half year ended 30 June 2021.
| | | | | | | | |
|
| CET1 |
| AT1 |
| Tier 2 |
| Total |
| | £m | | £m | | £m | | £m |
At 1 January 2021 |
| 31,447 |
| 4,983 |
| 5,255 |
| 41,685 |
Attributable profit for the period |
| 1,842 | | — | | — | | 1,842 |
Own credit |
| 23 | | — | | — | | 23 |
Share capital and reserve movements in respect of employee share schemes |
| 23 | | — | | — | | 23 |
Directed buyback |
| (1,231) | | — | | — | | (1,231) |
Foreign exchange reserve |
| (304) | | — | | — | | (304) |
FVOCI reserve |
| (121) | | — | | — | | (121) |
Goodwill and intangibles deduction |
| 25 | | — | | — | | 25 |
Deferred tax assets |
| (72) | | — | | — | | (72) |
Prudential valuation adjustments |
| 1 | | — | | — | | 1 |
New issues of capital instruments |
| — | | 933 | | 996 | | 1,929 |
Redemption of capital instruments |
| — | | — | | (1,456) | | (1,456) |
Net dated subordinated debt instruments |
| — | | — | | 292 | | 292 |
Foreign exchange movements |
| — | | — | | (77) | | (77) |
Foreseeable ordinary dividends |
| (500) | | — | | — | | (500) |
Foreseeable charges |
| (750) | | — | | — | | (750) |
Foreseeable pension contributions | | (174) | | — | | — | | (174) |
Adjustment under IFRS 9 transitional arrangements |
| (549) | | — | | — | | (549) |
Other movements |
| — | | — | | (37) | | (37) |
At 30 June 2021 |
| 29,660 | | 5,916 | | 4,973 | | 40,549 |
Key points
· | The CET1 decrease is primarily due to the impact of the directed buy back and associated pension contribution of £1.2 billion, foreseeable dividend accrual of £0.5 billion and foreseeable charges and pension contributions of £0.9 billion offset by an increase in attributable profit. |
· | AT1 reflects the £400 million 4.5% Reset Perpetual Subordinated Contingent Convertible Notes issued in March 2021 and $750m 4.600% Reset Perpetual Subordinated Contingent Convertible notes in June 2021. |
· | The Tier 2 movement is primarily due to the redemption of own debt of £1.5 billion in March 2021 and a £1.0 billion issuance of subordinated Tier 2 notes in May 2021. |
NatWest Group – Form 6-K Interim Results 2021 | 73 |
Risk and capital management
Capital, liquidity and funding risk continued
Capital resources
| | | | |
|
| PRA transitional basis | ||
| | 30 June | | 31 December |
| | 2021 | | 2020 |
| | £m | | £m |
Shareholders' equity (excluding non-controlling interests) |
|
|
|
|
Shareholders' equity |
| 43,875 |
| 43,860 |
Preference shares - equity |
| (494) |
| (494) |
Other equity instruments |
| (5,936) |
| (4,999) |
|
| 37,445 |
| 38,367 |
Regulatory adjustments and deductions |
| |
|
|
Own credit |
| 22 |
| (1) |
Defined benefit pension fund adjustment |
| (384) |
| (579) |
Cash flow hedging reserve |
| 77 |
| (229) |
Deferred tax assets |
| (832) |
| (760) |
Prudential valuation adjustments |
| (285) |
| (286) |
Goodwill and other intangible assets |
| (6,157) |
| (6,182) |
Foreseeable ordinary and special dividends |
| (500) |
| (364) |
Foreseeable charges |
| (750) |
| — |
Foreseeable pension contributions | | (174) | | (266) |
Adjustment under IFRS 9 transitional arrangements |
| 1,198 |
| 1,747 |
|
| (7,785) |
| (6,920) |
CET1 capital |
| 29,660 |
| 31,447 |
| | | | |
Additional Tier (AT1) capital |
| |
|
|
Qualifying instruments and related share premium |
| 5,916 |
| 4,983 |
Qualifying instruments and related share premium to phase out |
| 569 |
| 690 |
Qualifying instruments issued by subsidiaries and held by third parties subject to phase out |
| — |
| 140 |
AT1 capital |
| 6,485 |
| 5,813 |
Tier 1 capital |
| 36,145 |
| 37,260 |
| | | | |
Qualifying Tier 2 capital |
| |
|
|
Qualifying instruments and related share premium |
| 4,570 |
| 4,882 |
Qualifying instruments issued by subsidiaries and held by third parties |
| 581 |
| 1,191 |
Other regulatory adjustments |
| 362 |
| 400 |
Tier 2 capital |
| 5,513 |
| 6,473 |
Total regulatory capital |
| 41,658 |
| 43,733 |
NatWest Group – Form 6-K Interim Results 2021 | 74 |
Risk and capital management
Capital, liquidity and funding risk continued
Loss absorbing capital
The following table illustrates the components of estimated loss absorbing capital (LAC) in NatWest Group plc and operating subsidiaries and includes external issuances only. The table is prepared on a transitional basis, including the benefit of regulatory capital instruments issued from operating companies, to the extent they meet the current MREL criteria.
| | | | | | | | | | | | | | | | | |
|
| 30 June 2021 |
| 31 December 2020 |
| ||||||||||||
| | | | Balance | | | | | | | | Balance | | | | |
|
| | Par | | sheet | | Regulatory | | LAC | | Par | | sheet | | Regulatory | | LAC |
|
| | value (1) | | value | | value (2) | | value (3) | | value | | value | | value | | value |
|
| | £bn | | £bn | | £bn | | £bn | | £bn | | £bn | | £bn | | £bn |
|
CET1 capital (4) |
| 29.7 | | 29.7 | | 29.7 | | 29.7 |
| 31.4 |
| 31.4 |
| 31.4 |
| 31.4 | |
| | | | | | | | | | | | | | | | | |
Tier 1 capital: end-point CRR compliant AT1 | | | | | | | | | | | | | | | | | |
of which: NatWest Group plc (holdco) |
| 6.0 |
| 5.9 |
| 5.9 |
| 5.9 |
| 5.0 |
| 5.0 |
| 5.0 |
| 5.0 | |
of which: NatWest Group plc operating | | | | | | | | | | | | | | | | | |
subsidiaries (opcos) |
| — | | — | | — | | — |
| — |
| — |
| — |
| — | |
|
| 6.0 | | 5.9 | | 5.9 | | 5.9 |
| 5.0 |
| 5.0 |
| 5.0 |
| 5.0 | |
| | | | | | | | | | | | | | | | | |
Tier 1 capital: end-point CRR non-compliant | | | | | | | | | | | | | | | | | |
of which: holdco |
| 0.6 |
| 0.6 |
| 0.5 |
| 0.5 |
| 0.7 |
| 0.7 |
| 0.7 |
| 0.5 | |
of which: opcos |
| 0.1 |
| 0.1 |
| — |
| — |
| 0.1 |
| 0.1 |
| 0.1 |
| 0.1 | |
|
| 0.7 |
| 0.7 |
| 0.5 |
| 0.5 |
| 0.8 |
| 0.8 |
| 0.8 |
| 0.6 | |
| | | | | | | | | | | | | | | | | |
Tier 2 capital: end-point CRR compliant | | | | | | | | | | | | | | | | | |
of which: holdco |
| 6.3 |
| 6.5 |
| 4.6 |
| 5.4 |
| 6.9 |
| 7.2 |
| 4.8 |
| 5.7 | |
of which: opcos |
| 0.4 |
| 0.4 |
| 0.1 |
| — |
| 0.4 |
| 0.4 |
| 0.1 |
| 0.1 | |
|
| 6.7 |
| 6.9 |
| 4.7 |
| 5.4 |
| 7.3 |
| 7.6 |
| 4.9 |
| 5.8 | |
| | | | | | | | | | | | | | | | | |
Tier 2 capital: end-point CRR non-compliant | | | | | | | | | | | | | | | | | |
of which: holdco |
| — |
| — |
| — |
| — |
| 0.1 |
| 0.1 |
| 0.1 |
| 0.1 | |
of which: opcos |
| 1.3 |
| 1.6 |
| 0.4 |
| 0.2 |
| 1.6 |
| 1.9 |
| 1.1 |
| 1.0 | |
|
| 1.3 |
| 1.6 |
| 0.4 |
| 0.2 |
| 1.7 |
| 2.0 |
| 1.2 |
| 1.1 | |
| | | | | | | | | | | | | | | | | |
Senior unsecured debt securities | | | | | | | | | | | | | | | | | |
of which: holdco |
| 21.2 |
| 22.0 |
| — |
| 21.2 |
| 19.6 |
| 20.9 |
| — |
| 19.6 | |
of which: opcos |
| 20.7 |
| 20.7 |
| — |
| — |
| 20.9 |
| 21.5 |
| — |
| — | |
|
| 41.9 |
| 42.7 |
| — |
| 21.2 |
| 40.5 |
| 42.4 |
| — |
| 19.6 | |
| | | | | | | | | | | | | | | | | |
Tier 2 capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Other regulatory adjustments |
| — |
| — |
| 0.4 |
| 0.4 |
| — |
| — |
| 0.4 |
| 0.4 | |
|
| — |
| — |
| 0.4 |
| 0.4 |
| — |
| — |
| 0.4 |
| 0.4 | |
| | | | | | | | | | | | | | | | | |
Total |
| 86.3 |
| 87.5 |
| 41.6 |
| 63.3 |
| 86.7 |
| 89.2 |
| 43.7 |
| 63.9 | |
| | | | | | | | | | | | | | | | | |
RWAs |
| | | |
| |
| 163.0 | | |
| |
| |
| 170.3 | |
UK leverage exposure |
| | | |
| |
| 575.6 | | |
| |
| |
| 572.6 | |
| | | | | | | | | | | | | | | | | |
LAC as a ratio of RWAs |
| |
| | | |
| 38.9% | | |
| |
| |
| 37.5% | |
LAC as a ratio of UK leverage exposure |
| |
| | | |
| 11.0% | | |
| |
| |
| 11.2% | |
Notes:
(1) | Par value reflects the nominal value of securities issued. |
(2) | Regulatory capital instruments issued from operating companies are included in the transitional LAC calculation, to the extent they meet the current MREL criteria. |
(3) | LAC value reflects NatWest Group’s interpretation of the Bank of England’s approach to setting a minimum requirement for own funds and eligible liabilities (MREL), published in June 2018. MREL policy and requirements remain subject to further potential development, as such NatWest Group’s estimated position remains subject to potential change. Liabilities excluded from LAC include instruments with less than one year remaining to maturity, structured debt, operating company senior debt, and other instruments that do not meet the MREL criteria. The LAC calculation includes Tier 1 and Tier 2 securities before the application of any regulatory caps or adjustments. |
(4) | Corresponding shareholders’ equity was £43.9 billion (31 December 2020 - £43.9 billion). |
(5) | Regulatory amounts reported for AT1, Tier 1 and Tier 2 instruments are before grandfathering restrictions imposed by CRR. |
NatWest Group – Form 6-K Interim Results 2021 | 75 |
Risk and capital management
Capital, liquidity and funding risk continued
Loss absorbing capital
The following table illustrates the components of the stock of outstanding issuance in NatWest Group plc and its operating subsidiaries including external and internal issuances.
| | | | | | | | | | | | | | | | | | | | |
|
| | | |
| NatWest |
| |
| |
|
|
|
|
| NatWest |
| NWM |
| RBS |
| | | | NatWest | | Holdings | | NWB | | RBS | | UBI | | NWM | | Markets | | Securities | | International |
| | | | Group plc | | Limited | | Plc | | plc | | DAC | | Plc | | N.V. | | Inc. | | Limited |
| | | | £bn | | £bn | | £bn | | £bn | | £bn | | £bn | | £bn | | £bn | | £bn |
Tier 1 (Inclusive of AT1) |
| Externally issued |
| 6.5 |
| — |
| 0.1 |
| — |
| — |
| — |
| — |
| — |
| — |
Tier 1 (Inclusive of AT1) |
| Internally issued |
| — |
| 3.7 |
| 2.4 |
| 1.0 |
| — |
| 1.1 |
| 0.2 |
| — |
| 0.3 |
|
| |
| 6.5 |
| 3.7 |
| 2.5 |
| 1.0 |
| — |
| 1.1 |
| 0.2 |
| — | | 0.3 |
Tier 2 |
| Externally issued |
| 6.5 |
| — |
| 0.9 |
| — |
| 0.1 |
| 0.5 |
| 0.6 |
| — |
| — |
Tier 2 |
| Internally issued |
| — |
| 4.7 |
| 3.1 |
| 1.4 |
| 0.5 |
| 1.5 |
| 0.1 |
| 0.3 |
| — |
|
| |
| 6.5 |
| 4.7 |
| 4.0 |
| 1.4 |
| 0.6 |
| 2.0 |
| 0.7 |
| 0.3 | | — |
Senior unsecured |
| Externally issued |
| 22.0 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Senior unsecured |
| Internally issued |
| — |
| 10.5 |
| 5.7 |
| 0.4 |
| 0.5 |
| 3.9 |
| — |
| — |
| — |
|
| |
| 22.0 |
| 10.5 |
| 5.7 |
| 0.4 |
| 0.5 |
| 3.9 |
| — |
| — | | — |
Total outstanding issuance |
| 35.0 |
| 18.9 |
| 12.2 |
| 2.8 |
| 1.1 |
| 7.0 |
| 0.9 |
| 0.3 |
| 0.3 |
Notes:
(1) | The balances are the IFRS balance sheet carrying amounts, which may differ from the amount which the instrument contributes to regulatory capital. Regulatory balances exclude, for example, issuance costs and fair value movements, whilst dated capital is required to be amortised on a straight-line basis over the final five years of maturity. |
(2) | Balance sheet amounts reported for AT1, Tier 1 and Tier 2 instruments are before grandfathering restrictions imposed by CRR. |
(3) | Internal issuance for NWB Plc, RBS plc and UBIDAC represents AT1, Tier 2 or Senior unsecured issuance to NatWest Holdings Limited and for NWM N.V. and NWM SI to NWM Plc. |
(4) | Senior unsecured debt does not include CP, CD and short /medium term notes issued from NatWest Group operating subsidiaries. |
(5) | Tier 1 (inclusive of AT1) does not include CET1 numbers. |
NatWest Group – Form 6-K Interim Results 2021 | 76 |
Risk and capital management
Capital, liquidity and funding risk continued
Risk-weighted assets
The table below analyses the movement in RWAs during the half year, by key drivers.
| | | | | | | | | | |
|
| |
| Counterparty |
|
|
| Operational |
|
|
| | Credit risk | | credit risk | | Market risk | | risk | | Total |
| | £bn | | £bn | | £bn | | £bn | | £bn |
At 1 January 2021 |
| 129.9 |
| 9.1 |
| 9.4 |
| 21.9 |
| 170.3 |
Foreign exchange movement |
| (1.0) | | (0.2) | | — | | — | | (1.2) |
Business movement |
| (3.4) | | (0.2) | | 1.8 | | (0.9) | | (2.7) |
Risk parameter changes (1) |
| (1.3) | | (0.1) | | — | | — | | (1.4) |
Model updates |
| (0.7) | | — | | (0.3) | | — | | (1.0) |
Other movements (2) | | (0.8) | | — | | — | | — | | (0.8) |
Acquisitions & Disposals (3) | | (0.2) | | — | | — | | — | | (0.2) |
At 30 June 2021 |
| 122.5 | | 8.6 | | 10.9 | | 21.0 | | 163.0 |
The table below analyses segmental RWAs.
| | | | | | | | | | | | | | | | |
|
| |
| |
|
|
| International Banking & Markets |
|
|
| Central |
|
| ||
| | Retail | | Private | | Commercial | | RBS | | NatWest | | Ulster | | items | | |
| | Banking | | Banking | | Banking | | International | | Markets | | Bank RoI | | & other | | Total |
Total RWAs | | £bn | | £bn | | £bn | | £bn | | £bn | | £bn | | £bn | | £bn |
At 1 January 2021 |
| 36.7 |
| 10.9 |
| 75.1 |
| 7.5 |
| 26.9 |
| 11.8 |
| 1.4 |
| 170.3 |
Foreign exchange movement |
| — | | — | | (0.4) | | (0.1) | | (0.3) | | (0.4) | | — |
| (1.2) |
Business movement |
| (0.3) | | 0.3 | | (3.6) | | 0.2 | | 0.8 | | (0.3) | | 0.2 |
| (2.7) |
Risk parameter changes (1) |
| (0.8) | | — | | (0.2) | | — | | (0.1) | | (0.4) | | 0.1 |
| (1.4) |
Model updates |
| — | | — | | (0.7) | | — | | (0.3) | | — | | — |
| (1.0) |
Other movements (2) | | — | | — | | (0.7) | | — | | (0.1) | | — | | — | | (0.8) |
Acquisitions & Disposals (3) | | — | | — | | - | | — | | - | | (0.2) | | — | | (0.2) |
At 30 June 2021 |
| 35.6 | | 11.2 | | 69.5 | | 7.6 | | 26.9 | | 10.5 | | 1.7 |
| 163.0 |
| | | | | | | | | | | | | | | | |
Credit risk |
| 28.2 | | 9.8 | | 60.8 | | 6.6 | | 5.9 | | 9.5 | | 1.7 |
| 122.5 |
Counterparty credit risk |
| 0.2 | | 0.1 | | 0.3 | | — | | 8.0 | | — | | — |
| 8.6 |
Market risk |
| 0.2 | | — | | 0.4 | | — | | 10.2 | | 0.1 | | — |
| 10.9 |
Operational risk |
| 7.0 | | 1.3 | | 8.0 | | 1.0 | | 2.8 | | 0.9 | | — |
| 21.0 |
Total RWAs |
| 35.6 | | 11.2 | | 69.5 | | 7.6 | | 26.9 | | 10.5 | | 1.7 |
| 163.0 |
Notes:
a. | RWA benefit of £0.8 billion as a result of the CRR COVID-19 amendment for Infrastructure Supporting Factor. |
b. | Asset transfers from NatWest Markets to Commercial. |
Key points
Total RWAs decreased by £7.3 billion during the period due to the following:
● | Credit risk RWAs decreased by £7.4 billion due to repayments and expired facilities of c.£4 billion in Commercial Banking, a reduction of c.£0.8 billion due to improved risk metrics in Retail Banking and reduced exposures in Ulster Bank RoI in line with the current exit strategy. In addition, favourable foreign exchange movements resulted in further reductions. |
● | Operational risk RWAs reduced by £0.9 billion following the annual recalculation in Q1 2021. |
● | Counterparty credit risk RWAs reduced by £0.5 billion as a result of lower exposures in NatWest Markets. |
● | The £1.5 billion increase in market risk RWAs mainly reflected an increase in modelled market risk following the announcement of GBP LIBOR cessation in March 2021 as a result of including modelled GBP LIBOR basis risk post 4 January 2022. Regulatory approval has been obtained in July 2021 to update the VaR model and this will remove this impact in Q3 2021. |
NatWest Group – Form 6-K Interim Results 2021 | 77 |
Risk and capital management
Capital, liquidity and funding risk continued
Funding sources
The table below shows the carrying values of the principal funding sources based on contractual maturity. Balance sheet captions include balances held at all classifications under IFRS 9.
| | | | | | | | | | | | |
|
| 30 June 2021 |
| 31 December 2020 | ||||||||
| | Short-term | | Long-term | | | | Short-term | | Long-term | | |
| | less than | | more than | | | | less than | | more than | | |
| | 1 year | | 1 year | | Total | | 1 year | | 1 year | | Total |
| | £m | | £m | | £m | | £m | | £m | | £m |
Bank deposits |
|
|
|
|
|
|
|
|
|
|
|
|
Repos |
| 4,261 | | — | | 4,261 |
| 6,470 |
| — |
| 6,470 |
Other bank deposits (1) |
| 7,156 | | 2,977 | | 10,133 |
| 5,845 |
| 8,291 |
| 14,136 |
|
| 11,417 | | 2,977 | | 14,394 | | 12,315 |
| 8,291 |
| 20,606 |
Customer deposits |
| | | | | |
|
|
|
|
|
|
Repos |
| 16,750 | | — | | 16,750 |
| 5,167 |
| — |
| 5,167 |
Non-bank financial institutions |
| 56,430 | | 115 | | 56,545 |
| 53,475 |
| 147 |
| 53,622 |
Personal |
| 221,480 | | 1,042 | | 222,522 |
| 208,046 |
| 1,183 |
| 209,229 |
Corporate |
| 171,327 | | 70 | | 171,397 |
| 163,595 |
| 126 |
| 163,721 |
|
| 465,987 | | 1,227 | | 467,214 | | 430,283 |
| 1,456 |
| 431,739 |
Trading liabilities (2) |
| | | | | |
|
|
|
|
|
|
Repos (3) |
| 23,720 | | — | | 23,720 |
| 19,036 |
| — |
| 19,036 |
Derivative collateral |
| 17,165 | | — | | 17,165 |
| 23,229 |
| — |
| 23,229 |
Other bank customer deposits |
| 920 | | 726 | | 1,646 |
| 819 |
| 985 |
| 1,804 |
Debt securities in issue - Medium term notes |
| 378 | | 827 | | 1,205 |
| 527 |
| 881 |
| 1,408 |
|
| 42,183 | | 1,553 | | 43,736 | | 43,611 |
| 1,866 |
| 45,477 |
Other financial liabilities |
| | | | | |
|
|
|
|
|
|
Customer deposits |
| 546 | | 172 | | 718 |
| 616 |
| 180 |
| 796 |
Debt securities in issue: |
| | | | | |
|
|
|
|
|
|
Commercial papers and certificates of deposit |
| 7,327 | | 143 | | 7,470 |
| 7,086 |
| 168 |
| 7,254 |
Medium term notes |
| 6,492 | | 27,605 | | 34,097 |
| 4,648 |
| 29,078 |
| 33,726 |
Covered bonds |
| 25 | | 2,890 | | 2,915 |
| 53 |
| 2,967 |
| 3,020 |
Securitisation |
| — | | 918 | | 918 |
| — |
| 1,015 |
| 1,015 |
|
| 14,390 | | 31,728 | | 46,118 | | 12,403 |
| 33,408 |
| 45,811 |
Subordinated liabilities |
| 1,106 | | 7,590 | | 8,696 |
| 365 |
| 9,597 |
| 9,962 |
Total funding |
| 535,083 | | 45,075 | | 580,158 |
| 498,977 |
| 54,618 |
| 553,595 |
Of which: available in resolution (4) |
| — | | 28,412 | | 28,412 |
| — |
| 28,823 |
| 28,823 |
Notes:
(1) | Includes nil (31 December 2020 – £5.0 billion) relating to Term Funding Scheme with additional incentives for Small and Medium-sized Enterprises participation and £2.6 billion (31 December 2020 - £2.8 billion) relating to NatWest Group’s participation in central bank financing operations under the European Central Bank’s targeted Long-term financing operations. |
(2) | Excludes short positions of £32.1 billion (31 December 2020 - £26.8 billion). |
(3) | Comprises central & other bank repos of £1.3 billion (31 December 2020 - £1.0 billion), other financial institution repos of £20.5 billion (31 December 2020 - £16.0 billion) and other corporate repos of £1.9 billion (31 December 2020 - £2.0 billion). |
(4) | Eligible liabilities (as defined in the Banking Act 2009 as amended from time to time) that meet the eligibility criteria set out in the regulations, rules, policies, guidelines, or statements of the Bank of England including the Statement of Policy published by the Bank of England in June 2018. The balance consists of £22.0 billion (31 December 2020 - £20.9 billion) under debt securities in issue (senior MREL) and £6.4 billion (31 December 2020 - £7.9 billion) under subordinated liabilities. |
NatWest Group – Form 6-K Interim Results 2021 | 78 |
Risk and capital management
Capital, liquidity and funding risk continued
Liquidity portfolio
The table below shows the liquidity portfolio by product, with primary liquidity aligned to internal stressed outflow coverage and regulatory LCR categorisation. Secondary liquidity comprises assets eligible for discount at central banks, which do not form part of the liquid asset portfolio for LCR or internal stressed outflow purposes.
| | | | | | | | | | | | |
|
| Liquidity value | ||||||||||
| | 30 June 2021 | | 31 December 2020 | ||||||||
| | NatWest | | NWH | | UK DoL | | NatWest | | NWH | | UK DoL |
| | Group (1) | | Group (2) | | Sub (3) | | Group | | Group | | Sub |
|
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
Cash and balances at central banks |
| 148,904 |
| 117,162 |
| 111,310 |
| 115,820 |
| 86,575 |
| 86,575 |
AAA to AA- rated governments |
| 34,639 |
| 25,254 |
| 24,490 |
| 50,901 |
| 37,086 |
| 35,875 |
A+ and lower rated governments |
| 38 |
| — |
| — |
| 79 |
| — |
| — |
Government guaranteed issuers, Public sector entities and |
| |
| |
| |
|
|
|
|
|
|
Government sponsored entities |
| 265 |
| 265 |
| 140 |
| 272 |
| 272 |
| 141 |
International organisations and multilateral development |
| |
| |
| |
|
|
|
|
|
|
banks |
| 3,175 |
| 2,247 |
| 1,874 |
| 3,140 |
| 2,579 |
| 2,154 |
LCR level 1 bonds |
| 38,117 |
| 27,766 |
| 26,504 |
| 54,392 |
| 39,937 |
| 38,170 |
LCR level 1 assets |
| 187,021 |
| 144,928 |
| 137,814 |
| 170,212 |
| 126,512 |
| 124,745 |
LCR level 2 assets |
| 116 |
| — |
| — |
| 124 |
| — |
| — |
Non-LCR eligible assets |
| — |
| — |
| — |
| — |
| — |
| — |
Primary liquidity |
| 187,137 |
| 144,928 |
| 137,814 |
| 170,336 |
| 126,512 |
| 124,745 |
Secondary liquidity (4) |
| 89,909 |
| 89,685 |
| 86,445 |
| 91,985 |
| 91,761 |
| 88,774 |
Total liquidity value |
| 277,046 |
| 234,613 |
| 224,259 |
| 262,321 |
| 218,273 |
| 213,519 |
Notes:
(1)NatWest Group includes the UK Domestic Liquidity Sub-Group (UK DoLSub), NatWest Markets Plc and other significant operating subsidiaries that hold liquidity portfolios. These include The Royal Bank of Scotland International Limited, NWM N.V. and Ulster Bank Ireland DAC who hold managed portfolios that comply with local regulations that may differ from PRA rules.
(2)NWH Group comprises UK DoLSub & Ulster Bank Ireland DAC who hold managed portfolios that comply with local regulations that may differ from PRA rules.
(3)UK DoLSub comprises NatWest Group’s four licensed deposit-taking UK banks within the ring-fenced bank: NWB Plc, RBS plc, Coutts & Company and Ulster Bank Limited.
(4)Comprises assets eligible for discounting at the Bank of England and other central banks.
(5)NatWest Markets Plc liquidity portfolio is reported in the NatWest Markets Plc Company Announcement.
(6)Following a change in methodology in our internal stressed outflow coverage metric, cash placed at Central Bank of Ireland within UBIDAC is now reported in the liquidity portfolio.
NatWest Group – Form 6-K Interim Results 2021 | 79 |
Risk and capital management
Non-traded market risk
Non-traded market risk is the risk to the value of assets or liabilities outside the trading book, or the risk to income, that arises from changes in market prices such as interest rates, foreign exchange rates and equity prices, or from changes in managed rates.
Key developments
· | The global economy showed progression towards recovery in H1 2021 as COVID-19 vaccination programmes gathered pace and economies opened up. Market concerns turned to the impact of central bank actions in supporting recovery and managing inflation. Yield curves rose higher in anticipation of earlier rises in central bank policy rates and/or action to reduce quantitative easing. |
· | The five-year sterling swap rate increased to 0.47% at the end of June 2021 from – (0.01)% at the end of December 2020. The ten-year sterling swap rate also increased, to 0.71% from 0.16%. |
● | The structural hedge notional increased by £21 billion from £169 billion to £190 billion, mainly due to the increase in deposit volumes realised through the pandemic. The structural hedge yield fell over the same period to 0.80% from 1.00% as new hedges were booked at current market rates and maturing hedges were replaced. |
· | During H1 2021, NatWest Group continued to progress its transition from LIBOR to alternative risk-free rates. Income allocated to sterling product and equity hedges is now almost entirely benchmarked against the SONIA swap rate rather than LIBOR. |
· | Sterling strengthened against both the US dollar and the euro over the period. Against the dollar, sterling was 1.38 at 30 June 2021 compared to 1.37 at 31 December 2020. Against the euro, it was 0.85 at 30 June 2021 compared to 0.90 at 31 December 2020. Structural foreign currency exposure decreased, in sterling equivalent terms, by £459 million over the period. |
Non-traded internal VaR (1-day 99%)
The following table shows one-day internal banking book Value-at-Risk (VaR) at a 99% confidence level, split by risk type.
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Half year ended | ||||||||||||||||||||||
| | 30 June 2021 | | 30 June 2020 | | 31 December 2020 | ||||||||||||||||||
| | | | | | | | Period | | | | | | | | Period | | | | | | | | Period |
| | Average | | Maximum | | Minimum | | end | | Average | | Maximum | | Minimum | | end | | Average | | Maximum | | Minimum | | end |
|
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
Interest rate |
| 11.7 | | 13.0 | | 9.2 | | 12.8 |
| 12.8 |
| 16.9 |
| 8.0 |
| 16.9 |
| 15.5 |
| 17.7 |
| 12.3 |
| 12.3 |
Credit spread |
| 103.6 | | 113.5 | | 99.6 | | 99.6 |
| 99.6 |
| 121.1 |
| 63.7 |
| 114.7 |
| 106.7 |
| 111.7 |
| 103.1 |
| 111.5 |
Structural foreign |
| | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exchange rate |
| 11.0 | | 12.8 | | 9.2 | | 12.8 |
| 11.9 |
| 14.7 |
| 9.8 |
| 14.7 |
| 9.6 |
| 10.5 |
| 9.1 |
| 8.9 |
Equity |
| 11.3 | | 11.7 | | 11.1 | | 11.7 |
| 30.6 |
| 33.5 |
| 25.3 |
| 31.6 |
| 26.3 |
| 35.4 |
| 24.9 |
| 11.6 |
Pipeline risk (1) |
| 0.3 | | 0.4 | | 0.3 | | 0.4 |
| 0.5 |
| 0.7 |
| 0.3 |
| 0.5 |
| 0.4 |
| 0.7 |
| 0.3 |
| 0.3 |
Diversification (2) |
| (3.4) | | — | | | | (8.5) |
| (28.6) |
| |
| |
| (25.8) |
| (20.3) |
| |
| |
| 4.2 |
Total |
| 134.5 | | 147.1 | | 128.8 | | 128.8 |
| 126.8 |
| 159.9 |
| 70.8 |
| 152.6 |
| 138.2 |
| 159.9 |
| 70.8 |
| 148.8 |
Notes:
(1) | Pipeline risk is the risk of loss arising from Personal customers owning an option to draw down a loan – typically a mortgage – at a committed rate, where interest rate changes may result in greater or fewer customers than anticipated taking up the committed offer. |
(2) | NatWest Group benefits from diversification across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the correlation between the assets and risk factors in the portfolio at a particular time. The diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR. |
Key points
● | Non-traded VaR was broadly constant over H1 2021 compared to the prior period, reflecting a largely stable portfolio. |
● | The decrease in equity VaR, on an average basis, reflected the disposal of SABB during Q4 2020. |
NatWest Group – Form 6-K Interim Results 2021 | 80 |
Risk and capital management
Non-traded market risk continued
Structural hedging
NatWest Group has a significant pool of stable, non and low interest-bearing liabilities, principally comprising equity and money transmission accounts. These balances are usually hedged, either by investing directly in longer-term fixed-rate assets (such as fixed-rate mortgages or UK Government gilts) or by using interest rate swaps, which are generally booked as cash flow hedges of floating rate assets, in order to provide a consistent and predictable revenue stream.
After hedging the net interest rate exposure externally, NatWest Group allocates income to equity or products in structural hedges by reference to the relevant interest rate swap curve. Over time, this approach has provided a basis for stable income attribution to products and interest rate returns. The programme aims to track a time series of medium-term swap rates, but the yield will be affected by changes in product volumes and NatWest Group’s capital composition.
The table below shows the total income and total yield, incremental income relative to short-term cash rates, and the period-end and average notional balances associated with structural hedges in NatWest Group.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Half year ended | ||||||||||||||||||||||||||||
| | 30 June 2021 | | 30 June 2020 | | 31 December 2020 | ||||||||||||||||||||||||
| | | | | | Period | | | | | | | | | | Period | | | | | | | | | | Period | | | | |
| | Incremental | | Total | | -end | | Average | | Total | | Incremental | | Total | | -end | | Average | | Total | | Incremental | | Total | | -end | | Average | | Total |
| | income | | income | | notional | | notional | | yield | | income | | income | | notional | | notional | | yield | | income | | income | | notional | | notional | | yield |
| | £m | | £m | | £bn | | £bn | | % | | £m | | £m | | £bn | | £bn | | % | | £m | | £m | | £bn | | £bn | | % |
Equity structural |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
hedging |
| 235 | | 244 | | 23 | | 23 | | 2.13 |
| 209 |
| 294 |
| 24 |
| 25 |
| 2.39 |
| 269 |
| 286 |
| 23 |
| 23 |
| 2.46 |
Product structural |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
hedging |
| 360 | | 412 | | 146 | | 135 | | 0.61 |
| 146 |
| 503 |
| 114 |
| 112 |
| 0.90 |
| 397 |
| 455 |
| 125 |
| 118 |
| 0.77 |
Other structural |
| | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | |
hedging |
| 74 | | 62 | | 21 | | 22 | | 0.56 |
| 42 |
| 78 |
| 20 |
| 20 |
| 0.78 |
| 77 |
| 72 |
| 21 |
| 21 |
| 0.69 |
Total |
| 669 | | 718 | | 190 | | 180 | | 0.80 |
| 397 |
| 875 |
| 158 |
| 157 |
| 1.12 |
| 743 |
| 813 |
| 169 |
| 162 |
| 1.00 |
Equity structural hedges refer to income allocated primarily to equity and reserves. At 30 June 2021, the equity structural hedge notional was allocated between NWH Group and NWM Plc in a ratio of approximately 80/20 respectively.
Product structural hedges refer to income allocated to customer products by NWH Treasury, mainly current accounts and customer deposits in Commercial Banking and UK Retail Banking. Other structural hedges refer to hedges managed by UBIDAC, Private Banking and RBS International. Hedges associated with Ulster Bank Limited were moved from other structural hedges to product hedges in H1 2021 as Ulster Bank Limited products migrated to NatWest Bank Plc.
At 30 June 2021, approximately 93% by notional of total structural hedges were sterling-denominated.
The following table presents the incremental income associated with product structural hedges at segment level.
| | | | | | |
| | Half year ended | ||||
| | 30 June | | 30 June | | 31 December |
| | 2021 | | 2020 | | 2020 |
| | £m | | £m | | £m |
Retail Banking |
| 168 |
| 66 |
| 185 |
Commercial Banking |
| 192 |
| 80 |
| 212 |
Total |
| 360 |
| 146 |
| 397 |
Key points
● | Expectations of an economic recovery after the pandemic led to rising yield curves. The five-year sterling swap rate rose to 0.47% at 30 June 2021 from (0.01)% at 31 December 2020. The ten-year sterling swap rate also rose, to 0.71% from 0.16%. |
● | The yield of the structural hedge fell in H1 2021. The hedge notional increased, resulting in new hedges being written at current market rates. Maturing hedges were replaced with new hedges at lower rates. |
● | Short-term rates fell in 2020 as a result of the COVID-19 pandemic. That led to incremental income increasing in H2 2020, compare to H1, 2020, and remaining high in H1 2021. |
● | The increase in structural hedge notional mainly resulted from hedging Personal and Commercial deposits, which increased through the pandemic. |
NatWest Group – Form 6-K Interim Results 2021 | 81 |
Risk and capital management
Non-traded market risk continued
Sensitivity of net interest earnings
Net interest earnings are sensitive to changes in the level of interest rates, mainly because maturing structural hedges are replaced at higher or lower rates and changes to coupons on managed rate customer products do not always match changes in market rates of interest or central bank policy rates.
Earnings sensitivity is derived from a market-implied forward rate curve. A simple scenario is shown that projects forward earnings based on the 30 June 2021 balance sheet, which is assumed to remain constant. A base-case earnings forecast is derived from the market-implied curve, which is then subject to interest rate shocks. The difference between the base-case forecast and the shock gives an indication of underlying sensitivity to interest rate movements.
Reported sensitivities should not be considered a forecast of future performance in these rate scenarios. Actions that could reduce interest earnings sensitivity include changes in pricing strategies on customer loans and deposits as well as hedging. Management action may also be taken to stabilise total income also taking into account non-interest income.
Three-year 25 basis point sensitivity table
The table below shows the sensitivity of net interest earnings – for both structural hedges and managed rate accounts - on a one, two and three-year forward-looking basis to an upward or downward interest rate shift of 25 basis points.
In the upward rate scenario, yield curves were assumed to move in parallel, at both year-ends.
The downward rate scenarios at both 30 June 2021 and 31 December 2020 allow interest rates to fall to negative rates.
| | | | | | | | | | | | |
| | +25 basis points upward shift | | -25 basis points downward shift | ||||||||
| | Year 1 | | Year 2 (1) | | Year 3 (1) | | Year 1 | | Year 2 (1) | | Year 3 (1) |
30 June 2021 | | £m | | £m | | £m | | £m | | £m | | £m |
Structural hedges |
| 39 |
| 127 |
| 215 |
| (39) |
| (127) |
| (215) |
Managed margin |
| 414 |
| 365 |
| 287 |
| (374) |
| (420) |
| (395) |
Other |
| (3) |
| |
| |
| 7 |
| |
| |
Total |
| 450 |
| 492 |
| 502 |
| (406) |
| (547) |
| (610) |
| | | | | | | | | | | | |
31 December 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Structural hedges |
| 37 |
| 118 |
| 199 |
| (37) |
| (118) |
| (199) |
Managed margin |
| 319 |
| 380 |
| 387 |
| (258) |
| (285) |
| (292) |
Other |
| 15 |
| |
| |
| (20) |
| |
| |
Total |
| 371 |
| 498 |
| 586 |
| (315) |
| (403) |
| (491) |
Note:
(1) | The projections for Year 2 and Year 3 consider only the main drivers of earnings sensitivity, namely structural hedging and margin management. |
Key points
● | Structural hedge sensitivities are affected by structural hedging volumes. Managed margin sensitivities are affected by loan and deposit volumes and by the level of interest rates. |
● | The higher volume of customer deposits and structural hedging at 30 June 2021 compared to 31 December 2020 was a key driver of changes in sensitivities between the two dates. |
● | Adverse sensitivity to the 25-basis-point downward scenario was greater at 30 June 2021 than at 31 December 2020. This was mainly because assumptions regarding the extent to which negative rates would be passed through to loans and deposits in this scenario had less impact. |
● | At 30 June 2021, the higher level of rates in the base case affected estimates of the extent to which base rate rises are passed through to managed rate deposits in upward rate shift scenarios (notably in year 3 of the 25-basis-point upward shift). |
One-year 25 and 100 basis point sensitivity table
The following table analyses the one-year scenarios by currency and, in addition, shows the impact over one year of a 100-basis-point upward shift in all interest rates.
| | | | | | | | | | | | |
| | Shifts in yield curve | ||||||||||
| | 30 June 2021 | | 31 December 2020 | ||||||||
| | +25 basis | | -25 basis | | +100 basis | | +25 basis | | -25 basis | | +100 basis |
| | points | | points | | points | | points | | points | | points |
| | £m | | £m | | £m | | £m | | £m | | £m |
Euro |
| 6 |
| (11) |
| 97 |
| 7 |
| (6) |
| 99 |
Sterling |
| 405 |
| (358) |
| 1,253 |
| 336 |
| (287) |
| 1,109 |
US dollar |
| 37 |
| (35) |
| 147 |
| 26 |
| (22) |
| 102 |
Other |
| 2 |
| (2) |
| 14 |
| 2 |
| — |
| 7 |
Total |
| 450 |
| (406) |
| 1,511 |
| 371 |
| (315) |
| 1,317 |
NatWest Group – Form 6-K Interim Results 2021 | 82 |
Risk and capital management
Non-traded market risk continued
Foreign exchange risk
The table below shows structural foreign currency exposures.
| | | | | | | | | | |
|
|
|
|
|
| Structural |
|
|
|
|
| | Net | | | | foreign currency | | | | Residual |
| | investments | | Net | | exposures | | | | structural |
| | in foreign | | investment | | pre-economic | | Economic | | foreign currency |
| | operations | | hedges | | hedges | | hedges (1) | | exposures |
30 June 2021 | | £m | | £m | | £m | | £m | | £m |
US dollar |
| 1,291 |
| — |
| 1,291 |
| (1,291) |
| — |
Euro |
| 6,286 |
| (1,022) |
| 5,264 |
| — |
| 5,264 |
Other non-sterling |
| 996 |
| (331) |
| 665 |
| — |
| 665 |
Total |
| 8,573 |
| (1,353) |
| 7,220 |
| (1,291) | | 5,929 |
| | | | | | | | | | |
31 December 2020 |
|
|
|
|
|
|
|
|
|
|
US dollar |
| 1,299 |
| (3) |
| 1,296 |
| (1,296) |
| — |
Euro |
| 6,485 |
| (829) |
| 5,656 |
| — |
| 5,656 |
Other non-sterling |
| 1,077 |
| (350) |
| 727 |
| — |
| 727 |
Total |
| 8,861 |
| (1,182) |
| 7,679 |
| (1,296) |
| 6,383 |
Note:
(1) | Economic hedges of US dollar net investments in foreign operations represent US dollar equity securities that do not qualify as net investment hedges for accounting purposes. They provide an offset to structural foreign exchange exposures to the extent that there are net assets in overseas operations available. Economic hedges of other currency net investments in foreign operations represent monetary liabilities that are not booked as net investment hedges. |
Key points
● | Sterling strengthened against the US dollar and the euro over the period. |
● | The increase in euro hedging related to NatWest Bank’s investment in its German branch. |
● | Changes in foreign currency exchange rates affect equity in proportion to structural foreign currency exposure. For example, a 5% strengthening or weakening in foreign currencies against sterling would result in a gain or loss of £0.4 billion in equity respectively. |
NatWest Group – Form 6-K Interim Results 2021 | 83 |
Risk and capital management
Traded market risk
Traded market risk is the risk arising from changes in fair value on positions, assets, liabilities or commitments in trading portfolios as a result of fluctuations in market prices.
Traded VaR (1-day 99%)
The table below shows one-day internal value-at-risk (VaR) for NatWest Group’s trading portfolios, split by exposure type.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Half year ended | ||||||||||||||||||||||
| | 30 June 2021 | | 30 June 2020 | | 31 December 2020 | ||||||||||||||||||
| | | | | | | | Period | | | | | | | | Period | | | | | | | | Period |
| | Average | | Maximum | | Minimum | | end | | Average | | Maximum | | Minimum | | end | | Average | | Maximum | | Minimum | | end |
| | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m |
Interest rate |
| 11.3 |
| 19.0 |
| 4.5 |
| 17.4 | | 10.1 |
| 20.2 |
| 6.1 |
| 6.1 |
| 7.3 |
| 11.4 |
| 4.8 |
| 6.3 |
Credit spread |
| 11.0 |
| 13.4 | | 9.4 |
| 11.2 |
| 16.3 |
| 27.2 |
| 8.7 | | 17.7 |
| 14.4 |
| 18.8 |
| 10.0 |
| 10.3 |
Currency |
| 3.9 |
| 9.4 | | 2.0 |
| 2.4 |
| 4.2 |
| 8.4 |
| 2.1 | | 3.9 |
| 4.1 |
| 7.0 |
| 2.1 |
| 3.0 |
Equity |
| 0.5 |
| 0.8 | | 0.2 |
| 0.2 |
| 0.8 |
| 2.0 |
| 0.3 | | 0.3 |
| 0.4 |
| 0.8 |
| 0.2 |
| 0.7 |
Commodity |
| 0.2 |
| 0.5 | | — |
| — |
| 0.1 |
| 0.3 |
| — | | 0.1 |
| 0.2 |
| 0.6 |
| — |
| 0.2 |
Diversification (1) |
| (13.5) |
| | | |
| (15.5) |
| (14.8) |
| |
| | | (9.6) |
| (10.9) |
| |
| |
| (10.3) |
Total |
| 13.4 |
| 23.9 | | 9.5 |
| 15.7 |
| 16.7 |
| 25.7 |
| 10.1 | | 18.5 |
| 15.5 |
| 22.2 |
| 10.2 |
| 10.2 |
Note:
(1) | NatWest Group benefits from diversification across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the correlation between the assets and risk factors in the portfolio at a particular time. The diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR. |
Key points
● | The increase in average interest rate VaR, compared to the prior period, reflected a rise in tenor basis risk in sterling flow trading. This related to the transition from LIBOR to alternative risk-free rates. The regulator has approved an update of the VaR model, which will remove this impact during Q3 2021. |
● | The decrease in average credit spread VaR mostly reflected a tightening of credit spreads over the period. |
● | Traded VaR remained within appetite throughout the period. |
NatWest Group – Form 6-K Interim Results 2021 | 84 |
Risk and capital management
Other risks
Operational risk
· | Management attention focused heavily on operational resilience to ensure that planning, controls and operational activities remained robust and appropriate. There was also continuing focus on the potential operational risks arising from changes in working practices. |
· | The security threat and the potential for cyber-attacks on NatWest Group and its supply chain is closely monitored. There is continuous enhancement of NatWest Group’s defences against the evolving threat and ongoing focus on assuring the security of the supply chain. |
Conduct & compliance risk
· | The impact of the pandemic on NatWest Group’s conduct and regulatory compliance risk profiles remained an important area of focus. This included oversight of NatWest Group’s diverse initiatives to support its customers throughout the crisis. While NatWest Group acted to ensure customer needs were met at pace, the associated conduct and compliance risks were carefully assessed and monitored throughout. |
· | In addition, there was a sustained emphasis on oversight of NatWest Group’s pricing, payment and forbearance treatment strategies to support customers in recent months, as well as prioritising the delivery of mandatory and regulatory change programmes. |
· | NatWest Group remains committed to ensuring its transition from LIBOR to risk-free rates by the end of 2021 is appropriately managed and controlled to ensure the best outcomes for NatWest Group and its customers. |
Climate risk
● | A qualitative statement of appetite for climate risk was also approved by NatWest Group Board in April 2021. The appetite statement reflects the ambitions of NatWest Group to support customers while managing the carbon impact and risk exposure of the organisation in line with its commitments. |
● | Throughout the first half of 2021, NatWest Group continued to develop its data and modelling capability to assess the impact of its customers’ physical and transition risks, and collaborated with a range of industry initiatives to support the wider development of climate risk scenario analysis. Following this work, NatWest Group will undertake the Bank of England’s Climate Biennial Exploratory Scenario during H2 2021. |
NatWest Group – Form 6-K Interim Results 2021 | 85 |
Condensed consolidated income statement for the period ended 30 June 2021 (unaudited)
| | | | | |
| | Half year ended | | ||
| | 30 June | | 30 June | |
|
| 2021 |
| 2020 | |
|
| £m |
| £m | |
Interest receivable |
| 4,782 |
| 5,190 | |
Interest payable |
| (866) |
| (1,338) | |
Net interest income |
| 3,916 |
| 3,852 | |
Fees and commissions receivable |
| 1,312 |
| 1,430 | |
Fees and commissions payable |
| (285) |
| (392) | |
Income from trading activities |
| 231 |
| 802 | |
Other operating income |
| 145 |
| 146 | |
Non-interest income |
| 1,403 |
| 1,986 | |
Total income |
| 5,319 |
| 5,838 | |
Staff costs |
| (1,902) |
| (1,955) | |
Premises and equipment |
| (502) |
| (651) | |
Other administrative expenses |
| (703) |
| (696) | |
Depreciation and amortisation |
| (414) |
| (448) | |
Operating expenses |
| (3,521) |
| (3,750) | |
Profit before impairment releases/(losses) |
| 1,798 |
| 2,088 | |
Impairment releases/(losses) |
| 707 |
| (2,858) | |
Operating profit/(loss) before tax |
| 2,505 |
| (770) | |
Tax (charge)/credit |
| (435) |
| 208 | |
Profit/(loss) for the period |
| 2,070 |
| (562) | |
Attributable to: | | | | | |
Ordinary shareholders |
| 1,842 |
| (705) | |
Preference shareholders | | 9 | | 16 | |
Paid-in equity holders | | 178 | | 192 | |
Non-controlling interests |
| 41 |
| (65) | |
| | 2,070 |
| (562) | |
Earnings per ordinary share | | 15.6p | | (5.8p) | |
Earnings per ordinary share - fully diluted |
| 15.5p | | (5.8p) | |
NatWest Group – Form 6-K Interim Results 2021 | 86 |
Condensed consolidated statement of comprehensive income for the period ended 30 June 2021 (unaudited)
| | | | |
| | Half year ended | ||
| | 30 June | | 30 June |
|
| 2021 |
| 2020 |
| | £m |
| £m |
Profit/(loss) for the period | | 2,070 |
| (562) |
Items that do not qualify for reclassification | | | | |
Remeasurement of retirement benefit schemes (1) | | (734) | | 68 |
(Loss)/profit on fair value of credit in financial liabilities designated at FVTPL due to own credit risk | | (25) | | 83 |
FVOCI financial assets | | 8 | | (120) |
Tax | | 182 |
| — |
| | (569) |
| 31 |
Items that do qualify for reclassification | | | | |
FVOCI financial assets | | (145) |
| (111) |
Cash flow hedges | | (365) |
| 417 |
Currency translation | | (288) |
| 575 |
Tax | | 65 |
| (179) |
| | (733) |
| 702 |
Other comprehensive (loss)/income after tax | | (1,302) |
| 733 |
Total comprehensive income for the period | | 768 |
| 171 |
| | | | |
Attributable to: | | | | |
Ordinary shareholders | | 535 |
| 14 |
Preference shareholders | | 9 |
| 16 |
Paid-in equity holders | | 178 |
| 192 |
Non-controlling interests | | 46 |
| (51) |
| | 768 |
| 171 |
Note:
(1) | Following the purchase of ordinary shares from UKGI in March 2021, NatWest Group contributed £500 million to its main pension scheme in line with the memorandum of understanding announced on 17 April 2018. After tax relief, this contribution reduced total equity by £365 million. There was also a pre tax loss of £176 million (€205 million) in relation to the interim re-measurement of the Ulster Bank Pension Scheme (Republic of Ireland), as a result of significant movements in underlying actuarial assumptions (June 2020: net gain of £90 million (€101 million)). In line with our policy, the present value of defined benefit obligations and the fair value of plan assets at the end of the interim reporting period, are assessed to identity significant market fluctuations and one-off events since the end of the prior financial year. |
NatWest Group – Form 6-K Interim Results 2021 | 87 |
Condensed consolidated balance sheet as at 30 June 2021 (unaudited)
| | | | |
| | 30 June | | 31 December |
|
| 2021 |
| 2020 |
|
| £m |
| £m |
Assets | | | | |
Cash and balances at central banks |
| 151,511 |
| 124,489 |
Trading assets | | 70,195 | | 68,990 |
Derivatives | | 109,556 | | 166,523 |
Settlement balances |
| 7,793 |
| 2,297 |
Loans to banks - amortised cost |
| 8,176 |
| 6,955 |
Loans to customers - amortised cost |
| 362,711 |
| 360,544 |
Other financial assets |
| 51,469 |
| 55,148 |
Intangible assets |
| 6,694 |
| 6,655 |
Other assets |
| 7,753 |
| 7,890 |
Total assets |
| 775,858 |
| 799,491 |
| | | | |
Liabilities | | | | |
Bank deposits | | 14,394 | | 20,606 |
Customer deposits | | 467,214 | | 431,739 |
Settlement balances |
| 7,119 |
| 5,545 |
Trading liabilities |
| 75,847 |
| 72,256 |
Derivatives | | 103,992 | | 160,705 |
Other financial liabilities | | 46,118 | | 45,811 |
Subordinated liabilities |
| 8,696 |
| 9,962 |
Notes in circulation | | 2,906 | | 2,655 |
Other liabilities |
| 5,687 |
| 6,388 |
Total liabilities |
| 731,973 |
| 755,667 |
| | | | |
Equity | | | | |
Ordinary shareholders' interests | | 37,445 | | 38,367 |
Other owners' interests |
| 6,430 |
| 5,493 |
Owners’ equity | | 43,875 | | 43,860 |
Non-controlling interests |
| 10 |
| (36) |
Total equity |
| 43,885 |
| 43,824 |
Total liabilities and equity |
| 775,858 |
| 799,491 |
NatWest Group – Form 6-K Interim Results 2021 | 88 |
Condensed consolidated statement of changes in equity for the period ended 30 June 2021 (unaudited)
| | | | |
| | Half year ended | ||
|
| 30 June |
| 30 June |
|
| 2021 |
| 2020 |
| | £m | | £m |
Called-up share capital - at beginning of period | | 12,129 | | 12,094 |
Ordinary shares issued | | 38 | | 31 |
Share cancellation (1) | | (391) | | — |
At end of period |
| 11,776 | | 12,125 |
| | | | |
Paid-in equity - at beginning of period | | 4,999 | | 4,058 |
Redeemed/reclassified (2) |
| — |
| (1,277) |
Securities issued during the period (3) |
| 937 | | 1,220 |
At end of period |
| 5,936 |
| 4,001 |
| | | | |
Share premium account - at beginning of period | | 1,111 | | 1,094 |
Ordinary shares issued |
| 50 | | 16 |
At end of period |
| 1,161 |
| 1,110 |
| | | | |
Merger reserve - at beginning and end of period | | 10,881 | | 10,881 |
| | | | |
FVOCI reserve - at beginning of period | | 360 | | 138 |
Unrealised losses |
| (113) |
| (123) |
Realised gains | | (23) | | (107) |
Tax |
| 15 |
| 12 |
At end of period |
| 239 | | (80) |
| | | | |
Cash flow hedging reserve - at beginning of period | | 229 | | 35 |
Amount recognised in equity |
| (323) |
| 445 |
Amount transferred from equity to earnings |
| (42) |
| (28) |
Tax |
| 59 |
| (111) |
At end of period |
| (77) |
| 341 |
| | | | |
Foreign exchange reserve - at beginning of period | | 1,608 | | 1,343 |
Retranslation of net assets |
| (336) |
| 527 |
Foreign currency gains/(losses) on hedges of net assets |
| 43 |
| (63) |
Tax |
| (11) |
| (95) |
Recycled to profit or loss on disposal of businesses (4) |
| — |
| 97 |
At end of period |
| 1,304 |
| 1,809 |
| | | | |
Capital redemption reserve - at beginning of period | | — | | — |
Share cancellation (1) | | 390 | | — |
Redemption of preference shares | | 24 | | — |
At end of period |
| 414 |
| — |
| | | | |
Retained earnings - at beginning of period |
| 12,567 |
| 13,946 |
Profit/(loss) attributable to ordinary shareholders and other equity owners |
| 2,029 |
| (497) |
Equity preference dividends paid |
| (9) |
| (16) |
Paid-in equity dividends paid | | (178) | | (192) |
Ordinary dividends paid | | (347) | | — |
Shares repurchased during the year (1) | | (748) | | — |
Redemption of preference shares | | (24) | | — |
Redemption/reclassification of paid-in equity (2) | | — | | (355) |
Realised losses in period on FVOCI equity shares | | (1) | | (1) |
Remeasurement of the retirement benefit schemes (5) | | | | |
- gross | | (734) | | 68 |
- tax | | 182 | | 23 |
Changes in fair value of credit in financial liabilities designated at fair value through profit or loss | | | | |
- gross | | (25) | | 83 |
- tax | | 2 | | (8) |
Shares issued under employee share schemes |
| — |
| (11) |
Share-based payments | | (82) | | (100) |
At end of period |
| 12,632 |
| 12,940 |
NatWest Group – Form 6-K Interim Results 2021 | 89 |
Condensed consolidated statement of changes in equity for the period ended 30 June 2021 (unaudited) continued
| | | | |
Own shares held - at beginning of period | | (24) | | (42) |
Shares issued under employee share schemes |
| 17 | | 95 |
Own shares acquired (1) |
| (384) |
| (77) |
At end of period |
| (391) |
| (24) |
Owners' equity at end of period |
| 43,875 |
| 43,103 |
Non-controlling interests - at beginning of period |
| (36) |
| 9 |
Currency translation adjustments and other movements |
| 5 | | 14 |
Profit/(loss) attributable to non-controlling interests |
| 41 |
| (65) |
At end of period |
| 10 |
| (42) |
Total equity at end of period |
| 43,885 |
| 43,061 |
Attributable to: | | | | |
Ordinary shareholders |
| 37,445 |
| 38,608 |
Preference shareholders |
| 494 |
| 494 |
Paid-in equity holders |
| 5,936 |
| 4,001 |
Non-controlling interests |
| 10 |
| (42) |
|
| 43,885 |
| 43,061 |
Notes:
(1) | In March 2021, there was an agreement with HM Treasury to buy 591 million ordinary shares in the Company from UK Government Investments Ltd (UKGI), at 190.5p per share for the total consideration of £1.13 billion. NatWest Group cancelled 391 million of the purchased ordinary shares, amounting to £744 million excluding fees, and held the remaining 200 million in own shares held, amounting to £381 million excluding fees. The nominal value of the share cancellation has been transferred to the capital redemption reserve. |
(2) | In June 2020, paid-in equity reclassified to liabilities as the result of a call of US$2 billion AT1 notes. |
(3) | AT1 capital notes totalling US$750 million less fees were issued in June 2021 (£400 million less fees were issued in March 2021). In June 2020, AT1 capital notes totalling US$1.5 billion less fees were issued. |
(4) | In 2020, the completion of the Alawwal bank merger resulted in the derecognition of the associate investment in Alawwal bank and recognition of a new investment in SABB held at fair value through other comprehensive income (FVOCI). |
(5) | Following the a purchase of ordinary shares from UKGI in March 2021 which triggered NatWest Group contributed £500 million to its main pension scheme in line with the memorandum of understanding announced on 17 April 2018. After tax relief, this contribution reduced total equity by £365 million.There was also a pre tax loss of £176 million (€205 million) in relation to the interim re-measurement of the Ulster Bank Pension Scheme (Republic of Ireland), as a result of significant movements in underlying actuarial assumptions (June 2020: net gain of £90 million (€101 million)). In line with our policy, the present value of defined benefit obligations and the fair value of plan assets at the end of the interim reporting period, are assessed to identity significant market fluctuations and one-off events since the end of the prior financial year. |
NatWest Group – Form 6-K Interim Results 2021 | 90 |
Condensed consolidated cash flow statement for the period ended 30 June 2021 (unaudited)
| | | | |
| | Half year ended | ||
| | 30 June |
| 30 June |
|
| 2021 |
| 2020 |
|
| £m |
| £m |
Operating activities | | | | |
Operating profit/(loss) before tax | | 2,505 | | (770) |
Adjustments for non-cash items | | 2,635 | | 1,271 |
Net cash flows from trading activities | | 5,140 | | 501 |
Changes in operating assets and liabilities | | 25,745 | | 14,281 |
Net cash flows from operating activities before tax | | 30,885 | | 14,782 |
Income taxes paid | | (259) | | (231) |
Net cash flows from operating activities | | 30,626 | | 14,551 |
Net cash flows from investing activities | | (790) | | 2,035 |
Net cash flows from financing activities | | (359) | | 2,748 |
Effects of exchange rate changes on cash and cash equivalents | | (1,935) | | 2,752 |
Net increase in cash and cash equivalents | | 27,542 | | 22,086 |
Cash and cash equivalents at beginning of period | | 139,199 | | 100,588 |
Cash and cash equivalents at end of period | | 166,741 | | 122,674 |
NatWest Group – Form 6-K Interim Results 2021 | 91 |
Notes
1. Basis of preparation
The condensed consolidated financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and UK adopted IAS 34 ‘Interim Financial Reporting’. They should be read in conjunction with NatWest Group plc’s 2020 Annual Report on Form 20-F which were prepared in accordance with International Financial Reporting Standards in conformity with the requirements of the Companies Act 2006 and with International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. NatWest Group plc 2021 Annual Report on Form 20-F will be prepared in accordance with UK adopted with International Financial Reporting Standards.
Going concern
Having reviewed NatWest Group’s forecasts, projections, the potential impact of COVID-19, and other relevant evidence, the directors have a reasonable expectation that NatWest Group will continue in operational existence for a period of not less than twelve months. Accordingly, the results for the period ended 30 June 2021 have been prepared on a going concern basis.
2. Accounting policies
NatWest Group’s principal accounting policies are as set out on pages 263 to 267 of the NatWest Group plc 2020 Annual Report on Form 20-F. Changes to accounting policies from 1 January 2021 had no material effect on NatWest Group plc’s accounts.
Critical accounting policies and key sources of estimation uncertainty
The judgements and assumptions that are considered to be the most important to the portrayal of NatWest Group’s financial condition are those relating to deferred tax, fair value of financial instruments, loan impairment provisions, goodwill and provisions for liabilities and charges. These critical accounting policies and judgements are referenced on page 267 of the NatWest Group plc 2020 Annual Report on Form 20-F. Estimation uncertainty has been affected by the COVID-19 pandemic. Management’s consideration of this source of uncertainty is outlined in the relevant sections of the NatWest Group plc 2020 Annual Report on Form 20-F, including the ECL estimate for the period in the Risk and capital management section contained in the NatWest Group plc 2020 Annual Report on Form 20-F.
Information used for significant estimates
The COVID-19 pandemic has continued to cause significant economic and social disruption. Key financial estimates are based on a range of anticipated future economic conditions described by internally developed scenarios. Measurement of goodwill, deferred tax and expected credit losses are highly sensitive to reasonably possible changes in those anticipated conditions. Other reasonably possible assumptions about the future include a prolonged financial effect of the COVID-19 pandemic on the economy of the UK and other countries. Changes in judgements and assumptions could result in a material adjustment to those estimates in the next reporting periods. Refer to the NatWest Group plc Risk factors section in the 2020 Annual Report on Form 20-F.
NatWest Group – Form 6-K Interim Results 2021 | 92 |
3. Analysis of income, expenses and impairment losses
| | | | |
| | Half year ended | ||
| | 30 June |
| 30 June |
|
| 2021 |
| 2020 |
|
| £m |
| £m |
Loans to customers - amortised cost |
| 4,433 |
| 4,698 |
Loans to banks - amortised cost | | 217 | | 189 |
Other financial assets |
| 132 |
| 303 |
Interest receivable |
| 4,782 |
| 5,190 |
Deposits by banks |
| 99 |
| 89 |
Customer deposits |
| 319 |
| 432 |
Other financial liabilities |
| 314 |
| 481 |
Subordinated liabilities |
| 130 |
| 218 |
Internal funding of trading businesses |
| 4 |
| 118 |
Interest payable |
| 866 |
| 1,338 |
Net interest income |
| 3,916 |
| 3,852 |
| | | | |
Net fees and commissions | | 1,027 | | 1,038 |
Foreign exchange |
| 183 |
| 344 |
Interest rate |
| (6) |
| 472 |
Credit |
| 54 |
| (68) |
Own credit adjustment | | — | | 53 |
Equity, commodities and other |
| — |
| 1 |
Income from trading activities |
| 231 |
| 802 |
Loss on redemption of own debt (1) | | (138) | | — |
Operating lease and other rental income |
| 108 |
| 119 |
Changes in fair value of financial assets or liabilities designated at fair value through profit or loss (2) | | (4) | | (21) |
Changes in fair value of other financial assets at fair value through profit or loss | | — | | (10) |
Hedge ineffectiveness |
| 13 |
| (10) |
Loss on disposal of amortised assets | | (6) | | (16) |
Profit on disposal of fair value through other comprehensive income assets |
| 24 |
| 108 |
Profit on sale of property, plant and equipment |
| 6 |
| 11 |
Share of profit of associated entities |
| 129 |
| 12 |
Profit/(loss) on disposal of subsidiaries and associates |
| 1 |
| (99) |
Other income (3) |
| 12 |
| 52 |
Other operating income | | 145 | | 146 |
Total non-interest income | | 1,403 | | 1,986 |
Total income |
| 5,319 |
| 5,838 |
| | | | | |
Salaries |
| 1,192 |
| 1,290 | |
Bonus awards | | 142 | | 179 | |
Temporary and contract costs | | 114 | | 148 | |
Social security costs |
| 152 |
| 153 | |
Pension costs | | 177 | | 164 | |
- defined benefit schemes |
| 110 |
| 101 | |
- defined contribution schemes |
| 67 |
| 63 | |
Other |
| 125 |
| 21 | |
Staff costs |
| 1,902 |
| 1,955 | |
Premises and equipment (4) |
| 502 |
| 651 | |
Depreciation and amortisation (5) |
| 414 |
| 448 | |
Other administrative expenses (6) |
| 703 |
| 696 | |
Administrative expenses |
| 1,619 |
| 1,795 | |
Operating expenses | | 3,521 | | 3,750 | |
Impairment releases/(losses) | | 707 | | (2,858) | |
Impairments as a % of gross loans to customers | | 0.38 | % | 1.59 | % |
Notes:
(1) Representing day one loss on redemption of own debt related to the repurchase of legacy instruments.
(2) Includes related derivatives.
(3) Includes income from activities other than banking.
(4) 30 June 2021 includes cost of £20 million including accelerated depreciation of £12 million (30 June 2020 - £102 million including £40 million accelerated depreciation) in relation to the planned reduction of the property portfolio (30 June 2021 – freehold £1 million; leasehold £19 million; 30 June 2020 - leasehold £102 million).
(5) 30 June 2021 includes a £23 million charge relating to the reduction in property portfolio, leasehold £19 million and freehold £4 million (30 June 2020 - £43 million charge, leasehold £43 million).
(6) Includes litigation and conduct costs.
NatWest Group – Form 6-K Interim Results 2021 | 93 |
4. Segmental analysis
The business is organised into the following reportable segments: Personal Banking, Private Banking, Commercial Banking, RBS International (RBSI), NatWest Markets, Ulster Bank RoI and Central items & other.
Analysis of operating profit/(loss) before tax
The following tables provide a segmental analysis of operating profit/(loss) before tax by the main income statement captions.
| | | | | | | | | | | | | | | | |
| | | | | | | | International Banking & Markets | | Ulster | | Central | | | ||
|
| Retail |
| Private |
| Commercial |
| RBS |
| NatWest |
| Bank |
| items & |
| |
| | Banking | | Banking | | Banking | | International | | Markets | | RoI | | other (1) | | Total |
Half year ended 30 June 2021 | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m |
Net interest income | | 1,976 | | 232 | | 1,308 | | 182 | | (3) | | 187 | | 34 | | 3,916 |
Net fees and commissions | | 173 | | 124 | | 560 | | 59 | | 83 | | 38 | | (10) | | 1,027 |
Other non-interest income | | 1 | | 12 | | 55 | | 15 | | 215 | | 18 | | 60 | | 376 |
Total income | | 2,150 | | 368 | | 1,923 | | 256 | | 295 | | 243 | | 84 | | 5,319 |
Operating expenses | | (1,187) | | (249) | | (1,152) | | (112) | | (560) | | (261) | | — | | (3,521) |
Impairment releases/(losses) | | 57 | | 27 | | 568 | | 29 | | 16 | | 11 | | (1) | | 707 |
Operating profit/(loss) | | 1,020 | | 146 | | 1,339 | | 173 | | (249) | | (7) | | 83 | | 2,505 |
| | | | | | | | | | | | | | | | |
Half year ended 30 June 2020 | | | | | | | | | | | | | | | | |
Net interest income |
| 1,982 |
| 251 |
| 1,370 |
| 201 |
| (34) |
| 194 |
| (112) | | 3,852 |
Net fees and commissions |
| 204 |
| 130 |
| 552 |
| 43 |
| 76 |
| 44 |
| (11) | | 1,038 |
Other non-interest income |
| (1) |
| 11 |
| 81 |
| 15 |
| 774 |
| 11 |
| 57 | | 948 |
Total income |
| 2,185 |
| 392 |
| 2,003 |
| 259 |
| 816 |
| 249 |
| (66) | | 5,838 |
Operating expenses |
| (1,075) |
| (252) |
| (1,221) |
| (126) |
| (707) |
| (245) |
| (124) | | (3,750) |
Impairment losses |
| (657) |
| (56) |
| (1,790) |
| (46) |
| (40) |
| (243) |
| (26) | | (2,858) |
Operating profit/(loss) |
| 453 |
| 84 |
| (1,008) |
| 87 |
| 69 |
| (239) |
| (216) | | (770) |
Note:
(1) | 30 June 2021 predominantly relates to interest receivable in Treasury and 30 June 2020 predominantly related to interest receivable in Treasury and strategic disposals in Functions. |
Total revenue(1)
| | | | | | | | | | | | | | | | |
| | | | | | | | International Banking & Markets | | Ulster | | Central | | | ||
| | Retail | | Private | | Commercial | | RBS | | NatWest | | Bank | | items & | | |
| | Banking | | Banking | | Banking | | International | | Markets | | RoI | | Other | | Total |
Half year ended 30 June 2021 |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
External |
| 2,667 |
| 358 |
| 1,861 |
| 278 |
| 523 |
| 275 |
| 508 |
| 6,470 |
Inter-segmental |
| 14 |
| 60 |
| 43 |
| 3 |
| 17 |
| — |
| (137) |
| — |
Total |
| 2,681 |
| 418 |
| 1,904 |
| 281 |
| 540 |
| 275 |
| 371 |
| 6,470 |
| | | | | | | | | | | | | | | | |
Half year ended 30 June 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External |
| 2,764 |
| 358 |
| 2,009 |
| 269 |
| 1,328 |
| 277 |
| 563 |
| 7,568 |
Inter-segmental |
| 24 |
| 99 |
| 47 |
| 3 |
| 4 |
| — |
| (177) |
| — |
Total |
| 2,788 |
| 457 |
| 2,056 |
| 272 |
| 1,332 |
| 277 |
| 386 |
| 7,568 |
Note:
(1) | Total revenue comprises interest receivable, fees and commissions receivable, income from trading activities and other operating income. |
NatWest Group – Form 6-K Interim Results 2021 | 94 |
Notes
4. Segmental analysis continued
Analysis of net fees and commissions
| | | | | | | | | | | | | | | | |
|
| |
| |
| |
| International Banking & Markets |
| Ulster |
| Central |
| | ||
| | Retail | | Private | | Commercial | | RBS | | NatWest | | Bank | | items | | |
| | Banking | | Banking | | Banking | | International | | Markets | | RoI | | & other | | Total |
Half year ended 30 June 2021 | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m |
Fees and commissions receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Payment services |
| 145 |
| 16 |
| 255 |
| 6 |
| 10 |
| 28 |
| — |
| 460 |
- Credit and debit card fees |
| 149 |
| 4 |
| 69 |
| 1 |
| — |
| 8 |
| — |
| 231 |
- Lending and financing | | 6 | | 4 | | 242 | | 28 | | 34 | | 7 | | — | | 321 |
- Investment management, trustee and fiduciary services |
| 1 |
| 113 |
| — |
| 22 |
| — |
| 1 |
| — | | 137 |
- Underwriting fees |
| — |
| — |
| — |
| — |
| 77 |
| — |
| — |
| 77 |
- Other |
| 32 |
| 19 |
| 63 |
| 3 |
| 25 |
| — |
| (56) |
| 86 |
Total |
| 333 |
| 156 |
| 629 |
| 60 |
| 146 |
| 44 |
| (56) |
| 1,312 |
| | | | | | | | | | | | | | | | |
Fees and commissions payable |
| (160) |
| (32) |
| (69) |
| (1) |
| (63) |
| (6) |
| 46 |
| (285) |
Net fees and commissions |
| 173 |
| 124 |
| 560 |
| 59 |
| 83 |
| 38 |
| (10) |
| 1,027 |
| | | | | | | | | | | | | | | | |
Half year ended 30 June 2020 | | | | | | | | | | | | | | | | |
Fees and commissions receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Payment services |
| 129 |
| 14 |
| 256 |
| 9 |
| 9 |
| 28 |
| — |
| 445 |
- Credit and debit card fees |
| 144 | | 4 | | 60 | | 1 | | — | | 10 | | — | | 219 |
- Lending and financing |
| 37 |
| 2 |
| 241 |
| 15 |
| 46 |
| 7 |
| — |
| 348 |
- Investment management, trustee and fiduciary services |
| 1 |
| 113 |
| — |
| 17 |
| — |
| 1 |
| — | | 132 |
- Underwriting fees |
| — |
| — |
| — |
| — |
| 124 |
| — |
| — |
| 124 |
- Other |
| 34 |
| 18 |
| 48 |
| 2 |
| 98 |
| 2 |
| (40) |
| 162 |
Total |
| 345 |
| 151 |
| 605 |
| 44 |
| 277 |
| 48 |
| (40) |
| 1,430 |
| | | | | | | | | | | | | | | | |
Fees and commissions payable |
| (141) |
| (21) |
| (53) |
| (1) |
| (201) |
| (4) |
| 29 |
| (392) |
Net fees and commissions |
| 204 |
| 130 |
| 552 |
| 43 |
| 76 |
| 44 |
| (11) |
| 1,038 |
Total assets and liabilities
| | | | | | | | | | | | | | | | |
| | | | | | | | International Banking & Markets | | Ulster | | Central | | | ||
| | Retail | | Private | | Commercial | | RBS | | NatWest | | Bank | | items & | |
|
| | Banking | | Banking | | Banking | | International | | Markets | | RoI | | other | | Total |
30 June 2021 |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
Assets |
| 204,167 |
| 27,686 |
| 185,757 |
| 36,953 |
| 219,447 |
| 25,422 |
| 76,426 |
| 775,858 |
Liabilities |
| 187,851 |
| 34,808 |
| 183,837 |
| 34,843 |
| 206,160 |
| 21,872 |
| 62,602 |
| 731,973 |
| | | | | | | | | | | | | | | | |
31 December 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
| 197,618 |
| 26,206 |
| 187,413 |
| 33,984 |
| 270,147 |
| 26,620 |
| 57,503 |
| 799,491 |
Liabilities |
| 178,617 |
| 32,457 |
| 174,251 |
| 31,989 |
| 254,098 |
| 22,993 |
| 61,262 |
| 755,667 |
NatWest Group – Form 6-K Interim Results 2021 | 95 |
Notes
5. Tax
The actual tax charge differs from the expected tax charge computed by applying the standard UK corporation tax rate of 19% (2020 - 19%), as analysed below:
| | | | |
| | Half year ended | ||
| | 30 June |
| 30 June |
|
| 2021 | | 2020 |
| | £m | | £m |
Profit/(loss) before tax | | 2,505 | | (770) |
Expected tax (charge)/credit |
| (476) | | 146 |
Losses and temporary differences in period where no deferred tax assets recognised |
| (6) | | (38) |
Foreign profits taxed at other rates |
| 4 | | (24) |
Items not allowed for tax: | | | | |
- losses on disposals and write-downs |
| (3) | | (14) |
- UK bank levy |
| (11) | | (15) |
- regulatory and legal actions |
| 3 | | 20 |
- other disallowable items |
| (10) | | (23) |
Non-taxable items | | 25 | | 68 |
Taxable foreign exchange movements |
| — | | (2) |
Losses bought forward and utilised |
| 6 | | 23 |
Decrease in the carrying value of deferred tax assets in respect of: |
| | | |
- UK losses | | (5) | | (56) |
- Ireland losses | | (35) | | (20) |
Banking surcharge |
| (173) | | 52 |
Tax on paid-in equity | | 32 | | 38 |
UK tax rate change impact | | 206 | | 75 |
Adjustments in respect of prior periods |
| 8 | | (22) |
Actual tax (charge)/credit |
| (435) | | 208 |
At 30 June 2021, NatWest Group has recognised a deferred tax asset of £1,150 million (31 December 2020 - £901 million) and a deferred tax liability of £303 million (31 December 2020 - £291 million). These include amounts recognised in respect of UK trading losses of £972 million (31 December 2020 - £862 million). Under UK tax legislation, these UK losses can be carried forward indefinitely. NatWest Group has considered the carrying value of this asset as at 30 June 2021 and concluded that it is recoverable based on future profit projections.
It was announced in the UK Government’s Budget on 3 March 2021 that the main UK corporation tax rate will increase from 19% to 25% from 1 April 2023. This legislative change was enacted on 10 June 2021. NatWest Group’s closing deferred tax assets and liabilities have therefore been recalculated taking into account this change of rate and the applicable period the deferred tax assets and liabilities are expected to crystallise. As a result, the net deferred tax asset position in NatWest Group has increased by £176 million, with a £206 million credit included in the income statement (refer to reconciling item above), and a £30 million charge included in other comprehensive income. There is an ongoing HM Treasury review of the bank surcharge rate to ensure that the combined rate of corporation tax applicable to banking entities remains competitive.
NatWest Group – Form 6-K Interim Results 2021 | 96 |
6. Trading assets and liabilities
Trading assets and liabilities comprise assets and liabilities held at fair value in trading portfolios.
| | | | |
|
| 30 June |
| 31 December |
| | 2021 | | 2020 |
Assets | | £m | | £m |
Loans |
|
|
|
|
Reverse repos |
| 24,718 |
| 19,404 |
Collateral given |
| 12,955 |
| 18,760 |
Other loans |
| 1,154 |
| 1,611 |
Total loans |
| 38,827 |
| 39,775 |
Securities |
| |
| |
Central and local government |
| |
| |
- UK |
| 5,121 |
| 4,184 |
- US |
| 4,088 |
| 5,149 |
- other |
| 18,347 |
| 16,436 |
Financial institutions and corporate |
| 3,812 |
| 3,446 |
Total securities |
| 31,368 |
| 29,215 |
Total |
| 70,195 |
| 68,990 |
| | | | |
Liabilities |
| |
| |
Deposits |
| |
| |
Repos |
| 23,720 |
| 19,036 |
Collateral received |
| 17,165 |
| 23,229 |
Other deposits |
| 1,646 |
| 1,804 |
Total deposits |
| 42,531 |
| 44,069 |
Debt securities in issue |
| 1,205 |
| 1,408 |
Short positions |
| 32,111 |
| 26,779 |
Total |
| 75,847 |
| 72,256 |
NatWest Group – Form 6-K Interim Results 2021 | 97 |
Notes
7. Financial instruments
Financial instruments: classification
The following tables analyse financial assets and liabilities in accordance with the categories of financial instruments on an IFRS 9 basis. Assets and liabilities outside the scope of IFRS 9 are shown within other assets and other liabilities.
| | | | | | | | | | |
| | | | | | Amortised | | Other |
| |
| | MFVTPL | | FVOCI | | cost | | assets |
| Total |
Assets |
| £m |
| £m |
| £m |
| £m |
| £m |
Cash and balances at central banks |
| |
| |
| 151,511 |
| | | 151,511 |
Trading assets | | 70,195 | | | | | | | | 70,195 |
Derivatives (1) | | 109,556 | | | | | | | | 109,556 |
Settlement balances |
| | | | | 7,793 | | | | 7,793 |
Loans to banks - amortised cost (2) |
| |
| |
| 8,176 |
| | | 8,176 |
Loans to customers - amortised cost (3) |
| |
| |
| 362,711 |
| | | 362,711 |
Other financial assets |
| 340 | | 42,085 |
| 9,044 |
| | | 51,469 |
Intangible assets | | | | | | | | 6,694 | | 6,694 |
Other assets |
| | | | | |
| 7,753 | | 7,753 |
30 June 2021 |
| 180,091 |
| 42,085 |
| 539,235 |
| 14,447 |
| 775,858 |
| | | | | | | | | | |
Cash and balances at central banks | | | | | | 124,489 | | | | 124,489 |
Trading assets | | 68,990 | | | | | | | | 68,990 |
Derivatives (1) | | 166,523 | | | | | | | | 166,523 |
Settlement balances | | | | | | 2,297 | | | | 2,297 |
Loans to banks - amortised cost (2) | | | | | | 6,955 | | | | 6,955 |
Loans to customers - amortised cost (3) | | | | | | 360,544 | | | | 360,544 |
Other financial assets | | 440 | | 44,902 | | 9,806 | | | | 55,148 |
Intangible assets | | | | | | | | 6,655 | | 6,655 |
Other assets | | | | | | | | 7,890 | | 7,890 |
31 December 2020 |
| 235,953 |
| 44,902 |
| 504,091 |
| 14,545 |
| 799,491 |
| | | | | | | | | | |
| | Held-for- | | | | Amortised | | Other | | |
|
| trading |
| DFV |
| cost |
| liabilities |
| Total |
Liabilities |
| £m | | £m | | £m | | £m | | £m |
Bank deposits (4) |
| |
| | | 14,394 |
| |
| 14,394 |
Customer deposits |
| |
| | | 467,214 |
| |
| 467,214 |
Settlement balances |
| |
| | | 7,119 |
| |
| 7,119 |
Trading liabilities | | 75,847 | | | | | | | | 75,847 |
Derivatives (1) |
| 103,992 |
| | | |
| |
| 103,992 |
Other financial liabilities |
| |
| 1,961 | | 44,157 |
| |
| 46,118 |
Subordinated liabilities |
| |
| 744 | | 7,952 |
| |
| 8,696 |
Notes in circulation | | | | | | 2,906 | | | | 2,906 |
Other liabilities (5) |
| |
| | | 1,818 |
| 3,869 |
| 5,687 |
30 June 2021 |
| 179,839 |
| 2,705 | | 545,560 |
| 3,869 |
| 731,973 |
| | | | | | | | | | |
Bank deposits (4) |
| |
| | | 20,606 |
| |
| 20,606 |
Customer deposits |
| |
| | | 431,739 |
| |
| 431,739 |
Settlement balances |
| |
| | | 5,545 |
| |
| 5,545 |
Trading liabilities |
| 72,256 |
| | | |
| |
| 72,256 |
Derivatives (1) |
| 160,705 |
| | | |
| |
| 160,705 |
Other financial liabilities |
| |
| 2,403 | | 43,408 |
| |
| 45,811 |
Subordinated liabilities |
| |
| 793 | | 9,169 |
| |
| 9,962 |
Notes in circulation | | | | | | 2,655 | | | | 2,655 |
Other liabilities (5) |
| |
| | | 1,882 |
| 4,506 |
| 6,388 |
31 December 2020 |
| 232,961 |
| 3,196 | | 515,004 |
| 4,506 |
| 755,667 |
Notes:
(1) | Includes net hedging derivatives assets of £42 million (31 December 2020 - £93 million) and net hedging derivatives liabilities of £136 million (31 December 2020 - £130 million). |
(2) | Includes items in the course of collection from other banks of £275 million (31 December 2020 - £148 million). |
(3) | Includes finance lease receivables of £8,765 million (31 December 2020 - £9,061 million). |
(4) | Includes items in the course of transmission to other banks of £92 million (31 December 2020 - £12 million). |
(5) | Includes lease liabilities of £1,652 million (31 December 2020 - £1,698 million). |
NatWest Group – Form 6-K Interim Results 2021 | 98 |
Notes
7. Financial instruments continued
NatWest Group's financial assets and liabilities include:
| | | | |
| | 30 June | | 31 December |
|
| 2021 |
| 2020 |
| | £m | | £m |
Reverse repos |
|
|
|
|
Trading assets | | 24,718 | | 19,404 |
Loans to banks - amortised cost |
| 382 |
| 153 |
Loans to customers - amortised cost |
| 22,706 |
| 25,011 |
|
|
|
|
|
Repos |
| |
|
|
Bank deposits |
| 4,261 |
| 6,470 |
Customer deposits |
| 16,751 |
| 5,167 |
Trading liabilities |
| 23,720 | | 19,036 |
Interest rate benchmark reform
NatWest Group continues to implement its entity-wide IBOR reform programme with the aim of being ready for the various transition events which are expected to occur prior to the cessation of the vast majority of the IBOR benchmark rates at the end of 2021 and of the USD IBOR in 2023.
NatWest Group continues to develop new products across its different segments that reference the new alternative risk-free rates and continues to work with customers to assess their readiness and ability to adopt new products, transition existing products or take the necessary steps to ensure that products can transition at IBOR cessation. A comprehensive review of the effect of IBOR reform on funding, liquidity and risk management has also been conducted and NatWest Group will continue to adapt its key systems, methodologies and processes to meet the requirements of the new risk-free rates. This is expected to be fully implemented over the course of 2021 and by June 2023 for USD IBOR.
NatWest Group expects that the vast majority of non-derivative instruments will transition in H2 2021 or the first reset date of the interest rate after cessation via renegotiation with clients or fallback provisions. Derivatives that are subject to clearing are expected to transition in line with the relevant clearing house transition approaches while other derivatives are expected to transition using the ISDA fallback protocol.
NatWest Group also remains engaged with regulators, standard setters and other market participants on key matters related to the IBOR reform. It is expected that the programme will meet all timelines set by the regulators.
NatWest Group – Form 6-K Interim Results 2021 | 99 |
Notes
7. Financial instruments continued
Financial instruments - valuation hierarchy
Disclosures relating to the control environment, valuation techniques and related aspects pertaining to financial instruments measured at fair value are included in the NatWest Group plc 2020 Annual Report on Form 20-F. Valuation, sensitivity methodologies and inputs at 30 June 2021 are consistent with those described in Note 12 to the NatWest Group plc 2020 Annual Report on Form 20-F.
The tables below show financial instruments carried at fair value on the balance sheet by valuation hierarchy - level 1, level 2 and level 3 and valuation sensitivities for level 3 balances.
| | | | | | | | | | | | | | | | |
| | 30 June 2021 | | 31 December 2020 | ||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 | | Total |
| Level 1 |
| Level 2 |
| Level 3 | | Total |
| | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m |
Assets |
|
|
|
|
| | |
|
|
|
|
|
| | |
|
Trading assets |
| |
| |
| | | |
|
|
|
|
| | |
|
Loans |
| — |
| 38,664 |
| 163 | | 38,827 |
| — |
| 39,550 |
| 225 | | 39,775 |
Securities |
| 22,048 |
| 9,205 |
| 115 | | 31,368 |
| 21,535 |
| 7,599 |
| 81 | | 29,215 |
Derivatives |
| — |
| 108,622 |
| 934 | | 109,556 |
| — |
| 165,441 |
| 1,082 | | 166,523 |
Other financial assets |
| |
| |
| | | |
| |
| |
| | | |
Loans |
| — |
| 394 |
| 588 | | 982 |
| — |
| 185 |
| 168 | | 353 |
Securities |
| 32,422 |
| 8,827 |
| 194 | | 41,443 |
| 35,972 |
| 8,850 |
| 167 | | 44,989 |
Total financial assets held at fair value |
| 54,470 |
| 165,712 |
| 1,994 | | 222,176 |
| 57,507 |
| 221,625 |
| 1,723 | | 280,855 |
| | | | | | | | | | | | | | | | |
Liabilities |
|
|
|
|
| | |
|
|
|
|
|
| | |
|
Trading liabilities |
|
|
|
|
| | |
|
|
|
|
|
| | |
|
Deposits |
| — |
| 42,528 |
| 3 | | 42,531 |
| — |
| 44,062 |
| 7 | | 44,069 |
Debt securities in issue |
| — |
| 1,205 |
| — | | 1,205 |
| — |
| 1,408 |
| — | | 1,408 |
Short positions |
| 23,659 |
| 8,451 |
| 1 | | 32,111 |
| 19,045 |
| 7,734 |
| — | | 26,779 |
Derivatives |
| — |
| 103,311 |
| 681 | | 103,992 |
| — |
| 159,818 |
| 887 | | 160,705 |
Other financial liabilities |
| |
| |
| | | |
| |
| |
| | | |
Debt securities in issue |
| — |
| 1,243 |
| — | | 1,243 |
| — |
| 1,607 |
| — | | 1,607 |
Other deposits |
| — |
| 718 |
| — | | 718 |
| — |
| 796 |
| — | | 796 |
Subordinated liabilities |
| — |
| 744 |
| — | | 744 |
| — |
| 793 |
| — | | 793 |
Total financial liabilities held at fair value |
| 23,659 |
| 158,200 |
| 685 | | 182,544 |
| 19,045 |
| 216,218 |
| 894 | | 236,157 |
Notes:
(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 instrument was transferred. There were no significant transfers between level 1 and level 2. |
(3) | For an analysis of debt securities held at mandatorily fair value through profit or loss by issuer as well as ratings and derivatives, by type and contract, refer to Risk and capital management – Credit risk. |
(4) | The determination of an instrument’s level cannot be made at a global product level as a single product type can be in more than one level. For example, a single name corporate credit default swap could be in level 2 or level 3 depending on whether the reference counterparty’s obligations are liquid or illiquid. |
NatWest Group – Form 6-K Interim Results 2021 | 100 |
Notes
7. Financial instruments continued
Financial instruments: sensitivity analysis
| | | | | | | | | | | | |
| | 30 June 2021 | | 31 December 2020 | ||||||||
| | Level 3 | | Favourable | | Unfavourable | | Level 3 | | Favourable | | Unfavourable |
|
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
Assets | | | | | | | | | | | | |
Trading assets | | | | | | | | | | | | |
Loans |
| 163 |
| 10 |
| — |
| 225 |
| 10 |
| — |
Securities |
| 115 |
| 10 |
| — |
| 81 |
| — |
| — |
Derivatives |
| 934 |
| 60 |
| (70) |
| 1,082 | | 80 |
| (80) |
Other financial assets |
| |
| |
| |
| |
| |
| |
Loans |
| 588 |
| 30 |
| (50) |
| 168 |
| 20 |
| (10) |
Securities |
| 194 |
| 30 |
| (20) |
| 167 |
| 30 |
| (20) |
Total financial assets held at fair value |
| 1,994 |
| 140 |
| (140) |
| 1,723 |
| 140 |
| (110) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Trading liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
| 3 |
| — |
| — |
| 7 |
| — |
| — |
Short Positions |
| 1 |
| — |
| — |
| — |
| — |
| — |
Derivatives |
| 681 |
| 40 |
| (40) |
| 887 |
| 50 |
| (40) |
Total financial liabilities held at fair value |
| 685 |
| 40 |
| (40) | | 894 |
| 50 |
| (40) |
Reasonably plausible alternative assumptions of unobservable inputs are determined based on a specified target level of certainty of 90%. The assessments recognise different favourable and unfavourable valuation movements where appropriate. Each unobservable input within a product is considered separately and sensitivity is reported on an additive basis.
Alternative assumptions are determined with reference to all available evidence including consideration of the following: quality of independent pricing information taking into account consistency between different sources, variation over time, perceived tradability or otherwise of available quotes; consensus service dispersion ranges; volume of trading activity and market bias (e.g. one-way inventory); day 1 profit or loss arising on new trades; number and nature of market participants; market conditions; modelling consistency in the market; size and nature of risk; length of holding of position; and market intelligence.
Movement in level 3 portfolios
The following table shows the movement in level 3 assets and liabilities.
| | | | | | | | | | | | | | | | |
| | Half year ended 30 June 2021 | | Half year ended 30 June 2020 | ||||||||||||
| | | | 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 |
| 1,388 |
| 335 |
| 1,723 |
| 894 |
| 2,233 |
| 321 |
| 2,554 |
| 1,317 |
Amount recorded in the income statement (3) |
| (125) |
| 3 |
| (122) |
| (98) |
| 313 |
| (1) |
| 312 |
| 97 |
Amount recorded in the statement of comprehensive income |
| — |
| 17 |
| 17 |
| — |
| — |
| 62 |
| 62 |
| — |
Level 3 transfers in |
| 42 |
| 428 |
| 470 |
| 15 |
| 133 |
| 207 |
| 340 |
| 6 |
Level 3 transfers out |
| (68) |
| — |
| (68) |
| (116) |
| (101) |
| — |
| (101) |
| (337) |
Purchases |
| 168 |
| 10 |
| 178 |
| 114 |
| 366 |
| 10 |
| 376 |
| 100 |
Settlements |
| (36) |
| (4) |
| (40) |
| (15) |
| (113) |
| — |
| (113) |
| (14) |
Sales |
| (156) |
| (4) |
| (160) |
| (107) |
| (933) |
| (1) |
| (934) |
| (164) |
Foreign exchange and other adjustments |
| (1) |
| (3) |
| (4) |
| (2) |
| 5 |
| 8 |
| 13 |
| 3 |
At 30 June |
| 1,212 |
| 782 |
| 1,994 |
| 685 |
| 1,903 |
| 606 |
| 2,509 |
| 1,008 |
Amounts recorded in the income statement in respect of balances held at year end - unrealised |
| (125) |
| 3 |
| (122) |
| (98) |
| 313 |
| (1) |
| 312 |
| 97 |
Notes:
(1) | Trading assets comprise assets held at fair value in trading portfolios. |
(2) | Other financial assets comprise fair value through other comprehensive income, designated at fair value through profit or loss and other fair value through profit or loss.Movement in the period primarily reflects increase in loan positions classified as HTC&S under IFRS 9 and fair valued through other comprehensive income. |
(3) | £27 million net losses on trading assets and liabilities (30 June 2020 - £215 million net gains) were recorded in income from trading activities. Net gains on other instruments of £3 million (30 June 2020 - NaN gains) were recorded in other operating income and interest income as appropriate. |
NatWest Group – Form 6-K Interim Results 2021 | 101 |
Notes
7. Financial instruments continued
Valuation reserves
When valuing financial instruments in the trading book, adjustments are made to mid-market valuations to cover bid-offer spread, funding and credit risk. These adjustments are presented in the table below:
| | | | |
|
| 30 June |
| 31 December |
| | 2021 | | 2020 |
| | £m | | £m |
Funding - FVA |
| 79 |
| 140 |
Credit - CVA |
| 385 |
| 390 |
Bid - Offer |
| 108 |
| 148 |
Product and deal specific |
| 163 |
| 172 |
|
| 735 |
| 850 |
● | Valuation reserves comprising of credit valuation adjustments (CVA), funding valuation adjustment (FVA), bid-offer and product and deal specific reserves, decreased to £735 million at 30 June 2021 (31 December 2020 – £850 million). |
● | There was a reallocation of FVA to CVA during the period following an update to the risk management of certain exposures. |
● | The net decrease across CVA, FVA and bid-offer reserves was driven by reduced exposures, due to increases in interest rates and trade exit activity, and reduced risk. |
NatWest Group – Form 6-K Interim Results 2021 | 102 |
Notes
7. Financial instruments continued
Financial instruments: fair value of financial instruments measured at amortised cost
The following table shows the carrying value and fair value of financial instruments carried at amortised cost on the balance sheet.
| | | | | | | | | | | | |
|
| Items where fair value |
| |
| |
| |
| |
| |
| | approximates | | Carrying | | | | Fair value hierarchy level | ||||
| | carrying value | | value | | Fair value | | Level 1 | | Level 2 | | Level 3 |
30 June 2021 | | £bn | | £bn | | £bn | | £bn | | £bn | | £bn |
Financial assets |
| |
| |
| |
| |
| |
| |
Cash and balances at central banks |
| 151.5 | | | | | | | | | | |
Settlement balances | | 7.8 | | | | | | | | | | |
Loans to banks |
| 0.3 | | 7.9 | | 7.9 | | | | 5.0 | | 2.9 |
Loans to customers | | | | 362.7 | | 359.8 | | | | 25.3 | | 334.5 |
Other financial assets |
| | | | | | | | | | | |
Securities | | | | 9.0 | | 9.1 | | 5.4 | | 0.9 | | 2.8 |
Financial liabilities |
| | | | | | | | | | | |
Bank deposits |
| 5.9 | | 8.5 | | 8.5 | | | | 3.7 | | 4.8 |
Customer deposits |
| 388.1 | | 79.1 | | 79.1 | | | | 20.7 | | 58.4 |
Settlement balances | | 7.1 | | | | | | | | | | |
Other financial liabilities |
| | | | | | | | | | | |
Debt securities in issue | | | | 44.2 | | 45.3 | | — | | 34.9 | | 10.4 |
Subordinated liabilities |
| | | 8.0 | | 8.5 | | — | | 8.4 | | 0.1 |
Notes in circulation |
| 2.9 | | | | | | | | | | |
| | | | | | | | | | | | |
31 December 2020 |
| | | | | | | | | | | |
Financial assets |
| | | | | | | | | | | |
Cash and balances at central banks |
| 124.5 |
| |
| |
| |
| |
| |
Settlement balances |
| 2.3 |
| |
| |
| |
| |
| |
Loans to banks |
| 0.1 |
| 6.9 |
| 6.9 |
| — |
| 3.8 |
| 3.1 |
Loans to customers | | | | 360.5 | | 359.2 | | — | | 25.2 | | 334.0 |
Other financial assets |
| |
| |
| |
| |
| | | |
Securities | | | | 9.8 | | 10.1 | | 5.9 | | 1.2 | �� | 3.0 |
Financial liabilities |
| |
| |
| |
| |
| |
| |
Bank deposits | | 4.4 |
| 16.2 |
| 16.2 |
| — |
| 11.3 |
| 4.9 |
Customer deposits |
| 371.7 |
| 60.0 |
| 60.1 |
| — |
| 10.1 |
| 50.0 |
Settlement balances |
| 5.5 |
| |
| |
| |
| |
| |
Other financial liabilities |
| |
| |
| |
| |
| |
| |
Debt securities in issue | | | | 43.4 | | 44.6 | | — | | 34.7 | | 9.9 |
Subordinated liabilities |
| |
| 9.2 |
| 9.8 |
| — |
| 9.7 |
| 0.1 |
Notes in circulation |
| 2.7 | | | | | | | | | | |
The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Quoted market values are used where available; otherwise, fair values have been estimated based on discounted expected future cash flows and other valuation techniques. These techniques involve uncertainties and require assumptions and judgments covering prepayments, credit risk and discount rates. Furthermore, there is a wide range of potential valuation techniques. Changes in these assumptions would affect estimated fair values. The fair values reported would not necessarily be realised in an immediate sale or settlement.
NatWest Group – Form 6-K Interim Results 2021 | 103 |
8. Provisions for liabilities and charges
| | | | | | | | | | | | |
|
| |
| Litigation and |
| |
| Financial |
|
|
|
|
| | Customer | | other | | | | commitments | | | | |
| | redress (1) | | regulatory | | Property | | and guarantees | | Other (2) | | Total |
| | £m | | £m | | £m | | £m | | £m | | £m |
At 1 January |
| 749 |
| 365 |
| 270 |
| 179 |
| 289 |
| 1,852 |
Expected credit losses impairment charge |
| — |
| — |
| — |
| 6 |
| — |
| 6 |
Currency translation and other movements |
| (3) |
| (5) |
| — |
| (1) |
| (2) |
| (11) |
Charge to income statement |
| 17 |
| 8 |
| 13 |
| — |
| 60 |
| 98 |
Release to income statement |
| (4) |
| (10) |
| (8) |
| — |
| (9) |
| (31) |
Provisions utilised |
| (222) |
| (11) |
| (10) |
| — |
| (55) |
| (298) |
At 31 March |
| 537 |
| 347 |
| 265 |
| 184 |
| 283 |
| 1,616 |
Expected credit losses impairment release |
| — |
| — |
| — |
| (18) |
| — |
| (18) |
Currency translation and other movements |
| — |
| — |
| 1 |
| — |
| (8) |
| (7) |
Charge to income statement |
| 32 |
| 1 |
| 22 |
| — |
| 42 |
| 97 |
Release to income statement |
| (7) |
| (68) |
| (20) |
| — |
| (10) |
| (105) |
Provisions utilised |
| (87) |
| (20) |
| (8) |
| — |
| (62) |
| (177) |
At 30 June |
| 475 |
| 260 |
| 260 |
| 166 |
| 245 |
| 1,406 |
Notes:
(1) | Includes payment protection insurance provision which reflects the estimated cost of PPI redress attributable to claims prior to the Financial Conduct Authority (FCA) complaint deadline of 29 August 2019. All pre-deadline complaints have been processed which removes complaint volume estimation uncertainty from the provision estimate. NatWest Group continues to conclude remaining bank-identified closure work and conclude cases with the Financial Ombudsmen Service. |
(2) | Other materially comprises provisions relating to restructuring costs. |
Provisions are liabilities of uncertain timing or amount and are recognised when there is a present obligation as a result of a past event, the outflow of economic benefit is probable and the outflow can be estimated reliably. Any difference between the final outcome and the amounts provided will affect the reported results in the period when the matter is resolved.
9. Dividends
The 2020 final dividend was approved by shareholders at the Annual General Meeting on 28 April 2021 and the payment made on 4 May 2021 to shareholders on the register at the close of business on 26 March 2021. NatWest Group plc announces an interim dividend for 2021 of £347 million, or 3p per ordinary share. The interim dividend will be paid on 17 September 2021 to shareholders on the register at close of business on 13 August 2021. The ex-dividend date will be 12 August 2021.
NatWest Group – Form 6-K Interim Results 2021 | 104 |
10. Loan impairment provisions
Loan exposure and impairment metrics
The table below summarises loans and related credit impairment measures on an IFRS 9 basis.
| | | | |
|
| 30 June | | 31 December |
| | 2021 | | 2020 |
| | £m | | £m |
Loans - amortised cost and FVOCI |
| | |
|
Stage 1 |
| 316,701 | | 287,124 |
Stage 2 |
| 53,188 | | 78,917 |
Stage 3 |
| 5,703 | | 6,358 |
Of which: individual | | 1,851 | | 2,292 |
Of which: collective |
| 3,852 | | 4,066 |
| | 375,592 | | 372,399 |
ECL provisions (1) |
| | | |
Stage 1 |
| 433 | | 519 |
Stage 2 |
| 2,300 | | 3,081 |
Stage 3 |
| 2,192 | | 2,586 |
Of which: individual | | 560 | | 831 |
Of which: collective | | 1,632 | | 1,755 |
|
| 4,925 | | 6,186 |
ECL provisions coverage (2, 3) |
| | | |
Stage 1 (%) | | 0.14 | | 0.18 |
Stage 2 (%) | | 4.32 | | 3.90 |
Stage 3 (%) | | 38.44 | | 40.67 |
|
| 1.31 | | 1.66 |
| | | | |
| | Half year ended | ||
| | 30 June | | 30 June |
| | 2021 | | 2020 |
| | £m | | £m |
Impairment losses |
| | | |
ECL (release)/charge (4) | | (707) | | 2,858 |
Stage 1 | | (701) | | 308 |
Stage 2 | | (100) | | 2,150 |
Stage 3 | | 94 | | 400 |
Of which: individual | | (25) | | 131 |
Of which: collective | | 119 | | 269 |
ECL loss rate - annualised (basis points) (3) |
| (38) | | 154 |
Amounts written off |
| 517 | | 408 |
Of which: individual | | 256 | | 41 |
Of which: collective |
| 261 | | 367 |
Notes:
(1) Includes £6 million (31 December 2020 - £6 million) related to assets classified as FVOCI.
(2) ECL provisions coverage is calculated as ECL provisions divided by loans.
(3) ECL provisions coverage and ECL loss rates are calculated on third party loans and related ECL provisions and charge respectively. ECL loss rate is calculated as annualised third party ECL charge divided by loans. The half year ECL charge is annualised by multiplying by two.
(4) Includes a £4 million charge (30 June 2020 – £5 million charge) related to other financial assets, of which NaN (30 June 2020 – £4 million) related to assets classified as FVOCI; and £2 million (30 June 2020 - £8 million) related to contingent liabilities.
(5) The table shows gross loans only and excludes amounts that are outside the scope of the ECL framework. Refer to page 33 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 £150.5 billion (31 December 2020 – £122.7 billion) and debt securities of £49.8 billion (31 December 2020 – £53.8 billion).
Notes
11. Contingent liabilities and commitments
The amounts shown in the table below are intended only to provide an indication of the volume of business outstanding at 30 June 2021. Although NatWest Group is exposed to credit risk in the event of a customer’s failure to meet its obligations, the amounts shown do not, and are not intended to, provide any indication of NatWest Group’s expectation of future losses.
| | | | |
| | 30 June | | 31 December |
| | 2021 | | 2020 |
|
| £m |
| £m |
| |
| |
|
Guarantees | | 2,005 |
| 2,244 |
Other contingent liabilities | | 2,117 |
| 2,321 |
Standby facilities, credit lines and other commitments | | 119,387 |
| 124,167 |
Contingent liabilities and commitments | | 123,509 |
| 128,732 |
Contingent liabilities arise in the normal course of NatWest Group's business; credit exposure is subject to the bank’s normal controls.
NatWest Group – Form 6-K Interim Results 2021 | 105 |
12.Litigation and regulatory matters
NatWest Group plc and certain members of NatWest Group are party to legal proceedings and involved in regulatory matters, including as the subject of investigations and other regulatory and governmental action (‘Matters’) in the United Kingdom (UK), the United States (US), the European Union (EU) and other jurisdictions.
NatWest Group recognises a provision for a liability in relation to these Matters when it is probable that an outflow of economic benefits will be required to settle an obligation resulting from past events, and a reliable estimate can be made of the amount of the obligation.
In many of these Matters, it is not possible to determine whether any loss is probable, or to estimate reliably the amount of any loss, either as a direct consequence of the relevant proceedings and regulatory matters or as a result of adverse impacts or restrictions on NatWest Group’s reputation, businesses and operations. Numerous legal and factual issues may need to be resolved, including through potentially lengthy discovery and document production exercises and determination of important factual matters, and by addressing novel or unsettled legal questions relevant to the proceedings in question, before a liability can reasonably be estimated for any claim. NatWest Group cannot predict if, how, or when such claims will be resolved or what the eventual settlement, damages, fine, penalty or other relief, if any, may be, particularly for claims that are at an early stage in their development or where claimants seek substantial or indeterminate damages.
There are situations where NatWest Group may pursue an approach that in some instances leads to a settlement agreement. This may occur in order to avoid the expense, management distraction or reputational implications of continuing to contest liability, or in order to take account of the risks inherent in defending claims or regulatory matters, even for those Matters for which NatWest Group believes it has credible defences and should prevail on the merits. The uncertainties inherent in all such Matters affect the amount and timing of any potential outflows for both Matters with respect to which provisions have been established and other contingent liabilities.
The future outflow of resources in respect of any Matter may ultimately prove to be substantially greater than or less than the aggregate provision that NatWest Group has recognised. Where (and as far as) liability cannot be reasonably estimated, no provision has been recognised. NatWest Group expects that in future periods, additional provisions, settlement amounts and customer redress payments will be necessary, in amounts that are expected to be substantial in some instances.
For a discussion of certain risks associated with NatWest Group’s litigation and regulatory matters (including investigations and customer redress programmes), see the Risk Factor relating to legal, regulatory and governmental actions and investigations set out on page 363 of NatWest Group plc’s 2020 Annual Report on Form 20-F.
Litigation
Residential mortgage-backed securities (RMBS) litigation in the US
NatWest Group companies continue to defend RMBS-related claims in the US in which plaintiffs allege that certain disclosures made in connection with the relevant offerings of RMBS contained materially false or misleading statements and/or omissions regarding the underwriting standards pursuant to which the mortgage loans underlying the RMBS were issued. The remaining RMBS lawsuits against NatWest Group companies consist of cases filed by the Federal Deposit Insurance Corporation and the State of New Mexico that together involve the issuance of less than US$400 million of RMBS issued primarily from 2005 to 2007. In addition, NWMSI previously agreed to settle a purported RMBS class action entitled New Jersey Carpenters Health Fund v. Novastar Mortgage Inc. et al. for US$55.3 million. This was paid into escrow pending court approval of the settlement, which was granted in March 2019, but which is now the subject of an appeal by a class member who does not want to participate in the settlement.
London Interbank Offered Rate (LIBOR) and other rates litigation
NWM Plc and certain other members of NatWest Group, including NatWest Group plc, are defendants in a number of class actions and individual claims pending in the United States District Court for the Southern District of New York (SDNY) with respect to the setting of LIBOR and certain other benchmark interest rates. The complaints allege that certain members of NatWest Group and other panel banks violated various federal laws, including the US commodities and antitrust laws, and state statutory and common law, as well as contracts, by manipulating LIBOR and prices of LIBOR-based derivatives in various markets through various means.
Several class actions relating to USD LIBOR, as well as more than two dozen non-class actions concerning USD LIBOR, are part of a co-ordinated proceeding in the SDNY. In December 2016, the SDNY held that it lacks personal jurisdiction over NWM Plc with respect to certain claims. As a result of that and other decisions, all NatWest Group companies have been dismissed from each of the USD LIBOR-related class actions (including class actions on behalf of over-the-counter plaintiffs, exchange-based purchaser plaintiffs, bondholder plaintiffs, and lender plaintiffs), but 7 non-class cases in the co-ordinated proceeding remain pending against NatWest Group defendants. The dismissal of NatWest Group companies for lack of personal jurisdiction is the subject of a pending appeal to the United States Court of Appeals for the Second Circuit. In March 2020, NatWest Group companies finalised a settlement resolving the class action on behalf of bondholder plaintiffs (those who held bonds issued by non-defendants on which interest was paid from 2007 to 2010 at a rate expressly tied to USD LIBOR). The amount of the settlement (which was covered by an existing provision) has been paid into escrow pending court approval of the settlement.
NatWest Group – Form 6-K Interim Results 2021 | 106 |
Notes
12. Litigation and regulatory matters continued
Among the non-class claims dismissed by the SDNY in December 2016 were claims that the Federal Deposit Insurance Corporation (FDIC) had asserted on behalf of certain failed US banks. In July 2017, the FDIC, on behalf of 39 failed US banks, commenced substantially similar claims against NatWest Group companies and others in the High Court of Justice of England and Wales. The action alleges that the defendants breached English and European competition law, as well as asserting common law claims of fraud under US law.
In addition, there are 2 class actions relating to JPY LIBOR and Euroyen TIBOR. The first class action, which relates to Euroyen TIBOR futures contracts, was dismissed by the SDNY in September 2020 on legal grounds, and the plaintiffs have commenced an appeal to the United States Court of Appeals for the Second Circuit. The second class action, which relates to other derivatives allegedly tied to JPY LIBOR and Euroyen TIBOR, is the subject of a motion to dismiss that remains pending in the SDNY.
In addition to the above, 5 other class action complaints were filed against NatWest Group companies in the SDNY, each relating to a different reference rate. The SDNY dismissed all claims against NWM Plc in the case relating to Euribor for lack of personal jurisdiction in February 2017. The SDNY also dismissed, for various reasons, the case relating to Pound Sterling LIBOR in August 2019, the case relating to Swiss Franc LIBOR in September 2019, and the case relating to the Singapore Interbank Offered Rate and Singapore Swap Offer Rate (‘SIBOR / SOR’) in July 2019. Plaintiffs appealed each of these 4 dismissals to the United States Court of Appeals for the Second Circuit. The appeals in the Euribor, Pound Sterling LIBOR and Swiss Franc LIBOR cases remain pending, but in June 2021, NWM Plc and the plaintiffs in the Swiss Franc LIBOR class action finalised a settlement resolving that case. The amount of the settlement (which was covered by an existing provision) has been paid into escrow pending court approval of the settlement. The appeal in the SIBOR / SOR case was decided on 17 March 2021, when the United States Court of Appeals for the Second Circuit reversed the SDNY’s prior dismissal, such that the case will now return to the SDNY. In the fifth class action, which relates to the Australian Bank Bill Swap Reference Rate, the SDNY in February 2020 declined to dismiss the amended complaint as against NWM Plc and certain other defendants, but dismissed it as to other members of NatWest Group (including NatWest Group plc). The claims against non-dismissed defendants (including NWM Plc) are now proceeding in discovery.
NWM Plc was also named as a defendant in a motion to certify a class action relating to LIBOR in the Tel Aviv District Court in Israel. NWM Plc filed a motion for cancellation of service, which was granted in July 2020. The claimants appealed that decision and in November 2020 the appeal was refused and the claim dismissed by the Appellate Court. The claim could in future be recommenced depending on the outcome of a separate case under appeal to Israel’s Supreme Court.
In January 2019, a class action antitrust complaint was filed in the SDNY alleging that the defendants (USD ICE LIBOR panel banks and affiliates) have conspired to suppress USD ICE LIBOR from 2014 to the present by submitting incorrect information to ICE about their borrowing costs. The NatWest Group defendants are NatWest Group plc, NWM Plc, NWMSI and NWB Plc. The defendants made a motion to dismiss this case, which was granted by the court in March 2020. Plaintiffs’ appeal of the dismissal is pending in the United States Court of Appeals for the Second Circuit.
In August 2020, a complaint was filed in the United States District Court for the Northern District of California by several United States consumer borrowers against the USD ICE LIBOR panel banks and their affiliates, alleging that the normal process of setting USD ICE LIBOR amounts to illegal price-fixing, and also that banks in the United States have illegally agreed to use LIBOR as a component of price in variable consumer loans. The NatWest Group defendants are NatWest Group plc, NWM Plc, NWMSI and NWB Plc. The plaintiffs seek damages and to prevent the enforcement of LIBOR-based instruments through injunction. Defendants intend to seek dismissal.
NatWest Group – Form 6-K Interim Results 2021 | 107 |
Notes
12. Litigation and regulatory matters continued
FX litigation
NWM Plc, NWMSI and / or NatWest Group plc are defendants in several cases relating to NWM Plc’s foreign exchange (FX) business. In 2015, NWM Plc paid US$255 million to settle the consolidated antitrust class action filed in the SDNY on behalf of persons who entered into over-the-counter FX transactions with defendants or who traded FX instruments on exchanges. In 2018, some members of the settlement class who opted out of that class action settlement filed their own non-class complaint in the SDNY asserting antitrust claims against NWM Plc, NWMSI and other banks. Those opt-out claims are proceeding in discovery.
In April 2019, some of the same claimants in the opt-out case described above, as well as others, served proceedings (which are ongoing) in the High Court of Justice of England and Wales, asserting competition claims against NWM Plc and several other banks.
An FX-related class action, on behalf of ‘consumers and end-user businesses’, is proceeding in the SDNY against NWM Plc and others. Plaintiffs have filed a motion for class certification, which defendants are opposing.
In May 2019, a cartel class action was filed in the Federal Court of Australia against NWM Plc and 4 other banks on behalf of persons who bought or sold currency through FX spots or forwards between 1 January 2008 and 15 October 2013 with a total transaction value exceeding AUD $0.5 million. The claimant has alleged that the banks, including NWM Plc, contravened Australian competition law by sharing information, coordinating conduct, widening spreads and manipulating FX rates for certain currency pairs during this period. NatWest Group plc has been named in the action as an ‘other cartel participant’, but is not a respondent. The claim was served in June 2019. The claimant sought permission to amend its claim to strengthen its claim of alleged breaches of competition law, but this was refused by the court in the form sought by the claimant. The claimant is now seeking a further opportunity to amend its claim, which is being opposed by NWM Plc and the other respondents.
In July and December 2019, 2 separate applications seeking opt-out collective proceedings orders were filed in the UK Competition Appeal Tribunal against NatWest Group plc, NWM Plc and other banks. Both applications have been brought on behalf of persons who, between 18 December 2007 and 31 January 2013, entered into a relevant FX spot or outright forward transaction in the EEA with a relevant financial institution or on an electronic communications network. A hearing to determine class certification and which of the applications should be permitted to represent the class took place in July 2021 and judgment is awaited.
In November 2020, proceedings were issued in the High Court of Justice of England and Wales against NWM Plc by a claimant who seeks an account of profits and/or damages in respect of alleged historical FX trading misconduct. The claimant has also issued similar proceedings against a number of other banks. The claim against NWM Plc makes allegations of breaches of contract, fiduciary duties, duties of confidence and other matters. The claim was served on NWM Plc in March 2021.
NaN motions to certify FX-related class actions were filed in the Tel Aviv District Court in Israel in September and October 2018, and were subsequently consolidated into 1 motion. The consolidated motion, which names The Royal Bank of Scotland plc (now NWM Plc) as the defendant, was served on NWM Plc in May 2020. NWM Plc has filed a motion for cancellation of service outside the jurisdiction, which remains pending.
Certain other foreign exchange transaction related claims have been or may be threatened. NatWest Group cannot predict whether all or any of these claims will be pursued.
Government securities antitrust litigation
NWMSI and certain other US broker-dealers are defendants in a consolidated antitrust class action pending in the SDNY on behalf of persons who transacted in US Treasury securities or derivatives based on such instruments, including futures and options. The plaintiffs allege that defendants rigged the US Treasury securities auction bidding process to deflate prices at which they bought such securities and colluded to increase the prices at which they sold such securities to plaintiffs. The complaint was dismissed in March 2021. Plaintiffs have filed an amended complaint, which defendants will again seek to have dismissed.
NatWest Group – Form 6-K Interim Results 2021 | 108 |
Notes
12. Litigation and regulatory matters continued
Class action antitrust claims commenced in March 2019 are pending in the SDNY against NWM Plc, NWMSI and other banks in respect of Euro-denominated bonds issued by European central banks (EGBs). The complaint alleges a conspiracy among dealers of EGBs to widen the bid-ask spreads they quoted to customers, thereby increasing the prices customers paid for the EGBs or decreasing the prices at which customers sold the bonds. The class consists of those who purchased or sold EGBs in the US between 2007 and 2012. The defendants filed a motion to dismiss this matter, which was granted by the court in respect of NWM Plc and NWMSI in July 2020. Plaintiffs have filed an amended complaint which defendants are seeking to have dismissed.
Swaps antitrust litigation
NWM Plc and other members of NatWest Group , including NatWest Group plc, as well as a number of other interest rate swap dealers, are defendants in several cases pending in the SDNY alleging violations of the US antitrust laws in the market for interest rate swaps. There is a consolidated class action complaint on behalf of persons who entered into interest rate swaps with the defendants, as well as non-class action claims by 3 swap execution facilities (TeraExchange, Javelin, and trueEx). The plaintiffs allege that the swap execution facilities would have successfully established exchange-like trading of interest rate swaps if the defendants had not unlawfully conspired to prevent that from happening through boycotts and other means. Discovery in these cases is complete, and the plaintiffs' motion for class certification remains pending.
In addition, in June 2017, TeraExchange filed a complaint against NatWest Group companies, including NatWest Group plc, as well as a number of other credit default swap dealers, in the SDNY. TeraExchange alleges it would have established exchange-like trading of credit default swaps if the defendant dealers had not engaged in an unlawful antitrust conspiracy. In October 2018, the court dismissed all claims against NatWest Group companies.
On 30 June 2021, a class action antitrust complaint was filed against a number of credit default swap dealers in New Mexico federal court on behalf of persons who, from 2005 onwards, settled credit default swaps in the United States by reference to the ISDA credit default swap auction protocol. The complaint alleges that the defendants conspired to manipulate that benchmark through various means in violation of the antitrust laws and the Commodity Exchange Act. The defendants include several NatWest Group companies, including NatWest Group plc.
Odd lot corporate bond trading antitrust litigation
NWMSI is the subject of a class action antitrust complaint filed in the SDNY against NWMSI and several other securities dealers. The complaint alleges that, from August 2006 to the present, the defendants conspired artificially to widen spreads for odd lots of corporate bonds bought or sold in the United States secondary market and to boycott electronic trading platforms that would have allegedly promoted pricing competition in the market for such bonds. Defendants filed a motion to dismiss the operative complaint in this matter in December 2020.
Madoff
NWM N.V. is a defendant in 2 actions filed by Irving Picard, as trustee for the bankruptcy estates of Bernard L. Madoff and Bernard L. Madoff Investment Securities LLC, in bankruptcy court in New York. In both cases, the trustee alleges that certain transfers received by NWM N.V. amounted to fraudulent conveyances that should be clawed back for the benefit of the Madoff estate.
In the primary action, filed in December 2010, the trustee is seeking to clawback a total of US$276.3 million in redemptions that NWM N.V. allegedly received from certain Madoff feeder funds and certain swap counterparties. In March 2020, the bankruptcy court denied the trustee’s request for leave to amend its complaint to include additional allegations against NWM N.V., holding that, even with the proposed amendments, the complaint would fail as a matter of law to state a valid claim against NWM N.V. The trustee has commenced an appeal of the bankruptcy court’s decision, which has been stayed pending the result of appeals in different proceedings, against different defendants, that involve similar issues. In the second action, filed in October 2011, the trustee seeks to recover an additional US$21.8 million. This action has been stayed pending the result of the appeal in the primary action.
Interest rate hedging products and similar litigation
NatWest Group continues to deal with a small number of active litigation claims in the UK relating to the alleged mis-selling of interest rate hedging products.
Separately, NWM Plc is defending claims filed in France by 2 French local authorities relating to structured interest rate swaps. The plaintiffs allege, among other things, that the swaps are void for being illegal transactions, that they were mis-sold, and that information / advisory duties were breached. NaN of the claims has been appealed to the Supreme Court and judgment is awaited. The other has been remitted from the Supreme Court to the Court of Appeal for reconsideration of one aspect. NWM N.V. was a defendant in the latter case but has been dismissed from the proceedings.
EUA trading litigation
HMRC issued a tax assessment in 2012 against NatWest Group plc for approximately £86 million regarding a value-added-tax (VAT) matter in relation to the trading of European Union Allowances (EUAs) by the subsidiary of a joint venture partnership in 2009. NatWest Group plc lodged an appeal challenging the assessment before the First-tier Tribunal (Tax), a specialist tax tribunal, (the ‘Tax Dispute’). The matter was resolved in July 2021.
NatWest Group – Form 6-K Interim Results 2021 | 109 |
Notes
12. Litigation and regulatory matters continued
Separately, NWM Plc was a named defendant in civil proceedings before the High Court of Justice of England and Wales brought in 2015 by 10 companies (all in liquidation) (the 'Liquidated Companies') and their respective liquidators (together, 'the Claimants'). The Liquidated Companies previously traded in EUAs in 2009 and were alleged to be defaulting traders within (or otherwise connected to) the EUA supply chains forming the subject of the Tax Dispute. The Claimants claimed approximately £71.4 million plus interest and costs and alleged that NWM Plc dishonestly assisted the directors of the Liquidated Companies in the breach of their statutory duties and/or knowingly participated in the carrying on of the business of the Liquidated Companies with intent to defraud creditors. The trial in that matter concluded in July 2018 and judgment was issued in March 2020. The court held that NWM Plc and Mercuria Energy Europe Trading Limited ('Mercuria') were liable for dishonestly assisting and knowingly being a party to fraudulent trading during a seven business day period in 2009. In October 2020, the High Court quantified damages against NWM Plc at £45 million plus interest and costs, and permitted it to appeal to the Court of Appeal. On 10 May 2021 the Court of Appeal set aside the High Court’s judgment and ordered that a retrial take place before a different High Court judge. The claimants have sought permission from the Supreme Court to appeal. The Court of Appeal also dismissed an appeal by Mercuria against the finding by the High Court that NWM Plc and Mercuria were both vicariously liable. Mercuria has sought permission from the Supreme Court to appeal that decision.
Offshoring VAT assessments
HMRC issued protective tax assessments in 2018 against NatWest Group plc totalling £143 million relating to unpaid VAT in respect of the UK branches of two NatWest Group companies registered in India. NatWest Group formally requested reconsideration by HMRC of their assessments, and this process was completed in November 2020. HMRC upheld their original decision and, as a result, NatWest Group plc lodged an appeal with the Tax Tribunal and an application for judicial review with the High Court of Justice of England and Wales, both in December 2020. In order to lodge the appeal with the Tax Tribunal, NatWest Group plc was required to pay the £143 million to HMRC, and payment was made in December 2020. The appeal and the application for judicial review have both been stayed pending resolution of a separate case involving another bank.
US Anti-Terrorism Act litigation
NWB Plc is a defendant in lawsuits filed in the United States District Court for the Eastern District of New York by a number of US nationals (or their estates, survivors, or heirs) who were victims of terrorist attacks in Israel. The plaintiffs allege that NWB Plc is liable for damages arising from those attacks pursuant to the US Anti-Terrorism Act because NWB Plc previously maintained bank accounts and transferred funds for the Palestine Relief & Development Fund, an organisation which plaintiffs allege solicited funds for Hamas, the alleged perpetrator of the attacks.
In October 2017, the trial court dismissed claims against NWB Plc with respect to 2 of the 18 terrorist attacks at issue. In March 2018, the trial court granted a request by NWB Plc for leave to file a renewed summary judgment motion in respect of the remaining claims, and in March 2019, the court granted summary judgment in favour of NWB Plc. In April 2021, the United States Court of Appeals for the Second Circuit affirmed the trial court’s judgment in favour of NWB Plc, subject to the right of the plaintiffs to seek discretionary review by the United States Supreme Court.
NWM N.V. and certain other financial institutions are defendants in several actions pending in the United States District Courts for the Eastern and Southern Districts of New York, filed by a number of US nationals (or their estates, survivors, or heirs), most of whom are or were US military personnel, who were killed or injured in attacks in Iraq between 2003 and 2011. NWM Plc is also a defendant in some of these cases.
NatWest Group – Form 6-K Interim Results 2021 | 110 |
Notes
12. Litigation and regulatory matters continued
The attacks at issue in the cases were allegedly perpetrated by Hezbollah and certain Iraqi terror cells allegedly funded by the Islamic Republic of Iran. According to the plaintiffs’ allegations, the defendants are liable for damages arising from the attacks because they allegedly conspired with Iran and certain Iranian banks to assist Iran in transferring money to Hezbollah and the Iraqi terror cells, in violation of the US Anti-Terrorism Act, by agreeing to engage in ‘stripping’ of transactions initiated by the Iranian banks so that the Iranian nexus to the transactions would not be detected.
The first of these actions was filed in the United States District Court for the Eastern District of New York in November 2014. In September 2019, the district court dismissed the case, finding that the claims were deficient for several reasons, including lack of sufficient allegations as to the alleged conspiracy and causation. The plaintiffs are appealing the decision to the United States Court of Appeals for the Second Circuit. Another action, filed in the SDNY in 2017, was dismissed in March 2019 on similar grounds, but remains subject to appeal to the United States Court of Appeals for the Second Circuit. Other follow-on actions that are substantially similar to the two that have now been dismissed are pending in the same courts.
Securities underwriting litigation
NWMSI is an underwriter defendant in several securities class actions in the US in which plaintiffs generally allege that an issuer of public debt or equity securities, as well as the underwriters of the securities (including NWMSI), are liable to purchasers for misrepresentations and omissions made in connection with the offering of such securities.
1MDB litigation
Recent media reports suggest that a claim for a material sum has recently been issued in Malaysia by 1MDB against Coutts & Co Ltd for alleged losses in connection with the 1MDB fund. Coutts & Co Ltd is a company registered in Switzerland and is in wind-down following the announced sale of its business assets in 2015.
Regulatory matters (including investigations and customer redress programmes)
NatWest Group’s businesses and financial condition can be affected by the actions of various governmental and regulatory authorities in the UK, the US, the EU and elsewhere. NatWest Group has engaged, and will continue to engage, in discussions with relevant governmental and regulatory authorities, including in the UK, the US, the EU and elsewhere, on an ongoing and regular basis, and in response to informal and formal inquiries or investigations, regarding operational, systems and control evaluations and issues including those related to compliance with applicable laws and regulations, including consumer protection, investment advice, business conduct, competition/anti-trust, VAT recovery, anti-bribery, anti-money laundering and sanctions regimes.
The NatWest Markets business in particular has been providing, and continues to provide, information regarding a variety of matters, including, for example, offering of securities, the setting of benchmark rates and related derivatives trading, conduct in the foreign exchange market, product mis-selling and various issues relating to the issuance, underwriting, and sales and trading of fixed-income securities, including structured products and government securities, some of which have resulted, and others of which may result, in investigations or proceedings.
NatWest Group – Form 6-K Interim Results 2021 | 111 |
Notes
12. Litigation and regulatory matters continued
Any matters discussed or identified during such discussions and inquiries may result in, among other things, further inquiry or investigation, other action being taken by governmental and regulatory authorities, increased costs being incurred by NatWest Group, remediation of systems and controls, public or private censure, restriction of NatWest Group’s business activities and/or fines. Any of the events or circumstances mentioned in this paragraph or below could have a material adverse effect on NatWest Group, its business, authorisations and licences, reputation, results of operations or the price of securities issued by it, or lead to material additional provisions being taken.
NatWest Group is co-operating fully with the matters described below.
Investigations
US investigations relating to fixed-income securities
In October 2017, NWMSI entered into a non-prosecution agreement (NPA) with the United States Attorney for the District of Connecticut (USAO) in connection with alleged misrepresentations to counterparties relating to secondary trading in various forms of asset-backed securities. In the NPA, the USAO agreed not to file criminal charges relating to certain conduct and information described in the NPA, conditioned on NWMSI and affiliated companies complying with the NPA’s reporting and conduct requirements during its term, including by not engaging in conduct during the NPA that the USAO determines was a felony under federal or state law or a violation of the anti-fraud provisions of the United States securities law.
NatWest Group – Form 6-K Interim Results 2021 | 112 |
Notes
12. Litigation and regulatory matters continued
The NatWest Markets business is currently responding to a separate criminal investigation by the USAO and the US Department of Justice (DoJ) concerning unrelated trading by certain NatWest Markets former traders involving alleged spoofing. The NPA (referred to above) has been extended as the criminal investigation has progressed and related discussions with the USAO and the DoJ, including relating to the impact of such alleged conduct on the status of the NPA and the potential consequences thereof, have been ongoing. The duration and outcome of these matters remain uncertain, including in respect of whether settlement may be reached. Material adverse collateral consequences, in addition to further substantial costs and the recognition of further provisions, may occur depending on the outcome of the investigations, as further described in the Risk Factor relating to legal, regulatory and governmental actions and investigations set out on page 363 of NatWest Group plc’s 2020 Annual Report on Form 20-F.
Foreign exchange related investigations
In recent years, NWM Plc paid significant penalties to resolve investigations into its FX business by the FCA, the Commodity Futures Trading Commission, the DoJ, the Board of Governors of the Federal Reserve System, the European Commission (EC) and others. NWM Plc continues to co-operate with ongoing investigations from competition authorities on similar issues relating to past FX trading. The exact timing and amount of future financial penalties, related risks and collateral consequences remain uncertain and may be material.
EGB investigation
On 20 May 2021, the EC announced that it had adopted a decision in relation to an investigation into potential competition law violations in the primary and secondary market trading of EGBs between 2007 and 2011 which involved the NatWest Markets business and 6 other banks. NatWest Group revealed the conduct to the EC and co-operated throughout the EC’s investigation. NatWest Group was granted immunity by the EC and was not fined.
FCA investigation into NatWest Group’s compliance with the Money Laundering Regulations 2007
In July 2017, the FCA notified NatWest Group that it was undertaking an investigation into NatWest Group’s compliance with the UK Money Laundering Regulations 2007 (‘MLR 2007’) in relation to certain money service businesses and related parties. The investigation is assessing both criminal and civil culpability. NatWest Group is co-operating with the investigation, including responding to information requests from the FCA.
On 15 March 2021, the FCA notified NatWest Group that it had commenced criminal proceedings against NWB Plc for offences under regulation 45(1) of the MLR 2007 for alleged failures to comply with regulations 8(1), 8(3) and 14(1) of the MLR 2007 between 11 November 2011 and 19 October 2016, arising from the handling of the accounts of a UK incorporated customer. These regulations require the firm to determine, conduct and demonstrate risk sensitive due diligence and ongoing monitoring of its relationships with its customers for the purposes of preventing money laundering. NWB Plc will be required to attend an initial hearing at Westminster Magistrates’ Court on 15 September 2021. Material adverse collateral consequences, in addition to further substantial costs and the recognition of provisions, may occur as a result of any conviction.
Systematic Anti-Money Laundering Programme assessment
In December 2018, the FCA commenced a Systematic Anti-Money Laundering Programme assessment of NatWest Group. In August 2019, the FCA instructed NatWest Group to appoint a Skilled Person under section 166 of the Financial Services and Markets Act 2000 to provide assurance on financial crime governance arrangements in relation to two financial crime change programmes. NatWest Group is co-operating with the Skilled Person’s review, which is ongoing.
FCA mortgages market study
In December 2016, the FCA launched a market study into the provision of mortgages. In March 2019 the final report was published. This found that competition was working well for many customers but also proposed remedies to help customers shop around more easily for mortgages. A period of consultation remains ongoing and the FCA has indicated that it intends to provide updates on the remedies in due course.
Customer redress programmes
FCA review of NatWest Group’s treatment of SMEs
In 2014, the FCA appointed an independent Skilled Person under section 166 of the Financial Services and Markets Act 2000 to review NatWest Group’s treatment of SME customers whose relationship was managed by NatWest Group’s Global Restructuring Group (GRG) in the period 1 January 2008 to 31 December 2013.
In response to the Skilled Person’s final report and update in 2016, NatWest Group announced redress steps for SME customers in the UK and the Republic of Ireland that were in GRG between 2008 and 2013. These steps were (i) an automatic refund of certain complex fees; and (ii) a new complaints process, overseen by an independent third party. The complaints process has since closed to new complaints.
NatWest Group’s remaining provisions in relation to these matters at 30 June 2021 were £22 million.
NatWest Group – Form 6-K Interim Results 2021 | 113 |
Notes
12. Litigation and regulatory matters continued
Investment advice review
During October 2019, the FCA notified NatWest Group of its intention to appoint a Skilled Person under section 166 of the Financial Services and Markets Act 2000 to conduct a review of whether NatWest Group’s past business review of investment advice provided during 2010 to 2015 was subject to appropriate governance and accountability and led to appropriate customer outcomes. The Skilled Person’s review has now concluded and, after discussion with the FCA, NatWest Group is now conducting additional review / remediation work. NatWest Group recognised an increased provision in relation to these matters at 31 December 2020.
Review and investigation of treatment of tracker mortgage customers in Ulster Bank Ireland DAC
In December 2015, correspondence was received from the CBI setting out an industry examination framework in respect of the sale of tracker mortgages from approximately 2001 until the end of 2015. The redress and compensation phase has concluded, although an appeals process is currently anticipated to run until at least the end of 2021. NatWest Group has made provisions totalling €350 million (£300 million), of which €328 million (£282 million) had been utilised by 30 June 2021 in respect of redress and compensation.
In April 2016, the CBI commenced an investigation into suspected breaches by UBIDAC of specified provisions of the Consumer Protection Code 2006 in its treatment of certain tracker mortgage customers. On 23 March 2021, UBIDAC agreed with the CBI to pay a fine of €37.8 million for breaches of its regulatory obligations in respect of its treatment of tracker mortgage customers. The fine was substantially covered by existing provisions.
UBIDAC previously identified further legacy business issues, as an extension to the tracker mortgage review. These remediation programmes are ongoing. NatWest Group has made provisions of €163 million (£140 million), of which €151 million (£130 million) had been utilised by 30 June 2021 for these programmes.
NatWest Group – Form 6-K Interim Results 2021 | 114 |
13. Related party transactions
UK Government
The UK Government and bodies controlled or jointly controlled by the UK Government and bodies over which it has significant influence are related parties of NatWest Group.
NatWest Group’s other transactions with the UK Government include the payment of taxes, principally UK corporation tax and value added tax; national insurance contributions; local authority rates; and regulatory fees and levies (including the bank levy and FSCS levies).
Bank of England facilities
In the ordinary course of business, NatWest Group may from time to time access market-wide facilities provided by the Bank of England.
Other related parties
Full details of NatWest Group’s related party transactions for the year ended 31 December 2020 are included in NatWest Group plc’s 2020 Annual Report on Form 20-F.
14. UBIDAC significant transactions
On 28 June 2021, UBIDAC and NWH entered into a binding agreement with Allied Irish Banks p.l.c. (AIB) for the sale of c.€ 4.2 billion gross performing commercial lending and associated undrawn exposures of c.€ 2.8 billion. Approximately 280 colleagues will transfer from UBIDAC to AIB with the final number of roles confirmed as the deal completes. RWAs in relation to these total balances are estimated at c.€ 4 billion. This transaction is subject to regulatory approvals. On completion, it is estimated that a small gain on disposal will be recognised, based on the net carrying value of the lending as at 31 December 2020. The exact impacts of disposal will depend on movements in the book between now and transfer, the timing of which remains uncertain.
On 23 July 2021, NatWest Group and UBIDAC have entered into a non-binding Memorandum of Understanding (MOU) with Permanent TSB Group Holdings p.l.c. (PTSB) for the proposed sale of a perimeter comprising performing non-tracker mortgages, performing micro-SME loans, UBIDAC's asset finance business and 25 of its branch locations. The TUPE principle will apply to staff wholly or mainly assigned to the agreed in-scope perimeter. The proposed perimeter included approximately € 7.6 billion of gross performing loans as at 31 March 2021, the majority relating to non-tracker mortgages. As part of the consideration for the proposed transaction, it is proposed that NatWest Group would receive a minority non-consolidating equity stake in PTSB. The proposed sale may not be concluded on the terms contemplated in the MoU, or at all. No estimate of any financial effect of the potential transaction can be made at the date of approval of these accounts.
15. Post balance sheet events
NatWest Group has announced plans to commence an ordinary share buy-back programme of up to £750 million in the second half of the year.
Other than as disclosed in this document, there have been no significant events between 30 June 2021 and the date of approval of this announcement which would require a change to, or additional disclosure, in the announcement.
16. Date of approval
This announcement was approved by the Board of Directors on 29 July 2021.
NatWest Group – Form 6-K Interim Results 2021 | 115 |
NatWest Group plc Summary Risk Factors
Summary of principal risks and uncertainties
Set out below is a summary of the principal risks and uncertainties for the remaining six months of the financial year which could adversely affect NatWest Group. This summary should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties; a fuller description of these and other risk factors is included on pages 347 to 366 of its Annual Report on Form 20-F. Any of the risks identified may have a material adverse effect on NatWest Group’s business, operations, financial condition or prospects. The current COVID-19 pandemic may exacerbate any of the risks described below.
Risks relating to the COVID-19 pandemic
· | The effects of the COVID-19 pandemic on the UK, global economies and financial markets, and NatWest Group’s customers, as well as its competitive environment may continue to have a material adverse effect on NatWest Group’s business, results of operations and outlook. |
· | The adverse impact of the COVID-19 pandemic on the credit quality of NatWest Group’s counterparties and the implementation of support schemes in response of the COVID-19 pandemic has increased NatWest Group’s exposure to counterparty risk, which may adversely affect its business, results of operations and outlook. |
· | The COVID-19 pandemic may adversely affect NatWest Group’s strategy and impair its ability to meet its targets and to achieve its strategic objectives. |
· | The COVID-19 pandemic has heightened NatWest Group’s operational risks as many of its employees are working remotely which may also adversely affect NatWest Group’s ability to maintain effective internal controls. |
· | The effects of the COVID-19 pandemic could affect NatWest Group’s ability to access sources of liquidity and funding, which may result in higher funding costs and failure to comply with regulatory capital, funding and leverage requirements. |
· | NatWest Group’s results could be adversely affected if the effects of the COVID-19 pandemic or other events trigger the recognition of a goodwill impairment. |
Economic and political risk
· | Continuing uncertainty regarding the effects of the UK’s withdrawal from the European Union may continue to adversely affect NatWest Group and its operating environment. |
· | NatWest Group faces political and economic risks and uncertainty in the UK and global markets. |
· | Changes in interest rates have significantly affected and will continue to affect NatWest Group’s business and results. |
· | HM Treasury (or UKGI on its behalf) could exercise a significant degree of influence over NatWest Group and further offers or sales of NatWest Group’s shares held by HM Treasury may affect the price of securities issued by NatWest Group. |
· | Changes in foreign currency exchange rates may affect NatWest Group’s results and financial position. |
Strategic risk
· | NatWest Group is currently implementing its Purpose-led Strategy, which carries significant execution and operational risks and may not achieve its stated aims and targeted outcomes. |
· | NatWest Group is in the process of refocusing its NWM franchise and implementing a phased withdrawal from ROI, which entails significant commercial, operational and execution risks and the intended benefits for NatWest Group may not be realised within the timeline and in the manner currently contemplated. |
Financial resilience risk
· | NatWest Group may not meet targets and be in a position to continue to make discretionary capital distributions (including dividends to shareholders). |
· | NatWest Group operates in markets that are highly competitive, with increasing competitive pressures and technology disruption. |
· | NatWest Group has significant exposure to counterparty and borrower risk. |
· | NatWest Group may not meet the prudential regulatory requirements for capital and MREL, or manage its capital effectively, which could trigger the execution of certain management actions or recovery options. |
· | NatWest Group is subject to Bank of England oversight in respect of resolution, and NatWest Group could be adversely affected should the Bank of England deem NatWest Group’s preparations to be inadequate. |
· | NatWest Group may not be able to adequately access sources of liquidity and funding. |
· | Any reduction in the credit rating and/or outlooks assigned to NatWest Group plc, any of its subsidiaries or any of their respective debt securities could adversely affect the availability of funding for NatWest Group, reduce NatWest Group’s liquidity position and increase the cost of funding. |
· | NatWest Group may be adversely affected if it fails to meet the requirements of regulatory stress tests. |
· | NatWest Group could incur losses or be required to maintain higher levels of capital as a result of limitations or failure of various models. |
· | NatWest Group’s financial statements are sensitive to the underlying accounting policies, judgments, estimates and assumptions. |
NatWest Group – Form 6-K Interim Results 2021 | 116 |
NatWest Group plc Summary Risk Factors
Financial resilience risk continued
· | Changes in accounting standards may materially impact NatWest Group’s financial results. |
· | The value or effectiveness of any credit protection that NatWest Group has purchased depends on the value of the underlying assets and the financial condition of the insurers and counterparties. |
· | NatWest Group may become subject to the application of UK statutory stabilisation or resolution powers which may result in, among other actions, the cancellation, transfer or dilution of ordinary shares, or the write-down or conversion of certain other of NatWest Group’s securities. |
Climate and sustainability-related risks
· | NatWest Group and its customers may face significant climate-related risks, including in transitioning to a low-carbon economy, which may adversely impact NatWest Group. |
· | NatWest Group’s Purpose-led Strategy includes one area of focus on climate change that is likely to require material changes to the business of NatWest Group which entails significant execution risk. |
· | Any failure by NatWest Group to implement effective and compliant climate change resilient systems, controls and procedures could adversely affect NatWest Group’s ability to manage climate-related risks. |
· | There are significant uncertainties inherent in accurately modelling the impact of climate-related risks. |
· | A failure to adapt NatWest Group’s business strategy, governance, procedures, systems and controls to manage emerging sustainability-related risks and opportunities may have a material adverse effect on NatWest Group’s reputation, business, results of operations and outlook. |
· | Any reduction in the ESG ratings of NatWest Group could have a negative impact on NatWest Group’s reputation and on investors’ risk appetite. |
· | Increasing levels of climate, environmental and sustainability-related laws, regulation and oversight may adversely affect NatWest Group’s business and expose NatWest Group to increased costs of compliance, regulatory sanction and reputational damage. |
· | NatWest Group may be subject to potential climate, environmental and other sustainability-related litigation, enforcement proceedings, investigations and conduct risk. |
Operational and IT resilience risk
· | Operational risks (including reliance on third party suppliers and outsourcing of certain activities) are inherent in NatWest Group’s businesses. |
· | NatWest Group is subject to increasingly sophisticated and frequent cyberattacks. |
· | NatWest Group operations and strategy are highly dependent on the accuracy and effective use of data. |
· | NatWest Group’s operations are highly dependent on its complex IT systems (including those that enable remote working) and any IT failure could adversely affect NatWest Group. |
· | NatWest Group relies on attracting, retaining and developing senior management and skilled personnel, and is required to maintain good employee relations. |
· | A failure in NatWest Group’s risk management framework could adversely affect NatWest Group, including its ability to achieve its strategic objectives. |
· | NatWest Group’s operations are subject to inherent reputational risk. |
Legal, regulatory and conduct risk
· | NatWest Group’s businesses are subject to substantial regulation and oversight, which are constantly evolving and may adversely affect NatWest Group. |
· | NatWest Group is subject to various litigation matters, regulatory and governmental actions and investigations as well as remedial undertakings, including conduct-related reviews, anti-money laundering and redress projects, the outcomes of which are inherently difficult to predict, and which could have an adverse effect on NatWest Group. |
· | NatWest Group may not effectively manage the transition of LIBOR and other IBOR rates to alternative risk-free rates. |
· | NatWest Group operates in jurisdictions that are subject to intense scrutiny by the competition authorities. |
· | The cost of implementing the Alternative Remedies Package (‘ARP’) could be more onerous than anticipated. |
· | Changes in tax legislation or failure to generate future taxable profits may impact the recoverability of certain deferred tax assets recognised by NatWest Group. |
NatWest Group – Form 6-K Interim Results 2021 | 117 |
Statement of directors’ responsibilities
We, the directors listed below, confirm that to the best of our knowledge:
· | the condensed financial statements have been prepared in accordance with UK adopted 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). |
By order of the Board
Howard Davies | Alison Rose-Slade | Katie Murray |
Chairman | Group Chief Executive Officer | Group Chief Financial Officer |
29 July 2021
Board of directors
Chairman | Executive directors | Non-executive directors |
Howard Davies | Alison Rose-Slade Katie Murray | Frank Dangeard Patrick Flynn Morten Friis Robert Gillespie Yasmin Jetha Mike Rogers Mark Seligman Lena Wilson |
NatWest Group – Form 6-K Interim Results 2021 | 118 |
MAR – Inside Information
This announcement contains information that qualified or may have qualified as inside information for NatWest Group plc, for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 (MAR) as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018 for NatWest Group plc. This announcement is made by Alexander Holcroft, Head of Investor Relations for NatWest Group plc.
Non-IFRS financial measures
NatWest Group prepares its financial statements in accordance with generally accepted accounting principles (GAAP). The 2021 Interim Results contain a number of adjusted or alternative performance measures, also known as non-GAAP or non-IFRS performance measures. These measures are adjusted for certain items which management believes are not representative of the underlying performance of the business and which distort period-on-period comparison. The non-IFRS measures provide users of the financial statements with a consistent basis for comparing business performance between financial periods and information on elements of performance that are one-off in nature. The non-IFRS measures also include the calculation of metrics that are used throughout the banking industry. These non-IFRS measures are not measures within the scope of IFRS and are not a substitute for IFRS measures.
Statutory results
Financial information contained in this document does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 (‘the Act’). The statutory accounts for the year ended 31 December 2020 have been filed with the Registrar of Companies. The report of the auditor on those statutory accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Act.
Condensed consolidated financial statements
The unaudited condensed consolidated financial statements for the half year ended 30 June 2021 comprise the following sections of this document:
· | Statutory results on pages 86 to 114 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 16. |
· | Risk and capital management section on pages 23 to 85 as indicated within the scope of the independent review. |
NatWest Group – Form 6-K Interim Results 2021 | 119 |
Additional information
Share information
| | | | | | |
|
| 30 June |
| 31 March |
| 31 December |
| | 2021 | | 2021 | | 2020 |
| | | | | | |
Ordinary share price (pence) | | 203.20 |
| 196.25 |
| 167.65 |
| | | | | | |
Number of ordinary shares in issue (millions) | | 11,776 |
| 11,776 |
| 12,129 |
Other financial data
The following table shows NatWest Group’s issued and fully paid share capital, owners’ equity and indebtedness on a consolidated basis in accordance with IFRS as at 30 June 2021.
| | |
|
| As at |
| | 30 June |
| | 2021 |
| | £m |
Share capital - allotted, called up and fully paid |
| |
Ordinary shares of £1 |
| 11,776 |
Retained income and other reserves |
| 32,099 |
Owners’ equity |
| 43,875 |
| | |
NatWest Group indebtedness |
| |
Trading liabilities - debt securities in issue |
| 1,205 |
Other financial liabilities – debt securities in issue |
| 45,400 |
Subordinated liabilities |
| 8,696 |
Total indebtedness |
| 55,301 |
Total capitalisation and indebtedness |
| 99,176 |
Under IFRS, certain preference shares are classified as debt and are included in subordinated liabilities in the table above.
The information contained in the table above has not changed materially since 30 June 2021.
| | | | | | | | | | | | | |
| | | | Year ended 31 December | |||||||||
| | Half year ended | | | | | | | | | | |
|
| | and as at | | | | | | | | | | |
|
| | 30 June | | | | | | | | | | |
|
| | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
|
Return on average total assets (1) |
| 0.5 | % | (0.1) | % | 0.4 | % | 0.2 | % | 0.1 | % | (0.8) | % |
Return on average ordinary shareholders’ equity (2) |
| 9.7 | % | (2.0) | % | 7.9 | % | 4.0 | % | 1.9 | % | (15.3) | % |
Average total equity as a percentage of average total assets |
| 5.7 | % | 5.4 | % | 6.2 | % | 7.2 | % | 7.0 | % | 6.2 | % |
Dividend payout ratio |
| 18.8 | % | — |
| 96.3 | % | 14.9 | % | — |
| — |
|
Notes:
(1) | Return on average total assets represents profit attributable to ordinary shareholders as a percentage of average total assets. |
(2) | Return on average ordinary shareholders’ equity represents profit attributable to ordinary shareholders as a percentage of average ordinary shareholders’ equity. |
NatWest Group – Form 6-K Interim Results 2021 | 120 |
Appendix Non-IFRS financial measures
NatWest Group prepares its financial statements in accordance with generally accepted accounting principles (GAAP). The 2021 Interim Results contain a number of adjusted or alternative performance measures, also known as non-GAAP or non-IFRS performance measures. These measures are adjusted for certain items which management believes are not representative of the underlying performance of the business and which distort period-on-period comparison. The non-IFRS measures provide users of the financial statements with a consistent basis for comparing business performance between financial periods and information on elements of performance that are one-off in nature. The non-IFRS measures also include the calculation of metrics that are used throughout the banking industry. These non-IFRS measures are not measures within the scope of IFRS and are not a substitute for IFRS measures. These measures include:
Non-IFRS financial measures
Measure | Basis of preparation | Additional analysis or reconciliation |
NatWest Group return on tangible equity | Annualised profit or loss for the period attributable to ordinary shareholders divided by average tangible equity. Average tangible equity is average total equity excluding non-controlling interests (NCI) less average intangible assets and average other owners’ equity. | Table 1 |
Segmental return on equity | Segmental operating profit or loss adjusted for tax and for preference share dividends divided by average notional tangible equity, allocated at an operating segment specific rate, of the period average segmental risk-weighted assets incorporating the effect of capital deductions (RWAes). | Table 2 |
Operating expenses analysis – management view | The management analysis of operating expenses shows strategic costs and litigation and conduct costs in separate lines. Depreciation and amortisation, and other administrative expenses attributable to these costs are included in strategic costs and litigation and conduct costs lines for management analysis. These amounts are included in staff, premises and equipment and other administrative expenses in the statutory analysis. | Table 3 |
Cost:income ratio | Total operating expenses less operating lease depreciation divided by total income less operating lease depreciation. | Table 4 |
Commentary – adjusted periodically for specific items | NatWest Group and segmental business performance commentary have been adjusted for the impact of specific items such as such as notable items, operating lease depreciation, strategic costs and litigation and conduct costs. | Notable items - page 9 Operating lease depreciation, Strategic, litigation and conduct costs - pages 18 to 22 |
Income across UK and RBSI retail and commercial businesses | Comprises income in the Retail Banking, Commercial Banking, Private Banking and RBS International operating segments, excluding notable items. | Table 7 |
Net lending in the UK and RBSI retail and commercial businesses | Comprises customer loans in the Retail Banking, Commercial Banking, Private Banking and RBS International operating segments, excluding UK Government support schemes. | Table 8 |
Deposits across UK and RBSI retail and commercial businesses | Comprises customer deposits in the Retail Banking, Commercial Banking, Private Banking and RBS International operating segments. | Table 9 |
Bank net interest margin (NIM) | Net interest income of the banking business less NatWest Markets (NWM) element as a percentage of interest-earning assets of the banking business less NWM element. | Table 5 |
Bank net interest margin (NIM) excluding Liquid Asset Buffer | Net interest income of the banking business less NWM element as a percentage of interest-earning assets of the banking business less NWM element and Liquid Asset Buffer. | Table 5 |
NatWest Group – Form 6-K Interim Results 2021 | 2 |
Appendix Non-IFRS financial measures
Performance metrics not defined under IFRS
| | |
Measure | Basis of preparation | Additional analysis or reconciliation |
Loan:deposit ratio | Net customer loans held at amortised cost divided by total customer deposits. | Table 6 |
Tangible net asset value (TNAV) | Tangible equity divided by the number of ordinary shares in issue (excluding own shares held). Tangible equity is ordinary shareholders’ equity less intangible assets. | Page 8 |
NIM | Net interest income as a percentage of interest-earning assets. | Pages 18 to 22 |
Funded assets | Total assets less derivatives. | Pages 18 to 22 |
Loan impairment rate | The annualised loan impairment charge divided by gross customer loans. | Pages 18 to 22 |
Third party customer asset rate | Third party customer asset rate is calculated as annualised interest receivable on third-party loans to customers as a percentage of third-party loans to customers only. This excludes intragroup items, loans to banks and liquid asset portfolios, which are included for the calculation of net interest margin. | Pages 18 to 22 |
Third party customer funding rate | Third party customer funding rate is calculated as annualised interest payable or receivable on third-party customer deposits as a percentage of third-party customer deposits, including interest bearing and non-interest bearing customer deposits. This excludes intragroup items, bank deposits, debt securities in issue and subordinated liabilities. | Pages 18 to 22 |
Assets under management and administration (AUMA) | AUMA comprises both assets under management (AUMs) and assets under administration (AUAs) serviced through the Private Banking franchise. AUMs comprise assets where the investment management is undertaken by Private Banking on behalf of Private Banking, Retail Banking and RBSI customers. AUAs comprise third party assets held on an execution-only basis in custody by Private Banking, Retail Banking and RBSI for their customers accordingly, for which the execution services are supported by Private Banking. Private Banking receive a fee in respect of providing investment management and execution services to Retail Banking and RBSI franchises. | Page 12 |
Depositary assets | Assets held by RBSI as an independent trustee and in a depositary service capacity. | Page 14 |
NatWest Group – Form 6-K Interim Results 2021 | 3 |
Appendix Non-IFRS financial measures
1. Return on tangible equity
| | | | | | | | | | |
| | Half year ended and | | | | | | | ||
| | as at | | Quarter ended and as at | ||||||
| | 30 June | | 30 June | | 30 June | | 31 March | | 30 June |
|
| 2021 |
| 2020 |
| 2021 |
| 2021 |
| 2020 |
Profit/(loss) attributable to ordinary shareholders (£m) |
| 1,842 |
| (705) |
| 1,222 |
| 620 |
| (993) |
Annualised profit/(loss) attributable to ordinary shareholders (£m) |
| 3,684 |
| (1,410) |
| 4,888 |
| 2,480 |
| (3,972) |
Average total equity excluding NCI (£m) |
| 43,375 |
| 44,026 |
| 43,011 |
| 43,566 |
| 44,068 |
Adjustment for other owners equity and intangibles (£m) |
| (11,934) |
| (11,911) |
| (11,712) |
| (12,333) |
| (11,987) |
Adjusted total tangible equity (£m) |
| 31,441 |
| 32,115 |
| 31,299 |
| 31,233 |
| 32,081 |
Return on tangible equity (%) |
| 11.7% | | (4.4)% | | 15.6% | | 7.9% | | (12.4)% |
2. Segmental return on equity
| | | | | | | | | | | | |
| | | | | | | International Banking & Markets | | | |||
| | Retail | | Private | | Commercial | | RBS | | NatWest | | Ulster |
Half year ended 30 June 2021 |
| Banking |
| Banking |
| Banking |
| International |
| Markets |
| Bank RoI |
Operating profit/(loss) (£m) |
| 1,020 |
| 146 |
| 1,339 |
| 173 |
| (249) |
| (7) |
Preference share cost allocation (£m) |
| (40) |
| (10) |
| (76) |
| (10) |
| (31) |
| — |
Adjustment for tax (£m) |
| (274) |
| (38) |
| (354) |
| (29) |
| 78 |
| — |
Adjusted attributable profit/(loss) (£m) |
| 706 |
| 98 |
| 909 |
| 134 |
| (202) |
| (7) |
Annualised adjusted attributable profit/(loss) (£m) |
| 1,412 |
| 196 |
| 1,818 |
| 268 |
| (404) |
| (14) |
Average RWAe (£bn) |
| 35.4 |
| 11.0 |
| 72.1 |
| 7.6 |
| 29.2 |
| 11.1 |
Equity factor |
| 14.5% | | 12.5% | | 11.5% | | 16.0% | | 15.0% | | 15.5% |
RWAe applying equity factor (£bn) |
| 5.1 |
| 1.4 |
| 8.3 |
| 1.2 |
| 4.4 |
| 1.7 |
Return on equity (%) |
| 27.5% | | 14.2% | | 21.9% | | 22.1% | | (9.2)% | | (0.8)% |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Half year ended 30 June 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit/(loss) (£m) |
| 453 |
| 84 |
| (1,008) |
| 87 |
| 69 |
| (239) |
Preference share cost allocation (£m) |
| (44) |
| (11) |
| (76) |
| (10) |
| (34) |
| — |
Adjustment for tax (£m) |
| (115) |
| (20) |
| 304 |
| (11) |
| (10) |
| — |
Adjusted attributable profit /(loss) (£m) |
| 294 |
| 53 |
| (780) |
| 66 |
| 25 |
| (239) |
Annualised adjusted attributable profit/(loss) (£m) |
| 588 |
| 106 |
| (1,560) |
| 132 |
| 50 |
| (478) |
Average RWAe (£bn) |
| 38.0 |
| 10.2 |
| 75.9 |
| 7.0 |
| 41.9 |
| 12.7 |
Equity factor |
| 14.5% | | 12.5% | | 11.5% | | 16.0% | | 15.0% | | 15.5% |
RWAe applying equity factor (£bn) |
| 5.5 |
| 1.3 | | 8.7 | | 1.1 | | 6.3 | | 2.0 |
Return on equity (%) |
| 10.7% | | 8.2% | | (17.9)% | | 11.8% | | 0.8% | | (24.2)% |
NatWest Group – Form 6-K Interim Results 2021 | 4 |
Appendix Non-IFRS financial measures
2. Segmental return on equity continued
| | | | | | | | | | | | |
| | | | | | | International Banking & Markets | | | |||
| | Retail | | Private | | Commercial | | RBS | | NatWest | | Ulster |
Quarter ended 30 June 2021 |
| Banking |
| Banking |
| Banking |
| International |
| Markets |
| Bank RoI |
Operating profit/(loss) (£m) |
| 585 |
| 82 |
| 864 |
| 105 |
| (169) |
| (18) |
Preference share cost allocation (£m) |
| (20) |
| (5) |
| (38) |
| (5) |
| (15) |
| — |
Adjustment for tax (£m) |
| (158) |
| (22) |
| (231) |
| (18) |
| 52 |
| — |
Adjusted attributable profit/(loss) (£m) |
| 407 |
| 55 |
| 595 |
| 83 |
| (132) |
| (18) |
Annualised adjusted attributable profit/(loss) (£m) |
| 1,628 |
| 220 |
| 2,380 |
| 332 |
| (528) |
| (72) |
Monthly average RWAe (£bn) |
| 35.1 |
| 11.1 |
| 70.6 |
| 7.8 |
| 29.2 |
| 10.8 |
Equity factor |
| 14.5% | | 12.5% | | 11.5% | | 16.0% | | 15.0% | | 15.5% |
RWAe applying equity factor (£bn) |
| 5.1 | | 1.4 | | 8.1 | | 1.2 | | 4.4 | | 1.7 |
Return on equity (%) |
| 32.0% | | 15.9% | | 29.3% | | 26.5% | | (12.1)% | | (4.3)% |
| | | | | | | | | | | | |
Quarter ended 31 March 2021 |
|
| |
| |
| |
| |
| |
|
Operating profit/(loss)(£m) |
| 435 | | 64 | | 475 | | 68 | | (80) | | 11 |
Preference share cost allocation (£m) |
| (20) | | (5) | | (38) | | (5) | | (16) | | — |
Adjustment for tax (£m) |
| (116) | | (17) | | (122) | | (11) | | 27 | | — |
Adjusted attributable profit/(loss) (£m) |
| 299 | | 42 | | 315 | | 52 | | (69) | | 11 |
Annualised adjusted attributable profit/(loss) (£m) |
| 1,196 | | 168 | | 1,260 | | 208 | | (276) | | 44 |
Average RWAe (£bn) |
| 35.8 | | 11.0 | | 73.6 | | 7.4 | | 29.2 | | 11.4 |
Equity factor |
| 14.5% | | 12.5% | | 11.5% | | 16.0% | | 15.0% | | 15.5% |
RWAe applying equity factor (£bn) |
| 5.2 | | 1.4 | | 8.5 | | 1.2 | | 4.4 | | 1.8 |
Return on equity (%) |
| 23.0% | | 12.4% | | 14.9% | | 17.5% | | (6.3)% | | 2.5% |
| | | | | | | | | | | | |
Quarter ended 30 June 2020 |
|
| |
| |
| |
| |
| |
|
Operating profit/(loss) (£m) |
| 129 | | 35 | | (971) | | 19 | | (137) | | (218) |
Preference share cost allocation (£m) |
| (22) | | (5) | | (38) | | (5) | | (17) | | — |
Adjustment for tax (£m) |
| (30) | | (8) | | 283 | | (2) | | 43 | | — |
Adjusted attributable profit/(loss) (£m) |
| 77 | | 22 | | (726) | | 12 | | (111) | | (218) |
Annualised adjusted attributable profit/(loss) (£m) |
| 308 | | 88 | | (2,904) | | 48 | | (444) | | (872) |
Average RWAe (£bn) |
| 37.4 | | 10.3 | | 77.8 | | 7.1 | | 41.8 | | 12.6 |
Equity factor |
| 14.5% | | 12.5% | | 11.5% | | 16.0% | | 15.0% | | 15.5% |
RWAe applying equity factor (£bn) |
| 5.4 | | 1.3 | | 8.9 | | 1.1 | | 6.3 | | 2.0 |
Return on equity (%) |
| 5.7% | | 6.6% | | (32.5)% | | 4.3% | | (7.1)% | | (44.5)% |
NatWest Group – Form 6-K Interim Results 2021 | 5 |
Appendix Non-IFRS financial measures
3. Operating expenses analysis
Statutory analysis (1,2)
| | | | | | | | | | |
| | Half year ended | | Quarter ended | ||||||
| | 30 June | | 30 June | | 30 June | | 31 March | | 30 June |
| | 2021 | | 2020 | | 2021 | | 2021 | | 2020 |
Operating expenses |
| £m |
| £m |
| £m |
| £m |
| £m |
Staff costs |
| 1,902 |
| 1,955 |
| 917 |
| 985 |
| 963 |
Premises and equipment |
| 502 |
| 651 |
| 254 |
| 248 |
| 393 |
Other administrative expenses |
| 703 |
| 696 |
| 326 |
| 377 |
| 298 |
Depreciation and amortisation |
| 414 |
| 448 |
| 209 |
| 205 |
| 255 |
Total operating expenses |
| 3,521 |
| 3,750 |
| 1,706 |
| 1,815 |
| 1,909 |
| | | | | | | | | | |
Non-statutory analysis
| | | | | | | | | | | | | | | | |
| | Half year ended | ||||||||||||||
| | 30 June 2021 | | 30 June 2020 | ||||||||||||
| | | | Litigation | | | | | | | | Litigation | | | | |
| | | | and | | | | Statutory | | | | and | | | | Statutory |
| | Strategic | | conduct | | Other | | operating | | Strategic | | conduct | | Other | | operating |
|
| costs |
| costs |
| expenses |
| expenses |
| costs |
| costs |
| expenses |
| expenses |
Operating expenses |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
| £m |
Staff costs |
| 215 |
| — |
| 1,687 |
| 1,902 |
| 160 |
| — |
| 1,795 |
| 1,955 |
Premises and equipment |
| 32 |
| — |
| 470 |
| 502 |
| 148 |
| — |
| 503 |
| 651 |
Other administrative expenses |
| 64 |
| (18) |
| 657 |
| 703 |
| 100 |
| (89) |
| 685 |
| 696 |
Depreciation and amortisation |
| 21 |
| — |
| 393 |
| 414 |
| 56 |
| — |
| 392 |
| 448 |
Total |
| 332 |
| (18) |
| 3,207 |
| 3,521 |
| 464 |
| (89) |
| 3,375 |
| 3,750 |
| | | | | | | | |
| | Quarter ended | ||||||
| | 30 June 2021 | ||||||
| | | | Litigation | | | | |
| | | | and | | | | Statutory |
| | Strategic | | conduct | | Other | | operating |
|
| costs |
| costs |
| expenses |
| expenses |
Operating expenses |
| £m |
| £m |
| £m |
| £m |
Staff costs |
| 104 |
| — |
| 813 |
| 917 |
Premises and equipment |
| 16 |
| — |
| 238 |
| 254 |
Other administrative expenses |
| 41 |
| (34) |
| 319 |
| 326 |
Depreciation and amortisation |
| 11 |
| — |
| 198 |
| 209 |
Total |
| 172 |
| (34) |
| 1,568 |
| 1,706 |
| | | | | | | | |
| | Quarter ended | ||||||
| | 31 March 2021 | ||||||
| | | | Litigation | | | | |
| | | | and | | | | Statutory |
| | Strategic | | conduct | | Other | | operating |
|
| costs |
| costs |
| expenses |
| expenses |
Operating expenses |
| £m |
| £m |
| £m |
| £m |
Staff costs |
| 111 |
| — |
| 874 |
| 985 |
Premises and equipment |
| 16 |
| — |
| 232 |
| 248 |
Other administrative expenses |
| 23 |
| 16 |
| 338 |
| 377 |
Depreciation and amortisation |
| 10 |
| — |
| 195 |
| 205 |
Total |
| 160 |
| 16 |
| 1,639 |
| 1,815 |
| | | | | | | | |
| | Quarter ended | ||||||
| | 30 June 2020 | ||||||
| | | | Litigation | | | | |
| | | | and | | | | Statutory |
| | Strategic | | conduct | | Other | | operating |
|
| costs |
| costs |
| expenses |
| expenses |
Operating expenses |
| £m |
| £m |
| £m |
| £m |
Staff costs |
| 87 |
| — |
| 876 |
| 963 |
Premises and equipment |
| 135 |
| — |
| 258 |
| 393 |
Other administrative expenses |
| 57 |
| (85) |
| 326 |
| 298 |
Depreciation and amortisation |
| 54 |
| — |
| 201 |
| 255 |
Total |
| 333 |
| (85) |
| 1,661 |
| 1,909 |
Notes:
(1) | On a statutory, or GAAP, basis strategic costs are included within staff costs, premises and equipment, depreciation and amortisation and other administrative expenses. Strategic costs relate to restructuring provisions, related costs and projects that are transformational in nature. |
(2) | On a statutory, or GAAP, basis litigation and conduct costs are included within other administrative expenses. |
NatWest Group – Form 6-K Interim Results 2021 | 6 |
Appendix Non-IFRS financial measures
4. Cost:income ratio
| | | | | | | | | | | | | | | | |
| | | | | | | | International Banking & Markets | | | | Central | | | ||
| | Retail | | Private | | Commercial | | RBS | | NatWest | | Ulster | | items | | NatWest |
|
| Banking |
| Banking |
| Banking |
| International |
| Markets |
| Bank RoI |
| & other |
| Group |
Half year ended 30 June 2021 | | £m | | £m | | £m | | £m | | £m | | £m | | £m | | £m |
Operating expenses |
| (1,187) |
| (249) |
| (1,152) |
| (112) |
| (560) |
| (261) |
| — |
| (3,521) |
Operating lease depreciation |
| — |
| — |
| 70 |
| — |
| — |
| — |
| — |
| 70 |
Adjusted operating expenses |
| (1,187) |
| (249) |
| (1,082) |
| (112) |
| (560) |
| (261) |
| — |
| (3,451) |
Total income |
| 2,150 |
| 368 |
| 1,923 |
| 256 |
| 295 |
| 243 |
| 84 |
| 5,319 |
Operating lease depreciation |
| — |
| — |
| (70) |
| — |
| — |
| — |
| — |
| (70) |
Adjusted total income |
| 2,150 |
| 368 |
| 1,853 |
| 256 |
| 295 |
| 243 |
| 84 |
| 5,249 |
Cost:income ratio (%) |
| 55.2% | | 67.7% | | 58.4% | | 43.8% | | 189.8% | | 107.4% | | nm |
| 65.7% |
| | | | | | | | | | | | | | | | |
Half year ended 30 June 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
| (1,075) |
| (252) |
| (1,221) |
| (126) |
| (707) |
| (245) |
| (124) |
| (3,750) |
Operating lease depreciation |
| — |
| — |
| 73 |
| — |
| — |
| — |
| — |
| 73 |
Adjusted operating expenses |
| (1,075) |
| (252) |
| (1,148) |
| (126) |
| (707) |
| (245) |
| (124) |
| (3,677) |
Total income |
| 2,185 |
| 392 |
| 2,003 |
| 259 |
| 816 |
| 249 |
| (66) |
| 5,838 |
Operating lease depreciation |
| — |
| — |
| (73) |
| — |
| — |
| — |
| — |
| (73) |
Adjusted total income |
| 2,185 |
| 392 |
| 1,930 |
| 259 |
| 816 |
| 249 |
| (66) |
| 5,765 |
Cost:income ratio (%) |
| 49.2% | | 64.3% | | 59.5% | | 48.6% | | 86.6% | | 98.4% | | nm |
| 63.8% |
| | | | | | | | | | | | | | | | |
Quarter ended 30 June 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
| (600) |
| (128) |
| (569) |
| (55) |
| (285) |
| (136) |
| 67 |
| (1,706) |
Operating lease depreciation |
| — |
| — |
| 35 |
| — |
| — |
| — |
| — |
| 35 |
Adjusted operating expenses |
| (600) |
| (128) |
| (534) |
| (55) |
| (285) |
| (136) |
| 67 |
| (1,671) |
Total income |
| 1,094 |
| 183 |
| 982 |
| 133 |
| 106 |
| 119 |
| 43 |
| 2,660 |
Operating lease depreciation |
| — |
| — |
| (35) |
| — |
| — |
| — |
| — |
| (35) |
Adjusted total income |
| 1,094 |
| 183 |
| 947 |
| 133 |
| 106 |
| 119 |
| 43 |
| 2,625 |
Cost income ratio (%) |
| 54.8% | | 69.9% | | 56.4% | | 41.4% | | 268.9% | | 114.3% | | nm |
| 63.7% |
| | | | | | | | | | | | | | | | |
Quarter ended 31 March 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
| (587) |
| (121) |
| (583) |
| (57) |
| (275) |
| (125) |
| (67) |
| (1,815) |
Operating lease depreciation |
| — |
| — |
| 35 |
| — |
| — |
| — |
| — |
| 35 |
Adjusted operating expenses |
| (587) |
| (121) |
| (548) |
| (57) |
| (275) |
| (125) |
| (67) |
| (1,780) |
Total income |
| 1,056 |
| 185 |
| 941 |
| 123 |
| 189 |
| 124 |
| 41 |
| 2,659 |
Operating lease depreciation |
| — |
| — |
| (35) |
| — |
| — |
| — |
| — |
| (35) |
Adjusted total income |
| 1,056 |
| 185 |
| 906 |
| 123 |
| 189 |
| 124 |
| 41 |
| 2,624 |
Cost income ratio (%) |
| 55.6% | | 65.4% | | 60.5% | | 46.3% | | 145.5% | | 100.8% | | nm |
| 67.8% |
| | | | | | | | | | | | | | | | |
Quarter ended 30 June 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
| (546) |
| (129) |
| (611) |
| (65) |
| (365) |
| (122) |
| (71) |
| (1,909) |
Operating lease depreciation |
| — |
| — |
| 37 |
| — |
| — |
| — |
| — |
| 37 |
Adjusted operating expenses |
| (546) |
| (129) |
| (574) |
| (65) |
| (365) |
| (122) |
| (71) |
| (1,872) |
Total income |
| 1,035 |
| 191 |
| 995 |
| 115 |
| 273 |
| 120 |
| (53) |
| 2,676 |
Operating lease depreciation |
| — |
| — |
| (37) |
| — |
| — |
| — |
| — |
| (37) |
Adjusted total income |
| 1,035 |
| 191 |
| 958 |
| 115 |
| 273 |
| 120 |
| (53) |
| 2,639 |
Cost income ratio (%) |
| 52.8% | | 67.5% | | 59.9% | | 56.5% | | 133.7% | | 101.7% | | nm |
| 70.9% |
NatWest Group – Form 6-K Interim Results 2021 | 7 |
Appendix Non-IFRS financial measures
5. Net interest margin
| | | | | | | | | | |
| | Half year ended | | Quarter ended | ||||||
| | 30 June | | 30 June | | 30 June | | 31 March | | 30 June |
| | 2021 | | 2020 | | 2021 | | 2021 | | 2020 |
|
| £m |
| £m |
| £m |
| £m |
| £m |
NatWest Group net interest income |
| 3,916 |
| 3,852 |
| 1,985 |
| 1,931 |
| 1,910 |
Less NWM net interest income |
| 3 |
| 34 |
| (4) |
| 7 |
| (6) |
Net interest income excluding NWM |
| 3,919 |
| 3,886 |
| 1,981 |
| 1,938 |
| 1,904 |
Annualised NatWest Group net interest income |
| 7,897 |
| 7,746 |
| 7,962 |
| 7,831 |
| 7,682 |
Annualised net interest income excluding NWM |
| 7,903 |
| 7,815 |
| 7,946 |
| 7,860 |
| 7,658 |
Average interest earning assets (IEA) | | 519,219 | | 477,898 | | 526,124 | | 512,237 | | 497,440 |
Less NWM average IEA |
| 32,346 |
| 37,994 |
| 32,263 |
| 32,429 |
| 39,874 |
Bank average IEA |
| 486,873 |
| 439,904 |
| 493,861 |
| 479,808 |
| 457,566 |
Less liquid asset buffer average IEA |
| 157,524 |
| 124,333 |
| 163,437 |
| 151,603 |
| 136,468 |
Bank average IEA excluding liquid asset buffer | | 329,349 | | 315,571 | | 330,424 | | 328,205 | | 321,098 |
| | | | | | | | | | |
Net interest margin |
| 1.52% | | 1.62% | | 1.51% | | 1.53% | | 1.54% |
Bank net interest margin (NatWest Group NIM excluding NWM) | | 1.62% | | 1.78% | | 1.61% | | 1.64% | | 1.67% |
Bank net interest margin excluding liquid asset buffer |
| 2.40% | | 2.48% | | 2.40% | | 2.39% | | 2.38% |
Note:
(1) | Liquid asset buffer is defined as the stock of liquid assets held by the bank, such as central bank reserves or high-quality government debt that can be easily used to repay obligations as they fall due. They are available to meet unexpected changes in cash flows. |
6. Loan:deposit ratio
| | | | | | |
| | As at | ||||
| | 30 June | | 31 March | | 30 June |
| | 2021 | | 2021 | | 2020 |
|
| £bn |
| £bn |
| £bn |
Loans to customers - amortised cost |
| 362,711 |
| 358,728 |
| 352,341 |
Customer deposits |
| 467,214 |
| 453,308 |
| 408,268 |
Loan:deposit ratio (%) |
| 78% | | 79% | | 86% |
7. UK and RBSI retail and commercial businesses income excluding notable items
| | | | | | | | | | |
|
| Half year ended |
| Quarter ended | ||||||
| | 30 June | | 30 June | | 30 June | | 31 March | | 30 June |
| | 2021 | | 2020 | | 2021 | | 2021 | | 2020 |
| | £m | | £m | | £m | | £m | | £m |
Retail Banking |
| 2,150 |
| 2,185 |
| 1,094 |
| 1,056 |
| 1,035 |
Private Banking |
| 368 |
| 392 |
| 183 |
| 185 |
| 191 |
Commercial Banking |
| 1,923 |
| 2,003 |
| 982 |
| 941 |
| 995 |
RBS International |
| 256 |
| 259 |
| 133 |
| 123 |
| 115 |
Income |
| 4,697 |
| 4,839 |
| 2,392 |
| 2,305 |
| 2,336 |
Less notable items |
| (10) |
| 8 |
| (24) |
| 14 |
| (11) |
Total UK and RBSI retail and commercial businesses | | | | | | | | | | |
income excluding notable items |
| 4,687 |
| 4,847 |
| 2,368 |
| 2,319 |
| 2,325 |
NatWest Group – Form 6-K Interim Results 2021 | 8 |
Appendix Non-IFRS financial measures
8. UK and RBSI retail and commercial businesses net lending excluding UK Government support schemes
| | | | | | |
|
| 30 June |
| 31 March |
| 31 December |
| | 2021 | | 2021 | | 2020 |
| | £bn | | £bn | | £bn |
Retail Banking |
| 178.1 |
| 174.8 |
| 172.3 |
Private Banking |
| 18.0 |
| 17.5 |
| 17.0 |
Commercial Banking |
| 103.8 |
| 106.6 |
| 108.2 |
RBS International |
| 15.1 |
| 14.7 |
| 13.3 |
Loans to customers |
| 315.0 |
| 313.6 |
| 310.8 |
Less UK Government support schemes |
| (13.0) |
| (13.5) |
| (12.9) |
Total UK and RBSI retail and commercial businesses | | | | | | |
net lending excluding UK Government support schemes |
| 302.0 |
| 300.1 |
| 297.9 |
9. UK and RBSI retail and commercial businesses customer deposits
| | | | | | |
| | 30 June |
| 31 March |
| 31 December |
| | 2021 | | 2021 | | 2020 |
| | £bn | | £bn | | £bn |
Retail Banking |
| 184.1 |
| 179.1 |
| 171.8 |
Private Banking |
| 34.7 |
| 33.5 |
| 32.4 |
Commercial Banking |
| 176.0 |
| 169.4 |
| 167.7 |
RBS International |
| 33.9 |
| 33.3 |
| 31.3 |
Total UK and RBSI retail and commercial businesses customer deposits |
| 428.7 |
| 415.3 |
| 403.2 |
Legal Entity Identifier: 2138005O9XJIJN4JPN90
NatWest Group – Form 6-K Interim Results 2021 | 9 |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorised.
NatWest Group plc
Registrant
/s/ Katie Murray
Group Chief Financial Officer
30 July 2021
NatWest Group – Form 6-K Interim Results 2021 | 10 |