TIDMNWG
RNS Number : 6911D
NatWest Group plc
30 October 2020
Q3 2020
Interim Management Statement
www.natwestgroup.com
NatWest Group plc
Q3 2020 Interim Management Statement
Alison Rose, Chief Executive Officer, commented:
"These results demonstrate the resilience of our underlying
business and the strength of our balance sheet in the face of
significant continued uncertainty. Our sector-leading capital
position, strong levels of liquidity and intelligent and consistent
approach to risk mean we can continue to provide our customers and
communities with the support they need.
Although impairments were relatively low in the quarter and we
have seen some positive trends across our customer base, the full
impact of Covid-19 remains very unclear. Challenging times lie
ahead, especially as the current government support schemes come to
an end and as new Covid-19 related restrictions are introduced.
We continue to deliver well against our strategy, building a
bank that champions potential and has the capability to grow. By
building deeper relationships with our customers at every stage of
their lives, simplifying the bank further, investing in innovation
and partnerships and allocating capital well, we will deliver
sustainable returns to our shareholders."
Financial performance in a challenging environment
-- Q3 2020 operating profit before tax of GBP355 million and an attributable
profit to ordinary shareholders of GBP61 million including a GBP324
million loss on redemption of own debt.
-- In comparison to Q3 2019, across the retail and commercial businesses
income decreased by 12.1%. Within NatWest Markets (NWM), the level
of primary issuance and market activity eased in Q3 2020, compared
to the first half of the year.
-- Bank net interest margin (NIM) of 1.65% was 2 basis points lower
than Q2 2020 principally reflecting reduced structural hedge income
as a result of lower swap rates and the contraction of the yield
curve. Mortgage front book new business and switcher completion margins
were approximately 140 basis points, broadly in line with the overall
book margin.
-- Strategic costs of GBP223 million in Q3 2020 include GBP90 million
redundancy costs, a GBP34 million charge related to technology spend
and a GBP21 million property charge.
-- Other expenses, excluding operating lease depreciation (OLD), were
GBP152 million lower than Q3 2019, with a GBP193 million cost reduction
achieved for the year to date. We remain on track to achieve our
GBP250 million target for full year 2020.
-- Net impairment losses of GBP254 million in Q3 2020, or 28 basis points
of gross customer loans, resulted in an expected credit loss (ECL)
coverage ratio of 1.72%.
Robust balance sheet with strong capital and liquidity levels
-- CET1 ratio of 18.2% was 100 basis points higher than Q2 2020 mainly
reflecting a GBP7.6 billion reduction in RWAs, principally in NatWest
Markets. Excluding IFRS 9 transitional relief, the CET1 ratio was
17.2%.
-- The liquidity coverage ratio (LCR) remains strong at 157%, representing
GBP61.8 billion headroom above 100%, which includes the impact of
a GBP5.0 billion term funding scheme (TFS) repayment within the quarter.
-- Across the retail and commercial businesses net lending increased
by GBP0.4 billion during Q3 2020, as GBP2.9 billion drawdowns against
UK Government lending initiatives and GBP2.4 billion related to mortgages
was partially offset by net revolving credit facility (RCF) repayments
of GBP3.1 billion and lower lending across Large Corporate & Institutions
and Specialised business.
-- Customer deposits of GBP418.4 billion increased by GBP10.1 billion
during Q3 2020, with retail and commercial balances GBP6.6 billion
higher as consumer spending continued to be impacted by government
restrictions and customers retained liquidity.
Outlook(1)
We retain the outlook guidance provided in the 2020 Interim Results
with the exception of the following updates, noting the continued significant
economic uncertainty.
We believe the full year impairment charge is likely to be at the lower
end of the GBP3.5-4.5 billion range following the limited level of defaults
across lending portfolios and associated ECL stage migration within
the third quarter.
We now expect NatWest Group RWAs to be below our previously guided range
of GBP185-195 billion at the end of 2020 following the relatively low
level of procyclical inflation experienced to date, with previously
expected uplifts delayed to 2021, whilst also now targeting NatWest
Markets RWAs of around GBP30 billion by the end of 2020.
Note:
(1) The guidance, targets, expectations and trends discussed in
this section represent management's current expectations and are
subject to change, including as a result of the factors described
in the NatWest Group plc "Risk Factors" as described on pages 108-109
of its Interim Results 2020, pages 29-31 of its Q1 2020 IMS and
pages 281-295 of its 2019 Annual Report & Accounts. These statements
constitute forward-looking statements. Refer to Forward-looking
statements in this announcement.
Our Purpose in action - we champion potential, helping people,
families and businesses to thrive
Helping our customers, colleagues and communities through the
impacts of Covid-19
Provided lending support to our customers with a disciplined
approach to risk and value creation:
-- Approved GBP13.0 billion through the government lending initiatives (1) .
-- Facilitated approximately GBP8.8 billion of Covid-19
Corporate Financing Facilities (CCFF) issuances (2) .
Supported the financial health of our customers:
-- Helped approximately 250,000 customers with an initial
mortgage repayment holiday and provided payment holidays on over
72,000 business customer accounts (3) .
-- Launched 'Banking My Way' service, enabling customers who
need additional support to request bespoke assistance, with 38,500
registrations since its launch (4) .
Long-term investment plan is powering our operational
effectiveness:
-- Increased digital adoption with 9.3 million active digital
users as at Q3 2020 (9.0 million as at Q3 2019), 6 million
interactions with our AI chat bot Cora in the first nine months of
2020 (3.9 million in the first nine months of 2019) and c.9,000
weekly video banking conversations now taking place, compared to
less than 100 a week in January 2020 (5) .
-- Announced a new relationship with BlackRock to support our
investment management processing activity, enabling savings to be
passed onto our clients.
Partnered to proactively respond and support UK communities:
-- NatWest Social and Community Capital launched a GBP1 million
Coronavirus Response Fund offering grants to organisations across
the UK that employ people from vulnerable or disadvantaged
groups.
-- Launched a review with SafeLives into supporting survivors of
economic abuse and acquired coercive debt.
Prioritised the wellbeing of our colleagues:
-- Continued to enable more than 50,000 colleagues to work from
home, delivering office furniture and computer equipment, including
31,000 tech bundles to homes (6) .
-- Enhanced our free mental health support through a new
partnership with Silvercloud, providing substantial, sector-leading
support to any colleague who needs it and provided all leaders
access to extended mental health awareness support.
Q3 2020 progress against areas of focus
Enterprise - addressing barriers to enterprise and business
creation:
-- NatWest Entrepreneur Accelerator Programme ranked the top UK
accelerator by total attendances (7) . The programme has run 800
virtual events with 33,000 attendees since the start of lockdown
(2) .
-- Over half of the GBP1 billion of debt funding to support
female entrepreneurs announced in February 2020 has been committed
as part of our ambition to help create new businesses in the UK (2)
.
Learning - skill building, particularly around financial
confidence:
-- Reached 2.4 million people through financial capability
interactions including live MoneySense lessons on social media (6)
.
-- Island Saver, the world's first financial education console,
PC and mobile game, has been downloaded over 1.7 million times
since its launch (8) .
Climate - supporting the necessary transition to a low carbon
economy:
-- As part of our membership of the Green Finance Institute's
'Coalition for the Energy Efficiency of Buildings', we have signed
up to their Green Home Retrofit Principles.
-- Progress in sustainability has been recognised by leading ESG
rating agencies: Sustainalytics substantially improved our Risk
Score to 20.5 (from 27.5) in July 2020 and MSCI upgraded our ESG
rating to A (from BBB) in October 2020.
Diversity and inclusion - building an open and inclusive bank
where everyone can thrive:
-- In addition to our existing target of at least 14% BAME
representation in senior UK roles by 2025, we have introduced a new
target to have 3% Black colleagues in senior UK roles by 2025.
-- Included in 'The Times' Top 50 employers for women.
Notes:
(1) As at 30 September 2020, inclusive of Commercial Banking and
Private Banking: Bounce Back Loan Scheme (BBLS) - GBP7.9 billion;
Coronavirus Business Interruption Loan Scheme (CBILS) - GBP3.9
billion, Coronavirus Large Business Interruption Loan Scheme
(CLBILS) - GBP1.2 billion.
(2) As at 30 September 2020.
(3) For the nine months ended 30 September 2020 in Retail
Banking and since 22 March 2020 in Commercial Banking. As at 30
September 2020, there were 37,000 active mortgage repayment
holidays and approximately 55,000 active payment holidays on
business customer accounts.
(4) From launch date of 19 August 2020 to 9 October 2020.
(5) Weekly conversation volumes, as at week commencing 12 October 2020.
(6) For the nine months ended 30 September 2020.
(7) Beauhurst report 'Accelerating Growth'- September 2020.
(8) From launch date of 13 May 2020 to 30 September 2020.
Business performance summary
Nine months ended Quarter ended
-------------------------- ---------------------------------------
30 September 30 September 30 September 30 June 30 September
Performance key metrics and
ratios 2020 2019 2020 2020 2019
---------------------------------- ------------ ------------ ------------ ------------
Profit before impairment losses GBP2,697m GBP3,222m GBP609m GBP767m GBP205m
Operating (loss)/profit before (GBP1,289m)
tax (GBP415m) GBP2,686m GBP355m (GBP8m)
(Loss)/profit attributable to (GBP993m) (GBP315m)
ordinary shareholders (GBP644m) GBP1,723m GBP61m
Bank net interest margin
(NatWest Group NIM excluding
NWM) (1) 1.73% 2.02% 1.65% 1.67% 1.97%
Bank average interest earning
assets
(NatWest Group excluding NWM) GBP458bn GBP416bn
(1) GBP449bn GBP410bn GBP468bn
Cost:income ratio (1) 66.9% 67.5% 74.5% 70.9% 92.9%
Loan impairment rate (1) 115bps 22bps 28bps 229bps 26bps
Earnings per share
- basic (5.3p) 14.3p 0.5p (8.2p) (2.6p)
- basic fully diluted (5.3p) 14.2p 0.5p (8.2p) (2.6p)
Return on tangible equity (1) (2.7%) 6.8% 0.8% (12.4%) (3.8%)
Average tangible equity GBP32bn GBP34bn GBP32bn GBP32bn GBP33bn
Average number of ordinary shares
outstanding during the period
(millions)
- basic 12,090 12,064 12,110 12,085 12,075
- fully diluted (2) 12,112 12,099 12,133 12,107 12,106
---------------------------------- ------------ ------------ ------------ ----------- ------------
30 September 30 June 31 December
Balance sheet key metrics and ratios 2020 2020 2019
----------------------------------------------- ------------ -----------
Total assets GBP791.6bn GBP806.9bn GBP723.0bn
Funded assets (1) GBP627.3bn GBP623.5bn GBP573.0bn
Loans to customers - amortised cost GBP353.7bn GBP352.3bn GBP326.9bn
Impairment provisions GBP6.1bn GBP6.1bn GBP3.7bn
Customer deposits GBP418.4bn GBP408.3bn GBP369.2bn
Liquidity coverage ratio (LCR) 157% 166% 152%
Liquidity portfolio GBP243bn GBP243bn GBP199bn
Net stable funding ratio (NSFR) (3) 147% 144% 141%
Loan:deposit ratio (1) 85% 86% 89%
Total wholesale funding GBP75bn GBP86bn GBP75bn
Short-term wholesale funding GBP25bn GBP22bn GBP19bn
Common Equity Tier (CET1) ratio (4) 18.2% 17.2% 16.2%
Total capital ratio 23.7% 22.5% 21.2%
Pro forma CET1 ratio, pre dividend accrual (5) 18.2% 17.2% 17.0%
Risk-weighted assets (RWAs) GBP173.9bn GBP181.5bn GBP179.2bn
CRR leverage ratio 5.2% 5.1% 5.1%
UK leverage ratio 6.2% 6.0% 5.8%
Tangible net asset value (TNAV) per ordinary
share 265p 264p 268p
Tangible net asset value (TNAV) per ordinary
share - fully diluted (1,2) 264p 263p 267p
Tangible equity GBP32,093m GBP32,006m GBP32,371m
Number of ordinary shares in issue (millions) 12,127 12,125 12,094
Number of ordinary shares in issue (millions)
- fully diluted (2,6) 12,149 12,147 12,138
----------------------------------------------- ------------ ---------- -----------
Notes:
(1) Refer to the Appendix for details of basis of preparation
and reconciliation of non-IFRS financial and performance
measures.
(2) Includes the effect of dilutive share options and
convertible securities. Dilutive shares on an average basis for the
nine months ended 30 September 2020 were 22 million shares; Q3 2020
- 23 million shares (nine months ended 30 September 2019 - 35
million shares; Q2 2020 - 22 million shares; Q3 2019 - 31 million
shares) and as at 30 September 2020 were 22 million shares (as at
30 June 2020 - 22 million shares; as at 31 December 2019 - 44
million shares).
(3) NSFR reported in line with CRR2 regulations finalised in June 2019.
(4) At September and June 2020 there is no charge in CET1 for
foreseeable dividends or charges. The pro forma CET1 ratio at 31
December 2019 excluded foreseeable charges of GBP968 million for
ordinary dividends (3p per share final dividend and 5p per share
special dividend) and GBP365 million pension contribution.
(5) Based on CRR end point including the IFRS 9 transitional
adjustment of GBP1.7 billion. Excluding this adjustment, the CET1
ratio would be 17.2%.
(6) Includes 16 million shares held by the Employee Benefit
Trust (30 June 2020 - 16 million shares; 31 December 2019 - 15
million shares).
Non-IFRS financial measures
This document contains a number of non-IFRS financial measures
and performance metrics not defined under IFRS. For details of the
basis of preparation and reconciliations, where applicable, refer
to the Appendix.
Summary consolidated income statement for the period ended 30
September 2020
Nine months ended Quarter ended
-------------------------- -----------------------------------
30 September 30 September 30 September 30 June 30 September
2020 2019 2020 2020 2019
GBPm GBPm GBPm GBPm GBPm
-------------------------------- ------------ ------------ ------------ ------- ------------
Net interest income 5,778 6,010 1,926 1,910 2,006
Own credit adjustments 19 (58) (34) (102) (12)
Other non-interest income 2,464 4,068 531 868 909
-------------------------------- ------------ ------------ ------------ ------- ------------
Non-interest income 2,483 4,010 497 766 897
Total income 8,261 10,020 2,423 2,676 2,903
-------------------------------- ------------ ------------ ------------ ------- ------------
Litigation and conduct costs 81 (810) (8) 85 (750)
Strategic costs (687) (844) (223) (333) (215)
Other expenses (4,958) (5,144) (1,583) (1,661) (1,733)
Operating expenses (5,564) (6,798) (1,814) (1,909) (2,698)
-------------------------------- ------------ ------------ ------------ ------- ------------
Profit before impairment losses 2,697 3,222 609 767 205
Impairment losses (3,112) (536) (254) (2,056) (213)
Operating (loss)/profit before
tax (415) 2,686 355 (1,289) (8)
Tax credit/(charge) 1 (395) (207) 396 (201)
-------------------------------- ------------ ------------ ------- ------------
(Loss)/profit for the period (414) 2,291 148 (893) (209)
------------
Attributable to:
Ordinary shareholders (644) 1,723 61 (993) (315)
Preference shareholders 21 30 5 8 10
Paid-in equity holders 272 277 80 95 95
Non-controlling interests (63) 261 2 (3) 1
-------------------------------- ------------ ------------ ------------ ------- ------------
Notable items within total income
Alawwal bank merger gain in
NatWest Markets - 444 - - -
FX recycling (loss)/gain in
Central items & other (39) 290 64 (39) -
Legacy liability release in
Central items & other - 256 - - -
Loss on redemption of own debt (324) - (324) - -
Liquidity Asset Bond sale gain/(loss) 111 (8) 1 17 (19)
IFRS volatility in Central items
& other 38 (34) 49 55 (51)
NatWest Markets asset disposals/strategic
risk reduction (75) (35) (12) (63) (8)
Share of losses under equity
accounting for
Business Growth Fund (28) - (43) (1) -
------------------------------------------ ----- ---- ----- ---- ----
Business performance summary
Retail Banking (formerly UK Personal Banking)
Quarter ended As at
----------------------------------- ----------------------------------
30 September 30 June 30 September 30 September 30 June 31 December
2020 2020 2019 2020 2020 2019
GBPm GBPm GBPm GBPbn GBPbn GBPbn
------------ ------- -----------
Total income Net loans to
(1) 1,022 1,035 1,224 customers -
Operating expenses
(1) (647) (546) (1,601) amortised cost 166.7 164.5 158.9
Impairment Customer deposits
losses (70) (360) (131) (1) 164.9 161.0 150.3
Operating profit/(loss) 305 129 (508) RWAs 36.3 36.7 37.8
Return on equity 15.3% 5.7% (26.8%)
Net interest
margin 2.05% 2.18% 2.44%
Cost:income
ratio 63.3% 52.8% 130.8%
Loan impairment
rate 17bps 87bps 34bps
------------------------ ------------ ------- ------------ ----------------- ------------ ------- -----------
Note:
(1) Comparisons with prior periods are impacted by the transfer
of the Private Client Advice business to Private Banking from 1
January 2020. The net impact on Q3 2019 operating profit would have
been to decrease total income by GBP11 million and operating
expenses by GBP2 million. The net impact on the Q3 2019 balance
sheet would have been to decrease customer deposits by GBP0.2
billion.
Retail Banking customer activity levels in Q3 2020 improved significantly
compared with Q2 2020 with debit and credit card spend levels 30% and
43% higher respectively and mortgage applications increased by 91%.
In the nine months ended 30 September 2020, Retail Banking helped approximately
250,000 customers with an initial mortgage repayment holiday and as
at Q3 2020 had 37,000 active mortgage repayment holidays, representing
3% of the book by volume. Additionally, Retail Banking had approximately
40,000, or 4%, of personal loan customers on active repayment holidays
as at Q3 2020.
-- Total income decreased by GBP202 million, or 16.5%, in comparison
to Q3 2019 due to lower fee income on overdrafts, lower deposit returns,
mortgage margin dilution and lower international spend related fee
income, partially offset by strong balance growth in mortgages and
customer deposits. Total income decreased by GBP13 million compared
with Q2 2020, reflecting a 13 basis point reduction in net interest
margin largely due to the deferred impact of the lower yield curve
on deposit margins. Mortgage book margin stabilised in Q3 2020 as
front book new business and switcher completion margins were approximately
140 basis points, broadly in line with the overall book margin. In
Q3 2020, application margins were around 160 basis points as spreads
in the market continued to widen.
-- Excluding strategic, litigation and conduct costs, operating expenses
decreased by GBP49 million, or 8.0%, compared with Q3 2019, predominantly
reflecting a reduction in staff costs associated with a 10.3% reduction
in headcount.
-- Impairment losses of GBP70 million in Q3 2020 primarily reflect stage
three default charges driven by personal advances.
-- Net loans to customers increased by GBP2.2 billion compared with Q2
2020. Gross new mortgage lending was GBP6.7 billion in Q3 2020, with
market flow share of approximately 11% and strong retention supporting
a stock share of approximately 10.6%. Unsecured balances remained
stable in Q3 2020, compared with a reduction of GBP0.8 billion in
Q2 2020.
-- Customer deposits increased by GBP3.9 billion in Q3 2020, compared
with an GBP8.2 billion increase in Q2 2020, predominantly driven by
increasing current account balances, however growth slowed in Q3 2020
as customer spend levels increased towards pre-Covid-19 levels.
Business performance summary
Ulster Bank RoI
Quarter ended As at
----------------------------------- ----------------------------------
30 September 30 June 30 September 30 September 30 June 31 December
2020 2020 2019 2020 2020 2019
EURm EURm EURm EURbn EURbn EURbn
------------ ------- ------------
Net loans to
Total income 145 135 161 customers -
Operating expenses (138) (140) (146) amortised cost 20.2 20.5 21.4
Impairment
(losses)/ Customer deposits 21.6 22.0 21.7
releases (6) (246) 19 RWAs 13.3 14.1 15.3
Operating
profit/(loss) 1 (251) 34
Return on equity 0.2% (45.5%) 5.8%
Net interest
margin 1.47% 1.49% 1.54%
Cost:income
ratio 95.2% 103.7% 90.7%
Loan impairment
rate 11bps 460bps (34)bps
---------------------- ------------ ------- ------------ ----------------- ------------ ------- -----------
Note:
(1) Ratios have been presented on a Euro basis. Comparatives have been
restated.
Our strategy to grow our Ulster Bank business in the Republic of Ireland
organically and safely remains unchanged. We continue to evaluate the
impact of Covid-19 and the challenges to the economy and we are reviewing
our strategy appropriately and responsibly in light of these events.
In the event of any changes being made to our strategy, these would
be undertaken with full consideration of any impact on customers, colleagues
and shareholders in the first instance. Our priority now is to continue
to remain focused on supporting our colleagues in serving our customers
in these difficult times.
As at Q3 2020, Ulster Bank RoI had approved over 17,000 payment breaks
and, of those who have rolled off their initial payment break, approximately
46% have opted for a second payment break, representing around 8% of
the lending book by value.
-- Total income decreased by EUR16 million, or 9.9%, compared with Q3
2019 primarily due to lower lending income, reduced transaction volumes
and fee income resulting from the impact of Covid-19. Total income
increased by EUR10 million in comparison to Q2 2020, reflecting higher
fee income from a return to more normalised transaction levels. Net
interest margin decreased by 2 basis points in comparison to Q2 2020
reflecting the continued impact of negative rates on increased liquid
assets.
-- Impairment losses were EUR6 million in Q3 2020, with payment breaks
in part mitigating the full impact of credit losses attributable
to the Covid-19 pandemic.
-- Net loans to customers decreased by EUR0.3 billion compared with
Q2 2020 as repayments continued to exceed gross new lending, combined
with a further derecognition of the non-performing loan (NPL) sale
agreed in 2019. Gross new lending of EUR0.4 billion was broadly in
line with Q2 2020.
-- Customer deposits decreased by EUR0.4 billion in comparison to Q2
2020 mainly due to the introduction of negative rates on certain
commercial deposit categories.
-- RWAs decreased by EUR0.8 billion in comparison to Q2 2020 reflecting
the EUR0.2 billion impact of the NPL sale derecognition, lower volumes
and improved credit metrics.
Business performance summary
Commercial Banking
Quarter ended As at
----------------------------------- ----------------------------------
30 September 30 June 30 September 30 September 30 June 31 December
2020 2020 2019 2020 2020 2019
GBPm GBPm GBPm GBPbn GBPbn GBPbn
------------ ------- ------------
Net loans to
Total income 1,004 995 1,077 customers -
Operating
expenses (553) (611) (638) amortised cost 110.0 112.0 101.2
Impairment
losses (127) (1,355) (108) Customer deposits 161.3 159.6 135.0
Operating
profit/(loss) 324 (971) 331 RWAs 76.5 78.3 72.5
Return on
equity 9.2% (32.5%) 8.4%
Net interest
margin 1.65% 1.70% 1.90%
Cost:income
ratio 53.4% 59.9% 57.9%
Loan impairment
rate 45bps 472bps 42bps
----------------- ------------ ------- ------------ ----------------- ------------ ------- -----------
Commercial Banking continues to support customers through a comprehensive
package of initiatives including participation in the UK Government's
financial support schemes. As at Q3 2020, GBP7.9 billion BBLS, GBP3.7
billion CBILS and GBP1.2 billion CLBILS had been approved. Since 22
March 2020 Commercial Banking provided payment holidays on over 72,000
customer accounts and as at Q3 2020 had active payment holidays on
c.55,000 customer accounts, representing c.8% of the lending book by
value.
-- Total income decreased by GBP73 million, or 6.8%, compared with Q3
2019 as the continued contraction of the yield curve and lower business
activity was partially offset by increased lending volumes. Net interest
margin decreased by 5 basis points in comparison to Q2 2020 as a
result of lower deposit funding benefits.
-- Other expenses, excluding OLD, were GBP36 million, or 6.8%, lower
than Q3 2019 mainly due to a reduction in back office operations
costs and a 3.0% reduction in headcount.
-- Impairment losses of GBP127 million in Q3 2020 primarily reflect
stage one and two movements related to the expected deterioration
in the economic environment, with total stage three charges of GBP53
million, including a small number of single name charges.
-- Net loans to customers decreased by GBP2.0 billion compared with
Q2 2020 as GBP3.1 billion net RCF repayments and lower lending across
Large Corporate & Institutions and Specialised business lending more
than offset drawdowns against UK Government lending schemes, including
GBP1.7 billion related to BBLS, GBP0.8 billion related to CBILS and
GBP0.4 billion related to CLBILS. RCF utilisation decreased to c.26%
of committed facilities, broadly in line with pre-Covid-19 levels.
-- Customer deposits increased by GBP1.7 billion compared with Q2 2020
as customers continued to retain liquidity.
-- RWAs decreased by GBP1.8 billion compared with Q2 2020 as lower lending
volumes and a c.GBP1.5 billion reduction reflecting the CRR Covid-19
amendment to accelerate the planned changes to the SME supporting
factor and the introduction of an Infrastructure supporting factor,
partially offset by risk parameter changes.
Business performance summary
Private Banking - (commentary adjusted for transfers)
Quarter ended As at
----------------------------------- ----------------------------------
30 September 30 June 30 September 30 September 30 June 31 December
2020 2020 2019 2020 2020 2019
GBPm GBPm GBPm GBPbn GBPbn GBPbn
Net loans to
customers
Total income 187 191 198 -
Operating
expenses (112) (129) (119) amortised cost 16.5 16.0 15.5
Impairment Customer deposits 30.3 29.8 28.4
(losses)/releases (18) (27) 2 RWAs 10.6 10.4 10.1
Operating Assets Under
profit 57 35 81 Management
Return on
equity 11.2% 6.6% 16.8% (AUMs) 27.3 27.1 23.2
Net interest Assets Under
margin 1.99% 2.14% 2.35% Administration
Cost:income
ratio 59.9% 67.5% 60.1% (AUAs) (1) 2.8 2.7 7.2
Loan impairment
rate 43bps 67bps (5)bps Total Assets Under
Management and
Administration
(AUMA) 30.1 29.8 30.4
-------------------- ------------ ------- ------------ --------------------- ------------ ------- -----------
Notes:
(1) Private Banking manages assets under administration portfolios on
behalf of Retail Banking and RBSI and receives a management fee in respect
of providing this service.
(2) Comparisons with prior periods are impacted by the transfer of the
Private Client Advice business from Retail Banking from 1 January 2020.
The net impact on Q3 2019 operating profit would have been to increase
total income by GBP11 million and operating expenses by GBP2 million.
The net impact on the Q3 2019 balance sheet would have been to increase
customer deposits by GBP0.2 billion. AUMs would have been GBP4.5 billion
higher, with a corresponding decrease in AUAs. Variances in the commentary
below have been adjusted for the impact of this transfer.
Private Banking remains committed to supporting clients through a range
of initiatives, including the provision of mortgage and loan repayment
breaks and via participation in UK Government lending initiatives, with
c.GBP0.3 billion approved as at Q3 2020.
-- Total income was GBP22 million, or 10.5%, lower than Q3 2019 mainly
reflecting lower deposit funding benefits, a reduction in fee income
and one-off benefits related to hedging income gains in Q3 2019, partially
offset by balance sheet growth. Net interest margin decreased by 15
basis points in comparison to Q2 2020 primarily due to lower deposit
funding benefits.
-- Impairment losses of GBP18 million largely reflected stage one and
two charges.
-- Net loans to customers increased by GBP0.5 billion in comparison to
Q2 2020 reflecting mortgage growth and drawdowns against UK Government
lending schemes .
-- Total AUMAs overseen by Private Banking increased by GBP0.3 billion
compared with Q2 2020 reflecting positive investment performance.
RBS International
Quarter ended As at
----------------------------------- ----------------------------------
30 September 30 June 30 September 30 September 30 June 31 December
2020 2020 2019 2020 2020 2019
GBPm GBPm GBPm GBPbn GBPbn GBPbn
Net loans to
Total income 112 115 150 customers -
Operating expenses (53) (65) (62) amortised cost 12.8 12.7 14.1
Impairment losses (34) (31) - Customer deposits 30.4 29.5 30.1
Operating profit 25 19 88 RWAs 7.0 6.8 6.5
Return on equity 6.4% 4.3% 26.0%
Net interest margin 1.07% 1.15% 1.55%
Cost:income ratio 47.3% 56.5% 41.3%
Loan impairment
rate 105bps 97bps -
--------------------- ------------ ------- ------------ ----------------- ------------ ------- -----------
As at Q3 2020, RBS International had 322 active mortgage repayment breaks,
reflecting a mortgage value of GBP82 million, and is providing support
for 566 business customers with working capital facilities, reflecting
a value of GBP503 million, while continuing to suspend a range of fees
and charges for its personal and business customers.
-- Total income decreased by GBP38 million, or 25.3%, compared with Q3
2019 primarily due to the impact of the interest rate reductions on
deposit income and lower fee income reflecting the economic response
to Covid-19. Net interest margin decreased by 8 basis points compared
with Q2 2020 due to reduced funding benefits.
-- Excluding strategic, litigation and conduct costs, operating expenses
decreased by GBP7 million, or 12.3%, compared with Q3 2019 mainly
due to lower staff costs as a result of a 5.6% headcount reduction
and lower project spend.
-- Impairment losses were GBP34 million higher than Q3 2019 due to revised
economic scenarios, refreshed staging and maturity date analysis.
-- Customer deposits were GBP0.9 billion higher than Q2 2020 due to short
term placements in the Institutional Banking Sector.
-- RWAs increased by GBP0.2 billion compared with Q2 2020 due to customer
maturities and higher lending balances in the wholesale sector.
Business performance summary
NatWest Markets (1)
Quarter ended As at
----------------------------------- ----------------------------------
30 September 30 June 30 September 30 September 30 June 31 December
2020 2020 2019 2020 2020 2019
GBPm GBPm GBPm GBPbn GBPbn GBPbn
Funded
Total income 234 273 150 Assets 121.3 122.9 116.2
of which: RWAs 30.0 35.1 37.9
- Income excluding
asset disposals/strategic
risk reduction
and own
credit adjustments 280 438 161
- Asset disposals/strategic
risk reduction
(2) (12) (63) -
- Own credit adjustments (34) (102) (11)
Operating expenses (302) (365) (348)
Impairment releases/(losses) 2 (45) 5
Operating (loss) (66) (137) (193)
Return on equity (4.7%) (7.1%) (8.7%)
Cost:income ratio 129.1% 133.7% 232.0%
---------------------------------- ------------ ------- ------------ ------- ------------ ------- -----------
Notes:
(1) The NatWest Markets operating segment is not the same as the
NatWest Markets Plc legal entity (NWM Plc) or group (NWM or NWM
Group). For 2019, NWM Group includes NatWest Markets N.V. (NWM
N.V.) from 29 November 2019 only. For periods prior to Q4 2019, NWM
N.V. was excluded from the NWM Group. In both 2019 and 2020 the
NatWest Markets segment excludes the Central items & other
segment.
(2) Asset disposals/strategic risk reduction in 2020 relates to
the cost of exiting positions and the impact of risk reduction
transactions entered into, in respect of the strategic announcement
on 14 February 2020.
During Q3 2020 NatWest Markets made further progress on reshaping the
business for the future, putting purpose at its core. The front office
operating model was reorganised to increase focus on NatWest Group's
customers. A Capital Management Unit has also been established to safely
manage capital reduction and optimisation. Further refinements to the
product suite were also communicated, to focus resources on developing
product capability in the areas that matter most to NatWest Group's
customers. This included exiting Distressed and Emerging Markets Credit
trading and making changes to simplify the Rates business. In line with
the strategy announced in February, NatWest Markets has continued to
reduce RWAs, particularly within counterparty credit and market risk,
and are now targeting RWAs of around GBP30 billion by the end of 2020.
-- Income excluding asset disposals/strategic risk reduction, OCA and
notable items increased by GBP111 million, or 65.7%, in comparison
to Q3 2019. Although market activity and the level of primary issuance
eased in Q3 2020 compared to the first half of the year, income was
significantly higher than Q3 2019 due to elevated hedging costs in
the prior period.
-- Excluding strategic, litigation and conduct costs, operating expenses
decreased by GBP57 million, or 20.2%, in comparison to Q3 2019 reflecting
continued reductions in line with the strategic announcement in February
2020.
-- RWAs were GBP5.1 billion lower than Q2 2020 as counterparty credit
risk decreased by GBP2.2 billion and market risk decreased by GBP2.2
billion due to capital optimisation actions.
Central items & other
Quarter ended
-----------------------------------
30 September 30 June 30 September
2020 2020 2019
GBPm GBPm GBPm
Central items not allocated (285) (146) 162
---------------------------- ------------ ------- ------------
-- A GBP285 million operating loss within central items not allocated
in Q3 2020 principally reflects the day one loss on redemption of
own debt of GBP324 million related to the repurchase of legacy instruments
which will result in annual net interest savings of c.GBP74 million.
Q3 2019 principally reflected a GBP162 million reimbursment under
indemnification agreements relating to residential mortgage-backed
securities.
Segment performance
Nine months ended 30 September 2020
--------------------------------------------------------------------------------------
Central
Retail Ulster Commercial Private RBS NatWest items Total NatWest
& other
Banking Bank RoI Banking Banking International Markets (1) Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Income statement
Net interest income 2,919 294 2,073 371 286 (55) (110) 5,778
Non-interest income 288 85 934 208 85 1,086 (222) 2,464
Own credit adjustments - - - - - 19 - 19
------------------------------ ------- -------- ---------- ------- ------------- ------- ------- -------------
Total income 3,207 379 3,007 579 371 1,050 (332) 8,261
Direct expenses
- staff costs (399) (150) (497) (137) (92) (434) (914) (2,623)
- other costs (152) (65) (211) (61) (37) (131) (1,678) (2,335)
Indirect expenses (1,178) (139) (958) (149) (42) (229) 2,695 -
Strategic costs
- direct (46) (9) (5) (4) (8) (187) (428) (687)
- indirect (138) (10) (111) (10) (3) (24) 296 -
Litigation and conduct costs 191 1 8 (3) 3 (4) (115) 81
------------------------------ ------- -------- ---------- ------- ------------- ------- ------- -------------
Operating expenses (1,722) (372) (1,774) (364) (179) (1,009) (144) (5,564)
Operating profit/(loss)before
impairment
(losses)/releases 1,485 7 1,233 215 192 41 (476) 2,697
Impairment (losses)/releases (727) (251) (1,917) (74) (80) (38) (25) (3,112)
------------------------------ ------- -------- ---------- ------- ------------- ------- ------- -------------
Operating profit/(loss) 758 (244) (684) 141 112 3 (501) (415)
Additional information
Return on equity (2) 12.2% (16.6%) (8.7%) 9.2% 10.0% (0.8%) nm (2.7%)
Cost:income ratio (2) 53.7% 98.2% 57.4% 62.9% 48.2% 96.1% nm 66.9%
Total assets (GBPbn) 189.5 27.4 186.9 24.9 32.7 283.2 47.0 791.6
Funded assets (GBPbn) 189.5 27.4 186.9 24.9 32.7 121.3 44.6 627.3
Net loans to customers -
amortised cost
(GBPbn) 166.7 18.3 110.0 16.5 12.8 10.1 19.3 353.7
Loan impairment rate (2) 57bps 175bps 226bps 59bps 83bps nm nm 115bps
Impairment provisions (GBPbn) (1.9) (0.8) (3.0) (0.1) (0.1) (0.2) - (6.1)
Impairment provisions - stage
3 (GBPbn) (0.9) (0.5) (1.1) - - (0.2) - (2.7)
Customer deposits (GBPbn) 164.9 19.6 161.3 30.3 30.4 4.7 7.2 418.4
Risk-weighted assets (RWAs)
(GBPbn) 36.3 12.1 76.5 10.6 7.0 30.0 1.4 173.9
RWA equivalent (RWAe) (GBPbn) 36.3 12.1 76.6 10.6 7.1 32.0 1.4 176.1
Employee numbers (FTEs -
thousands) 16.6 2.8 9.6 2.1 1.7 2.8 26.0 61.6
Average interest earning
assets (GBPbn) 179.8 26.2 160.8 23.3 31.3 38.4 nm 487.8
Net interest margin 2.17% 1.50% 1.72% 2.12% 1.22% (0.19%) nm 1.58%
Third party customer asset
rate (3) 2.92% 2.29% 2.93% 2.59% 2.57% nm nm nm
Third party customer funding
rate (3) (0.23%) (0.12%) (0.20%) (0.18%) (0.03%) nm nm nm
------------------------------ ------- -------- ---------- ------- ------------- ------- ------- -------------
Refer to page 14 for the notes to this table. nm = not
meaningful.
Segment performance
Nine months ended 30 September 2019
---------------------------------------------------------------------------------------
Central
Retail Ulster Commercial Private RBS NatWest items Total NatWest
& other
Banking Bank RoI Banking Banking International Markets (1) Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- -------- ---------- ------- ------------- ------- -------- -------------
Income statement
Net interest income 3,118 302 2,127 391 361 (184) (105) 6,010
Non-interest income 553 125 1,115 191 99 890 60 3,033
Own credit adjustments - 1 - - - (58) (1) (58)
Strategic disposals - - - - - 444 591 1,035
----------------------------- ------- -------- ---------- ------- ------------- ------- -------- -------------
Total income 3,671 428 3,242 582 460 1,092 545 10,020
Direct expenses
- staff costs (431) (156) (521) (122) (89) (508) (905) (2,732)
- other costs (217) (70) (223) (52) (37) (128) (1,685) (2,412)
Indirect expenses (1,113) (134) (915) (145) (40) (246) 2,593 -
Strategic costs
- direct (8) (12) (20) - (9) (104) (691) (844)
- indirect (143) (19) (171) (30) (6) (37) 406 -
Litigation and conduct costs (918) (21) (50) (2) - (3) 184 (810)
----------------------------- ------- -------- ---------- ------- ------------- ------- -------- -------------
Operating expenses (2,830) (412) (1,900) (351) (181) (1,026) (98) (6,798)
Operating profit/(loss)
before impairment
(losses)/releases 841 16 1,342 231 279 66 447 3,222
Impairment (losses)/releases (312) 38 (310) 5 3 41 (1) (536)
----------------------------- ------- -------- ---------- ------- ------------- ------- -------- -------------
Operating profit/(loss) 529 54 1,032 236 282 107 446 2,686
Additional information
Return on equity (2) 7.8% 3.4% 8.7% 16.7% 28.5% (2.2%) nm 6.8%
Cost:income ratio (2) 77.1% 96.3% 57.2% 60.3% 39.3% 94.0% nm 67.5%
Total assets (GBPbn) 176.7 26.1 166.6 22.6 31.2 318.3 35.0 776.5
Funded assets (GBPbn) 176.7 26.0 166.6 22.6 31.2 142.7 34.9 600.7
Net loans to customers -
amortised cost
(GBPbn) 154.6 19.0 101.5 15.2 13.8 9.1 6.3 319.5
Loan impairment rate (2) 27bps (26)bps 40bps (4)bps (3)bps nm nm 22bps
Impairment provisions (GBPbn) (1.4) (0.8) (1.3) - - (0.2) (0.1) (3.8)
Impairment provisions - stage
3 (GBPbn) (0.8) (0.8) (1.0) - - (0.2) - (2.8)
Customer deposits (GBPbn) 147.9 18.8 135.7 28.2 29.1 3.3 6.7 369.7
Risk-weighted assets (RWAs)
(GBPbn) 37.5 13.3 77.0 10.0 6.5 43.8 1.4 189.5
RWA equivalent (RWAe) (GBPbn) 38.4 13.6 78.1 10.0 6.6 48.9 1.7 197.3
Employee numbers (FTEs -
thousands) 18.5 3.0 9.9 1.9 1.8 5.1 25.5 65.7
Average interest earning
assets (GBPbn) 165.3 25.2 145.8 21.5 29.3 35.1 nm 445.1
Net interest margin 2.52% 1.60% 1.95% 2.44% 1.65% (0.70%) nm 1.81%
Third party customer asset
rate (3) 3.27% 2.29% 3.37% 2.95% 2.93% nm nm nm
Third party customer funding
rate (3) (0.37%) (0.15%) (0.35%) (0.44%) (0.14%) nm nm nm
----------------------------- ------- -------- ---------- ------- ------------- ------- -------- -------------
Refer to page 14 for the notes to this table. nm = not
meaningful.
Segment performance
Quarter ended 30 September 2020
--------------------------------------------------------------------------------------
Central
Retail Ulster Commercial Private RBS NatWest items Total NatWest
& other
Banking Bank RoI Banking Banking International Markets (1) Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Income statement
Net interest income 937 100 703 120 85 (21) 2 1,926
Non-interest income 85 30 301 67 27 289 (268) 531
Own credit adjustments - - - - - (34) - (34)
------------------------------ ------- -------- ---------- ------- ------------- ------- ------- -------------
Total income 1,022 130 1,004 187 112 234 (266) 2,423
Direct expenses
- staff costs (131) (50) (156) (44) (27) (108) (311) (827)
- other costs (49) (23) (71) (14) (10) (37) (552) (756)
Indirect expenses (380) (47) (300) (48) (13) (80) 868 -
Strategic costs
- direct (45) (5) (3) (4) (5) (67) (94) (223)
- indirect (35) (2) (38) - 2 (8) 81 -
Litigation and conduct costs (7) - 15 (2) - (2) (12) (8)
------------------------------ ------- -------- ---------- ------- ------------- ------- ------- -------------
Operating expenses (647) (127) (553) (112) (53) (302) (20) (1,814)
Operating profit/(loss)before
impairment
(losses)/releases 375 3 451 75 59 (68) (286) 609
Impairment (losses)/releases (70) (8) (127) (18) (34) 2 1 (254)
------------------------------ ------- -------- ---------- ------- ------------- ------- ------- -------------
Operating profit/(loss) 305 (5) 324 57 25 (66) (285) 355
Additional information
Return on equity (2) 15.3% (1.0%) 9.2% 11.2% 6.4% (4.7%) nm 0.8%
Cost:income ratio (2) 63.3% 97.7% 53.4% 59.9% 47.3% 129.1% nm 74.5%
Total assets (GBPbn) 189.5 27.4 186.9 24.9 32.7 283.2 47.0 791.6
Funded assets (GBPbn) 189.5 27.4 186.9 24.9 32.7 121.3 44.6 627.3
Net loans to customers -
amortised cost
(GBPbn) 166.7 18.3 110.0 16.5 12.8 10.1 19.3 353.7
Loan impairment rate (2) 17bps 17bps 45bps 43bps 105bps nm nm 28bps
Impairment provisions (GBPbn) (1.9) (0.8) (3.0) (0.1) (0.1) (0.2) - (6.1)
Impairment provisions - stage
3 (GBPbn) (0.9) (0.5) (1.1) - - (0.2) - (2.7)
Customer deposits (GBPbn) 164.9 19.6 161.3 30.3 30.4 4.7 7.2 418.4
Risk-weighted assets (RWAs)
(GBPbn) 36.3 12.1 76.5 10.6 7.0 30.0 1.4 173.9
RWA equivalent (RWAe) (GBPbn) 36.3 12.1 76.6 10.6 7.1 32.0 1.4 176.1
Employee numbers (FTEs -
thousands) 16.6 2.8 9.6 2.1 1.7 2.8 26.0 61.6
Average interest earning
assets (GBPbn) 182.2 27.3 169.3 24.0 31.5 39.2 nm 507.3
Net interest margin 2.05% 1.46% 1.65% 1.99% 1.07% (0.21%) nm 1.51%
Third party customer asset
rate (3) 2.82% 2.32% 2.73% 2.43% 2.41% nm nm nm
Third party customer funding
rate (3) (0.13%) (0.11%) (0.03%) (0.02%) 0.03% nm nm nm
------------------------------ ------- -------- ---------- ------- ------------- ------- ------- -------------
Refer to page 14 for the notes to this table. nm = not
meaningful.
Segment performance
Quarter ended 30 June 2020
---------------------------------------------------------------------------------------
Central
Retail Ulster Commercial Private RBS NatWest items Total NatWest
& other
Banking Bank RoI Banking Banking International Markets (1) Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- -------- ---------- ------- ------------- ------- -------- -------------
Income statement
Net interest income 975 97 696 124 90 6 (78) 1,910
Non-interest income 60 23 299 67 25 369 25 868
Own credit adjustments - - - - - (102) - (102)
----------------------------- ------- -------- ---------- ------- ------------- ------- -------- -------------
Total income 1,035 120 995 191 115 273 (53) 2,676
Direct expenses
- staff costs (133) (52) (167) (46) (33) (159) (287) (877)
- other costs (45) (18) (67) (23) (13) (37) (581) (784)
Indirect expenses (399) (46) (337) (54) (15) (75) 926 -
Strategic costs
- direct (1) (3) - - (2) (86) (241) (333)
- indirect (69) (4) (34) (5) (2) (8) 122 -
Litigation and conduct costs 101 1 (6) (1) - - (10) 85
----------------------------- ------- -------- ---------- ------- ------------- ------- -------- -------------
Operating expenses (546) (122) (611) (129) (65) (365) (71) (1,909)
Operating profit/(loss)
before impairment
(losses)/releases 489 (2) 384 62 50 (92) (124) 767
Impairment (losses)/releases (360) (216) (1,355) (27) (31) (45) (22) (2,056)
----------------------------- ------- -------- ---------- ------- ------------- ------- -------- -------------
Operating profit/(loss) 129 (218) (971) 35 19 (137) (146) (1,289)
Additional information
Return on equity (2) 5.7% (44.5%) (32.5%) 6.6% 4.3% (7.1%) nm (12.4%)
Cost:income ratio (2) 52.8% 101.7% 59.9% 67.5% 56.5% 133.7% nm 70.9%
Total assets (GBPbn) 187.1 27.6 186.0 23.9 31.5 303.8 47.0 806.9
Funded assets (GBPbn) 187.1 27.6 186.0 23.9 31.5 122.9 44.5 623.5
Net loans to customers -
amortised cost
(GBPbn) 164.5 18.7 112.0 16.0 12.7 11.4 17.0 352.3
Loan impairment rate (2) 87bps 441bps 472bps 67bps 97bps nm nm 229bps
Impairment provisions (GBPbn) (1.9) (0.9) (3.0) (0.1) - (0.2) - (6.1)
Impairment provisions - stage
3 (GBPbn) (0.9) (0.6) (1.2) - - (0.1) - (2.8)
Customer deposits (GBPbn) 161.0 20.0 159.6 29.8 29.5 5.5 2.9 408.3
Risk-weighted assets (RWAs)
(GBPbn) 36.7 12.8 78.3 10.4 6.8 35.1 1.4 181.5
RWA equivalent (RWAe) (GBPbn) 36.7 12.8 78.4 10.4 6.9 37.2 1.5 183.9
Employee numbers (FTEs -
thousands) 17.1 2.8 9.6 2.0 1.8 5.0 24.4 62.7
Average interest earning
assets (GBPbn) 179.8 26.4 164.6 23.3 31.5 39.9 nm 497.4
Net interest margin 2.18% 1.48% 1.70% 2.14% 1.15% 0.06% nm 1.54%
Third party customer asset
rate (3) 2.88% 2.27% 2.88% 2.53% 2.58% nm nm nm
Third party customer funding
rate (3) (0.20%) (0.12%) (0.25%) (0.14%) (0.01%) nm nm nm
----------------------------- ------- -------- ---------- ------- ------------- ------- -------- -------------
Refer to page 14 for the notes to this table. nm = not
meaningful.
Segment performance
Quarter ended 30 September 2019
--------------------------------------------------------------------------------------
Central
Retail Ulster Commercial Private RBS NatWest items Total NatWest
& other
Banking Bank RoI Banking Banking International Markets (1) Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Income statement
Net interest income 1,034 102 703 130 119 (62) (20) 2,006
Non-interest income 190 43 374 68 31 223 (20) 909
Own credit adjustments - - - - - (11) (1) (12)
------------------------------ ------- -------- ---------- ------- ------------- ------- ------- -------------
Total income 1,224 145 1,077 198 150 150 (41) 2,903
Direct expenses
- staff costs (143) (52) (172) (40) (30) (159) (295) (891)
- other costs (81) (22) (72) (17) (14) (42) (594) (842)
Indirect expenses (385) (44) (317) (49) (13) (81) 889 -
Strategic costs
- direct (12) (3) 10 - (4) (55) (151) (215)
- indirect (68) (9) (83) (13) (1) (7) 181 -
Litigation and conduct costs (912) (1) (4) - - (4) 171 (750)
------------------------------ ------- -------- ---------- ------- ------------- ------- ------- -------------
Operating expenses (1,601) (131) (638) (119) (62) (348) 201 (2,698)
Operating profit/(loss) before
impairment
(losses)/releases (377) 14 439 79 88 (198) 160 205
Impairment (losses)/releases (131) 17 (108) 2 - 5 2 (213)
------------------------------ ------- -------- ---------- ------- ------------- ------- ------- -------------
Operating profit/(loss) (508) 31 331 81 88 (193) 162 (8)
Additional information
Return on equity (2) (26.8%) 5.8% 8.4% 16.8% 26.0% (8.7%) nm (3.8%)
Cost:income ratio (2) 130.8% 90.3% 57.9% 60.1% 41.3% 232.0% nm 92.9%
Total assets (GBPbn) 176.7 26.1 166.6 22.6 31.2 318.3 35.0 776.5
Funded assets (GBPbn) 176.7 26.0 166.6 22.6 31.2 142.7 34.9 600.7
Net loans to customers -
amortised cost
(GBPbn) 154.6 19.0 101.5 15.2 13.8 9.1 6.3 319.5
Loan impairment rate (2) 34bps (34)bps 42bps (5)bps - nm nm 26bps
Impairment provisions (GBPbn) (1.4) (0.8) (1.3) - - (0.2) (0.1) (3.8)
Impairment provisions - stage
3 (GBPbn) (0.8) (0.8) (1.0) - - (0.2) - (2.8)
Customer deposits (GBPbn) 147.9 18.8 135.7 28.2 29.1 3.3 6.7 369.7
Risk-weighted assets (RWAs)
(GBPbn) 37.5 13.3 77.0 10.0 6.5 43.8 1.4 189.5
RWA equivalent (RWAes) (GBPbn) 38.4 13.6 78.1 10.0 6.6 48.9 1.7 197.3
Employee numbers (FTEs -
thousands) 18.5 3.0 9.9 1.9 1.8 5.1 25.5 65.7
Average interest earning
assets (GBPbn) 168.1 26.2 146.7 22.0 30.4 38.6 nm 454.4
Net interest margin 2.44% 1.55% 1.90% 2.35% 1.55% (0.64%) nm 1.75%
Third party customer asset
rate (3) 3.23% 2.26% 3.31% 2.92% 2.91% nm nm nm
Third party customer funding
rate (3) (0.37%) (0.14%) (0.36%) (0.44%) (0.14%) nm nm nm
------------------------------ ------- -------- ---------- ------- ------------- ------- ------- -------------
Notes:
(1) Central items & other includes unallocated transactions,
including volatile items under IFRS, items related to Alawwal bank
merger and RMBS related charges.
(2) Refer to the Appendix for details of basis of preparation
and reconciliation of non-IFRS performance measures where
relevant.
(3) Third party customer asset rate is calculated as annualised
interest receivable on third-party loans to customers as a
percentage of third-party loans to customers only. Third party
customer funding rate reflects interest payable on third-party
customer deposits. This excludes intragroup items, loans to banks
and liquid asset portfolios. Intragroup items, bank deposits and
debt securities in issue are excluded for customer funding rate
calculation. Net interest margin is calculated as net interest
income as a percentage of the average interest-earning assets
without these exclusions.
Capital and risk management
Page
------------------------------------- -----
Capital, liquidity and funding risk 15
------------------------------------- -----
Credit risk
------------------------------------- -----
Segmental exposure 21
------------------------------------- -----
Sector analysis 25
------------------------------------- -----
Wholesale support schemes 27
------------------------------------- -----
Capital, liquidity and funding risk
Introduction
The economic impact of the Covid-19 pandemic was significant.
While liquidity, capital and funding were closely monitored
throughout, NatWest Group benefited from its strong positions,
particularly in relation to CET1, going into the crisis.
Prudent
risk management continues to be important as the full economic
effects of the global pandemic unfold.
Key developments
-- The CET1 ratio increased by 200 basis points to 18.2%. There was
a release of GBP1.3 billion following the cancellation of the proposed
2019 dividend payments and associated pension contribution in Q1
2020, as announced by the Board in response to Covid-19. The attributable
loss in the period was GBP644 million however the IFRS 9 transitional
arrangements on expected credit losses provided relief of GBP1,719
million.
-- Total RWAs decreased by GBP5.3 billion during the period, mainly
reflecting reductions in Market Risk RWAs of GBP3.6 billion and
Counterparty Credit Risk RWAs of GBP2.4 billion. Operational Risk
RWAs reduced by GBP0.7 billion following the annual recalculation
in Q1 2020. The reduction in Market Risk RWAs was due to movements
in Risks-not-in-VaR (RNIV) and Incremental Risk Charge (IRC) as
well as a reduction in non-modelled market risk. There were offsetting
increases in Credit Risk RWAs of GBP1.4 billion.
-- The CRR leverage ratio increased to 5.2% due to a GBP2.5 billion
increase in Tier 1 capital which is partially offset by a GBP44.4
billion increase in the leverage exposure driven by balance sheet
exposures.
In response to the Covid-19 pandemic, a number of relief
measures to alleviate the financial stability impact have been
announced and recommended by regulatory and supervisory bodies. One
significant announcement was on 26 June when the European
Parliament passed an amended regulation to the CRR in response to
the Covid-19 pandemic ("the CRR Covid-19 amendment"); NatWest Group
has applied a number of the CRR amendments for Q3 2020 reporting.
The impact on capital and leverage of the CRR amendment and other
relief measures are set out below.
-- IFRS 9 Transition - NatWest Group has elected to take advantage
of the transitional regulatory capital rules in respect of expected
credit losses following the adoption of IFRS 9; it had previously
had a negligible impact up to Q4 2019. The CRR Covid-19 amendment
now requires a full CET1 addback for the movement in stage 1 and
stage 2 ECL from 1 January 2020 for the next two years. The IFRS
9 transitional arrangement impact on NatWest Group CET1 regulatory
capital at 30 September 2020 is GBP1,719 million. Excluding this
adjustment, the CET1 ratio would be 17.2%.
-- UK Leverage exposure - The Prudential Regulation Authority (PRA)
announced the ability for firms to apply for a modification by consent
to permit the netting of regular-way purchase and sales settlement
balances. The PRA also offered a further modification that gave
an exclusion from the UK Leverage Exposure for BBLS and other 100%
guaranteed government Covid-19 lending schemes. NatWest Group has
received permission to apply these and it has reduced the UK leverage
exposure by c.GBP9.8 billion and GBP7.5 billion respectively.
-- CRR Leverage exposure - The CRR Covid-19 amendment accelerated a
change in CRR2 to allow the netting of regular-way purchase and
sales settlement balances. NatWest Group has applied this, and it
has reduced the CRR leverage exposure by c.GBP9.8 billion.
-- Infrastructure and SME RWA supporting factors - The CRR Covid-19
amendment allowed an acceleration of the planned changes to the
SME supporting factor and the introduction of an Infrastructure
supporting factor. NatWest Group has implemented these beneficial
changes to supporting factors which have reduced RWAs by c.GBP1.0
billion for SMEs and GBP0.8 billion for Infrastructure.
-- Prudential Valuation Adjustment (PVA) - The European Commission
amended the prudent valuation Regulatory Technical Standard such
that, due to the exceptional levels of market volatility, the aggregation
factor was increased from 50% to 66% until 31 December 2020 inclusive.
This has reduced NatWest Group's PVA deduction by c.GBP100 million.
-- Market Risk Value-at-risk (VaR) model capital multiplier - Earlier
in the year, the PRA and De Nederlandsche Bank (DNB) announced temporary
approaches in relation to the exceptional levels of market volatility
which resulted in an increase in VaR model back-testing exceptions
in NatWest Markets Plc and NatWest Markets N.V.. Under the PRA temporary
approach, capital multiplier increases due to new back-testing exceptions
which have resulted in an increase in capital requirements could
be offset through a commensurate reduction in RNIV capital requirements.
The PRA announced that this temporary approach will cease to apply
from 1 October 2020, and be replaced by the measures announced in
the CRR Covid-19 amendment where back-testing exceptions due to
the exceptional levels of market volatility due to Covid-19 can
be excluded from the capital multiplier. The application of this
CRR Covid-19 measure is subject to approval by the PRA, which NatWest
Markets Plc has applied for. The PRA approach resulted in c.GBP1.3
billion benefit.
-- Capital buffers - Many countries have announced reductions in their
countercyclical capital buffer rates in response to Covid-19. Most
notably for NatWest Group, the Financial Policy Committee reduced
the UK rate from 1% to 0% effective from 11 March 2020. The CBI
also announced a reduction of the Republic of Ireland rate from
1% to 0% effective from 1 April 2020.
Capital and risk management
Capital, liquidity and funding risk continued
Maximum Distributable Amount (MDA) and Minimum Capital
Requirements
NatWest Group is subject to minimum capital requirements
relative to RWAs. The table below summarises the minimum capital
requirements (the sum of Pillar 1 and Pillar 2A), and the
additional capital buffers which are held in excess of the
regulatory minimum requirements and are usable in stress.
Where the CET1 ratio falls below the sum of the minimum capital
and the combined buffer requirement, there is a subsequent
automatic restriction on the amount available to service
discretionary payments, known as the MDA. Note that different
requirements apply to individual legal entities or sub-groups and
that the table shown does not reflect any incremental PRA buffer
requirements, which are not disclosable.
The current capital position provides significant headroom above
both our minimum requirements and our MDA threshold
requirements.
Type CET1 Total Tier 1 Total capital
--------------------------------- ------------------------- ------------- --------------
Pillar 1 requirements 4.5% 6.0% 8.0%
Pillar 2A requirements 1.9% 2.6% 3.4%
--------------------------------- ------------------------- ------------- --------------
Minimum Capital Requirements 6.4% 8.6% 11.4%
Capital conservation buffer 2.5% 2.5% 2.5%
Countercyclical capital buffer
(1) 0.0% 0.0% 0.0%
G-SIB buffer (2) - - -
--------------------------------- ------------------------- ------------- --------------
MDA Threshold (3) 8.9% na na
--------------------------------- ------------------------- ------------- --------------
Subtotal 8.9% 11.1% 13.9%
--------------------------------- ------------------------- ------------- --------------
Capital ratios at 30 September
2020 18.2% 20.5% 23.7%
--------------------------------- ------------------------- ------------- --------------
Headroom (4) 9.3% 9.4% 9.8%
--------------------------------- ------------------------- ------------- --------------
Notes:
(1) Many countries have announced reductions in their countercyclical
capital buffer rates in response to Covid-19. Most notably for NatWest
Group, the Financial Policy Committee reduced the UK rate from 1%
to 0% effective from 11 March 2020. The CBI also announced a reduction
of the Republic of Ireland rate from 1% to 0% effective from 1 April
2020.
(2) In November 2018 the Financial Stability Board announced that NatWest
Group is no longer a G-SIB. From 1 January 2020, NatWest Group was
(3) released from this global buffer requirement.
The prevailing combined buffer requirements for NatWest Group equate
(4) to the aggregate of the capital conservation buffer and countercyclical
buffer. The PRA informed a revised Pillar 2A requirement on a nominal
capital basis effective from 5 October 2020 which results in an implied
9.1% MDA.
The headroom does not reflect excess distributable capital and may
vary over time.
Capital and risk management
Capital, liquidity and funding risk continued
Capital and leverage ratios
The table below sets out the key capital and leverage
ratios.
CRR basis (1)
-----------------------------------------------
30 September 30 June 31 December
Capital adequacy ratios 2020 2020 2019
----------------------- --------- -----------
CET1 (%) 18.2 17.2 16.2
Tier 1 (%) 20.5 19.4 18.5
Total (%) 23.7 22.5 21.2
--------------------------------------------------- ----------------------- --------- -----------
Capital GBPm GBPm GBPm
--------- -----------
Tangible equity 32,093 32,006 32,371
Expected loss less impairment provisions - - (167)
Prudential valuation adjustment (341) (370) (431)
Deferred tax assets (835) (844) (757)
Own credit adjustments (154) (244) (118)
Pension fund assets (590) (588) (474)
Cash flow hedging reserve (300) (341) (35)
Foreseeable ordinary and special dividends - - (968)
Foreseeable charges - - (365)
Adjustments under IFRS 9 transitional arrangements 1,719 1,578 -
Other deductions - - (2)
--------------------------------------------------- -----------------------
Total deductions (501) (809) (3,317)
CET1 capital 31,592 31,197 29,054
AT1 capital 3,990 3,990 4,051
--------------------------------------------------- ----------------------- --------- -----------
Tier 1 capital 35,582 35,187 33,105
Tier 2 capital 5,710 5,596 4,900
--------------------------------------------------- ----------------------- --------- -----------
Total regulatory capital 41,292 40,783 38,005
Risk-weighted assets
--------------------------------------------------- ----------------------- --------- -----------
Credit risk 132,387 135,657 131,012
Counterparty credit risk 10,170 12,354 12,631
Market risk 9,399 11,517 12,930
Operational risk 21,930 21,930 22,599
Total RWAs 173,886 181,458 179,172
--------------------------------------------------- ----------------------- --------- -----------
Leverage
Cash and balances at central banks 106,388 100,281 77,858
Trading assets 70,820 72,402 76,745
Derivatives 164,311 183,419 150,029
Financial assets 424,291 428,040 399,088
Other assets 25,751 22,745 19,319
--------------------------------------------------- ----------------------- --------- -----------
Total assets 791,561 806,887 723,039
Derivatives
- netting and variation margin (172,389) (194,387) (157,778)
- potential future exposures 40,439 44,019 43,004
Securities financing transactions gross up 1,193 1,312 2,224
Other off balance sheet items 44,650 43,484 42,363
Regulatory deductions and other adjustments (17,167) (14,579) (8,978)
CRR leverage exposure 688,287 686,736 643,874
--------------------------------------------------- ----------------------- --------- -----------
CRR leverage ratio % (2) 5.2 5.1 5.1
UK leverage exposure 576,889 585,115 570,330
--------------------------------------------------- ----------------------- --------- -----------
UK leverage ratio % (3) 6.2 6.0 5.8
--------------------------------------------------- ----------------------- --------- -----------
Notes:
(1) Based on CRR end point including the IFRS 9 transitional
adjustment of GBP1,719 million. Excluding this adjustment, the CET1
ratio would be 17.2%.
(2) Presented on CRR end point Tier 1 capital (including IFRS 9
transitional adjustment) and leverage exposure under the CRR
Delegated Act. Excluding the IFRS 9 transitional adjustment, the
leverage ratio would be 4.9%.
(3) Presented on CRR end point Tier 1 capital (including IFRS 9
transitional adjustment). The UK leverage ratio excludes central
bank claims from the leverage exposure where deposits held are
denominated in the same currency and of contractual maturity that
is equal or longer than that of the central bank claims. Excluding
the IFRS 9 transitional adjustment, the UK leverage ratio would be
5.9%.
Capital and risk management
Capital, liquidity and funding risk continued
Capital flow statement
The table below analyses the movement in CET1, AT1 and Tier 2
capital for the nine months ended 30 September 2020.
CET1 AT1 Tier 2 Total
GBPm GBPm GBPm GBPm
At 1 January 2020 29,054 4,051 4,900 38,005
-------------------------------------------------- ------ ------- ------ -------
Attributable loss for the period (644) - - (644)
Own credit (36) - - (36)
Foreign exchange reserve 415 - - 415
FVOCI reserve (174) - - (174)
Goodwill and intangibles deduction 22 - - 22
Deferred tax assets (78) - - (78)
Prudential valuation adjustments 90 - - 90
Expected loss less impairment 167 - - 167
New issues of capital instruments - 1,216 1,654 2,870
Redemption of capital instruments - (1,277) (751) (2,028)
Net dated subordinated debt/grandfathered
instruments - - (579) (579)
Foreign exchange movements (355) - 103 (252)
Foreseeable ordinary and special dividends 968 - - 968
Foreseeable charges 365 - - 365
Adjustment under IFRS 9 transitional arrangements 1,719 - - 1,719
Other movements 79 - 383 462
At 30 September 2020 31,592 3,990 5,710 41,292
-------------------------------------------------- ------ ------- ------ -------
Key points
* NatWest Group has elected to take advantage of the
transitional regulatory capital rules in respect of
expected credit losses following the adoption of IFRS
9; it had previously had a negligible impact up to Q4
2019. The CRR Covid-19 amendment now requires a full
CET1 addback for the movement in stage 1 and stage 2
ECL from 1 January 2020 for the next two years. The
IFRS 9 transitional arrangement impact on NatWest
Group CET1 regulatory capital at 30 September 2020 is
GBP1,719 million.
* Foreign exchange movements in CET1 include a GBP345
million charge in relation to a $2 billion AT1
redemption announcement on 28 June 2020.
Capital and risk management
Capital, liquidity and funding risk continued
Risk-weighted assets
The table below analyses the movement in RWAs during the period,
by key drivers.
Counterparty Operational
Credit credit Market
risk risk risk risk Total
GBPbn GBPbn GBPbn GBPbn GBPbn
At 1 January 2020 131.0 12.6 13.0 22.6 179.2
Foreign exchange movement 1.6 0.2 - - 1.8
Business movement - (1.6) (2.1) (0.7) (4.4)
Risk parameter changes (1) 0.3 0.2 - - 0.5
Methodology changes (2) (1.4) (0.1) - - (1.5)
Model updates 0.9 - (0.2) - 0.7
Other movements (3) - (1.1) (1.3) - (2.4)
--------------------------- ------ ------------ ------ ----------- -----
At 30 September 2020 132.4 10.2 9.4 21.9 173.9
--------------------------- ------ ------------ ------ ----------- -----
The table below analyses segmental RWAs.
Central
Retail Ulster Commercial Private RBS NatWest items
&
Banking Bank RoI Banking Banking International Markets other Total
Total RWAs GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
At 1 January 2020 37.8 13.0 72.5 10.1 6.5 37.9 1.4 179.2
-------------------- ------- -------- ---------- ------- ------------- ------- ------- -----
Foreign exchange
movement - 0.7 0.5 - 0.1 0.5 - 1.8
Business movement (0.3) (1.0) 2.4 0.6 0.4 (6.2) (0.3) (4.4)
Risk parameter
changes (1) (1.2) (0.7) 1.9 - - 0.5 - 0.5
Methodology changes
(2) - (0.1) (1.8) (0.1) - 0.2 0.3 (1.5)
Model updates - 0.2 0.7 - - (0.2) - 0.7
Other movements
(3) - - 0.3 - - (2.7) - (2.4)
At 30 September
2020 36.3 12.1 76.5 10.6 7.0 30.0 1.4 173.9
-------------------- ------- -------- ---------- ------- ------------- ------- ------- -----
Credit risk 28.7 11.0 67.6 9.3 6.0 8.4 1.4 132.4
Counterparty credit
risk 0.1 - 0.2 0.1 - 9.8 - 10.2
Market risk 0.1 0.1 0.2 - - 9.0 - 9.4
Operational risk 7.4 1.0 8.5 1.2 1.0 2.8 - 21.9
Total RWAs 36.3 12.1 76.5 10.6 7.0 30.0 1.4 173.9
-------------------- ------- -------- ---------- ------- ------------- ------- ------- -----
Notes:
(1) Risk parameter changes relate to changes in credit quality metrics
of customers and counterparties (such as probability of default and
loss given default) as well as internal ratings based model changes
relating to counterparty credit risk in line with European Banking
Authority Pillar 3 Guidelines.
(2) (a) The new securitisation framework has been fully implemented from
1 January 2020 and all positions have moved to the new framework.
(b) Methodology changes also reflect the CRR Covid-19 amendment which
allowed an acceleration of the planned changes to the SME supporting
factor and the introduction of an Infrastructure supporting factor.
(3) Other movements include:
(a) The temporary reduction permitted by the PRA to offset the impact
of multiplier increases (included in business movement). The offset
covers all metrics affected by the multiplier increase, including
CVAs.
(b) Hedging activity on counterparty credit risk in NatWest Markets.
(c) A transfer of Insurance related assets from NatWest Markets to
Commercial Banking.
Key point
-- Total RWAs decreased by GBP5.3 billion during the period, mainly reflecting
reductions in Market Risk RWAs of GBP3.6 billion and Counterparty
Credit Risk RWAs of GBP2.4 billion. Operational Risk RWAs reduced
by GBP0.7 billion following the annual recalculation in Q1 2020. The
reduction in Market Risk RWAs was due to movements in Risks-not-in-VaR
(RNIV) and Incremental Risk Charge (IRC) as well as a reduction in
non-modelled market risk. The reduction in Counterparty Credit Risk
RWAs was driven by hedging activity and trade novations. There were
increases in Credit Risk RWAs of GBP1.4 billion mainly attributed
to increases due to foreign exchange movements of GBP1.6 billion and
model changes of GBP0.9 billion, which were partially offset by the
beneficial CRR changes to supporting factors which have reduced RWAs
by c.GBP1.8 billion. The GBP0.3 billion increase in Credit Risk RWAs
due to risk parameters mainly reflected PD deteriorations for customers
in Commercial, partly offset by improved risk metrics for Retail Banking
products.
Capital and risk management
Capital, liquidity and funding risk continued
Credit risk exposure at default (EAD) and Risk-weighted assets
(RWAs)
The table below analyses credit risk RWAs and EADs during the
period, by on and off balance sheet.
Retail Ulster Commercial Private RBS NatWest Central
items
Banking Bank Banking Banking International Markets & other Total
RoI
30 September 2020 GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
---------------------
On balance
EAD sheet 239.9 28.0 149.8 22.2 32.2 38.2 0.9 511.2
Off balance
sheet 28.1 2.3 30.4 0.3 4.8 6.2 0.1 72.2
Total 268.0 30.3 180.2 22.5 37.0 44.4 1.0 583.4
On balance
RWAs sheet 26.1 9.9 53.7 9.1 4.7 6.2 1.4 111.1
------
Off balance
sheet 2.6 1.1 13.9 0.2 1.3 2.2 - 21.3
Total 28.7 11.0 67.6 9.3 6.0 8.4 1.4 132.4
-------------------- ------- ------ ---------- ------- ------------- ------- ------- -----
30 June 2020
---------------------
On balance
EAD sheet 235.6 28.3 152.6 21.4 31.1 40.7 0.7 510.4
------
Off balance
sheet 27.2 2.2 29.9 0.3 4.8 6.2 0.4 71.0
Total 262.8 30.5 182.5 21.7 35.9 46.9 1.1 581.4
On balance
RWAs sheet 26.4 10.6 56.3 8.9 4.5 7.0 1.3 115.0
------
Off balance
sheet 2.7 1.1 13.2 0.2 1.3 2.1 0.1 20.7
Total 29.1 11.7 69.5 9.1 5.8 9.1 1.4 135.7
-------------------- ------- ------ ---------- ------- ------------- ------- ------- -----
31 December 2019
---------------------
On balance
EAD sheet 221.8 26.0 131.4 20.3 31.7 35.4 0.7 467.3
------
Off balance
sheet 30.2 2.2 27.2 0.3 3.3 7.5 0.4 71.1
Total 252.0 28.2 158.6 20.6 35.0 42.9 1.1 538.4
On balance
RWAs sheet 27.1 10.8 50.8 8.7 4.7 6.4 1.3 109.8
------
Off balance
sheet 3.1 1.1 12.5 0.2 1.0 3.2 0.1 21.2
Total 30.2 11.9 63.3 8.9 5.7 9.6 1.4 131.0
-------------------- ------- ------ ---------- ------- ------------- ------- ------- -----
Liquidity portfolio
The table below shows the liquidity portfolio by product, with
primary liquidity aligned to internal stressed outflow coverage and
regulatory liquidity coverage ratio (LCR) categorisation. Secondary
liquidity comprises assets eligible for discount at central banks,
which do not form part of the liquid asset portfolio for LCR or
internal stressed outflow purposes.
Liquidity value
---------------------------------------
30 September 30 June 2020 31 December
2020 2019
------------ ------------ -----------
NatWest NatWest NatWest
Group (1) Group (1) Group (1)
GBPm GBPm GBPm
--------------------------------------- ------------ ------------ -----------
Cash and balances at central banks 103,198 97,201 74,289
AAA to AA- rated governments 49,143 56,234 46,622
A+ and lower rated governments 492 1,040 1,277
Government guaranteed issuers, public
sector entities and
government sponsored entities 282 261 251
International organisations and
multilateral development
banks 2,781 2,799 2,393
--------------------------------------- ------------ ------------ -----------
LCR level 1 bonds 52,698 60,334 50,543
--------------------------------------- ------------ ------------ -----------
LCR level 1 assets 155,896 157,535 124,832
LCR level 2 assets 126 127 -
Non-LCR eligible assets - - 88
--------------------------------------- ------------ ------------ -----------
Primary liquidity 156,022 157,662 124,920
Secondary liquidity (2) 87,392 84,910 74,431
Total liquidity value 243,414 242,572 199,351
--------------------------------------- ------------ ------------ -----------
Notes:
(1) NatWest Group includes the UK Domestic Liquidity Sub-Group (NWB Plc,
RBS plc, Coutts & Co and Ulster Bank Limited), NatWest Markets Plc
and other significant operating subsidiaries that hold liquidity
portfolios. These include The Royal Bank of Scotland International
Limited, NWM N.V. and Ulster Bank Ireland DAC who hold managed portfolios
that comply with local regulations that may differ from PRA rules.
(2) Comprises assets eligible for discounting at the Bank of England
and other central banks.
(3) Liquidity portfolio table approach has been aligned to the ILAAP
methodology with effect from December 2019.
Capital and risk management
Credit risk
Portfolio summary - segment analysis
The table below shows gross loans and ECL, by segment and stage,
within the scope of the IFRS 9 ECL framework.
Retail Ulster Commercial Private RBS NatWest Central
items
Banking Bank Banking Banking International Markets & other Total
RoI (2)
30 September 2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Loans - amortised
cost and FVOCI (1)
Stage 1 133,208 13,916 57,513 14,637 12,219 9,288 27,454 268,235
Stage 2 33,289 4,222 52,291 1,911 1,834 1,869 111 95,527
Stage 3 2,036 1,333 2,750 290 203 195 - 6,807
Of which: individual - 30 1,669 290 203 190 - 2,382
Of which: collective 2,036 1,303 1,081 - - 5 - 4,425
------------------------ ------- ------ ---------- ------- ------------- ------- ------- -------
168,533 19,471 112,554 16,838 14,256 11,352 27,565 370,569
ECL provisions
Stage 1 153 39 280 30 14 20 11 547
Stage 2 904 268 1,722 55 53 41 18 3,061
Stage 3 921 509 1,125 28 43 139 - 2,765
Of which: individual - 11 630 28 43 135 - 847
Of which: collective 921 498 495 - - 4 - 1,918
------------------------ ------- ------ ---------- ------- ------------- ------- ------- -------
1,978 816 3,127 113 110 200 29 6,373
ECL provisions coverage
Stage 1 (%) 0.11 0.28 0.49 0.20 0.11 0.22 0.04 0.20
Stage 2 (%) 2.72 6.35 3.29 2.88 2.89 2.19 16.22 3.20
Stage 3 (%) 45.24 38.18 40.91 9.66 21.18 71.28 - 40.62
1.17 4.19 2.78 0.67 0.77 1.76 0.11 1.72
------------------------ ------- ------ ---------- ------- ------------- ------- ------- -------
30 June 2020
------------------------ ------- ------ ---------- ------- ------------- ------- ------- -------
Loans - amortised
cost and FVOCI
Stage 1 136,065 18,642 53,514 14,465 12,697 10,197 20,864 266,444
Stage 2 28,270 4,478 58,374 1,567 1,825 2,381 115 97,010
Stage 3 2,052 1,547 2,806 256 195 178 - 7,034
Of which: individual - 22 1,727 256 195 172 - 2,372
Of which: collective 2,052 1,525 1,079 - - 6 - 4,662
166,387 24,667 114,694 16,288 14,717 12,756 20,979 370,488
------------------------ ------- ------ ---------- ------- ------------- ------- ------- -------
ECL provisions
Stage 1 155 42 217 21 9 18 7 469
Stage 2 901 262 1,714 49 25 53 21 3,025
Stage 3 902 567 1,184 29 42 136 - 2,860
Of which: individual - 4 701 29 42 129 - 905
Of which: collective 902 563 483 - - 7 - 1,955
1,958 871 3,115 99 76 207 28 6,354
------------------------ ------- ------ ---------- ------- ------------- ------- ------- -------
ECL provisions coverage
Stage 1 (%) 0.11 0.23 0.41 0.15 0.07 0.18 0.03 0.18
Stage 2 (%) 3.19 5.85 2.94 3.13 1.37 2.23 18.26 3.12
Stage 3 (%) 43.96 36.65 42.20 11.33 21.54 76.40 - 40.66
1.18 3.53 2.72 0.61 0.52 1.62 0.13 1.72
------------------------ ------- ------ ---------- ------- ------------- ------- ------- -------
31 December 2019
------------------------ ------- ------ ---------- ------- ------------- ------- ------- -------
Loans - amortised
cost and FVOCI
Stage 1 144,513 18,544 88,100 14,956 14,834 9,273 15,282 305,502
Stage 2 13,558 1,642 11,353 587 545 180 3 27,868
Stage 3 1,902 2,037 2,162 207 121 169 - 6,598
Of which: individual - 68 1,497 207 121 158 - 2,051
Of which: collective 1,902 1,969 665 - - 11 - 4,547
159,973 22,223 101,615 15,750 15,500 9,622 15,285 339,968
------------------------ ------- ------ ---------- ------- ------------- ------- ------- -------
ECL provisions
Stage 1 114 29 152 7 4 10 6 322
Stage 2 467 53 214 7 6 5 - 752
Stage 3 823 693 1,021 29 21 131 - 2,718
Of which: individual - 22 602 29 21 122 - 796
Of which: collective 823 671 419 - - 9 - 1,922
1,404 775 1,387 43 31 146 6 3,792
------------------------ ------- ------ ---------- ------- ------------- ------- ------- -------
ECL provisions coverage
Stage 1 (%) 0.08 0.16 0.17 0.05 0.03 0.11 0.04 0.11
Stage 2 (%) 3.44 3.23 1.88 1.19 1.10 2.78 - 2.70
Stage 3 (%) 43.27 34.02 47.22 14.01 17.36 77.51 - 41.19
0.88 3.49 1.36 0.27 0.20 1.52 0.04 1.12
------------------------ ------- ------ ---------- ------- ------------- ------- ------- -------
Notes:
(1) Fair value through other comprehensive income.
(2) During Q3 2020, GBP5.1 billion of loans and advances to
banks were reclassified from Ulster Bank RoI to Central items &
other.
Capital and risk management
Credit risk continued
Portfolio summary - segment analysis
Key points
-- The rise in total ECL in the period was mainly due to
increased ECL on Stage 1 and Stage 2 exposures in H1 2020, and
reflective of the significantly deteriorated economic environment
arising from Covid-19. Overall, Stage 3 ECL has been broadly stable
year-to-date, with the various government support schemes
mitigating actual portfolio deterioration in the short-term and
therefore delaying default emergence.
-- The significant uplift in loan balances in Stage 2 was driven
by deterioration in forward-looking customer probability of default
(PD), also reflecting the deteriorated economic outlook, and
resulted in a significant migration of exposures from Stage 1 to
Stage 2 as at 30 June 2020.
-- Total ECL remained broadly stable during Q3 2020, largely
reflective of maintaining the underlying economics unchanged from
Q2 2020. The movement in Stage 2 balances was also less volatile in
Q3 2020 (refer to the following page for further details).
-- The economic scenarios driving the ECL requirement, as well
as the model performance considerations, are consistent with those
described in the NatWest Group Interim Results 2020 along with
further detail on various aspects of the IFRS 9 process.
Capital and risk management
Credit risk continued
Segmental loans
The table below shows gross loans by days past due, by segment
and stage, within the scope of the ECL framework.
Gross loans
-------------------------------------------------------
Stage 2
Not past 1-29 >30
Stage due DPD DPD Total Stage Total
1 3
30 September 2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Retail Banking 133,208 31,774 1,015 500 33,289 2,036 168,533
Ulster Bank RoI 13,916 3,824 157 241 4,222 1,333 19,471
Personal 10,793 1,897 123 150 2,170 1,170 14,133
Wholesale 3,123 1,927 34 91 2,052 163 5,338
Commercial Banking 57,513 50,885 623 783 52,291 2,750 112,554
Private Banking 14,637 1,868 22 21 1,911 290 16,838
Personal 12,311 164 20 19 203 252 12,766
Wholesale 2,326 1,704 2 2 1,708 38 4,072
RBS International 12,219 1,805 17 12 1,834 203 14,256
Personal 2,725 20 14 7 41 76 2,842
Wholesale 9,494 1,785 3 5 1,793 127 11,414
NatWest Markets 9,288 1,771 98 - 1,869 195 11,352
Central items & other 27,454 111 - - 111 - 27,565
---------------------- ------- -------- ----- ----- ------ ----- -------
Total loans 268,235 92,038 1,932 1,557 95,527 6,807 370,569
Of which:
Personal 159,037 33,855 1,172 676 35,703 3,534 198,274
Wholesale 109,198 58,183 760 881 59,824 3,273 172,295
---------------------- ------- -------- ----- ----- ------ ----- -------
30 June 2020
-------------------------------------------------------
Retail Banking 136,065 26,597 1,017 656 28,270 2,052 166,387
Ulster Bank RoI 18,642 4,122 150 206 4,478 1,547 24,667
Personal 10,602 2,015 131 133 2,279 1,384 14,265
Wholesale 8,040 2,107 19 73 2,199 163 10,402
Commercial Banking 53,514 55,593 1,934 847 58,374 2,806 114,694
Private Banking 14,465 1,545 14 8 1,567 256 16,288
Personal 11,972 168 12 7 187 243 12,402
Wholesale 2,493 1,377 2 1 1,380 13 3,886
RBS International 12,697 1,792 15 18 1,825 195 14,717
Personal 2,793 18 13 11 42 68 2,903
Wholesale 9,904 1,774 2 7 1,783 127 11,814
NatWest Markets 10,197 2,363 - 18 2,381 178 12,756
Central items & other 20,864 115 - - 115 - 20,979
---------------------- ------- -------- ----- ----- ------ ----- -------
Total loans 266,444 92,127 3,130 1,753 97,010 7,034 370,488
Of which:
Personal 161,432 28,798 1,173 807 30,778 3,747 195,957
Wholesale 105,012 63,329 1,957 946 66,232 3,287 174,531
---------------------- ------- -------- ----- ----- ------ ----- -------
31 December 2019
-----------------------------------------------------
Retail Banking 144,513 11,921 1,034 603 13,558 1,902 159,973
Ulster Bank RoI 18,544 1,405 104 133 1,642 2,037 22,223
Personal 10,858 944 96 105 1,145 1,877 13,880
Wholesale 7,686 461 8 28 497 160 8,343
Commercial Banking 88,100 10,837 254 262 11,353 2,162 101,615
Private Banking 14,956 478 63 46 587 207 15,750
Personal 11,630 180 60 41 281 192 12,103
Wholesale 3,326 298 3 5 306 15 3,647
RBS International 14,834 520 18 7 545 121 15,500
Personal 2,799 27 17 6 50 65 2,914
Wholesale 12,035 493 1 1 495 56 12,586
NatWest Markets 9,273 176 4 - 180 169 9,622
Central items & other 15,282 3 - - 3 - 15,285
---------------------- ------- ------ ----- ----- ------ ----- -------
Total loans 305,502 25,340 1,477 1,051 27,868 6,598 339,968
Of which:
Personal 169,800 13,072 1,207 755 15,034 4,036 188,870
Wholesale 135,702 12,268 270 296 12,834 2,562 151,098
---------------------- ------- ------ ----- ----- ------ ----- -------
Capital and risk management
Credit risk continued
Segmental loans
Key points
-- Retail Banking : Balance sheet growth since 2019 year-end was
driven by mortgages, with strong growth pre-Covid-19 in Q1 2020
that moderated significantly in Q2 2020, before picking up in Q3
2020 as lockdown measures eased. Unsecured lending balances reduced
in Q2 2020 as customer spend and demand for borrowing reduced as a
result of lockdown and customers made repayments. During Q3 2020,
overall unsecured balances flattened, with a slight growth in
credit cards offsetting further reductions in other unsecured
lending. Loan balances in Stage 2 increased significantly, driven
by deterioration in forward-looking customer PDs primarily at the
half-year point and reflected the deteriorated economic
environment. The movement in Stage 2 balances was less pronounced
in Q3 2020. However, there was a further increase driven by the
significant increase in credit risk (SICR) policy criteria that
meant retail exposures must remain in Stage 2 for at least three
months after the customer PD has reduced below the SICR trigger
level, meaning flows back to Stage 1 were subdued. The various
Covid-19 related customer support schemes (for example, loan
repayment holidays and the government job retention scheme) are
mitigating actual portfolio deterioration in the short-term, with
the days past due, and flows to Stage 3 metrics, yet to be
materially affected.
-- Ulster Bank RoI : Similar to Retail Banking, the increase in
both ECL and balances in Stage 2 was mainly due to the deteriorated
economic outlook primarily at the half-year point. The reduction in
Stage 3 ECL and balances reflected the de-recognition of
non-performing exposures following the execution of three tranches
of a previously agreed portfolio sale and continued improvements in
the portfolio.
-- Commercial Banking : Balance sheet growth during 2020 mainly
occurred in the first half of the year and was primarily due to
drawdowns on existing facilities and new lending under government
support schemes. In line with the other business segments, Stage 2
balances increased significantly during Q2 2020 when revised
economics materially affected the forward-looking IFRS 9 PDs.
Consistent with previous periods, PD deterioration remained the
largest contributor to Stage 2 migration. Although there has been
an increase in past due exposures, the flow to Stage 3 remained
stable in Q3 2020, as government interventions and relief mitigate
against defaults at this point. Stage 1 loans increased during Q3
2020, mainly reflecting increased government scheme lending.
Capital and risk management
Credit risk continued
S ector analysis
The table below shows ECL by stage, for the Personal portfolios
and key sectors of the Wholesale portfolios, that continue to be
affected by Covid-19.
Off-balance sheet
------------------------
Loans - amortised
cost & FVOCI Loan Contingent ECL provisions
------------------------------- --------------------------
Stage Stage Stage commitments Stage Stage Stage
1 2 3 Total (1) liabilities 1 2 3 Total
30 September 2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Personal 159,037 35,703 3,534 198,274 40,706 46 177 1,011 1,358 2,546
Mortgages 150,944 30,896 2,671 184,511 12,489 3 32 286 651 969
Credit cards 2,526 1,323 107 3,956 15,474 - 50 245 85 380
Other personal 5,567 3,484 756 9,807 12,743 43 95 480 622 1,197
--------------------------- ------- ------ ----- ------- ----------- ----------- ----- ----- ----- -----
Wholesale 109,198 59,824 3,273 172,295 91,240 4,746 370 2,050 1,407 3,827
Property 25,489 12,299 1,424 39,212 16,666 577 144 461 532 1,137
Financial institutions 39,624 3,434 34 43,092 17,084 1,105 24 72 8 104
Sovereign 9,670 104 5 9,779 1,022 2 15 - 1 16
Corporate 34,415 43,987 1,810 80,212 56,468 3,062 187 1,517 866 2,570
Of which:
Airlines and
aerospace 378 1,833 41 2,252 1,931 227 3 61 26 90
Automotive 2,475 4,352 83 6,910 4,217 106 13 115 19 147
Education 593 1,067 62 1,722 819 16 3 37 18 58
Health 2,286 3,470 155 5,911 689 14 11 141 56 208
Land transport
and logistics 1,448 3,396 119 4,963 3,697 210 10 98 39 147
Leisure 3,242 6,541 526 10,309 2,085 124 33 350 244 627
Oil and gas 454 1,279 87 1,820 2,410 347 5 43 57 105
Retail 5,052 4,238 117 9,407 6,219 504 19 147 99 265
Total 268,235 95,527 6,807 370,569 131,946 4,792 547 3,061 2,765 6,373
--------------------------- ------- ------ ----- ------- ----------- ----------- ----- ----- ----- -----
30 June 2020
Personal 161,432 30,778 3,747 195,957 41,279 48 178 1,010 1,404 2,592
Mortgages 152,947 26,292 2,903 182,142 11,158 3 34 292 706 1,032
Credit cards 2,387 1,321 110 3,818 17,481 - 47 243 86 376
Other personal 6,098 3,165 734 9,997 12,640 45 97 475 612 1,184
--------------------------- ------- ------ ----- ------- ----------- ----------- ----- ----- ----- -----
Wholesale 105,012 66,232 3,287 174,531 89,151 5,038 291 2,015 1,456 3,762
Property 26,782 12,400 1,259 40,441 15,423 607 126 392 513 1,031
Financial institutions 39,133 3,789 10 42,932 17,500 1,130 22 69 5 96
Sovereign 9,436 1 6 9,443 1,129 2 10 - - 10
Corporate 29,661 50,042 2,012 81,715 55,099 3,299 133 1,554 938 2,625
Of which:
Airlines and
aerospace 495 1,839 38 2,372 1,829 233 4 53 26 83
Automotive 2,000 5,437 146 7,583 3,547 93 8 108 19 135
Education 704 919 83 1,706 725 19 2 27 16 45
Health 2,055 3,650 168 5,873 515 139 9 145 60 214
Land transport
and logistics 1,149 3,334 110 4,593 3,919 206 6 96 43 145
Leisure 2,755 6,739 534 10,028 1,841 126 22 303 249 574
Oil and gas 465 1,535 89 2,089 2,627 382 4 55 61 120
Retail 2,647 5,059 221 7,927 5,858 507 13 158 170 341
Total 266,444 97,010 7,034 370,488 130,430 5,086 469 3,025 2,860 6,354
--------------------------- ------- ------ ----- ------- ----------- ----------- ----- ----- ----- -----
31 December 2019
Personal 169,800 15,034 4,036 188,870 43,316 50 130 503 1,449 2,082
Mortgages 159,261 11,465 3,277 174,003 14,345 3 25 118 821 964
Credit cards 3,103 1,259 116 4,478 16,686 - 40 132 89 261
Other personal 7,436 2,310 643 10,389 12,285 47 65 253 539 857
--------------------------- ------- ------ ----- ------- ----------- ----------- ----- ----- ----- -----
Wholesale 135,702 12,834 2,562 151,098 79,060 5,477 192 249 1,269 1,710
Property 32,896 2,580 895 36,371 14,739 644 45 47 402 494
Financial institutions 35,707 546 13 36,266 15,417 1,325 16 4 8 28
Sovereign 7,410 4 5 7,419 1,021 1 7 - - 7
Corporate 59,689 9,704 1,649 71,042 47,883 3,507 124 198 859 1,181
Of which:
Airlines and
aerospace
(2) 1,412 261 40 1,713 1,716 271 2 3 55 60
Automotive 5,062 1,143 20 6,225 3,815 98 12 11 15 38
Education 1,426 154 12 1,592 654 18 2 4 1 7
Health 4,695 844 167 5,706 534 17 9 16 52 77
Land transport
and logistics 3,477 316 53 3,846 3,301 249 6 12 21 39
Leisure 6,323 1,253 377 7,953 2,876 135 25 27 175 227
Oil and gas 1,923 140 86 2,149 2,400 358 5 3 55 63
Retail 6,397 1,279 215 7,891 5,383 560 13 16 180 209
Total 305,502 27,868 6,598 339,968 122,376 5,527 322 752 2,718 3,792
--------------------------- ------- ------ ----- ------- ----------- ----------- ----- ----- ----- -----
Notes:
(1) Includes GBP3.8 billion of commercial cards related
balances, as at 30 September 2020 (GBP4.1 billion as at 30 June
2020), which were brought into scope of ECL calculations during
2020.
(2) Stage 3 ECL at 31 December 2019 included GBP27 million of
ECL related to contingent liabilities.
Capital and risk management
Credit risk continued
S ector analysis
Key points
-- Personal: As noted earlier, both the increased ECL on Stage 1
and Stage 2 exposures, and the migration of assets from Stage 1 to
Stage 2, were mainly a result of deterioration in forward-looking
customer PDs primarily at the half-year point and reflected the
deteriorated economic environment. The ECL requirements were
broadly stable during Q3 2020 largely reflective of maintaining the
underlying economics unchanged from Q2 2020, and the mitigating
effects on portfolio deterioration of Covid-19 related customer
support schemes, as previously described. The reduction in mortgage
Stage 3 ECL and balances reflected the de-recognition in Ulster
Bank RoI of non-performing exposures following the execution of
three tranches of a previously agreed portfolio sale and continued
improvements in the portfolio.
-- Wholesale: On and off-balance sheet growth since the 2019
year-end was mainly due to further drawdowns on existing facilities
and new lending (drawn and undrawn) agreed under the Covid-19
government lending schemes. A further GBP2.9 billion increase in
government lending schemes occurred in Q3 (refer to the table on
the following page for further information). Construction (within
Property), Retail and Leisure represented the top three sectors for
borrowers accessing the various government lending schemes. Sector
appetite continues to be regularly reviewed and where appropriate
has been adjusted for those sectors most affected by the Covid-19
pandemic.
As described in the NatWest Group Interim Results 2020, NatWest
Group adopted a nuanced response to capture the sector ECL impact
from the Covid-19 crisis by using sector specific credit cycle
indices in its Wholesale methodology. As a result, a more adverse
impact is seen in sectors experiencing the most disruption through
this period with an increase in both Stage 2 and ECL balances. This
impact was seen during Q2 2020 when revised economics were
implemented. During Q3 2020, exposures reduced with relatively low
ECL charges. Performing book charges reflected model recalibrations
taking account of portfolio changes and the moving closer to the
predicted worst point in the economic cycle. As government relief
schemes reduce, defaults are expected to rise with cases moving
from Stage 2 to Stage 3.
Capital and risk management
Credit risk continued
Wholesale support schemes
The table below shows the uptake of Bounce Back Loan Scheme
(BBLS), Coronavirus Business Interruption Loan Scheme (CBILS) and
Coronavirus Large Business Interruption Loan Scheme (CLBILS) in
Wholesale, by sector.
BBLS CBILS CLBILS
----------------------------- ------------------------------ -------------------------------
% of BBLS % of CBILS % of CLBILS
Approved Drawdown to Approved Drawdown to Approved Drawdown to
amount sector amount sector amount sector
30 September 2020 Volume (GBPm) loans Volume (GBPm) loans Volume (GBPm) loans
------------------ -------- -------- --------- -------- -------- ---------- -------- -------- -----------
Wholesale lending
by sector
Airlines and
aerospace 223 6 0.27% 19 7 0.31% 2 - -
Automotive 11,531 385 5.57% 538 125 1.81% 31 47 0.68%
Education 1,766 47 2.73% 105 54 3.14% 10 35 2.03%
Health 9,035 289 4.89% 573 89 1.51% 3 24 0.41%
Land transport
and logistics 7,991 235 4.74% 341 82 1.65% 3 5 0.10%
Leisure 28,778 902 8.75% 1,869 429 4.16% 31 94 0.91%
Oil and gas 271 8 0.44% 16 6 0.33% - - -
Retail 29,425 999 10.62% 1,493 391 4.16% 25 75 0.80%
Property (3) 53,841 1,514 3.86% 2,224 605 1.54% 35 112 0.29%
Other (including
Business
Banking) 118,645 3,127 3.48% 8,100 1,450 1.61% 77 180 0.20%
Total 261,506 7,512 4.36% 15,278 3,238 1.88% 217 572 0.33%
------------------ -------- -------- --------- -------- -------- ---------- -------- -------- -----------
30 June 2020
------------------ ----------------------------- ------------------------------ -------------------------------
Wholesale lending
by sector
Airlines and
aerospace 175 5 0.21% 17 4 0.17% - - -
Automotive 9,267 309 4.07% 495 111 1.46% 26 22 0.29%
Education 1,347 36 2.11% 83 21 1.23% 4 30 1.76%
Health 6,976 222 3.78% 543 69 1.17% 2 5 0.09%
Land transport
and logistics 6,222 181 3.94% 306 66 1.44% 2 3 0.07%
Leisure 22,776 715 7.13% 1,697 305 3.04% 16 11 0.11%
Oil and gas 197 6 0.29% 13 5 0.24% - - -
Retail 23,824 808 10.19% 1,395 328 4.14% 13 48 0.61%
Property (3) 41,233 1,170 2.89% 2,018 456 1.13% 27 31 0.08%
Other (including
Business
Banking) 88,391 2,343 2.55% 7,160 1,035 1.13% 53 31 0.03%
Total 200,408 5,795 3.32% 13,727 2,400 1.38% 143 181 0.10%
------------------ -------- -------- --------- -------- -------- ---------- -------- -------- -----------
Notes:
(1) The table contains some cases which as at 30 September 2020
were approved but not yet drawn down.
(2) Approved limits as at 30 September 2020 were as follows:
BBLS - GBP7.9 billion (95% drawn); CBILS - GBP3.9 billion (83%
drawn); CLBILS - GBP1.2 billion (50% drawn).
(3) Construction activities previously reported in Other
(including Business Banking) have been reclassified as Property, to
be consistent with other sector analysis provided. Comparatives
have been restated.
Key points
-- The value and volume of lending under government support
schemes continued to grow during Q3 2020, though at a slower rate
than in Q2 2020.
-- Customers seeking Covid-19 related support, including payment
holidays, who were not subject to any wider SICR triggers and who
are assessed as being viable and able to meet credit appetite
metrics in the medium-term post-crisis, were not considered to have
been granted forbearance. Completed forbearance flow for Wholesale
remained elevated in Q3 2020, in line with Q2 2020. Property,
Transport and Leisure represented the largest share of forbearance
flow in Q3 2020, continuing an emerging trend from Q2 2020. The
rise in Transport and Property results from forbearance completed
on individually significant exposures. Payment holidays and
covenant waivers remain the most common forms of forbearance
granted. Heightened Monitoring and Risk of Credit Loss values
increased in the quarter with a concentration towards borrowers in
the Retail, Leisure and Property sectors which represented
approximately 50% of the inflows to the framework (refer to page
134 of the NatWest Group plc's Annual Report and Accounts 2019 for
further details of the Risk of Credit Loss framework).
Condensed consolidated income statement for the period ended 30 September 2020 (unaudited)
Nine months ended Quarter ended
-------------------------- -----------------------------------
30 September 30 September 30 September 30 June 30 September
2020 2019 2020 2020 2019
GBPm GBPm GBPm GBPm GBPm
Interest receivable 7,702 8,474 2,512 2,507 2,921
Interest payable (1,924) (2,464) (586) (597) (915)
-------------------------------- ------------ ------------ ------------ ------- ------------
Net interest income 5,778 6,010 1,926 1,910 2,006
Fees and commissions receivable 2,081 2,570 651 682 808
Fees and commissions payable (591) (673) (199) (217) (186)
Income from trading activities 1,054 794 252 210 195
Other operating income (1) (61) 1,319 (207) 91 80
-------------------------------- ------------ ------------ ------------ ------- ------------
Non-interest income 2,483 4,010 497 766 897
Total income 8,261 10,020 2,423 2,676 2,903
-------------------------------- ------------ ------------ ------------ ------- ------------
Staff costs (2,937) (3,028) (982) (963) (1,000)
Premises and equipment (902) (823) (251) (393) (265)
Other administrative expenses (1,081) (2,085) (385) (298) (1,222)
Depreciation and amortisation (635) (853) (194) (248) (232)
Impairment of other intangible
assets (9) (9) (2) (7) 21
Operating expenses (5,564) (6,798) (1,814) (1,909) (2,698)
-------------------------------- ------------ ------------ ------------ ------- ------------
Profit before impairment losses 2,697 3,222 609 767 205
Impairment losses (3,112) (536) (254) (2,056) (213)
Operating (loss)/profit before
tax (415) 2,686 355 (1,289) (8)
Tax credit/(charge) 1 (395) (207) 396 (201)
-------------------------------- ------------ ------------ ------------ ------- ------------
(Loss)/profit for the period (414) 2,291 148 (893) (209)
Attributable to:
Ordinary shareholders (644) 1,723 61 (993) (315)
Preference shareholders 21 30 5 8 10
Paid-in equity holders 272 277 80 95 95
Non-controlling interests (63) 261 2 (3) 1
-------------------------------- ------------ ------------ ------------ ------- ------------
(414) 2,291 148 (893) (209)
Earnings per ordinary share (5.3p) 14.3p 0.5p (8.2p) (2.6p)
Earnings per ordinary share
- fully diluted (5.3p) 14.2p 0.5p (8.2p) (2.6p)
-------------------------------- ------------ ------------ ------------ ------- ------------
Note:
(1) Other operating income includes GBP324 million loss on redemption of own debt.
Condensed consolidated statement of comprehensive income for the
period ended 30 September 2020 (unaudited)
Nine months ended Quarter ended
-------------------------- -----------------------------------
30 September 30 September 30 September 30 June 30 September
2020 2019 2020 2020 2019
GBPm GBPm GBPm GBPm GBPm
------------ ------------ ------------ ------------
(Loss)/profit for the period (414) 2,291 148 (893) (209)
------------------------------------------- ------------ ------------ ------------ ------- ------------
Items that do not qualify for
reclassification
Remeasurement of retirement
benefit schemes 54 (96) (14) 90 (28)
Profit/(loss) on fair value
of credit in financial liabilities
designated as at FVTPL due
to own credit risk 20 (115) (63) (105) (19)
FVOCI financial assets (43) (92) 77 133 (130)
Tax 13 24 13 - (2)
44 (279) 13 118 (179)
------------------------------------------- ------------ ------------ ------------ ------- ------------
Items that do qualify for reclassification
FVOCI financial assets (37) (3) 74 32 9
Cash flow hedges 364 688 (53) 105 286
Currency translation 425 (298) (150) 217 (57)
Tax (85) (193) 94 (126) (71)
667 194 (35) 228 167
------------------------------------------- ------------ ------------ ------------ ------- ------------
Other comprehensive income/(loss)
after tax 711 (85) (22) 346 (12)
Total comprehensive income/(loss)
for the period 297 2,206 126 (547) (221)
------------------------------------------- ------------ ------------ ------------ ------- ------------
Attributable to:
Ordinary shareholders 51 1,624 37 (648) (326)
Preference shareholders 21 30 5 8 10
Paid-in equity holders 272 277 80 95 95
Non-controlling interests (47) 275 4 (2) -
297 2,206 126 (547) (221)
------------------------------------------- ------------ ------------ ------------ ------- ------------
Condensed consolidated balance sheet as at 30 September 2020 (unaudited)
30 September 30 June 31 December
2020 2020 2019
GBPm GBPm GBPm
Assets
Cash and balances at central banks 106,388 100,281 77,858
Trading assets 70,820 72,402 76,745
Derivatives 164,311 183,419 150,029
Settlement balances 10,947 7,806 4,387
Loans to banks - amortised cost 11,864 12,972 10,689
Loans to customers - amortised cost 353,691 352,341 326,947
Other financial assets 58,736 62,727 61,452
Intangible assets 6,600 6,602 6,622
Other assets 8,204 8,337 8,310
------------------------------------ ------------ ------- -----------
Total assets 791,561 806,887 723,039
Liabilities
Bank deposits 18,666 21,119 20,493
Customer deposits 418,358 408,268 369,247
Settlement balances 9,839 6,895 4,069
Trading liabilities 73,023 75,540 73,949
Derivatives 160,532 179,859 146,879
Other financial liabilities 48,848 49,681 45,220
Subordinated liabilities 10,467 13,558 9,979
Other liabilities 8,678 8,906 9,647
------------------------------------ ------------ ------- -----------
Total liabilities 748,411 763,826 679,483
Equity
------------------------------------ ------------ ------- -----------
Ordinary shareholders' interests 38,693 38,608 38,993
Other owners' interests 4,495 4,495 4,554
Owners' equity 43,188 43,103 43,547
Non-controlling interests (38) (42) 9
------------------------------------ ------------ ------- -----------
Total equity 43,150 43,061 43,556
Total liabilities and equity 791,561 806,887 723,039
------------------------------------ ------------ ------- -----------
Condensed consolidated statement of changes in equity for the
period ended 30 September 2020 (unaudited)
Share
capital and Total Non
statutory Paid-in Retained Other owners' controlling Total
reserves equity earnings reserves* equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 2020 13,146 4,058 13,946 12,397 43,547 9 43,556
Loss attributable to ordinary
shareholders
and other equity owners - - (351) - (351) (63) (414)
Other comprehensive income
- Realised gains in period
on FVOCI equity shares
(1) - - 114 (114) - - -
- Remeasurement of retirement
benefit schemes - - 54 - 54 - 54
- Changes in fair value
of credit in financial
liabilities at FVTPL - - 20 - 20 - 20
- Other amounts recognised
in equity - - - 810 810 16 826
- Amount transferred from
equity to earnings - - - (133) (133) - (133)
- Recycled to profit or
loss on disposal -
of businesses - - - 16 16 - 16
- Tax - - 1 (73) (72) - (72)
Preference share and paid-in
equity
dividends paid - - (293) - (293) - (293)
Unclaimed dividend - - 2 - 2 - 2
Shares and securities issued
during the year 49 1,220 (11) - 1,258 - 1,258
Redemption/reclassification - (1,277) (355) - (1,632) - (1,632)
Share-based payments - - (56) - (56) - (56)
Movement in own shares
held 18 - - - 18 - 18
------------------------------- --------- ------- -------- --------- ------- ----------- -------
At 30 September 2020 13,213 4,001 13,071 12,903 43,188 (38) 43,150
------------------------------- --------- ------- -------- --------- ------- ----------- -------
30 September
2020
Attributable to: GBPm
Ordinary shareholders 38,693
Preference shareholders 494
Paid-in equity holders 4,001
Non-controlling interests (38)
------------------------------- --------- ------- -------- --------- ------- ----------- -------
43,150
-------
*Other reserves consists of:
Merger reserve 10,881
FVOCI reserve (36)
Cash flow hedging reserve 300
Foreign exchange reserve 1,758
------------------------------- --------- ------- -------- --------- ------- ----------- -------
12,903
-------
Note:
(1) The gain includes a reclassification from Other
comprehensive income to Retained earnings following conversion of
Visa B and C preference shares to Visa Class A shares in September
2020. There has been a corresponding adjustment to the conversion
ratio of the Visa B and C preference shares.
Notes
1. Basis of preparation
The condensed consolidated financial statements should be read
in conjunction with NatWest Group plc's (formerly The Royal Bank of
Scotland Group plc) 2019 Annual Report and Accounts which were
prepared in accordance with International Financial Reporting
Standards issued by the International Accounting Standards Board
(IASB) and interpretations issued by the IFRS Interpretations
Committee of the IASB as adopted by the European Union (EU)
(together IFRS).
Going concern
Having reviewed NatWest Group's forecasts, projections, the
potential impact of Covid-19, and other relevant evidence, the
directors have a reasonable expectation that NatWest Group will
continue in operational existence for the foreseeable future.
Accordingly, the results for the period ended 30 September 2020
have been prepared on a going concern basis.
2. Accounting policies
NatWest Group's principal accounting policies are as set out on
pages 208 to 212 of the NatWest Group plc's 2019 Annual Report and
Accounts and are unchanged other than as presented below.
Accounting policy changes effective 1 January 2020
Amendments to IFRS 3 Business Combinations (IFRS 3) - Changes to
the definition of a business
The IASB amended IFRS 3 to provide additional guidance on the
definition of a business. The amendment aims to help entities when
determining whether a transaction should be accounted for as a
business combination or as an asset acquisition. The amendments are
in line with current accounting policy and therefore did not affect
the financial statements.
Definition of material - Amendments to IAS 1 - Presentation of
Financial Statements (IAS 1) and IAS 8 -
Accounting Policies, Changes in Accounting Estimates and Errors
(IAS 8)
The IASB clarified the definition of 'material' and aligned the
definition of material used in the Conceptual Framework and in
other IFRS standards. The amendments clarify that materiality will
depend on the nature or magnitude of information. Under the amended
definition of materiality, an entity will need to assess whether
the information, either individually or in combination with other
information, is material in the context of the financial
statements. A misstatement of information is material if it could
reasonably be expected to influence decisions made by the primary
users. NatWest Group's definition and application of materiality is
in line with the definition in the amendments.
Interest Rate Benchmark Reform (IBOR reform) Phase 1 amendments
to IFRS 9 and IAS 39
The IASB issued 'Interest Rate Benchmark Reform (Amendments to
IFRS 9, IAS 39 and IFRS 7)' as a first reaction to the potential
effects the IBOR reform could have on financial reporting. The
amendments focused on hedge accounting and allow hedge
relationships affected by the IBOR reform to be accounted for as
continuing hedges. Amendments are effective for annual reporting
periods beginning on or after 1 January 2020 with early application
permitted. NatWest Group early adopted these amendments for the
annual period ending on 31 December 2019.
Interest Rate Benchmark Reform (IBOR reform) Phase 2 amendments
to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
Phase 2 of the IASB's IBOR project addresses the wider
accounting issues arising from the IBOR reform. This was published
in August 2020 and is awaiting endorsement. The amendments are
effective for annual reporting periods beginning on or after 1
January 2021 with early application permitted. NatWest Group
intends to early adopt Phase 2 of the standard once endorsed.
NatWest Group's IBOR transition program remains on-track and key
milestones have been met. Conversion from LIBOR to alternative
risk-free rates (RFRs) is expected to increase as RFR-based
products become more widely available and key market-driven
conversion events occur.
Amendment to IFRS effective 1 June 2020
Covid-19 amendments on lease modifications - Amendments to IFRS
16 - Leases (IFRS 16)
The IASB published 'amendments to IFRS 16 covering
Covid-19-Related Rent Concessions'. These provide lessees with an
exemption from assessing whether a Covid-19 related rent concession
is a lease modification. The amendment is effective for annual
reporting periods beginning on or after 1 June 2020. The effect of
the amendment on NatWest Group's financial statements is immaterial
and will be adopted from 1 January 2021.
Critical accounting policies and key sources of estimation
uncertainty
The judgements and assumptions that are considered to be the
most important to the portrayal of NatWest Group's financial
condition are those relating to goodwill, provisions for
liabilities and charges, deferred tax, loan impairment provisions
and fair value of financial instruments. These critical accounting
policies and judgements are described on page 212 of the NatWest
Group plc's 2019 Annual Report and Accounts. Estimation uncertainty
has been affected by the Covid-19 pandemic during the first three
quarters of 2020. Management's consideration of this source of
uncertainty is outlined in the relevant sections of this Interim
Management Statement, including the ECL estimate for the period in
the Capital and Risk Management section contained in the NatWest
Group Interim Results 2020.
Notes
2. Accounting policies continued
Information used for significant estimates
The Covid-19 pandemic has continued to cause significant
economic and social disruption during the quarter ended 30
September 2020. Key financial estimates are based on a range of
anticipated future economic conditions described by internally
developed scenarios. Measurement of goodwill, deferred tax and
expected credit losses are highly sensitive to reasonably possible
changes in those anticipated conditions. Other reasonably possible
assumptions about the future include a prolonged financial effect
of the Covid-19 pandemic on the economy of the UK and other
countries. Changes in judgements and assumptions could result in a
material adjustment to those estimates in the next reporting
periods, including impairment of goodwill (refer to the NatWest
Group plc risk factors in the 2019 Annual Report and Accounts and
the summary risk factors contained in the Q1 2020 IMS and the
Interim Results 2020).
Goodwill
Goodwill remains recoverable: key assumptions and sensitivities
around these assumptions are materially consistent with those
disclosed in the NatWest Group Interim Results 2020.
Tax credit
The lower than anticipated tax credit by applying the standard
UK statutory tax rate of 19%, is attributable to a decrease in the
carrying value of deferred tax assets in respect of losses, no
recognition of deferred tax in the period in respect of some
current year tax losses and the banking surcharge. This is offset
to some extent by the UK Government decision to reverse the
previously enacted reduction in the UK tax rate change.
3. Litigation, investigations and reviews
NatWest Group's Interim Results 2020, issued on 31 July 2020,
included disclosures about NatWest Group's litigation,
investigations and reviews in Note 14. Set out below are the
material developments in those matters since the Interim Results
2020 were published.
Litigation
Residential mortgage-backed securities litigation in the US
In September 2020, NWMSI settled residential mortgage-backed
securities (RMBS) claims by the Federal Home Loan Bank of Seattle.
The settlement amount, which has been paid, was covered by an
existing provision.
In September 2020, a complaint was served on NWMSI by the State
of New Mexico, which claims, in a case pending in state court in
New Mexico, that certain New Mexico state agencies suffered US$119
million in damages resulting from misrepresentations concerning
RMBS they purchased from NWMSI and six other banks primarily from
2005-2007.
London Interbank Offered Rate (LIBOR) and other rates
litigation
On 18 August 2020, a complaint was filed in the United States
District Court for the Northern District of California by several
United States consumer borrowers against the USD ICE LIBOR panel
banks and their affiliates, alleging that the normal process of
setting USD ICE LIBOR amounts to illegal price-fixing, and also
that banks in the United States have illegally agreed to use LIBOR
as a component of price in variable consumer loans. The NatWest
Group defendants are NatWest Group plc, NWM Plc, NWMSI and NWB Plc.
The plaintiffs seek damages and to prevent the enforcement of
LIBOR-based instruments.
EUA trading litigation
Following judgment against NWM Plc in March 2020, the High Court
on 2 October 2020 quantified damages against NWM Plc at GBP45
million plus interest and costs, and permitted it to appeal to the
Court of Appeal.
Investigations and reviews
US investigations relating to fixed-income securities
In September 2020, the NatWest Markets business reached a
settlement in principle, subject to documentation, with the State
of Maryland concerning its investigation of the issuance and
underwriting of RMBS. The amount of the tentative settlement, which
will be paid by RBS Financial Products Inc., is covered by an
existing provision.
4. Post balance sheet events
Other than as disclosed there have been no other significant
events between 30 September 2020 and the date of approval of these
accounts which would require a change to or additional disclosure
in the condensed consolidated financial statements.
Additional information
Presentation of information
'Parent company' refers to NatWest Group plc and 'NatWest Group'
refers to NatWest Group plc and its subsidiary and associated
undertakings. The term 'NWH Group' refers to NatWest Holdings
Limited ('NWH') and its subsidiary and associated undertakings. The
term 'NWM Group' refers to NatWest Markets Plc ('NWM Plc') and its
subsidiary and associated undertakings. The term 'NWM N.V.' refers
to NatWest Markets N.V. The term 'NWMSI' refers to NatWest Markets
Securities, Inc. The term 'RBS plc' refers to The Royal Bank of
Scotland plc. The term 'NWB Plc' refers to National Westminster
Bank Plc. The term 'UBI DAC' refers to Ulster Bank Ireland DAC. The
term 'RBSI Limited' refers to The Royal Bank of Scotland
International Limited.
UK Personal Banking was renamed Retail Banking, with effect from
16 September 2020.
NatWest Group publishes its financial statements in pounds
sterling ('GBP' or 'sterling'). The abbreviations 'GBPm' and
'GBPbn' 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 'EUR' represents the 'euro', and the abbreviations
'EURm' and 'EURbn' represent millions and thousands of millions of
euros, respectively.
Statutory results
Financial information contained in this document does not
constitute statutory accounts within the meaning of section 434 of
the Companies Act 2006 ('the Act'). The statutory accounts for the
year ended 31 December 2019 have been filed with the Registrar of
Companies. The report of the auditor on those statutory accounts
was unqualified, did not draw attention to any matters by way of
emphasis and did not contain a statement under section 498(2) or
(3) of the Act.
Contacts
Alexander Holcroft, Investor
Analyst enquiries: Relations +44 (0) 20 7672 1758
Media enquiries: NatWest Group Press Office +44 (0) 131 523 4205
Analyst and investor call Webcast and dial in details
Date: 30 October 2020 https://investors.natwestgroup.com/results-centre
Time: 9am UK time International: +44 (0) 203 057 6566
Conference ID: 4482325 UK Free Call: 0800 279 5995
US Local Dial-In, New York: +1 646 741 2115
========================= =================================================
Available on www.natwestgroup.com/results
-- Q3 2020 Interim Management Statement and slides.
-- A financial supplement containing income statement, balance
sheet and segment performance for the quarter ended 30 September
2020.
-- NatWest Group and NWH Group Pillar 3 supplements.
Forward looking statements
This document contains forward-looking statements within the
meaning of the United States Private Securities Litigation Reform
Act of 1995, such as statements that include, without limitation,
the words 'expect', 'estimate', 'project', 'anticipate', 'commit',
'believe', 'should', 'intend', 'plan', 'could', 'probability',
'risk', 'Value-at-Risk (VaR)', 'target', 'goal', 'objective',
'may', 'endeavour', 'outlook', 'optimistic', 'prospects' and
similar expressions or variations on these expressions. These
statements concern or may affect future matters, such as NatWest
Group's future economic results, business plans and strategies. In
particular, this document may include forward-looking statements
relating to NatWest Group plc in respect of, but not limited to:
its regulatory capital position and related requirements, its
financial position, profitability and financial performance
(including financial, capital and operational targets), its access
to adequate sources of liquidity and funding, increasing
competition from new incumbents and disruptive technologies, its
exposure to third party risks, its ongoing compliance with the UK
ring-fencing regime and ensuring operational continuity in
resolution, its impairment losses and credit exposures under
certain specified scenarios, substantial regulation and oversight,
ongoing legal, regulatory and governmental actions and
investigations, the transition of LIBOR and IBOR rates to
alternative risk free rates and NatWest Group's exposure to
economic and political risks (including with respect to terms
surrounding Brexit and climate change), operational risk, conduct
risk, cyber and IT risk, key person risk and credit rating risk.
Forward-looking statements are subject to a number of risks and
uncertainties that might cause actual results and performance to
differ materially from any expected future results or performance
expressed or implied by the forward-looking statements. Factors
that could cause or contribute to differences in current
expectations include, but are not limited to, the final
number of PPI claims and their amounts, the level and extent of
future impairments and write-downs (including with respect to
goodwill), legislative, political, fiscal and regulatory
developments, accounting standards, competitive conditions,
technological developments, interest and exchange rate
fluctuations, general economic and political conditions and the
uncertainty surrounding the Covid-19 pandemic and its impact on
NatWest Group. These and other factors, risks and uncertainties
that may impact any forward-looking statement or NatWest Group
plc's actual results are discussed in NatWest Group plc's UK 2019
Annual Report and Accounts (ARA), NatWest Group plc's Interim
Results for Q1 2020 and NatWest Group plc's Interim Results for H1
2020 and materials filed with, or furnished to, the US Securities
and Exchange Commission, including, but not limited to, NatWest
Group plc's most recent Annual Report on Form 20-F and Reports on
Form 6-K. The forward-looking statements contained in this document
speak only as of the date of this document and NatWest Group plc
does not assume or undertake any obligation or responsibility to
update any of the forward-looking statements contained in this
document, whether as a result of new information, future events or
otherwise, except to the extent legally required.
Legal Entity Identifier: 2138005O9XJIJN4JPN90
Appendix
Non-IFRS financial measures
Appendix Non-IFRS financial measures
As described in Note 1, NatWest Group prepares its financial
statements in accordance with IFRS as issued by the IASB which
constitutes a body of generally accepted accounting principles
(GAAP). This document contains a number of adjusted or alternative
performance measures, also known as non-GAAP or non-IFRS
performance measures. These measures are adjusted for certain items
which management believe are not representative of the underlying
performance of the business and which distort period-on-period
comparison. These non-IFRS measures are not measures within the
scope of IFRS and are not a substitute for IFRS measures. These
measures include:
Non-IFRS financial measures
Additional
analysis or
Measure Basis of preparation reconciliation
-------------- ------------------------------------------------------ -----------------
NatWest Group Annualised loss or profit for the period attributable Table 1
return on to ordinary shareholders divided by average
tangible tangible equity. Average tangible equity is
equity average total equity less average intangible
assets and average other owners' equity.
-------------- ------------------------------------------------------ -----------------
Segmental Annualised segmental operating loss or profit Table 1
return on adjusted for tax and for preference share dividends
equity divided by average notional equity, allocated
at an operating segment specific rate, of the
period average segmental risk-weighted assets
incorporating the effect of capital deductions
(RWAes).
-------------- ------------------------------------------------------ -----------------
Operating The management analysis of operating expenses Table 2
expenses shows strategic costs and litigation
analysis and conduct costs in separate lines. Depreciation
- management and amortisation, impairment of
view 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.
-------------- ------------------------------------------------------ -----------------
Cost:income Total operating expenses less operating lease Table 3
ratio depreciation divided by total income less operating
lease depreciation.
-------------- ------------------------------------------------------ -----------------
Commentary NatWest Group and segmental business performance Notable items
- adjusted commentary have been adjusted for the impact - page 4
periodically of specific items such as transfers, strategic Transfers -
for specific costs and, litigation and conduct costs (detailed pages 5 and
items on pages 10 to 14). 8
Strategic costs
and, litigation
and conduct
costs - pages
10 to 14
-------------- ------------------------------------------------------ -----------------
Bank net Net interest income of the banking business Table 4
interest less NatWest Markets (NWM) element as a percentage
margin (NIM) of interest-earning assets of the banking business
less NWM element.
Performance metrics not defined under IFRS(1)
Additional analysis
Measure Basis of preparation or reconciliation
------------------ -------------------------------------------------------------- --------------------
Loan:deposit Net customer loans held at amortised cost divided by Table 5
ratio total customer deposits.
------------------ -------------------------------------------------------------- --------------------
Tangible net Tangible equity divided by the number of ordinary shares Page 3
asset value in issue. Tangible equity is ordinary shareholders'
(TNAV) interest less intangible assets.
------------------ -------------------------------------------------------------- --------------------
NIM Net interest income of the banking business as a percentage Page 3
of interest-earning assets of the banking business.
------------------ -------------------------------------------------------------- --------------------
Funded assets Total assets less derivatives. Pages 10 to
14
------------------ -------------------------------------------------------------- --------------------
ECL loss rate The annualised loan impairment charge divided by gross Pages 10 to
customer loans. 14
------------------ -------------------------------------------------------------- --------------------
Third party Third party customer asset rate is calculated as annualised Pages 10 to
customer asset interest receivable on third-party loans to customers 14
rate 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.
------------------ -------------------------------------------------------------- --------------------
Third party Third party customer funding rate is calculated as annualised Pages 10 to
customer funding interest payable on third-party customer deposits as 14
rate a percentage of third-party customer deposits. This
excludes intragroup items, bank deposits and debt securities
in issue.
Note:
(1) Metric based on GAAP measures, included as not defined under
IFRS and reported for compliance with ESMA adjusted performance
measure rules.
Appendix Non-IFRS financial measures
1. Return on tangible equity
Nine months ended Quarter ended or as at
or as at
-------------------------- ------------------------------------
30 September 30 September 30 September 30 June 30 September
2020 2019 2020 2020 2019
-------------------------------------- ------------ ------------ ------------ -------- ------------
(Loss)/profit attributable to
ordinary shareholders (GBPm) (644) 1,723 61 (993) (315)
Annualised (loss)/profit attributable
to ordinary
shareholders (GBPm) (859) 2,297 244 (3,972) (1,260)
-------------------------------------- ------------ ------------ ------------ -------- ------------
Adjustment for PPI provision
for Q3 2019 (GBPm) 900
Adjusted profit attributable
to ordinary shareholders (GBPm) 585
Annualised adjusted (loss)/profit
attributable to ordinary
shareholders (GBPm) 2,340
-------------------------------------- ------------ ------------ ------------ -------- ------------
Average total equity (GBPm) 43,766 46,025 43,145 44,068 45,579
Adjustment for other owners'
equity and intangibles (GBPm) (11,760) (12,432) (11,482) (11,987) (12,226)
-------------------------------------- ------------ ------------ ------------ -------- ------------
Adjusted total tangible equity
(GBPm) 32,006 33,593 31,663 32,081 33,353
Return on tangible equity (%) (2.7%) 6.8% 0.8% (12.4%) (3.8%)
Return on tangible equity adjusting
for impact
of PPI provision (%) 7.0%
-------------------------------------- ------------ ------------ ------------ -------- ------------
Appendix Non-IFRS financial measures
1. Return on tangible equity continued
Ulster
Retail Bank Commercial Private RBS NatWest
Nine months ended 30 September Banking RoI Banking Banking International Markets
2020
Operating profit/(loss) (GBPm) 758 (244) (684) 141 112 3
Preference share cost allocation
(GBPm) (66) - (114) (17) (15) (51)
Adjustment for tax (GBPm) (194) - 223 (35) (14) 13
------------------------------------------ ------- ------- ---------- ------- ------------- -------
Adjusted attributable profit/(loss)
(GBPm) 498 (244) (575) 89 83 (35)
Annualised adjusted attributable
profit/(loss) (GBPm) 664 (325) (767) 119 111 (47)
Average RWAe (GBPbn) 37.6 12.6 76.6 10.3 6.9 39.2
Equity factor 14.5% 15.5% 11.5% 12.5% 16.0% 15.0%
------------------------------------------ ------- ------- ---------- ------- ------------- -------
RWAe applying equity factor
(GBPbn) 5.5 2.0 8.8 1.3 1.1 5.9
Return on equity 12.2% (16.6%) (8.7%) 9.2% 10.0% (0.8%)
Nine months ended 30 September
2019
------------------------------------------ ------- ------- ---------- ------- ------------- -------
Operating profit (GBPm) 529 54 1,032 236 282 107
Adjustment for tax (GBPm) (148) - (289) (66) (39) (30)
Preference share cost allocation
(GBPm) (54) - (123) (12) (5) (50)
------------------------------------------ ------- ------- ---------- ------- ------------- -------
Adjusted attributable profit(GBPm) 327 54 620 158 238 27
Annualised adjusted attributable
profit (GBPm) 436 72 827 211 317 36
Adjustment for Alawwal bank
merger gain (GBPm) - - - - - (200)
Annualised adjusted attributable
profit/(loss) (GBPm) 436 72 827 211 317 (164)
------------------------------------------ ------- ------- ---------- ------- ------------- -------
Average RWAe (GBPbn) 37.4 14.2 79.3 9.7 6.9 49.0
Equity factor 15.0% 15.0% 12.0% 13.0% 16.0% 15.0%
RWAe applying equity factor
(GBPbn) 5.6 2.1 9.5 1.3 1.1 7.4
Return on equity 7.8% 3.4% 8.7% 16.7% 28.5% (2.2%)
------------------------------------------ ------- ------- ---------- ------- ------------- -------
Quarter ended 30 September
2020
Operating profit/(loss) (GBPm) 305 (5) 324 57 25 (66)
Preference share cost allocation
(GBPm) (22) - (38) (6) (5) (17)
Adjustment for tax (GBPm) (79) - (80) (14) (3) 23
------------------------------------------ ------- ------- ---------- ------- ------------- -------
Adjusted attributable profit/(loss)
(GBPm) 204 (5) 206 37 17 (60)
Annualised adjusted attributable
profit/(loss) (GBPm) 816 (20) 824 148 68 (240)
Average RWAe (GBPbn) 36.7 12.3 77.8 10.5 6.8 34.0
Equity factor 14.5% 15.5% 11.5% 12.5% 16.0% 15.0%
------------------------------------------ ------- ------- ---------- ------- ------------- -------
RWAe applying equity factor
(GBPbn) 5.3 1.9 8.9 1.3 1.1 5.1
Return on equity 15.3% (1.0%) 9.2% 11.2% 6.4% (4.7%)
Quarter ended 30 June 2020
------------------------------------------ ------- ------- ---------- ------- ------------- -------
Operating profit/(loss) (GBPm) 129 (218) (971) 35 19 (137)
Preference share cost allocation
(GBPm) (22) - (38) (5) (5) (17)
Adjustment for tax (GBPm) (30) - 283 (8) (2) 43
------------------------------------------ ------- ------- ---------- ------- ------------- -------
Adjusted attributable profit/(loss)(GBPm) 77 (218) (726) 22 12 (111)
Annualised adjusted attributable
profit/(loss) (GBPm) 308 (872) (2,904) 88 48 (444)
------------------------------------------ ------- ------- ---------- ------- ------------- -------
Average RWAe (GBPbn) 37.4 12.6 77.8 10.3 7.1 41.8
Equity factor 14.5% 15.5% 11.5% 12.5% 16.0% 15.0%
RWAe applying equity factor
(GBPbn) 5.4 2.0 8.9 1.3 1.1 6.3
Return on equity 5.7% (44.5%) (32.5%) 6.6% 4.3% (7.1%)
------------------------------------------ ------- ------- ---------- ------- ------------- -------
Quarter ended 30 September
2019
Operating (loss)/profit (GBPm) (508) 31 331 81 88 (193)
Adjustment for tax (GBPm) 142 - (92) (23) (12) 54
Preference share cost allocation
(GBPm) (18) - (41) (4) (5) (20)
------------------------------------------ ------- ------- ---------- ------- ------------- -------
Adjusted attributable (loss)/profit
(GBPm) (384) 31 198 54 71 (159)
Annualised adjusted attributable
(loss)/profit (GBPm) (1,536) 124 792 216 283 (634)
Average RWAe (GBPbn) 38.2 14.2 78.8 9.9 6.8 48.7
Equity factor 15.0% 15.0% 12.0% 13.0% 16.0% 15.0%
------------------------------------------
RWAe applying equity factor
(GBPbn) 5.7 2.1 9.5 1.3 1.1 7.3
Return on equity (26.8%) 5.8% 8.4% 16.8% 26.0% (8.7%)
------------------------------------------ ------- ------- ---------- ------- ------------- -------
Appendix Non-IFRS financial measures
2. Operating expenses analysis
Statutory analysis (1,2)
Nine months ended Quarter ended
-------------------------- -----------------------------------
30 September 30 September 30 September 30 June 30 September
2020 2019 2020 2020 2019
Operating expenses GBPm GBPm GBPm GBPm GBPm
Staff costs 2,937 3,028 982 963 1,000
Premises and equipment 902 823 251 393 265
Other administrative expenses 1,081 2,085 385 298 1,222
Depreciation and amortisation 635 853 194 248 232
Impairment of other intangible
assets 9 9 2 7 (21)
------------------------------- ------------ ------------ ------------ ------- ------------
Total operating expenses 5,564 6,798 1,814 1,909 2,698
------------------------------- ------------ ------------ ------------ ------- ------------
Non-statutory analysis
Nine months ended
--------------------------------------------------------------------------------------
30 September 2020 30 September 2019
------------------------------------------ ------------------------------------------
Litigation Litigation
and Statutory and Statutory
Strategic conduct Other operating Strategic conduct Other operating
Operating expenses costs costs expenses expenses costs costs expenses expenses
---------------------------- --------- ---------- -------- --------- --------- ---------- -------- ---------
Staff costs 315 - 2,622 2,937 296 - 2,732 3,028
Premises and equipment 170 - 732 902 93 - 730 823
Other administrative
expenses 143 (81) 1,019 1,081 197 810 1,078 2,085
Depreciation and
amortisation 52 - 583 635 233 - 620 853
Impairment of other
intangible
assets 7 - 2 9 25 - (16) 9
Total 687 (81) 4,958 5,564 844 810 5,144 6,798
---------------------------- --------- ---------- -------- --------- --------- ---------- -------- ---------
Quarter ended
--------------------------------------------------------------------------------------
30 September 2020 30 June 2020
------------------------------------------ ------------------------------------------
Litigation Litigation
and Statutory and Statutory
Strategic conduct Other operating Strategic conduct Other operating
Operating expenses costs costs expenses expenses costs costs expenses expenses
---------------------------- --------- ---------- -------- --------- --------- ---------- -------- ---------
Staff costs 155 - 827 982 87 - 876 963
Premises and equipment 22 - 229 251 135 - 258 393
Other administrative
expenses 43 8 334 385 57 (85) 326 298
Depreciation and
amortisation 3 - 191 194 47 - 201 248
Impairment of other
intangible
assets - - 2 2 7 - - 7
----------------------------
Total 223 8 1,583 1,814 333 (85) 1,661 1,909
---------------------------- --------- ---------- -------- --------- --------- ---------- -------- ---------
Quarter ended
------------------------------------------
30 September 2019
------------------------------------------
Litigation
and Statutory
Strategic conduct Other operating
Operating expenses costs costs expenses expenses
---------------------------- --------- ---------- -------- ---------
Staff costs 109 - 891 1,000
Premises and equipment 28 - 237 265
Other administrative
expenses 67 750 405 1,222
Depreciation and
amortisation 11 - 221 232
Impairment of other
intangible
assets - - (21) (21)
Total 215 750 1,733 2,698
---------------------------- --------- ---------- -------- ---------
Notes:
(1) On a statutory, or GAAP basis, strategic costs are included
within staff costs, premises and equipment, depreciation and
amortisation, impairment of other intangible assets and other
administrative expenses. Strategic costs relate to restructuring
provisions, related costs and projects that are transformational in
nature.
(2) On a statutory, or GAAP basis, litigation and conduct costs
are included within other administrative expenses.
Appendix Non-IFRS performance measures
3. Cost:income ratio
Ulster Central Total
Retail Bank Commercial Private RBS NatWest items NatWest
Banking RoI Banking Banking International Markets & other Group
Nine months ended GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------
30 September 2020
Operating expenses (1,722) (372) (1,774) (364) (179) (1,009) (144) (5,564)
Operating lease
depreciation - - 110 - - - - 110
------------------- ------- ------ ---------- ------- ------------- ------- ------- -------
Adjusted operating
expenses (1,722) (372) (1,664) (364) (179) (1,009) (144) (5,454)
Total income 3,207 379 3,007 579 371 1,050 (332) 8,261
Operating lease
depreciation - - (110) - - - - (110)
Adjusted total
income 3,207 379 2,897 579 371 1,050 (332) 8,151
Cost:income ratio 53.7% 98.2% 57.4% 62.9% 48.2% 96.1% nm 66.9%
------------------- ------- ------ ---------- ------- ------------- ------- ------- -------
30 September 2019
Operating expenses (2,830) (412) (1,900) (351) (181) (1,026) (98) (6,798)
Operating lease
depreciation - - 103 - - - - 103
------------------- ------- ------ ---------- ------- ------------- ------- ------- -------
Adjusted operating
expenses (2,830) (412) (1,797) (351) (181) (1,026) (98) (6,695)
Total income 3,671 428 3,242 582 460 1,092 545 10,020
Operating lease
depreciation - - (103) - - - - (103)
Adjusted total
income 3,671 428 3,139 582 460 1,092 545 9,917
Cost:income ratio 77.1% 96.3% 57.2% 60.3% 39.3% 94.0% nm 67.5%
------------------- ------- ------ ---------- ------- ------------- ------- ------- -------
Quarter ended
-------------------
30 September 2020
Operating expenses (647) (127) (553) (112) (53) (302) (20) (1,814)
Operating lease
depreciation - - 37 - - - - 37
------------------- ------- ------ ---------- ------- ------------- ------- ------- -------
Adjusted operating
expenses (647) (127) (516) (112) (53) (302) (20) (1,777)
Total income 1,022 130 1,004 187 112 234 (266) 2,423
Operating lease
depreciation - - (37) - - - - (37)
Adjusted total
income 1,022 130 967 187 112 234 (266) 2,386
Cost:income ratio 63.3% 97.7% 53.4% 59.9% 47.3% 129.1% nm 74.5%
------------------- ------- ------ ---------- ------- ------------- ------- ------- -------
30 June 2020
Operating expenses (546) (122) (611) (129) (65) (365) (71) (1,909)
Operating lease
depreciation - - 37 - - - - 37
------------------- ------- ------ ---------- ------- ------------- ------- ------- -------
Adjusted operating
expenses (546) (122) (574) (129) (65) (365) (71) (1,872)
Total income 1,035 120 995 191 115 273 (53) 2,676
Operating lease
depreciation - - (37) - - - - (37)
Adjusted total
income 1,035 120 958 191 115 273 (53) 2,639
Cost:income ratio 52.8% 101.7% 59.9% 67.5% 56.5% 133.7% nm 70.9%
------------------- ------- ------ ---------- ------- ------------- ------- ------- -------
30 September 2019
Operating expenses (1,601) (131) (638) (119) (62) (348) 201 (2,698)
Operating lease
depreciation - - 35 - - - - 35
------------------- ------- ------ ---------- ------- ------------- ------- ------- -------
Adjusted operating
expenses (1,601) (131) (603) (119) (62) (348) 201 (2,663)
Total income 1,224 145 1,077 198 150 150 (41) 2,903
Operating lease
depreciation - - (35) - - - - (35)
Adjusted total
income 1,224 145 1,042 198 150 150 (41) 2,868
Cost:income ratio 130.8% 90.3% 57.9% 60.1% 41.3% 232.0% nm 92.9%
------------------- ------- ------ ---------- ------- ------------- ------- ------- -------
Appendix Non-IFRS performance measures
4. Net interest margin
Nine months ended Quarter ended or as
or as at at
-------------------------- -----------------------------------
30 September 30 September 30 September 30 June 30 September
2020 2019 2020 2020 2019
GBPm GBPm GBPm GBPm GBPm
NatWest Group net interest income 5,778 6,010 1,926 1,910 2,006
NWM net interest income 55 184 21 (6) 62
---------------------------------- ------------ ------------ ------------ ------- ------------
Net interest income excluding
NWM 5,833 6,194 1,947 1,904 2,068
Annualised net interest income 7,718 8,035 7,662 7,682 7,959
Annualised net interest income
excluding NWM 7,792 8,281 7,746 7,658 8,205
Average interest earning assets
(IEA) 487,777 445,068 507,325 497,440 454,429
---------------------------------- ------------ ------------ ------------ ------- ------------
NWM average IEA 38,403 35,065 39,213 39,874 38,616
Bank average IEA excluding NWM 449,374 410,003 468,112 457,566 415,813
---------------------------------- ------------ ------------ ------------ ------- ------------
Net interest margin 1.58% 1.81% 1.51% 1.54% 1.75%
Bank net interest margin (NatWest
Group NIM excluding NWM) 1.73% 2.02% 1.65% 1.67% 1.97%
---------------------------------- ------------ ------------ ------------ ------- ------------
5. Loan:deposit ratio
As at
----------------------------------
30 September 30 June 31 December
2020 2020 2019
GBPm GBPm GBPm
Loans to customers - amortised cost 353,691 352,341 326,947
Customer deposits 418,358 408,268 369,247
Loan:deposit ratio (%) 85% 86% 89%
------------------------------------ ------------ ------- -----------
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