Report of Foreign Private Issuer

 

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

 

29 April 2021

 

Commission file number: 001-10306

 

 

Form 6-K

 

NatWest Group plc

 

 

Gogarburn

PO Box 1000

Edinburgh EH12 1HQ

Scotland

United Kingdom

 

(Address of principal executive offices)

 

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F                                              Form 40-F    

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):__

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):__

 

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes                                                                 No  X 

 

If "Yes" is marked, indicate below the file number assigned to

the registrant in connection with Rule 12g3-2(b): 82-            

 

This report on Form 6-K, except for any information contained on any websites linked or documents referred to in this report, shall be deemed incorporated by reference into the company’s Registration Statement on Form F-3 (File No. 333-251220) and to be a part thereof from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished.


Forward-looking statements

 

Cautionary statement regarding forward-looking statements

Certain sections in this document contain ‘forward-looking statements’ as that term is defined in the United States Private Securities Litigation Reform Act of 1995, such as statements that include the words ‘expect’, ‘estimate’, ‘project’, ‘anticipate’, ‘commit’, ‘believe’, ‘should’, ‘intend’, ‘will’, ‘plan’, ‘could’, ‘probability’, ‘risk’, ‘Value-at-Risk (VaR)’, ‘target’, ‘goal’, ‘objective’, ‘may’, ‘endeavour’, ‘outlook’, ‘optimistic’, ‘prospects’ and similar expressions or variations on these expressions. In particular, this document includes forward-looking statements relating, but not limited to: the COVID-19 pandemic and its impact on NatWest Group; future profitability and performance, including financial performance targets (such as RoTE) and discretionary capital distribution targets; ESG and climate-related targets, including in relation to sustainable financing and financed emissions; planned cost savings; implementation of NatWest Group’s Purpose-led strategy, including in relation to the refocusing of its NWM franchise and the digitalisation of its operations and services; the timing and outcome of litigation and government and regulatory investigations; the implementation of the Alternative Remedies Package; balance sheet reduction, including the reduction of RWAs; capital, liquidity and leverage ratios and requirements, including CET1 Ratio, RWAes, Pillar 2 and other regulatory buffer requirements and MREL; funding plans and credit risk profile; capitalisation; portfolios; net interest margin; customer loan and income growth and market share; impairments and write-downs, including with respect to goodwill; restructuring and remediation costs and charges; NatWest Group’s exposure to political risk, economic risk, climate, environmental and sustainability risk, operational risk, conduct risk, cyber and IT risk and credit rating risk and to various types of market risk, including interest rate risk, foreign exchange rate risk and commodity and equity price risk; customer experience, including our Net Promotor Score (NPS); employee engagement and gender balance in leadership positions.

 

Limitations inherent to forward-looking statements

These statements are based on current plans, expectations, estimates, targets and projections, and are subject to significant inherent risks, uncertainties and other factors, both external and relating to NatWest Group’s strategy or operations, which may result in NatWest Group being unable to achieve the current plans, expectations, estimates, targets, projections and other anticipated outcomes expressed or implied by such forward-looking statements. In addition, certain of these disclosures are dependent on choices relying on key model characteristics and assumptions and are subject to various limitations, including assumptions and estimates made by management. By their nature, certain of these disclosures are only estimates and, as a result, actual future results, gains or losses could differ materially from those that have been estimated. Accordingly, undue reliance should not be placed on these statements. The forward-looking statements contained in this document speak only as of the date we make them and we expressly disclaim any obligation or undertaking to update or revise any forward-looking statements contained herein, whether to reflect any change in our expectations with regard thereto, any change in events, conditions or circumstances on which any such statement is based, or otherwise, except to the extent legally required.

 

Important factors that could affect the actual outcome of the forward-looking statements

We caution you that a large number of important factors could adversely affect our results or our ability to implement our strategy, cause us to fail to meet our targets, predictions, expectations and other anticipated outcomes or affect the accuracy of forward-looking statements described in this document. These factors include, but are not limited to, those set forth in the risk factors and the other uncertainties described in NatWest Group plc’s Annual Report on Form 20-F and its other filings with the US Securities and Exchange Commission. The principal risks and uncertainties that could adversely NatWest Group’s future results, its financial condition and prospects and cause them to be materially different from what is forecast or expected, include, but are not limited to: risks relating to the COVID-19 pandemic (including in respect of: the effects on the global economy and financial markets, and NatWest Group’s customers; increased counterparty risk; NatWest Group’s ability to meet its targets and strategic objectives; increased operational and control risks; increased funding risk; future impairments and write-downs); economic and political risk (including in respect of: uncertainty regarding the effects of Brexit; increased political and economic risks and uncertainty in the UK and global markets; changes in interest rates and foreign currency exchange rates; and HM Treasury’s ownership of NatWest Group plc); strategic risk (including in respect of the implementation of NatWest Group’s Purpose-led Strategy, including the re-focusing of the NWM franchise and NatWest Group’s ability to achieve its targets); financial resilience risk (including in respect of: NatWest Group’s ability to meet targets and to resume discretionary capital distributions; the competitive environment; counterparty risk; prudential regulatory requirements for capital and MREL; funding risk; changes in the credit ratings; the adequacy of NatWest Group’s resolution plans; the requirements of regulatory stress tests; model risk; sensitivity to accounting policies, judgments, assumptions and estimates; changes in applicable accounting standards; the value or effectiveness of credit protection; and the application of UK statutory stabilisation or resolution powers); climate and sustainability risk (including in respect of: risks relating to climate change and the transitioning to a low carbon economy; the implementation of NatWest Group’s climate change strategy and climate change resilient systems, controls and procedures; increased model risk; the failure to adapt to emerging climate, environmental and sustainability risks and opportunities; changes in ESG ratings; increasing levels of climate, environmental and sustainability related regulation and oversight; and climate, environmental and sustainability related litigation, enforcement proceedings and investigations); operational and IT resilience risk (including in respect of: operational risks (including reliance on third party suppliers); cyberattacks; the accuracy and effective use of data; complex IT systems (including those that enable remote working); attracting, retaining and developing senior management and skilled personnel; NatWest Group’s risk management framework; and reputational risk); and legal, regulatory and conduct risk (including in respect of: the impact of substantial regulation and oversight; compliance with regulatory requirements; the outcome of legal, regulatory and governmental actions and investigations; the replacement of LIBOR, EURIBOR and other IBOR rates; heightened regulatory and governmental scrutiny (including by competition authorities); implementation of the Alternative Remedies Package; and changes in tax legislation or failure to generate future taxable profits).

 

The information, statements and opinions contained in this document do not constitute a public offer under any applicable legislation or an offer to sell or a solicitation of an offer to buy any securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments

 

 


 

NatWest Group – Form 6-K Q1 Results 2021                                 1

 

 

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 ‘UBI DAC’ refers to Ulster Bank Ireland DAC. The term ‘RBSI Limited’ refers to The Royal Bank of Scotland International Limited.

 

NatWest Group publishes its financial statements in pounds sterling (‘£’ or ‘sterling’). The abbreviations ‘£m’ and ‘£bn’ represent millions and thousands of millions of pounds sterling, respectively, and references to ‘pence’ represent pence in the United Kingdom (‘UK’). Reference to ‘dollars’ or ‘$’ are to United States of America (‘US’) dollars. The abbreviations ‘$m’ and ‘$bn’ represent millions and thousands of millions of dollars, respectively, and references to ‘cents’ represent cents in the US. The abbreviation ‘€’ represents the ‘euro’, and the abbreviations ‘€m’ and ‘€bn’ represent millions and thousands of millions of euros, respectively, and references to ‘cents’ represent cents in the European Union (‘EU’).

 

To aid readability, this document retains references to EU legislative and regulatory provisions in effect in the UK before 1 January 2021 that have now been implemented in UK domestic law. These references should be read and construed as including references to the applicable UK implementation measures with effect from 1 January 2021.

 

Non-IFRS financial information

As described in the Accounting policies on page 32, 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. These measures include:

 

Non-IFRS financial measures


Measure

Basis of preparation

Additional analysis or reconciliation

NatWest Group return on tangible equity

Annualised profit or loss for the period attributable to ordinary shareholders divided by average tangible equity. Average tangible equity is average total equity excluding non-controlling interests (NCI) less average intangible assets and average other owners’ equity.

Table 1

Segmental return on equity

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

Table 1

Operating expenses analysis – management view

The management analysis of operating expenses shows strategic costs and litigation and conduct costs in separate lines. Depreciation and amortisation, impairment of other intangibles and other administrative expenses attributable to these costs are included in strategic costs and litigation and conduct costs lines for management analysis. These amounts are included in staff, premises and equipment and other administrative expenses in the statutory analysis.

Table 2

Cost:income ratio

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

Table 3

Commentary – adjusted periodically for specific items

NatWest Group and segmental business performance commentary have been adjusted for the impact of specific items such as notable items, operating lease depreciation, strategic costs and litigation and conduct costs.

Notable items - page 8, Operating lease depreciation, Strategic costs and litigation and conduct costs - pages 15 to 17

Net lending in the retail and commercial business

Comprises customer loans in the Retail Banking, Commercial Banking, Private Banking and RBS International operating segments, excluding UK Government support schemes.

Pages 4 and 7

Bank net interest margin (NIM)

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

Table 4

 


 

NatWest Group – Form 6-K Q1 Results 2021                                 2

 

Performance metrics based on but not defined under IFRS


Measure

Basis of preparation

Additional analysis or reconciliation

Loan:deposit ratio

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

Table 5

Tangible net asset value (TNAV)

Tangible equity divided by the number of ordinary shares in issue (excluding own shares held). Tangible equity is ordinary shareholders’ equity less intangible assets.

Page6

NIM

Net interest income as a percentage of average interest-earning assets.

Page6

Funded assets

Total assets less derivatives.

Pages15 to 17

ECL loss rate

The annualised loan impairment charge divided by gross customer loans.

Pages15 to 17

Third party customer asset rate

Third party customer asset rate is calculated as annualised interest receivable on third-party loans to customers as a percentage of third-party loans to customers only. This excludes intragroup items, loans to banks and liquid asset portfolios, which are included for the calculation of net interest margin.

Pages15 to 17

Third party customer funding rate

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

Pages15 to 17

Assets under management and administration (AUMA)

Total AUMA comprises both assets under management (AUMs) and assets under administration (AUAs) managed within the Private Banking franchise. AUMs comprise assets under management, assets under custody and investment cash relating to Private Banking customers. AUAs are managed by Private Banking on behalf of Retail Banking and RBSI and a management fee is received in respect of providing this service.

 

Page 10

 

 

 



 

 

NatWest Group – Form 6-K Q1 Results 2021                                 3


NatWest Group plc

Q1 2021 Interim Management Statement

 

Alison Rose, Chief Executive Officer, commented:

 

“NatWest Group’s profit in the first quarter of 2021 is a result of a good operating performance in our core franchises as well as modest impairment releases that reflect the better than expected performance of our loan book across the first three months of the year.

 

We continue to make progress against our strategic targets; growing in key areas, simplifying the bank and accelerating our digital transformation to meet the rapidly evolving needs of our customers. We are also pleased that we were able to use some of our excess capital to buy back shares from the UK Government.

 

Defaults remain low as a result of the UK Government support schemes and there are reasons for optimism with the vaccine programmes progressing at pace and restrictions being eased. However, there is continuing uncertainty for our economy and for many of our customers as a result of COVID-19. Our capital strength and well-diversified balance sheet means NatWest Group is well positioned to help people, families and businesses to rebuild and thrive.

 

We are building a relationship bank for a digital world. A bank that champions potential and plays a positive role in society in order to build long-term value and drive sustainable returns for our shareholders.”

 

Good financial performance in a challenging environment with better than expected performance of the loan portfolio

Q1 2021 operating profit before tax of £946 million and an attributable profit of £620 million.

Total income decreased by £503 million, or 15.9%, compared with Q1 2020. Income across the UK and RBSI retail and commercial businesses, excluding notable items, decreased by £203 million, or 8.0%, compared with Q1 2020 reflecting the lower yield curve, subdued transactional business activity and lower consumer spending, partially offset by balance sheet growth. 

Net interest margin of 1.53% was 1 basis point lower than Q4 2020. Bank net interest margin (NIM) of 1.64% was 2 basis points lower than Q4 2020 principally reflecting lower structural hedge income, 3 basis points, partly offset by mortgage margin improvement, 1 basis point.

Total operating expenses were £26 million, or 1.4%, lower than Q1 2020. Other expenses, excluding operating lease depreciation (OLD) and Ulster Bank RoI direct costs, were £72 million, or 4.5%, lower than Q1 2020.

A net impairment release of £102 million in Q1 2021 reflects releases in non-default portfolios, principally in Commercial Banking.

 

Robust balance sheet with strong capital and liquidity levels

 

CET1 ratio of 18.2% was 30 basis points lower than Q4 2020, reflecting the directed buy back, associated pension contribution, and foreseeable dividend accrual partially offset by the reduction in RWAs and the attributable profit for the period.  

The liquidity coverage ratio (LCR) of 158%, representing £64.9 billion above 100%, decreased by 7 percentage points compared with Q4 2020, following a repayment of the Term Funding Scheme with additional incentives for SMEs (TFSME).

Net lending decreased by £1.8 billion to £358.7 billion in comparison to Q4 2020. Across the UK and RBSI retail and commercial businesses, net lending excluding UK Government support schemes, increased by £2.2 billion, or 3.0% on an annualised basis, including £3.4 billion related to mortgages. Retail Banking gross new mortgage lending was £9.6 billion in the quarter.

Customer deposits increased by £21.6 billion compared with Q4 2020 to £453.3 billon. Across the UK and RBSI retail and commercial businesses customer deposits increased by £12.1 billion, or 3.0%, as customers sought to retain liquidity and reduced spending. Treasury repo activity drove a further £10.9 billion increase in the quarter.

RWAs decreased by £5.6 billion compared with Q4 2020 mainly reflecting reductions in Retail Banking and Commercial Banking.

 

Outlook(1)

We retain the outlook guidance provided in the 2020 Annual Report on Form 20-F document.

 

Note

(1)

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” section on pages 347 to 366 of the 2020 Annual Report on Form 20-F. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement

 


 

NatWest Group – Form 6-K Q1 Results 2021                                 4

 

Our purpose in action

We champion potential, helping people, families and businesses to thrive. By working to benefit our customers, colleagues and communities, we will deliver long-term value and drive sustainable returns to our shareholders. Some key achievements in Q1 2021 include:

 

People and families

NatWest Group is participating in the new mortgage guarantee scheme, which provides a UK Government guarantee to lenders on mortgages with just a 5% deposit and will help many customers for whom home ownership has felt far out of reach.

As part of our Digital Regular Saver, launched in 2020, we recently announced a £10,000 prize draw that will provide further incentive to our customers to start and continue saving, helping them build financial security.

Our Personal Portfolio Funds – available through NatWest Invest, Royal Bank Invest and Coutts Invest – support customers to invest in their futures. Less than five years since their launch, Assets under Management have exceeded £1 billion, with 30% growth in Q1 2021.

We teamed up with the creators of 'No Really, I'm Fine' – a mental health podcast – to bring listeners the 'Mind Over Money' podcast tackling the issue of financial wellbeing, with practical tips to avoid scams, manage spending habits and deal with a financial crisis.

 

Businesses

In response to our SME Recovery Report, NatWest Group announced a £6 billion funding commitment to support SMEs to scale and grow, with £4 billion allocated outside London. We also formed new strategic partnerships with Business in The Community (BITC), Hatch and Digital Boost, to empower underrepresented entrepreneurs and communities to embed new skills and technology.

Commercial Banking is playing a key role in helping customers recover and grow, through Pay As You Grow for existing Bounce Back Loans and supporting access to finance through the new Recovery Loan Scheme.

Coutts has partnered with the Business Growth Fund to develop the UK Enterprise Fund. This fund will co-invest equity growth capital, taking minority stakes in businesses looking to scale in the UK, with a focus on investing in female and diverse entrepreneurs.

NatWest Group has joined forces with Microsoft to help UK businesses better understand their carbon footprint and create tailored action plans to reduce their carbon emissions, leveraging digital technologies.

 

Colleagues

In our sixth year as headline sponsor of National Careers Week, we announced the creation of 240 social mobility apprenticeships across contact centre, digital, technology and innovation skills. The new roles will support young people facing barriers in their early career, giving them the tools and support they need to succeed.

In response to the pandemic’s significant impact on young people, in partnership with the Bank Workers Charity, we have launched a free online counselling and wellbeing support service – Kooth for the dependants of current and former colleagues in the UK, aged 11-18 years old.

In Q1 2021, we launched the Chartered Banker Institute Enterprise Membership to our colleagues, providing access to award winning professional content, toolkits and development material, one of the many ways we are supporting our colleagues to be the best they can be.

 

Communities

 

One of our Edinburgh offices has been transformed into a mass vaccination centre, at no cost to the NHS. The centre is running 12 hours a day, seven days a week and is currently capable of providing 480 appointments every day. 

In Q1 2021, NatWest Group issued a €1 billion affordable housing social bond, the first of its kind by a UK bank. The proceeds will support lending to not-for-profit, UK housing associations as part of our commitment to provide £3 billion of funding to the UK’s affordable housing sector by the end of 2022.

NatWest Group launched an innovative offering with Octopus Energy to help people and businesses switch to electric vehicles. It provides tailored advice, charging infrastructure funding solutions and access to some of the latest renewable technologies.

NatWest Group was recently announced as a corporate patron of the National Emergencies Trust (NET).  Alongside the NET’s other patrons, we’ll play an active role in shaping the response to future emergencies, having helped to raise £10 million for the NET Coronavirus Appeal in 2020.

 


 

 

NatWest Group – Form 6-K Q1 Results 2021                                 5


Business performance summary

Quarter ended

31 March

31 December

31 March

2021 

2020 

2020 

Total income

£2,659m

£2,535m

£3,162m

Operating expenses

(£1,815m)

(£2,341m)

(£1,841m)

Profit before impairment releases/(losses)

£844m

£194m

£1,321m

Operating profit before tax

£946m

£64m

£519m

Profit/(loss) attributable to ordinary shareholders

£620m

(£109m)

£288m

Excluding notable items within total income (1)

Total income excluding notable items

£2,673m

£2,616m

£3,047m

Operating expenses

(£1,815m)

(£2,341m)

(£1,841m)

Profit before impairment releases/(losses) and excluding notable items

£858m

£275m

£1,206m

Operating profit before tax and excluding notable items

£960m

£145m

£404m

Performance key metrics and ratios

Bank net interest margin (NatWest Group NIM excluding NWM) (2)

1.64% 

1.66% 

1.89% 

Bank average interest earning assets (NatWest Group excluding NWM) (2)

£480bn

£473bn

£422bn

Cost:income ratio (2)

67.8% 

92.2% 

57.7% 

Loan impairment rate (2)

(11bps)

14bps

90bps

Earnings per share - basic

5.1p

 (0.9p)

2.4p

Return on tangible equity (2)

7.9% 

(1.4%) 

3.6% 

 

31 March

31 December

31 March

2021 

2020 

2020 

Balance sheet

Total assets

£769.8bn

£799.5bn

£817.6bn

Funded assets (2)

£646.8bn

£633.0bn

£608.9bn

Loans to customers - amortised cost

£358.7bn

£360.5bn

£351.3bn

Loans to customers and banks - amortised cost and FVOCI (3)

£371.0bn

£372.4bn

£364.0bn

Impairment provisions - amortised cost

£5.6bn

£6.0bn

£4.2bn

Total impairment provisions (3)

£5.8bn

£6.2bn

£4.3bn

Expected credit loss (ECL) coverage ratio (3)

1.56% 

1.66% 

1.19% 

Assets under management and administration (AUMA) (2)

£32.6bn

£32.1bn

£26.7bn

Customer deposits

£453.3bn

£431.7bn

£384.8bn

Liquidity and funding

Liquidity coverage ratio (LCR)

158% 

165% 

152% 

Liquidity portfolio

£263bn

£262bn

£201bn

Net stable funding ratio (NSFR) (4)

153% 

151% 

138% 

Loan:deposit ratio (2)

79% 

84% 

91% 

Total wholesale funding

£61bn

£71bn

£86bn

Short-term wholesale funding

£20bn

£19bn

£32bn

Capital and leverage

Common Equity Tier (CET1) ratio (5)

18.2% 

18.5% 

16.6% 

Total capital ratio

24.0% 

24.5% 

21.4% 

Pro forma CET1 ratio, pre dividend accrual (6)

18.6% 

18.8% 

16.6% 

Risk-weighted assets (RWAs)

£164.7bn

£170.3bn

£185.2bn

CRR leverage ratio (5)

5.0% 

5.2% 

5.1% 

UK leverage ratio

6.2% 

6.4% 

5.8% 

Tangible net asset value (TNAV) per ordinary share

261p

261p

273p

Number of ordinary shares in issue (millions) (7)

11,560 

12,129 

12,094 

 

Notes:

(1)

Refer to page 8 for details of notable items within total income.

(2)

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

(3)

Refer to page 18 for further details. 31 March 2020 has been restated for the accounting policy change for balances held with central banks. Refer to Accounting policy changes effective 1 January 2020 on page 263 in the NatWest Group plc 2020 Annual Report on Form 20-F for further details.

(4)

NSFR reported in line with CRR2 regulations finalised in June 2019.

(5)

Based on CRR end point including the IFRS 9 transitional adjustment of £1.7 billion. Excluding this adjustment, the CET1 ratio would be 17.2% and the CRR leverage ratio would be 4.7%.

(6)

The pro forma CET1 ratio at 31 March 2021 excludes foreseeable charges of £547 million for ordinary dividend including £200 million (11bps) in Q1 2021 (31 December 2020 excludes foreseeable charges of £364 million for ordinary dividend (3p per share) and £266 million pension contribution). At 31 March 2020 there was no charge in CET1 for foreseeable dividends or charges.

(7)

In March 2021, there was an agreement with HM Treasury to buy 591 million ordinary shares in the Company from UK Government Investments Ltd (UKGI). NatWest Group cancelled 391 million of the purchased ordinary shares, and held the remaining 200 million in own shares held. The number of ordinary shares in issue excludes own shares held.

 

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 Q1 Results 2021                                 6

 

Business performance summary

Chief Financial Officer review

 

In the first quarter of 2021 we have continued to make progress against our strategic objectives and have delivered a good financial performance. We continue to support our customers through this period of uncertainty and expect to grow lending, excluding UK Government financial support schemes, in our UK and RBSI retail and commercial businesses above the market rate in 2021, whilst reducing costs by around 4%(1). The Q1 2021 results include a small impairment release, as support schemes continue to mitigate realised levels of default. Finally, our capital and liquidity positions remain robust.

 

Financial performance

Total income decreased by £503 million, or 15.9%, compared with Q1 2020. Excluding notable items, income decreased by £374 million, or 12.3%, due to the lower yield curve, subdued transactional business activity and a more normalised level of customer activity in NatWest Markets, partially offset by balance sheet growth. Net interest margin of 1.53% was 1 basis point lower than Q4 2020. Bank NIM of 1.64% decreased by 2 basis points compared with Q4 2020 as lower structural hedge income, 3 basis points, was partly offset by mortgage margin improvement, 1 basis point.

 

Total operating expenses were £26 million, or 1.4% lower than Q1 2020. We achieved a cost reduction of £72 million, or 4.5%, compared with Q1 2020 mainly reflecting actions taken in NatWest Markets in line with the strategic announcement made in February 2020 and other actions across Retail Banking and Commercial Banking. Headcount was 5.7% lower than Q1 2020. Strategic costs in the quarter of £160 million included £53 million redundancy charges, £24 million related to property charges and a £14 million charge related to technology spend.

 

Whilst we continue to navigate a high degree of uncertainty in the wider economic environment, a net impairment release of £102 million in the quarter reflects releases in non-default portfolios, principally in Commercial Banking, as support schemes continue to mitigate realised levels of default. Total impairment provisions decreased by £0.4 billion to £5.8 billion in the quarter, which resulted in a reduction in the ECL coverage ratio from 1.66% at Q4 2020 to 1.56%.

 

As a result, we are pleased to report an attributable profit of £620 million, with earnings per share of 5.1 pence and a return on tangible equity (RoTE) of 7.9%.       

We continued to support our customers during this period of uncertainty, whilst taking a measured approach to risk. Total lending decreased by £1.8 billion, or 0.5%, compared with Q4 2020. Across the UK and RBSI retail and commercial businesses, net lending excluding UK Government support schemes increased by £2.2 billion, or 3.0% on an annualised basis, including £3.4 billion of mortgage growth partially offset by lower unsecured balances and a reduction in SME & mid corporate lending.

 

Customer deposits increased by £21.6 billion, or 5.0%, to £453.3 billon in the quarter. Across the UK and RBSI retail and commercial businesses customer deposits increased by £12.1 billion, or 3.0%, as customers sought to retain liquidity and reduced spending. Treasury repo activity drove a further £10.9 billion increase in the quarter.

 

Capital and leverage

Following the successful directed buy back in March 2021, the CET1 ratio remains robust at 18.2%, or 17.2% excluding IFRS 9 transitional relief. The 30 basis points reduction in the quarter reflected the directed buy back, and associated pension contribution, 72 basis points, and foreseeable dividend accrual, 11 basis points, partially offset by the reduction in RWAs and the attributable profit for the period. The total capital ratio decreased by 50 basis points in the quarter to 24.0%.

RWAs of £164.7 billion decreased by £5.6 billion, or 3.3%, in the quarter reflecting business movements, including lower unsecured lending, of £2.5 billion, risk parameter improvements of £1.0 billion, Commercial Banking capital management activity and FX movements of £1.3 billion.

 

TNAV per share was in line with Q4 2020 at 261 pence as the attributable profit and directed buy back were offset by movements in FX reserves, cash flow hedging reserves and the dividend linked pension contribution.

 

The UK leverage ratio of 6.2% decreased by 20 basis points in the quarter.

 

Funding and liquidity

The liquidity portfolio was £263 billion at the end of Q1 2021, broadly stable with Q4 2020, and the LCR decreased by 7 percentage points to 158%, representing £64.9 billion headroom above 100%, reflecting the £5.0 billion TFSME repayment in January 2021, the redemption of own debt, directed buy back and other balance sheet movements, partially offset by the 3.0% increase in customer deposits. The loan:deposit ratio reduced by 5 percentage points in the quarter to 79%.

Total wholesale funding decreased by £10 billion compared with Q4 2020. Short term wholesale funding increased by £1.0 billion in the quarter to £20 billion.

 

Note:

(1)

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” section on pages 347 to 366 of the 2020 Annual Report on Form 20-F. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement.

 


 

NatWest Group – Form 6-K Q1 Results 2021                                 7

 

Summary consolidated income statement for the period ended 31 March 2021

 

Quarter ended

31 March

31 December

31 March

2021 

2020 

2020 

£m 

£m 

£m 

Net interest income

1,931 

1,971 

1,942 

Own credit adjustments

(43) 

155 

Other non-interest income

726 

607 

1,065 

Non-interest income

728 

564 

1,220 

Total income

2,659 

2,535 

3,162 

Litigation and conduct costs

(16)

(194) 

Strategic costs

(160)

(326) 

(131) 

Other expenses

(1,639)

(1,821) 

(1,714) 

Operating expenses

(1,815)

(2,341) 

(1,841) 

Profit before impairment releases/(losses)

844 

194 

1,321 

Impairment releases/(losses)

102 

(130) 

(802) 

Operating profit before tax

946 

64 

519 

Tax charge

(233)

(84) 

(188) 

Profit/(loss) for the period

713 

(20) 

331 

Attributable to:

Ordinary shareholders

620 

(109) 

288 

Preference shareholders

Paid-in equity holders

87 

83 

97 

Non-controlling interests

(62) 

 

Notable items within total income

Own credit adjustments (OCA)

(43) 

155 

FX recycling loss in Central items & other

(1) 

(64) 

Liquidity Asset Bond sale gain

93 

IFRS volatility in Central items & other (1)

(1)

45 

(66) 

Loss on redemption of own debt

(118)

Retail Banking debt sale gain

Metro Bank mortgage portfolio acquisition loss

(58) 

Commercial Banking fair value and disposal loss

(14)

(27) 

(19) 

NatWest Markets asset disposals/strategic risk reduction (2)

(4)

(8) 

Share of gains under equity accounting for Business Growth Fund

121 

16 

Total

(14)

(81) 

115 

 

Notes:

(1)

IFRS volatility relates to derivatives used for risk management not in IFRS hedge accounting relationships and IFRS hedge ineffectiveness.

(2)

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

 


 

 

NatWest Group – Form 6-K Q1 Results 2021                                 8


Business performance summary

Retail Banking

Quarter ended

31 March

31 December

31 March

2021 

2020 

2020 

£m

£m

£m

Total income

1,056 

974 

1,150 

Operating expenses

(587)

(818) 

(529) 

   of which: Other expenses

(557)

(566) 

(592) 

Impairment losses

(34)

(65) 

(297) 

Operating profit

435 

91 

324 

Return on equity

23.0% 

3.8% 

15.5% 

Net interest margin

2.06% 

2.03% 

2.28% 

Cost:income ratio

55.6% 

84.0% 

46.0% 

Loan impairment rate

8bps

15bps

72bps

 

As at

31 March

31 December

2021 

2020 

£bn

£bn

Net loans to customers - amortised cost

174.8 

172.3 

Customer deposits

179.1 

171.8 

RWAs

35.0 

36.7 

 

 

During Q1 2021, Retail Banking continued to pursue sustainable growth with an intelligent approach to risk. Lending growth in the quarter was supported by a strong performance in mortgages, with gross new mortgage lending of £9.6 billion in the quarter, partially offset by the continued UK Government restrictions impacting customer spending and resulting in higher repayments of unsecured balances.

 

Retail Banking continues to support customers whose income has been impacted by COVID-19. As at 31 March 2021, Retail Banking had c.12,000 active mortgage repayment holidays, representing around 1% of the book by volume, and approximately 16,000, or 2%, of personal loan customers on active repayment holidays at the end of Q1 2021.

Total income was £94 million, or 8.2%, lower than Q1 2020 primarily due to lower deposit returns and unsecured balances, combined with regulatory changes impacting fee income, partially offset by strong balance growth in mortgages and improved mortgage margins. Net interest margin increased by 3 basis points compared with Q4 2020 reflecting mortgage margin improvement, partially offset by lower hedge returns and lower unsecured balance mix. Mortgage completion margins of around 180 basis points were higher than the back book margin of around 160 basis points. Application margins were around 180 basis points in the quarter but decreased to around 165 basis points in the latter part of Q1 2021 primarily due to rising swap rates.

Operating expenses increased by £58 million, or 11.0%, compared with Q1 2020. Other expenses were £35 million, or 5.9%, lower than Q1 2020 primarily reflecting a reduction in headcount.

Impairment losses of £34 million in Q1 2021 continue to reflect a low level of Stage 3 defaults, which benefitted from a £17 million provision release relating to a planned debt sale(1), and a small release from accounts flowing from Stage 2 back to Stage 1.

Net loans to customers increased by £2.5 billion, or 1.5%, compared with Q4 2020 due to continued strong mortgage growth of £3.0 billion, with gross new mortgage lending in the quarter of £9.6 billion, and flow share of approximately 13%. Personal advances and cards reduced by £0.2 billion and £0.3 billion respectively as customers spent less and made higher repayments, reflecting the impact of the UK Government restrictions.

Customer deposits increased by £7.3 billion, or 4.2%, compared with Q4 2020 as continued UK Government initiatives combined with restrictions, resulted in lower customer spend and increased savings.

RWAs decreased by £1.7 billion, or 4.6%, compared with Q4 2020 largely reflecting lower unsecured balances and continued quality improvements supported by rising house prices and customer behaviour.

 

 

Note:

(1)

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” section on pages 347 to 366 of the 2020 Annual Report on Form 20-F. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement.


 

NatWest Group – Form 6-K Q1 Results 2021                                 9

 

Business performance summary

Private Banking

Quarter ended

31 March

31 December

31 March

2021 

2020 

2020 

£m

£m

£m

Total income

185 

184 

201 

Operating expenses

(121)

(91) 

(123) 

  of which: Other expenses

(122)

(119) 

(118) 

Impairment releases/(losses)

(26) 

(29) 

Operating profit

64 

67 

49 

Return on equity

12.4% 

13.3% 

9.8% 

Net interest margin

1.79% 

1.86% 

2.25% 

Cost:income ratio

65.4% 

49.5% 

61.2% 

Loan impairment rate

0bps

61bps

73bps

 

 

As at

31 March

31 December

2021 

2020 

£bn

£bn

Net loans to customers - amortised cost

17.5 

17.0 

Customer deposits

33.5 

32.4 

RWAs

11.2 

10.9 

Assets Under Management (AUMs)

29.4 

29.1 

Assets Under Administration (AUAs) (1)

3.2 

3.0 

Total Assets Under Management and Administration (AUMA)

32.6 

32.1 

 

Note:

(1)

Private Banking manages AUA portfolios on behalf of Retail Banking and RBS International and receives a management fee in respect of providing this service

.

Private Banking delivered a resilient operating performance in the quarter, including strong balance growth, which supported a Q1 2021 return on equity of 12.4%. AUMA growth in the quarter included record investment inflows of £245 million into digital investment products: NatWest Invest, Royal Bank Invest and Coutts Invest, more than double the level seen in Q4 2020.

 

Private Banking remains committed to supporting clients through a range of initiatives, including the provision of mortgage and personal loan repayment deferrals in appropriate circumstances and via participation in the UK Government’s financial support schemes. As at 31 March 2021, £61 million BBLS, £234 million CBILS and £44 million CLBILS had been approved.

Total income was £16 million, or 8.0%, lower than Q1 2020 primarily reflecting lower deposit returns partially offset by strong balance growth. Net interest margin decreased by 7 basis points compared with Q4 2020 reflecting lower deposit returns and higher liquidity portfolio costs.

Net loans to customers increased by £0.5 billion, or 2.9%, compared with Q4 2020 due to mortgage lending growth.

AUMAs increased by £0.5 billion, or 1.6%, compared with Q4 2020 reflecting positive investment performance of £0.1 billion and net new money inflows of £0.4 billion, which were impacted by EEA resident client outflows following the UK’s exit from the EU.

 

 

 

 


 

NatWest Group – Form 6-K Q1 Results 2021                               10

 

Business performance summary

Commercial Banking

Quarter ended

31 March

31 December

31 March

2021 

2020 

2020 

£m

£m

£m

Total income

941 

951 

1,008 

Operating expenses

(583)

(656) 

(610) 

   of which: Other expenses (excluding OLD)

(513)

(560) 

(532) 

Impairment releases/(losses)

117 

(10) 

(435) 

Operating profit/(loss)

475 

285 

(37) 

Return on equity

14.9% 

8.1% 

(2.5%) 

Net interest margin

1.54% 

1.56% 

1.83% 

Cost:income ratio

60.5% 

67.8% 

59.1% 

Loan impairment rate

(43)bps

4bps

157bps

 

As at

31 March

31 December

2021 

2020 

£bn

£bn

Net loans to customers - amortised cost

106.6 

108.2 

Customer deposits

169.4 

167.7 

RWAs

71.6 

75.1 

 

Commercial Banking delivered a solid performance in Q1 2021 despite the continued impact of UK Government restrictions and a challenging operating environment. Commercial Banking will continue to play a key role in helping its customers recover and grow as the wider economy re-opens through Pay As You Grow, for existing Bounce Back Loan customers, and by supporting continued access to finance through the new Recovery Loan Scheme.

 

Commercial Banking continues to support customers through a comprehensive package of initiatives including participation in the UK Government’s financial support schemes. As at 31 March 2021, £9.1 billion BBLS, £4.0 billion CBILS and £1.3 billion CLBILS had been approved and there were active payment holidays on c.8,900 customer accounts, representing 2% of the lending book by value, compared to 4% at the end of 2020.

Total income was £67 million, or 6.6%, lower than Q1 2020 reflecting lower deposit returns and subdued transactional business activity. Net interest margin decreased by 2 basis points compared with Q4 2020 mainly reflecting lower hedge returns.

Operating expenses decreased by £27 million, or 4.4%, compared with Q1 2020. Other expenses, excluding OLD, decreased by £19 million, or 3.6%, compared with Q1 2020 as cost reduction actions were partially offset by higher remediation costs and increased back office operations costs. 

A net impairment release of £117 million in Q1 2021 mainly reflected a modest improvement in underlying portfolio credit metrics, with minimal Stage 3 defaults.

Net loans to customers decreased by £1.6 billion, or 1.5%, compared with Q4 2020 as lower SME & mid corporates lending and net RCF repayments of £0.3 billion were partially offset by £0.5 billion drawdowns against UK Government financial support schemes, including £0.3 billion related to BBLS and £0.2 billion related to CBILS. RCF utilisation remained stable with Q4 2020 at c.22% of committed facilities.

Customer deposits increased by £1.7 billion, or 1.0%, compared with Q4 2020 as customers continued to build and retain liquidity in light of economic uncertainty and the continued impact of UK Government initiatives.

RWAs decreased by £3.5 billion, or 4.7%, compared with Q4 2020 reflecting lower lending volumes, £0.6 billion active capital management, £0.5 billion lower operational risk and a £0.2 billion risk parameter improvement.

 


 

NatWest Group – Form 6-K Q1 Results 2021                               11

 

Business performance summary

International Banking & Markets

RBS International

 

Quarter ended

31 March

31 December

31 March

2021 

2020 

2020 

£m

£m

£m

Total income

123 

126 

144 

Operating expenses

(57)

(112) 

(61) 

   of which: Other expenses

(52)

(73) 

(60) 

Impairment releases/(losses)

(27) 

(15) 

Operating profit/(loss)

68 

(13) 

68 

Return on equity

17.5% 

(5.5%) 

19.4% 

Net interest margin

1.06% 

1.03% 

1.45% 

Cost:income ratio

46.3% 

88.9% 

42.4% 

Loan impairment rate

(5)bps

81bps

44bps

 

As at

31 March

31 December

2021 

2020 

£bn

£bn

Net loans to customers - amortised cost

14.7 

13.3 

Customer deposits

33.3 

31.3 

RWAs

7.7 

7.5 

 

RBS International (RBSI) Q1 2021 return on equity of 17.5% was supported by strong lending volumes, cost management discipline and a small impairment release. RBSI implemented a range of mobile and online banking enhancements, including the introduction of Cora for RBSI online and mobile, whilst continuing to support customers through the ongoing COVID-19 pandemic.  

 

As at 31 March 2021, RBSI was supporting 106 mortgage repayment breaks, reflecting a mortgage value of £21 million, and was providing 226 business customers with working capital facilities, reflecting a value of £424 million, whilst continuing to suspend a range of fees and charges for its personal and business customers.

Total income was £21 million, or 14.6%, lower than Q1 2020 primarily reflecting the impact of the interest rate reductions on deposit income. Net interest margin increased by 3 basis points compared with Q4 2020 mainly reflecting higher average lending volumes in the Institutional Banking sector.

Operating expenses decreased by £4 million, or 6.6%, compared with Q1 2020. Other expenses were £8 million, or 13.3%, lower than Q1 2020 mainly reflecting lower project spend and an 11.1% reduction in headcount.

Net loans to customers increased by £1.4 billion, or 10.5%, compared with Q4 2020 reflecting incremental Funds business in the Institutional Banking sector.

Customer deposits increased by £2.0 billion, or 6.4%, compared with Q4 2020 due to an inflow of short term call deposits in the Institutional Banking sector as Funds customer activity increased.

 


 

NatWest Group – Form 6-K Q1 Results 2021                               12

 

Business performance summary

International Banking & Markets

NatWest Markets(1)

 

Quarter ended

31 March

31 December

31 March

2021 

2020 

2020 

£m

£m

£m

Total income

189 

73 

543 

of which:

   - Income excluding asset disposals/strategic risk reduction and own credit adjustments

191 

124 

388 

   - Asset disposals/strategic risk reduction (2)

(4)

(8) 

   - Own credit adjustments

(43) 

155 

Operating expenses

(275)

(301) 

(342) 

   of which: Other expenses

(240)

(244) 

(298) 

Impairment releases/(losses)

(2) 

Operating (loss)/profit

(80)

(230) 

206 

Return on equity

(6.3%)

(15.0%) 

8.7% 

Cost:income ratio

145.5% 

nm

63.0% 

 

As at

31 March

31 December

2021 

2020 

£bn

£bn

Funded Assets

105.7 

105.9 

RWAs

26.5 

26.9 

 

 

Notes:

(1)

The NatWest Markets operating segment is not the same as the NatWest Markets Plc legal entity (NWM Plc) or group (NWM or NWM Group). The NatWest Markets segment excludes the Central items & other segment.

(2)

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

 

 

NatWest Markets continued to make good progress on refocusing to better support NatWest Group’s customers and to create a more sustainable business. During the quarter NatWest Markets maintained its strong performance in climate and sustainability financing delivering £3.0 billion of financing towards NatWest Group’s 2021 target. Building on the momentum gained in 2020, further changes to simplify its operations were announced in the first quarter of 2021, including plans to consolidate its operational footprint in Asia. NatWest Markets also announced the last part of the One Bank strategy to bring teams and expertise together from across the bank.

Total income was £354 million, or 65.2%, lower than Q1 2020 reflecting more normalised levels of customer activity, with the prior period impacted by exceptional levels of market activity generated by the initial spread of the COVID-19 virus, a £153 million reduction in OCA, as credit spreads tightened, and disposal losses of £4 million in the current period.

Operating expenses decreased by £67 million, or 19.6%, compared with Q1 2020. Other expenses were £58 million, or 19.5%, lower than Q1 2020 reflecting continued reductions in line with the strategic announcement in February 2020.

RWAs decreased by £0.4 billion compared with Q4 2020 reflecting £0.6 billion lower counterparty credit risk and £0.5 billion lower credit risk partially offset by a £0.7 billion increase in market risk as customer activity increased from the seasonally lower level at the end of 2020.

 

 

 


 

NatWest Group – Form 6-K Q1 Results 2021                               13

 

Business performance summary

Ulster Bank RoI

Quarter ended

31 March

31 December

31 March

2021 

2020 

2020 

 £m

 £m

 £m

Total income

124 

131 

129 

Operating expenses

(125)

(114) 

(123) 

   of which: Other expenses

(115)

(100) 

(118) 

Impairment releases/(losses)

12 

(27) 

Operating profit/(loss)

11 

18 

(21) 

Return on equity

2.5% 

3.9% 

(4.2%) 

Net interest margin

1.48% 

1.50% 

1.56% 

Cost:income ratio

100.8% 

87.0% 

95.3% 

Loan impairment rate

(27)bps

(2)bps

56bps

 

As at

31 March

31 December

2021 

2020 

 £bn

 £bn

Net loans to customers - amortised cost

16.9 

18.0 

Customer deposits

18.4 

19.6 

RWAs

11.1 

11.8 

 

Note:

(1)

Ratios have been presented on a Euro basis. Comparatives have been restated.

 

Plans remain on track to proceed with a phased withdrawal from the Republic of Ireland over the coming years, which will be managed in an orderly and considered manner. Ulster Bank RoI remains open for business and continues to support its customers through this transition and challenges of COVID-19. Constructive discussions remain ongoing with Allied Irish Banks p.l.c for the sale of a c.€4.0 billion portfolio of performing commercial loans and continue with Permanent TSB Group Holdings p.l.c among other strategic banking counterparties about their potential interest in other parts of the bank(1).

Total income was £5 million (€8 million), or 3.9%, (5.3% in euro terms), lower than Q1 2020 reflecting a reduction in lending volumes and fee income due to COVID-19, partly offset by an increase in FX gains. Net interest margin of 1.48% (1.49% in euro terms) was broadly stable compared with Q4 2020.

Operating expenses were £2 million, or 1.6%, higher compared with Q1 2020 but remained stable in euro terms. Other expenses were £3 million (€5 million), or 2.5% (3.6% in euro terms), lower than Q1 2020 due to a 6.9% reduction in headcount and lower back office operations costs, partly offset by increased government levies.

A net impairment release of £12 million (€14 million) in the quarter primarily reflects improvements in the mortgage portfolio.

Net loans to customers decreased by £1.1 billion, or 6.1% largely due to the weakening of the euro. In euro terms, net loans to customers decreased by €0.2 billion, or 1.0% compared with Q4 2020 as repayments continued to exceed gross new lending of £0.3 billion (€0.4 billion).

Customer deposits decreased by £1.2 billion, or 6.1% largely due to the weakening of the euro. In euro terms, customer deposits decreased by €0.1 billion, or 0.5%, compared with Q4 2020 mainly due to a reduction in commercial balances. The loan:deposit ratio remained broadly stable at 92% (91% in euro terms).

 

 

Central items & other

Quarter ended

31 March

31 December

31 March

2021 

2020 

2020 

£m

£m

£m

Central items not allocated

(27)

(154) 

(70) 

 

A £27 million operating loss within central items not allocated mainly reflects a £118 million day one loss on redemption of own debt related to the repurchase of legacy instruments, which will result in annual net interest savings of c.£49 million, and strategic costs, largely offset by the £121 million share of gains under equity accounting for Business Growth Fund and other treasury income.

 

Note:

(1)

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” section on pages 347 to 366 of the 2020 Annual Report on Form 20-F. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement

 

 

NatWest Group – Form 6-K Q1 Results 2021                               14


Segment performance

 

Quarter ended 31 March 2021

International Banking & Markets

Retail

Private

Commercial

RBS

NatWest

Ulster

Central items

Total NatWest

Banking

Banking

Banking

International

Markets

Bank RoI

& other

Group

£m

£m

£m

£m

£m

£m

£m

£m

Income statement

Net interest income

973 

115 

643 

89 

(7)

94 

24 

1,931 

Non-interest income

83 

70 

298 

34 

194 

30 

17 

726 

Own credit adjustments

Total income

1,056 

185 

941 

123 

189 

124 

41 

2,659 

Direct expenses

  - staff costs

(116)

(34)

(141)

(26)

(111)

(47)

(397)

(872)

  - other costs

(61)

(9)

(66)

(13)

(29)

(23)

(566)

(767)

Indirect expenses

(380)

(79)

(341)

(13)

(100)

(45)

958 

Strategic costs

  - direct

(11)

(26)

(4)

(30)

(89)

(160)

  - indirect

(17)

(4)

(9)

(1)

(5)

(1)

37 

Litigation and conduct costs

(2)

(9)

(10)

(16)

Operating expenses

(587)

(121)

(583)

(57)

(275)

(125)

(67)

(1,815)

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

469 

64 

358 

66 

(86)

(1)

(26)

844 

Impairment (losses)/releases

(34)

117 

12 

(1)

102 

Operating profit/(loss)

435 

64 

475 

68 

(80)

11 

(27)

946 

Additional information

Return on equity (1)

23.0% 

12.4% 

14.9% 

17.5% 

(6.3%)

2.5% 

nm

7.9% 

Cost:income ratio (1)

55.6% 

65.4% 

60.5% 

46.3% 

145.5% 

100.8% 

nm

67.8% 

Total assets (£bn)

199.2 

26.9 

187.1 

36.7 

226.8 

25.9 

67.2 

769.8 

Funded assets (£bn) (1)

199.2 

26.9 

187.1 

36.7 

105.7 

25.9 

65.3 

646.8 

Net loans to customers - amortised cost (£bn)

174.8 

17.5 

106.6 

14.7 

7.5 

16.9 

20.7 

358.7 

Loan impairment rate (1)

8bps

0bps

(43)bps

(5)bps

nm

(27)bps

nm

(11)bps

Impairment provisions (£bn)

(1.8)

(0.1)

(2.7)

(0.1)

(0.1)

(0.7)

(0.1)

(5.6)

Impairment provisions - stage 3 (£bn)

(0.8)

(0.9)

(0.1)

(0.5)

(0.1)

(2.4)

Customer deposits (£bn)

179.1 

33.5 

169.4 

33.3 

2.4 

18.4 

17.2 

453.3 

Risk-weighted assets (RWAs) (£bn)

35.0 

11.2 

71.6 

7.7 

26.5 

11.1 

1.6 

164.7 

RWA equivalent (RWAe) (£bn)

35.0 

11.2 

71.7 

7.7 

29.2 

11.1 

1.7 

167.6 

Employee numbers (FTEs - thousands)

15.8 

1.9 

9.5 

1.6 

2.1 

2.7 

26.0 

59.6 

Third party customer asset rate (2)

2.73% 

2.36% 

2.65% 

2.29% 

nm

2.35% 

nm

nm

Third party customer funding rate (2)

(0.08%)

(0.00%)

(0.01%)

0.05% 

nm

(0.06%)

nm

nm

Average interest earning assets (£bn) (1)

191.2 

26.0 

169.4 

34.1 

32.4 

25.8 

nm

512.2 

Bank net interest margin (1)

2.06% 

1.79% 

1.54% 

1.06% 

na

1.48% 

nm

1.64% 

nm =' not' meaningful, na =' not' applicable.

Refer to page 17 for the notes to this table.

NatWest Group – Form 6-K Q1 Results 2021                                                                                      15

 

 

Segment performance

Quarter ended 31 December 2020

International Banking & Markets

Retail

Private

Commercial

RBS

NatWest

Ulster

Central items

Total NatWest

Banking

Banking

Banking

International

Markets

Bank RoI

& other

Group

£m

£m

£m

£m

£m

£m

£m

£m

Income statement

Net interest income

949 

118 

667 

85 

(2) 

101 

53 

1,971 

Non-interest income

25 

66 

284 

41 

118 

30 

43 

607 

Own credit adjustments

(43) 

(43) 

Total income

974 

184 

951 

126 

73 

131 

96 

2,535 

Direct expenses

  - staff costs

(117) 

(32) 

(141) 

(25) 

(90) 

(48) 

(385) 

(838) 

  - other costs

(56) 

(16) 

(72) 

(16) 

(21) 

(21) 

(781) 

(983) 

Indirect expenses

(393) 

(71) 

(382) 

(32) 

(133) 

(31) 

1,042 

Strategic costs

  - direct

(6) 

(35) 

(37) 

(50) 

(3) 

(197) 

(326) 

  - indirect

(36) 

(3) 

(28) 

(1) 

(6) 

(3) 

77 

Litigation and conduct costs

(210) 

29 

(1) 

(1) 

(8) 

(5) 

(194) 

Operating expenses

(818) 

(91) 

(656) 

(112) 

(301) 

(114) 

(249) 

(2,341) 

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

156 

93 

295 

14 

(228) 

17 

(153) 

194 

Impairment (losses)/releases

(65) 

(26) 

(10) 

(27) 

(2) 

(1) 

(130) 

Operating profit/(loss)

91 

67 

285 

(13) 

(230) 

18 

(154) 

64 

Additional information

Return on equity (1)

3.8% 

13.3% 

8.1% 

(5.5%) 

(15.0%) 

3.9% 

nm

(1.4%) 

Cost:income ratio (1)

84.0% 

49.5% 

67.8% 

88.9% 

nm

87.0% 

nm

92.2% 

Total assets (£bn)

197.6 

26.2 

187.4 

34.0 

270.1 

26.6 

57.6 

799.5 

Funded assets (£bn) (1)

197.6 

26.2 

187.4 

34.0 

105.9 

26.6 

55.3 

633.0 

Net loans to customers - amortised cost (£bn)

172.3 

17.0 

108.2 

13.3 

8.4 

18.0 

23.3 

360.5 

Loan impairment rate (1)

15bps

61bps

4bps

81bps

nm

(2)bps

nm

14bps

Impairment provisions (£bn)

(1.8) 

(0.1) 

(2.9) 

(0.1) 

(0.2) 

(0.8) 

(0.1) 

(6.0) 

Impairment provisions - stage 3 (£bn)

(0.8) 

(1.1) 

(0.1) 

(0.5) 

(0.1) 

(2.6) 

Customer deposits (£bn)

171.8 

32.4 

167.7 

31.3 

2.6 

19.6 

6.3 

431.7 

Risk-weighted assets (RWAs) (£bn)

36.7 

10.9 

75.1 

7.5 

26.9 

11.8 

1.4 

170.3 

RWA equivalent (RWAe) (£bn)

36.7 

10.9 

75.1 

7.5 

28.7 

11.8 

1.6 

172.3 

Employee numbers (FTEs - thousands)

16.0 

1.8 

9.6 

1.7 

2.2 

2.7 

25.9 

59.9 

Third party customer asset rate (2)

2.81% 

2.38% 

2.65% 

2.34% 

nm

2.33% 

nm

nm

Third party customer funding rate (2)

(0.10%) 

(0.01%) 

(0.01%) 

0.05% 

nm

(0.07%) 

nm

nm

Average interest earning assets (£bn) (1)

186.1 

25.2 

170.2 

32.9 

36.5 

26.8 

nm

509.6 

Bank net interest margin (1)

2.03% 

1.86% 

1.56% 

1.03% 

na

1.50% 

nm

1.66% 

nm =' not' meaningful, na =' not' applicable.

Refer to page 17 for the notes to this table.


 

NatWest Group – Form 6-K Q1 Results 2021                                                                                      16

 

Segment performance

Quarter ended 31 March 2020

International Banking & Markets

Retail

Private

Commercial

RBS

NatWest

Ulster

Central items

Total NatWest

Banking

Banking

Banking

International

Markets

Bank RoI

& other

Group

£m

£m

£m

£m

£m

£m

£m

£m

Income statement

Net interest income

1,007 

127 

674 

111 

(40) 

97 

(34) 

1,942 

Non-interest income

143 

74 

334 

33 

428 

32 

21 

1,065 

Own credit adjustments

155 

155 

Total income

1,150 

201 

1,008 

144 

543 

129 

(13) 

3,162 

Direct expenses

  - staff costs

(135) 

(39) 

(174) 

(32) 

(167) 

(48) 

(324) 

(919) 

  - other costs

(58) 

(16) 

(73) 

(14) 

(57) 

(24) 

(553) 

(795) 

Indirect expenses

(399) 

(63) 

(321) 

(14) 

(74) 

(46) 

917 

Strategic costs

  - direct

(2) 

(1) 

(34) 

(1) 

(93) 

(131) 

  - indirect

(34) 

(5) 

(39) 

(3) 

(8) 

(4) 

93 

Litigation and conduct costs

97 

(1) 

(2) 

(93) 

Operating expenses

(529) 

(123) 

(610) 

(61) 

(342) 

(123) 

(53) 

(1,841) 

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

621 

78 

398 

83 

201 

(66) 

1,321 

Impairment (losses)/releases

(297) 

(29) 

(435) 

(15) 

(27) 

(4) 

(802) 

Operating profit/(loss)

324 

49 

(37) 

68 

206 

(21) 

(70) 

519 

Additional information

Return on equity (1)

15.5% 

9.8% 

(2.5%) 

19.4% 

8.7% 

(4.2%) 

nm

3.6% 

Cost:income ratio (1)

46.0% 

61.2% 

59.1% 

42.4% 

63.0% 

95.3% 

nm

57.7% 

Total assets (£bn)

186.3 

23.4 

178.3 

33.2 

335.7 

26.3 

34.4 

817.6 

Funded assets (£bn) (1)

186.3 

23.4 

178.3 

33.2 

129.6 

26.3 

31.8 

608.9 

Net loans to customers - amortised cost (£bn)

163.7 

15.8 

109.2 

13.6 

12.2 

18.7 

18.1 

351.3 

Loan impairment rate (1)

72bps

73bps

157bps

44bps

nm

56bps

nm

90bps

Impairment provisions (£bn)

(1.6) 

(0.1) 

(1.7) 

(0.1) 

(0.7) 

(4.2) 

Impairment provisions - stage 3 (£bn)

(0.9) 

(1.0) 

(0.1) 

(0.6) 

(2.6) 

Customer deposits (£bn)

152.8 

29.0 

143.9 

32.3 

5.7 

19.3 

1.8 

384.8 

Risk-weighted assets (RWAs) (£bn)

38.2 

10.3 

76.9 

6.8 

38.9 

12.7 

1.4 

185.2 

RWA equivalent (RWAe) (£bn)

38.2 

10.3 

77.0 

7.1 

42.2 

12.7 

1.7 

189.2 

Employee numbers (FTEs - thousands)

17.3 

1.8 

9.5 

1.8 

5.1 

2.9 

24.8 

63.2 

Third party customer asset rate (2)

3.07% 

2.81% 

3.22% 

2.72% 

nm

2.28% 

nm

nm

Third party customer funding rate (2)

(0.36%) 

(0.32%) 

(0.18%) 

(0.10%) 

nm

(0.08%) 

nm

nm

Average interest earning assets (£bn) (1)

177.4 

22.7 

148.4 

30.9 

36.1 

24.9 

nm

458.5 

Bank net interest margin (1)

2.28% 

2.25% 

1.83% 

1.45% 

na

1.56% 

nm

1.89% 

nm =' not' meaningful, na =' not' applicable.

Notes:

(1)

Refer to the Appendix for details of the 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 only. Third party customer funding rate reflects interest payable on third-party customer deposits, including interest bearing and non-interest bearing customer deposits. This excludes intragroup items, loans to banks and liquid asset portfolios. Intragroup items, bank deposits, debt securities in issue and subordinated liabilities are excluded for customer funding rate calculation. Comparatives have been restated. Net interest margin is calculated as net interest income as a percentage of the average interest-earning assets without these exclusions

 

NatWest Group – Form 6-K Q1 Results 2021                                                                                      17

 


Risk and capital management

 

 

Page

Credit risk

 

Segment analysis – portfolio summary

18 

Segment analysis – loans

19 

Movement in ECL provision

19 

Sector analysis

20 

Wholesale support schemes

21 

Capital, liquidity and funding risk

22 

 

Credit risk

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.

 

International Banking & Markets

Retail

Private

Commercial

RBS

NatWest

Ulster

Central items

Banking

Banking

Banking

International

Markets

Bank RoI

& other

Total

31 March 2021

£m

£m

£m

£m

£m

£m

£m

£m

Loans - amortised cost and FVOCI (1)

Stage 1

150,004 

16,024 

72,202 

13,857 

6,865 

13,342 

24,730 

297,024 

Stage 2

24,569 

1,876 

34,572 

2,089 

1,413 

3,274 

111 

67,904 

Stage 3

1,957 

295 

2,399 

202 

111 

1,141 

6,105 

Of which: individual

295 

1,380 

202 

102 

83 

2,062 

Of which: collective

1,957 

1,019 

1,058 

4,043 

176,530 

18,195 

109,173 

16,148 

8,389 

17,757 

24,841 

371,033 

ECL provisions (2)

Stage 1

145 

29 

255 

19 

12 

42 

13 

515 

Stage 2

851 

70 

1,599 

71 

43 

249 

15 

2,898 

Stage 3

821 

36 

937 

44 

91 

452 

2,381 

Of which: individual

36 

494 

44 

82 

14 

670 

Of which: collective

821 

443 

438 

1,711 

1,817 

135 

2,791 

134 

146 

743 

28 

5,794 

ECL provisions coverage (3,4)

Stage 1 (%)

0.10 

0.18 

0.35 

0.14 

0.17 

0.31 

0.05 

0.17 

Stage 2 (%)

3.46 

3.73 

4.63 

3.40 

3.04 

7.61 

13.51 

4.27 

Stage 3 (%)

41.95 

12.20 

39.06 

21.78 

81.98 

39.61 

39.00 

1.03 

0.74 

2.56 

0.83 

1.74 

4.18 

0.11 

1.56 

31 December 2020

Loans - amortised cost and FVOCI (1)

Stage 1

139,956 

15,321 

70,685 

12,143 

7,780 

14,380 

26,859 

287,124 

Stage 2

32,414 

1,939 

37,344 

2,242 

1,566 

3,302 

110 

78,917 

Stage 3

1,891 

298 

2,551 

211 

171 

1,236 

6,358 

Of which: individual

298 

1,578 

211 

162 

43 

2,292 

Of which: collective

1,891 

973 

1,193 

4,066 

174,261 

17,558 

110,580 

14,596 

9,517 

18,918 

26,969 

372,399 

ECL provisions (2)

Stage 1

134 

31 

270 

14 

12 

45 

13 

519 

Stage 2

897 

68 

1,713 

74 

49 

265 

15 

3,081 

Stage 3

806 

39 

1,069 

48 

132 

492 

2,586 

Of which: individual

39 

607 

48 

124 

13 

831 

Of which: collective

806 

462 

479 

1,755 

1,837 

138 

3,052 

136 

193 

802 

28 

6,186 

ECL provisions coverage (3,4)

Stage 1 (%)

0.10 

0.20 

0.38 

0.12 

0.15 

0.31 

0.05 

0.18 

Stage 2 (%)

2.77 

3.51 

4.59 

3.30 

3.13 

8.03 

13.64 

3.90 

Stage 3 (%)

42.62 

13.09 

41.91 

22.75 

77.19 

39.81 

40.67 

1.05 

0.79 

2.76 

0.93 

2.03 

4.24 

0.10 

1.66 

 

Notes:

(1)

Fair value through other comprehensive income (FVOCI).

(2)

Includes £7 million (31 December 2020 – £6 million) related to assets classified as FVOCI

(3)

ECL provisions coverage is calculated as ECL provisions divided by loans – amortised cost and FVOCI.

(4)

ECL provisions coverage and ECL loss rates are calculated on third party loans and related ECL provisions and charge respectively. ECL loss rate is calculated as annualised third party ECL charge divided by loans – amortised cost and FVOCI.

(5)

The table shows gross loans only and excludes amounts that are 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 £139.2 billion (31 December 2020 – £122.7 billion) and debt securities of £51.2 billion (31 December 2020 – £53.8 billion).


 

NatWest Group – Form 6-K Q1 Results 2021                               18

 

 

Risk and capital management

Credit risk continued

Segment analysis – portfolio summary

Key points

Stage 1 and Stage 2 ECL reduced during Q1 2021, mainly in the Wholesale portfolios, reflecting an improvement in underlying credit metrics.

Stage 3 ECL balances decreased due to the write-off of previously defaulted debt. The extension of various COVID-19 related customer support mechanisms has also mitigated new flows into default. It is expected that defaults will increase once government support mechanisms end.

Loan balances in Stage 2 reduced during the quarter but remained elevated following the deterioration in forward-looking probability of default (PD) during H1 2020. In Q4 2020, the forecast economics improved, resulting in reduced PDs and driving some migration of exposure back into Stage 1 during Q1 2021.

The economic scenarios driving the ECL requirement, as well as the model performance considerations, were consistent with those described in the NatWest Group plc 2020 Annual Report and Accounts, along with further detail on various aspects of the IFRS 9 process.

 

Segment analysis – loans

Key points

Retail Banking: Balance sheet growth continued during Q1 2021, driven by mortgages, where new lending remained strong. Unsecured lending balances continued to reduce during Q1 2021, as customer spend and demand for unsecured borrowing remained subdued, in line with recent industry trends. Stage 2 balances decreased, primarily as a result of the improved economic outlook since H1 2020, with reduced PDs driving migration back into Stage 1 after conclusion of the three month significant increase in credit risk “persistence” period. Stage 3 ECL increased, predominantly driven by customers exceeding 90 days past due after being unable to resume full repayments following payment holidays that concluded in late 2020. However, the various COVID-19 related customer support schemes (for example, loan repayment holidays and the government job retention scheme) continued to mitigate observable portfolio deterioration in the short-term.

Commercial Banking: Balance sheet exposure reduced, with lower demand than Q3 and Q4 2020 for new lending under government support schemes, as well as a decrease in non-scheme lending. The uncertain outlook resulted in delayed investment and low confidence among customers leading to the repayment of revolving credit facilities and working capital facilities as liquidity is optimised. Construction (in Property), Retail and Leisure were the top three sectors for borrowers accessing the government lending schemes. Stage 2 exposure decreased further during the quarter. This was driven by modest improvement in underlying credit metrics resulting in the migration of exposure to Stage 1 coupled with underlying balance reduction. For those balances that migrated to Stage 2 during the period, consistent with prior periods, PD deterioration remained the largest contributor to Stage 2 migration. The flow of exposure into Stage 3 remained low during Q1 2021, as government interventions and relief continue to mitigate against defaults. Sector appetite continued to be regularly reviewed and was adjusted for those sectors most affected by COVID-19, most notably a reduction in off-balance sheet exposures in the Land Transport & Logistics, Oil and Gas and Retail sectors. While Wholesale forbearance increased significantly during the first half of 2020, there has been a reducing trend since then. This continued during Q1 2021 as customers returned to normal repayment schedules. The Leisure, Automotive and Services sectors represented the largest share of forbearance flow in the Wholesale portfolio, by value, in Q1 2021. Payment holidays and covenant waivers were the most common forms of forbearance granted.

Ulster Bank RoI: Balance sheet exposure reduced with diminished credit demand caused by ongoing COVID-19 disruption. The weakening of the euro against sterling during the quarter further contributed to this balance sheet reduction. The decrease in ECL reflected continued improvements in the Stage 3 portfolio as well as currency fluctuations.

 

Movement in ECL provision

The table below shows the main ECL provision movements during the reporting period.

ECL provision

£m

At 1 January 2021

6,186 

Changes in economic forecasts

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

(198)

Changes in risk metrics and exposure: Stage 3

58 

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

56 

Write-offs and other

(308)

At 31 March 2021

5,794 

 

Key points

ECL reduced during Q1 2021, reflecting a decrease in underlying exposures as well as foreign exchange movements.

Stage 3 defaults continued to be mitigated by COVID-19 support mechanisms. Additionally, broader portfolio deterioration continued to be subdued and resulted in favourable movements in IFRS 9 risk metrics, which lead to some additional post model adjustments being required to ensure provision adequacy.


 

NatWest Group – Form 6-K Q1 Results 2021                               19

 

Risk and capital management

Credit risk continued

Sector analysis

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

Off-balance sheet

Loans - amortised cost & FVOCI

Loan

Contingent

ECL provisions

Stage 1

Stage 2

Stage 3

Total

commitments

liabilities

Stage 1

Stage 2

Stage 3

Total

31 March 2021

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

Personal

176,310 

26,576 

3,212 

206,098 

37,221 

43 

181 

949 

1,201 

2,331 

  Mortgages

168,293 

22,389 

2,484 

193,166 

12,523