Report of Foreign Private Issuer
Pursuant
to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
28 October 2022
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 X | 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Form F-3 (File No. 333-261837) and to be a part thereof from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished.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 targets and guidance relating to financial performance measures, such as income growth, operating expense, cost reductions, RoTE, ROE, discretionary capital distribution targets, impairment loss rates, balance sheet reduction, including the reduction of RWAs, CET1 ratio (and key drivers of the CET1 ratio including timing, impact and details), Pillar 2 and other regulatory buffer requirements and MREL and non-financial performance measures, such as NatWest Group’s initial area of focus, climate and ESG-related performance ambitions, targets and metrics, including in relation to initiatives to transition to a net zero economy, Climate and Sustainable Funding and Financing (CSFF) and financed emissions. In addition, this document includes forward-looking statements relating, but not limited to: the Covid-19 pandemic and its impact on NatWest Group; planned cost reductions, disposal losses and strategic costs; implementation of NatWest Group’s purpose-led strategy and other strategic priorities (including in relation to: its phased withdrawal from ROI, the NWM Refocusing and investment programmes relating to digital transformation of its operations and services and inorganic opportunities); the timing and outcome of litigation and government and regulatory investigations; direct and on-market buy-backs; funding plans and credit risk profile; managing its capital position; liquidity ratio; portfolios; net interest margin and drivers related thereto; lending and income growth, product share and growth in target segments; impairments and write-downs, including with respect to goodwill; restructuring and remediation costs and charges; NatWest Group’s exposure to political risk, economic assumptions and risk, climate, environmental and sustainability risk, operational risk, conduct risk, financial crime risk, cyber, data 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: economic and political risk (including in respect of: political and economic risks and uncertainty in the UK and global markets, including due to high inflation, supply chain disruption and the Russian invasion of Ukraine); the impact of the COVID-19 pandemic on NatWest Group and its customers; uncertainty regarding the effects of Brexit; changes in interest rates and foreign currency exchange rates; and HM Treasury’s ownership as the largest shareholder of NatWest Group plc); strategic risk (including in respect of the implementation of NatWest Group’s purpose-led Strategy; refocusing of its NWM franchise; and the effect of the COVID-19 pandemic on NatWest Group’s strategic objectives and targets); financial resilience risk (including in respect of: NatWest Group’s ability to meet targets and to make discretionary capital distributions; the competitive environment; impact of the COVID-19 pandemic on the credit quality of NatWest Group’s counterparties; counterparty and borrower risk; prudential regulatory requirements for capital and MREL; the adequacy of NatWest Group’s future assessments by the Prudential Regulation Authority and the Bank of England ; liquidity and funding risks; changes in the credit ratings; the requirements of regulatory stress tests; goodwill impairment; 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 net zero economy; the implementation of NatWest Group’s climate change strategy, including publication of an initial climate transition plan in 2023 and climate change resilient systems, controls and procedures; climate-related data and 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 transition of LIBOR other IBOR rates to alternative risk-free rates; and changes in tax legislation or failure to generate future taxable profits).
| NatWest Group – Form 6-K Q3 Results 2022 | 1 |
Forward-looking statements continued
Climate and ESG disclosures
Climate and ESG disclosures in this report are not measures within the scope of International Financial Reporting Standards (‘IFRS’) and use a greater number and level of judgements, assumptions and estimates, including with respect to the classification of climate and sustainable funding and financing activities, than our reporting of historical financial information in accordance with IFRS. These judgements, assumptions and estimates are highly likely to change over time, and, when coupled with the longer time frames used in these disclosures, make any assessment of materiality inherently uncertain. In addition, our climate risk analysis and net zero strategy remain under development, and the data underlying our analysis and strategy remain subject to evolution over time. The process we have adopted to define, gather and report data on our performance on Climate and ESG measures is not subject to the formal processes adopted for financial reporting in accordance with IFRS and there are currently limited industry standards or globally recognised established practices for measuring and defining Climate and ESG related metrics. As a result, we expect that certain climate and ESG disclosures made in this report are likely to be amended, updated, recalculated or restated in the future. Please also refer to the cautionary statement in the section entitled ‘Climate-related and other forward-looking statements and metrics’ of the NatWest Group 2021 Climate-related Disclosures Report.
Disclaimer
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 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 ‘UBIDAC’ 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’). References 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 Q3 Results 2022 | 2 |
Non-IFRS financial measures
NatWest Group prepares its financial statements in accordance with generally accepted accounting principles (GAAP). This document contains a number of adjusted or alternative performance measures, also known as non-GAAP or non-IFRS performance measures. These measures are adjusted for certain items which management believe 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. For details of the basis of preparation and reconciliations where appropriate refer to the Appendix in this announcement. These measures include:
1. Go-forward group income excluding notable items
Go-forward group income excluding notable items is calculated as total income excluding Ulster Bank RoI total income and excluding notable items.
The exclusion of notable items aims to remove the impact of one-offs which may distort period-on-period comparisons.
2. Go-forward group other operating expenses
Other operating expenses is calculated as total operating expenses less litigation and conduct costs. Other operating expenses of the Go-forward group excludes Ulster Bank RoI.
Our cost target for 2022 is based on this measure and we track progress against it.
3. Go-forward group profit before impairment releases/(losses)
Go-forward group profit before impairment releases/(losses) is calculated as total profit before impairment releases/(losses) less Ulster Bank RoI loss before impairment (losses)/releases.
4. Operating expenses - management view
The management analysis of operating expenses shows litigation and conduct costs on a separate line. These amounts are included within staff costs and other administrative expenses in the statutory analysis. Other operating expenses excludes litigation and conduct costs, which are more volatile and may distort comparisons with prior periods.
5. Cost:income ratio
The cost:income ratio is calculated as total operating expenses less operating lease depreciation divided by total income less operating lease depreciation. The cost:income ratio of the Go-forward group excludes Ulster Bank RoI.
This is a common metric used to compare profitability across the banking industry.
6. NatWest Group return on tangible equity
Return on tangible equity comprises annualised profit or loss for the period attributable to ordinary shareholders divided by average tangible equity. Average tangible equity is average total equity excluding average non-controlling interests, average other owners equity and average intangible assets.
Go-forward group return on tangible equity is calculated as annualised profit for the period less Ulster Bank RoI divided by Go-forward group total tangible equity. Go forward RWAe applying factor is the Go- forward group average RWAe as a percentage of total NatWest Group average RWAe.
This measure shows the return NatWest Group generates on tangible equity deployed. It is used to determine relative performance of banks and used widely across the sector, although different banks may calculate the rate differently.
7. Segmental return on equity
Segmental return on equity comprises segmental operating profit or loss, adjusted for preference share dividends and tax, divided by average notional tangible equity. Average RWAe is defined as average segmental RWAs incorporating the effect of capital deductions. This is multiplied by an allocated equity factor for each segment to calculate the average notional tangible equity.
This measure shows the return generated by operating segments on equity deployed.
8. Bank net interest margin
Bank net interest margin is defined as annualised net interest income of the Go-forward group, as a percentage of bank average interest-earning assets. Bank average interest earning assets are the average interest earning assets of the banking business of the Go-forward group excluding liquid asset buffer.
Liquid asset buffer consists of assets held by NatWest Group, such as cash and balances at central banks and debt securities in issue, that can be used to ensure repayment of financial obligations as they fall due. The exclusion of liquid asset buffer has been introduced as a way to present net interest margin on a basis more comparable with UK peers and exclude the impact of regulatory driven factors.
| NatWest Group – Form 6-K Q3 Results 2022 | 3 |
Non-IFRS financial measures continued
9. Tangible net asset value (TNAV) per ordinary share
TNAV per ordinary share is calculated as tangible equity divided by the number of ordinary shares in issue.
This is a measure used by external analysts in valuing the bank and allows for comparison with other per ordinary share metrics including the share price.
10. Go-forward group net lending
NatWest Group net lending is calculated as total loans to customers less loan impairment provisions. Go-forward group net lending is calculated as net loans to customers less Ulster Bank RoI net loans to customers.
11. Go-forward group customer deposits
Go-forward group customer deposits is calculated as total customer deposits less Ulster Bank RoI customer deposits.
Performance metrics not defined under IFRS
Metrics based on GAAP measures, included as not defined under IFRS and reported for compliance with the European Securities and Markets Authority (ESMA) adjusted performance measure rules.
1. Loan:deposit ratio
Loan:deposit ratio is calculated as net customer loans held at amortised cost excluding reverse repos divided by total customer deposits excluding repos.
This is a common metric used to assess liquidity. The removal of repos and reverse repos reduces volatility and presents the ratio on a basis that is comparable to UK peers.
2. Loan impairment rate
Loan impairment rate is the annualised loan impairment charge divided by gross customer loans.
3. Funded assets
Funded assets are calculated as total assets less derivative assets.
This measure allows review of balance sheet trends exclusive of the volatility associated with derivative fair values.
4. AUMAs
AUMA comprises both assets under management (AUMs) and assets under administration (AUAs) serviced through the Private Banking franchise. AUMs comprise assets where the investment management is undertaken by Private Banking on behalf of Private Banking, Retail Banking and Commercial & Institutional customers. AUAs comprise third party assets held on an execution-only basis in custody by Private Banking, Retail Banking and Commercial & Institutional for their customers, for which the execution services are supported by Private Banking. Private Banking receives a fee for providing investment management and execution services to Retail Banking and Commercial & Institutional franchises.
Private Banking is the centre of expertise for asset management across NatWest Group servicing all client segments across Retail, Banking, Private Banking and Commercial & Institutional.
5. Net new money
Net new money refers to client cash inflows and outflows relating to investment products (this can include transfers from savings accounts). Net new money excludes the impact of EEA resident client outflows following the UK’s exit from the EU.
Net new money is reported and tracked to monitor the business performance of new business inflows and management of existing client withdrawals across Retail Banking, Private Banking and Commercial & Institutional.
6. Wholesale funding
Wholesale funding comprises deposits by banks (excluding repos), debt securities in issue and subordinated liabilities.
Funding risk is the risk of not maintaining a diversified, stable and cost-effective funding base. The disclosure of wholesale funding highlights the extent of our diversification and how we mitigate funding risk.
7. Third party rates
Third party customer asset rate is calculated as annualised interest receivable on third-party loans to customers as a percentage of third-party loans to customers. This excludes assets of disposal groups, intragroup items, loans to banks and liquid asset portfolios.
Third party customer funding rate reflects interest payable or receivable on third-party customer deposits, including interest bearing and non-interest bearing customer deposits. Intragroup items, bank deposits, debt securities in issue and subordinated liabilities are excluded for customer funding rate calculation.
| NatWest Group – Form 6-K Q3 Results 2022 | 4 |
NatWest Group plc
Q3 2022 Interim Management Statement
Chief Executive, Alison Rose, commented:
“In a challenging environment, NatWest Group continues to deliver a strong financial performance; supporting our customers, responsibly growing our lending and making significant investments to transform the bank.
At a time of increased economic uncertainty, we are acutely aware of the challenges that people, families and businesses are facing up and down the country. Although we are not yet seeing signs of heightened financial distress, we are very conscious of the growing concerns of our customers and we are closely monitoring any changes to their finances or behaviours.
The bank’s strong capital and liquidity mean we are able to help those who are likely to need it the most, through support for our community partners, proactive outreach to our customers or targeted lending packages for the most impacted sectors.”
Strong Q3 2022 performance
| – | Q3 2022 attributable profit of £187 million and a return on tangible equity of 2.9% and 12.1% excluding Ulster Bank RoI. |
| – | Total income of £3,229 million was £543 million, or 20.2%, higher compared with Q3 2021. Excluding notable items, income in the Go-forward group increased by £923 million, or 36.8%, compared with Q3 2021 principally reflecting the impact of volume growth, increased transactional related fees and yield curve movements. |
| – | Net interest margin of 1.91% was 22 basis points higher compared with Q2 2022. Bank net interest margin (NIM) of 2.99% was 27 basis points higher than Q2 2022 driven by the impact of base rate rises. |
| – | Total operating expenses of £5,549 million were £119 million, or 2.2% higher for the year to date. Other operating expenses in the Go-forward group were £87 million, or 1.8%, higher for the year to date. We do, however, remain on track to achieve our 2022 go-forward group other operating expenses cost reduction target of around 3%. |
| – | A net impairment charge of £247 million (£242 million in the Go-forward group) in Q3 2022 principally reflects revision of scenario weightings, with more weight being placed on the downside scenario, and not due to underlying book performance where conditions continue to be benign. |
| – | Total Ulster Bank RoI including discontinued operations reported a loss of £552 million (€652 million) in the quarter, which included a £355 million (€419 million) loss associated with the reclassification of UBIDAC mortgages to fair value. |
Robust balance sheet with strong capital and liquidity levels
| – | Total net lending of £371.8 billion was £9.2 billion, or 2.5%, higher compared with Q2 2022. Net lending balances for the Go-forward group increased by £9.9 billion during Q3 2022 to £371.5 billion, with growth balanced across the business. |
| – | Customer deposits of £473.0 billion were £19.1 billion, or 3.9%, lower compared with Q2 2022. Go-forward group customer deposits decreased by £14.5 billion to £461.7 billion compared with Q2 2022, primarily driven by a reduction in Treasury repo activity of £7.6 billion and an £8.0 billion reduction in Commercial & Institutional reflecting reversal of short term inflows in Q2 2022 and general seasonal fluctuations in liquidity. |
| – | The liquidity coverage ratio (LCR) of 156%, representing £67.8 billion headroom above 100% minimum requirement, decreased by 3 percentage points compared with Q2 2022, reflecting shareholder distributions, redemption of senior debt and maturing commercial papers and certificates of deposit. |
| – | CET1 ratio of 14.3% was flat on Q2 2022 as the attributable profit and reduction in RWAs was offset by accruals for foreseeable dividends and pension contributions. |
| – | RWAs reduced by £1.3 billion in the quarter to £178.5 billion. |
Outlook 2023(2)
In 2023, we continue to expect to achieve our planned return on tangible equity in the range of 14-16%.
However, reflecting changes in the economic outlook since H1 2022, the composition of those returns will be different:
| – | Income will be higher supported by higher interest rates. |
| – | We no longer expect costs to be broadly stable given increased inflationary pressures. |
| – | Our loan book is performing well, and while we expect impairments to increase, we remain comfortable with our through the cycle impairment loss rate guidance of 20-30 basis points, including in 2023. |
Outlook 2022(2)
| – | At today’s Bank of England base rate of 2.25% we expect 2022 income excluding notable items to be around £12.8 billion in the Go-forward group. We expect NIM to be greater than 2.80% for full year 2022 in the Go-forward group. |
Other than as stated above, we retain the outlook guidance provided in the 2022 Interim Results.
| (1) | Go-forward group excludes Ulster Bank RoI and discontinued operations. |
| (2) | The guidance, targets, expectations and trends discussed in this section represent NatWest Group plc management’s current expectations and are subject to change, including as a result of the factors described in the NatWest Group plc Risk Factors in the 2021 Annual Report on Form 20-F and the Summary Risk Factors in the NatWest Group plc 2022 Interim Results. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement. |
| NatWest Group – Form 6-K Q3 Results 2022 | 5 |
Our Purpose in action
We champion potential, helping people, families and businesses to thrive. We are doing this by breaking down barriers, building financial confidence and delivering sustainable growth and returns by living up to our purpose. Some key achievements include:
People and families
| – | 8.3 million proactive contacts to our retail customers with support and information on the cost of living so far in 2022. |
| – | Helped c.0.6 million customers with financial health checks so far in 2022, allowing them to organise their finances. |
| – | Launched benefits calculator(1) as part of the Cost of Living Hub and increased the interest paid on our Digital Regular Saver to 5%. |
| – | We extended our mortgage early refinance window from four months to six months, providing some eligible customers that refinanced in Q3 2022 with a saving of around 2% on their next mortgage rate. |
| – | In Retail Banking, we have completed £2.1 billion of green mortgages(2), which give a discounted interest rate to energy efficient properties, since they were launched in Q4 2020, including £668 million in Q3 2022. |
Businesses
| – | Contacted c.0.8 million business customers, providing support and advice with the cost of doing business through c.3 million pieces of proactive communication. |
| – | Continue to look at ways to support SMEs, for example through the freezing of fees on Business Current accounts for 12 months, and through our dedicated SME ecosystem with access to specialist relationship managers and business hubs. |
| – | Working with the UK’s largest debt charity, Step Change, donating £2 million to help fund an independent debt advice service for SMEs. |
| – | Completed £6.2 billion of climate and sustainable funding and financing in Q3 2022, bringing the cumulative contribution to £26.2 billion against our target of £100 billion between 1 July 2021 and the end of 2025. |
| – | Lowered the application threshold for our Green Loan offering for SMEs, from £50,000 to £25,000, helping more businesses transition to net zero. |
| – | Launched the NatWest Carbon Planner in August 2022, a free to use digital platform designed to help UK businesses reduce their carbon footprint. |
Colleagues
| – | Our new Partner Leave Policy(3) will provide the same pay and leave entitlement to all eligible new parents, regardless of gender, helping to support wider cultural change by promoting a shared approach to childcare responsibilities early on. |
| – | Launched the Peppy Health App, a brand-new digital product providing colleagues and their partners with online support on the menopause as well as access to specialist clinicians. The Peppy App provides support for colleagues at any stage of the menopause, from as early as having initial symptoms to post-menopause. |
| – | Targeted action to provide long-term support through a permanent increase in base pay for our lowest paid colleagues, globally. c.22,000 colleagues received a pay rise, effective from 1 September 2022. In the UK, a 4% salary rise for those earning less than £32,000. |
| – | 246 apprentices have joined the bank so far in 2022(4), with a further c.50 due to join before the end of the year. |
Communities
| – | Launched our Greener Homes Retrofit Project with our Sustainable Homes and Buildings Coalition partners. This involves supporting households to improve the energy efficiency of their homes. |
| – | The DEC Ukraine Humanitarian Appeal has exceeded £10 million in donations from NatWest Group colleagues and customers. This includes £2.5 million matching from the bank, over £2.3 million in Reward donations (including Gift Aid) and £284,000 (including Gift Aid) donated by colleagues through our SponsorMe page. |
| – | MoneySense has helped almost c.0.9 million young people learn about money in 2022 so far, and is used in 58% of schools. Our CareerSense programme has reached over 7,700 young people, through workshops in schools, paid placements/insight weeks and Find Your Path programme. |
| – | Since 1 January 2022, our colleagues have given back c.48,000 hours of volunteering leave within work time and fundraised c.£2.4 million for charitable causes. |
| (1) | Benefits calculator launched in October 2022. |
| (2) | Green mortgages are available to all intermediaries for all residential and Buy to Let properties with an energy performance rating of A or B and specific new build developer properties. Available for Purchase, Porting & Re-mortgage applications. |
| (3) | Our Partner Leave policies will replace existing Paternity Leave policies from 1 January 2023 in the UK, Guernsey, Jersey, Gibraltar, Republic of Ireland, India and Poland. |
| (4) | Apprentices who have joined the bank as at 25 October 2022. |
| NatWest Group – Form 6-K Q3 Results 2022 | 6 |
Business performance summary
| Nine months ended | Quarter ended | |||||
| 30
September 2022 £m |
30
September 2021 £m |
30
September 2022 £m |
30
June 2022 £m |
30
September 2021 £m | ||
| Continuing operations | ||||||
| Total income | 9,448 | 7,827 | 3,229 | 3,211 | 2,686 | |
| Operating expenses | (5,549) | (5,430) | (1,896) | (1,833) | (1,931) | |
| Profit before impairment (losses)/releases | 3,899 | 2,397 | 1,333 | 1,378 | 755 | |
| Operating profit before tax | 3,706 | 3,301 | 1,086 | 1,396 | 976 | |
| Excluding notable items within total income (1) | ||||||
| Total income excluding notable items (2) | 9,295 | 7,679 | 3,397 | 3,114 | 2,568 | |
| Operating expenses | (5,549) | (5,430) | (1,896) | (1,833) | (1,931) | |
| Profit before impairment (losses)/releases and excluding notable items | 3,746 | 2,249 | 1,501 | 1,281 | 637 | |
| Operating profit before tax and excluding notable items | 3,553 | 3,153 | 1,254 | 1,299 | 858 | |
| Go-forward group (3) | ||||||
| Total income (2) | 9,452 | 7,705 | 3,266 | 3,199 | 2,629 | |
| Total income excluding notable items (2) | 9,299 | 7,557 | 3,434 | 3,102 | 2,511 | |
| Other operating expenses | (4,902) | (4,815) | (1,661) | (1,636) | (1,524) | |
| Profit before impairment (losses)/releases (2) | 4,271 | 2,626 | 1,484 | 1,507 | 810 | |
| Return on tangible equity (2) | 13.5% | 11.4% | 12.1% | 16.5% | 8.6% | |
| Cost:income ratio (2) | 54.4% | 65.4% | 54.1% | 52.4% | 68.8% | |
| Performance key metrics and ratios | ||||||
| Bank net interest margin (2,4) | 2.73% | 2.32% | 2.99% | 2.72% | 2.28% | |
| Bank average interest earning assets (2,4) | £341bn | £323bn | £350bn | £340bn | £325bn | |
| Cost:income ratio (2) | 58.3% | 69.0% | 58.3% | 56.7% | 71.5% | |
| Loan impairment rate (2) | 7bps | (33bps) | 26bps | (2bps) | (24bps) | |
| Profit attributable to ordinary shareholders | 2,078 | 2,516 | 187 | 1,050 | 674 | |
| Total earnings per share attributable to ordinary shareholders - basic (5) | 20.9p | 23.1p | 1.9p | 10.8p | 6.3p | |
| Return on tangible equity (2) | 10.0% | 10.7% | 2.9% | 15.2% | 8.5% | |
| (1) | Refer to page 9 for details of notable items within total income. |
| (2) | Refer to the Non-IFRS financial measures appendix for details of basis of preparation and reconciliation of non-IFRS financial measures and performance metrics. |
| (3) | Go-forward group excludes Ulster Bank RoI and discontinued operations. |
| (4) | NatWest Group excluding Ulster Bank RoI and liquid asset buffer. |
| (5) | At the General Meeting and Class Meeting on 25 August 2022, the shareholders approved the proposed special dividend and share consolidation. On 30 August 2022 the issued ordinary share capital was consolidated in the ratio of 14 existing shares for 13 new shares. The average number of shares for earnings per share has been adjusted retrospectively. |
| NatWest Group – Form 6-K Q3 Results 2022 | 7 |
Business performance summary continued
| 30
September 2022 £bn |
30
June 2022 £bn |
31
December 2021 £bn | |
| Balance sheet | |||
| Total assets | 801.5 | 806.5 | 782.0 |
| Funded assets (1) | 660.5 | 697.1 | 675.9 |
| Loans to customers - amortised cost | 371.8 | 362.6 | 359.0 |
| Loans to customers and banks - amortised cost and FVOCI | 384.5 | 376.4 | 369.8 |
| Go-forward group net lending (1) | 371.5 | 361.6 | 352.3 |
| Total impairment provisions (2) | 3.4 | 3.5 | 3.8 |
| Expected credit loss (ECL) coverage ratio | 0.88% | 0.93% | 1.03% |
| Assets under management and administration (AUMA) (1) | 32.3 | 32.9 | 35.6 |
| Go-forward group customer deposits (1) | 461.7 | 476.2 | 461.4 |
| Customer deposits | 473.0 | 492.1 | 479.8 |
| Liquidity and funding | |||
| Liquidity coverage ratio (LCR) | 156% | 159% | 172% |
| Liquidity portfolio | 251 | 268 | 286 |
| Net stable funding ratio (NSFR) (3) | 148% | 153% | 157% |
| Loan:deposit ratio (1) | 75% | 71% | 72% |
| Total wholesale funding | 75 | 76 | 77 |
| Short-term wholesale funding | 24 | 24 | 23 |
| Capital and leverage | |||
| Common Equity Tier (CET1) ratio (4) | 14.3% | 14.3% | 18.2% |
| Total capital ratio (4) | 19.2% | 19.3% | 24.7% |
| Pro forma CET1 ratio, pre foreseeable items (5) | 14.7% | 15.6% | 19.5% |
| Risk-weighted assets (RWAs) | 178.5 | 179.8 | 157.0 |
| UK leverage ratio (4) | 5.2% | 5.2% | 5.9% |
| Tangible net asset value (TNAV) per ordinary share (6) | 250p | 267p | 272p |
| Number of ordinary shares in issue (millions) (6) | 9,650 | 10,436 | 11,272 |
| (1) | Refer to the Non-IFRS financial measures appendix for details of basis of preparation and reconciliation of non-IFRS financial measures and performance metrics. | |
| (2) | Includes £0.1 billion relating to off-balance sheet exposures (30 June 2022 - £0.1 billion; 31 December 2021 - £0.1 billion). |
| (3) | The NSFR is presented on a spot basis. |
| (4) | Refer to the Capital, liquidity and funding risk section for details of basis of preparation. On 1 January 2022 the proforma CET1 ratio was 15.9% following regulatory changes. |
| (5) | The pro forma CET1 ratio at 30 September 2022 excludes foreseeable items of £668 million; £386 million for ordinary dividends and £282 million foreseeable charges (30 June 2022 excludes foreseeable items of £2,341 million: £500 million for ordinary dividends, £1,750 million for special dividends and £91 million foreseeable charges; 31 December 2021 excludes foreseeable charges of £2,036 million: £846 million for ordinary dividends and £1,190 million foreseeable charges and pension contributions). |
| (6) | The number of ordinary shares in issue excludes own shares held. Comparatives for the number of shares in issue and TNAV per ordinary share have not been adjusted for the effect of the share consolidation referred to in footnote 5 on the previous page. |
| NatWest Group – Form 6-K Q3 Results 2022 | 8 |
Summary consolidated income statement for the period ended 30 September 2022
| Nine months ended | Quarter ended | |||||
| 30
September 2022 £m |
30
September 2021 £m |
30
September 2022 £m |
30
June 2022 £m |
30
September 2021 £m | ||
| Net interest income | 6,974 | 5,613 | 2,640 | 2,307 | 1,869 | |
| Non-interest income | 2,474 | 2,214 | 589 | 904 | 817 | |
| Total income | 9,448 | 7,827 | 3,229 | 3,211 | 2,686 | |
| Litigation and conduct costs | (294) | (276) | (125) | (67) | (294) | |
| Other operating expenses | (5,255) | (5,154) | (1,771) | (1,766) | (1,637) | |
| Operating expenses | (5,549) | (5,430) | (1,896) | (1,833) | (1,931) | |
| Profit before impairment (losses)/releases | 3,899 | 2,397 | 1,333 | 1,378 | 755 | |
| Impairment (losses)/releases | (193) | 904 | (247) | 18 | 221 | |
| Operating profit before tax | 3,706 | 3,301 | 1,086 | 1,396 | 976 | |
| Tax charge | (1,229) | (762) | (434) | (409) | (330) | |
| Profit from continuing operations | 2,477 | 2,539 | 652 | 987 | 646 | |
| (Loss)/profit from discontinued operations, net of tax | (206) | 275 | (396) | 127 | 98 | |
| Profit for the period | 2,271 | 2,814 | 256 | 1,114 | 744 | |
| Attributable to: | ||||||
| Ordinary shareholders | 2,078 | 2,516 | 187 | 1,050 | 674 | |
| Preference shareholders | - | 14 | - | - | 5 | |
| Paid-in equity holders | 188 | 241 | 67 | 62 | 63 | |
| Non-controlling interests | 5 | 43 | 2 | 2 | 2 | |
| 2,271 | 2,814 | 256 | 1,114 | 744 | ||
| Notable items within total income (1) | ||||||
| Commercial & Institutional | ||||||
| Fair value, disposal losses and asset disposals/strategic risk reduction | (45) | (70) | - | (45) | (8) | |
| Tax variable lease repricing | - | 32 | - | - | - | |
| Own credit adjustments (OCA) | 61 | 3 | 9 | 34 | 2 | |
| Central items & other | ||||||
| Share of associate (losses)/profits for Business Growth Fund | (29) | 208 | (16) | (36) | 79 | |
| Loss on redemption of own debt | (161) | (138) | (137) | - | - | |
| Liquidity Asset Bond sale (losses)/gains | (88) | 70 | (124) | (5) | 45 | |
| Interest and FX risk management derivatives not in accounting hedge relationships | 415 | 44 | 100 | 149 | - | |
| Own credit adjustments (OCA) | - | (1) | - | - | - | |
| Total | 153 | 148 | (168) | 97 | 118 | |
| (1) | Refer to page 44 of the Non-IFRS financial measures appendix. |
Non-IFRS financial measures
This document contains a number of non-IFRS financial measures and performance metrics not defined under IFRS. For details of the basis of preparation and reconciliations, where applicable, refer to the appendix.
| NatWest Group – Form 6-K Q3 Results 2022 | 9 |
Business performance summary
Chief Financial Officer review
The results for the quarter have been impacted by a significant loss in Ulster Bank RoI as we continue our withdrawal from the Republic of Ireland, however operating performance in the Go-forward group was strong, delivering a RoTE of 12.1%. We continue to monitor the evolving economic outlook, particularly any impacts on NatWest Group and our customers from higher interest rates and inflationary pressures and recent pressure on sterling, gilts and pension fund liabilities. NatWest Group’s capital and liquidity position remains robust.
Financial performance
Total income of £3,229 million was £543 million, or 20.2%, higher compared with Q3 2021. Total income in the Go-forward group increased by 24.2% to £3,266 million compared with Q3 2021. Excluding notable items, income was £923 million, or 36.8%, higher than Q3 2021 driven by volume growth, increased transactional related fees, higher trading income and favourable yield curve movements.
Net interest margin of 1.91% was 22 basis points higher compared with Q2 2022. Bank NIM of 2.99% was 27 basis points higher than Q2 2022 principally reflecting the impact of recent base rate increases.
Total operating expenses of £5,549 million were £119 million, or 2.2% higher for the year to date. Other operating expenses in the Go-forward group were £137 million, or 9.0%, higher than Q3 2021 principally driven by strategic investment in key areas, including data and financial crime, resulting in an increase of £87 million, or 1.8%, for the year to date.
A net impairment charge of £247 million (£242 million for the Go-forward group) for Q3 2022 principally reflects an increase in the charge relating to good book exposures, driven by revision of scenario weightings with more weight being placed on the downside scenarios. We continue to see low levels of Stage 3 defaults. Compared with Q2 2022, our ECL provisions have reduced by £0.1 billion to £3.4 billion, and our ECL coverage ratio has decreased from 0.93% to 0.88%. The element of our economic uncertainty post model adjustments (PMA) that relates to COVID-19 risks has been reduced, which, when combined with revising our scenario weightings, has allowed us to reduce the amount we hold as economic uncertainty PMA to £0.5 billion, or 16.1% of total impairment provisions. Whilst we are comfortable with the strong credit performance of our book, we will continue to assess this position regularly and are closely monitoring the impacts of inflationary pressures on the UK economy and our customers.
After including a charge of £355 million (€419 million) in relation to the reclassification of UBIDAC mortgages to fair value, we report a Q3 2022 attributable profit of £187 million, with earnings per share of 1.9 pence and a RoTE of 2.9% for NatWest Group.
Retail Banking gross new mortgage lending was £11.0 billion in Q3 2022, compared with £8.3 billion in Q3 2021 and £9.8 billion in Q2 2022, bringing gross new lending for the year to £29.9 billion. Unsecured balances in Retail Banking grew £0.2 billion in the quarter as customer demand remained strong. Total net lending of £371.8 billion was £9.2 billion, or 2.5%, higher compared with Q2 2022. Go-forward group net lending increased by £9.9 billion, or 2.7%, in the quarter including £3.9 billion of mortgage lending growth in Retail Banking and £4.6 billion of growth in Commercial & Institutional. Wholesale lending was strong across the whole book, with most activity in Commercial & Institutional. Government Scheme lending continues to reduce, with £0.6 billion repaid in the quarter.
Customer deposits of £473.0 billion were £19.1 billion, or 3.9%, lower compared with Q2 2022. Customer deposits in the Go-forward group decreased by £14.5 billion, or 3.0%, in the quarter. Retail Banking deposits remained stable, with the decrease primarily driven by an £8.0 billion reduction in Commercial & Institutional reflecting the reversal of short term inflows in Q2 2022 and general seasonal fluctuations in liquidity and a reduction in Treasury repo activity of £7.6 billion. In the Go-forward group around 60% of our customer deposits are interest bearing and the bank has passed on 25-30% of the 215 basis point UK base rate rises since Q4 2021.
TNAV per share decreased by 17 pence in the quarter to 250 pence principally reflecting movements in cashflow hedging reserves and dividend payments, offset by the impact of the share consolidation.
Capital and leverage
The Group Pension Fund is holding sufficient collateral and cash for current market levels and the robust risk management of the Fund has negated any need to sell assets to meet collateral calls to date. The Fund remains in surplus and funding levels have improved since the last valuation. The NatWest Group’s exposure to LDI funds through secured lending (repo) or derivatives is collateralised on a daily basis.
The CET1 ratio remains robust at 14.3%, or 14.1% excluding IFRS 9 transitional relief, and was flat on Q2 2022 as the attributable profit and reduction in RWAs was offset by accruals for foreseeable dividends and pension contributions. The total capital ratio decreased by 10 basis points to 19.2%.
RWAs reduced by £1.3 billion in the quarter to £178.5 billion reflecting disposal activity in Ulster Bank RoI, partially offset by lending growth, FX movements and market risk.
Funding and liquidity
The LCR decreased by 3 percentage points to 156%, representing £67.8 billion headroom above 100% minimum requirement. The main drivers of this include shareholder distributions, redemption of Senior debt and maturing commercial papers and certificates of deposit, coupled with a reduction in customers deposits and increased lending to our customers. Total wholesale funding reduced by £1.4 billion in the quarter to £75.0 billion. Short term wholesale funding increased by £0.2 billion in the quarter to £23.8 billion.
| NatWest Group – Form 6-K Q3 Results 2022 | 10 |
Business performance summary
Retail Banking
| Quarter ended | |||
| 30
September 2022 £m |
30
June 2022 £m |
30
September 2021 £m | |
| Total income | 1,475 | 1,337 | 1,131 |
| Operating expenses | (693) | (597) | (552) |
| of which: Other operating expenses | (630) | (593) | (537) |
| Impairment losses | (116) | (21) | (16) |
| Operating profit | 666 | 719 | 563 |
| Return on equity | 27.0% | 29.5% | 29.9% |
| Net interest margin | 2.85% | 2.62% | 2.29% |
| Cost:income ratio | 47.0% | 44.7% | 48.8% |
| Loan impairment rate | 24bps | 4bps | 4bps |
| As at | |||
| 30
September 2022 £bn |
30
June 2022 £bn |
31
December 2021 £bn | |
| Net loans to customers (amortised cost) | 192.8 | 188.7 | 182.2 |
| Customer deposits | 190.9 | 190.5 | 188.9 |
| RWAs | 53.0 | 53.0 | 36.7 |
During Q3 2022, Retail Banking continued to pursue sustainable growth with an intelligent approach to risk, delivering a return on equity of 27.0% and an operating profit of £666 million.
We continue to support our customers facing the rising cost of living financial challenges during Q3 2022. In addition to the measures taken during H1 2022, we have increased the support available to our mortgage customers during their roll-off period by extending the roll-off window from 4 to 6 months, giving customers more time to select their follow on product and secure rates in advance. We have also proactively engaged with those customers identified as potentially income stretched to make them aware of the support available, and offered pre-screening toolkits and soft scoring to help customers understand what borrowing they are eligible for and what their repayments would be.
Retail Banking completed £1.1 billion of climate and sustainable funding and financing in Q3 2022.
Q3 2022 performance
| – | Total income was £344 million, or 30.4%, higher than Q3 2021 reflecting higher deposit income, supported by interest rate rises, strong loan growth and higher transactional-related fee income, partially offset by lower mortgage margins and the impact of the summer fee-free overseas spending offer. |
| – | Net interest margin was 23 basis points higher than Q2 2022 reflecting higher deposit returns, partly offset by mortgage margin pressure. Mortgage back book margin was 138 basis points in the period. |
| – | Operating expenses of £693 million were £141 million, or 25.5%, higher compared with Q3 2021. Other operating expenses were £93 million, or 17.3%, higher than Q3 2021 primarily due to higher marketing spend, higher fraud losses and increased investment in financial crime prevention, combined with the impact of pay awards to support colleague cost of living challenges. This was partly offset by a 9.3% headcount reduction as a result of the continued digitalisation, automation and improvement of end-to-end customer journeys. |
| – | Impairment losses of £116 million in Q3 2022 reflect a revision of the economic scenario weightings, with more weight being placed on the downside, and continued low level of stage 3 defaults. |
| – | Customer deposits increased by £0.4 billion, or 0.2%, in Q3 2022 including the impact of customers utilising savings balances over the summer period. |
| – | Net loans to customers increased by £4.1 billion, or 2.2%, in Q3 2022 mainly reflecting continued mortgage growth of £3.9 billion, with gross new mortgage lending of £11.0 billion representing flow share of around 13%. Personal advances increased by £0.1 billion and cards balances increased by £0.1 billion in Q3 2022 reflecting continued strong customer demand. |
| – | RWAs remained broadly in line with Q2 2022 at £53.0 billion with lending growth offset by quality improvements. |
| NatWest Group – Form 6-K Q3 Results 2022 | 11 |
Business performance summary
Private Banking
| Quarter ended | |||
| 30
September 2022 £m |
30
June 2022 £m |
30
September 2021 £m | |
| Total income | 285 | 245 | 195 |
| Operating expenses | (139) | (146) | (116) |
| of which: Other operating expenses | (138) | (146) | (119) |
| Impairment (losses)/releases | (7) | 6 | 15 |
| Operating profit | 139 | 105 | 94 |
| Return on equity | 31.8% | 23.5% | 18.1% |
| Net interest margin | 4.37% | 3.60% | 2.60% |
| Cost:income ratio | 48.8% | 59.6% | 59.5% |
| Loan impairment rate | 15bps | (13)bps | (32)bps |
| Net new money (£bn) (1) | 0.3 | 0.6 | 0.7 |
| As at | |||
| 30
September 2022 £bn |
30
June 2022 £bn |
31
December 2021 £bn | |
| Net loans to customers (amortised cost) | 19.1 | 18.8 | 18.4 |
| Customer deposits | 42.2 | 41.6 | 39.3 |
| RWAs | 11.1 | 11.3 | 11.3 |
| Assets under management (AUMs) (1) | 27.6 | 28.1 | 30.2 |
| Assets under administration (AUAs) (1) | 4.7 | 4.8 | 5.4 |
| Total assets under management and administration (AUMA) (1) | 32.3 | 32.9 | 35.6 |
| (1) | Refer to page 52 of the Non-IFRS financial measures appendix. |
During Q3 2022, Private Banking provided a strong operating performance with continued balance growth, delivering a return on equity of 31.8% and operating profit of £139 million.
We have continued to support our clients in helping them deal with financial challenges as a result of rising inflation and the volatile market environment through financial health checks and fraud and scams workshops. Despite volatile markets throughout the year, our year to date AUM net new money of £1.7 billion represents a strong performance relative to the overall UK investment market.
Private Banking completed £0.1 billion of climate and sustainable funding and financing during Q3 2022.
Q3 2022 performance
| – | Total income was £90 million, or 46.2%, higher than Q3 2021 driven by higher deposit and lending balances, and improved deposit returns, supported by interest rate rises. |
| – | Net interest margin was 77 basis points higher than Q2 2022 reflecting higher deposit income. |
| – | Operating expenses of £139 million were £23 million, or 19.8%, higher compared with Q3 2021. Other operating expenses were £19 million, or 16.0%, higher than Q3 2021 due to continued investment in people and technology to enhance AUMA growth propositions. |
| – | Impairment losses of £7 million in Q3 2022 are primarily due to an increase in the impairment charge relating to good book exposures, driven by revision of scenario weightings, with more weight being placed on the downside scenario. |
| – | AUM net new money was £0.3 billion during Q3 2022 and £1.7 billion in the year to date, which represented 6.4% of opening AUMA balances on an annualised basis, demonstrating a strong performance given volatile investment market conditions. AUMAs decreased by £0.6 billion, or 1.8%, in Q3 2022 primarily reflecting investment market movements of £0.8 billion. |
| – | Customer deposits increased by £0.6 billion, or 1.4%, in Q3 2022 with continued savings growth. |
| – | Net loans to customers increased by £0.3 billion, or 1.6%, in Q3 2022 due to continued strong mortgage lending growth, whilst RWAs decreased by £0.2 billion, or 1.8%. |
| NatWest Group – Form 6-K Q3 Results 2022 | 12 |
Business performance summary
Commercial & Institutional
| Quarter ended | |||
| 30
September 2022 £m |
30 June 2022 £m |
30 September 2021 £m | |
| Net interest income | 1,131 | 961 | 723 |
| Non-interest income | 526 | 601 | 473 |
| Total income | 1,657 | 1,562 | 1,196 |
| Operating expenses | (893) | (898) | (874) |
| of which: Other operating expenses | (840) | (854) | (845) |
| Impairment (losses)/releases | (119) | 48 | 230 |
| Operating profit | 645 | 712 | 552 |
| Return on equity | 12.2% | 14.0% | 11.0% |
| Net interest margin | 3.46% | 3.09% | 2.39% |
| Cost:income ratio | 53.0% | 56.6% | 72.2% |
| Loan impairment rate | 36bps | (15)bps | (72)bps |
| As at | |||
| 30
September 2022 £bn |
30
June 2022 £bn |
31
December 2021 £bn | |
| Net loans to customers (amortised cost) | 131.9 | 127.3 | 124.2 |
| Customer deposits | 215.2 | 223.2 | 217.5 |
| Funded assets (1) | 325.5 | 343.4 | 321.3 |
| RWAs | 104.8 | 103.0 | 98.1 |
| (1) | Refer to page 52 of the Non-IFRS financial measures appendix. |
During Q3 2022, Commercial & Institutional delivered a strong performance with a return on equity of 12.2% and an operating profit of £645 million.
As our customers are facing a volatile external macroeconomic environment, we continue to proactively provide support through our Relationship Manager-led model, alongside a 12-month freeze in SME fees, the launch of the Cost of Trading internet hub and launching Carbon Planner which enables businesses to accurately plan how they can reduce their energy and fuel costs with a bespoke strategy.
Commercial & Institutional completed £4.9 billion of climate and sustainable funding and financing in Q3 2022.
Q3 2022 performance
| – | Total income was £461 million, or 38.5%, higher than Q3 2021 reflecting higher deposit returns from an improved interest rate environment, net loan growth and improved card payment fees. Markets income(1) of £136 million, was £31 million, or 29.5%, higher than Q3 2021 reflecting stronger performance in Currencies. |
| – | Net interest margin was 37 basis points higher than Q2 2022 reflecting higher deposit income. |
| – | Operating expenses of £893 million were £19 million, or 2.2%, higher compared with Q3 2021. Other operating expenses were £5 million, or 0.6%, lower than Q3 2021 due to the non-repeat of Q3 2021 restructuring costs partly offset by continued investment in the business including higher back office operational costs. |
| – | A net impairment charge of £119 million in Q3 2022 was predominantly driven by the revision of scenario weightings, with more weight being placed on the downside scenarios. |
| – | Customer deposits decreased by £8.0 billion, or 3.6%, in Q3 2022 reflecting the reversal of short term inflows in Q2 and general seasonal fluctuations in liquidity. Overall customer liquidity levels remain at heightened levels. |
| – | Net loans to customers increased by £4.6 billion, or 3.6%, in Q3 2022 due to increased facility utilisation and funds activity within Corporate & Institutions partly offset by UK Government scheme repayments of £0.6 billion across Commercial Mid-market and Business Banking. |
| – | RWAs increased by £1.8 billion, or 1.7%, in Q3 2022 driven by lending growth, counterparty credit risk and market risk, partly offset by risk parameter improvements and continued benefits from capital actions. |
| (1) | Markets income excludes asset disposals/strategic risk reduction, own credit risk adjustments and central items. |
| NatWest Group – Form 6-K Q3 Results 2022 | 13 |
Business performance summary
Ulster Bank RoI
Ulster Bank RoI continues to make progress on its phased withdrawal from the Republic of Ireland.
| – | Successful migration of a further three tranches of gross performing commercial loans to Allied Irish Banks, p.l.c. (AIB) was completed during Q3 2022. Remaining migrations of commercial customers will be completed in phases over Q4 2022 and H1 2023. Colleagues who are wholly or mainly assigned to supporting this part of the business have begun to transfer to AIB under TUPE arrangements. |
| – | The planned migration of gross performing non-tracker mortgages to Permanent TSB p.l.c. (PTSB) is progressing and execution of the live migration is expected to commence before the end of the year. The transfer of the Lombard asset finance business, the business direct loan book and 25 branches to PTSB is still expected to be completed in H1 2023. |
| – | Migration of the portfolio of gross performing tracker and linked mortgages is still on track for delivery in Q2 2023. UBIDAC and AIB remain actively engaged with the Irish Competition and Consumer Protection Commission (CCPC) as it continues its review of the transaction. |
| – | There has been continued momentum on deposit outflows, with a significant level of customers reducing their balances and moving their active banking relationship in advance of closing their accounts. |
| – | Work continues on managing the residual activities of the bank, including remaining asset disposals. |
| Continuing operations | Quarter ended | ||
| 30
September 2022 £m |
30
June 2022 £m |
30
September 2021 £m | |
| Total income | (37) | 12 | 57 |
| Operating expenses (1) | (114) | (141) | (112) |
| of which: Other operating expenses | (110) | (130) | (113) |
| Impairment losses | (5) | (21) | (5) |
| Operating loss | (156) | (150) | (60) |
| As at | |||
| 30
September 2022 £bn |
30
June 2022 £bn |
31
December 2021 £bn | |
| Net loans to customers - amortised cost (2) | 0.3 | 1.0 | 6.7 |
| Customer deposits | 11.3 | 15.9 | 18.4 |
| RWAs | 8.0 | 10.8 | 9.1 |
| (1) | Includes withdrawal-related direct programme costs of £20 million (€24 million) for the quarter ended 30 September 2022 (£15 million (€19 million) – 30 June 2022 and nil – 30 September 2021). |
| (2) | This excludes £0.6 billion (€0.7 billion) of loans to customers held at fair value through profit or loss (nil – 30 June 2022 and nil – 30 September 2021). |
Q3 2022 performance
| – | Total income was £94 million (€112 million) lower than Q3 2021 reflecting reduced business levels, the continued cost of an inter-group liquidity facility that was put in place as part of the arrangements to manage deposit outflows and the cost of restructuring UBIDAC’s hedging portfolio. |
| – | Total operating expenses of £114 million were £2 million, or 1.8%, higher compared with Q3 2021. Other operating expenses were £3 million, or 2.7% (€2 million, or 1.5% in euro terms), lower than Q3 2021 due to lower regulatory levies and reduced staff costs being partially offset by higher withdrawal-related programme costs. |
| – | Net loans to customers decreased by £0.7 billion, or 70%, (€0.8 billion, or 66.7% in euro terms), in Q3 2022 due to the reclassification of mortgages to loans at fair value and repayments on the remaining portfolio. |
| – | Customer deposits decreased £4.6 billion, or 28.9% (€5.6 billion, or 30.4% in euro terms), in Q3 2022 due to reducing personal and commercial deposits as momentum continues in account closures. |
| – | RWAs decreased by £2.8 billion, or 25.9% (€3.5 billion, or 27.8% in euro terms), in Q3 2022 driven by asset sales and the move to the standardised approach to measuring risk weightings. The move to the standardised approach was part of simplifying processes arising from the phased withdrawal strategy. |
| NatWest Group – Form 6-K Q3 Results 2022 | 14 |
Business performance summary
Ulster Bank RoI continued
| Total Ulster Bank RoI including discontinued operations | Quarter ended | ||
| 30
September 2022 £m |
30
June 2022 £m |
30
September 2021 £m | |
| Total income | (438) | 86 | 145 |
| Operating expenses | (125) | (154) | (123) |
| of which: Other operating expenses | (121) | (143) | (124) |
| Impairment releases | 11 | 45 | 16 |
| Operating (loss)/profit | (552) | (23) | 38 |
| As at | |||
| 30
September 2022 £bn |
30
June 2022 £bn |
30
December 2021 £bn | |
| Net loans to customers (amortised cost) (1) | 2.5 | 15.2 | 15.7 |
| Customer deposits | 11.3 | 15.9 | 18.4 |
| RWAs | 8.0 | 10.8 | 9.1 |
| (1) | This excludes £10.6 billion (€12.1 billion) of loans to customers held at fair value through profit or loss (nil – 30 June 2022 and nil – 30 September 2021). |
Central items & other
| Quarter ended | |||
| 30
September 2022 £m |
30
June 2022 £m |
30
September 2021 £m | |
| Central items not allocated | (208) | 10 | (173) |
An operating loss of £208 million within central items not allocated principally reflects losses on redemption of own debt and further bond disposals, offset by gains from risk management derivatives not in hedge accounting relationships.
| NatWest Group – Form 6-K Q3 Results 2022 | 15 |
Segment performance
| Nine months ended 30 September 2022 | |||||||
| Go-forward group | |||||||
| Retail Banking £m |
Private Banking £m |
Commercial
& Institutional £m |
Central
items & other £m |
Total
excluding Ulster Bank RoI £m |
Ulster Bank RoI £m |
Total
NatWest Group £m | |
| Continuing operations | |||||||
| Income statement | |||||||
| Net interest income | 3,719 | 526 | 2,895 | (178) | 6,962 | 12 | 6,974 |
| Non-interest income | 310 | 220 | 1,699 | 261 | 2,490 | (16) | 2,474 |
| Total income | 4,029 | 746 | 4,594 | 83 | 9,452 | (4) | 9,448 |
| Direct expenses | (498) | (157) | (1,101) | (3,279) | (5,035) | (220) | (5,255) |
| Indirect expenses | (1,316) | (265) | (1,473) | 3,187 | 133 | (133) | - |
| Other operating expenses | (1,814) | (422) | (2,574) | (92) | (4,902) | (353) | (5,255) |
| Litigation and conduct costs | (121) | (2) | (139) | (17) | (279) | (15) | (294) |
| Operating expenses | (1,935) | (424) | (2,713) | (109) | (5,181) | (368) | (5,549) |
| Operating profit/(loss) before impairment (losses)/releases | 2,094 | 322 | 1,881 | (26) | 4,271 | (372) | 3,899 |
| Impairment (losses)/releases | (142) | 4 | (60) | 2 | (196) | 3 | (193) |
| Operating profit/(loss) | 1,952 | 326 | 1,821 | (24) | 4,075 | (369) | 3,706 |
| Income excluding notable items | 4,029 | 746 | 4,578 | (54) | 9,299 | (4) | 9,295 |
| Additional information | |||||||
| Return on tangible equity (1) | na | na | na | na | 13.5% | na | 10.0% |
| Return on equity (1) | 26.5% | 24.5% | 11.7% | nm | nm | nm | na |
| Cost:income ratio (1) | 48.0% | 56.8% | 58.2% | nm | 54.4% | nm | 58.3% |
| Total assets (£bn) | 221.3 | 29.8 | 465.3 | 67.8 | 784.2 | 17.3 | 801.5 |
| Funded assets (£bn) (1) | 221.3 | 29.8 | 325.5 | 66.6 | 643.2 | 17.3 | 660.5 |
| Net loans to customers - amortised cost (£bn) | 192.8 | 19.1 | 131.9 | 27.7 | 371.5 | 0.3 | 371.8 |
| Loan impairment rate (1) | 10bps | (3)bps | 6bps | nm | 7bps | nm | 7bps |
| Impairment provisions (£bn) | (1.5) | (0.1) | (1.6) | - | (3.2) | (0.1) | (3.3) |
| Impairment provisions - stage 3 (£bn) | (0.9) | - | (0.7) | - | (1.6) | (0.1) | (1.7) |
| Customer deposits (£bn) | 190.9 | 42.2 | 215.2 | 13.4 | 461.7 | 11.3 | 473.0 |
| Risk-weighted assets (RWAs) (£bn) | 53.0 | 11.1 | 104.8 | 1.6 | 170.5 | 8.0 | 178.5 |
| RWA equivalent (RWAe) (£bn) | 53.0 | 11.1 | 106.5 | 2.1 | 172.7 | 8.0 | 180.7 |
| Employee numbers (FTEs - thousands) | 13.6 | 2.1 | 12.1 | 30.3 | 58.1 | 1.9 | 60.0 |
| Third party customer asset rate (2) | 2.61% | 2.80% | 3.19% | nm | nm | nm | nm |
| Third party customer funding rate (2) | (0.11%) | (0.15%) | (0.10%) | nm | nm | 0.05% | nm |
| Bank average interest earning assets (£bn) (1) | 188.6 | 19.1 | 125.4 | nm | 341.3 | na | 341.3 |
| Bank net interest margin (1) | 2.64% | 3.69% | 3.09% | nm | 2.73% | na | 2.73% |
nm = not meaningful, na = not applicable.
Refer to page 20 for the notes to this table.
| NatWest Group – Form 6-K Q3 Results 2022 | 16 |
Segment performance
| Nine months ended 30 September 2021 | |||||||
| Go-forward group | |||||||
| Retail Banking £m |
Private Banking £m |
Commercial
& Institutional £m |
Central
items & other £m |
Total
excluding Ulster Bank RoI £m |
Ulster Bank RoI £m |
Total
NatWest Group £m | |
| Continuing operations | |||||||
| Income statement | |||||||
| Net interest income | 3,017 | 354 | 2,210 | 14 | 5,595 | 18 | 5,613 |
| Non-interest income | 264 | 209 | 1,460 | 177 | 2,110 | 104 | 2,214 |
| Total income | 3,281 | 563 | 3,670 | 191 | 7,705 | 122 | 7,827 |
| Direct expenses | (524) | (139) | (1,291) | (2,986) | (4,940) | (214) | (5,154) |
| Indirect expenses | (1,191) | (234) | (1,343) | 2,893 | 125 | (125) | - |
| Other operating expenses | (1,715) | (373) | (2,634) | (93) | (4,815) | (339) | (5,154) |
| Litigation and conduct costs | (24) | 8 | (64) | (184) | (264) | (12) | (276) |
| Operating expenses | (1,739) | (365) | (2,698) | (277) | (5,079) | (351) | (5,430) |
| Operating profit/(loss) before impairment (losses)/releases | 1,542 | 198 | 972 | (86) | 2,626 | (229) | 2,397 |
| Impairment releases/(losses) | 41 | 42 | 843 | (4) | 922 | (18) | 904 |
| Operating profit/(loss) | 1,583 | 240 | 1,815 | (90) | 3,548 | (247) | 3,301 |
| Income excluding notable items | 3,281 | 563 | 3,705 | 8 | 7,557 | 122 | 7,679 |
| Additional information | |||||||
| Return on tangible equity (1) | na | na | na | na | 11.4% | na | 10.7% |
| Return on equity (1) | 28.3% | 15.5% | 11.8% | nm | nm | nm | na |
| Cost:income ratio (1) | 53.0% | 64.8% | 72.7% | nm | 65.4% | nm | 69.0% |
| Total assets (£bn) | 207.6 | 28.2 | 436.0 | 81.3 | 753.1 | 25.2 | 778.3 |
| Funded assets (£bn) (1) | 207.6 | 28.2 | 333.9 | 79.6 | 649.3 | 25.2 | 674.5 |
| Net loans to customers - amortised cost (£bn) | 180.5 | 18.4 | 125.4 | 23.5 | 347.8 | 13.2 | 361.0 |
| Loan impairment rate (1) | (3)bps | (30)bps | (88)bps | nm | (35)bps | nm | (33)bps |
| Impairment provisions (£bn) | (1.6) | (0.1) | (2.1) | - | (3.8) | (0.5) | (4.3) |
| Impairment provisions - stage 3 (£bn) | (0.8) | - | (1.0) | - | (1.8) | (0.4) | (2.2) |
| Customer deposits (£bn) | 186.3 | 35.7 | 217.4 | 18.4 | 457.8 | 18.5 | 476.3 |
| Risk-weighted assets (RWAs) (£bn) | 36.6 | 11.4 | 99.9 | 1.9 | 149.8 | 10.0 | 159.8 |
| RWA equivalent (RWAe) (£bn) | 36.6 | 11.4 | 101.6 | 2.1 | 151.7 | 10.0 | 161.7 |
| Employee numbers (FTEs - thousands) | 15.0 | 1.9 | 12.0 | 27.5 | 56.4 | 1.8 | 58.2 |
| Third party customer asset rate (2) | 2.68% | 2.36% | 2.70% | nm | nm | nm | nm |
| Third party customer funding rate (2) | (0.06%) | 0.00% | (0.02%) | nm | nm | 0.01% | nm |
| Bank average interest earning assets (£bn) (1) | 177.6 | 18.1 | 121.1 | nm | 323.1 | na | 323.1 |
| Bank net interest margin (1) | 2.27% | 2.61% | 2.44% | nm | 2.32% | na | 2.32% |
nm = not meaningful, na = not applicable.
Refer to page 20 for the notes to this table.
| NatWest Group – Form 6-K Q3 Results 2022 | 17 |
Segment performance
| Quarter ended 30 September 2022 | |||||||
| Go-forward group | |||||||
| Retail Banking £m |
Private Banking £m |
Commercial
& Institutional £m |
Central
items & other £m |
Total
excluding Ulster bank RoI £m |
Ulster Bank RoI £m |
Total
NatWest Group £m | |
| Continuing operations | |||||||
| Income statement | |||||||
| Net interest income | 1,379 | 211 | 1,131 | (87) | 2,634 | 6 | 2,640 |
| Non-interest income | 96 | 74 | 526 | (64) | 632 | (43) | 589 |
| Total income | 1,475 | 285 | 1,657 | (151) | 3,266 | (37) | 3,229 |
| Direct expenses | (178) | (55) | (365) | (1,098) | (1,696) | (75) | (1,771) |
| Indirect expenses | (452) | (83) | (475) | 1,045 | 35 | (35) | - |
| Other operating expenses | (630) | (138) | (840) | (53) | (1,661) | (110) | (1,771) |
| Litigation and conduct costs | (63) | (1) | (53) | (4) | (121) | (4) | (125) |
| Operating expenses | (693) | (139) | (893) | (57) | (1,782) | (114) | (1,896) |
| Operating profit/(loss) before impairment (losses)/releases | 782 | 146 | 764 | (208) | 1,484 | (151) | 1,333 |
| Impairment (losses)/releases | (116) | (7) | (119) | - | (242) | (5) | (247) |
| Operating profit/(loss) | 666 | 139 | 645 | (208) | 1,242 | (156) | 1,086 |
| Income excluding notable items | 1,475 | 285 | 1,648 | 26 | 3,434 | (37) | 3,397 |
| Additional information | |||||||
| Return on tangible equity (1) | na | na | na | na | 12.1% | na | 2.9% |
| Return on equity (1) | 27.0% | 31.8% | 12.2% | nm | nm | nm | na |
| Cost:income ratio (1) | 47.0% | 48.8% | 53.0% | nm | 54.1% | nm | 58.3% |
| Total assets (£bn) | 221.3 | 29.8 | 465.3 | 67.8 | 784.2 | 17.3 | 801.5 |
| Funded assets (£bn) (1) | 221.3 | 29.8 | 325.5 | 66.6 | 643.2 | 17.3 | 660.5 |
| Net loans to customers - amortised cost (£bn) | 192.8 | 19.1 | 131.9 | 27.7 | 371.5 | 0.3 | 371.8 |
| Loan impairment rate (1) | 24bps | 15bps | 36bps | nm | 26bps | nm | 26bps |
| Impairment provisions (£bn) | (1.5) | (0.1) | (1.6) | - | (3.2) | (0.1) | (3.3) |
| Impairment provisions - stage 3 (£bn) | (0.9) | - | (0.7) | - | (1.6) | (0.1) | (1.7) |
| Customer deposits (£bn) | 190.9 | 42.2 | 215.2 | 13.4 | 461.7 | 11.3 | 473.0 |
| Risk-weighted assets (RWAs) (£bn) | 53.0 | 11.1 | 104.8 | 1.6 | 170.5 | 8.0 | 178.5 |
| RWA equivalent (RWAe) (£bn) | 53.0 | 11.1 | 106.5 | 2.1 | 172.7 | 8.0 | 180.7 |
| Employee numbers (FTEs - thousands) | 13.6 | 2.1 | 12.1 | 30.3 | 58.1 | 1.9 | 60.0 |
| Third party customer asset rate (2) | 2.64% | 3.09% | 3.53% | nm | nm | nm | nm |
| Third party customer funding rate (2) | (0.17%) | (0.29%) | (0.19%) | nm | nm | 0.05% | nm |
| Bank average interest earning assets (£bn) (1) | 192.1 | 19.2 | 129.8 | nm | 349.9 | na | 349.9 |
| Bank net interest margin (1) | 2.85% | 4.37% | 3.46% | nm | 2.99% | na | 2.99% |
nm = not meaningful, na = not applicable
Refer to page 20 for notes to this table.
| NatWest Group – Form 6-K Q3 Results 2022 | 18 |
Segment performance
| Quarter ended 30 June 2022 | |||||||
| Go-forward group | |||||||
| Retail Banking £m |
Private Banking £m |
Commercial
& Institutional £m |
Central
items & other £m |
Total
excluding Ulster Bank RoI £m |
Ulster Bank RoI £m |
Total
NatWest Group £m | |
| Continuing operations | |||||||
| Income statement | |||||||
| Net interest income | 1,228 | 172 | 961 | (56) | 2,305 | 2 | 2,307 |
| Non-interest income | 109 | 73 | 601 | 111 | 894 | 10 | 904 |
| Total income | 1,337 | 245 | 1,562 | 55 | 3,199 | 12 | 3,211 |
| Direct expenses | (159) | (53) | (329) | (1,144) | (1,685) | (81) | (1,766) |
| Indirect expenses | (434) | (93) | (525) | 1,101 | 49 | (49) | - |
| Other operating expenses | (593) | (146) | (854) | (43) | (1,636) | (130) | (1,766) |
| Litigation and conduct costs | (4) | - | (44) | (8) | (56) | (11) | (67) |
| Operating expenses | (597) | (146) | (898) | (51) | (1,692) | (141) | (1,833) |
| Operating profit/(loss) before impairment (losses)/releases | 740 | 99 | 664 | 4 | 1,507 | (129) | 1,378 |
| Impairment (losses)/releases | (21) | 6 | 48 | 6 | 39 | (21) | 18 |
| Operating profit/(loss) | 719 | 105 | 712 | 10 | 1,546 | (150) | 1,396 |
| Income excluding notable items | 1,337 | 245 | 1,573 | (53) | 3,102 | 12 | 3,114 |
| Additional information | |||||||
| Return on tangible equity (1) | na | na | na | na | 16.5% | na | 15.2% |
| Return on equity (1) | 29.5% | 23.5% | 14.0% | nm | nm | nm | na |
| Cost:income ratio (1) | 44.7% | 59.6% | 56.6% | nm | 52.4% | nm | 56.7% |
| Total assets (£bn) | 216.2 | 30.0 | 451.5 | 87.1 | 784.8 | 21.7 | 806.5 |
| Funded assets (£bn) (1) | 216.2 | 30.0 | 343.4 | 85.8 | 675.4 | 21.7 | 697.1 |
| Net loans to customers - amortised cost (£bn) | 188.7 | 18.8 | 127.3 | 26.8 | 361.6 | 1.0 | 362.6 |
| Loan impairment rate (1) | 4bps | (13)bps | (15)bps | nm | (4)bps | nm | (2)bps |
| Impairment provisions (£bn) | (1.5) | (0.1) | (1.4) | - | (3.0) | (0.4) | (3.4) |
| Impairment provisions - stage 3 (£bn) | (0.9) | - | (0.7) | - | (1.6) | (0.4) | (2.0) |
| Customer deposits (£bn) | 190.5 | 41.6 | 223.2 | 20.9 | 476.2 | 15.9 | 492.1 |
| Risk-weighted assets (RWAs) (£bn) | 53.0 | 11.3 | 103.0 | 1.7 | 169.0 | 10.8 | 179.8 |
| RWA equivalent (RWAe) (£bn) | 53.0 | 11.3 | 101.4 | 2.2 | 167.9 | 10.8 | 178.7 |
| Employee numbers (FTEs - thousands) | 13.9 | 2.0 | 11.8 | 29.4 | 57.1 | 1.8 | 58.9 |
| Third party customer asset rate (2) | 2.59% | 2.77% | 3.19% | nm | nm | nm | nm |
| Third party customer funding rate (2) | (0.10%) | (0.13%) | (0.09%) | nm | nm | 0.04% | nm |
| Bank average interest earning assets (£bn) (1) | 188.1 | 19.1 | 124.9 | nm | 340.0 | na | 340.0 |
| Bank net interest margin (1) | 2.62% | 3.60% | 3.09% | nm | 2.72% | na | 2.72% |
nm = not meaningful, na = not applicable
Refer to the following page for notes to this table.
| NatWest Group – Form 6-K Q3 Results 2022 | 19 |
Segment performance
| Quarter ended 30 September 2021 | |||||||
| Go-forward group | |||||||
| Retail Banking £m |
Private Banking £m |
Commercial
& Institutional £m |
Central
items & other £m |
Total
excluding Ulster Bank RoI £m |
Ulster Bank RoI £m |
Total
NatWest Group £m | |
| Continuing operations | |||||||
| Income statement | |||||||
| Net interest income | 1,041 | 122 | 723 | (20) | 1,866 | 3 | 1,869 |
| Non-interest income | 90 | 73 | 473 | 127 | 763 | 54 | 817 |
| Total income | 1,131 | 195 | 1,196 | 107 | 2,629 | 57 | 2,686 |
| Direct expenses | (165) | (47) | (417) | (935) | (1,564) | (73) | (1,637) |
| Indirect expenses | (372) | (72) | (428) | 912 | 40 | (40) | - |
| Other operating expenses | (537) | (119) | (845) | (23) | (1,524) | (113) | (1,637) |
| Litigation and conduct costs | (15) | 3 | (29) | (254) | (295) | 1 | (294) |
| Operating expenses | (552) | (116) | (874) | (277) | (1,819) | (112) | (1,931) |
| Operating profit/(loss) before impairment (losses)/releases | 579 | 79 | 322 | (170) | 810 | (55) | 755 |
| Impairment (losses)/releases | (16) | 15 | 230 | (3) | 226 | (5) | 221 |
| Operating profit/(loss) | 563 | 94 | 552 | (173) | 1,036 | (60) | 976 |
| Income excluding notable items | 1,131 | 195 | 1,202 | (17) | 2,511 | 57 | 2,568 |
| Additional information | |||||||
| Return on tangible equity (1) | na | na | na | na | 8.6% | na | 8.5% |
| Return on equity (1) | 29.9% | 18.1% | 11.0% | nm | nm | nm | na |
| Cost:income ratio (1) | 48.8% | 59.5% | 72.2% | nm | 68.8% | nm | 71.5% |
| Total assets (£bn) | 207.6 | 28.2 | 436.0 | 81.3 | 753.1 | 25.2 | 778.3 |
| Funded assets (£bn) (1) | 207.6 | 28.2 | 333.9 | 79.6 | 649.3 | 25.2 | 674.5 |
| Net loans to customers - amortised cost (£bn) | 180.5 | 18.4 | 125.4 | 23.5 | 347.8 | 13.2 | 361.0 |
| Loan impairment rate (1) | 4bps | (32)bps | (72)bps | nm | (26)bps | nm | (24)bps |
| Impairment provisions (£bn) | (1.6) | (0.1) | (2.1) | - | (3.8) | (0.5) | (4.3) |
| Impairment provisions - stage 3 (£bn) | (0.8) | - | (1.0) | - | (1.8) | (0.4) | (2.2) |
| Customer deposits (£bn) | 186.3 | 35.7 | 217.4 | 18.4 | 457.8 | 18.5 | 476.3 |
| Risk-weighted assets (RWAs) (£bn) | 36.6 | 11.4 | 99.9 | 1.9 | 149.8 | 10.0 | 159.8 |
| RWA equivalent (RWAe) (£bn) | 36.6 | 11.4 | 101.6 | 2.1 | 151.7 | 10.0 | 161.7 |
| Employee numbers (FTEs - thousands) | 15.0 | 1.9 | 12.0 | 27.5 | 56.4 | 1.8 | 58.2 |
| Third party customer asset rate (2) | 2.64% | 2.36% | 2.67% | nm | nm | nm | nm |
| Third party customer funding rate (2) | (0.05%) | 0.00% | (0.02%) | nm | nm | 0.02% | nm |
| Bank average interest earning assets (£bn) (1) | 180.2 | 18.6 | 119.9 | nm | 325.4 | na | 325.4 |
| Bank net interest margin (1) | 2.29% | 2.60% | 2.39% | nm | 2.28% | na | 2.28% |
nm = not meaningful, na = not applicable
| (1) | Refer to the appendix for details of basis of preparation and reconciliation of non-IFRS performance measures where relevant. |
| (2) | Third party customer asset rate is calculated as annualised interest receivable on third-party loans to customers as a percentage of third-party loans to customers. This excludes assets of disposal groups, intragroup items, loans to banks and liquid asset portfolios. Third party customer funding rate reflects interest payable or receivable on third-party customer deposits, including interest bearing and non-interest bearing customer deposits. Intragroup items, bank deposits, debt securities in issue and subordinated liabilities are excluded for customer funding rate calculation. Net interest margin is calculated as net interest income as a percentage of the average interest-earning assets, and only excludes liquid asset buffer and assets of disposal groups. |
| NatWest Group – Form 6-K Q3 Results 2022 | 20 |
Risk and capital management
| Page | |
| Credit risk | |
| Economic loss drivers | 21 |
| Segment analysis – portfolio summary | 22 |
| Segment analysis – loans | 24 |
| Movement in ECL provision | 24 |
| ECL post model adjustments | 25 |
| Sector analysis – portfolio summary | 26 |
| Wholesale support schemes | 27 |
| Capital, liquidity and funding risk | 29 |
Credit risk
Economic loss drivers
Main macroeconomic variables
| 30 September 2022 | 30 June 2022 | ||||||
| Base | Extreme | Weighted | Base | Extreme | Weighted | ||
| case | downside | average | case | downside | average | ||
| Five-year summary | % | % | % | % | % | % | |
| GDP - CAGR | 1.2 | 0.1 | 0.9 | 1.1 | (0.1) | 1.0 | |
| Unemployment - average | 4.0 | 6.4 | 4.7 | 4.0 | 6.3 | 4.3 | |
| House price index - total change | 13.1 | (11.0) | 3.8 | 13.7 | (10.5) | 8.9 | |
| Bank of England base rate - average | 1.8 | 2.7 | 1.6 | 1.8 | 2.7 | 1.6 | |
| Commercial real estate price - total change | (3.6) | (15.4) | (6.8) | (2.6) | (14.5) | (3.2) | |
| Consumer price index - CAGR | 2.2 | 6.5 | 3.6 | 2.9 | 7.2 | 3.7 | |
| World GDP - CAGR | 3.5 | 1.1 | 2.6 | 3.2 | 0.6 | 2.9 | |
| Probability weight | 35 | 25 | 45 | 14 | |||
Probability weightings of scenarios
NatWest Group’s approach to IFRS 9 multiple economic scenarios (MES) involves selecting a suitable set of discrete scenarios to characterise the distribution of risks in the economic outlook and assigning appropriate probability weights. For June 2022, NatWest Group reverted to using a quantitative approach, which was used prior to COVID-19. The approach involves comparing UK GDP paths for NatWest Group’s scenarios against a set of 1,000 model runs, following which, a percentile in the distribution is established that most closely corresponded to the scenario.
NatWest Group has not updated the scenarios from those used at H1 2022, as is consistent with the approach used in prior years. However, since June 2022, the domestic and global economic outlook has deteriorated, reflecting the effect of higher inflation and interest rates. Forecasts for the expected future path of the economy have been revised lower. To reflect the weaker environment and greater risks to the outlook, NatWest Group made a qualitative adjustment to its H1 2022 scenario weightings. Specifically, NatWest Group moved weights from the upside and base case scenarios into the downside and extreme downside scenarios. The updated weights give a weaker weighted-average outcome for key macro variables, which NatWest Group judge to be consistent with prevailing outlook.
A 10% weighting was applied to the upside scenario (30 June 2022 – 21%), a 35% weighting applied to the base case scenario (30 June 2022 – 45%), a 30% weighting applied to the downside scenario (30 June 2022 – 20%) and a 25% weighting applied to the extreme downside scenario (30 June 2022 – 14%). NatWest Group continues to believe a range of reasonable scenarios is fully articulated between the upside and extreme downside scenarios. NatWest Group undertakes sensitivity analysis on the scenarios and possible variations in those scenarios as part of its assessment of overall scenario suitability and as an input to the assessment of adequacy. The effect of high inflation, ongoing monetary tightening and current geopolitical tensions pose considerable uncertainty to the economic outlook, with respect to the persistence of their effects and the degree to which they weigh down on economic activity, the labour market and asset prices.
| NatWest Group – Form 6-K Q3 Results 2022 | 21 |
Risk and capital management
Credit risk continued
Segment analysis – portfolio summary
The table below shows gross loans and expected credit loss (ECL), by segment and stage, within the scope of the IFRS 9 ECL framework.
| 30 June 2022 | |||||||
| Loans - amortised cost and FVOCI (1) | |||||||
| Stage 1 | 175,867 | 18,428 | 114,675 | 32,481 | 341,451 | 670 | 342,121 |
| Stage 2 | 11,508 | 628 | 16,047 | 83 | 28,266 | 239 | 28,505 |
| Stage 3 | 2,493 | 353 | 2,336 | - | 5,182 | 634 | 5,816 |
| Of which: individual | - | 225 | 857 | - | 1,082 | 80 | 1,162 |
| Of which: collective | 2,493 | 128 | 1,479 | - | 4,100 | 554 | 4,654 |
| Subtotal excluding disposal group loans | 189,868 | 19,409 | 133,058 | 32,564 | 374,899 | 1,543 | 376,442 |
| Disposal group loans | 14,254 | 14,254 | |||||
| Total | 15,797 | 390,696 | |||||
| ECL provisions (2) | |||||||
| Stage 1 | 184 | 12 | 185 | 17 | 398 | 10 | 408 |
| Stage 2 | 419 | 17 | 631 | 9 | 1,076 | 46 | 1,122 |
| Stage 3 | 895 | 34 | 706 | - | 1,635 | 350 | 1,985 |
| Of which: individual | - | 33 | 260 | - | 293 | 11 | 304 |
| Of which: collective | 895 | 1 | 446 | - | 1,342 | 339 | 1,681 |
| Subtotal excluding ECL provisions on disposal group loans | 1,498 | 63 | 1,522 | 26 | 3,109 | 406 | 3,515 |
| ECL provisions on disposal group loans | 95 | 95 | |||||
| Total | 501 | 3,610 | |||||
| ECL provisions coverage (3) | |||||||
| Stage 1 (%) | 0.10 | 0.07 | 0.16 | 0.05 | 0.12 | 1.49 | 0.12 |
| Stage 2 (%) | 3.64 | 2.71 | 3.93 | 10.84 | 3.81 | 19.25 | 3.94 |
| Stage 3 (%) | 35.90 | 9.63 | 30.22 | - | 31.55 | 55.21 | 34.13 |
| ECL provisions coverage excluding disposal group loans | 0.79 | 0.32 | 1.14 | 0.08 | 0.83 | 26.31 | 0.93 |
| ECL provisions coverage on disposal group loans | 0.67 | 0.67 | |||||
| Total | 3.17 | 0.92 |
For the notes to this table refer to the following page.
| NatWest Group – Form 6-K Q3 Results 2022 | 22 |
Risk and capital management
Credit risk continued
Segment analysis – portfolio summary continued
| (1) | Fair value through other comprehensive income (FVOCI). Includes loans to customers and banks. |
| (2) | Includes £3 million (30 June 2022 – £3 million; 31 December 2021 – £5 million) related to assets classified as FVOCI; and £0.1 billion (30 June 2022 - £0.1 billion; 31 December 2021 - £0.1 billion) related to off-balance sheet exposures. |
| (3) | ECL provisions coverage is calculated as ECL provisions divided by loans – amortised cost and FVOCI. It is calculated on third party loans and total ECL provisions. |
| (4) | The table shows gross loans only and excludes amounts that were outside the scope of the ECL framework. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling £154.1 billion (30 June 2022 – £178.4 billion; 31 December 2021 – £176.3 million) and debt securities of £29.4 billion (30 June 2022 – £38.6 billion; 31 December 2021 – £44.9 million). |
| NatWest Group – Form 6-K Q3 Results 2022 | 23 |
Risk and capital management
Credit risk continued
Segment analysis – loans
| – | Retail Banking – Balance sheet growth continued during Q3 2022, primarily in mortgages, where new lending remained strong. Unsecured lending balances also increased, in line with continued demand following the easing of COVID-19 restrictions and selective lending criteria relaxation from Q2 2021. Total ECL coverage reduced during the first half of the year reflective of low unemployment and stable portfolio performance. However, total coverage increased this quarter as a result of the downside shift in MES weightings, given the amplified risk and uncertainty due to inflation and cost of living pressures. This economics impact was reflected in the increase in Stage 2 balances in Q3 2022, which had previously been reducing during the first half of the year with stable portfolio performance. Stage 3 ECL remained broadly stable in the quarter with default levels remaining steady. Stage 3 ECL was higher overall since the start of the year, mainly because of IFRS 9 alignment to the new regulatory default definition, implemented on 1 January 2022. This change resulted in an increase in Stage 3 exposures of approximately £0.7 billion, mostly in mortgages. |
| – | Commercial & Institutional – The balance sheet increased during Q3 2022, attributable to growth in exposure to financial institutions and various sectors in corporate Wholesale. Sector appetite continues to be regularly reviewed, with continued focus on high oversight sector clusters. Stage 2 balances increased significantly in the quarter due to the downside shift in MES weightings leading to PD deterioration, with exposures moving from Stage 1 into Stage 2. Stage 2 ECL increased by a much smaller amount due to the release of COVID-19 related post model adjustments largely offsetting the increased ECL from the MES weightings. Stage 1 ECL increased due to the change in MES weightings and some additional flows into Stage 3 resulted in increased ECL requirements on defaulted exposures. |
| – | Ulster Bank RoI – The ECL reduction in Ulster Bank RoI from 30 June 2022 related to the mortgage book being reclassified, in Q3 2022, from amortised cost to fair value through profit or loss (FVTPL). |
Movement in ECL provision
The table below shows the main ECL provision movements during the year.
| ECL provision | |
| £m | |
| At 1 January 2022 | 3,806 |
| Transfer to disposal groups and reclassifications | (338) |
| Changes in economic forecast | 170 |
| Changes in risk metrics and exposure: Stage 1 and Stage 2 | (139) |
| Changes in risk metrics and exposure: Stage 3 | 399 |
| Judgemental changes: changes in post model adjustments for Stage 1, Stage 2 and Stage 3 | (137) |
| Write-offs and other | (372) |
| At 30 September 2022 | 3,389 |
| – | ECL reduced during 2022, reflecting continued positive trends in portfolio performance alongside a related net release of judgemental post model adjustments and write-off activity. |
| – | Stage 3 ECL balances remained broadly stable during the year, mainly due to write-offs and repayments of defaulted debt, largely offsetting new inflows and the effect of the new regulatory default definition. |
| – | The weaker economic outlook resulted in increased charges throughout the year with an additional £127 million in Q3 2022 as a result of the re-weighted scenarios. Additionally, broader portfolio performance continued to be stable, which led to some additional post model adjustments being required to ensure provision adequacy in the face of growing uncertainty due to inflation, cost of living pressures and supply chain challenges. |
| – | Post model adjustments decreased in total, with the effect of new adjustments more than offset by the retirement of previously held COVID-19 related adjustments and also significant reduction in the requirement for deferred model calibrations, due to new model implementations in Q3 2022. |
| – | A £338 million ECL reduction was due to the transfer to disposal groups and reclassifications related to the phased withdrawal of Ulster Bank RoI from the Republic of Ireland. The largest part of this reduction, £286 million, related to the Ulster Bank RoI mortgage book being reclassified, in Q3 2022, from amortised cost to FVTPL. |
| NatWest Group – Form 6-K Q3 Results 2022 | 24 |
Risk and capital management
Credit risk continued
ECL post model adjustments
The table below shows ECL post model adjustments.
| Retail Banking | Private | Commercial & | Ulster Bank RoI (1) | ||||
| Mortgages | Other | Banking | Institutional | Mortgages | Other | Total | |
| 30 September 2022 | £m | £m | £m | £m | £m | £m | £m |
| Deferred model calibrations | - | - | - | 64 | - | - | 64 |
| Economic uncertainty | 97 | 83 | 7 | 355 | - | 3 | 545 |
| Other adjustments | 28 | 36 | - | 13 | - | 17 | 94 |
| Total | 125 | 119 | 7 | 432 | - | 20 | 703 |
| Of which: | |||||||
| - Stage 1 | 39 | 38 | 2 | 69 | - | (1) | 147 |
| - Stage 2 | 63 | 81 | 5 | 362 | - | 20 | 531 |
| - Stage 3 | 23 | - | - | 1 | - | 1 | 25 |
| 30 June 2022 | |||||||
| Deferred model calibrations | - | - | - | 64 | - | 2 | 66 |
| Economic uncertainty | 97 | 82 | 11 | 388 | - | 5 | 583 |
| Other adjustments | 28 | (26) | - | 12 | 160 | 18 | 192 |
| Total | 125 | 56 | 11 | 464 | 160 | 25 | 841 |
| Of which: | |||||||
| - Stage 1 | 39 | 20 | 2 | 58 | 5 | 2 | 126 |
| - Stage 2 | 63 | 36 | 9 | 404 | 9 | 22 | 543 |
| - Stage 3 | 23 | - | - | 2 | 146 | 1 | 172 |
| 31 December 2021 | |||||||
| Deferred model calibrations | 58 | 97 | - | 62 | - | 2 | 219 |
| Economic uncertainty | 60 | 99 | 5 | 391 | 6 | 23 | 584 |
| Other adjustments | 37 | - | - | 5 | 156 | - | 198 |
| Total | 155 | 196 | 5 | 458 | 162 | 25 | 1,001 |
| Of which: | |||||||
| - Stage 1 | 9 | 5 | - | 15 | 4 | 1 | 34 |
| - Stage 2 | 126 | 164 | 5 | 443 | 7 | 26 | 771 |
| - Stage 3 | 20 | 27 | - | - | 151 | (2) | 196 |
| (1) | Excludes £24 million (30 June 2022 – £34 million; 31 December 2021 – £49 million) of post model adjustments (mortgages – £nil; other – £24 million (30 June 2022 – mortgages £0.4 million; other – £33.6 million; 31 December 2021 – mortgages £4 million; other – £45 million)) for Ulster Bank RoI disclosed as transfers to disposal groups. |
| – | Retail Banking – Post model adjustments remained stable in mortgages. In unsecured products, the economic uncertainty adjustment also remained stable, there was, however, a £62 million uplift in other adjustments for unsecured products following the implementation of a new credit card PD model and the release of the previously held ECL reduction adjustment. Associated with the new model implementation, a £36 million post model adjustment was retained in relation to cards EAD modelling. |
| – | Commercial & Institutional – The post model adjustment for economic uncertainty reduced by £33 million in the quarter, reflecting a reduction in COVID-19 related adjustments, partially offset by an increase in the inflation and supply chain adjustment that was introduced in H1 2022. Deferred model calibrations and other adjustments remained stable. |
| – | Ulster Bank RoI – The removal of post model adjustments in the mortgage portfolio reflected the reclassification of mortgage loans to FVTPL. Other post model adjustments reduced in line with the decrease in gross loans in the period. |
| NatWest Group – Form 6-K Q3 Results 2022 | 25 |
Risk and capital management
Credit risk continued
Sector analysis – portfolio summary
The table below shows ECL by stage, for the Personal portfolio and selected sectors of the Wholesale portfolio.
| NatWest Group – Form 6-K Q3 Results 2022 | 26 |
Risk and capital management
Credit risk continued
Wholesale support schemes
The table below shows the sector split for the BBLS as well as associated debt split by stage. Associated debt refers to the non-BBLS lending to customers who also have BBLS lending.
| Gross carrying amount | |||||||||||||
| BBL | Associated debt | ECL on associated debt | |||||||||||
| Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | |||
| 30 September 2022 | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | ||
| Wholesale | |||||||||||||
| Property | 1,125 | 204 | 137 | 1,466 | 991 | 194 | 71 | 1,256 | 7 | 18 | 26 | ||
| Financial institutions | 26 | 4 | 1 | 31 | 9 | 2 | - | 11 | - | - | 1 | ||
| Sovereign | 6 | 1 | 1 | 8 | 1 | - | - | 1 | - | - | - | ||
| Corporate | 3,474 | 647 | 836 | 4,957 | 2,569 | 744 | 127 | 3,440 | 19 | 67 | 62 | ||
| Of which: | |||||||||||||
| Agriculture | 239 | 78 | 11 | 328 | 897 | 270 | 22 | 1,189 | 4 | 20 | 8 | ||
| Airlines and aerospace | 3 | 1 | 1 | 5 | 1 | - | - | 1 | - | - | - | ||
| Automotive | 241 | 36 | 28 | 305 | 113 | 28 | 4 | 145 | 1 | 3 | 2 | ||
| Health | 181 | 23 | 10 | 214 | 291 | 79 | 18 | 388 | 1 | 5 | 4 | ||
| Land transport and logistics | 134 | 27 | 23 | 184 | 58 | 15 | 4 | 77 | - | 2 | 3 | ||
| Leisure | 521 | 114 | 75 | 710 | 366 | 150 | 28 | 544 | 4 | 14 | 15 | ||
| Oil and gas | 6 | 2 | 1 | 9 | 3 | 1 | - | 4 | - | - | - | ||
| Retail | 610 | 101 | 71 | 782 | 325 | 74 | 16 | 415 | 3 | 8 | 9 | ||
| Total | 4,631 | 856 | 975 | 6,462 | 3,570 | 940 | 198 | 4,708 | 26 | 85 | 89 | ||
| 31 December 2021 | |||||||||||||
| Wholesale | |||||||||||||
| Property | 1,480 | 218 | 99 | 1,797 | 1,232 | 165 | 55 | 1,452 | 3 | 13 | 18 | ||
| Financial institutions | 33 | 5 | 1 | 39 | 9 | 20 | 3 | 32 | - | 1 | - | ||
| Sovereign | 7 | 1 | - | 8 | 2 | - | - | 2 | - | - | - | ||
| Corporate | 4,593 | 703 | 334 | 5,630 | 2,481 | 1,087 | 84 | 3,652 | 10 | 66 | 34 | ||
| Of which: | |||||||||||||
| Agriculture | 302 | 86 | 6 | 394 | 827 | 396 | 14 | 1,237 | 3 | 16 | 4 | ||
| Airlines and aerospace | 5 | 1 | 1 | 7 | 1 | 1 | - | 2 | - | - | - | ||
| Automotive | 309 | 43 | 21 | 373 | 119 | 39 | 2 | 160 | 1 | 2 | 1 | ||
| Health | 233 | 26 | 7 | 266 | 287 | 131 | 13 | 431 | 1 | 7 | 3 | ||
| Land transport and logistics | 180 | 32 | 19 | 231 | 57 | 26 | 2 | 85 | - | 2 | 1 | ||
| Leisure | 706 | 122 | 55 | 883 | 367 | 208 | 25 | 600 | 1 | 15 | 9 | ||
| Oil and gas | 8 | 2 | 1 | 11 | 3 | 1 | - | 4 | - | - | - | ||
| Retail | 800 | 109 | 47 | 956 | 310 | 127 | 8 | 445 | 2 | 7 | 4 | ||
| Total | 6,113 | 927 | 434 | 7,474 | 3,724 | 1,272 | 142 | 5,138 | 13 | 80 | 52 |
| NatWest Group – Form 6-K Q3 Results 2022 | 27 |
Risk and capital management
Credit risk continued
| – | Personal – Mortgage balances continued to increase during 2022 with strong purchase and remortgage demand in the UK. Unsecured lending balances have increased in 2022 after COVID-19 restrictions eased and lending criteria were selectively relaxed. The ECL levels in Stage 2 were lower than at 2021 year end, due to migrations back into Stage 1 following continued stable portfolio performance supporting improved risk metrics. The total ECL coverage requirements reduced since the start of the year but increased in Q3 2022 due to the downside shift in MES weightings. |
| – | As at 30 September 2022, £134.8 billion, 68%, of the total residential mortgages portfolio had Energy Performance Certificate (EPC) data available (31 December 2021 – £116.2 billion, 62%). Of which, 41% of UK properties were rated as EPC A to C (31 December 2021 – 38%). In addition to the Retail Banking portfolio, during Q2 2022, EPC data became available for the Private Banking portfolio for all periods. EPC data source and limitations are provided on page 60 of the 2021 NatWest Group Climate-related Disclosures Report. |
| – | Wholesale – Exposures were mainly in the UK. The balance sheet reduction noted at the end of 2021, principally due to repayments of both COVID-19 government support schemes and conventional borrowing, was reversed in 2022. This was due to additional lending across the portfolio, principally concentrated in financial institutions and other corporates. Increases within financial institutions year-to-date, reflected fluctuations in treasury related management activities and strategic growth in the leveraged funds sector in the non-ring fenced bank. Other corporates sector growth was focused on lending aligned to lower risk sectors. |
| – | When the government support schemes closed in 2021, approximately 317,000 applications across all schemes were approved, £13.4 billion was drawn down, of which, £4.4 billion has been repaid. |
| – | Repayment performance under government lending schemes continues to be closely tracked. Overall exposure continued to decrease. Missed payment rates marginally increased but volumes remained broadly in line with the wider market. Exposures under the Business Banking Loan Scheme (BBLS) that benefit from the 100% government guarantee account for approximately 70% of remaining exposures. |
| – | The Wholesale credit profile remained stable, but the outlook is uncertain. NatWest Group has yet to see inflationary pressure materially affect risk of credit loss framework inflows or curtail outflows. Government intervention on rising energy costs is expected to mitigate some of the effect of higher energy costs for customers. Inflationary effects on customers continues to be assessed. Sector appetite is regularly reviewed and where appropriate adjusted for those sectors most affected by current economic and geopolitical conditions. |
| NatWest Group – Form 6-K Q3 Results 2022 | 28 |
Risk and capital management
Capital, liquidity and funding risk
Introduction
NatWest Group continually ensures a comprehensive approach is taken to the management of capital, liquidity and funding, underpinned by frameworks, risk appetite and policies, to manage and mitigate capital, liquidity and funding risks. The framework ensures the tools and capability are in place to facilitate the management and mitigation of risk ensuring that NatWest Group operates within its regulatory requirements and risk appetite.
Key developments (YTD)
| NatWest Group – Form 6-K Q3 Results 2022 | 29 |
Risk and capital management
Capital, liquidity and funding risk continued
Maximum Distributable Amount (MDA) and Minimum Capital Requirements
NatWest Group is subject to minimum capital requirements relative to RWAs. The table below summarises the minimum capital requirements (the sum of Pillar 1 and Pillar 2A), and the additional capital buffers which are held in excess of the regulatory minimum requirements and are usable in stress.
Where the CET1 ratio falls below the sum of the minimum capital and the combined buffer requirement, there is a subsequent automatic restriction on the amount available to service discretionary payments (including AT1 coupons), known as the MDA. Note that different requirements apply to individual legal entities or sub-groups and that the table shown does not reflect any incremental PRA buffer requirements, which are not disclosable.
The current capital position provides significant headroom above both our minimum requirements and our MDA threshold requirements.
| (1) | In response to COVID-19, many countries reduced their CCyB rates. In December 2021, the Financial Policy Committee announced an increase in the UK CCyB rate from 0% to 1% effective from 13 December 2022. A further increase from 1% to 2% was announced on 5 July 2022, effective 5 July 2023. In June 2022, the Central Bank of Ireland announced that the CCyB on Irish exposures will increase from 0% to 0.5% applicable from 15 June 2023. This is the first step towards a gradual increase which, conditional on macro-financial developments, would see a CCyB of 1.5% announced by mid-2023, which is expected to be applicable from June 2024. |
| (2) | Pillar 2A requirements for NatWest Group are set on a nominal capital basis. The PRA has confirmed that from Q4 2022 Pillar 2A will be set as a variable amount with the exception of some fixed add-ons. |
| (3) | The headroom does not reflect excess distributable capital and may vary over time. |
| NatWest Group – Form 6-K Q3 Results 2022 | 30 |
Risk and capital management
Capital, liquidity and funding risk continued
Capital and leverage ratios
The table below sets out the key capital and leverage ratios. From 1 January 2022, NatWest Group is subject to the requirements set out in the PRA Rulebook. Therefore, going forward the capital and leverage ratios are being presented under these frameworks on a transitional basis.
| Capital adequacy ratios (1) | 30
September 2022 % |
30
June 2022 % |
31
December 2021 % |
| CET1 | 14.3 | 14.3 | 18.2 |
| Tier 1 | 16.5 | 16.4 | 21.0 |
| Total | 19.2 | 19.3 | 24.7 |
| Capital | £m | £m | £m |
| Tangible equity | 24,093 | 27,858 | 30,689 |
| Prudential valuation adjustment | (319) | (316) | (274) |
| Deferred tax assets | (687) | (738) | (761) |
| Own credit adjustments | (116) | (99) | 21 |
| Pension fund assets | (360) | (471) | (465) |
| Cash flow hedging reserve | 3,274 | 1,526 | 395 |
| Foreseeable dividends and pension contributions | (668) | (2,250) | (1,211) |
| Foreseeable charges - on-market ordinary share buyback programme | - | (91) | (825) |
| Prudential amortisation of software development costs | - | - | 411 |
| Adjustments under IFRS 9 transitional arrangements | 358 | 284 | 621 |
| Insufficient coverage for non-performing exposures | (19) | (10) | (5) |
| Total deductions | 1,463 | (2,165) | (2,093) |
| CET1 capital | 25,556 | 25,693 | 28,596 |
| End-point AT1 capital | 3,875 | 3,875 | 3,875 |
| Grandfathered instrument transitional arrangements | - | - | 571 |
| Transitional AT1 capital | 3,875 | 3,875 | 4,446 |
| Tier 1 capital | 29,431 | 29,568 | 33,042 |
| End-point Tier 2 capital | 4,691 | 5,011 | 5,402 |
| Grandfathered instrument transitional arrangements | 108 | 172 | 304 |
| Transitional Tier 2 capital | 4,799 | 5,183 | 5,706 |
| Total regulatory capital | 34,230 | 34,751 | 38,748 |
| Risk-weighted assets | |||
| Credit risk | 141,530 | 143,765 | 120,116 |
| Counterparty credit risk | 8,500 | 8,352 | 7,907 |
| Market risk | 9,349 | 8,563 | 7,917 |
| Operational risk | 19,115 | 19,115 | 21,031 |
| Total RWAs | 178,494 | 179,795 | 156,971 |
| (1) | Based on current PRA rules, therefore includes the transitional relief on grandfathered capital instruments and the transitional arrangements for the capital impact of IFRS 9 expected credit loss (ECL) accounting. The impact of the IFRS 9 transitional adjustments at 30 September 2022 was £0.4 billion for CET1 capital, £23 million for total capital and £80 million RWAs (30 June 2022 - £0.3 billion CET1 capital, £62 million total capital and £32 million RWAs, 31 December 2021 - £0.6 billion CET1 capital, £0.5 billion total capital and £36 million RWAs). Excluding these adjustments, the CET1 ratio would be 14.1% (30 June 2022 – 14.1%, 31 December 2021 – 17.8%). The transitional relief on grandfathered instruments at 30 September 2022 was £0.1 billion (30 June 2022 - £0.2 billion, 31 December 2021 - £0.9 billion). Excluding both the transitional relief on grandfathered capital instruments and the transitional arrangements for the capital impact of IFRS 9 expected credit loss (ECL) accounting, the end-point Tier 1 capital ratio would be 16.3% (30 June 2022 – 16.3%, 31 December 2021 – 20.3%) and the end-point Total capital ratio would be 19.1% (30 June 2022 – 19.3%, 31 December 2021 – 23.8%). |
| NatWest Group – Form 6-K Q3 Results 2022 | 31 |
Risk and capital management
Capital, liquidity and funding risk continued
Capital and leverage ratios continued
| Leverage | 30
September 2022 £m |
30
June 2022 £m |
31
December 2021 £m |
| Cash and balances at central banks | 155,266 | 179,525 | 177,757 |
| Trading assets | 57,833 | 65,604 | 59,158 |
| Derivatives | 141,002 | 109,342 | 106,139 |
| Financial assets | 411,623 | 412,115 | 412,817 |
| Other assets | 23,560 | 25,705 | 17,106 |
| Assets of disposal groups | 12,209 | 14,187 | 9,015 |
| Total assets | 801,493 | 806,478 | 781,992 |
| Derivatives | |||
| - netting and variation margin | (139,383) | (107,295) | (110,204) |
| - potential future exposures | 20,466 | 20,552 | 35,035 |
| Securities financing transactions gross up | 6,155 | 5,184 | 1,397 |
| Other off balance sheet items | 45,862 | 45,095 | 44,240 |
| Regulatory deductions and other adjustments | (11,540) | (16,314) | (8,980) |
| Claims on central banks | (151,725) | (176,163) | (174,148) |
| Exclusion of bounce back loans | (6,462) | (6,785) | (7,474) |
| UK leverage exposure | 564,866 | 570,752 | 561,858 |
| UK leverage ratio (%) (1) | 5.2 | 5.2 | 5.9 |
| (1) | The UK leverage exposure and transitional Tier 1 capital are calculated in accordance with current PRA rules. Excluding the IFRS 9 transitional adjustment, the UK leverage ratio would be 5.2% (30 June 2022 – 5.1%, 31 December 2021 – 5.8%). |
Capital flow statement
The table below analyses the movement in CET1, AT1 and Tier 2 capital for the nine months ended 30 September 2022. It is being presented on a transitional basis as calculated under the PRA Rulebook Instrument requirements.
| CET1 £m |
AT1 £m |
Tier
2 £m |
Total £m | |
| At 31 December 2021 | 28,596 | 4,446 | 5,706 | 38,748 |
| Attributable profit for the period | 2,078 | - | - | 2,078 |
| Ordinary interim dividend paid | (364) | - | - | (364) |
| Special dividend paid | (1,746) | - | - | (1,746) |
| Directed buyback | (1,212) | - | - | (1,212) |
| Foreseeable dividends | (386) | - | - | (386) |
| Foreseeable pension contributions | (282) | - | - | (282) |
| Foreign exchange reserve | 384 | - | - | 384 |
| FVOCI reserve | (374) | - | - | (374) |
| Own credit | (137) | - | - | (137) |
| Share capital and reserve movements in respect of employee share schemes | 75 | - | - | 75 |
| Goodwill and intangibles deduction | (649) | - | - | (649) |
| Deferred tax assets | 74 | - | - | 74 |
| Prudential valuation adjustments | (45) | - | - | (45) |
| End of 2021 transitional relief on grandfathered instruments | - | (571) | (232) | (803) |
| Net dated subordinated debt instruments | - | - | (1,043) | (1,043) |
| Foreign exchange movements | (254) | - | 632 | 378 |
| Adjustment under IFRS 9 transitional arrangements | (263) | - | - | (263) |
| Other movements | 61 | - | (264) | (203) |
| At 30 September 2022 | 25,556 | 3,875 | 4,799 | 34,230 |
| – | The CET1 decrease was primarily due to the directed buyback of £1.2 billion, foreseeable dividend and pension contribution accruals of £0.7 billion, a £0.3 billion decrease in the IFRS 9 transitional adjustment, the removal of the adjustment for prudential amortisation on software development costs of £0.4 billion, £0.3 billion due to FX loss on retranslation on the redemption of a US dollar instrument and other reserve movements in the period. Attributable profit of £2.1 billion was offset by an ordinary dividend of £0.4 billion and a special dividend of £1.7 billion paid to shareholders. |
| – | The AT1 and Tier 2 movements are due to the end of the 2021 transitional relief on grandfathered instruments, impact of liability management exercise in August and FX movements. In Tier 2 there was also a £0.3 billion decrease in the Tier 2 surplus provisions. |
| NatWest Group – Form 6-K Q3 Results 2022 | 32 |
Risk and capital management
Capital, liquidity and funding risk continued
Risk-weighted assets
The table below analyses the movement in RWAs during the period, by key drivers.
Credit risk £bn |
Counterparty credit risk £bn |
Market risk £bn |
Operational risk £bn |
Total £bn | |
| At 31 December 2021 | 120.2 | 7.9 | 7.9 | 21.0 | 157.0 |
| Foreign exchange movement | 2.1 | - | - | - | 2.1 |
| Business movement | 3.8 | 0.3 | 1.2 | (1.9) | 3.4 |
| Risk parameter changes | (3.5) | - | - | - | (3.5) |
| Methodology changes | 0.2 | 0.4 | - | - | 0.6 |
| Model updates | 20.1 | (0.1) | 0.2 | - | 20.2 |
| Acquisitions and disposals | (1.3) | - | - | - | (1.3) |
| At 30 September 2022 | 141.6 | 8.5 | 9.3 | 19.1 | 178.5 |
The table below analyses segmental RWAs.
| Go-forward group | |||||||
| Total RWAs | Retail Banking £bn |
Private Banking £bn |
Commercial & Institutional £bn |
Central items & other £bn |
Total excluding Ulster Bank RoI £bn |
Ulster Bank RoI £bn |
Total NatWest Group £bn |
| At 31 December 2021 | 36.7 | 11.3 | 98.1 | 1.8 | 147.9 | 9.1 | 157.0 |
| Foreign exchange movement | - | - | 1.9 | - | 1.9 | 0.2 | 2.1 |
| Business movement | 2.5 | (0.2) | 2.5 | (0.2) | 4.6 | (1.2) | 3.4 |
| Risk parameter changes | (1.5) | - | (2.0) | - | (3.5) | - | (3.5) |
| Methodology changes | - | - | 0.4 | - | 0.4 | 0.2 | 0.6 |
| Model updates | 15.3 | - | 3.9 | - | 19.2 | 1.0 | 20.2 |
| Acquisitions and disposals | - | - | - | - | - | (1.3) | (1.3) |
| At 30 September 2022 | 53.0 | 11.1 | 104.8 | 1.6 | 170.5 | 8.0 | 178.5 |
| Credit risk | 46.0 | 9.9 | 77.1 | 1.5 | 134.5 | 7.1 | 141.6 |
| Counterparty credit risk | 0.1 | - | 8.4 | - | 8.5 | - | 8.5 |
| Market risk | 0.2 | - | 9.1 | - | 9.3 | - | 9.3 |
| Operational risk | 6.7 | 1.2 | 10.2 | 0.1 | 18.2 | 0.9 | 19.1 |
| Total RWAs | 53.0 | 11.1 | 104.8 | 1.6 | 170.5 | 8.0 | 178.5 |
Total RWAs increased by £21.5 billion to £178.5 billion during the period mainly reflecting:
| – | An increase in model updates totalling £20.2 billion, primarily due to model adjustments applied as a result of new regulation applicable to IRB models from 1 January 2022 within Retail Banking and Commercial & Institutional. |
| – | An increase in business movements totalling £3.4 billion, driven by increased credit risk exposures within Retail Banking and Commercial & Institutional, partially offset by a reduction in credit risk exposures within Ulster Bank ROI. |
| – | A partially offsetting reduction of £3.5 billion RWAs due to improved risk metrics within Commercial & Institutional and Retail Banking. |
| – | An increase in disposals leading to a £1.3 billion reduction in RWAs relating to the phased withdrawal from the Republic of Ireland. |
| NatWest Group – Form 6-K Q3 Results 2022 | 33 |
Risk and capital management
Capital, liquidity and funding risk continued
Liquidity portfolio
The table below shows the liquidity portfolio by product, with primary liquidity aligned to internal stressed outflow coverage and regulatory liquidity coverage ratio (LCR) categorisation. Secondary liquidity comprises assets eligible for discount at central banks, which do not form part of the liquid asset portfolio for LCR or internal stressed outflow coverage purposes.
| Liquidity value | |||||
| 30 September 2022 | 30 June 2022 | 31 December 2021 | |||
| NatWest Group (1) £m |
NatWest Group £m |
NatWest Group £m | |||
| Cash and balances at central banks | 155,173 | 176,976 | 174,328 | ||
| AAA to AA- rated governments | 26,237 | 18,458 | 31,073 | ||
| A+ and lower rated governments | 35 | 3 | 25 | ||
| Government guaranteed issuers, public sector entities and government sponsored entities | 247 | 236 | 307 | ||
| International organisations and multilateral development banks | 2,490 | 2,589 | 2,720 | ||
| LCR level 1 bonds | 29,009 | 21,286 | 34,125 | ||
| LCR level 1 assets | 184,182 | 198,262 | 208,453 | ||
| LCR level 2 assets | - | - | 117 | ||
| Non-LCR eligible assets | - | - | - | ||
| Primary liquidity | 184,182 | 198,262 | 208,570 | ||
| Secondary liquidity (2) | 67,004 | 70,186 | 77,849 | ||
| Total liquidity value | 251,186 | 268,448 | 286,419 | ||
| (1) | NatWest Group includes the UK Domestic Liquidity Sub-Group (NWB Plc, RBS plc and Coutts & Co), NatWest Markets Plc and other significant operating subsidiaries that hold liquidity portfolios. These include The Royal Bank of Scotland International Limited, NWM N.V. and Ulster Bank Ireland DAC who hold managed portfolios that comply with local regulations that may differ from PRA rules. |
| (2) | Comprises assets eligible for discounting at the Bank of England and other central banks. |
| NatWest Group – Form 6-K Q3 Results 2022 | 34 |
Condensed consolidated income statement for the period ended 30 September 2022 (unaudited)
| Nine months ended | Quarter ended | |||||
| 30
September 2022 £m |
30
September 2021 £m |
30
September 2022 £m |
30
June 2022 £m |
30
September 2021 £m | ||
| Interest receivable | 8,591 | 6,909 | 3,341 | 2,820 | 2,299 | |
| Interest payable | (1,617) | (1,296) | (701) | (513) | (430) | |
| Net interest income | 6,974 | 5,613 | 2,640 | 2,307 | 1,869 | |
| Fees and commissions receivable | 2,145 | 1,970 | 721 | 731 | 666 | |
| Fees and commissions payable | (468) | (425) | (168) | (151) | (140) | |
| Income from trading activities | 969 | 326 | 260 | 347 | 95 | |
| Other operating income | (172) | 343 | (224) | (23) | 196 | |
| Non-interest income | 2,474 | 2,214 | 589 | 904 | 817 | |
| Total income | 9,448 | 7,827 | 3,229 | 3,211 | 2,686 | |
| Staff costs | (2,687) | (2,761) | (879) | (907) | (881) | |
| Premises and equipment | (820) | (765) | (286) | (283) | (263) | |
| Other administrative expenses | (1,429) | (1,291) | (531) | (427) | (588) | |
| Depreciation and amortisation | (613) | (613) | (200) | (216) | (199) | |
| Operating expenses | (5,549) | (5,430) | (1,896) | (1,833) | (1,931) | |
| Profit before impairment (losses)/releases | 3,899 | 2,397 | 1,333 | 1,378 | 755 | |
| Impairment (losses)/releases | (193) | 904 | (247) | 18 | 221 | |
| Operating profit before tax | 3,706 | 3,301 | 1,086 | 1,396 | 976 | |
| Tax charge | (1,229) | (762) | (434) | (409) | (330) | |
| Profit from continuing operations | 2,477 | 2,539 | 652 | 987 | 646 | |
| (Loss)/profit from discontinued operations, net of tax | (206) | 275 | (396) | 127 | 98 | |
| Profit for the period | 2,271 | 2,814 | 256 | 1,114 | 744 | |
| Attributable to: | ||||||
| Ordinary shareholders | 2,078 | 2,516 | 187 | 1,050 | 674 | |
| Preference shareholders | - | 14 | - | - | 5 | |
| Paid-in equity holders | 188 | 241 | 67 | 62 | 63 | |
| Non-controlling interests | 5 | 43 | 2 | 2 | 2 | |
| 2,271 | 2,814 | 256 | 1,114 | 744 | ||
| Earnings per ordinary share - continuing operations | 23.0p | 20.6p | 6.0p | 9.5p | 5.4p | |
| Earnings per ordinary share - discontinued operations | (2.1p) | 2.5p | (4.1p) | 1.3p | 0.9p | |
| Total earnings per share attributable to ordinary shareholders - basic | 20.9p | 23.1p | 1.9p | 10.8p | 6.3p | |
| Earnings per ordinary share - fully diluted continuing operations | 22.9p | 20.5p | 6.0p | 9.4p | 5.4p | |
| Earnings per ordinary share - fully diluted discontinued operations | (2.1p) | 2.5p | (4.1p) | 1.3p | 0.9p | |
| Total earnings per share attributable to ordinary shareholders - fully diluted | 20.8p | 23.0p | 1.9p | 10.7p | 6.3p | |
| (1) | At the General Meeting and Class Meeting on 25 August 2022, the shareholders approved the proposed special dividend and share consolidation. On 30 August 2022 the issued ordinary share capital was consolidated in the ratio of 14 existing shares for 13 new shares. The number of shares for earnings per share has been adjusted retrospectively. |
| NatWest Group – Form 6-K Q3 Results 2022 | 35 |
Condensed consolidated statement of comprehensive income for the period ended 30 September 2022 (unaudited)
| Nine months ended | Quarter ended | |||||
| 30
September 2022 £m |
30
September 2021 £m |
30
September 2022 £m |
30
June 2022 £m |
30
September 2021 £m | ||
| Profit for the period | 2,271 | 2,814 | 256 | 1,114 | 744 | |
| Items that do not qualify for reclassification | ||||||
| Remeasurement of retirement benefit schemes (1) | (682) | (740) | (165) | (9) | (6) | |
| Changes in fair value of credit in financial liabilities designated at fair value through profit or loss (FVTPL) due to own credit risk | 102 | (29) | 11 | 52 | (4) | |
| Fair value through other comprehensive income (FVOCI) financial assets | 42 | 11 | 39 | (6) | 3 | |
| Tax (1) | 136 | 185 | 13 | 1 | 3 | |
| (402) | (573) | (102) | 38 | (4) | ||
| Items that do qualify for reclassification | ||||||
| FVOCI financial assets | (451) | (145) | 7 | (220) | - | |
| Cash flow hedges (2) | (3,978) | (610) | (2,421) | (574) | (245) | |
| Currency translation | 358 | (267) | 173 | 150 | 21 | |
| Tax (2) | 1,259 | 130 | 693 | 227 | 65 | |
| (2,812) | (892) | (1,548) | (417) | (159) | ||
| Other comprehensive loss after tax | (3,214) | (1,465) | (1,650) | (379) | (163) | |
| Total comprehensive (loss)/income for the period | (943) | 1,349 | (1,394) | 735 | 581 | |
| Attributable to: | ||||||
| Ordinary shareholders | (1,136) | 1,047 | (1,463) | 672 | 512 | |
| Preference shareholders | - | 14 | - | - | 5 | |
| Paid-in equity holders | 188 | 241 | 67 | 62 | 63 | |
| Non-controlling interests | 5 | 47 | 2 | 1 | 1 | |
| (943) | 1,349 | (1,394) | 735 | 581 | ||
| (1) | Following the purchase of ordinary shares from UKGI in Q1 2022, NatWest Group contributed £500 million to its main pension scheme in line with the memorandum of understanding announced on 17 April 2018. After tax relief, this contribution reduced total equity by £365 million. In line with our policy, the present value of defined benefit obligations and the fair value of plan assets at the end of the interim reporting period are assessed to identity significant market fluctuations and one-off events since the end of the prior financial year. Following this assessment, a remeasurement loss of £150 million offset by tax of £15 million was recorded in OCI in relation to a material movement on valuation of a non-UK scheme. The movement from the year end has primarily arisen due to changes in underlying interest and inflation rates, and changes in asset values. |
| (2) | The unrealised losses on cash flow hedge reserves is mainly driven by deferment of losses on GBP net received fixed swaps as interest rates have increased, with an offsetting impact of £1 billion included within the tax movement. |
| NatWest Group – Form 6-K Q3 Results 2022 | 36 |
Condensed consolidated balance sheet as at 30 September 2022 (unaudited)
| 30
September 2022 £m |
31
December 2021 £m | |
| Assets | ||
| Cash and balances at central banks | 155,266 | 177,757 |
| Trading assets | 57,833 | 59,158 |
| Derivatives | 141,002 | 106,139 |
| Settlement balances | 7,587 | 2,141 |
| Loans to banks - amortised cost | 9,554 | 7,682 |
| Loans to customers - amortised cost | 371,812 | 358,990 |
| Other financial assets | 30,257 | 46,145 |
| Intangible assets | 6,961 | 6,723 |
| Other assets | 9,012 | 8,242 |
| Assets of disposal groups | 12,209 | 9,015 |
| Total assets | 801,493 | 781,992 |
| Liabilities | ||
| Bank deposits | 24,713 | 26,279 |
| Customer deposits | 473,026 | 479,810 |
| Settlement balances | 7,220 | 2,068 |
| Trading liabilities | 64,754 | 64,598 |
| Derivatives | 134,958 | 100,835 |
| Other financial liabilities | 46,895 | 49,326 |
| Subordinated liabilities | 6,592 | 8,429 |
| Notes in circulation | 3,077 | 3,047 |
| Other liabilities | 5,302 | 5,797 |
| Total liabilities | 766,537 | 740,189 |
| Equity | ||
| Ordinary shareholders’ interests | 31,054 | 37,412 |
| Other owners’ interests | 3,890 | 4,384 |
| Owners’ equity | 34,944 | 41,796 |
| Non-controlling interests | 12 | 7 |
| Total equity | 34,956 | 41,803 |
| Total liabilities and equity | 801,493 | 781,992 |
| NatWest Group – Form 6-K Q3 Results 2022 | 37 |
Condensed consolidated statement of changes in equity for the period ended 30 September 2022 (unaudited)
| Share | |||||||
| capital and | Total | Non | |||||
| statutory | Paid-in | Retained | Other | owners’ | controlling | Total | |
| reserves (1) | equity | earnings | reserves* | equity | interests | equity | |
| £m | £m | £m | £m | £m | £m | £m | |
| At 1 January 2022 | 12,980 | 3,890 | 12,966 | 11,960 | 41,796 | 7 | 41,803 |
| Profit attributable to ordinary shareholders and other equity owners | |||||||
| - continuing operations | 2,472 | 2,472 | 5 | 2,477 | |||
| - discontinued operations | (206) | (206) | (206) | ||||
| Other comprehensive income | |||||||
| - Realised gains in period on FVOCI equity shares | 113 | (113) | - | - | |||
| - Remeasurement of retirement benefit schemes (2) | (682) | (682) | (682) | ||||
| - Changes in fair value of credit in financial liabilities designated at FVTPL due to own credit risk | 102 | 102 | 102 | ||||
| - Unrealised losses: FVOCI (7) | (567) | (567) | (567) | ||||
| - Amounts recognised in equity: cash flow hedges (6) | (3,707) | (3,707) | (3,707) | ||||
| - Foreign exchange reserve movement | 358 | 358 | - | 358 | |||
| - Amount transferred from equity to earnings | (113) | (113) | (113) | ||||
| - Tax (2, 6) | 121 | 1,274 | 1,395 | 1,395 | |||
| Ordinary share dividends paid | (1,205) | (1,205) | (1,205) | ||||
| Special dividends paid | (1,746) | (1,746) | (1,746) | ||||
| Paid-in equity dividends paid | (188) | (188) | (188) | ||||
| Shares repurchased during the period (3,4) | - | (2,054) | (2,054) | (2,054) | |||
| Shares and securities issued during the period | - | 8 | 8 | 8 | |||
| Tax on reclassification of paid-in equity | (36) | (36) | (36) | ||||
| Redemption of preference shares (5) | (750) | (750) | (750) | ||||
| Share-based payments | (29) | (29) | (29) | ||||
| Movement in own shares held | 96 | 96 | 96 | ||||
| At 30 September 2022 | 13,076 | 3,890 | 8,886 | 9,092 | 34,944 | 12 | 34,956 |
| 30 September | |||||||
| 2022 | |||||||
| Attributable to: | £m | ||||||
| Ordinary shareholders | 31,054 | ||||||
| Paid-in equity holders | 3,890 | ||||||
| Non-controlling interests | 12 | ||||||
| 34,956 | |||||||
| *Other reserves consist of: | |||||||
| Merger reserve | 10,881 | ||||||
| FVOCI reserve | (105) | ||||||
| Cash flow hedging reserve | (3,273) | ||||||
| Foreign exchange reserve | 1,589 | ||||||
| 9,092 |
| (1) | Share capital and statutory reserves includes share capital, share premium, capital redemption reserve and own shares held. |
| (2) | Following the purchase of ordinary shares from UKGI in Q1 2022, NatWest Group contributed £500 million to its main pension scheme in line with the memorandum of understanding announced on 17 April 2018. After tax relief, this contribution reduced total equity by £365 million. In line with our policy, the present value of defined benefit obligations and the fair value of plan assets at the end of the interim reporting period are assessed to identity significant market fluctuations and one-off events since the end of the prior financial year. Following this assessment, a remeasurement loss of £150 million offset by tax of £15 million was recorded in OCI in relation to a material movement on valuation of a non-UK scheme. The movement from the year end has primarily arisen due to changes in underlying interest and inflation rates, and changes in asset values. |
| (3) | In March 2022, there was an agreement with HM Treasury to buy 549.9 million ordinary shares in NatWest Group plc from UK Government Investments Ltd, at 220.5 pence per share for the total consideration of £1.22 billion. NatWest Group cancelled all 549.9 million of the purchased ordinary shares. The nominal value of the share cancellation has been transferred to the capital redemption reserve. |
| (4) | NatWest Group plc repurchased and cancelled 379.3 million shares for total consideration of £829.3 million excluding fees to Q3 2022 as part of the On Market Share Buyback Programme which has now concluded. The nominal value of the share cancellations has been transferred to the capital redemption reserve. |
| (5) | Following an announcement of a Regulatory Call in February 2022, the Series U preference shares were reclassified to liabilities. A £254 million loss was recognised in P&L reserves as a result of FX unlocking. |
| (6) | The unrealised losses on cash flow hedge reserves is mainly driven by deferment of losses on GBP net received fixed swaps as interest rates have increased, with an offsetting impact of £1 billion included within the tax movement. |
| (7) | Certain assets within this category have been subject to economic hedges (refer to notable items on page 9). The effect of those creates a temporary difference between Other Comprehensive income and the income statement due to the difference in recognition criteria. This temporary difference is expected to reverse through the income statement over the duration of the hedge. |
| NatWest Group – Form 6-K Q3 Results 2022 | 38 |
Notes
1. Presentation of condensed consolidated financial statements
The condensed consolidated financial statements should be read in conjunction with NatWest Group plc’s 2021 Annual Report on Form 20-F. The directors have prepared these on a going concern basis after assessing the principal risks, forecasts, projections and other relevant evidence over the twelve months from the date they are approved.
Comparative period results have been re-presented from those previously published to reclassify certain items as discontinued operations. For further details refer to Note 4 on page 40.
2. Accounting policies
NatWest Group’s principal accounting policies are as set out on pages 36 to 42 of NatWest Group plc’s 2021 Annual Report on Form 20-F. Amendments to IFRS effective from 1 January 2022 had no material effect on the condensed consolidated financial statements.
Critical accounting policies and key sources of estimation uncertainty
The judgments and assumptions that are considered to be the most important to the portrayal of NatWest Group’s financial condition are those relating to deferred tax, fair value of financial instruments, loan impairment provisions, goodwill and provisions for liabilities and charges. These critical accounting policies and judgments are noted on page 42 of NatWest Group plc’s 2021 Annual Report on Form 20-F. Management’s consideration of uncertainty is outlined in the relevant sections of NatWest Group plc’s 2021 Annual Report on Form 20-F, including the ECL estimate for the period in the Risk and capital management section contained in NatWest Group plc’s 2021 Annual Report on Form 20-F.
Information used for significant estimates
Key financial estimates are based on management’s latest five-year revenue and cost forecasts. Measurement of goodwill, deferred tax and expected credit losses are highly sensitive to reasonably possible changes in those anticipated conditions. Changes in judgments and assumptions could result in a material adjustment to those estimates in future reporting periods. (Refer to the Summary Risk Factors included in NatWest Group plc’s Interim Results 2022 on Form 6-K and the Risk Factors included in the 2021 Annual Report on Form 20-F).
On 17 October 2022, the Chancellor of the Exchequer confirmed that in line with the previously enacted legislation, the UK corporation tax rate will increase to 25% from 1 April 2023. HM Treasury are expected to confirm the future bank corporation tax surcharge rate at the Autumn Statement scheduled for 17th November 2022. Based on the current enacted legislation, the Bank Corporation Tax Surcharge rate will reduce from 8% to 3% from 1 April 2023. In line with the requirements of IAS 12, enacted tax rates have been used to determine the deferred tax balances.
3. Effect of reclassification
In June 2022 UBIDAC announced the cessation of new mortgage business to its customers. On 1 July 2022 UBIDAC mortgages in both its continuing and discontinued businesses were reclassified from amortised cost to fair value through profit or loss, reflecting the change in business model. We fair value these assets using a discounted cash flow method. Key inputs include assumptions around cash flows from legally binding sales agreements for those mortgage assets that form part of the assets of disposal groups. The effect of this is shown below:
| Continuing | Discontinued | ||
| Ulster Bank RoI | operations | operations | Total |
| Gross loans to customers (€bn) (1 July 2022) | 1.0 | 12.5 | 13.5 |
| Loan impairment provisions (€bn) (1 July 2022) | (0.3) | (0.1) | (0.4) |
| Net book value (€bn) (1 July 2022) | 0.7 | 12.4 | 13.1 |
| Q3 2022 income statement movement (€m) | 14 | (433) | (419) |
| Of which: reclassification effect (1 July 2022) (€m) | 22 | (364) | (342) |
| NatWest Group – Form 6-K Q3 Results 2022 | 39 |
Notes
4. Discontinued operations and assets and liabilities of disposal groups
Three legally binding agreements for the sale of UBIDAC business have been announced as part of the phased withdrawal from the Republic of Ireland. Material developments since the publication of the Interim results on 29 July 2022 are set out below.
Agreement with Allied Irish Banks, p.l.c. (AIB) for the transfer of c.€4.2 billion (plus up to €2.8 billion of undrawn exposures), of gross performing commercial loans (as at 31 December 2020).
Successful migration of a further three tranches of gross performing commercial loans to AIB was completed during Q3 2022. Remaining migrations of commercial customers will be completed in phases over Q4 2022 and H1 2023. Colleagues who are wholly or mainly assigned to supporting this part of the business have begun to transfer to AIB under TUPE arrangements. Losses on disposal of €76 million have been recognised in the nine months to 30 September 2022 (€71 million in Q3 2022) in respect of those transactions completed to date.
Agreement with Permanent TSB p.l.c. (PTSB) for the sale of approximately €7.6 billion of gross performing non-tracker mortgages (as at 30 June 2021), the performing loans in the micro-SME business, the UBIDAC Asset Finance business, including its Lombard digital platform, and 25 Ulster Bank branch locations in the Republic of Ireland.
The planned migration of gross performing non-Tracker mortgages to PTSB is progressing and execution of the live migration is expected to commence before the end of the year. The transfer of the Lombard asset finance business, the business direct loan book and 25 branches to PTSB is still expected to be completed in H1 2023.
Agreement with AIB for the sale of c.€6 billion portfolio of gross performing tracker and linked mortgages (as at 31 March 2022).
Migration of the portfolio of gross performing tracker and linked mortgages is still on track for delivery in Q2 2023. UBIDAC and AIB remain actively engaged with the Irish Competition and Consumer Protection Commission (CCPC) as it continues its review of the transaction.
The business activities relating to these sales that meet the requirements of IFRS 5 are presented as a discontinued operation and as a disposal group. Comparatives have been re-presented from those previously published to reclassify certain items as discontinued operations. The Ulster Bank RoI operating segment continues to be reported separately and reflects the results and balance sheet position of its continuing operations.
In Q3 2022 we reclassified mortgage loans to fair value through profit or loss, which resulted in a €419 million reduction in mortgage financial assets in UBIDAC. This reclassification applies across both our continuing and discontinued operations.
| (a) | (Loss)/profit from discontinued operations, net of tax |
| Nine months ended | Quarter ended | |||||
| 30 September | 30 September | 30 September | 30 June | 30 September | ||
| 2022 | 2021 | 2022 | 2022 | 2021 | ||
| £m | £m | £m | £m | £m | ||
| Interest receivable | 160 | 257 | 4 | 78 | 85 | |
| Net interest income | 160 | 257 | 4 | 78 | 85 | |
| Non-interest income | (409) | 9 | (405) | (4) | 3 | |
| Total income | (249) | 266 | (401) | 74 | 88 | |
| Operating expenses | (35) | (33) | (11) | (13) | (11) | |
| (Loss)/profit before impairment releases | (284) | 233 | (412) | 61 | 77 | |
| Impairment releases | 78 | 45 | 16 | 66 | 21 | |
| Operating (loss)/profit before tax | (206) | 278 | (396) | 127 | 98 | |
| Tax charge | - | (3) | - | - | - | |
| (Loss)/profit from discontinued operations, net of tax | (206) | 275 | (396) | 127 | 98 | |
(b) Assets and liabilities of disposal groups
| As at | ||
| 30 September | 31 December | |
| 2022 | 2021 | |
| £m | £m | |
| Assets of disposal groups | ||
| Loans to customers - amortised cost | 2,161 | 9,002 |
| Other financial assets - loans to customers at fair value through profit or loss | 10,040 | - |
| Derivatives | - | 5 |
| Other assets | 8 | 8 |
| 12,209 | 9,015 | |
| Liabilities of disposal groups | ||
| Other liabilities | 5 | 5 |
| 5 | 5 | |
| Net assets of disposal groups | 12,204 | 9,010 |
| NatWest Group – Form 6-K Q3 Results 2022 | 40 |
Notes
5. Litigation and regulatory matters
NatWest Group plc’s Interim Results 2022, issued on 29 July 2022, included disclosures about NatWest Group’s litigation and regulatory matters in Note 15. Set out below are the material developments in those matters (all of which have been previously disclosed) since publication of the Interim Results 2022.
Litigation
London Interbank Offered Rate (LIBOR) and other rates litigation
In September 2020, the United States District Court for the Southern District of New York (SDNY) dismissed, on various grounds, all claims against NWM Plc and other NatWest Group companies in the class action alleging that manipulation of JPY LIBOR and Euroyen TIBOR impacted the price of Euroyen TIBOR futures contracts. In October 2022, that decision was affirmed by the United States Court of Appeals for the Second Circuit.
A complaint was filed in August 2020 in the United States District Court for the Northern District of California by several United States consumer borrowers against the USD ICE LIBOR panel banks and their affiliates (including NatWest Group plc, NWM Plc, NWMSI and NWB Plc), alleging (i) that the normal process of setting USD ICE LIBOR amounts to illegal price-fixing; and (ii) that banks in the United States have illegally agreed to use LIBOR as a component of price in variable consumer loans. In September 2022, the district court dismissed the complaint, subject to re-pleading by the plaintiffs. Plaintiffs filed an amended complaint in October 2022, which defendants will again seek to have dismissed.
FX litigation
An FX-related class action, on behalf of ‘consumers and end-user businesses’, is proceeding in the SDNY against NWM Plc and others. In March 2022, the SDNY denied the plaintiffs’ motion for class certification. Plaintiffs sought an immediate appeal of the decision but the appellate court declined to review the decision. As a result, the case is proceeding on an individual, non-class basis.
In July and December 2019, two separate applications seeking opt-out collective proceedings orders were filed in the UK Competition Appeal Tribunal (CAT) against NatWest Group plc, NWM Plc and other banks. Both applications were brought on behalf of persons who, between 18 December 2007 and 31 January 2013, entered into a relevant FX spot or outright forward transaction in the EEA with a relevant financial institution or on an electronic communications network. In March 2022, the CAT declined to certify as collective proceedings either of the applications. In October 2022, the CAT granted permission for the applicants to appeal that decision to the Court of Appeal.
| 6. | Auditor selection |
The Group last tendered the 2016 audit and is required to undertake a tender for this work on a ten-year frequency. On 6 June 2022, the Group announced the start of a selection process for the statutory auditor. This extensive competitive tender process was led by the Group Audit Committee. The Board has approved the recommendation of the Group Audit Committee and accordingly, the Group announces its intention to appoint PricewaterhouseCoopers LLP (PwC) as its auditor for the financial year ending 31 December 2026, subject to shareholder approval at the 2026 Annual General Meeting.
Ernst & Young LLP (EY), our current auditor, will continue in its role and, subject to shareholder approval at the relevant Annual General Meetings, will undertake the statutory audit for the 2022-2025 financial years.
| 7. | Post balance sheet events |
Other than as disclosed there have been no significant events between 30 September 2022 and the date of approval of these accounts that would require a change to or additional disclosure in the condensed consolidated financial statements.
| NatWest Group – Form 6-K Q3 Results 2022 | 41 |
Additional information
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 September 2022.
| As at | |
| 30 September | |
| 2022 | |
| £m | |
| Share capital - allotted, called up and fully paid | |
| Ordinary shares of £1 | 10,539 |
| Retained income and other reserves | 24,405 |
| Owners’ equity | 34,944 |
| NatWest Group indebtedness | |
| Trading liabilities - debt securities in issue | 821 |
| Other financial liabilities – debt securities in issue | 45,792 |
| Subordinated liabilities | 6,592 |
| Total indebtedness | 53,205 |
| Total capitalisation and indebtedness | 88,149 |
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 September 2022.
| NatWest Group – Form 6-K Q3 Results 2022 | 42 |
Appendix
Non-IFRS financial measures
Non-IFRS financial measures
NatWest Group prepares its financial statements in accordance with generally accepted accounting principles (GAAP). This document contains a number of adjusted or alternative performance measures, also known as non-GAAP or non-IFRS performance measures. These measures are adjusted for notable and other defined items which management believes are not representative of the underlying performance of the business and which distort period-on-period comparison. The non-IFRS measures provide users of the financial statements with a consistent basis for comparing business performance between financial periods and information on elements of performance that are one-off in nature. The non-IFRS measures also include the calculation of metrics that are used throughout the banking industry. These non-IFRS measures are not measures within the scope of IFRS and are not a substitute for IFRS measures.
1. Go-forward group income excluding notable items
Go-forward group income excluding notable items is calculated as total income excluding Ulster Bank RoI total income and excluding notable items.
The exclusion of notable items aims to remove the impact of one-offs which may distort period-on-period comparisons.
| Nine months ended | Quarter ended | |||||
| 30 September | 30 September | 30 September | 30 June | 30 September | ||
| 2022 | 2021 | 2022 | 2022 | 2021 | ||
| £m | £m | £m | £m | £m | ||
| Continuing operations | ||||||
| Total income | 9,448 | 7,827 | 3,229 | 3,211 | 2,686 | |
| Less Ulster Bank RoI total income | 4 | (122) | 37 | (12) | (57) | |
| Go-forward group income | 9,452 | 7,705 | 3,266 | 3,199 | 2,629 | |
| Less notable items | (153) | (148) | 168 | (97) | (118) | |
| Go-forward group income excluding notable items | 9,299 | 7,557 | 3,434 | 3,102 | 2,511 | |
2. Go-forward group other operating expenses
Other operating expenses is calculated as total operating expenses less litigation and conduct costs. Other operating expenses of the Go-forward group excludes Ulster Bank RoI.
Our cost target for 2022 is based on this measure and we track progress against it.
| Nine months ended | Quarter ended | |||||
| 30 September | 30 September | 30 September | 30 June | 30 September | ||
| 2022 | 2021 | 2022 | 2022 | 2021 | ||
| £m | £m | £m | £m | £m | ||
| Continuing operations | ||||||
| Total operating expenses | 5,549 | 5,430 | 1,896 | 1,833 | 1,931 | |
| Less litigation and conduct costs | (294) | (276) | (125) | (67) | (294) | |
| Other operating expenses | 5,255 | 5,154 | 1,771 | 1,766 | 1,637 | |
| Less Ulster Bank RoI other operating expenses | (353) | (339) | (110) | (130) | (113) | |
| Go-forward group other operating expenses | 4,902 | 4,815 | 1,661 | 1,636 | 1,524 | |
3. Go-forward group profit before impairment releases/(losses)
Go-forward group profit before impairment releases/(losses) is calculated as total profit before impairment releases/(losses) less Ulster Bank RoI loss before impairment (losses)/releases.
| Nine months ended | Quarter ended | |||||
| 30 September | 30 September | 30 September | 30 June | 30 September | ||
| 2022 | 2021 | 2022 | 2022 | 2021 | ||
| £m | £m | £m | £m | £m | ||
| Continuing operations | ||||||
| Profit before impairment releases/(losses) | 3,899 | 2,397 | 1,333 | 1,378 | 755 | |
| Less Ulster Bank RoI loss before | ||||||
| impairment (losses)/releases | 372 | 229 | 151 | 129 | 55 | |
| Go-forward group profit before | ||||||
| impairment releases/(losses) | 4,271 | 2,626 | 1,484 | 1,507 | 810 | |
| NatWest Group – Form 6-K Q3 Results 2022 | 44 |
Non-IFRS financial measures continued
4. Operating expenses - management view
The management analysis of operating expenses shows litigation and conduct costs on a separate line. These amounts are included within staff costs and other administrative expenses in the statutory analysis. Other operating expenses excludes litigation and conduct costs, which are more volatile and may distort comparisons with prior periods.
Statutory analysis
| Nine months ended | Quarter ended | |||||
| 30 September | 30 September | 30 September | 30 June | 30 September | ||
| 2022 | 2021 | 2022 | 2022 | 2021 | ||
| Operating expenses | £m | £m | £m | £m | £m | |
| Staff costs | 2,687 | 2,761 | 879 | 907 | 881 | |
| Premises and equipment | 820 | 765 | 286 | 283 | 263 | |
| Other administrative expenses | 1,429 | 1,291 | 531 | 427 | 588 | |
| Depreciation and amortisation | 613 | 613 | 200 | 216 | 199 | |
| Total operating expenses | 5,549 | 5,430 | 1,896 | 1,833 | 1,931 | |
| NatWest Group – Form 6-K Q3 Results 2022 | 45 |
Non-IFRS financial measures continued
4. Operating expenses - management view continued
Non-statutory analysis
| Nine months ended | |||
| 30 September 2022 | |||
| Operating expenses | Litigation
and conduct costs £m |
Other operating expenses £m |
Statutory operating expenses £m |
| Continuing operations | |||
| Staff costs | 29 | 2,658 | 2,687 |
| Premises and equipment | - | 820 | 820 |
| Other administrative expenses | 265 | 1,164 | 1,429 |
| Depreciation and amortisation | - | 613 | 613 |
| Total | 294 | 5,255 | 5,549 |
| Nine months ended | |||
| 30 September 2021 | |||
| Operating expenses | Litigation
and conduct costs £m |
Other operating expenses £m |
Statutory operating expenses £m |
| Continuing operations | |||
| Staff costs | - | 2,761 | 2,761 |
| Premises and equipment | - | 765 | 765 |
| Other administrative expenses | 276 | 1,015 | 1,291 |
| Depreciation and amortisation | - | 613 | 613 |
| Total | 276 | 5,154 | 5,430 |
| Quarter ended | |||
| 30 September 2022 | |||
| Operating expenses | Litigation
and conduct costs £m |
Other operating expenses £m |
Statutory operating expenses £m |
| Continuing operations | |||
| Staff costs | 11 | 868 | 879 |
| Premises and equipment | - | 286 | 286 |
| Other administrative expenses | 114 | 417 | 531 |
| Depreciation and amortisation | - | 200 | 200 |
| Total | 125 | 1,771 | 1,896 |
| Quarter ended | |||
| 30 June 2022 | |||
| Operating expenses | Litigation
and conduct costs £m |
Other operating expenses £m |
Statutory operating expenses £m |
| Continuing operations | |||
| Staff costs | 11 | 896 | 907 |
| Premises and equipment | - | 283 | 283 |
| Other administrative expenses | 56 | 371 | 427 |
| Depreciation and amortisation | - | 216 | 216 |
| Total | 67 | 1,766 | 1,833 |
| Quarter ended | |||
| 30 September 2021 | |||
| Operating expenses | Litigation
and conduct costs £m |
Other operating expenses £m |
Statutory operating expenses £m |
| Continuing operations | |||
| Staff costs | - | 881 | 881 |
| Premises and equipment | - | 263 | 263 |
| Other administrative expenses | 294 | 294 | 588 |
| Depreciation and amortisation | - | 199 | 199 |
| Total | 294 | 1,637 | 1,931 |
| NatWest Group – Form 6-K Q3 Results 2022 | 46 |
Non-IFRS financial measures continued
5. Cost:income ratio
The cost:income ratio is calculated as total operating expenses less operating lease depreciation divided by total income less operating lease depreciation. The cost:income ratio of the Go-forward group excludes Ulster Bank RoI.
This is a common metric used to compare profitability across the banking industry.
| Go-forward group | |||||||
| Nine months ended 30 September 2022 | Retail Banking £m |
Private Banking £m |
Commercial
& Institutional £m |
Central
items and other £m |
Total
excluding Ulster Bank RoI £m |
Ulster Bank RoI £m |
Total NatWest Group £m |
| Continuing operations | |||||||
| Operating expenses | (1,935) | (424) | (2,713) | (109) | (5,181) | (368) | (5,549) |
| Operating lease depreciation | - | - | 94 | - | 94 | - | 94 |
| Adjusted operating expenses | (1,935) | (424) | (2,619) | (109) | (5,087) | (368) | (5,455) |
| Total income | 4,029 | 746 | 4,594 | 83 | 9,452 | (4) | 9,448 |
| Operating lease depreciation | - | - | (94) | - | (94) | - | (94) |
| Adjusted total income | 4,029 | 746 | 4,500 | 83 | 9,358 | (4) | 9,354 |
| Cost:income ratio | 48.0% | 56.8% | 58.2% | nm | 54.4% | nm | 58.3% |
| Nine months ended 30 September 2021 | |||||||
| Continuing operations | |||||||
| Operating expenses | (1,739) | (365) | (2,698) | (277) | (5,079) | (351) | (5,430) |
| Operating lease depreciation | - | - | 106 | - | 106 | - | 106 |
| Adjusted operating expenses | (1,739) | (365) | (2,592) | (277) | (4,973) | (351) | (5,324) |
| Total income | 3,281 | 563 | 3,670 | 191 | 7,705 | 122 | 7,827 |
| Operating lease depreciation | - | - | (106) | - | (106) | - | (106) |
| Adjusted total income | 3,281 | 563 | 3,564 | 191 | 7,599 | 122 | 7,721 |
| Cost:income ratio | 53.0% | 64.8% | 72.7% | nm | 65.4% | nm | 69.0% |
Quarter ended 30 September 2022
| Continuing operations | |||||||
| Operating expenses | (693) | (139) | (893) | (57) | (1,782) | (114) | (1,896) |
| Operating lease depreciation | - | - | 30 | - | 30 | - | 30 |
| Adjusted operating expenses | (693) | (139) | (863) | (57) | (1,752) | (114) | (1,866) |
| Total income | 1,475 | 285 | 1,657 | (151) | 3,266 | (37) | 3,229 |
| Operating lease depreciation | - | - | (30) | - | (30) | - | (30) |
| Adjusted total income | 1,475 | 285 | 1,627 | (151) | 3,236 | (37) | 3,199 |
| Cost:income ratio | 47.0% | 48.8% | 53.0% | nm | 54.1% | nm | 58.3% |
| Quarter ended 30 June 2022 | |||||||
| Continuing operations | |||||||
| Operating expenses | (597) | (146) | (898) | (51) | (1,692) | (141) | (1,833) |
| Operating lease depreciation | - | - | 32 | - | 32 | - | 32 |
| Adjusted operating expenses | (597) | (146) | (866) | (51) | (1,660) | (141) | (1,801) |
| Total income | 1,337 | 245 | 1,562 | 55 | 3,199 | 12 | 3,211 |
| Operating lease depreciation | - | - | (32) | - | (32) | - | (32) |
| Adjusted total income | 1,337 | 245 | 1,530 | 55 | 3,167 | 12 | 3,179 |
| Cost:income ratio | 44.7% | 59.6% | 56.6% | nm | 52.4% | nm | 56.7% |
| Quarter ended 30 September 2021 | |||||||
| Continuing operations | |||||||
| Operating expenses | (552) | (116) | (874) | (277) | (1,819) | (112) | (1,931) |
| Operating lease depreciation | - | - | 36 | - | 36 | - | 36 |
| Adjusted operating expenses | (552) | (116) | (838) | (277) | (1,783) | (112) | (1,895) |
| Total income | 1,131 | 195 | 1,196 | 107 | 2,629 | 57 | 2,686 |
| Operating lease depreciation | - | - | (36) | - | (36) | - | (36) |
| Adjusted total income | 1,131 | 195 | 1,160 | 107 | 2,593 | 57 | 2,650 |
| Cost:income ratio | 48.8% | 59.5% | 72.2% | nm | 68.8% | nm | 71.5% |
| NatWest Group – Form 6-K Q3 Results 2022 | 47 |
Non-IFRS financial measures continued
6. NatWest Group return on tangible equity
Return on tangible equity comprises annualised profit or loss for the period attributable to ordinary shareholders divided by average tangible equity. Average tangible equity is average total equity excluding average non-controlling interests, average other owners equity and average intangible assets.
Go-forward group return on tangible equity is calculated as annualised profit for the period less Ulster Bank RoI divided by Go-forward group total tangible equity. Go forward RWAe applying factor is the Go-forward group average RWAe as a percentage of total NatWest Group average RWAe.
This measure shows the return NatWest Group generates on tangible equity deployed. It is used to determine relative performance of banks and used widely across the sector, although different banks may calculate the rate differently.
| Nine months ended | Quarter ended or as at | |||||
| NatWest Group return on tangible equity | 30
September 2022 £m |
30
September 2021 £m |
30
September 2022 £m |
30
June 2022 £m |
30
September 2021 £m | |
| Profit attributable to ordinary shareholders | 2,078 | 2,516 | 187 | 1,050 | 674 | |
| Annualised profit attributable to ordinary shareholders | 2,771 | 3,355 | 748 | 4,200 | 2,696 | |
| Average total equity | 38,821 | 42,978 | 36,956 | 38,625 | 42,507 | |
| Adjustment for other owners’ equity and intangibles | (11,099) | (11,525) | (11,200) | (10,944) | (10,881) | |
| Adjusted total tangible equity | 27,722 | 31,453 | 25,756 | 27,681 | 31,626 | |
| Return on tangible equity | 10.0% | 10.7% | 2.9% | 15.2% | 8.5% | |
| Go-forward group return on tangible equity | ||||||
| Profit attributable to ordinary shareholders | 2,078 | 2,516 | 187 | 1,050 | 674 | |
| Less Ulster Bank RoI loss from continuing operations, net of tax | 369 | 278 | 157 | 149 | 60 | |
| Less profit from discontinued operations | 206 | (275) | 396 | (127) | (98) | |
| Go-forward group profit attributable to ordinary shareholders | 2,653 | 2,519 | 740 | 1,072 | 636 | |
| Annualised go-forward group profit attributable to ordinary shareholders | 3,537 | 3,359 | 2,960 | 4,288 | 2,544 | |
| Average total equity | 38,821 | 42,978 | 36,956 | 38,625 | 42,507 | |
| Adjustment for other owners’ equity and intangibles | (11,099) | (11,525) | (11,200) | (10,944) | (10,881) | |
| Adjusted total tangible equity | 27,722 | 31,453 | 25,756 | 27,681 | 31,626 | |
| Go-forward group RWAe applying factor | 95% | 94% | 95% | 94% | 94% | |
| Go-forward group total tangible equity | 26,197 | 29,566 | 24,468 | 26,020 | 29,728 | |
| Go-forward group return on tangible equity | 13.5% | 11.4% | 12.1% | 16.5% | 8.6% | |
| NatWest Group – Form 6-K Q3 Results 2022 | 48 |
Non-IFRS financial measures continued
7. Segmental return on equity
Segmental return on equity comprises segmental operating profit or loss, adjusted for preference share dividends and tax, divided by average notional tangible equity. Average RWAe is defined as average segmental RWAs incorporating the effect of capital deductions. This is multiplied by an allocated equity factor for each segment to calculate the average notional tangible equity.
This measure shows the return generated by operating segments on equity deployed.
| Nine months ended 30 September 2022 | Retail Banking |
Private Banking |
Commercial
& Institutional |
| Operating profit (£m) | 1,952 | 326 | 1,821 |
| Paid-in equity cost allocation (£m) | (60) | (9) | (141) |
| Adjustment for tax (£m) | (530) | (89) | (420) |
| Adjusted attributable profit (£m) | 1,362 | 228 | 1,260 |
| Annualised adjusted attributable profit (£m) | 1,816 | 304 | 1,680 |
| Average RWAe (£bn) | 52.7 | 11.3 | 102.9 |
| Equity factor (%) | 13.0% | 11.0% | 14.0% |
| Average notional equity (£bn) | 6.8 | 1.2 | 14.4 |
| Return on equity (%) | 26.5% | 24.5% | 11.7% |
| Nine months ended 30 September 2021 | |||
| Operating profit (£m) | 1,583 | 240 | 1,815 |
| Preference share and paid-in equity cost allocation (£m) | (60) | (15) | (177) |
| Adjustment for tax (£m) | (426) | (63) | (410) |
| Adjusted attributable profit (£m) | 1,097 | 162 | 1,229 |
| Annualised adjusted attributable profit (£m) | 1,463 | 216 | 1,639 |
| Average RWAe (£bn) | 35.7 | 11.1 | 107.0 |
| Equity factor (%) | 14.5% | 12.5% | 13.0% |
| Average notional equity (£bn) | 5.2 | 1.4 | 13.9 |
| Return on equity (%) | 28.3% | 15.5% | 11.8% |
| Quarter ended 30 September 2022 | |||
| Operating profit (£m) | 666 | 139 | 645 |
| Paid-in equity cost allocation (£m) | (20) | (3) | (48) |
| Adjustment for tax (£m) | (181) | (38) | (149) |
| Adjusted attributable profit (£m) | 465 | 98 | 448 |
| Annualised adjusted attributable profit (£m) | 1,860 | 392 | 1,792 |
| Average RWAe (£bn) | 53.0 | 11.2 | 105.0 |
| Equity factor (%) | 13.0% | 11.0% | 14.0% |
| Average notional equity (£bn) | 6.9 | 1.2 | 14.7 |
| Return on equity (%) | 27.0% | 31.8% | 12.2% |
| Quarter ended 30 June 2022 | |||
| Operating profit (£m) | 719 | 105 | 712 |
| Paid-in equity cost allocation (£m) | (20) | (3) | (47) |
| Adjustment for tax (£m) | (196) | (29) | (166) |
| Adjusted attributable profit (£m) | 503 | 73 | 499 |
| Annualised adjusted attributable profit (£m) | 2,012 | 294 | 1,996 |
| Average RWAe (£bn) | 52.4 | 11.3 | 101.0 |
| Equity factor (%) | 13.0% | 11.0% | 14.0% |
| Average notional equity (£bn) | 6.8 | 1.2 | 14.1 |
| Return on equity (%) | 29.5% | 23.5% | 14.0% |
| Quarter ended 30 September 2021 | |||
| Operating profit (£m) | 563 | 94 | 552 |
| Preference share and paid-in equity cost allocation (£m) | (20) | (5) | (59) |
| Adjustment for tax (£m) | (152) | (25) | (123) |
| Adjusted attributable profit (£m) | 391 | 64 | 370 |
| Annualised adjusted attributable profit (£m) | 1,564 | 256 | 1,480 |
| Average RWAe (£bn) | 36.1 | 11.3 | 103.4 |
| Equity factor (%) | 14.5% | 12.5% | 13.0% |
| Average notional equity (£bn) | 5.2 | 1.4 | 13.4 |
| Return on equity (%) | 29.9% | 18.1% | 11.0% |
| NatWest Group – Form 6-K Q3 Results 2022 | 49 |
Non-IFRS financial measures continued
8. Bank net interest margin
Bank net interest margin is defined as annualised net interest income of the Go-forward group, as a percentage of bank average interest-earning assets. Bank average interest earning assets are the average interest earning assets of the banking business of the Go-forward group excluding liquid asset buffer.
Liquid asset buffer consists of assets held by NatWest Group, such as cash and balances at central banks and debt securities in issue, that can be used to ensure repayment of financial obligations as they fall due. The exclusion of liquid asset buffer has been introduced as a way to present net interest margin on a basis more comparable with UK peers and exclude the impact of regulatory driven factors.
| Nine months ended | Quarter ended | |||||
| 30 September | 30 September | 30 September | 30 June | 30 September | ||
| 2022 | 2021 | 2022 | 2022 | 2021 | ||
| Go-forward group | £m | £m | £m | £m | £m | |
| Continuing operations | ||||||
| NatWest Group net interest income | 6,974 | 5,613 | 2,640 | 2,307 | 1,869 | |
| Less Ulster Bank RoI net interest income | (12) | (18) | (6) | (2) | (3) | |
| Bank net interest income | 6,962 | 5,595 | 2,634 | 2,305 | 1,866 | |
| Annualised NatWest Group net interest income | 9,324 | 7,505 | 10,474 | 9,253 | 7,415 | |
| Annualised Bank net interest income | 9,308 | 7,480 | 10,450 | 9,245 | 7,403 | |
| Average interest earning assets (IEA) | 546,918 | 509,757 | 548,008 | 548,371 | 522,032 | |
| Less Ulster Bank RoI average IEA | (1,436) | (2,128) | (771) | (1,544) | (1,958) | |
| Less liquid asset buffer average IEA | (204,224) | (184,548) | (197,304) | (206,843) | (194,713) | |
| Bank average IEA | 341,259 | 323,081 | 349,933 | 339,984 | 325,361 | |
| Bank net interest margin | 2.73% | 2.32% | 2.99% | 2.72% | 2.28% | |
| Nine months ended | Quarter ended | |||||
| 30 September | 30 September | 30 September | 30 June | 30 September | ||
| 2022 | 2021 | 2022 | 2022 | 2021 | ||
| Retail Banking | £m | £m | £m | £m | £m | |
| Net interest income | 3,719 | 3,017 | 1,379 | 1,228 | 1,041 | |
| Annualised net interest income | 4,972 | 4,034 | 5,471 | 4,925 | 4,130 | |
| Retail Banking average IEA | 188,604 | 177,644 | 192,129 | 188,081 | 180,234 | |
| Less liquid asset buffer average IEA | - | - | - | - | - | |
| Adjusted Retail Banking average IEA | 188,604 | 177,644 | 192,129 | 188,081 | 180,234 | |
| Retail Banking net interest margin | 2.64% | 2.27% | 2.85% | 2.62% | 2.29% | |
| Private Banking | ||||||
| Net interest income | 526 | 354 | 211 | 172 | 122 | |
| Annualised net interest income | 703 | 473 | 837 | 690 | 484 | |
| Private Banking average IEA | 19,056 | 18,125 | 19,154 | 19,144 | 18,595 | |
| Less liquid asset buffer average IEA | - | - | - | - | - | |
| Adjusted Private Banking average IEA | 19,056 | 18,125 | 19,154 | 19,144 | 18,595 | |
| Private Banking net interest margin | 3.69% | 2.61% | 4.37% | 3.60% | 2.60% | |
| Commercial & Institutional | ||||||
| Net interest income | 2,895 | 2,210 | 1,131 | 961 | 723 | |
| Annualised adjusted net interest income | 3,871 | 2,955 | 4,487 | 3,855 | 2,868 | |
| Commercial & Institutional average IEA | 168,707 | 163,297 | 173,043 | 168,498 | 163,194 | |
| Less liquid asset buffer average IEA | (43,285) | (42,147) | (43,238) | (43,558) | (43,317) | |
| Adjusted Commercial & Institutional average IEA | 125,422 | 121,150 | 129,805 | 124,940 | 119,877 | |
| Commercial & Institutional net interest margin | 3.09% | 2.44% | 3.46% | 3.09% | 2.39% | |
| NatWest Group – Form 6-K Q3 Results 2022 | 50 |
Non-IFRS financial measures continued
9. Tangible net asset value (TNAV) per ordinary share
TNAV per ordinary share is calculated as tangible equity divided by the number of ordinary shares in issue.
This is a measure used by external analysts in valuing the bank and allows for comparison with other per ordinary share metrics including the share price.
| As at | |||
| 30 September | 30 June | 31 December | |
| 2022 | 2022 (1) | 2021 (1) | |
| Ordinary shareholders’ interests (£m) | 31,054 | 34,727 | 37,412 |
| Less intangible assets (£m) | (6,961) | (6,869) | (6,723) |
| Tangible equity (£m) | 24,093 | 27,858 | 30,689 |
| Ordinary shares in issue (millions) | 9,650 | 10,436 | 11,272 |
| TNAV per ordinary share (pence) | 250p | 267p | 272p |
| (1) | At the General Meeting and Class Meeting on 25 August, the shareholders approved the proposed special dividend and share consolidation. On 30 August the issued ordinary share capital was consolidated in the ratio of 14 existing shares for 13 new shares. Comparatives for the number of shares in issue and TNAV per ordinary share have not been adjusted. |
10. Go-forward group net lending
NatWest Group net lending is calculated as total loans to customers less loan impairment provisions. Go-forward group net lending is calculated as net loans to customers less Ulster Bank RoI net loans to customers.
| As at | |||
| 30 September | 30 June | 31 December | |
| 2022 | 2022 | 2021 | |
| £bn | £bn | £bn | |
| Total loans to customers (amortised cost) | 375.1 | 366.0 | 362.8 |
| Less loan impairment provisions | (3.3) | (3.4) | (3.8) |
| Net loans to customers (amortised cost) | 371.8 | 362.6 | 359.0 |
| Less Ulster Bank RoI net loans to customers (amortised cost) | (0.3) | (1.0) | (6.7) |
| Go-forward group net lending | 371.5 | 361.6 | 352.3 |
11. Go-forward group customer deposits
Go-forward group customer deposits is calculated as total customer deposits less Ulster Bank RoI customer deposits.
| As at | |||
| 30 September | 30 June | 31 December | |
| 2022 | 2022 | 2021 | |
| £bn | £bn | £bn | |
| Total customer deposits | 473.0 | 492.1 | 479.8 |
| Less Ulster Bank RoI customer deposits | (11.3) | (15.9) | (18.4) |
| Go-forward group customer deposits | 461.7 | 476.2 | 461.4 |
| NatWest Group – Form 6-K Q3 Results 2022 | 51 |
Performance metrics not defined under IFRS
Metrics based on GAAP measures, included as not defined under IFRS and reported for compliance with the European Securities and Markets Authority (ESMA) adjusted performance measure rules.
1. Loan:deposit ratio
Loan:deposit ratio is calculated as net customer loans held at amortised cost excluding reverse repos divided by total customer deposits excluding repos.
This is a common metric used to assess liquidity. The removal of repos and reverse repos reduces volatility and presents the ratio on a basis that is comparable to UK peers.
| As at | |||
| 30 September | 30 June | 31 December | |
| 2022 | 2022 | 2021 (1) | |
| £m | £m | £m | |
| Loans to customers - amortised cost | 371,812 | 362,551 | 358,990 |
| Less reverse repos | (27,613) | (25,084) | (25,962) |
| 344,199 | 337,467 | 333,028 | |
| Customer deposits | 473,026 | 492,075 | 479,810 |
| Less repos | (11,855) | (19,195) | (14,541) |
| 461,171 | 472,880 | 465,269 | |
| Loan:deposit ratio (%) | 75% | 71% | 72% |
| (1) | Re-presented. |
2. Loan impairment rate
Loan impairment rate is the annualised loan impairment charge divided by gross customer loans.
3. Funded assets
Funded assets are calculated as total assets less derivative assets.
This measure allows review of balance sheet trends exclusive of the volatility associated with derivative fair values.
4. AUMAs
AUMA comprises both assets under management (AUMs) and assets under administration (AUAs) serviced through the Private Banking franchise. AUMs comprise assets where the investment management is undertaken by Private Banking on behalf of Private Banking, Retail Banking and Commercial & Institutional customers. AUAs comprise third party assets held on an execution-only basis in custody by Private Banking, Retail Banking and Commercial & Institutional for their customers, for which the execution services are supported by Private Banking. Private Banking receives a fee for providing investment management and execution services to Retail Banking and Commercial & Institutional franchises.
Private Banking is the centre of expertise for asset management across NatWest Group servicing all client segments across Retail Banking, Private Banking and Commercial & Institutional.
5. Net new money
Net new money refers to client cash inflows and outflows relating to investment products (this can include transfers from savings accounts). Net new money excludes the impact of EEA resident client outflows following the UK’s exit from the EU.
Net new money is reported and tracked to monitor the business performance of new business inflows and management of existing client withdrawals across Retail Banking, Private Banking and Commercial & Institutional.
6. Wholesale funding
Wholesale funding comprises deposits by banks (excluding repos), debt securities in issue and subordinated liabilities.
Funding risk is the risk of not maintaining a diversified, stable and cost-effective funding base. The disclosure of wholesale funding highlights the extent of our diversification and how we mitigate funding risk.
7. Third party rates
Third party customer asset rate is calculated as annualised interest receivable on third-party loans to customers as a percentage of third-party loans to customers. This excludes assets of disposal groups, intragroup items, loans to banks and liquid asset portfolios.
Third party customer funding rate reflects interest payable or receivable on third-party customer deposits, including interest bearing and non-interest bearing customer deposits. Intragroup items, bank deposits, debt securities in issue and subordinated liabilities are excluded for customer funding rate calculation.
Legal Entity Identifier: 2138005O9XJIJN4JPN90
| NatWest Group – Form 6-K Q3 Results 2022 | 52 |
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
28 October 2022
| NatWest Group – Form 6-K Q3 Results 2022 | 53 |